Cybersecurity and Financial Crime Prevention: Implications for the Online Betting Industry

In the last couple of decades, the Baltic states, especially Estonia, have managed to build one of the most advanced digital societies within the EU. Through initiatives such as e-government, the e-Residency program, and cutting-edge fintech infrastructure, Estonia has positioned itself as a model for digital governance, which now attracts domestic and international enterprises alike, making the region an appealing hub for cross-border digital services in various industries.

Conversely, one industry supported by this digital infrastructure—iGaming, represented by online betting and sports betting—brings new risks concerning financial transactions and personal data protection. As the shifts in the geopolitical landscape in Russia and Ukraine in the last few years caused a dramatic disruption in operation, several iGaming companies have  been relocating to the Baltic region, seeking greater regulatory advantages amid the impact of the current international situation.

This influx is compelling the Baltic states to strengthen their regulatory frameworks and oversight. While online betting holds potential to generate tax revenue, employment, and ancillary service markets, it constantly carries underlying risks such as money laundering, cyberattacks, and unauthorized access. This tension between innovation and security has become one of the defining policy questions of the Baltics in the maturing phase of the digital economy.

The Central Role of KYC and AML

The Baltic states, particularly Estonia, have established licensing and taxation systems for online betting operators. For example, the Estonian Tax and Customs Board (ETCB) has introduced a two-stage procedure system consisting of a business license and an operating license. Operators are first required to obtain a business license and then acquire an operating license specific to the type of betting they offer.

Under this system, KYC and Anti-Money Laundering (AML) measures play a central role. Operators bear the responsibility to verify user identities, track fund flows, and monitor suspicious transactions. These are not merely regulatory checkboxes but also the foundation for maintaining platform credibility.

Meanwhile, some operators based in the Baltic states target regions where online gambling is unregulated. Japan is a prime example of such an area. While gambling, including online bookmakers, is popular in Japan, much online gambling is not legally recognized. Consequently, while domestic operations face strict constraints, KYC/AML regulations are being strengthened. In this traditionally gambling-friendly yet privacy-conscious country, compliance with regulations governing international operators' access and payment channels will increasingly become a focus.

The Rise of Baltic-Based Bookmakers and Their Global Expansion

In recent years, multiple bookmakers based out of the Baltic states have been exploring expansion into the EU, Asian, and Middle Eastern markets. Estonia is often chosen as a base for overseas expansion due to its relatively flexible licensing process, a system that imposes a tax rate of around 5% on revenue, and low overall tax rates.

These operators leverage transparency, technological capabilities, and robust security systems as competitive advantages, expanding their operations while adapting to legal frameworks in other regions. However, securing trust in international markets requires cross-regional regulatory coordination, information sharing, and a unified supervisory framework. Operating cross-border betting services involves navigating differing laws, currencies, payment practices, and data protection regulations.

In this context, Baltic-based operators need infrastructure designs and compliance cultures that allow them ample room to adapt to regulatory changes.

Financial Crime Prevention and Cyber Defense: Integrating Systems and Technology

Typical risks include money laundering, bonus fraud, account hijacking, and unauthorized withdrawals. Integrating systems and technology is key to preventing these.

Technologically, solutions include transparent transaction records using blockchain technology, AI-powered fraud detection algorithms, and monitoring systems that flag suspicious transactions in real time. This enables operators to swiftly block abnormal transactions and make appropriate reports.

On the institutional side, regular audit systems, third-party evaluations, and strengthened reviews during license renewals are necessary. Furthermore, progress is being made toward introducing common standards across the EU (gambling advertising regulations, customer information exchange, cross-border enforcement cooperation, etc.). For example, according to an ICLG report, 19 companies' marketing activities were audited in Estonia in 2023, with numerous advertising violations reported.

The Baltic states have established a coordinated framework aligned with EU standards and are strengthening cooperation with international supervisory bodies. This forms the backbone supporting a trustworthy online betting environment.

Balancing Trust and Transparency

The online betting industry holds significant growth potential as part of the digital economy. However, its foundation requires strict adherence to cybersecurity, resilience, KYC/AML implementation, and international coordination. The Baltic states, in particular, must leverage their strengths as digitally advanced regions while supporting this safety infrastructure through both regulatory frameworks and technological innovation.

As mentioned earlier, Japan and many other regions worldwide are still developing their legal frameworks for online betting. Moving forward, the integration of cross-regional governance and technological reliability will determine the sustainable development of the online betting industry. The Baltic states hold the potential to become a model case, and their successes and challenges should be widely referenced globally.