Questions Regarding Federal Gambling Policy
By Anthony Cabot

On Dec. 19, 2007, the U.S. Attorney’s Office in St. Louis announced the settlement of civil forfeiture cases against Google, Yahoo and Microsoft that resulted from these Internet sites accepting banner advertisements for sports wagering and other Internet-based gambling on their sites. According to the news reports, the three companies agreed collectively to “forfeit” $10.5 million. Additionally, Microsoft agreed to “donate” $7.5 million to the International Center for Missing and Exploited Children. Yahoo and Microsoft also agreed to contribute $13.5 million to a “public service” campaign informing the public that online gambling is illegal.

Certainly an interesting legal issue exists as to whether an Internet site can be deemed to be criminally “aiding and abetting” an alleged criminal activity merely by carrying a banner ad, particularly in the context of the Internet, where a large number of visitors are likely to be from jurisdictions were it is perfectly legal to wager online. But I will leave that for another day.

These settlements potentially raise other issues regarding the procedure that resulted in the settlements. These cases did not involve the invocation of criminal charges against the three companies. Instead, the government sought a settlement of a civil matter, i.e., the civil forfeiture of funds. The government had earlier threatened persons and corporations that they were violating criminal laws if they accepted advertisements for gambling sites. Next, they subpoenaed financial records to determine the amount of money that the companies received from those advertisements. After that, the government proposed that the companies pay huge civil settlements, fund a government advertisement campaign (whether true or not), and direct money to pay a private charity (with no connection to the objectionable activity) that was acceptable to the government prosecutors.

Regardless of the merits of the underlying claim, scrutiny should be directed to the process employed. By way of context, ABA Model Code of Professional Responsibility Canon, DR-7-105, is titled “Threatening Criminal Prosecution” and states: “A lawyer shall not present, participate in presenting, or threaten to present criminal charges solely to obtain an advantage in a civil matter.”

According to the Ethic Considerations of the code: “The civil adjudication process is primarily designed for the settlement of disputes between parties, while the criminal process is designed for the protection of society as a whole. Threatening to use, or using, the criminal process to coerce adjustment of private civil claims or controversies is a subversion of that process; further, the person against whom the criminal process is so misused may be deterred from asserting his legal rights and thus the usefulness of the civil process in settling private disputes is impaired. As in all cases of abuse of judicial process, the improper use of criminal process tends to diminish public confidence in our legal system.”

Now put yourself in the shoes of any one of these companies. Suppose for the sake of argument that the chances of being successfully prosecuted are 1 percent, but the economic ramifications of a criminal conviction are potentially in the billions of dollars in the public markets. Is it likely that these three companies may have been deterred from challenging the government on the underlying claim because they feared the repercussions of a criminal action? Are there serious issues avoided on the merits as to whether media outlets like Internet portals, newspapers and television stations have an affirmative duty to do due diligence as to the legality of activities before accepting advertisement for such activity?

This situation really raises at least three separate issues. The first is the ethical propriety of threatening criminal prosecution to force these companies to pay civil fines, donate money and undertake advertising campaigns that would far exceed probable criminal fines. This would be an interesting case study for a law school ethics class.

The second is the use of civil forfeiture provisions to effectively create a vehicle with which to extract payments from private entities. Specifically, because federal law has no provision for the civil settlement of criminal charges, the government needed to create a fiction that the settlement somehow involved a civil forfeiture. The civil forfeiture procedures are designed to permit the government to confiscate specific assets that are the proceeds of criminal activities — so if you built a house from drug money, the government could seize that house. In these types of cases, the government would sue the item of property, not the person. Anyone claiming an interest in the specific property is essentially a third-party claimant. The government would have the burden to show probable cause that the property is subject to forfeiture. If this is done, the claimant owner must prove by a “preponderance of the evidence” that the seized property was not the proceeds of criminal activities. In the cases involving Microsoft, Yahoo and Google, no identifiable property exists. The U.S. Attorney effectively is forcing the companies to take money out their general accounts and place it in a position to be forfeited. The fiction is then created that these funds are somehow the proceeds of criminal activities, so they can be forfeited.

The third issue is how the U.S. Attorney’s Office, as part of the executive branch, can create a new civil offense along with ad hoc fines and penalties. Effectively, the prosecutors are dictating the nature of the civil offense and then the penalty, including approved donations and an advertising campaign. This decision is without legislative standards on the propriety of assessing fines for the alleged conduct or the range or nature of the penalties. Should Congress or a local prosecutor be deciding whether $21 million in fines should be used for “illegal” gambling education and a charity instead of going toward education or body armor for our troops? Who decides the propriety of the charity, or the theme or correctness of the advertising campaign? Moreover, this decision was made without judicial intervention on the culpability of the defendant according to legislative standards or the suitability of the fines.