Ministers to discuss ways to curb money laundering in online gaming before general elections: Sources

“The first meeting of the GoM has the agenda of prevention of money laundering through domestic online gaming apps and offshore illegal betting operators. Many offshore operators masquerade as legal entities offer games and indulge in money laundering. The GoM will discuss how to tackle it holistically with more checks and balances on their transactions,” one person aware of the development told Moneycontrol.

Mahadev app

The Indian online gaming market size is estimated at $2.5 billion while globally, it is worth $159 billion, he said.

The agenda of the first meeting of the GoM has been set given the Mahadev online gaming app, which is embroiled in a money laundering controversy. Ahead of the November state assembly elections, the Directorate of Enforcement investigated allegations that the illegal gaming app was involved in laundering money that led to political parties in Chhattisgarh receiving Rs 508 crore.

Gaming companies told Moneycontrol that to allay the concerns of the government on money laundering, they welcome standardised regulations on KYC and matching deposit and withdrawal payment instruments.

According to Games 24x7 co-founder Trivikraman Thampy, full Know Your Customer (KYC) of users should be done and gaming platforms must accept money only from legitimate banking channels. Most deposits currently come through UPI (Unified Payments Interface), which is from banks. Platforms can also ensure that when users withdraw money, it goes back to the same channel so that no laundering takes place.

“If the government can standardise this for KYC, deposit instruments, matching deposit and withdrawal instruments – it will tie up the whole chain. It will address most concerns that the government has around money laundering once the right regulations are in place,” Thampy told Moneycontrol.

The GoM is likely to discuss a policy strategy for anti-money laundering practices to be complied with by all online gaming operators, which may include not allowing cash for deposits or withdrawals.

“Once the regulations are in place to prevent illegal gaming apps, the government may lay down permissible games to ensure the entire ecosystem of advertising, publishing, distributors, payment service providers, and crowd computing providers do not onboard a game that does not have a registration mark from the government. Lack of regulation makes it hard for law enforcement officers,” Thampy said.

Earlier, the government approved the formation of self-regulatory bodies for the primary purpose of verifying online real money games as permissible. These bodies were to be formed as part of an independent process, with the Ministry of Electronics & Information Technology as the nodal ministry. These were put on hold as the GoM was put in place.

Blacklist and whitelist

"As per media reports, the government has concerns about accountability and transparency on self-regulatory bodies as they are created by the industry. A government oversight committee can be there on top of SRBs. Even a government regulator is welcome,” Thampy said.

The E-Gaming Federation (EGF) said that to prevent money laundering in the sector, the government should clarify rules for operators and payment gateways and may follow a mix of blacklist and whitelist approaches to facilitate domestic industry achieve global standards.

“The industry wants clarity on norms, protocols to be adopted, where we can operate,” EGF CEO Anurag Saxena told Moneycontrol. “Hope GoM focuses on encouraging the domestic market so that Indians play in a safe environment and weeding out predatory companies through enforcement… Blacklisting has limitations. Whitelisting can happen via SRB norms under which Indian gaming companies can operate. SRBs can help ensure that money laundering, predatory recovery practices and financial frauds are prevented.”

Once the rules are clarified for operators, payment gateways and banks, there will be a framework within which gaming companies can operate. It will ensure stronger operating norms for domestic players and best practices. Facilitative regulation will help the industry achieve global standards, he said.