The Indian online gaming sector faces a significant threat from money laundering, according to a report by Digital India Foundation, a not-for-profit foundation. The Indian Real Money Gaming (RMG) sector has become a key player in the global market with a CAGR of 28% from FY20 to FY23. Its revenue is projected to reach $7.5 billion within the next five years, while also creating employment opportunities in ancillary sectors like fintech, cloud services, and cybersecurity.

The report titled ‘Combating Money Laundering in Online Gaming Ecosystem’ was released on Thursday in New Delhi. Contributors included former high-ranking government officials, scientists, academicians, and experts from gaming, public policy, cybersecurity and investigations, and AI.

Shortcomings of the sector

Several challenges surrounding financial integrity, cybersecurity, and user protection, plague the sector. The menace of money laundering shows how in-game currencies, cryptocurrencies, and offshore betting platforms are being used for illicit activities.

The use of international online betting sites both for money laundering and terror financing has emerged as a concerning trend. According to the study, India’s illegal gambling and betting market has witnessed deposits exceeding $100 billion annually. Even when these sites are blocked by authorities, they are circumvented by using VPNs or geoblockers.

Additionally, the ability to transfer and convert gaming assets into fiat currency or crypto assets has resulted in a rise in money laundering and fraud. With the metaverse offering a better gaming experience, this route may be used more by fraudsters, the report says.

Advertisements float on the internet and influencers with millions of followers are used to attract gullible followers. Payments made in these illegal apps, in cryptocurrencies or cash, also increase the risk of money laundering.

Industry growth backfiring?

Arvind Gupta, the Head and Co-Founder of Digital India Foundation said, “Given its high rate of growth, robust contribution to government revenues and millions of users, it is critical to take urgent action against money laundering that is impacting this sunrise industry. Despite ongoing regulatory efforts to curb illegal operators, 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 approximately one lakh individuals, directly and indirectly, with the potential to create 2,50,000 jobs by 2025. This report has come out at the right time to chart the way forward,” he added.

Loopholes in RMG

The report elucidates that the RMG sector, despite adhering to compliance measures, exhibits gaps that may increase its vulnerability.

Progress in regulating the sector has been impeded by the non-implementation of online gaming rules, leaving RMG operators to navigate disparate rules. This inconsistency can lead to unethical practices among some operators. Further, the absence of an operational framework has blurred the distinction between legal and illegal activities.

At present, the online gaming sector in India is devoid of a designated supervisory or regulatory authority. Consequently, there is no established framework or requirement for operators to implement policies and controls to mitigate the risks of financial fraud or money laundering.

Lack of transparency

Although self-regulatory measures such as KYC, transaction monitoring, and technological safeguards are in place, their implementation appears inconsistent. Moreover, while some federations conduct external audits, there is a lack of transparency, and no reports are made publicly available, the report noted.

Internationally, jurisdictions have standardised processes in place, either as part of licensing requirements or specialised legislation, to minimise the risk of money laundering. In India, the absence of regulation or uniform standards means there are no consistent enforcement mechanisms for non-compliance. Enforcement is fragmented, with various ministries taking sporadic action against notorious offenders.

Essential measures that can be taken include setting up a task force to clamp down on illegal operators, creating a whitelist of legal operators, combating misleading advertisements and incorporating principles of financial integrity and international cooperation among others, the report added.

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