07/25/2006 11:00PM

U.S. declares war against online gambling operators


The most important development in the poker world this month may not have taken place during the World Series of Poker in Las Vegas but in a passenger terminal at the Dallas/Fort Worth International Airport.

That was where, on July 18, agents of the Federal Bureau of Investigation arrested the chief executive of a London company who had the misfortune of changing planes at DFW en route to Costa Rica. The Feds nabbed David Carruthers, the CEO of BetOnSports.com, one of 11 individuals and four corporations named the day before in a 22-count indictment of operators of online wagering sites.

The arrest was remarkable because Carruthers is a British citizen operating a legal Central America-based business that is traded on the London Stock Exchange. His principal crime, it seems, is that the United States government thinks it is entitled to collect a federal excise wagering tax on wagers placed by its citizens. Carruthers and the various other individuals arrested and companies named were additionally charged with numerous felony violations of federal laws, including the Wire Act, the Racketeer Influenced and Corrupt Organizations (RICO) statutes, interstate transportation of gambling paraphernalia, interference with the administration of Internal Revenue Service laws, and tax evasion, according to the indictment.

The indictment also charged BetOnSports with misleading customers by calling itself the world's largest "legal and licensed" sportsbook. BetOnSports and many other sports and poker companies are in fact legal and licensed in the countries where they operate and are traded, just not in the United States.

It seems less than coincidental that earlier this month the U.S. House of Representatives overwhelmingly passed the Goodlatte Bill, which would criminalize most online betting (with the significant exception of currently legal state lottery and horse racing online sales.) The Goodlatte Bill faces an uncertain fate in the Senate, but the Justice Department appears to have taken its House passage as a mandate to enforce its controversial interpretation of currently tangled gambling laws to arrest officials of foreign betting companies if they set foot on U.S. soil.

The operators of the poker sites, who at this moment are doubtless taking a renewed interest in direct flights that avoid U.S. hubs, are the likely next targets. The poker sites not only rake in even more business than the online sports-betting operations, but also advertise even more aggressively and in mainstream media.

While it is standard prosecutorial practice to indict low-level company officials in hopes of coercing and co-opting potential turncoat witnesses, the BetOnSports indictments were especially harsh and far-reaching, seeking penalties of up to 20 years against a media coordinator, a marketing manager, and four advertising executives who did business with the company.

Carruthers was not the primary target of the indictment, which was more squarely aimed at Gary Kaplan, the company's founder, who has a longstanding adversarial relationship with the United States government. Carruthers, however, appears to have been targeted in part because he has written numerous articles criticizing the United States' approach to the issue. Carruthers, who was returning to his home in Costa Rica with his wife at the time of his arrest, remains in federal detention and has been moved to Missouri, where the indictment was handed down June 1 but kept sealed until the day after his arrest.

The only good news for the literally millions of Americans who patronize these sites is that no customer has yet been charged. Players are probably safe for now, though the prospect of severe financial penalties, such as the $4.5 billion in forfeitures sought by the Justice Department from BetOnSports, might make players a little leery of leaving vast sums on deposit with these companies. The indictment did, however, ask for the return of monies held in BetOnSports accounts for United States citizens.

A little bit more good news has come in some of the editorial response to the government's recent actions. Most notably, the Los Angeles Times on its editorial page last week, addressed the issue bluntly with the approach long advocated by the online gambling industry itself:

"There's a far more effective way to bring Internet gambling within the reach of Uncle Sam: Legalize it. Carruthers argued for that in this newspaper just four months ago, when the House of Representatives was considering a bill to outlaw online gambling. Unfortunately, the bill passed last week by a 317-93 vote and could go to the Senate floor this month."

The editorial soared to a strong conclusion:

"Maybe enough senators still believe in liberty and free trade to defeat this bill. And maybe the FBI has more pressing tasks than scouring tarmacs for the expatriate enablers of victimless acts."