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Internet gambling industry experts are spending a lot of time these days analyzing why the Department of Justice (DoJ) decided to focus on Betonsports and not a major player like PartyGaming. Earlier this month the CEO of Betonsports was arrested for several federal crimes, including money trafficking and tax evasion. Does this mean that all owners and company heads of internet casinos are at risk, or was it something specific about Betonsports which pissed off the US government? Missouri Attorney General Catherine Hanaway's statements lead us to believe that more will be on the way. "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." "…one in a series of actions" is the key bit which caught my attention. This is a blatantly stating that they intend to go after more individuals. Just because the cases haven't been officially released yet don't mean that they aren't being worked on. Perhaps they are waiting for other internet casino owners to travel to the United States. Of course, Betonsports was a fairly easy target. No one can argue that they were breaking the law. The 1961 Wire Act clearly states that telephone betting is illegal. Any online casino, sports book, or poker room which allows players to place bets over the phone is begging to be busted by the United States. The other previous arrest which resulted in jail time was Jay Cohen, an owner of a sportsbook who served two years in jail for owning a sports book which allowed for phone bets. There have been numerous other cases against sports books by the DoJ, however there have been none against online casinos or poker rooms which only allow for internet betting. This could be why the DoJ statement was not as threatening to the internet casino industry. Jackie Lesch, the spokesperson for the DoJ said the indictment against BetonSports was consistent with preceding US policy, and stressed that the DoJ had no intention to prosecute all US-facing operators. She added that "Under three federal statutes online gambling is illegal, both sports betting and casino games." Lesch was asked why the DoJ went after Betonsports instead of PartyGaming. Her reply was vague but telling, "We weigh up the evidence and pick the cases that we think will have the greatest deterrent effect." There is no way that could be true. If the DoJ were to go after PartyGaming and win it would have serious consequences for the entire industry. This is the largest and most profitable poker room on the internet. The only reason why the DoJ isn't setting their sites on PartyGaming is that the law regarding internet gambling is too vague. Mitch Garber, CEO of Party Gaming is also aware of this loophole for his company. "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, also noted that the indictment seemed to be focused on the Kaplan family and phone betting. “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.” Even Republican Representative Bob Goodlatte, the co-author of HR 4411 and HR 4777, two anti-internet gambling bills says that the law isn't clear enough to prosecute an internet casino. "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." However, the DoJ wants PartyGaming to stay on their toes. Another DoJ spokesman, Brian Sierra said: "The view of the Department of Justice is and has been that Internet gambling is illegal." Sierra adds that Congresses efforts to clarify the law have nothing to do with the DoJ's opinion of the issue. "We're not trying to send a grand scale message here," he said. "We've been saying it for years: Internet gambling is illegal." I don't think that the DoJ could get off-shore internet casino companies on racketeering charges, but they may be able to get them on the tax evasion. With that said, they have yet to go after anything that isn't a sports book which allows for phone bets, as that is the easiest to prosecute and win. Mark Grossman, US technology lawyer and the author of the "TechLaw" column has a clever attitude towards the Betonsports indictment and what it means. "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." If past behavior predicts future behavior then only sports book operators have something to worry about. The Department of Justice can not afford to lose a case against an internet casino, so they will only go after those they know they can prosecute. Off-shore sports books are clearly illegal. Off-shore phone bets are clearly illegal. Betonsports was clearly illegal. In other words, PartyGaming is safe for now. Posted on: July 30, 2006
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