Agreement Reached With Paypal To Bar New Yorkers From Online Gambling

Attorney General Spitzer today announced that PayPal, the nation's leading "e-cash" company, has agreed to stop online gambling merchants from using its facilities to take money from New York gamblers.

E-cash companies like PayPal enable individuals and businesses to send and receive online payments, either through credit card associations or electronic transfers from and to bank accounts. Over the last year, as more credit card issuing banks have chosen to block direct payments to Internet casinos, PayPal has emerged as the payment method of choice for many gambling web sites. The service currently counts 260 online gambling merchants among its member businesses.

Under the settlement, PayPal will not process payments from New York customers to Internet casino websites as of September 1, 2002, and will pay $200,000 to New York State in disgorged profits, costs of investigation, and penalties. The agreement exempts from this requirement legally authorized gaming transactions. E-Bay, which has announced a merger with PayPal, previously noted that if the merger were successful, it would pull PayPal out of online gambling.

"This agreement continues the work of my office to enforce the law prohibiting illegal gambling, online or off line" Spitzer said. "This case shows that we intend stop any company who facilitates illegal gambling transactions."

In June Attorney General Spitzer announced a settlement with Citibank, which agreed to block illegal online gambling transactions attempted through its MasterCard and Visa accounts.

With today's agreement, Spitzer has taken a major step toward cutting off an alternative payment source - the e-cash companies that help gambling sites collect their profits. Internet casinos routinely post the logos of e-cash services on their sites and have relied on such services. These casinos have obscured payments made by users by coding them as "cash transfers," and have undermined the efforts of credit card issuers to block gambling-related transactions.

The case was handled by Assistant Deputy Attorney General Dan Feldman, Internet Bureau Chief Ken Dreifach, and Assistant Attorney General Brian Stettin.