Enforcement action against Allied Wallet, Allied Systems and proprietor Ahmad Khawaja began in June 2009, when federal law-enforcement authorities seized eight bank accounts – held by Khawaja or one of the companies – worth a combined $13.3m.

According to court documents filed this week in Manhattan, prosecutors claim that the confiscated funds – characterized as “proceeds of operating an illegal gambling business” – were deposited into those accounts over a six-month period ended May 2009.

“These funds are traceable to PokerStars, an online gambling company based in the Isle of Man, and other offshore companies,” prosecutors alleged in a civil forfeiture complaint. “They include proceeds of the illegal transmission of gambling information and operating an illegal gambling business.”

Under a separate settlement agreement reached Tuesday, however, neither Khawaja nor his companies will be rung up on any charges.

Moreover, under that agreement, approximately $2.5m will be returned to Khawaja because it was held on behalf of other Allied Wallet and Allied Systems clients not involved with the unlawful activity in question.

Significantly, there was no language in the agreement obliging Khawaja to cooperate in the Justice Department’s ongoing investigation into illegal internet gambling businesses.

An assistant to Robert Shapiro, who is Khawaja’s attorney in Los Angeles, told GamblingCompliance that Shapiro was out of the country and unable to comment before press time Tuesday evening.

PokerStars, meanwhile, has said that according to numerous legal opinions it has received, “its activities in the US are and at all times have been legal.”

The Isle of Man licensed operator also stated, “PokerStars does not condone efforts by processors to conceal the nature or purpose of funds used to play online poker”.

“PokerStars has taken steps to ensure that processors properly disclose the nature of their business to their relevant financial institutions.”

In recent years, however, offshore gambling operators – including Absolute Poker, Golden Casino, Full Tilt and PokerStars – have been cited by federal prosecutors, law-enforcement agents or their confidential informants in connection with financial crimes allegedly perpetrated by payment processors throughout the US and Caribbean.

For its part, this week’s settlement agreement parts ways – decidedly so – with recent enforcement action against some of those processors.

In May, Douglas Rennick– who was indicted in connection with Account Services, a company that allegedly transferred winnings to PokerStars’ customers in the US – pleaded guilty to violating the Wire Act and forfeited $17m in proceeds in exchange for a reduced prison sentence.

Also that month, Daniel Tzvetkoff, who was accused of federal money laundering and bank fraud in April, pleaded not guilty to those charges.

Tzvetkoff, who ran the Costa Rica-registered payment processor Intabill, had been sued in Australia in 2009 by a Full Tilt operating subsidiary, which alleged Tzvetkoff had absconded with A52m owed to poker players there. 

Tzvetkoff, an Australian national, awaits trial in New York.

In March, Michael Olaf Schuett  – who was indicted in connection with numerous shell companies in Florida that transferred winnings to Absolute Poker and Ultimate Bet’s customers in the US – pleaded guilty to operating an unlawful money-transmitting business.

Schuett awaits sentencing in Florida.

According to redacted affidavits (link to document) unsealed in August 2009 by a federal judge in the Southern District of New York, the FBI’s financial crimes unit has been investigating illegal internet gambling businesses since 2006.

Earlier busts and settlements, however, suggest the existence of multiple investigations running out of multiple field offices.

Prosecutors in New York began by targeting publicly traded groups in 2003, when PayPal agreed to settle for $10m. It was followed by Neteller (2007: $136 million), Citadel Commerce (2008: $9m) and, most recently, Optimal Group (2009: $19.1m).
 
It was not until 2008 that bank accounts belonging to a privately held processor were seized. That year, Zip Payments lost $14.2m and JBL Service lost $9.8m as part of an investigation spearheaded by federal authorities in Maryland.
 
In 2009, efforts markedly intensified. State and federal law enforcement authorities seized bank accounts belonging to at least six different privately held payment processing entities.
 
There was Account Services, from which at least $14m was seized in June of that year. Account Services – action against which was brought by federal authorities in New York – was one of five companies allegedly controlled by Rennick.
 
June also saw warrants effected against bank accounts belonging to Allied Wallet and Allied Systems – Khawaja’s companies – and in July, another processor called Electracash was hit.
 
In August, warrants were issued against bank accounts belonging to Forshay Enterprises, and in September, bank accounts belonging to two other processors – HMD Inc. and Atrium Financial Group – were also seized.

Electracash, Forshay, HMD and Atrium Financial and their accounts were all targeted by federal authorities in Maryland.

The Justice Department does not comment on ongoing investigations.

A spokeswoman declined to answer questions for this article about its investigation, or investigations, into illegal internet gambling.