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Legal Sports Betting Is Leading to Serious Fraud Risks

Posted  May 31, 2019

With the NBA finals upon us, you may be thinking putting down some cash on one team or the other. Thanks to a Supreme Court decision last year, your state may even allow such bets. And no wonder. Illegal sports betting is a gigantic industry—estimated at $150 billion a year, it eclipses the $5 billion legally gambled in Nevada. Much of that money goes into the hands of mafia interests, who increasingly use online gambling sites to launder ill-gotten gains. Yet despite the unwieldly nature of online sports betting, states cannot resist trying to divert some of that illegal money into legal channels.

That’s certainly the case for Oregon, which depends on its lottery as its second biggest revenue source. Oregon just awarded a contract for sports and mobile services to SBTech, a sports betting website registered in Malta. According to a protest filed by a competitor company who lost out on the contract, SBTech is a questionable operation without sufficient controls to protect against illegal activity. Oregon went so far as to send state troopers to investigate in SBTech’s Bulgarian offices—far outside of the Beaver State’s normal law enforcement purview.

SBTech’s legitimacy aside, more states are likely to find themselves in a similar position to Oregon. The companies running the massive online sports betting market are almost all overseas, almost all registered in tax havens, and almost all have indicators that they may be involved in shady operations. States will have to make their own decisions of what kind of due diligence is necessary to assure themselves that any partner company is not fraudulently avoiding taxes, violating securities laws, or tied to criminal operations. These investigations will be hard and will involve more state trooper trips to far-flung places. Given the high fraud risk, states need to ensure themselves that they are getting the business partners they need to make sports betting work. And if they aren’t, sports betting companies should know that fraudulently violating their state contracts could give rise to a state false claims action.

If you have any information about fraud in sports betting, please contact us.


Tagged in: Abusive Tax Shelters, FCA State, Financial and Investment Fraud,