CoinTrace: Online gambling channels accelerate the circulation of gray and black funds, and cryptocurrency trading platforms need to pay attention to fund risks.

Source: Bitrace

Stablecoins are an important part of our industry. Compared to real fiat currencies, which are highly restricted in circulation, stablecoins provide a more anonymous and flexible value transfer and storage solution. This feature is highly attractive to the gambling industry, as evidenced by a series of reports from Bitrace showing that the most widely used stablecoin in the market, Tether (USDT), has been widely adopted in online gambling activities. Considering that online gambling is illegal in some countries or regions, local residents or platforms that accept USDT for gambling may face legal risks.

At the same time, Bitrace also noticed that some criminal groups use online gambling channels to launder stolen or defrauded cryptocurrency funds, which will bring additional legal risks to ordinary investors' addresses and cryptocurrency trading platforms when risk funds flow into them.

To clarify the risks of gambling-related cryptocurrency fund pollution, this article will disclose the real payment activities of cryptocurrency addresses on online gambling platforms, as well as the trend of contaminated deposit addresses on major cryptocurrency exchanges.

涉案资金通过网赌渠道进行资金清洗

translates to

The involved funds were laundered through online gambling channels

Typical online gambling encrypted fund inflow and outflow channels are established through the integration of cryptocurrency payment tools on online gambling platforms. The latter provides fund settlement services for the former by setting up payment channels. However, due to the lack of basic KYT/AML mechanisms, indiscriminate acceptance of user encrypted funds has led to the inflow of funds involved in illegal activities.

The address received a total of 666,000 USDT between September 30, 2022 and July 19, 2023. Approximately 41,400 USDT came from a fund associated with theft, 36,400 USDT came from a fund associated with fraud, and 15,000 USDT came from other risky fund associated addresses. This may imply a tendency for certain criminal groups to launder gray and black encrypted funds through online gambling platforms. For encrypted fund addresses on gambling platforms, if the amount of funds is large enough and the frequency of deposits and withdrawals is high enough, they will actually become a mixing place for this part of gray and black funds, which can to some extent conceal the destination of the funds.

Our data further shows that this trend is widespread. In the past year, the illegal funds flowing into various online gambling platforms through cryptocurrency payment platforms far exceeded their normal income.

As of July 19, 2023, 20 typical payment platform collection addresses that provide fund settlement for online gambling platforms were sampled. They had direct or indirect fund interactions with 18,174 counterparties for a total of 112,290 transactions. In addition to other online gambling encrypted funds, they received 419,968,608 USDT of money laundering-related encrypted funds and 428,112,117 USDT of black and gray industry-related encrypted funds, accounting for 44.42% of the total revenue. This indicates that online gambling platforms have become a part of the money laundering path for illegal elements.

网赌资金对交易平台地址造成污染

translates to

Online gambling funds contaminate trading platform addresses

Another case occurred in the fourth quarter of 2022, when a woman in Santa Clara County, California, USA, fell victim to a "pig-killing" emotional fraud, losing approximately $980,000 worth of cryptocurrency. Investigators from the Regional Enforcement Allied Computer Team traced some of the stolen funds flowing into an online gambling pool through a payment platform, with 80,000 USDT being withdrawn and circulated into a certain trading platform by Chinese gamblers. The local court ruled that the funds obtained by the account owner were illegal gains, froze the trading platform account for three months, and deducted the remaining 30,728 USDT to return to the victim.

Investigations into the funding addresses associated with this incident in the online gambling industry revealed that some of the addresses on the platform had directly or indirectly transferred 10.8155 million USDT to more than six centralized trading platform addresses during the quarter. These funds may have flowed into the OTC market of the trading platform due to the profits realized by the online gambling platform and its agents, or they may have flowed into the accounts of other investors due to withdrawals made by regular gamblers.

In the past year, the hot wallets of mainstream trading platforms that have directly or indirectly associated with online gambling funds have exceeded 7.6 billion USDT. Among them, the risk funds of small and medium-sized centralized trading platforms account for a higher proportion than that of head trading platforms. This may be due to differences in risk control capabilities between different platforms. In addition, the surge in online gambling-related funds in November and December 2022 may be related to a large number of online gambling activities during the World Cup.

Trading platforms should pay attention to user fund risks

The above content is intended to illustrate the common preference of criminal groups using online gambling platforms to launder gray and black encrypted funds. With the increase of online gambling activities, the funds from online gambling, which flow into centralized trading platforms through gamblers' withdrawals, online gambling platforms and their agents' profits, are gradually increasing. This means that the flow of gray and black encrypted assets into trading platforms through online gambling platforms is an undeniable fact, and operators of trading platforms should pay attention to such compliance risks.

Its solution mainly includes:

Execute more stringent user address activity review on top of the basic KYC mechanism. By analyzing the funding sources of user addresses and the association with risky addresses, it is possible to effectively identify the user's risk level. If a user receives illegal funds, the platform should require an explanation of the funding source. If a user attempts to transfer funds to a known illegal address, the platform should provide risk warnings or emergency payment suspensions to reduce the contamination of illegal funds on business addresses.

Actively understand local laws and regulations and cooperate with law enforcement agencies. The platform needs to establish or commission a professional team to comply with and review law enforcement requests from around the world, assist in identifying, combating, and preventing currency-related criminal activities, and reduce economic losses caused by such activities.

Collaborate with security and data companies to establish a threat intelligence database. By accessing third-party external risk address data, such as Bitrace, the platform will be able to quickly identify the source of users' encrypted funds to prevent illegal funds from harming platform business addresses and other user addresses.

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