Canadian online gaming providers travel to the US at their own peril

Canadians involved in producing software for use in online casinos and other interactive gaming applications may have to strike the United States off their travel plans, at least in the short-term. The arrest of David Carruthers, CEO of Costa Rica-based BetOnSports PLC and a British citizen, has the online gaming community reeling – and looking a little fearfully at the United States. Carruthers was arrested on racketeering conspiracy charges on July 16 when his flight from the UK to Costa Rica made a stop in Dallas. "I think it gives pause for thought to Canadian suppliers," says Michael Lipton, managing partner at Elkind & Lipton LLP, a Toronto law firm with a sizable gaming law practice. He says Canadian firms selling products and services to foreign online gaming operations that count US citizens as customers could in fact be aiding and abetting a crime under the US Wire Act, and may face charges as a result. "It seems to me that the Department of Justice would certainly argue that that’s the case, and I think a Superior Court judge in the United States would uphold that," he says. "You’re providing the fuel to run the engine." Frank Catania, president and principal of Catania Consulting Group, a New Jersey-based gaming law consultancy, offers some more direct advice to Canadians with ties to the online gaming industry: "Just keep out of the United States – don’t travel to the US." Lipton notes that Carruthers has long been a vocal opponent of US laws regarding online gaming, which he claimed were "made up of total inconsistencies." It’s that outspokenness that likely earned him the enmity of US prosecutors. "If you’re high-profile, and you’re well-known, and you go on television and you debate congressmen like David Carruthers did, then they’ll have you on a list, so that you’d better make sure that when you fly, you don’t fly through the United States," Lipton says. Wagering or gambling over telecommunications devices is governed in the US by the Wire Act, which prescribes criminal prosecution for violations. But the act dates back to 1961, and only expressly forbids sports betting across state lines, not Internet gaming per se. As a result, Republican congressman Bob Goodlatte of Virginia sponsored a new bill in 2000 aimed at clarifying the Wire Act and definitively making online gaming illegal. Although it’s been revised several times, the Goodlatte bill, as it’s become known, passed in the US House of Representatives on July 11. However, betting on horse races across state lines is legal in the US, thanks to an exception under civil law, the Interstate Horse Racing Act. That disparity has some crying foul over the lack of even-handed treatment for different forms of gaming over different types of telecommunications networks. "In 42 out of the 50 states, I can go into any police station, borrow the phone, phone in a bet and put 200 bucks on Danny Boy in the fifth at Santa Anita…through YouBet or Expressbet , and the only thing I’d probably get is ‘Hey, is that a good tip?’" says Jeff Halloran, founder, president and CEO of Toronto’s Phantom Fiber Corp., which provides mobile transaction software to the Internet gaming industry. As one who could possibly face charges himself should he travel to the US, Halloran adds that the move to indict Carruthers could have unintended consequences for the US economy. Although Phantom Fiber trades on the US National Association of Securities Dealers’ (NASD) over-the-counter bulletin board at present, "we’re looking to move to a more senior exchange," he says, adding that the London Stock Exchange’s junior exchange, AIM, will likely get his business now. "Think about the billions of dollars that are lost just on the fact that the investment banking community doesn’t get to participate in the funding ," he says. And a resolution to the issue is still likely a way off: in 1998, Jay Cohen, founder of Antigua-based sports bookmaker World Sports Exchange, was charged by the US Department of Justice with violations of the Wire Act. Cohen was convicted in 2000, then appealed the decision only to lose in 2002 and serve 18 months in prison. Galvanized by the Cohen decision, Antigua filed a complaint with the World Trade Organization and in 2005, the WTO agreed with Antigua and ordered the US to lift its ban on online gaming by the spring of 2006. So far, however, the US has disregarded the WTO’s decision. The WTO’s condemnation of the US’ prohibition on Internet gaming will likely prove ineffectual: Antigua now has the authority to place trade sanctions against the US, but such a move would likely hurt the small Caribbean nation a lot more than it would the US. As a result, "I think the United States is going to do any goddamn thing it wants, regardless of that," Lipton notes. However, Halloran holds out hope that the WTO will muster enough clout and moral authority to sway the US into changing its rules. "This has been brewing for a long time, and I’m hoping the World Trade Organization comes in and calls it for what it is," he says. "These are licensed, regulated, taxed, publicly traded companies who are doing business in regulated tax jurisdictions, they are following the law no different than the MGM or the Mirage is. That’s all there is to it." Until the matter is solved, Catania has some words of encouragement for Canadians facing the loss of freedom to travel to the United States due to their work – directly or indirectly – in the online gaming industry: "Keep on taking bets from US citizens and don’t change."

Canadian online gaming providers travel to the US at their own peril

News | 07/25/2006 4:00 am EDT

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