The fast-growing Indian online gaming sector is facing a significant threat from money laundering, necessitating urgent steps to ensure its sustained success and protect the country's robust digital economy, a report said on Thursday.

The essential measures outlined in a report by the Digital India Foundation include forming a dedicated task force for illegal operators, creating a whitelist of legal operators, combating misleading advertisements, and incorporating principles of financial integrity and international cooperation.

Other critical measures include public awareness and providing education to help users make informed decisions and avoid platforms that engage in deceptive practices. A comprehensive assessment of in-game assets, financial institutions should deploy AI/ML-driven detection models, build strong investigative teams, implement a robust programmes and take decisive actions to combat money mules, it said.

The Indian Real Money Gaming (RMG) sector has become a key player in the global market with a Compound Annual Growth Rate (CAGR) of 28 per cent from FY20 to FY23. The sector's revenue is projected to reach USD 7.5 billion within the next five years, according to the report.

A gaming community of millions of gamers is driving this immense growth and also creating employment opportunities in ancillary sectors like fintech, cloud services, and cyber-security.

The report further said, there are several challenges in the sector, such as issues of financial integrity, cybersecurity, and user protection, which could impede progress.

The severity of these challenges is underscored by the fact that the illegal betting market in India attracts over USD 100 billion in deposits annually, it said, adding that, the critical issue of money laundering has been emphasised to show how in-game currencies, cryptocurrencies, and offshore betting platforms are increasingly being used for illicit activities.

"Despite regulatory efforts to curb illegal operators, many platforms circumvent restrictions through mirror sites, illegal branding, and disproportionate promises, highlighting the pressing need for stronger oversight and enforcement, " Digital India Foundation co-founder Arvind Gupta said.

"With over 400 homegrown startups and 100 million daily online gamers, including 90 million who pay to play, the sector employs directly and indirectly approximately one lakh individuals, with the potential to create 2,50,000 jobs by 2025. This report has come at the right time to chart the way forward," Gupta added.

Pointing out the gaps that may increase its vulnerability, the report said, there is a lack of regulation and uniform standards, no single supervisory or regulatory authority, and an absence of published external audit reports.

Besides, it said, there is a lack of appropriate enforcement mechanisms leading to sporadic action against notorious offenders.

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