Bill Reynolds - Life Real Loud - John Lefebvre, Neteller and the Revolution in Online Gambling

But from the FBI’s perspective, this Calgary internet entrepreneur had looked the other way when he realized what he was doing was wrong. It’s not about what you do with your fortune once you have it; it’s about whether or not you were breaking the law when you were acquiring it. Michael Garcia, U.S. attorney for the Southern District of New York, in a press release dated January 16, 2007, stated: “Stephen Eric Lawrence and John David Lefebvre were arrested yesterday in connection with the creation of an internet payment services company that facilitated the transfer of billions of dollars of illegal gambling proceeds from U.S. citizens to the owners of various internet gambling companies located overseas.”

Mark J. Mershon, assistant director in charge of the New York office of the FBI, added stentorian thunder to the press release: “Internet gambling has become a multi-billion-dollar industry that derives a major portion of its revenues from U.S. citizens. A significant portion of that is the illegal handling of Americans’ bets with offshore gaming companies, which amounts to a colossal criminal enterprise masquerading as legitimate business.”

Garcia pointed to evidence that suggested that the company founders knew what they were doing was wrong: “At the time that the defendants took Neteller public … the company’s directors … conceded that they were risking prosecution by the government of the United States under existing or future federal laws.”

This is true. As they prepared to float stock on the AIM in early 2004, Neteller advised interested investors that it did not have a presence in the U.S. but had a contractual relationship with the U.S.-based company JSL Systems (owned by Lawrence and Lefebvre), which transferred U.S. funds to Canada, where Neteller maintained a Calgary office and processed customer accounts through a National Bank of Canada account. It even admitted in the prospectus that the money held in the U.S. was “vulnerable to freezing orders by state and federal prosecutors.”

Investors decided it was worth the risk; the FBI decided Neteller had crossed the line. Regardless, the question of whether the American government overstepped its territorial powers remains an open one. The DOJ claimed it simply followed the enacted legislation (internet gambling is illegal) and sentencing (twenty years and everything you own). Yet others saw that the long arm of the U.S. law had grown special, international powers. Like the Fantastic Four’s rubbery Reed Richards, it reached out — way, way, way out — to grab hold of the guys who had made the most money, in order to sideswipe them off the road, hang them upside down, and shake out as much cash as possible — and threaten to take away their liberty while it was at it. Calvin Ayre, the Saskatchewan-born and — raised entrepreneur behind the offshore gambling lifestyle site Bodog.com, stated publicly around this time that he would not be flying near U.S. airspace any time soon.

Yes, it might be appropriate to inquire why the DOJ would bother to pursue a couple of Canadians formerly of a company based in the Isle of Man, a company trading on the London Stock Exchange and not the NASDAQ. Canada’s self-proclaimed national newspaper, the Globe and Mail , thought this was a logical question. It published an editorial four days after the arrests that offered: “While the U.S. authorities would like to paint [Lefebvre and Lawrence] as criminal masterminds, the fact is that they have broken no laws in either Canada or Britain, where their company is based. Instead, they have run afoul of the hypocritical U.S. desire to restrict gambling on the internet while allowing it to flourish at home, where it produces billions of dollars in tourism and tax revenue.”

On gambling websites, there were cynical grumbles about the U.S. forcing out international companies simply to give its own gambling business interests time to build competitive models. Non-U.S. interests were making too much money, the argument went, and too much of that money was leaving the country, and so it had to be stopped. The busts attracted the attention of British business commentators, who made much the same complaints. For instance, a week later, London’s Daily Telegraph quoted a “specialist lawyer” named Robert Amsterdam, who termed the arrests “a disgrace.” Amsterdam predicted international legal implications for the U.K.: “This means that the U.S. will impose its jurisdiction, retroactively, on this side of the Atlantic.”

Another possible explanation as to why Neteller was taken down was its sheer number of transactions. For the first six months of 2006, $5.1 billion went through Neteller, eighty-five percent of that related to U.S. customers. Perhaps this alone was enough to stir the anxiety of the U.S. Department of the Treasury, which could then claim that since it didn’t know where all that money was going, the cash flow might destabilize an already shaky U.S. dollar, which was in danger of losing its status as the world’s standard. It was a nice theory, but the amount of money processed through Neteller annually, although sizable, was a fraction of the trillions in U.S. currency that sloshed around the world every year.

And then there was the theory floated in the media of the naive Canadian businessmen with the nifty internet idea who got duped by terrorist money launderers, which attracted the attention of authorities through the U.S. Patriot Act and the Department of Homeland Security. If a U.S. citizen gambled and won, he got his money back, and that money stayed in the U.S.; if he didn’t win, that money was harder to follow. Maybe it went to a gambling operation in Costa Rica and was then laundered into support money for insurgencies in the Middle East or Africa. If you were a Republican you might find logic here, but the fact was, the main functions of Neteller’s 600 staff were to provide security from fraud and to monitor their clientele — clearing customers, taking precautions, and processing secure transactions. In other words, Neteller learned how to filter its clientele. Sure it got beat a few times, because fraudsters tried every trick, but its customer base consisted almost entirely of good, clean, law-abiding citizen gamblers.

A different angle might cast Lefebvre as a rock ’n’ roll Robin Hood, who stole from the stupid and gave to the worthy. That point of view makes sense in terms of the guy’s personality, and might also find purchase with people who have a poor opinion of gambling in general. But from the DOJ’s point of view, the many charitable donations Lefebvre made after he acquired his money were irrelevant.

Maybe a better way to look at it, since as voters and taxpayers we’re all responsible for the mainstreaming of gambling culture, is that Lefebvre does privately what the government has been doing publicly for decades. Lawmakers in Canada have used gambling proceeds from voluntary taxation models, such as charity casinos, video lottery terminals, lottery tickets, and the like to finance various programs since 1976. Similarly, Lefebvre has used a large portion of his earnings, which aren’t actual gambling profits but more like tolls for those who wanted to gamble at offshore sites, for his own preferred good causes.

And for his preferred indulgences. Producer Brian Ahern sits in his chair in front of the Neve 88R console in Studio D early in the afternoon on Thursday. He’s “The Thinker,” an Easter Island statue. He has the patience of Buddha. He’s listening … listening … listening . Occasionally he’ll crack a joke or kibitz with the “G-Man,” his engineer Guillermo. Ahern’s been recording music since the late sixties and says things like, “Every moment of time exists in itself.” Then he’ll turn to me directly and tell me it’s deep and that I ought to write it down. Okay, Brian, whatever you say.