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Big banks weigh halt to taking fantasy cash from FanDuel, DraftKings

Banks, payment processors put future participation in doubt

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FanDuel and DraftKings are under pressure from the New York Attorney Gener

Daily fantasy sports wagering sites DraftKings and FanDuel are saying they’re going to fight the order from New York Attorney General Eric Schneiderman to stop activities in the Empire state, but the more pertinent question is whether their payment processors are also up for a battle.

The two private companies’ main banks, and the banks and payment processors who hold deposits and pay out winnings via PayPal and credit cards must now decide whether to continue their relationship with DraftKings and FanDuel now that Schneiderman has accused them of leading “a massive, multi-billion-dollar scheme intended to evade the law and fleece sports fans across the country.”

At least one bank has put future participation in doubt.

A Citigroup C, -2.62% spokeswoman said that it does not authorize transactions that are coded as Internet gambling by the merchant. “We are reviewing the latest order from the New York Attorney General to see if any action is required.”

A Wells Fargo WFC, -1.13% spokesman said that the bank is currently evaluating the attorney general’s order “and plans to work with Visa and MasterCard to understand how they plan to handle these transactions going forward.”

Others also said they were reviewing the order.

A PayPal PYPL, -1.04% spokesman said that every service that PayPal offers is designed to adhere to applicable laws, regulations and compliance requirements in the markets in which we operate. “Processing payments for fantasy sports providers is no different. We intend to continue to comply with the legal requirements that would apply to PayPal in this area and will work with our merchants and regulators to ensure we are in compliance.”

A spokesman for MasterCard MA, -2.58% said it’s the responsibility DraftKings and FanDuel and their banks to make sure the proper controls are in place to comply with the local laws. “We work to ensure that our cards are only used for legal transactions. If we’re alerted to something, we would reach out to the [merchant’s bank] to ensure they go back into compliance [with the law].”

A spokeswoman from Visa V, -1.10% added: “Visa adheres to the rule of law and permits transactions which are legal in both the buyer’s and seller’s jurisdiction. We work closely with financial institutions, merchants, law enforcement and policymakers to ensure the legality of all transactions over VisaNet.”

A spokeswoman for Discover DFS, -1.60% says it doesn’t speculate on pending matters such as these.

Michael Zeldin, the former chief of the money laundering section at the Department of Justice and an attorney at Buckley Sandler, says his advice to a bank client, now that he’s defending them rather than prosecuting them, would be to step aside given the high risk. “Why would you choose to get in the middle of this legal battle? Generally speaking the fines these days will outstrip any benefits of staying on board.”

“These companies will put their banks and payment processors in a tough spot,” added Doug Gansler, the former attorney general of Maryland and also an attorney with Buckley Sandler, “if they choose to defy the attorney general and continue to operate in New York while fighting this order.”

The risk is especially high for those banks and processors that call New York home because their continued service to these sites may be scrutinized by a New York regulator, no matter where the transactions take place.

Both DraftKings and FanDuel are already barred from operating by laws that prohibit fantasy sports for money in Arizona, Iowa, Louisiana, Montana and Washington. Nevada recently said it will require the sites to be licensed. The player registration page for DraftKings does not provide any of those locations in its pull-down choices for state of residence. As of the end of day on Wednesday, New York was still a state of residence that could be chosen by a new player. FanDuel does not have a similar registration page, only a place to enter credit-card information for deposits. A potential player can enter a credit card for payment in all states including the ones where the site is illegal and in New York.

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