US Under Siege for Online Gambling

May 23, 2007
Lexero LLC

 

One of the Republican Congress’s last actions before being defeated in the 2006 elections was attaching a bill that restricted online gambling transactions to a port security bill. The bill easily passed and a nation that had recently shown a strong interest in online gambling found that it was now prevented from funding their online gambling accounts. Most of the popular services for transferring funds to gambling sites, such as Neteller, ceased their acceptance of American accounts. Many online gaming sites, including the previously dominant Party Poker, declined to accept United States players. The bill left the $15 billion online gambling industry crippled and denied substantial income to nations that hosted and regulated online gaming sites.

 

The nations who were harmed by the legislation are now fighting back. Based on a complaint from the nation of Antigua and Barbuda the World Trade Organization recently ruled that the restrictive U.S. legislation was illegal according to the global trade rules that bound the nations involved in the dispute. Armed with the favorable decision, Antigua and Barbuda has announced that it will be seeking compensatory damages for losses related to the United States’ actions.

 

The United States has responded by announcing that it will change its commitments under the 1994 GATS treaty to exclude online gaming as a regulated activity under that agreement. The U.S. further argues that the GATS treaty precludes foreign governments from seeking compensation for gambling matters because online gaming was never formally mentioned as an industry contemplated under the treaty.

 

In what has become one of the most awe-inspiring trade missteps of the last decade, the United States first managed to reject the opportunity to obtain millions of dollars of tax revenue by outlawing online gaming compared to a decision to regulate the industry. This policy decision was particularly curious given the substantial carve-outs for horse racing and other remote betting, primarily due to a greater influx of campaign contributions from those industries.

 

Second, the United States, far from the world’s most internationally popular nation, has further alienated nations that it relies upon to protect it’s industries’ intellectual property interests. Brazil and India, in particular, have come out in support of compensation from the United States for Antigua and Barbuda. The US had just named India and Brazil as nations on the “watch list” for lax intellectual property enforcement of American interests. The U.S. decision to ignore the WTO ruling and its obligations under the GATS treaty will certainly not provide incentive to these nations to improve their IP enforcement for the United States’ benefit.

 

Bottom Line: The United States’ recent history of gaming regulation is inconsistent, misguided, and dangerous. Declining to take advantage of the tax benefits and safety improvements domestic online gaming regulation would provide is one thing. Placing IP rights owners further at risk while ignoring treaty obligations is quite another.


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Lexero LLC

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