Users can now compete against other players to win real money and prove to friends that they know sports better. In a digital world where everything is becoming social winning can be more about pride than money for many. However, there are those that will see Daily Fantasy Sports (DFS) as a potential venue for layering their proceeds of crime.

We need to make $100,000 of drug money look legitimate. How does DFS help us to accomplish this?

First, we need to change the funds from cash to deposits. (Many sites don’t allow people to sign up for these leagues and pay with cash. Therefore, we will overlook them, right now, from the perspective of Placement). Therefore we’ll need a bank or some other account that will accept cash. To give our funds a touch of legitimacy, and to avoid the scrutiny that might come with depositing all the money in one location, we’ll use subordinates to buy money orders and split them between multiple bank accounts using falsified identities. We make deposits slightly under the DFS deposit limit; smaller deposits will draw less attention.  Once our money is distributed, we would deposit the funds to new DFS accounts…either directly via credit or debit cards or through an online payments service like PayPal. Finally, we create a private weekly fantasy sports game and enter lineups for each of our accounts. Once that week’s games had finished, we would have created “winning” accounts whose funds would appear to be the legitimate proceeds of betting.

We still need to get our money out of the winning accounts, and this could be the major issue.

Though it is relatively easy to create an account with minimal information, many DFS have strict controls when it comes to removing funds. However, the primary purpose of controls seems to be ensuring proper identification of the person conducting the withdrawal, which, we should be able to provide, even if we use stolen or fake identification. From the perspective of the bank, we now have “clean” winnings from a legitimate DFS site. We will have a bank statement reflecting the funds’ legitimacy and access to move them wherever we might wish to use them.
It is possible, of course, that the DFS risk team is robust and skilled enough to monitor for simple cases of money laundering like the example here. But the important takeaway is that, unless they are regulated and subjected to audits, we can do nothing but take their word for it.

The banks which transfer deposited funds to and from daily fantasy sports sites have little or no visibility into games and will have a very difficult time separating legal players from criminals. Detecting even this simple, collusive funds concentration scheme can only be done by the DSF themselves. If daily fantasy sports operators hope to establish long-term businesses and survive the onslaught of regulatory scrutiny they are now facing, establishing robust controls and submitting to regulatory oversight are crucial. There is no longer any reasonable hope of relying solely upon special exemptions from the many laws which apply to online sports betting sites.


Posted by Paul Hamilton