Credit card companies spike on-line gambling: maybe

When Hong Kong decided to reinforce its ban on unlicensed gambling, and to extend it to cover offshore gambling, the writing was on the wall for the offshore gambling industry.

Yes, other countries had made it illegal to place or take bets, and had made it illegal for their residents to bet offshore but the reality is that no one really knew how to stop it. Until Hong Kong did what now seems obvious: you can't follow the person and you can't follow his internet and telephone tracks. But you can follow the money.

So Hong Kong tied in the movement of money related to unlawful gambling with its money laundering laws. That meant that anyone handling the money involved in, say, internet gambling becomes a money launderer.

And that puts the banks and the credit card companies in the firing line: if they make or receive payments for the gambler or the gambling player, they risk prosecution, according to one senior Hong Kong police officer.

Hong Kongers live to gamble. They will, it is half-jokingly said, gamble on which of two rain drops will run fastest down a window pane. Illegal gambling flourishes in coffee shops and mah jong parlours. On street corners, gambling on anything from the outcome of a foreign soccer game to the turn of a card is commonplace. Bookmakers' runners visit government housing developments at one end of the economic scale and some of the world's most expensive homes on the Peak at the other. Despite long standing laws that only government organised gambling is permitted, illegal gambling is widespread.

The advent of telephone gambling meant that placing bets offshore using a credit card became simple: operators set up a local number with a divert to a foreign office. And the development of internet gambling made it all the easier - and even less traceable.

Faced with the prospect of being prosecuted for money laundering, it was only a matter of time before credit card companies did something about it. Their response, not just to Hong Kong but also to law changes in Australia and elsewhere, has been to deny card clearing services to any on-line casino. Mastercard and Visa have both decided to cease processing payments for on-line gambling organisations.

The effects will be dramatic. At least in theory. Recently, World Money Laundering Report: Online reported the case of Paycom, a card processing company that says that Visa and Mastercard, which make up more than 85% of Paycom's business, say that pornography sites pose particularly high levels of risk for fraud and lead them to higher than normal risk of chargebacks. According to Paycom, this has meant that a discrete market has developed in processing these transactions for which a higher than normal processing fee can be charged.

If Visa and Mastercard also take a stand against illegal pornography based on the same risks, then there is at last some possibility that the free flow of pornographic images into mailboxes may be stemmed - if people cannot buy the product, then there is no point in advertising, at least so the theory goes.

The spread of internet gambling and pornography is a significant issue. One of our own staff, a young woman, used one of the web based greetings cards services to send a christmas card to another colleague. Because our systems reject mail from web based services such as yahoo.com and hotmail.com she used her office address as the "from" address. There was a small check box, already ticked, to say "send me special offers." She did not notice it. When she returned after the Christmas break, her mailbox had over 100 spam messages from a wide range of spam artists, offering amongst other things, drugs, surgery, sexual imagery and gambling. She has never had spam before and her mail address does not appear on any website. Addresses illegally harvested from our websites regularly receive hardcore pornographic images with the result that all mail now has to be filtered by a senior male member of staff to avoid offence to the younger members of staff. Indeed, many of the images would (in our view rightly) be regarded as illegal under Malaysian law (our editorial office in in Kuala Lumpur) and we must take steps to ensure that they are not republished. Most forms of gambling are illegal in Malaysia.

If the stand against internet gambling can be enlarged to the sale of pornography, then so much the better.

And that then leaves the question of whether it can work. Already, the internet gambling companies are meeting to try to find an alternative route. It is hard to see how any payment scheme can work unless it is related to some form of payment card or bank transfer system.

And then one has to ask how these companies will get their money. The answer is that they will lie about their activities when they are making their merchant account applications. Or they will all work through the payment clearing companies who do not disclose who their end users are.

The interesting thing about that is that it raises much the same concerns as were expressed in the Paycom article, although for completely different purposes.