All Bets Are Off (Online Gambling 6 of 8)

When countries or states look to make legislative strikes against online gambling it is common to point out its negatives side effects or the ways online gambling can be used for illegal actions. One of the prevalent claims made is that online gambling would result in money laundering. This blog will look into money laundering. It will examine what exactly money laundering is and whether online gambling can really result in money laundering. It will also examine instances in which money laundering was specifically claimed to take place from online gambling.

To begin, we first need to have an agreed upon definition of what money laundering is. Black’s Law Dictionary defines laundering as, “The act of transferring illegally obtained money through legitimate accounts so its original source cannot be traced.”[1]  This appears to be a fairly broad definition. It does not matter what illegal action brought about the illegally obtained money nor does the amount of money matter.

Is money laundering practically suited for online gambling? The United States government thinks it is. In a 2004 report, the U.S. Department of State stated, “Due in large measure to the volume and speed of transactions, as well as the virtual anonymity offered by the Internet, offshore gambling websites are an area of considerable money laundering concern.”[2] It went on to say the online gambling was ideal for money launders to disguising the nature of proceeds. The report compared these poker websites to the functional equivalent of unregulated offshore bank accounts in protecting the anonymity of the criminal. The report also cited the low start-up cost for a gambling website that made money laundering in a virtual casino easy. For these reasons, the Financial Action Task Force on Money Laundering updated their anti-money laundering recommendations to include Internet gambling.[3]

There have been examples of online gamblers being charged with money laundering. In 2008 Edward Courdy and Michael Garone were charged with money laundering in their relation to the online gambling provider Bodog.[4] Both men were found to be processors for Bodog’s illegal gambling transactions and had $24 million in bank accounts seized.[5] The men would transfer millions of dollars from European countries to bank accounts in the United States. Bodog is a gambling provider originally based in Canada but currently based in Antigua, which if you remember from serial blog number four is an online gambling hub that has brought claims against the United States’ laws banning online gambling. Investigators stated that they had suspected Bodog of illegal activity in the past but the passage of the Unlawful Internet Gambling Enforcement Act (UIGEA) made it easier to go after them.[6]

In September of 2010, a Canadian man, Douglas Rennick, was charged for having laundered $350 million for foreign Internet gambling companies.[7] He would help process offshore bets for United States citizens to help get around the UIGEA.[8] Facing a year in jail, Rennick pled guilty and was placed on six months house arrest and was forced to surrender the $17 million he had made from his actions.[9]

In blog number three I discussed April 15, 2011, or “Black Friday” as it is called in poker circles. On this date, the United States government indicted the three biggest online poker sites used by Americans, Full Tilt Poker, Pokerstars, and Absolute Poker. Included in this indictment was a charge of money laundering.[10] U.S. attorney stated, “To circumvent the gambling laws, the defendant also engaged in massive money laundering and bank fraud.”[11] The complaint alleged that since the passage of the UIGEA, it was illegal for banks to process American gambled money for these online poker providers. Therefore, the gambling providers would lie to banks and tell them the money was coming from other online transactions and sales of jewelry and golf balls.[12] In the process, the poker providers would take a cut (up to one-third) of the processed money for themselves and declare it as revenue.[13] To aide in this charade, the poker cites created false corporations and fake web pages to throw the government off their trail.[14] In other instances the poker providers convinced smaller banks endangered by the recent economic downturn to knowingly participate in these illegal practices in return for millions of dollars in investments.[15] One such bank was SunFirst Bank based in Utah. The poker providers gave Sunfirst $10 million in investments to transact their illegal money[16]. The indictment is asking these online gambling providers for three billion dollars in money laundering penalties.[17]

These findings were surprising. To see that the poker providers were engaged in such nefarious actions to get around the UIGEA was disturbing to me. Bribery and secretly taking a large cut of poker player’s money is clearly illegal. That being said does this justify the UIGEA? Would these poker providers have stooped to such means if they were allowed to operate legally? If online gambling was illegal then would the poker providers’ actions even be considered to be money laundering? I could find no smoking gun of organized crime or terrorist being brought up on charges having used online gambling as a means to launder money for more serious criminal actions. In fact, many articles cited the use of credit cards as a way of limiting money laundering as they created a paper trial. Finally, if online poker was legal, do these findings show self-regulation could never happen? What do you guys think?

In the next blog we will take a look at one of the most popular online poker providers, Full Tilt Poker. Full Tilt poker had thousands of players and is sponsored by some of the world’s best-known poker players. However just a few months ago in September of 2011, the United States amended their claim against Full Tilt Poker and alleged it was just an elaborate ponzi scheme. We will look into this claim and whether it is a fair assessment in blog number seven so stayed tuned.


[1] Bryan A. Garner, BLACK’S LAW DICTIONARY THIRD EDITION.

[2] U.S. Department of State, Money Laundering Methods, Trends and Typologies, March 2004. Access at: http://www.state.gov/p/inl/rls/nrcrpt/2003/vol2/html/29910.htm.

[3] Id.

[4] Van Smith, Bodog Internet Gambling Investigation Leads to Money Laundering Charges, Baltimore City Paper, October 30, 2008. Access at: http://www2.citypaper.com/story.asp?id=16952.

[5] Id.

[6] Id.

[7] Hurtado, supra note 1.

[8] Id.

[9] Id.

[10] Patricia Hurtado and Bob Van Voris, Eleven Charged in Manhattan for Fraud in Online Gambling money Laundering. Bloomberg, April 15, 2011. Access at: http://www.bloomberg.com/news/2011-04-15/internet-poker-entrepreneurs-charged-with-fraud-money-laundering-by-u-s-.html.

[11] Id.

[12] Id.

[13] Id.

[14] Jason Ryan, FBI Cracks Down on Internet Gambling Companies, ABC NEWS, April 16, 2011. Access at: http://abcnews.go.com/Technology/internet-gambling-companies-indicted-fraud-money-laundering/story?id=13389751#.TsPkQuvgI00.

[15] Id.

[16] Id.

[17] Id.

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~ by jramsey5213 on November 16, 2011.

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