U.S. Online Gambling Policy Violates Law, W.T.O. Rules

[Dave Farber <dave () farber net>]

U.S. Online Gambling Policy Violates Law, W.T.O. Rules

March 26, 2004
 By MATT RICHTEL




The World Trade Organization, in its first decision on an
Internet-related dispute, has ignited a political, cultural
and legal tinderbox by ruling that the United States policy
prohibiting online gambling violates international trade
law.

The ruling, issued by a W.T.O. panel on Wednesday, is being
hailed by operators of online casinos based overseas as a
major victory that could force America to liberalize laws
outlawing their business.

But the Bush administration vowed to appeal the decision,
and several members of Congress said they would rather have
an international trade war or withdraw from future rounds
of the World Trade Organization than have American social
policy dictated from abroad.

"It's appalling," said Representative Bob Goodlatte, a
Virginia Republican. "It cannot be allowed to stand that
another nation can impose its values on the U.S. and make
it a trade issue."

The decision stems from a case brought to the W.T.O. in
June 2003 by the tiny island nation of Antigua and Barbuda.
The nation, which licenses 19 companies that offer sports
betting and casino games like blackjack over the Internet,
argued that United States trade policy does not prohibit
cross-border gambling operations.

Antigua and Barbuda further argued that the United States
would be hypocritical to do otherwise since it wants to
allow American casino operations to operate land-based and
Internet-based units overseas.

It is not clear precisely why the dispute panel of the
trade body ruled in favor of Antigua and Barbuda, since the
specifics of its decision remain confidential. The ruling
covers only online casinos based on the islands, near
Puerto Rico, but other nations could seek similar rulings,
legal experts said.

Sir Ronald Sanders, the islands' chief foreign affairs
representative, said he thought it was clear from the
decision that the United States must liberalize its online
gambling regulations or risk being hypocritical about its
stance on free trade.

"The U.S. says it wants open competition," he said. "But it
only wants free trade when it suits the U.S."

The issue has emerged at the nexus of already complicated
legal and social issues muddied further by the borderless
reach of the Internet. Millions of Americans now gamble
over the Internet, using credit cards or online payment
services to wager on sports contests or at games like
poker, blackjack and roulette.

Under federal law, it is illegal to offer sports bets over
the Internet or to operate other gambling operations not
otherwise allowed by individual states. State laws vary
widely, with some allowing specific forms of gambling
within their borders. Some states criminalize the placing
of a bet, but others, like New York, do not make it a crime
to bet online.

Online casinos are typically based in Costa Rica or the
Caribbean, but also in Britain. Their business continues to
grow, but not nearly as fast as industry experts once
projected; the slower growth has come in part because many
banks do not allow their credit cards to be used to place
bets.

Also, the Justice Department has begun to crack down on
American broadcasters and publishers that advertise on
behalf of online casinos. The crackdown, based on an
untested legal theory that American companies are aiding an
illegal enterprise, has limited the ability of online
casinos to reach Americans.

Sebastian Sinclair, a research analyst who studies the
Internet gambling industry, said he doubted the W.T.O.
decision would affect America's internal policies and
instead could strengthen the resolve of policy makers who
want to see the activity prohibited. At the same time, he
said the decision showed the gulf in policy on the issue
between America and much of the world.

"We're going down one path, and the rest of the world is
going down a completely different path," said Mr. Sinclair,
an analyst with Christiansen Capital Advisors.

Mr. Sinclair added that the ruling was as a "nonevent" for
the Las Vegas casinos and other legal gambling operations
in the United States because they risk losing their
charters if they open a casino - online or otherwise - that
in any way violates the licenses in states where they
operate. Those state licenses could, for example, preclude
legal casinos from offering wagers to Americans where
gambling is not permitted.

Sir Ronald, the official from Antigua and Barbuda, said
that two years ago the nation, which has a population of
less than 100,000, had 119 online casinos with 5,000
employees. Today, he said, its 30 operations have about
1,000 employees.

He argued that if the United States loses an appeal before
the W.T.O. and then continues to prohibit online gambling,
Antigua and Barbuda would be within its international
rights to raise tariffs on American companies doing
business there. Sir Ronald said that since 90 percent of
what his country consumes it imports from the United
States, the impact could be severe for American companies
like AT&T.

He said America has frequently used the trade organization
to further its interests, including forcing nations to make
internal policies consistent with international law. He did
not cite specific examples.

Mr. Goodlatte said that the United States did not expect to
change its policy and that the people of Antigua and
Barbuda "may have a mini-trade war on their hands."

The congressman, along with Senator John Kyl, a Republican
from Arizona, said he would question America's
participation in future agreements under the auspices of
the World Trade Organization.

David Carruthers, chief executive of Betonsports.com, an
Internet sports book operation and casino with headquarters
in Costa Rica and back-office operations in Antigua and
Barbuda, said he hoped the W.T.O. decision would lead to
legalized online gambling in America.

In 2003, he said, his company took 33 million bets from
people in North America, most of them in the United States.
He said he had 1.2 million registered customers who are
United States residents.

"This could be the straw that breaks the camel's back," he
said. "It's a victory for the people of Antigua but also
for consumers in the United States."

http://www.nytimes.com/2004/03/26/technology/26gamble.html?ex=1081315019&ei=1&en=09fdf1268db99c00 

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