A U.S. crackdown on European online gambling companies such as PartyGaming Plc and Sportingbet Plc is illegal and may justify a legal challenge at the World Trade Organization, the European Union said.
An investigation “found that U.S. laws on remote gambling and their enforcement against EU companies constitute an obstacle to trade that is inconsistent with WTO rules,” the European Commission said in a statement from Brussels today. “The provisional conclusions of the report imply that WTO proceedings against U.S. measures would be justified.”
The commission, acting on a complaint by European Internet gambling companies, says U.S. authorities targeted European businesses for operating gaming sites while failing to take action against domestic companies that offer similar services. The commission began its probe into the U.S. laws in March 2008.
The core of the industry complaint is that the U.S. Justice Department targets foreign Internet gambling owners -- and not domestic firms -- under U.S. legislation the WTO says violates international trade obligations. While the U.S. subsequently renounced those commitments and negotiated a settlement with the EU in December 2007, European companies are still subject to legal proceedings based on their past activities in the U.S. online gambling and betting market.
“Overall this is positive news for the industry as it’s another sign the EU is continuing with a reasonable approach on the issues surrounding the regulation of online gaming,” said Gavin Kelleher, lead analyst at online gambling consultancy H2 Gambling Capital.
Rather than going to the WTO immediately, the report “indicates that the issue should be addressed with the U.S. administration, with a view to finding a negotiated solution,” said the commission, the EU’s trade authority.
Many publicly traded European companies, including PartyGaming and 888 Holdings Plc, pulled out of the U.S. after Congress passed the 2006 Unlawful Internet Gambling Enforcement Act, but they face possible criminal prosecution for activities before then.
“The proceedings are continuing despite the withdrawal of European companies from the U.S. market in 2006 following changes in the U.S. regulatory framework,” the commission said. “The report comes to the conclusion that these proceedings are legally not justified and discriminatory.”
Nefeterius McPherson, a spokeswoman for the U.S. Trade Representative’s office in Washington, said her agency and the Department of Justice “are studying the report and will discuss it with the European Commission.”
A WTO panel ruled against the U.S. ban on Internet gambling in November 2004 and an appellate body upheld that decision five months later. The U.S. then took the unusual step of going back and saying it never meant to make any pledges on gambling and was going to withdraw the issue from WTO jurisdiction. Other nations negotiated other concessions in return.
“Once this withdrawal occurs, the U.S. would no longer be obliged to guarantee future access to its gambling and betting market, but this does not mean it could disregard its obligations in respect of past trade,” the commission said.
The industry complaint was lodged mainly over the prosecution and threat of prosecution against EU operators while the U.S. commitments were in place, said Clive Hawkswood, chief executive officer of the Remote Gambling Association. “If the U.S. can give the EU some assurances it will no longer take action, then we’d be very happy,” he said.
The EU is still investigating U.S. prosecutions of executives running Internet gambling sites. Sportingbet Chairman Peter Dicks was jailed in New York in September 2006 as part of an investigation into illegal gambling. David Carruthers, former head of Betonsports Plc, was arrested in Texas in July of that year and his company was barred from doing business in the U.S.
The arrests were part of the government crackdown on illegal online gambling in the U.S., where officials said Internet betting sites may launder money and sell drugs, and lack safeguards to screen out minors and gambling addicts.
U.S. laws have caused “serious adverse effects” for the EU including losses of revenue and stock-market value among companies that are absent from the U.S. market, the report says. In addition, “the threat of serious sanctions hanging over” these companies affects their activities outside the U.S. and there are knock-on effects on other sectors that supply the gambling industry, such as financial or professional services.