It is undoubtedly due to its stringent regulations that Malta has progressed solidly to become a European hub in the online gaming sector. It is the envy of others, and EU members such as Italy, France, Belgium and Spain are about to ease their monopolistic restrictions and go the Malta way.
Certainly, competition is knocking at our door and we must continue to be vigilant in our efforts to maintain quality regulation and check for any bad apples. In general, and in spite of a recession since 2007, online gambling is a fast-developing business in Europe and, according to statistics provided by the European Gaming and Betting Association, represents 11 per cent of the total European gaming market.
At least 15,000 websites have been identified, and annual revenues exceeded €6 billion in 2008 – a figure that is expected to double by 2013. It is estimated that about 10 per cent of the world’s remote gaming companies operate from Malta, with the industry now directly employing about 5,100 staff. Accordingly to the Finance Ministry, in 2008 there were a total of 325 valid online gaming licences in Malta, held by 220 registered companies. As a major i-gaming hub, Malta has always played it safe and refused to issue licences to operators who may provide services to US players that are in contravention to the provisions of UIGEA (Unlawful Internet Gambling Enforcement Act). So in what can be described as a scorched earth tactic, on 15 April the US Justice Department (DOJ) began an investigation into three big online poker sites based on the UIGEA and the Illegal Gambling Act of 1955. Commentators called this “Black Friday” which, in their opinion, triggered a witch hunt. It was reported that the founders of PokerStars, Full Tilt and Absolute Poker were among 11 people accused of alleged bank fraud, illegal gambling offences and money laundering in an indictment. The DOJ is seeking the forfeiture of at least $3 billion in a 52-page indictment. This alleges money-laundering on the part of the three companies and their defendants, claiming they “deceived or directed others to deceive United States banks and financial institutions into processing billions of dollars in payments”. To rub salt in the wound, the DOJ issued restraining orders against 76 bank accounts in 14 countries used by the poker companies and their payment processors. One of the bank principals, John Campos, of SunFirst bank in Saint George, Utah, was arrested, as was payment processor Chad Elie, accused of approaching Campos to allegedly process gambling payments for the poker companies in return for a $10m investment in the bank SunFirst. Five internet domain names used by the poker companies in the US were also seized.
It is a risky venture for gaming operators in US to offer poker forums following the introduction of the UIGEA in 2006 which bans the transfer of funds from any financial institution to an illegal internet gambling site. This act prohibits any person engaged in the business of betting or wagering from knowingly accepting payments in unlawful internet gambling. It has been pointed out that poker is never specifically mentioned in the UIGEA. Is this a loophole that resulted in a couple of daring operators throwing caution to the wind and braving the authorities by taking poker bets in the US? Their advisers are consoling themselves by pointing out that there is no legal document explicitly indicating that poker is unlawful internet gambling.
Some contend that there is no federal law that makes online poker illegal. In fact, the definition of restricted transactions is vague, although it covers bets on the outcome of a sporting event, while other types of gambling such as electronic slots and roulette – that fall under the definition of pure chance – are prohibited. For example, it excludes internet peer-to-peer chess, which is considered as a game of pure skill, and in certain European jurisdictions poker is also labelled a game of skill. Of course, it now appears that poker is considered as falling under the definition of restricted transactions and consequently the DOJ has issued indictment to three sites as discussed later on in this article. It has come down like a ton of bricks on the three sites that braved the water. Brazenly, they contend that the UIGEA is open to interpretation, and yet in truth most banks played it safe and blocked transactions involving poker sites.
Still, poker is very lucrative for the operators who dared the might of the DOJ and run fully-fledged services on licences issued in Kanawake (Canada) Alderney (the Channel Islands) and the Isle of Man. Naturally, since the promulgation of the (UIGEA) there has been a mass exodus from the US of poker providers. These faced protracted legal battles, which culminated in a settlement to regularise their past activity in US territory. Each settled with the DOJ after paying stiff fines for alleged past infringements. On a Friday (now called Black ) saw an FBI notice of the indictment charges issued to PokerStars.com, FullTiltPoker.com, UltimateBet.com, UB.com and AbsolutePoker.com. Defendants are accused inter alia that having arranged for the money received from US gamblers to be disguised as payments to hundreds of non-existent online merchants purporting to sell merchandise such as jewellery and golf balls. US Attorney Preet Bharara in Southern district of New York was quoted as saying that “As charged, these defendants concocted an elaborate criminal fraud scheme, alternately tricking some US banks and effectively bribing others to assure the continued flow in illegal gambling profits. Moreover, as we allege, in their zeal to circumvent the gambling laws, the defendants also engaged in massive money laundering and bank fraud.” The indictment continues to assert that “Of the billions of transactions that the poker companies tricked US banks into processing, approximately one third or more of the funds went directly to the poker companies as revenue through the ‘rake’ charged to players on almost every single poker hand played online,”. The DOJ believes it can prove that the poker sites conspired to defraud U.S. financial institutions by disguising transactions used for Internet gambling as something else to circumvent the UIGEA. One is cautioned that in US bank fraud carries such harsh penalties up to 30 years in prison and fines up to $1 million. Still the operators reply that if bank fraud was committed, it was done with the good intentions of running legitimate business through unreasonable government interference. While the charges contained within the indictment are merely accusations at this stage, the defendants could spend up to 30 years behind bars if convicted of conspiracy to commit bank and wire fraud, and up to 20 years if convicted of money laundering conspiracy. Violations of UIGEA and of operating an illegal gambling business would carry a penalty of up to five years in prison. Obviously this indictment does not mean that the closure of the sites should prejudice the player’s right to be refunded their account balances. In fact the DOJ announced that it had reached an agreement with the sites to return their domain names in order for the sites to return players’ money. This is great news for players who were worried about their funds, but many think that on its own this is not a goodwill gesture and there will be no leniency. The price to pay for challenging the ULGEA will probably be that the three sites will never be able to make a brave face to reapply if and when poker is liberalised in US. Certainly not for the same owners who are now indicted. On the positive side some contend that this harsh move may pave the way for speeding the regularisation and final regulation of online poker across the States. Perhaps it may happen in the next legislation if Obama is reappointed as president. So is this a witch hunt or a serious attempt to crack down on cowboys who dared the Justice department where others feared to thread.? In their defense both PokerStars and Full Tilt replied that they also treat players like valued customers.
They have a strong customer service and there has been no serious complaints about their poker products. In fact it is an open secret that due to their unique trading advantage in an otherwise lucrative poker market they could offer innovative incentives and provide a valued service. Yes …they have dared where others feared to test the waters and now face the DOJ angst. What will happen to the business….will it go underground and go unregulated? To conclude one hopes that reason will prevail and the defendants will be granted bail and their lawyers can reach an amicable agreement to settle out of court. It is no consolation to say that US poker players knew that the sites were working to circumvent UIGEA but most had no moral issue with it because they believe that the banning of such games go contrary to their civil liberties. In the near future ,the Federal government who faces a gargantuan debt may be lobbied to tax ,open the market and regulate the online industry as happens in other parts of the world.
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The writer is a partner in
PKFMALTA an audit and
business advisory firm.