The US government's war against the online gambling industry.
The US Department of Justice has consistently maintained that online gambling is illegal. In a letter to US broadcast organisations dated 11 June 2003, John G.Malcolm, the Deputy Assistant Attorney General, Criminal Division,of the United States Department of Justice wrote;
"Notwithstanding their frequent claims of legitimacy, Internet gambling and offshore sportsbook operations that accept bets from customers in the United States violate Sections 1084, 1952, and 1955 of 18 of the United States Code, each of which is a Class E felony. Additionally, pursuant to Title 18. United States Code. Section 2, any person Or entity who aids or abets in the commission of any of the above-listed offenses is punishable as a principal violator of those statutes. The Department of Justice is responsible for enforcing these statutes and we reserve the right to prosecute violators of the law."
Statutory Instruments and State Laws
Known colloquially as the "Wire Wager Act," Title 18, United States Code, Section 1084(a) provides that:
"Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers, or information assisting in the placement of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years or both."
The purpose of the statute is two-fold:
- To assist the various States and the District of Columbia in the enforcement of their laws pertaining to gambling, bookmaking, and like offenses.
- To aid in the suppression of organized gambling activities by prohibiting the use of wire communication facilities which are or will be used for the transmission of bets or wagers and gambling information in interstate and foreign commerce.
The Prohibition of Illegal Gambling Businesses Act 1955 states that;
(a) Whoever conducts, finances, manages, supervises, directs, or
owns all or part of an illegal gambling business shall be fined
under this title or imprisoned not more than five years, or both.
(2) gambling includes but is not limited to pool-selling,
bookmaking, maintaining slot machines, roulette wheels or dice
tables, and conducting lotteries, policy, bolita or numbers
games, or selling chances therein.
Section 1952 of Title 18, United States Code, which is also referred to as the Travel Act, also proscribes interstate gambling activity by stating:
... the use of any facility in interstate or foreign commerce, including the mail, with intent to (1) distribute the records of any unlawful activity ... or (3) otherwise promote, manage, establish carry on or facilitate the promotion, management, establishment or carrying on, of any unlawful activity ... shall be fined not more than $10,000 or imprisoned for not more than five years or both.
The Organized Crime Control Act of 1970 was signed into law by President Richard Nixon. It prohibits the creation or management of a gambling organization involving 5 or more people, if it has been in business more than 30 days or accumulates $2000 in gross revenue in a single day. The Racketeer Influenced and Corrupt Organizations Act (RICO) is a United States federal law which provides for extended penalties for criminal acts performed as part of an ongoing criminal organization. RICO was enacted by section 901(a) of the Organized Crime Control Act of 1970, Pub. L. No. 91-452, 84 Stat. 922 (15 October 1970). RICO is codified as Chapter 96 of Title 18 of the United States Code, 18 U.S.C. ? 1961 through 18 U.S.C. ? 1968.
The Unlawful Internet Gambling Enforcement Act of 2006 makes unlawful the receipt by a gambling business of proceeds or monies in connection with unlawful internet gambling. It represents the first piece of Federal legislation to explicitly deal with online gambling, and it makes clear the US government's intention to stop the flow of funds from Americans to online gaming operators through criminal sanction. The Act explicity states that;
No provision of this subchapter shall be construed as altering, limiting, or extending any Federal or state law or Tribal-State compact prohibiting , permitting, or regulating gambling within the United States.
The scope of the act is far reaching. Restricted transaction is taken to mean any transmittal of money involved with unlawful Internet gambling, whilst a bet is construed as including;
any instruction or information pertaining to the establishment or movement of funds by the bettor or customer in, to, or from an account with the business of betting or wagering.
The Act also provides that an interactive computer service (taken here to refer to ISP's) may be asked by an Attorney or an Attorney General to remove, or disable access to any online site that violates the prohibitions contained within the Act. The site in question must reside on a computer server that such service controls or operates. This raises the very real prospect that sites like Google and Yahoo may be asked to remove from their search engines links to websites that openly promote offshore gambling business'.
In March 2003, Paypal received a letter from the said Attorney for the Eastern District of Missouri. contending that its provision of services to online gambling companies was in direct violation of 18 U.S. Code 1960 of the USA PATRIOT Act, which prohibits the transmission of funds that are known to have been derived from a criminal offense or are intended to be used to promote or support unlawful activity.
In addition to the statutory instruments, eight US states have laws that specifically prohibit Internet gambling: Washington, Nevada, Illinois, Indiana, Louisiana, South Dakota, Michigan and Oregon.
Operating Internet gambling websites
In June 1997 a Greene County grand jury indicted Michael F. Simone and Interactive Gaming & Communications on charges of promoting gambling in the first degree, alleging that the defendants committed a criminal violation of Missouri law by accepting gambling wagers through the Internet from a Missouri resident.
Springfield, Missouri Attorney General Jay Nixon stated at the time;
These criminal convictions should serve as a clear notice to Internet operators that we will aggressively pursue violations of Missouri law," Nixon said. "Cyberspace is no safe haven for lawbreakers........Internet gambling presents a situation where any 15-year-old who gets hold of a credit card can turn the family den into a casino....This is an activity that clearly is illegal in the state of Missouri, and I am proud that we have obtained these convictions.
Simone paid a $2,500 fine to the state of Missouri and IGC paying a $5,000 fine and agreeing to pay $20,000 to the state for the cost of the prosecution. Simone had fought extradition to Missouri but he was ordered to stand trial by a lower court in Pennsylvania.
The first federal charges for Internet gambling were filed on March 18 1998 in the United States District Court for the Southern District of New York, charging Jay Cohen with conspiracy to violate the Wire Wager Act, 18 U.S.C. 1084(a), and seven substantive counts of violating, and aiding and abetting violations of, the Wire Wager Act, in connection with his operation of World Sports Exchange (WSEX).
WSEX, located on the island of Antigua in the Caribbean, targeted customers in the United States through the placement of ads on the radio, in newspapers, and on television. Customers were invited to bet on American sporting events either by ringing a toll-free telephone number or, by placing bets over the Internet. New customers were required to wire $300 to their account in Antigua. In the course of an FBI investigation into offshore bookmaking, FBI agents in New York contacted WSE by telephone and internet numerous times between October 1997 and March 1998 to open accounts and place bets.
On February 28, 2000 Cohen was found guilty of violating all three clauses of Section 1084(a) and sentenced to 21 months' imprisonment. Cohen's conviction was affirmed and in June 2003, the United States Supreme Court refused his petition for review. In October 2002, Cohen began serving his sentence. WSEX is still happily trading.
At the time of Cohen's trial Manhattan U.S. Attorney Mary Jo White said that the case showed that operators of illegal sportsbooks who took bets from Americans could not avoid the federal wager law by simply moving their business offshore;
An Internet communication is no different than a telephone call for purpose of liability under the Wire Wager Act,'' she said. ``As this case demonstrates, persons convicted of operating Internet sportsbooks offshore face very serious consequences -- imprisonment and thousands of dollars in fines.
In the State of New York v. World Interactive Gaming Corp July 1999, the Court granted an injunction barring World Interactive Gaming Corporation, Golden Chips Casino, Inc. and their principals, officers, and directors from operating within or offering to residents of the State of New York State gambling over the Internet. The court held that -
The act of entering the bet and transmitting the information from New York via the Internet is adequate to constitute gambling activity within New York state, moreover, it stated that the Wire Act, Travel Act and Wagering Paraphernalia Act all apply despite the fact that the betting instructions are transmitted from outside the United States over the Internet.
In January 2000, federal prosecutors in St. Louis, Missouri charged Marc Meghrouni and Scott Shaver, the owners of Paradise Casino, which operated an offshore sports book in Curacao, with violating the Wire Wagering Act, as well as tax fraud. Additionally, Paradise Casino was charged with money laundering relating to the spending of betting funds in the United States. Meghrouni, Shaver and Paradise pleaded guilty to all of the charges and agreed to forfeit a one million dollar condominium, and a 1995 Lamborghini.
In October 2001 New Jersey Attorney General John J. Farmer, Jr. announced that divisions of Gaming Enforcement and Consumer Affairs had filed civil actions against 2betdsi.com, Intercasino.com, Laythepoints.com, Sportingbet.com, Sportsbook.com,Intertops.com, BetonSports.com, Betmill.com amongst others for acting in violation of New Jersey law by accepting wagers from individuals, including minors, located in New Jersey. The suit alleged that the defendants operated illegal sports book sites where New Jersey residents, via the Internet or telephone, can place wagers on professional and college sporting events.
On December 3 2001 Gold Medal Sports, an online sportsbook which operated on the Island of Curacao in the Dutch Netherland Antilles, entered a guilty plea to racketeering and a criminal forfeiture count. On February 26, 2002, Chief U.S. District Judge Barbara B. Crabb sentenced Gold Medal Sports for racketeering, and imposed a forfeiture of $3,528,617.47. Judge Crabb also sentenced Pede and D'Ambrosia for filing false U.S. Individual Income Tax Returns, and operating an offshore sports book, in violation of the federal Wire Wagering Act. Pede and D'Ambrosia each received a prison term of five years. They also paid fines of $100,000 each, and paid back taxes totaling $1,429,565.
In January 2002 Francis Howard, a Certified Public Accountant in Las Vegas, and Randy Moreau, an accountant in Miami, each pleaded guilty to owning a share of a sports betting business (Gold Medal Sports) that engaged in illegal sports wagers, using the phone lines and Internet. In April 2002 Attorney Bruce Meagher pleaded guilty to participating in the gambling conspiracy involving Gold Medal. He received one month in jail, five months of home detention, and a fine of $20,000. Gold Medal manager Rick McColley was indicted on February 21, 2002. He is currently a fugitive. Howard and Meagher were both convicted of violating the Wire Wagering Act.
On October 21, 2002 David Tedder was arrested by FBI and IRS Special Agents at O'Hare International Airport in Chicago, Illinois. He had been a fugitive from justice since being charged by the Grand Jury in September of that year with Money Laundering and Conspiracy. Information had been received to the effect that Tedder would be arriving in Chicago on Delta Airlines flight #1608, which was non-stop service from Atlanta. He was met at the gate by FBI and IRS agents and taken into custody. Tedder was indicted with conspiracy to violate the Wire Wagering Act, and conspiracy to commit money laundering (including helping D'Ambrosia move $3.5 million in Gold Medal profits from a Merrill Lynch account in the United States to Tedder's MIB
offshore bank after the NFL sued D'Ambrosia in early 2000 over a false advertisement in the USA Today newspaper).
Following a jury trial, petitioner was convicted of conspiring to violate the wire wagering act, 18 U.S.C. 1084, in violation of 18 U.S.C. 371; conspiring to launder money, in violation of 18 U.S.C. 1956(h); and two counts of money laundering, in violation of 18 U.S.C. 1957. The jury also rendered a criminal forfeiture verdict under 18 U.S.C. 982 (2000 & Supp. II 2002).
In August 2003 Tedder was sentenced by United States District Chief Judge Barbara B. Crabb to five years in prison, followed by a three-year term of supervised release and $400 in special assessments. The Judge also ordered Tedder to pay a fine of $1,060,040, due and payable immediately with interest accruing and to immediately forfeit $2,765,052 in laundered proceeds. The charges brought against Tedder were the result of an investigation conducted by the Internal Revenue Service-Criminal Investigation, the Federal Bureau of Investigation, the U.S. Postal Inspection Service, and the State of Wisconsin, Department of Justice, Gambling Enforcement Bureau. In September 2005, the United States Supreme Court refused Tedder's petition for review .
In total, the U.S. Attorney's Office for the Western District of Wisconsin collected $9,318,149.67 from their investigation into Gold Medal Sports. This amount consisted of fines of $1,594,915.20; forfeitures of $6,293,669.47; and back income taxes of $1,429,565.
In March 2003 Ronald The Cigar Sacco, the founder of Betcris, was sentenced to 21 months in federal prison for illegal gambling and money laundering.
Sacco had been originally indicted in April 4, 2000, with five other men on charges of running an illegal sports gambling ring that used a toll-free number in the United States to place bets in Costa Rica. In 1993, he was arrested in the Dominican Republic and charged with operating an illegal betting ring that allegedly netted $1 billion a year. He spent five years in prison after pleading guilty. Sacco had also previously been a Bay Area bookie and had a number of felony convictions for bookmaking.
A federal racketeering indictment unsealed on April 11 2005 charged Arthur Gianelli with running an illegal gambling ring that allegedly paid protection money to the New England mob. The charges contained in the indictment included racketeering, extortion, and money laundering and stemmed from enterprises that Gianelli and his associates allegedly ran from 1999 to the time of the indcitment, including an "illegal" Internet gambling operation aided by an offshore sportsbetting website.
The indictment alleged that Gianelli's group made money illegally from football betting cards, video poker machines, and Internet gambling. The ring allegedly paid an offshore gambling company called Weshtod Consultants, with offices in San Jose, Costa Rica, to take bets from Massachusetts customers, both on the Internet, at www.dukesportsweb.com, and over the telephone. Todd Westerman, 41, of San Jose, the alleged owner of Weshtod Consultants, who was arrested by customs at Miami airport, was charged in the indictment, along with his company, of running an offshore gambling office and with taking bets from US customers in Massachusetts.
In May 2005 a 39-count Enterprise Corruption indictment was filed in Queens County Supreme Court charging that another gambling ring, that made protection payments to reputed Bonanno captain Anthony Tony Green Urso, operated three wire rooms that handled illicit wagers averaging $250 each at 136-72 72nd Avenue in Kew Gardens Hills; 147-19 Jewel Avenue in Flushing and at a shopping mall in San Jose, Costa Rica.
The criminal enterprise was alleged to have handled about 2,000 bets a day, that generated gross revenues of nearly $500,000, $15 million a month and $180 million a year during the 28-month period covered by the indictment. It was alleged that the gambling ring relied on modern technology, including computers, the Internet, e-mail and AOL instant messaging to safedepositsports.com and a toll free telephone number - 1-800-582-1383 - that ran up a monthly bill of over $50,000.
The indictment charged that Christopher Bruno, 34, of 4022 Jean Avenue in Bethpage, New York was the ringleader and major bookmaker in the enterprise and that his partners were Joseph Amato, 40, of 439 North Queens Avenue in Massapequa, New York, who was also allegedly the ring's enforcer who ensured that its protocols and procedures were obeyed, and Dana Antal, 36, of 606 Martz Road in Stroudsburg, Pennsylvania.
In August 2005 Christopher Bruno, 34, pleaded guilty and was scheduled to be sentenced to three to nine years in prison. Appearing before Queens Supreme Court Justice Richard L. Buchter, Bruno pleaded guilty to Enterprise Corruption and was ordered to immediately forfeit $510,000 in cash, investment accounts and vehicles. Among the forfeited items were a 2003 Mercedes Benz valued at $95,000, a 2002 GMC Denali valued at $29,000 and a rare baseball card collection reportedly worth as much as $300,000.
In 2003 Betcorp changed its name from Consolidated Gaming Corporation (CGC) as part of a restructuring programme that included the acquisition of BetWWTS, a north American facing sportsbooks operator. In early 2005, the Company also acquired Sinsational Intertainment Inc an online sports betting and casino operator based in Antigua.
On April 7, 2005 the Department of Justice filed a 12-count indictment against William Scott and Jessica Davis of World Wide Tele Sports alleging that wagers placed by toll-free telephone numbers and through www.BetWWTS.com and other Internet websites violated the Wire and Travel Acts. The indictment was unsealed by the District Court for the District of Columbia on May 16 2006. It was alleged that by causing the funds to be sent from places within the United States to places abroad with the intent to promote Wire and Travel Act violations, Scott and Davis engaged in a money laundering conspiracy. They pair were also charged with failing to disclose foreign bank accounts, which it was believed they had opened in Antigua, St. Kitts, St. Maarten, Singapore, Canada, Australia, and the Channel Islands. In 2013, seven years after being first indicted in the United States by the District Court for the District of Columbia, Scott agreed to forfeit almost $7m held by Royal Bank of Scotland International (Guernsey).
Scott was allegedly charged by US authorities in 1998 with running an online book, but fled to Antigua where he formed BetWWS, which was later acquired by Betcorp for $58.6 million. Revelations in the Sydney Morning Herald also stated that he had once been jailed for 'racketeering' in the eighties.
On Monday July 17 a federal grand jury in the Eastern District of Missouri returned a 22-count indictment charging 11 individuals and four corporations on various charges of racketeering, conspiracy and fraud. The indictment was returned on June 1, 2006.
The founder of Costa Rican based BetonSports.com, Gary Stephen Kaplan, 47, was charged with 20 felony violations of federal laws including: the Wire Act, Racketeer Influenced and Corrupt Organizations (RICO) Conspiracy, interstate transportation of gambling paraphernalia, interference with the administration of Internal Revenue laws and tax evasion.
Kaplan, like Scott, formerly of BetWWTS, had operated a sportsbook in New York City in the early 1990s, but after gambling charges were brought against him in May 1993, he had moved his betting operation to Florida and eventually offshore to Costa Rica.
According to the indictment, BetonSports.com, the most visible outgrowth of Kaplan's sports bookmaking enterprise, misleadingly advertised itself as the World's Largest Legal and Licensed Sportsbook. It also alleged that Kaplan failed to pay federal wagering excise taxes on more than $3.3 billion in wagers taken from the United States and sought forfeiture of $4.5 billion from Kaplan and his co-defendants, as well as various properties.
The indictment alleged that Gary Kaplan and Norman Steinberg, as the owners and operators of Millennium Sportsbook, Gibraltar Sportsbook, and North American Sports Association, took or caused their employees to take bets from undercover federal agents in St. Louis who used undercover identities to open wagering accounts.
The indictment also alleged that Kaplan and Mobile Promotions illegally transported equipment used to place bets and transmit wagering information across state lines and that DME Global Marketing and Fulfillment shipped equipment to Costa Rica from Florida for BetonSports.com.
The racketeering conspiracy alleged that the defendants agreed to conduct an enterprise through a pattern of racketeering acts, including repeated mail fraud, wire fraud, operation of an illegal gambling business and money laundering. Other defendants in the racketeering conspiracy included Kaplan's siblings, Neil Scott Kaplan and Lori Kaplan Multz; Norman Steinberg; David Carruthers, chief executive officer of BetonSports.com; Peter Wilson, media director for BetonSports.com
On 16 August 2006, it was announced that there had been an expansion of the criminal complaint against persons connected with the offshore sportsbook Bettheduck. Richard Anderson of Los Angeles, Darwin Mobley, of San Jose, Costa Rica, Jorge Esteban Hall Zumbado, of San Jose, Costa Rica and Houshang Pourmohamad of Richmond, CA were indicted for their roles in "an illegal gambling and money laundering scheme".
The indictment charged the quartet with;
Conspiracy to conduct an illegal gambling business in violation of 18 U.S.C. ? 371. This count carries a maximum statutory penalty of five years imprisonment, a $250,000 fine, three years supervised release, and a $100 special assessment.
Conducting an illegal gambling business in violation of 18 U.S.C. ?? 1955, 2. This count carries a maximum statutory penalty of five years imprisonment, a $250,000 fine, three years supervised release, and a $100 special assessment.
Conspiracy to launder funds derived from illegal gambling business in violation of 18 U.S.C. ? 1956(h). This count carries a maximum statutory penalty of twenty years imprisonment, a $500,000 fine, five years supervised release, and a $100 special assessment.
Conspiracy to use facility in interstate and foreign commerce to carry on unlawful gambling business in violation of 18 U.S.C. ? 371. This count carries a maximum statutory penalty of 5 years imprisonment, a $250,000 fine, 3 years supervised release, and a $100 special assessment.
Additionally, the indictment charges Mr. Mobley and Mr. Zumbado, the alleged operators of the sportsbook in Costa Rica, in absentia, with the following:
Use of facility in interstate and foreign commerce to carry on and facilitate the carrying on of unlawful gambling business in violation of 18 U.S.C. ? 1952. Each count carries a maximum statutory penalty of 5 years imprisonment, a $250,000 fine, 3 years supervised release, and a $100 special assessment.
However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. ? 3553.
On Thursday, 6 September 2006 the Non-Executive Chairman of the online betting company Sportingbet Peter Dicks, was detained at JFK Airport by the Police Department of the Port Authority of New York and New Jersey in repsonse to an arrest warrant issued by the state of Louisiana relating to gambling by computer (LA R.S. 14:90.3(E);
Gambling has long been recognized as a crime in the state of Louisiana and despite the enactment of many legalized gaming activities remains a crime. Gambling which occurs via the Internet embodies the very activity that the legislature seeks to prevent. Gambling by computer is the intentional conducting, or directly assisting in the conducting as a business of any game, contest, lottery, or contrivance whereby a person risks the loss of anything of value in order to realize a profit when accessing the Internet, World Wide Web, or any part thereof by way of any computer, computer system, computer network, computer software, or any server.
On Sept. 8 Dicks was was released on bond by the New York Supreme Court of Justice. His lawyer Peter Neiman told the judge that his client's willingness to travel to the U.S. so soon after the arrest of David Carruthers clearly demonstrated that he did not believe that he had done anything wrong. Requesting bail for his client, Neiman said; There are serious questions regarding whether New York's extradition statute permits extradition for conduct allegedly committed entirely overseas.
A hearing scheduled for September 28, 2006 was postponed to allow New York court officials time to reach a decision. On September 29, Judge Gene Lopez announced that the warrant would not be enforced, and that Mr. Dicks was free to return to the U.K. New York governor George Pataki stated that a technicality regarding the fact that internet gambling was not a crime in New York, meant that he did not have the authority to extradite Dicks to Louisiana. Pataki said that he would look into having New York's extradition laws changed.
An indictment brought by the U.S. Attorney?s Office in the Southern District of New York charged members of the Uvari group, which allegedly included associates of the Gambino Organized Crime Family, with violations of Sections 1084, 1952, and 1955. The Uvari Group established wagering accounts for their customers with off-site gambling businesses and the customers placed bets on horse races and other sporting events over the Internet and the telephone. Six defendants, including the lead defendants, Gerald Uvari, Cesare Uvari, and Anthony Uvari, pled guilty to a Section 1955 violation. Two pled guilty to Section 1084 violations. Five defendants pled guilty to conspiracy.
On November 15 2006, in the first case of its kind since the signing of the Unlawful Internet Gambling Enforcement Act 2006, criminal charges were brought against 30 individuals and corporations in four states in connection with facilitating the operation of the online gambling website Playwithal.Com. The corporations charged included for the first time a web design company, Primary Development Inc and the communications and Internet services providers, Prolexic
Technologies, Inc. and the Costa Rican based Digital Solutions, S.A. dba D. S. Networks, S. A., Inc. The named defendants were charged with enterprise corruption, money laundering and the promotion of gambling in the first degree in violation of Penal Law Section 225.10(1). The Queens DA also initiated a $500 million asset forfeiture case.
In February 2008, Queens District Attorney Richard A. Brown, joined by Police Commissioner Raymond W. Kelly, announced the indictment of 26 individuals including reputed Gambino organized crime family captain Nicholas Corozzo on charges of operating a gambling enterprise in Queens County and Costa Rica that had allegedly booked nearly $10 million in wagers over a two-year period on professional and college basketball and football, professional baseball and hockey and other sporting events.
The criminal enterprise generally known as the Nicky Corozzo Crew of the Gambino Crime Family allegedly handled thousands of wagers each month that generated hundreds of thousands of dollars in monthly gross revenue or approximately $9.8 million between November 6, 2005, and January 8, 2008. It was alleged to have relied on tollfree telephone numbers and four online betting websites; www.BETMSG.com; www.BETALLSPORTS.com; www.BETWSI.com; and www.BETOFFSHORE.net.
A civil forfeiture action alleged that six of the defendants engaged in a criminal enterprise which promoted illegal gambling activities and generated illegal bets amounting to about $9.8 million from November 6, 2005, to January 8, 2008.
Charging of Internet sportsbook agents
Associates of Gambino family member Frank The Bear Basto, Joseph P. Fafone and Joseph J. Fafone were charged with acting as agents on behalf of a sports betting operation based in Costa Rica called Bestlinesports.com. Both faced state bookmaking charges for collecting bets and making cash payoffs locally on wagers placed in Costa Rica via toll-free telephone and internet website links. Bestlinesports was recently listed in the indictment in the case of United States District Court of Eastern District of Missouri vs. BetonSports.com, as a website owned by Betonsports; although those behind the website claim that this is not the case.
In 2004 Scott Andrew Carstens and Keith M. English were charged with racketeering; accused of acting as bookmakers, collecting and paying out sports gambling bets chanelled through the Costa Rican based online betting website Safedepositsports.com.
In late July 2006 eight men were arrested and booked on charges that they were operating as agents on behalf of another Costa Rican based online betting website, BetTheDuck.com. U.S. District Attorney Kevin Ryan was reported as saying that the men collected wagers in the form of cash and checks from bettors in the United States on behalf of the website. They would then hand over the funds to runners who transmitted or transferred the money to the offshore firm.
The complaint against the eight charged them with conspiracy to conduct, finance, manage, and supervise an illegal gambling business in violation of 18 U.S.C. ? 371 and conducting, financing, managing, and supervising an illegal gambling business in violation of 18 U.S.C. ? 1955. Each count carries a maximum statutory penalty of five years imprisonment, a $250,000 fine, three years supervised release, and a $100 special assessment. The complaint also charges the defendants with conspiracy to launder money in violation of 18 U.S.C ? 1956. Each count carries a maximum statutory penalty of twenty years imprisonment, a $500,000 fine, five years supervised release, and a $100 special assessment.
On 15 September 2006 The London Times reported that Louisiana had a total of more than 50 warrants outstanding against executives from internet gambling companies that have clients who live within the state's boundaries;
It is believed that those targeted by the warrants include other Sportingbet directors, including Nigel Payne, the chief executive, and board members of companies including PartyGaming and 888 Holdings.
The Advertising of Internet gambling services
The Justice Department has claimed that selling advertising to online casinos is aiding and abetting an illegal activity and they have employed money seizures and subpoenas to outlaw the activity, in their most high profile case, seizing $3.2 million from the Discovery Network, that had been paid by PartyPoker.com and ParadisePoker.com for advertising slots.
PartyPoker said in its IPO prospectus;
In April 2004, the Group was informed by Discovery Communications, the television and media company that owns the Travel Channel, that US marshals had seized over $2 million of the Group's funds from Discovery Communications. The amount involved was originally paid to Discovery Communications for television advertisements to promote PartyPoker.com. Court documents state that Discovery Communications was told that it could be party to illegal activity (effectively 'aiding and abetting' a crime) by broadcasting such advertisements. In October 2003, Discovery Communications told the Group that it would cease broadcasting commercials which had been pre-paid.
In his letter to broadcast organisations dated 11 June 2003, John G.Malcolm, Deputy Assistant Attorney General, Criminal Division,United States Department of Justice wrote;
With very few exceptions limited to licensed sportsbook operations in Nevada, state and federal laws prohibit the operation of sportsbooks and Internet gambling within the United States, whether or not such operations are based offshore. Broadcasters and other media outlets should know of the illegality of offshore sportsbook and Internet gambling operations since, presumably, they would not run advertisements for illegal narcotics prostitution, child pornography or other prohibited activities. We'd appreciate it if you would forward public service message to all of your member organizations which may be running such advertisements, so that they may consult with their counsel or take whatever actions they deem appropriate.
In April 2004 the major search engines and portals, most notably google and yahoo, announced that they would fortwith discontinue accepting advertising for online gambling sites.
Catherine L. Hanaway, the United States attorney for the Eastern District of Missouri, has been reported as saying that prosecutors would consider those that accepted gambling ads to be the eqivalent of those that accepted advertising on behalf of drug dealers and child pornographers.
Hanaway's office sued Vulcan Sports Media Inc., which owns The Sporting News, alleging that from the spring of 2000 to December 2003, the latter had accepted paid print, Internet and radio advertising for Internet and telephonic gambling services, and that its advertising reached U.S. audiences. In January 2006 the Sporting News agreed to a $7.2 million settlement with the U.S. government to resolve the matter. In 2004 in St. Louis sports radio stations KFNS-AM, KFNS-FM and KFRT-AM paid $158,000 to settle allegations that they too had promoted illegal online gambling.
In Casino City, Inc. v. U.S. Dep't of Justice, Civil Action, Casino City filed an action challenging the application of the prohibition against aiding and abetting the commission of a federal offence to those who run advertisements for Internet and offshore gambling operations that take bets from bettors located in the US. Casino City, which had not received a letter from the Department of Justice advising it that it was the subject of a criminal prosecution, argued that it activities were not illegal because it did not accept proceeds which come from illegal bets, deposits or wagers placed by persons located in the US. Moreover, Casino City said that it had taken steps to ensure that such proceeds were not received.
The Court found that Casino City had failed to show a credible threat of prosecution and that it had failed to establish that it had standing to file the case claimed. Moreover, it stated that even if Casino City had established standing, it did not have a claim for a first amendment violation; in so far as there is no right under the First Amendment to advertise services that are illegal or to claim, or give the impression that online gambling was legal, when it clearly was not.
Action taken against online gambling portals
In a lesser known case, but one that goes to the very heart of the online advertising debate, Nicholas Drakos, who hosted a Web site known as www.internationalnetcasino.com that provided bettors with instructions on how to set up accounts with offshore sportsbooks, was arrested in April 2004 after assisting undercover detectives in placing bets on his Web site and charged with promoting gambling, conspiracy and money laundering between January and April of 2004. Drakos was subsequently convicted and sentenced to 90 days on a manual labour program and three years' probation for illegally promoting gambling. County Assistant Prosecutor Melanie Smith said that under state law, a person is guilty of promoting gambling when he or she knowingly engages in conduct that ...materially aids any form of gambling activity.
Software and payment processing companies
In November 2002 PayPal, the world's largest electronic money processor stopped processing payments on behalf of online gambling companies. Approximately 6% of the company's revenues in that year had been derived from this business sector.
In July 2002, in response to a federal grand jury subpoena issued at the request of the U.S. Attorney for the Eastern District of Missouri, Paypal was forced to give up documents relating to its relationships with online gambling companies.
Then in August 2002, the company reached agreement with the Attorney General of the State of New York to stop processing payments from New York citizens to online gambling companies. Paypal also agreed to pay the State $200,000 in penalties and disgorged profits and to cover the cost of investigation.
In March 2003, Paypal received a letter from the said Attorney for the Eastern District of Missouri. contending that its provision of services to online gambling companies was in direct violation of 18 U.S. Code 1960 of the USA PATRIOT Act, which prohibits the transmission of funds that are known to have been derived from a criminal offense or are intended to be used to promote or support unlawful activity.
In July 2005 PayPal announced that it would pay the U.S. government $10 million in repsonse to the claims. Prior to making the payment the company had warned its shareholders that;
Any finding of a civil or criminal violation by PayPal...could endanger our ability to obtain, maintain or renew money transmitter licenses in jurisdictions where it requires such licenses to operate, which would materially harm our business.
In October 2001 CryptoLogic Inc, the software developer, was sued by the New Jersey Attorney General for assisting an online casino to take bets from New Jersey citizens;
If CryptoLogic knows these services are being used to violate New Jersey laws, they're liable,,/q> said John P. Suarez, the assistant attorney general who was director of the agency's Division of Gaming Enforcement. In our view, there's no question they know.
In May 2002 WagerLogic and CryptoLogic agreed that any licensing or related agreements they may enter into in the future would contain a provision prohibiting the licensee or other entity or individual with which WagerLogic or CryptoLogic contracts, from accepting sports bets from persons located within New Jersey, unless and until it becomes legal to do so.
On Monday, 15 January 2007 shares in Neteller PLC were suspended following the news that former Directors of the company, Mr Stephen Lawrence and Mr John Lefebvre had been detained by US authorities .
Two criminal complaints unsealed in U.S. District Court in Manhattan revealed that the two had been charged with laundering billions of dollars in gambling proceeds;
From in or about June 1999, up to and including in or about January 2007, in the Southern District of New York and elsewhere, JOHN DAVID LEFEBVRE, the defendant, and others known and unknown, unlawfully, wilfully and knowingly did combine, conspire, confederate, and agree together and with each other to violate Section 1956(a)(2)(A) of Title 18, United States Code. It was a part and an object of the conspiracy that JOHN DAVID LEFEBVRE, the defendant, and others known and unknown, would and did transport, transmit, and transfer monetary instruments and funds from a place in the United States to and through a place outside the United States and to a place in the United States from and through a place outside the United States with the intent to promote the carrying on of specified unlawful activity, to wit, the operation of illegal gambling businesses in violation of Title 18, United States Code, Section 1955, the illegal transmission of wagers and gambling information, in violation of Title 18, United States Code, Section 1084, and the commission of gambling offenses in violation of both New York State Penal Law, Article 225, and anti-gambling statutes in other states.
From in or about June 1999, up to and including in or about January 2007, in the Southern District of New York and elsewhere, STEPHEN ERIC LAWRENCE, the defendant, and others known and unknown, unlawfully, wilfully and knowingly did combine, conspire, confederate, and agree together and with each other to violate Section 1956(a)(2)(A) of Title 18, United States Code. 2. It was a part and an object of the conspiracy that STEPHEN ERIC LAWRENCE, the defendant, and others known and unknown, would and did transport, transmit, and transfer monetary instruments and funds from a place in the United States to and through a place outside the United States and to a place in the United States from and through a place outside the United States with the intent to promote the carrying on of specified unlawful activity, to wit, the operation of illegal gambling businesses in violation of Title 18, United States Code, Section 1955, the illegal transmission of wagers and gambling information, in violation of Title 18, United States Code, Section 1084, and the commission of gambling offenses in violation of both New York State Penal Law, Article 225, and anti-gambling statutes in other states.
In repsonse to the arrest of the Neteller Two Mark J.Mershon, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation stated:
Internet gambling is a multibillion-dollar industry. A significant portion of that is the illegal handling of Americans' bets with offshore gaming companies, which amounts to a colossal criminal enterprise masquerading as legitimate business. There is ample indication these defendants knew the American market for their services was illegal. The FBI is adamant about shutting off the flow of illegal cash.
On 8 February 2007 Neteller issued the following statement as regards the arrest of its two founders;
Following upon the complaints dated 16 January 2007, banks in the US began declining to permit transactions involving the Group through accounts
maintained at one or more automated clearinghouses in the United States. Additionally, the Group has been advised that the USAO has obtained
court-ordered seizure warrants seizing funds pertaining to the Group's transactions. To the best of the Group's knowledge, it believes that the amount of funds
seized by the USAO or otherwise restricted by third parties does not exceed US $55 million. These funds were largely in the process of being transferred
from the Group to its US customers or vice versa.......To the Group's knowledge, no criminal action or proceeding has been brought against the Group,
its current officers or directors by the USAO. Nevertheless, there can be no assurance that the Group will not be charged in a criminal action at some
In July 2007 Neteller announced that it had entered into a Deferred Prosecution Agreement with the United States Attorney's Office for the Southern District of New York, which resolved an investigation into the Company. Neteller had consented to the filing of criminal information relating to transactions between Internet gambling merchants and persons located in the United States. The USAO agreed to defer the prosecution of any federal charges and, as a consequence, the Company was not convicted of any federal crime, as long it fulfilled the set conditions of the DPA during the two year term of the agreement. At the conclusion of the two year term, the criminal information was to be dismissed. The United States District Court for the Southern District of New York has approved the deferral of the prosecution.
NETeller, admitted criminal wrong doing and agreed to forfeit $136,000,000 for its part in a conspiracy to promote Internet gambling businesses and to operate an unlicensed money transmitting business. The company also agreed to return $94 million held in the accounts of U.S. customers since January 2007. The two founders of NETeller, Stephen Lawrence and John Lefebvre pled guilty to conspiring to promote illegal Internet gambling businesses and agreed to forfeit $100 million.
In October 2009, PREET BHARARA, the United States Attorney for the Southern District of New York, and JOSEPH M. DEMAREST, JR.,Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation, announced that OptimalGroup, Inc, a company based in Canada and publicly traded on the NASDAQ had agreed to forfeit approximately $19.2 million in criminal proceeds derived from processing payments for illegal Internet gambling websites as part of a non-prosecution agreement. From 2004 until October 2006, Optimal, operating an electronic wallet called Firepay, allegedly processed more than $2 billion worth of illegal gambling transactions for United States customers;
These Internet gambling websites were located outside of the United States, but the substantial majority of their customers were in the United States, including in the Southern District of New York. As acknowledged by Optimal, these Internet gambling merchants violated federal criminal law by offering gambling in the United States, including 18 U.S.C. ? 1084 (the Wire Act) and 18 U.S.C. ? 1955 (the Illegal Gambling Business Act).
The Investment Banks
To those familiar with the Department of Justice's war against online gambling, the flotation and subsequent hyping of companies such as PartyGaming and 888 PLC represented something of a mystery, in so far as the
Prohibition of Illegal Gambling Businesses Act 1955 clearly stated that;
(a)Whoever conducts, finances, manages, supervises, directs, or owns all or part of an illegal gambling business shall be fined
under this title or imprisoned not more than five years, or both.
And yet, a look at the main institutional investors in Sportingbet prior to the passing of the The Unlawful Internet Gambling Enforcement Act of 2006, threw up the likes of Fidelity, Blue Ridge Capital, Morgan Stanley, Prudential and Merrill Lynch, all US firms. On Monday 18 Sep Sportingbet announced that fund managers from Credit Suisse had a notifiable interest in 33,014,548 ordinary shares of 0.1 pence of the Company, amounting to 7.83% of the issued share capital.
Institutional Investors in Sportingbet
McKinley Cap MGT
Blue Ridge Offshore
New Star Asset
Source: Industry Sources September 2006
The institutions themselves, seemed content to gamble that the threat from the Department of Justice was not real. A belief, that despite their role in the promotion and flotation of these companies, that they were somehow immune from prosecution.
However, as if losing their clients a fortune when the whole US-facing gambling industry went belly up was not enough, on Sunday 21 January 2007 the Sunday Times reported that HSBC, Dresdner Kleinwort, Credit Suisse and Deutsche Bank were known to be among a number of banks, accountants and law firms that had been ordered by the Department of Justice to hand over all e-mails, telephone records and papers connected with internet gaming firms as part of an investigation into illegal online gambling in America.
Case Study: PartyGaming
In the wake of the arrests of various persons associated with Betonsports, Mitch Garber PartyGaming's chief executive was quoted as saying that his company would in the future be legally marketing in the US ...through a variety of channels - internet, television, radio, newspapers and sponsorship.
In the wake of the arrest of Sportingbet chairman Peter Dicks, Mitch Garber was further quoted as saying; We are a FTSE 100-compliant company. If the Department of Justice has any issue with our business, I would hope they would notify us and communicate that with us fully.
PartyPoker said in its IPO prospectus;
In April 2004, the Group was informed by Discovery Communications, the television and media company that owns the Travel Channel, that US marshals had seized over $2 million of the Group's funds from Discovery Communications. The amount involved was originally paid to Discovery Communications for television advertisements to promote PartyPoker.com. Court documents state that Discovery Communications was told that it could be party to illegal activity (effectively 'aiding and abetting' a crime) by broadcasting such advertisements. In October 2003, Discovery Communications told the Group that it would cease broadcasting commercials which had been pre-paid."
PartyGaming also stated in its IPO Prospectus that it had received an e-mail in January 2005 purporting to be from the office of the Louisiana Attorney-General, requesting that the company desist from offering its services in the US state. The company said that it had "no knowledge of the legitimacy of the e-mail or its author" and that it would dispute jurisdiction if a legal challenge were to be launched against it.
Kris Wartelle a spokesperson for the office of Louisiana's Attorney General told the Financial times that it was possible that the email was indeed legitimate;
It is possible that our consumer protection division could have sent a cease and desist letter following a request from the police gaming enforcement division."
PartyGaming had alleged that the Wire Act did not apply to online casinos and online poker companies. Its case was built around the fact that in February 2001 United States District Court Judge Stanwood Duval, whilst looking to the actual language of the Wire Act, ruled that it "does not prohibit Internet gambling 'on a game of chance'." Duval's ruling was upheld November 21, 2002 by the US Fifth Circuit Federal Appeals Court.
The problem with PartyGaming's reasoning was that until the U.S. Supreme Court rules on the matter of the Wire Act (if, indeed, it ever does), individual U. S. Attorney Generals were free to interpret the statute in relation to online gambling as they see fit. That is to say, the decision of the Fifth Circuit on the issue of the Wire Act and sports betting is not binding on any other court outside the geographical boundaries of the Fifth Circuit.
Some support for PartyGaming's argument was perhaps provided by the fact that in the past U.S. Attorney Generals had typically chosen to only target internet sports books that had explicitly taken bets by telephone.
The problem with that line of reasoning, however, was that the arrest of the two Brits, Carruthers and Dicks, and two Costa Rican citizens in the case of betheduck.com, would seem to suggest that the rules of engagement have changed. Moreover, in the case of Dicks, we saw, for the first time, the application of state laws that prohibit gambling, against a non-US citizen.
In response to the passing of the Unlawful Internet Gambling Enforcement Act of 2006 PartyGaming said in a statement released to the London Stock Exchange on October 2;
After taking extensive legal advice, the Board of PartyGaming Plc has concluded that the new legislation, if signed into law, will make it practically impossible to provide US residents with access to its real money poker and other real money gaming sites. As a result of this development, the Board of PartyGaming has determined that if the President signs the Act into law, the Company will suspend all real money gaming business with US residents, and such suspension will continue indefinitely, subject to clarification of the interpretation and enforcement of US law and the impact on financial institutions of this and other related legislation. Access to PartyGaming's online gaming sites for the Group's US free play customers will be unaffected. Access for all of PartyGaming's non-US customers will also be unaffected."
And on the 13th October, after George Bush had signed the Act into law, PartyGaming declared its intention to cease all real money gaming activities to US customers;
Further to the Group's announcement on 2 October 2006, following the signing of the Safe Port Act by the US President earlier today, the Group has suspended all real money gaming activities to customers located in the US with immediate effect. The Group's play for free websites will continue to be available for US customers."
In early June 2007 PartyGaming announced that it was is in talks with US law enforcement agencies to clarify what action, if any, they intend to take regarding industry players that had accepted bets from US citizens, prior to the signing of the Unlawful Internet Gambling Enforcement Act of 2006.
In December 2008 it was announced that PartyGaming co-founder Anurag Dikshit had agreed to a plea deal with the United States Department of Justice. He pleaded guilty before United States District Judge Jed S. Rakoff to a single count under the US's 1961 Wire Act, and agreed to pay the United States a total fine of $300 million.
In April 2009 Party Gaming said that it had entered into a non-prosecutional agreement with the US Department of Justice, in which it admitted to illegally providing gambling services to US customers from 1997 to Oct. 2006 and agreeing to pay $105m in fines in semi-annual payments thru 2012.
The Company entered into a Statement of Facts regarding its activities prior to 13 October 2006. Key elements of the agreement and factual background are as follows;
* From 1997 until 13 October 2006, PartyGaming offered internet gaming to players located in the US, including real-money poker and casino gaming. On 13 October, 2006, the day the UIGEA was enacted, the Group voluntarily exited the US market.
* Prior to 13 October 2006, certain of the US customer transactions intended for PartyGaming that were processed by third parties, and other gaming and payment-related activity, were contrary to certain US laws.
Unlawful Internet Gambling Enforcement Act of 2006
In the early hours of Saturday 30 September congressional Republicans attached a measure cracking down on Internet gambling to a bill aimed at enhancing port security. The Unlawful Internet Gambling Enforcement Act of 2006, which was passed in the early hours of the morning, represents the first federal measure explicitly aimed at online gambling.
Hilary Stewart-Jones, of Berwin Leighton Paisner, was quoted in the Times Law Supplemet as saying that too much had been made of the Senate's Bill;
We are reeling at the amount of misinformation that has been circulating in the past few days,,,,It's just a runt of a Bill which, contrary to reports, does not make it a criminal offence for the banks to handle these transactions. There are clear lacunae in the proposed legislation, which means that internet gambling may still be legal. The impact of the Bill is psychological more than anything else.
At its heart the Act stated that the receipt of funds by electronic funds transfer and other prescribed methods in connection with internet gaming will be illegal under U.S. state or federal law, and that any breach of said law will constitute a federal offence by the relevant gambling operator. It also stated that under US law, a wager must be permitted under the laws both of the customer's place of residence and that of the operator.
In a nutshell, the Act it seeks to cut off the flow of money to Internet gambling websites from the US by regulating payment systems; it will be illegal to use credit cards and fund transfers from banks to settle internet wagers.
In response to the passing of the Act, the online gambling operator 888 issued the following statement;
...the Board has concluded that it is appropriate to suspend participation by US based customers in activities covered by the legislation. The Company will implement this suspension immediately upon the legislation taking effect and the suspension will continue for so long as the legal situation remains the same.
On the 13th October 2006 Sportingbet announced that it had sold its US-facing sports betting and casino business to Jazette Enterprises Limited for US$1.
Leisure & Gaming also sold its US operation for $1, to a management team led by chief Executive Alistair Assheton.
In October 2007 the Departmental Offices of the US Department of the Treasury and the Board of Governors of the Federal Reserve System finally got around to proposing rules to implement applicable provisions of the Unlawful Internet Gambling Enforcement Act of 2006. The proposed rule identifies payment systems that could be used in conjunction with illegal Internet gambling transactions, and requires participants in designated payment systems to establish policies and procedures reasonably designed to identify and block or otherwise prevent or prohibit such transactions. It is hoped that it will significantly curtail the flow of funds to those offshore sportsbooks and poker websites, that still do business in the US.
In November 2009 the US Treasury Department and Federal Reserve announced they had decided to push back implementation of the act for six months, until June 1 2010. Latest figures from the online poker world, revelaed that two of the offshore poker websites that still took bets from US citizens, accounted for over 50% of the global online poker market.
On 14 November 2007, in a statement made before the House of Representatives Committee on the Judiciary concerning internet gambling, Catherine Hanaway, the Unites States Attorney for the Eastern District of Missouri stated; It is the Departments view, and that of at least one federal court (the E.D.Mo.), that this statute (The Wire Act) applies to both sporting events and other forms of gambling, and that it also applies to those who send or receive bets in interstate or foreign commerce, even if it is legal to place or receive bets in both the sending jurisdiction and the receiving jurisdiction.....Currently, the FBI has several pending investigations concerning Internet gambling and the FBI has been the lead agency on several other investigations, which have already led to prosecutions. The FBI coordinates and consults with the Department on issues arising in Internet gambling investigations, particularly on international issues.
In December 2007 Microsoft Corporation, Google, Inc. and Yahoo! entered into settlements with the U.S. to resolve claims that they had promoted illegal gambling. The total amount of the three settlements was $31.5 million in value to the United States. The Microsoft settlement, totaled $21 million, consists of $4.5 million to the United States and a $7.5 million contribution to the International Center for Missing and Exploited Children (ICMEC) to establish a fund to assist ICMEC with its national and international mission.
Illegal internet gaming operations continue to be areas of IRS compliance concern, stated James D. Vickery, Special Agent in Charge, IRS-Criminal Investigation. CI will continue to play an enforcement role in the illegal gaming industry and to support regulatory and legislative initiatives aimed at eliminating an environment conducive to illegal gambling.
On December 16 2008, a significant milestone in the battle between the US authorities and the online gambling industry was reached, when Anurag Dikshit a co-founder of the online poker company PartyGaming, appearing in the Southern District Court of New York and pleaded guilty to violating the Wire Act, and agreed to pay the US authorities $300m.
Mr Dikshit, the largest shareholder in PartyGaming, read a statement to the court, expressing regret for his past actions;
"Between 1999 and 2006 I was a major shareholder and director of PartyGaming, a company that offers casino and party games over the internet. I developed the software platform. I was aware that wagers transmitted by wire were being placed by PartyGaming customers in the US and that a substantial number of PartyGaming customers were in the US and Manhattan. I knew that it violated US and state laws from 2005 to 2006. I came to believe there was a high probability that the company's business was illegal under US laws. I acknowledge my actions and have come to believe that what I did was wrong."
When asked by the judge to clarify about when it was that he knew he had done wrong, Dikshit replied; "My understanding was that the laws changed over time and by the end I realised that what I was doing was wrong."
On August 14, 2009, Gary Stephen Kaplan, the alleged founder of BetonSports, entered guilty pleas to multiple federal charges, including conspiracy to violate the RICO statute, conspiring to violate the Wire Wager Act and violating the Wire Wager Act. As part of the plea, it was agreed that Kaplan would forfeit to the United States $43,650,000 in criminal proceeds. (Wired from a Swiss bank one week before agreement was reached.).
Kaplan admitted in Court today that beginning in the mid to late 1990s, he had set up business entities offshore in Aruba, Antigua and eventually Costa Rica to provide sportsbook services to U.S. residents through Internet websites and toll-free telephone numbers. He admitted that he had founded, operated and controlled, with other co-conspirators, the enterprise known as BetOnSports. BetOnSports advertised heavily in the U.S. to solicit U.S. residents to place sports wagers by telephone and over the Internet.
Pursuant to the agreement reached on August 14, 2009, on November 2, 2009, Kaplan was sentenced to 51 months in prison. Acting United States Attorney Michael W. stated; Kaplan was unique in the scope and scale of his illegal operation. Despite his immense profits, he is living in federal custody. This case should serve as a warning to others who might choose to defy the laws of the United States on such a grand scale. Reap also noted that "Kaplans business model itself was built on a wager that the U.S. could not and would not enforce its anti-sports book laws to reach Kaplan: Today, Kaplan lost that wager.
On 1 December 2009 BetonSports PLC was sentenced before U.S. District Judge Carol E. Jackson to probation for a term of five years and ordered to pay a fine in the amount of $28,200,000.
In August 2010 two payment processors, Allied Wallet Inc. and Allied Systems Inc and their owner, Ahmad Khawaja have agreed to forfeit $13.3 million to resolve claims in a Manhattan federal court, that all or part of the funds were involved in money laundering. The funds in question were alleged to have been traceable to the Pokerstars website, which is licenced in the Isle of Man. U.S. prosecutors had stated that some of the money comprised of wire transfers from outside of the U.S. "by individuals and entities who knew that the funds involved represented the proceeds of the illegal transmission of gambling information and the operation of an illegal gambling business".
In what was called the biggest shockwave in the US government's war against online gambling, the United States Attorney for the Southern District of New York, and JANICE FEDARCYK, the Assistant-Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation, announced the unsealing of an Indictment on April 15 2011 charging eleven defendants, including the founders of the three largest Internet poker companies doing business in the United States - PokerStars, Full Tilt Poker, and Absolute Poker - with bank fraud, money laundering, and illegal gambling offenses.
The United States also filed a civil money laundering and in rem forfeiture complaint (the Civil Complaint) against the Poker Companies, their assets, and the assets of several payment processors for the Poker Companies.
In addition, restraining orders were issued against more than 75 bank accounts utilized by the Poker Companies and their payment processors, and five Internet domain names used by the Poker Companies to host their illegal poker games were seized;
Because U.S. banks and credit card issuers were largely unwilling to process their payments, the Poker Companies allegedly used fraudulent methods to circumvent federal law and trick these institutions into processing payments on their behalf. For example, defendants ISAI SCHEINBERG and PAUL TATE of PokerStars, RAYMOND BITAR and NELSON BURTNICK of Full Tilt Poker, and SCOTT TOM and BRENT BECKLEY of Absolute Poker, arranged for the money received from U.S. gamblers to be disguised as payments to hundreds of non-existent online merchants purporting to sell merchandise such as jewelry and golf balls. Of the billions of dollars in payment transactions that the Poker Companies tricked U.S. banks into processing, approximately one-third or more of the funds went directly to the Poker Companies as revenue through the "rake" charged to players on almost every poker hand played online." The Indictment and Civil Complaint seek at least $3 billion in civil money laundering penalties and forfeiture from the Poker Companies and the defendants.
In August 2012, Oldford Group, which had owned and operated the assets related to PokerStars and FullTilt entered into a civil settlement in the forfeiture action with USDOJ that included a $731 million payment.
In search of Bodog.
On February 28, 2012 in Baltimore, Maryland a federal grand jury indicted Bodog Entertainment Group S.A and Calvin Ayre, James Philip, David Ferguson and Derrick Maloney for conducting an illegal sports gambling business and conspiring to commit money laundering.
The two count indictment alleged that from at least June 9, 2005 to January 6, 2012 the defendants conducted an illegal gambling business involving online sports betting. The defendants and their conspirators allegedly moved funds from Bodog’s accounts located in Switzerland, England, Malta, Canada and elsewhere to pay winnings to gamblers, media brokers and advertisers located in the United States. The indictment also alleged that the named persons directed payment processors to send at least $100 million by wire and by check to gamblers located in Maryland and elsewhere. The individual defendants face a maximum sentence of five years in prison for conducting a gambling business; and 20 years in prison for the money laundering conspiracy.
Acting IRS Special Agent in Charge Eric Hylton said with regard to the indictment; Internet gambling, along with other types of illegal e-commerce, is an area of great interest to IRS Criminal Investigation....Laundering money from illegal activity such as illegal internet gambling is a crime. Regardless of how the money changes hands.
Then they came for the prediction markets.
In November 2012 the U.S. Commodity Futures Trading Commission filed a civil complaint in federal district court in Washington, DC, charging Intrade, the Prediction Market betting company with offering commodity option contracts to U.S. customers for trading, as well as soliciting, accepting, and confirming the execution of orders from U.S. customers, all in violation of the CFTC’s ban on off-exchange options trading. The CFTC’s complaint also charges Intrade and TEN with making false statements concerning their options trading website in documents filed with the CFTC, and charges TEN with violating a 2005 CFTC cease and desist order.
The CFTC’s complaint also charges Intrade and TEN with knowingly filing false Annual Certification forms with the CFTC stating that Intrade limited its options offerings to eligible market participants. Contrary to these representations, the complaint alleges that Intrade unlawfully solicited and permitted retail U.S. customers to buy and sell off-exchange options on the website.
David Meister, the Director of the CFTC’s Division of Enforcement, stated:
It is against the law to solicit U.S. persons to buy and sell commodity options, even if they are called prediction’ contracts, unless they are listed for trading and traded on a CFTC-registered exchange or unless legally exempt. The requirement for on-exchange trading is important for a number of reasons, including that it enables the CFTC to police market activity and protect market integrity. Today’s action should make it clear that we will intervene in the prediction’ markets wherever they may be based, when their U.S. activities violate the Commodity Exchange Act or the CFTC’s regulations.
In response to the charges Intrade has taken the decision to pull out of the U.S. betting market;
We are sorry to announce that due to legal and regulatory pressures, Intrade can no longer allow US residents to participate in our real-money prediction markets.
Unfortunately this means that all US residents must begin the process of closing down their Intrade accounts..
This action market the end of the road for Intrade, which, even at the best of times, displayed a significant
lack of liquidity across its markets, surprising, perhaps, for a company that was able to operate in the U.S. betting market. It also very
clearly represented the death knell for the so called prediction markets a notion dreamed up by
a hotch potch of U.S. based academics, such as Robin Hanson and championed for many years on the website Midas Oracle by
The Binary Option Companies.
On March 9, 2016, the CFTC announced that a federal court in Las Vegas, Nevada, issued a Consent Order requiring Defendants Oren Shabat Laurent of Israel and his companies E.T. Binary Options, Ltd. of Israel, Banc de Binary, Ltd. of Cyprus, BO Systems, Ltd. of the Seychelles, and BDB Services, Ltd. of the Seychelles (collectively known as Banc de Binary) to pay $7.1 million in restitution to U.S. customers who had traded the illegal, off-exchange options offered by the company. The Defendants were ordered to pay a $2 million civil monetary penalty and the Order imposed a permanent ban on offering or trading any further off-exchange binary options to U.S. customers. David Meister stated:
If a company wants to offer U.S. persons the opportunity to buy and sell predictions on the direction of commodity prices, the company must play by the rules or suffer the consequences. The applicable rules are on the books for good reason – to protect market participants and promote market integrity – and we will serve the public by enforcing them.
And the money service companies.
In January 2017, the Western Union Company, a global money services business, agreed to forfeit $586 million and enter into agreements with the Federal Trade Commission and the the Justice Department. It was held that Western Union had failed to comply with anti-money laundering laws, enabling fraudsters and other criminals to process hundreds of millions of dollars in prohibited transactions. Part of the charge against Western Union held that it had enabled the proliferation of illegal gambling, and aided and abetted wire fraud;
Western Union has been on notice since at least December 1997, that individuals use its money transfer system to send illegal gambling transactions from Florida to offshore sportsbooks. Western Union knew that gambling transactions presented a heightened risk of money laundering and that through at least 2012, certain procedures it implemented were not effective at limiting transactions with characteristics indicative of illegal gaming from the United States to other countries.
On April 13, 2017 Swedish businessman Petter Magnus Karlsson pleaded guilty to engaging in an international racketeering conspiracy that used the Lucky Lady Casino and Card Room in El Cajon U.S. as a legitimate front for illegal sports bookmaking through the website betmex.net and ther offshore sports gaming websites hosted in Costa Rica, the U.K., Hong Kong, and Curacao. Acting U.S. Attorney Alana Robinson commented:
p> For too long, transnational criminal organizations have attempted to skirt United States laws by using offshore servers, networks of illicit cash couriers and complex financial transactions. But tycoons in the lucrative world of international sports gambling now have one sure bet: If your conduct violates American law, you will find yourself in a United States courtroom and be held to account.
Looking to the future.
In September 2012 the Department of Justice seemed to throw the cat amongst the pigeons when it issued an opinion that the Wire Act only applied to sports betting. The judgement caused a great degree of shock, not only amongst those online poker companies that had recently felt the full weight of the Department's long arm (and, not least, individuals such as Dikshit). In response to the news, shares in companies such as Bwin/PartyGaming
climbed on the London Stock Echange, in the belief that the door into the US may once more be open to such companies.
Those with a greater insight into the US gambling market and US law, were a little sanquine. Roll forward to 2018, and very little
has changed. Hanging over the online gambling industry is the Restoration of Americas Wire Act which has the stated aim of rewriting the Federal Wire Act of 1961 with the goal of extending it so as to ban most forms of online gambling (whether such activity was legalized and regulated by state governments or not) while simultaneously granting a broad class of activities, including horse racing and daily fantasy sports, an exemption from the Wire Act. Moreover, Senators Chuck Grassley, Dianne Feinstein, John Cornyn and Sheldon Whitehouse have co-sponsored bill S.1241 (Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017) which will add language to existing anti-money laundering provisions to include digital wallets, prepaid access devices, and other digital currency exchangers if they contain over $10,000 of cryptocurrency. This Act has the potential to blow the entire Blockchain Prediction Market Model out of the water.