Is the NETeller Money Gone?...By Hartley Henderson

[Rogthedodger]

For the past several weeks I've spent most of my waking time trying to get information on the NETeller situation. Based on emails I've received it is clear that the frozen funds at NETeller is the main issue on the minds of readers at MajorWager.com. I contacted NETeller representatives, the U.S. department of justice, the lawyers of Stephen Lawrence and John Lefebvre, an expert in the area of money laundering, and legal minds familiar with online gambling and U.S. bank representatives. Unfortunately, few wanted to talk about the seized money or the case against Lefevre and Lawrence, and those who did talk were not sure which way the Department of Justice was prepared to proceed. But one common refrain from all who were willing to talk was the notion that at this point the ball is clearly in the DOJ's court, and whether they return the money to the American customers is totally dependant on how they decide to treat those funds. Since the Department of Justice has seized all U.S. money in NETeller's ACH system and have essentially cut off any other money held in trust for Americans at British banks, NETeller has absolutely no say on what happens from this point on. If the DOJ consider those funds to be the proceeds of crime, it is very unlikely they will give it back. As a former DOJ agent said to me, "we don't give drug money seized from dealers back to the junkies so why would we give back this money to bettors if we deem those funds to be the proceeds of crime?" That of course is the big question. Are those funds the proceeds of a crime? This article will address that question and offer suggestions of methods Americans can use to get back the funds.


The government of the United States has contended since the Kyle bill of 1997 that the Wire Act of 1961 is applicable to the internet. It is the law under which they charged Jay Cohen, and it is the law that they cited when issuing warrants against various other offshore operators. As such, in their view, any communication that passes through U.S. air space is deemed to have taken place in the United States and there is no difference between the internet or telephone lines. Thus, if taking bets by phone or internet is against the law in the United States, then bettors were involved in the commission of a crime. Even if the bettor didn't believe what they were doing was illegal, ignorance of the law has never been an excuse. As Raymond Baker, a famous author on money laundering and corruption and a senior fellow at the Center for International Policy told me "if an electron touches New York then that activity has taken place in New York." In other words, the jurisdiction of where the business is located is irrelevant, because as far as the U.S. government is concerned, any transactions that involve the United States in any way are subject to U.S. law. The U.S. government has successfully sued foreigners in the past for violating U.S. law from jurisdictions outside of the United States and in fact have even shut down countries that they considered to be in a danger to U.S. interests. That is the view of the Department of Justice, but it is not necessarily the view of U.S. courts.

In a landmark ruling in 2002, two U.S. courts ruled that the Wire Act may not apply to the internet and more importantly only applies to sports betting. Since pretty much every sports betting site has poker and casino software as well, the bettors can argue that money sent to the sites was used for poker or casino betting and not for sports betting and hence the wire act does not apply to their funds. Nevertheless, the DOJ contends that the wire act applies to all forms of gambling, and they aren't prepared at this time to change that view regardless of court decisions to the contrary. It must be noted that the bettors themselves are really just pawns in this chess match between the DOJ and all the offshore companies. Casual betting is not a crime per the wire act and no bettor has ever been charged in the United States for wagering offshore. Nevertheless, Neil Donovan of the FBI has stated that the Department of Justice seized the NETeller funds to hold as potential evidence, so the American bettor has been dragged into this battle.


The question of course has to be asked: What kind of evidence will the DOJ get from holding a bundle of money and why is NETeller being implicated as they are only a payment processor? When the Department of Justice cut a deal with eBay to settle the case regarding PayPal, it was acknowledged that most of PayPal's business was not derived from internet betting. eBay purchases far and away outnumbered any transactions made for the purpose of online betting with PayPal, but the same cannot be said for NETeller. If NETeller had a significant amount of non-gambling related merchants, it could be argued that the DOJ seized money not intended for the purpose of betting, meaning that some of the funds indeed were not derived from the proceeds of gambling. After all, if the company was a payment processor to many non-gambling related businesses then it would be difficult to argue that NETeller was actually involved in the area of online gambling. In fact one of the reasons the government decided to cut a deal with PayPal was the difficulty in isolating gambling transactions with those intended for other purchases. As such, one of the people I spoke to, who preferred to stay anonymous, suggested that if anyone could prove that the seized NETeller funds were indeed being used for a service other than offshore gambling then it could be a significant step in getting the DOJ to release the funds. The first step, therefore, was to take an approach similar to what PayPal used when making the deal with the U.S. government. Looking at NETeller's website, there is indication that the company has other merchants who are not in the gambling business. According to Netellergroup.com, the company has over 3,500 merchants which include the following the following types of clients:

A Diverse Platform of Products for All Kinds of Businesses We transfer billions of dollars annually on behalf of thousands of merchants worldwide who span a diverse spectrum of industries and businesses, including:
* Entertainment, Gaming, and Leisure
* Financial Services
* Government and Education
* Manufacturing and Energy
* Media and Publishing
* Retail


Thusly, I contacted the company to find out the name of other merchants that allow NETeller as a payment processor. If the company, for example, was used as a payment processor for products like computer software, ITunes, ETrade etc., then lawyers could argue the government was seizing funds that could be used for legitimate purchases. NETeller did not respond to my inquiry. Searches of merchants on the internet for NETeller were all for gambling sites, and a comprehensive search indeed showed that the only merchants that NETeller has are indeed in the business of gambling. If they do have merchants in the field of retail, media or government they aren't coming forward with names. Consequently, any arguments that customers want to make stating that the money being held was intended for other merchants will not hold water. Wanting to have merchants in other services doesn't actually make it so.


Another possible avenue was to actually help out Lefevre and Lawrence by showing that NETeller was not involved in money laundering. If the DOJ was indeed holding the money as "evidence" then it can only be assumed it would be evidence for the case against the company's two founders. A review of the court documents for Lawrence and Lefevre provided little information other than bail conditions, namely $5 million in cash and property and the surrender of passports. Other than that, the documents simply stated that the proceedings were being continued in the interest of justice. Calls and emails to the lawyers of the defendents and to the prosecuting attorney to find out why the proceedings were continued and a basis of the defense that may be used were met with anger or were not acknowledged.


The DOJ's stance on how online gambling is used for money laundering was alluded to in 2002 by John Malcolm, Assistant Attorney General, when he stated the following at a conference in London. The full text is available at Statement of John G. Malcolm, Deputy Assistant Attorney General, at the Special Briefing: Money Laundering and Payment Systems in Online Gambling (November 20, 2002)

Another major concern that the Department of Justice has about on-line gambling is that Internet gambling businesses provide criminals with an easy and excellent vehicle for money laundering, due in large part to the volume, speed, and international reach of Internet transaction and the offshore locations of most Internet gambling sites, as well as the fact that the industry itself is already cash-intensive.


It is a fact that money launderers have to go to financial institutions either to conceal their illegal funds or recycle those funds back into the economy for their use. Because criminals are aware that banks have been subjected to greater scrutiny and regulation, not surprisingly, they have turned to other non-bank financial institutions, such as casinos, to launder their money. On-line casinos are a particularly inviting target because, in addition to using the gambling that casinos offer as a way to hide or transfer money, casinos offer a broad array of financial services to their customers, such as providing credit accounts, fund transmittal services, check cashing services, and currency exchange services.


Individuals wanting to launder ill-gotten gains through an on-line casino can do so in a variety of ways. For example, a customer could establish an account with a casino using illegally-derived proceeds, conduct a minimal amount of betting or engage in offsetting bets with an overseas confederate, and then request repayment from the casino, thereby providing a new "source" of the funds. If a gambler wants to transfer money to an inside source in the casino, who may be located in another country, he can just play til he loses the requisite amount. Similarly, if an insider wants to transfer money to the gambler, perhaps as payment for some illicit activity, he can rig the game so the bettor wins.


The anonymous nature of the Internet and the use of encryption makes it difficult to trace the transactions. The gambling business may also not maintain the transaction records, in which case tracing may be impossible. While regulators in the United States can visit physical casinos, observe their operations, and examine their books and records to ensure compliance with regulations, this is far more difficult, if not impossible, with virtual casinos.


So essentially the government is going to suggest that NETeller is guilty of money laundering because criminals and/or terrorists could deposit large amounts of ill gotten money at the payment processor, transfer it to a casino, make small bets and withdraw the majority of it back to NETeller. They in turn would send the money back to the banks making the money appear legal. Needless to say it's a stretch, and since no country other than the United States has shown this concern in spite of Malcolm's comments, it is clear that the argument is a leap in logic to say the least. Nevertheless, when I asked Raymond Baker how the government could link online gambling to crime or terrorism he responded "It's the ability to use any form of money laundering that can facilitate terrorists financing, which can parade as some other form of illicit proceeds. That's why I encourage Congress to bar all forms of illicit money coming from abroad. At least close the doors even if enforcement is problematic."


So what did Mr. Baker mean by this? Well apparently there are 200 classes of money laundering, but only 15 are deemed predicate offenses that would make it illegal for U.S. banks to accept money from foreign companies engaged in those activities. They include: drug trafficking, gambling, crimes of violence, official corruption, bank fraud and certain treaty violations. Any other forms of money laundering can legally be handled by the banks without fear of prosecution for aiding and abetting criminals. Included in those are moneys gained from counterfeiting, contraband, alien smuggling, slave trading, trafficking of women and tax evasion. So the U.S. government actually has, in essence, made offshore gambling out to be a more heinous crime than slave trading, even though the U.S. Civil war was in part fought as a result of the slave trade and gambling occurs everywhere in the United States. Further, money laundering at land based casinos is still the main source of hiding funds for criminals. Unreal!


One other possible solution that has been mentioned for Americans to recover their funds, provided NETeller was cooperative, is for Americans to set up a residence outside of the United States and take back the funds from the U.S. account in a different form of currency addressed to the new address. Obviously this is easier said than done. There have been cases reported on some internet forums where Americans did indeed set up a Canadian residence, but they were unable to have the funds forwarded to that new address. This shouldn't be overly surprising. When it was clear that NETeller was going to close their operations to American account holders, many Americans tried to send peer to peer transfers to people outside of the United States. This was done so that the non Americans could get the money out for their American peers. The company not only stopped the peer to peer transfers, but also suspended accounts of the non Americans who helped their American counterparts. So why would NETeller be helpful for Americans in other ways? From what sources have said, any communication from Americans with funds seized by the DOJ or with funds in NETeller's trust will have to prove that they were indeed residents of their "new" country prior to the accounts being cut off. This could involve passports, utility bills etc. Needless to say this option thus is not feasible.


So that brings us back to the original question, are the NETeller funds gone? From the sources I have spoken to it seems highly unlikely that the DOJ will be sending back much of the money and FBI agent Neil Donovan's comment to the media that "some people may get their money back" is hardly encouraging. Regardless, one can only imagine the paperwork Americans will be involved in to see any of the money. And as for NETeller, in spite of CEO Ron Miller's comment that getting customers' back their money was a priority, it would seem from the way they are cooperating with the Department of Justice means they have undertaken to ensure all loopholes are closed for Americans to get their money back by any means. American customers are hardly a priority for the company at this time.


What other options exist for Americans? Two solutions which have been suggested are suing NETeller themselves or hoping for a change of heart by the DOJ. Suing NETeller could prove quite difficult since they are not located in the United States, and in the view of the United Kingdom where the company operates and is incorporated, the company has not committed any crime. It's safe to say that no NETeller management will come to the United States to face charges so they certainly won't come to defend a civil suit. Also, in 2002, two U.S. citizens tried to sue Mastercard for aiding offshore casinos in helping them lose money, similar to what NETeller would likely be sued for. The judge dismissed those charges against Mastercard and would likely do the same for NETeller. Don't forget, gambling is not a crime per the wire act, taking bets is. Besides, it's uncertain at this time how much in U.S. assets NETeller actually has anyway.


So the news is not good. It is possible that the DOJ will give back some of the funds, but if they do so it will not be for quite a while. At this point, the best option would be for Americans to write their representatives, including district attorneys, and demand that the funds be released. Since Americans vote for judges, district attorneys, etc., if there is enough groundswell, the government may take action if they sense it is an issue that could cause them to lose an election. It's clearly not the best solution, but it couldn't hurt. In any case, I will keep talking to officials at all levels and make NETeller an ongoing priority in future articles until a resolution is reached.

03-04-2007
Hartley Henderson
Majorwager.com
henderson@majorwager.com

http://www.majorwager.com/frontline-443.html

[Mr Falcone]

I beleive the US Gov is spending it as I type this.

[BettingProphets]

has any CANADIAN requested a cheque and recieved it like it was 3 months ago?

heard of some requesting it and it sits there pending for days

any NON USA care to comment?

[stevo]

Thank you again for the time you have put into tis netteller issue Hartley. I don't think there is a person on the netwho has worked as hard as you on this issue and it should be appreciated.

It must be noted that the bettors themselves are really just pawns in this chess match between the DOJ and all the offshore companies. Casual betting is not a crime per the wire act and no bettor has ever been charged in the United States for wagering offshore. Nevertheless, Neil Donovan of the FBI has stated that the Department of Justice seized the NETeller funds to hold as potential evidence, so the American bettor has been dragged into this battle.



And causes nothing but people who want to bet do it local. I never disagreed people wouldnt bet and carry on. I just knew a few months ago that some shit was going to hit the fan and the Gov was going to get netteller info.

I didnt really KNOW it was just a feeling things wouldnt last the way the gov was proceeding.


Thanks for your time spent Hartley. Greatly appprecated.

[SlipperyPete]

I cant believe Neteller is taking this laying down.

Even if they dont want to fight for what is right, at least they should show their non-US customers that these kinda things wont keep happening.
Say, what if France, Germany or even Canada decide to do the same thing the US did?

[jumper]

i have recently met netellers requirements for an address change.i am waiting for and will report netellers response or lack of to my request.in my communication with neteller there has been no mention of required address change prior to a certain date.also,my main purpose(legal)for my neteller acct. was to have a safe holding place for my money and the ability to immediately make peer to peer transfers,as evidenced by my acct history going way back.in other words,neteller and western union provide the same service.also,if neteller funds are sent to a sportsbook/casino merchant acct the funds are not necessarily used for gambling(i have been offered gifts simply for making a deposit with no requirement to gamble).what if sports markets are scalped or used for arbitrage in an effort to earn a bonus.this is not gambling;i would argue this is an application of trading techniques.thanks to this forum and henderson for the best neteller coverage

[TheGuesser]

Wasn't Neteller a funding and withdrawal option for various Off Track Betting Companies? Would that not make those funds totally above board and have nothing to do with "illegal" sports betting or Poker playing. I've seen some of the horse guys mention this, and it would seem that would be a way for Neteller to help their case. I've asked this before, but never get an answer.

[jumper]

i hope alot of those concerned can offer legal applications for neteller.i preferred the anonimity of an ewallet,along with the convience of the debit card to a local bank.offshore bank accts or international business companies are perfectly legal places to store wealth,why not ewallets.neteller will hopefully put up a convincing argument that not all money their loyal customers sent was used exclusively for gambling

[Hartley]

The Guesser I have looked far and wide for any Neteller agents that are not related to online gambling and can't find any. I emailed Neteller twice asking for names of the other non gambling merchants and they didn't answer. Obviously they must have some based on the merchant types listed on their site but if anyone can let me know who they are - henderson@majorwager.com - I'll make sure to do a follow up.

I just have a feeling Neteller has been informed to answer no questions related to Americans at this time.

[Don Eagleston]

Kudos to Hartley for an excellent well-written article. I am sure that he spent lots of time attempting to contact those in the know, assuming anybody really is, who probably weren't too interested in discussing the matter.

The bottom line here is that DOJ is being very heavy-handed in all this. DOJ presumes that alll neteller funds were involved in internet gambling which DOJ construes as being illegal. In DOJ's view, neteller creditors participated in an illegal activity and they don't give two shits if they suffered financial losses.

I suggest that any neteller creditor with nothing to hide (is there anybody among us?) should contact DOJ and assert a claim with documentation for monies owed them. This means that either you paid taxes on all gambling winnings or you can show that you really had no winnings. Perhaps this would put you among the first in line when and if DOJ disburses the funds. But you better have clean hands as they say in the law. In any event, it may take years to sort all this out and filing a DOJ claim may not be worth it unless you have a substantial amount of funds in limbo. The other route would be a class action suit filed by neteller creditors. The downside is that I'm bot sure it would be winner, few attorneys probably would want the case, and those who did would keep much of the proceeds in the event of any success.

This is an ugly and unfair situation that I guess was foreshadowed when Pinny withdrew from the American market. You can vote for change at the ballot box, but in reality neither party is going to have the bettors' best interests at heart.

[SlipperyPete]

BTW does the outcome of the trial have any effect on the fate of the funds?

If they are acquitted or if the charges dropped altogether would that have any effect on the funds seized?

[Don Eagleston]

Slippery, I personally think that either of these two events would drastically increase the chances for recovery of funds. On the other hand, I'm guessing that Neteller will settle the matter when the time is right. Everybody on the inside got rich and wants to stay that way. Shareholders and bettors likely will lose in the end.

Perhaps JC would want to offer his views on the subject. He certainly got a firsthand legal eduction in dealing with DOJ.

[Uncle B]

n the view of the United Kingdom where the company operates and is incorporated, the company has not committed any crime.

so then, where is the outrage at what is being done to one of it's countries businesses?

shit just makes no sense to me.

[Don Eagleston]

Uncle B, the Company operates within the US. It can't hide behind its domicile if engaged in US operations. US gov't not attacking operations that occur outside its jurisdiction. Neteller chose to operate within US for obvious reasons and is subject to US laws for better or worse. Otherwise, a Thai heroin smuggling operating could claim immunity.

[Total Square]

Originally Posted by jumper

i have recently met netellers requirements for an address change.i am waiting for and will report netellers response or lack of to my request.in my communication with neteller there has been no mention of required address change prior to a certain date.also,my main purpose(legal)for my neteller acct. was to have a safe holding place for my money and the ability to immediately make peer to peer transfers,as evidenced by my acct history going way back.in other words,neteller and western union provide the same service.also,if neteller funds are sent to a sportsbook/casino merchant acct the funds are not necessarily used for gambling(i have been offered gifts simply for making a deposit with no requirement to gamble).what if sports markets are scalped or used for arbitrage in an effort to earn a bonus.this is not gambling;i would argue this is an application of trading techniques.thanks to this forum and henderson for the best neteller coverage

talk about a belly busting guffaw i had reading this post.

i wonder how bad some of the bigger 'bonus' syndicates got taken for here


did any of your neighbors friends that work at the racetrack get their funds frozen too???????

[Minnow]

"we don't give drug money seized from dealers back to the junkies so why would we give back this money to bettors if we deem those funds to be the proceeds of crime?"

What a comparison. I can never remember if gamblers are criminals or sick joe's who need to be saved from themselves. If someone has been on the path of destruction, clicking a mouse to lose a house, is this how to save him? Confiscate his funds?

[Don Eagleston]

Minnow, the law is what it is. It doesn't make judgments. DOJ believes that this is an illegal enterprise and is acting according to its belief. If you are part of the alleged unlawfulness, then you will be sucked up with it, perhaps unfortunately so.

[The Major]

wonderful article.

[Juice]

I think this article should be in the USA today money section. It will expose the DOJ for the terroist orginization they are and very certainly point out the thieves they really are, as well as there flat out contemept for any court ruling that does not go there way.