The online gaming world seemed to be turning around Mr. Carruthers this week, and today is no exception. High time for our second installment of the "Carruthers files" where we learn that (1) nobody's got a clue what the federal action is really all about, (2) Costa Rican Vice President tells US DoJ politely to back off, and (3) John Stewart from the Daily Show explains why online poker should be banned in a YouTube video.
Conflicting signals from the DOJ?
The huge coverage and focus on every word uttered by officials and
lawyers on the BetonSports issue this week has understandably led
to company execs trying to fathom what the federal action is really
all about.
One of the burning questions has been whether the action taken against
BetonSports and its people is company-specific (ie aimed at nailing
a high profile company that has allegedly questionable origins and
a sports telephone betting record) or is the start of a wider persecution
of industry activities in the United States?
Certainly the hardass initial statements of Missouri AG Catherine
Hanaway gave the impression that there was more to come. She said:
"Illegal commercial gambling across state and international
borders is a crime. Misuse of the Internet to violate the law can
ultimately only serve to harm legitimate businesses. This indictment
is but one step in a series of actions designed to punish and seize
the profits of individuals who disregard federal and state laws."
However, later statements by DoJ spokesfolks had a milder ring. Jackie
Lesch said the indictment against BetonSports was consistent with
previous US policy, and emphasized that the DoJ did not intend to
go after all US-facing operators. She added that "Under
three federal statutes online gambling is illegal, both sports betting
and casino games."
Asked why the DoJ had picked on BetonSports rather than, say, PartyGaming,
she said: "We weigh up the evidence and pick the cases
that we think will have the greatest deterrent effect."
Mitch Garber, CEO of Party Gaming countered: "I would ask
the DoJ that if online gambling is illegal, why are there three Bills
waiting to go to the Senate trying to make online gambling illegal?"
Jon Tarasewicz, a leisure analyst at Deutsche Bank’s City arm,
seemed to agree with Garber, saying that the action may be aimed specifically
at the Kaplans and their associates. The family had run physical gambling
operations before going offshore and BetOnSports made greater use
than rivals of telephone betting, in contravention of the Wire Act
in America.
Tarasewicz said: “If this is not driven by trying to get
at the founders and is genuinely the start of an industry clampdown,
the timing seems odd, given that politicians have passed legislation
through Congress whose whole point is that existing legislation is
not robust enough to prosecute anyone.”
Rep. Bob Goodlatte, arch-enemy of online gaming in the House of Representatives
seemed to admit that the question of illegality was not as cut and
dried as Department of Justice spokesmen believe it to be. Praising
the actions of the DoJ, he said: "We join with them in
trying to make it clear that the law covers all forms of gambling.
It is quite clear that the Wire Act covers sports betting, [but] the
Wire Act because it was written in 1961 is not at all clear as to
whether it covers other forms of gambling."
The existing law does not clearly ban such things as a virtual roulette
wheel, poker and other kinds of online gaming, Goodlatte said, also
drawing attention to the fact that executives with other overseas
gambling companies should take note of the prosecution.
Another DoJ spokesman, Brian Sierra said: "The view of
the Department of Justice is and has been that Internet gambling is
illegal," According to Sierra, the new laws and Congress' interest
in online gambling have nothing to do with the latest round of charges
lodged by the Department of Justice. "We're not trying to send
a grand scale message here," he said. "We've
been saying it for years: Internet gambling is illegal."
Sierra’s comment to Dow Jones Newswires earlier in the week
downplayed suggestions the indictment may trigger a clampdown on the
online gaming sector. "I wouldn't read too much into one
indictment. It is obviously a fairly significant case on its own with
a number of defendants," he said.
Sierra says the department's position is and has always been that
anyone either in or outside of the U.S. who operates illegal online
gambling operations to take bets from U.S. residents is committing
a crime. Period.
UK gaming lawyer Hilary Stewart-Jones believes that much of the Department
of Justice’s tactics are based on scaring the industry into
compliance.
“I don’t think it’s going to be part of a
flat-out campaign to prosecute everyone associated with online gambling,"
she told OCN. "I don’t think they [US Department
of Justice] have the resources or the appetite to do that… I
would imagine it is much more about putting a marker in the sand and
being seen to be taking action. The Department of Justice stance throughout
all of this has been to try and control by fear as a deterrent, rather
than pushing through clear legislation for example, or pushing through
to test cases and prosecutions, so the fear factor has featured largely
in deterring companies from going all out to take bets from the US.”
Several sector observers and analysts in London opined Tuesday that
investors were overreacting by selling off online gambling holdings:
“The indictment seems to be very BetOnSports-specific,
yet the market seems to be treating all online gaming companies in
the same manner,” said Wayne Brown, an analyst with Altium
Securities in London.
Martin Owens, a US attorney who specializes in online and interactive
gaming law, says "The arrest of David Carruthers represents
a giant step backward in American gaming policy. It serves only to
daunt and intimidate precisely that segment of the industry, which
is attempting to bring online gambling into a harmonious and useful
relationship with the licensed gaming regimes already in place. Grabbing
Carruthers does nothing at all against the true pirates of the industry
- to the contrary, it reinforces their position."
"There is a genuine controversy here, based on the fact
that Internet gambling is legal under the laws of at least 70 countries
at the same time that the United States purports to ban it,"
comments Owens. "I say purports because that is not a clear
law or decision. At the time of this writing, there is as yet no federal
law on the books unequivocally banning i-Gambling, and no federal
court decision to that effect. The issue of whether or not American
state or federal jurisdiction is invoked simply by the act of an American
contacting an offshore gambling site has not even been intelligently
addressed, never mind decided".
Mark Grossman, US technology lawyer and the author of the "TechLaw"
column, which has appeared as a weekly feature in the Miami Herald
adds to this sentiment:
"I don't think this [arrest] spells doom and gloom for
the industry. This has always been an industry where those in the
business understood the legal risks inherent in their operation. For
years now, the government has been aggressive in the public positions
they have taken about the legality of online gaming operations. The
fact is that the laws are ambiguous and Congress, after years of trying
to pass news laws that address the ambiguities, has not been able
get anything approved by both houses of Congress. So does the latest
arrest spell the end of the industry? Of course not. However, I suppose
that there will be fewer layovers in Dallas by executives involved
in an online gaming business."
Jim Halpert, partner at the DLA Pipe law firm in Washington, DC, said:
"The record of enforcement in this area is one of periodic
high-profile enforcement actions, designed to deter what the Department
of Justice views as ongoing systematic violations of US law."
US legal expert Anthony Cabot said that over the past decade, federal
officials have prosecuted many operators of online sports books with
U.S. ownership or operations because federal law prohibits using phone
wires to place those bets.
In a celebrated case from 2000, prosecutors won a conviction against
Jay Cohen, a U.S. citizen who ran an operation in Antigua that took
sports bets from Americans over the Internet. He was sentenced to
21 months in prison. But the wire law doesn't cover other types of
casino betting, a federal appeals court in New Orleans ruled. That
has left some doubt about whether prosecutors can shut down poker
and other casino games that target American players, Cabot said.
"The Justice Department has said [all] Internet gambling
is prohibited, but most legal experts would say they are wrong, that
this only applies to sports betting," opines Joseph Kelly,
a legal scholar at the State University of New York at Buffalo, who
has consulted for the government of Antigua and others on US law.
Kelly said it was an unusual coincidence that the indictment - which
was handed down in June but only unsealed this week - came in such
close contiguity to the House of Representatives passing a new bill
banning some, but not all forms of Web gambling in the USA.
"Why would Congress try to make something illegal if it
is already illegal?" he asks.
The Times says that Britain will refuse to extradite suspects for
breaking US laws against internet gambling. Extradition is an option
only if conduct is illegal in both the UK and America.
The Telegraph added to other independent reports that several senior
online gambling executives had been in the United States without hassles
very recently, and quoted analyst opinions that this may indicate
that the crisis was company-specific and not an all-out attack on
the industry.
Why the Costa Ricans declined to assist US feds in Betonsports quest
Earlier InfoPowa bulletins on rumors that US federal officials had
been denied assistance by the Costa Rican government on the BetonSports
investigation were confirmed by reports in local newspapers this week.
Costa Rica Vice President Laura Chinchilla revealed to the Tico newspaper
Al Dia that officers of the Caribbean Financial Action Task Force
(GAFIC) informed the Costa Rican government of an imminent strike
by the U.S. Department of Justice against Tico based businesses and
their executives [BetonSports] during a meeting held in San Jose last
week.
Chinchilla told the newspaper that Costa Rica has no law that regulates
the sports betting industry, therefore the government doesn't have
legal means to intervene and assist the DoJ in regard to its request
to extradite the company's founder Gary Kaplan.
Interpol Costa Rica told Al Dia that as of Wednesday they had not
been notified of the arrest warrant issued for Gary Kaplan, believed
to be resident in Costa Rica.
Meanwhile, the LA Times opined in a leader piece: "Instead
of hassling offshore gambling CEOs at airports, the feds should legalize
online betting. There's a far more effective way to bring Internet
gaming within reach of Uncle Sam: Legalize it."
"Maybe enough senators still believe in liberty and free
trade to defeat this bill. And maybe the FBI has more pressing tasks
than scouring tarmacs for the expatriate enablers of victimless acts."
the editorial concluded.
BetWWTS, a prominent sports betting operation that was also indicted
by the DoJ on May 16 2006, informed its customers that effective this
week the company will no longer accept bets via phone.
John Stewart on Net Neutrality and Online Poker