Online Sports Betting a Major Red Flag For Potential Money Laundering

The U.S. Department of the Treasury released the national money laundering risk assessment last week, which tied the growth of the American online sports betting industry at the best sportsbooks with potential money laundering issues.

The report highlighted that “particular illicit finance concerns are the emergent money laundering risks associated with sports betting, offshore sports betting, and virtual asset gambling.”

The Department of the Treasury findings came at an interesting time for sports betting sites, just a few days prior to the biggest legal sporting event on American soil, the Super Bowl. It was expected that 67.8 million Americans would place a wager on the game between the Kansas City Chiefs and San Francisco 49ers, according to the American Gaming Association. That's a 35% increase from last year's Super Bowl.

A projected $23.1 million in sports betting handle was expected for Super Bowl LVIII at Allegiant Stadium in Las Vegas.

The issue

The U.S. Department of the Treasury has identified issues with the lack of regulations on sports betting sites, many of which produce the best sports betting apps. Those concerns are tied to both regulated and unregulated offshore gambling providers. That lack of oversight leads to what the Department calls “significant and increasing money-laundering risks.”    

Money laundering issues aren't new to the gambling industry. What's relatively new is mobile betting sites, both those connected to legal operators on U.S. soil and overseas operations. 

Similar issues are being seen with online betting activity that had been present in traditional brick-and-mortar casinos. An individual could collude with nefarious entities on wagers while trying to hide where funding for the account came from. A person or entity could also deposit funds into an legal or offshore account and withdraw it after very minimal activity on that account.

There's also the use of cryptocurrencies in offshore accounts. Transactions with crypto are untraceable and often used in relation to both sportsbook deposits and money laundering schemes.

Traditional casinos regulated

Financial crime authorities have been overseeing traditional casinos on U.S. soil for years. Online sports betting companies haven't been subjected to such scrutiny yet. There's been a push to get such mobile sports companies on par with the rules for casinos. 

“In the absence of such guidance, AGA members have built on decades of experience from robust casino compliance to create and deploy AML controls for online gaming," said Alex Costello, the vice president of government relations at the AGA. "Our members stand ready to work with the Department of Treasury to ensure that legal, online operators have the guidance needed to build on our current programs and meet the high standards already employed by the casino industry.”

American authorities don't regulate offshore sports betting at all. An estimated $64 billion per year flows to offshore books, about 40% of all sports wagering from Americans. An estimated $220 billion has been wagered overseas following the overturn of PASPA in 2018.

Proof of illegal activity

The Department of the Treasury report outlined a few incidents of money laundering activity that resulted in prosecutions from authorities.

There was the 2023 case of a Georgia man caught laundering $30 million from charity, $1 million of which flowed into an online sports wagering account. In New Jersey, a man in 2021 was charged with stealing identities, creating fraudulent bank accounts, and contributing to 1,800 online gaming accounts with unemployment benefits. He would deposit the funds and withdraw them for himself.