Sports Betting: Improving Your Odds Against AML Risk

On May 14, 2018, a historic ruling by the U.S. Supreme Court overturned the Professional and Amateur Sports Protection Act (PASPA) of 1992, which previously prohibited states, except Nevada, from authorizing sports gambling. The new ruling empowers each state with the authority to legalize and regulate sports betting. State officials as well as the casino industry have been eagerly awaiting the decision to take advantage of this revenue-rich opportunity. Delaware and New Jersey, the first two states to legalize sports betting, are currently leading the pack. The northeast region is primed to become the epicenter of sports betting over the next five years, with New York overthrowing Nevada as the largest U.S. sports betting market. New Jersey, Massachusetts and Pennsylvania are also expected to surpass Nevada. Tax revenues generated by in-state casinos and gaming facilities are forecasted to contribute enormously to state coffers. Tourist dollars from visiting gamers will further buoy the local economies.

By all estimates, the U.S. sports betting market is forecasted to exceed that of the U.K. and possibly even China. GamblingCompliance, a provider of business intelligence to the global sports betting industry, projects that the new ruling will create a legal sports wagering market worth up to $6 billion in annual revenue by 2023.1 That figure pales in comparison to the illegal sports gambling market currently estimated at $150 billion annually. In fact, illegal sports betting is so entrenched in U.S. culture that it accounted for approximately 97 percent of the $4.76 billion wagered on the 2018 Super Bowl!2

Global Ramifications

Illegal gambling has a much broader reach than the U.S. With so much money changing hands through offshore gambling websites, illegal bookmakers and other unregulated channels, sports betting is an industry ripe for money laundering. When visiting the GamblingCompliance website, the global reach of anti-money laundering (AML) issues within the gambling industry can be seen. For example, recent news items include casinos in British Columbia unknowingly used to launder drug money and a northern California card club fined $5 million for AML violations of the Bank Secrecy Act (BSA) dating back to 2009.3

In the U.S., the gaming industry is one of the most heavily regulated sectors across the globe

AML has become the most pressing regulatory issue for gambling firms across all major jurisdictions. In Europe, the Fourth AML Directive is bringing greater scrutiny of AML by regulators and operators as it now covers the entire gambling sector after previously only applying to casinos. In the U.S., the gaming industry is one of the most heavily regulated sectors across the globe. In addition to comprehensive state gaming regulations, U.S. gaming operations are subject to federal AML requirements. Bank Secrecy Act/anti-money laundering (BSA/AML) compliance applies to both in-person and lawful internet gaming operations. Nevertheless, the regulatory debate continues as states press to keep federal legislation out of sports betting.

Additional growth in the gaming industry would only push more sports betting into the shadows away from the eyes of regulators and tax authorities. However, with the federal ban lifted on competitive sports gambling, the dynamics of sports betting are expected to change dramatically as is the impact on the AML compliance world.

Winners and Losers

Existing gaming venues such as commercial casinos and racetracks are well-positioned to capitalize on the Supreme Court decision. They must already meet a high bar for regulatory compliance under the BSA. This includes implementing risk-based AML programs and filing currency transaction reports (CTRs) and suspicious activity reports (SARs) for certain transaction thresholds, so any additional requirements for sports betting should be easy to accommodate. However, more compliance resources might be needed to handle the expected increase in revenue from attracting a wider pool of gamers.

Although professional sports leagues fought for years against legalization of sports betting, they have now changed direction and want a share of the tax revenue from all sanctioned sports betting, citing that legalization puts a monitoring burden on them. Leagues are pushing for an “integrity fee” on each bet, which would in essence tax gaming venues on both winning and losing bets.

The introduction of an integrity fee also raises the concern that players, referees, medical staff or team owners could make bets or fix results. That is despite the fact that most leagues have measures in place to identify subversive activity and work with companies that use algorithms to check offshore and underground sportsbooks for suspicious betting patterns. How everything plays out will determine if professional sports leagues wind up on the winning or losing end of the stick.

Preemptive Action

Even legitimate betting outlets will continue to face the high risk of criminal activity associated with sports gambling at a greater magnitude. In 2014, the Financial Crimes Enforcement Network of the U.S. Treasury Department warned that criminals were using intermediaries to place bets for unidentified third parties with legally operating sports books. The inability to identify a source of funds posed increased money laundering risks. Along with the expected influx of funds from legalized sports betting comes an increase in opportunities to launder money. New sports books and the casinos partnering with them should be prepared to manage this new increased risk. Some proactive measures to consider include:

  • Developing thorough know your customer (KYC) programs to identify source of funds through comprehensive customer vetting. This could include full background screening and multiple database searches such as FBI, Nevada Gaming and Office of Foreign Assets Control.
  • Conducting enhanced due diligence (EDD) on high amount accounts to identify suspicious patterns.
  • Prohibiting “messenger betting” (an individual places bets on behalf of another) and training employees on how to identify this illegal practice.

What It Means for Banks

Corruption risks like bribery and illegal gratuities are also inherent in the betting world

As part of the broader gaming industry, sports betting will likely bring similar risks such as money laundering, embezzlement and other larcenous crimes due to the cash-intense nature of betting at casinos and racetracks. Corruption risks like bribery and illegal gratuities are also inherent in the betting world. These risks are not unique to gambling; however, expect to see other risks related to the implementation of sports betting. Consider the conflict of interest if team owners are allowed to invest in gambling businesses or if live-betting kiosks are permitted at stadiums where events take place. Will specific controls be implemented to prevent this from happening? In addition, online betting will no doubt require service providers to perform customer verification and screening.

Providing banking services to gaming entities is not for every financial institution. With their potential vulnerability to money laundering and other financial crime, sports-betting operators and other gaming providers will require a greater level of due diligence to assess BSA/AML risk. Banks must be prepared to demonstrate that they can meet the heightened KYC, customer due diligence and EDD compliance requirements for these higher-risk customers.

In the U.S., wrestling with regulations that may vary from state-to-state will be another challenge to accommodating sports gambling businesses. Although most of the action on sports betting is left to each state, efforts to have the federal government set a nationwide standard are still in play. Consumer protection and responsible advertising are issues being raised while addiction advocates are pressing states to fund gambling addiction prevention and treatment with legalization.

If legal sports betting takes off as quickly and with as much money as predicted, technology will play a large part in helping institutions manage the increased transaction volume and likely increase in SARs. In addition to technology, establishing a risk-based approach to compliance will be critical to thwart money laundering and other financial crimes. Together, they will provide financial institutions with a solid foundation in preparation for the KYC challenges of the next frontier: internet gambling and peer-to-peer gaming. 

Carol Stabile, CAMS, chief sales and marketing officer, Safe Banking Systems, Mineola, NY, USA,

  1. “New Report by GamblingCompliance Projects That U.S. Sports Betting Marketing Will be World’s Biggest by 2023,” PR Newswire, June 27, 2018,
  2. “97% of Expected $10 Billion Wagered on March Madness to be Bet Illegally,” American Gaming Association, March 12, 2018,
  3. “Anti-Money Laundering,” GamblingCompliance,

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