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  3. Report Dissects Alderney's Role In Full Tilt Poker Case

Report Dissects Alderney's Role In Full Tilt Poker Case

by Robin Pilgrim, LawAndTax-News.com, London

30 March 2012


Alderney's Gambling Control Commission (AGCC) has welcomed the publication of an independent report into decisions made in relation to three companies which were licensed in Alderney to operate as Full Tilt Poker (FTP).

The report was commissioned in December 2011, and was conducted by Peter Dean, the former Chairman of the British Gambling Commission.

The review was initiated following the AGCC's decision to revoke the licenses of Full Tilt Poker's operations with immediate effect on September 29, 2011, after it was found at a tribunal that the poker provider had contravened several rules and fabricated information regarding the company's financial situation to mislead the regulator.

The revocation of the company's licenses followed accusations by the US judicial authorities that Full Tilt Poker, along with two other gambling operators, created sham payment-processing frameworks to unlawfully provide Internet gambling services to the United States market.

Under the terms of the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006, offshore operators are effectively blocked from access to the lucrative US internet gambling market. Specifically, the Act prohibits gambling businesses from knowingly accepting payments in connection with unlawful Internet gambling, including payments made through credit cards, electronic funds transfers, and checks.

The report details the sequence of events, and scrutinizes Alderney's decision to accept Full Tilt Poker as a licenseholder despite knowing that the company would undertake gambling business to the United States market and Germany where such activities are prohibited.

However, until April 15, 2011 - the date when US authorities shut down Full Tilt Poker - there were doubts as to whether the rules would be enforced, and Dean noted there is continuing uncertainty over what would constitute an 'unlawful transaction', as it is disputed whether Internet poker can be classified as a gambling activity as it is arguably a game of skill rather than of chance.

The report notes that:

“The AGCC takes the view, as do other reputable gambling regulators, that it cannot be responsible for interpreting or enforcing the laws of other jurisdictions. Instead it places the onus on licensed operators, as is made clear in the licence conditions, to conduct their operations in compliance with local laws.”

“AGCC's policy position on license activity in 'prohibited territories' has consistently been that active prosecution in such territories would be relevant to the determination of continuing suitability of an Alderney licensee and its sponsors but that in the absence of such legal action no necessary regulatory consequences would follow”.

“AGCC's stance in this difficult area is in my opinion reasonable and appropriate, in line with that taken in other soundly regulated gambling jurisdictions."

The report says that the AGCC approved the Full Tilt's licenses despite the company's significant shareholders requesting anonymity in the filing. Dean said the AGCC however had recourse to an unusual, indirect means to satisfy itself as to the credentials of the owners, and noted the company, as a market leader, had a strong reputation. On the matter, Dean opined that he was “satisfied that AGCC conducted the 'fit and proper' tests with appropriate rigour”. The report however recommends that, in principle, the AGCC should establish proper direct relationships with its licensees and not resort to intermediaries as a matter of routine.

“With the benefit of hindsight I believe that this expedient was less than ideal. But I have found nothing to suggest that a more direct approach to the ownership question at the time of the applications would have unearthed any material justifying an adverse conclusion about the fitness and propriety of the applicants,” Dean wrote.

On the issue of Full Tilt's finances, Dean noted that, although the company was subject to annual inspections, a regulatory inspection is not designed to uncover fraud, but is an operational process review.

“It will not necessarily be proof against deliberate concealment or deception, any more than will the regular annual audit of a company’s financial accounts. On the question of timing, it seems likely, from what is now known, that the FTP licensees were still solvent and profitable at the time when the last relevant regulatory inspection took place in October 2010, and that the DoJ (US Department of Justice) seizures and other adverse circumstances, [such as payment processing backlogs], only had a critical impact later,” Dean notes in the report.

“In its internal post-mortem AGCC was self-critical about its failure, when assessing FTP’s licence applications and subsequently, to recognize certain weaknesses in FTP’s corporate structure and governance arrangements. These weaknesses stood in marked contrast to FTP’s technical and operational expertise, which was by common consent highly advanced. Steps have now been taken to strengthen AGCC’s in-house capacity, so that it can better address such issues with licensees or potential licensees in future and improve its monitoring of compliance with regulatory requirements in financial areas,” he writes.

The report also highlights that since the Full Tilt issue, the AGCC has reviewed the options open to it in terms of player protection, and is seeking to tighten up its supervision of player funds on a risk-assessed basis.

While the report makes several recommendations, on the whole Dean finds that “AGCC fulfilled its statutory obligations in relation to Full Tilt Poker and its actions were appropriate, timely and fair.”

In response to the report, Andre Wilsenach, Executive Director of the AGCC, commented:

“The AGCC would like to thank Peter Dean for his detailed and thorough report. We believed it was important, given the sensitivities surrounding the revocation of Full Tilt Poker’s licences that an independent review should be carried out into the way in which the AGCC conducted itself throughout this process.”

“We wanted to reassure ourselves, and those who take an interest in our activities, that should mistakes have been made then we would recognize them, and if lessons could be learned that we would learn them.”

"Mr Dean’s report does make valuable recommendations on how we can make improvements in the light of what has happened. We accept those proposals and will seek to implement them as soon as practically possible."

"None of this, of course, will compensate those players who have lost money as a result of FTP's actions, and we have great sympathy for them. As the report confirms, however, a regulatory regime cannot be proof against deliberate concealment or deception. Our focus now is to assist other authorities to recover as much of the players’ funds as possible."

TAGS: compliance | commerce | law | international financial centres (IFC) | audit | offshore | internet | e-commerce | gambling | offshore e-gaming | Alderney | United States | regulation

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