How the gambling business launders funds – the version of people’s deputies and the SBU will not like the warring country (Photo: slovoidilo.ua)
The state budget annually loses UAH 10 billion in taxes from the gambling business, reports NV. The annual turnover of the gambling market in Ukraine is UAH 180 billion, of which players hide UAH 54 billion through the use of banks (probably in the dark). What does the scheme look like?
The legalized gambling business in 2022 paid UAH 730 million in taxes to the state budget, and UAH 1.166 billion in license fees. In total, about UAH 1.9 billion per year. At first glance, a good amount.
However, if we take the total turnover of the gambling legal and illegal market of UAH 180 billion, then the tax will be only 1.2% of the turnover. Such information was announced during a meeting of the temporary investigative commission of the Verkhovna Rada chaired by People’s Deputy of Ukraine Yaroslav Zheleznyak.
Recall that after 11 years of a moratorium on gambling, in July 2020, the gambling business and the organization of lotteries in Ukraine were legalized with the adoption of the law on state regulation of the organization and conduct of gambling. During the moratorium, illegal gambling business flourished in Ukraine, so the budget received nothing.
According to the SBU, today UAH 54 billion is laundered a year, or 30% of the turnover of the gambling business – this is the gross income of the organizers. 25% or UAH 13 billion of this amount is spent on expenses for organizing a criminal scheme. Another 5% goes to advertising gambling tools. Thus, the net profit of gambling companies is UAH 36 billion per year, or 20% of the total turnover received by the organizers abroad without any taxes and accounting. The state budget annually loses about UAH 10 billion in taxes.
NV Business tells how, according to law enforcement agencies and deputies from the temporary investigation commission of the Verkhovna Rada (VSK), a large-scale deal with tax evasion of Ukrainian gambling market players looks like, who is involved in it, and what consequences await the defendants in the scheme.
Tax evasion scheme – SBU version
According to the analysis of the SBU, which was discussed at the VSK, over the past three months, the volume of the illegal gambling market on the Internet has been about UAH 180 billion a year. For the first time information about the existence of this scheme in law enforcement agencies learned 7 months ago.
How the gambling business does not pay taxes in Ukraine // Infographics: NV
The gross income of the organizers of the gambling market is about 30% of the total revenue. The remaining 70% in the form of winnings are returned to the players’ market. According to the SBU, 30% or UAH 54 billion per year is the delta between deposits and payments from online platforms, withdrawn to the cards of other individuals in the form of ordinary P2P card transfers. These funds are then converted through online cryptocurrency exchange services into a stable digital currency such as USDT.
How the gambling business does not pay taxes in Ukraine: 97% of all 54 billion laundered hryvnias are produced by companies with Ukrainian licenses
As the SBU found out, further this money is exchanged on the black market through operations in telegram bots for other types of needs of the gaming market, in particular: cryptocurrency, cash, withdrawal of funds to non-resident companies.
According to the SBU, large retail chains, gas station operators and other types of companies that are in the habit of paying wages to their employees “in envelopes” are interested in this illegal money, but in the new format of black salaries “online on the card”. So, these enterprises accept these UAH 54 billion, and then give cash in return.
After that, the second exchange pair occurs, when these UAH 54 billion of cash become funds in a non-resident account. But in fact, they are given to farmers – operators of the black grain scheme to buy it from the peasants. In this case of grain trading “for cash”, foreign exchange earnings are not returned to the state, since a non-resident company needs to exchange dollars for cash in Ukraine.
How the gambling business does not pay taxes in Ukraine // Infographics: NV
The last pair of the scheme is carried out outside of Ukraine, where funds are transferred at foreign enterprises between the trader / farmer and the organizer of the illegal gambling business in Ukraine.
How are these 30% distributed in the structure of gross income and the calculation of state losses in this scheme?
According to the SBU, about 4-5% is the full cycle of withdrawing funds before withdrawing them abroad and the corruption component, in the remaining 25% – 5-6% is marketing losses, net profit – 20% of turnover, that is, UAH 36 billion . 18% income tax and 1.5% military tax on this amount is about 7.2 (4% of the market turnover) billion hryvnia per year. 5% of taxes on the “white” advertising turnover — UAH 600 million in taxes, the net profit of banks from white activities can be about 3% of the turnover, income tax from which is UAH 1.08 billion and tax on the withdrawal of dividends at the base rate 6 .5% – approximately UAH 1.83 billion. Thus, the SBU came to the conclusion that the direct losses of the state budget per year amount to UAH 10.5–12 billion (about 5.8% of the market turnover). Or UAH 1 billion per month, UAH 32.8 million per day, UAH 1.36 million per hour, UAH 22.831 per minute.
How the gambling business does not pay taxes in Ukraine // Infographics: NV
How banks are used in this scheme
According to information released during the VR WSC, one of the mechanisms is called “matching”. It is used in the aforementioned transaction, in which 6 banks and employees of the National Bank were involved.
According to a member of the VSK, People’s Deputy Alexei Zhmerenetsky, an online casino player replenishes his account and receives virtual points for playing. At this time, the entered money goes to the server of the payment system in the form of a transfer to a private person. But in fact they are transferred to the seller of the store or the cleaner of the gas station.
The transfer of an online casino client can be delayed as long as necessary in the payment system until the final recipient is determined. So, the “salary in an envelope” of a supermarket or gas station employee is received within a month in installments in the form of transfers from random casino players.
In this case, the banks from whose accounts the players transfer money do not see the final recipient.
Another option used in this scheme is called “miscoding”. Online casino players make deposits, but these payments go to the bank with a code to buy flowers or movies. “Or players transfer bank funds with the correct transaction code 7995, but then the bank, in collusion with gambling companies, sends these funds to fictitious accounts”, explains Zhmerenetsky.
According to him, 9 banks worked in this way in Ukraine, of which 6 banks were systematic. “They serviced the vast majority of all illegal gambling transactions in the country. And one of these banks serves half of all illegal transactions so far. Payment terminals (payboxes) are massively involved in the schemes, at night thousands of fictitious transactions are generated allegedly between cards of individuals. 2 million bank cards and 120 payment terminals are involved in criminal schemes“, he notes.
According to Zhmerenetsky, until September 2022, none of the authorities, in particular the State Financial Monitoring Service, the NBU, “did not notice” these schemes. At the same time, as Deputy Chairman of the Board of the NBU Dmitry Oleinik explained, the regulator does not see these specific operations, but only the general picture, since they are recorded by the subjects of primary financial monitoring, that is, banks, and therefore are on their responsibility. During the VSK, he said that now the regulator is checking 9 banks for participation in this scheme and in the coming days there will be decisions on the application of sanctions to these financial institutions.
How the gambling business does not pay taxes in Ukraine
According to informed sources among people’s deputies of NV Business, the following accounts of the following banks were used in this scheme: Ibox Bank, Concord Bank, KomInBank, Ukrgasbank, Oxy Bank, Unex Bank, MTB, Russian Sens Bank and others. However, Dmitry Oleinik from the NBU noted that there is a possibility that some banks could be used by attackers without their knowledge.
Recall that after the appearance of information about the possible participation of Ukrgasbank in the scheme on the gambling market, its head Andriy Kravets resigned of his own free will. After the last meeting, the post of head of the Supervisory Board of Ibox Bank left Alena Shevtsova.
NV Business has asked all of these banks about their possible participation in this scheme. At the time of writing, the request was not answered by Sens Bank, Ibox, Kominvestbank, Concord Bank. NBU October 1, 2021 imposed Ibox was fined UAH 10 million for violation of financial monitoring, and on January 5, 2023, a fine of UAH 47.7 million was imposed on Sens Bank for a similar violation.
March 3 to Ukrgasbank was also applied sanction in the form of a fine of UAH 64.6 million for violation of “financial monitoring”.
The press service of Ukrgasbank NV Business responded that the violation was due to the provision of support for smaller Ukrainian financial institutions in terms of the volume of operations in accessing the services of international payment systems. “That is, with the support of Ukrgasbank, associated and affiliated participants of international payment systems can provide their customers with services related to the issuance and maintenance of international payment cards, as well as the provision of settlements using payment cards (acquiring)“, the message says.
According to Ukrgasbank, associated and affiliated participants of the MPS independently attracted clients, including those from the gambling industry, and provided them with Internet acquiring services. “Ukrgasbank was unable to fully ensure systemic monitoring of compliance by associated and affiliated participants with the rules of non-cash payments. We note that the imperfection of the system in terms of ensuring internal monitoring and control of compliance by associated and affiliated participants with the rules of cashless payments in work with companies in the gambling industry was probably used by a number of unscrupulous participants in this market“, – admit in the state bank.
Ukrgasbank assures that as soon as they learned about these violations, they immediately blocked the terminals of violating companies from the gambling industry and began to terminate the concluded acquiring agreements. “And also reviewed and significantly strengthened its own system of internal control over non-cash payment transactions.”
The press service of Unex Bank NV Business replied that “there is no miscoding, no matching, no other dubious or frankly illegal operations in the bank and never was.” “We comply with all the requirements of the National Bank, international payment systems and current legislation, and categorically deny participation in the mentioned or any other dubious schemes,” the bank said. “Even at the stage of forming the bank’s strategy, we made a decision on the inadmissibility of cooperation with companies in the gambling segment without any exceptions.”
Unex Bank noted that they can “only assume how, at least theoretically, Unex Bank could get into this list.” “An additional internal investigation did not reveal any signs of a connection between the companies serviced by the bank and the gambling business. Recently, we have received several requests from the services of the National Bank in order to clarify the nature of the transaction flows of the two companies that used the Internet acquiring services of Unex Bank. Both are active participants in the market for regular p2p transfers (from card to card) and provide their services on the open market to all citizens both on their own websites and through built-in iframe modules. We do not know what exactly caused the interest of the regulator’s services in the activities of these companies and cannot claim that it is related to the investigation of the Temporary Commission of Inquiry on Economic Security,” the bank said.
At the same time, Unex Bank noted that all the necessary procedures within the framework of KYC (know your client), financial monitoring, etc. were carried out in full compliance with applicable law to establish business relations. “None of the mentioned companies directly or indirectly revealed links with companies in the gambling segment, cooperation with which is unacceptable for us and is prohibited by the strategy of Unex Bank. We also draw your attention to the fact that in early February, the bank decided to suspend cooperation with both companies due to a significant change in the usual pattern of transaction flow in January,” the bank noted.
Aleksey Stolyarov, Chairman of the Board of Oksi Bank, also told NV Business that their bank “does not have any relations with participants in the gambling business in the performance of miscoding and matching operations.”
The press service of MTB NV Business noted that the volume of transactions that appear in criminal cases and the huge number of illegal gambling sites force each bank to pay attention to this.
“Since the beginning of this year, the NBU, in order to prevent and counteract miscoding involving operators and participants in card systems and to introduce a mechanism to combat miscoding, which is based on the principle of mutual control of transfers by all participants in the transfer, several times drew the attention of all banks and financial institutions to the current situation. MTB Bank paid serious attention to this and warned its customers. The point is that miscoding is not something that can be done and then easily hidden. The technology itself, in addition to distorting the essence and purpose of the financial transaction of clients, provides for the presence of additional technology for informing and controlling the transfer of funds to the “inappropriate recipient,” the bank explains. In the first case, according to MTB, you need your own processing center (in their case, this is the PC of JSC FUIB), and in the second case, assistance in sending money from a fictitious client to this “improper recipient”“.
“In addition, according to internal procedures and rules, all our clients (merchants) are additionally re-checked by JSC FUIB, because they, together with us, are jointly and severally liable to the regulator and all regulatory authorities. Thus, in addition to complying with internal rules, the Bank has an external controller, the principal represented by JSC FUIB, which also constantly monitors the activities of the Bank’s clients (merchants), observing all the requirements of Ukrainian legislation and the rules of international payment systems”, — say in MTB.
MTB noted that matching is a more complex operation because it can only be traced at the “super-banking level”, when the whole picture, the entire chain of the payment transaction is viewed.
“Most often, the initiator of the transaction and the recipient are served by different banks and / or payment service providers, and all of them must comply with the requirements of the law, namely the law “On payment services” and “On counteraction …”. The bank provides a2c technical protocols (account-to-card – payments to customer cards from the company’s account – ed.) to its customers for their use in the PTCS network (self-service software and hardware complex – ed.), but, unfortunately, there is no technical possibility be near each device around the clock in order to check the physical presence of the initiator of the transfer. For this, the regulator has provided certain limits on the amounts, and operators bear the same responsibility as banks, because they are also SPFMs (subjects of primary financial monitoring – ed.). Received registries from pawnshops and financial companies that credit money to cards in the form of a financial loan have a c2a protocol from the bank, through which the amount of money is credited at the request of the recipient to his current account in any bank using the details of an electronic payment instrument. It’s hard for banks to tell if it was really the borrower of that pawnshop or financial company, or the store clerk, or the gas station operator. After all, these issues are more important for issuing banks (i.e., banks that serve these individuals), because they, according to CDD (customer due diligence – ed.) programs, regularly check them and classify them into risk categories within their risk profile. . Therefore, it would be wrong to say that we are 100 percent sure that there is no matching, but if each payment service provider acts in accordance with the law, then the entire chain will never lead to matching”, — note in MTB Bank.
According to the SBU, since the analysis of tax evasion schemes by the gambling business, the situation has changed for the better since October last year. This became possible due to the active involvement in the NBU investigation after the change of leadership. Now about 50% of the gambling market operates transparently, the remaining 50% work through one bank, against which measures are being taken as part of a number of criminal proceedings.
What’s next
At the VSK, it was reported that the SBU and the Bureau of Economic Security of Ukraine opened 45 criminal cases to counter this scheme. Among the possible suspects are employees of the National Bank, banks and fintech companies that provided software for conducting relevant operations.
According to the SBU, at present, this case is under strong pressure on the pre-trial investigation, procedural management and operational support, the regulator and others, because it is possible to expose the illegal leaching of about $1.8 billion a year from Ukraine during the war.
According to the chairman of the VSK, Yaroslav Zheleznyak, there will also be appeals to NABU and NACP on this case.
And that is not all
Another unresolved problem, which, in particular, contributes to the appearance of the voiced scheme is the multitude of illegal online casinos. The Gambling Regulatory Commission handed over to Internet operators and law enforcement agencies 1,789 websites of illegal gambling sites, 55 illegal lottery sites and a list of 606 illegal gambling establishments, of which more than 300 establishments are located in Kiev alone. The Commission itself does not have the authority to conduct test purchases in order to document violators, it asks legislators to give it this opportunity.
According to Zhmerenetsky, most of them do not have the ability to accept payments. “But we immediately checked the work of the most odious Russian 1XBET on VSK. I was able to easily make a payment through some European payment system, “fastened” to the site. Authorities claim that only the National Security and Defense Council can block websites. 240 companies are under consideration by the National Security and Defense Council. However, the authorities also argue that this blocking will not work, because new copies of the sites will be created instantly,” he says.
And, according to the people’s deputy, we can’t seem to be able to block transfers from Ukrainian banks to international payment systems through which violators work, because this means a violation of the rights of Ukrainians abroad who can use these systems.
Petr Shevchenko
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