By Pete Harrison
U.S. prosecutors have delivered a severe blow to online gambling companies that are flouting a U.S. ban on Internet gambling by arresting two founders of payment processor NETeller.
Britain's NETeller closed its U.S. Internet gambling services on Thursday, wiping out over 65 percent of its business, after two of its founders were arrested there this week.
NETeller is the latest target of a U.S. crackdown on online gaming, which began with the arrest of BETonSPORTS Chief Executive David Carruthers in Texas last July.
NETeller's two founders, Canadians Stephen Lawrence, 46, and John Lefebvre, 55, have been charged with handling billions of dollars in illegal gambling proceeds. Both face a maximum sentence of 20 years in prison.
Online gaming giants such as PartyGaming and Sportingbet pulled out ahead of the U.S. ban last November, but privately owned rivals such as Pokerstars, Full Tilt Poker and Bodog carried on taking wagers illegally, often using NETeller to process their payments.
"This is the first piece of news that will really hurt the likes of Pokerstars and Full Tilt," said analyst Tejinder Randhawa at Evolution Securities.
"If you look at the gambling chat rooms, you'll see NETeller was one of the main payment methods," he added.
According to gambling portal Gambling911.com, Full Tilt Poker depended on NETeller for 75 percent of transactions, and the world's biggest site, Pokerstars, used NETeller for around 60 percent of wagers.
BUSINESS MAY SHIFT
Canada's ESI Entertainment said on Wednesday its Citadel payment processing unit was also pulling out of the United States.
Online gambling companies use roughly a dozen payment processors that are smaller than NETeller.
Pokerstars declined to comment, and executives at Full Tilt could not immediately be reached.
Online gaming companies have been doing business for many years in the United States, where the law was discouraging but ambiguous until a full ban in November. They were usually listed in London and located in offshore jurisdictions such as Antigua and Costa Rica.
Money transfer companies such as NETeller, based in the Isle of Man, allow gambling companies to transfer money collected from U.S. gamblers to bank accounts outside the United States.
As U.S. gamblers abandon Pokerstars and other privately owned sites, the remaining Europeans and Asians on those sites may start drifting back to listed rivals PartyGaming and Sportingbet, analysts said.
"PartyGaming previously lost a lot of higher yielding non-U.S. players, who saw higher liquidity on the higher limit tables and tournaments on Pokerstars," said analyst Andrew Lee at Dresdner Kleinwort.
"PokerStars may now start to lose some of these players, given the payment processing restrictions and struggle to stimulate growth," he added. "This could be good for PartyGaming by shifting non-U.S. players back."
Copyright 2007 Reuters Limited.
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