Illegal Online Betting Firms Serve as Money Laundering Channels in India

Illegal online betting and gambling platforms operating in India have emerged as significant channels for money laundering and terrorist financing, according to a new report from the Security and Scientific Technical Research Association (SASTRA) of Rashtriya Raksha University.

Key Security Concerns Identified

The report highlights multiple security threats posed by unauthorized gambling operations:

• Money Laundering Conduits: Illegal platforms frequently facilitate illicit financial flows, undermining India’s economic stability
• Terrorist Financing: Unauthorized betting sites serve as channels for funding extremist activities
• Cybersecurity Vulnerabilities: Indian digital citizens face increased exposure to cyber attacks through these platforms
• Financial Instability: Significant capital outflows weaken the domestic economy and fuel criminal enterprises

While no official government estimates exist on the size of India’s betting and gambling market, the report cites a 2017 assessment by the International Center for Sports Security that valued the illegal sector at approximately USD 150 billion (nearly ₹10 lakh crore).

“These rogue players siphon money out of our economy, leaving a trail of financial instability, thereby fuelling criminal activity,” the report states.

Regulatory Gaps and Enforcement Challenges

The SASTRA report identifies several regulatory weaknesses that allow illegal operators to flourish:

Inadequate Distinction Between Legitimate and Illegitimate Activities

Despite the IT Rules 2021 differentiating between permissible online real money gaming and illegal betting/gambling, the current legal framework fails to create clear boundaries. The report recommends implementing a registration mechanism to whitelist legitimate online real money gaming platforms that operate in compliance with Indian laws.

Misuse of Financial Channels

Illegal platforms are exploiting the Reserve Bank of India’s Liberalised Remittance Scheme (LRS), which allows resident individuals to remit certain amounts abroad annually for specific purposes. The Parliamentary Standing Committee on Finance’s 59th report noted suspicious transactions from UPI IDs linked to websites in offshore jurisdictions like Curaçao, Malta, and Cyprus—known hubs for illegal betting operations.

Surrogate Advertising Tactics

The report highlights how illegal operators circumvent advertising restrictions through deceptive practices:

• Disguising gambling platforms as grocery or e-commerce services
• Employing surrogate advertising to bypass existing regulations
• Using sophisticated marketing techniques to target Indian consumers

According to the Advertising Standards Council of India’s (ASCI) Annual Complaints report for 2023-24, illegal betting advertisements have become the second most problematic category, accounting for 17% of all complaints.

Recommendations for Reform

SASTRA has proposed several measures to address these challenges:

1. Implementation of IT Rules 2021: Fully enforce existing regulations for online gaming intermediaries to create clear legal distinctions between legitimate gaming and illegal betting/gambling
2. Inter-Ministerial Committee: Establish a cross-departmental body to evaluate enforcement and legislative measures
3. Comprehensive Regulatory Framework: Develop and implement regulations specifically designed to prohibit online betting and gambling
4. Independent Gaming Authority: Create a dedicated regulatory body separate from the Ministry of Electronics and IT to oversee the sector
5. Advertising Collaboration: Partner with advertising standards organizations like ASCI to develop and enforce guidelines specifically targeting online betting and gambling advertisements

Legal Context

The report notes that under IT Rules 2021, betting and gambling are unlawful in most parts of India, and online gaming platforms involving games of chance are considered illegal. However, distinguishing between games of skill and games of chance remains challenging.

Former Additional Solicitor General N. Venkataraman is cited explaining that the Supreme Court has classified horse racing as a skill-based game despite the uncertain outcome, though betting on such races is still regulated under specific laws.

While the Ministry of Electronics and IT has developed guidelines to regulate online gaming, these have yet to be fully implemented, creating a regulatory vacuum that illegal operators continue to exploit.