Online Gaming – The Money Laundering
Myth
By George Farrugia (
)
10 December 2007
 Mr.
John Smith walks into a casino with Euro 5000 in cash. He heads
directly to the cashier and ask that his cash be changed to Euro
100 chips. From there he moves to the roulette table, gambles for
about 10 minutes and losses Euro 100. He proceeds to the bar and
spend a couple of hours drinking with people he just met there.
After about two and a half hours in the casino, he heads back to
the cashier for cashing back his chips. As he is scared of carrying
so much cash on him, he asks for a cashier’s cheque instead.
The following day he goes to the bank and deposits his cheque after
making certain that he has made a copy thereof. He is very happy.
If some one ever challenges him for the source of his funds in the
bank, he will produce the copy of the cashier’s cheque. Winnings
at a casino are totally legitimate source of funds and what is more,
totally tax free. The casino keeps no records of the gaming activity
of its customers so a more detailed check on the true source of
the funds is impossible.
Mr. Peter Smith thinks that John’s method of laundering
money is a very good idea. But being a lazy person, he preferred
to try it out on an online casino instead. He deposits his money
with his bank and asks that this be transferred to his online casino
account. He gambles and experience the same losses as his friend
John. He asks to withdraw his money and this is promptly transferred
to the same bank account where it originated from. He is eventually
investigated by his tax man and when asked to account for his unusual
wealth, he produces a copy of the credit advice from the bank, showing
a deposit into his account of Euro 4900 from the online casino.
The tax man, being aware of the detailed record keeping of internet
gaming sites, requests a statement from the site operators of the
movements in Peter’s account, which statement is duly supplied.
This statement clearly shows that the money sent to Peter’s
bank account had totally originated from the same bank account and
that there was only a Euro100 gambling activity and no winnings.
Lazy Peter is still paying the penalty for trying to cheat his tax
man.
On 29th September 2006 the US House of Representatives voted by
409 to 2 in favour for amendments to the Safe Port Act that makes
illegal the transfer of funds by banks and similar institutes to
an online Gaming Site. The Senate approved the same amendments very
early the following morning. These amendment were signed into law
by President George Bush on Friday,October 13th 2006.
Proponents of the crackdown said the industry, which is mostly
based overseas, provides a front for money laundering, some of it
by drug sellers and terrorist groups. Homeland security was a frequent
phrase in the president’s speech prior to the signing.
Most of the Republicans voted in favour with the hope of clearing
their name after the much publicised Jack Abramoff scandal. With
the mid term elections coming soon on November 7th, the republicans
needed all the help they could get. The senate’s vote was
actually taken by voice since most senators were in a hurry to get
out of Washington for the holidays – Washington Post 30.09.06.
Most of the legislators mentioned above have very limited knowledge
of how the reputable online gaming operators actually carry on their
business and what measures are taken to prevent exactly the crimes
they are being accused of fronting. Any operator licensed in serious
jurisdictions such as Malta can vouch for the exacting regulations
imposed that are aimed specifically for the protection of the players
and preventing money laundering and fraud. Many of the leading operators
in the industry are publicly traded companies with banks, shareholders
and analysts to account to. Even without regulatory imposition,
these operators would still want to ensure a clean operation for
the sake of their own market price. In fact most install online
gaming security measures that far exceed those imposed by the regulator.
Americans bet an estimated $6 billion per year online, accounting
for half the worldwide market, according to analysis by the US Congressional
Research Service. So with the stroke of a pen the US legislators
condemned half the world players to an underground environment where
they will be at the mercy of unregulated operators and fly by night
fraudsters.
Perhaps of the same legislators may even be old enough to remember
the other Prohibition, imposed between 1920 and 1933 and its result
of unhygienic liquor and mafia control of the illegal manufacture
and sale.
As the CATO Institute
itself declared: “The Internet offers new and better access
to something that American consumers demand in spades: gambling.
Lawmakers and prohibitionists can neither effectively stop Internet
gambling nor justify their attempts to do so. In the long run it
will, like so many other forms of gambling, almost certainly become
legal”
Let us hope that the US legislators will not take another 13 years
to realize the danger of their decision.
Disclaimer
The above information is being provided
as a general guide only and should not be considered as a substitute
for professional advice.
George
Farrugia (FCCA, FIA, FIT, CPA) is the founding partner of MGI Malta.
He can be reached at
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