U.S. Cracks Down on Online Gambling
By MATT RICHTEL
Published: April 15, 2011

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In an aggressive attack on Internet gambling, federal prosecutors on Friday unsealed fraud and money laundering charges against operators of three of the most popular online poker sites. The government also seized the Internet addresses of the sites, a new enforcement tactic that effectively shuttered their doors.
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The home page of PokerStars.com, which faces fraud and money laundering charges.

Prosecutors charged that the operators of Full Tilt Poker, PokerStars and Absolute Poker tricked banks into processing billions of dollars in payments from customers in the United States. They said the actions violated a federal law passed in 2006 that prohibits illegal Internet gambling operations from accepting payments.

The sites have their headquarters in places where online gambling is legal — Antigua and the Isle of Man — a hurdle that has made it difficult for authorities in the United States to crack down on the industry. The indictment shows the intensifying game of cat-and-mouse between prosecutors and gambling sites that generate billions of dollars in transactions.

The online poker operators sought to avoid detection by banks and legal authorities by funneling payments through fictitious online businesses that purported to sell jewelry, golf balls and other items, according to the indictment. It says that when some banks processed the payments, they were unaware of the real nature of the business, but the site operators also bribed banks into accepting the payments.

Preet Bharara, the United States attorney for the Southern District of New York, said in a statement that the defendants “concocted an elaborate criminal fraud scheme, alternately tricking some U.S. banks and effectively bribing others to assure the continued flow of billions in illegal gambling profits.”

Representatives for the poker sites could not immediately be reached.

On Friday, authorities arrested two defendants, including John Campos, the vice chairman of a small bank in Saint George, Utah, who they said processed gambling transactions in exchange for a $20,000 fee and a $10 million investment in the bank by poker site operators and their associates. The United States attorney’s office is working with foreign law enforcement in hopes of extraditing defendants located abroad and seizing their assets.

Experts in gambling law said that the forceful action raises tricky questions about gambling laws and the government’s reach. These experts said it was not clear, for example, whether countries that sanctioned and licensed such activity would allow extraditions.

Lawrence Walters, a lawyer who represents online gambling operations, though not those involved in these cases, said the indictment might raise an even more fundamental question: Is online poker actually illegal? Federal law prohibits sports betting, but experts are divided over whether it clearly prohibits online games like poker and blackjack.

In the indictment, prosecutors seemed to skirt the issue. They based parts of their prosecution on state laws in New York and elsewhere that prohibited unlicensed gambling, including poker. Legal experts said the prosecutors needed to rely on such prohibitions as a foundation for going after the claims of money laundering and fraud. But Mr. Walters said this strategy might face challenges. He said it was not clear that the state laws applied to foreign-based gambling operations, given that under federal law, international commerce was regulated at the federal level.

“This appears to be a precedent-setting case,” Mr. Walters said. “It will be the first time the Department of Justice takes on the looming question of whether federal law prohibits online poker.”

Opponents of online gambling have been trying to figure out for years how best to police casinos that can be located abroad but reach easily into American homes. According to statistics provided by the Poker Player’s Alliance, an advocacy organization led by former Senator Alfonse D’Amato of New York, seven million Americans play online for money once a month.

In a statement, Mr. D’Amato criticized the prosecution. “We are shocked at the action,” he said, adding, “Online poker is not a crime and should not be treated as such.”

ComScore, a company that measures Internet traffic, said that in March, Full Tilt Poker had 2.6 million visitors from the United States, PokerStars had 1.9 million and Absolute Poker had 1.3 million. ComScore also reported that 1.4 million people visited Ultimate Bet, a site that the federal indictment says joined forces last year with Absolute Poker. Those were the nation’s four most popular poker sites, ComScore said.

On Friday, visitors to those sites were met with a message that begins: “This domain name has been seized by the F.B.I.” The government used the same controversial tactic of seizing domain names in actions last year against sites accused of copyright violations. Losing a domain name can be costly for a company that has invested in promoting it as the main route to its site. But the tactic can also be of only temporary effectiveness, because the company can switch to a new Web address that is outside the reach of law enforcement in the United States — one that, for example, does not end in .com.

According to the indictment, the fraud and money laundering scheme evolved from deception to bribery. Initially, after the enactment of the 2006 law aimed at limiting payment processing for online gambling, the defendants sought to dupe banks by creating fake companies, according to the indictment.

But the indictment says that as financial institutions got wise to those efforts, several defendants sough to persuade smaller banks to process the transactions by making multimillion-dollar investments in them.
A version of this article appeared in print on April 16, 2011, on page B1 of the New York edition.