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Virtual Casinos booming in Antigua




   [1]Los Angeles Times
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                                               Sunday, September 21, 1997
                                                                         
   'Virtual Casinos' Cash In on Lax Rules in Antigua 
   By [5]MARK FINEMAN, Times Staff Writer
   
   
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   S T. JOHN'S, Antigua and Barbuda--None of the 64,000 residents of this
   small, three-island Caribbean nation have complained about the latest
   international gambling boom to sweep their secretive little piece of
   paradise.
        In the past few months, more than a dozen casinos have opened
   here--though most Antiguans haven't seen them and don't know they
   exist.
        Packed with games of roulette, blackjack, poker and craps, each
   gambling house is small enough to fit into the corner of a tiny room.
   Yet their owners say they are taking in millions of dollars a month
   from thousands of bettors, from Los Angeles to New York and beyond.
        It's Internet gambling--a wave of hot new Web sites set up as
   "virtual casinos" that allow you to win or lose real money from the
   comfort of your own home. And most of these sites originate in small
   villas or obscure offices on 108-square-mile Antigua, which is as
   famous for its secrecy and scandals as it is for its freewheeling tax
   laws and banking policies.
        There are no taxes on capital gains or income in Antigua and
   Barbuda. The government shuns outside scrutiny, even from its own
   citizens. During the past decade, it has licensed at least 57 offshore
   banks and at least two major sports betting operations, and only it
   knows the names and assets of their owners.
        And under legislation passed earlier this year, Antigua has been
   charging just $100,000 a year for an Internet casino license that
   offers a similar promise of minimum regulation, maximum anonymity and
   tax-free profit.
        But all that may soon change.
        The "Interbet" boom comes amid a series of recent corruption and
   fraud scandals here, the biggest involving the collapse of the world's
   first Internet bank. From a base in Antigua and with the promise of
   "utmost privacy," two Russians allegedly used the Web to bilk wealthy
   customers in the United States and elsewhere out of tens of millions
   of dollars before closing the bank and fleeing last month.
        The virtual casino boom also comes at a time when off-island
   critics, among them U.S. law enforcement agencies and the State
   Department, say Antigua's loose regulatory track record and its
   secrecy laws have amounted to a recipe for disaster. Together, they
   offer organized crime rings and international drug cartels a haven to
   "wash" billions in illicit profits through Antiguan offshore
   businesses.
        "Antigua's offshore banking sector--established in the mid-1980s
   with only limited regulation--expanded rapidly in recent years. . . .
   Unfortunately, inadequate regulation and vetting led to a surge in
   questionable banking operations--a number with alleged links to
   Russian criminal elements," declared the State Department's most
   recent report on the international narcotics and money-laundering
   trades, issued in March.
        "The growing potential for money laundering has been an
   increasing concern of both the U.S. and Antiguan governments," the
   report added.
        The advent of Internet casino gambling here merely ups the ante
   for international agencies attempting to prevent global money
   laundering and computer fraud in an era when criminal technology is
   fast eclipsing the tools of law enforcement.
        The State Department specifically cited Antigua's Internet
   banking and casino industries--"all with a similar lack of effective
   regulation"--as cause for concern.
        The U.S. report carefully praised Antiguan Prime Minister Lester
   Bird for tough new laws against money laundering passed in December
   and for his personal vow to crack down on the island's booming
   drug-transshipment trade. His government also is introducing tougher
   regulation of all offshore operations, the State Department noted.
        The few owners of virtual casinos in Antigua who agreed to be
   interviewed by The Times asserted that they welcome the new
   regulations, insisting that their operations are not only legal and
   honest but also state of the art.
        American Bill Scott, who moved his offshore sports betting
   operation to Antigua from the nearby island of St. Martin two years
   ago, said his Intercasino Web site was a natural next step for his
   parent company, World Wide Tele Sports.
        Located in the heart of St. John's, the nation's capital--atop a
   modern five-story, glass-and-marble building that most Antiguans think
   houses a computer school--Scott's operation handles millions of
   dollars in U.S. sports bets via 800 numbers under a separate Antiguan
   gaming license, he says.
        Scott says he was drawn to Antigua by the efficient phone system
   and, of course, the fact that gambling is legal here in a tax haven
   where confidentiality reigns and where even the Internet casinos are
   not viewed askance.
        Surrounded by dozens of computer stations where young Antiguans
   in headsets were taking sports bets on every conceivable contest one
   recent Sunday afternoon, Scott said business in his new Internet
   casino--located in a tiny corner of an adjacent office--is so good
   that he plans to open two more this week.
        "It's like Vegas. If you lose in one casino, you can go down the
   street to another," he said.
        To play at an Internet casino, gamblers access a casino site on
   the World Wide Web through their personal computers, establish an
   account with a credit card or money order and collect their virtual
   "chips." The computer program ushers them into a full-color,
   multidimensional casino that looks remarkably similar to those in Las
   Vegas, and they can gamble at the table of their choice.
        Given that it is an industry where only the customers' credit
   cards and money orders are real--risked against software and humans
   they never see--Scott acknowledged that Antigua's latest cyber-craze
   is ripe for fraud. But he said his casino uses the latest technology
   from two Canadian computer scientists, along with the older technology
   of random number generator chips, to ensure the fairest game around.
        Developed by the directors of Toronto-based Crytologic, which is
   publicly traded in Canada, Scott's casino software uses banking and
   encryption technology to, as he puts it, "convert real money into
   virtual cash" quickly and safely. And all winners, he said, are paid
   in a day.
        Although Scott said he welcomed the "big package of new
   regulations" that the Antiguan government recently sent him as key to
   protecting the image of the new industry, he added, "I don't think
   anybody has the knowledge of how to regulate this technology."
        And that, U.S. officials say, is especially true in Antigua,
   where the cash-strapped government has few resources and, critics say,
   little resolve to become more open.
        "This island is operated like a lodge. It's like a secret
   society," said Winston Derrick, who publishes Antigua's only
   independent newspaper. "You have to fight and fight for information."
        The government's annual expenditures, for example, are published,
   but years after the money is spent--a deliberate effort to minimize
   public interest and scrutiny, Derrick said. He added that police
   officials say even the most basic crime report is confidential.
        Although the government permits Derrick to publish his feisty
   Daily Observer, he and his brother were arrested when they started the
   island's first independent radio station last December. The case is
   still in court, and the station has not reopened.
        The prospect of prison also looms for Leonard Tim Hector if the
   opposition leader and publisher writes another word about the island's
   latest scandal--this one involving the prime minister and his
   family--in Hector's biweekly, the Outlet.
        Bird, whose family has controlled Antigua's power and politics
   for half a century, won an injunction against Hector after the
   opposition leader published stories attacking the premier for alleged
   corruption. One quoted a Venezuelan businessman, who was convicted of
   cocaine trafficking along with one of Bird's brothers two years ago,
   as saying that the premier took a $1-million bribe from Colombia's
   Cali cartel to permit drug transshipments through Antigua--a charge
   Bird flatly denies.
        Hector said he is undecided about whether to risk what would be
   his 12th prison term here by publishing more of the Venezuelan's
   accusations. But the injunction has not stopped him from sharply
   criticizing Bird's government for its policies toward offshore
   business and its lax regulation. He blamed those factors for the
   recent Internet bank debacle and said they invite similar abuse in the
   virtual casino industry.
        "They simply do not intend to regulate these new Internet
   casinos," Hector said in a recent interview. "The prime minister
   doesn't see that in his best interest."
        None of the few government officials who oversee the new
   cyber-casino trade along with all other offshore businesses on the
   island could be reached for comment.
        In the aftermath of the Internet bank collapse, however, the
   official Antigua & Barbuda Government Internet Web page has posted the
   new offshore rules and regulations for closer inspection.
        But a look at the rise and fall of the European Union Bank, which
   billed itself as the world's first full-service Internet bank, helps
   explain why U.S. officials are viewing Antigua's latest cyber-boom
   with concern.
        Privately, many of those officials said the Antiguan government
   should have been suspicious of the bank's operations long before it
   closed its only door in early August, leaving tens of millions of
   dollars in deposits missing.
        The Bank of England grew suspicious of the bank in October. It
   publicly warned investors that the bank was offering unrealistically
   high interest rates in an unsecured environment that is not policed.
        After a similar alert from U.S. banking officials in April, the
   state of Idaho issued a cease-and-desist order against the bank,
   barring it from offering its services to Internet customers in the
   state.
        But it wasn't until the day the bank shut down that Antigua's new
   Office of National Drugs and Money Laundering Policy issued an
   official "fraud alert," which opposition publisher Hector called
   "closing the stable door after both thieves and horses have bolted."
        Jane Rodriguez, Bill Scott's systems administrator--who set up
   the Intercasino Web site--concluded: "If the government wants the
   revenue to continue to flow, they know they have got to make an effort
   to control it."
   
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