Azerbaijan cracks down on digital gambling scams From casinos to cybercrime

Ludomania (“gambling addiction”) — a pathological compulsion to gamble — is recognised by the UN as a serious modern problem, posing significant financial and social risks to society. Unfortunately, given the widespread accessibility of online casinos and networked betting platforms, such threats are relevant even in countries where all forms of gambling are legally prohibited.

In recent years, Azerbaijan has taken steps to tighten control in this area, targeting organisers of online games. For instance, in November, a trial began against a criminal group that earned 171 million manats ($100 million) from online gambling. Just recently, the Central Bank of Azerbaijan issued an order to halt all payment services provided by LLC “Paysis,” accused of organising online gambling operations.

The online gambling industry has grown dynamically over the past decade, with a significant surge during the COVID-19 lockdowns and in the subsequent years. According to experts in the gambling sector, by 2028, global revenue from online gambling is expected to reach $700 billion, with much of this growth driven by the spread of smartphones in low- and middle-income countries.

This is hardly surprising, as online gambling is accessible anytime and anywhere in the world: all that is needed is a bank card and an internet connection. It is precisely this simplicity and accessibility that experts at the UN identify as the greatest threat in expanding online gambling addiction.

According to available data, at least 1.2% of the world’s adult population — more than 100 million people — currently suffer from a pathological gambling addiction. If the number of underage adolescents engaging in digital gambling platforms is taken into account, this figure is undoubtedly even higher.

In this context, the UN believes that the spread of online gambling could hinder progress towards achieving the Sustainable Development Goals (SDGs). This is far from an exaggeration, as unlike traditional casinos, sportsbooks organising sports betting, or state-regulated lottery sectors, the digital gambling industry is largely beyond government control and weakly regulated by law.

Numerous studies confirm that the algorithms behind online games are, in most cases, “shrouded in secrecy.” Player interactions are often handled by chatbots, and moreover, the software is designed so that a player’s experience and skills have little to no impact on the outcome of the game. In the vast majority of cases, the winners are the organisers of the virtual “scam.”

Additionally, a large share of the online market is occupied by unlicensed providers who, through aggressive advertising, offer users gambling products that are virtually unregulated. Unfortunately, there are still no unified global standards or coordinated approaches for regulating online gambling.

For a quarter of a century, offline gambling has been banned in Azerbaijan. Strict laws have also been enacted prohibiting online gambling, including online poker. Promotional lotteries organised by major retail chains, mobile operators, and similar entities remain under strict state supervision.

Officially, the only permitted form of sports betting in the country is through a single operator — Topaz — along with various prize-based lotteries organised by the state-owned enterprise OJSC Azerlotereya. Since November 2001, this entity has held the exclusive right to conduct all types of lotteries in Azerbaijan.

In order to improve the efficiency of revenue from lotteries and sports betting, attract investment, and introduce new technologies in this sector, in February 2021, Azerlotereya, which is under the Ministry of Economy of the Republic of Azerbaijan, was transferred to long-term contractual management by the subsidiary of the Turkish holding Demirören Shans Oyunları Yatırımları A.S. — YMT Sans B.V.

An important outcome of these reforms has been the active financial support of OJSC initiatives in the fields of ecology, education, museum development, as well as projects aimed at the revival of Karabakh.

Unfortunately, until recently, Azerbaijan had not taken effective measures against organisers of online gambling. The first steps in this direction were taken at the end of 2021, when members of the Milli Majlis (parliament) introduced amendments to the relevant law, prohibiting foreign lottery organisers, sports betting operators, and vendors of such services from accessing Azerbaijan’s virtual space.

Subsequently, local operators and internet service providers were required to prevent the organisation and conduct of gambling by restricting access to the virtual environment within the country. The Milli Majlis also amended the Law “On Advertising” to ban the promotion of gambling, including promotional tickets, sports betting games, and lotteries.

Unfortunately, the challenge in enforcing these measures lies in the fact that organisers of online gambling targeting Azerbaijan’s digital space are registered in offshore jurisdictions such as Malta, the Caribbean island of Curaçao, and other similar locations with liberal regulations. Many of the operators of these online “scams” even operate entirely in the “shadow” internet, without any registration.

Nevertheless, tangible progress has been made in Azerbaijan this year in combating pirate casinos. The most high-profile case was the court proceedings that began in November against a group of individuals accused of organising online gambling and laundering the proceeds from this activity. According to the results of investigative operations conducted by the Main Department for Combating Corruption under the General Prosecutor’s Office, it was established that members of the criminal group had drawn a large number of citizens into gambling, set up illegal money flows, and created numerous bank cards and accounts in the names of various individuals.

Notably, one of the defendants in this case is a fully legal entity — LLC Paysis, which, under the Law “On Payment Services and Payment Systems,” was granted an indefinite licence by the Central Bank of Azerbaijan in July of last year to operate in the electronic money sector.

Unfortunately, the management of Paysis interpreted its potential in payment systems in a highly unorthodox way: the company opened electronic wallets in the names of individuals within its money transfer systems, and more than 171 million manats ($100 million) obtained from illegal online gambling were transferred to these wallets. Furthermore, over 41 million manats ($24 million) of the illicitly obtained funds were laundered through circulation in various bank accounts and used to purchase movable and immovable property.

The property of the accused individuals has been seized, and the criminal case against LLC Paysis has been referred to the Baku Court for Serious Crimes. Recently, following Article 63.1 of the Law of the Republic of Azerbaijan “On Payment Services and Payment Systems,” the Central Bank ordered the suspension of all payment services provided by Paysis under its licence, except for transactions related to returning funds to users of the payment services.

This is perhaps the most high-profile, but by no means the only, measure against operators of online gambling. In September of this year, the Main Department for Combating Cybercrime of the Ministry of Internal Affairs of Azerbaijan conducted a special operation, detaining a group of 10 individuals who had organised online games through websites located outside the country, such as Fast Loto365 and CHCPlay, including social media platforms like Instagram, under various names such as TT, Admiral, Gold, and “Bir-iki.”

By creating an underground network within the country, the criminal group used 500 bank cards registered to other people for illegal money transfers, generating a total illegal turnover of 10 million manats ($5.9 million).

Azerbaijan’s law enforcement authorities are determined to tackle the phenomenon of online gambling in a systematic manner. However, according to UN recommendations, in addition to administrative and legal measures, it is necessary to strengthen cooperation with internet service providers to restrict access to illegal digital platforms and curb promotional content. Equally important is to engage the public and the media to intensify awareness campaigns against online gambling operators, targeting the most vulnerable segment of the population — adolescents and young people.