Paradise Papers:Playing the System

How banks aid and abet dubious online gambling.

By Philipp Eckstein, Jan Lukas Strozyk and Jan Willmroth

They don't shy away from superlatives at Stake7. The online casino claims to be "in a class of its own" in addition to being "incredible" and "outstanding." The playing experience here is "exceptional" and everything is delivered in "best HD quality." Anyone looking to wager a bit of money won't be bored with the games on offer, from poker and the virtual blackjack table to the familiar electronic slot machines from the German company Gauselmann.

But first they have to wait for their money to arrive at Top Gaming, the operator of Players can pay into their account at the virtual casino using credit cards and money transfers or through lesser-known payment systems like Skrill or Dotpay. And it's no problem sending money from Germany, even though the company states in its terms and conditions that it doesn't accept payments from the country. On this, German law is very clear, stating that "participation in payments in the context of unlawful gambling" is forbidden. And yet there's nobody monitoring these vast amounts of money transfers.

There are, however, plenty seeking to profit from those payments, including German banks and other financial institutions that conduct business in Germany. It's they who make the money transfers possible in the first place. But any financial institution that transfers revenues for casino operators from this illegal line of business is in violation of Germany's betting laws. Employees may also be culpable of aiding and abetting illegal gambling. The law applies from the moment a German bank processes money from German customers directly through their own accounts and not through an intermediary payment service, said Ingo Fiedler, a gambling expert at the University of Hamburg.

However, banks often work together with payment service providers abroad that process large numbers of money transfers and use German bank accounts to do so. It's precisely these companies that Fiedler views as being potentially culpable. "A payment service provider is obligated to put their customers to the acid test," Fiedler said. That includes clarifying whether each customer is in possession of a license for their activities in all the countries where the service is accessible. If such controls were in place, Fiedler said, it would be quite simple: No license, no money transfer. "But this interruption of payment flows isn't happening," said Fiedler.

Which means it's up to the government. The Interior Ministry in the state of Lower Saxony was tasked on behalf of all German states with preventing dubious money flows. The state has since hired additional employees and announced it would block payments, but so far little has happened. The ministry said in a statement that talks have been held with various payment service providers regarding the possibility of blocking transfers for illegal gambling within individual systems. The ministry said there are also three proceedings currently underway to stop such payments, but no binding orders have been issued to casinos or financial institutions so far.

Reporters with German broadcaster NDR and the Süddeutsche Zeitung conducted spot checks by registering on the websites of multiple online casinos. They discovered at least one German bank involved with each site they checked. All the sites were definitely illegal under German law - a situation that should be addressed by the Federal Financial Supervisory Authority (Bafin), which is responsible for monitoring the integrity of German banks. But the authority doesn't consider itself to be responsible. "I'm not aware of any case in which a bank is knowingly carrying out services for providers that are definitely illegal," said Raimund Röseler, Germany's top bank supervisory official and deputy director of the authority. "We at Bafin are not in a position to determine whether a gambling provider is operating illegally on the market. That's also not our area of expertise." But if other agencies, like the gambling authorities in the individual states, were to identify an illegal provider working together with German banks, then it would "obviously also be a case for the German banking supervisory authority," Röseler said. Meanwhile, at the Interior Ministry in Lower Saxony, officials said that although the agency is responsible by law for the administration of gambling supervision, it has nothing to do with supervising the banks.

Perhaps the two agencies ought to have a chat.

Translation: Chris Cottrell, Charles Hawley and Daryl Lindsey

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