TELECOM Digest OnLine - Sorted: Don't Bet on Web Gambling Crackdown

Don't Bet on Web Gambling Crackdown

Lisa Minter (
Mon, 20 Jun 2005 19:37:04 -0500

By Andy Sullivan

Online-poker company PartyGaming has warned investors that the U.S.
government could interfere with its operations, but observers say
that's about as likely as drawing four aces in a game of five-card

U.S. law enforcers are unlikely to directly pursue PartyGaming --
which plans a public stock offering in London next week -- or any
other online-gambling company due to unresolved legal questions,
several industry experts said.

"It's so remote that the chances approach those of being hit by
lighting," said Joseph Kelly, a professor of business law at the
University of Buffalo law professor who has helped other countries
draft online-gambling rules.

The U.S. Justice Department says several laws that prohibit interstate
gambling apply to the Internet as well, and it intends to prosecute

Under pressure from the Justice Department, services like Visa and
PayPal have blocked payments to gambling sites, while media outlets
and search engines like Yahoo Inc. have declined to run their ads.

That hasn't stopped millions of U.S. citizens from placing bets on
offshore Web sites like PartyGaming's, which is based
in Gibraltar.

Online casinos like sponsor glitzy Las Vegas conferences,
and other payment services like e-gold have stepped in to handle the
business that Visa and eBay Inc.'s PayPal are leaving on the table.

PartyGaming plans to go public by June 27 in what promises to be the
London Stock Exchange's largest IPO in four years.

The company warned last week that anti-gambling efforts by the United
States could make it difficult to advertise and collect payments, and
could even result in jail time for company officials.

The Justice Department has so far prosecuted only one online gambling
operation, an Antiguan sports-betting Web site run by a U.S. citizen,
in 2000. Justice Department officials said that several other
companies have pleaded guilty before going to trial.

The Fifth Circuit Court of Appeals ruled in November 2002 that the
1961 Wire Act, which forbids interstate telephone betting, only
applies to sports-betting operations, not online casinos or poker

The World Trade Organization ruled last year that the United States's
anti-gambling stance violates international trade agreements, a
decision the U.S. government has appealed.

"I think the Department of Justice is just sending out all these
messages to avoid a confrontation where they might have to prove it in
a court of law," said Frank Catania, a former gambling regulator for
the state of New Jersey who now works as a consultant to the industry.

Justice Department officials said they haven't brought more cases
because of a lack of resources, not a shaky legal foundation. Even if
the Fifth Circuit's decision stands, two other 1960s-era anti-gambling
laws can be used against Internet gambling sites, they said.

Efforts to pass an anti-gambling law that applies specifically to the
Internet have stumbled in Congress since at least the late 1990s amid
a thicket of competing interests: horse racing, dog racing, state
lotteries, Indian casinos and anti-gambling crusaders.

Arizona Republican Sen. Jon Kyl (news, bio, voting record) is expected
to introduce another anti-gambling bill soon. Though the bill will be
updated "to reflect the explosive growth of the industry,"
PartyGaming's upcoming IPO is not a factor, a Kyl spokesman said.

Copyright 2005 Reuters Limited.

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