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Nearly a year has elapsed since the American Gaming Association sent a letter to the U.S. Department of Justice urging the department to accelerate efforts to crack down on unregulated, offshore sportsbooks.
In the letter to U.S. Attorney General Merrick Garland, AGA President and CEO Bill Miller outlined a series of measures that could be taken to diminish the influence of unregulated sports betting websites that target customers in the U.S. Two years ago, Americans wagered more than $63.5 billion with illicit sportsbooks, according to AGA research, potentially depriving states of about $700 million in tax proceeds.
Since then, the Congressional Gaming Caucus followed suit, pressing the Justice Department to make a more concerted effort to combat offshore books. Last fall, federal prosecutors named former MLB All-Star Yasiel Puig as an alleged bettor in an illegal sports betting ring. Then, weeks later, Miller doubled down on his efforts and expressed optimism that an offshore sportsbook could be indicted in the U.S. in the not-too-distant future.
🚨🏀 NEW: A quarter of American adults (68M) plan to wager $15.5B on this year’s NCAA Men’s Division I Basketball Tournament, according to AGA’s latest survey.
Check out full #MarchMadness wagering trends ⤵️ ➡️ https://t.co/81ebeBmWjg pic.twitter.com/2gz6OO4ptV
— American Gaming Association (@AmericanGaming) March 12, 2023
“Since submitting our letter to the Department of Justice, the AGA has continued to meet with the FBI, policymakers, and other law enforcement to educate them on the dangers of offshore websites and emphasize the need to combat these bad actors,” Miller told Sports Handle. “The feedback from these discussions has been very positive, and even though the Department of Justice is managing a variety of constantly evolving priorities, illegal gambling certainly has their attention.”
Now, as the NCAA Tournament approaches its first weekend, the AGA is focused on pushing bettors off the offshore market. Over the course of March Madness, 68 million American adults plan to wager $15.5 billion on the tournament, according to AGA estimates. With legal sports betting now available in more than 30 states, the amount wagered on the legal market is expected to outpace the illegal one. Still, WalletHub projects that approximately $4 billion will be wagered on the unregulated markets in March Madness, an amount that the AGA would like to curb.
The reach of unregulated books
In the letter to Garland, Miller noted that unregulated sites enjoy numerous competitive advantages, specifically in the form of favorable odds, since the offshore websites do not have to pay taxes to U.S. jurisdictions. Unlike their U.S. counterparts, the sites have few consumer protections and do not have to adhere to responsible gaming standards, he added. As a result, the offshore websites have far less in gambling compliance costs.
While the legalization of sports betting was intended to reduce the influence of offshore books, in some cases the opposite has occurred. In a subsequent letter from the Congressional Gaming Caucus, Nevada Rep. Dina Titus wrote that internet searches for offshore sportsbooks increased by almost 40% in 2021, outpacing that of legal sportsbook searches. Of the offshore searches, approximately half were with Bovada, a Costa Rica-based website that can be accessed in most U.S. states.
“Companies that are operating in the United States that are licensed and regulated are held accountable in accordance with United States laws for the treatment of players’ funds,” said Sharon Cohen Levin, an attorney at Sullivan & Cromwell LLP. “To the extent that the AGA is pushing to have law enforcement focus on essentially shutting down, as much as possible, the offshore gambling operations that are illegally operating in the United States, I think that is a laudable goal.”
Last week, the role of the offshore market in the U.S. sports betting ecosystem took center stage at two prominent industry conferences. Speaking at the iGaming Next NYC ’23 conference in midtown Manhattan, Princeton Public Affairs Group lobbyist Bill Pascrell III questioned out loud why there isn’t more scrutiny of the offshore market. Days earlier, Pascrell attended a panel at the Seton Hall Law School Gaming Bootcamp that featured current and former members of the U.S. Treasury Department’s Financial Crimes Enforcement Network, more commonly known as FinCEN.
With dozens of top gaming compliance officials in attendance, speakers on the panel presented a case study on the anti-money laundering and compliance deficiencies at hand during a multi-year fraudulent scheme operated by CG Technology, a fomer Las Vegas sportsbook affiliate of financial services firm Cantor Fitzgerald. The “Jersey Boys,” an illegal gambling operator named in the case, enlisted runners who took a specific side on a bet, allowing the Las Vegas book to lay off some of its risk.
Biggest fine in Nevada gaming history. So what happens to CEO Lee Amaitis who was in charge? http://t.co/5xjEGHZqdw
— Roger Gros (@GlobalGamingBiz) January 14, 2014
Over a four-year period through 2013, one CG client placed more than $300 million in wagers through his account at Cantor Gaming, according to a federal indictment. The unnamed client, identified only as “A.M.” in the indictment, received his source of funding from offshore booking activities and multi-million dollar proxy gambling agreements with clients, who wired money directly into his CG account, the indictment states.
Furthermore, according to the indictment, CG failed to file a Suspicious Activity Report (SAR) on the client for a period of two years through January 2013. Under the Bank Secrecy Act of 1970, financial institutions and those associated with their businesses (i.e., casinos) must file a SAR whenever there is a suspicion of money laundering or fraud.
During the Seton Hall presentation, panelists documented the operator’s history of shoddy record keeping, including evidence that hundreds of accounts at CG failed to contain accompanying Social Security numbers. Eventually, CG Technology agreed to pay a $22.5 million fine in 2016 to resolve the charges.
Since then, offshore books have remained in the news. Puig allegedly placed nearly 900 wagers in 2019 with a sports betting ring operated by Wayne Nix, a former minor league player with the Oakland Athletics organization. The wagers, according to court filings, were made through Sand Island Sports, a Costa Rica-based entity.
Last month, federal prosecutors announced charges against seven individuals in Rochester, New York, in connection with running an illegal gambling ring. Among the charges, the defendants allegedly ran an illegal sports betting operation through sport700.com, a website registered in Costa Rica.
Timing of indictments
The length of the multi-year investigation into CG Technology’s illegal activities underscores the challenges of conducting a probe against sportsbooks located outside of the U.S.
On one hand, a sweeping indictment against an offshore sportsbook to mark the five-year anniversary of PASPA in May could signal that federal authorities are serious about cracking down on illegal activity in the sports betting world. As Miller notes in the letter to Garland, the Justice Department is the only law enforcement entity that “can credibly” address illegal activity perpetuated by offshore sportsbooks.
On the other hand, there are numerous challenges in conducting a cross-border investigation, namely when it comes to securing records that are located offshore.
Cohen Levin, one of the nation’s foremost attorneys on prosecuting white collar crime, helped secure a $731 million settlement against PokerStars and Full Tilt in 2012 when she led the Money Laundering and Asset Forfeiture Unit in the U.S. Attorney’s Office for the Southern District of New York.
“As someone who spent a very long time in the Department of Justice, it’s always difficult to balance the timing of when to bring an action, particularly if you as a prosecutor see the harm out there,” she told Sports Handle. “The prosecutor and the law enforcement agency are working on the case. The desire to go public with the indictment is to protect people from further harm. By the same token, when an indictment is obtained, the government is on the clock. They have to be ready to go to trial.”
Further complicating matters, a prosecutor may have to go through the official channels to obtain records from the foreign government where the offshore books are located, she added. In some cases, prosecutors may need to file a Mutual Legal Assistance Treaty (MLAT), an agreement between two countries to exchange information in an attempt to enforce criminal laws. The MLAT process, she emphasized, can be time consuming.
The illegal, offshore and unregulated sports betting market remains a great enemy to legal operators, AGA President Bill Miller tells a conference of state lawmakers. He asks policymakers to work with their federal reps to push other nations to crack down on illegal operators.
— Ryan Butler (@ButlerBets) December 13, 2021
When reached by Sports Handle, a Justice Department spokesperson declined to comment for this story. However, there are indications that illicit activity associated with sports gambling has made it onto the radar of federal law enforcement agencies. For its part, the FBI has begun to tackle illegal sports gambling through its Integrity in Sport and Gaming Initiative, FBI Management and Program Analyst Erin Leifer said in an interview with InvestigateTV and the Arnolt Center for Investigative Journalism at Indiana University.
Some proponents of the offshore market contend that books outside the U.S. would be happy to comply with regulations in the states if given the chance. They point to efforts in Canada, where Pinnacle launched a legal sportsbook after becoming licensed in Ontario. Pinnacle completed the transition from Canada’s gray market after settling all bets with existing accounts prior to launch.
Miller, meanwhile, referenced the importance of curtailing the offshore market no less than a half dozen times in the AGA’s State of the Industry presentation and subsequent conference call with reporters in February. Although the fifth anniversary of PASPA is less than two months away, the AGA will remain patient in its battle against offshore books.
“This is a fight that we’re in for the long haul. We recognize that it takes time to build these cases and this is not something we’re expecting to be solved overnight,” Miller said.
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