U.S. attacks indirectly Web casino sites abroad

Media firms that carried ads for online gambling have been scared off

March 16, 2004|By NEW YORK TIMES NEWS SERVICE

Federal prosecutors have begun a wide-ranging effort to curb the growing popularity of online gambling in the United States by quietly threatening legal action against American companies that do business with Internet casinos and sports betting operations based outside the country, lawyers and industry executives say.

The investigation into the activities of media, public relations and technology companies relies on a controversial legal concept that holds that the U.S. businesses, by providing advertising and other services that support Internet gambling, are "aiding and abetting" online casinos.

That gives prosecutors an indirect way to attack the overseas enterprises, whose operations are illegal here but fall outside their jurisdiction.

Lawyers said they were not aware of any charges that had been filed. Still, despite the lack of publicity, the campaign, which has gone on for months, has already chalked up some significant non-legal victories.

Several big media operations - including Infinity Broadcasting Corp., Clear Channel Communications Inc. and the Discovery Networks Inc. - stopped running advertisements for offshore Internet casinos last fall in light of the threat of further scrutiny that might lead to prosecution.

Raymond W. Gruender, the U.S. attorney in St. Louis, is running the investigation into the Internet gambling industry, lawyers say. His office convened a grand jury last year in St. Louis that has issued summonses to a number of companies and individuals, including Sebastian Sinclair, a market researcher who provides widely quoted economic analyses of the online gambling industry.

Sinclair said he had received a subpoena at the end of February. It requires him to testify before the federal grand jury next month, he said.

The investigation comes as millions of Americans have turned to using their home computers to place sports bets and play casino games like blackjack and poker. Using credit cards or other electronic payment methods, players can place wagers with the Internet casinos, most of them in Costa Rica, the Caribbean or the Isle of Man between Ireland and Britain.

In trying to crack down on Internet gambling through U.S. companies that provide support services, particularly advertising and marketing, the government may find itself on shaky legal ground, the industry, its lawyers and some independent legal analysts say.

The reason, analysts say, is that broadcasters and marketers could well be within their First Amendment rights in advertising on behalf of Internet casinos.

But others say prosecutors may be able to develop a sound case on the ground that American companies are profiting from the success of Internet casinos, a plainly illegal enterprise in the United States.

Even though the legal issues have not been resolved, the inquiry is already achieving some of its goals merely by raising questions.

"The government has floated these legal theories without having to prove anything," said Lawrence G. Walters, a Florida lawyer who specializes in Internet gambling law. "But they've achieved their end result: scaring the players and the industry."

Gruender, the U.S. attorney, declined to comment. His office referred inquiries to Justice Department officials in Washington. They also would not comment, saying the department does not discuss any potential or active investigation.

Broadcasters are already under scrutiny from regulators and legislators who are seeking to establish new standards regarding obscenity. Recently, Clear Channel, which operates the nation's largest chain of radio stations, stopped carrying the Howard Stern show in six cities.

The investigation also underscores the complex legal and political issues raised by the Internet. The overseas casino operations are legal and licensed in the jurisdictions where they are based, allowing them to reach through the Web to customers in the United States, where federal and state laws forbid the operation of unlicensed casinos.

David Carruthers, chief executive of BetonSports.com, an online sports betting business based in Costa Rica, said he was licensed in that country, as well as in Antigua, the Dominican Republic and Britain. His company alone has 1.2 million registered U.S. users and accepted 33 million bets from North America last year, a vast majority from the United States, he said.

Carruthers said that his advertisements had been banned recently from, among other places, the Howard Stern show, which is produced by Infinity Broadcasting, a unit of Viacom.

Media companies are "being held hostage," Carruthers complained. "Unless they stand up, they're going to lose millions in dollars from the advertising."

As recently as last September, Carruthers also advertised BetonSports.com on city buses in New York. But Viacom Outdoor, which placed the ads, no longer accepts online gambling advertisements, said Jodi Senese, a spokeswoman for Viacom Outdoor.

Other media companies have also turned their backs on Internet gambling advertisements.

The Travel Channel stopped running them this fall on the World Poker Tour, one of the channel's most popular programs. David Leavy, spokesman for the Discovery Networks, which operates the Travel, Discovery and other channels, said the policy against running ads for Internet gambling covered all its cable channels.

"Given the investigation," Leavy said, "we are taking a cautious approach to online gaming advertisements."

Similarly, Clear Channel, which operates 1,200 radio stations and 40 television stations, stopped running advertisements last fall after receiving a letter from prosecutors.

Some companies, however, have not changed their policies. Yahoo and Google continue to accept paid advertisements from online gambling operations.

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