Nearly two months have passed since the bettor of an eye-grabbing $3 million parlay made claims that DraftKings abruptly suspended his New Jersey mobile sports betting account without prior warning.
Weeks earlier, an associate of the bettor apparently placed the wager on the customer’s mobile account in the Garden State while the VIP player remained in sunny Florida, nearly 1,000 miles from the New Jersey–Pennsylvania border. The transaction appears to run afoul of numerous federal and state laws, as well as the company’s own Terms and Conditions. While DraftKings has confirmed that the matter is under investigation by the appropriate regulatory authorities, officials from the New Jersey Office of the Attorney General and the Division of Gaming Enforcement (DGE) have remained mum on the case.
Last month, New Jersey bettors wagered a record $936.1 million at legal sportsbooks across the state, shattering a previous national record for a single month by more than $100 million. The elevated wagering figures raise questions of whether other out-of-state whales, or customers reputed for making large bets, have placed seven-figures through a proxy. Messenger betting occurs when a proxy located in a state with legal sports betting places a wager on behalf of a customer outside of the jurisdiction, partaking in an activity that many interpret as a violation of the Federal Wire Act.
In the meantime, New Jersey DGE Director David Rebuck has touted the state’s Know Your Customer (KYC) infrastructure for mobile sports betting at two industry events this month. The division’s technical team has a built-in KYC apparatus for mobile customer identification that Rebuck will “match against any retail KYC system” in the marketplace, he argued.
Rebuck made the comments Dec. 9 at a regulatory masterclass series presented by Conscious Gaming. Rebuck did not address the DraftKings allegations, specifically. A New Jersey DGE spokesman did not have any updates to a Sports Handle request on Wednesday.
EXCLUSIVE:
All is not well between #DraftKings and its $3 million parlay bettor.
In fact, there's much more to the story.
(by @MattRybaltowski)https://t.co/wQ0uy5NFM4
— Sports Handle (@sports_handle) November 5, 2020
Interactions with U.S. Treasury’s FinCEN
During the hour-long webinar, Rebuck noted that he has had numerous discussions with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) over the years in his current capacity with the state. When it comes to a wide range of compliance issues, Rebuck indicated that New Jersey strives to ensure that casino operators are at the forefront in following federal law, namely the Bank Secrecy Act of 1970. Under the law, casinos with annual revenue in excess of $1 million are required to report certain currency transaction reports to FinCEN.
The act is sometimes referred to colloquially as an anti-money laundering (AML) law.
More recently, Rebuck has re-engaged with FinCEN on KYC issues related to mobile and online gaming. The proliferation of mobile betting has compelled operators to create enhanced safeguards when a customer opens an account. A casino or sportsbook that adheres to best practices from a KYC standpoint must be able to verify a customer’s identity when he or she establishes an account, according to industry compliance experts. Since VIP players can make million-dollar bets from their couch, outside of a retail casino environment, top sportsbooks in some cases are taking a risk on whether the person placing the bet is the actual customer who opened the account.
Casinos increasingly have turned to facial recognition software for surveillance needs. Nevertheless, requiring a customer to complete a facial scan to gain access to their mobile betting account appears to be overly invasive. New Jersey regulations prohibit proxy betting, while DraftKings’ own house rules forbid customers from allowing acquaintances to gain access to their account for participation in any contest.
No licensee shall knowingly accept a wager from a person on behalf of any other person. No licensee shall knowingly allow a person to make a wager utilizing the account of another person.
—Rule 13:69N-1.10 — New Jersey Division of Gaming Enforcement, Permanent Sports Betting Rules
New Jersey authorities have the technical capabilities, Rebuck indicated, to pinpoint the device you’re using to gamble on your account. If you’re placing a bet on a cellphone, the phone could have unique identifiers to determine if it’s tied to your account, or even another account, according to Rebuck. The multi-source series of identifiers appear to have the same capabilities for wagers placed on desktop or laptop computers. Sportsbooks, meanwhile, have discretion to suspend a bettor from their site if it is determined that he or she has maintained multiple accounts, a violation of house rules at many prominent companies.
The state implemented new enhancements in two phases earlier this year, Rebuck noted. After its latest phase, New Jersey evaluated the enhancements to strengthen the account creation identification system it built in October, he added.
“I’m just so proud of what my technical staff has done and how we’ve expressed this to FinCEN,” Rebuck said on the webinar, adding that he is optimistic that the system will be used across the country as a baseline on how to open and close an account.
Enforcement gaps
Earlier this month, a seasoned group of white collar criminal attorneys from the Washington, D.C., office of Gibson, Dunn & Crutcher hosted a panel on Anti-Money Laundering (AML) sanction, enforcement, and compliance issues in 2020 and beyond. Developments in sports betting and online gaming were among the most relevant topics under discussion. Although sports betting conducted through casinos is subjected to various reporting standards under the Bank Secrecy Act program, according to the panel, FinCEN has yet to issue guidance on mobile sports wagering.
Messenger betting should not be conflated with money laundering. A bettor who is looking to place a wager through a proxy in another state is not looking to conceal or disguise the nature of illegally obtained funds. In general, a casino is required to file a Suspicious Activity Report (SAR) with FinCEN on any occasion when an employee suspects untoward activity regarding a financial transaction. FinCEN Director Kenneth Blanco addressed the agency’s stance on mobile sports betting in an August 2019 presentation at the 12th Annual Las Vegas Anti-Money Laundering Conference.
“Sports betting, and other mobile gaming services run through your casino, are no different than other products and services,” Blanco said in prepared remarks for the speech. “FinCEN expects that your casino or card club is monitoring your sports betting programs for potentially suspicious activity. This includes offering sports betting through a mobile app.”
In addition, Blanco emphasized that a casino’s SAR reporting mechanisms should include cyber-related indicators collected from mobile betting apps. If technology is available to detect messenger betting and casinos face strict requirements to report suspicious activity, it calls into question why large-scale cases of proxy betting have not been detected in real time.
You must establish and implement procedures for using all available information to detect and report suspicious transactions, or suspicious patterns of transactions, that occur through mobile sports applications.
–FinCEN Director Kenneth Blanco presentation at 12th Annual Las Vegas Anti-Money Laundering Conference
More broadly, should wire transfers in excess of $1 million receive additional scrutiny by the compliance team of a sportsbook before the funds are deposited into a mobile account? The exact payment transfer in the DraftKings matter has not been independently confirmed by Sports Handle.
Under President-elect Joe Biden’s administration, broad applications of AML requirements could include developments in Bank Secrecy Rules as it relates to sports betting, according to Gibson Dunn.
FinCEN told Sports Handle that it “cannot comment on this specific matter.” DraftKings did not respond to a request for comment.
Lessons learned
Prior to Rebuck’s public appearance last week, he also participated on a panel at this month’s Betting On Sports America digital conference, where he discussed compliance and regulatory issues facing New Jersey. Separately, a contingent of anti-money laundering, compliance and KYC experts examined topics related to fraud in sports betting on another panel.
The panel heard from Carolyn Renzin, vice president of legal, regulatory and compliance at FanDuel, on the technological instruments the company uses to monitor transaction and behavioral patterns among customers. Renzin emphasized the importance of looking holistically to get to know your customers, while alluding to the relationship the company’s VIP hosts forge with high net worth individuals.
FanDuel has also created a team coined the “Gambling Investigations Unit,” (GIU) which the company patterned after financial investigative divisions in the banking industry. Members of the team, which includes several individuals with a law enforcement background, are committed to digging deep to uncover nefarious activity or cases involving “monkey business,” as Renzin puts it.
The extent to which other top sportsbooks around the industry are enlisting similar teams to monitor messenger betting is unknown.
The panelists also addressed the cat-and-mouse game that often transpires between sportsbooks and unscrupulous customers. Online gaming sites have tools at their disposal to track the geographic location of a customer, monitor whether a bettor has established multiple fake or burner accounts, and even to analyze the connectivity of a device to determine the identity of a person making a large wager. Sophisticated bettors have tricks up their sleeves, though, such as spoofing techniques to hide personal identifying information and placing wagers from non-licensed jurisdictions through VPNs.
While sportsbooks could collaborate on information-sharing initiatives in an effort to identify big players who are conducting business through proxies at multiple books, the companies may be limited by privacy constraints.
#FinCen is watching casinos with sports betting and cryptocurrency payment options for potential money laundering problems. In @Blaw Insight, @JennerBlockLLP attorneys break down FinCen director’s speech in Vegas & what it means for casino AML programs. https://t.co/9kWmQs8KRs
— Lisa Rockelli Gordon (@25lrock) September 17, 2019
After testing their systems and evaluating the new built-in enhancements, Rebuck admits there were lessons learned from the comprehensive upgrades. In the last phase, Rebuck said New Jersey wants to have a system with additional measures that can tie a user to his account “in ways that are beyond what exists today.” Rebuck did not provide specifics on what the additional measures entail. It is unclear if the measures include software detection that could ensnare messenger betting operations in real time.
“One thing that you have to always do in the online world is be prepared to adapt to the new challenges and the new opportunities that technology presents itself,” Rebuck said.
