Download Online Gambling as a Game Chager to Money Laundering 1

02.12.12
1. Introduction
Online Gambling as a Game Chager to
Money Laundering
•  Money laundering is the process by which criminals
attempt to conceal or disguise the nature, location, source,
ownership or control of their ill-gotten gains, so as to make
it possible to invest or consume the proceeds of crime
(Masciandaro1999)
•  Money laundering (Unger, 2007):
  distorts prices, consumption, saving and investment rates;
  increases the volatility of import/export levels, the demand for money, interest and
exchange rates, as well as the availability of credit;
29th November 2012
  threatens the solvability and liquidity, as well as the reputation and profitability of the
financial sector;
Dr. Ingo Fiedler
  Endangers the continuance of foreign direct investment (FDI)
  Acts as a multiplier for crime, corruption, bribery and terrorism
 ML as a necessary condition for organized crime
Universität Hamburg
Institut für Recht der Wirtschaft
Universität Hamburg
Institut für Recht der Wirtschaft
What makes ML different from other
crime?
  the negative externalities of money laundering are to a large part indirect:
Money laundering lowers the cost of (other) criminal actions and, hence,
increases the amount of crime.
  In contrast to a criminal who can be ideologically motivated (think of a
terrorist) the money launderer is not necessarily prone to the "injurious“
behavior of an ordinary criminal – he is only motivated by profit
•  Money Launderer as the weak link in the chain of
organized crime
 The money launderer is modeled as an independently.
Dr. Ingo Fiedler
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Dirty and White dollars
•  Money laundering is a criminal activity
•  Still, it is different:
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Institut für Recht der Wirtschaft
Dr. Ingo Fiedler
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•  Crime ’pays’ less because a ’dirty dollar’ earned in the
criminal economy is worth less than a ’clean’ one earned
in the legitimate economy (Wilson 1992)
•  The reason is that the dirty dollar has to be laundered to
become a clean dollar – and money laundering comes
with a cost
•  ML as an agent of the producer of crime
 Focus of the paper: increase the costs of money
laundering to decrease the amount of crime
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Institut für Recht der Wirtschaft
Dr. Ingo Fiedler
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Measuring the Immeasurable: Prevalence
of Money Laundering
The Market for Money Laundering
•  2-6% of the global GDP
stems from illicit
sources
•  $0.6-2.5 trillion flow
through money
laundering markets per
year
•  0.1%-0.3% of moiney
laundering is detected
and intercepted
Universität Hamburg
Institut für Recht der Wirtschaft
Dr. Ingo Fiedler
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Gambling and Money Laundering
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•  Three different cases of money laundering:
1)  Illegal gambling as an illegal transaction and a money
laundering offense per se
2)  Illegal transaction occured ex ante: Deposit of illegal funds
via anonymous method and payout as (tax free) gambling
win
3)  Use of gambling as a payment tool for illegal transactions
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Deposit
Option
Player
  Huge volume of transactions/cash flows
  No physical product
  Often tax free „winnings“
Dr. Ingo Fiedler
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E-cash Flows
•  Gambling as a perfect tool for money laundering
Universität Hamburg
Institut für Recht der Wirtschaft
Dr. Ingo Fiedler
Universität Hamburg
Institut für Recht der Wirtschaft
Player
Universität Hamburg
Institut für Recht der Wirtschaft
Payment
Processor
235 payment methods
Credit cards (physical/virtual)
Debit cards (physical/virtual)
Prepaid cards (physical/virtual)
Bank wire
ACH
Cheque
Gateways
Player-to-Player transfer (P2P)
(Mobil-)Telefone bill
Cash
Withdraw
Option
Payment
Processor
Dr. Ingo Fiedler
Gambling
Operator
2.910 Operators
•  Casinos
•  Bookmaker
•  Betting exchanges
•  Poker
•  Bingo
•  Skill Games
Gambling
Operator
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The Complexity of E-cash Flows with
payment processors
Analyzing different scenarios
Case A: Small cocaine dealer
ObjecLve: Transfer €10,000 of illegal drug funds to legal bank account
 Use a prepaid card (e.g. Paysafecard)
100x100
10,000€ € Deposit Casino Paysafe-­‐
Account
cards
10,000€
Cash
10,000€ Customers
Dr. Ingo Fiedler
Universität Hamburg
Institut für Recht der Wirtschaft
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Fog: Not observable for financial intelligence
Play
9,500€
Casino Account
9,500€
Bank Account
Tax free income!
500€
Casino
Operator
Dr. Ingo Fiedler
Universität Hamburg
Institut für Recht der Wirtschaft
3 Wire
Transfers
as Gambling Wins
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Analyzing different scenarios
Analyzing different scenarios
Case A: Small cocaine dealer
Case B: Medium cocaine dealer
ObjecLve: Transfer €10,000 of illegal drug funds to legal bank account
ObjecLve: Transfer €200,000€ illegal drug funds to legal bank account
 Use online gambling as a payment tool
1,000€ Bank Account Deposit Customer A .
.
1,000€ .
Credit Card Customer J Deposit Universität Hamburg
Institut für Recht der Wirtschaft
1,000€ Poker Account Customer A .
.
1,000€ . Poker Account Customer J Player Transfer 10,000€ Poker Account Fog: Not observable for financial intelligence Dr. Ingo Fiedler
 Deposit via offshore accounts
3 Wire Transfers as Gambling Wins 10,000€ Bank Account Tax free income! 11
200,000€
Cash
200,000€ 200,000€ Switch Foreign Bank Couple of Casino Country
Deposits Account
Accounts
Play
200,000€ Customer
Fog: Not observable for financial intelligence
5,000€
Casino
Operator
Universität Hamburg
Institut für Recht der Wirtschaft
Dr. Ingo Fiedler
195,000€
Casino Account
Wire
Transfer
195,000€
+
Bank Account
Phone Call „Jackpot“ Tax free income!
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Analyzing different scenarios
Analyzing different scenarios
Case B: Medium cocaine dealer
Case C: Huge cocaine dealer
ObjecLve: Transfer €200,000€ illegal drug funds to legal bank account
ObjecLve: Transfer €200,000,000 illegal drug funds to legal bank account
 e-Wallets as a payment system
 Found an online casino
Found a Gambling Operator in a „tax heaven“
Figure 9: Example of using online gambling as a payment tool for €200,000 of illegal proceedings.
20,000€ Customer A 20,000€ E-­‐Wallet Account A . . . 20,000€ Customer J . . . 20,000€ E-­‐Wallet Account J Universität Hamburg
Institut für Recht der Wirtschaft
200,000€ 200,000€ E-­‐Wallet Couple of Casino Account Deposits Account Drug Dealer Fog: Not observable for financial intelligence Wire Play Transfer 195,000€ Bank + Phone Call Account „Jackpot“ 5,000€ Casino Operator Dr. Ingo Fiedler
200,000,000€ Switch Country
Cash
Tax free income! 200,000,000€ Customer
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Online Gambling as a „Game-Changer“ to
Money Laundering
Foreign Bank Account
Create Fake Revenues (and Expenses)
200,000,000€
Business Fog: Not observable for financial intelligence
Real Expenses, taxes etc. 190,000,000€
Business Profits
Dividend payout 10,000,000€
„Tax Heaven“
Dr. Ingo Fiedler
Universität Hamburg
Institut für Recht der Wirtschaft
190,000,000€
Bank Account
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4. Onlineglücksspiele „Game-Changer“ der Geldwäsche
d) Der „Game-Changer“: sehr geringe Kosten
Price of ML
Supply of ML (gets cheaper)
Low Costs
More
OC
Low Risk of
Detection
Demand of ML
Old crime level
New crime level
Organized crime
 Decreased costs of money laundering due to online gambling
 more organized crime
Universität Hamburg
Institut für Recht der Wirtschaft
Dr. Ingo Fiedler
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Universität Hamburg
Institut für Recht der Wirtschaft
Dr. Ingo Fiedler
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Recommendations
•  Taxing Gambling Wins
  Increases costs of money laundering
  Decreases profits from crime
  Decreases crime
Thank you for your kind attention!
•  Law enforcement
  Tackling illegal gambling = Tackling money laundering
  Precondition for any regulation: No illegal gambling
Universität Hamburg
Institut für Recht der Wirtschaft
Dr. Ingo Fiedler
[email protected]
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Universität Hamburg
Institut für Recht der Wirtschaft
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