Growing Money Laundering, Shadow Banking Risk from Mekong Casinos

SaiLp, CC BY-SA 4.0, via Wikimedia Commons

(VOA News, Zsombor Peter, BANGKOK) — Transnational criminal gangs are using Southeast Asia’s booming and increasingly digital gambling industry as a shadow banking system to covertly move and launder ever more dirty money, United Nations officials have told VOA.

Drawing on new research and analysis, including the latest intelligence from local law enforcement, the U.N. Office on Drugs and Crime believes the region’s casinos and online gambling sites now handle tens, if not hundreds, of billions of dollars in returns a year from illegal gambling, drug trafficking, cyberscams and other organized crime, the UNODC officials say.

The same digital tools helping to make that growth possible, they added, are making the money trail harder for authorities to track and interdict.

Sharing some of their findings with VOA, the officials pointed to an underground banking system of “industrial scale,” consolidating mostly in the lower Mekong River countries — Cambodia, Laos, Myanmar, Thailand and Vietnam.

What the findings show “is really a paradigm shift in how organized crime networks active in the Mekong have been using technology not just to expand their activities and revenue streams, but also to create a banking system to move these massive amounts of money around undetected,” Benedikt Hofmann, UNODC deputy representative for Southeast Asia and the Pacific, said.

The UNODC says the region’s gambling industry got a big boost when China started cracking down on illegal gambling and cross-border money transfers about six years ago. Many gambling operators looking for countries with a lighter touch landed in the Mekong region.

Then came COVID-19, with its strict travel controls, turbocharging the industry’s shift to online gambling and giving the underground banking business a lift as well.

“Casinos have long played a role in money laundering in Southeast Asia, but the surge of online gambling has accelerated this in ways that weren’t expected,” Hofmann said.

“High volumes of large, anonymous transactions, very limited regulation and compliance standards and the transboundary nature of services make the online gambling sector really attractive for people wanting to hide transactions,” he added.

Tools of the trade

Among the sector’s most pernicious features, the UNODC says, is the practice of “offsetting,” where clients deposit money into a gambling operator’s account in one jurisdiction and draw an equal amount out of a second account in another jurisdiction but with the same operator’s help. While meant for gambling, authorities across the region say the service is being used more and more to move and launder dirty money.

Another major and growing concern is “white-labeling,” where all the sophisticated software and services needed to run an online gambling site can be bought from a provider and set up in a matter of weeks, much like a franchise. The UNODC says this helps criminals with little to no gaming or technical knowledge launch their own online casinos to mask their money moves.

Also fueling much of the problem is the rise of hard-to-trace cryptocurrencies, said Amanda Gore, a forensic accountant who heads the Centre for Global Advancement, which studies financial crime in Asia and elsewhere.

“If you put money into a casino and then you cash out in a different format, say for example you cash in with a bank card and then you cash out with … a cryptocurrency, how do you verify that it’s the same person? You could be paying someone as part of a drug deal, for example,” Gore told VOA.

Rules for cashing in and out of a casino or gambling site vary by country, she added, but “if you are able to use different payment methods, then it can pose pretty significant issues from a money laundering perspective.”

Authorities have no comprehensive estimates of how much dirty money is flowing through Southeast Asia’s underground banking system but the UNODC says several high-profile cases in recent years suggest it stretches easily into the tens of billions of dollars per year.

In January, for example, a Macau court convicted Alvin Chau of running an illegal gambling empire that handled over $105 billion in bets since 2013. Months earlier, a court in mainland China convicted 36 others connected to the operation; the charges included making at least $160 million in illegal cross-border payments through VIP rooms and online gambling sites run from casinos in Cambodia, the Philippines and Vietnam.

In July, Thailand arrested Kuo Che-min and last month extradited him to Taiwan, where he was wanted for allegedly running a major online gambling and underground banking network based out of a casino in Cambodia. Thai authorities said he may have laundered over half a billion dollars through the operation.

Police in Taiwan suspect Kuo of having worked with Lin Pin-Wen, an alleged member of one of the island’s main triads, Heavenly Way, which has been linked to a number of other drug trafficking cases. Lin was arrested in Taiwan in November on the same set of charges as Kuo.

Gore said high-profile cases like these were most likely “only the tip of the iceberg” and agreed with the UNODC that the problem was getting worse.

Through the backdoor

Beyond the Mekong, the Philippines has also emerged as a major node of the region’s underground banking system.

In 2016, Manila started licensing Philippine offshore gambling operators, or POGOs, to target overseas gamblers in hopes of generating local jobs and revenue. Reports of their suspected misuse filed with the government by local companies soon rose, and law enforcement authorities linked many of them to drug trafficking and money laundering, according to a 2022 report co-authored by Gore. Another report this year by the government’s own Anti-Money Laundering Council shows reports of misuse skyrocketing again between 2021 and 2022.

“It has gotten worse,” conceded Michelle Sabino, spokeswoman for the Philippine National Police Anti-Cybercrime Group, ascribing much of the blame to POGOs.

“This is the tool, this is the gateway for people, for syndicates to be able to money launder,” she told VOA. “They hide behind the legitimate POGO operations … but under that there are different companies who are doing the illegal activities.”

Increasingly aware of the system’s flaws, the Philippines started reining in POGO licensing at the start of the pandemic, which Gore said drove some operators to relocate to Cambodia, just as China’s crackdown a few years prior drove many to Southeast Asia. Gore and the UNODC say a second crackdown by the Philippines this year is now driving them mainly to Laos and Myanmar.

“That’s why comprehensive regional responses are so important — individual countries’ efforts just bring the issue back through the back door,” Hofmann said.

The UNODC is helping coordinate a response. It held a workshop on fighting underground banking through the gambling industry with law enforcement agencies from Laos, Malaysia, the Philippines and Thailand last month and is planning more.

Gore said many of the countries in the region need to focus on creating or improving their laws on gambling, and seriously enforcing the ones they may already have.

Sabino said she would welcome more collaboration, as the fight still feels frustratingly fragmented.

“If they’re able to get all these countries united together in one pursuit for us to be able to apprehend cybercriminals then that will be fantastic,” she said. “That will be the day, because right now each and every country has to deal with their own problems with regards to cybersecurity and cybercriminals on their own.”

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