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GOVERNMENT HAMMERS OFF-SHORE GAMBLING OPERATIONS

By Wendeen H. Eolis
Poker Player Newspaper

The Government’s Dramatic Press Release

The Department of Justice and Federal Bureau of Investigation teamed up for the press release that signaled the imminent shock-and-awe attack that would turn internet-based gambling in America on its head—in a matter of hours.

The Government began by bullet-pointing the criminal charges of bank fraud, laundering of billions in illegal gambling proceeds, and illegal gambling offenses against eleven defendants connected with Poker Stars, Full Tilt and Absolute Poker, including the companies’ respective founders—Isai Sheinberg, Ray Bitar and Scott Tom.

The press release also highlighted a civil complaint, citing a multi-billion dollar civil money-laundering and forfeiture action against the “Big Three” poker companies, their assets, and the assets of several of their payment processors. The plainly pleased government representatives also pointed to the restraining orders that were issued against seventy-six bank accounts purportedly utilized by the poker companies and their payment processors, as well as the government’s seizure of their dot com domain names.

 The Going Gets Tough

By day’s end, the poker companies had switched to alternate domain addresses to serve clients outside of the United States. Poker Stars and Full Tilt re-engineered their software so as to immediately shut off all money games to U.S.-based players. However, Absolute Poker refused to yield its positioninsisting it was free to engage American players. It continued to welcome Americans to their sites. As we go to press, their site is not accessible but the company has issued a statement that it is communicating with the government.

No matter the trials and tribulations of the defendants, online players loomed as innocent losers—shut out from online poker as a livelihood, an income-producing hobby or a favorite pastime—unable to access the millions of dollars tied up in the online accounts.

The Tough Get Going

The initial press releases from each of the sites on April 15th, following the civil complaint and seizures, did little to calm the shattered nerves of players despite the best efforts of the companies’ public relations teams. The safety of client deposits was simply not credible against the backdrop of the day’s events. However, once the Justice Department announced that domain agreements with Poker Stars and Full Tilt would “facilitate” return of customer monies, player fears of losing their account balances began to dissipate.

The Crux of the Agreement

The domain name agreement permits both Poker Stars and Full Tilt to return to their seized dot com domains for the purpose of doing business with non-American-based players, with the explicit understanding that neither American players nor visitors to the United States can patronize the sites’ real money games or play for anything of value. The agreement also expressly allows for the two companies to use their dot com domains to facilitate player refunds, but it does not otherwise address the seized monies or the process by which player funds might be returned. Poker Stars has emphasized that player monies are not co-mingled with company assets.

Prior to the execution of the domain names agreement, the Justice Department was reportedly inundated with complaints from outraged players. This could explain part of the Justice Department’s press release of April 20th which acknowledged in large print, “As Part of Agreements, Use of Domain Names Pokerstars.com and Fulltiltpoker.com Will Be Restored to Facilitate Return of U.S. Player Funds.”

Reading further into the agreement, U.S. Attorney Preet Bharara also made clear, “The Complaint, a related Indictment, and a related Restraining Order issued against multiple bank accounts utilized by the companies and their payment processors did not prohibit the companies from refunding players’ money.” The Office added, “Nevertheless, this agreement will facilitate the return of money,” by allowing players “to register their refund requests directly with PokerStars and Full Tilt Poker.”

Refunds May Not Come So Fast

Poker Stars and Full Tilt each released statements following the execution of their domain names agreements. The two press statements showed sharp differences in tone and content.

Full Tilt stepped up to the plate cautioning players to be patient. However, their caveats relating to practical and legal issues were not well received among some customers. One player, who claimed that he reflected the sentiments of many, saw the press statement as “lacking a commitment to expeditious resolution of refunds.” According to a lawyer who has reviewed the domain names agreement,  “Full Tilt’s statement was well advised.” Full Tilt refrained from any comment as to how or when the process of player refunds might begin.

In contrast, Poker Stars sounded a more soothing and optimistic tone telling its audience, “The U.S. Department of Justice Agreement expressly states that the domain name (pokerstars.com) can be used by PokerStars outside the U.S. to facilitate the provision of real money poker services, and that PokerStars can pay out player balances to its former customers in the U.S.” It continued, “Returning U.S. players’ funds is a top priority for PokerStars, and the company can now start the process of returning money to its former U.S. customers.”

The Poker Stars press release had the effect of making Full Tilt look more credible to some players while raising questions with others as to whether it was deliberately dawdling on plans to return player funds.  
In a subsequent statement, Poker Stars acknowledged, as had Full Tilt, that it would first have to find a suitable processor. The company expressed hope that it would be able to return American players’ monies within a few weeks.

What is the Point of UIGEA?

Lawyers interviewed for this article have explained that the charges brought by the Justice Department are rooted in the Unlawful Internet Gambling Enforcement Act of 2006 which prohibits financial institutions from processing financial transactions for the purpose of certain gambling over the internet. They concur that UIGEA does not directly address the legality or illegality of online poker. Moreover, they point to a schism between the Government and online poker businesses due to their different interpretations of the provisions of UIGEA. One of the lawyers tutored on the finer points of UIGEA: “The UIGEA does not directly reference poker as an illegal gambling activity.” In Section 5362 of the act, he explained, “a wager or a bet includes the risk of something of value over the outcome of a contest, sporting event or any game subject to chance.” However, he went on to say, “A game or contest that involves betting with a strategy that is subject to some chance (like poker), rather than having a predominance of chance (like roulette) in determining the outcome, may be viewed as a legal activity.

In any event, lawyers hither and yon insist that if, as a matter of law, poker were to gain widespread acceptance in state courts as a game of skill, it would lead to an exemption from enforcement under UIGEA. In my next article, I’ll explore the status of poker as a game of skill and the potential impact if poker is treated as a skill game.

Online Poker is on the Rocks

Meanwhile, for the moment, here in America the Justice Department’s position on UIGEA prevails; the DOJ is holding the hammer and wielding it ferociously against these off-shore operators who have accepted bets from American resident poker players.

While the Big Three defendants have come around to embrace licensed, regulated, and taxed online poker operations, even if they escape from the hefty criminal and civil penalties currently bandied about in the Government’s case to date, most of the lawyers interviewed say the road back to online gaming in America may be a long one. As to the defendants’ prospects, one experienced white collar attorney summed up, “It is not reasonable to expect that Poker Stars, Full Tilt or Absolute Poker will be exonerated in a manner that will allow them to re-enter the U.S. market in the future.”

Nevertheless, one of the queried lawyers posits a scenario in which legalization of online gambling is accelerated, led by state legislation. Another dissenting optimist predicts the Justice Department is only looking for money and really does not want to face a fight over the skill factor. He says if the government’s proof in the criminal charges is weak, we should anticipate that Full Tilt and Poker Stars will be flying high in the States again.

For the time being, however, professional poker players and enthusiasts are deprived of jobs and treasured recreational respites—with neither control nor precise information regarding how and when their funds deposited in these sites will become available to them.

Note: This article also appears this week in it’s entirety in PokerPlayerNewspaper