Published April 22, 2011
April 15, which is usually Tax Day, is also a day when many Americans voice annoyance toward their government as they file their onerously confusing tax forms in order to continue funding it.
Last Friday, April 15 was particularly infuriating for those who enjoy playing online poker and support freedom in general.
On “Black Friday” as the online poker community has dubbed it, the Department of Justice (DOJ) seized the domain names of some of the most popular online gambling platforms and froze the accounts of American players. Is playing poker online such a pressing issue the DOJ felt it necessary to freeze the funds of ordinary Americans? Or is it more likely that the DOJ is pursuing this particular issue because it is profitable?
One week ago, the Justice Department unsealed its indictment against the founders of PokerStars, Full Tilt Poker, and Absolute Poker.
It also seized five Internet domain names and issued restraining orders against 77 bank accounts around the world.
While the charges center on bank fraud and money laundering, the basis for the charges rests on offenses and violations stemming from the Unlawful Internet Gambling Enforcement Act (UIGEA).
The UIGEA, enacted in 2006, does not ban online gambling outright, but rather prohibits the processing of payments related to “unlawful” Internet wagering. As a result the companies that chose to continue operating in the United States had to find creative ways to accept money from players and to pay them when they wanted their winnings. It was in their attempts to circumvent the payment processing ban that these poker companies fell into the DOJ trap.
Ironically, this indictment comes at a time when online gambling has a good chance of becoming officially legal. Rep. Barney Frank (D-Mass.) is co-sponsoring a bipartisan bill with Rep. John Campbell (R-Calif.) to legalize online gambling at the federal level, while several states, including New Jersey, Florida, and the District of Columbia, have or are close to legalizing online wagering. Even land-based brick-and-mortar casinos, longtime opponents of legalizing Internet gambling, have finally begun to support legalization.
So, why go after online gambling now—an activity people willingly engage in? Some have called it a “waste of time,” but based on the amount of money acquired by the DOJ in its pursuit of the issue, perhaps the Justice Department sees it as more of an investment.
In this week’s indictment, in addition to shutting down the websites, the Justice Department is asking for compensation to the tune of $3 billion as the forfeiture of those 77 accounts it currently has frozen.
Compare this with the relatively minor fine of about $160 million paid by Wachovia after it was found to have been involved in a $400-billion money laundering scheme involving a Mexican drug cartel.
Perhaps going after banks isn’t quite as profitable—or perhaps it is politically difficult. On the other hand, the DOJ’s persecution of online gambling has been enormously profitable. Last year UK –based website Sportingbet settled a non-prosecution agreement with the Justice Department to the tune of $33 million and in 2008, PartyGaming.com co-founder Anurag Dikshit agreed to pay U.S. authorities $300 million for offering illegal web betting to Americans. All this despite the fact that online wagering isn’t even clearly illegal in the United States.
The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) is poorly written, clumsy attempt to ban online gambling by deputizing banks and credit processing companies to prevent payment processing of “unlawful” Internet gambling—without ever defining what constitutes such “unlawful” Internet gambling.
As a result of the bill’s midnight passage most credit processing companies began blocking all transactions related to Internet gambling to be on the safe side. In this week’s indictment the DOJ claims the poker companies lied about the nature of their transactions in order to get the banks to process the payments.
The charges also make it clear that the banks they used were aware and may have been compensated for looking the other way. Did the defendants engage in fraud? Perhaps, but the issue is that they were engaged in a legitimate business, offering services that American consumers want, and shouldn’t have had to hide it.
Regardless of political affiliation, most Americans recognize that we ought to have the right to engage in any voluntary activity so long as it doesn’t violate another person’s rights. We ought to be able to look to our government for protection—not persecution.
Laws like the UIGEA allow government entities to extort billions of dollars from companies while forcing ordinary citizens underground with nowhere to turn when they are victimized by real fraud.
If Washington policy makers really want to save taxpayers money while protecting their rights, curbing the power-mad, money-hungry Department of Justice would be a good start.
Michelle Minton is a Policy Analyst at the Competitive Enterprise Institute (CEI).