Crashing the Party
As Super Bowl Looms, FBI Eyes Online Wagering
By Carrie Johnson
Washington Post Staff Writer
Saturday, February 3, 2007; Page D01
If the U.S. government gets its way on Super Bowl Sunday, all bets
will be off -- all online bets, that is.
Federal prosecutors and agents in the FBI's organized crime unit have
been mounting a large-scale crackdown on Internet gambling, with
indictments against executives at gaming Web sites, arrests of foreign
businessmen who process payments, and subpoenas to investment banks
that may have helped bankroll the operations.
John David Lefebvre, Neteller co-founder, was arrested and charged
with transferring billions from U.S. citizens to overseas gambling
companies. (Artist's Rendering By Shepard Via Bloomberg News)
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The aggressive campaign has gathered steam in recent weeks, as
Americans prepare to wager more than $5 billion on tomorrow's game
between the Chicago Bears and the Indianapolis Colts, the biggest
betting day of the year, according to industry experts.
The arrests in California and in the U.S. Virgin Islands last month of
two board members of Neteller, a British company that facilitates
online money transfers, is spurring overseas executives with even
modest gambling connections to avoid traveling to the United States
lest they be nabbed. And it is leaving legal analysts and bettors
crying foul about the government's approach.
"This escalation or, no, we should say surge, in this war of
intimidation Justice is waging right now really has had an effect,"
said I. Nelson Rose, a professor at Whittier Law School in California
and author of a textbook on gambling law.
Justice Department officials have long been on record as saying that
Internet gambling breaks the law. They cite the long-standing Wire
Act, a statute making it a crime to use telephone lines to place a bet
within the United States or overseas. The 1961 law, which applies to
businesses instead of individual bettors, was designed to eradicate
the Mafia from the gambling arena.
But after the 2000 wire-fraud conviction of sports betting
entrepreneur Jay Cohen for operating a Web site in Antigua, federal
prosecutors enforced it only sporadically. The campaign heated up last
year, after the government indicted two popular sports betting Web
sites: Antigua's WorldWide Telesports Inc., and London's BetOnSports
PLC. Both companies have announced they will no longer accept wagers
from U.S. clients.
Then Congress dealt in. At the last minute, lawmakers inserted an
online-gaming measure into the port security bill that chokes the flow
of money by barring the use of credit cards, checks and fund transfers
to make and settle bets. President Bush signed the bill into law in
October.
But it has been the wave of criminal charges against individual
executives and businesses that prompted a real exodus from the U.S.
market. Americans bet nearly $6 billion online in 2005, but the flood
of public companies out of the country has made it difficult to
estimate current amounts, said Eugene Christiansen, who tracks such
spending.
Meanwhile, U.S. authorities show few, if any, signs of folding, even
in the face of rulings by the World Trade Organization that the United
States cannot put foreign rivals at an economic disadvantage on the
Internet gambling issue.
"Criminal prosecutions related to online gambling will be pursued even
in cases where assets and defendants are positioned outside of the
United States," Michael J. Garcia, the U.S. Attorney for the Southern
District of New York, said last month.
Yet legal experts say there are questions about whether Internet
gaming is a crime worthy of extradition in most foreign jurisdictions,
and whether the executives meant to break the law, given that their
operations are legal in their home countries.
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Crashing the Party
Moreover, although the Justice Department has suggested that all forms
of Internet gambling violate the law, analysts say that online horse
racing, poker and fantasy leagues may be exempt. Gambling in some
form, from state-sponsored lotteries to race tracks and slot machines,
is legal in a majority of the 50 states, which collect billions in tax
revenue from the enterprises each year.
A. Jeff Ifrah, a defense lawyer in the District office of Greenberg
Traurig, said the Justice crackdown is confounding some legal analysts
because "it is unclear how the government randomly targets members of
this industry for prosecution, and why it is doing so on the heels of
legislation that only recently prohibited facilitating certain gaming
activity."
John David Lefebvre, Neteller co-founder, was arrested and charged
with transferring billions from U.S. citizens to overseas gambling
companies. (Artist's Rendering By Shepard Via Bloomberg News)
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Neteller, which had provided payment services to more than 80 percent
of worldwide gaming merchants, watched its business swell after PayPal
and parent company eBay agreed to leave the business and forfeit $10
million to settle civil charges three years ago over financial
transfers to offshore and online gambling firms.
Now, however, with the arrest of two of its founders, the British Web
site is scrambling to exit the U.S business. Neteller is besieged with
requests from frustrated bettors who want to recoup billions in
deposits and winnings. The money is being held in trust accounts while
the company holds conversations with the Justice Department about the
status of its executives and other board members.
"The answer is, it's a bit confused at the moment," Neteller spokesman
George Cazenove said. "I'm sure they will get their money back. You've
got to give Neteller a bit of space."
Prosecutors have increased efforts to force advertising companies and
Web sites to reject paid ads for Internet gambling sites. They also
sent subpoenas to at least three investment banks, HSBC, Dresdner
Kleinwort and Credit Suisse. Richard Lindsay, spokesman for HSBC, said
the subpoena it received late last year requested information
"pertaining to some Internet gambling companies."
The crackdown against public, regulated foreign businesses has left
small private companies to fill the void, an issue that worries
industry officials and consumer groups who say the smaller entities
are less subject to oversight and more difficult to police. In
essence, they argue, the government drive could turn into another
prohibition, and have the perverse impact of fostering underground,
illegal activity.
"The net effect of this is, responsible people are out of the
business," said Frank J. Fahrenkopf Jr., president of the American
Gaming Association, a casino industry trade group.
But federal officials disagree. Mark J. Mershon, FBI assistant
director, last month cautioned that companies handling Americans'
offshore bets "amount to a colossal criminal enterprise masquerading
as legitimate business."
Staff writer Tomoeh Murakami Tse and staff researcher Richard Drezen
contributed to this report.
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