UIGEA under investigation by EU

11.03.2008

Online gambling companies in the 27 nation European Union trade alliance had the satisfaction this week of seeing their calls for an investigation into US online gambling legislation answered. The EU launched an investigation into possible infringment of world trade rules.

The compliance arm of the Union, the European Commission, said it would look into the complaints over the next five to seven months.

The investigation could result in the EU filing a complaint at the World Trade Organisation in the latest international tussle over a growing business worth more than US$15.5 billion a year, reports Reuters.

"The U.S. has the right to address legitimate public policy concerns relating to Internet gambling, but discrimination against EU companies cannot be part of the policy mix," said EU Trade Commissioner Peter Mandelson. He said he hoped the issue could be resolved amicably. Mandelson held talks with US officials late last year, producing some WTO concessions which were badly received by online gambling companies badly hit by unilateral American financial bans.

The companies complain that, before the ban, they had the right to operate under international trade laws, and that therefore ongoing U.S. Justice Department investigations into their previous activities in the U.S. violate WTO rules.

European companies claim the ban forced them out of the lucrative American market and discriminates against them in violation of WTO rules, while permitting domestic gambling companies, particularly those offering betting on horse races, lotteries and fantasy games, to flourish.

In 2006, the WTO had ruled against a U.S. ban that stops American banks and credit card companies from processing payments to online gambling businesses outside the country. The 2006 WTO ruling found the U.S. had the right to prevent offshore betting as a means of protecting public order and public morals. But it said Washington was breaking trade law by targeting online gambling without equal application of the rules to American operators offering remote betting on horse and dog racing (see previous InfoPowa reports).

Washington responded by doing a deal with the EU, Japan, Canada and others in December to allow it to effectively opt out of WTO rules on gambling in return for offering compensation in other areas.

The Remote Gambling Association, which represents a number of major European gambling companies, says the U.S. action is hurting their revenues and stock value as well as making them run the risk of substantial fines. It welcomed the EU's decision to act on its complaint.

"We cannot simply sit on the sidelines and watch while our members, who are already badly bruised by unlawful U.S. acts, suffer the double whammy of being prosecuted for activities whilst U.S. industry is not," said Clive Hawkswood, chief executive of the London-based RGA.

"By any analysis, the U.S. policy is fundamentally unfair, and we are delighted that the commission shares our concern. The U.S. simply needs to end its discriminatory prosecution of EU companies, and their shareholders, who have after all been out of the US market for almost two years now."

In December, the WTO awarded Antigua and Barbuda the right to impose $21 million a year in sanctions on the United States in retaliation for the restrictions on online betting, but the sum was a fraction of the $3.4 billion sought by the Caribbean nation.

A U.S. Justice Department spokesman said they had no immediate comment, but U.S. trade officials said they had been assured by EU officials the investigation would not upset the compensation package the two sides struck in December 2007.