U.S. issues subpoenas to banks on online gambling
LONDON: The Department of Justice has issued subpoenas to at least four Wall Street investment banks as part of a widening investigation into the multibillion-dollar online gambling industry, according to people briefed on the investigation.
The subpoenas were issued to firms that had underwritten the initial public offerings of some of the most popular online gambling sites that operate abroad. The banks involved in the investigation include HSBC, Credit Suisse, Deutsche Bank and Dresdner Kleinwort, these people said.
The developments appeared to be part of an indirect but aggressive and far-reaching attack by U.S. prosecutors on the Internet gambling industry just two weeks before one of its biggest days of the year, the Super Bowl.
Unable to go directly after the casinos, which are based overseas, they have sought to prosecute the operations’ American partners, marketing arms and, possibly now, investors.
The prosecutors may be emboldened by a law signed by President George W. Bush last October that explicitly defined the illegality of running an Internet casino. Even before the adoption of that law, the Unlawful Internet Gambling Enforcement Act, the government said that Internet gaming was illegal under a 1961 provision.
While online gaming sites like PartyGaming and 888 Holdings operate from Gibraltar and their initial public offerings took place on the London Stock Exchange, companies that do business with them and have large bases in United States have come under scrutiny by regulators in Washington.
These offshore casinos, typically based in Costa Rica and Antigua, offer millions of American bettors the ability to use their home and office computers to place wagers on a range of contests — from sports to poker and table games, like blackjack.
The prosecutors’ efforts have already taken a serious toll in the last two years on offshore casinos, most notably with the arrest last year of David Carruthers, the chief executive of an Internet sports book, BetOnSports. The arrest led to BetOnSports’s decision to stop taking bets from the United States, crippling its business.
Several weeks after Carruthers was detained, agents of the Port Authority of New York arrested Peter Dicks, the chairman of Sportingbet, which offers online sports betting and, like Carruthers’ company, trades on the London Stock Exchange.
Last week, Neteller, an online money transfer business based in Britain, said it would cease handling gambling transactions from U.S. customers because of regulatory uncertainty. That followed the arrest of former directors.
Neteller was the principal way that people sitting at home got money to Internet gambling sites, according to I. Nelson Rose, a professor of law at Whittier School of Law.
“It appears that the Department of Justice is waging a war of intimidation against Internet gambling,” Rose said.
One question facing prosecutors is whether the American financial companies are within their rights to invest in the offshore casinos, given that those operations are legal and licensed in other jurisdictions.
Matt Richtel contributed to this article from San Francisco.
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