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What is online gambling fraud, and how can it be prevented?

Fraud Gaming & Gambling Knowledge & Training

An estimated 26 percent of the global population uses online gambling services to bet or play online casino games like poker and blackjack. In an environment where millions of people are exchanging money online, it’s no surprise that scammers have also taken more than a passing interest.

As a predicate offense to money laundering, it’s crucial gambling operators have fraud detection solutions in place to mitigate the risk of “dirty” funds flowing through online gaming platforms and into the legitimate financial system. In this article, gambling operators can learn more about fraudsters’ tactics and discover why implementing proactive fraud prevention strategies is crucial for safeguarding the integrity of online gambling platforms and ensuring a safe and fair gaming environment for all players.

What is online gambling fraud?

Online gambling fraud refers to any illicit or deceptive activity conducted within the realm of online betting and gaming platforms aimed at manipulating outcomes, exploiting loopholes, or defrauding players or the platform itself for financial gain. This type of fraud encompasses various schemes and tactics, including:

  • Payment fraud: Using stolen credit cards or fraudulent payment methods to fund gambling accounts or withdraw winnings. 
  • Match fixing: Rigging the outcome of sporting events or casino games to ensure a specific result, often in collusion with athletes, referees, or employees of the gambling platform. This undermines the integrity of the game and deceives legitimate players.
  • Bonus abuse: Exploiting bonuses and promotional offers provided by online casinos or betting sites through fraudulent means, such as creating multiple accounts or using automated bots to meet wagering requirements unfairly.
  • Identity theft: Stealing personal information to create fake accounts or impersonate legitimate users to commit gambling fraud. It can lead to unauthorized access to accounts, fraudulent withdrawals, and other illicit activities.
  • Use of cheating software: Developing or using software tools designed to manipulate the outcome of games, exploit vulnerabilities in the platform’s software, or gain an unfair advantage over other players.

How does online gambling fraud work?

Online gambling fraud centers around exploiting vulnerabilities within online betting platforms. One significant factor contributing to the prevalence of fraud in online gambling is the absence of face-to-face interaction, coupled with the anonymity afforded by digital transactions. 

This environment creates opportunities for fraudsters to exploit loopholes, such as using stolen credit cards or engaging in new account fraud, resulting in financial losses for both operators and legitimate customers.

Fraudsters may collaborate with others to manipulate game outcomes, exploit software vulnerabilities to gain unfair advantages or orchestrate sophisticated scams targeting unsuspecting players. Additionally, techniques like phishing emails and social engineering tactics are employed to illicitly access customer data, further exacerbating the risk of fraud.

The impact of fraud on online gambling

Gaming and gambling websites saw a massive increase in interest during the COVID-19 pandemic when many people were forced to change their habits due to stay-at-home orders across the world. In fact, three times as many people visited online gambling websites in 2020-2021 compared to 2018. However, criminals quickly followed suit to tap into this growing market, leading to the average fraud rate for gambling and betting companies skyrocketing by 80 percent.

While the global online gambling and betting industry generated $536 billion in 2023, and projections indicate it will set new revenue records by reaching $1.4 trillion by 2030, this growth is threatened by the rising rates of online gambling fraud. In addition to undermining consumer trust and confidence in the industry, rising fraud rates could hamper the industry’s continued expansion.

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Common types of online gambling fraud

Some of the primary tactics fraudsters employ in online gambling include:

  • Bot fraud: The creation of custom code or scripts designed to automatically analyze potential winning odds in various online gambling games such as poker, blackjack, or slot machines. Referred to as value betting, this strategy aims to develop a gambling bot capable of exploiting perceived advantages in the game algorithms. It is often conducted by those with programming experience.
  • Affiliate fraud: When deceitful actions are taken by a third party to benefit from marketing techniques such as pay-per-click (PPC) campaigns. This can involve using stolen data or payment details from an iGaming provider to drive leads for their own business.
  • Multi-accounting (aka: bonus abuse): The creation of multiple accounts with the same website in an attempt to cheat the system. Often websites offer welcome bonuses for new players, which is a way for individuals to take advantage of these promotions and receive more than they’re entitled to. In matched betting, individuals also deploy multi-accounting to ensure a profit. This tactic entails placing bets on both possible outcomes of an event, thereby guaranteeing a positive return regardless of the outcome.
  • Credit card fraud: This can happen in various forms, including the use of stolen credit card information to make transactions on online gambling platforms. This is just one avenue through which criminals can capitalize on stolen financial data.
  • Chargeback fraud: A player depositing funds into their gaming account using a credit card, gambling, and then disputing the charges with their credit card issuer, claiming the transactions were unauthorized or that they did not receive the promised goods or services. This may happen unintentionally if, for example, a child uses their parent’s mobile device to make a gambling-related payment unbeknownst to the parent, who subsequently reports it as fraud. 

Advanced fraud detection solutions powered by AI

The predictive capabilities of advanced fraud detection software can help gambling operators anticipate and thwart potential fraud schemes. Some solutions have even been shown to offer significant reductions in all payment fraud-related losses. By harnessing predictive analytics, firms can effectively safeguard against fraudsters’ constantly evolving gambling fraud tactics, ensuring enhanced security and peace of mind.

Robust customer screening solutions are just as vital, helping operators know who they’re doing business with and whether certain entities should receive more due diligence surrounding their gambling activity. Solutions that can also screen customers against sanctions and watchlists, politically exposed persons (PEPs), adverse media, and enforcement data are particularly valuable, especially those that use artificial intelligence (AI) matching algorithms to ensure alert accuracy and reduce the likelihood of duplicated profiles. 

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Originally published 10 June 2024, updated 10 June 2024

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

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