Article: PayPal Rolls Dice on Online Gambling

[Sports Fanatic]

NEW YORK – As reported by Wired News: “PayPal's not just for buying Pez dispensers on eBay any more. The popular Internet payment service is quickly becoming the currency of choice at many online casinos.
”Nearly 500 gambling sites signed up to accept PayPal in the first quarter this year, almost doubling the company's roster of such merchants, which stood at 1,022 as of March 31, according to PayPal.

”Unfortunately for PayPal, its booming online gambling business may be illegal in the United States.

”`If you help to facilitate or promote gambling, you could be found guilty of breaking the law. We're trying to get the message out to intermediaries that there's real liability there,’ said Ken Dreifach, head of the Internet bureau at New York State's office of the attorney general. New York estimates that offshore online gambling sites soak Americans for $4 billion annually.

”While efforts to pass federal laws specifically prohibiting online gambling have stalled, New York's saber rattling impressed Citibank. The nation's biggest credit card issuer announced earlier this month that it has agreed to ban the use of its credit cards for Internet gaming.

”…Now, in their quest to protect citizens from the `pernicious’ effects of online gambling, New York and other state and federal regulators are also turning their attention to non-bank financial services such as PayPal, according to Dreifach.

”…In exchange for taking such a risk, PayPal is expected to derive more than $16 million from Internet gaming in 2002. Already this year, its revenues from such merchants -- who pay higher fees to offer the PayPal service -- have more than doubled, accounting for 8 percent of its total income.

”Against that upside, PayPal concedes that any enforcement action against the firm could mean `material penalties and fines, both of which would seriously harm our business.’

”…The service, which enables users to securely charge online payments to their credit cards or checking accounts, is being touted as a means to circumvent credit card bans.

”…Anthony Lupo, head of the contests and sweepstakes practice at Washington, D.C., law firm Arent Fox, said loopholes in PayPal's and card issuers' authorizations systems could make it easy for unscrupulous sites to evade a gambling ban…”