The Dark Reality of Sports Betting ; U.S. Law Meant to Make Online Gambling Difficult Has Largely Been a Failure

By Walt Bogdanich; James Glanz; Agustin Armendariz | International New York Times, October 17, 2015 | Go to article overview

The Dark Reality of Sports Betting ; U.S. Law Meant to Make Online Gambling Difficult Has Largely Been a Failure


Walt Bogdanich; James Glanz; Agustin Armendariz, International New York Times


A 2006 federal law intended to make it more difficult to gamble on the Internet has, by almost any measure, been a spectacular failure.

The shadowy exchange in June 2012 was remarkable for two reasons: The bag contained $350,000 in cash, proceeds from an illegal Internet gambling ring; and the woman who took it was a New York real estate developer and prominent gay rights activist who has donated nearly a quarter of a million dollars to political candidates and causes. The previous month, the same woman -- Joy Tomchin -- accepted another bag with $335,000 in cash.

In both cases, Ms. Tomchin said she had taken the cash on behalf of her brother, Stanley, who prosecutors say helped run the kind of gambling operation that has proved so difficult to stop: old-style bookmakers and money collectors, assisted by modern technology that enables offshore computers to record sports bets and payouts, illegal in the United States, beyond the reach of United States law enforcement.

In 2006, Congress tried to help prosecutors defeat these criminal rings. With legislators rushing toward adjournment, they passed a bill just after midnight to make it more difficult to gamble on the Internet, and to preserve the integrity of college and professional sports, by prohibiting online payments for illegal bets.

By almost any measure, the law has been a spectacular failure, an investigation by The New York Times has found.

The law could not stem the tide of illegal betting because the industry thrives not on online payments but on an old-fashioned shadow banking system where billions of dollars pass through paper bags, car trunks, casino chips and various money-laundering schemes.

At the same time, Congress failed to grasp the power of the inexorably evolving Internet, or how difficult it would be to regulate. By allowing entrepreneurs to exploit a legal, if suspect, exemption, the law unwittingly opened the way for the now- ubiquitous fantasy sports games that increasingly resemble gambling.

The Times, in collaboration with the PBS series "Frontline," investigated illegal gambling in the Internet era, focusing on the 2006 law. Reporters interviewed regulators, prosecutors, gamblers and technology experts; visited data centers in the United States and abroad; examined thousands of pages of government records; and used advanced Internet technology to explore how offshore gambling sites serve United States bettors.

To satisfy a hunger for information delivered right now, offshore gambling sites have developed a powerful digital presence on United States soil, close to their United States customers but hidden, until now, from investigators.

While offshore betting sites say they do not solicit United States customers, hundreds of them have begun delivering their content from servers in the United States or setting up fast, dedicated portals that directly transmit bets to their foreign locations. Experts in gambling law said those delivery networks could also be legally responsible if they knew or should have known they were facilitating illegal gambling.

To identify the physical locations of gambling websites, The Times, with the help of several Internet research groups, employed a combination of Internet tracing tools with traditional methods of investigative reporting.

When one New Jersey company was recently asked why it hosted gambling sites, the company initially denied it, then immediately removed more than 100 of those sites from its network. Another network removed two sites after inquiries.

In defiance of United States law, some offshore sports books openly solicit United States customers with slogans such as "Because You Can." One even helped a reporter fund an illegal wagering account, then later explained how the transaction would be falsely recorded on his credit card as a purchase from a work clothes company.

The 2006 law also failed to foresee how the developing Internet and a mania for ever-finer permutations of sports statistics would fuel a gold rush in fantasy sports. …

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