A new research report by defence and security think tank The Royal United Services Institute (RUSI) has called on governments and regulators to work more closely with cryptocurrency exchanges and service providers in order to better police what it describes as a key threat to the global casino industry.
It also points to the use of criminal proceeds generated by North Korea by exploiting the casino and gaming sector – particularly with the use of cryptocurrency – as a major concern.
The newly published report, titled North Korean Activity in the Casino and Gaming Sector: How Do Jurisdictions Respond? says criminal groups and state actors continue to abuse the limited jurisdictional oversight in certain aspects of the casino and gaming sector but notes that the “threat landscape has changed” with the emergence of the cryptocurrency industry.
“Criminal actors exploit under-regulated aspects of the casino and gaming sector to launder and move illicit assets across jurisdictions. This threat is further compounded by the reported involvement of cryptocurrency as a means to move and obfuscate criminal assets,” the report states.
“As a result of this shift in design, a new global illicit marketplace has emerged and, as such, jurisdictions need to examine the full scope of threats in the casino sector. North Korean actors are already known to exploit the cryptocurrency industry and designated non-financial businesses and professions, including casinos, to generate and launder revenue for North Korea’s WMD (weapons of mass destruction) program.
“Within this risk assessment scope, authorities need to understand whether sanctioned entities can exploit these emerging avenues to obscure the source of criminal proceeds and/or offload illicit cryptocurrency.”
According to the report, casino junkets remain a potential point of vulnerability for casino operators globally with junket operators and agents increasingly utilizing cryptocurrency as a means of accepting payment and moving funds across borders. In some instances, the platforms by which such transactions are processed are developed by or linked to North Korea.
Identifying specific areas of weakness in both the land-based and online gaming sectors, the report points to a lack of sufficient monitoring of the junket industry – even in jurisdictions where some or all junket financial activity is banned – the lack of effective legislation around the use of cryptocurrencies in land-based and online casinos, and a lack of “best practice and guidance” around proliferation financing in the sector.
However, among the main risk mitigation strategies identified is an acceptance by regulators of cryptocurrency as an opportunity to better track customer transactions.
“The involvement of cryptocurrency in casino-related investigations may not be apparent unless investigators use blockchain analytic tools to track incoming and outgoing transactions for addresses,” it states. “Cash is still the main form of payment in casinos. However, cryptocurrency is sometimes promoted as a payment or pay-out option on social media.
“If cryptocurrency is used in casinos or junkets, there is an opportunity for insight into junket operations. Cash is readily exchangeable and untraceable, but the more common forms of cryptocurrency are pseudonymous. This characteristic means that if a casino uses cryptocurrency as a payment option, investigators can trace this activity.”
Specifically, the report calls for additional license conditions to be applied in any jurisdiction where cryptocurrency can be used for gaming purposes, and for governments and regulators to determine what controls should be placed on cryptocurrency use. These, it explains, may include the types of cryptocurrency allowed and transaction thresholds, while also calling for the use of blockchain analytic tools to identify red flags.
“While threats such as those relating to the exploitation of junkets are already reflected in 2009 guidance from the FATF (Financial Action Task Force), the threat landscape has significantly changed with the emergence of the cryptocurrency industry,” it says.
“With an evolving financial ecosystem, public sectors need to take action to investigate and restrict the exploitation of new avenues relating to the casino and gaming sector.
“Threats are identified in the context of open avenues already exploited by illicit actors, and the possibility of North Korea abusing these channels across other jurisdictions.
“To be successful in this pursuit, public sectors need to work in partnership with crypto exchanges and other service providers, the casino and gaming sector and blockchain analytics companies. By working at an international level, the risk of North Korea abusing the casino and gaming sector can be greatly reduced, and authorities can thereby further restrict that regime’s capacity to obfuscate criminal proceeds for use in its WMD programme.”
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