Can USA online gambling providers be convicted of internet gambling?

Do you  recall the astonished reaction of the industry last year when the US Department of Justice in New York announced that it intended to prosecute a US internet gambling software developer and provider with promoting an illegal activity. The target the enforcers chose was veteran industry developer Robert Stuart and his company Extension Software, which has supplied product on license to major sports books outside the United States for years.

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The US authorities claim that although based offshore, the software is used in illegal betting activity within New York State, and that about $2.3 million has been received in cash and money orders by Extension for licensing its software, and constitutes direct proceeds of illegal, U.S.-based bookmaking operations.

“These defendants abetted large-scale illegal gambling in the U.S. and abroad,” said District Attorney Cyrus R. Vance, Jr. in a press release last October when Stuart was charged. “In doing so, they gave bettors an easy way to place illegal wagers, and created an appetite for further unlawful activity.”

The case, which is scheduled to be heard on January 8 2013, could have major ramifications for the industry, and will be closely followed by many interested parties, not least among them US software developers.

Stuart, his wife and brother-in-law have been charged, but protest their innocence regarding knowledge of the software’s use in the United States by punters. Extension sells the software only to companies outside the United States, and that in any case the product does not actually take bets, and merely provides online gambling sites with the infrastructure to select and display which sporting events they want to offer for betting, and stores the bets.

Speaking to the publication Wired.com this week, Stuart said: “It’s overreaching where they’re going after a software developer who sells the software with a legal license, and yet we’re still being prosecuted on how it’s being used.” He adds that the authorities have still not revealed who exactly he’s accused of aiding and abetting.

Wired.com spoke to Jennifer Granick, director of civil liberties for the Center for Internet and Society at Stanford University, who opined that the prosecution of a commercial programmer for crimes committed by people who used his software would set a dangerous precedent for other software makers who might be held liable for how their legally licensed software is used.

“It’s scary for software distributors, if someone happens to use their software for illegal activity,” she commented to Wired.com. “If you know what people could use it for, and didn’t prevent it, did you take enough steps? What level of knowledge you need to have and all of that is not as clear as it should be.”

Stuart has likely inflamed the issue with assertions that the New York authorities only came after him because they wanted to use him as a conduit to uncover illegal gambling operations in the state.

He says the New York district attorney’s office tried to strong-arm him into a plea agreement that would have had him hacking into the systems of his software clients in order to obtain the usernames and passwords of gamblers and their bookmakers to help authorities gather evidence of illegal gambling.

The Extension CEO initially considered cooperating with the enforcers, but then decided he was not happy being used in such a way and declined. He alleges that the prosecution he now faces was a retaliatory move by authorities displeased at his refusal to collaborate with them.

Stuart says he has documentary proof that the New York authorities pressed him to install a backdoor in his software and distribute it to clients so the data of gamblers and bookmakers could be retrieved.

“They made it clear that they would do nothing,” Stuart told Wired.com. “I was expected to do everything, to modify the system to allow myself to get in to get the information they wanted – their whole intention was for me to retrieve information from those databases that were located in foreign countries…. They were going to use me to get to the clients…. But I’m not a hacker, I’m a software developer.”

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