How The US Government Could Sue An Offshore Sportsbook


How The US Government Could Sue An Offshore Sportsbook

In the absence of a legal sports betting market, Georgia bettors are forced to fend for themselves in the dangerous waters of offshore sportsbooks.

One of the common arguments for passing sports betting is that legal alternatives will draw customers away from illegal sportsbooks. These offshore books have no regulatory oversight ensuring that personal and financial information are secure, and players have very little recourse if an offshore site doesn’t follow through on payouts. 

Couple that risk with the fact that offshore books are under no obligation to label themselves as such, and the question arises as to what it would take for the US Justice Department to pursue cases against offshore gambling companies preying on American sports bettors.  

Despite the obvious threat, cases against offshore agents are difficult to build and pursue. A federal case against any entity outside the US has many moving parts. Federal prosecutors may only have limited access to company assets or individuals under criminal investigation. Moreover, federal cases also have to address harms that are severe enough to merit federal attention.  

“The State Department has about 19 dimensions of things they are trying to deal with,” former California gambling regulator Richard Schuetz said. “And you know, not a lot of people are complaining about it other than the American Gaming Association.” 

A Successful Offshore Case: Full Tilt Poker  

When Preet Bharara brought fraud charges against Full Tilt Poker in 2011, he was doing so in a period of heightened sensitivity to financial fraud. The Great Recession had ended less than two years earlier, and white collar crime was under a newly-intensified spotlight. Full Tilt Poker was accused of paying company executives with money that was still in players’ accounts. 

Full Tilt Poker had also failed to disclose to its customers that it didn’t have enough cash on hand to pay all of their customers’ winnings. Forbes reported that Full Tilt Poker accepted customer funds despite knowing the company couldn’t fund customers’ credits, leading to “$130 million of phantom bets” that worsened Full Tilt’s cash flow position. 

Even though Full Tilt Poker operated offshore, the Department of Justice seized the website’s domain, shutting the site’s operations down. In 2019, Full Tilt Poker’s CEO, Isai Scheinberg, was arrested in Switzerland and extradited to the United States. Scheinberg pled guilty to operating an illegal gambling business in March 2020.     

Full Tilt Poker was taking customer money that was supposed to be in customer control, lacked the funds to pay customers’ winnings, and continued to operate under the guise of legitimacy. There were enough customers affected by serious enough harm that the federal government pursued the case. 

Deciding To Bring A Federal Case   

The federal government won’t pursue a case against an offshore company unless it poses a serious threat to American citizens. In the case of Full Tilt, the number of customers affected and the amount of money in jeopardy crossed a threshold. Considering that case, the factors that go into a federal prosecutor’s decision to investigate include: 

  • Number of people harmed. 
  • Magnitude of the harm. 
  • Political considerations. 

The first two factors are self-explanatory. Something like Enron’s Ponzi scheme that wiped out many life savings accounts attracted federal attention. It harmed many people, and the magnitude of that harm was immense. It was also a domestic company, making it easier to apprehend Jeffrey Skilling

For an offshore case, political considerations are especially important, and they’re not necessarily partisan concerns. Pressure from industry lobbyists, companies and other important stakeholders can build a sense of urgency necessary to devote time to a federal investigation. 

In 2019, a former US senator’s FOIA request revealed former GOP mega-donor Sheldon Adelson lobbied the Justice Department to change its interpretation of the Wire Act to ban all online gambling. Adelson was the largest Republican donor in the 2016 presidential election. 

“When you had [former acting Attorney General] Matthew Whitaker in there, he changed…an interpretation of the Wire Act in a negative way, and he did that because Sheldon [Adelson] wanted it,” Schuetz said.

Most industries don’t have a mega-donor leaning on a presidential administration as powerfully. Other potential criminal cases must be severe enough or harm enough people to attract federal attention.    

“It’s all a question of resource allocation,” said Johnathan Nash, an attorney and Emory Law School professor. 

Prosecutors can choose which cases to pursue, and some are more urgent and well-founded than others. 

In January, the Justice Department “unsealed murder-for-hire and money laundering charges” against three men hired by the Iranian government to assassinate an American citizen. About a week later, the man who killed 23 people at a Walmart in El Paso, Texas, in 2019 pled guilty to 90 federal hate crimes and firearms violations. These cases present easy targets for federal prosecutors.

Possible Charges Against Offshore Gambling Companies 

Offshore gambling lacks the severity of assassinations and hate crimes. Companies illegally accepting American bets would have to cause enough harm to American citizens and companies to warrant federal attention. 

Federal law prohibits unregulated gambling companies from accepting wagers from American citizens. This includes companies that accept American wagers from Costa Rica and the Bahamas. These companies are already in violation of the Unlawful Internet Gambling Enforcement Act. That violation of federal law means the federal government could bring a case against these companies even though they lie outside the US. 

However, a particularly bad actor could draw more unwanted attention to these companies. Sometimes offshore companies refuse to pay winnings. In his memoir, “The Smart Money,” Michael Konik recounted a failure of one offshore company to pay him $287,000 in winnings. After proposing different ways to refuse or delay full payment, Konik’s chosen offshore book still owed him $193,000. 

He may have been pegged as a sharp bettor, but if an offshore company can refuse payment to one winner without consequences, it can do it to anyone. Multiple high-profile cases like these or security breaches that compromise social security numbers could make offshore gambling sites a higher priority for the Justice Department.            

Two Enforcement Options Against Offshore Sportsbooks  

If federal prosecutors pursue an illegal gambling case against a major offshore operation, they have two options. They can target individuals to be arrested, or seize assets within their jurisdiction. 

Pursuing individuals who are integral to an offshore book’s operation gives prosecutors concrete targets that can be fined and sent to prison. Individuals abroad can be extradited, but this is not a foolproof solution to difficult jurisdictional questions. Extradition requires the cooperation of other governments. Individuals wanted by the federal government can remain in countries without extradition agreements with the US. However, they can still be arrested if they enter a country with an extradition treaty with the US or enter the US.     

Dismantling a corporation abroad is also difficult. 

“You can’t send a corporation to jail,” Nash said. “That’s just a nonstarter, so usually, even domestically, you get more something like they impose a fine, the company pleads guilty and agrees to reform its practices, something like that.” 

Entities as complex as corporations must be targeted from multiple angles to be shut down. 

Nash offered a possible solution to this challenge: targeting company assets that fall within US jurisdiction. If “the corporation has assets that you can attach and at least collect…in furtherance of the criminal penalty,” that’s one avenue for targeting a criminal organization. “But if [the offshore company is] overseas and the assets aren’t reachable that’s one of the reasons they go to these countries in the first place.”     

If an offshore company has a server in the US, the federal government could seize that server. Financial accounts in US banks could also be fair game if they’re properly linked to criminal activity by a foreign company.   

However, the most challenging scenario is an offshore company whose assets remain outside the US. That scenario requires international cooperation

Leveraging foreign cooperation

The US can’t invade another country just to gather evidence or seize assets from a company in violation of federal law. Instead, the federal government can have the foreign country’s government lead the investigation and impose penalties. The US can also bring a case against a company and have the foreign government impose criminal penalties.

The first instance relies on many foreign policy considerations and isn’t always a viable option. The Bahamas cooperated with Sam Bankman-Fried’s extradition after FTX’s collapse. The United States has an extradition treaty with the Bahamas that allows either government to request extradition of a criminal who would be charged with something considered a crime in both countries and would result in at least a year’s imprisonment. This is a level of cooperation that allows both countries to more easily enforce actions against companies and individuals in each other’s countries.  

In contrast, Russia has not cooperated with the extradition of Alexander Viktorovich Ionov. According to the Department of Justice, “Ionov was charged by U.S. authorities with conspiring to have U.S. citizens act as illegal agents of the Russian government.” This was part of a larger case against a campaign of malign influence of Russian content creators to influence American elections.

“If you don’t have jurisdiction, you have to either rely on Russia to turn them over or [for them] to travel to a country where the other country is willing to turn them over,” Nash said.  

Even in federal cases that demand action and federal attention, some individuals and companies are beyond reach. It’s part of the calculus of deciding whether to pursue cases against offshore companies and individuals.   

Offshore Gambling And Its Low Priority

With legal sportsbooks available in most of the United States, offshore gambling has received public attention from lawmakers. In April 2022, the American Gaming Association (AGA) urged Merrick Garland to pursue a case against offshore gambling companies. Twenty-eight members of Congress signed a letter to Garland the following June, urging the same actions. 

So far, the only Justice Department press releases since April 2022 have announced charges against illegal gambling operations in the US. Offshore gambling isn’t a priority for the Justice Department. 

As online gambling companies continue to expand in the US, industry concerns about offshore gambling could one day lead to federal action against gambling companies abroad. However, industry pressure will only be one of many factors that would push such a lawsuit forward. Economic conditions, political environments and myriad other variables will go into the possibility of federal action against an offshore company.