All bets are off for EU firms in the US
US authorities are getting tougher with foreign online-gambling firms, and the European Commission is not happy about it.
Although the EU is still far from formulating a policy that sets out coherently the extent to which gambling should be restricted or liberalised on the internal market, it is nevertheless striving to ensure that its gambling firms do not face restrictions in their access to other countries.
Of particular concern is access to the US, which in October 2006 banned foreign online-gambling firms from offering services to people based on its territory.
US authorities have, over the past few years, also conducted a number of high-profile legal investigations into the activities of EU gambling firms prior to September 2006. These have led to large financial settlements.
This older legislation, known as the Federal Wire Act, requires fines or imprisonment for people who use “wire communication facility[s]” to help people place bets “in inter-state or foreign commerce”.
Both the US Department of Justice and the US attorney's office for the southern district of New York have interpreted the Wire Act as a ban on all online gambling.
The online betting company PartyGaming has been particularly affected. One of its founders, Anurag Dikshit, agreed in December 2008 to pay $300 million (€222.43m) to the Department of Justice for breaking the Wire Act. Payment of the fine, coupled with a guilty plea, protected him from a prison sentence. PartyGaming, as a firm, announced in April 2009 that it had reached an agreement with the New York attorney's office to pay $105m (€77.85m) in exchange for assurances that it would not be prosecuted for breaking the Wire Act.
Another firm, Sportingbet, last week (22 September) announced that it had agreed to pay $33m (€24.46m) to the Department of Justice in exchange for protection from prosecution under the act.
Commission criticism
The European Commission has criticised both the ban and the pursuit of EU firms using the Wire Act as contrary to US commitments at the World Trade Organization (WTO).
In June 2009, the Commission published a report critical not just of the Wire Act, but also of the newer legislation dating from 2006, known as the Unlawful Internet Gambling Enforcement Act. The Commission's report argued that the 2006 legislation discriminated against EU firms because, while US companies are free under the act to operate online gambling on horse racing, EU companies cannot offer any type of online gambling. It said that this was “incompatible with US WTO commitments on trade in services”.
The Commission's investigation followed a complaint by the Remote Gambling Association, whose members include PartyGaming and Sportingbet.
A spokesperson for Karel De Gucht, the EU commissioner for trade, said that the issue had since been raised with both the US Department of Justice and the Office of the US Trade Representative.
“We have also asked the US to propose concrete solutions, and expect them to come forward with ideas for this purpose,” he said.
There are currently efforts in the US Congress to overturn the 2006 ban. Barney Frank, a Democratic congressman, introduced a bill in 2009 to overturn the ban and to replace it with a regulated system that would include measures to prevent fraud and problem gambling.
The bill was passed by a US House of Representatives committee in July, but it will expire unless it is adopted by the full House before mid-term elections in November. Work to overturn the ban would therefore have to begin anew in the next Congress.
Time constraints suggest that adoption before November is unlikely – and so EU firms are unlikely to see the benefits soon of current efforts on both sides of the Atlantic to overturn the ban.
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