Identifying money laundering as a major threat to the Indian online gaming sector’s integrity and long-term success, a report by the Digital India Foundation (DIF) has recommended that the government should establish a ‘whitelist’ of compliant gaming companies, ensuring that payment gateways and Internet Service Providers serve only the listed operators.

Also read: Regulating India’s online gaming industry

The report titled ‘Combating Money Laundering in Online Gaming Ecosystem’ said the use of international online betting sites both for the purpose of money laundering and terror financing had become a key trend in cybercrime. It suggested a dedicated taskforce for a clamp down on illegal operators, stringent Know Your Customer (KYC) practices, and action against misleading advertisements.

DIF, a not-for-profit think-tank, released the report on Thursday (October 24, 2024). It is based on a review of related literature, discussions with experts and stakeholders. The contributors included former high-ranking government officials, scientists, academicians and experts from gaming, public policy, cybersecurity, investigations and artificial intelligence fields.

As per the report, the Indian real money gaming (RMG) sector has become a key player in the global market with a compounded annual growth rate of 28% from FY20 to FY23. Its revenue is projected to reach $7.5 billion within the next five years.

Challenges to sector

“However, the report’s extensive research and consultation has shown that there are several challenges to the sector, such as issues of financial integrity, cybersecurity and user protection, that can impede progress. The severity of these challenges is underscored by the fact that the illegal betting market in India attracts over $100 billion in deposits annually,” it said.

The report raised concerns over the possible misuse of in-game assets and cryptocurrencies, and operation of illegal off-shore online betting platforms.

Arvind Gupta, the head and co-founder of DIF, said, “Despite ongoing regulatory efforts..., many platforms circumvent restrictions through mirror sites, illegal branding and disproportionate promises, highlighting the pressing need for stronger oversight and enforcement... with over 400 home-grown start-ups and 100 million daily online gamers, including 90 million who pay to play, the sector employs directly and indirectly approximately one lakh individuals, with the potential to create 2,50,000 jobs by 2025.”

Even when illegal gambling/betting sites are blocked by authorities, the report said, VPNs or geo-blockers are used to access them. “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,” it said.

Risk-mitigation steps

The risk-mitigation recommendations include setting up of a taskforce comprising experts to recommend policy measures.

“All online RMG operators, including offshore ones, must register under the Central Goods and Services Tax Act, 2017, within 30 days of becoming liable for registration. Similar to the whitelist of 442 approved digital lending apps, a whitelist of legal online RMG should be published and regularly updated. This initiative would ensure that payment gateways, hosting providers and ISPs provide services only to listed operators and making it extremely difficult for illegal operators to operate,” said the report.

It also suggested that the Information and Broadcasting Ministry should issue an advisory that only whitelisted online gaming applications can advertise.

The report said the government should collaborate with banks and payment system providers to establish a protocol for blocking transactions to known illegal gambling and betting operators; lead the efforts to develop multilateral agreements with international organisations and other countries to enhance cross-border cooperation in combating illegal online gambling; and undertake public awareness campaigns.

“Progress in regulating the sector has been impeded by the non-implementation of online gaming rules... the absence of an operational framework has blurred the distinction between legal and illegal activities, enabling illegal betting and gambling operators to operate without repercussions,” it pointed out, also suggesting a designated supervisory/regulatory authority by the Ministry of Electronics and Information Technology (MeitY).

Principles of financial integrity in the sector also should be enforced in coordination with the stakeholders, it added.