A repeatedly confirmed hypothesis of criminologists is that the price of money laundering determines the extent of organised crime. This means that the easier and cheaper money laundering is, the higher the level of organised crime. Without money laundering most crime would not pay. It is a necessity for organized crimeSince the introduction of the Internet in the 1990s, the costs of money laundering have fallen massively, due to Internet-based business models and the deployment of innovative technologies. The suitcases with cash are long gone, FinTechs and cryptocurrencies have replaced them.
Wave 1: Online gambling & betting
The exploitation of online gambling by professional money launderers and drug cartels was also a major reason for its prohibition in the USA and strict regulation in other jurisdictions. Drug dealers have used online gambling sites to launder illicit proceeds from the sale of drugs and into tax-free gambling wins. The money-laundering issue in the online gambling and betting universe is well known to the regulators. The UK regulator, for example, has fined operators with many millions over the last years for their failure to prevent money-laundering.
During the era of online gambling, the cost of money laundering was pushed down considerably which increased the level of organized crime. Online Gambling is a perfect tool for money-laundering for three reasons:
- a huge amount of transactions and payment volumes which is necessary to disguise money-laundering;
- Gambling is a virtual product;
- Gambling winnings are tax-free in many jurisdictions.
Gambling wins can be used to pay the supplier of illegal products such as drugs. The global online gambling & betting market accounted for USD 45.8 billion in 2017 and is expected to reach USD 94.4 billion globally by 2024. It’s a perfect environment for money-laundering
The recognized German money-laundering and online gambling expert Ingo Fiedler actually called Online Gambling as a game-changer to money-laundering. In his work, he explains how money-laundering organizations establish online gambling operators in tax havens to offer their services to criminal organizations.
Wave 2: FinTechs
In the last ten years, we have been confronted with a new phenomenon that makes money laundering cheaper and facilitated organized crime to new levels. These are the much-hyped Fintech companies. Thousands of FinTechs have emerged in the last decade. Very few of them are regulated by a financial market supervisory authority.
A considerable number of these FinTechs use innovative technologies to enable criminal organizations to launder money. Technologies have been developed to miscode credit card transactions, manipulate KYC or AML checks, and conceal the true nature of the money-generating business (e.g. drugs or scams).
The FinTechs have played a major role in the gigantic binary options scam over the last 10 years. According to the U.S. FBI, retail investors have been swindled out of up to $10 billion annually. This money had to be laundered as well. FinTechs like Moorwand, Payvision, PraxisPay, Payotech, Moneta International, or MoneyNet International facilitated these scams by providing payment services and access to the financial system. FinTechs have become an essential part of the new cybercrime world and have actually provided the fertile soil for it.
Wave 3: Blockchains and cryptocurrencies
Since 2016, the dawn of cryptocurrencies like Bitcoin has once dramatically accelerated the emergence of new FinTechs and once again dramatically reduced the cost of money laundering. It is known that the blockchains of the cryptocurrencies have been used intensively by organized crime for money laundering.
The online gambling and betting industry has readily accepted cryptocurrencies as a means of payment. Hundreds of new unregulated financial service providers emerged to offer their services.
With each new technological advance, the costs for the money launderers decrease. FinTechs are now able to provide payment services with innovative technology at a fraction of the cost of traditional banks. Regulators are always years behind this development.
It is therefore not surprising that the demand for stricter regulation of FinTechs as well as of crypto-currencies is growing louder.