Canadian faces U.S. fraud charges in online gambling probe

Posted on September 9, 2009. Filed under: Fraud |

A Canadian man was indicted this week in the United States on fraud and money laundering charges after he allegedly processed more than US$350-million in online gambling payments, highlighting the cat-and-mouse battle that pits law enforcement agencies against the intangible world of Internet gambling.

Douglas Rennick, 34, who lives in Canada, faces a maximum of 55 years in jail and must turn over US$565,908,288 in monies reaped through the alleged financial conspiracy that saw millions of dollars funneled from a Cyprus bank to two accounts in California.

He is alleged to have tried to disguise the transactions to distribute gambling winnings to U.S. residents and, if proven guilty, the forfeiture amount will be among the largest ever collected in that district, according to the U.S. Attorney’s Office in New York.

From sometime in 2007 through June 2009, Mr. Rennick allegedly opened bank accounts at Washington Mutual and Union Bank of California under at least five corporate names and “falsely represented that the accounts would be used for such purposes as issuing rebate cheques, refund cheques, sponsorship cheques, affiliate cheques and minor payroll processing,” according to the grand jury indictment filed in a Manhattan court.

The U.S. Attorney’s Office confirmed that Mr. Rennick is not in U.S. custody, but would not comment as to his whereabouts.

The indictment, filed in the Southern District Court of New York because Mr. Rennick is accused of cashing out winnings to gamblers living in that city, is part of a larger and ongoing investigation into online gaming, according to New York authorities.

“We know that Internet gambling is a multibillion industry in the United States, and our estimates may even be low-balled,” said Jim Margolis, spokesman for New York’s FBI office, adding that the office had its first Internet gambling case about 10 years ago.

Mr. Rennick is among a handful of Canadians who have been charged with online-gambling offences in the United States in recent years, most notably joining the two founders of payment company NETeller who were arrested in Los Angeles and New York in January 2007 on conspiracy charges.

How Mr. Rennick’s citizenship will factor into the case is yet to be seen. “We have no comment about extradition at this point,” said Rebekah Carmichael, spokesperson for the U.S. Attorney’s Office.

To be sure, Canada is more tolerant of online banking than its neighbour to the south: Unlike in America, it is not illegal to gamble online. However, as in the United States, it is illegal for anyone other than provincial governments and charities to run online gambling operations — save for horse racing.

“This is clearly another stab at this particular industry to show that the U.S. government is not happy to have Internet gambling take place within its borders,” said Michael Lipton, Q.C., partner at Toronto’s Dickinson Wright LLP and gaming expert.

The U.S. Justice Department has long held that Internet gambling is illegal but, because cyberspace hardly respects borders and because online gambling is legal in nearly 100 jurisdictions worldwide, authorities struggle to clamp down on an industry worth an estimated US$17-billion globally.

“The genie is out of the bottle, the Internet is here,” Mr. Lipton said. “It’s impossible for the government to get into the bedrooms, offices, and living rooms and make sure that people are engaging in online gambling. This is a phenomenon that is here whether we like it or not.”

Mr. Rennick’s charges come amid a summer of legal turmoil and uncertainty for gamers in America, after the U.S. government froze $33-million in assets of two high-profile payment-services companies — money that was on its way to roughly 27,000 online gamblers looking to cash out winnings earned at four offshore sites, including Poker Stars and Full Tilt.

The asset-freeze and Mr. Rennick’s indictment are part of a crackdown targeted at the financial middlemen who stepped in after a 2006 federal law was passed that prohibited credit-card companies from processing transactions related to online gaming sites. That law, which caused some U.S. trading partners to complain that the ban violated World Trade Organization rules, is set to go into effect on Dec. 1 of this year.

Yesterday, meanwhile, poker web sites were abuzz with news of the charges against the Canadian, as onlookers scrambled to assess the broader implications of the case.

“Stern, but fair,” said a commentor at USA Players.com.

Gambling911.com posted updates throughout the day, and writer Tom Jenkins at PokerNewsDaily.com was quick to post an article on the case, specifically noting that the indictment made “no mention of sports betting was given.”

The indictment does, however, state that Mr. Rennick and unnamed co-conspirators used the accounts “to receive funds from offshore Internet gambling companies that offered, variously, poker, blackjack, slots and other casino games.”

Mr. Rennick is accused of then disbursing the roughly US$350-million, via cheques, to U.S. residents seeking to cash out their gambling winnings.

Said Mr. Lipton: “If the allegations are proven to be true, this particular individual effectively processed nearly half a billion dollars. It’s a huge chunk. It’s fairly significant.”

National Post