India’s Online Gaming Sector Faces Rising Money Laundering and Security Concerns

A recent report by the Digital India Foundation (DIF) warns of significant financial and security threats in India’s burgeoning online gaming sector, underscoring the urgent need for regulatory measures to address money laundering and fraudulent activities. The report, titled Combating Money Laundering in the Online Gaming Ecosystem, points to vulnerabilities in the industry, particularly within illegal online betting platforms that exploit legal loopholes to evade restrictions. Despite regulatory efforts, these operators continue to use methods such as VPNs and cryptocurrencies to remain accessible to Indian players, complicating enforcement.

The legal real-money gaming market in India has seen remarkable growth, expanding by 28% between 2020 and 2023 and attracting a player base of around 90 million daily. With projections estimating the market’s worth at $7.5 billion by 2029, the sector’s size and growth are drawing attention to underlying risks. According to DIF, this rapid expansion brings challenges to financial integrity, as gaming platforms, especially unregulated ones, have become conduits for illicit activities like money laundering.

DIF co-founder Arvind Gupta voiced particular concern over illegal betting sites, which use deceptive tactics and unregulated branding to attract players. The report highlights that the use of digital assets, such as cryptocurrencies, enables these sites to obscure illegal proceeds, making it easier to launder money through asset conversion. “The enhanced ability to transfer and convert gaming assets into fiat currency or crypto-assets has resulted in a rise in money laundering and fraud,” the report notes.

To address these issues, the DIF report proposes several key regulatory steps:

• Establishing a Task Force: The formation of a specialized task force would allow regulators to better monitor and combat illegal iGaming operations, ensuring a unified approach to enforcement.
• White Listing of Legal Operators: A white list of approved domestic and offshore operators would help players identify and engage only with compliant platforms.
• Government Action to Block Unregulated Sites: The report calls for a commitment from the Indian government to identify and actively block illegal gaming platforms.
• Public Awareness Campaigns: Educating players on the risks associated with unregulated platforms could curb demand for illegal sites and protect users from fraud.

Gupta emphasized that without these measures, illegal platforms will continue to threaten India’s “digital nagriks” (online citizens) with unsafe gaming environments, data vulnerabilities, and potential financial loss.

The DIF’s concerns echo findings from Rashtriya Raksha University, which identified illegal online gaming as a growing threat to national security. The university’s Security and Scientific Technical Research Association (SASTRA) also advocates for a white list of regulated gaming sites to create safer online spaces for users. Illegal gaming platforms, according to SASTRA, expose users to cybersecurity attacks and can act as conduits for money laundering and even terrorist financing.

A recent analysis by the New Delhi Business Standard highlighted the economic toll these illegal platforms take on India’s economy, with illegal online betting estimated to generate an annual revenue of $100 billion—far outpacing the revenue from regulated gaming. SASTRA warned that rogue operators are “siphoning money out of our economy, leaving a trail of financial instability and fueling criminal activity.”

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The DIF report stresses the importance of fortifying India’s online gaming industry, which, with over 400 domestic startups, has become a substantial employer. Gupta pointed out that the sector currently employs around 100,000 individuals and has the potential to generate up to 2.5 million jobs by 2025, underscoring its economic significance. However, he cautioned that without a solid regulatory framework, the sector’s growth may continue to be accompanied by serious risks.

The recommendations from DIF and SASTRA underline the need for India’s gaming industry to adopt robust regulatory practices. By addressing financial integrity and player safety, the sector can work toward sustainable growth, helping to fulfill its potential as a major contributor to the nation’s digital economy.

Sources:

Report: India online gaming at risk for financial crime, igamingbusiness.com, October 25, 2024.