Tuesday, September 24, 2002
Copyright © Gaming Wire
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WORLD WIDE WEB: Report: Net bets open to crime

Inconsistent regulation problematic, analyst says 

By ROD SMITH 
GAMING WIRE 



Internet gambling is susceptible to money laundering and related criminal activity because of the lack of state regulation, the General Accounting Office said Monday in an interim report. 

"Law enforcement officials believe Internet gambling can be a significant vehicle for laundering criminal proceeds," according to the report by the GAO, Congress' watchdog agency. 

"The online gambling industry is particularly vulnerable because state regulations are so patchy and in some cases unknown as opposed to land-based gambling, which is so well regulated in Nevada," Bear, Stearns & Co.'s Michael Tew said Monday. 

"Many offshore jurisdictions, particularly those in the Caribbean, exert little or no regulatory control over gambling site operators, who are for the most part unknown," Tew said. 

"More importantly, they are beyond the control of the U.S. Justice Department. Still, these sites generate up to 60 percent of their revenues from the American market," he said. 

"They are a direct pipeline of dollars out of the U.S. into virtually unknown hands. And such sites fall under loose offshore reporting requirements, so it is unclear how these funds are spent. In our view, this uncertainty could pose a risk to national security from terror and/or criminal organizations," Tew said. 

"I would see the GAO report as a large caution sign given the nature of transaction-processing within the Internet gaming industry," he said. 

Tony Cabot, a partner in Lionel, Sawyer & Collins, a law firm, said opportunities for money laundering and other criminal activities are almost limitless when "e-cash" transactions are involved. 

Most e-cash transactions take place off so-called "smart cards" and perpetrators never face the challenge of converting large amounts of cash. Similar to long-distance telephone cards, smart cards can be used for transactions much like cash with no way to trace the original source of the money. 

However, money laundering is almost nonexistent in online gaming as long as credit cards are used, he said 

"The opportunities for (money) laundering is really incredible if you're dealing with a cashless society," Cabot said. "Opportunities get even higher if you want to launder money and you're the casino operator. 

"I think anybody who has been dealing in the area of money laundering understands the problems (online gaming) can and probably will create for law enforcement," Cabot said. 

"(The extent of those problems) depend on whether or not Internet gaming becomes a regulated environment. It's relatively simple to figure out ways to prevent money laundering. If it remains illegal, however, it becomes a problem for everybody," he said. 

Several characteristics of Internet gambling make it especially vulnerable to money laundering, according to law enforcement officials working with the GAO, including the volume, speed and international reach of Internet transactions and the offshore locations of Internet gambling sites. 

Tew said the GAO report is particularly important because "there are earlier peculiar links between casinos and terror." 

He cited prosecutors' statements that Shafal Mosed, one of the Lackawanna, N.Y., terror suspects, visited a casino and spent $89,000 despite his seemingly humble lifestyle. 

He also cited statements that an associate, Yahein Taher, who also claims to have little money, exchanged $15,700 in U.S. currency for Canadian in October at Casino Niagara, the same Niagara Falls, Ontario, casino that suspect Mosed visited. 

Tew also said Mohammed Atta made several trips to Las Vegas before Sept. 11 and cited a videotape of the MGM Grand casino-hotel among possessions of the Detroit terror "sleeper" cell disrupted by the Justice Department last month. 

Bear, Stearns estimates that there are 1,800 e-gaming Web sites in existence, of which approximately 75 percent are based in governmental jurisdictions with insufficient regulatory structures. 

Still, Tew said Internet will continue to grow in markets where it is strictly regulated such as the United Kingdom and certain other markets in Europe including the Channel Islands. 

Members of Congress from Nevada declined to comment because they had not seen the interim GAO report. 

The report was originally requested by the House Committee on Financial Services Sept. 10 and a final report is due in November. The chairman and ranking member of the committee also declined to comment on the grounds they had not seen the report. 

Last week, the U.S. Treasury Department issued anti-money laundering rules that for the first time require brick-and-mortar casinos to report suspicious transactions.