Illegal gambling businesses & organized crime: an analysis of federal convictions

Abstract

Illegal gambling operations have been alleged to support organized crime and victimize participants, rather than benefit them. This is said to occur through cheating in the games provided, defrauding the government of tax revenue, and funding other illicit and criminal activities. What has been missing is a systematic analysis of actual cases involving illegal gambling businesses to determine precisely who is involved, how these businesses operate, the nature of the threat posed, and the law enforcement response to it. The analysis reported here examines all federal convictions involving operation of illegal gambling businesses during a single year. There were more than 80 persons charged and convicted of participation in illegal gambling businesses, centered around 40 distinct enterprises. The results indicate that illegal gambling businesses in the United States are long-term operations consisting of four general types, and that enforcement of existing laws, particularly related to illegal online sports betting, are not working effectively.

Appendix

Summaries of typical cases involving 4 kinds of illegal gambling business

On-line and offshore betting

New York sports betting through multiple offshore websites

An illegal gambling operation in Rochester, New York was operated by three people, ages 32 to 66, who took sports bets via multiple offshore internet gambling websites. The gambling proceeds were transferred to an associate in Connecticut to conceal the source of the funds. The money was then deposited into a credit line, which resulted in cash withdrawals by the defendants. One of the operators told a bettor that someone would physically harm him, if payment was not made on an extension of credit of $230,000. This led to a charge of extortion. The offenders received sentences ranging from 3.5 to 9 years in prison in this case, plus forfeiture of $1.2 million, $20,000 on deposit in bank accounts, a lakefront house, and $60,000 seized in cash (Attorney’s Office 2014a, 2014a). This case illustrates the clear connection among the operation of an illegal gambling business, the need for money laundering (to conceal the source of funds), and extortion (to collect debts).

Connecticut offshore betting at 44wager.com with tribute paid to Gambino family

Twenty individuals were charged in a large Internet sport gambling business, as well as some in-person, illegal card gambling clubs in Connecticut. Customers placed bets using Internet sites, primarily www.44wager.com based in Costa Rica. The operators collected losses and distributed winnings locally, and payments were sent via Western Union to the website. Tribute (extortion) payments were collected from individuals who ran their own independent sports gambling operations and a card club, where a “rake” was collected from every hand played---permitting them to operate in territory controlled by the Gambino crime family of the Cosa Nostra. Several defendants received prison sentences of between 1 and 5 years each. In addition, defendants were required to pay a forfeiture amount, ranging from $40,000 to $300,000 each (Gurliacci 2014; U.S. Attorney’s Office 2012; U.S. Department of Justice 2014). This illustrates overlap between in-person games and on-line betting, and the involvement of established organized crime groups in seeking a piece of the action.

Parlors and in-person games

Violent gambling and loansharking ring in Philadelphia

Eight individuals of Albanian extraction ran an illegal gambling and loansharking ring, using three Philadelphia bars and a pizza restaurant as fronts. The lead defendants, ages 35 to 49, were found guilty of racketeering, loansharking and extortion. The leaders of the enterprise directed other members of the conspiracy, who served as bookies and debt collectors. The loansharking activity was funded by profits from the illegal gambling business. The group attempted to conceal their activities using coded language on the phone, conducting pat-down searches of customers, and using cash in virtually all their transactions. The group cultivated a reputation for violence by telling customers that if they did not pay their debts, someone would kill them, break their legs, or physically harm them or their family members. In one instance, a defendant placed a gun to a customer’s head and threatened him with a hatchet. The group extended approximately 125 usurious loans for a total of $1.78 million with associated interest rates of between 104 and 395%. They also used an online sports betting website which contributed $2.9 million in profits to the illicit business. The principal defendants received prison sentences of 12 and 14 years, respectively (Lattanzio 2013; US Department of Justice 2015a, b). This illegal enterprise again shows the overlap between in-person and on-line gambling businesses, and illustrates how the illegal gambling operation provided the financial support for the loansharking and extortion activities.

Gambling business in South Carolina with 300 video-poker machines

A gambling parlor in South Carolina had 316 stand-alone video-poker machines, constructed so that the customer inserted cash into it, chose the amount to bet, and then watch the slot machine reels. If the customer won, the machine printed a slip of paper which the customer would take to the cashier for payment. The scheme was aided by a company that provided software to keep track of transactions and payments, receiving a percentage of the gambling profits. The company would set up an entire internet cafe for a site owner for between $50,000 and $80,000, depending on the number of machines involved. Three pled guilty, including the company, and the defendants agreed to forfeit $20 million, illustrating the huge monetary volume in profits obtained from this illegal enterprise (Field 2014; U.S. Attorney’s Office 2014b).

Gambling as part of larger organized crime enterprises

Armenian power gang in California

More than 85 individuals were convicted for a variety of crimes committed by members of the Armenian Power Gang, which was a street gang formed in East Hollywood during the 1980s, consisting primarily of people of Armenian descent. The crime charged included racketeering, bank fraud, identity theft, debit card skimming, counterfeiting, and money laundering. Some defendants were charged with extortion, drug trafficking, and operating an illegal gambling business. The gang set up high-rolling illegal gambling tournaments in secret locations in the San Fernando Valley. One member of the gang was sentenced to 13 years in prison and forced to pay $3.5 million in restitution (Dobuzinskis 2011; U.S. Attorney’s Office 2014c). This is an example of illegal gambling businesses being operated by an ongoing criminal enterprise involved in many other crimes and illicit profit-making schemes, all of which is funded in part by the illegal gambling operation.

Russian-American organized crime group in New York

The Taiwanchik-Trincher Organization operated a high-stakes illegal sport gambling business that catered to wealthy oligarchs in Russia. It also operated high-stakes illegal poker rooms around New York City. Several U.S.-based defendants laundered $100 million in gambling proceeds over 6 years through shell companies in Cyprus and into the U.S. Once back in the U.S., the money was invested in legitimate real estate and investments. One defendant was paid $12 million as a “thief-in-law” to resolve disputes and make and enforce threats. The defendants were charged with racketeering, money laundering, extortion, as well as operating illegal gambling businesses. As of 2014, 28 defendants had pled guilty, forfeiting more than $68 million (United States of America v. Tokhtakhounov et al. 2013; U.S. Attorney’s Office 2014d; 2014e). Here again, it is seen how larger organized crime enterprises use significant illegal gambling profits as a way to commit other crimes and invest these illicit gains into the legal economy.

Animal fighting and betting

Cock fighting & betting: Big blue club in Tennessee and Virginia

In a Virginia case, which was typical of others of this kind, a private club in Kentucky called “Big Blue” operated for years in which roosters were transported across state lines and spectators and handlers came from 8 surrounding states to participate. Each person was charged a $20 fee for a membership card, and this club had 5,000 members. Entry fees for birds to fight were $250 and there were between 40 and 100 total entries per derby. Entry fees for the “World Championship” in 2013 sold for $2,500 each. The couple and their son who led the ring were sentenced to 10 to 18 months in prison, and the court ordered them to forfeit $905,000, which was paid in part by seizing all their assets. Three other participants in the ring received lesser prison sentences and forfeitures (U.S. Attorney’s Office 2014f; 2014g).

Dog fighting & betting: Alabama and Georgia

Eight individuals, ages 33 to 56, from Alabama and Georgia were convicted of operating a dog-fighting ring for more than 4 years. They were convicted of promoting and sponsoring dog fights, which involved buying, selling, and transporting dogs for this purpose, and operating an illegal gambling business so that customers could bet on the outcomes. Dogs were abused, starved, and otherwise mistreated for the purpose of the dog fights. In dog fighting, losing dogs are destroyed to keep the winning blood lines strong. It was estimated that the defendants had injured or killed between 420 and 640 dogs during the course of their operation. A total of 367 pit bulls were seized at the time of the arrest. Customers bet a total of $5,000 and $200,000 on a single fight, averaging $100,000 per fight. Illegal drugs and weapons were also exchanged during these events. Eight defendants were sentenced to prison terms ranging from 2 months to 8 years in prison with four of the defendants receiving prisons sentences of 3 to 8 years, respectively. Law enforcement seized $500,000 from those involved in the dog fighting operation (White 2014; U.S. Attorney’s Office 2014h; 2015).