BetonSports - again?- and BetUs indicted in latest DOJ bust

House of Cards The American Department of Justice (DOJ) threw a spotlight on the murky underworld of internet gambling payment processing this afternoon with the indictment in Utah of seven individuals and four companies – including BetUs.com and serial violator BetonSports.com - involved with processing payments for online gambling transactions, according to the Associated Press. The indictment seeks to recover $150 million from the defendants under the Racketeering Influenced and Corrupt Organizations Act (RICO), in addition to hard assets such as real estate and property used in running the operations.

Ever since President Bush signed the Unlawful Internet Gambling and Enforcement (UIGEA) into law last October, internet gambling companies have been scrambling to process payments from frustrated American customers. The UIGEA did not make internet gambling illegal under federal law – it targeted the banks and financial institutions involved with processing internet gambling transactions, to prevent American consumers from gambling online. Americans accounted for about half of all internet gambling revenues worldwide in 2005. No longer.

Although the UIGEA does not take effect until early July, major financial institutions pulled out of the American market almost immediately, forcing American gamblers and US–facing gambling suppliers to resort to increasingly roundabout methods of payment. Indeed, one of the companies indicted, BetonSports, was already in legal hot water in the Eastern District of Missouri, where several executives, including former CEO David Carruthers, were indicted on similar charges last summer. Although BetonSports had allegedly been cooperating with the authorities there, apparently the company fell off the wagon. Some habits are tough to kick.

Money laundering is just the disguising of the true nature of a financial transaction, and the convoluted payment systems allegedly developed by the defendants appear to qualify as that. According to US Attorney Brett Tolman, two of the companies, Hill Financial Services and Gateway Technologies, provided accounting and transaction processing services in Utah, and then routed the payments through foreign-based companies CurrenC and CurrenC Worldwide, where the laws on gambling transactions are more forgiving. One little-known provision of the Patriot Act mandates the coding of financial transactions, all the better for the feds to track what is going where and why. The floating world of non-traditional payment processing circumvents this by routing money through companies ostensibly not involved with gambling, as in the above allegations.

Just how does the DOJ unravel these things? Although Tolman didn’t discuss that question, the DOJ most likely triangulates based on payment histories readily provided by American or foreign financial institutions. The DOJ could fairly quickly compare the payment history of a customer account formerly sending monthly payments directly to Bodog, for example, with more recent post-UIGEA history of the same account and guess with some accuracy where the gambling money now goes. Of course, as with our useless drug war, increasingly sophisticated networks will find new ways to circumvent the enforcement. Maybe something will develop along the lines of the P2P file sharing networks that give the RIAA fits, in which fragments of commonly used data packets are pulled off of different servers around the world, or even internet versions of halawa-style networks - who knows?

"We now have a body of information technology and strategy that can cross many jurisdictions," Tolman told the news conference.

Of course, there will always be jurisdictions beyond the grasping reach of the DOJ, and gamblers will continue to find them using the latest technologies. Unfortunately for the millions of Americans who want to gamble online, online gambling has become one of those phony firestorms kicked up every few years by ambitious, overeager American politicians and their flunkies in the press.

Until a more rational debate about the pros and cons of internet gaming takes place, otherwise law abiding Americans will continue to slink around the internet looking for ways to place a bet on their favorite team or play a quick game of poker.®

Burke Hansen, attorney at large, heads a San Francisco law office