Barney Frank leads the way with more positive news from the US

United Kingdom

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

The first four months of 2007 saw the scope for online gambling in the US tighten further with the exit of Neteller and other e-wallets from the market. However, there have been slightly more optimistic signs with Neteller and Sportingbet negotiating settlements with US authorities, Antigua winning a further round in its WTO battle against the US and, most significantly, a bill introduced to Congress which would legalise licensed online gambling

Legalisation of online gambling in the US?

As soon as House of Representatives Financial Services Committee Chairman, Barney Frank, confirmed that he was interested in legalising, regulating and taxing online gambling there was much speculation that he would propose legislation to repeal the Unlawful Internet Gambling Enforcement Act (UIGE Act).

Mr Frank unveiled his draft Internet Gambling Regulation and Enforcement Act (Draft IGRE Act) on 26 April 2007 stating that “The existing legislation is an inappropriate interference on the personal freedom of Americans and this interference should be undone.”

The Draft IGRE Act does not seek to repeal the UIGE Act, but rather proposes a system of licensing for online gambling companies (foreign or US based) who want to offer online gambling to US citizens. The licensing system would be controlled by the Director of the Financial Crimes Enforcement Network.

The licensing regime would provide protection against underage gambling, compulsive gambling, money laundering and fraud and would, of course, tax gambling by US citizens. States would be able to opt out of the legislation, and so their citizens could not gamble online. Sports could also opt out so that bets could not be taken on their games, races etc. Licensees would need to offer technical solutions to provide all of this protection.

To obtain a licence, a company would need to provide financial statements, document their corporate structure and agree to be subject to US laws and jurisdiction in respect of Internet gambling activities. We question whether companies which provided online gambling to US citizens at a time when this activity was "grey" – when they studiously avoided being subject to US jurisdiction – would be wise to agree to this without first obtaining assurances regarding their previous conduct.

This is, perhaps, how preferential treatment would be conferred to US companies. It may also benefit foreign companies that have previously not taken bets from US citizens.

The Democrat-led Congress is intent on reversing some of the legislation passed by the Republican administration. Whilst a long way from becoming law, the Draft IGRE Act has been introduced by an influential Congressman and is expected to garner support from his party. This offers a slight glimmer of hope that online gambling will be legalised in the US.

Neteller and Sportingbet

Following the arrest of two of Neteller's former directors in January, Neteller announced that it would no longer process transactions relating to gambling in the US markets. Other e-wallets followed suit. This has been followed, more recently, with Neteller stopping processing gambling transactions in Canada and Turkey as a result of the regulatory environment in those jurisdictions.

The news of Neteller's exit from the US gambling market was immediately followed by customers being unable to withdraw their funds in the US and an announcement that these funds had been seized by the US Attorney's Office. On 20 March 2007, Neteller signed a settlement allowing for orderly withdrawal of customers' funds.

At the same time as Neteller announced its settlement, Sportingbet announced that it had reached an "amicable resolution" with the St Landry district attorney in Louisiana. The result of this settlement was that all warrants issued under Louisiana State law, including the warrant under which Peter Dicks was arrested in New York in September 2006, have been cancelled. Sportingbet announced to the Stock Exchange that "Both Sportingbet and the St Landry district attorney now consider the matter closed."

Antigua and the WTO

The tiny Caribbean country of Antigua has won the latest round in its David and Goliath World Trade Organisation (WTO) battle to persuade the US to allow online gaming. The WTO has ruled that because the US allows some forms of online gaming – gambling on horse races in certain states – it cannot rely on the "public morality" exemption and its ban on online gaming from Antigua is discriminatory.

However, the WTO has no power to enforce its decision against the US and, whilst Antigua is entitled to use its trade muscle to persuade the US to comply, this is unlikely to move the colossus.