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Net casinos under scrutiny for money laundering

By CNN's Kristie Lu Stout

HONG KONG, China (CNN) -- As governments around the world crack down on terrorist financial networks, cyber casinos are falling under increasing scrutiny.

A U.S. House panel agreed to curb online gambling as part of a bill to crush terrorist financial networks. Called "H.R. 3004," the bill proposes to give American law enforcement more tools to track illegal cash, even in the borderless world of the Internet.

The language referring to online gaming has since been removed from the piece of legislation, but widespread concerns about cyber casinos and money laundering remain.

Concern over lax due diligence

"The concern legislators have is that due diligence of online gambling is not as stringent as financial institutions," said analyst Frank Yu of Hong Kong's Ion Global.

"From the perspective of the online gambling site, they could be properly legitimate. But what they fail on is the due diligence of finding out who they are accepting money from and who they are giving money to."

In a cyber casino, it's easy to wash dirty money by simply placing a deposit, gambling a small amount, and then asking for return of the remainder of the deposit. The illegal assets would then be disguised as a refund check.

Financial watchdogs like the Asia Pacific Group on Money Laundering (APG) also recognize the potential of online gaming sites as money laundering centers.

"Internet gambling is a vulnerable area… it is a risk," said APG Secretariat head Rick McDonnell.

But industry players flat out disagree.

"They need to track down the terrorist financial network, but I don't think that has anything to do with Internet gaming at all," said Tim Lambe, vice president of SmartTransact, a company that develops software for online gaming sites.

"It would be wrong to link the two together."

Hard to hide

Online bookmakers like the UK's SSP International insist that their betting boards show absolutely no trace of money laundering.

"Through one of our companies, we are monitoring hundreds of gaming sites for the purpose of showing competitive odds and we have never heard of anything like that," said SPP International managing director Peter Andersson.

Real world casinos work with real cash, and many leave cloudy audit trails that are hard to follow.

But the online industry says, in the cashless world of net betting, many punters are tied to an account number, making it hard to hide.

"The only way of getting your funds to an Internet casino or an Internet bookmaker is to pay the casino by credit card or transfer it by bank transfer," said SSP International's Andersson.

"When you want your money out you have it the same way, so all the transactions are actually pretty transparent."

"All transactions go through banking systems -- credit cards, wire transfer or checks," said Lambe.

"And they deal with small amounts. In my four years of this industry I have never seen this incidence of money laundering."

Changes likely

But so much money circles the Internet every day it's difficult for casinos to spot the dirty from the clean.

"They may not even be aware that they are being used as a front or a conduit for money laundering," said Yu. "But there are also cases they are also hand in hand with this type of people."

As pressure mounts on online gambling, the sector is likely to see changes like improved identification and authentication.

Analysts say it's in the best interest for gambling operators -- cyber casinos don't want to be mixed up in anything that could sanction a shut down.


• H.R. 3004
• Asia Pacific Group on Money Laundering
• Financial Action Task Force

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