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Gambling enabler Neteller craps out

Hippie Canuck founders busted as DOJ rampage continues

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"Internet gambling is a multibillion-dollar industry. A significant portion of that is the illegal handling of Americans' bets with offshore gaming companies, which amounts to a colossal criminal enterprise masquerading as legitimate business. There is ample indication these defendants knew the American market for their services was illegal. The FBI is adamant about shutting off the flow of illegal cash" - FBI Assistant Director Mark Mershon, United States Attorney’s Office press release, January 16, 2007

The American assault on the online gambling world claimed another victim today, as payment processing giant Neteller suspended trading in its shares on the London Stock Exchange in response to the arrest of two former executives by American authorities.

The United States Attorney's Office for the Southern District of New York unsealed indictments this morning against Stephen Lawrence, Neteller's largest shareholder and former chief executive officer, and John Lefebvre, a former president of the company who retains a significant ownership interest as well. Federal agents nabbed Lawrence in the US Virgin Islands and Lefebvre in Malibu, California - apparently the current executives are clever enough to avoid dipping a toe in any US jurisdictions.

According to today's press release, the Feds began investigating Neteller in June last year, months before the passage of the Unlawful Internet Gambling Enforcement Act, which was hurriedly added to the Port Security Bill under cover of night. Of note is the fact that the men are not being charged under the UIGEA, which doesn't take effect until Juy of 2007 when the 270-day grace period expires.

After all, the alleged illicit activities took place in 2005, well before passage of the act.

Instead, they are charged with "conspiring to transfer funds with the intent to promote illegal gambling" during a period when both men still served on the Neteller board of directors. The press release, however, notes some parallels to the BetonSports prosecutions, previously covered here, and makes crystal clear the breadth of jurisdiction the DOJ believes it has over online transactions that touch the United States, even via third parties.

Whether going after a reputable payment processor like Neteller is smart policy is another question entirely - what would prevent gamblers from switching to other, less savory processors, with executives hanging out on the beaches of Beirut rather than the beaches of Malibu?

The BetonSports debacle should have made obvious to the DOJ the hazards of puritanical zeal, hammering away at reputable companies only to drive money into the open arms of shady payment processors. The once-reputable BetonSports is now a shell of its former self- it didn't even bother sending an attorney to its arraignment last week, risking contempt of court sanctions. Whether that's a novel legal strategy or a reflection of its financial ruin is unknown, but the American gamblers who formerly poured billions into the company will likely never get their money back.

With friends like the DOJ, who needs enemies. These laws are meant to protect the American public, right?

Neteller found itself in the crosshairs due to the fact that it provided payment processing services to an astonishing 80 per cent of all online casinos, and processed over $7bn in transactions in 2005. The DOJ press release contrasted Neteller's insouciant indifference with the docile response it got from competitor Paypal back in 2003, when Paypal coughed up $10m to avoid prosecution for facilitating these same kinds of transactions. Neteller PLC itself has yet to be charged with anything, though this was a pretty good shot across the bow.

Of course, Neteller could have helped itself by pulling out of the American gambling scene back in October, when everyone else pulled the ripcord. As it is, a couple of laidback Canadians, who, after founding a major corporation, ditched the corporate game to hang out on the beach with a cold one, or update their MySpace pages, will pay the price.

After word of the arrests broke, online gambling enthusiasts managed to dig up Lefebvre's MySpace page, which is full of pictures of the hippie crooner in various bucolic settings, stroking his instrument. We bet he'll soon be singing a different tune, in an environment considerably less peaceful. ®

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