money laundering at the pokies – part two

Back on the 1st of October, 2010, the Sydney Morning Herald published an article by Vanda Carson about the practice of using poker machines as “money laundries.” This article had a strong focus on the idea that the government was trying to bring in pre-commitment technology to combat these money-laundering operations, rather than problem gambling, and that they were keeping quiet about it to avoid causing further harm to the hotel industry’s image.

I ranted about this article here, in pretty scathing fashion. Not only was the idea preposterous, but there were several serious inaccuracies in the article, especially with regards to the amount of money being spent on pokies and how much of this was due to money laundering.

Well, this morning the SMH published Carson’s second article on the topic. This is a much longer, far more detailed piece of journalism, and talks about the way the money laundering is done and the kinds of people dong it. Still a little dramatic for my taste, but nevertheless it’s a marked improvement on her earlier article.

Gone are the references to problem gambling and pre-commitment technology. Gone are the suggestions that problem gambling isn’t as big a problem as is currently thought. And gone is the notion that the government is using problem gambling as an excuse to tackle money laundering.

All in all, this is a much better article. There is, however, still one fundamental error that was also present in the original.

In her latest article, Carson again asserts that $2 billion is estimated to be laundered through the pokies in Australia each year. She then says:

This is a large slice of the $14 billion fed through the nation’s poker machines in pubs and clubs each year.

I’m sorry, Vanda, but this is completely wrong. I covered this error in my earlier rant, but let’s revisit it.

Putting aside for the moment the validity of the figure of $14 billion (which I thought should actually be $12 billion)… let’s assume it IS $14 billion. This is NOT the amount of money fed through the nation’s pokies each year.

This is the amount LOST on the pokies each year.

This is a crucial error. The nation’s pokies pay out, on average, somewhere between 87% and 90% to players. I’m feeling generous, so let’s call it 90%.

What this means is that Carson’s figure of $14 billion is actually the 10% that the pokies keep.

And what THIS means is that the actual amount “fed through” the nation’s pokies each year is closer to $140 billion. That’s right; ten times the amount that Carson claims. Granted, a lot of this would be winnings that are “re-invested” but that doesn’t change the basic mathematics behind the figures.

There is one more point I’d like to make. Assuming that Carson is correct and that $2 billion is being laundered through the pokies each year. This will be having a knock-on effect to the winning percentages for all other players. In other words, this level of money-laundering would mean slightly smaller payouts for everyone else who play the pokies. Again, this is basic maths; if the average payout percentage across the board is 90%, and money launderers get 100%, then it’s a given that regular players have to get less than 90%. So stopping the money laundering would actually reduce the amount of money being lost by real pokie players… albeit only slightly.

It seems to me that there’s one very simple way of stopping this money laundering racket. Implement the PC Report recommendation that says that poker machine bill acceptors should be changed to accept $10 and $20 notes only. No $50s, no $100s… no money laundering. A simple solution, and unlike Carson’s position in her original article, it’s a problem gambling solution that would also impact on money laundering.

Not the other way around.

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