Last week, the U.S. Department of Justice unsealed an indictment against the principals and others associated with three of the largest Internet poker sites (Pokerstars, Full Tilt Poker and Absolute Poker). The 11 named defendants — Isai Scheinberg, Raymond Bitar, Scott Tom, Brent Beckley, Nelson Burtnick, Paul Tate, Ryan Lang, Bradley Franzen, Ira Rubin, Chad Elie, and John Campos — were charged with fraud, money laundering and illegal gambling offenses. A civil money laundering and forfeiture complaint was also filed against those sites and their payment processors.
Since the enactment of the Unlawful Internet Gambling Enforcement Act (“UIGEA”) in 2006, it has been illegal for gaming sites to “knowingly accept” most forms of payment “in connection with the participation of another person in unlawful Internet gambling.”
Because U.S. banks and credit card issuers were largely unwilling to process their payments, the poker companies allegedly used fraudulent methods to circumvent federal law and trick these institutions into processing payments on their behalf, according to the indictment.
$3B Sought, Domains Seized
For example, Pokerstars, Full Tilt Poker and Absolute Poker arranged for the money received from U.S. gamblers to be disguised as payments to hundreds of nonexistent online merchants purporting to sell merchandise such as jewelry and golf balls, the indictment states. Of the billions of dollars in payment transactions the poker companies tricked U.S. banks into processing, approximately one-third or more of the funds went directly to the poker companies as revenue through the “rake” charged to players on almost every poker hand played online.
To accomplish their fraud, the DoJ alleges, the poker companies worked with an array of highly compensated “payment processors” that obtained accounts at U. S. banks for the poker companies. The payment processors lied to banks about the nature of the financial transactions they were processing, and they covered up those lies by, among other things, creating phony corporations and websites to disguise payments to the poker companies.”
The indictment and civil complaint seek more than US$3 billion dollars in money laundering penalties and forfeiture from the poker sites. The District Court has also issued an order restraining “approximately 76 bank accounts in 14 countries containing the proceeds of the charged offenses.” The United States has seized the following domain names from the companies: PokerStars.com, FullTiltPoker.com, AbsolutePoker.com, Ub.com and Ultimatebet.com.
US at Odds
The legality of the UIGEA itself was challenged by Antigua in March 2003. Antigua alleged that the law was a violation of the General Agreement on Trade and Services (“GATS”) to liberalize trade in services for the gambling and betting services sector.
In 2004, the WTO agreed with Antigua that the law impermissibly discriminated against foreign businesses by not allowing them to provide to U.S. citizens services that are provided by domestic companies — a violation of GATS. The U.S. appealed the decision, but the WTO panel again sided with Antigua, holding that the UIGEA violated the U.S.’ obligation under the GATS provisions requiring open market access.
Yet, the law apparently remains in full effect, making a bad situation for online poker even bleaker.