Having just emerged from a World Cup bathed in controversy where the “c” word was heavily referenced in the build-up to the event, it is worth reminding ourselves that the sports betting industry remains to some extent mired by the illegal betting market, and its demonstrable links to corruption in sport and related anti-money laundering issues, writes Hilary-Stewart Jones, Chair and CEO of Skywind Group.
Hilary-Stewart Jones, Chair and CEO of Skywind Group.
It seems baffling that despite the knowledge of the wrong doing, and the availability of technology and real time international co-operation (and where there is hyper-sensitivity as to association with crime by related parties) the practice remains so rife. It was after all decades ago that Marlon Brando’s character in “On the Waterfront” bewails to his brother that “…he coulda (sic) been a contender….”, having being asked to “throw” his boxing match. However, a number of different factors have seen a large increase in illegal betting which as stressed has ,unsurprisingly, a proven correlation to corruption in sport.
That is not to say that legal betting may not be impacted by sports corruption too, but the clear rules which licensed bookmakers must adopt to preclude sports players from betting on themselves, coupled with compulsory data sharing on markets with sports bodies, as well as accountability to regulators, all militate against a licensed bookmaker from being tempted to either associate itself with corruption, or risk making a book on an event where there is any doubt as to its integrity.
The illegal market (where the operator is unlicensed or has a licence in a jurisdiction where the requirements are very flexible) falls into two categories. Some may service grey or black markets (where the local law makes it clear that remote supplies are unlawful or not illegal (i.e. not legal) or it is a point of consumption territory and a local licence is needed) but otherwise run their businesses lawfully. Others have no compunction about association with money laundering and other criminal activity, including the collusion of customers and sports participants to skew the market and affect the outcome of the event.
There have also been a number of factors that have seen the huge increase in sports betting, and not just the illegal market. Fairly obviously internet penetration and mobile and pc access have played a huge part, as have advances in payment processing and banking, permitting real time flexible bank, card, wallet and e-cash transfers. Additionally, online betting has come in from the cold, since the late 1990’s with a huge increase in lawful and regulated offerings (albeit that although some customers neither know or care if they are dealing with a licensed operator, they will at least be aware of the licensed offerings because of the mainstream advertising). Also, customers are no longer on a constant diet of horse racing? (the retail mainstay) and instead have a plethora of product offerings and the streaming and availability of world-wide sports events 24/7. Not only can events be watched in real time by millions worldwide, but bookmakers have been able through technology and deployment of trading algorithms to present in-running offerings which increases player engagement and spend.? The online deposit model has also boosted turnover – in most cases customers spend until they have exhausted the full on account sum, unlike the typical sports retail model where spend tends to be per wager. Finally, the world of big data and affiliate marketing supremacy has created and sustained a wider interest in betting. The Global Report on Corruption in Sport (published by the United Nations Office on Drugs and Crime (“UNODC”)) asserts that as at December 2021 the global legal market in 2020 (for sports and horse racing) was $40 billion (USD). By the end of 2021, Sportradar Integrity Services assert that the market had mushroomed to 1.4 trillion Euros.
However, the downside of this is that the rise of the legal market has not seen the eradication of its illegal counterpart. Indeed, technology and other developments have given rise to more opportunities for unethical/illegal practices and customer demand? for an illegal or non-licensed option has in some cases remained. There are a number of reasons for this:
(i) Technology has opened the opportunity in some jurisdictions for the “internet cafe” retail model, with remote server-based products which has stretched legal arguments as to whether it can still be maintained that the wager is being placed with the remote operator (and hence technically legal). However, the more important point is that anyone with a laptop can run a betting shop allowing groups of people to bet remotely; (ii) with the advent of in-running betting and the numerous bet types available (i.e. not just on a half-time or full-time score) it is not just one to one sports that are vulnerable (requiring only one of the two players to be “bought”) but separate events within team games. Individual team members can, almost undetected, deliberately under perform on a bowl or on a corner, likewise a referee’s decision on a card, or the call of a linesman, where there are now separate books/markets on all such events; (iii) there are also more novel ways of moving money, through multiple different payment product types and opaque offshore accounts which look legitimate to the online user but in reality make it even harder for unsuspecting customers to recover winnings and unspent deposits; (iv) technology also facilitates latency arbitrage where the retail bettor does not have access to information as quickly as the operator (due to superior internet connectivity) which can create a huge market advantage, again a big issue with in-running and micro-event betting where multiple trades can take place almost instantaneously – in short the market is skewed irrespective of corruption; and (v) the restrictions on lawful operators gives more scope for the illegal markets to offer customers better products – see below
Also, it is not just the operator who can undertake illegal activity – punters can too, irrespective of whether they do so with the operator’s knowledge and connivance. In the early days of the betting exchanges (the late 1990’s) the bookmakers in the UK were up in arms that the platform providers could facilitate both the making and laying of a bet because in part they saw the scope for market manipulation and customer abuse (although equally, they wished they had thought of the model first ! ). However, the exchanges did also give rise to the days of the mammoth syndicates and the potential abuse of anonymized betting. In addition, punters in the online environment were able to deploy technology to their advantage by creating algorithms to automate trading. Whilst this almost certainly would be contrary to an operator’s standard terms and conditions, in Britain at least this may also amount a criminal offence under the Gambling Act 2005 (Section 42) albeit that the offence of “cheating” has, as yet, to fully be considered by the English courts and this particular “abuse” is at least conceptually problematic, where the operator may legitimately deploy the technology complained of, but not the customer. However, any form of hacking or computer abuse whether to gain advantage or not is usually criminal in most jurisdictions. The net result is that whilst punter’s crimes might not be encompassed in the term of “illegal betting”, or even statistically measured as such, they are still nonetheless crimes and can taint money proceeds for AML purposes, in the same way as falsifying documents.
That said, money laundering in its purest form (disguising source and cleansing through layering etc.) is also an ideal bedfellow for gambling (as a stand-alone sub-set of illegality) At the early stages of the online gambling industry there was a received wisdom that it was actually very difficult to launder money through gambling because: (i) they were cashless transactions; (ii) there was no guarantee that a dubious punter would win and receive clean money back; (iii) the operators quickly learnt to prevent deposit without any play withdrawals; and (iv) operators began to be canny about paying back to source (i.e. the account/card from which the deposit was made where the banks and card companies permitted) even before AML regulations caught up with them.
This view overlooks the fact that even if players have small wins and lose some of the dirty money at least some sums are cleansed. Operators and punters can collude too, falsifying a big win and paying out with clean money. Also, with exchanges the deposit model was radically changed with both the bettor and the layer having to deposit sufficient money to cover their losses with the layer win coverage comprising the larger sum. If therefore an event was a guaranteed loss to the punter due to e.g. (i) latency arbitrage; or (ii) corruption, “clean” money would come back to the layer depositor. Not only that, but as stressed above, with syndicates there was huge scope for anonymized play and with no vetting as to whether the odds offered and accepted had any commercial rationale, all manner of collusion between layers and bettors could also occur. (It should be emphasized however that the reputable exchanges made huge strides from the get go to eradicate such practices and were at the forefront of creating industry standards.)
In addition, whilst there may be a “big win” for favoured punters that may only happen on the occasional collusion with an operator, an operator’s entire business may be set up to launder money so that a shell company is incorporated with a liberal offshore licensing regime where the operators and punters work together from day one, with accounts with false ID transferring money as the business needs dictate.
Even without collusion, customers can gain advantage through gambling accounts. New payment methods can be exploited to support money laundering, such as pre-paid cards (which can be purchased with cash) as well as e-wallets which rely on a parallel deposit model (which is why reputable companies and responsible regulators limit the sums that can be utilised per transaction). It would also be remiss not to mention crypto use for gambling too where again operators who neglect to do full KYC on the players using crypto and/or tokens may unwittingly assist in laundering money given that both payment methods can utilize multiple synthetic/mule accounts with false host IDs.
Amidst all that scope for potential money laundering/criminal activity the end result becomes more critical than ever. In March 2022, Sportradar Integrity Services reported a record number of suspicious matches that had taken place in 2021. Some key findings from its report concluded that soccer has the highest rate of suspicious matches, followed by esports and basketball. Critically, lower level competitors were badly impacted with 50% of suspicious cases arising with? third tier or lower events, including regional and youth teams.
The sharp increase in sports betting referenced above has partly been driven by technology, but? also due to the huge u-turn in the U.S. which has permitted large scale legal sports wagering in the U.S. for the first time. This had otherwise been prohibited (except in Nevada) since the 1960’s by the Kennedy sponsored Wire Act which was implemented largely in an attempt to prevent criminal involvement and cross state betting. There were also a number of other key Federal statutes that widened the Wire Act reach; there was, for example, a specific prohibition on bets on professional and amateur sports under the 1992 Federal Law – the Professional and Amateur Sports Protection Act (“PASPA”), and when lobbying initially began for the legalization of betting on sports, the most oft cited objection was the potential corruption of college players who would be vulnerable because of age and in some cases financial position (a fear that appears to have been well placed if the Sportradar Integrity Services statistics referenced above still hold true). However, after numerous and tortuous legal challenges the U.S. Supreme Court ruled in May 2018 that parts of the PASPA were unconstitutional, as it unnecessarily undermined the powers and discretion of individual states.
Subsequently the flood gates opened and numerous states have passed laws legalising sports betting, which in part has given rise to the increase of the turnover referenced above, not least because, unlike illegal betting, the figures are easier to verify. According to the American Gaming Association (“AGA”), sports wagering is now legal in 30 states, with Florida, Nebraska, and Ohio in limbo, and legislation in process in six other states: Alaska, Georgia, Kansas, Massachusetts, Missouri and Oklahoma. Whilst this has diverted income away from illegal wagering, the market still remains offshore where direct or indirect taxes and other sport contributions / levies will not be enforced, meaning in many cases better odds (and fewer restrictions) for the benefit of customers (assuming the betting site is not one based on the collusion of? the customer or operator in which case the odds can be whatever the commercial needs dictate). We reference this further below. A survey conducted by the AGA in 2020 indicated that 52% of bettors still bet on illegal sites, and of that percentage, 82% were surprised that they were doing so. UNODC asserts in its 2021 report that it believes that the illegal market is still worth (measured on sums wagered) between $340 billion and $1.7 trillion USD meaning that it could well exceed the legal market. Therefore, the issues of corruption will continue needing to be addressed.
As stressed above, the betting exchanges in the UK were the first to make great strides in ensuring information sharing with sports bodies to help detect suspicious market activity. The UK Gambling Commission (the British regulator) (“the Commission”) now makes what was originally a voluntary process a condition of holding a licence to require operators to share information on what could comprise “suspicious or irregular market activity” with the Commission too. (Its Suspicious Betting Intelligence Unit will then consider the information provided and whether there needs to be any follow up and/or criminal prosecution). In addition, sports associations such as the FA ban players and those associated with the game (such as the management team) on betting on an event where they may have knowledge and/or influence. Match fixing is also prohibited and likely to be regarded by the Commission as cheating (see section 42 of the Gambling Act – as above) and potentially criminal.
Certain monitoring tools are also made commercially available to track suspicious activities with AI and similar. UNODC however recognizes the need for more comprehensive international standards and enforcement, with established bodies with clear responsibilities and understanding of the problems, as well as common standards of conduct/ethics for all persons associated with sports and clear information gateways.
UNODC also recognizes that some territories will continue to be challenging. In 2020, at the conference of state parties to the UN Convention against Corruption members were asked to support a new resolution designed to safeguard sports from corruption. Whilst recognizing that all countries have a potential problem, it expressed particular concern that illegal betting was especially problematic in Asia-Pacific states and a growing problem in Africa, emphasizing that it had drawn international attention to illegal betting being a key factor in competition manipulation as early as 2013. However, with such a plethora of illegal activity there plainly remains much to be done.
Clearly the eradication of illegal betting would reduce the desire/need for there to be event manipulation. The problem with regulated markets, as stressed above, is that quite often customers are given poorer odds/product along with social responsibility constraints, which do not impact upon offshore play where the suppliers are not curtailed in the same way. (Poorer odds are often as a direct result of the costs that onshore bookmakers need to bear and poorer products, because of the restrictions on bet type such as in-running bets). Also, the level of intrusion (source of funds and/or wealth checks) required even for relatively small betting in some markets is also cited as a reason for customers to look offshore. In short, the illegal market remains, in part, because the customer continues to create the demand and this is being increasingly recognised by licensed operators? but not sadly regulators – in January this year the deputy CEO of the Commission again asserted that the black market threat should not be overstated without clear evidence, and furthermore should not give rise to an argument that the regulated sector should be scaled back in some way as a consequence. The problem with the latter argument is that average customer would probably disagree with what good regulation looks like when it comes to consumer protection.
Also, as UNODC has highlighted, quite often customers simply will not know that their wagers are with illegal websites, even though they might? (although not always) be concerned if the integrity of the match/event upon which they were betting may be compromised as a consequence. Whilst international bodies, regulators and enforcement agencies can demand increased co-ordination and for all UN members to do their part, unless there are incentives for customers to gamble with the licensed operators (and few governments wish to take the route of making wagering with offshore sites criminal for the player) then the illegal sites will continue to be buoyed by “innocent” bystander punters, given that the illegal activity will always continue for those otherwise involved in crime. These incentives could vary but certainly could include: (i) a sensible compromise with operators and governments to ensure operators have sufficient leeway with appropriate tax regimes so as to offer better odds; (ii) falling on the right side of consumer protection, rather than removing civil privileges and overriding free decision making;? (iii) getting banks and payment service providers to fully support lawful transactions (not always easy); (iv) tightening the regulation of operators to provide bonds/trusts to ensure integrity of winnings and fast and effective pay-out with no encashment drag; (iv) giving the customer better access to the regulator or an ombudsman – when concerns of sharp practice and misuse of data arise regulators tend to merely refer matters back to the operator or other consumer bodies; and (v) giving customers of licensed sites access to a potential victims’ compensation fund funded by the industry which could be independently administered allowing for pay out even where the operator is not a proven wrong doer, but there is proven hardship. In short, regulators and governments should not (as they tend to) either dismiss the problem or infantilize customers, and try instead to understand that even if customers were to know a site is not licensed, or only loosely licensed, they will still nonetheless elect to wager with it, and take the risk on match integrity, if the experience and potential return is better.
