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GUEST COMMENTARY: The Troubling Face of Globalisation: The U.S. and Internet Gambling

Posted by kinchendavid on July 22, 2006

  

By  Sir Ronald Sanders

This month, the world saw the troubling face of globalisation over Internet gambling.  On one side of the coin is the desire by the US government to prohibit the cross-border delivery of Internet gambling services into the US.  On the other side, are the companies and countries that take advantage of new trade rules – advanced by the US itself – that seek to create a single global economic space in which businesses are free to enjoy unrestricted trade in goods and services across the world.

 The government of the United States, the world’s most powerful nation and one of the main advocates of globalisation, continued to question decisions of the World Trade Organisation (WTO) that US domestic laws should be brought into compliance with the US government’s international obligations over the delivery of Internet gambling services from the tiny Caribbean State, Antigua and Barbuda, into US territory.

 US law makers and law enforcement agencies have asserted that Internet gambling helps to create gambling addicts, is open to children, and can be used for money laundering.  They also claim that Internet gaming companies and their punters evade paying tax in the US. 

 Representatives of the US at the WTO have also claimed that the US government has never agreed to allow Internet gaming into its territory under the General Agreement on Trade in Services (GATS).

 This has been the main issue between the governments of the US and Antigua and Barbuda at the WTO.  Simply put, is the US violating its commitment under the GATS by prohibiting the delivery of Internet Gambling services from companies located in Antigua?

 So far, two WTO Panels – an original Panel and an Appellate Panel – ruled in March 2004 and April 2005 respectively that the US should bring its domestic laws into conformity with its international obligations. 

In two sets of consultation processes before each of the Panels was convened, Antigua and Barbuda offered to address the US concerns about regulation and taxation.

The Antigua and Barbuda government offered to beef up its own regulation of the Internet gaming companies to guard against underage age gambling and the possibility of money laundering, and also to establish machinery for applying withholding taxes on winnings by US punters which would be paid over to the US Treasury.

 The US government representatives favoured only a direct prohibition on the delivery of Internet gambling into the US from any part of the world.

 In pursuance of this, the US House of Representatives this month approved a Bill to prohibit most forms of Internet gambling and to make it illegal for banks and credit card companies to make payment to online gambling sites.  The US Senate has not yet voted on the Bill, but it is more than likely to receive the nod of a majority.

  This month also witnessed US law enforcement authorities arresting the Chief Executive Officer of one of Britain’s leading Internet gambling companies, Betonsports, and three others employees of the company as they were transiting the US.

 They were arrested on charges of racketeering and wire fraud because their company allowed willing US citizens to gamble over the Internet.

 Even as the charges were being laid against the Betonsports officials, the WTO was in the process of setting up yet another panel, at the request of Antigua and Barbuda, to investigate whether the US has taken steps to comply with the earlier Panel rulings that its brings its domestic laws into conformity with its obligations under the GATS.

 The new panel was established on July 19, 2006.

 While the Caribbean countries in which Betonsports has operations will be affected by the US action in arresting the company’s officials, it is the investors in the company which was floated on the stock market in the UK in July 2004 who will feel the greatest pain.  Trading on Betonsports shares was suspended in London following the arrests.

 Other publicly traded on line companies also saw their share value drop as much as 15 per cent.

 Whether Betonsports has actually broken any US laws is still to be determined.

 The claim is that the US Wire Act covers sports betting, but experts believe that because the Act was written as far back as 1961 it is not clear that it covers other forms of gambling.  The Act may not cover on line casinos and on line poker.

 It is noteworthy that the US allows on line betting on horse racing, and several US State governments encourage participation in State sponsored lotteries via the Internet.

 And, it has to be assumed that the lawyers for Betonsports will draw attention to the two WTO Panel decisions which state clearly that the US must bring its domestic laws into compliance with its international obligations.

 By the time the case is heard in the US, the new WTO Panel decision should be known.  The Panel has to report its findings on U.S. compliance within 90 days. 

 In any event, the Internet gaming business now turns over estimated revenues of US$12 billion a year.  It is probably much higher than that.

 The US did not take on board the proposal by the Antigua and Barbuda government that the US itself should regulate and licence the delivery of cross border Internet Gaming services just as they regulate the delivery of cross border banking services.   US representatives also did not respond to the suggestion that the US winnings of these companies and their US punters be subject to a withholding tax that would be paid to the US Treasury.

 But with a business that is now so vast and which obviously derives a significant portion of its market from the United States, it would seem that a regime of regulation, licensing and taxation would be more beneficial to the US than outright prohibition.

 Such a regime would earn the government considerable tax revenues, allow it to guard against abuse, and permit it to uphold the liberalised trade rules for cross-border transactions that it has itself advocated strongly in the WTO.

 For such a regime to be adopted in the US requires new thinking about Internet Gaming.  In the absence of a strong lobby to promote such thinking in the US congress, the lobby to maintain a prohibition on Internet gambling will prevail.

 What is interesting about this month’s developments, particularly with the arrest of the Chief Executive Officer of a publicly-traded British Internet gambling company, is the observation made in the London Financial Times of July19th.  It said: “While Antigua and Barbuda has little leverage, more powerful hosts of Internet gambling companies, such as the UK, which is home to some of the largest, might raise the stakes”.

 (The writer is a business executive and former Caribbean diplomat who publishes widely on Small States in the global community)

Responses to: ronaldsanders29@hotmail.com

 

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