India’s Betting App Ban and Money Laundering Risks

Context

India’s recent legislative move to ban online betting and real-money gaming apps under the Promotion and Regulation of Online Gaming Bill, 2025 marks a significant shift in digital gaming regulation. While the government has justified the ban based on concerns over psychological distress, financial loss, money laundering, terror financing, and threats to national security, this move may ironically worsen the problem of money laundering rather than curtail it.

Background: The Online Gaming Ban in India

The Indian Parliament passed a comprehensive law prohibiting online real-money betting and gaming, including popular platforms like fantasy sports apps, poker, and card games. This law criminalizes the offering, promotion, and facilitation of online money gaming, imposing jail terms up to three years and fines reaching ₹1 crore on offending companies and individuals. Influencers promoting these platforms also face penalties and imprisonment. The legislation additionally bars banks and financial institutions from facilitating monetary transactions related to these games, aiming to cut off financial channels to these platforms.

Government’s Rationale: Money Laundering and National Security

• The government has highlighted the link between real-money gaming services and illegal activities like money laundering and terror financing. Online gaming platforms operate in a fast-expanding digital ecosystem with millions of users, where unlawful actors exploit regulatory gaps to launder illicit money through shell companies, crypto wallets, and digital transactions. Cases have surfaced involving fraudulent schemes involving thousands of crores of rupees flowing untraceably through these apps.
• Besides financial crimes, such platforms have allegedly been used by terror groups for covert communications and fund transfers, raising grave national security concerns. The government sees banning real-money online gaming as crucial for stemming such threats.

The Paradox: How the Ban Could Worsen Money Laundering

• Shift to Offshore and Unregulated Markets: The outright ban on legal domestic betting platforms is expected to drive transactions offshore, where regulatory oversight is minimal or non-existent. India’s previously large online gaming market, worth billions and including legitimate, tax-paying entities, may now see its users and transactions migrate to illegal foreign operators. This offshore betting market is estimated to be two to three times larger than the domestic industry and is already associated with large-scale tax evasion and money laundering. Without domestic channels, it becomes harder to trace or regulate financial flows, escalating the risk of money laundering.
• Increased Use of Cryptocurrency and Anonymizing Technologies: Illegal betting operators are known to use cryptocurrencies to facilitate instant, cross-border, and anonymous transactions which evade traditional banking scrutiny. The ban will likely accelerate the adoption of crypto-based betting channels and privacy-enhancing technologies, making it more challenging for law enforcement agencies to track suspicious financial activity and bridging gaps in the existing anti-money laundering framework.
• Reduced Transparency and Data Availability: Legal betting platforms currently maintain transaction records and cooperate with authorities when required. Ban-induced exit of these platforms will reduce institutional transparency in the gaming ecosystem, pushing betting operations underground. This obscuration diminishes the effectiveness of financial intelligence units and enforcement agencies in detecting illicit transactions and preventing layered laundering schemes.

Socio-Economic Implications of the Ban

• Impact on Employment and Economy: The online gaming industry was a legitimate source of employment and revenue generation, contributing to GST revenues and Foreign Direct Investment. The ban threatens thousands of jobs directly related to the sector—developers, marketers, payment processors, and influencers—potentially pushing them into informal or riskier economic activities.
• Effect on Youth and Consumers: While the government cites the mental health impact and reports of suicides linked to online gaming addiction as reasons for the ban, pushing users to underground or unregulated platforms exacerbates consumer risks, including exposure to fraud, unregulated betting odds, and lack of grievance redressal. The social harms associated with financial distress may therefore intensify rather than diminish.

Regulatory and Enforcement Challenges

• India’s regulatory framework for online gaming is currently fragmented, with outdated laws like the Public Gambling Act, 1867 insufficient to address digital platforms. The ban attempts to fill this gap but does not accompany sufficient regulatory architecture and enforcement mechanisms to manage an underground offshore market.
• While the new law provides powers for searches and digital surveillance without warrants, concerns around privacy and civil liberties arise due to broad enforcement provisions. Moreover, without robust cross-border cooperation to regulate offshore operators, law enforcement faces significant challenges in curbing illegal economies born out of the ban.

Conclusion

India’s ban on betting apps and real-money gaming, motivated by critical concerns around money laundering, psychological harm, and national security, reflects a decisive step to protect public interest. However, evidence and expert opinions indicate that the ban may unintentionally worsen money laundering by driving betting activities offshore, pushing them into crypto spaces, and diminishing transparency with domestic regulatory systems.

Source: livemint

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