U.S. Government successfully forfeits $13 .3 million from online poker sites

Sep 10, 2010   

The federal government recently forfeited $13.3 million in proceeds derived from two online poker sites for being in violation of the Unlawful Internet Gambling Enforcement Act (“UIGEA”). According to the civil forfeiture complaint filed in the case, the funds constituted proceeds of operating an illegal gambling business that were deposited between January 2009 and May 2009 in an account at Goldwater Bank in Scottsdale, Arizona. Those funds were traceable to PokerStars, the worlds biggest online poker firm, and other offshore online gambling companies, and include “proceeds of the illegal transmission of gambling information and operating an illegal gambling business.”

Ahmad Khawaja, together with his firms, Allied Wallet and Allied Systems, reached the civil settlement to end a year-long struggle that began when the FBI seized the $13.3 million in June 2009. According to the civil forfeiture complaint, all of the funds were linked to allegations of money laundering, and some of the funds were traceable to wire transfers from outside the U.S. by individuals who knew that the funds represented the proceeds of the illegal transmission of gambling.

This case is significant in that it shows that the government is focusing on enforcement in the area of internet gambling, a growing entertainment business in the U.S., often run from internet sites based outside the U.S.

The UIGEA makes it a crime for anyone engaged in “unlawful internet gambling ” across state lines to accept credit cards, wires, checks or other forms of financial transactions in connection with such gambling. In other words, it makes it illegal to pay money in regard to a bet, or receive money in connection with a bet in the U.S.

Under the UIGEA, “unlawful internet gambling” means to place, receive or transmit a bet or wager through the internet where the bet or wager is illegal, under among other things, any state law where the bet or wager is initiated or received. In addition, “unlawful internet gambling” does not include bets or wagers initiated or received entirely within a single state, or expressly authorized by that states laws.

The vast majority of states make it illegal to engage in gambling except under limited circumstances, such as tribal casinos, pari-mutuel horse racing, penny-ante poker games or regulated poker card rooms or slot machines. Currently, some states have proposed legislation to allow internet poker under restricted and regulated circumstances, but such legislation is still pending. Until the federal or state governments can figure out how to regulate, tax and otherwise obtain fees from internet gambling, it will most likely remain unlawful and the forfeiture of gambling proceeds from online gambling sites under the UIGEA will continue.