An inside look at the need for AML in the e-gaming industry
Data analytics and trends show the penetration of the population into console-based online video games and smartphone gaming applications. Online video gaming platforms having microtransaction features tend to handle much of financial transactions on their own, they are not considered a bank or a saving association. Therefore do not lie under the regulations of the Office of Foreign Assets Control or Bank Secrecy Act (BSA). However, the facility of financial transactions to buy gaming assets are raising several security challenges in the e-gaming industry.
Financial frauds, the major threat the e-gaming industry is prone to. Money laundering, a huge financial crime is facilitated using the gaming industry a medium. By selling digital goods and currency (in-game), money laundering activities are conducted. The rise of online gaming has opened the ways for fraudsters to conduct financial crimes in the complex environment in which players operate. The loopholes in the gaming systems are well-analyzed and misused by laundering millions. This is challenging for the e-gaming industry to regulate the sector and deter the risks of financial crimes.
Moreover, money launderers use e-gaming platforms to convert embezzle funds into good money. The video game industry can reduce money laundering activities by taking in place dynamic AML practices that filter out the bad actors beforehand.
Anti-Money Laundering and Countering of Terrorist Financing (AML/CFT)
To disguise the ownership of illicit funds, money launderers use several means to hide money or convert it into legitimate money. The money that is earned as a result of cross-border organized criminal activities is concealed by money launderers either by transferring it across the world or buying properties with that. This is what happens in the online gaming industry. Assets are bought with in-game currency and in the form of assets, money is laundered.
Having a comprehensive AML and CFT program is not only a regulatory requirement but a business practice on which business reputation, as well as profits, are dependent. Moreover, to fight against the criminal liabilities facilitated through e-gaming platforms can better be avoided taking in place stringent AML and CFT actions.
Online casinos’ major concern is fraud prevention. Especially money laundering that is residing in the industry can better be prevented by identifying each onboarding player at the time of account registration and financial transactions. Customer Due Diligence and AML background checks should be implemented in real-time while onboarding a player. This will help build a clean customer base.
Player identification usually can be performed by verifying the identity details. By authenticating official ID documents, KYC compliance can be achieved. The real-time captured information is then validated against the updated global watchlists. AML screening is performed during identity validation in which various AM background checks are implemented that ensure the identity’s data against exclusion lists such as;
- Sanction Lists
- Government-issued Data Sources
- Money Launderers
- Criminal Databases
- Politically Exposed Persons (PEPs) List
By collecting the extensive details from identity and validating them against criminal databases, online casinos and gaming platforms can build a compliance program that can help them comply with local and global regulatory obligations as well as protect their business from any monetary loss.
Moreover, ongoing identity monitoring is equally important. One time identity verification can not help eliminate money laundering activities entirely. In-between identity verification deters the risks of malicious transactions and suspicious activities. Just to overcome the effort of identity verification, biometric identification can help in robust verification without compromising user experience and keeping intact the security perspectives simultaneously.
Other money-laundering countermeasures
Other than verifying the identity of a player, countermeasures can be taken that prevent the direct and indirect approaches of fraudsters of laundering money. These measures are:
- Detective and preventive controls in assistance with technology should be taken to investigate if some players are exchanging the information among themselves to cheat the gaming system and perform money laundering.
- Preventive measures against identity theft should be taken to avoid the misuse of someone’s identity by the fraudster to launder money.
- The customer information collected at the time of identity verification should be protected from any uncontrolled/unauthorized access.
- The customer’s credit card details should be protected from unauthorized access.
- Enhanced Due Diligence measures to combat money launderers from entering into a legitimate system.
- Prohibiting direct payment system between customers.
- Monitoring the transactions between countries and immediate blocking when money is sent to some country that does not register previously as the home country.
- Reporting of suspicious transactions to the Financial Intelligence Unit.
Online gaming companies are required to evaluate the measures they have taken to counter bad actors and their malevolent activities in an online environment. Identification of risks and mitigating them to avoid severe circumstances is the priority of every business. Assigning each onboarding identity a risk rating can help prevent money laundering in the e-gaming sector. With the risk rating approach, gaming companies can develop appropriate AML and CFT measures to combat potential threats.
Future prospects to combat money laundering in e-gaming
The online video gaming industry will be evolving in the years ahead and create new opportunities for enhanced monetization. By employing an enhanced identity verification framework, the e-gaming sector can proactively avoid regulatory fines and penalties. Identity verifications supported by AI-based and machine learning models that facilitate automation facility would be the future of combating money laundering from the online gaming industry. Hence, providing a financially safer platform and a secure environment from bad actors. Moreover, improved revenue generation opportunities for e-gaming seems to be on the way in years ahead.