For a fee, U.S. agrees to drop prosecution of gambling company

April 8, 1:19 PMCivil Liberties ExaminerJ.D. Tuccille

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Acting U.S. Attorney Lev L. Dassin made gambling
firm PartyGaming PLC an offer it couldn't refuse.

Threats of prosecution can be frightening, devastating and contentious. But who knew they could be so profitable? In a press release, Lev L. Dassin, Acting United States Attorney for the Southern District of New York, boasts that his office has extracted $105 million from an online gambling company based in Gibraltar, in return for agreeing to not prosecute the outfit for doing business with U.S.-based customers. On its face, the government has extorted money from a foreign company that engages in activity that is perfectly legal where it is based, and which was quite likely legal in the U.S. during the time the company accepted bets from Americans.

According to the press release (PDF):

[T]he United States Attorney's Office for the Southern District of New York (the "Office") has entered into a Non-Prosecution Agreement with PartyGaming PLC ("PartyGaming"), an Internet gambling company incorporated in Gibraltar and publicly traded on the London Stock Exchange under the ticker symbol PRTY. As part of the Non-Prosecution Agreement, PartyGaming agreed to forfeit a total of $105 million, representing proceeds of PartyGaming's U.S. Internet gambling operations, to be paid over a period of three years.

PartyGaming offers a variety of web-based real-money and free-play games including, for example, real-money poker and casino gambling. However, Internet real-money gambling is not legal in the U.S. Nonetheless, PartyGaming offered Internet gaming to players in the U.S. from 1997 until October 13, 2006.

Note the time-frame: PartyGaming PLC withdrew from the U.S. market in 2006, which coincides with the passage of the Unlawful Internet Gambling Enforcement Act of 2006, criminalizing the transfer of funds for the purposes of online wagering. The government maintains that, prior to the passage of the 2006 law, the federal Wire Act outlawed online gaming, but that interpretation of an old law was never universally accepted. In fact, the United States Court of Appeals for the Fifth Circuit, in a 2002 ruling (PDF), said "the Wire Act does not prohibit non-sports internet gambling."

The 2006 law was passed to settle the question once and for all.

But much of the debate over the legality or illegality of Internet gambling assumes that U.S. law can be applied to a company located in a foreign country; that's a dangerous assumption for American authorities to make. After all, the same line of reasoning would threaten to apply the restrictive censorship laws of Australia, China and Saudi Arabia to Internet publishers based in the United States, where sexual and political content forbidden elsewhere is perfectly legal.

Based as it is in a country where online gaming is a legal activity, PartyGaming PLC could probably have safely ignored Dassin and the entire United States government if it wished, just as U.S. publishers ignore foreign censors. True, company executives would probably have had to avoid travel to the U.S. in order to avoid arrest (a fate American authorities have inflicted on foreign gaming executives simply passing through U.S. airports), but that might have been a worthwhile tradeoff for engaging in a profitable business.

But the Financial Times speculates that company officials anticipate once again doing business with American customers and want to clear away any potential legal barriers. After all, the European Commission says U.S. efforts against online gambling are a breach of World Trade Organization rules that justify retaliation.

You have to wonder what fee the EU might extract in return for agreeing not to prosecute.

email J.D.: civilliberties (at) tuccille.com