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Gaming & Gambling Industry; A target for money launderers

The gaming industry is arguably one of the most targeted and sought out industries utilized by organized crime to launder illicit funds. Gambling institutions are often used by criminals to “clean” their illegal income and transform into lawful revenue. Due to their innate high-risk probability of misuse of the industry gaming/gambling operators have certain duties and obligations to abide by regulations aimed in the protection of industry and the consumers.

This article will go over the size and rise of gaming/gambling industry and the importance to implement AML legislation and have in-place a well-founded anti-money laundering framework and culture.

Gambling market revenue and trends

While the rise and especially the fall of other worldwide businesses is experienced every day, the Gaming Industry has maintained its strength and continues to develop at a steady pace. As predicted by forecasters, it will continue to evolve in the next years, making an investment in an online gaming platform an excellent decision for entrepreneurs and investors.

It is expected that the worldwide online gambling industry will reach USD 158.20 billion by 2028, growing at a compound annual growth rate (CAGR) of 11.4 percent throughout the forecast period.

This market has undergone tremendous growth as a result of the coronavirus pandemic (one of the few markets), with a robust compound annual growth rate (CAGR) of 11.2 percent and a value of USD 74.17 billion in 2021.

While land-based betting and casinos were facing some of their worst financial quarters in history in 2020, recent studies have shown that the online gambling industry is facing and will continue to experience a rise in players and figures. Moving on from traditional sports such as football and basketball to e-sports, the industry has managed to minimize the losses experienced elsewhere due to the global pandemic. Sportradar, a global provider of sports content has recently released figures that show that not only did it sustain its live sports content delivery but even managed to increase its coverage levels compared to 2019.

Moving on from e-sports specifically and viewing online gambling as whole, it is evident that this is a large and rapidly-growing sector internationally. According to the European Gaming & Betting Association, “In 2018, the total EU-28 online gambling market generated €22.2bn in Gross Gaming Revenue, accounting for 49.2% of the total global online gambling market” and the online gambling market is experiencing growths of up to 10% per year a figure that will most possibly increase when taking into account the current global situation as well as the post-pandemic probable gambling trends (move away from traditional betting).

Gaming & Gambling industries as money laundering targets

The gaming industry is one of the largest in the world, with more than 2.5 billion players estimated. In 2019, these players spent over $152 billion on games, with estimates that this figure will rise to nearly $200 billion by 2022.

Because traditional methods of money laundering have become more difficult, criminals have turned to the gaming industry for help.

One of the most vulnerable areas for money laundering is in-game currencies. They can gain currency in a game by completing levels or selling products on the site, but it can also be bought with real money in many circumstances.

Criminals might utilize the earnings of their criminal operations, such as stolen credit cards, to download games and create accounts under aliases. They will then use microtransactions to purchase uncommon avatars or in-game weapons. It's tough to track these small-denomination purchases because they're made in enormous quantities. They will sell in-game currency or the account itself on a third-party website once they have spent their laundered funds.

Moving to the gambling industry, because they operate predominantly in cash, gambling casinos are a target for money launderers. Most establishments don't care who you are — as long as you have the cash to play, you'll be welcomed!

The money launderer can then use the illicit funds to purchase casino chips. They only need to play for a bit and cash in their chips to receive a check and a receipt for their gaming earnings. Because they won it in the casino, the money is now "clean."

Europe's Anti-Money Laundering (AML) Law for the Gambling Industry

Gaming and gambling services are not covered by EU legislation that is tailored to the needs of the EU industry. According to the EU Court of Justice, member states of the EU are allowed to operate their own gambling services as long as they adhere to the TFEU's basic rules (TFEU). Some games of chance may also be offered online, by European Union countries. A number of European countries have established monopolistic regimes that provide online gambling services.

These online gambling services are run by a government-controlled public operator. In addition, a number of European Union countries have implemented licensing systems that allow multiple service providers to compete for market share in the same market. The rules governing online gambling in the European Union are established in accordance with long-standing legal precedents. An effort to modernize mobile gambling laws in European Union countries is supported by the European Union Commission As a result, it provides a high level of protection for all consumers.

EU AML Directives and Gambling Specific Provisions

To operate a licensed business within the European Union probabilities, dictate that you will need to abide by the current AML Directive. Money Laundering (ML) and the related Financing of Terrorism (TF) and organised crime have been and remain significant problems at a European Union level, thus damaging the integrity, stability and reputation of the financial sector and threatening the internal market and the internal security of the Union. In order to tackle those problems and to complement and reinforce the application of measures to detect and prevent ML, the Union and specifically the European Parliament and the Council has issued a number of EU Directives aiming to combat ML and TF and enabling more efficient and swifter cross-border cooperation between competent authorities. As of today, the European Union has issued six (6) Directives.

As gambling is regulated and licensed in most of EU jurisdiction then, all gambling businesses must adhere to the Anti-Money Laundering Directives. The necessity to apply AML safety measures and procedures is mainly due to the high likelihood of money launderers taking advantage of certain gambling products. Ineffective controls have been found to be the root of the land-based gambling and poker problems. Due to the high volume of transactions and the lack of face-to-face interaction, the online gambling industry is also vulnerable to fraud.

Know Your Customer (KYC), Customer Due Diligence (CDD) and Risk Based Approach procedures are just three examples of tools provided from the AML Directive that need to be employed by gambling companies. Gambling companies can identify the risks their customers pose, evaluate them, and take the necessary precautions thanks to these procedures.

Know Your Customer (KYC) & Customer Due Diligence (CDD)

Customer Due Diligence (CDD) is the process of gathering information about your customers in order to determine the risk they provide to your company. This isn't only about getting a copy of your passport to confirm your identification. Analysing the customer lifecycle from onboarding to recognizing major changes over time and doing frequent reviews are all part of CDD checks. Understanding your consumer not only makes good economic sense as you respond to their requirements, but it's also a powerful tool in preventing terrorist financiers and other criminals from manipulating your company and the larger financial system.

Risk Based Approach

Every business, including the gaming industry, needs to take a risk-based approach. To be effective, an AML control program must be able to recognize and address potential threats. AML controls must be implemented throughout the customer engagement process as part of a risk-based approach by game operators. Risk Based approach means that countries as well as the private sector should have an understanding of the ML/TF risks to which they are exposed and apply adequate and proportionate AML/CTF measures in a manner and to an extend which would ensure mitigation of these risks. A risk-based approach therefore consists of the identification, assessment, understanding and mitigation.

A risk-based approach:

  • recognises that the money laundering or terrorist financing threat varies across clients, countries, services and financial instruments;

  • allows firms to differentiate between clients in a way that matches the risk of their particular business;

  • allows firms to apply their own approach in the formulation of policies, procedures and controls in response to the firm’s particular circumstances and characteristics;

  • helps to produce a more cost-effective system; and

  • promotes the prioritisation of effort and actions of the firm in response to the likelihood of money laundering or terrorist financing occurring through the use of services provided by the firm.


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