Dealing Cards Face Down: How Illegal Acquiring is Flourishing in Ukraine

Dealing Cards Face Down: How Illegal Acquiring is Flourishing in Ukraine

And why the NBU and law enforcement agencies do not take measures to stop money laundering

Цей матеріал також доступний українською Этот материал также доступен на русском языке
Dealing Cards Face Down: How Illegal Acquiring is Flourishing in Ukraine

In a previous article on how online casinos workthe Mind described the operations of one of the biggest players in the market, the Leo payment system. We focused on how the money from payment terminals and cell phone accounts are transferred to fake companies to replenish virtual accounts at online casinos.

After the publication, the Mind came under unprecedented pressurencluding an information attack, puff-pieces on dubious websites, threats to journalists and the Mind partners, as well as bribery attempts. Also, the persons featured in the article and iBox bank filed lawsuits worth millions of hryvnias against the Mind.

Read more about their campaign here: How to fight online vilification: what the case of the attack on Mind taught us

During the previous investigation, the author came across many shady schemes to write off funds from bank cards related to miscoding.

Miscoding is a special type of fraud in the bank acquiring network, which implies the substitution of the payment destination.

In addition to illegal casinos and bookmakers, miscoding is sometimes used by cryptocurrency exchangers and ordinary online fraudsters to scam consumers directly.

Гра втемну: чому в Україні процвітає чорний еквайринг

Why online casinos and bookmakers actively use “black” acquiring that involves a miscoding scheme? For illegal gambling businesses, amidst a legal ban on the activities, it is vital to ensure the receipt of bets from bank cards and topping up gambling accounts.

How does it work? To accept payments on the Internet, any company can set up a special form on its website. This is done with the help of bank services such as Liqpay, or intermediary services like 4bill, Ipay, Wayforpay, etc.

But according to the rules of international payment systems (IPS) Visa and MasterCard, banks have to carefully check the history and profile of the company and its site to accept payments. And only after receiving permission from the bank authorities, the acquiring terminal with the appropriate MCC code is registered in the IPS.

Only those companies, which have the appropriate permissions for gambling business, can get an acquiring terminal with MCC 7995 Betting / Casino Gambling code. Usually, it is strictly regulated and checked by Visa and MasterCard payment systems and the acquirer bank.

Please note that until recently, the activities of casinos in Ukraine were illegal, but now they are licensed. That is, no legal entity can accept funds with the purpose of "casino account replenishment" without an appropriate license. This is where the organizers of illegal lotteries and casinos can benefit from "inconsiderate" banks and payment systems, which "accidentally" provide "black" acquiring services to dealers.

How do illegal online casinos and bookmakers evade this procedure? Everything happens in the following way: the payment acquiring terminals for gambling are registered in the international payment systems Visa and MasterCard to a fake company and fake site with a different purpose of payment, for example, "clothes", "video games" or "public utilities". The terminals are then used in the card payment forms on the pages of illegal online casinos, bookmakers, and cryptocurrency exchanges.

Thus, thanks to miscoding the dealers manage to fraudulently pass the initial check of financial monitoring conducted by the bank where their terminal is registered.

This shadow scheme can be considered a classic example of money laundering, i.e. legalization of funds obtained illegally, which is a criminal offense under the Criminal Code of Ukraine.

A tempting offer

The Cabinet of Ministers' ban doesn't prevent illegal casinos from running aggressive advertising campaigns, which directly points to the incompetence of the legal system of the country. For example, the commercials of Joker casino with Honored Artist of Ukraine Oleg Skripka (surrounded by toilet ducks) can be found everywhere, including TV and the Internet.

These "artworks" are seen even by underage viewers, who are easily drawn into a gambling addiction,  joining the ranks of addicts.

When preparing a previous article, the Mind’s author registered on the site of online casinos cosmolot24.com.ua. And only during the last three months about 50 "seductive" letters with different offers from this brand were received to the e-mail address provided during registration.

The company tried hard to get the addressee to spend money on the game, sending information about tournaments, promotions, and "a great opportunity to meet 2021 in a good profit".

In October, the Mind found out, that when you replenish your cosmolot24.com.ua account, the funds are deposited through FC Leogaming Pay LLC to the account of Digispace LLC, which did not have a license to run a casino. And on February 2 this year, a license under the brand Cosmolot was obtained by another company, Spaceiks LLC, the owner of which is Sergiy Potapov. There is no additional information about its activities and background on the Internet. By the time this article was published, the editors were unable to get in touch with him.

And then the question arises: if the first license for online casinos in Ukraine was issued in February 2021, what was the legal basis to provide a terminal to replenish accounts in companies such as Cosmolot, Leon.bet, Golden Cup, and others? 

Money down the drain

To track the algorithm of online payments at illegal casinos, the Mind conducted another journalistic experiment. The goal was simple – to analyze who and how collects funds for online casinos and bookmakers.

On the cosmolot24.com.ua website, we did not find any details for replenishing a gambling account, such as recipient, current account number, the name of the beneficiary bank, MFO, etc.

And when we asked for clarification from the operator of the cosmolot24.com.ua online support, we learned that it is impossible to replenish the account through the bank's cashier: all payments are made only through the website. Therefore, not a single gambler sees the details of the recharge, that is, deposits his or her money blindly.

Thus, the only chance to find out where the money goes is to track the information on their withdrawal from the card. But as it turned out during the experiment, different banks provide different volumes of information. So the author opened bank accounts in six major Ukrainian retail banks: PrivatBank, Oshchadbank, TAScombank, Monobank, FUIB, and Alfa Bank.

We selected eight gambling sites for replenishment: Golden Cup, Cosmolot (cosmolot24.com.ua) (at the time of publication, Spaceiks LLC, the owner of Cosmolot TM, had received a license to organize gambling), pin-up, melbet, 1xbet, olimp, leon, gg.bet.

Dealing Cards Face Down: How Black Acquiring is Flourishing in Ukraine
The fact that the money from the bank card was credited to the online casino's gambling account is evidenced by the message to the e-mail address. No details of the transaction are given
Як шахраї заволодівають вашим коштами, або чому в Україні процвітає чорний еквайрінг

As it turned out, this situation seems suspicious not only to the Mind. Accounts on the Gold Cup and Leon sites are currently impossible to replenish with a Visa card from PrivatBank. However, we were able to replenish the account with Visa cards from Monobank and TAScombank.

We contacted the support service to find out why it is impossible to recharge your account with cards from PrivatBank. "Recharging your account with cards of Visa payment system is suspended on our site", the support service of Leon company answered laconically. "We can recommend you to use other payment methods offered on our website or a card of another payment system, such as MasterCard"..

Dealing Cards Face Down: How Black Acquiring is Flourishing in Ukraine
Screenshot of correspondence with Leon and Gold Cup online support

The online consultant Roman from the site Gold Cup answered almost the same way: "Unfortunately, now there are some technical difficulties with recharging with Visa. You can use Master Card or alternative recharge methods, such as Apple Pay or Kyivstar.

Visa payment system actively monitors the network of its acquiring terminals for fraudulent MCC, because banks face significant fines for miscoding. The same, according to its own rules, should be done by MasterCard.

Online forums are replete with complaints from users of the Gold Cup and Leon websites. And it is likely that their anger does not end with indignation in the online space, but continues in the branches of the banks that issued the cards. It looks like the blocked terminals are the result of customer complaints.

A casino disguised as a utility company

We scrutinized the contents of the receipts issued by the bank after we topped up our gaming accounts at the online casino. But these documents were extremely uninformative: they usually listed only the amount paid, the date, time, and order number.

Dealing Cards Face Down: How Black Acquiring is Flourishing in Ukraine
The receipts we received after recharging gambling accounts at online casinos do not indicate that the payment was specifically for gambling

To get more details about these payments, we sent inquiries to all the banks whose bank cards were used to fund the gambling accounts on the sites.

We had to wait more than a month for an answer. Having analyzed the data received we can see that only four out of 25 payments indicate the true purpose of payment – gambling. In all other cases, gamblers unknowingly pay for purchases in shopping malls, participate in state lotteries and pay for housing and utility services.

Assignment of payments made at illegal online casino sites

PrivatBank

OshchadBank

Monobank

Alpha Bank

TasComBank

Golden Gup

Gambling

Trade and services

Trade and services

Video gaming clubs

State lotteries

1xbet

Utility services/ Video gaming clubs

Casino

State lotteries

Video gaming clubs

Video gaming clubs

cosmolot24.com.ua

Video gaming clubs

Retail chain

Video gaming clubs

Video gaming clubs

State lotteries

Leon

Video gaming clubs

Gambling

payment by Visa card is prohibited

Gambling

payment by Visa card is prohibited

Pin-up.casino

Video gaming clubs

Video gaming clubs

Gg.bet

Video gaming clubs

Video gaming clubs

Melbet

Video gaming clubs

payment by Visa card is prohibited

Olimp

Video gaming clubs

Video gaming clubs

*Data provided by card-issuing banks from which funds were debited in favor of online casinos cosmolot24.com.ua, Golden Cup, Leon and 1xbet

According to the rules of VISA and MasterCard international payment systems, acquiring transactions for casinos and betting should be carried out by merchants with the MCC code 7995.

The MCC code reflects the type of activity of the company that receives this payment. If the designated code is 7995 ("gambling") and the recipient company does not have a license for this type of activity. the bank should automatically block the transaction. But illegal casinos assign a different MCC code to transactions. For example, 7994 – video games.

Dealing Cards Face Down: How Black Acquiring is Flourishing in Ukraine
Replenishment of account in the online casino was recognized by PrivatBank as "payment for utility services": MCC code 4900 corresponds to this category of financial transactions

Acquiring bank has to identify all such transactions, and the card-issuing bank – to know the nature of these operations. Substitution and use of fake MCC codes is a gross violation of the IPS rules.

That is why the author went to the PrivatBank branch as a client with a request to receive all details of her payments to illegal online casinos. They were genuinely surprised there:

- I see that you paid utilities," said Natalia Lapa, PrivatBank's corporate business manager.
- I did not pay utilities. I replenished my account at the online casino. Show me the name of the acquiring bank on this receipt.
- Why do you need this information? – The bank representative was surprised.
- I am a customer and I want to know where my money went.
- You'd better go to the point of sale. This is online acquiring, the merchant will not be listed there.
- The issuing bank should know the nature of these transactions.

- And the nature of transactions is...? – The question sounded like a sneer.

"We are checking the information."

Law enforcement agencies in other countries use test purchases as one of the mechanisms for detecting such violations. They can be used to compile a list of organizers of illegal online casinos and block the accounts of the owners of these companies.

In Ukraine, the State Service of Financial Monitoring and the Ministry of Finance as well as payment systems and banks carry out verification of suspicious transactions. By the law, the Government monitors the financial operations of gambling operators. But we are talking about legal casinos.

Ukrainian banks and payment systems shall not allow payments in favor of those entities conducting gambling activity without license or rendering services on access to such gambling. When the author opened accounts with Ukrainian banks, managers assured her that all payments were transparent. "Payment details will be provided regardless of how the payment was made: through the software or the bank's cash desk," assured Bohdan Kovsh, chief specialist of branch No. 20 of FUIB bank in Kyiv.

But this is in theory..

If this was the case in practice, Leon, Gold Cup, 1xbet, and others would not receive a penny from the author of this article, because none of these online resources have a valid license for gambling in Ukraine.

The Mind urned to the banks, which issued the cards, and asked them to check and block payments from bank cards to the acquiring terminals identified during the journalistic experiment, due to the presence of signs of miscoding.

"The information given in the statement is taken into account and will be used within the powers defined by law," the press service of the National Bank responded to our appeal about possible money laundering.

And TAScombank in its written response assured that it had checked the information about the illegal casino miscoding and promised to take measures, which Ukrainian laws and IPS rules allow.

Dealing Cards Face Down: How Black Acquiring is Flourishing in Ukraine
Bank managers were very surprised when the author asked for detailed information about the payment to illegal casinos

But not all banks are in a hurry to conduct such checks. For example, when we sent a similar request to PrivatBank, they said that it was not within their competence.

"We can only block your cards so that these services do not write off funds from them. And contact the bank to reissue the cards," – manager of PrivatBank Alyona said during the online communication. And then she added: customers themselves understand where the transaction is carried out. "You can pass your application to the police to block such sites in Ukraine," she said.

The cyber police should also investigate crimes of illegal activities of online casinos. We tried to send a statement about online miscoding. But on the cyber police site, the applicant must necessarily indicate the details of the recipient of funds, which are just not available on the sites of online casinos.

Dealing Cards Face Down: How Black Acquiring is Flourishing in Ukraine
Screenshot from the cyber police website. It is mandatory to specify the recipient's details in the statement, but such information is not available for online gamblers

Unfortunately, the Ukrainian cyber police does not use the practice of test purchases to solve crimes. And for some reason, the NBU financial monitoring does not hurry to classify such operations as legalization and laundering of dirty money, although from the law perspective these operations are exactly that.

Another option, which was offered by the state-owned PrivatBank, is to appeal against the transaction of funds transfer to the account of an illegal casino: "The bank will ask the recipient to confirm the fact of providing you the goods/services; if the confirmation is not provided, you will get the money back. This procedure takes up to 120 days", – explained the bank manager Alyona. 

At the same time online support service warned: if the bank loses the arbitration process of appealing the transaction in the IPS initiated by the client, the client must pay the bank a fine of $500. And also reimburse the bank for additional costs incurred in the process of appealing the transaction.

Nothing sacred but money

Of course, illegal businesses and crooks can't charge players' bank cards without the acquiring bank's participation. After all, the acquirer bank is the one which electronic requests are submitted to all systems, and whose permission is needed to conduct a card debit transaction. Only after the acquiring bank assesses the riskiness of the transaction, it sends an electronic debit request to the issuing bank (which issued the client's card) through the MasterCard or Visa payment systems.

If the issuing bank and payment system give their approval to debit the card, the acquiring bank transfers non-cash funds to the accounts of the company to which the online acquiring terminal is registered.

According to the participants of the market interviewed by the Mind, the tariff of "black" acquiring services for illegal businesses varies from 10% to 15% of the payment, which is distributed between all involved parties of the scheme.

On the website of the online casino Olymp (actively advertised in the occupied regions of Donbas, Crimea, and the Russian Federation) users with a Ukrainian cell phone number cannot be registered. We used a Russian mobile operator's number via an Internet site that allows receiving SMS to anonymous numbers.

But the Ukrainian banks – PrivatBank and Monobank – accepted the payment without problems, and the acquirer bank "did not see" the miscoding scheme used by these resources.

Having analyzed data from receipts and banks' responses to the Mind's requests for information about details of online casino deposits, we saw that the Golden Cup, Leon, 1xbet, Pin-up.casino, Gg.bet, Melbet, Olimp and cosmolot24 .com.ua use acquiring services of iBox Bank or Concord Bank. Also once the payment in favor of the Golden Cup through Monobank was processed by an unknown Russian bank with acquiring ID 428175.

It should be recalled that 28 out of 32 transactions conducted on illegal online casino sites deceived the bank and called the replenishment of the gambling account "payment for housing and utilities", "video game club" and "state lottery".

It turns out that neither iBox Bank nor Concord Bank noticed this and gave the issuing banks and payment systems untruthful information with a false MCC code.

But replenishing with a card is not the only way to replenish. For example, Cosmolot also actively encourages players to recharge their game accounts through iBox self-service terminals owned by iBox bank.

Dealing Cards Face Down: How Black Acquiring is Flourishing in Ukraine
Screenshot of a letter sent by the administration of the then illegal online casino cosmolot24.com.ua to the player's email address

Let us remind you: in the first part of our investigation, we have already replenished 1xbet and Cosmolot accounts using the iBox self-service terminal. Everything worked out with flying colors: the money disappeared in the machine and appeared on the gaming account.

Dealing Cards Face Down: How Black Acquiring is Flourishing in Ukraine
1xbet gambling account can be replenished through self-service terminals, which can be found on every corner

The Mind has sent requests for information to iBox Bank JSC and Concorde JSCB about the use of miscoding by online casino sites. At the time of publication, the editorial staff has not received answers to the journalist's questions, but we are ready to add the banks' comments to the material at any moment.

At the same time Acting Chairman of the Board of iBox Bank Svetlana Golyak, ignoring the question of why the bank does not react to the facts of miscoding used by sites of illegal online casinos, interpreted the request as fraudulent actions of the Mind. And she threatened criminal liability for publishing information about the bank. "The content of the said letter will be disseminated in journalistic circles and reflected in professional and unbiased media to prevent similar fraudulent actions on your behalf against individuals and legal entities in the future," she added in the letter.

In turn, the Mind interprets such actions of the bank as pressure on the journalist and the media. Media lawyers give the same opinion: "Not all information possessed by the bank is a bank secret. The requested information is not a bank secret. Such statements in response to a request for access to public information is pressure on a journalist", – said Oksana Maksimeniuk, a legal expert for media of the Institute of the Regional Press Development.

Dealing Cards Face Down: How Black Acquiring is Flourishing in Ukraine
Source: NBU

According to the Mind, at the end of last year, the financial monitoring of the NBU audited the activities of iBox Bank and Leo IPS. Both companies have a common shareholder, Alena Shevtsova, who sued the Mind with a claim for moral compensation for the publication of an article about the activities of online casinos in Ukraine.

But despite the checks, the public outcry, and the illegal nature of the activities of operators, all gambling sites where we tried to replenish the accounts, continue to operate and conduct withdrawals from players' bank cards with the help of acquiring services of Ukrainian banks.

No refunds

Apart from tax evasion, such companies do not hesitate to mislead consumers: the gamblers (online casino customers) have no guarantee of getting their winnings. Everything depends on the goodwill of the representatives of the "gambling business".

Having analyzed the details of payments, the author decided to withdraw her money from the gambling accounts. And as a result, she lost almost the entire amount: out of 2,800 hryvnias invested in the replenishment of gaming accounts, she managed to return only 300 hryvnias. Such payment was made to Monobank card from FUIB Money Transfer belonging to FUIB bank. 

Even in Monobank, they do not know who made this transaction: "The payment was made through a third-party Money Transfer service. There is no receipt for this service" Monobank's chat bot responded to a request for detailed information about this transaction.

Dealing Cards Face Down: How Black Acquiring is Flourishing in Ukraine
Screenshot of correspondence with the Monobank bot program

The Mind sent a request to FUIB bank (FUIB) about the initiator of the transfer and will update the material with the answer as soon as it is received.

But the problems the player may encounter are not limited only to the lack of receipts and non-return of funds.

For several hours after the attempt to withdraw her money, the author could not enter her personal account on the website of the online casino Gold Cup.

Dealing Cards Face Down: How Black Acquiring is Flourishing in Ukraine
Gold Cup embezzled money from the gaming account

After numerous attempts to enter the username and password, the author contacted the support team of the site:

- Your account has been blocked by the administration. The issue of unblocking your account has been passed on," wrote Artem from the Golden Cup support team.
- Why was my account blocked?

- This is a decision of the administration, and more precise information will be reported to you. The processing time of your request is up to three working days.

Correspondence with the support service of the Gold Cup website

The next day of the email we got to know that the administration of the online casino Gold Cup blocked the account together with the funds on it without the right to restore, suspecting the author of ... fraud (!).

"The operator has the right, without prior notice, to deny users access to the site and block their accounts if they are suspected of fraudulent activity," said a letter from the email address support@goldcup.ua. – In such cases, the operator is not responsible for refunds and reimbursements of funds available on the balances of such users."

Dealing Cards Face Down: How Black Acquiring is Flourishing in Ukraine
Screenshot of a letter from the administration of the illegal online casino Gold Cup after an appeal about the inability to enter the personal account on the goldcup.ua website

We also tried to withdraw funds from the personal account of the Leon online casino to the bank account of Alfa Bank, PrivatBank, and Monobank. On its withdrawal page, the site promised to credit the money within three days. But the next day the "Leon team" sent an email and reported that the withdrawal request was canceled.

Arguing such a decision, the site referred to internal rules: "When withdrawing funds from the user's account, we have the right to withhold a commission of 5% of the deposits, in case there is no gaming activity on the account or it is found to be insufficient".

Dealing Cards Face Down: How Black Acquiring is Flourishing in Ukraine
Screenshot from Leon online casino site

The online casino hinted ambiguously: bet or pay a fine. But 40 minutes later another letter arrived, with clarifications: you have to bet with all the money in your account. Although this requirement is not supported by any rule of the site: "You must use all deposited funds for the betting before requesting a payout. You must place a bet or a series of bets for a total of UAH 400".

Besides, the site put forward several other requirements, stressing that even after all the instructions have been followed, they may ask the player for additional documents: "To be able to withdraw funds from the gambling account you need to go through the verification procedure. Write today's date and the word LEON on a piece of paper, put the sheet next to your identification document, and take a picture of the document along with the letter. The requested documents should be sent through the special form on the website https://ru/7221fdb.com".

Dealing Cards Face Down: How Black Acquiring is Flourishing in Ukraine
The illegal in Ukraine online casino Leon is registered in this building at 1 Mapp Street, Belize City, Belize. The company International Corporate Services, which is engaged in the registration of international companies, actually operates here

The illegal in Ukraine online casino Leon is registered in this building at 1 Mapp Street, Belize City, Belize. The company International Corporate Services, which is engaged in the registration of international companies, actually operates here

It should be recalled that the brand Leon belongs to an offshore company from Belize, Leon International Limited, whose owner is unknown. So the author decided not to risk his personal data and not to send copies of her documents to unknown people.

The owners of another company, 1xBet, which is actively advertised in Ukraine, are on the international wanted list for organizing illegal gambling. The beneficiaries of 1xBet, according to the Investigative Committee of the Russian Federation, are Russian and Cypriot citizens Roman Semiokhin, Dimtri Kazorin (founder of LLC Bookmaker Pub in Russia), and Sergey Karshkov.

Гра втемну: як в Україні процвітає чорний еквайринг

In Russia, they are accused of receiving 65 billion rubles (about 25 billion hryvnias) in illegal income during five years of activity on the territory of the Russian Federation. In Ukraine, however, this company has no official representative office, which does not prevent it from accepting payments from players and running aggressive advertising campaigns.

All other sites tested in preparation for this article are also anonymously registered abroad, mostly on Cloudflare servers in Germany or the United States.

Ultimately, we have seen from our own experience that no gambler has any guarantee of getting their money back (less than 20% of returns during the experiment) deposited on the balance of illegal online casinos and bookmakers. It's a one-way trip.

No illegal business, or money laundering scheme, in Ukraine exists in a vacuum. It requires circular blindness, or a conspiracy of all participants in the chain: payment systems, banks, regulators, and law enforcement. Unfortunately, the more systemic this business looks, the more likely it is that a large number of individuals are involved.

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