Question on US Law - Gambling Business Related

[pokerprop]

I'm curious on US law on this topic. Let's say I you were the sole shareholder of a c-corp in the United States, and this corporation owned 100% of the shares in a UK company. The UK company operates a UK licensed bookmaking business that doesn't accept US players. However all operational aspects of the business are handled by the US company who collects management and service fees from the UK company as well as profit dividends.

I think what's going to happen here is you're going be deemed the same entity by US law (where statue that covers this?) and this is going to be illegal. On the other hand if all aspects were managed from the UK with no US involvement and was not earning a dime from the US and operating legally from where it was registered, only collecting dividends, then despite being 100% US controlled to me seems like it would be legal. To be clear I'm aware the advice is going to be to ask a lawyer, but this is not something I'm doing. It's purely a curiosity question.

[parttimepoker]

Might have lost you in the middle, but I'm pretty sure you could run a UK book as a US company (assuming you were properly licensed in the UK) without an issue. What would the issue be?

[Mike]

I also don't see a problem as long as "operational aspects" don't include hosting, etc. I'm assuming that if someone went to all of this trouble, they would also make sure it was hosted in the UK. Does the US company own any shares in any other companies?

[pokerprop]

Thanks guys. To clarify this all sincerely hypothetical but the scenarios is this:

1) a) US c-corp with a single shareholder b) is the sole shareholder in the UK c-corp equivalent.
All operations are handled by company A, who collects management fees, service fees, and dividends. Company A owns no other companies but does have some other legitimate front which is small. example: 1 or 2 other clients they offer some small service to and don't own and this makes up 2% of overall income. 98% comes from the UK company they own, manage from the US, have staff assisting with operation from the US (say customer support) and collect management and service fees plus dividends from.

When there is certainly a UK business such as office, staff, lawyer accountant etc for sure no problem. This here though is a situation where UK company only exists to circumvent the US.

[Mike]

I really think this all depends on the logistics of the whole operation. I think you get into trouble with the customer support department. Obviously, the company is in violation of the wire-act if they are conducting sports betting operations within the US over the phone/internet, etc. You would not be able to prove that these customer support agents did not assist in the creating of player accounts and help with transactions over the phone.

[pokerprop]

Yeah I feel pretty much the same way. If the company just owns 100% of the UK company and everything is managed outside the US and no US players accepted I see no problem. At what point does it become a problem is what I was thinking.

[resipsa]

Why does the UK company matter? If a US company conducts operations outside the US for non-US persons, where is the US law issue? I think it's just a question of 1) were US players serviced (obvious problem) or 2) were business operations that occurred in the US in any violation of US law? The ownership structure of whether or not a wholly owned foreign company is used as a blocking corp is meaningless.

[parttimepoker]

Pretty sure there is no law anywhere that prevents as US citizen from running a UK book (or a Spanish casino, or w/e) with 100% of operations in the US. There are laws that more or less prevent you from doing things that are illegal in other countries, but that's a separate question.

As far as the US / UK business, it doesn't sound like a tax dodge so I don't see the problem there either.

[pokerprop]

Eh I'm not sure why but I'm having trouble grasping this despite seeming it should be easy to work out.

I set up a gambling website hosted in Costa Rica, and attach a merchant account (non US) that batches from a non US bank. I have no staff in Costa Rica. Every aspect other than accepting the bets and taking payments happen from the US. Is the US company taking bets?

[resipsa]

My main point in my prior post was just that the issue is what activities are occuring in the US, not the legal structure of the business. The quesion of whether the US activities are an issue is obviously a lot tougher as you have to deal with whatever state laws apply whereever you operate plus federal. On the federal side, I think the main issue is just the wire act. If you actually read the act (18 U.S.C. § 1084), paragraph (a) states:

Whoever being engaged in the business of betting or wagering
knowingly uses a wire communication facility for the transmission
in interstate or foreign commerce of bets or wagers or information
assisting in the placing of bets or wagers on any sporting event or
contest, or for the transmission of a wire communication which
entitles the recipient to receive money or credit as a result of
bets or wagers, or for information assisting in the placing of bets
or wagers, shall be fined under this title or imprisoned not more
than two years, or both.

That would seem to apply to sports bets processed in the US. There is a carve out in paragraph (b) which covers "the transmission of information assisting in the placing of bets or wagers on a sporting event or contest from a State or foreign country where betting on that sporting event or contest is legal into a State or foreign country in which such betting is legal", but that presumably wouldn't apply if all operations are in the US. Perhaps this exception can be used if the actual processing of the wager is in Costa Rica and all other operations are in the US, but that seems to be walking a very fine line and probably worth getting professional advice regarding what you can and cannot do in the US.


18 U.S.C. § 1084