Last week, the U.S. Attorney for the Southern District of New York and the FBI announced the indictment of 11 defendants (including the founders of three large Internet poker sites) with bank fraud, money laundering and illegal gambling offenses.
Civil money laundering charges were also filed against the popular online poker sites PokerStars, Full Tilt Poker and Absolute Poker in the case of United States v. Scheinberg, et al.
“[T]hese defendants concocted an elaborate criminal fraud scheme, alternately tricking some U.S. banks and effectively bribing others to assure the continued flow of billions in illegal gambling profits,” said Manhattan U.S. Attorney Preet Bharara. “[I]n their zeal to circumvent the gambling laws, the defendants also engaged in massive money laundering and bank fraud.”
The DOJ seized the companies’ domain names, accounts and even monies stored by players.
Critics say that although online wagering is not illegal in the United States, the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) creates a confusing environment for payment processing.
“Interestingly, the entire criminal complaint revolves only around alleged bank fraud,” said Business Law Professor Dr. Joseph Kelly of University at Buffalo.
Dr. Kelly, an attorney and gaming law authority who has helped countries such as Antigua write their gaming laws, said he’s not sure why Bharara is so interested in going after online gambling operators.
“This is basically a regional thing,” he said. “Most [U.S. attorneys] are not interested in this. It’s silly and may have the effect of driving out reputable sites and replacing them with individuals at shady sites who may not have the same record of stability.
“Would you rather play here or take a chance offshore?” Dr. Kelly continued. “Of course, players would rather play where they know its stable and solvent.”
He likened it to Prohibition-era prosecutions in which legitimate business operators were replaced by less savory operators.
Bharara’s press release said that the UIGEA makes it a federal crime for gambling businesses to “knowingly accept” most forms of payment “in connection with the participation of another person in unlawful Internet gambling.”
Dr. Kelly lamented that legalization bills in Congress have gone nowhere, although he is encouraged by the introduction of legislation from U.S. Reps. John Campbell (R-Calif.) and Barney Frank (D-Mass.), as well as comments from Sen. Orrin Hatch (R-Utah) encouraging regulation of online poker.
Michelle Minton, a policy analyst at the Washington, D.C.-based Competitive Enterprise Institute, said the online poker sites are providing a service Americans clearly want and questioned what sense it makes to “turn these businesses and customers into criminals.”
Supporters of online poker and gambling sites argue regulation would be easier if it was legal and there was the possibility of significant tax revenue.
Dr. Kelly said the problem with the federal UIGEA law is “it never defines what is illegal gambling” and for the federal indictment to be successful, the defendants’ actions must also violate New York state gambling laws.
“Is this a violation? Nobody is sure it’s so up in the air,” he said. In New York, law reviews and judicial decisions have indicated poker is a game of skill, not chance, meaning there is no violation of state law in this case.
On Wednesday, the government announced it had reached agreements with two of the online sites, PokerStars and Full Tilt Poker, and will restore their domain names so they can return money to U.S. players.