U.S. credit cardholders and issuers hoping to clear the legal minefield that currently surrounds online gambling are finding new backers in an unlikely place — the 27-member European Union.
The European Commission, which administers the union, ruled this week that U.S. laws that ban most forms of online gambling discriminate against European companies and violate international trade agreements.
A 94-page report released by the commission in the wake of an investigation it began on March 11, 2008, concludes that “the U.S. measures constitute an obstacle to trade that is inconsistent with WTO [World Trade Organization] rules.”
In addition, the commission alleged that the U.S. Department of Justice has been strong-arming foreign banks and credit card processors as part of its campaign to discourage online betting.
Though the Europeans could seek sanctions, they prefer to engage the Obama administration in negotiations, according to the commission’s representatives.
“Internet gambling is a complex and delicate area,” said EU Trade Commissioner Catherine Ashton, “and we do not want to dictate how the U.S. should regulate its market.
“However, the U.S. must respect its WTO obligations,” she said. “I hope that we will be able to reach an amicable solution to this issue.”
Long battle over online gambling
“Complex and delicate” puts it mildly.
The controversy over Internet betting has been intensifying for years, complicating life for gamblers, generating serious compliance issues for credit card issuers and other bankers, and reaching deeply and regularly into Congress and the White House.
In the most recent round of political gamesmanship, legislation that banned U.S.-based firms from conducting most online gambling operations was approved by a Republican-controlled Congress and signed into law by President George W. Bush in 2006.
Passed in the dead of night and widely criticized as vague and confusing, the Unlawful Internet Gambling Enforcement Act (UIGEA) did little to block online betting — it merely nudged gamblers into using European or other offshore Internet gambling sites.
To this day, Internet gambling remains a multibillion-dollar industry in the United States. The European Union estimates the size of the U.S. online gambling market at $4 billion annually, though other estimates range as high as $12 billion per year.
Other laws used to enforce gambling ban
Meanwhile, the commission found, the U.S. Department of Justice has been citing other laws — including the Wire Act and Travel Act, both passed nearly 50 years ago — to harass European companies active in the field of online gambling.
“There has been substantial enforcement activity by the DOJ against EU Internet gambling and betting companies and their shareholders and executives,” the report said.
“This activity includes cases where the investigation has resulted in formal charges being brought against EU companies and executives and/or a settlement with the authorities, and cases where a criminal investigation has been launched and is ongoing but has not yet resulted in formal charges being brought.”
In addition, the report said, U.S. officials have been targeting credit card payment companies that process transactions between European gambling operations and American gamblers. At least two firms have been fined millions of dollars and several principals of those firms have been arrested.
This report particularly shows the inconsistency of the Bush administration, which frequently argued we had to abide by the WTO even when it cost American jobs, but ignored the WTO when it didn’t fit the conservatives’ ideological beliefs.
|— Barney Frank |
All of these actions violate trade agreements signed by the United States, according to the Europeans, and must cease.
“The obstacles to trade identified in the complaint have forced the total withdrawal and/or absence of EU companies from the U.S. market and have significant negative effects on their business outside the United States …,” the report concluded. “The obstacles to trade can therefore be considered as causing and threatening to cause adverse trade effects, having a material impact on a sector of economic activity and a region of the [European] Community.”
Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, swiftly found much to admire in the report. In May 2009, Frank introduced legislation that essentially would replace UIGEA with a law that would permit U.S.-based companies to accept online bets from Americans.
“This is further argument for repealing the law, which currently restricts the personal freedom of American adults to gamble online,” Frank said. “This report particularly shows the inconsistency of the Bush administration, which frequently argued we had to abide by the WTO even when it cost American jobs, but ignored the WTO when it didn’t fit the conservatives’ ideological beliefs.”
Frank’s proposed legislation would require investigations of potential licensees and technological barriers to deter underage gambling, fraud, money laundering and tax avoidance.
Back on the other side of the ocean, the Remote Gambling Association, a London-based group that represents online betting companies and filed the original complaint with the European Commission, said it was looking forward to a speedy resolution of the case — one that would ease the way for U.S. credit cardholders to legally place bets over the Internet.
“The publication of the full report will now enable others to see what a comprehensive and objective investigation was undertaken by the European Commission before it reached such a clear conclusion and found in our favor,” said Clive Hawkswood, the RGA’s chief executive. “This is another step forward in the process and we hope that negotiations between the U.S. and E.U. on this issue will now progress to a satisfactory outcome without delay.”