poker chips sitting on keyboard

How operators can mitigate money laundering risks in the iGaming sector

How operators can mitigate money laundering risks in the iGaming sector

Synopsis
4 Minute Read

The iGaming industry in Ontario is booming, with more than $35 billion wagers processed in its first year. However, FINTRAC recently reported that money laundering is on the rise as online gambling increases in popularity.

Operators must take the right steps to mitigate those risks and remain compliant with regulations, including:

  • Obtaining an iGaming license
  • Building an anti-money laundering (AML) program
  • Ongoing support and monitoring

Developing and implementing an AML program is a complex process. An AML advisor can help you develop a program to fully meet strict requirements.

Senior Manager, AML Regulatory Compliance and Forensics

Ontario’s iGaming industry has grown rapidly since its launch on April 4, 2022. Rapid growth increases risks — and, as a result, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) has released a bulletin on red flags and money laundering indicators relating to online gambling sites.

Therefore, it is imperative that current and prospective iGaming operators continue to evaluate the money laundering risks present in their business. Taking the right steps to set up a comprehensive anti-money laundering program will help operators mitigate risks and comply with regulatory expectations.

What money laundering risks are associated with iGaming?

The Ontario government established a regulated iGaming market to shift the province’s iGaming landscape to a legal and regulated framework and increase consumer protection. According to a report from iGaming Ontario (iGO), the iGaming market generated total gaming revenues of just over $1.48 billion in its first year. This success is causing other provinces to consider entering this booming space.

iGO is a subsidiary of the Alcohol and Gaming Commission of Ontario (AGCO), and it is responsible for conducting and managing iGaming in the province. The services are provided through an agency model where private iGaming companies, or operators, execute an operating agreement with iGO to operate in the Ontario market. This makes iGO the reporting entity that is required to comply with Canadian AML laws, and the operators are its agents.

However, FINTRAC, Canada’s financial intelligence unit and AML regulator, recently warned that illicit funds are being laundered through both legitimate and unlicensed operations as online gambling becomes more popular. FINTRAC analyzes information from banks, casinos, money-service businesses, and other reporting agencies to identify funds linked to criminal activities and to alert law enforcement agencies of suspected cases.

FINTRAC states that online gambling sites offer prospective money launderers opportunities to conceal the source of their funds through multiple deposit and withdrawal methods. One common method is the purchase of prepaid cards using suspected criminal proceeds to deposit money into online gambling accounts. Withdrawals of these funds to a Canadian bank account are then disguised as gambling earnings or proceeds.

While FINTRAC’s concerns focus more on payment methods that are prohibited by iGO, the popularity and growth of iGaming increases the risk of money laundering through licensed iGaming operations. Failure to take the right steps to prevent money laundering poses a reputational risk to your business and can result in significant financial penalties.

Operators often face challenges as part of the operational due diligence journey, which may include the following:

Client identification

iGaming is conducted in an online environment, which can make it challenging to verify the identities of the individuals actually involved in gaming transactions. This lack of face-to-face transactions thereby increases the risk of money laundering.

Account takeovers

The online nature of iGaming can expose prospective clients and operators to account takeovers and fraud. In an account takeover, fraudsters steal client information and set up accounts with the stolen identity. Funds from criminal activity are then passed through the account to hide the source of funds and layer the fund into the financial system.

Structuring

According to FINTRAC, structuring can be defined as a pattern of financial transaction activity in which a single transaction is broken down into multiple/ sequential transactions. Each of these transactions fall below the threshold that would require mandatory reporting and/or the application of player ID and record-keeping obligations. iGaming operators continue to face the prospect of criminals attempting to structure deposits or disbursements to avoid triggering reporting obligations.

How can iGaming operators mitigate money laundering risks?

iGaming operators in Ontario must navigate three layers of compliance to operate in Ontario. This includes government laws and regulations, AGCO’s regulations, and iGO’s operator policies and procedures.

These regulations were put in place to reduce risks, such as money laundering, within the industry. The following steps can help your business remain compliant with complex regulations and mitigate the risks of money laundering:

Obtain an iGaming license

Prospective iGaming operators are required to obtain an iGaming license to operate in the province. This involves following a seven-step process to meet the requirements of two regulatory bodies — the AGCO and iGO. Read more about the full process that operators are required follow to obtain an iGaming license in Ontario here.

Build and implement an AML program

Prospective operators must develop an AML program in compliance with iGO’s requirements to obtain an iGaming license. This includes creating policies and procedures that provide a clear roadmap of how people, processes, and systems will work together to meet AML obligations.

This program is also required to include a risk assessment framework to ensure you understand where money laundering risks exist in your business and among prospective clients. This enables you to apply measures to mitigate those risks and ensure compliance with iGO’s expectations.

Prospective operators are also required to develop an AML training program for employees. This training should include onboarding and ongoing training — as well as specific training for different roles within your business. An AML advisor can help you create a comprehensive program that fully meets iGO’s requirements.

Ongoing support and monitoring

An AML program requires ongoing support and monitoring to ensure it is effective and tailored to the unique risks your business faces. An AML advisor can provide ongoing support to help your business navigate AML reporting obligations when it enters the market. This includes regulatory reporting such as electronic funds transfer reports, casino disbursement reports, extreme risk reporting, and suspicious transaction reports.

Take the next steps

The booming iGaming market offers many opportunities to both current and prospective operators. However, it is vital to take the right steps to reduce money laundering risks and remain compliant with strict regulations from both iGO and AGCO.

For more information, contact a member of MNP’s Anti-Money Laundering Services (AML) team. Our advisors have experience working with operators in Ontario and can help ensure your business complies with the reporting obligations mandated by iGO.

Insights

  • Confidence

    July 10, 2024

    Cheers! Three beverage trends your business can capitalize on

    There’s a buzz in the Canadian beverage industry and it involves three key trends: sober curiosity, functional ingredients, and local products.

  • Confidence

    July 09, 2024

    Transform your dental practice with key performance indicators

    Key Performance Indicators (KPIs) are essential metrics that provide insights into the overall health and performance of your dental practice.

  • Progress

    July 09, 2024

    How a strategy to support psychological health and safety can build a stronger and more inclusive workforce

    How can you build a stronger workforce? A psychological health and safety strategy can help your energy and utilities company achieve successful outcomes.