Online Gambling Indictments- DOJ Reaches Beyond U.S. Borders

The U.S. Attorney for the Southern District of New York (SDNY) and the FBI announced that two Canadian citizens, Stephen Lawrence and John Lefebvre, were arrested January 21 in connection with the creation and operation of an internet payment services company, Neteller, that facilitated the transfer of billions of dollars of illegal gambling proceeds from U.S. citizens to the owners of various internet gambling companies located overseas. ^[1] Internet payment services companies allow gambling companies to transfer money collected from U.S. customers to bank accounts outside the United States.^[2] According to Neteller’s 2005 annual report, the company provided payment services to more than 80% of worldwide gaming merchants and in 2005, processed over $7.3 billion in financial transactions.^[3]

At the time that the defendants took Neteller public, the company acknowledged in its offering documents that U.S. law prohibited persons from promoting internet gambling, and transmitting funds that are known to have been derived from criminal activity.^[4] The company’s directors also conceded that they were risking prosecution by the government of the United States under existing or future federal laws. ^[5]

Both the operation of an internet gambling operation and the transferring of the proceeds from these businesses overseas are illegal under the "Unlawful Internet Gambling Enforcement Act, which prohibits online gamblers from using credit cards, checks and electronic-fund transfers to place and settle bets.^[6] Internet gamblers typically set up accounts at offshore businesses, and place and settle bets using credit cards and checks that are converted in electronic currency.^[7] Instead of targeting gambling, the new law seeks to block the financial transactions that allow the games to happen.^[8] The law leaves enforcement up to banks and other U.S. financial institutions, some of which fought the legislation. ^[9]

Lawrence and Lefebvre are both charged with conspiring to transfer funds with the intent to promote illegal gambling.^[10] If convicted, both defendants face a maximum sentence of 20 years imprisonment.^[11]

This prosecution is part of the U.S. Department of Justice’s (DOJ) effort to combat internet gambling through, among other things, the implementation of the federal anti-money laundering statutes.^[12] The DOJ maintains that the 1961 Wire Act, written to prohibit betting transactions via telephone, applies to the Internet.^[13]

Since the boundaries of the two nations are crossed by money from the United States wired to the United Kingdom, it makes the crime “transnational” and gives the U.S. jurisdiction over companies and individuals in other countries.

Other recent indictments of the DOJ include two offshore internet gambling companies – Worldwide Telesports, Inc. and BetonSports, PLC, a publicly traded holding company that owns a number of Internet sportsbooks and casinos, and its founder, Gary Stephen Kaplan.^[14]
In July 2003, one of Neteller’s competitors, PayPal, and its parent company eBay, entered into a civil settlement agreement with the United States Attorney’s Office to settle allegations it aided in illegal offshore and on-line gambling activities. ^[15] As part of the agreement, PayPal agreed to forfeit $10 million, representing proceeds derived by PayPal from the processing of illegal gambling transactions.^[16]

Additionally, subpoenas have been issued from the SDNY to at least 16 banks in the United Kingdom, including HSBC, Dresdner Kleinwort, Credit Suisse and Deutsche Bank.^[17] The banks were co-brokers or advisors of large online gaming companies when they raised monies for their initial public offerings.^[18] London, the fundraising center for internet gambling, is the focus of the DOJ investigation.^[19]

The demand for emails, telephone records and other documents form part of a controversial international push by the DOJ to build cases against individuals and companies who profit from online gambling in the U.S.^[20] U.K. banking sources are outraged saying the DOJ is going after parties several steps removed from the business of gambling and that this appears to be another case of extra-territorial action from U.S. authorities. ^[21] Senior bankers have called the British Government to spell out the limits of the U.S. authorities’ reach.^[22]




[1] U.S. Charges Two Founders of Internet Payment Services Company, Technology News Daily, January 19, 2007.
[2] Id.
[3] Id.
[4] Id.
[5] Id.
[6] Frank Ahrens, U.S. Outlaws Internet GamblingThe Washington Post, October 4, 2006.
[7] Id.
[8] Id.
[9] Id.
[10] U.S. Charges Two Founders, supra note 1.
[11] Id.
[12] Id.
[13] Ahrens, supra note 6.
[14] U.S. Charges Two Founders, supra note 1.
[15] Id.
[16] Id.
[17] Rhys Blakely, Outcry as U.S. Targets City Firms Over Online Gambling, The Times, January 22, 2007.
[18] Id.
[19] Id.
[20] Id.
[21] Id.
[22] Id.