Corporate officers and directors and other individuals who knowingly facilitate the transfer of funds between American- based gamblers and Internet gaming sites that the United States Department of Justice (“DOJ”) considers illegal could face decades in prison.
That was the message sent by the DOJ on January 15, 2007 when it arrested two founders of Neteller PLC (“Neteller”), a company that has processed billions of dollars per year in payments between American bettors and operators of Internet gambling websites.
On January 18, 2007, Neteller responded to the arrests of its former CEO, Stephen Lawrence, and its former President, John Lefebvre, by announcing, “effective immediately, US members are no longer able to transfer funds to or from any online gambling sites.” The announcement, which appeared on Neteller’s website, http://content.neteller.com/content/ en/member_businessupdate.htm, also stated that “US members will continue to be able to use their NETELLER e-wallet account to safely transfer funds to and from non-gambling merchants and are not required to close their account or withdraw their funds.”
The combined effect of the arrests and the company’s subsequent announcement could be just what the DOJ has long desired: an immediate and dramatic reduction in Internet gambling activity involving United States citizens.
Neteller is a public company, based on the Isle of Man, which trades on the London Stock Exchange. Unlike American based banks, credit card issuers, payment processors and other institutions that previously stopped facilitating funds transfers to and from Internet casinos because of a fear of federal prosecution, Neteller had recently increased its processing of such payments.
According to its published reports, Neteller provided payment services to more than 80 percent of worldwide gaming merchants. Neteller also reportedly processed more than $7.3 billion in financial transactions in 2005 and $5.1 billion in financial transactions in the first half of 2006. Additionally, Neteller reportedly earned $846.7 million in processing fees during the first six months of 2006, much of which stemmed from transactions between U.S.-based gamblers and Internet casinos.
Neteller’s abandonment of this market could make it much more difficult for U.S.-based bettors to gamble over the Internet.
Interestingly, the DOJ’s arrests of Lawrence and Lefebvre were not made pursuant to the Unlawful Internet Gambling Enforcement Act of 2006 (the “UIGEA”), which Congress passed and President Bush signed into law last fall. Instead, the DOJ charged both men with conspiracy to violate longer standing federal criminal laws, including an antimoney laundering statute (18 U.S.C. § 1956), the Illegal Gambling Business Act (18 U.S.C. § 1955), and the Wire Wager Act (18 U.S.C. § 1084). Indeed, that part of the UIGEA applicable to payment systems and their participants does not take effect until applicable regulations are promulgated, which is to occur by mid-July 2007.
Nonetheless, the arrests may be related to the UIGEA, since Neteller, unlike some other companies, had given no indication prior to Thursday that its conduct would be changing. The DOJ may have intended these arrests to send a message to all potential “enablers” of American online gamblers that they risk severe consequences if they do not stop facilitating such activity. Previously, one of Neteller’s former competitors, Paypal, agreed to pay $10 million to avoid prosecution for facilitating the same kinds of transactions.
According to the criminal complaints against Lawrence and Lefebvre, the government’s investigation of Neteller began in June 2006, shortly before the new law’s enactment. The complaints stated that in August and September of 2006, a cooperating witness placed sports wagers over the Internet from computers located in Florida and New York to Internet casinos operated from Antigua and Costa Rica. For each wager, the cooperating witness used Neteller to transfer funds, the complaints alleged.
Although there is some disagreement and debate over whether existing United States law prohibits all forms of Internet gambling, it is not seriously disputed that Internet sports wagering is prohibited under the Wire Wager Act.
A DOJ news release quoted Michael J. Garcia, the United States attorney for the Southern District of New York, as saying: “Internet gambling has become a multi-billion-dollar industry that derives a major portion of its revenues from United States citizens. Steven Eric Lawrence and John David Lefebvre knew when they took their company public that its activities, as well as those of the Internet gambling companies it assisted, were illegal in the United States.” “Criminal prosecutions related to online gambling will be pursued even in cases where assets and defendants are positioned outside of the United States,” Mr. Garcia stated.
Mark J. Mershon, the Assistant Director- in-Charge of the New York office of the FBI, added that the FBI was “adamant about shutting off the flow of illegal cash.”
Lawrence, 46, was the CEO of Neteller until December 2002, and served on the company’s Board of Directors until October 13, 2006, according to the DOJ.
Lefebvre, 55, was the President of Neteller from 2000 to 2002 and was a member of the Board of Directors until December 2005, the DOJ stated.
As of December 31, 2004, Lawrence and Lefebvre were, respectively, the two largest shareholders of Neteller, according to the DOJ news release. Both men are Canadian citizens. Lawrence, who currently resides in the Bahamas, was arrested in the United States Virgin Islands. Lefebvre was arrested in Malibu, California. They each face up to 20 years in prison, according to the DOJ.
The DOJ news release states that when Neteller went public, it publicly acknowledged that United States law prohibited persons from promoting certain forms of gambling, including Internet gambling. “The company’s directors, including Lawrence and Lefebvre, also conceded that they were risking prosecution by the government of the United States under existing or future federal laws,” the news release said.
The arrests of Lawrence and Lefebvre should serve as a shrill warning to Neteller’s officers and directors as well as any others in control of companies that transfer money between U.S.-based Internet users and gaming websites that the DOJ considers illegal. The message is clear: anyone who knowingly facilitates such transfers could face criminal prosecution.