Neteller Exits; Online Gambling Won't

LAS VEGAS -- Though payment processor Neteller PLC is the latest and largest such company to pull out of the lucrative but illegal U.S. online gambling market, industry observers said other e-wallet sites would come forward to take its place.

The arrest of its founders Monday on U.S. soil on money laundering charges and the company's delicate position as a publicly traded British company forced it to cease handling U.S. betting transfers as of Thursday.

The arrests were the latest in a series of enforcement actions by the U.S. government against the online gambling industry. The crackdown has targeted the financial middlemen who sprung up after credit card companies and PayPal gave in to pressure to stop processing online gambling transactions from U.S. customers in 2001.

Neteller processed $7 billion in transactions in 2005 and $5.1 billion in the first half of 2006, mostly from U.S. clients to and from online betting sites. By some accounts, that amounted to roughly half of the global market for online wagers.

Many observers said the market for Internet wagering was too rich for others to pass up, despite a U.S. law passed in October that prohibited financial transfers to and from such gambling sites.

"What you're finding with the Internet gambling sites is the publicly traded ones and prominent ones are leaving," said David Stewart, an online gambling expert and lawyer with Washington, D.C.-based firm Ropes & Gray LLP.

"The entities that are more visible and are more transparent can't take the heat," he said. "And all the rest of them are still in the business."

Several British-based online gambling operations, including PartyGaming PLC, Sportingbet PLC, BetOnSports PLC and Leisure & Gaming PLC, have withdrawn from the U.S. market. Private offshore operators continue to run such sites as Bodog.com, PokerStars.com and FullTiltPoker.com.

The Federal Reserve and other bank regulators were tasked with coming up with practical measures to enforce the online gambling prohibition by July. Some firms had intended to wait until the regulations were developed before deciding what to do.

After the arrests, however, Burnaby, British Columbia-based payment processor Citadel Commerce Corp. announced Wednesday that it, too, would withdraw from the U.S. market.

"We were waiting for the regulations," said Mark Bains, the chief financial officer of Citadel parent ESI Entertainment Systems Inc., which trades on the Toronto Stock Exchange. "Looks like we're not going to be able to wait."

Avid gamblers were looking for new ways to skirt the law.