Why James Uthmeier’s demands of payments processors are unlikely to actually curtail illegal online gambling in Florida

Earlier this week, Florida Attorney General James Uthmeier transmitted letters to multiple payment processors, some of which included major financial institutions American Express, Mastercard, and Visa. The correspondence involved allegations of the payment processors handling transactions connected to unlicensed online gambling, which Uthmeier stated violate multiple Florida statutes.

Uthmeier’s letter demands that the recipients cease such activity, with a 14-day deadline to present a written plan for the compliance the correspondence insists upon. The correspondence was certainly within the scope of the powers of the Florida attorney general, as are the demands therein.

At the same time, attempts to enforce the recipients’ compliance with the legal standards could prove to be more costly than the results would merit, and there is no guarantee that even successful attempts would significantly reduce Floridians’ access to unlicensed gambling websites. The idea of shutting down payments for unlicensed operators is more straightforward than the practical application of the same.

Uthmeier initiates potential enforcement action on payments tied to online gaming

Uthmeier’s expansion of enforcement actions against unlicensed gambling ongoing in the state to include online play confronts the companies that process payments for the websites instead of going after the website operators. The Florida attorney general may also take action against the gaming companies in the future as well, but at this juncture, he has moved against financial service providers.

As Uthmeier’s letter to the providers points out, there are numerous Florida statutes upon which he could initiate civil or criminal actions against the companies. Additionally, United States federal laws govern gaming transactions in a way that signals legal trouble for payment processors.

For example, the U.S. Unlawful Internet Gambling Enforcement Act (UIGEA) explicitly outlaws payments connected to illegal gambling activity. Statutes like the UIGEA provide a great example of how legal concepts and legal enforcement can produce vastly different experiences.

The awareness standard for illegal gambling payment processing

Legal precedents around laws like the UIGEA have established that in order to establish civil or criminal penalties for payment processors, prosecutors have to prove that processors handled the payments knowing that doing so represented illegal activity in the appropriate jurisdictions. The threshold for having “knowingly” done so in this context is difficult to reach.

In theory, a processor accused of violating UIGEA in connection to payments for unlicensed sweepstakes casinos or offshore sportsbooks for people in the U.S. would only have to show that they did so in good faith that the payments did not represent illegal activity. A memo from the payment recipient stating that the company is operating in compliance with applicable laws could be sufficient to demonstrate the good-faith operation.

Attorneys general like Uthmeier also face another difficulty related to pursuing legal action related to payments facilitating unlicensed online gambling. That obstacle is the complexity of jurisdiction over companies outside the U.S.

Reach of state attorneys general is limited with external financial institutions

While the basic standard that companies that process payments initiated within a state are subject to the laws of that state does apply to gambling-related transactions, the theory is again stronger than the practice because international laws may limit what leverage U.S. state attorneys general have to compel cooperation with investigations. The more complex a company’s business operations are, the more limited that leverage may be.

Larger payment processors often act like a holding company with registered entities in many countries. Securing cooperation from one of the entities may not affect the others, which could allow the payments in question to continue regardless of any enforcement actions.

That is an example of how even successful enforcement actions may not actually curtail unlicensed online gambling. The task could merely be an expensive game of “whack-a-mole” for Uthmeier that could divert limited resources from other pursuits more likely to secure substantial results.

The juice may not be worth the squeeze for Florida law enforcement

Companies willing to provide payment processing for online gambling companies are plentiful, and obstacles to forming such corporations are fewer than the difficulty of shutting them down. This is the reality of pursuing payment processors for transactions connected to unlicensed online gaming.

For many providers, the risk may be worth the reward in terms of the fees collected from the transactions cast against the chances of facing significant penalties for doing so. Online gambling operators could easily obtain another payment provider if U.S. authorities were successful in restricting access to a current partner, too.

In the meantime, attorneys general like Uthmeier will have expended manpower and time that cannot be replaced to simply compel an online casino or sportsbook operator to find another payment processor. Players’ access to the games might be merely delayed if affected at all.

That raises significant questions about whether prosecutors should use their limited resources for such pursuits. Uthmeier and others in his position are elected to make that decision, but bettor education should be an equal consideration.

Curtailing unlicensed online gambling involves player decisions

Whether through offshore sportsbook sites or unlicensed sweepstakes casinos, state attorneys general in the U.S. have included consumer notices about choosing regulated channels in their efforts. For example, Illinois Attorney General Kwame Raoul issued an alert encouraging residents to only wager with licensed sports apps and websites on March Madness contests.

The more information that gambling regulators and law enforcement can provide to people about the benefits of regulated gaming channels and how to tell the difference, the better. Players abandoning unlicensed operators could be far more effective in curtailing transactions on those websites than legal action by attorneys general against the payment processors could ever be. At the same time, sending a letter to payment processors to raise awareness about unlicensed gambling activity under state law is a nominal use of resources with little downside.

For that reason and because of the complications with enforcement, the letters may be the sum total of Uthmeier’s action against payment processors in this context. They may not prove to be gamechangers for unlicensed online gambling in Florida, but they could represent a better return on investment than more costly measures could prove to be.

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