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You Can Bet On It

Calum Shaw Macdonald, CAMS

February 2020

A Study of Financial Crime Risk In the Sports Betting Industry

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Contents

Introduction – 3 Ways of Betting – 4

The Real You 4 Proxy Betting 5 Remote Betting 5 For Example 6

Types of Betting – 7 Traditional 7 Outcome and Result-Based Betting 7 In-Play Betting 7 Matching or Exchange Betting 8 For Example 8

Case Studies – 9 Case 1 9 Case 2 11 Case 3 12

Governance – 12 Who Is Watching the Shop? 12 States and Territories 13 The Commonwealth 13 Australian Communications and Media Authority (ACMA) 14 Australian Federal Police (AFP) 14 Australian Transaction Reports and Analysis Center (Austrac) 15 Sport Betting Integrity Unit Australia 16 Self-Regulation 17

The Bigger Picture – 17 International Cooperation 18 International Organizations 19

Conclusion – 20 What’s the Cost? 20 What’s the Future? 21

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Introduction There are numerous sports and events that people can bet on these days and many ways in which these bets can be laid, both physically and online. Along with the options of things to bet on, there is even the ability to wager inside the game and on various metrics of an individual’s performance. The world of elite sports generates vast amounts of prize money, investments, and earnings and so naturally attracts great interest from those who enjoy “making things a little bit more interesting.” However, it also brings with it governing bodies, drug agencies, regulators, and so on. We certainly know this does not guarantee a clean industry or one that is quarantined from those who might exploit it, but today, you can also bet on a couple of amateur Sunday league teams, playing on a muddy field, to a handful of people. Who is looking at these performances or examining these results with any degree of scrutiny? There is no doubt that there are many potential opportunities for financial crime: from money laundering to match fixing, cross-border transfers, and many, many ways in which these might manifest. The aim of this white paper will be to try to quantify the various elements of risk, look at all areas of vulnerability within the industry of sports betting, and examine what bodies and organizations are doing in the battle against it. We will consider what the future might hold as traditional face-to-face business becomes more obsolete and technology not only allows for more complex ways of wagering, but also, in itself, brings forth new things on which to bet. With such a vast topic and wide range of jurisdictional differences influencing local and international operations, it is not possible to look at everything, and while we will try to take a broad global view of the potential risk that sports betting might bring, I have decided to try to relate much of this discussion to an Australian perspective. In doing so, I hope to produce a more concise and meaningful white paper. Having lived in Australia and having worked in its gaming industry for a number of years, I am familiar with the general concept and laws of the country, and this will help inform me at a level that will allow for a more rounded understanding and analysis of my research. Australia as a country is well known for having one of the biggest appetites for gambling. Gambling is a serious business in Australia, with the heaviest gamblers per capita in the world. Australians wager about US$24bn annually.1 There is very little stigma attached to people enjoying a visit to the casino or placing bets on their favorite teams. It’s the home of the “Race that Stops the Nation,” with everyone from school kids to the prime minister enthusiastically trying to pick the winner. This brings with it some social issues without question, but it also allows us to look at a mature gaming environment, which is important when considering the constantly evolving world of sports betting. Additionally, in general, Australia’s legal system is viewed as competent and independent with stable parliamentary counterparts at both state and federal level. It sits 13th on the global

1 Andrew O’Malley (2019) Australia Creates Sports Betting Integrity Unit, https://www.vegasslotsonline.com/news/2019/02/09/australia-creates-sports-betting-integrity-unit/

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corruption index and 18th out of 128 in the World’s Safest Countries index,2 and yet, in 2018, Transparency International ranked Australia as having the weakest anti-money laundering (AML) laws in the Anglo sphere,3 and previously in 2015, the Financial Action Taskforce (FATF) placed Australia on enhanced follow-up to address deficiencies with money laundering and terrorism financing reforms.4

So we have a very interesting backdrop of a mature society but with clearly a way to go as a basis for our study. Nevertheless, this is still a complicated topic, so in order to work through it, we will spend some time systematically looking at the different aspects of sports betting, diving into some detail in isolation before pulling everything together. I don’t expect we will find a magic bullet of any kind, but I do hope that we can move the conversation forward a little and perhaps encourage the reader to consider this issue more thoughtfully.

Ways of Betting There are so many opportunities to place a bet these days, from casinos to race tracks to your local pub, but when we think about sports betting, we are really talking about the ability to choose from multiple events and options (often not even sports), and there are really only two places where that is happening: in the bookmakers or online. We are going to concentrate on the online option in this white paper. It offers convenience and ease without question, but some may also say that the digital footprint that you create today paints a much more detailed picture of you and your activities than any high-value transaction report might give from a face-to-face transaction. Is that really true, or can we actually go unnoticed in a binary forest of data and codes?

The Real You We know that it is very easy for an individual to create a fictional persona on almost any social media site, but the verification and due diligence processes for online services, such as banking and medical, can be a lot tougher. With that said, even these more stringent KYC requirements often seem to be a one-time deal. If you can convince one entity that you are Mr. X, then there is a very good chance the success of that deception will be the very thing that helps you convince others. The truth is that it is already widely acknowledged that fraudsters have created thousands of online accounts with fake IDs to exploit online gaming services. Bonus abuse, chip dumping, and

2 Global Finance (2019) World’s Safest Countries 2019 World Economic Forum, The Global Institute For Peace, https://www.gfmag.com/global-data/non-economic-data/worlds-safest-countries-2019 3 Transparency International (2019) Corruption Perception Index 2019, https://www.transparency.org/cpi2019 4 FATF (2015) Australia’s measures to combat money laundering and terrorist financing, http://www.fatf-gafi.org/countries/a-c/australia/documents/mer-australia-2015.html

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gnoming5 are just a few of the techniques used. These close cousins of sports betting can offer insight into the risks faced and the difficulty of adequately addressing identification issues. As I mentioned in my introduction, I will use Australia as a backdrop for much of this discussion, so now let’s have a quick look at what it takes to establish yourself with one of its sports betting operators. SportsBetting.com states: “Within 14 days of opening your account, and before making any withdrawals, your account must be verified by sportsbetting.com.au. To verify your ID, we are required to confirm both your address and date of birth.”6 This does not sound too bad, but when you read further and realize that this is actually as simple as producing a student identification card and a utility bill, it makes me wonder if it really can be considered adequate.

Proxy Betting In some of the casinos in Southeast Asia, it is not unusual to see a table surrounded by people placing bets whilst having their mobile phones firmly pressed against their ears.7 The person on the other end of the call could be anywhere in the world. However, it’s that person who is actually controlling the bet, the beneficial owner. This clearly can translate into online sports betting even if the individual is in another country that strictly prohibits online gaming, and equally so if that person has ulterior motives to distance him or herself from the money that is being wagered.

Remote Betting Whether you’re in another country or are using an intermediary to place bets on your behalf, the opportunity from remote betting brings with it an increased risk of money laundering. As former Australian Gaming Regulator David Green put it: “there is very great risk that you can’t possibly know your customer, and you can’t perform any normal due diligence… If there are tainted funds, they can be cleaned and issued back to the proxy or the player.”8 When a person in another country has a third party place a bet on their behalf, their identity is hidden to the sports betting operators, and it could be well argued that there is no possible way for these operators to have such levels of transparency. We can sympathize with this, but it’s

5 Bonus abuse: Whereby the numerous fake accounts benefit from new signup bonuses, coupons and other attractive offers. While these promos are an excellent way to attract new players, they can quickly make your platform run at a loss if you hand out too many of them. Gnoming: once again using multiple accounts to help one player win. The other accounts are used to lose deliberately so one can pocket all the wins and bonuses that go with it. Chip dumping: this is a practice found at the poker table. Like with gnoming, the idea is to make multiple accounts join the same table in order to cheat the system and influence the results in favor or against one particular player. https://chargebacks911.com/online-gaming-fraud/ 6 SportsBetting.com, https://www.sportsbetting.com.au/IDRequirements 7 GGR Asia (2018) Philippine casino proxy betting is AML loophole: U.S., https://www.ggrasia.com/philippine-casino-proxy-betting-is-aml-loophole-u-s/ 8 Daniela Wei and Bruce Einhorn (2017) Remote betting lifts money laundering risk, https://www.iol.co.za/business-report/international/remote-betting-lifts-money-laundering-risk-8953044

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not necessarily a get-out-of-gaol card. If you live in a flood area, then you know you can’t stop the rain from falling, but you also know that there are measures you can take to reduce the damage those floods might bring. That’s key. Perhaps you see proxy betting as a reality that you want to deal with. Just because something is hard to manage and brings with it a certain amount of risk does not mean that it cannot be a worthwhile legitimate business pursuit. So you set up rules of registration and verification processes requiring proxies to submit passport and other information of the people placing bets. You set acceptance criteria that keep your regulators happy and exclude participants from regions, which might bring difficulty to your doorstep. Some might say that this is a toothless tiger, but as most of us in compliance know, one of our biggest assets is being able to identify where we need to concentrate our efforts. Giving a controlled and honest way for people to do things is always going to help us separate those with nothing to hide from those with something.

For Example, Having talked a little about ways of betting, we can see that this could also be reframed in a question: who’s betting? With this in mind, let’s consider a couple of financial crime scenarios.

1. Match fixing in itself falls under the umbrella of fraud and deception. It is of course a financially motived crime, and money launderers can also use their illegally obtained money to advantage here. By spreading this money out to multiple proxies to bet across a number of sports betting agencies, they can fly under the wire. When these winning bets come in, there is plenty of money to pay commission to all involved and still filter the now cleaned money back into the launderers’ pockets.

2. As we mentioned before, when using a proxy, the punter does not even need to be in the same country as the sporting betting agencies, and this can quite easily lead to a pseudo-underground activity, similar to a Black Market Peso Exchange type of arrangement with agents in various countries hooking up.

Not only is money laundering enabled in this scenario, but such underground banking activity can also facilitate tax avoidance and breaches of currency export regulations. In 2019, we saw headline stories as the Chinese government tries to bring to task Junket operators in the Philippines and Cambodia for facilitating massive capital flight from the mainland.9

“The online sports betting operations are in essence the functional equivalent of wholly unregulated offshore banks. The punters are in the virtual world, virtually anonymous. For these reasons, online sports betting operations are vulnerable to be used by money launderers.” Emmanuel Ekpenyong.10

9 Philip Conneller (2019) Chinese State Media Attacks Macau Super-Junket Suncity for Alleged Multibillion Dollar Online Gambling Ops Focused on Mainland Citizen, https://www.casino.org/news/hinese-state-media-attacks-macau-super-junket-operator-suncity/ 10 Emmanuel Ekpenyong (2017) How to Prevent Money Laundering In The Sport Betting Industry In Nigeria, https://www.mondaq.com/Nigeria/Government-Public-Sector/625202/How-To-Prevent-Money-Laundering-In-The-Sport-Betting-Industry-In-Nigeria

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Types of Betting

Traditional The traditional way for an individual to participate in sports betting would be for them to place a wager with a bookmaker on a specific outcome of an event. It’s often seen as a typical David and Goliath situation, and perhaps not one that would lend itself to exploitation from money launderers. In modern days, licensed bookmarkers tend to make plenty of money from legitimate activities without having to resort to getting into bed with criminals. Having said that, it is entirely possible that collusion can take place between these parties where clandestine wins and losses are arranged. In the same way that innovation and technology has changed how people can bet, the types of bets people can place has greatly changed in recent years. When we go to the supermarket, we find multiple varieties of the same product, perhaps with added salt, or zero sugar, or secret herbs and spices. This really is not to satisfy our sophisticated palate, it’s basically so producers can sell more stuff. The expansion of betting options is exactly the same.

Outcome and Result-Based Betting We tend to think of betting as a pastime where people try to pick a winner, but increasingly, this is becoming less significant. The reality is that you can now bet on incidents happing within a game, such as the first red card or even on the statistical norm of an individual’s specific performance. The actual end result or outcome of the event is almost irrelevant. Again, this might bring variety in terms of the options the punter has, but does it also bring with it greater opportunities for manipulation at an almost undetectable level, and therefore invite those looking to exploit a situation to step right in? A sportsman who does not achieve his or her normal standard of performance on a particular day is unlikely to cause much suspicion, especially if the overall result or score is not affected.

In-Play Betting In-play betting in certain parts of the world has taken the market by storm. It is a major game-changer for many and becoming more popular every day. The idea behind this form of betting is that you can react to events as they unfold and place and modify wagers based on what you see on the ground. A 2019 report by the United Kingdom Gambling Commission (UKGC) showed that up to 23% of online gamblers had participated in in-play betting.11 What is quite interesting about in-play betting from an Australia point of view is that it is actually banned by the 2001 Internet Gambling Act (IGA),12 which was passed in 2001; however, up until 2016, many Australian operators found a loophole to get around this. The odd thing about this ban is that it only applies to the agencies, and Australian punters are free to enjoy in-

11 Gambling Commission (2019) Gambling participation in 208: behavior, awareness and attitudes Annual report, https://www.gamblingcommission.gov.uk/PDF/survey-data/Gambling-participation-in-2018-behaviour-awareness-and-attitudes.pdf 12 Australian Government Federal Register of Legislation (2001) Interactive Gambling Act 2001, https://www.legislation.gov.au/Details/C2019C00070

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play betting with offshore online sports betting agencies. Since the loophole was closed in 2017 with the Internet Gambling Amendment Bill, as you can imagine, there has been a flood of criticism from operators.13 So was the ban motivated by concerns of financial wrongdoing? Well, in part, authorities claimed the legislation was to help address the large number of illegal operators offering very questionable in-play services. I am not sure if in-play betting is something that money launderers or other criminals might be attracted to; however, like all things, the more complex the beast becomes, the harder it is to define the head from the tail.

Matching or Exchange Betting As sports betting has become more sophisticated, it has developed systems where punters both back bets and lay bets. This is known as peer-to-peer betting, and in effect, it is one way that in-play betting can be done in Australia. But more significant is the matching and exchange betting practiced under this system. With matching, you have a way in which you are covering the two possible results or outcomes and limiting their losses; whilst in exchange betting, the same principle applies, but the trick is to watch for changing odds in much the same way as you might watch the stock price go up and down to maximize mums your profits. For the legitimate gambler, this adds a new dimension to their activities, but could this also be opening a golden opportunity for someone to set themselves up as an intermediary, passing money from one party to another in the supposed legitimate guise of winning and losing bets. Could this just be the online equivalent of casino offset betting?

For Example Once again, let’s look at a couple of examples of financial crime scenarios with types of betting in mind.

1. There tends to be an assumption that sports betting agencies have a license to print money. I am really not interested in arguing that point, but every industry, even sports betting, will have companies that flourish and companies that struggle. We know that desperation and/or greed have motived plenty of legitimate businesses to jump into bed with the underworld, so let’s not presume sports betting is any different. That brings us to our first example, which I like to call the Unlucky Punter. Basically, this is where a person wishing to launder money will place bets, with a particular sports betting agent, that are guaranteed to lose. We all know that most people lose when they bet, so it’s a perfectly ordinary occurrence to most observers. In addition, the money launderer can offload his or her illicit funds without taking receipt of any goods or even having been provided with any service, which obviously keeps things simple. Of course, there is more to this than meets the eye. The funds won by the sports betting agency would soon make their way back into criminal hands as, after holding back some agreed commission, they appear to be spent on legitimate goods or services, which are in actual fact fronts to return the cleaned money.

13 Australian Government Federal Register of Legislation (2017) Interactive Gambling Amendment Act 2017, https://www.legislation.gov.au/Details/C2017A00085

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2. Offset betting is often considered to be a vulnerability with the game of Baccarat for casinos, although with modern-day surveillance and well-trained inspectors, it is much harder to pull off these days. The sports betting equivalent of this can happen through matching, exchange betting, or even directly with the sports betting agencies. A couple of criminal associates with money to launder look for a sporting event where there are only two possible outcomes and the odds on the contestants are relatively closely matched. Using a little bit of math, they work out how much they need to put on either outcome to ensure their winnings will cover the inevitable loss. They then each place a bet, possibly even with different agencies. Irrespective of the outcome of the game, no money will really be won or lost, but there will be the appearance of winning and clean money. It is not guaranteed that there won’t be some small, overall loss with this system, but that’s a price money launderers are normally more than willing to pay.

Case Studies So now that we have an understanding of what sports betting is and have touched on a couple of examples of how financial crime might take advantage of this industry, let’s look at some of the real-life stories. Case 1 A match fixing scandal hit the Finnish football world in 2011 when a Singapore betting syndicate was able to make millions of dollars on rigged games. The Rovaniemen Palloseura club was also accused of money laundering when $435,000 received from a Singaporean company could not be explained or justified. The Singaporean match fixer was eventually sentenced to two years, and in addition, nine team players were convicted of bribery offences.14

For us, what’s really interesting in this case study is the fact that this happened in Finland and that the majority of the players involved were Zambian. As you might imagine, the Finnish football league is a far cry from the high-profile world of English, Italian, or Spanish soccer, and perhaps as such seemed like an easy target. The large numbers of Zambian players attracted to this league are virtually pulling themselves out of poverty and again could be considered easy prey for anyone looking to take advantage of them. As Nchimunya Mweetwa, a former Zambian international and convicted match fixer put it, “it is very hard because everyone wants to have food on the table and if you are offered money to dishonestly manipulate a game you are tempted.”15

14 Alex Capstick (2011) Finland football rocked by match-fixing scandal, https://www.bbc.com/news/world-europe-13736085 15 Kennedy Gondwa (2018) Zambian match fixer Nchimunya Mweetwa on crusade to help others, https://www.bbc.com/sport/football/46700273

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I would argue that the low profile and vulnerability of the players were key components to this criminal activity. This seems to be well supported by a number of other, frighteningly similar cases we can reference from their time.

• Tampere, for Finnish football, was suspended in 2011 amidst accusations of money laundering when they accepted €300,000 from a Singaporean company.16

• Also in 2011, the owner along with the former manager of the Pori football club were convicted of negligent money laundering when accepting payments from a Singaporean company.17

• A former Kenyan goalkeeper was sited in 2010 for accepting $50,000 in bribes when playing for Finnish team, IFK Mariehamn in 2010.18

• The AC Oulu club saw two of its Zambian players convicted of taking bribes as they underperformed in 2011.19

In the particular cases mentioned above and the media stories around them, there is very little mention of sports betting and certainly no indication of wrongdoing on their part. In actual fact, and for the purpose of this white paper, we should probably consider the sports betting agencies one of the victims of these offences and in doing so highlight the fact that sports betting does not stand on its own. It is just a part of a very big machine, and as such, it relies on its partners in sporting organizations, law enforcement, and the financial support industries. All these bodies should give as much support as they would wish for in return in order to combat these dangerous activities and protect everyone’s future. “Money launderers have unfortunately found the sports market a convenient target for their schemes. Legalized gambling could make the sector even more inviting. Sports and financial institution must fight back – and keep these criminals at bay.” Rick McDonell, former executive secretary of the Financial Action Task Force.20 A potential step in this direction was seen in 2018, when, in the USA, it was proposed that state legislators introduce an “integrity fee.” This would see sports betting operators contribute 1% of amounts bet on specific sporting codes to the covering bodies of those codes to fund broad-based monitoring of potential fraud and other criminal activity.21

Case 2 In 2019, in Australia, six online video gamers were arrested for deliberately losing matches

16 Reuters (2013) Soccer-Finnish bosses sentenced for money laundering, 17 Yle (2012) Football club owner appeals money laundering conviction, https://yle.fi/uutiset/osasto/news/football_club_owner_appeals_money_laundering_conviction/6278092 18 Standard Media (2011) Kenyan goalkeeper Willis Ochieng’ cited in Finland match fixing scandal, https://www.standardmedia.co.ke/article/2000035907/kenyan-goalkeeper-willis-ochieng-cited-in-finland-match-fixing-scandal 19 Zambian Watchdog (2011) Yobe brothers convicted in Finland for match fixing, https://www.zambiawatchdog.com/yobe-brothers-convicted-in-finland-for-match-fixing/ 20 Rick Mcdonell (2018) Legal Sports Gambling Could Attract Criminals. Here’s How to Stop Them, https://fortune.com/2018/11/07/legalized-sports-gambling-money-laundering/ 21 Darren Heitner (2018) NBA Ask For 1% Integrity Fee From Sports Betting Operators, https://www.forbes.com/sites/darrenheitner/2018/01/25/nba-asks-for-1-integrity-fee-from-sports-betting-operators/#5867b47c643a

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whilst betting against themselves.22 Whilst the Sports Integrity Commission worked with Australian police on the investigation, it was actually the sports betting agency that blew the whistle. Even though the initial investigation did not go very far, authorities continued to work with the betting agencies to detect the fraud. Those arrested were between 19 and 22 years old and perhaps not the criminal masterminds we would hope to identify in this paper. Nevertheless, with eSports already a multimillion-dollar industry and considered to be the fastest growing sports industry in the world, we have to assume that this is only the tip of a very large iceberg. To give this even more scale, the particular game that these players cheated on is the best-selling PC game of all time with 25 million copies sold. We can just imagine the number of potential games and leagues this could generate and the betting opportunities they might bring. Integrity Commissioner, Ian Smith, said that the arrest should be “a wakeup call to those players match-fixing that the net is closing. Every ESIC suspicious betting alert goes to Victoria Police and, if there is any Australian connection, they will pursue it.”23 As I mentioned, the crime here did not involve any large crime syndicates, and while it might be dismissed in the larger scheme of things, we need to remember how much accumulative damage can be done in these lower-level areas. Issie Lapowsky makes this point in her WIRED article on banks using AI to counter terrorist financing.24 She cautioned those who might discount the small dollar activity as irrelevant. Terrorist sympathizers making small deposits across the globe can have a devastating long-term effect on any one of us. In this case, the sports betting agencies and the authorities went that extra mile to continue to analyze their data and dig deeper once a suspicion had been raised. Banks are now using very sophisticated technology to do this, and all sports betting agencies need to follow suit.

Case 3 In 2012, money from the sale of drugs was laundered using an online betting service and Internet payments service by an Albanian crime syndicate working in Australia.25 What gave the game away for these guys was that the betting service and the payment service shared the same address. In truth, the betting service was simply a front to hold funds and make them available to gang members through various accounts. This created the illusion that people were receiving payments of gaming winnings even though no money was ever received to place these wagers.

22 The Guardian (2019) Game over: six arrested by Australian police over alleged online gaming match-fixing, https://www.theguardian.com/australia-news/2019/aug/24/game-over-six-arrested-by-australian-police-over-alleged-online-gaming-match-fixing 23 Imelda Cengic (2019) Australia: Video Game Betting Fraud Busted, https://www.occrp.org/en/daily/10735-australia-video-game-betting-fraud-busted 24 Issie Lapowsky (2017) Banks Deploy AI to Cut Off Terrorists’ Funding, https://www.wired.com/story/quantaverse-ai-terrorist-funding/ 25 Australian Government AUSTRAC, https://www.austrac.gov.au/business/how-comply-guidance-and-resources/guidance-resources/australia-based-albanian-drug-syndicate-dismantled

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Transfers were made to Albania, Sweden, and the Philippines, but no funds were ever deposited from there. Other telltale signs of money laundering were that multiple below-threshold transactions were done over a series of days, for round dollar amounts and no regard for the exchange rate. In 18 months, the two services had racked up over 740 transfers with a combined value of $41 million, and many of these transactions were directed to secondary countries in order to create further layers of confusion. In this particular case, there was no actual sports betting agency, but clearly the gang believed that they could hide behind seemingly legitimate transactions common to that industry. Of course, they probably did not reckon on the power of reporting and the authorities that might be looking at these. This leads us nicely into our next section where we will consider governance and oversight.

Governance

Who Is Watching the Shop? Now that we have an idea of what sports betting is and the kind of risks it can bring, and in some way how that looks from an Australian point of view, it is time to look at some of the regulators and authorities connected with the industry. Gaming enterprises tend to be big revenue-drivers not only for the business owners but also for the states and territories where they are based. This often leads to claims of vested interest and soft-touch legislation. In 2019, the Victorian Gaming Authority was heavily criticized for its oversight of the Melbourne Casino. Is this systemic in Australian gaming, or do the regulators of sports betting take a tougher line? Are the wider AML/CFT laws manifest in meaningful policies and processes, or is it more a case of lip service and hoping for the best? Dr. Jack Anderson views sports betting as being abused by organized crime across the globe and as a multi-headed threat bringing fraud, corruption, and money laundering.26 It has been reported that around one-third of the adult population of Australia currently gambles online, and even in this robust market, it is estimated that the illegal gambling sector is still worth about $1.4bn each year.27 There is no one overarching gambling authority in Australia; each state and territory regulates within its own jurisdiction with the federal commonwealth government covering only certain areas also.

States and Territories The fact is that when you start to look at the sports betting industry in Australia, you find very little information in terms of governance and oversight. You need to dig down at each state and

26 Elizabeth Jackson (2011) Money laundering risks in Australian Betting, https://www.abc.net.au/am/content/2011/s3276257.htm 27 Reuters (2014) Crime gangs launder $140 billion through sports betting – report, https://www.reuters.com/article/us-sport-gambling/crime-gangs-launder-140-billion-through-sports-betting-report-idUSKBN0DV0P820140515

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territory level to get any idea of what’s going on. There tends to be a lot of hyperbole around fostering integrity and so on, but what about the substance? Let’s look at the Victorian Commission for Gambling and Liquor Regulation (VCGLR) as an example. Along with integrity, the VCGLR says it wants to promote the sharing of information between sports betting agencies and the sports controlling bodies. They cite a number of reasons for this, but surprisingly, combating financial crimes is not one of them. The VCGLR website lists its definition of sports betting events; it talks about licensing, gambling codes of conduct, unauthorized gambling, and a lot of other stuff, but I had to type the words “money laundering” into its search function to find anything related. There were 45 hits, and basically these were links to news articles or definition.28 Of course, I do not want to be unfair to the VCGLR, and I am not trying to say for a moment that AML/CFT should be the main issue of this unit. It focuses on very important aspects of the gaming and sports betting industries, which, without a doubt, helps the overall health of the business. If you look at any of the eight Australian state and territory gambling regulatory websites, you will find very similar results.

• Australian Capital Territory: ACT Gambling and Racing Commission • New South Wales: New South Wales Office of Liquor, Gaming and Racing • Northern Territory: Licensing Commission • Queensland: Office of Liquor and Gaming Regulation • South Australia: Independent Gambling Authority • Tasmania: Tasmanian Gaming Commission • Victoria: Victorian Commission for Gambling and Liquor Regulation • Western Australia: Department of Racing, Gaming and Liquor

The Commonwealth The federal government of Australia has certainly taken a more active interest in gambling regulation over recent years, so perhaps it’s in one of their peak bodies in which we will find our sports betting AML/CFT champion. Fundamentally, there are four organizations we can look at that concern themselves with sports betting at a national level. They are the Australian Communications and Media Authority (ACMA), the Australian Federal Police (AFP), the Australian Transaction Reports and Analysis Center (Austrac), and lastly, the-soon-to-be-formed body, Sport Integrity Australia.

Australian Communications and Media Authority (ACMA) The Australian Communications and Media Authority states, “we regulate communications and media to maximize the economic and social benefits for Australia.”29 That’s a very broad bailiwick when you consider what is defined as media these days. It is this modern-day definition that pulls the ACMA into the regulatory realm in terms of sports betting, as along with rules around gambling advertisements, they also actively block illegal offshore betting websites. Since it started enforcement in 2017, more than 65 illegal operations have exited the Australian

28 VCGLR, https://www.vcglr.vic.gov.au/about-us 29 AMCA, https://www.acma.gov.au

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market.30 Initially, we might dismiss ACMA in terms of relevance to this white paper, but I would argue that the bedrock of the illegal offshore agencies penetrating Australia has to be considered financial crime.

• There is a much greater risk of betting odds and results being manipulated without the player having any recourse.

• Many services have been known to withhold winnings or deposit these into website accounts that can only be used for further betting.

• A player’s money can disappear overnight when operators close up shop and abandon their websites (often to reemerge a short time after with a new name but the same tricks.)

• Even if they are no longer gambling on these websites, it is not unheard of for illegal operators to continue to withdraw funds from a player’s bank account or charge their credit cards.

Unfortunately, most of the money that these victims lose to these illegal operations is gone for good even when ACMA closes them down. The Interactive Gambling Act 2001, the basis of operation for the ACMA, is quite a document, and those that breach it can face criminal charges and civil penalties of $1,575,000 per individual and $7,900,000 per body corporate,31 but often, ACMA cannot act on its own and needs to make referrals to the director of public prosecutions or the Australia Borders Protection Agency. We can see that similar to the State and Territories Gaming Regulators, the ACMA are more about regulatory compliance than the fight against financial crime, but they are certainly not a meaningless body. An estimated $100 million in tax revenue was lost in 2019 because of illegal betting agencies, and the ACMA plays an important part in addressing these types of problems.

Australian Federal Police (AFP) So if the ACMA is perhaps more administrative, is there an operational body closer to the coalface of sports betting and financial crime? In terms of policing, there are two specialist sports intelligence units operating in the Australian States of Victoria and New South Wales: the Victorian Police Sporting Integrity Intelligence, specializing in investigating sport and corruption; and in New South Wales, the Casino and Racing Investigation Unit, focused on race-fixing and links to organized crime in thoroughbred, harness, and greyhound racing. However, in looking at the national effort, we might need to look at the role of the Australian Federal Police. The AFP, and more specifically its Serious Financial Crime Taskforce, might be a good place to start. These guys look at just about everything from drug crime, fighting terrorism, human trafficking, and of course money laundering. Whilst not specifically focused on sports betting, they often work in partnership with the Australian Criminal Intelligence Commission and the Australia Tax Office and on other initiatives, such as the Black Economy Taskforce. Their results can be impressive, with the July 2019 arrest of a Sydney man charged with laundering $7.7 million,32 the 2017 arrest of three people on money laundering offences related to organized

30 AMCA, https://www.acma.gov.au 31 AMCA ACMA, https://www.acma.gov.au/how-we-enforce-rules-gambling-services 32 AFP, https://www.afp.gov.au/news-media/media-releases/man-arrested-laundering-77-million

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criminal gangs,33 and their October 2019 crackdown on multimillion-dollar laundering syndicate of Chinese nationals.34 Sadly for us, there is very little hardcore connection to sports betting, so maybe while the AFP might be the team to swoop in at the end to round up the bad guys, they are not the first line of defence when it comes to sports betting and financial crimes. Moving on…

Australian Transaction Reports and Analysis Center (Austrac) The Australian Transaction Reports and Analysis Center are seen as the main authority responsible for AML/CFT efforts. As the Australian financial intelligence unit, Austrac recently brought civil action against one of Australia’s biggest banks, Westpac sighting 23 million transactions in breach of the AML/CFT laws.35 We have to admire their efforts, but do we also have to question their ability? Their ability, that is, to be over so many areas at once with equal impact. Like most FIUs, their key weapon is the intelligence and data, which they gather through reporting requirements that cover high-value and suspicious transaction reports. Currently, Austrac oversees more than 14,000 reporting entities.36 They use sophisticated modeling and predictive analysis tools to work through their data, creating networks of associates, and help identify potential criminal activity or risks. The current reporting requirements in Australia mean that transactions of $10,000 or more as part of a designated service, international funds transfers, and any suspicious matters need to be reported to them in a timely manner. As an authorized deposit-taking institution, sports betting agencies fall under these instructions through the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.37

In 2020, Austrac said it was, “set to sharpen its focus on the gambling industry.”38 This seemed to be referring to the casino sector in particular, which is not surprising after the media cast a very sensationalized and unfavorable light on the activities of the Crown brand casinos in 2019. But what is their track record like so far? Well, to name a couple, we can remember that they have helped to detect tax evasion as a company director tried to pass off earning and winnings from betting, eventually recovering around $2 million in tax and penalties. Then there was the other company director who was using the company funds to fuel his betting habit to the tune of $1 million.39 Austrac was also the main player in the investigation mentioned in the third case study. Along with these actions, another significant thing Austrac is doing is to make international partnerships. Most recently, they signed a Memorandum of Understanding with the Great Britain Gambling Commission. This kind of cooperation is something that I will touch on later in this document, but for the time being, let me give a final thought on Austrac.

33 APF, https://www.afp.gov.au/news-media/media-releases/three-people-charged-money-laundering-offences 34 Michael Dalla Fontana (2019) AFP seizes $17.3m worth of property in Victoria, Tasmania in Chinese money laundering probe, https://www.abc.net.au/news/2019-10-31/afp-melbourne-tasmania-property-alleged-chinese-money-laundering/11657344 35 CNBC (2019) Australia’s Westpac Banking accused of 23 million money laundering breaches, https://www.cnbc.com/2019/11/20/australias-westpac-accused-of-23-million-money-laundering-breaches.html 36 Australian Government AUSTRAC, https://www.austrac.gov.au/about-us/intelligence 37 Australian Government Federal Register of Legislation Anti-Money Laundering and Counter-Terrorist Financing Act 2006, https://www.legislation.gov.au/Details/C2019C00011 38 Asia Gaming Brief (2020) AUSTRAC to focus on gambling industry, https://agbrief.com/headline/austrac-to-focus-on-gambling-industry/ 39 Australian Government AUSTRAC, https://www.austrac.gov.au/about-us/case-studies

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Like all the other groups we have looked at, sports betting is just one of the many industries of concern to Austrac, but we can note some significant difference; that is, the very direct connection Austrac has with its designated entities through its reporting requirements. It is really placing the onus on the operator and drawing them into the fight. Reporting can often be seen as a small factor, but it is in truth a significant one. It demands levels of KYC and transactional monitoring, which in turn help each business understand so much better the actual bones of their business and of course the potential risk that comes with it. The ACMA and APF might knock on your door when something is wrong, but Austrac is taking your pulse every day.

Sport Betting Integrity Unit Australia The last government body I would like to look at is one born of the legislators’ hope to crack down on the illegal activities around sports betting. As part of a new national commission, the Sports Betting Integrity Unit sounds like just the thing we are looking for. The only small problem for this white paper is that it’s not expected to become operational until mid-2020.40

It is said that there will be three main remits for this unit:

• To regulate the sports betting space properly

• To conduct thorough investigations

• To monitor potential illegal activity and help to develop integrity policies

The unit is set to be well funded and have new powers to conduct investigation and surveillance and will combine with the current anti-doping agency, ASADA, to form the new commission, which in turn will work closely with the policing agencies at state and federal level across Australia as well the department for home affairs. It is felt that by targeting the issues of cheating and corruption in sports, that the unit can address the lack of integrity that both dishonest sports people and unregulated betting agents have brought to the fore in recent years. The unit will also take on the duty of monitoring for suspicious gambling activity around sports, although it is not clear right now just how that will be done. One would imagine that this will require a close partnership with sporting bodies, the betting agencies themselves, and our old friend Austrac. With a national standing, the commission should also find it easier to share information with agencies and bodies across borders. It seems clear that the unit is equally tasked with protecting the health of the sports and betting industries as it is with fighting the illegal activities that surround these. That is no bad thing.

Self-Regulation I do not feel that I can finish this particular section without making some reference to the idea of self-regulation. The Australian Wagering Council (AWC) has represented the interests of the

40 ABC (2019) Powerful new sports integrity body has drug cheats and match-fixers in its sights https://www.abc.net.au/news/2019-02-12/sports-integrity-australia-match-fixing-doping-corruption/10802750

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sports betting industry in Australia since 2012.41 It is an industry body, so no one should be surprised where it puts its priorities, but it also has sense enough to acknowledge that regulated and licensed operators bring with it consumer confidence and a relatively level playing field. However, sadly for some, the Council is not set to last much longer. Having failed to persuade the Australia government to continue to allow online in-play betting, many of its key members are abandoning ship. Industry leaders say that the AWC will be replaced by a new body, which will be committed to “engaging seriously in the growing debate around wagering regulations in Australia.”42

We also have the Australian Gaming Council, which has been around since 2000 and I suspect is not going anywhere soon. This national industry body promotes a sustainable gambling industry with responsible gambling based on quality research and policies.43 It is very clear from its website that it is concerned with gambling image as a social issue, much akin to that surrounding alcohol and drugs. I am sure that they lobby the issues close to their hearts just as AWC does (did), but I don’t think either would seriously propose the idea of self-regulations. In an industry that already often struggles be seen as clean, respectable, and trustworthy, it would be little short of a PR nightmare, and, I suspect, a ticking time bomb.

The Bigger Picture They say that soccer is the global game, but I think it pales in comparison to sports betting. It is an activity that can happen around almost any event, at any level from complete amateur to elite sports person, and it is rapidly growing in popularity each year. More than this, it is something that is not bound by physical location. I can sit in my bedroom in Australia, placing bets with an agent in Vietnam on a roller derby playoff in Chicago. The Internet allows us to connect and transact on a global stage with far more ease than ever before and in virtual real time. Now, if it is so easy for me to place these bets, it does not take a rocket scientist to figure out how tempting and potentially easy is it for someone, sitting on a laptop somewhere else in the world, to exploit the weaknesses of the betting agent or the local regulations or the international remittance service and so on. Even with many countries prohibiting online gaming, there are untold ways of getting around this, ranging from sophisticated Smart DNS to even just employing a local runner in another country. International benchmarking and cooperation are essential to fighting almost all crime today, and sports betting is certainly no exception. I am not one to advocate that local solutions cannot help tackle global problems; if I did, I fear there would be no hope in the climate change crisis we face, but the fact is, it sure makes the fight a lot more winnable.

International Cooperation

41 Australian Wagering Council, https://australianwageringcouncil.com/about/ 42 Rick Wallace (2016) Australian Wagering Council to disband after in-play bet ban, https://www.theaustralian.com.au/nation/politics/australian-wagering-council-to-disband-after-inplay-bet-ban/news-story/2b4ee70e82e2839040cbfc9e6917cbd0 43 Australian Gaming Council, https://www.austgamingcouncil.org.au/

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We have already mentioned that Austrac has recently signed a MoU with the Great Britain Gambling Commission, and that brings the number of foreign jurisdictions or organizations with similar agreements to just under one hundred.44 These initiatives are not just limited to sharing information, but often include fact-finding missions and joint training exercises. The Australian Federal Police also has a strong international role to play with three key objectives.

• Collaboration – brokering collaboration with international law enforcement agencies to drive investigations and support bilateral or multi-lateral cooperation

• Intelligence gathering – collection and exchange of criminal intelligence in support of international law enforcement efforts

• Capacity building – enhancing the capacity and the capability of international law enforcement agencies to combat transnational crime45

In addition, the AFP hosts the National Central Bureau, or, as it is sometimes called, Australian Interpol, which is a global policing network with over 194 member countries.46 One cool example of what Interpol does is its Interpol Integrity in Sport Bi-Weekly Bulletin, where not only will you find interesting general information, such as when in 2017 the ACMA published new statistics showing that 33 offshore betting sites withdrew from Australian markets in the previous 12 months, but also details on its international investigations, like the Italia online gambling mafia ring bust, the South African match-fixing convictions, or the UAE suspension of cricketers from corruption.47 Knowledge is not power; sharing it is where the power really comes from. More than 4,100 people were arrested in a 2016 Interpol-led operation aimed at illegal Asian gambling networks. This involved the cooperation and coordination of China, France, Greece, Italy, Malaysia, Singapore, Thailand, Cambodia, Korea, Vietnam, and the Philippines with national central bureaus and specialist units from across the region working closely together. This was the sixth SOGA (soccer gambling) operation run by Interpol and brought the total number of arrests up to 12,500, with around $53 million USD in seized assets and 3,400 illegal gambling operations shut down.48

International Organizations Of course, along with government and law enforcement bodies, there are a number of international organizations, such as the Financial Action Task Force (FATF) and the Egmont Group, which generally support the overall concepts of highlighted AML/CFT risk and promoting education around this area. In their own ways, they do tremendous work, but it goes without saying it is not industry-specific, like perhaps the Wolfsberg Group might be said to be for banking. However, the fight against financial crime in the sports betting industry does have a

44 Australian Government AUSTRAC, https://www.austrac.gov.au/about-us/international-engagement/exchange-instruments-list 45 AFP, https://www.afp.gov.au/what-we-do/our-work-overseas 46 INTERPOL, https://www.interpol.int/en/Who-we-are/What-is-INTERPOL 47 INTERPOL, https://www.interpol.int/en/Crimes/Corruption/Corruption-in-sport 48 INTERPOL, https://www.interpol.int/es/Noticias-y-acontecimientos/Noticias/2016/More-than-4-100-arrests-in-INTERPOL-led-operation-targeting-Asian-illegal-gambling-networks

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great number of allies in the international government bodies that oversee its respective disciplines. Well, in theory! The FIFA international “tip of the iceberg” corruption scandal in 2015,49 the IOC launch of a major investigation of bribery over the Rio 2016 Olympic bid,50 and the simple inability of the authorities in Cycling, Gymnastics, Formula 1, Rugby League, Cricket, Baseball, and Boxing, to name but a few sports, to ensure the integrity of their sports might not give us that much comfort. Yes, that is a little harsh, so in the interest of balance, let’s not forget the actions of the World Anti-Doping Agency (WADA) to ban all Russian athletes from the Tokyo 2020 Olympics and the 2022 World Cup.51 But that’s about it on an international level, and we seem to need to rely on the national and regional bodies when it comes to keeping their industry clean. In 2019, Racing Victoria banned trainer Darren Weir for four years for cheating.52 In 2018, Cricket Australia banned three of its international squad for ball tampering,53 and in the most Australian of all sports, the Australian Rules Football (Aussie Rules) tribunal passed down a 22 game ban and fine of $20,000 to a player for betting on ALF games when his code of conduct clearly forbid it.54 Bookmakers and sports betting agencies do not have an international organization or governing body, and there is a reasonable argument to say, “why should they?” There are plenty of industries that don’t, and for sports betting, they have actually used jurisdictional differences to their advantage by setting up operations in areas where laws and regulations were friendlier to their cause. Sports betting is just one part of a very large machine, and it’s not even a vital part. Its existence relies totally on the actions of others, and its success and growth are as tied to technological innovations, clever marketing, and strategic planning as they are to a clean industry. Will this change? Does it need to?

Conclusion

What’s the Cost? It is hard to estimate the global value of sports betting, and numbers over the last couple of years have put this from anywhere between $105 billion to $250 billion USD. We can say with some level of certainty that in 2018, the total turnover of Australian Sports Betting was $11.6

49 Global Witness (2015) Tip of the iceberg: The role od the banks in the FIFA Story https://www.globalwitness.org/sv/campaigns/corruption-and-money-laundering/banks/tip-iceberg-role-banks-fifa-story/ 50 The Guardian (2016) IOC investigates allegations of bribery over Rio’s 2016 Olympic bid, https://www.theguardian.com/sport/2019/jul/05/ioc-investigates-allegations-of-bribery-over-rios-2016-olympic-bid 51 BBC (2019) Russia banned for four year to include 2020 Olympics and 2022 World Cup, https://www.bbc.com/sport/olympics/50710598 52 Catherine Murphy (2019) Darren Weir banned for four years after hearing told jiggers were found in bedroom, https://www.abc.net.au/news/2019-02-06/racing-victoria-hearing-darren-weir-ban/10784224 53 CNN (2018) Three Australian cricketers leave South Africa with bans for ball tampering, https://edition.cnn.com/2018/03/27/sport/australia-cricketers-sent-home-ball-tampering-spt/index.html 54 The Guardian (2019) Collingwood’s Jaidyn Stephenson handed 22-game ban for betting on Pies, games https://www.theguardian.com/sport/2019/jun/19/collingwoods-jaidyn-stephenson-handed-22-game-ban-for-betting-on-pies-games

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AUD with a total expenditure of $1.2 billion AUD.55 That’s an increase of 15% year on year and a clear indication that this industry is growing strongly. The fastest growing sector in sports betting is eSports, which is bringing an entirely new customer base into the betting world. This, along with the innovations sports betting agencies are making to upscale their products, might all indicate a very bright future, but there are risks and a price to pay when things go wrong. As we mentioned before, in 2009, a report from the Qatar-based International Centre for Sport Security estimated that criminals used sports betting to launder $140 billion USD each year. That’s an astonishing figure, and that was 10 years ago. Just think what it might be today. This is money from the proceeds of crimes. Crimes that have hurt people, that have cost livelihoods, and cost lives. That is a price that all industries vulnerable to money laundering should be well aware of, but of course, there is so much more in terms of financial crimes impact. The above numbers I referenced were for legal sports betting, and many authorities believe that the illegal sports betting market is far lager still. In this alone, we can see costs in terms of lost government revenue, adequate consumer protection, and most likely appropriate workers rights. Be it legal or illegal, financial crime will bring wider costs in terms of policing, insurance, welfare, and so on. The sports betting industry itself will face costs in potential civil actions, loss of consumer confidence, and reduction in profits and employment. Unchecked, it is inevitable that financial crimes around sports betting will ultimately impact on the sports themselves, especially if match fixing is involved. Declan Hill wrote on match fixing and gambling in sports, “if we do not fight it properly, it will destroy many sports as we know them. This new form of corruption will, like a tsunami, sweep aside all other issues and leave some sports dead and destroyed.”56 We know that compliance is something that no one wants to spend money on, and it is always a telling indicator when you look at how much an industry is willing to invest. I would normally argue that more spending is a sign of maturity, but if the Australian banking industry is anything to go by, then perhaps I am wrong. Preventative spending aside, there are also other measures to consider when we ask what it costs. Overregulation can be the death of an industry. Equally, as detailed above, noncompliance can lead to crippling regulatory fines, and of course, the social cost of allowing your industry, community, and country to be the victim of organized and financial crimes could be immeasurable.

What’s the Future? The digital revolution has, without doubt, been the main driver behind the continued popularity and growth of sports betting. People do not even need a desktop or laptop anymore, and it was predicted that 45% of global sports betting will happen via mobile phone by the end of 2019.57 Again, I would reiterate that for each benefit we see in technology, someone somewhere sees a criminal opportunity. As we conclude the white paper, we can ask many questions. Where are we today? Are the current players taking these issues seriously? There is, like in most businesses, a growing-up period, an infancy, an adolescence, and hopefully, if you survive adulthood, a ripe

55 William Jolly (2020) How much do Australian lose on gambling?, https://www.savings.com.au/savings-accounts/gambling-statistics-australia 56 Declan Hill (2012) The Fix Is In, http://declanhill.com/fix/ 57 SBD (1019) The Size and Increase of Global Sports Betting Market, https://www.sportsbettingdime.com/guides/finance/global-sports-betting-market/

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old age. With regard to the Australian sports betting industry, with our focus on financial crime, its overall health and life expectancy is still very much in question. But in the end, does it not all come down to a simple question? How can we stop money laundering sports betting?

The answer: we can’t, but that does not mean we should not keep trying.

• We need to have up-to-date laws that are easily adaptable to future technologies and can be quickly enacted.

• State regulators cannot be the last line of defence when so much government revenue is reliant on gaming taxes. National bodies have the ability to be more detached, impartial, and effective.

• Transaction and reporting limits should be set but not relied on as an un-crossable line in the sand. One million-dollar coins is still a million dollars.

• Illegal sports betting agencies must be eliminated. Licensing and stringent policing are key.

• Self-regulation will not work. Sorry, but time and time again, this has been proven. Do not expect for one moment that sports betting will be any different.

• The onus needs to be placed in the sports betting industry with significant and meaningful action in terms of fines and license suspension for material failures.

• Sports betting agencies should have clear and auditable AML/CFT policies and procedures and well as an appointed compliance officer.

• Sports betting agencies should be required to make minimum investments in AML/CFT efforts.

• Sports betting agencies should be mandated to disclose transactional histories, in-house analysis, and suspicious activity.

• Patron identification and re-validation requirements should be more demanding and frequent. Potentially even through an independent national authority.

• Financial institutions should work with agencies to understand better source of funds and money flows.

• There should be greater, quicker, and more effective collaboration between states and all nations.

In particular reference to Australia, there have already been a number of calls for a Royal Commission into sport betting, although this is often pushed by those concerned with the issue of problem gambling rather than financial crime. Nevertheless, as Reverend Tim Costello put it, “No government will ever act to reform gambling in Australia because of political donations, because of political capture,”58 so irrespective of what the concern might be, perhaps an independent Royal Commission is the best way forward to fully understand what we are dealing with and the kind of actions we need to take in the future. One thing is for certain: the world over, organized crime syndicates are utilizing the sports betting market to launder money gained through the proceeds of criminal activities, and many others are exploiting this industry for illicit gain. At the end of the day, if sports betting is to win,

58 Steve Cannane, Kyle Taylor and Clare Blumer (2019) Sports betting and gambling need a royal commission, Tim Costello and Andrew Wilkie say, https://mobile.abc.net.au/news/2019-12-06/sports-betting-gambling-royal-commission-costello-wilkie-say/11771506?pfm=sm&pfmredir=sm&section=sport

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I believe it comes down to a numbers game. It’s about having plenty of players on the field, be they Austrac, Interpol, or the industry leaders. And it’s about having the right training and equipment and resources to do the job just that bit better than the opposition. And, ultimately, it’s about communication, sharing, supporting, assisting, cooperation, and trust: teamwork. Would you bet on it?