GPWA Times Magazine - Issue 11 - January 2010

TheUIGEAdidn’tcriminalizeonlinegam- bling. And it made no attempt to block online gambling sites from Americans. Instead, it focusedon creating regulations that would block transactions between online gaming companies and financial institutions.Asaresult,manyonlinegam- ing companies and American gamblers werehopingoffshorepayment processors would be the UIGEA buster. But the U.S. JusticeDepartment quickly put an end to those thoughts. In mid-January, NETeller founders Ste- phenLawrenceandJohnLefebvrewerear- restedandchargedwith launderingbillions ofdollarsof Internet gamblingproceeds. “Stephen Eric Lawrence and John Da- vid Lefebvre knew when they took their company public that its activities, as well as those of the Internet gambling compa- nies it assisted, were illegal in theUnited States,” saidU.S.AttorneyMichaelGarcia about the arrests. “Blatant violations of U.S. law are not a mere ‘risk’ to be dis- closed to prospective investors. Criminal prosecutions related to online gambling will bepursuedeven in caseswhereassets and defendants are positioned outside of theUnitedStates.” At the time of the arrests (as previously mentioned) approximately 75% of NE- Teller’s revenueoriginated from theUnit- edStates. Two days after the arrests, NETeller an- nounced that it would no longer allow American customers to transfer money to and from online gaming companies. Shortly afterNETeller withdrew from the U.S., payment processors Citadel Com- merce,CentralCoinandNexumFinancial followed suit. In February, the FBI froze about $55 million of NETeller’s funds to hold as evidence. The money was eventually re- turned to online gambling customers, but the damage had been done. The number of options available to Americans for de- posits and withdrawals had shrunk dra- matically. NETeller ended up paying the U.S. $136 million to avoid prosecution as a compa- ny. And Lefebvre and Lawrence reached plea agreementswithDOJ in the summer of 2007. After 12monthsof badbusinessnews, the online gambling industry received some positive reinforcement. In late December, the WTO announced theUnitedStateswouldbesanctioned$21 millionannually for itsrestrictive Internet gambling lawsand regulations.The ruling allowed Antigua and Barbuda to lift cer- tain copyright and trademark protections on U.S. goods and services to collect the money. Antigua andBarbudahad asked theWTO to impose$3.4billion in sanctions, saying the U.S. had effectively closed its entire online gambling market to the world by passing the UIGEA in October 2006 and maintaining that online gambling was il- legal. And while previous WTO rulings backed that logic, the WTO’s final deci- sion focusedonhorse racing. “The real point [of this ruling] is theWTO said the U.S. violated the GATS [General Agreement on Trades and Services] by allowing interstate interactive horse rac- ing bets [from only domestic operators],” saidBuffaloStateBusiness Lawprofessor JoeKelly, an expert inU.S. gambling law. “The original win for Antigua was nar- roweddownonappeal.” The U.S. withdrew all online gambling from its GATS schedule of commitments as a result of the previous WTO rulings. And it was offering Antigua $500,000 in annual compensation for changing its trade commitments. The ruling by theWTO arbitration panel was final and could not be appealed, but the U.S. asked for Antigua and Barbuda to delay imposing any sanctions and give compensation negotiations a chance. An- tigua agreed, but no compensation deal hasbeen reached. approximately $7 billion of their market value that day. That sameday,PartyGaming,whichat the time reliedon theU.S.market for approx- imately 75% of its revenue, announced they would pull out of the U.S. market if PresidentBush signed thebill into law. At thetime,PartyGaminghadabout900,000 Americanplayers. PartyGaming’s withdrawal from the U.S. market was the first of an exodus of bib- lical proportions. Cryptologic was next, followedbyhundreds of others, including 888,HollywoodPoker andbet365. FirePay stopped processing online gam- bling transactions for American custom- ers, andall of a sudden, theonlinegaming industry was split into two – those that acceptedAmericanplayers and those that didn’t. 17 Online Gaming Stories of the Decade