Online gambling has had big payoffs for legitimate operators thanks to pandemic boredom, growing from a $64 billion market in 2020 to roughly $72 billion in 2021. Hidden within those figures — or just not recorded — are the estimated billions in wagers and winnings of crooks using hacked identities to game the system.
In a recent conversation with PYMNTS, Garient Evans, senior vice president of identity solutions at Trulioo, and Chris Justice, president of payment services provider Global Payments Gaming Solutions, agreed that the scope of money laundering and cybercrime is vastly underestimated. They described operators’ steps to combat fraud and stay compliant with increasingly stringent anti-money laundering (AML) and know your customer (KYC) regulations.
Giving global context to the issue, Evans said, “In many jurisdictions, online gaming or gambling of any type is illegal, which means people need to launder funds associated with gambling activity.”
In places like the Asia-Pacific region (APAC), specifically China, he added, “It’s a good example of what we want to illustrate, and the challenge that legitimate online gambling institutions face.”
As Evans noted, gambling of any kind is illegal in China — but that doesn’t mean it’s not occurring. By one estimate, approximately $150 billion in online gambling happens illegitimately in China today, he pointed out. To operate something at that scale, he said, there is a tremendous network of players.
The ability to prove the identity of individuals creating online gambling accounts is a prime deterrent to illegal wagering — but the risks are high, and AML/KYC fines for missteps are steep.
“The regulated gambling market across North America certainly has a significant number of rules and regulations, and regulators have really taken an approach of applying minimum standards that must be met in order to properly validate consumer identities,” Justice said.
He pointed out that the competitive landscape requires operators to focus on customer acquisition, but they’re also inviting some potential risks due to the rapid growth occurring. This is far more challenging to an online operator who doesn’t have the advantage of verifying a consumer in a face-to-face setting.
When bad actors do get through and get caught, it’s the legitimate operators who are paying the price.
PYMNTS’ October 2021 AML/KYC Tracker®, produced in collaboration with Trulioo, notes that “regulators are pairing their heightened scrutiny with heftier fines for AML non-compliance, levying penalties worldwide that were five times greater [in 2020] than those in 2019.”
Get the Tracker: The October 2021 AML/KYC Tracker®
Data Sharing Is Improving Detection
After damaging hacks in 2020 and 2021 exposed online casinos to losses, Evans and Justice said digital identity verification is more critical than ever in this growing sector.
“Their wildest dreams are coming true,” Evans said of the proliferating legal online gambling industry. “Customers want to use their services, but the bar is set so high to meet all of these regulatory requirements. They have to work with a provider that gives them global coverage.”
Trulioo uses a single application programming interface (API), enabling operators to verify identities remotely — “and do so conveniently, knowing they’re going to be well within compliance and anti-money laundering standards,” he said.
For its part, Justice said Global Payments is using a multi-layered data approach that he called “security by obscurity.” They look at a lot of different information simultaneously in a very short period to start matching users’ behavioral activity with their data. This enables them to verify that the user is legitimate and not someone who has stolen personal information.
See also: FinCEN Logs $5.2B in Bitcoin Ransomware Transactions Paid in First Half of ’21
Scrutinizing Micropayments and Other Vectors
While evidence mounts that digital identity verification using artificial intelligence (AI) and machine learning (ML) is taking a bite out of the pandemic cybercrime wave, there’s no escaping the reality that fraud in online gambling is growing apace with legal expansion.
“That [illegal] activity is occurring. That money needs to be laundered,” Evans said. “You have good actors in the space trying to provide payment and settling services.” Returning to China as a reference point, he added that banking institutions that operate in China may accidentally get caught up in these activities.
This happens when people sell their credentials, including bank accounts, phone access and government-issued IDs. As they’re not on any watch lists, they will appear to be legitimate gamblers, who then do a series of micro-transactions that don’t look suspicious.
Dispersing illegal micropayments across several gambling platforms makes it increasingly difficult to detect, noted Evans. Job sites, job marketplaces and online retail marketplaces are also used to wash illicit gambling dollars when fraudsters are armed with these “clean” credentials.
“You don’t get to $150 million in online gambling that’s completely illegitimate without a really sophisticated scheme,” Evans added. “The catch-22 is what you see as countries legalize online gambling. Then they have some more control over what happens, and the legitimate providers aren’t caught in these schemes that they weren’t actively participating in.”
Also read: Online Gaming Platforms Bet on KYC Automation to Get Real Players in the Game
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