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Kevin Smith

Is P2P Betting a Hotbed for Money Laundering?

9 April 2002

Tighter banking regulations around the world, stricter credit card policies and a self policing by operators and industry groups have helped minimize money laundering conducted through online gaming channels, but the emergence of person-to-person (P2P) betting has created new challenges amid the ongoing battle.

With the number of sites offering P2P exchanges growing steadily, the industry's leading trade association is studying money laundering closely.

The major concern with P2P gambling is the very thing that makes it so appealing: the lack of a middleman.

The Interactive Gaming Council hopes to work with operators and governments in dealing with the problem and has responded to heightening concerns by creating a working committee to look at ways the industry can protect both operators and players.

Keith Furlong, the group's deputy director, feels the most effective way to do so is through government regulation.

"Most money laundering is conducted in areas that are unregulated and have pretty flimsy banking standards," Furlong explained "Thanks to efforts from groups like the Financial Action Task Force and other international banking groups, many jurisdictions have increased their codes and practices for banking. But without gaming regulators and authorities, there are still ways to launder money."

The major concern for Furlong and the IGC with P2P gambling, though, is the very thing that makes it so appealing: the lack of a middleman. Bettors love the ability to lay their own odds or pick up someone else's on a game, and the lack of a bookmaker's commission makes it even more attractive. Most P2P betting exchanges make their money by charging a small transaction fee, usually between 3 percent and 5 percent.

Without a bookmaker assigning the odds or monitoring the betting action with a close eye, however, the chances for money laundering are increased.

"That is a big concern of ours," Furlong said. "When there is no one really overseeing the betting it could create some problems."

Without an operator controlling the action, large sums of money could be passed from one user to another without much looking suspicious. In theory, it would also be easy for money generated from illegal activities, or an illegal account, to be transferred to a legitimate banking account through a P2P betting transaction.

Consequently, Furlong said, some alternative payment solution providers and credit card processors have decided not to deal with P2P operators.

Furlong said the IGC is also concerned about the ease with which criminals can launder money via wire transfers, but pointed out that wire transfers make up a small percentage of transactions conducted in the online gaming marketplace. The majority of those transactions, he said, are typically less than $1,000, meaning money launderers are probably using other channels.

New banking measures and regulations in the United States, he added, have made wire transfers an even less popular option--just one of many signs of the U.S. PATRIOT Act's ripple effect throughout the international banking arena.

Consequently, Furlong explained, banks are scrutinizing wire transfers much more now and the processing period for typical transfers has gone from one day to seven days. He said if the transaction involves a large sum of money, delays could reach as long as two weeks.

In the meantime, the IGC will continue to work with industry leaders in drafting advisory measures to reduce the amount of fraud and money laundering in the industry. Furlong feels that progress can be made as more and more legislatures and regulators get familiar with the industry and its intricacies.

"There are a lot of governmental leaders who are starting to understand how interactive gaming works," he said. "If more and more of them can understand the changes we've made and what we are willing to do then we can start to have regulation instead of prohibition. They can work with us instead of against us to solve the problems we do have."

Is P2P Betting a Hotbed for Money Laundering? is republished from
Kevin Smith
Kevin Smith