In Anti-Money Laundering, KYC, Trending

Proxy Betting Epidemic in S.E. Asia

A recent trend has recently emerged in much of Southeast Asia that has many financial watchdogs and activists scrambling to stop what has the potential to become a primary, legal way to launder money. The trend is called “Proxy Betting”, where a person who is not physically present at a casino gives betting instructions to a trusted individual (a cohort, casino employee, etc.) inside of a casino, usually through a mobile phone. The individual receiving instructions then purchases casino chips, places bets on behalf of the off-site person or group, and collects the potential winnings. In most cases, the gaming action is recorded and streamed live from the table to the laptops of the parties phoning in the bets, allowing them to call the shots from hundreds of miles away. Despite being a banned practice in Singapore, Australia, and most recently Macau, this trend has recently swept through China, the Philippines, Vietnam and other areas of Asia.

Without federal regulation governing this growing trend within these countries, many believe that “the practice risks creating a loophole regarding the ‘know your customer’ protocol” and other anti-money laundering procedures that havw been effective in monitoring and limiting money laundering threats across the globe to date (GGR, 2017). Gaming regulators have aimed to increase the transparency of the individuals and funds used to participate in licensed casinos, yet the practice of proxy betting seems to create the opposite of transparency. By supplying a player anonymity, the source of the funds being used to purchase chips for proxy betting within the casino are unknown. In some locations, such as the Philippines, federal law does require proxies to submit to the regulator the passport information of the people placing bets. However, “there’s no verification process nor information about where the money they’re betting originated” (Wei & Einhorn, 2017). This can essentially create a money-laundering machine which drug dealers, international criminals, and others can capitalize on. While a player may lose some money in play, they have the ability to cash out and take with them the majority of their now-clean funds as they please. To that point, the United States State Department has found that many criminal groups have already begun taking advantage of proxy betting to move illicit funds– those that have already been washed through casinos – from the Philippines to offshore accounts.

Proxy betting has emerged as a very lucrative opportunity for casino operators who are looking to expand both their customer base as well as their income, and this has become most evident in the Philippines. According to the article “China’s High Rollers Are Phoning In Big Bets to Manila Casinos” cited in BSA News Now on Thursday, May 4th, 2017, “Philippine casinos reported as much as 110 percent increases in VIP revenue from high-rollers –  from $27 billion in bets placed last year, and possibly far more if off-books betting were tallied” (Wei & Einhorn, 2017). Proxy betting itself has also reportedly grown to become the primary source of business within many VIP rooms of Philippine casinos. However, these operations have not only raised the overall risks of money laundering and financial crime throughout the region, they have also raised concerns in China “where authorities have sought to halt billions of dollars worth of outflows that have pushed down the value of the currency and drained capital reserves” (Wei & Einhorn, 2017). It is common knowledge that casinos are hotbeds for the influx of illicit funds, thus many AML activists have pushed for casinos to be included amongst other institutions monitored globally for money laundering activity. Some have gone as far as to ask for regulators to even be “empowered to look into bank accounts of casino operators suspected of unlawful activity” (Wei & Einhorn, 2017). However, Philippines casinos are currently exempt from the AML requirements that govern other financial institutions (FI’s) within the country, something that has worried AML proponents around the world due to the high level of risk involved.

As proxy betting continues to gain popularity abroad, it is clear that that if those operating casinos do not move to increase global awareness of the parameters surrounding the practice, global financial authorities will have to take matters into their own hands by creating legislation to ensure that proper AML procedures are in place to manage this potentially hazardous trend.

Weekly Roundup

Anti-Corruption Unit a Success in South Africa

A newly constructed anti-corruption unit in Johannesburg, South Africa has had great success thus far in reducing the amount of corruption present within the city, both amongst citizens and governmental figures. With missing or misused funds reaching peak levels within the city in 2017, the unit has reportedly “exposed and prevented fraud and corruption estimated at R2 billion across a number of different departments and entities” according to Johannesburg Mayor Herman Mashaba (Goba, 2017). The success of the anti-corruption unit also coincides with the overall crime fighting movement within the city, one that has seen the Johannesburg Police Department looking to add around 1‚500 new officers to bolster its visible presence and crime fighting in the city.

With an estimated 300+ cases of corruption and fraud currently being investigated in the city, over 30 arrests have been made as a result of similar investigations. Additionally, “91 employees have been suspended and three senior officials have resigned as a result of these investigations” (Goba, 2017). While the goal of the unit is primarily to limit the amount of funds being used illicitly, Mayor Mashaba hopes to better use these public funds to aid the local economy, and to “eradicate the conditions of the state of poor people in the city” (Goba, 2017).

 

U.S. Vending Company Charged With Money Laundering

 

On Tuesday, May 2nd, officials from the Attorney General of Massachusetts’ office announced that owners of Four Star Vending Inc., a prominent vending/gaming company based just outside of Boston, have been charged for their roles in a money laundering and illegal gambling scheme. It has been alleged that the scheme brought in over $1 million worth of illicit funds that were split between Four Star Vending’s owners and the owners of several bars and nightclubs located throughout the northeastern United States.

Digital slot and poker machines were planted in the aforementioned bars, facilitating gambling activity. The funds raised through this practice were then “laundered through Four Star’s legitimate business supplying and servicing ATMs, jukeboxes, and vending machines to various retail customers” (Adams, 2017). The owners and employees are alleged to have used their own business as a front to conceal the illegal activity that continued to bring in significant income.

These charges are the latest brought about by the Alcoholic Beverages Control Commission (ABCC), who in recent years have attempted to crack down on illegal betting operations occurring within United States bars. Both the company itself and its principal owners (William and Bonnie Morley) face criminal charges that include “three gambling-related offenses, money laundering, and conspiracy” (Adams, 2017).

Criminal Finances Act “a Homerun”

The UK’s newly enacted Criminal Finances Act of 2017 has been well-received by anti-corruption activists throughout Europe this past week, and has even been deemed by some as “the most significant piece of legislation in the fight against global corruption since the enactment of the UK Bribery Act in 2010” (AJOT, 2017). The Act enables British law enforcement (after gaining clearance from a high court judge) to issue Unexplained Wealth Orders (UWO’s), and to effectively freeze property that is suspected of being purchased with “suspicious wealth” – i.e. when the owner’s known income is insufficient to purchase such a property. The Act also applies to principal owners who are Politically Exposed Persons (PEP’s), those whose wealth may be derived from crimes such as fraud and money laundering, and when “the value of the asset purchased is greater than £50,000 (USD$65,000)” (AJOT, 2017).

The article “The UK Criminal Finances Act: Freezing Suspiciously Obtained Property to Fight Global Corruption” cited in BSA News Now on May 3rd, 2017”, states that “when using a UWO to seek forfeiture, authorities do not need to establish a predicate offense; instead, the law reverses the burden of proof by compelling the subject of the UWO to provide a satisfactory explanation for the source of the wealth in question” (AJOT, 2017). The act and subsequent asset seizures are likely to have a significant impact on companies operating under the UK Bribery Act and Foreign Corrupt Practices Act that may be involved with officials or PEP’s that are issued UWO’s, as these companies may face sanctions, penalties, and higher scrutiny as a result of these dealings.

Citations

AJOT. “The UK Criminal Finances Act: Freezing Suspiciously Obtained Property to Fight Global Corruption.” AJOT – International Trade. 2 May 2017. Web. 

Goba, Neo. “Billions Recovered since the Establishment of Anti-corruption Unit in the City of Johannesburg.” Times LIVE. 3 May 2017. Web. 

Rinaldi, Jessica. “AG: Vending Machine Company Was a Front for Illegal Gambling Operation – The Boston Globe.” BostonGlobe.com. 02 May 2017. Web.

“Robust Regulation Needed for Proxy Betting: GMA.” GGR Asia. N.p., 9 Aug. 2016. Web. 

Wei, Daniela, and Bruce Einhorn. “China’s High Rollers Are Phoning In Big Bets to Manila Casinos.” Bloomberg.com. Bloomberg, 03 May 2017. Web.

 

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