Online gaming companies have winning argument
21 August 2006
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It appears that the online gaming industry cannot stay away from the headlines. The feeding frenzy following BetonSports chief executive David Carruthers' arrest was not dissimilar to the fascination prompted by the largest of the online gaming floats last year. There are those who suggest that this arrest spells the demise of the industry. This is highly unlikely.
Governments and regulators must face the fact that online gaming is hugely popular. Any attempted prohibition of such a leisure activity would only benefit a black market and be politically suicidal. The views of the US Department of Justice plainly do not represent the views of US citizens, who still account for the majority of the market.
The plethora of online poker offerings, despite the odd advertising crackdown, is so pervasive that we understand the average US citizen would be flabbergasted to be informed that it was a) illegal, and b) the subject of sustained attempts by Congress to pass legislation to block all banking transactions that allow them to participate.
There is also no consensus among governments as to how to deal with the industry. Some actively endorse, regulate and license. Others vaguely disapprove, but do little. At the extreme end are countries such as the US, which regards online gambling as the slippery slope, although even the US has abandoned its earlier claims that the online gaming industry is linked to terrorism because of its facilitation of money laundering.
The claim that governments are protecting a moral cause is, with a few exceptions, pure cant. The main driver is the protection of revenue, particularly where there may be limited domestic monopoly operators.
The ultimate hypocrisy of this is exposed in cases where there are almost limitless advertisements for a citizen in a certain country to gamble, together with protestations by the government that use of gambling products supplied by offshore operators will herald ultimate moral decline. While this has also led to some navel gazing about international/European law trade obligations, there are not going to be any quick fixes.
However, the basis of the legal argument underpinning the industry is that, if the operator is based in country 'A', then that is where the wager is accepted or the game played, and if it is an authorised and legal activity in country 'A' then it is irrelevant that the operator's products are accessed in country 'B'. A bricks and mortar casino or betting shop would not bar players on the basis of nationality and an online casino or betting shop is merely allowing international players across its threshold. This lack of consensus also creates political embarrassment as how best to challenge cross-border supplies.
This might not have been the case when there were only obscure island territories licensing online gambling, but not when one licensing entity is in the UK, where the Gambling Commission will be able to grant online licences from next year. Would governments really seek to take legal action against a company whose actions were authorised and made specifically legal under UK law?
The bigger the online gambling businesses become, the more important their positions as employers and taxpayers will also become, which will give them political lobbying clout. The industry is worth billions of pounds.
It is also important to remember that the US is not the only market. Most online gambling companies have extended their presences into different territories and will continue to do so. The Asian market has huge potential and, with the growing sophistication of payment solutions and the media of content delivery (some spearheaded by the online gambling industry), the market will continue to expand.
Therefore, put in context, the BetonSports matter was bound to attract attention because it occurred in the US and came so quickly on the heels of the NatWest Three's extradition. Certain investment entities thrive on market friction, so City 'sound bites' are also inherently suspect. What is more worrying is the US becoming the moral arbiter of the world, because once wider crimes than online gambling are alleged, the extradition rights conferred by the Extradition Act 2003 can be substantial.
With the US embracing ever-widening compliance obligations for companies, all industries are vulnerable. The ultimate irony is that, given the challenges the industry has withstood for more than a decade, it is better placed than most to create legal, technical and commercial solutions.
Hilary Stewart-Jones, partner, Berwin Leighton Paisner
(Please note that this article represents the opinions of the author. It does not necessarily reflect the views of The Lawyer or Centaur Media.)