Crypto Compliance: Adopting a Risk-based Approach to Crypto Gambling

Key takeaways:

  • The use of crypto in the gambling sector has grown in popularity over the last few years.
  • Gambling services are mentioned in FATF’s Virtual Assets Red Flag of Money Laundering and Terrorist Financing report from July 2020.
  • Gambling could be a way to launder cryptos, VASPs and gambling services must take appropriate steps to mitigate the risk.

With the emergence of Bitcoin and cryptocurrencies, the crypto gambling sector is attracting more and more betting enthusiasts as well as casino operators. According to an estimation of Legal Gambling And The Law, the market cap for gambling cryptocurrencies has reached a value of more than $150 million.

In the crypto casinos, cryptocurrencies like Bitcoins are used by gamblers to fund their games. There are two kinds of crypto casinos: the crypto-exclusive casinos, where the casinos deal only with cryptos, and the hybrid casinos, where both traditional currencies and cryptos are accepted to make the payments. 

Crypto casinos have become a new trend in the world of gambling mainly because of several reasons: easy accessibility to everyone, lower costs and quick payments; secure and anonymous; attractive bonuses and promotional offers from casinos to players, etc…

Are crypto gambling services risky in terms of ML/TF?

Gambling services have been mentioned in the Financial Action Task Force’s (FATF) Virtual Assets Red Flag of Money Laundering and Terrorist Financing report from September 2020. In this report, FATF identified two situations in which gambling services can be considered as a red flag.

For instance, gambling services can constitute a red flag when funds are deposited to or withdrawn from a virtual asset (VA) address with exposure to known suspicious sources including “questionable” gambling sites.

Additionally, VA transactions originating from or destined to online gambling services can also be considered a red flag for the source of funds according to the report.

Gambling services can thus be considered risky depending on one’s level of risk appetite and the level of regulation of the gambling service.

Companies onboarding crypto clients must thus treat addresses related to gambling sites carefully. In the same manner, gambling services should also have AML/CFT processes and tools in place to mitigate risks as there is an increased probability for them to be used by nefarious actors.

Why can gambling services be used for ML/TF purposes?

  • Lack of AML/CFT regulations

Some gambling services can be established in jurisdictions where there is a lack of or non-existent crypto AML/CFT regulations. In this case, gambling services can be a leading choice for malevolent players to launder ill-gotten cryptos since no consistent controls operate in such services.

There will thus be an increased risk of ML/TF stemming from them and they should be treated carefully by compliance officers depending on their internal processes.

  • Lack of KYC processes

In the above-mentioned services, KYC processes are often not implemented as they are not required by law. This factor could urge malevolent players to rely on such services for ML/TF purposes as it will be more difficult for authorities to identify them for instance.

How can Scorechain help you mitigate such risks?

Scorechain solution is customizable to fully adapt to the user’s own AML/CFT internal processes. Depending on the risk appetite of the user, gambling services could be considered very risky or not.
This is why Scorechain attributes a medium score to gambling services on its Blockchain Analytics Platform. This score can be customized by the user. The user can also set the risk indicator “Gambling” if need be.

An address flagged as gambling on Scorechain Bitcoin Analytics Platform
Gambling risk indicator triggered on Scorechain Bitcoin Analytics Platform

Moreover, Scorechain Blockchain Analytics Platform can be used to monitor incoming and outgoing funds from crypto addresses. This way, VASPs or gambling services can check the risk level of funds before deciding if they should be accepted or refused.

Scorechain provides compliance officers with all the necessary tools to monitor crypto funds and mitigate the related ML/TF risks.

You are operating in a crypto-related business and need to implement Scorechain’s solution to mitigate crypto ML/TF risks? Contact us for a free demo:

About Scorechain

Scorechain is a Risk-AML software provider for cryptocurrencies and digital assets. As a leader in crypto compliance since 2015, the Luxembourgish company serves more than 100 customers in 37 countries, ranging from cryptocurrency businesses to financial institutions with crypto trading, custody branch, digital assets customers onboarding, audit and law firms and some LEAs.

Scorechain solution supports Bitcoin analytics with Lightning Network detection, Ethereum analytics with all ERC20 tokens and stablecoins, Litecoin, Bitcoin Cash, Dash, XRP Ledger and Tezos. The software can de-anonymize the Blockchain data and connect with sanction lists to provide a risk scoring on digital assets transactions, addresses and entities. The risk assessment methodology applied by Scorechain has been verified and can be fully customizable to fit all jurisdictions. 300+ risk-AML scenarios are provided to its customers with a wide range of risk indicators so businesses under the scope of the crypto regulation can report suspicious activity to authorities with enhanced due diligence.