On 13 October President Bush signed the law that triggered the market value meltdown of several internet gambling operators that derived much of their turnover from US punters (the most prominent being Partygaming, 888 Holdings and Sportingbet). What many people don’t know is that President Bush did so in complete disregard of US obligations under international law.
The Unlawful Internet Gambling Enforcement Act of 2006 makes it a crime for any gambling business to accept a transfer of funds in connection with unlawful internet gambling. It further provides that regulation must be put in place requiring financial service providers to “identify and block” any payments relating to unlawful internet gambling.
When read outside its complex factual context, the act is a peculiar piece of legislation. On its face it does very little, primarily because it does not define what “unlawful internet gambling” is. In essence, the 2006 act only covers internet gambling that was already illegal under state or federal law.
The act is nevertheless important because it removes some of the ambiguity that existed within the arsenal of US gambling prohibition laws. First, it makes it clear that any internet gambling that violates a state law is automatically a breach of federal US law, irrespective of the type of gambling and the supply method. Second, the act makes it clear that internet gambling that takes place legally within the territory of one state does not violate US federal law.
One thing that the 2006 act clearly doesn’t do is to bring the US into compliance with its World Trade Organisation (WTO) obligations, following the loss of the dispute settlement case brought by Antigua. In that case the WTO Appellate Body found in April 2005:#that the US had made specific commitments under the General Agreement on Trade in Services (Gats) to provide market access and non-discriminatory treatment for gambling services supplied cross-border from other WTO members;#that the US prohibition on the use of the internet to supply cross-border gambling services violates the US’s obligations;#that the US had made a prima facie case under the Article XIV Gats exemption clause that such a prohibition is “necessary” to address public interest concerns, such as underage gambling, and could not be replaced with less trade-restrictive measures; and#that the US did not meet all conditions for a successful use of the Article XIV exemption clause because it maintains a de facto exemption from the Wire Act for internet gambling on horse races.
A WTO panel is investigating whether the US has in the meantime complied with its WTO obligations. The act, however, has made US non-compliance considerably worse. First, by making it crystal clear that the US does not oppose internet gambling per se, but only internet gambling that crosses the border of a state. Second, by the act recognising that public interest concerns can be addressed by regulation and technology. Third, the act explicitly preserves the de facto exemption for internet betting on horse races.
In fact, US non-compliance is so painfully obvious that one cannot but wonder about the complete lack of response from the EU and the UK. Companies do not have direct access to WTO dispute settlement and have to rely on governments (or the European Commission) to defend their interests. Of course, gambling is politically sensitive. However, there is little doubt that, if this were to have been a matter of US v EU (as opposed to EU v US), the US would be breaking down the EU’s door.
Herbert Smith consultant Lode van de Hende assisted in writing this article.