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Over the weekend, FBI agents working with U.S. Attorneys for the Southern District of New York raided the nation’s three largest online poker sites. Eleven indictments against executives with the sites were also unsealed. The raids and indictments are truly awful public policy for at least three reasons.
First, the charges—money laundering—are absurd by any standard. The companies said they operated online poker rooms and they… operated online poker rooms. The FBI doesn’t even allege that they cheated their customers (in fact, their terms are far more generous than the perfectly legal poker rooms all over the country.) The legal theory that this is somehow money laundering doesn’t pass even a laugh test.
Second, the major losers appear to be players who broke no law by any account. As a result of the raids, they can’t access money they’ve deposited or earned playing online poker. Nobody knows how long this all-purpose freeze will last. The major poker rooms operate largely offshore and follow the laws of the countries where they exist. The United States has no law that prohibits engaging in online gambling and, while there are some very burdensome banking regulations intended to discourage companies interest in providing online casino gaming, the only federal laws about gambling per se apply only to sports betting.
Finally, one really wonders if spending time on this makes sense as a government priority. Almost no criminal charges have been brought as a result of the massive 2008 financial collapse, Osama Bin Laden remains at large, and, to say the least, there’s plenty of other behavior (speeding and jaywalking among other things) that does a lot more social damage than online poker.
Quite simply, last Friday’s raids make no sense. The FBI and U.S. Attorneys need to reconsider their actions.
In fairness, banks execs were almost certainly skirting rules in the same sort of “out of the box” manner as these gaming sites.
But yeah, why? If we are going to re-purpose our laws (retroactively) to fight what we wanted them to fight, why not set our aim on (for example) debt collectors?
This strikes me as just another federal bureaucracy struggling to justify its existence.
“Second, the major losers appear appear to be players who broke no law by any any account”
How you figure Eli? What about Title VIII, Sec. 801 seq.?
“The term ‘unlawful Internet gambling’ means to place, receive, or otherwise knowingly transmit a bet or wager by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State law in the State or Tribal lands in which the bet or wager is initiated, received, or otherwise made. “
Gee, I thought this was a story about the Fed’s getting tough on Hedging Synthetic CDO’s. You know, the great gambling casino called Wall Street.
But I guess this is the best the Fed’s can do. Now we have the porn story and the poker story and the always present abortion stories.
When in the hell is Washington going to do something about JOBS!
Mr. Boehner, where are the jobs!!!!
I don’t understand the problem with the Justice Department going after perceived illegal activity regardless on if you think it should be a priority or not. If it’s illegal and I haven’t read their case yet then of course they should do it.
“(speeding and jaywalking among other things) that does a lot more social damage than online poker.”
You really should go to a Gambler’s Anonymous meeting before making such stupid statements.
I wish we treated Wall Street derivatives and bond market gambling the same way we treat online poker gambling, but that’s not the way laws are currently written so the Feds unfortunately have a better shot going after the online gambling enterprises based on how the laws are on the books and how they are interpreted in the courts.
But has Eli bothered to read either the indictment or press release from the U.S. Attorney who filed the charges? Sounds like these guys were knee deep and getting deeper IN THE REAL BANKING SYSTEM and not just messing around with online gambling sites or even just setting up shell companies to disguise the profits they were getting from online gambling in the U.S. in violation of the Unlawful Internet Gambling Enforcement Act passed in 2006.
http://www.justice.gov/usao/nys/pressreleases/April11/scheinbergetalindictmentpr.pdf
The most damning piece of the indictment release, IMO:
PokerStars, FullTilt Poker, and their payment
processors persuaded the principals of a few small, local banks
facing financial difficulties to engage in such processing in
return for multi-million dollar investments in the banks. For
example, in September 2009, ELIE and others approached defendant
JOHN CAMPOS, the Vice Chairman of the Board and part-owner of
SunFirst Bank, a small, private bank based in Saint George, Utah,
about processing Internet poker transactions. While expressing
“trepidations,” CAMPOS allegedly agreed to process gambling
transactions in return for a $10 million investment in SunFirst
by ELIE and an associate, which would give them a more than 30%
ownership stake in the bank. CAMPOS also requested and received
a $20,000 “bonus” for his assistance. In an e-mail, one of
ELIE’s associates boasted that they had “purchased” SunFirst and
that they “were looking to purchase” “a grand total of 3 or 4
banks” to process payments.
This is not the first time SunFirst has been in the news in recent months. The FDIC went after SunFirst in January of this year for not complying with the Bank Secrecy Act, which regulates banks to attempt to prevent money laundering.
http://blogs.reuters.com/financial-regulatory-forum/2011/01/07/fdic-sunfirst-action-a-reminder-of-third-party-processors-risk-to-banks-complinet/
Also, an interesting tidbit in this Salt Lake Tribune article on the SunFirst connection:
http://www.sltrib.com/sltrib/money/51650236-79/bank-companies-payments-poker.html.csp
“A letter last year to SunFirst from a law firm led by former U.S. Attorney General John Ashcroft says the firm believes it could be legal to process payments for peer-to-peer poker players, that is those who play against each other and not against a computer.”
As a U.S. taxpayer and U.S. bank customer, I personally am very pleased that the banking regulators and justice department officials have exposed this fraud and protected the taxpayers and the real banking industry from the increased risk of FDIC bailouts if these guys gained control of more banks.
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Timeout for a minute.
I play online poker recreationally and don’t understand where the “fraud” is. Nobody’s money is being stolen or taken under false pretense. There’s no speculation, no deferred payment, nothing, so the notion that a bank is somehow going to go under through this is ludicrious.
When I decide to cashout, Pokerstars sends that money to a bank, who then turns around and sends it to me. The only way that process could go astray would be if Pokerstars didn’t/can’t send the money, but since they are domiciled in the Isle of Man (off the British coast), the FDIC doesn’t get involved in that case.
The “fraud” here is that they disguised the nature of these transactions within US soil, but the bigger issue is that online gambling generates A LOT of revenue in the US that Uncle Sam doesn’t currently get a piece of.
Legal or not, people want to gamble on the internet, and somebody else will rise to meet that demand. The key here is to do something that makes sense going forward, like legalizing and regulating it.
[blockquote]I play online poker recreationally and don’t understand where the “fraud” is. Nobody’s money is being stolen or taken under false pretense. There’s no speculation, no deferred payment, nothing, so the notion that a bank is somehow going to go under through this is ludicrious.
When I decide to cashout, Pokerstars sends that money to a bank, who then turns around and sends it to me. The only way that process could go astray would be if Pokerstars didn’t/can’t send the money, but since they are domiciled in the Isle of Man (off the British coast), the FDIC doesn’t get involved in that case.[/blockquote]
This isn’t about defrauding the online poker players.
This is about defrauding bank regulators and the federal government in general to disguise violations of the Unlawful Internet Gambling Enforcement Act and the Bank Secrecy Act.
And if Pokerstars went bust or they or their money laundering conspirators suddenly didn’t/couldn’t funnel the money to a U.S. bank leaving that bank undercapitalized (the indictment says they wound up buying a 30 percent stake in SunFirst and planned to “purchase” other U.S. banks to launder online gambling transactions), the FDIC would absolutely have to step in to make depositors whole up to $250,000 and protect the accountholders at that bank that had no clue their bank was suddenly being owned in large part by people engaging in illegal activity.
I actually find this whole thing quite similar to the Department of Justice having to crackdown on Wachovia/Wells Fargo for the bank violating the Bank Secrecy Act by doing money laundering for the Mexican drug cartels.
http://www.guardian.co.uk/world/2011/apr/03/us-bank-mexico-drug-gangs
Look, I agree with you and others questioning the wisdom of the prohibition on legalized online gambling. And I personally think the prohibition on legalized marijuana in this country is wrong. But the law is the law. And money laundering just because you don’t like the law or want to profit from the activity despite the law is NOT OK!
Eli had an agenda when he typed this piece, perhaps in a temporary psychotic phase.
Gone until Obama leaves.
Corporations don’t like Marxists who are unfriendly to business.
Your statement might sound cute in the circles you run in- but here it just makes you sound extremely stupid. If you knew what Marxism really was , even you wouldn’t be comfortable with the comparison. Comparing Obama and his policies to Marxism is about as dumb as comparing Bush’s invasion of Iraq with Hitler’s invasion /occuppation of Poland in 1939.
Sorry to everyone else for attempting to address an issue not related to this article.
Presumably Lehrer is getting paid by lobbyists for the online poker gambling business who are apparently very active. Barney Frank is on their payroll which would account for the statement he made yesterday.
Or maybe Lehrer is among the many players who lost access to their funds when the FBI seized the online poker companies’ assets.
Hadn’t thought of that, perhaps he’d had a few big days before Elliot Ness pounced.
This was done at the behest of the brick-and-mortar casino companies. That’s the same reason those “very burdensome banking regulations” were passed a few years ago, too. The online poker guys were horning in on their turf.
Well since a lot of the brick and mortar casinos were either already partners in on line poker or were moving into alliances is this likely?
Unless the brick and mortar casinos had a stake in Full Tilt, Absolute Poker, and PokerStars than it’s very likely.
Here’s at least one blatant example:
http://www.theagitator.com/2011/01/12/protectionism-at-work/ (in this example it’s actual has B&M v B&M, but still it’s a Brick and Morat trying to stop online poker.)
Of course this whole thing is really about ‘the kids.’
There’s a disconnect here. If they were investing in online poker as a new business opportunity why would the want to shut it down. I’m sure it’s a very confused picture in reality. Some BM casinos see it as a threat, others see it as an opportunity, others are just making a virtue of necessity. I certainly don’t think the BM casinos are behind the Fed’s action. It’s all part of their campaign against online gambling whether it’s the horses or poker. Personally I think this a good idea but recognize it’s probably one of those things like drug dealing that can’t be beat.
Actual, online horse racing and lotteries ARE legal, because those two lobbies influenced the legislation that’s on the books.
And the B&M casninos DO want to enter the online market, however, up until last week they were facing competitors who did not pay US taxes, which is a significant disadvantage.
I don’t even understand why online gambling is illegal in the first place. If a person wants to spend the money they earned by the sweat of their brow (or by the typing of their fingers nowadays) on online gambling, why is that a concern for the state?
why is that a concern for the state?
Because there are other consequences that extend beyond self gratification. I’m pretty relaxed about these kind of things (the way to largely solve the drug problem and all it’s collateral damage is to legalize them) but it’s hard to argue that the ultimate outcomes of online poker are all benign.
hisgirlfriday says:
I wish we treated Wall Street derivatives and bond market gambling the same way we treat online poker gambling..
Yes, Ma’am! It isn’t that I think the government should ignore all other issues, it’s just that they seem to be ignoring the biggest elephant in the room.
Have they nothing better to do? Pathetic.
@ottovbvs,
Nothing is ever benign. The notion of a benign action is a misnomer on its very face. There’s physics to consider here. Every action… etc. etc.
Full disclosure, I have spent many hours, in the past, playing on-line poker and for a time made a large part of my living playing cards (albeit in live card rooms).
The question of what should or shouldn’t be regulated has to be weighed based on the effort it takes to regulate it, measured against the efficacy of said regulation, measured against the damage incurred by lack of regulation measured against the side effects of enforcing the regulation. When that calculus is done, you wind up with some (hopefully semi-accurate) metric which then serves to inform whether it’s worth while to regulate.
In the case of on-line poker the arguments in favor of regulation are so weak as to be laughable. The “poor people” who these laws ostensibly aim to protect are actually no where near on-line poker sites. They’re losing their (very meager) resources to scratch off lottery tickets.
Meanwhile, the on-line players are largely people who have the money to lose and virtually everyone lives within driving distance of some poker room, where they can go and gamble, if they so wish. So, mostly on-line poker is just a convenience.
While I’m squarely in “legalize” camp for drugs, this is a red-herring, in your argument, because the reality is that this form of gambling is entirely legal in so many places (unlike, say heroin).
A comparable action might be to shut down Amazon, while allowing people to keep driving to B&N to buy their books. (Reading hurts your eyes, didn’t you know!?).
While I’m unwilling to speculate about the “true” interests here, I am willing to declare that the argument that we need to consider the existence of gambler’s anonymous members as the prime rationale for why this shut down makes “sense” is at BEST fallacious and at worst, highly misleading. There are negative side effects to absolutely everything, including all forms of entertainment. People go deaf listening to loud music, and have heart attacks on roller coaster, and let’s not get started on what people do to themselves with Coca Cola! However, the government chooses THIS as their focus point of enforcement?
The only thing I don’t understand is why this doesn’t make everyone really angry.
DON’T GAMBLE ILLEGALLY! Use your money in the stock market!