“Risk of severe penalties the necessary counterweight for crypto gambling in Australia?”

Paul Newson, principal at Senet Advisory, shares his thoughts on possible crypto gambling regulation in Australia amid a profound change in the country’s gaming industry.

Opinion.- In August, the Northern Territory Racing Commission (NTRC) opened a public consultation on the use of cryptocurrencies as a payment and betting option. The development could be the starting point for the use of cryptocurrencies in the Australian casino industry.

Below, Paul Newson, principal at Senet Advisory, tells Focus Gaming News more about this and the changes introduced in Australian states as a result of inquiries into the country’s main casino operators.

A turning point in the Australian gaming industry

In September 2020, Westpac, a major Australian bank, was bludgeoned with a formidable AU$1.3bn penalty for extensive breaches of anti-money laundering laws. It’s a remarkable fine for Australian corporate history and an unmistakable declaration that the integrity of Australia’s financial system was at risk if major banks did not effectively discharge their anti-money laundering obligations. 

With this enforcement action, AUSTRAC’s ascent to the regulatory high table was complete, and AML compliance was elevated as an incredibly consequential matter occupying directors and boardrooms at large, while financial services scrambled towards remediation and feverishly building AML and financial crime capability.

Shuttle forward to May 2022 and switch from financial services to the gambling sector and Crown incurs an AU$80m fine from the Victorian Gambling and Casino Control Commission (VGCCC) for its reportedly clandestine China Union Pay Scheme devised to evade currency restrictions and enable the unlawful transfer of funds. 

Straight out of the gate, the VGCCC enforcement action is significant on many levels, but perhaps no more so than because it broke the spell of nugatory penalties for wrongdoing in the Australian gambling sector.

The penalties previously available to gambling regulators through enforcement mechanisms had been limited and, in my experience, awfully outdated and ineffective. On one view such modest penalties reflected governments’ neglect of increasingly obsolescent gambling regulatory frameworks and a disregard for the risk and complexity of gambling regulation. Perhaps best demonstrated by the impenetrable 2019 NSW Government decision to debilitate its gambling regulator transferring it to its glossy Customer Service Department. 

That these unserious arrangements have since been reversed and a new dedicated casino regulator created, following troubling revelations surfaced by the media about leadership, governance and compliance shortcomings in The Star Sydney casino, underlines government misjudgement. 

The political reluctance to enliven public policy debate and grapple with gambling policy, at least in part to avoid exciting unwanted attention and criticism sans political benefit, has arguably stymied innovation and effective regulation in the gambling sector. But perhaps the media-led “Crown Unmasked” investigation and the associated calamity infecting the casino sector subsequently examined through government inquiries, and the difficult road towards redemption including the risk of near existential fines, is the necessary counterweight to welcome more proactive public policy discourse, and spark innovation.

It’s a circuitous way to get here, but this discussion of political reticence, broken spells and obsolescent regulatory frameworks, is an introduction to the exciting prospect of crypto gambling regulation being contemplated by the Northern Territory Racing Commission (NTRC). 

“Contrary to inertia and lagging regulation in some jurisdictions, it’s tremendously encouraging to see policy leadership from the NTRC exploring stakeholder views and appetite for the introduction of crypto.”

Paul Newson, principal at Senet Advisory.

The targeted stakeholder consultation on the draft “Guidance on the Acceptance of Cryptocurrency for the Striking Of and Paying Out of Wagers” sought feedback by 29 September. It seems the NTRC has recognised emerging licensee interest as well as the increasing adoption and utility of crypto and has evolved its thinking from its earlier heightened caution. 

While online slots and online casino-style games such as poker, as well as online in-play betting, are prohibited in Australia, there is a highly competitive wagering and sports betting market principally licenced with the NTRC. 

While Tabcorp maintains a dominant retail wagering footprint, there is no shortage of online wagering operators, Apps and betting products jockeying to entertain punters.

The Interactive Gambling Act 2001 is directed at controlling the provision of online gambling services to Australians, and while online slots and casino styles games are prohibited, and ACMA does a commendable job regulating this space, the estimates for the size of the offshore market remain alarming, if imprecise. 

It is incredibly difficult to accurately measure the unlicensed market size, and the most cited data sets include Global Betting and Gaming Consultants and H2 Gambling Capital with estimates ranging from circa AU$200m to AU$1.62bn spend going offshore.

The potentially enormous offshore wagering and sports betting leakage is further complicated by the alarming accessibility of unregulated crypto wagering now through offshore wagering operators, sans the consumer safeguards and anti-money laundering monitoring and compliance framework necessary for Australian state and territory wagering operators. 

While I am not a brazen cheerleader for crypto wagering per se, I am an advocate for the merits of sophisticated risk-based regulation and effective industry supervision in preference to prohibition, which inevitably diverts consumption to engorge black market operators and criminality, circumvents consumer protections, exacerbates the risk of harm and litters the community with perverse consequences.

The NTRC is demonstrating regulatory leadership by grappling with this complicated crypto wagering issue. Carefully weighing the merits and risks of incorporating crypto within its regulatory settings and testing industry appetite towards adoption and policy innovation. 

Irrespective of the outcome of the consultation and the next steps for the draft regulatory framework, this is the proactive policy discourse we need.