FBI crackdown on online poker: double pain, double gain

On 15 April, the FBI launched the biggest crackdown on online poker in the US since the Unlawful Internet Gambling Enforcement Act (UIGEA) came into force in 2006. The targets were those operators who have continued to accept payments from US residents on their websites since the implementation of the UIGEA.

PokerStars, Full Tilt Poker and Absolute Poker have been charged with alleged bank fraud, money laundering and illegal gambling. Eleven individuals are accused of manipulating banks into processing around $3 billion in illegal gambling revenue. ‘Black Friday’ has sent shockwaves through the online gambling industry and it was undoubtedly a dark day for online poker players in the US.

However, operators who do not focus on the US market could not believe their luck. Many European gambling businesses saw their shares soar, such as Bwin (up 30%), Playtech (8%) and 888 (19%), as investors bet on high-value players, processors and affiliates switching to safer sites that are currently not subject to criminal investigations.

The seizure and interruption of money streams have also made it harder for PokerStars, Full Tilt Poker and Absolute Poker to remain at their liquidity levels, which is again not very appealing for players and investors alike. The three operators in question are trying to assure customers that safety is not an issue. Non-US players, however, have become nervous and wonder if their money is still safe. Many players and investors do not want to take any risks after last week’s developments. They have come to realise their funds are only truly safe in a regulatory climate that does not define online gambling as a criminal activity. Although the jump in share prices might be short-lived - many experts believe the market will stabilise to normal standards within a few months - the non-US focused operators are expected to benefit in the long term as well.

Some experts believe the latest FBI action is a way of clearing out some of the difficult issues in order to make regulation of online poker in the US easier. Cleaning up the mess before the American online gambling landscape can be re-organised, since there is a strong feeling in many US quarters (including the DoJ, obviously) that the three accused businesses should not benefit from their illegal activities and any attempt on their part to continue to do business, or even to sell their assets, should be blocked, so if the US would allow a number of operators back in at some point, the three accused companies will not be on top of the list to qualify for a licence. The accused operators could have pulled out earlier by opting for a fine and a non-prosecution agreement, like Sportingbet did in the past. Its agreement with the DoJ in September 2010 specifically stated that the deal is no bar to Sportingbet entering the US market if and when such activities become legal.

The DoJ and a number of Senators have indicated in the past that operators who pulled out of the market in 2006 should be favourites to obtain a US licence, when the US Government allows such activities on its digital soil. It seems therefore that the three accused companies have not just lost today, but also tomorrow. It is not just one round that was lost, it’s game over, at least in the US.

Michiel Willems (c) 2011. Published previously in World Online Gambling Law Report. Copyrights apply at all times.

Point of no return for Digital Economy Act

London - UK internet service providers (ISPs) BT and TalkTalk have suffered a heavy blow in their battle against the implementation of the Digital Economy Act (DEA) in its current form, after the UK High Court ruled on 20 April that the most important elements of the DEA comply with EU law.

The controversial law, aimed at protecting the rights of copyright holders on the internet, does not conflict with any EU legislation or case law, Justice Kenneth Parker ruled.

BT and TalkTalk had challenged the DEA in court, because they detest a part of the DEA under which ISPs can be forced to disconnect users if intellectual property right holders believe their rights have been violated. The two large providers find it unreasonable that ISPs are being made responsible for the behaviour of individual users and could soon be forced to monitor their customers online.

BT and TalkTalk tried to convince the Court that the DEA breaches users’ right over the protection of personal data, but Judge Parker would not have it. He stated that information obtained from IP addresses - to locate and identify users - is personal data, but that it is acceptable for intellectual property right holders to use this information in case their rights are violated.

Justice Parker did rule that the DEA was unlawful in making ISPs responsible for certain implementation and enforcements costs; he decided ISPs will no longer have to pay for Ofcom - the UK media and internet regulator - to establish an appeals body, although the obligation to pay a share to help run the appeals system remains, as well as 25% of the costs of letters that are going to be sent to potential copyright infringers.

But this part of Parker’s ruling turned out to be insignificant when BT and TalkTalk’s main argument - that the DEA would mean a restriction of internet freedom - was wiped off the table. Parker ruled ‘Parliament has struck a balance’ between the protection of copyright and giving the public the right to access free content. He admitted ‘existing copyright legislation may strike that balance in a way that is controversial or open to criticism’ but he continued by saying that ‘in my view, Parliament, does strike a fair balance’. When BT and TalkTalk heard those words, they realised the game was up.

The 20 April ruling is a bitter disappointment for ISPs since it paves the way for the DEA to be implemented in its current form. Ofcom is in the process of writing a new code that will clarify the practical implementation of the obligation for ISPs to shut down users after they have received complaints from right holders, and after Parker’s ruling, there is nothing that can realistically stop Ofcom from doing so.

Some experts believe Justice Parker was getting a bit too political when he said ‘the DEA represents a more efficient, focused and fair system than the current arrangements’. BT and TalkTalk, like many other ISPs, obviously disagree, but there is not much they can do about it anymore. They have practically run out of options so it seems a new copyright regime with ISPs policing the web will soon be a reality.

TalkTalk, however, vowed not to give up and is considering taking the matter to the Court of Justice of the European Union. The ISP released a defiant statement: ‘We may have lost this particular battle, but we will continue fighting’.

Their statement came even before the House of Commons Culture, Media and Sport Committee announced on 3 May it will drop its investigation into the DEA. The Committee said that ‘in light of recent court action’ it will not longer investigate whether the DEA is the right mechanism to protect copyright on the internet.

Obviously, TalkTalk is done talking, when it becomes impossible to put your money where your mouth is.

Michiel Willems (C) 2011. Published previously in E-Commerce May issue. Copyrights apply at all times.

Royal wedding reporting

Some radio reports I did in the last few weeks for the Dutch station Radio 1 about 'the wedding of the century', Prince William and Kate Middleton tying the knot. When you click on a link, my sections (all in Dutch) start straight away:

A week before the wedding:
http://player.omroep.nl/?aflID=12442939&start=01:00:16

Wedding day:
http://player.omroep.nl/?aflID=12471262&start=01%3A18%3A40

The aftermath:
http://player.omroep.nl/?aflID=12510187&start=00:18:34

www.radio1.nl

If a link does not work, you can copy/paste it into your browser.

Fight against fraud drives global Chip and PIN uptake

The use of Chip and PIN is on the rise. Europay, MasterCard and Visa (EMV)-enabled cards - cards that are embedded with a processor chip that contains data and require a PIN to complete a transaction - are to be introduced in Australia and China, while Canadian retailers are in the last stage of implementing EMV technology.

MasterCard Australia said in a 29 March statement that, from October 2011, ‘all new and re-issued MasterCard cards issued by Australian banks must be EMV capable and all point of sale terminals EMV compliant by April 2012’ and ‘all ATMs must be EMV enabled at the end of 2015’.

Matthew Kovac, Director of Wincor Nixdorf, welcomed MasterCard’s move: “Aussie banks are a little bit behind the times. There have been a lot of issues with skimming”. Oliver Barrett, Partner at Minter Ellison, was also positive: “This will change the Australian payment landscape for the better”.

Dr Raymond Choo, Senior Lecturer at the University of South Australia, stressed that “statistics have shown that Chip and PIN implementation has resulted in a decrease in card fraud” and predicts that “Chip and PIN in Australia might result in increased [fraud] displacement to neighbouring countries that had yet to implement the [EMV] technology”.

Chris Hamilton, CEO of the Australian Payments Clearing Association, also expects that “EMV will reduce the attractiveness of Australia to criminals,” but added that “it is not only a safety benefit. Chip offers greater functionality and flexibility than mag-stripe. Chip cards can be contactless and handle multiple applications.”

China and Canada
In China, Li Dongrong, Assistant Chairman of the People’s Bank - the country’s Central Bank - said on 4 April that Chinese banks should shift to EMV technology because “many fraudsters make use of the vulnerabilities of stripe cards, but we cannot come up [with] effective solutions to stop them”. Before June, most of China’s biggest banks - such as the Bank of China and the China Merchant Bank - are going to replace the magnetic strip equipment with cards containing the embedded chip.

In Canada, MasterCard and Visa will refuse liability from 31 March for fraudulent transactions carried out by retailers who have not implemented Chip and PIN technology - liability will shift to the merchant and consumer. Last September, the implementation was delayed by six months because of adoption issues.

Michiel Willems (c) 2010. First published in E-Finance & Payments L&P. Copyrights apply at all times.

Turn the page

Google’s precious plans to create a ‘digital library’ with most of the world’s books available for all seems further away than ever after a New York City court ruled on 24 March it did not approve the Amended Settlement Agreement (ASA), a November 2009 agreement between Google, the Association of American Publishers and the Authors Guild.

Judge Denny Chin, of the US District Court for the Southern District of New York, said “the question presented [to the Court] is whether the ASA is fair, adequate, and reasonable. I conclude that it is not”.

The latest twist in the Google Book saga is a heavy blow for the internet giant, whose desire to digitalise most of the world’s books dates back to 2005, when it was first sued by a number of authors for copyright infringement after Google had started scanning the first books. Although the ASA was reached in 2009 - stating that authors’ consent to publish their books is presumed unless they explicitly object - a number of writers and publishers, as well as the US Department of Justice, kept rejecting the deal and said Google should operate on an ‘opt-in’ basis (consent should be given explicitly), rather than ASA’s opt-out regime. Following these objections, the ASA was subject to a ‘fairness hearing’ in February 2010 and Judge Chin ruled back then the deal could not be approved. Now, 13 months down the line, Chin has come to the same conclusion.

Once Google has swallowed the latest legal disappointment, it will realise it has become unlikely US courts are going to approve any settlement that continues to include an opt-out arrangement. In its current form, the courts simply won’t buy it. Judge Chin clearly stated that “many of the concerns raised in the objections would be ameliorated if the ASA were converted from an ‘opt-out’ settlement to an ‘opt-in’ settlement”. He ‘urged’ the parties “to consider revising the ASA accordingly”.

Undoubtedly, Google will do anything to prevent an ‘opt-in’ system. Under such a regime, it will take much longer to establish a ‘global online library’ - since Google will have to ask each and every author for their approval - it will be costlier (some authors will demand individual arrangements) and it will be impossible to include ‘orphan books’ - works that are still under copyright protection but whose right holders cannot be located.

What should have become a page turner, is slowly turning into a never ending story. Judge Chin has decided a ‘status conference’ will take place on 25 April, where Google can outline its next steps and everyone will get a taste of what the next chapter is going to be like.

Published previously in a London monthly magazine. Michiel Willems, March 2011. Copyights apply.