On Friday, PayPal Inc. reached a settlement with the U.S. Department of Justice, whereby PayPal will pay a $10 million fine for facilitating online gambling transactions. The company had been under investigation for illegally processing the transactions for customers in the Eastern District of Missouri and elsewhere between June 2000 and November 2002. PayPal admitted to violating the Wire Act and various state statutes that prohibit online gambling and the transmission of money for gambling purposes.
The U.S. attorney who headed the investigation stated that the settlement frees PayPal from further litigation related to the transactions in question, prompting a number of questions: Can other federal districts or state courts, or anyone else for that matter, take PayPal to court again? Does the settlement with the Eastern District of Missouri mean that Paypal could become an open target for all comers? Or after having been tried in court once already, is PayPal now immune to similar charges?
We asked the experts:
Is further litigation on the horizon for PayPal or any other transaction processors?
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Patrick O'Brien:
"It should settle the matter for PayPal on the federal level once and for all."
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Patrick O'Brien: Such agreements (as the U.S./PayPal settlement) are binding only on the federal government, not on the states or other jurisdictions or parties. On the federal level, the agreement can apply to a single district or to several districts involved in the investigation, or it can be global in nature, applying to all federal districts. The only way of knowing for certain is to read the settlement agreement itself. However, entering into an agreement covering only one or some districts would achieve little for Pay Pal, so in this case I think it would be a global agreement, approved by the Department of Justice in Washington, after canvassing other districts throughout the country. So, it should settle the matter for PayPal on the federal level once and for all.
Whether any states chose to pursue PayPal is another question. PayPal no longer processes gaming transactions, so there would appear to be no valid enforcement purpose in filing charges, but that does not mean that a specific state prosecutor could not initiate a case.
Patrick O'Brien spent 25 years as a Special Agent with the U.S. Customs Service where he occupied numerous positions before joining the Geenberg Traurig Law Firm. O’Brien has expertise in offshore banking, Internet gaming, money laundering detection and prevention, international trade, trade embargoes, international trade protection, white collar crime, smuggling, fraud, the Foreign Corrupt Practices Act, and loss of goods in transit. He has represented offshore gaming operators and offshore banks in relation to foreign and U.S. compliance issues and the detection and prevention of money laundering. From 1997 through 1999 O’Brien assisted the Government of Antigua and Barbuda in drafting offshore banking, money laundering, and offshore gaming legislation while supervising the nation's offshore financial industry.
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Cory Aronovitz:
"It is possible that an individual state could
bring charges against PayPal."
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Cory Aronovitz: I have not reviewed the settlement agreement, but according to the article published in IGN, some of the settlement terms included that PayPal would not be subject to future litigation related to the transaction in question. Whether that includes litigation by individual states is uncertain.
Often, criminal violations are pursued by both the state in which the alleged wrongdoing occurred and the federal district if a federal law applies. I doubt--but am not absolutely certain--that the federal prosecutor in the Eastern District of Missouri can restrict, say, the State of California from charging PayPal for violations of its criminal code.
However, I am certain that PayPal will not be charged by other federal districts. Note that Kevin Smith states in the article that PayPal would not face similar charges for the transaction at issue. That could mean that PayPal could face charges for transactions not covered (June 2000 - November 2002).
Interesting is that Kevin Smith states that PayPal was accused for acts in the Eastern District of Missouri and elsewhere and that the violations were covered under the Wire Act and various states statutes prohibiting online gambling. There are only seven states (LA, IL, IN, SD, OR, NV) maybe six with specific prohibitions. That could mean that the settlement covers those states or, since no state (except Nevada) specifically authorizes online gaming, all state criminal codes violated.
In the end I think that it is possible that an individual state could
bring charges against PayPal, and then we would see whether the
settlement covers such action. It is similar to the tobacco litigation
and the Publishers Clearing House cases that involved 14 states bringing charges in 1994 for deceptive practices involving sweepstakes.
Once PCH settled, a number of other states then initiated litigation. It could happen in this case as well.
Cory Aronovitz, founder of the Casino Law Group in Chicago, concentrates in the area of casino and gaming law. He represents riverboat casinos, Indian casinos, Internet casinos and casino service industries including manufacturers and distributors of gaming related equipment. His practice involves appearing before regulatory agencies related to licensing and game approvals, litigation on behalf of the casino industry and providing creative solutions to client needs. Cory is a frequent writer and speaker on various topics related to gaming, is a member of the Gaming Law Review editorial board, a founding member and member of the Board of Directors of the International Masters of Gaming Law, and an adjunct professor of gaming law at the John Marshall Law School. In August 2000, Cory was named one of the "Top 40 Lawyers Under 40" by the Chicago Law Bulletin for his contributions to the gaming industry.