Totally Wired
A reasoned opinion on the Betonsports Case
The folk at the Department of Justice must be smiling. Their high profile arrest of the British Director of Betonsports, David Carruthers has resulted in unprecedented media coverage for their established position that internet gambling is illegal on the grounds that it is in violation of federal laws. Moreover, their action has served to spook industry executives and investors alike.
However, this is not the first time that the Department has moved against operators of offshore sportsbooks, and there are some grounds for wondering whether the doomsday hysteria currently surronding the betonsports case, is indeed justified.
Known colloquially as the "Wire Wager Act," Title 18, United States Code, Section 1084(a) provides that:
"Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers, or information assisting in the placement of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years or both."
The purpose of the statute is two-fold: - To assist the various States and the District of Columbia in the enforcement of their laws pertaining to gambling, bookmaking, and like offenses.
- To aid in the suppression of organized gambling activities by prohibiting the use of wire communication facilities which are or will be used for the transmission of bets or wagers and gambling information in interstate and foreign commerce.
Other statutes that have been employed against on-line gambling sites include the Racketeer Influenced and Corrupt Organizations Act (more commonly known by its acronym RICO), which can be found at Sections 1961-1968 of Title 18 of the United States Code, as well as Section 1952 of Title 18, United States Code, which is also referred to as the Travel Act, which makes it a crime to use interstate or foreign facilities in aid of unlawful activity, which includes gambling.
In January 2000, federal prosecutors in St. Louis, Missouri charged Marc Meghrouni and Scott Shaver, owners of Paradise Casino, who operated an offshore sports book in Curacao, with violating the Wire Wagering Act, as well as tax fraud. Additionally, Paradise Casino was charged with money laundering relating to the spending of betting funds in the United States. Meghrouni, Shaver and Paradise pleaded guilty to all of the charges and agreed to forfeit a one million dollar condominium, and a 1995 Lamborghini.
On
December 3, 2001 Gold Medal Sports, an online sportsbook which operated on the Island of Curacao in the Dutch Netherland Antilles, entered a guilty plea to racketeering and a criminal forfeiture count. The company agreed to suspend operations, and to forfeit more than $3.3 million in earnings. Its main owners, Duane Pede and Jeff D'Ambrosia pleaded guilty to filing false income tax returns and violating the Wire Wagering Act. Each received a five year prison term and they collectively paid over $1.4 million in back taxes, and fines of $100,000 each.
In January 2002 David Howard, a Certified Public Accountant in Las Vegas, and Randy Moreau, an accountant in Miami, each pleaded guilty to owning a share of a sports betting business (Gold Medal Sports) that engaged in illegal sports wagers, using the phone lines and Internet. In April 2002 Attorney Bruce Meagher pleaded guilty to participating in the gambling conspiracy involving Gold Medal. He received one month in jail, five months of home detention, and a fine of $20,000. Gold Medal manager Rick McColley was indicted on February 21, 2002. He is currently a fugitive. Gold Medal Sports is still operating.
World Sports Exchange (WSEX), located on the island of Antigua in the Caribbean, targeted customers in the United States through the placement of ads on the radio, in newspapers, and on television. Customers were invited to bet on American sporting events either by ringing a toll-free telephone number or, by placing bets over the Internet. New customers were required to wire $300 to their account in Antigua. In the course of an FBI investigation into offshore bookmaking, FBI agents in New York contacted WSE by telephone and internet numerous times between October 1997 and March 1998 to open accounts and place bets.
In March 1999, a federal grand jury in Manhattan charged Jay Cohen, one of the owners of WSEX, with conspiracy to violate the Wire Wager Act, 18 U.S.C. Section 1084(a), and seven substantive counts of violating, and aiding and abetting violations of that Act. On February 28, 2000, he was found guilty of violating all three clauses of Section 1084(a) and sentenced to 21 months' imprisonment. Cohen's conviction was affirmed and in June 2003, the United States Supreme Court refused his petition for review. In October 2002, Cohen began serving his sentence. WSEX is still happily trading.
On October 21, 2002 David Tedder was arrested by FBI and IRS Special Agents at O'Hare International Airport in Chicago, Illinois. He had been a fugitive from justice since being charged by the Grand Jury in September of that year with Money Laundering and Conspiracy. Information had been received to the effect that Tedder would be arriving in Chicago on Delta Airlines flight #1608, which was non-stop service from Atlanta. He was met at the gate by FBI and IRS agents and taken into custody. Tedder was
indicted with conspiracy to violate the Wire Wagering Act, and conspiracy to commit money laundering.
Following a jury trial, petitioner was convicted of conspiring to violate the wire wagering act, 18 U.S.C. 1084, in violation of 18 U.S.C. 371; conspiring to launder money, in violation of 18 U.S.C. 1956(h); and two counts of money laundering, in violation of 18 U.S.C. 1957. The jury also rendered a criminal forfeiture verdict under 18 U.S.C. 982 (2000 & Supp. II 2002).
In August 2003 he was sentenced by United States District Chief Judge Barbara B. Crabb to five years in prison, followed by a three-year term of supervised release and $400 in special assessments. The Judge also ordered Tedder to pay a fine of $1,060,040, due and payable immediately with interest accruing and to immediately forfeit $2,765,052 in laundered proceeds. The charges brought against Tedder were the result of an investigation conducted by the Internal Revenue Service-Criminal Investigation, the Federal Bureau of Investigation, the U.S. Postal Inspection Service, and the State of Wisconsin, Department of Justice, Gambling Enforcement Bureau. In September 2005, the United States Supreme Court refused Tedder's
petition for review .
In 2003 Betcorp changed its name from Consolidated Gaming Corporation ("CGC") as part of a restructuring programme that included the acquisition of BetWWTS, a north American facing sportsbooks operator. In early 2005, the Company also acquired Sinsational Intertainment Inc an online sports betting and casino operator based in Antigua.
On April 7, 2005 the Department of Justice filed a 12-count indictment against William Scott and Jessica Davis of World Wide Tele Sports alleging that wagers placed by toll-free telephone numbers and through
www.BetWWTS.com and other Internet websites violated the Wire and Travel Acts. The
indictment was unsealed by the District Court for the District of Columbia on May 16 2006. It was alleged that by causing the funds to be sent from places within the United States to places abroad with the intent to promote Wire and Travel Act violations, Scott and Davis engaged in a money laundering conspiracy. They pair were also charged with failing to disclose foreign bank accounts, which it was believed they had opened in Antigua, St. Kitts, St. Maarten, Singapore, Canada, Australia, and the Channel Islands. BetWWTS is still trading. Davis has reportedly left the company but Scott, according to some Australian newspapers, still hold shares in Betcorp through a family trust, although his name does not appear on any of the trusts.
Scott was allegedly charged by US authorities in 1998 with running an online book, but fled to Antigua where he formed BetWWS, which was later acquired by Betcorp for $58.6 million. Revelations in the Sydney Morning Herald also stated that he was once jailed for 'racketeering' in the eighties.
The Justice Department claims that selling advertising to online casinos may be "aiding and abetting" an illegal activity and they have employed money seizures and subpoenas to outlaw the activity, in their most high profile case, seizing $3.2 million from the Discovery Network, that had been paid by PartyPoker.com and ParadisePoker.com for advertising slots.
Catherine L. Hanaway, the United States attorney for the Eastern District of Missouri, has been reported as saying that prosecutors would consider those that accepted gambling ads to be the eqivalent of those that accepted advertising on behalf of drug dealers and child pornographers.
Hanaway's office sued Vulcan Sports Media Inc., which owns The Sporting News, alleging that from the spring of 2000 to December 2003, the latter had accepted paid print, Internet and radio advertising for Internet and telephonic gambling services, and that its advertising reached U.S. audiences. In January 2006 the Sporting News agreed to a $7.2 million settlement with the U.S. government to resolve the matter. In 2004 in St. Louis sports radio stations KFNS-AM, KFNS-FM and KFRT-AM paid $158,000 to settle allegations that they too had promoted illegal online gambling.
In a lesser known case, but one that goes to the very heart of the online advertising debate, Nicholas Drakos, who hosted a Web site known as
www.internationalnetcasino.com that provided bettors with instructions on how to set up accounts with offshore sportsbooks, was arrested in April 2004 after assisting undercover detectives in placing bets on his Web site and charged with promoting gambling, conspiracy and money laundering between January and April of 2004. Drakos was subsequently convicted and sentenced to 90 days on a manual labour program and three years' probation for illegally promoting gambling. County Assistant Prosecutor Melanie Smith said that under state law, a person is guilty of promoting gambling when he or she knowingly engages in conduct that "...materially aids any form of gambling activity." A clear warning one might think to the many Stateside online gambling affiliate websites. But in truth none of them seem to have cut back on their activities in the wake of the judgement.
Despite the aforementioned actions, many online gambling companies have declared that they will carry on advertising in the US market. Indeed, the chief executive of PartyGaming Mitch Garber was recently reported as saying that the action against BetonSports would not deter his company from "legally marketing in the US" through a variety of channels - internet, television, radio, newspapers and sponsorship deals. The company is about to launch a "strong branding campaign" across Europe and North America for its PartyCasino website,
In July 2005 PayPal announced that it would pay the U.S. government $10 million in repsonse to claims from the U.S. Attorney for the Eastern District of Missouri that its provision of services to online gambling merchants violated 18 U.S.C. 1960 of the USA PATRIOT Act, which prohibits the transmission of funds that are known to have been derived from a criminal offense or are intended to be used to promote or support unlawful activity. Raymond Gruender, U.S. Attorney for the Eastern District of Missouri, said in a statement that "offshore sportsbooks and online casino gambling operations which do business in the United States generally do so in violation of federal criminal laws. Therefore, we will continue to investigate and pursue such activity."
On Monday July 17 a federal grand jury in the Eastern District of Missouri has returned a 22-count indictment charging 11 individuals and four corporations on various charges of racketeering, conspiracy and fraud, the Department of Justice announced today. The indictment was returned on June 1, 2006.
The founder of BetonSports.com, Gary Stephen Kaplan, 47, was charged with 20 felony violations of federal laws including: the Wire Act, Racketeer Influenced and Corrupt Organizations (RICO) Conspiracy, interstate transportation of gambling paraphernalia, interference with the administration of Internal Revenue laws and tax evasion.
Kaplan, like Scott, formerly of BetWWTS, had operated a sportsbook in New York City in the early 1990s, but after gambling charges were brought against him in May 1993, he had moved his betting operation to Florida and eventually offshore to Costa Rica.
According to the indictment, BetonSports.com, the most visible outgrowth of Kaplan's sports bookmaking enterprise, misleadingly advertised itself as the "World's Largest Legal and Licensed Sportsbook." The indictment also alleges that Kaplan failed to pay federal wagering excise taxes on more than $3.3 billion in wagers taken from the United States and seeks forfeiture of $4.5 billion from Kaplan and his co-defendants, as well as various properties.
The indictment alleges that Gary Kaplan and Norman Steinberg, as the owners and operators of Millennium Sportsbook, Gibraltar Sportsbook, and North American Sports Association, took or caused their employees to take bets from undercover federal agents in St. Louis who used undercover identities to open wagering accounts.
The indictment also alleges that Kaplan and Mobile Promotions illegally transported equipment used to place bets and transmit wagering information across state lines and that DME Global Marketing and Fulfillment shipped equipment to Costa Rica from Florida for BetonSports.com.
The racketeering conspiracy alleges that the defendants agreed to conduct an enterprise through a pattern of racketeering acts, including repeated mail fraud, wire fraud, operation of an illegal gambling business and money laundering. Other defendants in the racketeering conspiracy included Kaplan's siblings, Neil Scott Kaplan and Lori Kaplan Multz; Norman Steinberg; David Carruthers, chief executive officer of BetonSports.com; Peter Wilson, media director for BetonSports.com
It is clear, from our analysis, that the Betonsports case represents but one in a long line of attacks upon the operators of online betting sites. Moreover, our study of the other cases that have been brought by the Department of Justice reveals that most of the charges being levied against Kaplan and Co were raised in the past against other online operators. We are not looking at the development of any great legal precedent here, contrary to what some commentators have said.
As long ago as 2000 Marc Meghrouni and Scott Shaver were charged with money laundering and tax fraud in relation to running an online sportsbook. Duane Pede and Jeff D'Ambrosia of Gold Medal Sports pleaded guilty to filing false income tax returns and violating the Wire Wagering Act. William Scott and Jessica Davis of World Wide were indicted on the grounds of having violated the Wire and Travel Acts, whilst David Tedder was charged with conspiracy to launder money. In a nutshell, there is nothing new as regards the actual charges being levied against Kaplan and his alleged fellow conspirators.
It is very much in the interests of Department of Justice to have the industry believe that the Betonsports case is part of a wider campaign, as per US Attorney Catherine Hanaway of the Eastern District of Missouri;
"Illegal commercial gambling across state and international borders is a crime....This indictment is but one step in a series of actions designed to punish and seize the profits of individuals who disregard federal and state laws.....Just because you stand outside the U.S. doesn't mean you can flow crime into the U.S"
If "Betonsports" is part of a wider campaign, then the very real possibility exists that we will see executives of UK based, US facing online betting websites, facing charges of money laundering and tax evasion, and being shipped off to the States under the Extradition Act. The threat of such action alone, will cause executives to be constantly looking over their shoulder, and will serve to dampen investor sentiment towards the sector. (Perhaps such a scenario is likely to unfold were the Senate to pass the Goodlatte/Leach Bill, although of course, were the Bill not to be passed, the Department of Justice would still have the threat of extradition as a weapon in its armour).
Having reviewed the various cases and prosecutions that have taken place over the last six years, one thing that stands out is the similarity between the two most recent indictments issued by the Department of Justice, against Davies and Scott of BetWWTS, and "Kaplan Enterprises".
Both Scott and Kaplan had, prior to setting up their online ventures, been charged with running illegal bookmaking operations on US soil (one should remember the historical and link between illegal bookmaking and organised crime). Both had subsequently moved their operations offshore and made a fortune in the process. Kaplan according to the indictment remained in control of 15% of Betonsports through "Boulder Overseas" whilst Scott reportedly holds an interest in Betcorp through family trusts (although not named in any of them). Their backgrounds present them up as special cases - sitting ducks. (The case that Betonsports was really just about getting Kaplan, is further strengthened when one reads the charges contained within the twenty two page indictment issued by the Department of Justice. Many if not most of the charges relate to specific activities performed by Kaplan and his associates).
Under the scenario of old scores being settled, David Carruthers is nothing more than a fall guy; somebody who got involved with the wrong sorts and who made the great mistake of believing his own propaganda. The indictment of Scott and Davies of BetWWTS should have been a warning shot, but it was seemingly ignored. David Carruthers was bookmaker who did not weigh up the true odds and sadly he may well pay the ultimate price - with the loss of his freedom. <HR>
Last year an unsubstantiated story in the Costa Rican press linked a person with a Betonsports email address to a website called safedepositssports.com, which was allegedly being operated by an illegal gambling ring, with links to organised crime. It was said that the ring in New York was a highly sophisticated criminal enterprise controlled by the Bonanno organized crime family. According to the indictment, reputed Bonanno captain Anthony "Tony Green" Urso, identified as an unindicted co-conspirator received a monthly tribute from the gambling operation in exchange for the protection of the Bonanno crime family. <HR>Mafia links to offshore betting sites were also revealed in April 2005 when an indictment unsealed in the US District Court in Boston charged Arthur Gianelli with racketeering, extortion, and money laundering. The charges stemmed from various criminal enterprises that Gianelli and his associates allegedly ran from 1999 to the present, including an illegal Internet gambling operation aided by an offshore company. The indictment alleged that Gianelli's group was making money illegally from football betting cards, video poker machines, and Internet gambling. The ring allegedly paid an offshore gambling company -- Weshtod Consultants, with offices in San Jose, Costa Rica -- to take bets from Massachusetts customers, both on the Internet, at
www.dukesportsweb.com, and over the telephone. After Gianelli's initial arrest in January, State Trooper Pasquale Russolillo testified during a bail hearing that Gianelli and associates paid $2,000 a month to reputed New England Mafia underboss Camen DiNunzio and mobster Richard Floramo, in order to operate.
http://www.bettingmarket.com/doj5001.htm
