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Why is NETeller Leaving Canada?...By Hartley Henderson

On Monday April 9th, NETeller will no longer process gambling transactions for Canadians. They announced that Canadians can still use the company for non gambling transactions but aside from a few internet mom and pop operations the company doesn't have any other merchants. A recent press release by the company has stated that they want to focus on the Asian market which is the fastest growing part of their business and also Europe which is becoming more viable. Still, the Canadian government has given no indication that they have any interest whatsoever with regards to banning online gambling, so it seems odd the company would just give up this major part of their revenues without provocation. As usual, the company refused to provide any more details for their decision, which leaves us to speculate. So we'll look at the facts and try to deduce what possible reasons NETeller has for leaving the Canadian market.

When the UIGEA was passed in October of 2006 it became obvious to everyone in the industry that the law was going to be ineffective so long as offshore companies like NETeller continued to process U.S. gambling transactions. After all, credit cards and western union for all intents and purposes had already been cut off as deposit methods for casinos, sportsbooks and poker rooms, so the law had little teeth. For that matter MSNBC and major newspapers published articles stating that U.S. law would be ineffective so long as operations in other countries continued to cater to Americans. NETeller made an announcement that they were prepared to take their time to review their options, but in the interim they were going to continue to process transactions from all countries. The U.S. department of justice at that point clearly had NETeller on their hit list, and in January arrested the NETeller founders Stephen Lawrence and John Lefevre to see how the company would respond. It worked like a charm and NETeller ran screaming from the U.S. gaming market.

They immediately cut off accounts of U.S. customers and issued a press release that was so vague, it made many Americans with fair sums of money tied up in the company quite nervous. The following week it had become clear that Americans who had made ETF withdrawals were not getting those transactions filled, as U.S. banks refused to process them, resulting in American customers looking for alternative methods of getting the money out. One of the favoured methods was to ask counterparts in other countries to take a p2p transfer from them and then send the money back to them via bank wire or Western Union. Naturally, most of the American peers were from Canada. Following a couple of days of p2p transactions, NETeller not only stopped peer to peer transfers from Americans, but also temporarily closed the accounts of those in the other countries who took the transfers. The following week the U.S. department of justice seized all U.S. funds in NETeller's EFT system.

By the end of Feburary, NETeller was clearly on the ropes and it was evident that Canadians were vulnerable. The company laid off the Calgary staff and started slow paying ETFs for those Canadians that had done p2p transfers. In fact, issued a statement that Canadians should withdraw their money as soon as possible citing concerns about NETeller's future viability. In the interim, the Southern district court of New York twice postponed the start of the prosecution against Lefevre and Lawrence. And then on March 26, shortly after the second continuance, NETeller announced that they were cutting off Canadians from making deposits to gambling companies effective April 9th. In the press release they stated the following:

The Group continually assesses the risk profile and status of the markets its serves. Recent actions by regulators, payment processors, and online gaming operators have increased the uncertainty around certain activities related to online gambling in some jurisdictions. The Board of Directors of the Company reached a decision, on 25 March 2007, that the risk to the Group's ongoing business in Canada and Turkey has increased in the light of such developments. The Board has therefore concluded that the Group will no longer process transfers related to online gambling sites on behalf of Canada or Turkey resident customers.

The reason the company cut off Turkey is clear. Turkey has stated that they believe online gaming companies are a threat to their betting monopoly and asked that NETeller stop processing transactions there. But what exactly is the company referring to in regards to Canada? In conversations with various Canadian politicians, Canada has not expressed concern with NETeller processing, and in fact online gambling is not even on the the radar screen. Emails to both liberal and conservative MPs asking what their policy is in regards to online gambling resulted in a similar response from each:

Gambling in Canada is an area of provincial jurisdiction. It is up to each provinces to set their own laws in regards to gaming.

In better words: "there are no political points to score on this issue one way or the other at the federal level so we really don't care. If the provinces want to change the laws have them approach us."

Emails to provincial politicians in Ontario and BC were met with indifference, so clearly online gambling is hardly a priority in Canada at the current time. So what exactly is this uncertainty in Canada that NETeller is talking about?

The only logical conclusion is that the "political uncertainty" in Canada has nothing to do with the Canadian government, but rather the U.S. department of justice who is concerned about online gambling to the north of its borders. Naturally, the U.S. government isn't worried what Canada does in relation to its domestic gambling laws, but they are concerned if they view Canada as a threat to their national interests. After all, the U.S. deported Maher Arar to Syria despite being a Canadian citizen, where he was tortured. Later, Canada learned that the information provided to them by the U.S. government was false and the deportation was unnecessary. When Canada complained to the U.S. government about the situation and asked the U.S. to remove Maher Arar from their don't fly list, the U.S. essentially told Canada to kiss off. U.S. Ambassador to Canada Dave Wilkins chided the Conservative government in Canada for making such a suggestion, stating that only the United States will decide who it wants in America and Canada has no business interfering in U.S. internal affairs. As well, after 9-11, the United States government, in statements spearheaded by Hillary Clinton, blamed Canada for letting the terrorists in to the United States and then told Canada to mind their own business when this was proven to be false and Canada demanded an apology for the statement.

And recently, despite protests from the Canadian government that it would harm free trade and ease of travel, the U.S. demanded that Canadians now produce passports when entering the United States claiming that they and only they will determine the U.S.'s own interests. So putting 2 and 2 together, one must assume that the U.S. DOJ, realizing the Canadian government wasn't going to stop NETeller from operating in Canada, took it upon themselves to "help" NETeller and Canada with that decision. The fact that the current update on NETeller's website cites the arrests of former NETeller management and employees as a prime reason for leaving the U.S. market (the first time they actually acknowledged this was a primary reason), and the fact that said arrests have been delayed twice makes it clear that the U.S. DOJ is looking to work out a deal to drop the charges in exchange for NETeller helping the IRS get customer information and to also leave the North American market altogether. After all, Lefevre and Lawrence are Canadian citizens.

The timing of the announcement that NETeller will leave Canada coincided with Navigant and the USAO becoming involved in the forensic accounting of NETeller, making one speculate that Navigant observed the p2p transfers from Canadians to Americans just prior to the seizure of funds, and also likely noted many Americans trying to keep accounts open with Canadian addresses. Consequently the U.S. DOJ likely flagged Canada as a source of U.S. money laundering and asked NETeller to stop catering to the Canadian market. As well, it appears that NETeller is trying to rid itself of all Canadian influence with the removal of Dale Johnson as its director of Asian operations.

It's truly unfortunate that Canada has been caught up in the NETeller fiasco through no fault of its own, but at this point the U.S. Department of Justice is calling the shots, and if they perceive Canada as a threat to their "moral stance", it will take action. Prior to launching the war in Iraq, George Bush had a meeting at the White House where he named Britain as the United States' closest friend and ally. In fact, Canada was never even mentioned in the speech despite having forces in both Iraq and Afghanistan. When several Canadian news outlets asked about the snub, George Bush laughed it off stating that he didn't need to mention Canada in speeches since "Canada is like a little brother" and the relationship is just assumed. Unfortunately, as many families know, when the little brother doesn't follow their big brother's wishes, often the big brother will take it upon themselves to show the little brother who is the boss, particularly when the big brother is a bully. On the bright side, at least most other payment options and sportsbooks, casinos and poker rooms are still open to Canadians---at least for now.

Hartley Henderson

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