Financial Services Committee - 12-3-09, FBI Confirms Online Gambling Opens Door To Fraud, Money Laundering; Age Verification Software Ineffective

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12-3-09, FBI Confirms Online Gambling Opens Door To Fraud, Money Laundering; Age Verification Software Ineffective

December 3, 2009

WASHINGTON -- In response to a letter from Financial Services Committee Ranking Member Spencer Bachus regarding Internet gambling, the Federal Bureau of Investigation (FBI) rejects vendors' claim that age verification software can adequately prevent children from online gambling. The FBI also warns that technology exists to facilitate undetectable manipulation of online poker games and that technology can be used in peer-to-peer games to illicitly transfer ill-gotten gains from one person to another. On November 27^th, the Federal Reserve and the Treasury Department announced a 6 month delay of the compliance date for the Unlawful Internet Gambling Enforcement Act. UIGEA was overwhelmingly approved in 2006 and directed the Federal Reserve and Treasury to issue regulations by July 10, 2007. After an extensive, prolonged and fair process, the final rules implementing UIGEA were set to go into effect on December 1, 2009.

In the letter, the FBI said, "While the vendors may claim that they can validate age and location, they are more than likely relying on credit card information and geolocation to gather this information. Both can be spoofed. For age verification, the possession of a credit card is usually the only validation these sites require. Credit card numbers are easily compromised and can be bought by the hundreds on several ‘underground' websites. Therefore, the simple act of owning a credit card number does nothing to validate someone's age."

The FBI also noted that: "[The] technology exist to manipulate online poker games in that it would only take two or three players working in unison to defeat the other players who are not part of the team. Technically, the online poker vendors could detect this activity and put in place safeguards to discourage cheating, although it is unclear what the incentive would be for the vendor."

In December 2008, the Washington Post and 60 Minutes documented cheating by illegal, offshore casinos. In testimony before this Committee in 2001, Dennis Lormel, then-chief of the FBI's Financial Crimes Section, stated, "Internet gambling and online capabilities have become a haven for money laundering activities." The State Department, in its "International Narcotics Control Strategy Report", released March 2004 explained, "internet gambling operations are vulnerable to be used, not only for money laundering, but also criminal activities ranging from terrorist financing to tax evasion."

The FBI also noted: "[Online] poker could be used to transfer ill gotten gains from one person to another, or several other people. ...Also, there are several ways to cheat at online poker, none of which are illegal."

Click here to view a copy of the letter.