Federal Prosecutors Focus On Payment Processors In Latest Effort To Prevent Online Poker Sites From Operating

Jan 10, 2011   

As the new year begins, federal prosecutors continue their efforts at cracking down on online poker in the US. The latest has not focused on the numerous online poker sites or the 2.5 million Americans that regularly play. Rather, the Department of Justice has focused its efforts on payment processors, the financial outfits that move money between online poker sites, their players, and the banks. Online pay for play poker sites generate over $30 billion annually.

Though there is no federal law directly addressing the regulation of online poker sites, the Department of Justice has consistently maintained the position that the operation of pay for play online poker sites violates federal law. Traditionally, the prosecution of individual bettors and intra-state gambling crimes has been largely left to the individual states, however, there are numerous federal gambling statutes that the Department of Justice has employed against large-scale gambling businesses and payment processors that operate interstate or internationally. These statutes include the Wire Act, RICO, the Bank Secrecy Act, civil forfeiture proceedings, as well as 18 U.S.C. § 1955 which makes it a crime, to conduct, finance, manage, supervise, direct, or own all or part of a gambling business, so long as it is illegal to operate such a business under state law.

The State of Washington provides a textbook example of federal prosecutorial action and the relationship between federal prosecutors and state law and law enforcement. Since October of 2010, the Department of Justice in conjunction with Washington State Gambling Commission have filed four civil forfeiture complaints against more than $20 million in cash in Bank of America, JPMorgan Chase, and Wells Fargo, belonging to various payment processing firms. The joint investigations began in 2009 shortly after the Washington Supreme Court upheld a state law prohibiting online poker for money in the state.

The largest of these forfeitures, involving $5.1 million, began after the government was notified that a player had received a payout check from Arrow Checks, a payment processor for online poker sites such as Pokerstars.net. During its investigation, the government was able to establish a series of wire transfers from other states, such as Texas, and from Canada to accounts in Washington. Payouts were then sent to players around the state. As a result of these investigations, the payment processors, which held the accounts, were charged with operating unlicensed money transmitting businesses and violating the federal wire act because online poker for money is illegal in Washington.

The Washington investigations come in the wake of the May 2010 guilty plea of Canadian payment processor Douglas Rennick for violations of the Wire act. Authorities alleged that Rennick processed over $350 million in payouts for internet poker companies. As part of the plea agreement, Rennick agreed to forfeit $583 million which included millions of dollars in payouts and funds belonging to various poker sites and players. However, the affected poker sites refunded any lost money to their players after federal authorities froze the assets of Rennick.

If you have questions pertaining to 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 Ittlemans experience litigating white collar criminal cases, please contact us at contact@fidjlaw.com.