Unlike the combatants in the vaunted “concept” wars such as the war on terror and the war on drugs, the enemy in the U.S. war on online gambling hides in plain sight, and the United States is employing a potent concoction of decades-old laws to win a digital-age fight.

The government used violations of the Travel Act, the Wire Act, the Racketeer Influenced and Corrupt Organizations (RICO) Act, along with charges of tax evasion and conspiracy, to indict seven individuals affiliated in some way with BETonSPORTS, a London-based online gambling firm (see Feds Deal Web Gambling Blow).

In an age when software can determine who is betting and whether that person is underage or a problem gambler, executives of multibillion-dollar online gambling operations can be hauled in for driving a bus with an Internet gambling poster across state lines.

David Carruthers, the former chief executive of BETonSPORTS, was arrested 10 days ago while in transit between the United Kingdom and Costa Rica.

Four other indictments involved marketing companies that did some work for BETonSPORTS.

“BETonSPORTS was probably targeted because of the high volume of business it did in the U.S., and because the CEO promoted online gambling on his visits to the U.S.,” said Larry Gaydos, a partner in the antitrust practice group at Haynes and Boone. “They knew of Mr. Carruthers’ travel plans so they were able to plan ahead and make the arrest.

Cutting the Supply Line

The war on online gambling is being waged exclusively against the suppliers rather than the bettors, in part because of the nature of the Internet.

“The new bill tries to make it more difficult for people to participate in online gambling, but they are not going after the bettors themselves,” said Mr. Gaydos.

“It would be very difficult to go after bettors,” he said. “With Internet gambling, people are sitting in the privacy of their homes so going after them will be a futile exercise.”

U.S. law makes a hard distinction between the legal exposure of the bettor versus the facilitator. If someone receives money for assisting in the placement of bets, he or she can be prosecuted.

Where does that leave small companies that develop software or systems that facilitate gambling? Perhaps the software or systems were not designed specifically to facilitate gambling. They were instead a horizontal application that facilitates financial settlements.

New YorkState, for instance, has been very aggressive in targeting online gambling “facilitators.” State Attorney General Eliot Spitzer reached a settlement with Citibank and PayPal regarding their involvement with online gaming.

State Jurisdiction

The question frequently asked about whether online gambling is legal in the U.S. is moot for the most part. It is legal in some states and illegal in others. Gambling within individual states falls within the jurisdiction of each state.

“But an online gambling firm in a state where it’s legal could be guilty of a crime if the bettor is in a state where that activity is illegal,” said Mr. Gaydos. “The Internet stretches the limits of the law.”

The U.S. House of Representatives recently passed legislation that updates the Wire Act, a 1961 statute that made it a felony to use wire communications facilities to transmit bets.

The Internet Gambling Prohibition and Enforcement Act makes the Internet the latest addition to the list of “wire communications facilities” specified in the Wire Act.

The new measure also increases the maximum penalty for violations of the Wire Act from two to five years in prison and preserves the rights of states to regulate intrastate gambling—gambling that occurs within the borders of a state.

Contact the writer:CMedford@RedHerring.com