Update: Online Poker Sites Reach Settlement With Justice Department Over Fraud Allegations; Payment Processor Associated with Online Poker Fraud Sentenced
As we have detailed in previous reports here and here, on April 15, 2011, federal prosecutors shut down online poker sites PokerStars, Full Tilt Poker and Absolute Poker and indicted eleven people in connection with their involvement with the sites’ operation.
As we discussed, these actions were part of a larger effort by the Justice Department to target internet gambling websites for violations of federal law. After more than a year of litigation, however, the dispute between the websites and the Justice Department appears to have been resolved in the final days of July, 2012.
Although the law does not specifically address internet pay for play poker sites, The Unlawful Internet Gambling Enforcement Act of 2006 (“UIGEA” defines “unlawful internet gambling” as: 1) placing, receiving or transmitting a bet, 2) by means of the Internet, even in part, 3) but only if that bet is unlawful under any other federal or state law applicable in the place where the bet is initiated, received or otherwise made. Thus, although there is no federal law directly addressing the regulation of online poker sites, the Department of Justice has used UIGEA to prosecute internet pay for play poker operators and their payment processors.
On July 26, 2012, Judge Lewis Kaplan of the United States District Court for the Southern District of New York sentenced payment processor Ira Rubin to three years in prison for his role in processing payments for the online poker sites. In January, 2012, Mr. Rubin pled guilty to conspiracy charges related to illegal gambling, bank fraud, wire fraud, and money laundering. Prosecutors had alleged that after the passage of a 2006 law which prohibited banks from processing payments to offshore gambling websites, Mr. Rubin engaged in a fraudulent scheme to deceive US banks and financial institutions as to the true identity of the funds being transferred by processing these funds to appear as payments for goods and services to non-existent online merchants and fake companies. As we have previously reported, federal prosecutors have focused on payment processor prosecutions as a way of combating online pay for play poker.
Additionally, five days later, on July 31, 2012, the U.S. Department of Justice announced that it had reached a $731 million settlement with PokerStars and Full Tilt Poker regarding the forfeiture Complaint filed against the two companies in April, 2011. Under the terms of the agreement, Full Tilt agreed to forfeit virtually all of its assets to the United States, however, the Government has approved the acquisition of these assets by PokerStars in exchange for PokerStars’s agreement to reimburse $184 million owed by Full Tilt to Full Tilt’s foreign players. Additionally, PokerStars agreed to forfeit $547 million to the U.S. which will be used to compensate U.S. account holders.
Fuerst Ittleman will continue to monitor these developments. If you have questions pertaining to UIGEA, the BSA, anti-money laundering compliance, and how to ensure that your business maintains regulatory compliance at both the state and federal levels, or for information about Fuerst Ittleman’s experience litigating white collar criminal cases, please contact us at firstname.lastname@example.org.