Fears of dirty cash as illegal betting firms turn to cryptocurrencies

Bitcoin Cryptocurrency trends graphs. [Getty Images]

Betting companies have now devised new ways of clandestinely operating in Kenya without paying taxes

They allow punters to transact using hard-to-trace cryptocurrencies, an investigation by the Financial Standard has revealed.

This might cost the country billions of shillings in uncollected taxes while laundering funds earned through illegal activities such as smuggling and trafficking in minerals, wildlife, drugs, and people, or financing organised crime.

It is a development that does not only cast a spotlight on sports betting as an avenue for money launderers but also how the gambling craze is aided and abetted by newer, sleeker financing schemes such as cryptocurrencies that authorities are yet to fully understand.

The fact that most betting casinos operate on the borderless, largely lawless internet has seen a lot of bookmakers operate in Kenya without paying the requisite taxes or following regulations.

Punters have also been revelling in this tax truancy, which has meant that their winnings are neither taxed nor can be traced.

The use of untraceable cryptocurrencies such as bitcoin leaves the Kenya Revenue Authority (KRA) in a fix, not only because the bookmakers are registered outside Kenya, but also because even if KRA had a tax information exchange agreement, there is no paper trail to show the source of the transaction.

A Kenyan on Twitter on June 6, 2021, highlighted six betting websites in which they had accounts that included some of the biggest betting firms around.

Nearly all the gaming websites have the option of paying using cryptocurrencies such as bitcoin, ethereum, litecoin and Dodge, which tend to offer users some anonymity, thus the possibility of enabling tax evasion and other illicit financial flows.

Others also allow punters to pay using M-Pesa, a mobile payment service offered by Safaricom.

“All (the accounts) tax-free! I can’t pay that 20 per cent nonsense which ends up in cartel’s pockets instead of developing our league and our grassroots football,” posted a Twitter user who went by the name Mstephano.

In the Finance Bill, 2022, the government ratcheted up excise duty, popularly known as sin tax, on betting, gaming and lottery by almost three times from 7.5 per cent to 20 per cent.

In a year, the government can collect close to Sh15 billion in taxes from betting, gaming and lottery, official data shows.

Kenyan gamblers placed bets worth Sh463 million daily through Safaricom’s M-Pesa platform in the financial year ended March 2022, showing the extent of the sports betting craze.

The telco’s disclosures showed a 23.8 per cent jump in betting revenues through M-Pesa, which grew from Sh136.6 billion in the previous financial year to Sh169.1 billion during the period under review. The rise is despite the government increasing taxes and tightening advertising rules to cut gambling, which has since become a multi-billion-shilling industry.

However, there are other unseen billions of shillings that the government is yet to get its long hands-on. Interior Cabinet Secretary Fred Matiang’i said in a statement on May 31 that despite efforts to regulate the betting and gaming industry, unlicensed companies have tried to sneak in and operate illegally.

“This provides a fertile avenue for money laundering, tax evasion and the financing of criminal and other undesirable activities,” he said.

An investigation by Financial Standard found that numerous illegal betting and gaming companies are operating in Kenya, some of which are even using M-Pesa, although they have no permanent residence in Kenya and are not regulated by the Betting Control and Licensing Board (BCLB).

BCLB was directed to ensure that all applications for renewal and new licences from July 1, 2022, have written compliance from KRA, The Financial Reporting Centre and the Inter-Agency Security Team.

“The BCLB to continuously monitor, identify and report to the Communications Authority of Kenya (CA) all unlicensed local and foreign betting and gaming websites for blockage of access,” said Dr Matiang’i. We sought information from CA on how many, if any, illegal websites they had blocked but have not received a response.

Low taxation

One betting firm that accepts cryptocurrencies Cyberbet, which is registered in the Dutch Caribbean island of Curacao, a territory known for its ridiculously low taxation, low corporate regulation and confidentiality.

Although there is no indication that they are licensed by BCLB, the website has engaged a Nairobi-based social media influencer to draw punters to the site.

“Guys, let me introduce you to Cyberbet,” said the influencer in a tweet, adding that there are no charges; “you can deposit by M-Pesa, stand to gain 75 per cent bonuses and get daily Christmas gifts”.

“What else do you want as a gambler? Bet with Cyberbet. Create an account here…”

It is the same with Sportsbet.io app, which recently landed a deal with Nigerian soccer legend Nwankwo Kanu, which also combines payment in cryptos and M-Pesa.

Another bookmaker that has encouraged Kenyans to place bets using cryptos is 1xBet Betting Company. The company even has a Kenyan domain (https://1xbet.co.ke/information/bitcoin).

On its website, the company says it has operations in CIS (Commonwealth of Independent States) countries, including Kenya.

It allows gamblers to bet using bitcoin, a type of crypto-currency that allows for anonymity and whose credibility has been questioned by the Central Bank of Kenya (CBK) and other global banks.

“We take bets on football, ice hockey, biathlon, baseball, boxing, table tennis, snooker, cycling, water polo and a great number of TV shows such as “Psychic Challenge”, “What? Where? When?” and many others.”

For deposits and withdrawals, punters are encouraged to open accounts in cryptocurrencies. One of the advantages of opening a cryptocurrency account, the company says on its website, is that it is anonymous as one is not required to provide any personal details.

Other cryptocurrencies used on the website include Lifecoin, Dogecoin, Dash, Etherereum, Monero and Cash. “We guarantee a personal approach with your best interests in mind, easy payment methods and, what is most important, 100 per cent payouts on all winning bets! May luck never leave you!” the firm says.

With reports showing that Kenyans, alongside Nigerians and South Africans, are some of the most active participants in the bitcoin market, this might as well have been fueled by the sports betting craze.

In 2019, Kenyan bitcoin investors lost millions of shillings after falling prey to a Brazilian pyramid scheme that went down with their money.

The company is known as Velox 10 launched operations in Kenya on September 20, 2017, and was run by a Brazilian known as Ricardo Rocha.

Velox, which claimed to trade in bitcoins, promised to help Kenyan investors earn millions of shillings in profits. Investors were required to pay Sh10,000 (then $100) as a membership fee, and an additional Sh20,000 ($200) as an upgrade fee with a promise of raking up to Sh400,000 ($4,000) in daily profits.

Recently, two students from Kenyatta University were arrested for allegedly being part of a syndicate that hacked into people’s credit cards and then converted the money into bitcoins.

CBK Governor Dr Patrick Njoroge also read the riot act to financial institutions that support cryptocurrency transactions, warning that they risked losing their licences.

“There are people who are excited about cryptocurrencies because they see it as an investment they can make money from,” he said during the World Consumer Rights Celebration Day in Mombasa on March 22.

Dr Njoroge has in the past lambasted cryptocurrencies, labelling bitcoin a Ponzi scheme.

He joined a small but powerful club of bitcoin-bashers, which includes JPMorgan CEO Jamie Dimon who said bitcoin is a ‘fraud,’ predicting its eventual implosion.

Earlier in 2015, CBK had warned the public against trading in bitcoins and other cryptocurrencies that are unregulated and susceptible to use by criminals due to their anonymity.

“Transactions in virtual currencies such as bitcoin are largely untraceable and anonymous, making them susceptible to abuse by criminals in money laundering and financing of terrorism,” said CBK in a statement.

The regulator also said bitcoin’s high volatility exposed investors to potential loss.

Other foreign gaming companies with operations in Kenya include Malta-based Bet365, where you can pay in US dollars using a credit or debit card. The winnings are not subjected to any taxes on this website.

The combination of betting and cryptocurrency is an explosive mixture. In Kenya, sports betting has been singled out as one of the channels of illicit financial flows, with a lot of young people lured to gambling.

Suspicious bets

Last year, banks through their lobby, the Kenya Bankers Association (KBA), petitioned Parliament to amend the Proceeds of Crime and Money Laundering (Amendment) Bill, 2021 to compel industry regulator BCLB to monitor suspicious bets and transactions amounting to least Sh1 million ($10,000).

“(We urge) inclusion of Betting Control and Licensing Board (BCLB) since some individuals can use betting as an avenue for money laundering,” the lobby said in its petition.

The push targeted punters dealing in large transactions, those putting money in their betting wallets and staking a small fraction of it as well as those making small, regular and suspicious bets.

A recent report by blockchain data firm Chainalysis found that Criminals laundered $8.6 billion (Sh1 trillion) of cryptocurrency in 2021, an increase of a third from the previous year.

“The company previously estimated criminals received a record $14 billion (Sh1.6 trillion) in cryptocurrencies in 2021,” the BBC reported.

Lately, the bitcoin market, and that of other cryptos, has been coming down like a house of cards, leaving behind millions of wrecked families. That means even those who might have held their money in bitcoins in the gaming industry are also counting losses as the crypto meltdown continues.

Betting companies have also been on the spot for not revealing the money they have spent on sponsorship of sports clubs and community projects.

Thus, BCLB Chief Executive Peter Mbugi directed all gaming operators to disclose activities, amounts and beneficiaries of their corporate social responsibility (CSR) spending.

“The board wishes to inform you to submit reports on all CSR activities conducted during the licensing period,” he said in a letter dated May 17. “This should detail the name of activities, amounts spent and evidence of the same should be attached to the report.”

This came amidst murmurs that betting companies have abandoned their CSR activities to local clubs, with speculations that most of them might be channelling the funds into political parties.