Justice Department Seizure of Online Poker Sites Puts Payment Processors in the Spotlight
As has been widely reported, the U.S. Justice Department moved on Friday, April 15, 2011 to seize the domains of three of the largest online poker sites: PokerStars, Full Tilt Poker, and Absolute Poker. The online gambling industry and its customers were caught off-guard. For some excellent background on the story, please read Gregory Karp’s article with the Chicago Tribune here.
Mr. Karp’s article reports that the intent of the Justice Department’s action was to crack down on banks, payment processers and other financial institutions that permit U.S. citizens to fund offshore online gambling accounts. From 2002 through 2005, I worked in the global anti-money laundering group with Western Union Financial Services. I have not worked at Western Union for several years and have no insight or knowledge of current compliance systems. I intend only to generally describe the compliance environment from 2002 through 2005.
Like many banks, credit card processors and money transfer services; Western Union encountered activity where transactions would move from the U.S. to the United Kingdom, Costa Rica, or Antigua (among others) for Internet gambling purposes. Transactions through Western Union would occur both as person to person via Western Union’s money transfer system, or person to commercial account via Quick Collect.
Western Union took the position that Internet gambling transactions initiated or terminated in the United States were of questionable legality, even though there was no Unlawful Internet Gambling Enforcement Act at this time. During that period, law enforcement relied upon the Federal Interstate Wire Act – a law enacted to target gambling via telephone (or telegraph) – in its attempts to combat international online gambling. This statute was not particularly on-point, but a conscious effort was made to raise barriers, if not outright block transactions sent to or from the United States for Internet gambling purposes.
Western Union compliance systems identified online gambling transactions based on transaction and dollar volumes. Activity on Western Union’s Money Transfer product would generally fall into one of two categories. The first category would be the emigrant sending a couple hundred dollars to their home country monthly. In the second category, the recipient of the funds was someone travelling abroad who needed several hundred or thousands of dollars quickly – most likely due to an emergency. A one-off transaction. Additionally, persons using the money transfer system could send money to commercial accounts. Commercial accounts existed in the U.S. and internationally.
Compliance systems were created that permitted identification of persons and commercial accounts whose activity deviated from the typical Western Union customer. Mr. Karp wrote that credit card processors have run into issues where online gambling firms outside the U.S. would attempt to conceal their identity via fake business accounts. Western Union ran into similar situations. Sometimes the name of the commercial account was a person’s name and would not otherwise appear to be an actual business.
A second method for detecting online gambling transactions occurred based on the dollar and transaction volume of individual senders or receivers. As stated above, Western Union’s typical customer either sends small amounts of money over a regular period, or sends one lump sum once or twice. Patterns emerged where one sender in the United States would send several thousands of dollars, on a regular basis, to one receiver in Antigua or Costa Rica. Sometimes the sender would visit multiple Western Union agent locations in an attempt to avoid Western Union and federal identification requirements. Alternatively, on the Antigua or Costa Rica side, activity patterns emerged where one person would receive several thousands of dollars from seemingly unrelated senders located across the United States.
When such high volume activity occurred, Western Union’s systems would put blocks in place to prevent the suspected trafficker in internet gambling funds from sending money from the United States or receiving money in Antigua, Costa Rica, etc. until they had been interviewed by Western Union staff to determine the purpose of this seemingly irregular transaction behavior.