Intellectual Property Law

Indictment Comes as Feds Consider Legalizing, Taxing Online Gambling ? Update

By David Kravets

A federal grand jury has indicted a Canadian man accused of assisting overseas online gambling sites process hundreds of millions of dollars in payments, the authorities said Thursday.

Although federal law prohibits financial institutions from knowingly assisting in online payouts of chance gaming like poker, blackjack, slot machines and other games, the U.S. market for such wagering is huge ? and lawmakers are looking to tax gambling revenue rather than criminalize it.

Online gambling is a cash cow. Consider Thursday’s announced case targeting Douglas Rennick, a 34-year-old Canadian. The United States has charged him with processing or “laundering” as much as $565 million in gambling payments through phony companies ? just during the last two years alone.

Rennick is accused of using institutions (.pdf) like Washington Mutual, Union Bank and others to process the payments by falsely representing to those institutions “that the accounts would be used for such purposes as issuing rebate checks, refund checks, sponsorship checks, affiliate checks and minor payroll processing” for retailers and auto dealerships.

If found guilty, Rennick faces a maximum 30-year prison sentence, although the top sentence is rarely handed down.

The Unlawful Internet Gambling Enforcement Act of 2006 (.pdf) was part of a law to combat terrorism in a bid to control money laundering. Many overseas internet gambling sites have blocked access to the United States, while many others have not.

Among other things, the law prohibits U.S. banks from knowingly acting as a financial middleman for online gambling transactions. Lotteries and horse racing is exempted.  The act also prohibits credit card companies from collecting payments for bets.

Under U.S. Treasury and Federal Reserve rules, financial companies have until the end of December to “establish and implement policies and procedures that are reasonably designed to prevent payments to gambling businesses in connection with unlawful internet gambling.”

A proposed law to repeal that act and license internet gambling and tax it is stalled in a House committee. The Poker Player’s Alliance supports the legislation, and estimates as many as 10 million Americans wager about $6 billion online annually.

Still, enforcing the prohibition — and wire fraud and money laundering rules associated with internet gambling — has kept the Justice Department busy.

The DOJ has been waging a war of intimidation to scare operators and payment processors and players not to do gambling on the internet,” said Nelson Rose, who runs the GamblingAndTheLaw website. “That’s separate than what’s going on in Congress.”

In June, for example, the Justice Department ordered Citibank, Wells Fargo, Goldwater Bank and Alliance Bank of Arizona to halt as much as $34 million in gambling proceeds scheduled to be paid to 27,000 online poker players across the United States.

That was the first time the government targeted actual gamblers, instead of the sites or financial institutions associated with online gambling.

In addition to dozens of other busts, the founder and software maker of the popular online gambling site, PartyGaming, pleaded guilty in December to fostering illegal internet gambling. Anurag Dikshit agreed to pay $300 million in fines, and block American’s from online money gambling.

Photo: ctwirler12

See Also:

• Dikshit Guilty of Internet Gambling
• Antigua Ups the Ante in Online Gambling Dispute With U.S.
• Top Internet Threats: Censorship to Warrantless Surveillance …
• Pro-Gay Sites Filtered From Tennessee Students
• Credit Card Firm Cut Limits After Massage Parlor Visits, Feds …
• Knowing When to Fold ‘Em, Reporter-Style

Full post as published by Threat Level on August 06, 2009 (boomark / email).