Fraudsters bet online


Online poker and betting exchanges pave the way for criminals to launder money and should not be legalised in SA, says the Financial Intelligence Centre (FIC).

Online gambling or interactive gambling is currently illegal in SA, after a recent Supreme Court of Appeal ruling quashed an operator’s bid to have the activity legitimised. However, government is looking into whether online wagering should be regulated under the National Gambling Act.

In June, the Gambling Review Commission, set up by the Department of Trade and Industry to probe the entire sector, recommended that online wagering be legalised and that more than 10 licences should be issued. The commission also recommended that online poker and betting exchanges be regulated, ITWeb reports.

It will be some time before online gambling is legalised, if at all, as there is still a lengthy process to be followed, including public hearings. During recent public hearings, the FIC warned that online gambling can be used by criminals to clean dirty money.

In particular, cautions the FIC, online poker and betting exchanges are open to abuse, as these games create the potential for criminals to collude with each other to launder money.

Tracing individual transactions and accessing records is difficult, and these types of wagering should not be included if the law is amended to allow online gambling, unless operators are forced to comply with strict regulations, argues the FIC.

Online gambling was set to be legalised after legislation was passed by Parliament in 2007. However, no licences were ever issued and the regulations, published for comment in 2009, were not supported by Parliament’s Trade and Industry Portfolio Committee, which led to the formation of the commission.

Risky business

Senior manager of the FIC’s legal and policy section Pieter Smit says the risk of criminals using online gambling to launder money is high, and the threat increases when it comes to betting exchanges or person-to-person wagering, such as online poker.

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Betting exchanges act as brokerages by allowing punters to bet against each other in a controlled marketplace, similar to the way that stock markets work. “I’m very nervous about the possibility to move money in obscure ways,” says Smit.

The FIC proposes that neither betting exchanges nor online poker be allowed because of the difficulty in tracing money. Smit says if these activities are legalised, they need to be subject to strict regulatory measures and operators must be based in SA so that there is an accessible paper trail.

However, operators will have to invest in technology to ensure proper records, such as the identity of the punter and where the money is paid, are kept, says Smit. He adds that regulating these types of games will place an additional burden on the National Gambling Board.

Pierre Coetzee, head of legal, risk and regulatory at the Payments Association of South Africa, told the meeting that there were instances where it was not possible to police compliance. Smit said enforcing regulations presupposed compliance.

Online gambling should not be extended beyond the scope of the amended National Gambling Act, which would allow for online casinos, but not poker or betting exchanges, notes Smit.

Washing money

Smit explains there are several ways that money can be laundered through online or interactive gambling. A simple means is for a punter to deposit cash into a gambling house account, bet a small amount, and withdraw the rest, which then looks like a genuine winning, he says.

Another ruse is when people bet against each other “under the cover of a poker game”. One person will purposely lose to the other party in a bid to pay out money that is then cleaned through this process, notes Smit.

Smit says it is also easy to set up a front gambling Web site and use that to have the proceeds of criminal activities paid into an account.

Although physical casinos can also be used to launder money, it is more difficult to pick up illegal activities online, because of the virtual nature of the game, says Smit. The FIC is not able to quantify the amount of money that may be laundered online as there are no statistics on the size of the sector as it is not currently regulated, he adds.

Not quantifiable

Physical gambling was legalised in SA in 1996 and has since skyrocketed into a multibillion-rand industry. In the year to March, legal operators made R17 billion from punters who lost their bets, a 5.4% gain on the previous year.

The bulk of the money wagered is through casinos, which account for 89.8% of the R232.98 billion bet legally last year. Taxes paid to the state increased 6%, from R1.58 billion to R1.67 billion, according to the latest statistics from the National Gambling Board.

However, those are only the figures from the official, legal sector and do not include money waged online. Globally, about 7% of gambling is done online, which means the sector could be worth as much as R1.2 billion, and earn government R100 million in taxes.

Smit says the amount of money laundered through online gambling could be “huge”, but finding the cash is like looking for a needle in a haystack.

Peter Collins, executive director of the National Responsible Gambling Programme, says money laundering through online gambling is not a problem particular to SA. However, the trick would be to find local players engaging in such activities.

Collins says the amount of information on online wagering in SA is limited, as it is not regulated, but poker is very popular.