When David Carruthers was arrested in 2006 after touching down on American soil, Attorney General for Missouri Catherine Hanaway gleefully unsealed the charges against BetonSports, claiming that the company was guilty of illegal gambling and racketeering. Hanaway suggested that all gambling including horse racing is illegal if conducted online (contrary to what the UIGEA and IHRA state). Hanaway, who has stated she hates all gambling, was instrumental in forcing many gambling sites, including BetonSports, to sell their U.S. facing businesses to other interests, and in fact forced some companies to fold outright. Her strategy, along with others at the DOJ, has been to justify arrests by claiming that online gambling is ripe for terrorist money laundering and fraud.
Upon unsealing the charges Hanaway stated the following:
This is a very large amount of money flowing on an unregulated basis out of the US. Any time that much money's flowing outside the US, there are concerns about its destination. Under US laws, legitimate large flows of money are required to be subject to suspicious activity reports.
The head prosecutor in the BetonSports (BoS) case for Missouri was Assistant U.S. Attorney Mike Fagan who had sought arrests against all directors of the company since 2004. Fagan was instrumental in the extradition of Gary Kaplan from the Dominican Republic, and his plea in front of a judge upon Kaplan's return convinced the courts to deny bail to the former BoS director. Fagan was adamant that the BoS crimes were so egregious that he was willing to follow the case to other states to prosecute Kaplan and Carruthers if those cases were moved from Missouri. He wanted to ensure the prosecution didn't fail to act on any level and that all prosecution tactics against BoS were used.
It appears, however, that things may have changed at the beginning of this year. Fagan quit the attorney's office in January, and Steven Holtshouser was appointed as the prosecutor in the case. According to a source very close to the situation, Holtshouser has made it clear he does not think the case against BoS is all that strong and more importantly is a waste of valuable resources. Consequently the source has stated that Holtshouser has indicated he wants the whole case to simply go away. I contacted Steven Holtshouser directly to see if we would affirm or deny the claims, but he simply replied with "no comment." His decision not to deny the claims may speak volumes. To add fuel to the speculation, federal prosecutor Marty Woelfle, who to date refused to accept any plea bargaining on the case, last week asked to withdraw from the case altogether. As many will recall, Woelfle was the attorney in charge of the federal indictment against BetonSports in August of 2006, which was ignored by BoS attorneys. Woelfle was absolutely insistent that BoS directors and all online gambling operators had to be prosecuted to the fullest extent of the law.
So the question that has to be asked is this: What has happened in two years that has convinced the staunchest anti-gambling prosecutors to withdraw their interest from the case? The answer is likely, "nothing." In better words, in two years the federal government has done absolutely nothing to help the prosecutions of online gambling operators. The government rammed through the UIGEA in October of 2006, but the Treasury Dept. has drafted no enforceable regulations. To date no meaningful regulations have been drafted for the UIEGA and it is evident that the banking industry has no plans to write the regulations for the government. Furthermore, two weeks ago a bill was put before Congress that simply asked for a definition of what constitutes "illegal gambling" so the the banks could identify which transactions to be on the lookout for---the bill failed to pass Congress. As well, at the end of 2007 the United States Supreme Court told U.S. Attorneys to stop using money laundering as a catch-all prosecutiorial tactic for all crimes, and they dismissed charges against a bookmaker who was charged with money laundering and fraud, stating that the money laundering prosecution was only relevant if money is used in the promotion of an illegal activity. Simply stated, money Laundering cannot be used as a prosecution tactic if the person in question simply uses the banks to pay bettors who win. Money laundering laws were enacted in 1986 to stop the flow of money from serious criminal activities, such as drug running and terrorist activities, yet over 1,000 people a year are being charged with money laundering for all kinds of crime, including operating an online gambling business. This puts prosecutors in a real pickle. If courts won't uphold money laundering charges in these online gambling cases, and if the UIGEA is a paper tiger, then the only crime gambling operators can be charged with is the 1961 wire act, which the government did use to prosecute Jay Cohen at the beginning of the decade. But there is still issue as to whether the wire act is applicable to bets placed on the internet, and more importantly it is almost universally accepted that the wire act does not apply to online casinos and poker games, which constitute the bulk of online betting by Americans. So in better words, while the prosecution can try to arrest a few offshore sportsbook operators, they may have no case if the directors of places like Full Tilt Poker or PokerStars ever stepped foot in the United States.
As well, there can be no question that prosecutors are frustrated by the fact that their prosecutions are doing nothing to stop the activity. The arrest of Jay Cohen has not stopped Americans from playing at World Sports Exchange or other sportsbooks; the arrest warrants issued against the operators of Party Poker and 888 gaming have not stopped Americans from playing at other poker sites, and the threat against Americans used by the extortive tactics employed when the DOJ seized money in transit at NETeller has not stopped Americans from finding other options to transfer money offshore. Sure, getting money in and out is tougher than before, but where there's a will there is always a way. Further, advertising for gambling websites using a .net extension that is ?for informational purposes,? rather than the .com "for money" site, ensures that Americans are aware of all the offshore betting opportunities available to them. Some people also believe that Woelfle's decision to quit the case may be a move to keep her job. If Barak Obama is elected as expected in November, there will almost certainly be a shake up at the DOJ and it is unlikely that those taking over as prosecutors will care enough about the issue to try and prosecute it vigorously. Professor of law and attorney Nelson Rose, who has been a big advocate of the gambling industry, stated the following to me:
Not only will Obama change the staff and direction of the DOJ, but there will be a new Congress. The bill by Barney Frank and Ron Paul to kill the UIGEA regulations failed by one vote on a straight party line vote. The Republicans' talk about the evils of internet gambling is like something out the 1950s. Yes, children have to be protected and organized crime prosecuted. But most Americans, including many conservative Republicans, don't feel it is the federal government's job to tell adults what they can do in the privacy of their homes when they are not harming anyone else. I believe prosecutors are not anxious to go after internet gaming, which may be made legal next year.
Furthermore, let's not forget that the WTO issue is still hanging over the government's head. While the U.S. and the E.U. appear to have come to an agreement that gives the E.U.?s blessing to the United States to withdraw its gambling commitments, it appears both sides are having cold feet about the deal. There is a call from many in Congress demanding that the USTR release more details on exactly what they have given up in the negotiations and what the ramifications are, and some right wing groups are furious that the U.S. gave up any concessions at all. And in Europe there is a huge groundswell movement demanding that the E.U. back down from the deal. The RGA is particularly upset about the DOJ arrests of European operators, including David Carruthers, and it appears that Peter Mandelson, the EU commissioner, may agree. "Discrimination against E.U. companies cannot be part of the policy mix," Mandelsson said following the RGA?s complaint and months after the E.U. agreed to the concessions with the USTR. One can only assume, therefore, that there may have been an agreement in principal by the USTR to drop charges against EU operators in exchange for the December 2007 agreement of which the U.S. failed to live up to. Plus, Obama or McCain could be faced with inheriting a situation where Antigua is selling DVDs, CDs and computer software for pennies, rousing the ire of companies like Microsoft and the music industry as a whole.
The whole offshore gambling issue is a no-win situation for prosecutors, and nothing frustrates prosecutors more than being given cases that are not winnable. Furthermore, despite the spin being put on the issue by the likes of Hanaway and Spencer Bachus, no one with half a brain seems to be buying that the arrests are necessary to combat terrorist activities. Numerous reports have been published showing it is far easier to launder money at a land based casino than it is online, yet the government has no intentions of trying to stop land based casinos from operating. As well, the argument is not winning favor with the majority of the voting public. To those who are pro-online gambling, the prosecutions are being met with anger and votes against those who oppose it. It has been widely reported that Jim Leach's loss in the 2006 mid-term elections was predominantly due to an organized campaign to unseat the 30 year governor, orchestrated by many online gambling groups and particularly the Poker Player's Alliance who asked the hundreds of thousands of Ohio online gamblers to vote against him. On the other hand, those who are against online gambling are meeting the whole issue with a yawn. Horse racing is already being offered remotely and it is just accepted by most Americans that sooner or later Harrah's and other gambling entities in the U.S. will be offering other forms of online gambling at some point in the future. The money is just too great not to.
One can only conclude, therefore, that someone high up in the DOJ's office has given the directive not to bother with arrests of offshore operators until the law is clarified, a new government is in place, and it is clear what the prosecutors can charge them with. In the meantime the DOJ will use the threat of prosecution and scare tactics against the public to dissuade offshore gambling but will likely do nothing in terms of seeking further arrests.
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