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The Risks of Online Gambling For the Financial Industry
LEXSI, May 2010, Pages: 33
The online gambling industry has always carried a bad reputation, partly justified by the practices developped by a few black-hat companies. Indeed, this industry in plagued by criminal practices, ranging from cybersquatting to the propagation of malware, of even scamming online players. In the eye of the liberalization of this market in many countries arround the world, this report assesses the risks that financial institutions might be exposed to, when working with online gambling companies.
In many ways, online gambling has become a sort of haven for borderline illegal – and even totally illegal – activities. Spam, malware and affiliate fraud are just some of the practices typically used within the sector, and these tactics are not merely confined to illegal online gambling sites. Contrary to assumption, the rate of chargebacks in this sector is among the lowest worldwide. Indeed, it is more difficult to get away with identity theft on casino or poker sites, firstly because of the low probability of the criminal winning, and secondly because embezzlement schemes from an online gambling account are difficult to implement (requiring, for instance, the use of deliberate play-to-lose strategies).
In most countries worldwide, the gambling sector is at the center of heated legislative debates. Some states have opted for total prohibition, while others – particularly in Europe – have decided to open up their markets. Such differences in policy have lead to differing restrictions on the banking sector, notably in terms of blocking money streams sent to illegal sites. Our recommendation to banks, particularly to acquiring banks, is to use thorough due diligence when signing new e-commerce contracts with online gambling businesses. Even when legal, these companies often use borderline criminal or immoral practices, which must be assessed in order to reduce the risks involved.
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