Tuesday, January 23, 2007

Though payment processor Neteller PLC is the latest and largest such company
to pull out of the lucrative but illegal U.S. online gambling market,
industry observers said other e-wallet sites would come forward to take its
place. The arrest of its founders Monday on U.S. soil on money laundering
charges and the company's delicate position as a publicly traded British
company forced it to cease handling U.S. betting transfers as of Thursday.
The arrests were the latest in a series of enforcement actions by the U.S.
government against the online gambling industry. The crackdown has targeted
the financial middlemen who sprung up after credit card companies and PayPal
gave in to pressure to stop processing online gambling transactions from
U.S. customers in 2001. Neteller processed $7 billion in transactions in
2005 and $5.1 billion in the first half of 2006, mostly from U.S. clients to
and from online betting sites. By some accounts, that amounted to roughly
half of the global market for online wagers. Many observers said the market
for Internet wagering was too rich for others to pass up, despite a U.S. law
passed in October that prohibited financial transfers to and from such
gambling sites. "What you're finding with the Internet gambling sites is the
publicly traded ones and prominent ones are leaving," said David Stewart, an
online gambling expert and lawyer with Washington, D.C.-based firm Ropes &
Gray LLP. "The entities that are more visible and are more transparent can't
take the heat," he said. "And all the rest of them are still in the
business." Several British-based online gambling operations, including
PartyGaming PLC, Sportingbet PLC, BetOnSports PLC and Leisure & Gaming PLC,
have withdrawn from the U.S. market. Private offshore operators continue to
run such sites as Bodog.com, PokerStars.com and FullTiltPoker.com. The
Federal Reserve and other bank regulators were tasked with coming up with
practical measures to enforce the online gambling prohibition by July. Some
firms had intended to wait until the regulations were developed before
deciding what to do. After the arrests, however, Burnaby, British
Columbia-based payment processor Citadel Commerce Corp. announced Wednesday
that it, too, would withdraw from the U.S. market.

"We were waiting for the regulations," said Mark Bains, the chief financial
officer of Citadel parent ESI Entertainment Systems Inc., which trades on
the Toronto Stock Exchange. "Looks like we're not going to be able to wait."

Avid gamblers were looking for new ways to skirt the law.

UltimateBet.com, the online poker site backed by professional gambler Phil
Hellmuth Jr., sent out an e-mail newsletter Thursday encouraging its players
to use other "safe, secure and similar banking methods already available,"
listing such brands as ePassporte, ATMonline and CLICK2PAY.

"So get UB to the top of your list and let's make some MONEY!" it reads.

Internet blogs also lit up with players discussing the best ways to keep
funding their online gambling accounts.

"Just set up both a click2pay account and a Epassporte one. We'll see how
long this lasts," wrote Bacaluk on poker forum PocketFives.com.

Michael Bolcerek, president of the online poker lobby group, Poker Players
Alliance, said the withdrawal of brand name providers would encourage the
emergence of less trustworthy money dealers.

"People are going to migrate to nonpublic, less transparent methodologies,"
he said.

Poker magazine publisher Eric Morris of Bluff Media LLC said the withdrawal
of PayPal and major credit card companies from the U.S. online gambling
business in 2001 caused a panic that didn't last.

"The industry took a bit of a dive and came back stronger than ever before,"
he said. "The bottom line is that people are going to find a way."