Internet Operators Arrested
Copyright 1998 By I. Nelson Rose All Rights Reserved

Taking bets over the Internet just got a whole lot more risky.    In March, 1998 the U.S. Attorney in New York City filed criminal charges against 14 individuals involved with sports bookmaking.  This is the first time the federal government has arrested anyone for Internet gambling.    Some commentators have said it is going to be hard to get convictions.   But a close look at the criminal Complaints shows the Feds knew exactly what they were doing.

All of the sports books claim their online businesses were licensed by foreign countries.  All were operating openly, even taking out ads in Pro Football Weekly and other magazines.  There is no allegation of any connection with organized crime.   But the federal prosecutors spent months gathering evidence, choosing only the most vulnerable defendants and framing their Complaints to make the strongest possible case

The major fights in an Internet gambling case should be 1) Where does the bet take place? And 2) Can one government make it a crime to do what another government has licensed?

Here, the FBI has evidence that various defendants sent envelopes with return addresses of Costa Rica, Curacao and the Dominican Republic, but with postmarks from Florida, Texas and Nevada and carrying U.S. stamps.  Telephone records show the 800-numbers used for sports betting had been given to US, not foreign, companies.

The defendants wrote checks on banks in this country.  They sent money by Federal Express from New York and North Miami Beach.  One undercover agent even received a $400 U.S. Postal Money Order with a handwritten note that it was sent from Las Vegas.

The immediate impact of these criminal charges is virtual panic among cyber-bettors.   For good reason.  Foreign sportsbooks that accept bets by phone or online are barring Americans -- or closing their doors completely.  And apparently some operators are disappearing with the loot.

The Las Vegas Sporting News reported that a sportsbook located in the Dominican Republic has folded, leaving at least one player unable to retrieve $10,500 from his telephone-betting account. 

How is this all going to play out? 

The Department of Justice ("DOJ") has pulled off a great public relations coup.  Federal prosecutors had been criticized by state attorneys general and Congress for not doing anything about Internet gaming.  Now, by striking at only six companies (and the safest six to go after from a law-enforcement point-of-view), the U.S. Attorney General has shown that her U.S. Attorneys and FBI agents can put the fear of God into the entire industry -- using laws already on the books.

Perhaps this was the secret agenda behind these headline-grabbing arrests. The DOJ has made it clear that it does not support proposals being considered by Congress, like the Kyl bill, which would make it a federal crime to make a bet on the Internet.  The DOJ has stated that it does not want to go after first-time $5 bettors.

Now, the DOJ has shown that the new laws are unnecessary -- at least for the easy cases.

Editor Note - See related stories about Internet Gambling at:

Last Update 11/23/98