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All bets are off(line)

July 20, 2006

WHAT DO YOU DO WITH suspected white-collar criminals who live in countries where their activities are legal, regulated and even considered proper? If you're the FBI, you wait for them to change planes in Dallas while flying from Britain to Costa Rica, then arrest them for tax evasion.

The federal government says that BetOnSports.com, an online gambling site based in Costa Rica, has taken $3.3 billion in bets from Americans without paying taxes. How, you may ask, is the income of a Central America-based company that is traded on the London Stock Exchange taxable in the U.S.? Because the U.S. levies a "wagering tax" on any bet placed between U.S. citizens. (It's 0.25% for legal bets and, thoughtfully, 2% for illegal wagers.) Though company Chief Executive David Carruthers, who was arrested Sunday along with four other executives, is British, BetOnSports was founded by Americans and is mostly managed by and marketed to Americans.

It was BetOnSports founder Gary Kaplan who was the biggest target of the 22-count indictment unsealed this week. A bookie who had run-ins with the law in New York, then relocated his operations to Florida before building an online empire in Costa Rica, Kaplan remains at large. His alleged misbehavior includes creating bogus independent watchdog agencies that gave his various betting websites a clean bill of health, and misleading consumers by claiming to be "legal and licensed."

BetOnSports is legal and licensed -- just not in the U.S., where interpretations differ about whether online wagering violates the 1961 Wire Act, which prohibits using phone lines for a gambling business. Without a legal framework, authorities are left to use laws such as the Racketeer Influenced and Corrupt Organizations Act, under which four advertising executives who did business with BetOnSports were charged and could face up to 20 years in prison. In this climate, even companies that want to operate in the country where most of their customers live have moved offshore.

There's a far more effective way to bring Internet gaming within reach of Uncle Sam: Legalize it. Carruthers argued for that in this newspaper just four months ago, when the House of Representatives was considering a bill to outlaw online gambling. Unfortunately, the bill passed last week by a 317-93 vote and could go to the Senate floor as this month.

Maybe enough senators still believe in liberty and free trade to defeat this bill. And maybe the FBI has more pressing tasks than scouring tarmacs for the expatriate enablers of victimless acts.

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