Tag: prohibition

Poker Prohibition Is Not Regulation

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When people want something, businesses arise to fill the demand.  How much more so when the activity, online poker, is not even clearly illegal?

If the commercial goods or services are not legal, then by definition, the organizations will be criminal.  Prohibition created modern organized crime, by outlawing alcoholic beverages.

When Prohibition was repealed, organized crime turned to things people wanted but could not get legally: prostitution, drugs and gambling.

When legal gambling began to spread, with insufficient safeguards to keep out the bad guys, organized crime used its experience to infiltrate.

Over the years and around the world, governments realized they had few options.  The only way to completely outlaw gambling would be to crack down on players almost as hard as operators.  This is not politically possible in a democracy.

Since prohibition does not work, the next best choice is to legalize gambling and put in strict regulations.

The federal government of the United States has decided to ignore these lessons of history and take the worst aspects of the choices available.

Every action by the federal government makes it more difficult for it to go after the next operator.  The UIGEA, rammed through by the failed politician Bill Frist (R.-TN), scared all of the publicly traded gaming companies out of the U.S. market.  Then prosecutors went after payment processors, making it more difficult for players to find legitimate ways to send their money to betting sites.

Now the feds have seized .com domain names and charged operators with bank fraud.  So, gaming sites are switching to .eu and .uk, and cutting off all physical contact with the U.S.  Even the present American operators can’t be extradited, so what hope is there for the DoJ to bring future foreign operators here to stand trial?

The criminal indictment against PokerStars, Full Tilt, Absolute and their founders, was unsealed by the U.S. Attorney for New York on April 15.  Why now?

Maybe this just happened to be when the cases came together, when investigators had verified all the information about bank accounts they got almost exactly a year before.  Daniel Tzvetkoff was arrested in April 2010, apparently turned in by these very same websites for embezzling tens of millions of dollars while doing payment processing.

So, maybe it was merely a coincidence that recent developments had given Internet poker an air of respectability, a feeling that legalization was inevitable.  Nevada regulators approved Caesars Entertainment’s partnership with 888, a company that used to take bets from the U.S.  Steve Wynn upped the stakes by announcing a joint venture with PokerStars, which was still accepting American poker players.  The Nevada Assembly Judiciary Committee approved a bill to regulate online poker.  And the District of Columbia actually made it legal.

The DoJ has been waging a war of intimidation against Internet gambling for years, successfully scaring players, operators, payment processors and affiliates into abandoning the American market.  Lacking the two essentials to any prosecution – a statute that clearly makes the activity illegal and a defendant physically present in the U.S. – the feds have announced showy legal action against easy targets about every other year.

Online poker is not an easy target, since a federal Court of Appeal ruled the Wire Act is limited to bets on sports events.  And tricking financial institutions into processing poker payments seems a technicality, especially since the banks made millions without ever facing any criminal charges or even paying a penny in fines.  Talk about a victimless crime!

But getting a Utah bank to agree to process gambling transactions in return for a $10 million investment is an easier case, if true.  The bank was so small that the officer and part-owner who allegedly arranged the deal, asked for, and received, only $20,000 for his “bonus.”

Even if there was a bribe, the feds are still going to have to prove that the poker was illegal.  Since the Wire Act won’t work, prosecutors used 18 U.S.C. 1955, which makes it a federal felony if five or more people do more than $2,000 in business a day in violation of state gambling laws.  The indictment relies on “New York Penal Law 225 and 225.05 and the laws of other states.”  There is an obvious problem with using a state misdemeanor to charge federal felonies against foreign corporations licensed by foreign countries.

The DoJ also included a “thank you” to the Washington State Gambling Commission, indicating that the DoJ is probably going to piggyback on that state’s 2006 law outlawing all Internet gambling, as well.  At least Washington state makes Internet gambling a felony.

Still, there are problems.  State laws are presumed not to reach beyond their borders.  And even if Internet poker is illegal in that state, it is quite a leap to seize domain names for the entire country and threaten bank accounts in places like Panama.

The only state with a law better than Washington’s is Nevada, because it expressly says it reaches beyond the borders of the state.  But basing this attack on Internet poker on Nevada law would look like it was motivated by the landbased casinos.  After all, who are the big winners here?

The operators will never stand trial, unless they voluntarily return to the U.S. or make some other mistake.  The only U.S. extradition treaty I have found that covers illegal gambling is with Hong Kong.  Calling it bank fraud won’t work, since the defendants can show their local courts that it is based on gambling.  And the activity must be illegal in both countries.  No nation will extradite an individual to be tried for the very activity that that nation licenses.

But what is the federal government accomplishing with going after foreign licensed poker operators?

The DoJ is raking in lots of dough for itself.  For example, it received $405 million from PartyGaming and one of its founders, without even filing any criminal charges.  And Party Poker had pulled out of the U.S. years earlier.

Certainly the prosecutors are scaring a lot of people and making it difficult for average citizens to even get their money to a foreign site, let alone place and collect a bet.  But when the public relations campaign turned against it, the DoJ quickly backed down.

The DoJ’s seizure of .com names around the world, even in countries where online poker is 100% legal, led to international outrage.  It also creates a dangerous precedent.  Can an Islamic country, which outlaws alcohol, seize the worldwide domain names of every retailer that advertises beer or wine?

And the DoJ made it nearly impossible for players to get their deposits back.  Even in the U.S., there is no federal law against merely playing poker on the Internet.

Five days after Black Friday, the DoJ announced that an agreement had been reached with PokerStars and Full Tilt Poker.  The companies will be permitted to operate money games outside of the U.S., which they always had the legal right to do anyway.  American players will be able to go to the .com sites and get their deposits back.

The problem for the DoJ is that prohibition is not regulation.  Getting rid of publicly traded operators created a vacuum that was quickly filled by companies whose owners were difficult to trace.  Scaring away well-known poker names means that newcomers, some of whom will undoubtedly be sleazy, will take their places.  If the multi-billion-dollar U.S. online poker market becomes too hot for licensed companies, operators without any licenses, who won’t even reveal what country they are in, will be glad to run the games.

Meanwhile, like a raid by Elliot Ness on bootleggers and speakeasies during Prohibition, there are now wonderful opportunities for individuals you would not want to meet in a dark alley.

Unless, of course, Americans are actually going to stop playing poker on the Internet.

Republished with permission © Copyright 2011, I. Nelson Rose, Prof. Rose is recognized as one of the world’s leading experts on gambling law, and is a consultant and expert witness for governments and industry.  His latest books, Internet Gaming Law (1st and 2nd editions), Blackjack and the Law and Gaming Law: Cases and Materials, are available through his website, www.GamblingAndTheLaw.com.

Federal Poker Indictments: Revisiting Prohibition

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The timing is suspicious.

March saw Nevada regulators approving a partnership between Caesars and 888, and Wynn announcing a joint venture with PokerStars.  Now comes the indictments, three-billion-dollar civil suit and seizures of domain names by the feds.  Wynn immediately cancelled his plans.  Players were panicked.

Which was, of course, the goal.

If the allegations are true, the operators brought this on themselves, by lying and bribing bank officials. Of course, the prosecutors have the problem of convincing a jury that there is bank fraud when the “victims” are tricked into making millions of dollars.

And will this be the end of Internet poker?  Did Prohibition end drinking?

Prohibition created modern organized crime, by outlawing alcoholic beverages.  When people want something and it is illegal, organizations will arise to fill the demand.  How much more so when the activity, online poker, is not even clearly illegal?

Every action by the U.S. federal government makes it more difficult for it to go after the next operator.  The UIGEA, rammed through by the failed politician Bill Frist (R.-TN), can be seen as an anti-consumer-protection law, because it scared all of the publicly traded gaming companies out of the U.S. market.  Then prosecutors went after payment processors, making it more difficult for players to find legitimate ways to send their money to betting sites.

Now the feds have seized .com domain names and charged operators with bank fraud.  So, gaming sites are switching to .eu and .uk, and cutting off all physical contact with the U.S.  Even the present American operators can’t be extradited, so what hope is there for the DoJ to bring future foreign operators here to stand trial?

The Grand Jury has been meeting for at least a year.  The criminal indictment against PokerStars, Full Tilt, Absolute and their founders, was unsealed by the U.S. Attorney for New York on April 15, but bore a date-stamp of March 10.  So why now?

Besides the Caesars-888 and Wynn-PokerStars agreements, the Nevada Assembly Judiciary Committee recently approved a bill to regulate online poker.  And the District of Columbia actually made it legal.

The DoJ has been waging a war of intimidation against Internet gambling for years, successfully scaring players, operators, payment processors and affiliates into abandoning the American market.  Lacking the two essentials to any prosecution – a statute that clearly makes the activity illegal and a defendant physically present in the U.S. – the feds have announced showy legal action against easy targets about every other year.

Online poker is not an easy target, since a federal Court of Appeal ruled the Wire Act is limited to bets on sports events.  And tricking financial institutions into processing poker payments seems a technicality, especially since the banks made millions without paying a penny in fines.

But getting a bank to agree to process gambling transactions in return for a $10 million investment is an easier case, if true.  I can understand approaching a small bank – so small that the officer and part-owner who allegedly arranged the deal, asked for, and received, only $20,000 for his “bonus.”  But why would you do this in Utah, of all states?

There are lots of interesting nuggets in the legal papers.  The DoJ claims that one-third of the billions of dollars players deposited went to the operators through the rake.  That number seems high, but if true, it explains why everyone wants to operate an online poker room, with few expenses and no chance of losing to a lucky gambler.

Most of the activities cited occurred after the passage of the UIGEA.  This is a subtle acknowledgment that operators who left the U.S. in 2006 have nothing to fear.

Even if there was a bribe, the feds are still going to have to prove that the poker was illegal.  Since the Wire Act won’t work, prosecutors used 18 U.S.C. 1955, which makes it a federal felony if five or more people do more than $2,000 in business a day in violation of state gambling laws.  The indictment relies on “New York Penal Law 225 and 225.05 and the laws of other states.”  There is a “thank you” to the Washington State Gambling Commission, indicating that the DoJ is probably going to piggyback on that state’s 2006 law outlawing all Internet gambling, as well.

The Washington statute was upheld by the State Supreme Court.  Still, there are problems.  State laws are presumed not to reach beyond their borders.  And even if Internet poker is illegal in that state, it is quite a leap to seize domain names for the entire country and threaten bank accounts in places like Panama.

The only state with a law better than Washington’s is Nevada.  But basing this attack on Internet poker on Nevada law would look like it was motivated by the landbased casinos.  After all, who are the big winners here?

We will probably see the first attacks on the government’s cases in motions to free the bank accounts, especially those outside the U.S.  And the poker operators will undoubtedly fight to get their .com names back for the rest of the world.

The operators will never stand trial.  The only U.S. extradition treaty I have found that covers illegal gambling is with Hong Kong.  Calling it bank fraud won’t work, since the defendants can show their local courts that it is based on gambling.  And it is fundamental to all extraditions that the activity be illegal in both countries.  No nation will extradite an individual to be tried for the very activity that that nation licenses.

There may not even be a settlement.  The DoJ accepted $405 million from PartyGaming and one of its founders and $100 million from Neteller and its founders.  But those companies had already left the U.S. gaming markets.  The DoJ will insist on a guilty plea to something, which might kill the operators’ chances of getting licensed when American laws change.  And no amount of money will buy them the right to open up again without a change in the law.  So what would these operators get from a settlement, other than not having to be worried about getting arrested changing planes?

It will be interesting to watch the fallout.  There are a lot of famous American poker players and others who are associated with the indicted operators.  They should be getting their affairs in order.

Meanwhile, like a raid by Elliot Ness on breweries and speakeasies during Prohibition, there are now wonderful opportunities for new operators to fill the vacuum.  Unless, of course, Americans are actually going to stop playing poker on the Internet.

Republished with permission © Copyright 2011, I. Nelson Rose, Encino, California. All rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I. Nelson Rose, www.GamblingAndTheLaw.com.