Neteller: They Gone!

Due to passage of the Unlawful Internet Gambling Enforcement Act, most of the major poker sites left the US market. These poker rooms' actions resulted in a major shift in the poker world, as US gamblers drifted from these sites to the poker sites that continued to accept US players. Since the passage of the UIGEA, there have been relatively few legal developments in the United States. That is until this past Monday when US authorities arrested and charged the founders of Neteller, Stephen Lawrence and John Lefebvre, with money laundering. This case was not the result of the UIGEA. The investigation of Neteller began in June 2006, and the UIGEA was not passed until October 2006. online poker 468x60 Soon after the two were charged with money laundering, Neteller issued a statement saying it would no longer transfer money to or from internet gambling sites for its US users. Most speculated that the firm would make this decision anyway, but the arrest of its two founders certainly hastened Neteller's departure. Neteller's non-US members are not affected by this decision. While details of this case are still forthcoming, this Shuffle will speculate on why the United States Department of Justice (DOJ) went after the payment processing company and how the online poker world will be affected by these recent actions. Why Neteller? The Department of Justice does not arbitrarily choose its major targets. It may be on a quest to combat internet gambling by American citizens, but it is limited in who it can and will target. The DOJ does not have the resources to go after every internet gambling firm and certainly will not try to prosecute everyday gamblers. When the DOJ chooses a target, it wants to maximize its effectiveness. From the DOJ's perspective, here are their objectives: A. Direct effects: If they can take down a major player in the industry, it will have the direct effect of decreasing internet gambling. B. Indirect effects: By taking down a major player, it will scare others out of the internet gambling industry. More companies will cease to service US players since they will not want to be the next targets of prosecution. C. Easy case: The DOJ will want to be easily able to win its case. If they lose, the DOJ will inadvertently embolden others in the internet gambling industry to pursue the US market even more, since the DOJ will be perceived to have been bluffing all along. D. Ability to prosecute: The DOJ will need to physically be able to bring individuals to trial. Most likely, this means the individual will likely need to be physically present in the United States at some point in time. Pursuing Neteller certainly makes sense given the direct effects and the indirect effects. As the largest money transfer service in the internet gambling industry, somehow forcing them to stop transferring money from US residents to internet gambling sites would significantly decrease the amount of gambling done by US residents, at least in the short term. The DOJ did not even need to win its case to accomplish this feat. The mere arrests of Neteller's founders hastened the company's exit from the US market. Neteller is believed to process the majority of the money sent by US residents to online poker sites, so the DOJ has already scored a big victory by "encouraging" Neteller to leave the US market. Furthermore, the recent arrests have made many people in the internet gambling industry think twice about continuing to service the American market. Another major internet gambling payment processor, Citadel, has also left the US market. US residents that continue to gamble online are now left with fewer options of depositing money, and these options are becoming increasingly shady. The DOJ is only able to prosecute certain companies. Some companies have all of their assets outside of the United States, and their executives never set foot in the United States. This makes it extremely difficult for the DOJ to pursue these cases. The DOJ was able to nab Neteller's founders since they were both in US soil at the time. It is not clear if the DOJ knew it would be easy to capture Neteller's founders, or if they just happened to be lucky this past Monday. In a high-profile case, the DOJ wants to choose a case it can easily win. If Lawrence and Lefebvre win their case, or at least escape serving jail time, it will be a huge setback in the DOJ's efforts to prosecute internet gambling. Other payment processing companies will certainly become more aggressive in targeting the US if the DOJ loses its case. Companies will more aggressively pursue the US market since the DOJ's threats will be viewed as empty bluffs. Future Predictions Neteller's withdrawal from the US market is the first major blow to the US-facing poker sites in the post-UIGEA poker world. If anything, the UIGEA was a blessing to sites that continued to accept US players, since they were able to recruit US players that formerly played at sites that used to accept US players, such as Party Poker and 888 Poker. Switching poker sites is easy, but switching to a new payment processor is not. Sharks will likely figure out ways around the Neteller situation. It will still be an annoyance to sharks since Neteller allowed players to quickly move money to and from sites with ease. Players were also confident that any money in their Neteller account was safe. This sort of liquidity and trust is not enjoyed by most other payment options. The logical alternative to Neteller for US residents at US-facing poker sites is e-checks (ACH transactions). This is essentially the same method US residents used to fund their Neteller accounts, except it would go straight to the poker sites instead of a middle man. However, some of the major poker US-facing sites have already stopped allowing e-checks. This is because many of the US sites have reported that their e-check processors will no longer do business with them. Futhermore, many people, especially casual players, may be reluctant to give their bank account information to a poker site and write a check to them directly from their bank account. Based on my research, many of the methods the poker sites are recommending now are smaller companies that do not have nearly the solid reputation Neteller possesses. Furthermore, American players are having problems receiving money from the US-facing poker sites. Most American players cashed out using Neteller or an e-check, which are both no longer used. At least one major US-facing poker room has reported that they are unable to payout via paper check. US players are now often forced to deposit using unfamiliar, sometimes shady methods. Withdrawals are often unreliable. There is no doubt this will cause a mass exodus of US players from the online poker world. Casual players are not going to want to fool with figuring out how to use these new methods and may be fearful of having their money stolen. This means online poker games might become even tougher at US-facing sites as only sharky players will deal with finding a way around the Neteller issue. Tougher games at the US sites means both US players and European players at these sites will lose interest in these games. I expect, in four months time, the top US-facing sites will have less-than-half of the US player base they have now. Depending on how US-dependent the site is, these sites may shrink by as much as 50%. Perhaps even more. Furthermore, I predict the sites that are US-facing but not that dependent on the US will withdraw from the US market. If 95% of a site's revenues are from the US, they will do whatever it takes to stay in the market. But even if 30% of their market is Europe, they may forgo US customers. It is clear the DOJ is after the big fish in the industry that accept US bets. Not only do the owners of these companies have to fear going to jail by continuing to accept US bets, it is becoming increasingly difficult for them to service US customers anyway. There are also many banking and marketing groups that will not deal with these US-facing poker rooms since they take US bets. These three factors combined may make it in the poker room's interest to no longer accept US players if it can survive without them.