- Don't bet on Web gambling crackdown, experts say By
Andy Sullivan
Mon Jun 20, 1:08 PM ET
WASHINGTON (Reuters) - Online-poker company PartyGaming has warned
investors that the U.S. government could interfere with its operations, but
observers say that's about as likely as drawing four aces in a game of five-card
stud.
U.S. law enforcers are unlikely to directly pursue PartyGaming -- which plans a
public stock offering in London next week -- or any other online-gambling
company due to unresolved legal questions, several industry experts said.
"It's so remote that the chances approach those of being hit by lighting," said
Joseph Kelly, a professor of business law at the University of Buffalo law
professor who has helped other countries draft online-gambling rules.
The U.S. Justice Department says several laws that prohibit interstate
gambling apply to the Internet as well, and it intends to prosecute violators.
Under pressure from the Justice Department, services like Visa and PayPal
have blocked payments to gambling sites, while media outlets and search
engines like Yahoo Inc. (Nasdaq:YHOO - news) have declined to run their ads.
That hasn't stopped millions of U.S. citizens from placing bets on offshore Web
sites like PartyGaming's PartyPoker.com, which is based in Gibraltar.
Online casinos like Bodog.com sponsor glitzy Las Vegas conferences, and
other payment services like e-gold have stepped in to handle the business that
Visa and eBay Inc.'s PayPal are leaving on the table.
PartyGaming plans to go public by June 27 in what promises to be the London
Stock Exchange's largest IPO in four years.
The company warned last week that anti-gambling efforts by the United States
could make it difficult to advertise and collect payments, and could even result in
jail time for company officials.
The Justice Department has so far prosecuted only one online gambling
operation, an Antiguan sports-betting Web site run by a U.S. citizen, in 2000.
Justice Department officials said that several other companies have pleaded
guilty before going to trial.
The Fifth Circuit Court of Appeals ruled in November 2002 that the 1961 Wire
Act, which forbids interstate telephone betting, only applies to sports-betting
operations, not online casinos or poker rooms.
The World Trade Organization ruled last year that the United States's anti-
gambling stance violates international trade agreements, a decision the U.S.
government has appealed.
"I think the Department of Justice is just sending out all these messages to
avoid a confrontation where they might have to prove it in a court of law," said
Frank Catania, a former gambling regulator for the state of New Jersey who now
works as a consultant to the industry.
Justice Department officials said they haven't brought more cases because of
a lack of resources, not a shaky legal foundation. Even if the Fifth Circuit's
decision stands, two other 1960s-era anti-gambling laws can be used against
Internet gambling sites, they said.
Efforts to pass an anti-gambling law that applies specifically to the Internet
have stumbled in Congress since at least the late 1990s amid a thicket of
competing interests: horse racing, dog racing, state lotteries, Indian casinos and
anti-gambling crusaders.
Arizona Republican Sen. Jon Kyl (news, bio, voting record) is expected to
introduce another anti-gambling bill soon. Though the bill will be updated "to
reflect the explosive growth of the industry," PartyGaming's upcoming IPO is not a
factor, a Kyl spokesman said.
