Is Illegal Online Gambling Staying Completely Offshore?

October 25, 2015

Pinnacle Sports opened its headquarters at the Holiday Beach Hotel and Casino in the Caribbean nation of Curaçao. (Getty Images)

In 2006, Congress passed a law meant to rein in the big business of online gambling, but a new investigation finds that nearly a decade later, offshore gaming sites are not only still thriving, but in some cases routing crucial elements of their operations through equipment housed on United States soil.

The investigation — part of a collaboration between The New York Times and FRONTLINE — focuses on Pinnacle Sports, a hugely successful Internet sports-gambling firm that until recently was headquartered in Curacao, where online betting is legal. Despite its offshore location, though, the investigation found that:

Pinnacle, along with other gambling sites, had quietly developed a direct digital presence in the United States, allowing it to communicate quickly with its potential customers … How many of Pinnacle’s users are actually betting or simply visiting the site cannot be known. What is clear, though, is that by 2014, vast amounts of gambling data, once housed legally offshore, were being delivered to the United States from equipment in New York, Miami, Chicago, Dallas and elsewhere. This represented a new and pervasive domestic presence, one that investigators have largely overlooked.

In a statement, Pinnacle said that it had “pulled out of the United States in 2007,” and since then had “never knowingly taken bets from the United States. But American and European investigators have determined that since 2007, the site has had thousands of betting customers in the U.S.

In 2012, some of those customers were the focus of a money-laundering investigation by the Queens district attorney’s office. The probe led to charges against 25 people in connection with offshore sports books, though Pinnacle itself was not charged.

“There were thousands of accounts,” the bureau chief for the office’s rackets division said. “We had 25, but we could have charged 125 people.”

Nevertheless, the continued success of sites like Pinnacle, and the struggles of investigators to slow them, is raising questions about how best to police the industry. As The Times notes:

For years, offshore sports books like Pinnacle have used technology and other means to keep prosecutors at bay. In the United States, field agents are arrested, money is forfeited and the illegal gambling rings are seemingly dismantled. Yet they rise again, with different street soldiers and a new arsenal of deception. The one constant is the Internet, which allows for the electronic brain of these sports books to evolve, beyond the reach of American prosecutors.

This pattern raises a persistent question: Are the successes of law enforcement tantamount to cutting off a lizard’s tail only to see it grow again, and if so, is the battle even worth fighting? Is the better way — with gambling increasingly woven into the fabric of American sports — to simply legalize it so it can be regulated?

The story is the second in a series of reports by The Times in collaboration with FRONTLINE about the highly lucrative, yet highly murky world of online gambling — which the two organizations will explore in a documentary airing on FRONTLINE in Winter 2016. Earlier this month, the investigation tracked how efforts to regulate the industry helped give rise to the flourishing business of daily fantasy sports betting.

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