City firms caught in FBI gaming inquiry

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The Independent Online

At least 16 investment banks, law and accountancy firms have been subpoenaed by the US Department of Justice (DoJ) to hand over any documentation connected with the online gaming industry.

City sources said it is clear the DoJ is trying to build a case against individuals who have benefited from the industry, particularly the founders of online betting companies.

In a move seen as a further encroachment on to British territory, City banks HSBC, JPMorgan, Credit Suisse, Dresdner Kleinwort, Investec and Deutsche Bank are understood to have been issued with official requests for information as part of the worldwide crackdown on internet gambling.

One source said 16 banks had been targeted, but another believed it involved many more. "This is a trawl for information," he said. "People are being targeted. They are trying to get information out of witnesses in the UK. What is unusual is the fact that they are extending their jurisdiction to the UK, to anyone that has been involved with operations here."

The subpoenas were sent in October, days after President George Bush signed into law a bill in effect outlawing internet gaming in the US, which critics saw as a protectionist move. It came months after David Carruthers, the former chief executive of BetsonSports, was arrested while changing planes in Dallas. The chairman of Sportingbet, Peter Dicks, was later arrested in New York.

An investment boom was fuelled in London after companies such as Partygaming, the largest online poker company, BetonSports and 888 Holdings chose to list there. Founders and their advisers made a fortune, despite uncertainty over the legality of online gaming in the US. UK-listed companies have since withdrawn from their US operations, and seen their share prices plummet.

Lawyers representing the banks and other companies have been talking to FBI investigators since October to try to clarify the meaning of the subpoenas, the details of which have only just emerged. One source said it was a blanket demand for all documentation, papers, e-mails and telephone records. "There isn't a lot of detail, so nobody understood what it was all about at first," he said. "It's very broad-reaching. Nobody knew who was being targeted, but now we have an understanding that they are targeting individuals who were behind the start-up operations and the day-to-day running of the operations. The DoJ will be looking for any evidence that points to transactions being carried out with US customers after the bill was passed into law."

Last week, the Canadian founders of NETeller, a payment processor for the gaming industry, were arrested in the US and charged with laundering billions of dollars and tax evasion. London-listed NETeller was thought to be safe, as its involvement in the industry was indirect. It has now closed its US operations.

Business leaders expressed surprise at the latest developments. David Frost, director general of the British Chambers of Commerce, said there was a feeling among industry chiefs that it was getting more difficult to do business with the US. "There has been the issue of steel import tariffs, more recently the heightened security measures, and demands to hand over the details of credit card transactions," he said. "You get the feeling that the US doesn't want to do business, or is certainly making it more difficult to do business, with the UK. I don't see any measures where it is actually becoming easier."

The investment banks concerned were unable to comment.