GPWA Times Magazine - Issue 18 - October 2011

Regulators! Mount up! News commentary by Vin Narayanan W hen people talk about effective regulation, the discussion inevita- bly turns toward taxation. After all, noth- ing kills a good regulatory scheme faster than bad tax policy. If taxes are too high, or if the wrong revenue stream is taxed, it’s not profitable for operators to legally offer services within a jurisdiction. And if it’s not profitable to operate legally, what’s the point (for operators) of licens- ing and regulation? But there’s more to regulation than tax policy and profits (just don’t tell the Ferengi). Providing consumer protections, prevent- ing and treating problem gam- bling and ensuring fair games are critical components of any regulatory framework. For pol- icy makers — and many players — these issues are more impor- tant than the taxation issue. And when governments and voters look at whether regulation is succeeding, meeting these other goals is as important as creating a successful business climate in determining whether regulation has been successful. So as we evaluate how success- ful regulatory schemes are, we need to look at how well they protect players and their funds. And right now, in three different jurisdictions, there are pointed regulatory failures. France, Alderney and the Kahanawake are all facing significant questions about their oversight roles of Full Tilt Poker (Alderney and France) and Absolute Poker/UB (Kahanawake). The licensing jurisdictions are not being questioned for giving licenses to the sites that were effectively shut down following the Department of Justice indictments of their founders (and subsequent sei- zure of bank accounts). Rather, they’re being questioned as to why these com- panies are unable to refund money to their customers. One of the key pillars of online gambling regulations is ensuring money deposit- ed by players remains safe. But as the players from Full Tilt and Absolute/UB wait for their money to be sent to them, it’s clear that their money was anything but safe. The DOJ maintains that it seized only operational funds, and that Full Tilt and Absolute/UB are free to return money to players. “No individual player accounts were ever frozen or restrained,” said Manhattan U.S. Attorney Preet Bharara in a press release. “Each implicated poker company has at all times been free to reimburse any player’s deposited funds. In fact, this Office expects the companies to return the money that U.S. players entrusted to them, and we will work with the poker companies to facilitate the return of funds to players.” PokerStars, which also saw its founder indicted and bank accounts frozen, re- funded American players their money. But Full Tilt and Absolute/UB haven’t, and it’s absolutely fair to ask why. For its part, Full Tilt blames the failure to repay players on a series of unfortu- nate circumstances. It claim that in the two years prior to the April indictments and bank seizures, the U.S. government had seized $115 million in player funds and a payment processor had stolen an additional $42 mil- lion in player funds, and that combination of factors has left it in a position where it cannot pay its players unless it receives a cash infusion. Even if you’re willing to give Full Tilt the benefit of the doubt and accept this explanation at face value, it still leaves the question of what the regulators were doing while all of this was going on. Did regulators know Full Tilt had $157 million seized or stolen over the past two years? If they did, what steps did regulators take to make sureFull Tiltwouldhave the funds to pay all players if some- thing catastrophic happened? And if the regulators didn’t know Full Tilt lacked reserved funds, why didn’t they know it? Was Full Tilt commingling play- er funds with operational funds? What about Absolute/UB, which also hasn’t paid back players? The expectation from players and gov- ernments is this is what regulation is for. But the regulators are nowhere to be heard from. The Alderney Gambling Control Commission suspended Full Tilt’s li- cense, but hasn’t said publicly what it is doing — or what it has done — out- side of collecting a check from Full Tilt for outstanding licensing fees (and shouldn’t that money have gone to the players?) and publicly stating Players and the industry need to know that regulators care about things like accounting procedures and commingling of funds. They need to know that regulators care about keeping player funds safe. They need to know that when things are going wrong, regulators will step in to fix things.” ‘‘ 30 Regulators! Mount up!