Sources within the Federal Investigation Agency suspect that the losses of gullible and ignorant players could exceed Rs 1 trillion, with the money circulating in the form of cryptocurrencies, payments for fake service imports and investments in the stock market.
As soon as one illegal app is shut down by the authorities, another one developed by the same actors or their partners appears out of nowhere – making it a tiresome hunt for the authorities. These illegal apps are run by faceless operators based in the United Arab Emirates, Sri Lanka and some South Asian countries along with an army of phone callers and bookies.
It is learnt that the directorate will make a big effort to nab these applications by tracking down their links in India. “Several investigations are underway in different states and territories. A plan is in the works to crack down on the links in India that are helping the foreign beneficiaries smuggle funds back and forth. This could break the chain,” said another source.
The compliance departments of many banks and the Reserve Bank of India have warned bankers to be cautious while processing payments for “import of services” – a pretext for transferring funds abroad.
However, the “free withdrawals” allowed by some of the smaller cryptocurrency exchanges represent a legal loophole that many app operators exploit to transfer money across the border.
The flow of money around an illegal app takes place in two ways: first, small sums are collected from players in hundreds of so-called mule accounts in the names of vegetable vendors, small grocers, neighborhood tailors and autorickshaw drivers who receive small amounts for lending their IDs. Second, the funds are channeled in multi-step transactions to the current accounts of dozens of private limited companies or front companies that carry out fake imports to transfer the money abroad.
The crypto channel
Sometimes, instead of fake imports, these fronts invest the money in buying stable cryptocurrencies (like USDT) and then move the cryptocurrencies from the exchange wallets to the wallets of foreign app operators.
“This is not possible unless crypto exchanges allow withdrawals from an exchange wallet to the user’s personal wallet, from where the coins are transferred abroad. Larger platforms have stopped withdrawals, but some smaller ones still do. This is clear from ED’s recent findings,” said a member of the crypto industry.
Recently, the ED seized Rs 49 crore and arrested people associated with Virtuous Payment, a company allegedly involved in routing the proceeds from online betting. Companies like Virtuous are the ones the ED is tracking. Another 4 were arrested after the ED found that Rs 400 crore pool money from the illegal betting app FIEWIN was invested in cryptocurrencies, which were subsequently transferred to the wallets of 8 Chinese nationals on Binance, the world’s largest crypto exchange.
“This could be just the tip of the iceberg as some estimates put the transactions in illegal offshore betting and gambling apps at over Rs 2 trillion a year,” said Jay Sayta, a technology and gaming lawyer, who fears that the men behind these apps would not be dissuaded by measures such as freezing money laundering accounts, seizing Indian assets or arresting some agents or rank-and-file employees of these websites. According to Sayta, “The ED’s hands are tied to some extent as betting and gambling are not offences under the Prevention of Money Laundering Act (PMLA) and the ED can only take action against those laundering proceeds of crime if an FIR has been registered by the local police for any of the offences under the PMLA. From now on, the ED will only take action if there is an FIR for fraud (based on a complaint from some users of these apps) or forgery of KYC documents to open money laundering bank accounts.”
LIKE A CHAMELEON
Hidden in plain sight, several illegal gambling apps from abroad make millions every day from bets of all kinds. While some of the apps no longer hire top Bollywood stars to advertise their products after the Mahadev fiasco, Instagram continues to be flooded with ads in which small-time actors and music video artists lure gamblers.
ED officials say lack of regulations and lack of cooperation from tax havens are hindering the tracking of the money trail. “To our great surprise, a new application was launched the day after an app ban and a group of dedicated customers started using the new app soon after they were informed through WhatsApp or Telegram,” said a senior government official privy to the investigation.
Sayta believes that stronger measures are needed to combat this threat, including classifying betting and gambling as a criminal offence under the PMLA, using artificial intelligence (AI) to swiftly block offshore betting sites – including mirror sites or sites that frequently change their domain names – and better coordination among authorities.
Players are unaware of the laws they are breaking and are deterred by the high 28% indirect tax imposed by the government on local, legal betting sites. As the “No GST” promise of the illegal, foreign apps seems irresistible, games continue to flourish in the shady, virtual world.
