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A comprehensive whitepaper on illegal gambling and betting in India has revealed a troubling connection between illegal gambling operations and national security threats, while advocating for a regulated domestic e-gaming market as a potential solution. The whitepaper, titled "Illegal Gambling and Betting in India: Risks, Challenges, and Responses," was co-authored by Lt. General Vinod G. Khandare and Vinit Goenka, and details the significant impact of illegal gambling on India's economy, national security, and data sovereignty.
The report, which highlights a rapidly growing underground industry, calls for urgent regulatory measures and estimates that the illegal betting market in India attracts around $100 billion annually. The authors describe the sophisticated methods used by offshore entities to siphon funds abroad, often utilizing benami (money mule) accounts and complex financial networks.
The report underscores the threat these illicit activities pose to India's economy, national security, and data sovereignty, citing the involvement of offshore servers, cryptocurrencies, and the exploitation of vulnerabilities, especially among minors.
Economic Impact and Regulatory Evasion
According to the report, offshore betting companies often operate in the grey market, flouting laws with impunity and posing significant challenges to regulatory authorities. "These entities use offshore servers to circumvent legal oversight and conduct transactions through individual accounts rather than legitimate businesses, complicating tracking efforts," the report adds.
In July 2023, the Indian Financial Intelligence Unit (FIU) reported to a Parliamentary Standing Committee on Finance about suspicious transactions tied to offshore gambling entities exploiting Unified Payments Interface (UPI) IDs linked to Indian bank accounts. These entities, initially registered in jurisdictions like Curacao, Malta, and Cyprus, divert funds collected through false inducements to select individuals and entities domestically and abroad.
"Funds collected by this network of foreign-registered websites were not disbursed to investors or players as expected but were diverted to bank accounts of select individuals and entities," the whitepaper explains.
Indian central agencies, including the Intelligence Bureau (IB) and Research and Analysis Wing (R&AW), have also conducted technical analyses of certain betting apps, uncovering "alarming features." These apps, operating on Android and iOS platforms, were found to steal and transmit user data and covertly monitor real-time activities to servers outside India.
"These upgraded apps seek extensive permissions, enabling them to record user movements, transfer backup data to their servers, erase data, and access the camera for video recording. Such capabilities raise serious concerns regarding national security, particularly amid the current tense border situation," the report adds.
Several investigations revealed that offshore entities use “benami” accounts to route and layer illicit funds, ultimately transferring them abroad under the guise of bogus entities, illustrating the elaborate schemes that evade detection and enforcement.
A Threat to Cybersecurity
Illegal gambling platforms are described as posing a severe threat to cybersecurity, given the volume of sensitive data and financial transactions they handle. The report highlights the use of cryptocurrencies and instant peer-to-peer payment systems, which facilitate anonymous transactions and complicate law enforcement efforts.
"Cryptocurrencies have become a favored medium for transactions in the realm of illegal betting and gambling, promoting anonymity and enabling illicit activities on a global scale," the whitepaper notes.
The research also sheds light on the exploitation of vulnerable consumers, particularly minors, by illegal operators. Many offshore websites bypass essential KYC and age verification checks, making it easy for minors to access gambling platforms, leading to significant "financial and psychological harm" among young users.
"Offshore websites like Parimatch offer payment options such as cash on delivery, allowing gaming platform agents to collect cash payments from consumers to top up their gaming wallets, thus simplifying the exploitation of minors," the report details.
Advocating for a Domestic E-Gaming Market
In addressing the multifaceted challenges posed by illegal gambling, the whitepaper authors recommend a three-pronged approach by authorities: recognizing illegal, offshore gambling operators as a national security threat; accepting the deep-rooted propensity for gambling and the limitations of outright bans; and developing a transparent and regulated domestic e-gaming market to provide a legal alternative and ensure consumer protection.
"A regulated, domestic e-gaming market can offer oversight and transparency, safeguarding citizens’ interests and curbing the outflow of funds," the report advocates.
The authors call for law enforcement agencies to intensify efforts to track and prosecute offshore operators, leveraging technology and international cooperation. Encouraging the domestic gaming industry is also seen as a viable strategy with both economic and strategic benefits.
"The gaming industry is a rapidly growing sector globally, with the potential to surpass the movies and music industries. India should take an assertive and ambitious stance to capture this emerging market by providing platforms, subsidies, and tax breaks, as well as developing a skilled workforce in the sector," the report underscores.
"Promoting domestic pay-to-play game alternatives is not just a viable option, but one that can yield significant rewards."
The authors conclude by expressing hope that the findings and recommendations of the whitepaper will prompt significant policy discussions and legislative actions to combat the growing menace of illegal gambling and betting in India.
By fLEXI tEAM