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Emily D. Swoboda

Insights | The Curious Case of Anurag Dikshit

17 December 2008

Less than 24 hours ago, a co-founder of what was once the biggest name in online gambling voluntarily pleaded guilty in a Manhattan courtroom to violating the United States' Wire Wager Act.

Anurag Dikshit, one of the biggest shareholders of PartyGaming, agreed to forfeit $300 million and cooperate with the United States Department of Justice's investigation into the company, which has been underway since at least June 2007.

At the same time, Party has announced that it is nearing a settlement with the Justice Department, which analysts speculate will be no more than $100 million -- if even that much.

Despite yesterday's surprising turn of events, however, business for Party appears to be recovering, with its share price steadily rising two days in a row.

In light of the seemingly positive effect these events have had on PartyGaming, IGamingNews wanted to know:

What will Mr. Dikshit's decision and the surrounding events do to shape the industry as a whole in the long run?

Clive Hawkswood: Our biggest disappointment is that this kind of enforcement action is continuing against European Union-based operators at a time when the European Commission is still investigating our complaint under European Union trade-barrier regulations about the U.S.' apparent breach of its international trade obligations under the General Agreement on Trade in Services. It was only in June that the then commissioner, Peter Mandelson, wrote to the (office of the) United States trade representative asking them to freeze cases like this while that enquiry was underway. We understand that it is now close to completion and we can only hope that the commission takes full note of what has happened to Mr. Dikshit.

Like anyone else I would also hope that having negotiated a settlement of this scale that he will not face imprisonment, but two years is a long time to have that threat hanging over his head.

Looking beyond this, the industry is anxious to move on and reach a position where reputable operators can work with the U.S. authorities to put in place a regime that allows them to compete in the U.S. market and to provide the right protections for consumers. I don't think this will prevent that happening in due course, but it's not helpful.

As and when PartyGaming do come to a settlement with the Justice Department, we will need to assess carefully the terms before we can say what impact it will have more widely. Of course we hope that, looking forward, it will give them a clean bill of health in relation to the United States and that the settlement won't be too onerous, but at the moment I think it's sensible not to speculate too much.

Mr. Hawkswood is chief executive of the United Kingdom's Remote Gambling Association, which represents the interests of some of the industry's most well-known companies.

Martin D. Owens Jr. : The Justice Department's practice of accusing companies of serious felonies, then relenting with a publicized confession and fine is to stage a show trial without the trial. And the avoidance of trial courts is deliberate, for the government's case against online gaming remains on shaky legal ground.

Even with the regulations for the Unlawful Internet Gambling Enforcement Act finally out, there is no working definition of "illegal Internet gambling" -- in fact the regulators flat refused to make one. Federal law relies on an underlying violation of state gambling laws to trigger them, but the state laws are literally all over the road. Only eight states mention the Internet in their gaming laws at all. Sixteen states and Washington D.C. lack any statutory definition of what gambling is or isn't. The rest assume (wrongly) that it's somehow covered.

Meantime, the fundamental legal question of remote gambling -- that of jurisdiction -- has not been seriously discussed, let alone properly adjudicated. The only way PartyGaming could be guilty of anything, is if by the mere act of allowing U.S. players to gamble on its Web site, it satisfied the conditions for criminal jurisdiction of the player's home state. And that is not established by any means. The question has been glossed over and sidestepped again and again. The Justice Department simply assumes this is so -- primarily because it is in keeping with the socio-political agenda of the Bush administration.

But a test in court might knock this house of cards to pieces, and so the Justice Department relies on sheer administrative weight to squeeze out a "settlement." As a dollars and cents proposition it's easier to knuckle under and get it over with, so that's what the likes of Neteller and Google -- and now PartyGaming have done.

Not the first extortion they've been subject to, after all.

Specializing in Internet gambling law, Mr. Owens is a lawyer based in Sacramento, Calif.

Mark N.G. Hichar: In my view, PartyGaming is trying to reach this settlement to remove the cloud on their business arising from their activity in the U.S. prior to the passage of the UIGEA. That cloud appears to be depressing their share price, and thus probably upsetting shareholders. Indeed, the share price in PartyGaming has gone up in response to news that they are close to a deal with the Justice Department. PartyGaming also may want to remove this cloud in anticipation of future business in the U.S., should Internet gaming laws become more relaxed under the new Obama administration. (Although in this regard I believe that the administration will focus on the financial crises, Iraq and the other issues on which Obama campaigned before it looks at Internet gaming.)

It appears that the PartyGaming Web site took sports bets as well as enabled the play of poker. Thus, the Justice Department's case would have had this to rely on in regard to prosecution under the Wire Act, and would not have had to rely solely on the poker activity. There is a question whether the Wire Act applies to all types of gambling, or only to gambling on sports events. Most believe its scope is limited to gambling on sports event.

Regarding the plea by Anurag Dikshit, it is certainly a significant event in that Dikshit is high profile -- even more high profile than Gary Kaplan and David Carruthers. The fact that Dikshit came voluntarily to the Justice Department to negotiate a plea, and did not act like he was immune from prosecution (as did David Carruthers, who visited the U.S. frequently before he was arrested) or flee (like Gary Kaplan), will probably result in his not being required to serve time in jail. We shall see.

My suspicion is that Dikshit seeks to retain his ownership of PartyGaming (although this may be difficult in light of his guilty plea and resulting conviction) and also that Dikshit wants to be free to travel and live his life without fear of being arrested and extradited to the U.S. (as occurred with Gary Kaplan, who was arrested in the Dominican Republic and extradited to the U.S.).

His late sentencing -- in 2010 -- gives him an opportunity to cooperate with the authorities, and I expect that the authorities will recommend a lenient sentence if he gives his full cooperation. I imagine that the Justice Department seeks evidence against other current or former executives of PartyGaming and/or other businesses that have done business with PartyGaming (e.g., financial service providers).

The arrest, plea and conviction sends a clear message that the Justice will continue to use provisions of the Wire Act in its efforts to stop offshore Internet gambling operators from taking bets from customers in the U.S.

Mr. Hichar, a partner with Edwards Angell Palmer & Dodge, represents gaming machine manufacturers, gaming software developers, gaming service providers and gaming Web site operators in general corporate and gaming specific matters, including mergers, acquisitions, joint ventures and outsourcing arrangements.

Insights | The Curious Case of Anurag Dikshit is republished from
Emily D. Swoboda
Emily D. Swoboda