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BUSINESS ARTICLES
October 17, 2001


ONLINE GAMBLING : THE "TEFLON DON" OF THE 21st CENTURY
By Marc Lesnick

Events after September 11 certainly have changed things worldwide. And apparently, the Internet Casino business is not immune from such changes. The attack brought on a sweeping euphoria of laws within the United States covering anti-terrorism. Many are being drafted, many are being voted on, and many have been passed by US Congress.

On October 17, 2001, the US House of Representatives passed by 412-1 Bill HR 3004, otherwise known as the "Financial Anti-Terrorism Act of 2001." (The full text of the bill can be read at www.StartCasino.com). Most of the bill is designed to go after money laundering operations and "suspicious" financial transactions that involve terrorism. While Title 18 of the US Code covers money laundering, amendments were made to strengthen it considerably.

Somehow, Internet Gambling had been thrown into the bill. Two sections of this bill, sections 303 and 304, had dealt with Internet Gambling. That part was known as the "Unlawful Internet Gambling Funding Act." The night before the voting took place, these two sections were removed as "non-germaine" by the House Rules Committee.

This latest action may give the appearance of Internet Gaming as a "Teflon Don" of the 21st Century. This nickname was affixed to John Gotti, the reputed mob boss whom the US Government had tried to convict in numerous failed attempts. The press gave him the nickname, stating that "nothing sticks" (one of Teflon's chemical properties).

This is the fourth time over the last 3 years that the Federal Government has tried to prohibit internet gambling in some form or another. Each attempt has failed, either by technical rules within Congress, processes taking too long, or by majority votes against certain bills. This latest attempt was an attachment to an anti-terrorism law, something which could be swept through the legislative system in a matter of 1-2 weeks. Yet, the internet gambling text was specifically removed from the bill, due to the fact that it did not belong according to the House Rules Committee. This sends a clear signal to the industry that time is on its side. With time, online gambling is expected to grow and become more powerful, the industry may become more acceptable to legislators.

What this means, according to internet gaming lawyers, is the industry is in the same position where it was before the legislation was introduced. "Nothing has changed," according to one industry source. One part of the bill removed had defined 'unlawful internet gambling.' In question of legality, an internet gaming lawyer stated, "The US Government tried to define what was illegal with regards to internet gambling. While that part of the bill was revoked, the current law neither says its legal, nor does it state it's illegal. Its still remains undefined, just as it did when Internet Gambling started."

Section 303, removed from the bill, was titled "Prohibition on acceptance of any bank instrument for unlawful internet gambling." Section 304, also removed, covered I-gaming in foreign jurisdictions. It said the US Government would ask foreign governments to (1) ensure that the offshore casinos did not launder money and (2) stop internet gambling in their country and not to take bets from Americans. Simply asking won't work when it comes to stopping online gaming in licensed jurisdictions. In some Caribbean nations, revenue from I-gaming exceeds their entire GNP. It's like asking the United States to stop manufacturing automobiles.

Both elements dealt with the business end of the industry and the wording seemed to appear that the gambler himself was not liable. The bill discussed "acceptance" of wagers (ie: the casino), and not "wagering" or "providing a wager" (ie: the gambler).

Reasons for how the two Sections were put into the bill in the first place may be understandable. In dealing with most of the people in this industry, there is a fair share of "noble and honorable" individuals out there that operate and run internet casinos, providing fair odds for games, and duly paying customers their winnings. However, there also is a "negative element" that exists within the industry. In the past, some well known offshore internet gaming operations have laundered money (I have no direct knowledge of specifics). This sort of information is probably well known by the US Justice Department and the US Department of the Treasury as well. In this case, it is the few rotten apples that spoiled the bunch, and caused the legislation to be proposed.

As for what was passed, below are important points related to changes in financial crimes:

· Any offshore bank account (ex: HSBC Cayman Islands) with a branch/office in the USA, the US Government will consider the account to be a US Account. Any funds can also be seized from the branch/office in the USA.

· Title 31 of the US Code covers cash smuggling. Those that smuggle more than USD $10,000 into the USA face up to a 5 year sentence, forfeiture of the money plus "any property traceable" to it.

· In cases where a cash bail of more than USD $10,000 paid, a report is made with the name, SS#, address and other information for both the offender and those posting bail.

· New verification procedures will be instituted for opening a bank account. Falsifying one's identity will be punishable by a 5 year maximum sentence.

· A secure website will be created within 6 months for dissemination and collection of financial information between financial institutions and the US Government.

· Brokers and dealers with the SEC will have new regulations to report suspicious activity (ie: short selling). The brokers and dealers, however, are not liable for failing to report such activity.

· All of the above will be watched by the "Director of the Financial Crimes Enforcement Network" which was created in 1990 and is a division of the US Treasury Department.

Removed were the following points of the bill with regards to internet gambling in the USA:

· Places where there were no laws in the USA for internet gambling constituted "unlawful internet gambling"

· No person or business could accept any form of payment in exchange for an unlawful online bet or wager. This included: credit cards, checks, wire or electronic money transfers, 3rd party intermediary (ex: another bank). Penalty for this was a maximum or a 5 year sentence and/or the fines under Title 18 of the US Code.

· Financial Institutions were not liable for the transactions. (ex: Visa was not liable for a credit card transaction that involves internet gambling).

Bill HR3004, passed in the US House of Representatives with the internet gambling measures removed, is certainly a positive move in the fight against terrorism. In the meantime, I'm going to prepare a hearty dinner on that "no-stick" frying pan.

Marc Lesnick runs StartCasino.com, an online casino business information site for entrepreneurs looking to start and internet casino operation.


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