There is no “get out of jail free” card when the US DoJ is involved. To prevent arrests and heavy fines like those inflicted on Neteller, Citadel Commerce reached a Deferred Prosecution Agreement for over $9 million, meaning they will not be prosecuted for processing illegal gaming transactions if they fulfill certain conditions.
The US Department of Justice cracked down on online gaming in 2007, freezing funds and prosecuting a number of gaming sites and payment processors. Different companies saw different outcomes: Neteller’s Stephen Eric Lawrence and John David Lefebvre were arrested on federal criminal charges and had to relinquish $136 million in order to be allowed back on the trading floor, while Electronic Clearing House Inc. got off relatively lightly with a $2.3 million fine.
Canadian company Entertainment Systems Inc. (ESI) had been offering payment processing services to American customers through its subsidiary Citadel Commerce since 2002, even while aware that American law forbade it. The volume of these transactions increased through the years: while on their first year of operation they netted about $1.4 million in gross revenue, by 2007 Citadel was racking up $19 million; it was estimated that over 70% of this revenue came from American customers.
Good things never last, and the United States Attorney’s Office for the Southern District of New York (USAO) turned its attentions to Citadel, freezing $9,114,342 of the company’s funds at the time the investigation on illegal gambling began. The arrest of Neteller’s Lawrence and Lefebvre was the final bell for Citadel, which immediately stopped serving American customers and started cooperating with the US DoJ to prevent a similar fate. More than a year later, an agreement has been reached with the USAO: ESI will not be further prosecuted on conspiracy charges if it relinquishes the more than $9 million already seized by the USAO. On top of this, the USAO has imposed a series of conditions on Citadel:
- The company must fully cooperate with the government’s investigation.
- ESI must also control and prevent any further illegal transactions to internet gaming merchants.
- These conditions must be met for 18 months.
ESI had to release a “statement of admitted facts” – the legal equivalent of sackcloth and ashes – to fully show its contriteness and goodwill. Here are some excerpts from it:
- At no time did ESI or its Citadel subsidiary obtain a license from any state government (…) to operate a money transmittal business in the United States.
- ESI (…) understood that various laws in the United States prohibited the money transfer services Citadel offered to customers in the United States.
- In its IPO prospectus, ESI stated (…) that companies similar to Citadel are required to receive money transmitting licenses (…) but that Citadel had not sought such licenses because they are typically denied to business associated with gambling.
After the fine, the admission of wrongdoing and the new operating conditions, Citadel is weaker but optimistic about its future. The board of directors has started focusing on countries other than the USA, with the result that Citadel “now supports instant payment for over 600 million bank accounts in more than 36 countries outside the US.” ESI now intends to raise capital through equity, and is considering options for selling certain subdivisions.
ESI’s CEO Tony Greening declared,
This agreement resolves the USAO’s investigation relating to the Company’s former US Internet gaming payment processing activities. We believe that this settlement is in the best interests of ESI and its shareholders.
Obtaining a resolution to the US situation required over 14 months of negotiations, consumed significant amounts of ESI’s capital and resources, and resulted in the Company having to write off certain assets and offset certain liabilities. Our customers, employees and shareholders have all patiently waited for this resolution and we are pleased we can now begin to refocus our efforts on building and strengthening the ESI business.