The gaming sector in the United States has witnessed significant growth and transformation with the proliferation of digital operations such as online sports wagering and iGaming. This has been accompanied by continued state-level legalization and regulation. However, this growth has also brought concerns about money laundering and fraud, prompting operators to seek and adopt innovative compliance measures that manage these new risks and promote responsible gaming.
In light of the International Association of Gaming Advisors international summit, Napier spoke to Bob Boyle, Forensic & Integrity Services Senior Manager at Ernst & Young LLP (EY US), about the state of gaming in the United States: from its legalization, emerging risks and the promotion of responsible gaming through data-driven solutions to using artificial intelligence (AI) to combat money laundering.
Bob has over 14 years of professional experience leading compliance work for brick-and-mortar and digital operations for casinos, sportsbooks, banks and nonbanking financial institutions. Bob’s work includes performing anti-money laundering (AML)/Title 31 program assessments, AML and fraud risk assessments, and transaction monitoring reviews and leading compliance matters pertaining to regulatory investigations and examinations. Bob has also led training on fraud, AML, and responsible gaming program procedures and processes.
The views reflected in this article are the views of the author and contributors and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.
Bob, always great to speak with you and I’m sure, with everything going on in the gaming space, you’re a busy man. Can you tell me a little about what you’ve witnessed over the last year or so in the sector, specifically as relates to digital sportsbook and iGaming operations and its seemingly imminent sweeping legalization in the US?
Sure thing, and thank you for taking the time to discuss this topic with me today. The gaming sector, especially from a digital operations perspective, has seen tremendous growth over the past year. As additional states, such as Massachusetts and Ohio, approved bills and set up their regulatory infrastructure for sports wagering, operators who’ve received licenses are expanding their patron base across the US quite rapidly. This is also true from a global perspective. Ontario has been a significant growth market in Canada with other provinces soon to follow. Emerging markets in South America are catalysts for sports wagering growth and mature markets in the UK and EU continue to see strong numbers as well. Online gross gambling yield (GGY) in the UK increased 5% year-on-year in the fourth quarter to approximately £1.30b ($1.62b).
You’ve spent a lot of time working with land-based casinos, can you elaborate on newer/emerging risk types that you see happening that are unique to those digital operations?
There are several risk factors operators face pertaining to their digital products. Land-based casino operations have always dealt with money laundering risk due to such factors as the cash-intensive nature of the business and the anonymity at the early stages of game play. One of the unique factors of digital operations as compared to land-based gaming is that money laundering may be facilitated through fraudulent activity associated with patrons’ accounts. Given that patrons are funding their accounts through various digital financial products, there is an increased risk that they can be compromised, and funds associated with these accounts can be facilitated through gaming platforms in an attempt to capitalize on the fraud that malicious actors are committing. In addition to traditional account takeover scenarios, fraudsters are becoming more sophisticated in using synthetic IDs to set up accounts solely for the use of facilitating ill-gotten gains. The National Money Laundering Risk Assessment report issued by the U.S. Treasury Department highlights that fraud continues to be the largest driver of money laundering activity in the United States. This holds true for digital operators who have experienced organized fraud rings and schemes to facilitate deposit and withdrawal activity in a rapid-movement-of-funds-type scenario before the fraud has been discovered, resulting in chargeback spikes, patron experience friction and possible reputational harm.
Aside from following regulatory and industry organization guidelines (both of which continue to evolve), what else can operators do to stay compliant and prevent bad actors from using gaming platforms for their nefarious gains?
Digital sports wagering and iGaming operators can get in front of possible fraud and money laundering scenarios by focusing on the following three steps.
One, assess how information associated with patron onboarding is being reviewed to minimize situations where accounts may have been set up fraudulently. Utilizing data outside of personal identifying information such as device IDs and IP addresses is also key to identifying situations where fraudsters may be setting up multiple accounts or using proxies to facilitate transaction activity.
Two, companies should regularly assess and tune their transaction monitoring scenarios from both an anti-fraud and AML perspective. As bad actors continue to evolve the way they utilize digital platforms to attempt to defraud patrons or facilitate the movement of illicit funds, digital operators should look to see how responsive their current monitoring alerts are and conduct post-mortem analysis of financial crimes that have occurred on the platform.
Finally, operators should stay current on regulatory compliance guidance and measures not only issued from domestic jurisdictions but also on a global perspective, as there are topics such as the use of data as well as themes from enforcement actions that have universal applicability to compliance programs.
You recently authored an article published by EY US on how to promote responsible gaming through data-driven solutions. Can you share some of the takeaways with me?
Responsible gaming is a topic that is front and center from a regulatory perspective. Regulators seek to understand how operators access and analyze data to address safety and compliance measures applicable for patrons. The onus of identifying gaming risk and harmful gaming behaviors is no longer driven by patrons opting to self-exclude. There are numerous US state-specific responsible gaming regulations in place, including self-exclusion, advertising and wager limits, and patron credit restrictions and hotlines. However, regulators are considering enhancements where operators would be required to integrate advanced data analytics, setting new standards for responsible gaming compliance in the industry. The UK Gambling Commission recently published their policy paper titled “High Stakes: Gambling Reform for the Digital Age” where they have highlighted objectives such as new obligations to prevent operators from unchecked and unaffordable spending. This focus on online protections includes utilization data across spending levels, and it is one of the key proposals to include more prescriptive rules on when online operators must check customers’ financial circumstances for signs their losses may be harmful. Overall, regulatory focus as well as digital operators’ access to patron data are trending as the primary takeaways in terms of how responsible gaming compliance is evolving.
Shifting gears a little to another topic that is, well, quite topical: AI. In your report you mention AI as a tool that can be integrated along with data analytics to enable responsible gaming. Where are you seeing AI being instrumental and what is its value specifically?
Operators are beginning to leverage data analytics and AI algorithms to analyze datasets to identify events consistent with harmful gaming behavior and take action to provide services to those patrons who may be in need. For example, in the UK, there has been some experimentation with casino machines that are using AI to develop a cooling-off system that locks patrons out of the gambling platform when detecting problematic behaviors and promoting safe gambling practices on the screen. Pattern identification and analysis are among the key components being explored from an AI perspective that would have substantial impact to compliance program areas such as responsible gaming, anti-fraud and AML.
How are you and your team at EY US working with other technology firms to enhance the ongoing work you’re doing in the gaming space? Any success stories you can share?
At EY US, we are leveraging our experiences from working with a number of compliance program setups that address key regulatory topics such as fraud, AML and responsible gaming. Based on our experience, we are working with companies that have established platforms to address risk scoring, transaction monitoring and patron profiling. Utilizing these technology platforms allows us the opportunity to provide a tailored and risk-appropriate process for land-based and digital operators in an environment that is centralized and can be managed in real time. Our collaboration with US and global clients has led to the development of scenarios that leverage information across the patron lifecycle, including onboarding, deposit, game play and withdrawal data to return sophisticated and responsive alerting for review.
Lastly, as you look to the year ahead, what makes you excited/optimistic about the work you’re doing for the gaming community?
From my perspective, I am excited that the industry has made a concerted effort to prioritize compliance as companies continue to grow and expand their footprint in the US and globally. The focus on how data can be utilized as part of the solution is also exciting as the amount of information available for analytics and analysis is unprecedented. Harvesting data changes the way we look at how patrons utilize gaming platforms from both a market growth and compliance perspective. I am optimistic that additional technology and process solutions in the market will lead to opportunities for operators to further hone their risk-based approach to compliance and how best to obtain the most relevant and productive monitoring results.
Bob hosted a panel discussion on the topic “As online gambling grows, so does the financial crime risk: a look at financial crime detection and prevention best practices” at the annual IAGA International Summit.
With extensive anti-money laundering compliance programs rigidly followed by brick-and-mortar operators to ensure compliance with government requirements, the attention is now shifting to whether current measures used to detect online financial crime and fraud are sufficient to handle online gambling’s rapid expansion. Featuring financial crime experts from the US, UK and EU, this panel considered whether the boom in online gambling across the US creates opportunities for criminals to launder money or engage in other criminal acts like fraud. Panelists, including Napier’s Chief Product Officer, Will Monk, reflected on lessons learned in the UK and across Europe, with emerging best practices that could be applied in the US.
The views reflected in this article are the views of the author and contributors and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.
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