U.S. cracking down on offshore betting industry
By Michael McCarthy, USA TODAY
When the U.S. House of Representatives overwhelmingly passed a bill cracking down on Internet gambling last week, David Carruthers, CEO of online gaming company Bet On Sports, was one of the most outspoken critics of the proposed law. The 49-year-old British executive has more immediate problems to worry about. Federal agents arrested Carruthers on Sunday at Dallas-Fort Worth International Airport as he made his way from the company's offices in London to Costa Rica.
As part of a wide-ranging probe of what the American Gaming Association says is a $12 billion online gambling industry, U.S. Attorney Catherine Hanaway unsealed a 22-count indictment charging racketeering, conspiracy and fraud against Carruthers, 10 others and four companies Monday. A warrant was sworn out for the arrest of 47-year-old company founder Gary Kaplan. U.S. District Judge Catherine Perry also approved the government's request to bar Bet On Sports from accepting bets from this country and forcing it to refund money to U.S. account holders. The FBI has ordered four phone companies to shut off service to the company.
The arrest of Carruthers, a longtime British racing industry executive who joined Bet On Sports in 2000, is setting off alarm bells in Europe and the Caribbean, where the offshore casino industry is based. Bet On Sports asked for its stock to be suspended on the London Stock Exchange on Tuesday. Shares of British gaming stocks, such as industry leader Party Gaming, fell Tuesday in heavy trading, wiping out more than $1 billion in value.
"The No. 1 topic at every board meeting today is 'Am I next?' " says Internet gambling attorney Lawrence Walters. "There's a high degree of concern now that the government has made it clear they think they can prosecute foreign citizens at foreign corporations."
The House bill is the first shot in an attack by the federal government on a foreign industry that considers itself beyond the reach of U.S. law — while generating most of its revenue from U.S. customers. An estimated 23 million Americans play casino games such as poker and blackjack online, according to the Poker Players Alliance.
The Justice Department says online gambling is illegal under the Federal Wire Act of 1961. While authorities have not pursued individual bettors playing poker on their home or office PC, they have gone after some gaming executives.
Despite generating half or more of their revenue from U.S. customers, online gaming companies maintain U.S. laws don't apply to them because they're located in places where online gaming is legal, such as England, Costa Rica and Gibraltar.
U.S. Attorney Hanaway promised the indictments are "but one step in a series of actions designed to punish and seize the profits of individuals who disregard federal and state laws" during a news conference Monday. That means top casino executives will have to worry about personal exposure if they try to catch a connecting flight in the USA, as did Carruthers, says Walters.
The Unlawful Internet Gambling Act passed by the House on July 11 would strengthen the 1961 law by barring banks and credit card companies from collecting for Internet casinos. The bill's main supporter in the Senate, Jon Kyl, R-Ariz., issued a statement Tuesday saying the indictment strengthens the need for legislation to ban Internet gambling.
"I am hopeful that legislation I intend on moving through the Senate this year will provide the Justice Department with the tools necessary to continue aggressively pursuing those that wish to circumvent the rules and engage in this sort of illegal activity," the statement said.
A broad coalition of sports leagues, including the NFL and NCAA, and family rights groups supports the bill. Supporters add the proposed law would stop Internet gambling from spreading to cellphones and other new mediums.
"The House properly recognized that betting via the Internet already is illegal in this country," NFL spokesman Brian McCarthy says. "This bill reinforces the law and would place significant impediments on the operations of fly-by-night offshore Internet gambling companies."
But critics charge the government would be better off regulating and taxing the online gambling industry. Their biggest complaint: The current bill provides exceptions for state-regulated lotteries such as Powerball and horse racing while cracking down on casino games.
"This bill's advocates proclaim the immorality of online gaming and shout it will destroy our society — unless you're betting on horse races," declared U.S. Rep. Shelley Berkley, D-Nev., on the floor of the House during the bill debate.
Michael Bolcerek, president of the Poker Players Alliance, adds, "Prohibitions don't work. Poker players will find a way to play. This won't stop anything. It will just drive people underground."
When the U.S. House of Representatives overwhelmingly passed a bill cracking down on Internet gambling last week, David Carruthers, CEO of online gaming company Bet On Sports, was one of the most outspoken critics of the proposed law. The 49-year-old British executive has more immediate problems to worry about. Federal agents arrested Carruthers on Sunday at Dallas-Fort Worth International Airport as he made his way from the company's offices in London to Costa Rica.
As part of a wide-ranging probe of what the American Gaming Association says is a $12 billion online gambling industry, U.S. Attorney Catherine Hanaway unsealed a 22-count indictment charging racketeering, conspiracy and fraud against Carruthers, 10 others and four companies Monday. A warrant was sworn out for the arrest of 47-year-old company founder Gary Kaplan. U.S. District Judge Catherine Perry also approved the government's request to bar Bet On Sports from accepting bets from this country and forcing it to refund money to U.S. account holders. The FBI has ordered four phone companies to shut off service to the company.
The arrest of Carruthers, a longtime British racing industry executive who joined Bet On Sports in 2000, is setting off alarm bells in Europe and the Caribbean, where the offshore casino industry is based. Bet On Sports asked for its stock to be suspended on the London Stock Exchange on Tuesday. Shares of British gaming stocks, such as industry leader Party Gaming, fell Tuesday in heavy trading, wiping out more than $1 billion in value.
"The No. 1 topic at every board meeting today is 'Am I next?' " says Internet gambling attorney Lawrence Walters. "There's a high degree of concern now that the government has made it clear they think they can prosecute foreign citizens at foreign corporations."
The House bill is the first shot in an attack by the federal government on a foreign industry that considers itself beyond the reach of U.S. law — while generating most of its revenue from U.S. customers. An estimated 23 million Americans play casino games such as poker and blackjack online, according to the Poker Players Alliance.
The Justice Department says online gambling is illegal under the Federal Wire Act of 1961. While authorities have not pursued individual bettors playing poker on their home or office PC, they have gone after some gaming executives.
Despite generating half or more of their revenue from U.S. customers, online gaming companies maintain U.S. laws don't apply to them because they're located in places where online gaming is legal, such as England, Costa Rica and Gibraltar.
U.S. Attorney Hanaway promised the indictments are "but one step in a series of actions designed to punish and seize the profits of individuals who disregard federal and state laws" during a news conference Monday. That means top casino executives will have to worry about personal exposure if they try to catch a connecting flight in the USA, as did Carruthers, says Walters.
The Unlawful Internet Gambling Act passed by the House on July 11 would strengthen the 1961 law by barring banks and credit card companies from collecting for Internet casinos. The bill's main supporter in the Senate, Jon Kyl, R-Ariz., issued a statement Tuesday saying the indictment strengthens the need for legislation to ban Internet gambling.
"I am hopeful that legislation I intend on moving through the Senate this year will provide the Justice Department with the tools necessary to continue aggressively pursuing those that wish to circumvent the rules and engage in this sort of illegal activity," the statement said.
A broad coalition of sports leagues, including the NFL and NCAA, and family rights groups supports the bill. Supporters add the proposed law would stop Internet gambling from spreading to cellphones and other new mediums.
"The House properly recognized that betting via the Internet already is illegal in this country," NFL spokesman Brian McCarthy says. "This bill reinforces the law and would place significant impediments on the operations of fly-by-night offshore Internet gambling companies."
But critics charge the government would be better off regulating and taxing the online gambling industry. Their biggest complaint: The current bill provides exceptions for state-regulated lotteries such as Powerball and horse racing while cracking down on casino games.
"This bill's advocates proclaim the immorality of online gaming and shout it will destroy our society — unless you're betting on horse races," declared U.S. Rep. Shelley Berkley, D-Nev., on the floor of the House during the bill debate.
Michael Bolcerek, president of the Poker Players Alliance, adds, "Prohibitions don't work. Poker players will find a way to play. This won't stop anything. It will just drive people underground."
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