Combating Cybercrime In Betting And Gaming - Creating A More Effective Anti-Money Laundering Strategy

Article by Monty

Raphael, Joint Head of

Fraud and Regulatory, Peters & Peters

NCIS, the forerunner of SOCA, and the Financial Action Task

Force have both highlighted the gaming sector as vulnerable to

money laundering. This vulnerability has not lessened, and

indeed may have increased, with the advent of cybergaming.

Cybercrime has exploded to cover all aspect of commercial

activity in cyberspace and the challenge for law enforcement is

the same for all sectors:

The delinquent activity is borderless

The activity is encouraged by the protection of being non

face-to-face

As cybercrime generates more and more criminal property,

it has to be laundered; where better than in the virtual

world in which it was created.

These are among the concerns that led the US congress to

outlaw e-gaming last year. What are the crucial elements of an

anti money laundering checklist in the UK? It is important to

adopt the risk based approach contained within the Money

Laundering Regulations 2007; for senior management to take

responsibility for managing risk, and for operators to carry

out customer due diligence obligations, record-keeping and,

ultimately, to identify and report suspicious activity.

1. The Financial Action Task Force Typologies

In its 1997-1998 Typologies Report, FATF recognised that

there had been a proliferation of laundering cases in the

casinos and gambling part of the non-financial sector. Casinos,

they said, are the site of the first stage in the laundering

process, i.e. converting the funds to be laundered from

banknotes (circulating currency) to cheques (bank money). That

system was made all the more opaque by using a chain of casinos

with establishments in different countries. Gaming businesses

and lotteries were also identified as being used increasingly

by launderers. In 2000, FATF noted that examples in which

gambling played a role in money laundering - either as the

source of criminal proceeds or as a means of laundering them

had continued to be cited by many members. The issue of

Internet gambling had also begun to raise concern among some

members, who saw these services as offering a high degree of

anonymity and secrecy to the potential money launderer.

"...it seems that Internet gambling might be an

ideal web-based "service" to serve as a cover for a

money laundering scheme through the

net.1"

In its 2000-2001 Typologies Report, FATF went further and

identified on-line banking and internet casinos as major money

laundering issues. There was increasing evidence in some FATF

jurisdictions that criminals were using the Internet gambling

industry to commit crime and to launder the proceeds of that

crime. Despite attempts to deal with the potential problems of

Internet gambling by regulating it, requiring licenses in order

to operate, or banning such services outright, a number of

concerns remained. FATF identified three of these concerns as

presenting particular difficulties for those seeking to

identify and prosecute such activity:

In instances where an internet user is operating using

dial-up access, his or her identity can be discovered through

the log files of the Internet Service Provider. However, if

the log files are not maintained at any step of the way, or

dial-up user (or subscriber) information is considered to be

protected information, then it may be more difficult to

determine the ultimate link between an illegal activity and a

specific individual.

Transactions are primarily performed through credit cards

, and the offshore placement of many Internet gambling sites

makes locating and prosecuting the relevant parties more

difficult if not impossible.

Gambling transactions, the records of which might be

needed as evidence, are conducted at the gambling site and

are software-based; this may add to the difficulty of

collecting and presenting such evidence.

2. A Literature Review and Survey of Statistical Sources on

Remote Gambling: Department of Culture, Media and

Sport2

As a by-product of the evolution of remote gambling,

there appears to be a money laundering "arms race"

in operation, with criminals exploiting loopholes or

weaknesses in the system and governments and operators

working to plug those gaps and strengthen those

weaknesses.'

The report highlights comments by US Deputy Assistant

Attorney General John Malcolm in his statement to the United

States House of Representatives in 2003, in which he stated

that, "organised crime is moving into Internet

Gambling". The report further cites the 2001 Canadian case

in which one of Canada's largest organised crime

family's high tech illegal gambling operation was raided

and exposed.

Money laundering could be a problem in remote gambling, say

the DCMS, because the characteristics of the internet, such as

its high speed, high volume and international reach, make it

susceptible to such activity. The anonymity of the internet and

use of encryption can make it difficult to trace payments,

whilst non-credit card forms of electronic payment are arising

which may not be subject to the transaction records or limits

of credit cards.

3. Online gaming and the United States

The Unlawful Internet Gambling Enforcement Act of 2006 is

part of a sustained clampdown on online gaming in the US, and

makes it illegal for banks and credit card firms to process

online gaming payments from the US. Supporters of the ban on

Internet gambling stated that the industry is unregulated, that

underage people are more likely to gamble online, and that it

supports money laundering and similar criminal enterprises.

However, in a hearing before the Committee on Financial

Services (U.S. House of Representatives) in June 2007,

entitled, Can internet gambling be effectively regulated to

protect consumers and the payments system?3, Jon

Prideaux, Chief Executive of Asterion Payments noted that:

During my many years as the chairman of Visa

Europe's compliance committee, I can tell you, Mr.

Chairman, that I did become aware from time to time of many

different complaints that consumers had about various aspects

of the Visa system. But during this same period, Mr.

Chairman, I can tell you that I did not receive a complaint,

nor was I aware of any complaint relating to Visa of problem

gambling, nor was I aware of complaints relating to operators

cheating their customers on regulated sites, and neither did

our anti-money laundering procedures cause us to make any

suspicious transaction reports in the regulated

sector.

I conclude, therefore, Mr. Chairman, that Internet

gambling can and should be regulated effectively. The arrival

of the Internet, Mr. Chairman, has changed many industries.

The gambling industry is no different. The genie cannot be

put back in the bottle. Internet gambling is a fact. We must

deal with it.'

4. The prevention of money laundering

4.1 The UK's Money Laundering

framework

The Proceeds of Crime Act 2002 (POCA)

(as amended by the Serious Organised Crime and Police Act

2005 (SOCPA));

The Money Laundering Regulations

2007; and

The Terrorism Act 2000 (TA

2000) (as amended by the Anti-Terrorism, Crime and

Security Act 2001 (ATCSA 2001) and the Terrorism Act

2006 (TA 2006)). The Terrorism Act establishes a

series of offences related to involvement in arrangements for

facilitating, raising or using funds for terrorism

purposes.

4.2 A brief overview of the Proceeds of Crime Act 2002

The offences:

Section 327 - concealing/ disguising/

converting/ transferring criminal property/ removing it from

the jurisdiction.

Section 328 - entering into or becoming

concerned in an arrangement.

Section 329 - acquiring, using or

possessing criminal property.

Section 330 - failure to report offence

for the regulated sector.

Section 331 Failure to report Regulated sector

MLROs

Section 332 Failure to report non Regulated

sector MLROs

Sections 333 and 342 - tipping off and

prejudicing an investigation

Criminal conduct:

Criminal Conduct (s.340(2) POCA) is conduct

which:

(a) Constitutes an offence in any part of the UK;

(b) Would constitute such an offence if it occurred

there.

Criminal property:

Property is criminal property (s.240(3)

POCA) if

(a) it constitutes a person's benefit from criminal

conduct or it represents such a benefit (in whole or part and

whether directly or indirectly), and

(b) the alleged offender knows or suspects that it

constitutes or represents such a benefit.

Defences to the sections 327-329

You make an "authorised disclosure" and consent

is obtained before the prohibited act

The defence of consent'

You intend to make a disclosure but have a

reasonable excuse for not doing so

The reasonable excuse' defence

You make an "authorised disclosure"

after the "prohibited act" if you

had good reason for your failure to make the disclosure

before, and the disclosure is made on your own initiative and

as soon as it is practicable for you to make it.

You...