Monday, 23 May 2011

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.