Microsoft, Yahoo, Google Pay $31.5 Million to US DOJ

High-profile Internet giants Microsoft, Yahoo and Google have forked over a combined $31.5 million in a settlement with the U.S. Justice Department over allegations the three promoted illegal Internet gambling.

According to U.S. Attorney Catherine Hanaway, who announced the settlement this morning at Eagleton Federal Courthouse in St. Louis, Mo., Microsoft handed over $21 million, Yahoo, $7.5 million, and Google, $3 million.

"Prosecutions from this office (Eastern District of Missouri) have had a chilling effect on Internet gambling," Hanaway told reporters. "This settlement has made a major impact on Internet gambling in the United States, as these are three of the largest Internet businesses in the world."

The investigation, a joint effort conducted by the FBI and IRS-Criminal Investigation, dates to 2000, with agents from both branches "literally doing a physical search (for evidence) that took years and years," Hanaway said. Negotiations with the three had been transpiring for between a year and 18 months, she added.

The ads in question -- pop-ups, print-type and search results -- primarily promoted sports betting. Neither Hanaway, IRS-CI Special Agent James Vickery nor FBI Special Agent Tim Marsh, however, specified which sites carried what ads.

When asked whether there were any federal statutes prohibiting operators from placing Internet-based ads targeting U.S. residents, Hanaway took the tack that by accepting such ads, the three could open themselves to charges of aiding and abetting under the oft-cited Wire Wager Act.

Indeed, placing Internet gambling ads in the United States -- whatever the medium -- has remained something of a contentious issue since 2003, when a Grand Jury investigation was launched to investigate the advertising practices of the I-gaming industry.

There was some hope in 2004 that Casino City's First Amendment challenge before the U.S. Court of Appeals would provide a clearer rendering of federal law in relation to DOJ's interpretation, but Casino City Chief Executive Michael Corfman and Greenberg Traurig attorney Barry Richard had the case dismissed in January 2006.

Most recently, Sporting News in January 2006 agreed to a $7.2 million settlement with DOJ to absolve itself of charges that it promoted illegal Internet gambling on its Web site, in its magazine and on the radio.

"It's come to this: Attack the government, put your head down and charge like Casino City, and you'll be safe," remarked Sacramento, Calif.-based based gaming attorney Martin Owens in 2006. "Cooperate with the government, like the Sporting News, and you'll be fined millions. That's how bizarre and unpredictable the enforcement of American gambling law has become."

Over the years, industry observers like Owens have often viewed this type of action as designed to intimidate. In the case of Microsoft, Yahoo and Google, whether criminal charges were threatened or even filed has not been made public. According to the DOJ press kit, all three neither contest nor admit receiving payments from gambling businesses for running ads.

As for the Eastern District of Missouri, which Hanaway said boasts the "smartest attorney in relation to these issues," Mike Fagan, it looks to continue spearheading the U.S. crusade against Internet gambling with the pending BetonSports trials, which may feature David Carruthers, Gary Kaplan and 10 other defendants. The district's history in these matters, which dates to the $10 million settlement with PayPal in July 2003, suggests that the threat of aiding and abetting charges will, as Hanaway said, continue to have a chilling effect on Internet gambling in the United States.

As for the Internet giants in question, Microsoft agreed to pay $4.5 million to the DOJ, $7.5 million to the International Center for Missing and Exploited Children and $9 million to fund a three-year public service ad campaign "to inform and educate a target audience comprised of college level or younger people that online gambling enterprises are illegal under U.S. law." Yahoo has agreed to do likewise and will pay $3.5 million to the DOJ and $4.5 million to fund their own ad campaign.