Stacking the odds: uncertaintly over 'reparations' to the US Department of Justice is creating a cloud over the online gaming sector. Dominic Walsh investigates

Leisure Report, Sept, 2008 by Dominic Walsh

If I had a casino chip for very time a quoted internet gaming operator has talked about ongoing negotiations over a "settlement" with the US Department of Justice (DoJ), I could probably afford to spend a week playing the tables in Las Vegas.

The issue is dutifully trotted out every time the likes of PartyGaming, Sportingbet and 888 Holdings publishes results, yet we still appear to be no nearer any of these companies actually sealing an agreement with the DoJ.

The issue has now dragged on for more than a year, and according to research conducted by Evolution Securities (see front page), is adversely affecting both share prices and potential merger and acquisition activity in the sector. To be fair, who wants to invest in a firm which could have a $100m (48m [pounds sterling]) penalty hanging over it?

Until recently, none of the companies has made any comment on what form of settlement was being discussed, the nature of the contact with the DoJ or just how much progress had been made.

But in the past couple of months, a few things have become a little clearer, in particular that the DoJ's starting point for a so-called settlement was the repatriation of some--if not all--the money made by foreign operators from US citizens plus some kind of prison sentence for some or all of the founders and directors of such companies. Now we know why a settlement seems still seems so far away.

The first company to break its silence on the issue was Sportingbet. When I asked chief executive Andy McIver about the issue of jail terms he admitted that the DoJ "did mention it at the outset", but it had not come up again.

Surprisingly, he claimed that the issue of repatriation of profits made in the US had not been raised or, indeed, a specific sum mentioned.

McIver said he thought that, despite the DoJ's stance that US law had been broken and some kind of reparation was necessary, a compromise was possible.

"I think they realise it takes two to tango," he declared optimistically, although he conceded that the negotiations were proving to be a "long and winding road".

The only other public comment of any interest on the matter came in April when Gigi Levy, the 888 chief executive, said he believed a settlement was likely to involve a payment of "$40m to $100m" to the DoJ as far as his own company was concerned.

Although that is a wide range, the fact that he was willing to provide formal guidance indicates that 888, at least, must have got as far as discussing a figure with the US authorities.

But what of PartyGaming? Well, the online casino and poker operator has said very little of any moment on the issue. But I happen to know that the company and its founder investors have faced pressure from the DoJ to submit to a settlement involving a substantial payment, almost certainly running into hundreds of millions of dollars, and a short spell behind bars for some of those involved.

I find it inconceivable that any of these individuals would ever voluntarily submit to a prison term. Why would they? But can it can be stated with any authority that, provided they are not so foolish as to step on American soil, these people will remain safe from the long arm of the DoJ?

In the case of PartyGaming co-founders Anurag Dikshit and Vikrant Bhargava, the Indian government has been robust in rejecting any suggestion by the DoJ that its citizens are guilty of any crime.

But the supine attitude of the British government in the case of David Carruthers of BetOnSports, who continues to languish under house arrest pending trial, as well as its lilly-livered response to extradition requests in the case of British businessmen including the 'NatWest Three' makes the situation less clear cut.

What if the US government formally requested the extradition of someone like Andy McIver on, say, conspiracy and racketeering charges? Given its track record, I don't think the government could be trusted to reject such a request out of hand.

The Extradition Act 2003, which was conceived in the aftermath of 9/11 to make it easier for America to repatriate terrorists, has been used in several white-collar crime cases and the threat of it has often been enough to persuade apparently innocent executives to agree to face the music Stateside.

Who can forget poor old Nigel Potter of Wembley, one of the gambling industry's nicest chief executives, having to spend time in a Federal prison for conspiracy to bribe an official?

The advice was that, if he fought extradition, he would have been seen to have been unwilling to go to the US, and would therefore have not been allowed bail in the UK pending the trials.

Potter was utterly convinced of his innocence, and with that mis-placed confidence, he went to the US having waived his rights in extradition. The attitude of the British government to one of its citizens who was guilty of nothing more than a slight naivety really was breathtaking.

Whereas Potter was the victim of local politics in Rhode Island, the likes of 888 and Sportingbet are being pursued due to good old-fashioned protectionism.