PayPal settles over gambling transfers

The online payment service will give the U.S. government $10 million to settle allegations that it knowingly transferred funds to unlawful offshore gambling sites.

Declan McCullagh
Declan McCullagh Former Senior Writer
Declan McCullagh is the chief political correspondent for CNET. You can e-mail him or follow him on Twitter as declanm. Declan previously was a reporter for Time and the Washington bureau chief for Wired and wrote the Taking Liberties section and Other People's Money column for CBS News' Web site.
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PayPal will pay the U.S. government $10 million to settle allegations that it knowingly transferred funds to unlawful offshore gambling sites.

The U.S. Department of Justice and the online payment service, which is now owned by eBay, said late Thursday that they had entered into the settlement agreement. The government's claims, disclosed in March, asserted that PayPal had violated the USA Patriot Act and the Wire Wager Act.

Raymond Gruender, U.S. Attorney for the Eastern District of Missouri, said in a statement that "offshore sportsbooks and online casino gambling operations which do business in the United States generally do so in violation of federal criminal laws. Therefore, we will continue to investigate and pursue such activity."

The U.S. Attorney's office had alleged that PayPal had provided services to offshore sites in violation of 18 U.S. Code 1960, which prohibits transmitting funds "derived from a criminal offense," and 18 U.S. Code 1084, which relates to the transmission of information about wagers. The $10 million settlement represents what both parties agreed represented forfeitable revenue that PayPal obtained from processing the gambling transactions.

As part of the settlement, PayPal also agreed to maintain a corporate compliance program for at least two years.

In a filing with the U.S. Securities and Exchange Commission earlier this year, PayPal disclosed the existence of the investigation being conducted by the U.S. Attorney's office. "PayPal acted in the good faith belief that its conduct did not violate" the law, said the filing, which estimated that about 6 percent of PayPal's revenue in 2002 came from gambling.

When eBay acquired PayPal last October, it halted the practice of processing online gambling payments.

The U.S. House of Representatives in May approved restrictions on Internet gambling, but the Senate has not acted.

On Thursday, eBay reported a big leap earnings of $109.7 million for the second quarter, compared with $54.3 million for the same quarter last year.