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Hypothetical scenario, you have a gigantic profitable organization which the United States has deemed illegal. Let's say the company is an online gambling firm. The US has opened up an indictment against you, your company, and others who work for you. They even have your CEO in custody. You, however, and your company are based off-shore. This means the country you are in would have to decide whether to extradite you to the US, or not, to stand trial. What do you do? How about if it wasn't hypothetical at all? What if it was very real and you had a whole team of lawyers telling you what to do? Do you think they would tell you to stay or to go? This is a fascinating case from a law point of view. Marty Woelfle is the federal prosecutor attempting to charge Betonsports and when she went before a judge last week to state her case she was left in a curious dilemma. She was there alone. The Betonsports side neglected to come. The Department of Justice has opened a 22-count indictment against Betonsports PLC which includes charges of racketeering, fraud, and tax evasion in St. Louis. David Carruthers, the chief executive officer of Betonsports is in jail. He was arrested while on a lay-over in the US on his way to Costa Rica. Immediately after his arrest he was fired by his company. Like everything, there's a catch. According to Betonsports they don't operate in the US. Their headquarters are in Costa Rica and they have more offices in Antigua. As such their legal counsel advised that there was no reason to respond to the US charges filed against them, according to what Woelfle told U.S. District Judge Carol Jackson. How do you fight someone who isn't there and won't recognize there's a problem? It's like telling the wall you're angry. It just doesn't care. That is what makes this such a key test case. The US government is attempting to crack down on internet gambling. There is anti-internet gambling legislation which has passed the House of Representatives and is waiting to get voted on in the Senate (but probably won't make it to vote, which means it won't be passed). Coupled with this case the future of internet gambling as we know it could change significantly. The US is the largest market for the online gambling industry, collecting half of its annual take of $12 billion from US players. "This may very well signal that the (U.S.) Justice Department is going to allow the U.S. attorneys to take this issue much more seriously than they have in the past," said William Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada, Reno. "If the BetOnSports prosecution is successful, it could change the industry landscape," he added. "You basically have a very chilling effect on the entire U.S. segment of the market," Eadington said. I can't tell you how much I want Betonsports to succeed. The US shouldn't be a hypocritical nanny state telling its citizens how they can spend their money. Plus if they fail the entire industry will be affected and that could mean my job (for want of full disclosure). On the other hand, if Betonsports succeeds then other internet gambling companies will be encouraged. The difficulty for the prosecution is the fact that they are going after a business that transfers money from private computers to offshore bank accounts. "What has made it difficult is that these businesses have been structured to avoid prosecution," said U.S. Attorney Catherine Hanaway, who is leading the case against BetOnSports. This makes sense. Why structure your company in a way to encourage prosecution? Just getting the company to court is a game of cat and mouse. According to the Washington Post, "Executives live in countries like Costa Rica that make it difficult to extradite defendants to the United States. Even serving routine court papers is a headache involving international treaties." Like everything in life, part of the reason why the US is going after these companies is for the money. The $6 billion leaving the US every year goes without paying excise taxes. We all know how scary the IRS is when they get angry. Of course, if the industry was regulated in the US these companies would gladly pay excise tax. But that's another story. "Because the industry is illegal and unregulated and very large amounts of cash are transferred, it has the potential to create other problems," Hanaway said. The fear the US has is of money laundering. Not necessarily by the owners of the casinos, but by the players. In the US, land-based casinos have laws that they must declare anyone who wagers over a certain amount. There is also a law where they must declare anyone who wins over a certain amount. There are no laws with the online gambling industry because the US refuses to recognize them. Just to make things that much more complicated for Woelfle there's the issue of whether Betonsports was properly served. Since Carruthers was fired upon arrest serving him the documents for his company may not count. Now the US government may need to serve BetOnSports in its London office, a process that involves complicated international treaties. There is an upside in all of this for Woefle, the Justice Department won a restraining order against BetOnSports which bars it from taking U.S.-based bets until August 14th. So far the company is complying. However, when Woefle tried to make the restraining order permanent she ran into a wall. It seems that the company needs to serve those papers properly first, and as mentioned previously that requires treaties. My guess is Betonsports is buying time. They have been taken off the London small stocks exchange but their site will probably be back up come August 15th, once the restraining order is removed. The owners and operators will have gone into hiding and poor David Carruthers will be the fall guy for this whole mess. Posted on: August 6, 2006
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