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Kevin Smith

Visa, MasterCard Target of PATRIOT Act Suit

11 August 2003

A lawyer very familiar to the Interactive gaming industry is once again championing the cause for online gamblers but is taking an unprecedented route through the legal system to go after credit card companies and others in the industry.

Late last week Ira Rothken filed a counter suit in the Alameda County Superior Court in California, seeking to enjoin Visa, Mastercard, E-Cash services, Western Union, Internet Gambling Merchants and others from collecting internet gambling debts from consumers in California.

The suit was filed after Rothken's clients, Lisa and Andrew Harding, lost over $100,000 to online casinos. The debt was racked up using a host of credit cards and other e-commerce methods that were issued to Lisa Harding.

According to the suit, the Harding's attempted to make payments on their credit card debt, but the high interest rates quickly found them with an unmanageable situation. Last month a credit card company sued the couple. That was when the Hardings decided to counter sue.

Rothken has carved out a niche for himself in defending clients in similar situations. In the past he has been able to settle major cases involving the collection of unenforceable gambling debt, but the Harding case involved new territory for both Rothken and the industry.

The complaint alleges that the gambling debts are unenforceable according to California law, but it also claims that the plaintiffs - Visa, MasterCard, Discover Financial, Western Union and a host of others - are in direct violation of the USA PATRIOT Act by doing business with various E-Cash operators who cater exclusively to the online gambling industry.

Rothken said there are two sections of the PATRIOT Act that apply to the Harding case. The Act makes it illegal for companies like Visa, MasterCard and Western Union to transmit funds when they know the funds will ultimately be used in some illegal activity.

"That illegal activity being Internet gambling," Rothken said. "Especially when the person doing the gambling is located in the United States or California. That is an unfair business practice under California law so we are suing to enjoin that activity."

The PATRIOT Act also has a "know your customer" clause for online banking and e-commerce firms to help prevent money laundering for terrorist or other illegal activities. Rothken said the E-Cash systems that online casinos and sports books use to get around credit card transactions rules and regulations are a direct violation of this section of the PATRIOT Act.

Retailers National Bank first sued Lisa Harding after she failed to pay off money she owed from gambling online.

Not only does the Harding case mark the first time the interactive gambling industry has seen the PATRTIOT Act used in a case involving the sector, but Rothken said it is the first time the Act has been used in a civil case in the United States.

"The PATRIOT Act was designed to be used by government and law enforcement," he said. "But we aren't seeking money damages, we are only seeking injunctive relief. That would also mean to stop the collection of debts in California. I think this could set a very important precedent but I don't think companies like Western Union and Visa and MasterCard should be making money off of illegal activities."

Rothken made a name for himself in the interactive gaming industry in the late 1990s when he argued a series of cases that had a major impact on the industry.

He represented Cynthia Haines in her battle against Providian National Bank, Visa and MasterCard, arguing that her gambling loans were unenforceable in the state of California.

There were a number of rulings and hearings regarding the case, but the matter was settled before it went to trial. Part of the settlement included Visa and MasterCard instituting changes in their systems that included notices to consumers about gambling debts.

He also represented California resident Fred Marino in a case similar to the Haines case where Marino had racked up credit card debt on his American Express and Discover credit cards. The credit card companies agreed to no longer process Internet gambling transactions and settled the case out of court.

The cases were the impetus of many issuing banks to ban the use of their credit cards for Internet gambling. Nearly all North American-based credit card companies have specific policies prohibiting the use of their cards for online gaming now, and Visa and MasterCard stepped up enforcement of its gambling coding on online transactions.

Despite all of the court cases and voluntary regulatory means to stop credit cards from being used for online gambling transactions Rothken feels many e-commerce companies still haven't gotten the message.

"This is a strict liability," he said. "If a company is involved in violating the PATRIOT Act, is making money off of it and is trying to collect debts that aren't enforceable it will be enjoined."

Like any industry, Rothken feels there are legitimate companies in the alternative payment solutions sector, but there are too many "E-Cash" fronts that are used simply for online casino operators to bypass credit cards laws and operate in violation of the PATRIOT Act.

"There are some of these E-Cash providers that all they do is process Internet gambling transactions from specific online casinos," he said. "So they are supposed to 'know their customer.' If a Visa merchant gives their merchant account number to a E-Cash provider but then all that provider does is online gambling transactions that should send up a red flag. It isn't very hard to find out that these E-Cash providers are the banks for the Internet casinos and the credit card companies know that."

Although the Harding case was filed on behalf of all citizens of California, Rothken said it technically isn't a class action suit. California has a "classless" class action and since the complaint only requests an injunction on the defendants to stop collecting gambling debts and no damages are sought, it would be able to move forward.

A status conference will be held in court within the next 90-120 days, according to Rothken. After that, both sides could expect a trial if a settlement can't be reached by the end of next summer.

Officials with MasterCard said they hadn't been served with the suit yet and had no comment. A Visa spokesperson was out of the office and couldn't comment on the case either.

Click here to view the lawsuit.

Visa, MasterCard Target of PATRIOT Act Suit is republished from
Kevin Smith
Kevin Smith