The government in Beijing has been targeting gamblers in their push to limit online casino gambling in the country but e-commerce giants are fighting back. Illegal online gambling platforms including welcome bonus casinos have become more pervasive since the COVID-19 pandemic hit and Chinese authorities now find themselves investigating close to 9000 cross-border gambling cases.
New Laws
Gambling in China has been officially outlawed since 1949 when the Communist Party took power. Any form of gambling by Chinese citizens is considered illegal. It is illegal in China to lure Chinese citizens to overseas casinos where Chinese are the primary customers. This includes both gambling overseas and online gambling.
In recent years the application of the law has been blurred, specifically as it pertains to the junkets that ferried Chinese citizens to casinos in Australia, Macau Singapore and other casino destinations. Now China’s anti-gambling rulers are making a new effort to prevent their citizens from gambling.
They have put companies on notice that there may be criminal penalties if they refuse to abide by a new amendment that would criminalize overseas businesses, including online businesses, that lure Chinese citizens for purposes of gambling.
The law has been on the books for years but after Australian casino operator Crown Resorts was caught promoting gambling to Chinese citizens on the mainland which resulted in the arrest and detention of Crown staffers in China, the Chinese Ministry of Culture and Tourism announced that a blacklist would be compiled of “stay-away” overseas gambling destinations.
The amendment reads that China will regard as illegal the “organizing and soliciting by casinos abroad,” many believe that the new criminal definition will be applied both to offshore online gambling operators – both in terms of those using the site to gamble and to those who lure Chinese citizens to other countries with lucrative offers of work in “high-tech” industries.
Such operators have been known to take away the travelers’ passports and force them to provide customer service in online casino “sweatshops.”
COVID-19
The COVID-19 pandemic closed Macau casinos in early spring. Macau is a Chinese territory and is one of the main destinations of Chinese gamblers. The casinos in Macau have reopened but few Chinese are willing to travel these days. Macau is an approved casino destination for the Chinese government which reaps benefits from taxes and casino licenses.
The ire of the Chinese government is directed at so-called ‘cross-border gambling sites” which use “fourth party” payment processors to transfer deposits and payouts back and forth. Those processors, including bank cards and phone cards for online banking institutions, facilitate unauthorized outflow of capital to foreign countries.
The Chinese government is calling those payment processors “telecom criminals” and they are doing everything that they can to disrupt their operations. Payment platforms that channel payments to overseas gambling websites use bank cards to funnel payments between offshore gambling sites and mainland gamblers.
Law enforcement data indicates that illegal online gambling activities have surged during the pandemic. In the last few months police identified 1,400 underground banks and 1700 online gambling platforms.
Transactions involving more than 1 trillion yuan ($151 billion) were traced and authorities assume that much more has not been identified. In Shenzhen, police discovered that offshore casino operators marketed games through the WeChat and QQ messaging services.
Gamblers were directed to make their payments through WeChat Pay and Alipay – nearly 2.6 billion yuan were tracked through these payment methods.
Crackdown
Offshore operators have been utilizing the platforms of some of China’s leading tech giants to gain access to social media platforms and search engines for the purpose of luring gamblers. The e-commerce platforms facilitated the transactions which were disguised as orders for online purchases.
The Pinduoduo e-commerce site, Tencent Holdings' messaging apps WeChat and QQ, the Baidu search engine – China’s largest and Alipay payment service were involved. Several logistics companies as well as major courier companies were involved including Shanghai-listed YTO Express, New York-listed listed ZTO Express and STO Express.
Investigators aren’t buying the argument that these companies were unwilling participants in the operations. The businesses, however, say that they can’t monitor all activities that take place on their platforms.
Some payment methods involve covering up the reasons for the payments by attributing them to online shopping orders. In Wuxi in Jiangsu Province, police found operators selling logistical records for deliveries that didn’t exist. The records fabricated online shopping “orders” that were “placed” on gambling sites. Over 7 billion yuan was laundered in this way with Alipay remitting most of the funds to thousands of fake merchants.
Authorities in China are finding that gambling site operators stay under the radar by setting up business chains that facilitate recruitment and transactions. This allows them to hide the sources of the funds by money laundering. Search engines, e-commerce sites, payment services, social media platforms and delivery systems are all linked and overseas servers and they do the rest.
The highest-ranking executives of these platforms live abroad and they command activities from locations beyond the reach of the Chinese authorities.
Everyone Benefits
Internet companies argue that they can’t monitor every transaction to prevent illegal transactions. Analysts say that they have no real incentive to prevent the transactions because, one way or another, everyone benefits. Search engines collect revenue from ad promotions and ecommerce platforms’ books are boosted by fake retail deals. Logistics firms reap quick money from fake deliveries.
At Baidu, Shi Youcai, who oversees Baidu’s sales system, is alleged to have tightened control over the company’s advertising partners. Advertisements for card games were conducted with specific agents and agencies with whom Shi had ties received favors.
Other card game ads were promoted by other big platforms including Tencent and ByteDance. Now, these platforms have published ads that they will not accept on their platforms such as lotteries and gambling services but for the Chinese government, it’s too little too late.
Funneling cash from gamblers to the sites was also conducted using third parties such as Alipay and WeChat Pay. The payments were attributed to online shopping orders and were accomplished by falsely linking payments to online purchase orders.
Gambling site operators would register the orders to make the sites look like a regular online shop. In this way the money could flow from gamers to gambling site operators. The shop owners, who managed the fake shops, earned commissions from the gambling sites.
"I register a shop for them to use," one owner told Nikkei Asia. "A piece of clothing was priced at thousands of yuan, and there were soon orders." Bogus delivery records for these nonexistent items allowed the money laundering to be completed.
Chinese authorities are working hard to close down access to illegal gambling sites. With close to 1 billion people to monitor, the question is, can they prevent the next scheme? No one is betting on it.
