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Pressure mounts on Internet gambling firms

Government may be launching crackdown, but can’t do much outside U.S.
/ Source: The Associated Press

Gambling industry experts agree: If you operate an offshore gaming Web site, stay out of the U.S.

Moments after stepping foot on American soil Thursday, Sportingbet PLC Chairman Peter Dicks became the second British offshore sports betting executive arrested in recent months for illegal online gambling in the U.S. Former BetOnSports PLC Chief Executive Officer David Carruthers was arrested on federal charges in July.

It’s still unclear if the arrest is a coincidence or part of a government crackdown, but some experts suspect the latter.

And as millions of dollars in bets for the NFL’s opening weekend roll into thousands of Web sites, the pressure on the Internet gaming industry has intensified.

“You don’t need legal expertise to know if you are running an offshore gambling site, don’t come to America right now. You stand a good chance of being arrested,” Internet gambling expert and lawyer Nelson Rose said.

Dicks, 64, was arrested at Kennedy International Airport in New York after flying from London, where his Web sites operate legally and are traded on the London Stock Exchange. More than $1.5 billion shares in the company were suspended by the LSE at Sportingbet’s request Thursday.

Dicks was detained on a Louisiana state warrant from May for gambling by computer, a felony punishable by up to five years year in prison and a $25,000 fine. Similar warrants have been issued for other Sportingbet associates, but authorities would not release information on who or how many of them are wanted.

Seven states have laws prohibiting Internet gambling. The arrest of Dicks marked the first time one of those states has taken action against one of thousands of big-time online gambling operations. Millions of American players bet an estimated $6 billion per year online, according to industry figures.

Carruthers was detained at a Dallas airport July 16 on federal charges from the U.S. Attorney’s office in St. Louis crafted around the 1961 Wire Act. The federal law bans sports bets over the phone (or in this case the Internet), even if the business is overseas.

Cases against offshore betting companies are extremely difficult to prosecute because of the many gray areas — including poker and casino games — in the current law that U.S. lawmakers hope to clear up, Rose said.

“Prosecutors are looking for easy cases,” said Rose, a professor at the Whittier College of Law in California. “It has to be sports betting, it has to be one that takes bets by phone and they have to physically be able to catch them. That’s the hard part.”

The founder and chief executive of the Internet casino, Calvin Ayre, was not surprised by the recent arrest. The Canadian Internet gambling mogul questioned why an online gambling executive that accepts illegal wagers from U.S. customers would come to America in such a risky climate.

“Being the director or senior officer of a public company accepting wagers in the U.S. has become a much more uncertain occupation in the near term,” Ayre said in a statement. “The fate of the future of public companies in this space is now open to question.”

An online betting conference in Las Vegas, where industry leaders like Ayre were expected to meet this summer, was canceled after the arrest of Carruthers, whose company was one of the world’s largest online gambling firms.

While the Justice Department has said it is being more vigilant in prosecuting illegal offshore betting, the department said Thursday’s arrest was not a coordinated effort with state authorities.

“This is a separate state case. I can’t speculate if there will be federal charges, but there will be discussion,” said Louisiana State Police spokesman Dwight Robinette Jr. “Our troopers started taking bets (with Sportingbet) and creating an investigation on this company and Mr. Dicks.”

The warrant was issued in May and Dicks’ name was flagged during a routine customs check at Kennedy.

Sportingbet Web sites continued to operate Friday and company officials said they expected to continue unless told otherwise by authorities.

BetOnSports closed its U.S. Web sites on a judge’s order and fired Carruthers, who remains under house arrest on $1 million bond in the St. Louis area, awaiting trial. He faces 22 counts of fraud and racketeering charges. U.S. customers with gambling accounts have not had their money returned as promised by the company.

“More players with accounts are beginning to worry that they are gambling and depositing money into black holes,” said Sue Schneider, publisher of the online gaming magazine, Interactive Gaming News. “That’s been the biggest injury to the industry and the concern of most companies.”

Meanwhile, lawmakers on both sides of the issue are pushing for change, including a proposed law to prohibit U.S. bank and credit transactions with online gambling operations.

Senate Majority Leader Bill Frist, R-Tenn., says he’s committed to bringing legislation banning Internet gambling to the Senate floor for final passage in the coming weeks.

“He understands that this addiction is on the rise and wants to help beef up regulations and enforcement of an issue that affects some who don’t even have to leave the comfort of their own couch,” said Frist’s spokeswoman, Carolyn Weyforth.

There is some doubt in Washington as to whether the bill will be voted on by the Senate with other more pressing matters to decide on in this session.

Republican Nevada Congressman Jon Porter introduced a bill calling for an 18-month study of Internet gambling that could ultimately create laws to regulate, tax and legalize Internet gambling in the U.S.