U.S. bettors send vast sums offshore
By Peter Shinkle Post-Dispatch

Federal prosecutors in St. Louis are investigating money transfers to illegal gambling sites on the Internet. The administration of President George W. Bush wants to shut down a river of cash flowing into the illicit industry.

But Dave is undaunted.

Dave - who declined to give his last name - runs Triplecrownracebook.com, based in Costa Rica. A native of New York City, he moved offshore - like many other Web gambling entrepreneurs - to escape the reach of U.S. law enforcement.

He said he expects little impact from efforts in Congress, where some want to bar financial institutions from transferring money to gambling sites. Dave says he is sure his industry will survive new laws, prosecutions and anything else.

"Did prohibition shut down booze? Has the war on drugs stopped drug use?" he asked in a telephone interview.

Indeed, many of his cohorts are voicing confidence that their enterprise eventually will be made legal.

Supporters say it is better to regulate it, drive out bad operators and collect new taxes. Opponents say that online gambling is an insidious lure for the addicted and that criminals can use it to launder the proceeds of their misdeeds.

While federal and state laws generally ban this form of wagering, prosecutions appear to be rare. Bettors in Missouri could go to jail for up to 15 days under state law, or in Illinois, up to a year, but are considered just tiny fish in a vast ocean of money.

Bookies are generally based in countries that condone them.

So the revenue stream is the law enforcers' logical target.

U.S. gamblers are sending vast sums offshore. Nearly half the 12 million online gamblers are from the United States, and the industry will take in about $6 billion this year, according to research firm Christiansen Capital Advisors of New York.

The General Accounting Office, the investigative arm of Congress, estimates that 1,800 gambling sites are operating.

One case in St. Louis demonstrates just how lucrative an Internet gambling site can be. When federal prosecutors here brought charges in 2000 against ParadiseCasino.com, based in Antigua, the two California men who set it up admitted handling $300 million in just three years.

They pleaded guilty to tax and wagering violations and agreed to pay the government $11.4 million.

Despite its riches, the industry is in turmoil as prosecutors track down its money sources and financial institutions adopt new policies to try to stay within the bounds of the law.

Four years ago, federal prosecutors began investigating whether PayPal, an Internet money transfer operation, violated federal law by shipping cash to online gambling sites. PayPal, bought by eBay Inc. last year for $1.5 billion, stopped making the transfers last fall.

A company report recently disclosed that U.S. Attorney Ray Gruender, in St. Louis, had told PayPal that it violated federal law. No charges have been filed, and Gruender has declined to comment.

Other money transfer agents picked up the slack, industry analysts say.

Triplecrownracebook.com and many other sites offer a variety of circuitous methods for U.S. customers. For instance, bettors can send money to a foreign money transfer service, like Canada-based NETeller.com, Dave said.

Illegal but easy

While Internet gambling is legal in many countries, neither the federal government nor any U.S. state allows it. But that hasn't stopped plenty of people from taking their chances.

One is Jay, a resident of Creve Coeur, who has a college education, works in sales and doesn't want his last name used. He said he used to bet with a bookie he met through friends, but felt it was "sleazy" and unreliable. He worried he wouldn't get his winnings.

Jay figured that online betting would be safer and more reliable. He also said he thought that since it was offshore, it would be legal; he knew his old bookie wasn't.

He liked the anonymity and the convenience. "I didn't have to worry about getting anybody on the telephone at certain times of the day," Jay said. "The computer's open 24 hours a day."

He said he never had a problem getting paid.

Sports betting is widespread, and college and professional athletes are sometimes among those turning to online bookies. In March, Jaromir Jagr of the Washington Capitals hockey team admitted he had paid $450,000 to settle a debt to Caribsports.com of Antigua.

In Jay's case, the losses weren't nearly so big. But the computer's easy availability became a problem for him, too. Betting up to $5,000 per sports event, he was putting money down about three times a week on a site called Wagerstreet.com, he said.

"You go to the Web site, you take out your credit card and three minutes later you've got a wager. It's like getting up in the morning, going downstairs and somebody's dealing blackjack at your table," he said.

Over a little more than a year, he says, he lost about $30,000. Eventually he realized he had a problem and quit.

An offshore boom

At the other end of Jay's Internet connection was Roger Bartleby, who launched Wagerstreet.com two years ago with approval from the Mohawk Indian reservation near Montreal.

Bartleby said he had paid the Kahnawake Gaming Commission, the Mohawks' gambling agency, $10,000 for a license and $15,000 for a background check. He also is required to use a Mohawk company for Internet access.

It is one small example of how some foreign jurisdictions have rushed to legalize online gambling and cash in on its tax potential. The Kahnawake Gaming Commission has licensed about 60 Internet sites.

Hundreds have opened on Caribbean islands and in countries like Costa Rica and Belize, where online gambling is legal.

In all, about 350 companies operate an estimated 1,800 active gambling sites worldwide, said Sebastian Sinclair, president of Christiansen Capital Advisors. There are thousands of Internet addresses to funnel Internet surfers to them.

Dave, the founder of Triplecrownracebook.com, said he had paid the Costa Rican government $60,000 for a license. He pays taxes and employs about 30 people there.

He declined to reveal how many bets he took last year, his first. "We are profitable, and we are expanding," Dave said.

In one indication of how profitable, his company, which commonly uses the Web address TCBets.com, is now the largest advertiser in the Daily Racing Form, a horse-racing newspaper published in New York.

TCBets.com offers wagering on races at 85 horse tracks around the United States, as well as on professional and college sports.

Gamblers also can put down money on politics at Dave's site, which even offers odds on who will be the next pope.

England joins in

It is not just the Caribbean islands and Indian reservations that have joined the rush. The United Kingdom has legalized sports betting via the Web, too, giving online customers new hope that the United States will follow.

Among the biggest Web sites is Betonsports.com, based in England and operating from Costa Rica. It employed up to 1,500 people and had revenue of $1 billion in 2001, its latest annual report says.

The vast majority of that business came from this country. The site focuses on baseball, basketball, hockey and other U.S. sports - not soccer or cricket.

Shares of Sportingbet Plc are traded on the London Stock Exchange. The first page of its financial report for the last quarter of 2002 noted "strong growth in U.S.," citing a 24 percent increase in revenue from Americans.

Sportingbet reported a profit of about $8.9 million on revenue of about $567 million.

While gambling sites may not operate openly in the United States, some supporting businesses do - to provide advertising, consulting and lobbying services.

River City Group Inc. of St. Charles offers an array of services, including market research. It also publishes a Web-based news site on the industry, iGamingnews.com.

But its next trade show, May 20-22, will be in Toronto, where the attendees are unlikely to face arrest. River City bills its trade show, the Global Interactive Gaming Summit & Expo, as the industry's largest.

Sue Schneider, River City's chief executive, said, "There are a growing number of governments around the world that are regulating and licensing Internet gambling. That would be a more productive way of handling it, rather than trying to prohibit it."

Another locally operated business, the Web site Gamemasteronline.com, reviews online gambling sites and offers a "black list" of those suspected of cheating. It is operated by Bill, who declined to give his last name.

Bill, who lives in Shrewsbury, said he does not gamble online but analyzes videotapes of betting by others. His revenue comes from advertising by online casinos, he said.

He also thinks online gambling should be legal.

Even MGM Mirage Inc. of Las Vegas, a major casino operator, has plunged into the Internet business, operating with a license from the Isle of Man in the British Isles. MGM says it takes online bets only from countries where it's legal.

The credit connection

Credit card companies embraced the booming business, for a while.

But in about 2000, under Justice Department scrutiny, Visa and MasterCard set up a system that let each bank issuing their cards decide whether to block payments to online gambling.

"A bank in a country that bans Internet gambling should therefore decline an Internet gambling transaction," explained Casey Watson, spokeswoman for Visa International.

There was another reason to back off: Some gamblers refused to pay, claiming they weren't responsible for debts owed to an illegal activity and thus leaving the credit card companies in a sticky spot.

But the money still gets through.

In some cases, online gambling sites have disguised credit transactions, according to a December 2002 report by the General Accounting Office.

Or gamblers simply hand cash to online money transfer services, like NETeller.

There are other options. Bartleby, the owner of Wagerstreet.com, said his site routinely accepts payments from Visa debit cards issued by Bank One Corp. of Chicago.

Bank One spokesman Jeff Lyttle defended the practice, noting that several other debit card issuers do the same. The bank views debit transactions - which come straight out of a checking account- as different, he said. "You're not extending credit. You're allowing customers to use their money as they wish."

Congress is considering legislation to limit such use of debit cards. Noted Lyttle: "There's no legal prohibition against it currently."

Congress reacts

Since 2000, Rep. Jim Leach, R-Iowa, has pressed for legislation to ban credit card transfers to Internet gambling sites. Banks have opposed it as too burdensome.

But with many banks adopting their own restrictions, MasterCard has moved to support Leach's bill. It passed the House last year and won support from the Bush administration.

Lawrence Lindsey, President Bush's assistant for economic policy, wrote a letter to then-Senate Majority Leader Tom Daschle, D-S.D., in October urging the Senate to pass companion legislation.

"Congress has heard countless heartbreaking stories of families torn apart, careers ruined and credit ratings destroyed by illegal Internet gambling. The lure has proven to be irresistible to the most vulnerable in our society - our youth and problem gamblers," Lindsey wrote.

Meanwhile, the National Collegiate Athletic Association and professional sports groups like the National Football League are supporting the bill out of concern that Internet gambling may taint their sports events.

But the bill failed in the Senate. Leach reintroduced it in the House this year. In a hearing in the House Judiciary Committee on Wednesday, a Justice Department official spoke in support of passage, while an MGM representative opposed it.

Even if Leach's bill does pass, it would be difficult to clamp off payments to Internet gambling sites, judging by current experience.

Consider the case of Western Union, well known for its service wiring cash around the world. A subsidiary of Colorado-based First Data Corp., it has a policy of blocking transfers to online gaming sites.

But there is no way to prevent an individual, who may be a gambler, from wiring money to another individual, who may work for an Internet gambling site, explained Wendy Carver-Herbert, a Western Union spokeswoman.

"We don't question what those funds are for because of privacy issues," she said.

Gambling companies can muddy the water more by receiving the money with different people or under different names.

"It might be Pablo this afternoon, it might be Juan tomorrow, it might be Sarah the next day," Carver-Herbert said. "They do that because it makes it difficult to detect."

Back in Creve Coeur, Jay still struggles against caving in to the lure of a casino that waits night and day inside his personal computer. "Even now, it's hard for me not to," he admitted.