Flutter Entertainment, the previous owner of PokerStars, agreed to pay the Securities and Exchange Commission $4 million for improper payments to Russian-based consultants, stemming from conduct committed by The Stars Group, PokerStars previous owner.  Flutter purchased PokerStars in 2020. Flutter is an Ireland-based global gaming and sports betting company.

Flutter was tagged with the FCPA violations committed by the Stars Group prior to Flutter’s acquisition.  The SEC’s enforcement action underscores the risks associated with acquisitions and the need to conduct pre-acquisition due diligence.

Prior to Flutter’s acquisition of PokerStars, the Stars Group, in 2014, acquired the Oldford Group, and inherited the Oldford Group’s Russian operations and its Russian consultants.

The SEC cited Stars Group’s payment to Russian-based consultants approximately $8.9 million to push for legalization of poker in Russia. Stars Group conducted this lobbying campaign between 2015 and 2020.

The Stars Group did not maintain an appropriate system for conducting due diligence of third parties or executing written contracts.  The Stars Group did not initially retain the third-party consultants in Russia, but the consultants were previously engaged by Oldford Group, which Stars Group acquired in 2014.

The SEC explained that existing policies required employees to conduct due diligence on third parties, including background, reference checks and written contracts.  Nonetheless, the Stars Group undertook no due diligence on the Russian consultants as part of the 2014 acquisition of Oldford Group, or in the subsequent months.

After acquiring PokerStars, Flutter implemented changes to its compliance program and accounting controls to keep with Flutter’s operations. Flutter implemented a number of compliance and organizational enhancements.

Stars Group’s payments to the Russian consultants over the five-year period were made to reimburse for: (1) purchase of New Year’s gifts to individuals including Russian government officials; and (2) payments to Roskomnadzor, the Russian state agency responsible for administering internet censorship filters.

The SEC described several specific examples of improper payments.

In June 2015, a consultant submitted an invoice for $57,000 for reimbursement of payments to lawyers to draft legislation for the Duma to legalize online gambling.  However, there was no record of the specific attorneys engaged, the nature of the legislation, and whether the services were actually provided.  The consultant sought immediate payment of the invoice noting that the legislation could be rejected if “we do not pay this week.” The employee responsible for reviewing the expense made no further inquiries and approved payment of the invoice.

In 2016, Stars Group made two separate payments for approximately $22,000 to a consultant to reimburse for payments made to Roskomnadzor.  However, no proof of payments existed and the expenses were listed as “lobbying fees.”

The Stars Group initiated this enforcement matter by voluntarily disclosing the SEC after beginning its review of potential bribery violations.  Flutter was credited for its cooperation and remediation to its compliance program.  Flutter exited the Russian market following Russia’s invasion of Ukraine.

Stars Group adopted a policy requiring risk-based due diligence, written contracts and approval by the CEO and general counsel of all consultants, lobbyists and lawyers. Notwithstanding this policy requirement, the company continued to make improper payments to Russian consultants in violation of its policy. 

In 2017, the Stars Group signed new contracts with the Russian consultants.  The contracts included anti-bribery and anti-corruption provisions but the company failed to enforce those provisions. The consultants submitted invoices that had no details nor description of service provided.  Until 2019, Stars Group employees did not review invoices to verify that actual services were provided. 

In this process, Stars Group ignored numerous red flags arising from engagement of the Russian consultants. As an example, the SEC cited the Star Group’s engaged of a Russian consulting company in January 2015 that was registered in Belize and maintained a payment account in Latvia.