How operators can mitigate money laundering risks in the iGaming sector

Ontario’s iGaming industry has grown rapidly since its launch on April 4, 2022. Rapid growth increases risks — and, as a result, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) has released a bulletin on red flags and money laundering indicators relating to online gambling sites.

Therefore, it is imperative that current and prospective iGaming operators continue to evaluate the money laundering risks present in their business. Taking the right steps to set up a comprehensive anti-money laundering program will help operators mitigate risks and comply with regulatory expectations.

What money laundering risks are associated with iGaming?

The Ontario government established a regulated iGaming market to shift the province’s iGaming landscape to a legal and regulated framework and increase consumer protection. According to a report from iGaming Ontario (iGO), the iGaming market generated total gaming revenues of just over $1.48 billion in its first year. This success is causing other provinces to consider entering this booming space.

iGO is a subsidiary of the Alcohol and Gaming Commission of Ontario (AGCO), and it is responsible for conducting and managing iGaming in the province. The services are provided through an agency model where private iGaming companies, or operators, execute an operating agreement with iGO to operate in the Ontario market. This makes iGO the reporting entity that is required to comply with Canadian AML laws, and the operators are its agents.

However, FINTRAC, Canada’s financial intelligence unit and AML regulator, recently warned that illicit funds are being laundered through both legitimate and unlicensed operations as online gambling becomes more popular. FINTRAC analyzes information from banks, casinos, money-service businesses, and other reporting agencies to identify funds linked to criminal activities and to alert law enforcement agencies of suspected cases.

FINTRAC states that online gambling sites offer prospective money launderers opportunities to conceal the source of their funds through multiple deposit and withdrawal methods. One common method is the purchase of prepaid cards using suspected criminal proceeds to deposit money into online gambling accounts. Withdrawals of these funds to a Canadian bank account are then disguised as gambling earnings or proceeds.

While FINTRAC’s concerns focus more on payment methods that are prohibited by iGO, the popularity and growth of iGaming increases the risk of money laundering through licensed iGaming operations. Failure to take the right steps to prevent money laundering poses a reputational risk to your business and can result in significant financial penalties.

Operators often face challenges as part of the operational due diligence journey, which may include the following:

Client identification

iGaming is conducted in an online environment, which can make it challenging to verify the identities of the individuals actually involved in gaming transactions. This lack of face-to-face transactions thereby increases the risk of money laundering.

Account takeovers

The online nature of iGaming can expose prospective clients and operators to account takeovers and fraud. In an account takeover, fraudsters steal client information and set up accounts with the stolen identity. Funds from criminal activity are then passed through the account to hide the source of funds and layer the fund into the financial system.

Structuring

According to FINTRAC, structuring can be defined as a pattern of financial transaction activity in which a single transaction is broken down into multiple/ sequential transactions. Each of these transactions fall below the threshold that would require mandatory reporting and/or the application of player ID and record-keeping obligations. iGaming operators continue to face the prospect of criminals attempting to structure deposits or disbursements to avoid triggering reporting obligations.