Law enforcement personnel often worry that casinos and sports books provide opportunities for criminals to launder money. But in a recent submission to the Financial Action Task Force (FATF), the Interactive Gaming Council (IGC) points out that online gambling, with a combination of regulatory oversight and use of technology -- while facing the same threats as real-world gambling facilities -- is in a better position to address these risks.

"Online gambling does not lend itself to any form of cash movement because of the online nature of the business, specifically, there is no face-to-face contact in the business," the IGC states. And whatever exposure the interactive gaming industry does have to money laundering can be effectively mitigated through rigorous regulation, the organization adds.

The IGC, the leading trade association for the international interactive gambling industry, has formally responded to a request for comments on an FATF consultation paper that was released in May. The FATF, based in Paris, is an international organization devoted to combating money laundering. Its recommendations have been endorsed by more than 130 countries.

The FATF sought comment from industries that may be targeted by money launderers. It will consider the comments in turning the consultation paper into a formal report, probably by the first quarter of next year. "The IGC is only too happy to work with the FATF on the worldwide problem of money laundering," said Rick Smith, executive director. "We submitted our written comments, and offered to work with them on our common concerns."

The IGC told the FATF that stringent player registration and ongoing verification processes for online gambling, in conjunction with the appropriate regulatory oversight and banking regulations, satisfy the "know your customer" requirement that is basic to any fight against money laundering. This, combined with the advanced computer technology that's available to Web site operators, is a strong deterrent to money launderers.

"Using software technology tools, online gambling operations can scrutinize 'inconsistent' behaviour, capture and report the transaction, and freeze the funds pending investigation. When performed in conjunction with a licensing authority this is a potent weapon," the IGC says in its FATF submission.

The IGC states that "There is no indication that legal online gambling sites have laundered money," adding that "A more significant threat lies with online auctions where items with a minimal 'real' cost can be 'sold' for $1,000 and the profit then laundered at the online auction house."

Nevertheless, Smith said, vigilance is needed. The concern is not so much with the money coming in to an online casino or sports book, but with the money going out. IGC members have policies that prevent transfers of funds (winnings or return of deposits) to parties other than the individual who originated the transaction.

"That's critical," Smith said. "You can't let players tell the casino to send checks or wire money all over the place. That money must go only to the player who registered at the site and did the betting. It's also best if the money goes back the same way it came in. In other words, if a player starts playing on a credit card deposit, it's best if any winnings are credited to the same credit card. Unfortunately, most U.S. credit card issuers won't permit that."

The ultimate weapon against money laundering, the IGC believes, is government regulation of the online gaming industry, which "should be subject to the same regulatory requirements as regulated land-based gambling organizations."

"A comprehensive regulatory infrastructure and compliance with the licensing jurisdiction similar to the regulatory philosophies that apply to leading land-based gambling jurisdictions is the solution," the IGC reasons in its FATF comment. "With new technologies, there is a need for governments to review how they regulate (not what they regulate), even more so as geographical borders 'disappear' in the electronic medium of eCommerce. . . . A higher degree of cooperation between industry and governments is needed, ideally with a common, recognized set of regulations and standards."

The IGC further contends that attempts to prohibit, rather than regulate, the industry have driven some operators underground, to jurisdictions that don't follow the anti-money laundering measures promoted by the FATF. The IGC also encourages the FATF to avoid using third parties such as ISPs as enforcers, and instead work directly with the online gaming industry and its regulators.

Recognizing that employees of all gambling venues need training to spot and report suspicious financial transactions, the IGC sees a role for itself in helping to develop training programs and making them available to its members.

As part of its commitment to licensed and highly regulated interactive gaming, the IGC stands ready to work with any governmental organization. Its representatives have met with officials from the U.S. Federal Trade Commission to discuss common concerns about preventing minors from gambling online.

The complete text of the IGC submission to the FATF is posted on the IGC Web site, www.igcouncil.org.