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US IGBA: legal basis for new online gambling activities The Illegal Gambling Business Act The US Department of Justice has local) anti-gambling law. moved its public spotlight away On 6 April 2009, PartyGaming, (IGBA) is increasingly being used for from online sports wagering. While entered into a non-prosecution the prosecution of online gambling news reports would lead to think agreement with the USAO for the activities, including casino and only online poker is in the SDNY after a two-year courtship. poker games. Linda J. Shorey and spotlight, a look at the recent PartyGaming admitted, among activities of the US Attorney’s other things, that: colleagues at K&L Gates LLP , Office (‘USAO’) for the Southern ● ‘[f]rom 1997 until 13 October assess how the traditional regulation District of New York (‘SDNY’) 2006, PartyGaming offered internet of online gambling is progressively reveals that online poker is not the gaming to players in the United changing to adapt to new gambling only target. Online casino games States, including real-money poker activities. are also in the picture. Not only and casino gaming’; and does it appear the target has ● that its conduct during the changed, but also the law being relevant time frame violated the used. IGBA, the Wire Fraud Statute (18 The swing from online sports U.S.C. §1343), and the Bank Fraud wagering to online poker and Statute (18 U.S.C. §1344). casino wagering started in PartyGaming agreed to forfeit $105 December 2008, when Anurag million to the US. Dikshit - a former Principal A person (or entity) violates the Shareholder, Officer, and Director IGBA if: of PartyGaming Plc - entered into 1. he conducts, finances, manages, a plea agreement with the USAO supervises, directs or owns all or for the SDNY. Mr. Dikshit agreed, part of a gambling business; among other things, to plead guilty 2. the gambling business is a to violating the Wire Act, 18 U.S.C. violation of the law of a state or §1084(a) and to forfeit $300 political subdivision in which it is million to the US, as a result of ‘his conducted; participation, from 1998 until July 3. the gambling business involves 2008, in the affairs of PartyGaming five or more people who conduct, PLC and its affiliates’ . The ‘affairs’ finance, manage, supervise, direct of PartyGaming and its affiliates or own all or part of the business; are alleged to be, in the and information filed against Mr. 4. the gambling business has been Dikshit, the ‘operat[ion] [of] an or remains in substantially internet gambling business that continuous operation for a period offered casino and poker games, of more than thirty days or among other games of chance, to generates a gross revenue of $2,000 [US] customers who wished to in any single day. PartyGaming’s wager online’ . admissions in its agreement meet There is no federal court decision all the elements except (2). There is that directly concludes that poker, no admission of violation of a state or casino games, are covered by the (as opposed to federal) anti- Wire Act. So it is not surprising that gambling law, a necessary predicate the Wire Act is not the law being for a violation of the IGBA. used by the US Government in Using the IGBA as tinder, the 2009 as it takes action in USAO for the SDNY seems to be connection with activities related to turning up the heat on online online poker and casino games. poker and casino games. The primary replacement appears In June 2009, the USAO for the to be the Illegal Gambling Business SDNY, acting pursuant to warrants Act (IGBA), 18 U.S.C. §1955, issued by a federal district court which, as one of its elements, judge, seized funds from accounts requires the violation of a state (or held by the Account Services 10 world online gambling law report august 2009
US Corporation (ASC) at two banks Rennick’s business is alleged to be to conduct directed...toward the (Wells Fargo and Union Bank) ‘receiv[ing] funds from offshore arrangement of any of [the] located in California. The seizure internet gambling companies, financial or recording phases [of warrants were issued based on caus[ing] those funds to be wired the particular game, contest, allegations that the funds were into United States bank accounts, scheme, device, or activity connected to activities that violated and then caus[ing] the funds to be involved]’ . NYPL §225.00(4). A the IGBA but did not identify the disbursed through checks payable person (or entity) engages in underlying state law that was to United States residents who are ‘gambling’ when ‘he stakes or risks arguably violated, an element seeking to cash out their gambling something of value upon the required to prove a violation of winnings’ . The total amount alleged outcome of a contest of chance or a IGBA. The amounts seized are to have been transferred is ‘more future contingent event not under reported to be in the neighborhood than...$350 million’ . The specific his control or influence, upon an of $30 million. types of online gambling alleged to agreement or understanding that On 10 July 2009, ASC moved, in be offered by the offshore internet he will receive something of value the Federal District Court for the gambling companies are ‘poker, in the event of a certain outcome’ . Southern District of California, for blackjack, slot machines, and other NYPL §225.00(2). A ‘contest of return of the seized funds. The casino games’ . chance’ is ‘any contest, game, motion was supported by a Among other charges, Rennick gaming scheme or gaming device Declaration from Douglas Rennick, and others are alleged to have in which the outcome depends in a who stated he was the owner of conspired to violate the IGBA by material degree upon an element of ASC and that ASC’s business was ‘unlawfully, willfully, and chance, notwithstanding that skill ‘processing of checks for knowingly...conduct[ing], of the contestants may also be a individuals who have played online financ[ing], manag[ing], factor therein’ . NYPL §225.00(1). poker’ . ASC, among other things, supervis[ing], direct[ing], and It does not appear there is any argued the seized funds should be own[ing] all and part of an illegal New York case law that directly returned because no criminal gambling business, namely a addresses the issue of whether indictment had been filed. The business that engaged in and poker (other than video poker) is IGBA could not have been violated, facilitated online poker and casino covered by NYPL §225.05, as in part, because online poker is a games, in violation of New York informed by NYPL §225.00 - and skill game and, therefore, not illegal State Penal Law (NYPL) sections the issue may not be resolved in gambling under any state law. The 225.00 and 225.05’ . the Rennick case. One thing is Poker Players Alliance sought and The choice of New York law is not becoming clear, because most received permission to participate surprising, because the USAO for states have anti-gambling laws that as amicus curiae in support of the SDNY is bringing the charge. It would capture online casino games ASC’s Motion and filed a brief is also not surprising that online and many states have laws that focused on why poker is a game of casino games, as well as poker, are prohibit the operation of an skill. included in the indictment. The unlicensed casino, the IGBA is a The lack of a criminal indictment promotion of casino games to New tool that federal authorities may was soon cured. York residents would appear to turn to when an online casino On 5 August 2009, the USAO for violate New York’s prohibition on operation is targeted. Just as the the SDNY filed an indictment the promotion of gambling. The presence of online sports wagering against Douglas Rennick, charging promotion of poker may not. made the federal Wire Act a tool of him, as the owner of various Section 225.05 of the NYPL, in choice, the presence of online payment processing companies, relevant part, provides:‘A person is casino gaming is bringing the with conspiracy to commit bank guilty of promoting gambling in IGBA to the forefront. fraud, money laundering, and the second degree when he Linda J. Shorey Partner illegal gambling offenses. The knowingly advances or profits from Dennis M.P . Ehling Partner indictment alleges that Rennick, unlawful gambling activity’ . A Anthony R. Holtzman Associate from 2007 to June 2009,‘[was] in person (or entity) ‘advances Ashley J. Camron Associate the business of providing payment gambling activity’ when, acting K&L Gates LLP linda.shorey@klgates.com services for internet gambling other than as a player, he engages in dennis.ehling@klgates.com businesses through several conduct which materially aids any anthony.holtzman@klgates.com companies under his control, form of gambling activity. Such ashley.camron@klgates.com including’ASC. More specifically, conduct includes but is not limited 11 world online gambling law report august 2009
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