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Internet Gambling Still Expected to Grow
Even though President Bush has signed a law to curb Internet gambling, investors in the handful of U.S.-listed Internet gambling companies may not want to fold their hands just yet.
"There is growth in this industry even without the United States," said Blackmont Capital technology analyst Wojtek Nowak. "The drive into broadband Internet in Asia and Europe still makes this an interesting sector."
Investors fled Nasdaq-listed companies such as Cryptologic Inc., a Canadian maker of software used by Internet gambling sites, and GigaMedia, a Taiwan maker of gambling software, after Congress passed the Unlawful Internet Gambling Enforcement Act Sept. 30.
The legislation signed into law by Bush on Friday makes it illegal for U.S. banks and credit card companies to settle transactions for patrons of Internet gambling sites.
Most publicly traded companies that operate online gambling sites immediately announced plans to abandon the U.S. market to focus on other regions.
"That is where growth will have to come from," Nowak said, naming also Eastern Europe and South America as regions for potential growth.
Online gambling is expected to expand to a $15 billion industry this year from $12 billion in 2005, according to DesJardins Securities analyst David Shore, who cited statistics from Global Betting and Gaming Consultants.
While the U.S. market accounts for half the Internet gambling market, online betting equaled less than 4 percent of the estimated $260 billion global land-based gambling market, Shore said.
Analysts assume the preponderance of American bettors online has more to do with easy high-speed Internet access -- which enables the fast transmissions needed to load data from the flashy sites -- than a lack of gambling culture in the rest of the world.
The United States has 36 percent of all broadband connections in the 30 member countries of Organization for Economic Cooperation and Development, according to an OECD report released Friday. But Europe, in particular is catching up. "The strongest per-capita subscriber growth comes from Denmark, Australia and Norway," the report said.
In Asia, Korea and Japan have high rates of broadband penetration, but China, the largest nation by population, lags.
"The difficulty with China is that a fragmented financial system has kept operators away," Nowak said. "But in general, software companies are looking to Asia as potential growth market."
As the rest of the world continues to improve Internet access, Nowak said, the online gambling sites will meet with a larger audience.
"The Internet is a good medium for gambling," he said. "It assures privacy and you can conduct it from the comfort of your home."
That is not to say there will not be other hurdles. Gambling is generally illegal in China, for example, and Japan only allows bets on a few types of activities, such as horse racing. In China and other developing nations, cash is still king, so although gambling is part of the culture, some bettors may be wary of paying online.
In Europe, instead of banning Internet gambling, some countries are trying to regulate and tax the industry. Austria and Italy have taken steps to allow domestic online gambling. And the European Commission has indicated that private online gambling sites cannot have less access to bettors than the state-run lottery monopolies that generate billions in tax revenue for most European countries.
"They are taking the opposite approach in Europe and it's going to be an opportunity for growth for the companies that have activities there," DesJardins' Shore said.
Among them are U.S.-listed Cryptologic. With enactment of the law, the company lost about $30 million in revenue in the United States, or a quarter of its total, which it will seek to replace in Europe and Asia. Nowak said that could take up to five years. "It's going to grow at 20 percent a year, but that's a lot to recover," he said.
Shore expects the company to struggle for a year before recovering. "They're losing a lot of revenue, but so far haven't said how they will reduce costs, so profits are going to suffer," he said. "Crypto is growing nicely in Europe and that market is going to expand."
GigaMedia, whose shares are listed on the Nasdaq, recovered most of its share-price losses after the company assured investors it generates no revenue in the United States. From its beginning, GigaMedia shunned the U.S. market for Asia and Europe because it worried legislators would outlaw the sector.
"I would argue that those companies that expunged their U.S. exposure are now lower-risk investments," Nowak said.
Congress shouldn’t throttle Internet gambling
By Frank Catania
For decades, successful young companies looked to Wall Street when they were ready for an initial public offering of stock. But an unintended consequence of Congress’s effort to prohibit rather than regulate the rapidly growing $12 billion Internet gambling industry may be a shift of power away from Wall Street to the financial markets of London.
Internet gambling is licensed and regulated in over 80 countries and jurisdictions. In 2005, revenues from online poker alone were estimated at $200 million per month. Last year, one leading Internet gaming company went public on the London Stock Exchange and was immediately listed on the prestigious FTSE 100 Index. With an initial stock market value in excess of $8 billion, rising to over $12 billion within one month, this company was, and still is, one of the largest British travel and leisure giants, ranked along with British Airways and Carnival Cruises.
While London has welcomed such success stories, U.S. gambling and technology companies and Wall Street investment banks have suffered because of gray areas in the U.S. laws. The Department of Justice argues that Internet gambling violates the 1961 Wire Act, but the courts disagree.
Meanwhile, Internet gambling companies and much of the related technology for operating such sites, including payment processors such as NETeller, and software developers, have located in places like London, the Isle of Man and Gibraltar.
The result: Innovation and the money being made has shifted to Britain and its territories. No company can afford to take the risk of gambling with the U.S. government.
This summer, Congress tried to clarify the law by passing H.R. 4411, known as The Internet Gambling Prohibition and Enforcement Act. Unfortunately, by seeking to prohibit rather than regulate Internet gambling, Congress has taken a giant step backward. The bill threatens to shut U.S. companies out of this industry completely. Furthermore, by deputizing banks to monitor financial transactions to ensure they are not going to Internet gambling businesses, the bill sends a chilling message to Internet entrepreneurs. It also places huge regulatory burdens on the banks.
The many states that allow gambling do a fine job regulating traditional brick-and-mortar casinos. They ensure that games are fair and winnings are paid out. They help prevent underage gambling and fund programs for problem gamblers. And they provide jobs and tax revenues.
Regulation of Internet gambling can be just as effective and provide similar benefits. It can level the financial playing field by allowing U.S. businesses, whether they be major, regulated, bricks-and-mortar casino operators or small entrepreneurial firms, to get into the game. Regulation would also open up new lines of business for companies that could benefit from this shift in policy.
The technology companies that provide back-end support and provide the software behind online games could find a place at the table. With IPOs underwritten in the U.S., trading could occur on Wall Street, keeping U.S. investments in the U.S. and bringing more revenue and jobs to the economy.
Regulation offers protection to the many U.S. consumers who gamble online, while a ban on Internet gambling simply sweeps policy issues under the rug. New technologies have proven effective at keeping underage participants from playing and can be used to set limits for a database of known problem gamblers.
As Senate leaders try to push Internet gambling through without discussion on the Senate floor, it is critical that all Senators realize the issues at stake. Regulation, not prohibition, can offer protections for Main Street and open up new opportunities for Wall Street.
The author is a former assistant attorney general, director of the New Jersey Division of Gaming Enforcement and deputy speaker of the New Jersey General Assembly. He is now president and a principal of the Catania Consulting Group Inc. of New Jersey, a consulting firm with experience in gaming matters.
Washinton Times OP-ED - Frist shows his hand
Published September 16, 2006
Senate Majority Leader Bill Frist is trying to force through a restriction on Internet gambling by incorporating it into the FY 2007 defense appropriations bill, according to reports. By attaching a measure intended to ban Internet gambling to a necessary armed services appropriations bill, Mr. Frist would deprive the members of the opportunity to debate and voice their opposition to this controversial legislation. Indeed, no Senate committee has held a single hearing to debate online gambling prohibition. Although a bill banning Internet gambling passed in the House in July, companion legislation has not yet been introduced in the Senate. Mr. Frist should not be so eager to bypass a much-needed discussion on this legislation.
The legality of Internet gambling, which ranges from casino games to horse racing and lottery, is ambiguous. The Justice Department believes that it's illegal under the 1961 Wire Act, but, without a successful prosecution, it's not clear how that argument will stand up in court. Hence the House, led by Republican Reps. Bob Goodlatte and Jim Leach, passed an anti-gambling ban that would update the Wire Act and prevent credit card companies and banks from processing transactions from gambling Web sites, all in order to ban online gambling -- with the exception, that is, of the carve outs secured by special-interest groups for online horse racing and the lottery.
We support an individual's right to be free to gamble online and opposes a proscription on those grounds, and on the grounds that enforcement would be so difficult as to make it untenable. Between our view and the outright prohibition that Mr. Frist supports, however, is the position that regulation could legalize Internet gambling and bring the nearly $4 billion offshore industry back into the United States and under U.S. controls. This is the option that many gambling Web sites and their supporters have advocated, and it is clearly better than the complete moratorium Mr. Frist is trying to push through the Senate.
At the very least, this legislation deserves a thorough debate and vetting. Senators deserve the chance to ask some important questions. Why the carve out for horse racing and the lottery? How will the proposed prohibition function if gamblers use foreign banks not subject to U.S. regulations? And if it gamblers do circumvent the restriction, will federal regulators start banning access to certain Web sites? Or will they start targeting individual gamblers?
These are questions that should not be thrown to the wind, but will be if Mr. Frist succeeds and the legislation becomes a part of the defense appropriations bill.
U.S. Ignores Deadline In W.T.O. Fight With Antigua
September 09, 2006 by I. Rose
Once again, the United States federal government is not taking gambling seriously. And Americans are all going to pay for it.
The U.S. had won most of a dispute with the nation of Antigua and Barbuda in the World Trade Organization. Antigua asserted that the U.S. was violating its W.T.O. treaty obligations by preventing Antigua from taking bets from Americans over the Internet. But it is the parts that the U.S. lost that have to be fixed and that are now being ignored by the Bush Administration and Congress that are the problem.
Antigua first filed its formal complaint against the United States in 2004, after the federal government refused to even discuss the issue of Internet gaming with the islands nation. In 2004, after many briefs and hearings, a W.T.O. panel ruled in favor of Antigua, igniting worldwide speculation that the U.S. would soon have to let Americans bet with foreign online operators.
In 2005, the Appellate Body of the W.T.O. reversed. Antigua is claiming victory. The Report is 145 pages long, long enough to contain something for everyone.
But the truth is that this was a big win for the U.S., at least in the short run.
First, the W.T.O. decided not to look at U.S. state laws, which outlaw all unlicensed commercial gambling.
As for federal law, with just a little tweaking of the Interstate Horseracing Act, the U.S. would be in complete compliance with its W.T.O. treaty obligations.
The entire controversy can be traced back to a mistake the U.S. federal government keeps making: It does not take gambling seriously.
The W.T.O. is based on the idea that free trade between nations helps everyone. Often that is true. But sometimes, a country, for political, economic or social reasons, does not want to let in foreign products or services. So, countries have the right to agree, by treaty, how open their borders will be. The treaty in this case is the General Agreement on Trade in Services (GATS), which the U.S. signed in 1994. GATS tells countries to list the foreign services they will bar or admit.
One GATS category is "Recreational, Cultural & Sporting Services," which includes everything from circuses to news agencies. Some other countries expressly stated that they were not agreeing to open their doors to foreign gambling operations. But the U.S. agreed to let in every recreational service, "except sporting."
"Sporting" services were undoubtedly excluded to keep out foreign sports teams. Because the U.S. had not put "gambling" on the list of excluded services, it had to argue that "sporting" includes gambling. It didn't work.
The funny thing is that the U.S. did want to keep out gambling. And all it had to do was say so.
When the U.S. signed GATS in 1994, maybe the federal government did not know about Internet gaming, but it should have. It certainly did know that foreign operators were trying to gain patrons from the U.S. The federal government was seizing a million pieces of foreign lottery mail at the borders each year.
But the U.S. could still win the fight in the W.T.O. and keep out Internet gambling if it could show that this was "necessary to protect public morals or to maintain public order."
The first panel held the U.S. had failed to show this because the U.S. had refused to talk with Antigua about changing its laws against Internet gaming. On appeal the W.T.O. ruled that whether or not the U.S. had met with Antigua was irrelevant to the legal question of whether the anti-gambling laws were necessary.
The W.T.O. Appellate Body held that the federal laws prohibiting interstate and international betting were necessary. Specifically, it said that the U.S. had established "a specific connection between the remote supply of gambling services" and dangers to the American public. It found the U.S. had presented evidence showing "a link in relation to money laundering, fraud, compulsive gambling and underage gambling."
This does not mean that any of this is true. Only that the federal government was able to show that it had reason to be concerned about foreign operators taking bets from at-home Americans. It focused on Internet gambling's "volume, speed and international reach," "virtual anonymity," "low barriers to entry," and "isolated and anonymous environment."
The W.T.O. did reject the federal government's concern for organized crime, finding the U.S. had not submitted concrete evidence to show that remote gambling, as opposed to other forms of gambling, was particularly vulnerable to mob involvement.
This W.T.O. ruling was the first ever to discuss "public morals," but it follows established international law. The European Court of Justice has consistently ruled that the nations of the European Union cannot keep out trade from other members - except gambling. Even in the U.S., we have long had the concept of a state's Police Power, the state's right to do just about anything to protect the health, safety, welfare and morality of that state's citizens. Utah cannot keep out milk from California, but it does not have to allow in California State Lottery tickets.
The U.S. laws had to pass one more test. A nation can enact laws to protect its residents from the perceived evils of gambling, but it cannot discriminate against foreigners just to protect its local businesses. One federal law failed this test.
In December 2000, Congress had amended the Interstate Horseracing Act to allow parimutuel betting on horse races by phone or computer. But the law on its face is limited to states in the U.S. where it is legal to place and accept bets.
Since foreign operators were expressly excluded, the W.T.O. found the U.S. had failed to show there was no discrimination. The government lawyers did not help by making the silly argument that the Interstate Horseracing Act was only civil and that it did not repeal the federal criminal anti-gambling laws. Of course it did. That was why it was amended, so that off-track betting parlors would not be arrested under federal law for taking out-of-state bets. So, the W.T.O. held the U.S. had not shown that it applied its prohibition on remote wagering on horseraces in a nondiscriminatory manner.
Having made its decision, which is non-appealable, the W.T.O. now had to decide how to implement it. The W.T.O.'s Dispute Settlement Board met on May 19, 2005, and heard from the U.S. representative that the U.S. intended to comply with the opinion but needed reasonable time to do so. So, the W.T.O. gave the U.S. until April 3, 2006 to fix its federal laws to make things equal.
The short-term fixes are easy and obvious. But, the deadline has now come and gone and nothing has been done.
Outlawing all interstate horseracing bets is obviously not going to happen. But amending the Act to put foreign-licensed O.T.B.s on an equal footing turns out to be just as politically unpalatable.
Antigua argued that the U.S. could implement changes quickly, by the President ordering the Department of Justice not to enforce the law. Impossible and illegal. The President does not have the power to unilaterally ignore a law enacted by Congress. And only Congress can change its statutes.
But, Congress is not going to pass, and President Bush is not about to sign, a law that looks like it expands legal gambling. Worse, this would be an expansion that would not directly raise one cent of tax revenue and would even hurt some U.S. businesses. Worst of all, the Know-Nothings in Congress do not want to be seen as having to change an American law to abide by a decision of foreign powers.
On February 16, 2006, Senator Max Baucus (D.-Mont.) introduced S 2317 in the U.S. Senate to require the U.S. Trade Representative "to take actions with respect to priority foreign country trade practices..." The bill has a revealing section titled "Sense of Congress Regarding Sovereignty":
(a) Findings:
...(3) Another primary responsibility of the United States Government is to ensure that Federal and State laws are not usurped by foreign governments or organizations.
(4) A World Trade Organization (WTO) panel recently concluded that United States prohibitions on Internet gambling violate the United States commitments under the WTO...
(b) Sense of Congress --
(1)... the United States policy should be to prevent the loss of Federal and State sovereignty...
(2) laws that State and local governments have validly adopted... should not be overridden by provisions in trade agreements.
So, no one has even submitted a bill in Congress to fix the Antigua horseracing problem.
Once again, the government did not bother to talk to anyone in the business. If it had, it would have learned that international betting on horseracing has been around for decades. Betting on the Kentucky Derby is very big in Canada and France, and I personally saw Hollywood Park taking bets on races in Hong Kong.
In fact, allowing foreign racebooks to take bets from the U.S. will have virtually no impact. First, are patrons really going to bet with an unknown operator from Antigua as opposed to a well-known U.S. racetrack brandname? Second, the U.S. does not have to agree to let every foreign operator in. Government negotiators can insist that only racebooks that are licensed and meet the high standards of the U.S. regulated industry will be allowed to take wagers. And one of those standards is that no license can be given to an operator who has been involved in illegal gambling. This means that all of the present Antiguan and other foreign bookies who are now taking bets by phone and online from Americans will be permanently barred from competing in the U.S. market.
Congress and the Bush Administration figure there is not much the W.T.O. can do if the U.S. ignores the ruling. The W.T.O. will only hit the U.S. with penalties on its trade with Antigua. Although Antigua is busily granting new licenses and will claim that it is losing billions of dollars, the pay-off will be only in the tens of millions of dollars.
But ignoring this ruling has important political ramifications. This was apparently the first time that a small nation took on a large one in the W.T.O. The U.S. did not need another excuse to be called arrogant in its handling of world affairs and compliance with international law.
Ironically, the U.S. has always been a strong advocate of the W.T.O. The Clinton and Bush Administrations spent years convincing other countries to join and abide by its decisions. How would we feel if China announced that it would not permit American car-makers to compete against its local manufacturers, and then blew off a ruling against it by the W.T.O.?
And what happens next time, when it is not Antigua but the United Kingdom and Australia that ask for trade penalties from the U.S. for not letting in their licensed Internet gaming operators?
The states recognize the dangers. The attorneys general of 29 states joined in requesting the U.S. amend its treaty agreement to include "gambling" on list of excluded services in GATS. Immediately before the April deadline, 49 of the 50 state A.G.s (all except Nevada) wrote a letter to Congress requesting help in outlawing illegal Internet gambling; no mention was made of changing the law on remote wagering on horse races.
The states are particularly concerned because the W.T.O. only ruled on the impact of a few federal laws. The W.T.O. probably would have held that many of the anti-gambling laws of the 50 states are wrongfully discriminating against foreign operators. The only reason it didn't was that the lawyers for Antigua made a small procedural error, almost a typo, that prevented the issue of state laws from being considered in this particular case.
The next country that brings the U.S. before the W.T.O. won't make the same mistake.
The state most at risk is Nevada, and it's not just horseracing that is at stake. Nevada would have to try to justify allowing its licensed sports books to take bets by phone and computer from people within the state while making it a crime for foreign licensed sports books to do exactly the same thing.
But even Utah is worried that its complete prohibition on all gambling would fall, since the federal government's treaty agreements are the supreme law of the land.
It is difficult to amend a GATS list. Otherwise, every nation that lost a fight in the W.T.O. would simply change its commitments. GATS negotiations literally take years. To add gambling to the excluded list, the U.S. would have to give up something else. And, again, the federal government, other than a few members of Congress, does not feel legal gambling is worth considering, even if only to ban it. The Bush Administration has not even brought up the issue.
Where will the federal government find the money to pay off Antigua?
My prediction is it will look to the industries that are benefiting from keeping Internet gambling illegal.
Expect proposals for new federal taxes on horseracing and casinos.
© Copyright 2006, all rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I Nelson Rose, Whittier Law School, Costa Mesa, CA
© Copyright 2006. Professor I Nelson Rose is recognized as one of the world's leading authorities on gambling law. His latest books, Gaming Law: Cases and Materials and Internet Gaming Law, are available through his website, www.GamblingAndTheLaw.com.
Professor I. Nelson Rose is recognized as one of the world's leading experts on gambling law. A tenured full Professor at Whittier Law School in Costa Mesa, California, Prof. Rose is also an internationally known scholar, author and public speaker.
Professor Rose is best known for his internationally syndicated column, "Gambling and the Law®" and his landmark 1986 book with the same name. The author of more than 1,000 published works, including Gambling and the Law and Blackjack and the Law. He wrote the chapter on Internet gambling for the first casebook on gaming law, Gaming Law: Cases and Materials, and in 2005 co-authored Internet Gaming Law (available at www.liebertpub.com/igl).
Harvard Law School educated, Prof. Rose is a consultant to governments and industry. He has testified as an expert witness in administrative, civil and criminal cases in the U.S., Australia and New Zealand, including the first NAFTA tribunal on gaming issues, and has acted as a consultant to major law firms, international corporations, racetracks, licensed casinos, players, Indian tribes, and local, state and national governments, including Arizona, California, Florida, Illinois, Michigan, New Jersey, Texas, the province of Ontario, and the federal governments of Canada, Mexico and the United States.
With the rising interest in gambling throughout the world, Prof. Rose has addressed such diverse groups as the National Conference of State Legislatures, Congress of State Lotteries of Europe and the National Academy of Sciences. He has taught classes on gaming law to the F.B.I., at the University of Ljubljana in Slovenia, Sun Yat-sen University in China and the Universidad de Cantabria in Spain, and as a Visiting Scholar for the University of Nevada-Reno's Institute for the Study of Gambling and Commercial Gaming. Prof. Rose has presented scholarly papers on gambling in Nevada, New Jersey, Puerto Rico, England, Australia, Antigua, Portugal, Italy, Argentina and the Czech Republic.
Sportingbet Case: Expert Opinion
As Sportingbet’s non executive chairman prepares for his bail hearing thia fertnoon on charges of ‘betting on a computer’, iGaming Business has spoken with leading iGaming lawyer Peter Wilson about the wider implications of the case and how it relates to the earlier arrest of David Carruthers.
”I think it’s going to make executives of online gambling companies who take bets from the US extremely unlikely to travel there,“ said Wilson. ”It may also affect the willingness of investors to invest in the companies that take best from the US and it may affect their ability to recruit senior executives.“
Above simple travel and recruitment concerns, Wilson suggests that what was initially considered an isolated case may be developing into a pattern. ”There was a feeling that indictment (BetonSports) was part of an attack by the authorities on that company and certain politicians in the US took the opportunity to have a go at the online industry generally,“ he says. ”People were a bit unsure as to whether it was part of a wider campaign. This arrest now gives a bit more evidence of their being a more generalised campaign against online gambling, but again I don’t think it’s conclusive.“
Wilson is clear though that the risk needs to be viewed in terms of the iGaming industry in general rather than sports books in particular. ”It applies across the board,“ he says. ”There is uncertainty and disagreement over the application of US law and a conflict between state and federal policy. It is difficult to distinguish and assess the risk. The law is uncertain and so is the enforcement. One has to lump together online betting, poker and casinos and say that that is the risk. But obviously that risk is heightened by the taking of phone bets.
From: http://www.igamingbusiness.com/article-detail.php?articleID=11442
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Gambling and the Law®:
The Unlawful Internet Gambling Enforcement Act of 2006 Analyzed
© Copyright 2006, all rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I Nelson Rose, www.GamblingAndTheLaw.com.
Note – This paper is copyrighted. You may quote it at length, republish it or distribute it for free only if you include this copyright and trademark information.
The Unlawful Internet Gambling Enforcement Act of 2006 was rammed through Congress by the Republican leadership in the final minutes before the election period recess. According to Sen. Frank R. Lautenberg (D-NJ), no one on the Senate-House Conference Committee had even seen the final language of the bill. The Act is title VIII of a completely unrelated bill, the Safe Port Act, HR 4954, dealing with port security. It can be found on pages 213 -244 of the Conference Report: http://www.saveonlinegaming.com/hr49543.pdf. It is based on the Leach and Goodlatte bills, HR 4411 and HR 4777, but there are some important differences.
The following is a detailed analysis of the Act. The section numbers that follow refer to new sections that have been added to title 31 of the U.S. Code:
§5361 The Act begins with Congress’s findings and purpose. These include a recommendation from the discredited National Gambling Impact Study Commission, whose chair was the right-wing, Republican incompetent, Kay Coles James. Findings include the doubtful assertion that Internet gambling is a growing problem for banks and credit card companies. It correctly states that ”new mechanisms for enforcing gambling laws on the Internet are necessary,“ especially cross-border betting.
The Act contains a standard clause that it does not change any other law or Indian compact. It repeats this many times, to make sure that no one can use the Act as a defense to another crime, or to expand existing gambling.
Most importantly, the Department of Justice is arguing before the World Trade Organization, in the dispute between the U.S. and Antigua, that all interstate gambling is illegal under the Wire Act. The DOJ insisted that any Internet prohibition passed by Congress not expressly authorize Internet betting on Horseracing. The DOJ believes this will allow it to continue to argue that the Interstate HorseRacing Act does not do exactly what it says it does, legalize interstate horseracing.
§5362 Definitions.
Bet or wager includes risking something of value on the outcome of a contest, sports event ”or a game subject to chance.“ The Act otherwise allows contestants to risk money on themselves. The ”game subject to chance“ restriction is designed to eliminate Internet poker.
The Act then confuses the issue of skill by stating that betting includes purchasing an ”opportunity“ to win a lottery, which must be predominantly subject to chance. Someone will figure out a way to create an opportunity to win, where the opportunity is subject to some chance. But the Act expressly prohibits lotteries based on sports events.
Betting includes instructions or information. This eliminates the argument overseas operators used that the money was already in a foreign country, so no bet took place in the U.S.
The Act exempts activities that we all know are gambling, but are, by statute, declared not to be gambling. These include securities and commodities, including futures, that are traded on U.S. exchanges. Boilerrooms and bucketshops, selling foreign securities are gambling. Insurance is not.
Free games are not gambling. But there is a special provision that allows sites to offer points or credits to players only if these are redeemable only for more games. Operators of free games, where players can win valuable prizes, will have to stop giving points for wins that can be redeemed for cash. Free bingo, on the other hand, can still give small cash prizes paid out of the advertising budget.
Fantasy leagues are legal, but subject to detailed restrictions. A fantasy team cannot be ”based on the current membership of an actual team.“ What they actually mean is a fantasy team cannot be composed merely of the players of a real team. There is no limit on the cost of entering, but prizes must be announced in advance, and not based on the fees paid by participants. Statistics must be derived from more than one play, more than one player, and more than one real-world event.
Being in the ”business of betting or wagering“ still does not include mere players. It also expressly does not include financial institutions involved in money transfers.
”Designated payment system“ is a new term. It could have been labeled simply ”target,“ as in ”you are the target of a criminal investigation.“ It covers any system used by anyone involved in money transfers, that the federal government determines could be used by illegal gambling. The procedure will be that the Secretary of the Treasury, Board of Governors of the Federal Reserve System and Attorney General will meet and create regulations and orders targeting certain money transfer systems.
”Financial transaction provider“ is a very broad definition covering everyone who participates in transferring money for illegal Internet gambling. This expressly includes an ”operator of a terminal at which an electronic fund transfer may be initiated,“ and international payment networks. This covers third party providers, like Neteller.
”Interactive computer service“ includes Internet service providers.
”Restricted transaction“ means any transmittal of money involved with unlawful Internet gambling.
”Unlawful Internet gambling“ is defined as betting, receiving or transmitting a bet that is illegal under federal, state or tribal law. The Act says to ignore the intermediary computers and look to the place where the bet is made or received.
This does not completely solve the problem of Internet poker, or even Internet casinos. The Act does not expand the reach of the Wire Act, the main federal statute the DOJ uses against Internet gambling. Although the DOJ has taken the position that the Wire Act covers all forms of gambling, courts have ruled that it is limited to bets on sports events and races. State anti-gambling statutes have similar weaknesses, including the presumption that they do not apply if part of the activity takes place overseas. This new statute requires that the Internet gambling be ”unlawful.“ But it would often be difficult to find a federal, state or tribal law that clearly made a specific Internet bet illegal.
Nevada and other states are expressly permitted to authorize 100% intrastate gambling systems. Congress required that state law and regulations include blocking access to minors and persons outside the state.
Tribes were given the same rights, with the same restrictions. Two tribes can set up an Internet gaming system, if it is authorized by the Indian Gaming Regulatory Act. This means that tribes can operate bingo games linking bingo halls on reservations. They can also link progressive slot machines, if their tribal-state compacts allow. But they cannot operate Internet lotteries and other games open to the general public.
It is interesting that Congress decreed that states can decide for themselves if they want to have at-home betting on horseracing, but not on dogracing. Congress also decreed that tribes can operate games that link reservations, even across state lines, but not the states themselves: state lotteries are not exempt.
Congress had a little problem with the term ”financial institution.“ To force casinos to report large cash transaction, federal law was changed to define ”financial institution“ as including large gambling businesses. Congress had to undo that definition, so that in this Act casinos go back to being casinos.
The other definitions are standard or are described above.
§5363 ”No person engaged in the business of betting or wagering may knowingly accept“ any money transfers in any way from a person participating in unlawful Internet gambling. This includes credit cards, electronic fund transfers, and even paper checks. But it is limited to Internet gambling businesses, not mere players. It also would not cover payment processors, except under a theory of aiding and abetting.
§5364 Federal regulators have 270 days from the date this bill is signed into law to come up with regulations to identify and block money transactions to gambling sites. At this writing, President Bush had not yet signed this bill, but he will. So the regs will go into effect by the beginning of July 2007.
The regs will require everyone connected with a ”designated payment system“ to i.d. and block all restricted transactions. So all payment processors are suppose to have systems in place to prevent money from going to operators of illegal Internet gambling. The first step will undoubtedly be to take the credit card merchant code 7995 and expand it to all money transfers. Visa created the 7995 classification in 2001 to avoid having its credit cards used for online gambling. The federal government will order banks and all others involved with electronic money transfers to cease sending funds to any Internet operator who has a 7995 credit card merchant code. Any financial institution that follows the regs cannot be sued, even if it wrongfully blocks a legitimate transaction.
The Act allows the federal regulators to exempt transactions where it would be impractical to require identifying and blocking. This obviously applies to paper checks. Banks have no way now of reading who the payee is on paper checks and cannot be expected to go into that business. Banks tried to defeat this bill, not because they cared about patrons’ privacy, but because they knew that it would cost them billions of dollars to set up systems to read paper checks.
The great unknown is how far into the Internet commerce stream federal regulators are willing to go. The Act requires institutions like the Bank of America and Neteller to i.d. and block transactions to unlawful gambling sites, whatever they are. But, while the Bank of America will comply, Neteller might not, because it is not subject to U.S. regulations. Will federal regulators then prohibit U.S. banks from sending funds to Neteller? And would they then prohibit U.S. banks from sending funds to an overseas bank, which forwards the money to Neteller?
For financial institutions within the U.S, the Act provides that exclusive regulatory enforcement rests with their federal regulators, like the Federal Reserve Board. The Federal Trade Commission is supposed to enforce regulations on everyone else. It is extremely doubtful whether the F.T.C. will ever try to do anything about the Netellers of the world, who are beyond regular U.S. regulatory control.
§5365 Since there is no way to regulate overseas payment processors, the Act allows the U.S. and state attorneys general to bring civil actions in federal court. The courts have the power to issue temporary restraining orders, preliminary and permanent injunctions, to prevent restricted transactions. The only problem with this enormous power is that it is, again, practically useless against payment processors who are entirely overseas.
It is difficult to serve a company with the papers necessary to start a lawsuit, a summons and complaint or petition, if the company has no offices, or officers, in the U.S. Even if the papers for such a lawsuit can be served, there is normally no requirement that foreign countries enforce these types of orders. Other countries are particularly reluctant to enforce a T.R.O., which does not even require that the defendant be present. Preliminary injunctions are also often ignored, because they are issued without a full trial and can be modified at anytime by the trial judge. Neteller operates out of the Isle of Man. I do not know of any treaty or other law which would require the Isle of Man to enforce even a permanent injunction against one of its licensed operators.
The Act provides for limited civil remedies against ”interactive computer services.“ An Internet service provider can be ordered to remove sites and block hyperlinks to sites that are transmitting money to unlawful gambling sites. ISPs are under no obligation to monitor whether its patrons are sending funds to payment processors or even directly to gambling sites. But once it receives notice from an U.S. Attorney or state Attorney General, the ISP can be forced to appear at a hearing to be ordered to sever its links.
But the statute has an interesting requirement: The site must ”reside on a computer server that such service controls or operates.“ This would limit the reach of this statute to payment processors, affiliates and search engines that are housed on that particular ISP. The same problem of going after foreign operators and payment processors affects this section. Foreign ISPs are difficult to serve and not necessarily subject to federal court injunctions.
The greatest danger here would seem to be with affiliates. Any American operator can be easily grabbed. This includes sites that don’t directly take bets, but do refer visitors to gaming sites. If the affiliate is paid for those referrals by receiving a share of the money wagered or lost, it would not be difficult to charge the affiliate with violating this law, under the theory of aiding and abetting. Being a knowing accomplice and sharing in the proceeds of a crime make the aider and abettor guilty of the crime itself. The federal government could also charge the affiliate with conspiracy to violate this new Act.
The other danger lies with search engines. Although California-based Google does not take paid ads, punching in ”sports bet“ brings ups many links to real-money sites. This new Act expressly allows a federal court to order the removal of ”a hypertext link to an online site“ that is violating the prohibition on money transfers. But what prosecutor would want to be ridiculed internationally for trying to prevent Google from showing links?
The Act gives ISPs a little more security by declaring that they cannot be convicted of violating the Wire Act, unless, of course, the ISP is operating its own illegal gambling site.
This section of the Act ends with a limitation, that, frankly, makes no sense. It says that, after all the talk of getting court orders to prevent restricted transactions, ”no provision of this subchapter shall be construed as authorizing“ anyone ”to institute proceedings to prevent or restrain a restricted transaction against any financial transaction provider, to the extent that the person is acting as a financial transaction provider.“ This could be a typo, since the bill was rushed through without an opportunity to even be read. Or perhaps it means that banks can be ordered to not transfer money to gambling sites, but only if they know about it. It is indecipherable.
§5366 Criminal penalties: Up to five years in prison, and a fine. And barred from being involved in gambling.
§5367 The Act naturally makes ISPs and financial institutions liable if they actually operate illegal gambling sites themselves.
Lastly, the Act requests, but does not require, the executive branch to try and get other countries to help enforce this new law and ”encourage cooperation by foreign governments“ in identifying whether Internet gambling is being used for crime. The Secretary of the Treasury is told to issue a report to Congress each year ”on any deliberations between the United States and other countries on issues relating to Internet gambling.“ That report will go unread.
END
© Copyright 2006. Professor I Nelson Rose, Whittier Law School, Costa Mesa, CA is recognized as one of the world’s leading experts on gambling law. His latest books, Gaming Law: Cases and Materials and Internet Gaming Law, are available through his website, www.GamblingAndTheLaw.com.
Upheaval in Internet Gambling Continues
Patrick Smyth - Editor GamingPublic.com
September 26 2006
- CryptoLogic is traded on NASDAQ National Market
- Was the largest publicly traded iGaming Operation still headquartered in North America
- USA is missing out on potential tax revenues
This announcement comes on the heals of a number of crisis’ in the industry. It looks like CEO’s and Board Members are fleeing in high numbers. And whilst North America may be a base for revenues, the UK & Eire are becoming centers for this booming industry.
So far, since the BETonSPORTS Crisis, the following have tendered their resignations:
John Anderson - 888 Plc CEO
David Caruthers – BETonSPORTS CEO (Terminated)
Nigel Payne – Sportingbet CEO (October)
Peter Dicks – Sportingbet Chairman of the Board
James Grossman – WorldGaming Chairman of the Board
Clare Roberts – WorldGaming Member of the Board
Lewis Rose – CryptoLogic CEO (Spring 2007)
Edward Greenspan – CryptoLogic Member of the Board
All of this is unsettling for this industry, and I believe there will be more shake-ups before the year end. Besides more resignations, it might include acquisitions by Party Gaming & Empire Online who have large war chests. I would also look to BETonSPORTS re-opening and taking bets from the USA.
By not regulating the industry, the USA & Canada are missing out on tax revenues, employment and spin-off commerce as companies move into the UK and Eire where iGaming is being regulated.
Another Gamble for Online Betting Legal Wrangling in the U.S. Is Clouding the Prospects For the Industry World-Wide
By AMY SCHATZ Wall Street Journal
September 22, 2006; Page A7
Two recent arrests of online-gambling executives in the U.S. are drawing attention to a spirited but so far unsuccessful effort in Washington to clarify the legal status of Internet gambling and resolve the political and legal issues of regulating it.
Earlier this month, Peter Dicks, at the time nonexecutive chairman of Sportingbet PLC, Britain's largest publicly traded Internet-gambling company, was arrested in New York on a Louisiana warrant. That followed the July arrest of David Carruthers, then-chief executive of BetOnSports PLC on federal charges. The two cases aren't directly related but have combined to spook executives of foreign Internet-gambling companies, which are wary of entering the U.S.
The developments underscore a fundamental problem for the Internet-gambling industry: U.S. lawmakers haven't agreed on whether the practice is legal. This summer the House passed legislation that would outlaw most forms of Internet gambling, including poker and casino-style games. But similar legislation is in limbo in the Senate, despite recent efforts by Majority Leader Bill Frist to attach the measure onto a must-pass defense-authorization bill this year.
Taming Internet gambling is difficult, however, given uncertainty about which rules apply to it. The Bush administration maintains that all interstate Internet gambling is illegal, but acknowledges that enforcement is sporadic. To shut down Internet sites, prosecutors rely mostly on the 45-year-old federal Wire Act, which prohibits sports betting across state lines, but was written with telephone, not Internet, lines in mind.
But not all judges agree that Internet gambling is already illegal, and Internet-gambling companies argue the Wire Act doesn't apply to the Internet.
"It's never really been clear up to and including now, how the 1961 Wire Act applies to the Internet," says Keith Whyte, executive director of the National Council on Problem Gambling, an advocacy group that helps gambling addicts.
"There's a lot of gray area to make some arguments. There's been an utter failure of Congress to address this issue. They're relying on a pretty antiquated law to stretch over this," Mr. Whyte says.
Pressure on Congress to resolve the issue is likely to increase. Eight states have prohibited Internet gambling -- a pattern that has led to calls for a unified national approach.
Lawmakers' failure to clarify the legal issues of Internet gambling has frustrated many in the industry. According to Christiansen Capital Advisors, a New Gloucester, Maine, research firm, online gambling is a $12 billion-a-year industry globally, and growing. For years, some online-gambling companies have sought U.S. legislation to regulate the industry to weed out dodgy companies and promote investor confidence.
More broadly, Congress's inability to act reflects lawmakers' ambivalence about the Internet and how to strike a balance between letting it operate without much interference and requiring it to adhere to socially desirable behavior.
Republican Rep. Bob Goodlatte, who represents a rural Virginia district, personifies the sometimes-conflicting impulses. In his seven terms in Congress, Mr. Goodlatte has built a conservative voting record faithful to free-market, small-government principles. In June he voted against a proposal, which failed, that would have prevented Internet providers from moving some traffic faster than other -- in part, he said, because he was worried that "government involvement often stifles innovation in the marketplace."
A few weeks later, however, he voted for a bill to outlaw most Internet gambling in the U.S. "There are those of us who are simply opposed to gambling because of societal problems that exist," he says, adding that with the Internet, "every home in Virginia now has a wide array of casino gambling to choose from."
Mr. Goodlatte, a 53-year-old father of two, has spent years trying to impose some order on the Internet -- such as preventing access to child pornography and protecting consumers' ability to encrypt emails. "We don't want it to become the Wild, Wild West," he says.
Some forms of gambling have largely avoided the U.S. government's focus. For example, the government has done nothing to stop , a publicly traded Internet company in Woodland Hills, Calif., that offers betting on horse racing. YouBet says it complies with state and federal gambling regulations, arguing that changes made in 2000 to the federal Interstate Horse Racing Act allow state-licensed interstate "interactive" parimutuel betting. Yet the company's financial statements note that the Justice Department says Internet gambling is prohibited in the U.S.
Justice Department officials say they launched a civil probe into Internet-gambling operations, including horse betting, last year, but say they have limited resources.
Even when the U.S. government tries to set rules for the Internet-gambling business, the global nature of the Internet gets in the way. In the United Kingdom, online gambling will be regulated and -- more importantly -- taxed, beginning in 2007. It is as easy for a would-be bettor to reach a gambling Web site in Athens, Greece, as one in Athens, Ga.
Indeed, the U.S. government's assertion that interstate Internet gambling is illegal has provoked an international trade fight. In March 2004, the World Trade Organization ruled the U.S. had violated global trade pacts by banning offshore firms from offering U.S. citizens some forms of Internet gambling -- notably sports betting -- while providing exceptions for U.S. companies that offer horse betting and state-run Internet lotteries. The U.S. says it has the right to ban imports that may be found morally objectionable.
Even if Congress agrees on tough legislation, enforcement would be difficult. The legislation pending in Congress is designed to make it more difficult for Americans to electronically transfer money to fund their online gambling. But banks already have policies that restrict customers from using credit cards at Internet-gambling sites. Online-gambling companies have been able to get around that by miscoding transactions or encouraging customers to use other types of electronic money transfers.
Write to Amy Schatz at Amy.Schatz@wsj.com
Bookmakers wary over web tangle
By Marcus Armytage Telegraph
The arrest this summer of two British executives in the US clampdown on internet betting has had several effects. It has sent the share price of the two companies involved, Sportingbet and Betonsports, tumbling or into suspension and it has put a cat among the pigeons of the bookmaking fraternity, whose website activities, including the grey area of internet poker, face America.
Only bookmaking executives with a completely clear conscience will make the trip to Churchill Downs for the Breeders' Cup this November. One online bookmaker suggested that the number of directors of online betting companies – that's nearly all of them now – at Churchill Downs will, in the current climate, be zero. "They'd be barking mad," he said.
And it appears to be catching. On Friday in France, two Austrian co-chief executives of Bwin were detained for questioning under similar French laws.
The arrest of Betonsport's chief executive David Carruthers was initially regarded as a one-off and was assumed to be more to do with Betonsport's colourful founder, Gary Kaplan, than Carruthers himself.
However, that view altered substantially when the non-executive chairman – and therefore not one of the main players in the company – of Sportingbet, Peter Dicks, a founder investor in Google, was recently arrested in New York and subsequently released on bail.
Apart from giving headline writers an open goal – 'Dicks Held in New York' wrote one of them – it was a pivotal moment for any bookmaker who has had, or is tempted to have, dealings with America - at the moment a vast open-cast goldmine with a 'Don't Trespass' sign at its entrance. It is estimated, however, that some 2,300 off-shore companies are accepting on-line bets from America.
On of our leading bookmakers Victor Chandler, in a recent interview, said he had been looking to expand his tele-phone betting business into the huge US market but had halted those plans over night.
The law, as it stands, is that in eight states in the US, on-line gaming is strictly forbidden, and the Justice Department has also made it clear that gambling via the telephone is illegal, under the Wire Act of 1961.
Bill First, the majority leader of the Senate, has targeted a ban on internet gambling as a top priority, and in July, the House of Representatives approved legislation to update the Wire Act to include all forms of online gambling.
So while a company based here or in Gibraltar – therefore, off-shore as far as America is concerned - may take bets on US sporting events such as the Breeders' Cup, the World Series or Superbowl, they can only do so online or by telephone from clients in countries whose jurisdiction allows this betting. That is most of the world except the US. A $5 each-way telephone bet from Louisiana is illegal.
So how does it affect, British punters? There is so little precedent that, taken to the extreme, you could ask whether a British citizen ringing up his betting account from America to have a tenner on the National is breaking the law.
The hope among bookmakers here is that the US will regulate online gaming and then tax it. But there is huge hypocrisy at work. The most powerful groups lobbying the US Government to tighten the rules – on the basis that it brings an addictive behaviour into the home – are the casino operators. It's a bit like a cigarette manufacturer arguing that smoking should be banned indoors – except for his own brand of fags.
At a recent summit between George Bush and Tony Blair, second on Bush's list of topics – the first was Iraq - was putting in a good word for America's super-casinos to set up in places like the Dome.
However, now that the deputy Prime Minister has the stetson and cowboy boots, bookmakers here would prefer that he rides into New York to rescue Dicks
Focus: Busted!
Peter Dicks’s US arrest is causing panic at online gaming firms, write Dominic Rushe in New York and Louise Armitstead of the Times of London.
When the New York Giants take on the Indianapolis Colts today, at least $10 of dodgy money will be riding on the game.
The bet was made with the London-listed gaming firm Sportingbet.com by Dominic Rushe, our US-based reporter, using his American bank account.
In Britain, such a bet would be of little interest to anyone. At 10-19, $10 on Indianapolis yields the grand total of $5.26, assuming the Colts win the NFL football game.
But as far as the US authorities are concerned, the bet is a very big deal indeed. Gambling in America has long been a ”hot-button“ issue where the industry is pursued with puritanical zeal by the vocal and politically powerful Christian Right.
Now, with mid-term elections looming, US legislators are lining up to take on a new evil — gambling over the net. And it is already a multi-billion- pound industry in Britain, thanks in part to American punters who are barred from betting at home.
Our reporter had no difficulty placing his bet. But minutes after his card was charged, his bank, HSBC, was on the phone.
Had Mr Rushe placed a bet with Sportingbet.com? Did he know this was illegal? Should Mr Rushe attempt to do this again, his account would be frozen and he would be unable to use his card to make purchases or withdraw cash, said a bank representative.
America is taking the clampdown on internet gaming very seriously indeed.
The fight claimed its latest victim last week when Sportingbet’s chairman, Peter Dicks, was arrested by the US authorities and charged with running an illegal gaming enterprise as he touched down in New York on a business trip.
He is the second British executive to be seized by the US authorities as they put the squeeze on the $12 billion (£6.4 billion)-a-year internet-gaming industry. He joins a growing band of British executives who have been caught out by America’s enforcement of its laws on foreign businessmen.
Dicks’s arrest wiped hundreds of millions of pounds off the share prices of British online-gambling firms last week. Sportingbet makes two-thirds of its profits in America. If the arrests continue, some executives are wondering whether they can afford to do business there.
It is not just snappy-suited frequent flyers who are worried. Fund managers are also eyeing events across the Atlantic because they have invested heavily in the industry in the hope of handsome profits. They also face arrest under America’s draconian laws.
”I’M very relaxed about how 2006 is starting and how it’s going to end,“ Nigel Payne, chief executive of Sportingbet, told the newsletter Warren’s Washington Internet Daily back in January.
The newsletter is an insider’s must-read for telecoms and internet lobbyists in Washington, where Payne has been campaigning in recent years to have the laws on internet gaming relaxed. He is a chartered accountant by training and has positioned himself as the acceptable face of internet gambling.
In November last year he appeared on CBS’s 60 Minutes television news programme.
Some 12.5m Americans were gambling online, Payne said. ”There will be more online poker games per day at the end of this year than all of the casinos in the entire world put together. It’s a huge business.“
The US authorities should regulate the business instead of trying to prosecute it, he said.
”Do you think the internet’s suddenly going to go away? So what are we going to do in 10 years’ time when this industry is 10 times bigger than it is today? I often say to people, ‘Please give me one solid, plausible argument why you shouldn’t regulate it’.“
The British executive has a home in Florida and, friends said, intended to take up lobbying full time when he stepped down from Sportingbet.
Now Payne and his colleagues have been informed that they, too, will be subject to arrest if they step on American soil.
Dicks’s warrant was issued by the state of Louisiana, one of eight US states that have laws that explicitly prohibit internet gaming.
But it is not just those states — the Justice Department has also consistently said that online gambling is illegal.
In July the FBI seized British-born David Carruthers, chief executive of Betonsports, at Dallas airport.
At the time, many in the gaming industry argued that Carruthers’s arrest was a problem specific to his company. Betonsports was founded by Gary Kaplan, a controversial and colourful American who once put a bullet into a computer in his office after losing a bet. Kaplan is now on the run, charged with 20 serious offences, and his firm has been linked to companies controlled by the Mafia.
On top of that, Carruthers was widely seen as having antagonised the US authorities, thumbing his nose at the law by parking a bus advertising his firm outside American football games.
”Peter Dicks’s arrest is different. He was non-executive chairman and not an industry figure. If he has been arrested, nobody is safe,“ said one American gaming executive.
Dicks, said a former colleague, is an ”upstanding West-Country gent with a great — perhaps slightly geeky — interest in technology“. A venture capitalist and founding investor in Google and Ebay, Dicks is a director of various British and American companies, including Polar Technology Trust and Standard Microsystems. He had little influence over Sportingbet’s day-to-day operations.
According to the US authorities, Dicks was apprehended at JFK airport after customs officials carried out a routine check, and discovered the outstanding warrant issued by the Louisiana State Police gaming enforcement division.
This weekend Dicks is out on $50,000 (£27,000) bail awaiting a hearing next Thursday to determine if he will be shipped to Louisiana.
One American gaming executive said he found the story of Dicks’s arrest hard to believe. ”There are thousands and thousands of outstanding warrants out there,“ he said. ”If they were all checked like this, no plane would ever get off the ground.“ He said that the industry now believed a black list of internet-gaming executives had been drawn up and those people would all be subject to ”routine“ name checks followed by arrest if they came to America.
Executives at Sportingbet’s rivals were cancelling plans for US trips as their share prices plummeted.
”This isn’t going to do anything to improve consumer protection,“ said Keith Furlong, deputy director of the US-based lobbyist Interactive Gaming Council.
”The only thing it is going to do is stop British executives from travelling to the US.“
One non-executive director said: ”The case of Dicks is shocking; not only did we assume that the arrest of Carruthers was to do with other activity, but we thought that at least non-execs would be safe. It seems not. There’s no way I’m going to America — why would I risk poking my tongue out at the US authorities?“ Nor was the panic restricted to gaming executives.
Fund managers have also become worried about America’s aggressive stance towards gaming companies.
Although many of the institutions have been careful to own the gaming companies through their UK subsidiaries, some American investors are still glaringly obvious on the list of shareholders.
Fidelity International, one of the world’s biggest fund- management houses, is also one of the biggest holders of gaming companies. As well as being the top shareholder in Party Gaming, Fidelity also holds nearly 15% of Sportingbet. The next largest is Deutsche Asset Management, with nearly 7%, followed by Merrill Lynch Investment Managers (4%), M&G (3.7%) and Morgan Stanley (3%).
All the institutions list their UK arms as the holders. But the register of investors also lists US holders, including some through Goldman Sachs in America and Tiaa-Cref Asset Management.
In the past few days the managers have been spooked by another federal law with similar wording to that of the Louisiana law. The Prohibition of Illegal Gambling Businesses Act states that: ”Whoever conducts, finances, manages, supervises, directs, or owns all or part of an illegal gambling business shall be fined under this title or imprisoned not more than five years, or both.“
Gaming-law expert Joseph Kelly, professor of business law at Suny College, Buffalo, New York, said it was extremely unlikely the act would ever be used against shareholders. ”The Justice Department says there are a lot of laws that prohibit online gambling and those that aid and abet it, but I wouldn’t be too worried if I was a shareholder,“ he said.
Kelly said the Justice Department would be too afraid of losing the case. In London the law is being scrutinised by worried investors. One lawyer said: ”We have been swamped with calls from institutions about this phrase. It’s never been used before but nor have the other laws.“ Some shareholders in the gaming companies were cancelling trips to America. One said: ”Our lawyers say we are on firm ground. But I can’t see the upside of going, whereas the downside is gaping.“
THE trouble with prosecuting gaming companies is that there is ”no body to be imprisoned and no soul to be damned“, said the famously anti-gambling law lord, Lord Denning. ”That’s a real difficulty here for the US authorities,“ said Kelly.
Arresting individuals makes the headlines and damages companies but it leaves the industry untouched, he said. ”Even if you close down, say, Betonsports, it’s one down and 292,000 to go.“
Denning’s complaint about the difficulty of legislating against casinos was made in the 1960s before the introduction of strict controls. Next year the newly formed Gambling Commission will grant licences to UK gaming companies.
The more laissez-faire attitude of the British authorities is likely to cause yet more tension with the US. Internet gaming has become a huge industry in Britain thanks to American punters and the US laws that prevent American companies from competing. But for how long? For the moment, the bookies’ eyes are on Louisiana.
One adviser to the gaming industry said: ”The grubby practicality is that Peter Dicks is going to be the one to clarify the law. The rest of us will sit tight, away from America, until it is cleared up.“
Online gambling in the US is a bad bet for foreigners
AMERICAN law is being applied to foreign companies and directors because US courts have ruled that a crime takes place where the wager is placed and not where the online bookmaker is based.
Gambling in the US is covered by a complex mix of laws that vary from state to state, and federal laws that cover the entire country.
The Federal Wire Act of 1961 has been the main prosecutorial weapon used against online gaming firms.
It states that: ‘Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both.’
The Department of Justice argues that the act means that all online gambling is illegal. But US courts have ruled that it applies only to sports betting, not poker or online casinos.
Investors in online-gaming firms are worried about The Prohibition of Illegal Gambling Businesses Act of 1972. It states that: ‘Whoever conducts, finances, manages, supervises, directs, or owns all or part of an illegal gambling business shall be fined under this title or imprisoned not more than five years, or both.’
The law has investors worried that US prosecutors could come after them, arguing that they are financing illegal gambling businesses. The law could also be used to prosecute directors of the firms and anyone who helped the company — from advertising to public relations. oThe legislation covering gaming was largely drawn up before the arrival of the internet. These concerns are being tackled by the Internet Gambling Prohibition and Enforcement Act now before Congress.
Also known as the Goodlatte-Leach bill, after the Republican politicians who are championing it, the bill would update the Wire Act to clearly outlaw internet gaming across America.
It would also prevent banks and credit-card companies from processing payments to internet-gambling sites.
A vote is scheduled for later this month and the gaming industry believes it has a slim chance of passing.
In addition, seven states — Illinois, Indiana, Louisiana, Michigan, Oregon, South Dakota and Washington — have legislation clearly outlawing online gaming.
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