China Cracks Down On Illegal Online Gambling

The unprecedented events of 2020 have brought about a number of consequences, some of which have been more predictable than others. One that few people would have thought of if asked to name their top five industry impacts of a global pandemic, has been the soaring popularity of gaming.

With 20/20 hindsight, it makes perfect sense. Gaming was already on an upward trajectory, and cooping people up in their homes for weeks on end with little else to do naturally sent it higher. That sounds innocuous enough – an entertaining diversion for millions of people and good news for those in the industry. However, in China there is also a dark side to this trend.

iGaming and the law

iGaming, where casino games are played on specific platforms for real money, is a gaming niche that has seen significant growth across the globe over the past year or two. Understandably, it is a sector that is closely and rigorously regulated. Here in Canada and in places like the UK, and certain states of the US, there are government-mandated or approved bodies with whom operators must be licensed.

Even where gambling at a licensed site is legal, there is often some confusion. A recent survey in Sweden found that an incredible 95 percent of players had no idea how to check if the site they were using was properly licensed. In Canada, there are resources like CasinoBlox or eCogra that can help you check if a casino is safe. Other nations have a different attitude to iGaming, and these include the most populous country on the planet.

In China, gambling has been illegal since the communist party took power more than 70 years ago. However, we all know the internet has little interest in national boundaries, and those in the know can circumvent geo-blockers in a matter of seconds. The result? A surge in illicit offshore gambling sites using every method possible to access the Chinese market. Chinese authorities have been quick to launch their counter-offensive.

Riding on the coat-tails of the giants

The internal investigating body discovered that the offshore gambling sites had been using some of the biggest and most respected names in tech, both to gain access to the Chinese gambling market and to move money in and out of the country. These included Baidu, the leading search engine in China, the QQ messaging app and online payments platform Alipay.

In fact, it is almost easier to say which companies have not been implicated in these underground gambling operations. The general response has been that they are as much a victim of the criminal activity as anybody else. Spokespersons for Baidu and other companies named stood by their internal controls and claimed it was impossible to monitor everything. However, questions are inevitably being asked as to whether these huge publicly listed companies have the stringent risk management controls in place that they claim.

Claiming victim status is one thing, but the unpalatable truth is that most of these businesses had their bottom lines boosted by the gambling transactions that were taking place under their noses. Police investigations are not ruling out complicity or wilful blindness at senior levels in some of the companies concerned.

Illegal gambling on a massive scale

So just how large-scale a problem are the police investigating? By the end of September 2020, their own data confirms that they were looking at 8,800 separate cases of cross-border gambling, and that they had made more than 60,000 arrests.

Many of these were individuals within blue chip Chinese companies who were directly involved in the activities. For example, two individuals in Wuxi created tens of thousands of fake delivery records that were used to launder money paid by gamblers. These funds were then routed through platforms like Alipay to fictitious sellers on the Pinduoduo platform.

The arrests and police interviews have percolated up to the highest levels, with allegations that senior managers and executives benefited financially from the illegal activity. While all such allegations have been denied, experts within the industry find it hard to believe that all this was going on without anybody senior noticing.

A mature system

One source suggested that practices like allowing illegal ads for gambling sites to slip through under the guise of something innocuous have been going on for years. When you look at the history of some of the platforms backed by the likes of Tencent and ByteDance, that is easy to believe. It does not take much digging to see ads relating to gambling games, lotteries and other prohibited products and services.

Of course, advertising is only one link in the chain. There is also the question of how money was funnelled between the platforms and the players Here, again, there were complex systems in place involving, for example, gift codes that would actually route money into gambling accounts. Systems like these do not appear overnight, and the sheer number of false vendor accounts and transaction codes again points to a mature system.

Who carries the can?

The police investigations are still ongoing, and we can only speculate as to how this will ultimately pan out. The businesses under the spotlight all say they are cooperating fully and are carrying out their own internal investigations to address and control gaps.

This is, of course, all they can do under the current circumstances. Nevertheless, it seems inevitable there will be consequences not only for the companies but for many of their senior officers when the investigations are complete.


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