Daruma

DOJ Subpoenas Banks on Gambling
U.S. Justice Department investigates role of U.K. investment banks in online gambling.

By Ken Schachter, Red Herring


Online gambling firms are based offshore and their stocks are listed on foreign exchanges, but the United States Department of Justice has reached across the ocean in an effort to rein in the popular online destinations as the Super Bowl?a betting bonanza?approaches.

At least 16 British banks with operations on Wall Street, including HSBC, Dresdner Kleinwort, Credit Suisse, and Deutsche Bank, were served with subpoenas dating back to October, according to The Times of London. The Southern District Court of New York is seeking email and telephone records and other documents.

The move raises the question of how far the U.S. government?s authority extends in regulating the gambling sites, which take bets from U.S. citizens, but whose operations are based in places including Gibraltar, Costa Rica, and Antigua.

Politicians from the United Kingdom voiced outrage about the move.

The Times quoted Alan Duncan, Shadow Trade and Industry Secretary, as saying the Justice Department?s campaign to wield its clout cannot be justified. Vince Cable, a Liberal Democrat, said the extra-territorial action defies ?basic principles of justice.?

Long Arm of the Law

An unnamed banker said the U.S. is targeting banks that help the online gambling companies raise capital in London because it cannot reach the Internet gambling companies directly.

President George W. Bush signed a law in October outlawing Internet gambling, but it is believed that millions of Americans bet online nonetheless (see Snake Eyes for Online Gambling).

Deutsche Bank and Dresdner helped raise money for PartyGaming, the largest Internet gaming company. PartyGaming?s initial public offering in 2005 put the company in the FTSE 100, an index of the largest U.K,-traded stocks (see Poker Site?s IPO Is Huge Hit). HSBC counseled another online gambling firm, 888.com, on its own 2005 IPO (see Big Bets on Online Gambling).

In July, David Carruthers, chief executive of London-based BETonSPORTS, was detained while traveling through the United States (see Feds Deal web Gambling Blow).

BETonSPORTS has abandoned the lucrative U.S. market, as has Neteller, which faces charges in connection with its business handling payments to and from gaming sites (see BETonSPORTS Folds US Hand and Neteller Exit Deals Disarray).

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