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The Green SheetGreen Sheet

The Green Sheet Online Edition

February 09, 2009 • Issue 09:02:01

Money launderers game for online merchants

For online gambling merchants, money laundering and fraud rings are threats to both profits and reputation. To help them combat these issues, Scott Olson, Vice President of Marketing for fraud management company iovation Inc., discussed strategies to curb money laundering related to online gambling at a recent conference in London.

Olson, whose company is based in Portland, Ore., spoke at the 5th annual Combating Cybercrime in Betting & Gaming Conference on Jan. 27, 2009. His presentation, entitled "Combating Money Laundering: Using Device ID to Expose Hidden Account Relationships," addressed the following topics:

  • How fraudulent transactions can be unearthed across payment systems
  • How device identification exposes fraudulent users and their associations with multiple accounts
  • What measures online gaming sites are taking to prevent money laundering schemes

As the online gambling industry faces more challenges in thwarting money laundering groups, many Internet gambling sites are taking proactive measures to identify and stop sophisticated laundering techniques.

The conference drew more than 100 payment professionals and online merchants. And the fear of potential long-term damage to the online gambling industry made for a receptive audience.

"The show went very well, in particular because it is something that merchants and service providers are regulated to deal with. Additionally, both online payment providers and merchants realize they are taking a lot of risk with any ties to fraud and need to combat the situation as quickly as possible," Olson said.

Caught in the middle

According to Olson, federal and state regulations pertaining to terrorism and organized crime require gambling merchants and their service providers to protect against and identify money laundering schemes. He said merchants and payment professionals expressed concern over regulatory mandates; it is difficult, at best, to identify these schemes, track them and report them.

"The basic problem with finding money launderers is that it's very easy to create multiple accounts but virtually impossible to see the relationships that exist between those accounts," Olson said.

"And whether it's in the payments, gaming or banking industry, the challenge in identifying fraud rings is discovering whether the money flowing from one account to another is legitimate or if they are criminals colluding to provide a money laundering service."

Additionally, unless the fraud reaches a million dollars, law enforcement typically doesn't even notice. Even then, cases can take years to unearth and prosecute.

"That's a lot of leeway for these fraudsters to come in under multiple accounts and do significant harm to the merchants without any risk of arrest or prosecution," Olson said.

Left in the cold

Financial harm hits the payments industry in the form of credit card chargebacks and the potential for online gambling merchants to lose the ability to take certain payments like Visa Inc.- and MasterCard Worldwide-branded cards.

"Criminals are defrauding online players by stealing their card information, using that money to flush their own funds in anonymous accounts, sending the money overseas, and they get back 10 to 30 percent of it squeaky clean. And moving it through the system, in many cases, is very easy," Olson said. "With a potential for significant chargebacks, online merchants could be subjected to higher rates or completely lose their ability to take payments altogether.

"And this is a critical issue in the online gaming industry and on poker sites because the money laundering tactics are creating unfair play, so it's damaging their site reputation and potentially defrauding their customers out of enormous amounts of money," Olson said. The Green Sheet, Inc.

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