Why Enforcing Anti-Money Laundering Laws is Crucial for Legal Sportsbooks

Bettors who sign up for sportsbooks will notice all the personal information Colorado sportsbooks request. An address and phone number, fine. But a Social Security number? That seems like more than sportsbooks need.

But sportsbooks need to know exactly who is betting with them. Most sports bettors are fans who want to add a new layer to their game. However, there are criminals out there who want to take advantage of legal sportsbooks. Sportsbooks are prime targets for money launderers who know they can move a lot of money all at once.

With the recent wave of sports betting legalization, the Financial Crimes Enforcement Network (FinCen) updated some of its terms to keep sports betting safe. It makes sportsbooks responsible for enforcing anti-money laundering laws. Necessarily, it also makes them responsible for implementing robust security systems. Here’s how money laundering works, how sportsbooks prevent it, and how sportsbooks protect sensitive bettor information.

Why Money Launderers Are Attracted To Sportsbooks

Money laundering is the process of disguising illegal money by funneling it into legal businesses. Depositing $5 million in cash at a bank looks suspicious. But buying an expensive new property and flipping it at a substantial profit looks like a real estate tycoon’s latest conquest. The illegal money is disguised as money from a legal transaction. Because it doesn’t look like it came from a crime, the money is free to deposit in a bank.

$50,000 in cash may seem strange at some businesses, but betting operators process large sums of money often. High rollers are nothing new to sportsbooks, so money launderers can make large deposits and fit in. That reduces the number of deposits criminals have to make to launder all their money. It’s a boon for criminals.

How Laundering Money Through Sportsbooks Works

But how do criminals launder money at a sportsbook when they have to win a wager to get their money back?

There are a few tactics commonly used to take advantage of sportsbooks. One is match fixing. Powerful crime syndicates can fix matches so the side they place their money on wins. It may include the sportsbook’s cooperation, but it can also include bribes to teams or players. It’s a good way to launder a lot of money at once and generate additional profit.

Another is to wager on each side of a bet. Criminals can bet on every part of the line so there’s always some money that comes out of it. They’ll lose some money that way, but they’ll win some, too. It’s considered the cost of doing business, similar to the price they’d pay for some underground service to launder the money for them.

But those winnings look like legal funds that can be deposited in a bank.

How Colorado Sportsbooks Prevent Money Laundering

Depending on how criminals launder their money, sportsbooks may or may not be consciously complicit in laundering those funds. However, per federal law, sportsbooks must keep themselves from laundering illicit funds.

One of the ways online sportsbooks identify potential money launderers is by implementing Know-Your-Customer (KYC) protocols. It requires sportsbooks to request identification and predict which transactions appear suspicious. It originally applied to banks, but sportsbooks and casinos are covered under the “financial institutions” who have to comply with KYC measures.

That’s why sportsbooks have to ask for such personal identifying information. They need to know who you are.

By identifying each patron, Colorado’s sportsbooks ensure they’re not accepting money from or awarding money to criminal masterminds. If a bettor links to a name, that bettor can probably be traced to a bank account, too. Once that link is established, their behavior can be monitored by sportsbooks, banks, and potentially FinCen.

That’s where the risk assessments come into play. Once a sportsbook detects suspicious activity, it will track that bettor more closely. It could ask for additional identity verification documents. Any digging into a problematic background could lead sportsbooks to suspect illicit activity. If a bettor is marked as “risky” enough, their sportsbook may decide to close or suspend his account.

And that’s before sportsbooks report the suspicious behavior to FinCen.

Between the identity verification and the risk assessments, it’s difficult for money launderers to abuse Colorado’s sportsbooks.

How Do Colorado Sportsbooks Protect Bettor Information?

The good reasons behind sportsbooks’ data collection may not assuage bettor fears. Bettors must still provide sensitive identifying information. What are sportsbooks doing to keep that information secure?

Sportsbooks and casinos are required to file reports with FinCen, so each of them must have robust security systems in place. In Colorado, network security systems are audited 90 days before the sportsbook goes live. That gives independent auditors time to give sportsbooks feedback before they accept bettor information. Colorado also requires sportsbooks to have standard procedures in place that standardize data security across the sports betting industry.

Between the State of Colorado and FinCen, sportsbooks have robust security requirements. Colorado won’t license sportsbooks who can’t meet them and FinCen will fine companies who don’t report correctly. Bettors can rest assured that they’re pouring their data into well-protected servers. While no security system is perfect, licensed sportsbooks are as secure as the government can require them to be.

Money Laundering Is Challenging In Colorado

It’s not impossible to launder money in Colorado. Criminals can employ a middleman to place bets with illegal money–a practice called third-party betting. However, identify verification and risk assessment undermine these practices and make it far more difficult to launder money even with a middleman.

The United States and the State of Colorado have robust systems in place to prevent money laundering. These systems and laws are why sportsbooks are so strict about enforcing anti-money laundering laws. Not only are compliant with the law, but sportsbooks’ businesses depend on strict compliance.

Rest assured, Colorado’s licensed sportsbooks take anti-money laundering and data security seriously. No one wants to allow money laundering to occur at their businesses.

And no sportsbook wants a visit from FinCen and the Department of Justice.

About the Author

Christopher Gerlacher

Christopher Gerlacher is a freelance writer tucked into the foothills in Colorado Springs. He works as a content writer, a professional resume writer, and authors search engine optimized professional articles in multiple industries.