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Different regulatory structures applied to sports betting and online gaming compared with traditional land-based casinos are creating heightened money laundering risks, the U.S. Department of the Treasury has said in a report.
The Treasury’s 2024 National Money Laundering Risk Assessment, which examines current money laundering trends, noted that a majority of sports-betting activity is occurring online, and that mobile betting operators are typically affiliated with casinos through a “skin” partnership or obtaining a license directly from a state agency without any type of relationship with a casino covered by established anti-money laundering (AML) regulations.
“The anonymity afforded by online gaming and the size and rapid growth of this sector now present unique money laundering risks,” the Treasury said as part of its 108-page report released on February 7.
Gregory Lisa, senior counsel with Hogan Lovells law firm in Washington, D.C. and a former director of enforcement for the Treasury Department's Financial Crimes Enforcement Network (FinCEN), said Monday (February 12) that online and mobile sports betting is a relatively new area for the agency.
“This was a focus on online gaming that is really a way of the Treasury trying to stay abreast of new developments. They are hoping that this helps enforcement policy,” Lisa told Vixio GamblingCompliance.
The Bank Secrecy Act of 1970 requires all licensed casinos and cardrooms with annual gross gaming revenues of more than $1m to comply with AML rules established under the act.
Since the U.S. Supreme Court overturned the Professional and Amateur Sports Protection Act (PASPA) in 2018, however, most wagers on sports in the U.S. are placed via online or mobile apps.
In New Jersey and various other states, mobile sportsbook operators operate under the sports wagering license of an established land-based casino.
In several states including New York and Virginia, sports-betting operators can obtain their license without partnering with a casino, while in others mobile sportsbooks operate in partnership with a racetrack, professional sports team, or other entity that is not historically covered by the BSA's AML requirements.
Mobile sports betting is also conducted via state lotteries, which are not covered by the BSA, in several states plus the District of Columbia.
Specifically, the BSA requires financial institutions including casinos to have formal AML programs in place, file reports of transactions exceeding $10,000, and report suspicious activity that might signify money laundering, tax evasion, or other criminal activities.
In its risk assessment report, the Treasury Department noted that operators not affiliated with a casino might not be aware of their BSA obligations, or the casino could have “limited visibility” into potential criminal activity occurring on its third-party operators’ platforms.
“In some instances, casinos and gaming operators that do not meet the BSA’s definition of a casino (often due to a licensing requirement) may be operating as money transmitters,” the report states.
“These factors, in addition to the volume of the betting activity, the rapid growth of the sector, and the lack of uniform requirements or regulations of these services across state, territorial, and tribal jurisdictions, present significant and increasing money laundering risks,” the Treasury said.
AML In Post-PASPA Era
The U.S. gaming industry itself has lobbied for several years for greater clarity on AML responsibilities when it comes to sports betting and online gaming.
New forms of legal gaming, such as online sports betting and internet gaming, require specific BSA guidance to ensure the financial system is protected from money laundering, according to the American Gaming Association (AGA).
“In the absence of such guidance, [our] members have built on decades of experience from robust casino compliance to create and deploy AML controls for online gaming,” Alex Costello, AGA’s vice president of government relations, said in a statement emailed on Monday.
“Our members stand ready to work with the Department of Treasury to ensure that legal, online operators have the guidance needed to build on our current programs and meet the high standards already employed by the casino industry.”
Lisa of Hogan Lovells told Vixio that the Treasury report underlined the rapid emergence of online and mobile sports betting, which may not fit under established regulations that were developed for land-based casino gaming.
“No one anticipated that there would be this type of wagering activity that would not be classified as occurring within a casino,” Lisa said. “When the regulations were written, they weren’t future-proof.”
“I don’t think it’s more or less inherently risky than other forms of betting, but there are distinct, unique risks for online wagering and sports betting” he said. "This was one of the points of the Treasury report, and it's absolutely true."
Currently, there are 38 states and the District of Columbia that have legalized sports betting. Among those, 30 states currently offer mobile sports betting following the launch in both Delaware and Vermont in January, with North Carolina poised to follow suit next month.
Still, the Treasury report suggested that 40 percent of the U.S. sports-betting market still occurs on illegal or offshore websites.
Each year, commercial and tribal casinos, as well as online gaming operators, in the U.S. file tens of thousands of suspicious activity reports (SARs) and currency transaction reports (CTRs) with FinCEN as part of their AML compliance programs.
Costello said the legal industry’s willingness to work with federal regulators was “in stark contrast to the illegal, offshore marketplace.”
“These predatory websites, which rely on cryptocurrency and employ no AML safeguards, pose the most significant risk of gambling-related financial crimes,” Costello added. “The federal government must prioritize enforcement against these bad actors to protect American consumers and the U.S. financial system.”
Among a series of regulatory revisions first suggested by the U.S. gaming industry in 2021 was for FinCEN to extend BSA coverage to states engaged in gaming directly via their lotteries, and to clarify the roles and responsibilities of casinos and sports-betting operators under the BSA.
Lisa said FinCEN may try to provide some guidance to explain in more detail that many of these business models constitute money transmission, or whether casino operators must capture them under the prong of the AML rules requiring casinos to us “all available information” in furtherance of compliance.
"I just don’t think that they can use guidance to create a new category of BSA-regulated financial institutions," he said.
Other options include FinCEN deciding to issue a notice and seeking comments on rulemaking, or potentially clarifying that some of these sports-betting entities fall into the category of money transmitters, or money service businesses (MSBs), under the BSA.
Under the rules, MSBs must register with the Department of Treasury and renew their registration every two years and must maintain a list of their agents and update the list annually, along with several other requirements.
