Posted on 04/22/2002 4:51:44 AM PDT by Sandy
Although gambling on sports is perfectly legal in the United Kingdom and the Isle of Man, two of the companies they licensed to accept bets suffered a major setback in the U.S. courts last week in a decision that gives the government the power to seize funds from a New Jersey company that acted as their financial middleman for bets placed by Americans.
The decision by the 3rd U.S. Circuit Court of Appeals in United States v. $734,578.82 in United States Currency is sure to have resounding effects because the foreign companies advertised to Americans on the Internet and insisted that their business was untouchable since all bets were "placed" in England and the New Jersey company played no role in fixing odds, declaring winners or losers, or accepting or relaying bets or wagers.
The 3rd Circuit disagreed and rejected the argument that the federal courts have no jurisdiction to apply U.S. gambling law to British companies operating legal gambling businesses on English soil.
"It may well be true that British citizens and British companies will be affected by this in rem action in New Jersey. This does not mean that the law of New Jersey or the law of the United States is being applied to those citizens or companies," 3rd Circuit Judge Theodore A. McKee wrote.
Instead, McKee found that the government's only burden was to prove that the New Jersey company was violating New Jersey law by "promoting" gambling.
McKee, who was joined by 3rd Circuit Chief Judge Edward R. Becker and Senior Circuit Judge Joseph F. Weis Jr., found that the government met its burden by showing that the forfeiture was "predicated solely upon conduct that occurred in New Jersey."
As a result, McKee concluded that the foreign companies "are therefore actually arguing that the laws of England insulate them from forfeiture based upon their conduct in New Jersey. We reject that argument."
The two foreign companies -- Intercash Ltd. I.O.M. in Isle of Man and American Sports Ltd. in England -- argued that no U.S. law was violated since all the gambling transactions actually occurred in England where the bets were ultimately "accepted."
Their lawyers, Clark E. Alpert, David N. Butler and Andrew M. Moskowitz of Alpert Butler Sanders Norton & Bearg in West Orange, N.J., argued that under a generally accepted conflict of laws principle, a gambling transaction occurs in the country where the bet or wager is accepted.
As a result, they said, the activities of the New Jersey company, Intercash Financial Services-NJ, were not illegal since it merely acted as a conduit for funds.
According to court papers, ASL in England promoted its business on the Internet with advertisements that said it provided recreational betting services and accepted wagers on sporting events throughout the world. Most of the business was derived from North American sports such as professional and college football and basketball games.
The ads also explained how Americans could wire money, set up an account and place bets. Funds were sent by Western Union wire transfer to an account at Fleet Bank in New Jersey.
An American middleman company was necessary to accept the wire transfers.
Once a bettor established an account, he could then call England via international toll-free telephone numbers to confirm the deposits and to immediately begin gambling on various sporting events around the world.
Large sums of money were regularly transferred from the Fleet Bank accounts. In October and November 1996 alone, more than $1.7 million was transferred. And funds from one of the accounts was used to make payouts to bettors all over the United States.
IFS-NJ tallied the funds it received on an hourly basis and sent the hourly tallies to ASL in England so that bettors could begin placing wagers soon after establishing an account.
In December 1998, IFS-NJ's district manager, Dennis Pokoyoway, pleaded guilty in state court in New Jersey to charges of promoting gambling in the third degree and conspiracy to promote gambling in the third degree.
Pokoyoway told prosecutors that IFS-NJ received more than $1,000 a day between August 1995 and December 1996. He estimated that IFS-NJ averaged 20 to 30 Western Union wire transfers per day, for a daily total of $4,000 to $5,000. He also acknowledged that he knew that the incoming funds were derived from sports gambling.
Western Union corporate security officers later told the FBI that IFS-NJ had been sending ASL as much as $90,000 per day.
The civil forfeiture case began when the FBI searched IFS-NJ's offices and seized the contents of two Fleet accounts -- one in the name of and/or for the benefit of IOM and ASL, and another maintained solely for the benefit of ASL.
Although the caption of the lawsuit suggests that the government seized more than $730,000, prosecutors later amended the suit to reflect that they had seized only $489,578 since some of the funds had been withdrawn after agents served the warrant, but before the bank tendered the proceeds to the government.
About three years later, the government filed a civil in rem forfeiture action against the funds.
ASL and IOM both filed claim and argued that the funds belonged to them.
But U.S. District Judge Katharine S. Hayden of the District of New Jersey granted summary judgment in favor of the government, finding it had met every element of its burden to show that the funds were connected to the illegal promotion of gambling in New Jersey.
On appeal, ASL and IOM argued that Hayden applied New Jersey criminal law "extraterritorially" in violation of specific provisions of the New Jersey Crimes Code.
Under the code, they said, New Jersey's prohibition against promoting gambling cannot be applied to IFS-NJ's conduct inside of New Jersey unless that conduct is also illegal in England.
McKee disagreed, saying, "This argument ignores the critical fact that New Jersey has not attempted to prosecute IFS-NJ for violating its promoting gambling statute. Rather, the United States government has instituted civil forfeiture proceedings based upon IFS-NJ's violation of [federal law]."
ASL also argued that the forfeiture proceeding was being waged against an innocent foreign citizen and his gambling companies.
McKee disagreed, saying the case did not turn on the culpability of the British company and that, unlike the federal drug forfeiture law, the federal gambling forfeiture statute does not allow for an "innocent owner" defense.
"Therefore, the legality and/or licensure of the businesses in England is simply irrelevant to the issues raised in the instant forfeiture proceeding," McKee wrote.
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