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Has organised crime found a “legitimate” footing via online gambling?


BRUSSELS – Criminal organisations are increasingly using online betting tools as a way for making and laundering money around the globe. The method is now proving to be a “game-changer” for money laundering, according to Inglo Fiedler of the University of Hamburg. He and others addressed a special committee hearing on organised crime held here on 12 November at the European Parliament.

Online gambling is a recent phenomenon. Practically non-existent a few years ago, the trend has soared in the last few years, but policymakers have been slow to catch up with regulatory or judicial response. Online gambling services cover a range of games of chance such as sports betting, poker, casinos and lotteries, with millions of consumers participating in one or more types of online gambling.

However, there are also thousands of unregulated gambling websites, often based outside the EU, to which consumers are exposed. These carry significant risks such as fraud and money laundering, according to the experts.

Gambling is a perfect vehicle for laundered money since paid out winnings are tax-free. Moreover, due to the high volume of transactions, visibility is low. “You can’t notice if a sum of money is a gambling win or not”, says Friedler.

Major drug dealers, for example, create online casino in countries where it is legal, pay the country’s taxes and therefore become a legitimate business. However, online casinos can also be used to white-wash illegally obtained gains by circulating them into the legal economy. The many transactions of online gambling make the tracing of money very complicated, which renders gambling as a perfect arena for laundered profits, according to Friedler and others. It makes this kind of money laundering a cheap and low risk option.

The growing size of on-line gambling combined with the increasing complexity of electronic communications and money-laundering schemes are prompting the EU to take another look at the sector. According to the Commission, online gambling services generated annual revenues of more than EUR 9.3 billion in 2011 and are growing at around 14 percent a year. By 2015, it estimates that online gambling in the EU will generate annual revenues of EUR 13 billion, or nearly 15 percent of the gambling market as a whole.

The Commission’s new anti-money laundering action plan, unveiled on 23 October, outlines a series of initiatives to be launched during the next two years. Among other goals, it will clarify regulation of online gambling and encourage more cooperation between the member states to control the practice.

Some of the measures foreseen include extending the scope of the EU’s 2007 Money Laundering Directive to all forms of gambling in order to create a level legal playing field for all operators. A first meeting of national government officials will take place in December 2012, with the Commission organizing a stakeholder conference in 2013.

In remarks to the EP hearing, Ugo Bassifrom of the Commission’s Directorate-General for internal market policy said revision of the anti-money laundering directive would come out at the beginning of 2013. The new framework will take into account the latest international Financial Action Task Force (FATF) recommendations released earlier this year. The FATF is an inter-governmental body established in 1989. Its objectives are to set standards and promote effective implementation of legal, regulatory and operational measures to combat money laundering, terrorist financing and other threats to the integrity of the international financial system.

     THE UPSHOT: The “low cost and low risk of detection” of money laundering through online gambling must be stopped, according to Fiedler, who says the tax-free status of gambling wins should be changed. Not to do so make makes money laundering a cheap and highly tempting vehicle for organised crime.
While Fiedler is surely right, this could be a difficult thing to execute. One of the irresistible – and main – attractions of gambling is their low or non-existent tax effect for the winners. Indeed, it is no coincidence that millions of Europeans throw money at such games of chance precisely in hopes of cheating the tax-man. At the same time, state-sponsored activities such as lotteries cream off huge profits from the gambling public. Those revenues will not be lightly given up during times of financial crises. Illegal money-washers may yet have quite a few years ahead of them to exploit the medium in Europe.

About Sophie Donoghue

Sophie Donoghue was deputy editor and policy analyst at SECURITY EUROPE during 2012-2013 and now freelances for the publication from London. She can be reached at: sd@seceur.info

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