Net Bet Blog

A neat little summary article on the ongoing US-EU battle over internet gambling. The article gets it pretty much right. Whilst most readers will already be aware of these issues that are worth reiterating especially the section about "selective prosecutions". This is a disgrace and it is good that the is at least attempting to act.

The Risks of Gambling Regulation [American Spectator]

When trade emissaries from the European Union arrive in Washington later this month to talk to officials in Congress, the Justice Department, and other executive branch agencies, they'll have some difficult questions to ask. In particular, they'll ask about some gambling laws that rank among some the worst written sections of the United States Code. If things go poorly a trade conflict with vast implications for the United States banking sector could ensue.

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The EU is interested in the laws and their application because some European and Caribbean Internet gaming operators have already faced Wire Act prosecution for engaging in Internet gambling transactions before UIGEA went into effect in 2006. On the other hand, U.S.-based horse betting websites operate freely. In other words, the Department of Justice appears to have selectively prosecuted non-U.S. operators in violation of World Trade Organization rules that bar discriminatory treatment. Even more interestingly, several of the Internet gaming operators under investigation -- 888.com and partygaming.com -- actually pulled out of the U.S. market as soon as UIGEA went into force. Already, the EU has begun the process of creating a formal Trade Barriers Regulation complaint against the U.S. government. (U.S. Trade Representative Susan Schwab has, so far, brushed off the investigation.)

The next paragraph includes the rub - will the EU actually raise the stakes in this hand of cards? I suspect the EU will no have the will to follow it through especially given gambling garners little public support.

No certainty exists that the EU will ever decide to turn the dispute into a formal case before the WTO. That said, even the possibility has serious consequences: Since enforcement of the gambling laws falls almost entirely on the banking sector, it appears likely that the EU could well respond with banking sanctions directed at getting the U.S. to change its behavior. (Other than the horseracing sites -- which serve an almost exclusively American clientele -- there are no American gambling sites to sanction.) Given the enormous volume of trade between the U.S. and Europe, almost $700 billion in 2007, even a tiny series of retaliatory measures would have severe implications for the U.S. economy.

The better news is in the final paragraph that rightly points out that a regulated future is the only future. It all depends on how long we have to wait whilst EU companies continue to suffer at the hands of the well funded US sites such as Pokerstars and Fulltilt.

Even if the EU decides to stay quiet and never complains about UIGEA, it's pretty obvious that America's effort to regulate gambling at the federal level needs to end. Thirty years ago, when casinos existed in only one state, federal laws cracking down on gambling represented the public will. Today, with gambling legal in 48 states, America's debate over gambling has ended with the side that favors legalization as the clear winner. The positive and negative consequences of widespread legal gambling have already touched every corner of American society. The risk of a serious trade dispute offers a new reason why the U.S. should do away with its federal gambling laws and let state legislatures and consumer preferences decide where -- and if -- Internet gambling needs government regulation.

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Bad news for the betting industry following the defeat of Frank's and King's bills. The short sightedness of the US government is frankly astonishing. Can they not see that online gaming is UP in the US and that millions participate - the only difference being these are private and not public firms (that in theory should offer more protection to US citizens).

The story goes on. I suspect this will merely anger the banking sector who need to lobby more forcefully. Whilst the gaming sector does not have the credibility to mount an effective lobby the banking sector does and is well connected.

Mabybe next time.

Online gambling bill defeated [GPWA]

The House Financial Services Committee rejected a bill Wednesday that would have prohibited the Treasury Department and the Federal Reserve from proposing and implementing regulations to enforce the Unlawful Internet Gambling Enforcement Act.

In its mark-up session, the Committee adopted an amendment proposed by Rep. Peter King (R-NY) that would not only stop the implementation of any UIGEA regulations, but would also force the Treasury Department, the Justice Department and the Federal Reserve to sit down and define unlawful Internet gambling. King said that this "was a banking issue, not a gambling issue" and that the banking industry shouldn't be in the position of determining what is legal and illegal.

The King amendment was defeated by the full committee with a vote of 32 for and 32 against. The original bill proposed by Rep. Barney Frank (D-Mass.) and Rep. Ron Paul (R-Tex.) was defeated in a voice vote.

The defeat is a blow to both the online gambling industry, which has been looking for ways to repeal the UIGEA, and the banking industry, which wants no part in trying to regulate the online gaming industry.

"The PPA is surprised that the Financial Services Committee today failed to clarify what constitutes 'unlawful Internet gambling' under the Unlawful Internet Gambling Enforcement Act (UIGEA)," said Alfonse D'Amato, chairman of the Poker Players Alliance. "The King Amendment would have required a separate formal rulemaking with an administrative law judge to determine the definition of unlawful Internet gambling."

"The Federal Reserve, Department of Treasury and the banking industry have all testified before Congress that the lack of a definition of 'unlawful Internet gambling' makes it extremely difficult if not impossible to enforce this law and would result in a broader review and denial of financial transactions because they could possibly be deemed unlawful under UIGEA," D'Amato added.

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Barney Frank's bill is now being being considered by congress. The implications are profound even if the odds of success are small.

Sarah Polson does a decent job of summarising the main issues although there is remarkably little actual content when you read carefully.

The facts remain - it is a disgrace that US firms can compete in Europe for European players but EU firms cannot take US firms on on US soil.

House committee to look at anti-UIGEA bill [Pokerlistings]

The House Financial Services Committee is scheduled to look at H.R. 5767, a bill that would stop the implementation of the Unlawful Internet Gambling Enforcement Act, on Tuesday.

Rep. Barney Frank (D-Mass.) sponsored the bill along with Senator Ron Paul (R-Texas) in response to a hearing that pointed out the flaws in the UIGEA that are not only making it hard to implement, but could make it hard to enforce as well.

On Tuesday, the committee will get a chance to discuss and debate H.R. 5767 as well as make any amendments.

One amendment in the works is the King amendment. In a call to action to its members last week, the Poker Players Alliance explained that the King amendment will force the regulatory agencies to define "unlawful Internet gambling" through a formal rulemaking procedure with due process and opportunity for input from affected parties.

Tuesday could also be a chance for the Financial Services Committee to vote to approve the bill to move on to a vote in the House as well.

Given that Frank is also the chair of the committee, there is a good chance the bill could go to vote and get approved. The PPA is also throwing its weight behind the bill in hopes that this will happen.

"In order to get this bill out of Committee and onto the House Floor, we need your help," the organization said in its call to action to its members.

"We need you to contact the committee and express your support for H.R. 5767, as well as the King amendment which will refine the bill language. PPA strongly supports H.R. 5767 and the King amendment, but this bill and amendment won't pass without your help."

Getting passed in the committee doesn't automatically mean it will go to a House floor vote anytime soon, though. Bills often make it through the committee stage and still don't see a vote on the House floor, much less become law.

Tuesday's action is still important, however, in the process of moving the bill forward. Action on the bill, plus the increasing pressure from the European Union with regard to online gambling, could be the grease needed to get the wheels moving on reversing the online gambling ban.

According to the U.K. Financial Times, EU Trade Commissioner Peter Mendelson plans to send a delegation to Washington next month to press its case with U.S. lawmakers and hold a press conference about the online gambling issues between the two governments.

The European Union may be on the verge of bringing its own World Trade Organization complaint against the United States, because it believes the nation is discriminating against its online gambling companies.

Antigua and Barbuda had taken a case to the World Trade Organization claiming that the United States' online gambling ban was a violation of trade regulations set up for WTO member countries.

Antigua won that case after three years of fighting and has been undergoing compensation talks with the United States. Since the inception of the case, however, the United States has toughened its online gambling ban with the UIGEA, and online gambling companies around the world have been forced to close their businesses to U.S. customers.

The U.S. has also chosen to pull out of its WTO agreement with regard to online gambling, which opened it up to claims from any WTO nation that has interests in the online gambling industry.

The European Union did come to a settlement agreement with the United States in that matter, but representatives did say at the time that the EU wouldn't tolerate the United States discriminating against companies headquartered in the Union.

Meanwhile, the U.S. Department of Justice has been pursuing U.K.-listed companies, including PartyGaming, Sportingbet and 888 Holdings, operators of some of the top online poker sites as well as other betting portals, for violations of its online gambling laws.

The U.S. DOJ has gone so far as to issue subpoenas against some of the European-based banks that advise those online gambling companies.

According to the Financial Times, U.S. Trade Representative Susan Schwab has responded to formal European Commission questions in the matter by saying there is "no basis for any allegations of 'discriminatory enforcement' of U.S. gambling laws."

Instead, the USTR believes the EC's investigation into the matter is based on mistaken assumptions, and that the charges being brought were based on a number of factors, but nationality was not one of them.

Freakonomics's main protagonists, Steve Levitt and his faithful journalist sidekick Steve Dubner has a certain penchant for Poker and has made a number of posts on the subject.

As a economist poker player (albeit a bad one) this is a particularly interesting topic.

Phil Gordon Answers Your Poker Questions [Freakonomics]

This first quote sums up my view to an extent:

In his answers below, he discusses (among other things) variance, sunglasses, and why he’s not a gambler by nature, but rather “a strategic investor.”

This relates to poker being a game of skill that encompasses many of the attributes a trained economist should have - certainly those at my University.

Q: Do you gamble much on non-skill games or games that have a house edge?

A: No. I’m not a “gambler” by nature — I consider myself a “strategic investor.” In fact, what we do at the poker table isn’t very different than what investment professionals do — we just get our results every two minutes instead of every few months or years.

Q: How do math and psychology cross in poker? For example, if the book says a certain hand is a loser 60 percent of the time, how would this change if you know your opponent likes to raise with weak hands at this point, and if you suspect he is bluffing?

A: There are times in poker where making a correct decision is almost completely mathematical. For instance, if a player moves all-in after the flop and you have a flush draw or a straight draw, you can be 99 percent sure that if you make your hand, it will be good.

At that point, just making a simple pot odds calculation will lead you to a winning decision and psychology has nothing to do with it.

But, that being said, poker is the great game that it is because psychology plays such an important part in the game. Knowing your opponent, putting them on hands, and figuring out their state of mind and exploitable tendencies makes all the difference.

Clearly this is an important aspect of my decision to play poker. I assume by reading this blog that you also fit into this camp :-)

Q: Why do so many highly-intelligent people with advanced degrees decide to play poker?

A: It is a fascinating game that is impossible to master. The money isn’t bad either.

On this blog we also cover the UIGEA in detail. At least Phil Gordon agrees with me on this one using an identical phrase to boot.

Q: I hear a lot about compulsive gambling and gambling addiction which makes me wonder if the Safe Port Act, by causing online poker play to drop off, may not have been such a bad thing. What’s your opinion about the Act?

A: I think that the U.I.G.E.A. (the provision of the Safe Port Act that deals with internet poker) was a complete travesty.

First, it places an impossible burden on the financial institutions. Second, 85 percent of the U.S. adult population thinks that they should have the right to gamble on the internet if they want to. Third, what the hell does port security have to do with internet poker? Why do we allow politicians to do this?

UIGEA supposedly had a carve out for betting making the entire big even more disgraceful that it already was pandering to powerful lobby groups at the expense of non-US gaming companies.

This article shows that the cosy carve out might not be so helpful after all.

In the future the banks may well have this lobby group squealing for UIGEA to be lifted.

No Sprint to Finish for Internet Gambling Ban [PokerAlliance]

To set the scene:

Back in 2006, Congress passed the Unlawful Internet Gambling Enforcement Act, which required banks and credit card companies to no longer process payments for illegal Internet gambling.

Horse racing, which is regulated under the Interstate Horse Racing Act, received a much-publicized exception.

But how to banks know which payments are for horseracing and which for other sports?

But if the rules put the onus on the credit card companies to determine which transactions are legal, banks and credit card companies say it could end up leaving them no choice but to cancel transactions for bets on horse racing, too, including the storied Derby at Churchill Downs.

There are however even wider implications for US Plc. The bottom line is that these regulations put the US further behind the technological frontier for internet payments, gaming and internet commerce in general. It was simply badly conceived and executed.

Not only could banks and credit card companies put the skids on Internet horse-racing bets, Abernathy said some of those companies, in an abundance of caution, might even cancel payments to casinos for such benign items as T-shirts.

The problem of overblocking is a very real one when criminal cases are at stake.

Other financial services lobbyists say their companies might err on the side of caution. "A lot of institutions would do what's called ‘overblocking' to be on the safe side," said Leigh Williams of the Financial Services Roundtable. "It's quite possible that we would, in fact, go beyond the letter of the law."

This should get the horse racing industry very worried.

"Now, the reason I think it's concerning, from a legal perspective, is that if and when they ever adopt the Unlawful Internet Gambling Enforcement Act, banks, in my opinion, will always tend to take the more conservative position, and assume it's an unlawful transaction."

Cabot said that if that were to happen it would mean a potential disaster for the industry. "You would have a situation where the horse-racing industry is going to have a hard time surviving," he said.

It will be interesting to see how this pans out. The poker lobby group pokeralliance have increasing financial muscle and are lobbying hard.

There is a long way to go yet in the regulation game and all the while US players continue to gamble in their millions on riskier sites than necessary.

Will they ever learn.

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Interesting take on Senator Jon Kyl and his support for the online poker ban.

Clicking his name brings a wry smile to ones face.

Pokerblog.com are certainly nailing their colours to the mast.

The irony is that a total US ban would be great for PRTY, 888 and others. It would potentially wipe out Pokerstars and Fulltilt overnight leaving PRTY to the outright winner and by far the biggest company. Billions of dollars are currently flooding into private hands and not shareholders.

The extent to which the last paragraph is true needs further debate and opinions are welcome.

Satan Speaks on U.S. Online Poker Ban [PokerBlog.com]

The chief architect of the Internet gambling ban on Tuesday said he is losing patience with the Federal Reserve and the Department of Treasury as they struggle to craft regulations to enforce the ban.

Senator Jon Kyl, R-Ariz., said the regulations are a year overdue, according to the 2006 prohibition statute. Kyle is quoted as mumbling:

"The longer it goes the less certainty there is. I mean, the people who are violating the law need to know that they're not going to be able the get away with it, and I think that the failure to get these regulations promulgated on time has perhaps given some hope, and it's given life even to an idea over in the House of Representatives to put a moratorium on the regulations."

Below is a copy of a letter from Kyl. His and our fears are all laid out.

Dear Colleague:

For the past year, the Internet gambling lobby and its congressional supporters have worked hard to gut the Unlawful Internet Gambling Enforcement Act of 2006 (“UIGEA”). Most recently, Representatives Barney Frank and Ron Paul introduced H.R. 5767, which would prohibit federal agencies from issuing any regulations that would give effect to UGIEA.

The Frank-Paul bill’s prohibition on issuing Internet gambling regulations would eliminate the most effective enforcement tool available for stopping illegal online gambling. The bill would result in the de facto repeal of federal and state gambling control laws and would likely result in a massive expansion of gambling on the Internet.

We urge you not to be deceived by the claims of the Internet gambling interests. During this Congress alone, offshore Internet gambling enterprises have paid millions of dollars to lobbyists in an effort to overturn UIGEA. For example, according to a recent Roll Call article, those trying to thwart UIGEA are “shelling out eye-popping sums for K Street’s top talent” (3/31/08, “Internet Gambling Ban Back on Table”).

The Internet gambling industry, which was making billions of dollars a year taking illegal bets from Americans, was furious when UIGEA was enacted into law after a decade of congressional debate and development. To enforce existing federal and state laws banning Internet gambling, UIGEA required the government agencies with the relevant knowledge and expertise — the Federal Reserve and the Department of Treasury, in consultation with the Department of Justice — to issue regulations to enforce existing federal and state laws that make Internet gambling illegal. Immediately after Congress passed UIGEA, many online gambling outfits closed their doors because of the prospect that existing laws would finally be strongly enforced.

Now, in an effort to recapture billions of dollars in illicit profits, Internet gambling interests are trying to convince Congress that the regulations will be ineffective. But, if the regulations mandated by UIGEA will be ineffective against illegal online gambling, why are Internet gambling interests spending millions of dollars to effectively repeal UIGEA?

The reason: UIGEA is already beginning to cripple them. The Annenberg Public Policy Center, which conducts the annual National Annenberg Survey of Youth, found that weekly Internet gambling among college-aged youth declined nearly 75% between 2006 and 2007, falling from 5.8% to 1.5% just one year after the enactment of UIGEA. Internet gambling is highly addictive, as it brings the casino into the home and office, and it is particularly attractive to minors and young adults. While no law enforcement is perfectly effective, the Annenberg data shows that passage of UIGEA, which called for financial regulations to enforce Internet gambling prohibitions, has already significantly reduced the prevalence of Internet gambling in the United States, even though regulations required to fully implement the law have not been finalized.

Please oppose any efforts to rollback UIGEA or to delay finalization of the regulations.

Jon Kyl
Ranking Member
Senate Judiciary Committee

Spencer Bachus
Ranking Member
House Financial Services Committee Subcommittee on Terrorism, Technology and Homeland Security

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Not surprisingly, US banks are happy that the online gaming community is attacking the UIGEA regulations at all opportunity.

Implementation of UIGEA can ONLY cost US banks money and eat into already shrinking profits.

BANKERS APPLAUD ATTACK ON UIGEA (Update) [Online Casinos]

The Washington DC publication The Hill reports that the banking industry is cheering the fresh assault on the UIGEA (see previous Online-Casinos.com/InfoPowa report) mounted by House Financial Services committee chairman Barney Frank (D-Mass.) and Congressman and presidential aspirant Ron Paul (R-Texas).

Congressman Frank has teamed up with the libertarian-minded Paul, who crusaded against big government during his recent White House bid, on legislation to block the contentious 2006 legislation by forbidding federal officials from writing rules to implement it. Those officials have already admitted that the regulations supporting the UIGEA are proving difficult to draft, with strong opposition from the financial industry that is required to act as policeman for the federal government.

Here is a quick summary of the problems faced by the US banking industry. All predictable and correct.

The banking industry has flooded the Treasury and the Fed with complaints about their proposed rules, arguing that it is too difficult for banks to sort out payments for legal wagers — such as on horse races — and those that are illegal.

“The banking system is just not set up to sort out whether one payment is a legal payment and one payment is not,” said the director of congressional affairs for the Independent Community Bankers of America , Steve Verdier. “We think the [Frank-Paul] bill would give everyone the chance to take a breath.”

Charles Rothfeld, a lawyer at Mayer Brown who has argued several cases before the U.S. Supreme Court, said that the Frank-Paul legislation is not likely to pose any constitutional problems. “Congress gets to say the way in which its legislation is implemented. If it wants to issue legislation to preclude the promulgation of regulation, it can do that,” he argued.

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The 2nd April Congressional hearings on the implementation of UIEGA have led to widespread press coverage.

Online Casinos do a good a job as any of summarising the main issues so I will be leave it to them.

The implications - the US has to regulate in the end. It is just a matter of time.

Read at the link below:

UIGEA LAW TOO AMBIGUOUS TO WORK SAY HEARING WITNESSES [Online Casinos]

The US and international media gave extensive coverage to April 2nd's Congressional hearings on the hopelessly bogged down Unlawful Internet Gambling Enforcement Act regulations, with the consensus across a wide cross section of witnesses appearing to be that the law was just too ambiguous to work, and could have a serious adverse impact on e-commerce.

The full testimony can be found here:

Proposed UIGEA Regulations: Burden without Benefit?” [House committe on financial services]

At last we have a firm date for the congressional hearing on UIGEA.

Expectations will be minimal so any downside should be limited for the likes of PRTY but any positive developments could lead to substantial upward revisions in the share prices of PRTY, SBT, BWIN and others.

Congressional UIGEA Hearing Confirmed for April 2nd [Poker News]

An important and long-delayed Congressional hearing regarding implementation of the Unlawful Internet Gambling Act (UIGEA) has now been confirmed for April 2, 2008. The hearing will be conducted by the Subcommittee on Domestic and International Monetary Policy, Trade, and Technology and will be chaired by Rep. Luis Gutierrez (D-IL).

The 10:00 am hearing in Congress's Rayburn House Office Building will be entitled "Proposed UIGEA Regulations: Burden without Benefit?" and will offer one of the first true Congressional examinations of the 2006 UIGEA, which was attached to unrelated, "must pass" port-security legislation by Sen. Bill Frist (R-TN) in a maneuver that left the UIGEA unread by many Congressmen before it was passed into law. The hearing will examine the viability of the UIGEA, which has been termed unworkable by many affected parties, including America's powerful banking industry.

A live webcast from the pokerplayers alliance can be found on April 2nd:

WEBCAST

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A recent 5 page report from the Washington Think Tank "Competitive Enterprise Institute (CEI)" explains the shortcomings of the current UIGEA regulations.

This is essential reading for anyone with a serious interest in all things "gaming".

I have included a few of the more salient paragraphs to give a flavour of the report.

Time to Fold the Unlawful Internet Gambling Enforcement Act [PDF]

Hoping to be seen to be “doing something” about the perceived problem of Internet gambling, Congress approved the Unlawful Internet Gambling Enforcement Act (UIGEA) in October of 2006.1 The Act, however, seems unlikely to stop Internet gambling and could even threaten the stable, smooth operation of America’s banking system. UIGEA and its currently proposed enabling regulations will undermine the financial privacy of all Americans and reduce the security of their bank accounts. In short, UIGEA makes almost no financial, social, or economic sense. It deserves reexamination.

The article concludes with a third option to replace UIGEA - repeal.

3. Repeal of UIGEA. Even before it considers proposals for the regulation of online gambling, Congress should consider an outright repeal of the Unlawful Internet Gambling Enforcement Act. The law has very little to do with gambling and serves as a poorly thought-out banking regulation fraught with potentially perverse incentives. Quite simply, it is a bad law. Repealing it makes sense. At the same time, Congress should strongly consider member proposals to perform comprehensive research related to the nature of Internet gambling. 23 This would give online casino operators, banking institutions, states, players, and other consumers time to create a workable and productive group of institutions for regulating Internet gambling.

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The online gaming regulatory bandwagon rolls on. Despite the feeble efforts of the EU to tell countries to stop discriminating and to open up their online gaming markets the cost implications in terms of tax revenues are simply to large to resist.

The protection of local state run monoploies simply bring in too much revenue to be sacrificed to fit in with supposed EU law.

This time Denmark has raised the possibility of a US style UIGEA regulation to stop money transfers. This will get EU backs up once again not to mention teh PRTYs and BWINs of this world.

Until the EU kick some real ass and get some local law overturned stories like this one will continue to hit the press and this blog.

Online Casinos reports:

APRIL FOOLS DAY LAUNCH FOR DANISH LEGISLATION? [Online Casinos]

Despite the attentions of the EC, are the Danes gearing up for an UIGEA-style anti-online gambling law?

The Danish government may be preparing legislation against online gambling that includes a UIGEA-style provision to hamper financial transfers, report several news media covering the region, including EIN.

If the as yet unconfirmed reports that moves could take place as early as next (April) month are true, the Danes will be flying in the face of the European Commission which has had the country's monopolistic gambling policies under the microscope for the past few years and has already issued a "reasoned opinion" against the Scandinavian nation.

Specifically, this reasoned opinion was that the EC considers the Danish Pools and Lottery Act incompatible with existing EU-ruling (especially Article 49 of the EC Treaty). Furthermore, the Commission concludes that the measures taken by Denmark to restrict the free movement of sports betting services have not proved to be necessary or proportionate. The Commission in its reasoned opinion warned the Danish State: 'If there is no satisfactory reply within two months, the Commission may refer the matter to the European Court of Justice'.

Earlier this year there were reports that a previous legislative attack on the industry (see previous Online-Casinos.com/InfoPowa report) had been stopped short of a vote in the Danish Senate. The European Gaming and Betting Association had previously urged the European Commission to take the Danes to the European Court of Justice over their protectionist policies.

Currently, under the Danish Pools and Lottery Act (tips- og lottoloven), only Danske Spil can lawfully offer games, lotteries and bets covered by the Act. Furthermore, no one except Danske Spil may arrange for participation in such games offered by anyone other than the state dominated Danske Spil.

EGBA members include such notable online poker parents such as Party Gaming (Party Poker), Bwin (Bwin Poker), Unibet (Unibet Poker), bet-at-home.com, Expekt (Expekt Poker), and Interwetten Gaming (Interwetten Poker).

In a recent newsletter, EGBA stated: "We believe that any anti-online gambling legislation which is proposed or upheld by individual member states is likely to be breaking EU law. The EGBA is fighting against this discriminatory legislation as we believe that it is being introduced primarily to protect state-run monopolies.

"Opening up markets to competition gives consumers the benefits of lower prices and a wider choice of products and suppliers. A competitive environment, especially in the online world where technology reigns and trust in a brand is paramount, also helps promote consumer security and game fairness."

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Here is a link to the open letter from iMEGA to the online gaming industry following Judge Coopers decision to throw out the case.

Here are the main quotes:

iMEGA On UIGEA: Open Letter to i-Gaming Industry [IMEGA]

However, at the same time, Judge Cooper essentially failed to rule on the groundbreaking questions we presented, namely, that those fundamental rights we all enjoy – of privacy, speech, expression, and conduct – should not be lessened in any way when we are using the Internet.

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While we were disappointed that Judge Cooper dismissed our lawsuit, this case is far from over. We always knew that this would be the first round in a serious fight, as most important legal battles are.

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We can’t imagine how our rights would have been preserved had those challenges quit in the first round. At issue here are fundamental questions that, ultimately, have to be decided by the higher courts, and iMEGA has been recognized by the Court as the champion to fight this battle.

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The Herald Tribune reports on EU complaints about US online gaming regulations. March 10th 2008:

EU launches investigation into US Internet gambling laws [Herald Tribune]

The European Union launched an investigation Monday into U.S. laws on Internet gambling, after European betting companies complained that Washington's actions against them were infringing world trade rules.

The investigation could lead the 27-nation EU to file a complaint at the World Trade Organization in the latest international tussle over a growing business worth more than US$15.5 billion (€10.05 billion) a year.

This is the crux of the issue as I have banged on about in this blog for months. I could not have said it better myself. It is good news that the mainstream US press continue to give this subject column inches.

"We cannot simply sit on the sidelines and watch while our members, who are already badly bruised by unlawful U.S. acts, suffer the double whammy of being prosecuted for activities whilst U.S. industry is not," said Clive Hawkswood, chief executive of the Remote Gambling Association, which represents many of the European companies.

"By any analysis, the U.S. policy is fundamentally unfair, and we are delighted that the (European) Commission shares our concern," Hawkswood said in a statement.

The London-based RGA says the U.S. action is hurting its members revenues and stock value as well as making them run the risk of substantial fines.

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Interesting reading:

US BANKS REACT AGAINST UIEGEA [Online Casinos]

The controversial regulations drafted in support of the Unlawful Internet Gambling Enforcement Act continued to be the subject of debate in the media this week with a notable contribution from the information portal Poker News, which obtained a copy of a reaction by the American Banking Association (ABA) submitted to the US Treasury in December.

The 11 page document indicated concern and negativity toward the regulations in their present form as it explored problem areas and raised issues of sufficient severity as to place a question mark over the successful implementation of the UIGEA.

It appears that Canada is looking to make online gambling illegal. This might seem like bad news but for shareholders of European based companies there might be a silver lining.

You see the Kahnawake reserve near Montreal, hosts approximately 400 online gambling sites with the Kahnawake Gaming Commission serving as a regulatory and licensing body.

Included I believe are some of the biggest US serving sites such as Pokerstars. Any disruption to their sites and status would a serious influx of players and money back to sites such as PartyGaming and others.

Pressure Mounting Against Online Gaming in Canada [Poker Source]

Call it UIGEA North, maybe. Canada’s National Post reported yesterday that the Canadian federal government is looking into ways of curtailing internet gambling in the country. Square in the crosshairs is the Kahnawake reserve near Montreal, which hosts approximately 400 online gambling sites and whose Kahnawake Gaming Commission serves as a regulatory and licensing body for the sites.

The government says that the sites are illegal, although no anti-online gambling laws have ever really been enforced. Now, Canada’s Minister of Justice, Rob Nicholson, wants to see whether or not there may be other means by which online gambling can be curbed. Many believe the preferred method would be a UIGEA clone – cutting off financial transactions to and from internet gambling sites.

In the meantime, the Mohawks of Kahnawake take exception to this, saying that because they are a sovereign nation, these internet gambling laws to not apply to them. They also say that section 35 of the Constitution protects gambling as part of their native culture.

Of course, just like in the U.S. the horse racing industry wants the government to stamp out internet gambling, since it competes with the industry’s gambling monopoly. Horse racing folks also complain that they pay $1 billion in taxes every year, while the online gambling sites don’t have to pay taxes to the Canadian government, as they are based offshore.

And, just like in the U.S., there are those rational minds that feel government legalization and taxation would help benefit the country through increased tax revenue. Regulation would also help protect customers from shady sites and help protect sites from fraud.

You can find more information here:

Online Gambling Canadian racetrack monopoly enters kahnawake fray [CasinoPortalan]

Following the suggestion by Canadian Minister of Justice Rob Nicholson that he may act against the online gambling interests of the Kahnawake first nation enclave in Quebec province, Canadian racetrack owners are adding their voices to the debate. And what they're telling Ottawa is they want to see online gambling in Canada stamped out, or a change in legislation to allow them greater access to the billion-dollar industry.

Liberal MP Roy Cullen, whose Etobicoke North riding includes Toronto's Woodbine Racetrack, said yesterday he plans to follow the Minister of Justice's lead by introducing a private members' bill that would require financial institutions and credit card companies to block Internet betting transactions.

Cullen claims that current laws prohibit all forms of Internet gambling in Canada with three exceptions: lotteries in provinces that allow online ticket sales; bettors who have telephone accounts at horse-racing tracks; and private bets between individuals. But he complains that the law is not being enforced.

The MP says that the problem is offshore operators, among them the 400 or so online poker and sportsbetting websites licensed and operating from the Kahnawake reserve just south of Montreal.

From iMEGA themselves.

Court Grants iMEGA Standing to Challenge Flawed Online Gaming Law [iMEGA]

(Washington, DC – March 6, 2008) – The Interactive Media Entertainment & Gaming Association (iMEGA) today applauded the decision by Judge Mary L. Cooper, of the U.S. District Court for the District of New Jersey, granting iMEGA the standing to pursue a challenge of the Unlawful Internet Gambling Enforcement Act (UIGEA). This is a significant victory for iMEGA in the case of iMEGA v. Gonzales, et al.

“Granting iMEGA standing is a major victory any way you look at it,” said Eric M. Bernstein, Esq., attorney for iMEGA. “Judge Cooper’s ruling holds that, even with the passage of UIGEA, online gambling is only illegal in states where a statute specifically says it is.”

“iMEGA is very pleased that the Court recognized our standing and the weaknesses in UIGEA” said Joe Brennan Jr., the chairman of iMEGA. “Judge Cooper found that banks, credit card companies and other payment system instruments are exempt from criminal sanctions under UIGEA, significantly undercutting UIGEA’s enforcement mechanism. Her ruling echoes the growing consensus of opinion that UIGEA is a fundamentally flawed statute.”

“We believe Judge Cooper missed the opportunity to affirm Americans’ online privacy rights and we plan to appeal to the Third Circuit Court of Appeals,” continued Bernstein. “However, her honor’s decision significantly undercuts the federal government’s argument that UIGEA is a well-drafted, effective and enforceable law.”

UIGEA was passed in the waning minutes of the 109th Congress with very little input from most Members of Congress. iMEGA filed suit to challenge UIGEA on June 5, 2007 and oral arguments were heard in the case on September 26, 2007. A decision has been pending since that date. In the interim, the Federal Reserve Board of Governors and the Department of the Treasury have issued proposed regulations to implement UIGEA and iMEGA and numerous other organizations, such as the American Bankers Association, have filed comments objecting to them.

“iMEGA supports the use of effective, existing technologies to protect children and problem gamblers,” continued Brennan. “Although UIGEA is purportedly designed to limit illegal Internet gambling, it falls woefully short of having the ability to accomplish that purpose and fails the American people on a number of fronts. If promulgated, the proposed regulations would stifle online innovation and commerce; inadequately protect children by failing to ensure adequate safeguards; and have a chilling effect on the digital civil rights of all Americans.”

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Two more links to news related to US regulation and how they might be fighting back.

The effect on share prices of PRTY and others would be sizable.

More Objections To The US Online Gambling Ban [Online Gambling Insider}

Resistance to implement the Unlawful Internet Gambling Enforcement Act is gaining momentum with numerous objections already submitted to the U.S. Treasury Department. The Federal Reserve has also criticized the regulations. This week, two more Republican senators raised their fears over the inordinate burden on US financial institutions.

Senators John Sununu and Pete Domenici argue that the regulations are creating too much overhead for banks that will be required to implement measures that ban online gambling transactions. Their objection was addressed to U.S. Treasury Secretary Henry Paulson and Federal Reserve System Board of Governors Chairman Ben Bernanke.

The UIGEA was passed in late 2006 but it took the Bush administration a year to publish proposals that would actually implement the bill. They called for general comment and most has been negative.

Feds Changing Laws After Being Forced To Approve Gambling Deals [Casino Gambling Web]

The United States Department of the Interior has been put in a position that they do not feel comfortable with. As a result, they have decided it is time to change the rules.

Last year, four gambling agreements were signed for Southern California tribes. The agreements were not signed because an actual agreement was reached. They were signed because paperwork was lost.

The agreements were submitted for approval, but then eighty days had passed and the paperwork disappeared. That caused the Interior Department to be forced to sign the agreements.

The new laws that are being proposed is that the window of time to approve the deals would not start until the Federal Office of Indian Gaming received the documents.

The government is trying to change the laws to ensure that any future deals are at their discretion. The new deal in place for the four tribes that were the beneficiaries of this latest deal is worth billions of dollars.

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It is increasingly clear that the US stance on online gaming is unsustainable. This excellent article provides a good summary of the current US position.

The article below makes it very clear that the ramifications of the US' hypocritical stance may be serious for other US sectors. In many respects the entire international trading system risks being devalued.

With the US on the brink of recession it really does not need this additional hassle. This quote is the important one.

"If the U.S. finds the decision of the WTO arbitrator unacceptable, under procedures outlined in the GATS, it could unilaterally withdraw, creating an unprecedented crisis of confidence in the global trading system. The best solution remains for Congress to pass legislation that would create a legal and regulated framework for online gaming in the United States and for the United States to remain in the GATs schedule to provide all providers legal protection under the WTO."

Regulation is the only route that makes political and economic sense. I believe the tide is beginning to turn.

The next few weeks might represent a one off chance to load up with gaming stocks ahead of some revaluations.


Costa Rica, Antigua file for WTO arbitration[Casino City]

WASHINGTON, DC -- (PRESS RELEASE) -- The international Internet gambling dispute, potentially valued at billions of dollars, continues. Costa Rica and Antigua separately filed for World Trade Organization (WTO) arbitration on January 28, seeking compensation from the United States as a result of the U.S. withdrawal of its commitment on cross-border gambling services. The new arbitration requests could potentially derail the settlement for compensation agreed to late last year by the U.S. and the E.U.

The arbitration filing makes it possible for the E.U. to reconsider its settlement with the U.S. and join the arbitration proceeding, opening up a new phase in the Internet gambling trade dispute.

"The decision by Antigua and Costa Rica to take the United States to arbitration will test the limits of the WTO process and squarely challenge the U.S. resolve to withdraw its GATS commitments," said Nao Matsukata, formerly Director of Policy Planning for USTR Robert Zoellick and now a Senior Advisor for Alston and Bird LLP. "If the U.S. finds the decision of the WTO arbitrator unacceptable, under procedures outlined in the GATS, it could unilaterally withdraw, creating an unprecedented crisis of confidence in the global trading system. The best solution remains for Congress to pass legislation that would create a legal and regulated framework for online gaming in the United States and for the United States to remain in the GATs schedule to provide all providers legal protection under the WTO."

U.S. withdrawal from GATS following this new arbitration carries the risk of expensive new sanctions levied against U.S. exports and intellectual property. "If the U.S. withdraws following another adverse arbitral decision, the country would face potential retaliation from all WTO Members affected by the arbitration, a pool of countries including the EU, Canada, and Japan," added Matsukata. "Inviting sanctions at a time when both the U.S. Administration and Congress are both striving to stimulate an economy on the edge of recession seems foolhardy at best, especially when draft domestic legislation already exists that would create a renewed flow of both business and tax revenues throughout the nation's gaming sectors."

Lode Van Den Hende, a W.T.O. expert and trade attorney with Herbert Smith in Brussels said, "There is a real possibility that the arbitration body will find that unless the U.S. provides commercially meaningful compensation to Costa Rica and Antigua, it cannot withdraw its commitment on gambling, without risking trade sanctions from the affected parties."

Costa Rica's action raises questions about what India and Macao might do as the other nations that have yet to come to terms with the U.S. over the withdrawal of the Article XXI commitment related to cross-border gambling services.

Under the WTO's GATS Article XXI rules, any country withdrawing its market access must provide compensation to affected countries that maintains a general level of mutually advantageous commitments not less favorable to trade than that provided for in schedules of specific commitments prior to the negotiations. The U.S. negotiated settlements with four of the eight nations seeking compensation - the E.U., Japan, Canada, and Australia, providing compensation, in the form of markets access to U.S. domestic postal services, warehousing, R & D, and technical testing sectors.

Costa Rica, Macao, India and Antigua did not reach an agreement with the U.S. over the withdrawal of its gambling commitment, as the above market sectors offered by the U.S. were of no commercial interest to those countries.

After the WTO ruled that the U.S. had violated trade rules in barring Antiguan online gaming operators from the U.S. market, the U.S. withdrew its WTO obligations with regard to free trade in the gambling area. The U.S. decision to withdraw its market commitments, in order to comply with the WTO, is the first instance of such an action by a WTO member. The action by the U.S. sets a precedent that other WTO members could copy in order to back out of their own commitments once they consider them inconvenient. In turn, the Costa Rican and Antiguan arbitration requests are the first ever in response to a withdrawal of commitments.

It is possible that these arbitration requests will impact the way in which Antigua decides to implement the $21 million per year in trade sanctions it received as compensation for U.S. noncompliance with WTO rulings in the gambling dispute. An option available is for the country to take the compensation in the form of intellectual property waivers.

"It is time for the U.S. to end its hypocritical practices that discriminate against foreign online gambling operators, while allowing U.S. gambling operators to accept bets for certain forms of gambling," said Jeffrey Sandman, spokesperson for the Safe and Secure Internet Gambling Initiative. "Regulation of Internet gambling should be supported as a means to resolve this trade dispute."

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Further good news in terms of some subtle pressure applied by Price Waterhouse Coopers and others on the tax revenues the US could achieve if they regulated online gaming appropriately.

It is clear that UIGEA has had NO or little effect except shafting EU quoted companies. The government clearly has to regulate. I can see no option. The current set up does not work. It has been an utter failure as noted below.

The tax revenue numbers are suitably large to perk the interest of other US congressmen. This will be easy revenue to collect and a large proportion could be spent helping problem gamblers if needs be.

Regulating Internet Gambling Would Generate Billions in New Revenue for Critical Government Programs [FOX news]

Congressman McDermott Urges Congress to Support Internet Gambling Legislation

A new tax revenue analysis announced by Representative Jim McDermott (D-WA) estimates that regulating Internet gambling would generate between $8.7 billion to $42.8 billion in federal revenues over its first ten years. The findings of the analysis, prepared by PricewaterhouseCoopers, were provided to all Members of Congress by McDermott earlier this week.

"Before us is a tremendous opportunity to protect consumers and recoup billions of dollars that should be collected by the Internal Revenue Service," said Representative McDermott. "These are revenues that are desperately needed, given that we are at war and face difficulty financing the nation's priorities."

Representative McDermott introduced the Internet Gambling Regulation and Tax Enforcement Act (H.R. 2607), which would tax regulated Internet gambling.

"To be clear, these are not mostly new taxes -- the bulk of the revenues generated would come from taxes required under existing law," said McDermott. "This is simply a framework to collect taxes on existing activity that is currently unregulated, unsupervised, and underground."

The current approach, prohibiting Internet gambling through the Unlawful Internet Gambling Enforcement Act (UIGEA), has proved to be a failure. Notwithstanding the UIGEA prohibition, millions of Americans are still able to gamble online. In addition, proposed rules by the Treasury Department to implement the current prohibitions have been severely criticized by many parties, including the American Bankers Association, Credit Union National Association, Financial Services Roundtable, and other leading financial services companies and groups.

"Instead of this ineffective attempt to prevent adults from gambling over the Internet, we need a more sensible approach to protect consumers and ensure that revenues that now flow offshore stay here in the U.S. and are therefore subject to taxation," added McDermott. "A new, safer, more sensible approach is needed to regulate Internet gambling and protect consumers."

McDermott's legislation functions as a companion bill to the Internet Gambling Regulation and Enforcement Act (H.R. 2046), legislation introduced by Representative Barney Frank (D-MA) which would establish a licensing and enforcement framework for regulated Internet gambling in the U.S. The legislation would allow States to retain full control over the regulation of Internet gambling within their borders, applying additional taxes, protections and limitations as determined necessary and appropriate.

"By prohibiting a popular, recreational activity that many millions enjoy in the comfort of their own homes, the U.S. is forfeiting billions of dollars in revenue needed for critical government programs," said Jeffrey Sandman, spokesman for the Safe and Secure Internet Gambling Initiative. "It is time for Congress to regulate and tax Internet gambling to ensure security controls are in place to protect consumers and capture billions in revenue."

To read the McDermott letter, please visit:

http://www.safeandsecureig.org/media/mcdermottfinanceltr.pdf

To read the PricewaterhouseCoopers analysis, please visit:

http://www.safeandsecureig.org/media/taxestimate.pdf

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Gambling911 today wrote an article saying that PartyGaming (PRTY) may have to pay up to $20m to the US government to settle.

This is a remarkably small amount given the cost to Neteller (NLR) (over $100m).

The writer of the article agrees:

Publicly traded online poker firm, PartyGaming, may end up paying the US government $20 million, assuming US officials plan on being especially generous.

Correct - it assumes that US officials will be very generous and there is no evidence to suggest that they will be. This makes the whole article rather pointless in my opinion. The title could have been "PartyGaming May Have to Pay £100m and say that is with US officials acting not particularly generously. All this does is set a minimum cost.

There is still something distasteful about this whole affair when the likes of PokerStars and FullTilt and hitting record numbers the majority of whom are US players.

Why can the government not shut these outfits down? You can bet none of the directors will ever set foot in the US but at least they will be incredibly rich.

SO why are PRTY looking to settle and why did NLR settle? Just to protect the behinds of their directors? I addition I suspect that this is seen as a way of paving the way for a return to the US if and when online gaming is regulated.

It is inconceivable that this will not eventually happen - one cannot turn back the waves of technology. Are PRTY therefore playing a long game?

This article below is to me (1) pointless and old news (2)badly constructed, (3) potentially misleading.

PartyGaming May Have to Pay US$20 Mil [Gambling911]

Publicly traded online poker firm, PartyGaming, may end up paying the US government $20 million, assuming US officials plan on being especially generous. That number is based solely on Party's $138.9m in 2006 pre-tax profits and discounts the previous few years it accepted bets from US citizens. The number is also based on the US government wanting 15 per cent back in tax monies.

PartyGaming has openly disclosed that they are working to settle any monetary issues with the United States. As such, it was revealed that few companies wish to deal with the one time largest online poker venture when it comes to partnership deals and potential acquisitions.

For years, Party siphoned millions of dollars out of the US economy. 80 per cent of its customer base resided in the US. By attempting to settle with the US Government, they have essentially placed their heads on the chopping block. We can use the reformed bank robber wanting to pay back the bank analogy here but we won't.

Party at one time was one of the biggest supporters of lobbyists in Washington looking to regulate online gambling prior to the passage of the Unlawful Internet Gambling Enforcement Act over a year ago. They immediately scrambled out of the US market but still remain a viable enterprise (the number three online poker room in fact).

Both US and foreign companies cut their taxes by profit shifting, but many lawmakers and tax analysts believe the practice is particularly widespread among foreign companies. More than 70 percent of foreign firms paid no tax each year between 1987 and 1991, the IRS reports, compared to about 60 percent of US companies. Clearly, some paid no tax because they did not make a profit, but many lawmakers believe others are illegally shifting profits overseas.

PartyGaming, while operating from the shores of Gibraltar, did have US citizens running the company at one time.

Search engine giant, Google, was recently ordered to pay $31.5 million just for promoting online gambling companies. In the case of BetonSports, an online gaming firm shut down in 2006, the US Government said the company faced a maximum that could be double the financial gain from or loss caused by the enterprise. Neteller, a third party payment transfer company dealing in online gaming, did not get off so easy. They were required to pay a $136 million fine to the US Government after a settlement agreement was reached.