On January 2024, the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”), issued a special bulletin on laundering the proceeds of crime through online gambling sites (the, “Special Bulletin”). The purpose of the Special Bulletin is to provide updated guidance for entities involved in online gambling, as well as banks and money services businesses (MSBs), including payment service providers (PSPs). The Special Bulletin aims to assist in identifying and managing money laundering and terrorist financing risks, enhance controls to mitigate these risks, and improve the detection and reporting of suspicious transactions.

1. Background

The online gambling industry has undergone significant regulatory changes in Canada with the recent legalization of single event sports betting that came into force on August 27, 2021 along with the introduction of new gambling operators. As gamblers migrate to online platforms, FINTRAC warns that online gambling sites outside strict legal control, particularly in areas with weak anti-money laundering (“AML”) laws, pose an increased risk for money laundering and terrorist financing activities. In March 2023, Canada’s Updated Assessment of Inherent Risks of Money Laundering and Terrorist Financing reflected these concerns by upgrading the money laundering threat from unlicensed gambling, including specifically online gambling, from high to very high.

2. Overview of FINTRAC’s analysis of suspicious transaction reports and other sources related to online gambling

The Special Bulletin draws from an analysis conducted by FINTRAC of suspicious transaction reports (“STRs”) from 2016-2023, together with data from other financial intelligence units, domestic and international government and non-government organizations, and other open sources. The Special Bulletin notes the following emerging suspicious trends and patterns in connection with laundering the proceeds of crime through online gambling sites:

(a) Exploitation of financial entities and MSBs, including PSPs:

Operators of unlicensed gambling sites may transfer funds to Canadian accounts, even though the sites may not hold accounts with Canadian financial institutions. The unlicensed gambling companies may operate from jurisdictions with weak AML regimes, secretive banking and tax haven capabilities. Consequently, bank accounts may be exploited using a number of laundering methods, including:

• Excessive email money transfers linked to predicate offenses
• Automated banking machine smurfing
• Cash deposits inconsistent with the client’s financial standing
• Rapid depletion of bank account through frequent credit online gambling purchases, transfers to virtual currency exchanges or PSPs processing transactions at gambling sites
• Bank account showing circular patterns of funds to/from online gambling sites without everyday banking activity

(b) Prepaid cards and vouchers

Prepaid cards and vouchers are flagged as high-risk due to their ability to conceal the origins of potentially illicit funds. Reporting entities have observed clients making frequent purchases of gambling cards, vouchers and reloadable prepaid debit or credit cards. The funds are then quickly channeled into unlicensed gambling sites or e-wallets associated with processing transactions with gambling sites.

(c) E-wallets and PSPs

Individuals who launder proceeds of crime through online gambling sites may use e-wallets and PSPs to process deposits and withdrawals between bank accounts and gambling sites.

(d) Virtual currencies

Virtual currencies may be used by unlicensed gambling sites due to their ability to receive instantaneous and pseudo-anonymous cross-border payments from Canada-based players. These sites may pose a higher risk of facilitating money laundering when they do not conduct customer due diligence, disclose ownership details or set betting limits. Criminals may also launder proceeds of crime using virtual currencies obfuscated by mixers or tumblers. FINTRAC noted MSBs have often flagged suspicious activities when clients’ wallets show connections to these mixers and online gambling operations.

(e) Exploitation of licensed online gambling platforms to launder proceeds of crime

Criminals not only use unlicensed gambling sites but may also exploit licensed gambling sites. The following is a number of suspicious activities and known typologies noted by FINTRAC, used by money launderers and organized criminal groups to launder proceeds of crime:

• The provision of false, stolen and misleading or mismatched information, including forged identity, income verification documents in an attempt to subvert the “know your client” process in online gambling sites
• The use of “mule” accounts, which are multiple accounts controlled by the same individual. Prospective gamblers are restricted to one account with Licensed Canadian gambling operators.
• The purchase of prepaid cards/vouchers using suspected proceeds of crime, which were used to deposit funds into gambling accounts, followed by withdrawals through wire or e-transfer to a Canadian bank account under the guise of gambling winnings.
• Sudden changes in deposit or withdrawal activity
• Minimal gambling activity before withdrawal or the betting of low-risk matches in sports betting are methods to create the illusion of gambling before withdrawal.
• “Chip-dumping”, a common method used in conjunction with credit card fraud where stolen funds are deposited into one gambling account, and then transferred to another account by purposely losing to another player early on in a game
• Unusual betting activity that cannot be explained, or activity that is indicative of match fixing or other illicit activity.
• Signs of account sharing, indicated by access to a gambling account from locations that do not align with the client's registered address or login history, suggest that the account is being used for passthrough activity.

3. When should entities submit a suspicious transaction report to FINTRAC?

The Special Bulletin advises that reporting entities “must reach reasonable grounds to suspect that a transaction, or attempted transaction, is related to the commission or attempted commission of a money laundering offence” prior to the submission of a suspicious transaction report with FINTRAC.

FINTRAC describes a “reasonable ground” as a “picture” that differentiates the suspicious activity and what is considered reasonable in a given scenario. Reporting entities should consider (a) the facts, (b) the context, and (c) money laundering indicators of a transaction in order to make an assessment on whether there is a reasonable ground to submit a suspicious transaction report.

4. Money laundering indicators

FINTRAC emphasizes that money laundering indicators must be evaluated by reporting entities within the full context of a client's behavior and relevant circumstances, and not in isolation, to establish reasonable grounds for suspecting a money laundering offence.

Reporting entities, when preparing and updating their risk assessment, should address business-client relationship risk factors, including in the following categories:

• Products, services and delivery channels that create anonymity and obscure source or destination of funds;
• geographical location of the client and their transactions related to high-risk jurisdictions;
• new developments and technologies made available to clients; and
• client characteristics and the purpose of their relationship with a business that define expectations for what are normal or suspicious patterns of activity or transactions.

Further, FINTRAC advises that reporting entities should also consider several or all of the listed transactional and contextual indicators play a key role in maintaining a strong compliance program when considered as risk factors in a money launder and terrorist financing risk assessment of potential and current clients.

Below are a list of money laundering indicators derived from FINTRAC’s analysis of its transactions holdings and other domestic and international sources:

(a) Money laundering indicators for financial entities and MSBs, including PSPs, involving online gambling

• Transactional activity is inconsistent with the client’s apparent financial standing, their usual pattern of activities or occupational information (e.g. student, unemployed, social assistance, etc.).
• Excessive transactions with one or more gambling sites that are not provincially or federally authorized.
• Excessive transactions with one or more gambling sites that do not require any know-your-client information from users.
• Excessive transactions with one or more gambling sites that do not publish information about their ownership or their jurisdiction of registration.
• Excessive transactions with one or more gambling sites that do not impose limits on volumes and values of bets.
• Client’s wallet has direct and/or indirect exposure to virtual currency mixers/tumblers and online gambling sites.
• Deposits (e.g. through automated banking machine, in-branch, email transfers, other forms of electronic transfers) are followed rapidly by transfers or credit card payments to gambling sites, virtual currency exchanges, and/or PSPs known for facilitating transactions with gambling sites.
• Client’s account activity appears to be circular in nature (e.g. client engaged in repeated cycles of receiving online gambling disbursements followed by more outbound transfers to the same gambling sites.)
• Client’s account appears to be used exclusively for online gambling at one or more websites with no evidence of everyday banking activity.
• Excessive transactions with PSPs and/or e-wallets known for facilitating transactions with gambling sites.
• Client’s account receives funds from online gambling sites, or PSPs known for facilitating transactions from gambling sites, without having first sent funds to the same gambling sites.
• Client’s account receives an excessive number of email money transfers from unrelated third parties, especially where the remittance information references gambling terms (e.g. jackpot) or gambling sites.
• Information provided by the client (e.g. email address, phone number) or social media accounts is linked to an unlicensed gambling site.
• Client frequently reload prepaid cards multiple times on the same day and consecutive days for the purpose of sending funds to online gambling sites.
• Round-dollar transactions are made at retail outlets (e.g. convenience stores) indicative of prepaid card purchases.
• Adverse media or other reliable sources identify a client, or related transacting parties, as linked to criminal activity.

(b) Money laundering indicators for licensed Canadian online gambling sites

• Transactional activity is inconsistent with the client’s apparent financial standing, their usual pattern of activities or occupational information (e.g. student, unemployed, social assistance, etc.).
• Client provides information/identification that is suspected to be false, stolen, altered, inaccurate, forged, based on aliases or generic addresses such as post office boxes.
• Client opens more than one account under different identities (e.g. friends, family) and uses the same IP address when logging in.
• Client’s details for a funding/deposit method do not match player registration details (e.g. credit card or bank account details do not match the player’s name).
• Client engages in limited or no gaming activity, despite significant deposits to accounts, followed by a request to withdraw in excess of any winnings.
• Client requests the transfer of winnings to the bank account of another party, or to a high-risk jurisdiction.
• Geolocation of client log-ins are not consistent with registered client addresses or log-in history.
• Client’s deposit and withdrawal methods (i.e. player makes deposits using e-wallets and prepaid cards, and withdraws using wire transfer to a bank account) are inconsistent.
• Client attempts to register more than one account with the same operator.
• Common credit card used by multiple online players for deposits.
• Notification of a chargeback on the financial instrument used by a client for deposit, indicative of unauthorized use.
• Client makes excessive deposits using prepaid cards, which may involve an excessive number of cards.
• Client deposits funds well in excess of what is required to sustain usual gambling patterns.
• Client suddenly changes their gambling patterns (e.g. sudden increase in deposits and betting activity).
• Client displays suspicious behaviour while gambling (e.g. client engages in chip-dumping in poker, or makes suspicious bets indicative of illicit activity such as match fixing).
• Client appears to be making multiple below-threshold deposits or withdrawals from the same or multiple gaming sites to avoid reporting thresholds.
• Clients use common bank account that are used by multiple online players for disbursements.
• Adverse media or other reliable sources identify a client, or related transacting parties, as linked to criminal activity.

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