Internet Casinos: A Sure Bet for Money Laundering
| DOI | https://doi.org/10.1108/eb026001 |
| Pages | 365-383 |
| Published date | 01 February 2001 |
| Date | 01 February 2001 |
| Author | Jon Mills |
Journal of Financial Crime — Vol. 8 No. 4
Internet Casinos: A Sure Bet for Money Laundering
Jon Mills
Since the end of the Second World War, American
society has seen the emergence of technology pro-
mising to make life easier, better and longer lasting.
The more recent explosion of the Internet is fulfilling
the dreams of the high-tech pundits as it provides
global real-time communication links and makes
the world's knowledge universally available. Privacy
concerns surrounding the development of the Inter-
net have mounted, and in response, service providers
and website operators have enabled Web users to
conduct transactions in nearly complete anonymity.
While anonymity respects individual privacy, it also
facilitates criminal activities needing secrecy. One
such activity is money laundering, which is now
being facilitated by the emerging Internet casinos
industry. These casinos can be physically located any-
where with websites available worldwide. Internet
casinos were a target of legislation by the US
Congress, but the legislation, the Internet Gam-
bling Prohibition Act, failed to pass. So, at the
moment, Internet casinos are a virtually unregu-
lated mechanism for laundering illegal funds.
This problem crosses national boundaries. Conse-
quently, the nations concerned with preventing
money laundering must cooperate. The USA has
enacted a host of laws that enable the government
to prosecute both the root crime of money launder-
ing as well as the means, online gambling. But effec-
tive eradication of this criminal enterprise will require
international cooperation.
MONEY LAUNDERING AND THE
INTERNET CASINO INDUSTRY
The greatest criminal threat posed by the blossoming
virtual gaming industry is the unprecedented poten-
tial it presents for criminal elements seeking to
launder their ill-gotten gains.1 Current estimates sug-
gest that between $300bn and $500bn are laundered
each year,2 and many prosecutors agree that it is
easy and economical to launder criminal proceeds
through offshore casinos.3 For example, when Florida
plays Florida State in football, place a bet on each
team. Regardless of the outcome, and provided the
gambler has properly structured the bets, the gambler
will lose the bet placed on the losing team, but the bet
on the winning team will be paid double; all the
gambler has really lost is the 'vigorish', the house or
bookie's cut. In a similar fashion, offshore, and
hence invisible, profits can be created, or visible,
and hence declarable and deductible, losses can be
generated. Dirty money has been
laundered.4
More broadly, money laundering is the process of
'placing the illegally-acquired money into the global
financial system without raising suspicion: depositing
it into a bank, conducting a number of transactions
with the money to create a confusing or hidden
audit trail, and then withdrawing the funds'.5
Following the passage of the Money Laundering
Control Act of 1986,6 criminal proceeds are 'perpe-
tually illegal' and criminals must, therefore, launder
their illegal profits in order to facilitate their use.7 If
the funds from a criminal enterprise are not laundered
before they are spent, the spender is more likely to
face tax evasion charges, prosecution relating to the
original criminal activity and the loss of the funds
altogether.8
It is therefore important to realise that the act of
laundering illegal money docs not make that
money legal. Again, it remains perpetually illegal.
The purpose of laundering money is made to
render detection of the illegal activities, and their
profits, more difficult.
Laundered criminal funds are both an end in
themselves, as the 'reward' for criminal endeavours,
and also a means of funding further criminal acts,
including, but certainly not limited to, 'funding
terrorism and organized crime, hiding taxable
income, and generally making a variety of crimes,
which range from smuggling to counterfeiting,
appear to be legitimate enterprises which are highly
profitable'.9 However, in the past laundering funds
was more difficult because of the built-in mechanisms
and the necessity of funnelling the funds through
traditional, and highly regulated, financial institu-
tions.
Emerging technology, including the Inter-
net's cyber-banking industry, will 'revolutionise'
the money laundering process and make it signifi-
cantly easier for launderers to insert dirty money
into the stream of international commerce, to
churn or wash it through legitimate businesses and
hide its origin, and then to withdraw the money,
Journal of Financial Crime
Vol.
8.
No.
4,2001,
pp.
365-383
©Henry Stewart Publications
ISSN 0969-6458
Page 365
Mills
ready to be spent.10 The nature of the Internet
allows transactions to occur almost instantaneously
and with anonymity, thus allowing the criminal
launderer to avoid detection because there is no trail
to follow, and, since no traditional financial institu-
tions have been involved, there are no red flags alert-
ing the law enforcement to the possibility of criminal
activity.11
MONEY LAUNDERING: MANY
TECHNIQUES AND MANY STATUTORY
EFFORTS TO PROHIBIT
'The United States is certainly one of the leading
money laundering nations in the world',12 and
there are innumerable ways money can be laundered.
It can be smuggled out of the USA, laundered in
another country that has relaxed banking regulations
or strict secrecy laws, and then returned once it has
been adequately layered, or mixed with legitimate
funds.13
Or a money launderer can acquire a legiti-
mate business, preferably one with a large volume
of cash transactions, and show the illegal proceeds
as profit generated by the presumptively legal, and
profitable, business.14 Alternatively, a money laun-
derer can deposit the illegal funds in a bank, and by
transferring sums of
less
than $10,000 create a 'legiti-
mate' history of the funds. However, due to the
reporting requirements, 'structuring' is not practical
for large-scale money laundering
operations.15
Using one of the three primary wire systems, a
money launderer can, via instructions sent from one
bank to another, have funds transferred from one
account to any other account(s). It is easy to hide
illegal funds among the millions of transfers affected
by these systems, which transferred $474trn among
various banks in 1995 alone.16 A money launderer
could launder his illegal funds by expatriating
them, and then using them as collateral for a loan
in the foreign jurisdiction. He would now repatriate
the loaned funds as legally acquired. If the money
launderer selected a foreign nation with strict bank-
ing secrecy laws, any law enforcement authority
would be able to trace the loaned funds only as far
back as the originating bank, but not to the client
who received the loan from the bank.17 Foreign
banks are also used for their 'payable through'
accounts, which they maintain at banks in the
USA. The foreign bank will transfer all funds
between it and the US bank through that account,
and often give customers permission to conduct
their own banking business out of the same account.
These accounts are usually not as closely monitored
because the foreign bank is expected to transfer
large amounts through such an
account.18
The Financial Action Task Force (FATF)19 was
created in an effort to coordinate and augment
international anti-money laundering efforts.20 This
task force works with other international organisa-
tions,
including the International Criminal Police
Organization (Interpol) and the Inter-American
Drug Abuse Control Commission (CICAD) of the
Organization of American
States.21
In the USA, the
parallel organisation is the FinCEN, an offshoot of
the Treasury Department, that 'evaluates money
laundering threats, supports law enforcement
agencies and implements the Bank Secrecy
Act'.22
It is designed to 'serve as a central source for financial
analysis and intelligence retrieval to assist in money
laundering and other financial crimes investiga-
tions'.23 Significantly, FinCEN collects data from
the CTRs and SARs which financial entities file.24
Beginning in the 1970s, Congress enacted several
acts designed to deter money laundering and tax
evasion. The Bank Secrecy Act, a part of the
Bank Records and Foreign Transactions Act, was
prompted by concerns that foreign banks were
being used to launder funds, a crime
itself,
as well
as to evade applicable US taxes. 25 The Bank Secrecy
Act requires transactions over $10,000 to be reported,
in order to alert the law enforcement authorities to
'suspicious' transactions that could be the initial step
in the money laundering process. While it encoun-
tered controversy,26 it has been upheld and is still
applicable to specified financial institutions and all
individuals transporting in excess of $10,000 into or
out of the USA.27 These requirements are now
applicable to all non-banking financial
institutions.28
However, these regulations were inadequate to
prevent money laundering, and the Money Launder-
ing Control Act was passed. It 'criminalized money
laundering and structuring and provided for both
civil and criminal forfeitures of funds or property
implicated in the laundering'.29 The act of money
laundering itself was now illegal. The MLCA also
criminalised structuring, the process of breaking up
large sums purposefully so as to avoid the $10,000
threshold for required reporting.30 A part of the
MLCA, the Right to Financial Privacy Act of 1978,
gives banks limited protection for disclosing client
information, in good faith, when there are signs of
money laundering. 31 In 1988, Congress enacted the
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