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States with legal and regulated sports betting have a stake in cracking down on offshore sportsbooks, which they claim are operating illegally while evading taxes and consumer protections.
Authorities in Colorado, Michigan, Louisiana, Ohio, Connecticut and West Virginia most recently targeted the well-known offshore betting platform Bovada, ordering the company to exit their states to block their residents from participating in the illegal gambling market.
The recent crackdown began in May when the Michigan Gaming Control Board (MGCB) sent a cease-and-desist order to Bovada’s parent company, Harp Media B.V., giving it 14 days’ notice to shut down its offering to players within the Wolverine state.
The order was successful. Bovada stopped accepting Michigan-based customers soon after the MGCB took action, with the operator doing likewise in the wake of similar orders from other regulators.
But if an offshore operator is determined to stay online, the next steps are not always as clear.
When laws are broken inside the U.S., enforcement is fairly straightforward.
But offshore sites, by their nature, are outside U.S. jurisdiction. With that in mind, how can states enforce their gambling laws and keep the unlicensed sector out?
“They can try to bring criminal actions,” Adam Berger, partner at law firm Duane Morris in Philadelphia, said.
“The problem is, actually getting the people in court can be a challenge if they don’t really have a presence in the U.S. and you don’t really have a way to get them there,” Berger told Vixio GamblingCompliance.
According to Kurt Steinkamp, the MGCB’s chief of staff, the state is already working with the attorney general’s office on potential prosecutions of offshore operators, if they stay active in the state.
That is a move welcomed by the American Gaming Association’s senior vice president of government relations, Chris Cylke, who said it is “critical that state attorneys general offices are prepared to undertake additional criminal or civil prosecution measures if an order is not complied with.”
But knowing that it is harder for people and businesses based in the U.S. to evade justice, Steinkamp said the state will also aim to take action against domestic businesses that offer technology to offshore sites or help promote them.
“Certainly, we would be taking a look at the supply base of the offshore operators within the United States,” Steinkamp said. “We do have substantial legal authority to go after individuals who are aiding in illegal activity.
“We will be considering legal actions against U.S.-based businesses who are partnered with offshore operators and aiding their operations. That may include payment processors, affiliate marketers and advertisers.”
At the same time, some states have started using the legal market, where gambling regulators have a great deal of power, to punish the illegal sector.
In Michigan, the control board has said it will require suppliers to complete forms revealing whether they provide game content to offshore sites. Steinkamp said the state has now received a number of the forms back but cannot disclose whether any suppliers said they were offering their products to offshore operators.
“We applaud Michigan for its continued leadership in combatting illegal gaming and ensuring companies that hold gaming licenses in their state are not providing services to entities operating illegally,” Cylke said. “This important step is crucial to increasing pressure on illegal operators to comply with cease-and-desist letters from state regulators.”
It is a similar strategy to one introduced in Sweden last year, with the country’s launch of supplier licenses intended to act as a specific way of clamping down on the black market. So far, however, the strategy is still fairly novel in the U.S.
Brendan Bussmann, managing partner at B Global Advisors in Las Vegas, said: “Other regulators should follow suit in taking this high standard in defense of the regulated market.”
But if sites stay up, even as states attempt to use all their powers to take action, will federal authorities ultimately get involved?
The Unlawful Internet Gambling Enforcement Act (UIEGA) and other federal anti-gambling laws give the U.S. Department of Justice the power to do so if needed, and it famously took action against several offshore poker sites in 2011.
Cylke hopes to see a repeat of that type of action, to show that the federal government is serious about illegal gambling.
“The Department of Justice, as it has demonstrated in recent history, can seize the website domains of illegal, offshore operators and indict the bad actors running these sites,” he said. “This would send a clear message that the federal government will use all means necessary to prevent illegal gambling and the broader crime it fuels.”
Bussmann said a combined approach with states and the DOJ is the only way to be proactive against the type of operators that set up offshore.
“Gaming should continue to be a state-by-state issue, but the DOJ and other agencies play a role in combating these offshore operators that do not pay taxes, run afoul of the laws including (know your customer) and (anti-money laundering) measures, and offer no protections for the consumer,” he said.
So far, however, there have not been signs that this kind of offshore crackdown is coming soon, although Cylke said the AGA has been lobbying the DOJ to take more action.
One factor in whether states and the DOJ might try to prosecute those behind illegal gambling sites, Berger said, is public opinion. With attorneys general being elected in 43 states, and resources often being limited, authorities are likely to spend their time on the crimes at the front of voters’ minds, and that is rarely offshore gambling.
However, Berger stressed that political pressure could change rapidly if offshore operators defraud American customers.
“Keep in mind that in the United States, there’s a political angle to every prosecutorial agency,” he said. “People getting hurt and standing up for the little guy is a very popular thing to prosecute.”
