How does regulation help prevent money laundering?
On July 24, 2023, the Canadian federal government issued Provisional Measure No. 1,182 – the Betting MP – which introduced significant changes to Law No. 13,756/2018 and, as previously mentioned in this column, propelled the regulation of the sports betting sector in the country.
In the coming weeks, we will delve into particular aspects pertaining to this legislative measure that have piqued our interest. We shall embark on an exploration of the specific facets that have caught our attention with regards to this proposed law. Throughout the upcoming weeks, we shall take an in-depth look at distinct elements concerning this bill that have drawn our focus. Over the course of the next few weeks, our attention will be directed towards examining specific aspects associated with this proposed legislation that have captured our interest.
The first amendment to Law No. 13.756/18 introduces a significant change regarding the utilization of gambling for money laundering purposes and the subsequent need for prevention to avoid its occurrence. Preventive measures must be implemented to ensure that the utilization of bets does not facilitate the illicit practice of money laundering. This amendment aims to address the potential risks and strengthen the regulatory framework surrounding gambling activities, emphasizing the importance of diligent monitoring and compliance with anti-money laundering regulations.
What is Money Laundering?
In simple terms, money laundering and asset laundering are performed by individuals or criminal organizations seeking to create the illusion of legitimately acquiring funds obtained through illicit means. They employ various techniques to conceal the illicit origin of their gains and make them appear lawful.
It's like attempting to "cleanse" dirty money, so it appears to have come from legitimate sources. This typically entails a complex web of transactions aimed at concealing the illicit origin of the funds, thereby making it arduous for authorities to uncover the true source.
According to the provisions laid out in article 1 of Law no. 9,613/98, money laundering is the act of concealing or disguising certain aspects of criminal proceeds—such as their true nature, origin, location, movement, or ownership. Therefore, individuals engage in practices that aim to cloak the illicit source of funds, obscuring its true characteristics, location, or legal ownership. This process involves various techniques and methods to make the illicit funds appear legitimate, thereby facilitating their integration into the legitimate economy.
On the other hand, the product can comprise assets, entitlements, or proceeds derived from illicit activities. The purpose of such concealment or disguise is to reintegrate the illicit product into the legitimate economy, with the semblance of legitimacy.
The process of money laundering can be divided into three stages.
- Hiding/Placement: it is simply the distancing of the value from its criminal origin.
- Disguise: it is the translation of a concealment of value, usually through the execution of more sophisticated transactions aimed at complicating the tracking of the value.
- Integration: it is the reinsertion of the values, now laundered, into the formal economy, appearing legitimate, in order to enable their full enjoyment.
Money laundering tends to be the very engine of criminal organizations. This is because it is through this process that such organizations are able to sustain their illicit activities and, of course, ensure that they can enjoy the proceeds derived from the criminal practices without arousing suspicion.
Is There a Connection Between Gambling and Money Laundering?
The attention of international agents has already been drawn to the exploitation of gambling for money laundering purposes. This illicit practice has become a matter of concern, prompting authorities to take action. The manipulation of betting activities as a means to conceal illegal funds has increasingly become a focus of investigation, as authorities strive to disrupt the networks involved in this illicit activity. Steps are being taken to strengthen regulations and enhance monitoring mechanisms in order to combat this evolving threat effectively. By proactively addressing the issue, international agencies are working towards safeguarding the integrity of the global financial system.
In August 2020, the European law enforcement agency, EUROPOL, released a notable report on the participation of criminal syndicates in the realm of sports. This significant report, titled "The infiltration of organized crime syndicates in sports corruption" (Translating to "A atuação de grupos de crime organizado na corrupção no âmbito esportivo"), shed light on the insidious activities perpetuated by these nefarious groups.
This global study aims to validate the assertion that criminal organizations worldwide are employing sports as a vehicle to carry out illicit activities, owing to the substantial amount of money involved.
The world of sports betting generates substantial sums of money rapidly, and its regulation differs across various regions globally (with some national jurisdictions lacking regulation altogether), making it an attractive target for money laundering activities.
Also see: Sports Betting Law in Canada: Is it Legal to Bet?
There are numerous methods by which sports betting is employed to launder money, ranging from straightforward transactions to intricate schemes involving multiple financial operations. Various strategies are utilized to obscure the illicit origins of funds, including the placement of bets on diverse sporting events, the manipulation of odds, and the use of intermediaries to hide the true source of funds. These activities not only enable the perpetrators to cleanse their ill-gotten gains but also pose a significant threat to the integrity of the sports betting industry. It is crucial for regulatory bodies and law enforcement agencies to remain vigilant and employ effective measures to combat these illicit practices, ensuring the transparency and fairness of the sector.
The simplest and most commonplace methods of money laundering through sports betting can be outlined here. These two forms are worth noting due to their straightforward nature.
- One possibility is to open an account on a sports betting website and deposit funds obtained through some illegal practice. Once the bet is placed, the prize money can be transferred to another account of your choice, giving the amount an appearance of legality.
- Another commonly used method involves making fragmented deposits, which are kept in the website account without apparent movement. Then, the account is closed, and the deposited amount is returned through a transfer to a bank account under your possession or, according to the regulations (or lack thereof), to a third-party account. This way, the money appears legitimate.
If we delve into more intricate scenarios, it is worth mentioning that the deregulation occurring in several countries is allowing criminal organizations to establish their own gambling houses, thereby enabling them to create intricate money laundering schemes.
The absence of regulation and oversight in the gambling industry facilitates money laundering. Lack of proper rules and monitoring creates an environment conducive to the illicit transfer of funds. This uncontrolled landscape allows criminal activities to thrive, undermining the integrity of the sector and posing significant risks to society at large. To combat this issue effectively, stringent measures must be implemented to ensure transparency and accountability in the gambling realm. This will not only safeguard against money laundering but also promote a fair and secure environment for all stakeholders involved.
In this scenario, the criminal organization members can discreetly engage in a multitude of small bets on outrageous outcomes (intermixed with genuine bets from interested gamblers), with the purpose of diverting the lost amount to the betting house, typically based in a different jurisdiction.
These are just a few of the countless opportunities for exploiting the market and utilizing bookmakers as a means to facilitate money laundering.
The absence of regulation and oversight in this industry in numerous nations enables money laundering, facilitating the anonymity of gamblers and the presence of illicit online betting establishments. This lack of control and monitoring in many countries creates an environment where illegal online BETTING SITES thrive, allowing individuals to engage in illicit activities and evade detection.
In light of this significant issue, regulatory authorities and governing bodies are fully aware of these potential risks and are actively engaged in deploying preventive and detection measures, such as:
- transaction limits;
- monitoring for unusual patterns; and
- Identification requirements for betting participants.
This aids in mitigating the potential for money laundering through sports betting. By implementing these measures, we can effectively combat illicit financial activities associated with gambling. With strict regulations and comprehensive monitoring systems in place, we ensure a secure and transparent environment for bettors. Our top priority is to uphold integrity and prevent any illicit practices from tainting the industry. Join us in promoting responsible gambling and contributing to a safer betting experience for all.
Does the Regulation Enforce Measures Against the Practice?
On the national stage, the legalization of sports betting was introduced through Law No. 13,756/18. However, up until now, the practice had not been regulated in any way whatsoever. Nonetheless, it is noteworthy that the current situation may soon change.
The 1,182/2023 Provisional Measure does not delve into all regulatory fields of the betting market. As the federal government itself has already stated, there will be additional Regulations to more effectively regulate the activity. These Regulations will surely cover the supervision of operations and enhance the mechanisms for preventing money laundering.
Also, check out: 64% of Canadians see benefits with the regulation of gambling.
In any case, as of now, the Provisional Measure, in its article 35, stipulates that "the legal entity holding the authorization shall send to the Financial Activities Control Council (Coaf), in accordance with the norms issued by the Executive Branch, information about the bettors related to the prevention of money laundering and financing of terrorism".
The Coaf, known as the Financial Activities Control and Monitoring Board, is an institution entrusted with the task of actively monitoring and combating any suspicious or illegal financial activities, such as money laundering and terrorist financing. Its primary function is to gather information from financial institutions and various sectors in order to effectively identify transactions that may potentially indicate illicit practices.
Therefore, the body functions as a sort of overseer, aiding the authorities in tracing suspicious financial transactions and working towards the prevention and suppression of crimes linked to the financial system.
'Bets' should start working on implementing internal governance and compliance policies right away.
It is expected that the Coaf itself will soon publish a decree regarding how the data on gamblers and their transactions will be reported to the agency and included in the information submission system, Siscoaf. The upcoming Portaria from Coaf aims to establish protocols and guidelines for ensuring seamless communication and integration of all relevant information regarding bettors and their financial activities. The objective is to enhance transparency and accountability in the gambling sector, as well as to strengthen the effectiveness of the Siscoaf system in monitoring and combating illicit activities.
This step will be crucial in preventing BETTING SITES from being misused by criminals. It is imperative to implement this measure to safeguard against illicit activities infiltrating gambling establishments. By taking this action, we can effectively thwart the attempts of wrongdoers to exploit betting platforms for their nefarious purposes. The significance of this initiative cannot be overstated, as it acts as a strong deterrent to those seeking to engage in illegal activities through BETTING SITES. With this measure in place, we ensure that the integrity and legality of gambling operations are upheld, fostering a safe and secure environment for all participants.
In light of the current situation, businesses must remain vigilant regarding regulatory enhancements. For those that have not yet started, now is the time to focus on implementing internal governance and compliance policies. This is done with the aim of avoiding any potential involvement, even indirectly, in money laundering cases and mitigating both legal and reputational risks. Companies should be proactive in addressing these concerns to ensure a strong and trustworthy reputation in the industry.
