A constant, hidden threat: money laundering in the betting and gaming industry
National Collegiate Athletic Association.
The first outlined the Murphy decision itself, and the second focused on potential state and federal legislation following Murphy.
The third identified potential revenue opportunities that may emerge following Murphy.
This alert outlines risks related to money laundering and key aspects of an anti-money laundering compliance program as they apply to established businesses that may now expand into sports betting, as well as those that may be new entrants into the market post-Murphy.
National Collegiate Athletic Association Murphywhich removed the barrier to legalized sports betting, a number of states have authorized and are now regulating sports betting.
While Murphy offers market participants a new and significant opportunity to generate revenue, both new entrants to the market and those looking to expand the scope of their existing activities will need to be vigilant in avoiding unwitting participation in, and liability for, money laundering or any other illicit betting activity.
Further, as we describe below, those individuals and entities that meet a certain threshold of sports betting activity are subject to anti-money laundering rules applicable to casinos and card clubs.
This gives rise to an obvious risk of money laundering as the potential customer base expands through legalized sports betting.
All businesses, including sportsbooks, have, at a minimum, an obligation to avoid participating in the laundering of illicit funds.
Federal anti-money laundering laws prohibit transactions with funds that a person knows derive from unlawful activity, even if he is unaware of the nature of unlawful activity involved.
Further, with limitations such gambling money laundering risks those described above, sportsbooks will need to be aware of the gambling money laundering risks of third-party betting, where prohibited and unidentified bettors use an intermediary to place bets in order to obscure the identity of the third-party and the source of funds used to conduct the transaction.
Finally, the expansion of sports betting itself beyond traditional casinos requires application of existing anti-money laundering laws and requirements to new technologies and platforms, which may not easily fit within existing rules.
§ 5311, et seq, 10 and therefore subject to its AML requirements.
The BSA, as amended by the USA PATRIOT Act, Pub.
Notably, the company failed to report illicit loan shark activity that was openly taking place on the gaming floor and known to some company employees and to law enforcement.
Looking Ahead Although there is much speculation regarding whether and when Congress may establish a national regulatory structure applicable to sports betting in the United States, federal anti-money laundering laws are already broadly applicable to any licensed sportsbook operating here.
Law enforcement has engaged with the gaming industry, offered guidance, and taken enforcement action where it has felt it necessary.
Going forward, we expect to see increased focus in the use of emerging technologies and data collection.
Blockchain has already emerged as a platform in online casino gambling.
In the esports arena, the use of virtual currency within gaming platforms is well-established and widely accepted for in-game payments and upgrades, among other things.
With the legalization of sports betting, entities beyond traditional casinos will enter the sports betting market, including blockchain businesses and cryptocurrency platforms, either through primary licenses or partnerships with existing casinos.
Blockchain companies promise increased transparency regarding the results of a game, winning bets, and payout amounts, which would all be publicly available and immutable.
Many new blockchain companies also offer the promise of betting through the use of smart contracts, which would remove the middleman and ensure immediate payouts, as well as added security through the use of decentralized ledgers—allowing no single centralized actor the opportunity to disrupt the system—and reduced transaction fees.
As is the case already with currency exchanges and blockchain investment platforms, we can expect a focus by law enforcement on bringing enforcement actions first against those companies or individuals that may be engaged in promoting fraudulent offerings or services.
Integrating that data collection and use from the business side of an operation with the compliance side will be important.
Through increased enforcement action and public comments by regulators and law enforcement, we expect to see continued robust enforcement action aimed at sportsbooks and other licensed casinos and an expectation that those engaged in regulated sports betting activity develop and integrate strong AML programs into their ongoing business.
It is unsettled whether the Wire Act prohibits interstate betting from one state where such a bet is legal to another state where it is legal.
In the majority opinion in Murphy, Justice Alito cited other anti-gambling legislation, including the Wire Act, to demonstrate that federal regulation should be tied to an underlying state offense, suggesting that the Supreme Court may not see the Wire Act as a complete bar on interstate sports betting where sports betting is legal in both states at issue.
A propositional player is a natural person employed by a casino or card club to play a permissible game with his or her personal funds.
FIN-2007-G005, Frequently Asked Questions: Casino Recordkeeping, Reporting, and Compliance Program Requirements at p.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes.
It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm.
Argentieri, an O'Melveny partner licensed to practice law in New York, Steve Olson, an O'Melveny partner licensed to practice law gambling funds California, Irwin Raij, an O'Melveny partner licensed gambling money laundering risks practice law in the District of Columbia, New York, and Florida, Eric Sibbitt, an O'Melveny partner licensed to practice law in California and New York, Jeremy Maltby, an O'Melveny partner licensed to practice law in the District of Columbia, New York, and California, Laurel Loomis Rimon, an O'Melveny senior counsel licensed to gambling money laundering risks law in California, and Marjorie B.
Truwit, an O'Melveny associate licensed to practice law in the New York, contributed to the content of this newsletter.
The views expressed in this newsletter are the views of the authors except as otherwise noted.
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