GPWA Times Magazine - Issue 16 - May 2011

American operators can’t be extradited, so what hope is there for the DOJ to bring future foreign operators here to stand trial? The Grand Jury has been meeting for at least a year. The criminal indictment against PokerStars, Full Tilt, Absolute and their founders was unsealed by the U.S. Attorney for New York on April 15, but bore a date-stamp of March 10. So why now? Besides theCaesars andWynnagreements, theNevadaAssembly JudiciaryCommittee recently approved a bill to regulate online poker. And the District of Columbia actually made it legal. The DOJ has been waging a war of intimidation against Internet gambling for years, successfully scaring players, operators, payment processors and affiliates into abandoning the American market. Lacking the two essentials to any prosecution – a statute that clearly makes the activity illegal and a defendant physically present in the U.S. – the feds have announced showy legal action against easy targets approximately every other year. Online poker is not an easy target, since a federal Court of Appeal ruled theWire Act is limitedtobetsonsportsevents.Andtricking financial institutions into processing poker payments seems a technicality, especially since the banks made millions without paying a penny in fines. But getting a bank to agree to process gambling transactions in return for a $10 million investment is an easier case, if true. I can understand approaching a small bank – so small that the officer and part-owner who allegedly arranged the deal asked for, and received, only $20,000 for his “bonus.” But why would you do this in Utah, of all states? There are lots of interesting nuggets in the legal papers. The DOJ claims that one-third of the billions of dollars players deposited went to the operators through the rake. That number seems high, but if true, it explains why everyone wants to operate an online poker room, with few expenses and no chance of losing to a lucky gambler. All of the activities cited occurred after the passage of the UIGEA. This is a subtle acknowledgment that operators who left the U.S. in 2006 have nothing to fear. Even if there was a bribe, the feds are still going to have to prove that the poker was illegal. Since the Wire Act won’t work, prosecutors used 18 U.S.C. 1955, which makes it a federal felony if five or more people do more than $2,000 in business a day in violation of state gambling laws. There is a “thank you” to the Washington State Gambling Commission, indicating that the DOJ is probably going to piggyback on that state’s 2006 law outlawing all Internet gambling. The Washington statute was upheld by the State Supreme Court. Still, there are problems. State laws are presumed not to reach beyond their borders. And even if Internet poker is illegal in that state, it is quite a leap to seize domain names for the entire country and threaten bank accounts in places like Panama. The only state with a law better than Washington’s is Nevada. But basing this attack on Internet poker on Nevada law would create the appearance that it was motivated by the land-based casinos. After all, who are the big winners here? We will probably see the first attacks on the indictments from the two defendants who were arrested, the Utah banker and the Nevada payment processor who allegedly bribed him, when they fight extradition to New York. The operators will never stand trial. The onlyU.S. extradition treaty I have found that covers illegal gambling is with Hong Kong. Calling it bank fraud won’t work, since the defendants can show their local courts that it is based on gambling. And it is fundamental to all extraditions that the activity be illegal in both countries. No nation will extradite an individual to be tried for the very activity that that nation licenses. There may not even be a settlement. The DOJ accepted $405 million from PartyGaming and one of its founders and $100 million from Neteller and its founders. But those companies had already left the U.S. gaming markets. The DOJ will insist on a guilty plea to something, which might kill the operators’ chances of getting licensed when American laws change. And no amount of money will buy them the right to open up again without a change in the law. So what would these operators get from a settlement, other than not having to be worried about getting arrested changing planes? It will be interesting to watch the fallout. There are a lot of famous American poker players and others who are associated with the indicted operators. They should be getting their affairs in order. Meanwhile, in thewake of aDOJ action that resembles a raid by Elliot Ness on breweries and speakeasies during Prohibition, there are now wonderful opportunities for new operators to fill the vacuum. Unless, of course, Americans are actually going to stop playing poker on the Internet. “ Prohibition spawned modern organized crime. When people want something and it is illegal, organi- zations will arise to fill the demand. ” I. Nelson Rose is one of the world’s leading experts in online gaming law. He is often called upon to testify as an expert witness or act as a consultant on legal gambling. You can read more articles by Rose at rose.casinocitytimes. com and GamblingAndTheLaw.com. This article was reprinted from Gambling and the Law®, © 2011. All rights reserved. Gambling and the Law® is a registered trademark of Professor I. Nelson Rose, www.GamblingAndTheLaw.com. SPECIAL REPORT Special Report