By Cassimir Medford

By effectively ending Neteller’s run as the premier independent e-processor for online gambling transactions in the United States, U.S. law enforcement is creating a vacuum that will be filled by the underbelly of the gambling industry, an analyst said.

With the arrest of Neteller’s two founding shareholders, U.S. law enforcement has sent a clear message to Neteller and other overseas-based e-processors: It recognizes no jurisdictional barriers to the criminal prosecution of defendants and assets located outside U.S. borders.

The arrests and likely withdrawal of Neteller from the U.S., analysts say, will create a substantial vacuum for largely unscrupulous underground operators to “satisfy” the needs of hardcore gamblers in the U.S. (see U.S. Detains Gambling Execs)

“Third-party payment processors are among the worst segments of the industry,” said Christopher Costigan, president of Gambling911, a gambling research and marketing site. “Neteller gave the industry a legitimate option, but with its departure we will see more of these shady operations popping up unfortunately.”

But underground e-processors represent little threat to U.S. bettors.

“The shady third-party e-processors will not affect the players per se; instead they will affect the online casino operators that have to eat the cost of doing business with these operators,” Mr. Costigan said.

“These operators can pop up anywhere from Latin America to the Middle East and they can close in the middle of the night and run off with all the money,” he added.

Money Laundering

The arrests of Stephen Lawrence and John Lefebvre stunned the already shell-shocked online gambling community because the arrests were already in the works well before October when the U.S. passed a law that made the financial settlement of online gambling transactions illegal.

The United States Attorney for the Southern District of New York went back to longstanding legal statutes in charging Messrs. Lawrence and Lefebvre with violations of federal money-laundering laws.

The U.S. Attorney likened the arrests and indictments to two other high-profile indictments issued before the passage of the Unlawful Internet Gambling Enforcement Act of 2006.

In May the U.S. district court in Washington, D.C., unsealed indictments against Antigua-based Worldwide Telesports. And in July U.S. authorities issued indictments against London-based BETonSPORTS.

In setting up the indictment the U.S. Attorney borrowed heavily from Neteller’s publicly available financial and ownership data.

The indictment points to Neteller’s statement that 85 percent of its $5.1 billion in revenue in the first half of 2006 was derived from North America and 75 percent of its North American revenue came from the U.S.

“Both the operation of an Internet gambling operation and the transferring of the proceeds from these businesses overseas are illegal under United States law,” U.S. Attorney Michael Garcia said in a statement.

If convicted, both defendants face a maximum sentence of 20 years’ imprisonment. Mr. Lawrence, 46, was arrested in the U.S. Virgin Islands and is schedule to face a judge in federal court in St. Thomas on Wednesday.