Get Real on Online Gambling

9/23/08 - Kansas City Star

By Rick Alm

Rick's Gambling & Tourism column in today's Star Business Weekly looks at the U.S.'s untenable position in the worldwide on-line gambling industry.
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Will international pressure from the formidable, 27-nation European Union finally push the United States into legalizing Web bookies and online casinos?

Maybe. And maybe sooner than later.

A senior EU delegation was in Washington, D.C., last week to meet with representatives of Congress, the U.S. Justice Department and the office of the U.S. Trade Representative, seeking a deal that would avoid a formal EU complaint to the World Trade Organization.

The U.S. almost certainly would prefer to avoid another go-around on Internet gambling before that international tribunal.

After a four-year battle, the WTO last year declared the U.S. guilty of restraining Internet gambling trade emanating from the Caribbean island-nation of Antigua and Barbuda, one of the smallest nations on Earth.

That verdict will cost the U.S. tens of millions in still-pending compensatory trade concessions which, if Antigua has its way, would suspend U.S. copyright protections in Antigua on such materials as music and, in effect, spawn and sanction an Antiguan pirate industry.

A complex spinoff effect of that Antigua ruling has already won the EU similar trade concessions from the U.S. in a formal agreement announced last year but under terms still not made public.
Now the EU is threatening another round of sanctions and concessions by bringing its own WTO action on behalf of Internet gaming firms in EU-member nations — and particularly on behalf of those that in recent years have paid U.S. fines, agreed to out-of-court settlements or are facing U.S. criminal charges.

Given the Antiguan precedent, an EU victory might be a foregone conclusion, although it could take years to get there under the WTO’s cumbersome appellate procedures.

Following the talks in Washington last week, no easy solution was in sight. The EU could wait for a new administration in Washington that might bring a more accommodating attitude toward gambling to the negotiating table. Or it could file its WTO complaint and put any new administration over a barrel.

The latter seems more likely. EU officials aren’t tipping their hand, but their strategy will become clear in November when the delegation issues its recommendation to EU commissioners.
The thorny problem is of the U.S.’s own making and, as EU sources stressed, was completely avoidable had wiser U.S. heads prevailed during the drawn-out Antiguan affair.

The WTO upheld Antigua’s 2003 complaint that the U.S. broadly discriminates against and prosecutes offshore Internet gambling operators while legally sanctioning domestic, online gambling on horse racing in at least 18 states.

The U.S argued to no avail that — horse race betting notwithstanding — federal and state laws, including the 1960s-era federal Wire Act, offered ample evidence that gambling on the Internet and via other electronic means has long been unlawful in the U.S. and was immoral and a threat to the public good to boot.

But the WTO couldn’t get past that horse racing thing and insisted that what’s legal for one must be legal for all.

Sensing disaster, the U.S. asked for and was granted a grace period to seek a congressional remedy.

Alas, that only led to passage in late 2006 of the Unlawful Internet Gambling Enforcement Act, which not only reinforced the legality of Web-based pari-mutuel wagering, but extended the exception to Web-based intrastate gambling like state lotteries, online tribal gambling and fantasy sports.

That congessional disconnect cemented the WTO’s slam-dunk ruling for Antigua. Passage of the act also spurred a handful of high-profile U.S. prosecutions of non-U.S. Web gambling executives who evidently were tracked and arrested as they set foot on U.S. soil.

Many, but not all, of the world’s Web gambling entrepreneurs hastily slammed the door on their U.S. customers and watched revenues plummet.

Web casinos that still are boldly doing business with Americans are finding creative ways around the act’s outlawing of online gambling financial transactions that also deputized the protesting U.S. banking industry as the nation’s Web gambling police. The devil is always in the details, however, and the federal government has yet to issue guidelines spelling out how U.S. banks are supposed to accomplish that gargantuan task.

Congress, meanwhile, is debating repeal or a rewrite of the flawed act and whether to finance a study of the Internet gambling phenomenon that some hope will serve as the stepping-off point for legalization, regulation and taxation of the industry.

The inflexible U.S. crackdown on Web gambling is a good thing, or not, depending on one’s opinion of gambling in general and the integrity of online gambling in particular. There are lots of ethical and honest Web bookies out there. And there are lots who aren’t. Without effective U.S. regulation, U.S. gamblers are at the mercies of these offshore gambling moguls.

It is an intolerable dilemma for gamblers. For better or worse, Web gambling is legal and regulated in scores of nations. In the EU alone, the industry purports to employ more than 15,000 people and generate more than $3 billion a year in revenues. Worldwide, the industry is estimated to generate $15 billion a year.

The legal and regulated Web gambling gravy train left the station years ago. It is not going to derail. The issue today is whether Uncle Sam will bow to reality and climb aboard.