The Long Arm of the United States Law

January 25, 2007

This week saw just how much power the United States authorities can manage to wield against internet gambling – even when their targets are companies and organizations based outside the country. The online casino gambling market was dealt another two blows this week, following the decision by United States prosecutors to subpoena banks across Europe, and to force Yahoo and Google to drop pop-up ads.

This week, news got out that the United States Justice Department issued subpoenas to over 15 investment banks across Europe and the U.S. just after Christmas last year. Through these subpoenas, the U.S. authorities demanded information about the financial activities of several international gambling companies, including PartyGaming PLC (a British company) and Neteller, the online funds transfer service that is also based in Britain. Some of the banks that may have been subpoenaed include Citigroup Inc., Bank of America Corp., Dresdner Kleinwort, HSBC Holdings Deutsche Bank, and JPMorgan Chase and Co.

There was no official confirmation by the Justice Department or any of the banks about the subpoenas, but this did not stop an immediate reaction in the gambling world. Within a few hours of word getting out, share prices in European gambling prices nose-dived as much as 14%. SportingBet stock dropped 6% to a dismal 35 pence, while PartyGaming stock was valued at only 27.75 pence. Leisure and Gaming shares dropped three quarters of a pound to only 11.5 pence.

As it is, online gambling companies are trading at a fraction of their true worth and have been doing so ever since the United States passed its infamous bill in October 2006. The Unlawful Internet Gambling Enforcement Act (UIGEA) makes it illegal for credit card companies, banks and other financial institutions to transfer payment to online gambling companies.

PartyGaming PLC was one of the first companies to stop dealing with the United States market after President George Bush signed the UIGEA on October 14th. Neteller is another company that has recently suspended all gambling transactions with customers originating from the United States. This comes in the wake of the arrest of two of the company’s founders and ex-employees, John LeFebvre and Steve Lawrence last week. The two were arrested in Los Angeles and New York and were charged with funnelling billions of dollars in gambling proceeds to betting operations abroad. FBI authorities have described Neteller as "a colossal criminal enterprise masquerading as legitimate business."

It remains to be seen how this latest move by the United States Justice Department will impact the already touchy relationship between that country and the British government. The British Culture Secretary, Tessa Jowell has regularly commented that she disapproves of the way that the United States is handling the subject of internet gambling and has even likened the policy to the unsuccessful alcohol Prohibition period in the 1920s in American history.

And if subpoening banks was not enough, the Justice Department also issued warnings to the two supersized search engines, Yahoo! and Google regarding their use of pop up ads. The department warned the two companies not to promote internet gambling to an underage audience – even if it was done unintentionally – through the use of this type of advertising. As such, it seems that the days of seeing casino advertisements on the internet are numbered.

Yahoo will reportedly suspend the use of pop up ads in the United States only, but Google – just to play it safe, it seems - will extend the ban across the globe. It is important to note that the two companies will undertake the new policies on a volontary basis and they were not forced to accept the ‘warning’ as law. However, this is just another example of how far the long arm of the United States law is really able to stretch. As more and more companies, banks, financial institutions and individuals come under scrutiny by authorities, one needs to wonder just where all this is heading and just how far the U.S. can proceed in its continous witchunt against online casino operators and others connected to the internet gambling market.