Latest Arrest Chips Away at Online Betting
In an action that roiled the fast-growing world of online gambling, a top executive of a British Internet company was arrested on American soil late Wednesday night on charges connected with taking wagers from gamblers in the United States.
It was the second arrest in two months of a foreign Internet gaming executive in the U.S.
On Wednesday, Peter Dicks, 64, chairman of London-based Sportingbet PLC, was taken into custody by airport police after he arrived on an overseas flight at New York’s John F. Kennedy International Airport. He was held on a criminal warrant issued by the state of Louisiana. After the arrest, Sportingbet asked the London Stock Exchange, where its stock is listed, to halt trading in its shares.
The Dicks arrest follows the arrest on July 17 of David Carruthers, then the chief executive of BetOnSports.com, another online sports book. Carruthers was on a layover at Dallas-Fort Worth International Airport, in transit between Costa Rica and Great Britain, when he was taken into custody on federal charges including racketeering and mail fraud. He is under house arrest in a St. Louis suburb and awaiting trial early next year. The company discharged Carruthers and has closed its U.S. operation.
Although it is not illegal under U.S. law for Americans to make online bets, federal prosecutors maintain that it is illegal for online operators to solicit or accept them, even when their operations are not in the U.S.
Experts in gambling law said the arrests underscored an intensified government attack on Internet gambling at a time when the customer base was expanding rapidly worldwide and the technology to mask the source and destination of wagers was improving. The online gambling market is estimated at more than $11 billion annually and is projected to reach $25 billion by 2010. More than half of that is estimated to come from gamblers in the U.S.
Whether the government can shut down all Americans’ access to such gambling is questionable, said I. Nelson Rose, a gaming law expert at Whittier Law School. “It’s pretty clear you can’t prevent it completely -- the Internet was designed to survive a nuclear war.”
U.S. law governing online betting, meanwhile, is in flux: In June, the House passed a measure by Reps. Robert W. Goodlatte (R-Va.) and Jim Leach (R-Iowa) to prohibit banks and other financial service companies from passing payments to Internet wagering sites, even by check. A companion bill is stalled in the Senate.
Experts -- and judges -- are divided on how existing laws apply to offshore websites such as those operated by BetOnSports and Sportingbet. The 1961 federal Wire Act specifically outlawed bets made using the national communications network -- principally via telephone -- on sporting events. Although at least one federal appeals court has ruled that the prohibition applies to Internet sports betting, some lawyers say that the law may someday be found to be inapplicable to Internet technologies that circumvent telephone networks.
Many experts question whether the prohibitions extend beyond sports betting to poker and casino games. “The Department of Justice will say that all Internet gambling is illegal,” said Sebastian Sinclair, president of Christiansen Capital Advisors, a gambling industry consulting firm. “Prosecutors can show that sports betting is, but for casino games and poker it’s not so clear.”
Others note that online gambling companies are typically located in countries where their activities are legal, placing them largely beyond the reach of U.S. prosecutors.
Without rock-solid legal authority to pursue bet-takers, federal prosecutors have been trying to starve them of resources through a campaign of persuasion and even threats of prosecution for offenses such as money laundering.
After being subpoenaed by a federal grand jury in 2003, several media companies, including Discovery Communications Inc., Infinity Broadcasting and Clear Channel Communications Inc. stopped accepting advertising from online gambling websites. Earlier this year, the Sporting News paid $7.2 million to settle federal claims that it promoted illegal activity by accepting ads from Internet gambling sites. The magazine did not admit or deny liability.
Many online companies have taken steps to close their sites to users in the U.S. and have refocused their strategies on Europe and Asia.
For example, Partygaming. com, a Gibraltar-based poker and casino gambling site that is about to branch into sports betting, announced Wednesday that the U.S. share of its $662 million in revenue in the first six months of the year had fallen to 77% from 86% a year earlier, when it took in $437 million.
“Historically, a very vast proportion of our revenues comes from the U.S.,” said John Shepherd, a spokesman, “and looking forward, that doesn’t make much sense.”
The two recent arrests may herald a new phase in the campaign. BetOnSports’ Carruthers was an aggressive defender of the online gaming industry, making speeches and writing op-ed pieces arguing for regulation rather than prohibition.
“Some would say he taunted regulators,” said Michael A. Tew, a principal at the gaming consulting firm CapitalHQ. “If I was his advisor, that’s not something I’d recommend.”
How or whether the Dicks arrest fits in with the Carruthers case is unclear. Unlike Carruthers, Dicks kept a low profile in the industry and was known chiefly as a financial executive with a background in investing. But Sportingbet is one of the industry leaders in Britain, with $2.86 billion in revenue in the year that ended July 31, 2005. About two-thirds came from the U.S.
Dicks is charged with violating a Louisiana law prohibiting computer gambling -- one of the few such state laws in the country -- that carries a maximum sentence of five years in prison and a $25,000 fine, according to Senior Trooper Dwight Robinette Jr., a spokesman for the state police. Robinette said the federal government was not involved in the prosecution.
The arrest did raise the question of why Dicks, who was said by Sportingbet to have been on noncompany business, risked a trip to the U.S.
“You have to wonder how any online gaming executive would even fly into U.S. airspace these days,” Eugene Christiansen, chairman of Christiansen Capital, said Thursday in a newsletter to clients.