WTO ruling provides scope for U.S. online gambling ban

By Liz Benston (contact)

Thursday, April 7, 2005 | 11:15 a.m.

An appellate body of the World Trade Organization handed down a landmark decision on Internet gambling today that online gambling supporters say could end up forcing the United States to allow gambling sites based in Antigua and Barbuda to accept bets from U.S. gamblers.

But the United States, in fighting a complaint filed by the small Caribbean nation, said it won key arguments before the WTO that will allow it to maintain broad restrictions on Internet gambling.

As a result, the U.S. Trade Representative said it won't ask Congress to weaken restrictions on online betting.

The dispute centers on a complaint filed with the WTO in 2003 by Antigua, which developed Internet gambling to boost its floundering tourist economy. Efforts by the U.S. government to crack down on offshore gambling sites hurt the small country's fledgling Internet industry, slashing jobs and government revenue.

Antigua won an initial WTO decision against the United States in November, siding with the island's argument that U.S. actions to criminalize Internet betting violates global laws. The United States appealed that decision in March.

The appellate body sided with the original WTO panel, saying the United States made general obligations to allow gambling across national borders as part of a free trade treaty.

Officials with the American Gaming Association declined to comment this morning, saying they had not yet digested the ruling.

Mark Mendel, an attorney representing Antigua before the WTO, said the ruling "is expected to end subpoenas or threats of prosecution from the United States Justice Department to U.S. companies who choose to do business with Antigua offshore gaming companies."

For example, he said, Internet search engines and credit card companies will be allowed to do business with Antigua-based Internet gambling sites "as they do currently with U.S. gaming interests, including hundreds of American casinos and state lotteries."

He called the ruling "country-specific" but said it may also have far-reaching implications for other countries that engage in online betting with American gamblers.

The United States will be required to "thoughtfully address its approach to online gambling rather than simply prohibiting it altogether," Mendel said.

The U.S. Justice Department, which believes Internet gambling is illegal, has used a variety of laws on the books to criminalize online betting. Internet gambling backers say those laws are unclear and that no federal law specifically bans Internet bets.

The Office of the U.S. Trade Representative today disputed Antigua's characterization of the ruling, saying the government needs only to clarify "one narrow issue" in federal law to maintain broad restrictions on Internet gambling.

The appellate body reversed the initial panel decision when it found that the United States could use federal gambling laws to "protect public morals or maintain public order."

That interpretation allows the United States to be exempted from WTO rules for trade in services, the U.S. Trade Representative said.

In order for the exception to apply, the appellate body said the United States needs to clarify rules under the Interstate Horseracing Act, a federal law that several states have used to legalize Internet gambling on horse racing.

"By reversing key aspects of a deeply flawed panel report, the Appellate Body has affirmed that WTO members can protect the public from organized crime and other dangers associated with Internet gambling," the U.S. Trade Representative said in a statement. "This is also a victory for the federal and state law enforcement officers and regulators who protect the public from illegal gambling and its associated risks of money laundering and organized crime."

Attorneys for Antigua said it will be difficult for the United States to use a morals defense because it already allows Internet gambling on horse races.

Las Vegas attorney and Internet gambling expert Tony Cabot said the dispute is far from over.

"It's obvious we have a dispute over the scope of the ruling" that will probably go back to the WTO for resolution, Cabot said.

More important will be how the United States reacts to the final interpretation, he said.

"It's probably a leap of faith on Antigua's part to say, 'We give up. You can take bets from Americans,' " he said. "They can claim partial victory and they've taken it farther than most people thought they would take it. But it's not over yet."

If the United States ignores the ruling it could face trade sanctions, though sanctions from Antigua could hold little weight, he said.

"The real trump card is ... whether or not other countries will take a similar position to Antigua and challenge the United States. If Great Britain, for example, takes the position of Antigua, then retalitory trade sanctions have meaning."

A WTO dispute settlement body is expected to formally adopt the panel and appellate body reports within 30 days, the U.S. Trade Representative said. There is no further appeal process.