Regulation Only Way to Shut Down Offshore Sites

John Mehaffey March 27, 2014

Both sides of the U.S. iGaming debate want to see offshore sites forced out of the market.  The two sides have different reasons for this opinion.  Regulated operators would like to see the illegal sites run out of the market because of the unfair competition.  Opponents want all forms of online gambling to cease, even if licensed by states.

Closing down offshore sites is a lot easier said than done.  Black Friday managed to get the three largest U.S.-facing sites out of the market.  A separate investigation in Maryland was unsealed the following month that targeted sports betting operations.  Many of the accused companies also spread online poker to Americans.  Most sites involved in the Maryland investigation simply moved to .ag or other offshore domains and continued operating without missing a beat.

The Department of Justice in the Southern District of New York alleged that offshore poker sites were partnered with a Utah bank to help process payments, among other accusations related to Black Friday.

The U.S. Attorney’s Office in Maryland created a bogus processor known as Linwood Payment Solutions to investigate offshore operators and ewallets.  The action in Maryland is often referred to as Blue Monday.

Both federal investigations seized tens of millions of dollars.

Today’s operators are not going to fall for the same tricks.  It is obvious that unlicensed U.S. ewallets are not safe and processing checks from U.S. banks is also asking for trouble.  Offshore sites now rely on cash transfer services and international banks to move money to and from the U.S.

One point that opponents of offshore gambling make is that the way to get these companies out of the U.S. market is to strangle payment processing.  That is true.  If offshore sites cannot move money, they are effectively put out of business.  This was somewhat accomplished by Black Friday and Blue Monday.  Completely closing offshore processing access is not an easy process.

It is nearly impossible to block cash transfers to and from gaming sites.  The only solution would be to completely shut down the entire cash transfer industry even though it has many legitimate uses.

Checks and wires coming from outside the U.S. are other processing methods that are nearly impossible to prevent.  This would require blocking all international transfers and payments, regardless of the nature of the transaction.  That is not going to work as it would hurt international commerce.  Even if that did happen, sites could send international prepaid debit cards by mail.  Some already do this.

Most offshore online poker sites that accept Americans are related to major sports books.  These types of companies are experienced and creative when it comes to payment processing.  Some have been playing this game for decades.  These sites continue to process payments quickly, despite the current legal environment.

Trying to legislate these companies out of business is not the solution.  The best way to put an end to unlicensed sites is to cut off demand through licensing and regulation.  Unlicensed sites will continue to thrive in the U.S. until the demand drops to a point that it is no longer a viable business.

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