Leading credit card issuer agrees to block on-line gambling

"Americans now waste $4 billion a year on this pernicious form of gambling," Spitzer said. "With this agreement, we will cut off an enormous line of credit that was a jackpot for illegal offshore casinos."

Holding card issuers liable for on-line gambling is a new concept. Friday’s announcement made no mention of legal action having been taken or threatened against Citibank; but it is implied. In New York, the promotion of unauthorised betting and gambling is illegal. However, internet gambling businesses can legally operate in other US states and abroad, beyond the enforcement power of local authorities.

Several bills currently pending in the US Congress would place new restrictions and criminal penalties on financial entities that facilitate illegal gambling transactions. Spitzer warned that even under current US law, however, the processing of known gambling transactions may lead to liability for facilitating or aiding and abetting the underlying activity, and may render the transactions unenforceable.

Under the agreement, Citibank will block transactions that are identified by casinos and web sites as on-line gambling. Citibank also agreed to make payments to organisations that combat compulsive gambling and aid those affected by it, and will pay $100,000 in costs to the State of New York.

Noting that it is often difficult to prosecute on-line casinos, Spitzer said it was “essential that financial entities, including banks, credit card associations, and other payment and processing services, do everything in their power to avoid facilitating these illegal and harmful transactions.”

When initiated, credit card transactions are "coded" to indicate what is being bought or sold. By blocking certain codes, banks that issue credit cards can avoid issuing credit for much (but not all) gambling activity that occurs on the internet.

Over the past few years, large US credit card issuers, including as Bank of America, Fleet, Direct Merchants Bank, MBNA, and Chase Manhattan Bank have begun blocking such transactions. Until the Attorney General began his investigation, Citibank, which controls approximately 12% of the nation’s credit card market, had not done so.

While there have been several law enforcement actions combating on-line casinos, Siptzer’s agreement with Citibank is the first case to address financial entities that process gambling transactions. In 1999, the Attorney General won a lawsuit charging that an Antigua-based casino that accepted bets from New York residents had violated New York’s gambling laws.