Tuesday, September 26, 2006

Think of Costa Rica and flashes of colorful birds, bright beaches and long
hikes through the rain forest come to mind. But several recent arrests and
indictments have thrust the country into the spotlight for another, less
savory reason: its cozy relationship with the online gambling industry. The
industry is under fire from U.S. authorities, helping create the notion that
this small Central American nation is the cybernet version of 1950s Cuba.
Earlier this month, police arrested British national Peter Dicks, a top
official of Sportingbet, at JFK Airport in New York. In July, authorities
picked up BetonSports CEO David Carruthers, also a British citizen, at
Dallas/Fort Worth airport. Both companies operate in Costa Rica. Ten other
Betonsports employees have been arrested in the United States. All are out
on bond while facing charges ranging from tax evasion and racketeering to
wire fraud and illegal gambling. Also in July, U.S. prosecutors indicted
four men, two of them Costa Rican citizens, in California and arrested one
of them on charges of running an illegal online gambling operation in Costa
Rica. The moves by the U.S. Justice Department have industry insiders
scratching their heads and shares of online gambling companies tumbling on
international stock markets.

''It baffles me,'' said Eduardo Agami, president of the Costa Rican
Association of Call Centers and Electronic Data, which represents 19 of the
online gambling companies here. ``Why go after companies that are trying to
operate legally?''

The legal arguments are based on the 1961 Wire Act, which forbids gambling
over the telephone, but until recently few actions had been taken to slow
this business.

Online gambling has been going on since the mid-1990s, and Betonsports and
Sportingbet are both publicly listed companies that operate legally and are
audited in several countries. Still, with half of the betting coming from
the United States, federal prosecutors and lawmakers seem bent on going
after the $12 billion industry.

''Internet gambling threatens our families by bringing addictive behavior
right into our living rooms,'' Senate Majority leader Bill Frist said
earlier this month on the Senate floor.

In July, the House of Representatives passed a bill expanding the Wire Act
to include Internet gambling; the Senate is expected to move on the
legislation before it recesses Oct. 9 for mid-term elections.

''The U.S. has clearly stated that they want to stop international companies
from accepting Internet wagers from U.S. residents,'' Internet gambling
mogul Calvin Ayre -- who is one of Forbes magazine's 1,000 richest men in
the world and whose Internet site, Bodog.com, also operates in Costa Rica --
said in a statement following the Dicks arrest.

''The only surprise is to find a director of a public company that accepts
wagers from the U.S. to be traveling in the U.S. at this time,'' Ayre added,
referring to Dicks and Carruthers.

In the middle of this fray is Costa Rica, a country of nearly 4 million
people known more for peaceful democracy than for gambling. An estimated 200
online gambling companies have operations here. Some operate more secretly
than others; all of them like the advantages that Costa Rica offers.

The Costa Rican government treats gambling like any other business. The
companies operate with little oversight and pay less in taxes than they
might in other countries that do regulate to avoid money laundering and
other criminal activities often associated with the industry.

Costa Rica also offers companies a secure legal framework and an educated
population, many of whom speak English with a flat Costa Rican accent.

Online gambling, a capital-intensive industry, has given the Costa Rican
economy a boost as well. The industry employs close to 10,000 people
directly and scores of others indirectly through rents, infrastructure and
maintenance. Most of the employees are students or recent college graduates
struggling to find a job in their field but making more money than they
might even if they did.

Alex Schultz, 28, who speaks Spanish, English and German, got a degree in
political science at a local private university. He worked at a human rights
group before getting a job at Bodog.com in 2002. Now he's setting the
betting lines on games.

''Here you can finance your studies, pay your expenses and your rent,''
Schultz said.

In the current climate, Costa Rica also may offer a safe refuge. Betonsports
founder Gary Kaplan is allegedly in Costa Rica, although employees here say
he hasn't been around in years.

There's an extradition agreement between Costa Rica and the United States,
but Costa Rica's Vice President and Justice Minister, Laura Chinchilla, said
someone would have to be breaking Costa Rica's own laws in order to be
extradited.

''If they're only accused of illegal gambling in the United States, then we
can't proceed [with the extradition],'' she told The Miami Herald.

Initially, industry watchers suspected the U.S. government was targeting
Betonsports because of Kaplan, alias ''Greg Champion'' or ''G.'' Kaplan
started his career as a runner for bets on the streets of New York and was
arrested there in 1993 on charges of illegal gambling before moving his
operations to Florida, then Antigua and finally Costa Rica.

Indeed, the indictment against Betonsports reads like something against the
Sicilian mafia or Colombian drug lords. Filed in the Eastern District of
Missouri, it's littered with supposed aliases, front companies and massive
bank transfers that went to Ecuador and Belize.

Costa Rican officials are feeling the pressure from the U.S. government as
well. They have promised to better regulate the industry, and in March, the
government raided Ayre's multimillion-dollar home after neighbors said he
was holding an illegal gambling event. Authorities said they found nothing.

''We're interested in incorporating them into the financial system,''
Chinchilla said about the industry. ``We need to set up clear rules. We
don't want companies that are fugitives.''

Legislation or no, there seems to be little stopping online gambling.