July 25, 2006 The Gambling Is Virtual; the Money Is Real By MATT RICHTEL and HEATHER TIMMONS NY Times
http://www.nytimes.com/2006/07/25/business/25gamble.html?_r=1&oref=slogin&pagewanted=print Can the United States handcuff online wagering? Glen Walker, a professional sports bettor in North Carolina who places up to 70 bets a week of $2,000 to $5,000 each during football season, does not think so. Theyre not going to stop the offshore sports books, Mr. Walker said. A crackdown will just force it back to the black market. Last week, one such wagering site, BetOnSports.com, a publicly traded company in Britain, became the focal point of an American crackdown on offshore casinos, where gamblers anywhere in the world can use the highly profitable sites to place wagers on sporting events. They can also play casino games like blackjack and poker from their personal computers. Federal agents arrested the British chief executive of BetOnSports, David Carruthers, who was in the United States on a flight layover. He is in custody in Fort Worth; the betting site has temporarily suspended operations to satisfy a temporary restraining order that prohibits the company from taking bets from United States residents. Mr. Carruthers is awaiting a hearing on his detention. In Washington, the House overwhelmingly approved legislation recently that would clamp down on Internet casinos in part by restricting the ability of American financial institutions to process wagers. The legislative-prosecutorial one-two punch appears to be the most concerted effort yet by the federal government to undermine Internet gambling in an era of well-organized, publicly owned offshore casinos. For the first time, Washington has succeeded in temporarily shutting down a publicly owned site and its effort has gained the attention of the operators, whose share prices plummeted last week. Still, few experts expect the crackdown to do anything more than dent the industry. Sebastian Sinclair, an analyst with Christiansen Capital Advisors, which tracks online gambling trends, said offshore gambling could be curtailed but it cannot be stopped. Other experts see the recent moves as little more than an elaborate cat-and-mouse game serving only to benefit Las Vegas and Atlantic City casinos, along with Indian gambling operations, rather than seriously protecting Americans from falling prey to excessive gambling. Some eight million Americans like Mr. Walker wager $6 billion annually through the Internet, many making bets on their favorite sports team or the N.C.A.A. basketball pool. About half of all online wagers come from the United States. Critics say that online gambling is the equivalent of putting a slot machine in every home, providing an easy chance to lose money with a few mouse clicks, all without the social controls at a bricks-and-mortar casino. Mr. Walker disagrees. Were not doing anything immoral or illegal, he insisted. I just dont see that Im harming anyone. While prosecutors argue that Internet casinos violate the law, there is no federal prohibition against actually placing a bet. So how much success the federal push can have is a very profound question, said Representative Jim Leach, Republican of Iowa, the co-author of the legislation, who says the gambling is detrimental to families and the economy. But even he concedes that Washingtons best efforts will lead only to a reduction but not necessarily to an ending of online gambling. The question of further curbing Internet gambling has been a perennial issue in Congress in recent years. But people involved with the legislation say the reason for its success, at least in the House, is mainly explained by lawmakers wanting to distance themselves from the corruption scandal involving the convicted lobbyist Jack Abramoff and his association with Indian casinos. Mr. Abramoff had lobbied vigorously against versions of the bill in the past. Still, some politicians in the House came out strongly against the bill, including Representative Barney Frank, Democrat of Massachusetts, who called it cultural authoritarianism. Industry executives and analysts say similar bills have failed in the Senate, and many feel that it is unlikely to gain traction there. Analysts from Dresdner Kleinwort in London call the measure inconsistent and unenforceable. Nevertheless, executives, lawyers and analysts say that Washington, depending on the resources it is willing to commit, can at least make life more miserable for the offshore casinos. They say the effort resembles attempts to restrict the sex and drug trades, an endless pursuit in which users and suppliers constantly develop new ways to skirt law enforcement. Offshore casinos are going to continue to thumb their noses at the Department of Justice, Mr. Sinclair said. The operators will say, Im sitting here in Costa Rica drinking a mai tai. What are you going to do? And, he said, if the government succeeds in shutting some sites, others will pop up. This is not the first time that the American government has taken on Internet gambling. In 2001, a federal court sentenced Jay Cohen, the operator of an Internet sports book in Costa Rica, to 21 months in prison for taking bets from Americans. But there is a new intensity to this latest crackdown, particularly with the simultaneous attacks from Congress and law enforcement. Legislators and prosecutors said their efforts were not coordinated, but industry analysts view it as a powerful combination. And by going after Mr. Carruthers, a British citizen who runs a company listed on the London Stock Exchange, Washington has upped the ante. This is absolutely a legitimate business in the U.K., said Tim Evans, a lawyer representing Mr. Carruthers. Mr. Carruthers, among the outspoken executives in the industry, has traveled frequently to the United States to meet with investors and media companies, and to debate the merits of online gambling. In April, he took part in a debate on the subject with Representative Leach. Catherine L. Hanaway, the United States attorney for the Eastern District of Missouri, who brought the indictment against Mr. Carruthers, said the fact that the activity was legal in Britain and Costa Rica, where BetOnSports has major operations, does not entitle them to do business in the United States. Asked if Mr. Carrutherss British citizenship created a problem for the prosecutors, Ms. Hanaway said, thus far, no. Mr. Evans said his client faced up to 20 years if convicted of conspiring to operate an illegal gambling operation. Lawrence Walters, a lawyer who specializes in Internet gambling law, said prosecutors faced serious jurisdictional questions. One central question is whether any illegal activity is taking place on American soil; the bettors, he said, are not breaking the law, because placing a wager is legal. Further, he said, there are legal questions about whether prosecutors can establish that offshore casinos have met the test for minimum contact in the United States, a standard needed for prosecutors to have jurisdiction. The government has to show that BetOnSports has sufficient ties and contacts with the U.S., he said. Thats an open question they have no offices or representatives here. Many online gambling companies based outside Britain list on the London Stock Exchange because the British government made offshore gambling companies legal as part of a sweeping Gambling Act passed in 2005. The governments intent is to regulate the industry and stop gambling proceeds from going to criminal interests. The investors in the companies have included some of Americas largest investment houses, among them Goldman Sachs and the FMR Corporation, parent of Fidelity Investments, which bought shares for some of its mutual funds. Share prices of those funds plummeted after the arrest of Mr. Carruthers, but have recovered somewhat in recent trading. The issue has fueled a political fire in Britain, where the United States recently extradited several white-collar suspects in an effort to prosecute them for actions that Britain did not consider illegal, or that British courts chose not to prosecute. Opponents say that United States prosecutors are reaching outside their boundaries and the opponents are lobbying the British government to protect its own citizens. But Mr. Walters said prosecutors might be able to mitigate the jurisdictional challenges because they also brought charges against BetOnSports founder, Gary Kaplan, and several of his relatives, who worked for the company and are American citizens. The government could argue that the company has a fundamentally American origin and continuing ties, he said. The case could dictate how much breadth and power prosecutors have to enforce gambling laws. It could be a chance to clear up the gray area thats always existed as to the legality of offshore casinos, said Kevin Smith, a spokesman for BetOnSports. Prosecutors argue that the Wire Act of 1961 prohibits not just Internet sports betting but also casino games, including online poker. Some industry executives, legal experts and analysts, even those without a vested interest, say it is not clear that the Wire Act was intended to cover those casino games. The legislation approved by the House would make it explicit that the wire act covers these games. It also seeks to create a new enforcement mechanism by criminalizing the processing of payments for Internet gambling. It would prohibit banks, credit card companies and online payment processors, like PayPal, from transacting such business. For the first time, we have a methodology that has enforcement clout, Mr. Leach said. This legislation has a lot of teeth. Yet this is not the first effort to cut off payment methods. In November 2001, many major banks that issue credit cards began voluntarily refusing to process credit card payments for gambling. That gave rise to new overseas payment processors, like Neteller and FirePay, in which customers can deposit money to be forwarded to offshore casinos. Having new overseas processors can spring up does present a problem, Mr. Leach said. But if the bill becomes law, it would also prohibit American financial institutions from transferring money to overseas payment processors known to do a lot of business with casinos. In turn, it could make people work harder to place bets. It could quite effectively reduce impulse betting, Mr. Leach said. It might be a slightly less-effective barrier to some of the poker kinds of games. I aspire to total curtailment. But I cannot guarantee that will occur. ================================ George Antunes, Political Science Dept University of Houston; Houston, TX 77204 Voice: 713-743-3923 Fax: 713-743-3927 antunes at uh dot edu Reply with a "Thank you" if you liked this post. _____________________________ MEDIANEWS mailing list [email protected] To unsubscribe send an email to: [EMAIL PROTECTED]
