23 August 2006

The Web
Business Today

Gaming’s woes by George M. Mangion

Dublin awaits the gaming industry’s cream to discuss the serious issues hampering the sector’s growth

The unprecedented indictment of the chief executive of crisis-hit BetonSports, an Online Sportsbook with a USD6 billion turnover mainly targeting the US market, was only the recent problem hitting the online gaming sector internationally.
Carruthers, the BetonSports CEO, was arrested while changing planes en route from London to his new home in Costa Rica. The charges on himself and his associates include items such aiding and abetting online gaming in US apart from tax evasion and fraud. More than euro 800million was wiped from the value of the gaming sector as investors took fright.
The incident came hot on heels of a German Constitutional ruling which has hit the State monopoly hard for offering sport betting and consequently there is a state of confusion reigning amongst betting shops all over Germany.
Within this context PKF will be organising a specialised Dublin conference dealing with the tide of woes hitting the sector. This year has seen PKF organising another conference in Munich on the possible effects resulting from a de-regulation of the German market. This was a boutique style event which addressed legal problems and provided suggested solutions from a list of top speakers.
But recently, more grey clouds have amassed over the industry culminating with the US House of Representatives voting to criminalise electronic payments to gambling sites whether by credit card, wire transfer, debit or “e-wallet”. An interesting topic at the Dublin conference is the thorny question of the Goodlatte/Leach bill. This makes it illegal for US financial institutions to transfer money to offshore gambling websites or to the online payment services those sites use.
According to Tony Coles, a partner at law firm Jeffrey Green Russell, the indictment would undoubtedly have implications for directors on offshore companies targeting the prohibited US market. The long arm of Uncle Sam has now stretched to snatch Mr Carruthers and there may be others. Being sent to jail is one of the worst things that can happen to a company official particularly as Mr Carruthers has been an outspoken proponent of legalising gambling in the United States and has openly lobbied in Washington for legislative changes. According to his lawyer, he will be freed from jail upon receipt of USD1 million and live under bail conditions in the St Louis, Missouri, area. Another British citizen Nigel Potter was also extradited to the US. His nightmare began in 2000 when Dan Bucci, the manager of Wembley subsidiary Lincoln Park Inc ,a Rhode Island greyhound track and casino wanted state approval for an extra 1,000 slot machines.
Daniel McKinnon, the lawyer was promised a success-related fee of a multi-million dollar for the issue of the licence and for blocking the permit requested by a rival casino. The proposed success-related fee was interpreted by US prosecutors as being an intended bribe. Evidence showed that Bucci and Potter exchanged faxes on the proposal, but Potter would not agree without consulting Wembley’s board including their lawyers and its lead auditor Ernst & Young. As a result no success fee was paid. But luck was not in favour of Potter since he and Bucci were indicted for wire fraud and conspiracy to bribe a government official. The chartered accountant has always denied the allegations against him and his lawyers stressed that he was innocent particularly as it was he who questioned the legality of the success-fee which ended up not being paid.
Potter was found guilty and sentenced for 36 months in jail although he has recently filed an appeal. Expert opinion is now pointing to caution for all financial advisers and auditors of offshore gaming companies targeting the US market. It alerts company official to be cautious in their documented dealings on the unlawful issue of internet gambling even more so due to the powerful extradition powers enjoyed by the US justice department.
That is one reason why PKF co-partnering with IGCE in the Dublin conference to discuss these topics and indirectly to explain if and how the 100 Malta betting sites need to forge ahead under the shadow of a US prohibition. There is so much at stake and internet gambling industry is facing one of its darkest hour. This is a pity since in an unobtrusive way, Malta in fact amassed more on-line and gaming companies than any other Western European jurisdiction. Having voted to join the EU, it now stands tall among the new members to expand its brand name as a well regulated betting and gaming industry.
Unofficial reports show that over 100 companies are licensed or are about to comply with the legislation. All this has resulted in spite of a low budget on otherwise expensive international marketing. These companies in their infancy already generate upwards of EUR1 billion in turnover. The corporate tax rate on net profits is 35% which can be substantially refunded down to a single digit tax rate within 3 weeks of filing an application triggered by a distribution of dividends. Another positive advantage is that the Lotteries and Gaming Authority (LGA) also takes an active interest in license holders to ensure that problems do not escalate in the best interest of player protection. As can be expected there are several main requirements needed to be satisfied before a five year licence is issued such as a rigorous due diligence process on the promoters from all countries and strict compliance testing of software.
With so much at stake delegates at the Dublin conference are offered a highly participative programme focusing on the real issues.

The Dublin conference will be held at Fitzpatrick Castle, Dublin Ireland on the 5 and 6 November. For details please call Chris Duaer or Joanne Fenech on 21484373/ 21498590 or email to info@gmmbusiness.com.

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