Representative image of a person playing online games.
Credit: Reuters Photo
Bengaluru: The Indian online gaming sector faces a significant threat from money laundering, necessitating urgent and definite steps to ensure its sustained success and also protect India’s digital economy, urged a report by Digital India Foundation.
Money laundering is often done by using illicit funds to purchase in-game currency/items or to play a game. Alternatively, they may create user accounts using stolen credit cards or hacked credentials to make these transactions.
Once funds are placed in the online gaming ecosystem, the beneficiaries engage in countless transactions, creating a web of money transfers to and from entities registered around the world. In doing so, the launderer obscures the audit trail.
Finally, the laundered proceeds are reintroduced into the economy. This is done by using the in-game currency to purchase other items that can then be sold for real money.
"The essential measures to be taken are a dedicated task force for illegal operators and the creation of a whitelist of legal operators, combating misleading advertisements, and incorporating principles of financial integrity and international cooperation among others, " the report recommended.
" Other critical measures should include public awareness and education so that users can make informed decisions and avoid platforms that engage in deceptive practices," it added.
Advocating a comprehensive assessment of in-game assets (virtual items, currency, coins, tokens or digital content), the report stated that financial institutions should deploy AI/ML-driven detection models, build a strong investigative team and take decisive actions to combat money mules.
One of the key mechanisms of money laundering is India’s illegal gambling and betting market which has witnessed deposits exceeding $100 billion annually, facilitated by sophisticated methods.
Between financial year 2020 and FY23, the Indian online gaming segment reported a CAGR of 28%, reaching a market size of Rs 16,428 crore in FY23 and is expected to reach Rs 33,243 crore by FY28. The contribution of online gaming to GDP saw a CAGR of 27.5% from 2019 to 2022.
The Indian Real Money Gaming (RMG) sector, part of the online gaming ecosystem, is contributing 83-84% of its revenue. As per the report, this sector’s revenue is projected to reach $7.5 billion within the next five years.
“With over 400 homegrown start-ups and 100 million daily online gamers, including 90 million who pay to play, the sector employs directly and indirectly approximately one lakh individuals, with the potential to create 250,000 jobs by 2025,” said Arvind Gupta, head and co-founder of Digital India Foundation.
"Despite regulatory efforts to curb illegal operators, many platforms circumvent restrictions through mirror sites, illegal branding, and disproportionate promises, highlighting the pressing need for stronger oversight and enforcement, " he added.