Money Laundering and Online Gambling

Money laundering is against the law

I’ve been thinking a lot about money laundering and its possible ties to the online gambling industry. Suffice it to say it is one of the main reasons why this industry has such a bad reputation.

You’ve most probably heard this saying before: ‘‘Listen, here’s the thing. If you can’t spot the sucker within the first half and hour at the table then you are the sucker”. If one looks at history, you’ll see that the US government does not suffer fools lightly. In 2010 it had its sights on the online poker industry which generated $1.4 billion from US players alone.

US Federal Government Nails Online Poker Sites

On 15 April, 2011 the US government indicted the founders of the world’s largest online poker sites. The online poker community dubbed it ”Black Friday”. It blind sided a large number of Americans who depended on the game for a living. Eleven defendants were charged with bank fraud, money laundering and illegal gambling. It was in violation of the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006. In a nutshell; they bypassed federal law by manipulating banking institutions into processing payments on their behalf.

Funds received from US players were disguised as payments to hundreds of non-existent online merchants purporting to sell various commodities from jewellery, golf balls to pet supplies. They worked with ”respected” payment processors who opened US bank accounts on their behalf. These payments processors duped banks about the origins of their financial transactions. They even concocted phony corporations and websites to cover their tracks.

The poker companies and their payment processors even bribed the heads of some small banks. What happened next had a profound impact on the online poker industry-it has never been the same ever since. It culminated in the United States vs. Scheinberg, a federal criminal case naming eleven individuals from the Black Friday indictment as defendants. The US government ceased approximately $3 billion in company assets, domain names and froze their bank accounts.

Can the US Government Justify its Actions?

Many questions have been asked whether the US Department of Justice (DOJ) had the right to prosecute the owners of Full Tilt Poker and PokerStars. The DOJ states that its sole responsibility is to protect its citizens from fraud, money laundering and financial ruin. It states that the necessary mechanisms must be in place to serve this purpose.

The US is busy regulating the online poker industry which will ensure safe gaming conditions for players and will tax revenue generated from it. The SAFE Port Act protects US ports from possible terrorist attacks and was viewed as a ”must-pass” bill by many members of Congress.

What’s the Purpose of The UIGEA?

The UIGEA focuses primarily on Internet gambling payment processors. It blocks gamblers’ funds by prohibiting monetary transfers from financial institutions to online casinos. It’s a felony if banks and other financial institutions such as e-wallets engage in financial transactions to Internet gambling websites. Truth be told it’s virtually impossible for the US government to police it since the casinos are regulated in different jurisdictions.

What Happens When a Person is Guilty of Gambling Online? 

The crime is punishable by up to five years in prison. Non compliant financial institutions are subject to civil penalties. The Act states:

No person engaged in the business of betting or wagering may knowingly accept, in connection with the participation of another person in unlawful internet gambling- (1) credit, or the proceeds of credit…(2) an electronic fund transfer, or funds transmitted by or through a money transmitting business,…(3) any check, draft or similar instrument, or…(4) the proceeds of any other form of financial transaction”.

This is ambiguous at best. Although the UIGEA prohibits financial transactions from online gambling, it is silent on prohibiting the actual act of placing bets and players to participate in online poker. I’m not going to go into detail here since the aim of this article is to discuss money laundering and the online gambling loophole.

Money Laundering and its Ties to Online Gambling

Let’s have a look at Full Tilt Poker. Many regarded this site as a global ponzi scheme since it did not have sufficient funds to repay all its players. It owed players more than $440 million dollars. Federal prosecutors maintained that Full Tilt’s CEO Raymond Bitar lied about its inability to repay US players.

Players’ money had been spent by the company and lined the pockets of the owners. Some industry experts even suggest that Full Tilt ran a legitimate business since it was licensed in a very reputable jurisdiction, Alderney. At the time Alderney as a jurisdiction took a beating due to its incompetence and its ability to champion the cause of the players.

Opponents of online gambling legalization in the US fear that it will lead to an increase in money laundering. However, this holds little water. Prior to the UIGEA, reputable e-wallet companies such as Neteller serviced the US market. This e-wallet had strong policies in place that prevents money laundering and other forms of fraudulent activity.

Although online gambling creates an opportunity for money laundering it also depends on the payment processors used and the jurisdiction the online casino is licensed in. Online casinos that have been guilty of money laundering were licensed in shoddy jurisdictions such as Costa Rica and Mexico.

The declaration of war on the online poker industry has done little to deter individuals from playing the game. It only subjected American players to the mercy of unregulated offshore gaming sites. Some that offer little fraud prevention, money laundering, addiction and underage gambling. Federal regulation would effectively address the issues and potential problems associated with it. If legalized it will add millions of dollars in taxable revenue, stimulate the national economy and ensure a fair and structured gaming environment for its citizens.

Related Resources

  1. Casinolistings – UK gambling Commission Warns Coral Over Money Laundering
  2. The Guardian –


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