How Illegal Betting and Related Money Laundering Flourished Despite ‘Crypto Winter’
By James Porteous, Research Head, ARF Council on Anti-Illegal Betting & Related Financial Crime
The “Crypto Winter” (a decline in the value of cryptocurrency assets and trading volume) hit blockchain speculators hard, but one cryptocurrency-linked industry has been basking in perpetual summer – illegal betting.
In May 2021, the ARF Council on Anti-Illegal Betting & Related Financial Crime warned that increasing use of cryptocurrencies by illegal betting operators posed a major threat to both legal betting operations and to the integrity of horse racing and other sports.
Now, the situation is worse than ever.
The resilience of cryptocurrency crime
Cryptocurrency markets plummeted not long after the ARF published that report, with the World Economic Forum[1] estimating that USD 2 trillion in cryptocurrency assets were wiped out in 2022 (although in late 2023 and early 2024 prices were beginning to surge again).
Some of the most high-profile operators of cryptocurrency trading have been convicted or pled guilty to fraud and money-laundering, such as Sam Bankman-Fried and Changpeng Zhao, founders of two of the biggest cryptocurrency exchanges (FTX and Binance). Others have simply absconded from the law (such as Do Kwon, CEO of collapsed cryptocurrency token Terra Luna).[2]
But at the same time, cryptocurrency crime has hit all-time highs, according to several blockchain compliance and analysis firms.[3]
TRM Labs puts the amount of cryptocurrency directly linked to crime at USD 20.6 billion in 2022, but points out that this is only a fraction of the actual total because it does not include proceeds of non-cryptocurrency native crime laundered into cryptocurrency – such as profits from drug trafficking, scams and of course illegal betting.
The scale of profits moved in cryptocurrencies from other illegal activity is at least an order of magnitude larger, in the hundreds of billions. For example, Bitrace, a Chinese blockchain analytics firm, tracked the equivalent of USD 115 billion in the cryptocurrency Tether to addresses linked to Southeast Asia-based illegal betting operations of the type highlighted by the ARF Council in its report How Organised Crime Operates Illegal Betting, Cyber Scams & Modern Slavery in Southeast Asia.[4] Bitrace found that approximately 37 billion of this was illegal betting profits, 70billion money laundering, and 460 million fraud.[5]
In 2021, the ARF Council warned that cryptocurrencies had become increasingly prevalent because of their lack of regulation and decentralisation made them attractive for illegal betting operators and bettors alike, both to fund accounts but also move profits across borders and pay the hundreds of thousands of recruitment and customer support agents.
As we enter 2024, the use of cryptocurrencies – particularly Tether – is now increasingly the norm in illegal betting markets.
Cryptocurrency in illegal betting markets
ARF Council analysis indicates that a quarter of offshore licensed betting websites which take bets in countries where they do not possess a licence accept cryptocurrencies in2023,[6] including two of the most popular brands in the world.
The number of these licensed but under-regulated illegal betting websites accepting cryptocurrencies has increased by 26% since 2020 (the last time the ARF Council examined this data) as shown in the table below. The table shows the five largest cryptocurrencies by market capitalisation, and the number of betting websites which accept each cryptocurrency.
Notably, almost four times as many websites now accept Tether, which is the cryptocurrency of choice for organised crime (discussed below).
* Binance Coin and Solana were not examined in 2020 as they are not among the largest coins by market cap at that time.
The most popular licensed cryptocurrency betting websites are licensed in Curacao, a jurisdiction criticised for its lax regulatory oversight which has positioned itself as cryptocurrency-friendly to capture this business (other betting licensing havens such as Malta and Isle of Man have done so too).
Some leading brands also have licences in better-regulated jurisdictions, where their local websites do not accept cryptocurrencies, but their critics argue that this is a means only to redirect customers to their other URLs which do accept cryptocurrency.
Cryptocurrency is even more popular with unlicensed illegal betting websites often run by organised crime. These typically not only accept deposits in cryptocurrency but actively encourage them by providing attractive bonuses and rebates.
The main reason for this is obvious – cryptocurrency is much more convenient for the moving, processing, and mixing of funds from illicit activity than fiat (traditional) currency.
Notably, users of unlicensed illegal betting websites are typically not given a choice of cryptocurrencies with which they can deposit, but only permitted to deposit Tether (USDT), discussed below.
These websites typically have well-produced video tutorials explaining to users how to open accounts on cryptocurrency exchanges and fund their betting accounts. Unlicensed illegal betting operators typically offer bonuses of 2-3% for deposits in Tether rather than fiat currencies.
For the illegal bookmaker, cryptocurrency makes life considerably simpler as they do not have to explain to traditional banks or other authorities where and for what purpose fiat currency deposits are being transferred to their accounts. Cryptocurrency exchanges and blockchains popular with illegal actors do not ask any such questions.
According to ARF Council analysis of website traffic of 20 of the world’s most popular licensed cryptocurrency betting operators from January 2021 to November 2023,[7] there were on average 187 million visits to these sites per month from about 57 million people.
It should be noted that this popularity analysis does not capture the unlicensed market, which cannot be measured in the same fashion as it is fractured over literally thousands of mirror website URLs, apps, and offline agent-to-customer transactions.
Virtually all of the traffic to licenced cryptocurrency bookmakers is from jurisdictions in which the bookmakers are unlicensed, such as the United States, Brazil, and India.
It includes multiple ARF member jurisdictions where these websites are not legal, including Hong Kong, Japan, China, South Korea, Malaysia and New Zealand. India in particular is a massive target market, with visits from India to these operators increasing by almost 3000% from January 2021 to November 2023. Customers are overwhelmingly young, with 50% under 34.
The website traffic analysis clearly shows that the majority – perhaps all – of leading licensed cryptocurrency bookmakers’ revenue comes from customers in jurisdictions in which they are not licensed to operate. In other words, illegal betting.
The purpose of accepting cryptocurrency as payment for betting thus cannot be seen as anything but a means to enable customers to bet illegally.
Why Tether is ubiquitous in unlicensed illegal betting markets
Tether is a “stablecoin” – a digital currency that aims to be pegged to traditional currencies like the US dollar. Each Tether token is supposed to be worth USD 1 at all times and not fluctuate wildly like other cryptocurrency.
This eliminates currency volatility, which means it is easier for illegal betting operators to manage their accounting. Other attractions include the fact that Tether is by far the most actively traded cryptocurrency token (double that of Bitcoin)[8] with billions of liquidity in daily trading volume on all major cryptocurrency exchanges, allowing for easy transferring and commingling of funds, and easy cashing out into fiat currencies with minimal price impact.
Tether and its sister company Bitfinex, a cryptocurrency exchange, have been subject to many reports of questionable behaviour, such as long-standing failure to allow an independent audit to prove that each Tether is indeed backed 1:1 by US dollars or equivalents, claims of market manipulation, and falsification of documents to access thetraditional banking system.[9][10]
Several key principals have “brushed shoulders with crime since its inception”, Tether’s critics claim, although the company would argue that these links are tangential.[11]
Tether has consistently labelled all such allegations and insinuations as ‘FUD’ (Fear, Uncertainty and Doubt, a cryptocurrency term meant to disparage non-believers).[12] It insists it will release a full audit of its reserves “eventually”.[13]
Tether did settle a lawsuit from the New York Attorney General’s office over claims that it covered up the apparent loss of USD 850 million of commingled client and corporate funds. It reportedly is under investigation by the US Department of Justice.[14]
Case study: Zhao Dong
A highly relevant individual to the discussion of Tether’s alleged links to individuals is Zhao Dong, who ran a cryptocurrency exchange and lending platform and was labelled as China’s “crypto king” and a Bitcoin billionaire until being arrested and pleading guilty in 2021 for laundering USD 480 million for illegal betting operators [15].
Details of Zhao’s case released by China’s prosecution body in late 2023 revealed that he and his associates recruited over 100,000 individuals to provide their personal WeChat, Alipay, and bank account details to facilitating payments for illegal betting sites and scams. Their platform processed RMB 3.19 billion in a single month in 2020 (~USD 449 million). Money was moved via Dirhams in Dubai, into Tether, then back to Renminbi in China. He was sentenced to seven years in jail [16]
Zhao’s link to Tether is that he was also a shareholder in Bitfinex, Tether’s sister company.[17]
Most of the Tether transacted on illegal betting websites is via a blockchain called Tron. The primary reason for this is that it is quicker and cheaper than the primary competitor network.Tron currently hosts more than half of the Tether in circulation and[18] most of the billions in Tether transactions each day take place on Tron.
Tron’s founder, Justin Sun (孙宇晨) has also been subject of several controversies.
According to a 2022 investigative report, he fled China to the US in 2017 in fear of authorities after he had pushed through Tron’s ‘initial coin offering’ (the issuing of cryptocurrency tokens, ICO) just days before ICOs were banned in China.
Sun allegedly had been told by his associate, Changpeng Zhao (the founder of Binance currently awaiting sentencing after pleading guilty to fraud and money laundering in the US), that the ban was coming. The ICO raised USD 70 million.
That report makes a wide range of other accusations against Sun, including insider trading, ordering staff at his cryptocurrency exchange to “fake the KYC” (know your customer) requirements to on-board more customers, and pocketing blocked customer deposits for himself. Sun’s lawyers stated they would not dignify such allegations with a response.
The US Securities and Exchange Commission is currently suing Sun and Tron for fraud and for selling unregistered securities in relation to Tron’s ICO.[19] Sun says the charges are without merit.
There are increasingly examples of Tether, as a currency, and Tron, as a means to move that currency, being used extensively by criminals to fund their operations and launder the proceeds of crime.
In December 2022, Chinese police arrested 63 people accused of running a syndicate helping criminals launder the equivalent of USD 1.7 billion from pyramid schemes, fraud and illegal betting via Tether.[20]
Bloomberg journalist Zeke Faux in his 2023 bestselling book about cryptocurrency, Number Go Up, details extensively the murky background of Tether and key principals, albeit without ever finding a ‘smoking gun’. He follows the trail of a Tether deposit he makes to a cryptocurrency exchange in response to a random spam message all the way to a Cambodian casino compound. He and others have pointed out that Tether is the cryptocurrency of choice for the organised crime groups running these slavery operations – which have evolved from the illegal betting industry, as detailed in the ARF Council’s report, How Organised Crime Operates Illegal Betting, Cyber Scams & Modern Slavery in Southeast Asia.[21]
In Cambodia, Tether is banned but still ubiquitous in areas of Phnom Penh and Sihanoukville frequented by Chinese expatriates, many of whom work in the illegal betting and cyber-scam industry.[22]
Tether has been widely criticised for its failure to support investigators[23] and victims of scams and fraud.[24] That seemed to change in November 2023 when it announced that it had frozen USDT225 million linked to a human trafficking group in Southeast Asia at the request of the US Secret Service.[25]
Case study – Singapore
In August 2023, 10 people were arrested by Singapore police in the city-state’s largest ever money laundering case.
The individuals all have origins in Mainland China, particularly Fujian province, but with multiple citizenships from jurisdictions which allow their passports to be purchased, such as Cambodia, Vanuatu, St Kitts and Nevis and elsewhere. They are currently on trial on a range of charges.
Cash and assets worth close to the equivalent of USD 2.4 billion were seized, around half in cash, cryptocurrency and luxury items.
The newsletter Cyberscam Monitor has analysed the business activities and assets seized of these individuals in exhaustive detail with reference to affidavits, court documents and other reporting in Singapore, China and elsewhere.
Highlights include:
• links to multiple illegal betting platforms operating out of Cambodia and the Philippines;
• hundreds of millions in assets held per person including USD 30 million in cryptocurrency alone held by one individual;
• companies, bank accounts and properties all over the globe including in London and Australia; and
• later reporting shows further links to further illegal betting sites operating out of Myanmar, with the alleged mastermind paid millions in cryptocurrency.[26]
In summary, incredibly large amounts of illicit funds allegedly have been mingled with licit funds and properties around the world, facilitated by cryptocurrency, and almost certainly enabled by slavery.
The Singapore case is ongoing and the suspects have not been convicted.
What is perhaps most notable in terms of illegal betting, is that this alleged MO is far from unusual – the specific betting platforms mentioned are standard and typical -- and hundreds of equivalents are active.
Conclusion
Cryptocurrency use has expanded significantly in illegal betting since the ARF Council highlighted the issue in 2021. For illegal betting operators, cryptocurrencies are highly attractive to avoid anti-money laundering laws and regulations and also to commingle the proceeds of other crimes such as drug trafficking.
Regulators and law enforcement agencies around the world should be aware of the use of cryptocurrencies by illegal betting operators and strengthen their focus on ensuring that illegal betting markets do not become cryptocurrency exchange markets for criminals. There is now a significant risk that illegal betting markets have reached such a huge scale and volume that they are becoming a growth driver for the use of cryptocurrencies by organised crime groups.
[1] World Economic Forum, ‘2022 was a hard year for crypto — but it may have been just what the industry needed’, 14 April 2023 (https://www.weforum.org/agenda/2023/04/2022-was-a-hard-year-for-cryptocurrencies-but-it-may-have-been-just-what-the-industry-needed/ accessed 27 December 2023)
[2] Reuters Staff, 'Other cryptocurrency bosses in US authorities’ crosshairs', Reuters, 3November 2023,(https://www.reuters.com/legal/other-cryptocurrency-bosses-us-authorities-crosshairs-2023-11-03/, accessed 27 December 2023)
[3] ‘The 2023 Cryptocurrency Crime Report’, Chainalysis, February 2023, (https://go.chainalysis.com/rs/503-FAP-074/images/Cryptocurrency_Crime_Report_2023.pdf 15December 2023)
[4] How Organised Crime Operates Illegal Betting, Cyber Scams and Modern Slavery in Southeast Asia’, ARF Council, 10October 2023 (https://assets-global.website-files.com/5fbe2bde2b2ef4841cd6639c/651e891f6cca0e3f417cd876_How%20Organised%20Crime%20Operates%20Illegal%20Betting%2C%20Cyber%20Scams%20%26%20Modern%20Slavery%20in%20SEA_FINAL.pdf accessed 27 December, 2023)
[5] Bitrace_team, Twitter post, 28 August 2023,(https://twitter.com/Bitrace_team/status/1696113006751678820 accessed 27December 2023)
[6] ‘How Organised Crime Operates Illegal Betting, Cyber Scams and Modern Slavery in Southeast Asia’, ARF Council, 10 October 2023 (https://assets-global.website-files.com/5fbe2bde2b2ef4841cd6639c/651e891f6cca0e3f417cd876_How%20Organised%20Crime%20Operates%20Illegal%20Betting%2C%20Cyber%20Scams%20%26%20Modern%20Slavery%20in%20SEA_FINAL.pdf accessed 27 December, 2023)
[7] ‘How Organised Crime Operates Illegal Betting, Cyber Scams and Modern Slavery in Southeast Asia’, ARF Council, 10 October 2023 (https://assets-global.website-files.com/5fbe2bde2b2ef4841cd6639c/651e891f6cca0e3f417cd876_How%20Organised%20Crime%20Operates%20Illegal%20Betting%2C%20Cyber%20Scams%20%26%20Modern%20Slavery%20in%20SEA_FINAL.pdf accessed 27 December, 2023)
[8] 'WhyTron’s USDT Transaction Volume is Dwarfing that of Ethereum Tether', CYBAVO Blog, 3 May 2021(https://www.cybavo.com/blog/why-trons-usdt-transaction-volume-is-dwarfing-that-of-ethereum-tether/ accessed 27 December 2023)
[9] Ben Foldy, Ada Hui, Peter Rudegeair, 'Tether ownership and company weaknesses revealed in documents', The Wall Street Journal, 2 February, 2023(https://www.wsj.com/articles/tether-ownership-and-company-weaknesses-revealed-in-documents-11675363340?mod=article_inline accessed 27 December 2023)
[10] Ben Foldy, Ada Hui, ‘Cryptocurrency Companies Behind Tether Used Falsified Documents and Shell Companies to Get Bank Accounts’ The Wall Street Journal, 3 March 2023(https://www.wsj.com/articles/cryptocurrency-companies-behind-tether-used-falsified-documents-and-shell-companies-to-get-bank-accounts-f798b0a5, accessed 27 December 2023)
[11] Protos Staff, 'Tether executives have brushed shoulders with crime since its inception', Protos, 14 September 2023(https://protos.com/tether-executives-have-brushed-shoulders-with-crime-since-its-inception/, accessed 27 December 2023)
[12] ‘More Tether FUD from WSJ’, Tether, 3 March 2023 (https://tether.to/en/more-tether-fud-from-wsj/ accessed 15 December 2023)
[13] Ryan Browne, 'Stablecoin Tether promotes tech chief to CEO, taking over from mysterious cryptocurrency leader', CNBC, 13 October 2023 (https://www.cnbc.com/2023/10/13/tether-promotes-cto-to-ceo-taking-over-from-mysterious-cryptocurrency-boss.html, accessed 27 December 2023)
[14] Ben Foldy, Ada Hui, ‘Cryptocurrency Companies Behind Tether Used Falsified Documents and Shell Companies to Get Bank Accounts’ The Wall Street Journal, 3March 2023 (https://www.wsj.com/articles/cryptocurrency-companies-behind-tether-used-falsified-documents-and-shell-companies-to-get-bank-accounts-f798b0a5, accessed 27 December 2023)
[15] Protos Staff, ‘China’s cryptocurrency king pleads guilty to laundering $480M for online casinos,report’, Protos, 12 May 2021 (https://protos.com/renrenbit-zhao-dong-bitcoin-billionaire-pleaded-guilty-money-laundering/, accessed 27 December 2023)
[16] ‘China's Supreme Procuratorate Unveils “Chinese OTC King” Zhao Dong Details in Virtual Currency Cases’, WuBlockchain, 28 December 2023 (https://wublock.substack.com/p/chinas-supreme-procuratorate-unveils?r=jbpop&utm_campaign=post&utm_medium=web accessed 28 December 2023)
[17] Protos Staff, ‘China’s cryptocurrency king pleads guilty to laundering $480M for online casinos, report’, Protos, 12 May 2021 (https://protos.com/renrenbit-zhao-dong-bitcoin-billionaire-pleaded-guilty-money-laundering/, accessed 27 December 2023)
[18] Tom Wilson & Elizabeth Howcroft, 'New cryptocurrency front emerges in Israel's militant financing fight', Reuters, (27 November2023),https://www.reuters.com/world/middle-east/new-cryptocurrency-front-emerges-israels-militant-financing-fight-2023-11-27/,accessed 29 December 2023.
[19] U.S.Securities and Exchange Commission Press Release 2023-59, 22 March 2023(https://www.sec.gov/news/press-release/2023-59, accessed 27 December 2023)
[20] Coco Feng,‘Chinese police arrest 63 people for laundering US$1.7 billion via cryptocurrency’, 12 December 2022 (https://www.scmp.com/tech/tech-trends/article/3202966/chinese-police-arrest-63-people-laundering-us17-billion-cryptocurrency accessed 27 December 2023)
[21] ‘How Organised Crime Operates Illegal Betting, Cyber Scams and Modern Slavery in Southeast Asia’, ARF Council, 10 October 2023 (https://assets-global.website-files.com/5fbe2bde2b2ef4841cd6639c/651e891f6cca0e3f417cd876_How%20Organised%20Crime%20Operates%20Illegal%20Betting%2C%20Cyber%20Scams%20%26%20Modern%20Slavery%20in%20SEA_FINAL.pdf accessed 27 December, 2023)
[22]Danielle Keeton-Olsen, ‘In Cambodia’s ‘underground’ cryptocurrency economy,Tether becomes coin of choice for Chinese-linked activities’, South China Morning Post, 17 December 2023 (https://www.scmp.com/week-asia/economics/article/3245224/cambodias-underground-cryptocurrency-economy-tether-becomes-coin-choice-chinese-linked-activities?registerSource=loginwall, accessed 27 December 2023)
[23] 'Tether Explains Its Decision On Tornado Cash Addresses, Awaits Law Enforcement Instruction', Tether, 24 August 2022(https://tether.to/en/tether-holds-firm-on-decision-not-to-freeze-tornado-cash-addresses-awaits-law-enforcement-instruction/, accessed 27 December 2023)
[24] Bitfinex'ed, 'Tether & Bitfinex: The gaslighting of the cryptocurrency community and wheel of misinformation', Medium, 2 December 2022(https://bitfinexed.medium.com/tether-bitfinex-the-gaslighting-of-the-cryptocurrency-community-and-wheel-of-misinformation-de0e1ff668dd, accessed 27 December 2023)
[25] Elizabeth Howcroft, 'Cryptocurrency firm Tether says it has frozen $225 mln linked to human trafficking', Reuters, 21 November 2023(https://www.reuters.com/technology/cryptocurrency-firm-tether-says-it-has-frozen-225-mln-linked-human-trafficking-2023-11-20/, accessed 27 December 2023)
[26] How Organised Crime Operates Illegal Betting, Cyber Scams and Modern Slavery in Southeast Asia’, ARF Council, 10 October 2023 (https://assets-global.website-files.com/5fbe2bde2b2ef4841cd6639c/651e891f6cca0e3f417cd876_How%20Organised%20Crime%20Operates%20Illegal%20Betting%2C%20Cyber%20Scams%20%26%20Modern%20Slavery%20in%20SEA_FINAL.pdf accessed 27 December, 2023)