Internet Gambling CLE Presentation

Transcription

1 Internet Gambling CLE Presentation by Mayer Brown Rowe & Maw for Lehman Brothers New York March 13, 2007

2 Hostile Prosecutorial Climate Recent arrests BetonSports PLC Sportingbet PLC Neteller PLC

3 Hostile Prosecutorial Climate Indictment Worldwide Telesports, Inc. Settlement PayPal Subpoenas Directed to investment banks E.g. HSBC, Credit Suisse, Dresdner Kleinwort

4 Criminal Prohibitions Wire Wager Act RICO Tax evasion Money laundering

5 Money Laundering Heightened enforcement concern Broad application Starting point

6 U.S. prosecutorial climate and focus Cases United States v. Cohen People v. World Interactive Gaming Corp. In re Mastercard U.S. v. $734, U.S. v. Meghrouni Gold Medal Sports U.S. v. Tedder

7 Enactment The Unlawful Internet Gambling Enforcement Act of 2006 (the Act ) SAFE Port Act Signed October 13, 2006

8 The Unlawful Internet Gambling Enforcement Act of 2006 (the Act ) Findings and objectives (Section 5361) Internet Gambling funded through U.S. payment system Give law enforcement new tools

9 Operation The Unlawful Internet Gambling Enforcement Act of 2006 (the Act ) Attacks internet gambling through U.S. payment system Criminal prohibition Regulation

10 The Unlawful Internet Gambling Enforcement Act of 2006 (the Act ) Criminal prohibition (Section 5363) Applies to internet gaming companies Defines unlawful internet gambling Gambling over the internet Unlawful under federal or state law where made or received Regardless of how routed

11 The Unlawful Internet Gambling Enforcement Act of 2006 (the Act ) Criminal prohibition (continued) Internet gaming companies may not knowingly accept in connection with another s unlawful internet gambling Credit, electronic funds transfer, check Other proceeds proscribed by regulation Penalties (Section 5366) Up to 5 years

12 Regulations Promulgated by Secretary of the Treasury and Federal Reserve Board of Governors, in consultation with Attorney General. Expected July 2007

13 Regulations Prohibit Restricted Transactions Defined as: Transactions or transmittals Involving credits, funds, instruments, proceeds That person engaged in business of wagering Cannot accept under the Act s criminal prohibition (Section 5363)

14 Regulations Q. Who must prohibit restricted transactions? A. Designated payment systems and participants therein Regulators designate Any system that could facilitate a restricted transaction Can exempt if impractical

15 Regulations Operation Identify and block, or prohibit acceptance of restricted transactions Safe harbor No civil liability Blocking or refusing to honor restricted transaction Reasonable belief

16 Timeline Act signed October 13, 2006 Criminal prohibitions effective immediately Rule making now in progress Regulations expected July 2007

17 Market Reaction Internet gambling stocks losing Neteller trading suspended Betonsports delisted

18 Internet Gambling Reaction Generally withdrawing from U.S. market Does this solve the problem? Neteller case study Studying alternatives

19 Reaction of other Governments Antigua WTO dispute EU has threatened WTO action

20 Financial Institution Reaction Heightened concern Actions vary Some efforts to screen transactions now Some waiting for regulations

21 Compliance concerns for investment banks Subpoenas Do not know if witness, subject or target Argument that underwriting is lawful Possible counterarguments

22 Compliance considerations in the investment banking environment Risks Criminal Civil Regulatory enforcement Subpoena Reputation

23 Compliance considerations in the investment banking environment Underwriting Wrong focus Citizenship of investors Place of listing (London Stock Exchange) Legality in company s home country Correct focus: Compliance with US law Due diligence Past conduct Reputation concerns

24 Questions? Conclusion