Feds continue Internet gambling crackdown

I was pleased to report several months ago that the federal government had finally decided to crack down on unregulated Internet gambling Web sites based in Central America and the Caribbean, where law enforcement is virtually non-existent. I applauded when the Justice Department charged seven officers and employees of a Costa Rica-based sports betting Web site with racketeering, and mail and wire fraud.

Specifically, BetOnSports.com is accused of accepting billions of dollars worth of wagers from U.S. residents by phone and over the Internet without paying federal excise taxes. The Justice Department wants the Web site to forfeit $4.5 billion in illegal profits.

And earlier this month the Feds arrested two founders of Neteller, a company that processes Internet gambling transactions, and charged them with funneling billions of dollars in illegal gambling proceeds to overseas betting operations. The charges against former Neteller directors Stephen Lawrence and John Lefebvre, both Canadian citizens, were contained in two criminal complaints unsealed in U.S. District Court in Manhattan.

Federal prosecutors said the men knew when they took their company public that its Internet gambling operations were illegal in the U.S. When the indictments were announced, Assistant FBI Director Mark Mershon said the multi-billion-dollar online gambling industry is "a colossal criminal enterprise masquerading as a legitimate business." Is it ever!

According to the Associated Press, "Neteller is an Internet payment services company that has grown in popularity as an increasing number of credit card companies have begun refusing to accept payments to online gambling sites." Prosecutors assert that in 2005 Neteller processed more than $7.3 billion worth of online bets, 95 percent of which were derived from illegal Internet gambling sites. The company, founded in 1999 on the Isle of Man (of all places), is traded publicly on the London stock exchange.

Last October, President Bush signed federal legislation prohibiting U.S. banks and credit card companies from processing payments to gambling Web sites. Apparently, the new law has hurt publicly traded gambling operations but has done little to stop Americans from gambling online. Industry experts say the law has been a boon to smaller, privately held companies that are exempt from governmental regulation. Hundreds of these unregulated gambling Web sites are based on small Caribbean islands, where law enforcement gives them a free pass because of the revenue they generate for cash-strapped governments.

In a particularly brazen move, the island nation of Antigua has filed a complaint with the World Trade Organization charging that U.S. anti-Web gambling laws violate American free trade obligations. That would be laughable if it weren't serious because those who defend these unregulated Web sites are engaged in a massive ripoff of the gambling public. But anyone who provides one of these sites with his or her credit card number deserves whatever comes next. Caveat emptor (let the gambler beware).

Let me make it clear that I'm not referring to Internet gaming - the electronic versions of Dungeons & Dragons and other just-for-fun games. In a previous column, I failed to distinguish between Internet "gambling" and "gaming," and heard from angry readers who like to play online games where no money changes hands.

Indian casinos must be mentioned in any discussion of unregulated gambling because they represent a direct economic threat to struggling Reno/Tahoe casinos. Tribal gambling is now a $20 billion industry with 228 tribes operating some 400 casinos, or slot arcades, in 28 states. Because Indian casinos constitute a serious economic challenge to Nevada, I once again urge state lawmakers to prohibit our gaming licensees from operating tribal casinos that damage our economy.

One such Nevada licensee is Station Casinos, of Las Vegas, which operates the highly profitable Thunder Valley Casino just off I-80 near Auburn, Calif. Since California's Indian casinos don't pay their fair share of state and local taxes, they have an unfair advantage over their Nevada competitors, and fall far short of our tough regulatory standards. Indian tribes may claim that they're policing their own casinos, but that's like putting the fox in charge of the henhouse.

Bottom line: Indian and Internet casinos constitute unfair competition for Nevada and should be monitored closely by federal and state regulators to ensure that they're complying with all applicable laws. And when they aren't, they should be prosecuted to the full extent of the law as the Feds are doing in the BetOnSports and Neteller cases.

FIRST LADY Dawn Gibbons will be wearing an expensive Armani gown to the Governor's Inaugural Ball, which raises a question: So what? This is Nevada, not Paris.

• Guy W. Farmer, of Carson City, worked for Nevada's gaming control agencies during the period 1963-66.