An October 9 panel at Global Gaming Expo was tagged “The Far-Reaching Negative Impact of the Illegal Gambling Market.” However, the “impact” in the title was neither mentioned nor quantified, except in broad generalizations.
Instead, panelists focused on prevention and law-enforcement responses, particularly at the federal level. But as former New Jersey Division of Gaming Enforcement Director David Rebuck said, “What we’re dealing with is primarily an international issue,” one on which the Department of Justice and FBI are not empowered to act unilaterally.
Panel moderator Lindsey Slader of GeoComply began by noting that seven states had issued cease-and-desist notices to Bovada. She added that these states had seen a 6.5 percent increase in active-user growth at legal sites since September 2023, compared to states in which Bovada and its ilk continued to operate.
Slader framed the illegal-operator issue as one of consumer protection in a black market. Black-market operators, Rebuck said, “are persuasive and very active in every state.”
In New Jersey, he said, regulators always found new ways to go after the black market, including attracting legal operators of repute. “The right place to go is to a licensed recognized operator,” Rebuck added. “If we don’t engage in active enforcement efforts, we only have ourselves to blame.
“We got to a point early on where we had nearly a hundred illegal operators that we were tracking,” continued the veteran regulator, by way of illustrating the scope of the problem. Illegal operators were, he said, “very talented, prevalent, and a difficult group to go after.”
Added Lt. Joel Trella of the New Jersey State Police, “It’s pervasive in that there are very few consumer protections and legal controls.” For instance, he said, there is no know-your-customer, as well as myriad methods of offshore deposit that make it easy to use illegally derived funds. “This is a very attractive market for criminals, especially for money laundering, because there’s no recourse for the wronged patron in cases of identity theft.”
Because the industry is confronting a multi-billion-dollar black market, according to Kurt Steinkamp, chief of staff for the Michigan Gaming Control Board, a proactive industry approach is needed. “All the while, we have this very large unregulated market that has created their own rule book. This has been a problem for a very long time.”
The federal Department of Justice, Steinkamp said, maintains that it’s the correct agency to intervene “and we do see action coming out.” But there needs to be “sweeping” federal intervention comparable to that seen against ipoker on Black Friday.
FanDuel Vice President of Compliance Cory Fox offered that being regulated defines everything throughout his company, extending to all vendors and licensed executives, as well as customer-service and fraud-prevention agents. “FanDuel invests significant resources to make sure we don’t have money laundering on our site.”
Fox said that FanDuel has “robust” responsible-gambling programs, including exclusion of problematic players. However, he admitted to being vexed that such players can go and log onto illegal sites to continue their disordered play.
Slader raised the point that the public may not know the distinction between a legal and a black-market site. “I don’t think it’s obvious,” Steinkamp replied. He cited the example of children seeing sports betting advertisements — from illegal sites.
Twenty states, Rebuck pointed out, have neither online sports betting nor igaming. “And they don’t have a concise clear view of any type of gambling.” With the volume of ads in the marketplace, there is still confusion between lawful and unlawful wagering.
“Some state regulators don’t have any powers at all to conduct criminal investigations,” Rebuck added, unlike the Garden State. “They really have a hurdle to overcome on issues of this magnitude.”
Rebuck opined that there needs to be a partnership between state governments and legal operators. Sharing information, he said, is a powerful tool for fighting crime.
“As a state trooper,” Trella segued, “I’m not a subject-matter expert on casino gaming, but we’re really good at investigating crime and getting into the needs of how to prevent that crime.” He suggested that law enforcement work with regulators to explore alternative methods of response, adding, “Where the regulations end, the criminal part may pick up.”
Since igaming began in Michigan in 2021, regulators have been empowered to investigate anyone offering Internet-based games. In part, Steinkamp said, that’s because the state has “very clear laws” on what forms of gambling are and aren’t illegal, “This has been a learning experience for us. But the state has issued 11 cease-and-desist orders to black-market companies, including two last week. Not everybody is immediately compliant,” but they eventually absent themselves.
“Everybody in this room knows that if you’re looking for a state that’s going after illegal operations, there’s no better example than Michigan,” Rebuck weighed in. “Right now, Michigan’s doing a much better job than New Jersey,” he said, to loud applause.
“It’s not just talking about it,” Rebuck advised other states. “You have to take action.” He advocated going after payment processing and advertisers, saying that many states are now vetting the service industry to ensure they’re not supporting illegal operators.
Rebuck’s last observation inspired Trella to reveal that one of the sites banned by Michigan employed a designer whose company is represented on the G2E show floor this year.
In turn, Rebuck remarked that the expansion of igaming, currently restricted in the United States, will spread the issue, but there is recourse. “When you take away a license,” he put it, “that is shared.”
Trella emphasized the use of asset forfeiture. “If I take away your money, someone’s going to get upset.” Payment processors will notice, he said. Cease-and-desist notices have their limitations, Trella continued, but asset seizure hurts.
The relative newness of the internet and its power affects more than just gambling. Rebuck noted that state legislatures are identifying additional laws by which prosecutors can pursue bad actors. But while some black-market operators are criminals, “some are just really good entrepreneurs.”
Rebuck cautioned that many relevant crimes aren’t particularly indictable and are minor in nature — “disorderly persons” cases. A cooperative effort between lawmakers, law enforcement, Native American tribes, etc., he said, is needed.
Fox felt that sunlight would be the solution. “We need to fix the demand problem by authorizing online gambling in those states where it’s not legal.”
This led Slader to wonder if federal intervention is the answer. Fox replied that the government has tools the states don’t and the American Gaming Association has been trying to spur action, mostly without success.
“Success kind of depends on cooperation among the law-enforcement agencies,” advised Trella. The latter need to think with innovation and not always use the obvious agencies. “We need to look at agencies that can tackle this from ways not thought about. Hitting where it hurts, in the pocketbook, is a priority.”
Steinkamp advocated transparency, saying the more exposure the issue receives, the better. Issuance of cease-and-desist notices “spreads like wildfire,” especially to providers. This prompted Fox to disclose that some regulators were issuing such notices secretly, adding that “making these things public is a valuable tool.”
Asked Slader, “What are we waiting for?”
Replied Steinkamp, “We’re not waiting in Michigan. We’re going to keep the momentum, full steam ahead.” The biggest challenge, he said, is the sheer volume of illegal activity on the web.
Trella called for greater law enforcement cooperation. “We’re all on the same page when we share information,” he said, wielding more influence with Washington, D.C.
Agreed Rebuck, “We will fail if we leave it to a state-by-state process to attack the problem. I think the funds are out there,” whether through federal excise taxes or other avenues. “If it is a funding issue, that shows the priority you’ve established as a government.
“It’s not easy,” the veteran regulator concluded. “We’re hurt, but chances are we’re not going to die.”