WTO ‘net gambling details remain secret

Thursday, March 25, 2004 | 11:15 a.m.

Government officials have declined to release details of a landmark ruling on Internet gambling by the World Trade Organization Wednesday, making it difficult for observers to gauge whether it will end up opening U.S. borders to Internet gambling.

An official familiar with the ruling says the WTO found that the United States made general obligations to allow gambling across national borders when it joined the WTO in 1995 and then reneged on that agreement by taking actions to prohibit Internet gambling.

The ruling stems from a complaint filed with the WTO last year by the government of Antigua and Barbuda, a Caribbean nation that developed Internet gambling to boost its floundering tourism economy. U.S. actions to crack down on offshore websites have significantly hurt its Internet industry, slashing jobs and government revenue, Antigua officials said.

Some experts say the ruling -- which U.S. officials will appeal -- may take years to resolve and won't likely have the teeth to force the United States to loosen restrictions on Internet gambling or allow foreign websites to lawfully offer gambling to U.S. bettors.

With or without WTO action, a growing number of Americans will continue to make bets on offshore Internet sites while more individual states legalize certain forms of online betting, Internet gambling advocates say.

The preliminary ruling is now in the hands of Antiguan and U.S. officials, who will have an opportunity to comment. The WTO will consider the comments when it issues a final report that will be made public as soon as May.

Ronald Sanders, Antigua's chief foreign affairs representative, declined to release the ruling but said the WTO reasoned that the United States' de-facto prohibition on Internet gambling conflicted with an agreement in principle to open its borders to gambling.

"The U.S. made general obligations to allow cross-border gambling and betting, then tried to renege on that by passing domestic laws in the U.S. prohibiting Internet gambling," he said. "You cannot use domestic laws (to avoid) fulfilling your international obligations."

Sanders he expects the WTO to take swift action to bring the United States into compliance with the trade agreement by allowing Antigua to accept bets from Americans.

The United States said it never agreed to eliminate trade barriers on gambling services as part of a 1995 treaty on services aimed at fostering the free trade between nations.

"We believe that the language on U.S. services commitments used by the Clinton Administration clearly intended to exclude gambling when the U.S. joined the WTO in 1995," said Richard Mills, a spokesman for the Office of the U.S. Trade Representative. "We intend to appeal and will argue vigorously that this deeply flawed panel report must be corrected by the appellate body."

The United States also argued that it never legislated an all-out ban on Internet gambling and that gambling is limited and controlled in this country. Antiguan officials said actions taken by the U.S. government add up to a policy outlawing Internet betting. Antiguans also said that gambling is pervasive in the United States and is even promoted by state and local governments. The United States doesn't actively enforce its own gambling laws and has witnessed the spread of land-based gambling, which competes with Internet gambling for customers, Antiguan officials said. U.S. officials said gambling is limited and that Internet gambling is a distinctly different enterprise from land-based gambling, where problem gambling concerns and underage gambling can be better controlled.

"What the WTO is saying is that you've got so much gambling in the U.S. that you've got to let in Antigua operators. If you let in Antiguan operators, Nevada operators could go to Antigua and get licenses. This is going to prompt a big push for loosening (Internet gambling) laws" because governments can tax online gambling revenue, said I. Nelson Rose, a professor of gambling law at Whittier Law School in Costa Mesa, Calif.

The ruling "is a very bad decision for the United States ... and good news for Nevada licenced operators who have been wanting to get into the Internet business," Rose said.

The United States could end up adopting standards similar to those discussed by the Nevada Legislature in 2001 when it authorized Nevada regulators to explore regulating Internet gambling -- efforts that died after a recent federal opinion that Internet gambling is illegal, he said.

"What the U.S. is going to insist upon is all kinds of safety protections to show that the system is trustworthy. In other words, that (operators) be licensed," he said. "You can imagine that the U.S. standards are going to be so strict that there's going to be a fight. We're still quite a ways from being able to take Internet bets legally from the United States."

In theory, recent U.S. actions to crack down on Internet gambling -- including recent letters sent to media companies notifying them that they could be prosecuted for promoting illegal Internet gambling on their websites -- would be rolled back under the WTO decision if they involve Antiguan gambling sites, said Jay Cohen.

Cohen formerly operated an Internet gambling site from Antigua and was prosecuted under the Wire Communications Act of 1961, a U.S. law written to prohibit sports betting across state lines that has been applied to Internet gambling. Cohen finished serving a prison sentence in Las Vegas this week.

"The U.S. gets more out of the WTO than any other country and they have the most to lose overall" if they don't change their stand on Internet gambling, Cohen said. "Either you're part of the WTO or you're not."

Others say such rosy scenarios are unlikely.

"Even if Antigua were to win (on appeal) two years down the road, the impact of that means that Antigua and Barbuda can put sanctions on products Americans sell to Antigua. I doubt that's going to shake up anyone," said Frank Fahrenkopf, chief executive of the American Gaming Association trade group.

Martin D. Owens Jr, a Sacramento-based attorney for gambling operators and other Internet businesses, said the United States is unlikely to budge.

"The U.S. is the 800-pound gorilla and if they don't care to be held to a certain standard they won't be," Owens said.

"I think there's a consensus that things aren't going to change much," added Mark Balestra, vice president of publishing for River City Group, a Missouri-based Internet gambling consulting firm. "It's certainly not going to legalize anything and it won't encourage government to regulate it. The government will find a way to continue its policy of ... cracking down" on Internet gambling sites, he said.

The uniqueness of the case makes it too early to handicap, experts say.

The case marks one of few disputes involving the trade of services as opposed to hard goods, which have been subject to trade agreements for decades. The case also is the first involving the Internet and the first to involve gambling, which has typically been regulated by states.

"I don't think anybody really knows what's going to happen," said Frank Catania, an Internet gambling consultant who helped revise Antigua's Internet gambling regulations. "But I think (Antigua) made a very good case. I think it's going to come to a point where the U.S. has to look at it very hard."

In the meantime, Internet gambling is spreading.

"Nobody has worked harder than the U.S. to establish the global transfer of goods and services but they didn't anticipate the scope to which the Internet would penetrate, especially in gaming," Owens said. "Nobody thought Internet gaming was going to become so broad-based and that it was going to appeal to so many small countries."

Several states have authorized bettors to gamble on horseracing online through pre-established betting accounts and Georgia recently passed a House bill to allow residents to use the Internet to bet on the lottery, he said.

Still, the vast majority of Internet gambling in the United States is considered illegal because it is conducted from websites in exotic places such as Antigua and Costa Rica, far from the reach of federal regulators.

Consumers worldwide are projected to spend an estimated $7.5 billion on Internet wagering this year, ballooning to $13.8 million by 2007 and $18.4 billion by 2010, according to analysts Christiansen Capital Advisors.

"It has taken a while for government to catch on that gambling is a multibillion-dollar industry and a lot bigger than some of the other services they tried to exclude" from free trade, Rose said. "At the time they entered into the agreement, there wasn't much threat of offshore gambling and legal gambling wasn't that big."

"What we don't realize in the U.S. is that we are the oddball ... because a minority of people in the United States believe gambling is wrong," Catania said. "The rest of the world is moving forward."