In the world of Poker, the day will forever be known as Black Friday, the day the US Justice Department shut down online poker for 10,000,000+ Americans who regularly play online poker for fun or work.
On Friday April 15th, the Department of Justice (DoJ) unsealed an indictment charging 11 defendants, including the founders of the three largest Internet Poker Companies – Poker Stars, Full Tilt Poker and Absolute Poker – with Conspiracy to Commit Bank Fraud, Money Laundering and Illegal Gambling Offenses.
While a couple of the defendants were arrested, the majority is not present within the country, potentially setting the stage for multiple extradition battles. The defendants have already hired the top litigators in the United States to represent them individually. The United States also filed a civil forfeiture suit against the poker companies, their assets, and the assets of the several payment processors for the poker companies.
In addition, restraining orders were issued against more than 75 Bank accounts (within & outside the US) used by the poker companies and their payment processors. All five domain names (ending with .com) used by the poker companies as the portal entrance for ‘real money’ cash games have been seized. The domains were returned a week later under a stipulation that nobody may play online poker in United States in ‘real money’ games.
The DOJ has repeatedly stated that none of the players’ funds have been frozen and the poker rooms may begin issuing refunds. However, US players would be unable to deposit these funds in US banks prior to DoJ approval.
The indictment does not focus much on the nature of the business, and only briefly mentions foreign and American poker rooms to prove the first charge of UIGEA violation which all defendants face. The DoJ contends that the four online poker companies entered into a conspiracy with four online payment processors and one US bank to violate the UIGEA by disguising gambling related credit card transactions as golf balls or flowers.
The money laundering charge stems from the previous two charges. Since the source of the funds could not be legally reported (dirty money), it was laundered into clean money by disguising it as payments or refunds for non-existent products and services.
This is an identical approach used against international drug traffickers. The first charge is used as a ‘hook’ to hang the rest of the criminal charges.
1) The drug trafficker is charged with drug distribution (this is the hook, similar to the way that UIGEA is being used in the poker indictment);
2) Conspiring to smuggle drugs into USA by disguising them as sacks of flower (A group of people got together and talked about the best way to circumvent the law in step one);
3) Money laundering charge. For disguising profits from drug sales as lottery winning, real estate or defaulted loans in order to be able to explain where it came from to tax authorities or banks.
The government’s case, based on legal opinions, is exceptionally strong and is being handled by experts in the Southern District of NY, which is the most savvy and powerful Federal district within the United States.
Few if any individuals indicted by this district, chose to stand trial, instead pleading to lesser charges and accepting a huge fine, restitution and a much shorter prison term. It’s a hard choice to make, but a guilty verdict by a jury will automatically result in an 80 year mandatory minimum prison sentence. With a plea-bargain its possible to come out after three or four years in prison. Almost everyone takes the deal.
The one favorable consequence that may emerge from the indictment is the fast tracking of Federal legislation to either ban or license online poker (and possibly online gambling.) Only a Federal solution will resolve the situation since individual state laws are superseded by Federal Law. A state can only permit its residents to gamble online at an internet casino hosted within the state and using an intra-state banking system.
We believe that the indictment will have a noticeable adverse impact on non-US players. (empty rooms, smaller tournament size, decreased prize pools, fewer sponsorships.) Case in point is the Poker Stars Sunday Millions tournament which prior to the indictment had 8273 players, with the first place at $243,000.00. After reopening, and without the US players, the April 24 tournament had a 1st place prize of $156,000.00 with 6475 players.
Even discounting the fact that a larger than usual number of players from outside the US would have attended this tournament than normally, 22% of the players are missing and the 1st place prize is 38% lower than a month earlier.
Such variation is statistically significant indicating that the loss of US players is having an adverse effect and perhaps may be responsible for one of the online poker rooms permanently closing their doors due to a lack of a player base.
Inadvertent Side-Effects of the Indictment on Global/US Politics
1) Creation of the framework for American gambling laws which authorizes licensed and registered online casinos.
2) Barak Obama further alienated Democrats and Independents. Barak Obama, as the boss of the executive branch could have quashed the indictment or postponed it since the vast majority of poker players are his constiuency. Instead of scoring point with the 50 million Amerians who play poker, he choise to sit in silence. This demonstrates yet again that Obama’s inexperience, apathy or complete loss of his mandate.
3) Exposed the inefficiency of the US political system which allowed a handful of politicians to attach the UIGEA as a rider to the ‘must-pass’ Safe Ports Act, guaranteeing its passage without a full vote.
4) The shutdown has significantly increased the financial contributions to US pro-poker lobby.
5) Europe was given the defacto global monopoly on mobile/online poker and casinos. USA had the chance to take the lead but instead gave away a potential $100 billion yearl industry in 2017.
6) Reignited the debate about fundamental rights and freedoms of US citizens.