Money laundering and terrorist financing is a global problem that touches all sectors of society. Authorities should be aware of this problem's size and have tried to establish different international bodies to fight against money laundering and terrorist financing and adopt recommendations and regulations to reduce such criminal behavior.
The Lottery and Money Laundering
The purchase of winning lottery tickets is considered a fundamental loophole for money laundering. This process occurs as follows; The criminals contact the lottery winners and offer to buy the ticket for more money than the lottery prize. The winner agrees to receive more than he earns. Thus, the criminal gets a winning lottery ticket, where he launder the money won. This money shows the funds obtained from the drug trade, prostitution, extortion, and the like as if it was obtained from the lottery.
To prevent criminals, they must check the ID card number of the winner of the lottery. After receiving the money, the winner must be subject to official money laundering control. However, an official responsible for this issue must be appointed. Moreover, it is now acknowledged that social games, virtual currencies, and new applications that enable commerce that used to be safe from money laundering should also come under legal scrutiny.
It has long been known that casinos and other betting activities can be used by criminals to launder illegally obtained money. Law enforcement agencies monitor these activities. Lottery organizations should be aware that money launderers can target their activities. Whether that risk is real or perceived, the cost of inaction could be unacceptably high. All lottery organizations should do; identification and verification of the players' identity, fast verification of suspicions and reporting to the relevant institution, giving the necessary access to the compliance officer and keep in touch with the relevant authorities.
Among the different preparation steps, lotteries have to retrain their staff to raise their awareness of money laundering and carry out strong and secure mechanisms in terms of reporting, information sharing, customer identification, staff education, etc.
Policies are in place to deter criminals from using lottery facilities for money laundering. These policies are called internal control. One person should be designated responsible for each lottery organization. This person's responsibilities are;
- Examining suspicious activity reports
- Filing suspicious activity reports
- Develop an anti-money laundering compliance program with a formal policy and strategy to be approved by the Lottery steering committee
- To ensure the implementation, monitoring, and continuous improvement of the anti-money laundering compliance program.
- To follow and implement anti-money laundering laws and regulations regularly.
Know Your Customer in The Lottery Industry
Lottery organizations need to know their customers. Player identification and registration procedures must be followed completely. Lottery organizations should learn the name of their customers, any other names they use (if any), their address of residence, country of nationality, date of birth and, if applicable, the social security number.
After the players' information is received, they must be verified in cases such as;
- if the customer opens a player account
- a player becomes active again after not using their account for one year or more
- Paying more than a certain amount for participation in the games.
Lottery operators also have to get to know their staff and retailers. Staff dealing directly with the winners should be carefully scrutinized. Winning databases must be constantly monitored so that the lottery organization can be alerted in a timely manner to recurring winning patterns that challenge the laws of probability or the payment of big prizes. No lottery organization wants the possibility of collusion between a money launderer and a retailer or lottery employee to reveal the winners.
Registration and Monitoring
Lottery organizations must implement player registration procedures for specific games or types of games. Services offered over the Internet must be based on official registration. Such player accounts must be monitored and limited per transaction or per period for participation in games.
Payments to player accounts should preferably be by credit card, electronic transfer, money order, or check. Payments based on financial transactions should only be accepted if they are processed through well-regulated financial institutions. Lottery organizations must comply with all legal or regulatory reporting requirements for payments above a certain amount.
It is crucial for future research or to document transaction history. Lottery organizations can use these records if necessary, to provide evidence for the prosecution of criminal behavior. However, these records should be kept long enough to allow for the reconstruction of individual transactions.
Money Laundering Examples Involving a Lottery
Purchasing the lottery winner's ticket: With this method, criminals buy the ticket by paying cash to the lottery winner. In this way, they make money they earn illegally as if they won the lottery. This method has been tried many times before. The most famous case is undoubtedly about the mobster James "Whitey" Bulger. Bulger allegedly paid $ 2 million in cash for interest on a $ 14.3 million lottery ticket purchased in 1991. The federals stated that the money they offered to buy this ticket was illegal gambling, extortion, and usury.
Lottery pools: A lottery pool is a planned group of people paying a certain amount of money to purchase lottery tickets. This way, many tickets will have been purchased, and if the ticket wins, they will split the prize. The idea behind lottery clubs is to buy multiple tickets for a single lottery, increasing the chances of winning an overall award. Actually, this is legitimate, but the situation of some lottery pool owners is illegal. As an example, we can give the Michigan lottery pool case. The unlawful nature of the pool causes earnings from the activities to be illegal.