DETAILS of the extraordinary tactics used by internet poker company Party Gaming to evade American restrictions on online gaming have emerged.

Legal documents show the UK-quoted group used intermediaries to hide gambling payments while customers bought “virtual” credit and phone cards so they could play without being detected by the American authorities.

Party Gaming, based in Gibraltar, reached a non-prosecution agreement last week with America’s Department of Justice that will see it pay $105m (£72m) to settle a long-running dispute with the US authorities. Documents relating to the case, seen by The Sunday Times, reveal the extent to which Party Gaming tried to bypass onerous curbs on offering gaming to Americans until October 2006, when it pulled out of the country after internet gambling was formally banned.

The company believed it was operating in a legal “grey area” and was aware that the American authorities regarded its business as illegal. It even warned potential investors in the prospectus for its 2005 flotation that this was the case.

Despite the questionable legality of its activities, American players formed the bedrock of the Party Gaming business, accounting for the lion’s share of its income.

The legal documents state that Party Gaming did not have a physical presence in America but set up a network of banks that were able to act as middlemen between credit-card firms and the company. This was necessary to allow users to play on its various websites.

For the first four years of its operation this set-up ran smoothly, but in 2001 changes to the banking regulations made life more difficult as the main credit-card issuers stopped authorising payments for internet gambling. Such transactions had to be flagged-up by the banks with a special code – 7995 – which was attached to all such payments.

The document states that from 2001, “Party Gaming began using various methods to process US-generated internet gambling transactions without coding them as 7995 transactions”.

One technique, it states, involved hiring third-party payment service providers “who misrepresented the nature of internet gambling transactions to the acquiring bank so that the acquiring bank would apply a non7995 code to the transactions”. Another method saw US customers buying “virtual” credit-card accounts and phone cards, through which they could transfer money to their Party Gaming accounts without attracting the 7995 code.

The papers also state that Party Gaming worked through an intermediary to develop relationships with so-called automated clearing house payment processors. These allowed US customers to transfer money from their current accounts to Party Gaming.

Lastly, the document says that “Party Gaming masked payments to US customers who sought to withdraw winnings . . . by engaging an intermediary to open bank accounts in the US that were funded by Party Gaming under the name Advanced Marketing Solutions”.

Party Gaming insists it has done nothing wrong. It said: “We had no intention of breaking any laws in the US and we are not being charged with any offence. The non-prosecution agreement is an amicable resolution to our situation in the US before the law was changed on 13 October 2006, when we voluntarily exited the market.”

The settlement in the US is expected to pave the way for consolidation in the online gaming industry. Party Gaming is said to be working on several potential acquisitions.

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