Neteller Targeted By US In Multi-Billion Dollar Internet Gaming Probe

by Leroy Baker, Tax-News.com, New York

22 January 2007

Two senior figures connected with the payment services company Neteller have been arrested by United States authorities over allegations that they transferred billions of dollars in illegal internet gambling proceeds out of the US.

According to two criminal complaints unsealed last week, Stephen Lawrence and John Lefebvre, both Canadian citizens, were arrested in connection with the creation and operation of a company that facilitated the transfer of billions of dollars of allegedly illegal gambling proceeds from United States citizens to the owners of various internet gambling companies located overseas.

Neteller PLC, formerly known as Neteller, Inc., is an internet payment services company that was founded by Lawrence and Lefebvre in 1999. Neteller is based in the Isle of Man and is publicly traded in the United Kingdom.

Neteller began processing internet gambling transactions in approximately July 2000. Internet payment services companies, like Neteller, allow gambling companies to transfer money collected from United States customers to bank accounts outside the United States. According to Neteller’s 2005 annual report, Lawrence and Lefebvre, through Neteller, provided payment services to more than 80% of worldwide gaming merchants.

Both defendants have held senior positions within Neteller; Lawrence served as the company's chief executive officer until December 2002, its executive director from 2001 until mid-2003 and as chairman until May 2006. Lefebvre was president of the company from 2000 until 2002 and a board member until approximately December 2005.

The complaint also noted that the defendants held significant ownership interests in Neteller. Lawrence was the company's largest shareholder, owning 21.94% of its outstanding shares at the end of 2004. Lefebvre was the second-largest shareholder with a 13.44% stake.

The complaint alleges that the defendants knew they were risking prosecution by the government of the United States under existing or future federal laws when they took the company public, and that this was acknowledged in its offering documents.

US law at that time prohibited persons from promoting certain forms of gambling, including internet gambling, and transmitting funds that are known to have been derived from criminal activity or are intended to promote criminal activity.

In 2005, it is said that Neteller processed over $7.3 billion in financial transactions. According to reports issued by Neteller, 95% of its revenue was derived from money transfers involving internet gambling companies. This report stated that, in the first half of 2006, Neteller processed $5.1 billion in financial transactions. As charged in the complaint, approximately 85% of Neteller’s revenue during that period derived from individuals in North America, and 75% of its North American revenue was generated in the United States.

Lawrence and Lefebvre are both charged with conspiring to transfer funds with the intent to promote illegal gambling. If convicted, both defendants face a maximum sentence of 20 years’ imprisonment.

Lawrence was arrested in the US Virgin Islands and appeared in a federal court in St. Thomas last Thursday. Lefebvre, who resides in the Bahamas, was arrested in California.

The prosecution is part of the United States Department of Justice’s effort to combat unlawful internet gambling through, among other things, the implementation of the federal anti-money laundering statutes. Other recent examples of the Justice Department’s efforts in this regard include the indictments of two offshore internet gambling companies – Worldwide Telesports, Inc., and BetonSports, PLC, a publicly traded holding company that owns a number of Internet sportsbooks and casinos, and its founder, Gary Kaplan.

Additionally, in July 2003, one of Neteller’s competitors, PayPal, and its parent eBay, entered into a civil settlement agreement with the United States Attorney’s Office for the Eastern District of Missouri to settle allegations it aided in illegal offshore and on-line gambling activities. As part of the agreement, PayPal agreed to forfeit $10 million, representing proceeds derived by PayPal from the processing of illegal gambling transactions.

Laws in this area were stiffened last year with the passing of the Unlawful Internet Gambling Enforcement Act, which effectively banned all international and inter-state online gaming, by making it illegal for banks and credit card firms to make payments to such internet operations.

"Internet gambling has become a multibillion-dollar industry that derives a major portion of its revenues from United States citizens," commented Michael J. Garcia, United States Attorney for the Southern District of New York.

He continued:

"Lawrence and Lefebvre knew when they took their company public that its activities, as well as those of the internet gambling companies it assisted, were illegal in the United States. Blatant violations of US law are not a mere ‘risk’ to be disclosed to prospective investors."

"Criminal prosecutions related to online gambling will be pursued even in cases where assets and defendants are positioned outside of the United States."

FBI Assistant Director Mark J. Mershon added: "A significant portion of that is the illegal handling of Americans' bets with offshore gaming companies, which amounts to a colossal criminal enterprise masquerading as legitimate business."

"There is ample indication these defendants knew the American market for their services was illegal. The FBI is adamant about shutting off the flow of illegal cash," he concluded.

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