Online Gambling Money Laundering
Online gambling is still illegal in the U.S., in part thanks to the many ways in which gambling can help contribute to illegal activities. In the U.S., gambling is closely monitored and regulated, but the same controls are not always available for online gaming. One of the many illegal activities that gambling in general and online gambling helps to facilitate is the process of money laundering. Here is an overview of online gambling money laundering; what it is, how it works and how it can be prevented.
What is Money Laundering?
When illegal activities generate income, it is considered "dirty" money. The United States has a number of protocols in place to track the source of large infusions of cash or other commodities. The banking system, in particular, is closely monitored and regulated, which means the benefactors of ill-gotten gains can't just simply go deposit them in the bank. The IRS is also responsible for monitoring any large purchases such as property or real estate to determine the source of the funds used to do so. In short, when individuals or businesses receive money for illegal activities, they have to find a way to show that the money actually came from legitimate enterprises. Gambling income is one way to earn or receive large amounts of money legitimately, so criminal enterprises often use online casinos as a way to transform dirty money obtained through illegal enterprises into "clean" money that was ostensibly obtained legally.
How Does Online Gambling Money Laundering Occur?
Registered online casinos are closely monitored by their respective governments but there are a wealth of unregistered online gaming sites that are not registered. While this may be bad for legitimate paying customers, since they will have little to no recourse if they are bilked by the casino, it is great for criminal enterprises. Registered casinos are legally required to try and verify every player's identity with a government-issued identification before releasing any funds. They are also carefully monitored by the government of whatever country they are registered in. Unregistered casinos, however, are also not monitored because in many cases, their origins are concealed. Since they don't actually exist in the physical world but are just digital creations, they reside wherever their servers reside and servers can be moved.
Gambling winnings are considered a legal form of income. Therefore, any money that is deposited into the casino and taken out as winnings is "clean" money that can be legally deposited in any bank and used for legitimate transactions. There are many ways to launder money through online casinos, but here are two of the most popular.
- Chip Dumping: Chip dumping is a practice that occurs in online poker where one or more players purposefully lose to another or transfer all of their chips to a single player. Since online players can be located anywhere, four or more players can all be sitting in the same room, colluding on who has the better hand. In fact, they don't even need to be in the same room, they just need to decide who the winner is going to be. Players with good hands can fold and players with weak hands can simply lose. Once all the chips reside with one player, that player can cash out and all of the money that all of the players were playing with becomes clean money.
- Cryptocurrency Exchange: Cryptocurrencies in and of themselves are a boon to criminal enterprises because they are unregulated. Many criminal enterprises simply use cryptocurrency for the majority of their dealings, but there are still things that they will need hard currency for. Unregulated casinos give them the opportunity to turn cryptocurrency into legally earned winnings.
Most regulated casinos are only able to disburse winnings in the same form as the initial deposit was made. So if a bettor makes a deposit via Bitcoin, they can only withdraw any winnings via Bitcoin as well. This policy is specifically designed to keep criminals from laundering money through online gambling sites by turning cryptocurrency into gambling winnings. Unregistered casinos, however, have no such policies, which makes them fertile grounds for money laundering. Just because casinos are not registered does not make the winnings any less legitimate. Governments can't prove the winnings are laundered monies and so are relatively helpless to do anything about it.
Both casinos and cryptocurrency exchanges can also act as banks, holding funds securely until they are needed. Any payouts made by a casino are a single lump sum. They are not divided into the remainder of a deposit and winnings. Therefore a bettor can deposit several thousands of dollars, play with a very small portion of it and then simply withdraw whatever is left. At that point, there is no differentiation between the original deposit amount and any winnings. Many casinos will even cut and mail a check or deposit any winnings directly into a bank account. Since the casinos are unregistered, it makes investigating the source of the funds much more difficult.
How to Prevent Online Gambling Money Laundering
Unfortunately, the world of online gaming does not exist in a virtual space that can be easily regulated by a governmental agency. Regulation of online gambling would require international cooperation by both law enforcement and other government agencies. As a result, it is not likely to happen any time soon. Even estimates as to how much or how bad of a problem varies widely. There are roughly 2200 licensed online gaming sites which are monitored and regulated and some estimates put the number of unregulated gaming sites at anywhere from 25,000 to 100,000. In truth, there may be as few as 2,500 but it is a nearly impossible question to answer. Until it becomes enough of a problem for world governments to work together to solve, it is unlikely there will be any legitimate end to the practice.
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