U.S. NETeller arrests deal blow to Net gambling

LAS VEGAS - 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 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.

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online gambling operations, including PartyGaming PLC, Sportingbet PLC, BetOnSports PLC and Leisure & Gaming PLC, have withdrawn from the U.S. market.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.

Ultimate Bet, 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 a forum.

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."
By RYAN NAKASHIMA

Your Damn right we will Ryan, as long as there are reputable poker sites that will take American players.