WTO Rules Against US Net Gambling Ban

The World Trade Organization (WTO) on Friday said the U.S. ban on Internet gambling is out of line with international trade policy. This ruling gives hope to Web gambling firms that have been battered by U.S. regulatory and law enforcement activity in recent months.

The WTO ruled in favor of the Caribbean nations of Antigua and Barbuda, which had filed a complaint in May of 2004 and had already won preliminary judgment against the U.S., including possible trade sanctions. That ruling said the U.S. had failed to live up to an earlier agreement to open up Internet gambling after it had put adequate regulations in place.

The U.S. had filed an appeal, which was essentially rejected in Friday’s ruling.

A Missed Opportunity

In a 51-page ruling, the WTO dispute settlement board found that the U.S. had not taken steps to better align its own domestic regulation of gambling with its prohibition against U.S. residents placing bets at overseas-based Internet casinos.

The panel found that the United States missed “an opportunity to remove the ambiguity” and contradictions between intrastate regulations and international rules. “Instead, rather than take that opportunity, the U.S. enacted legislation that confirmed that the ambiguity at the heart of this dispute remains.”

Antigua and other nations have argued that because the U.S. allows remote betting on horse racing and other types of gambling within its borders, it was in violation of international trade law with its ban on Web gambling.

Changing Times

Since the dispute was first filed, the U.S. has become far more aggressive in its stance against Web wagering.

While the U.S. at one time took a largely passive approach — declaring the activity illegal but doing little to enforce the law — that began to change last year. In the course of just a few months, President Bush signed legislation and several executives of Internet gambling companies were arrested when they traveled to the U.S.

As a result, several of the world’s largest Web gambling companies have seen their stocks plummet and their values decimated as they turned away from what had been one of their largest and most profitable markets out of fear of facing law enforcement crackdown.

The founder of UK-based Web payment service Neteller, a common choice for arranging payments to Internet casinos, has also been arrested, and reports have surfaced that other banks and credit card companies have been targets of gambling-related investigations.

The Bush administration has also sought to distance itself from the Clinton administration’s pledge to put the frameworks in place to enable international gambling to take place, calling it an oversight that did not take other existing laws into account.

Limited Leverage

In twice winning favorable rulings from the WTO, Antigua became the smallest nation ever to win a victory from the organization. Still, the country’s size may leave open the question of how much leverage it has to force the U.S. to make changes.

While WTO rules permit the country to take actions such as removing protections for intellectual property that originates in the U.S., it may be reluctant to further antagonize a country that provides it with goods and with a steady stream of sun-seeking tourists.

The case is just a reminder of the hodgepodge of laws that make up rules about gambling on the Internet, which has all but wiped out the border distinctions upon which most older laws are built, Christiansen Capital Advisors analyst Sebastian Sinclair told the E-Commerce Times.

Meanwhile, Internet gambling revenues have taken off along with the growth of the Internet, and now amount to more than US$12 billion a year and will be worth twice that amount by 2010, he noted. Officials in Antigua and Barbuda, however, say their Web casinos have seen revenues fall off sharply amid the press by the U.S. to stop betting from its residents.

“The legal patchwork that’s in place doesn’t address today’s technology,” Sinclair added, noting that domestic groups are also calling on Congress to update the country’s gambling laws to account for the growth of the Web.