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June-04-2008,
European Entities Demand a Stop to U.S. Prosecutions of EU Gambling Operators...By Hartley Henderson

Back in December of 2007, the European Union came to a settlement with the United States allowing the U.S. to withdraw its GATS commitment to provide remote gambling services. In exchange for allowing the U.S. to change its commitment, the U.S. agreed to open up markets to the EU relating to shipping and storage. Since that agreement there has been quite a bit of dissention from both the U.S. and Europe. Many in the United States, including Public Citizen (a U.S. government watchdog group), seem somewhat upset that details of the agreement were essentially kept secret, and in the European Union, particularly the UK, many groups representing gaming operators are upset that the EU caved in so easily. "This agreement may be good for the EU," Clive Hawkswood of the Remote Gaming Association (RGA) said, "but it does nothing for the gambling operators that were harmed by the U.S. decision not to live up to its GATS commitment. Gambling operators have no way of benefiting because the U.S. now has markets opened up in postage."

As a result, the RGA, (a trade organization that works on behalf of online gaming operators in the EU) in December 2007, filed a formal complaint with the EU regarding discriminatory practices by the United States. In March of this year, the EU announced a probe into the U.S. actions. The complaint, however, doesn't deal with the withdrawal of commitments by the U.S., but rather the arrests made against European operators like David Carruthers and Peter Dicks. "We're taking a different angle with this complaint," Hawkswood said. "Our biggest concern is the retrospective arrests the United States is making to European gambling operators who touch down in the U.S." In better words, while the RGA has issues with the settlement that was made by the EU, and while they are indeed working with U.S. lobby groups like the Safe & Secure Initiative to try and convince U.S. lawmakers to overturn the UIGEA in favour of other legislation like Barney Frank's bill, the biggest beef RGA has at the moment is the fact that the DOJ is arresting EU-based gaming operators for incidents that occurred prior to the UIGEA being passed in October 2006. The group considers it ludicrous that a person can be arrested and/or fined for incidents that were not illegal prior to the law being enacted.

Peter Mandelson, the EU Trade Commissioner who brokered the deal with the U.S. allowing them to withdraw its commitments, has also expressed concern with these retrospective arrests in launching the probe. "Discrimination against E.U. companies cannot be part of the policy mix," Mandelson stated after the RGA issued its complaint. If the practice continues it appears Mandelson may be prepared to take further action. In fact, according to Hawkswood, Mandelson is scheduled to make a visit to the U.S. with his team in the near future where he will air his concerns and stage a press briefing. Hawkswood is hopeful having something on the record by Mandelson will stave off the confusion of where exactly the situation rests, and also may provide more details of what the EU gained by allowing the U.S. to withdraw its commitments. Clearly the hush-hush nature of the deal brokered between the U.S. and EU has caused consternation on both sides of the Atlantic.

Asked to speculate why Mandelson changed his stance from demanding the U.S. live up to its GATS commitment earlier in 2007 to agreeing to let the country rewrite its commitments in December, Hawkswood suggested that Mandelson probably felt it wasn't an issue that has large economic fallout, and therefore isn't a hill worth climbing. Hawkswood stated, "Remote gambling is probably something like .01 percent of GDP." It's not an issue that can score many political points.

Ironically, the whole issue of selective arrests has come to the forefront at the same time news was announced of a potential billion dollar settlement between Party Gaming and the U.S. Department of Justice. While Party Gaming announced today that the deal is far from settled, many sources suggest the deal is more or less done and the two sides are only finalizing the details. The deal, which has been in the works for over two years, would see the U.S. exonerate Party officials in exchange for the compensation. According to sources, the DOJ is likely at a point right now where they simply want to wipe the slate clean with these ongoing cases, and with a new President due in the White House by the end of the year the justice department just isn't certain which way the new administration will want to proceed. The billion dollar offer was first announced publicly in May of 2007 and was suggested as "a line in the sand" by both Party Gaming and 888.com. The amount, however, seems exceptionally high if the only benefit for the companies is the ability for owners and managers to step foot in the United States without fear of prosecution. Mind you, when Party Gaming went public, the company paid out 90% of its U.S. profits in dividends, with 70% going to the main shareholders, i.e. the owners. This worked out to a $7 billion windfall for Ruth and Russ Perisol. So some suggest that the billion dollar settlement is small change for the ability to walk freely throughout the world. Jay Lakin, Co-Owner and Vice President of PokerSourceOnline.com, a large online poker affiliate site (and a person who will be a featured interview in my next article) believes that it is quite possible that the ability to move freely without fear of prosecution may indeed be the main impetus for the settlement. "The ability to go to the United States without fear of prosecution probably isn't worth a billion dollars to you or me," Jay said, "but to someone worth at least $7 billion it very well may be." Many others, however, aren't buying the story and feel there is much more to the decision made by Party Gaming to settle, especially in light of the stock skyrocketing after news that the billion dollar settlement was imminent. A source that claims to be quite familiar with the DOJ agreed to agreed to give his opinion, provided his name was kept out of the article and it was stated that his views were purely logical speculation. The source stated:

"My strong suspicion is that following the House Subcommittee meeting in April, the U.S. government is starting to realize the UIGEA just isn't workable. There is no way this legislation can last without a major fix, and the treasury department isn't willing to make any changes. If that's the case, legalization and regulation are the only logical next steps and that will start with Poker and skill games. Congress will never adapt Barney Frank's bill as it stands, but they will tweak it to make it appear there is some Republican input into the new bill. Naturally, if the U.S. goes live with an interstate poker network they will require software and operators. Party Poker has some of the best software out there and the knowledge and skill to help places like Harrah's and Caesar's get in the game. If the lawsuit is still pending this cannot happen, but if the DOJ takes the settlement and offers a clean bill of health to Party Gaming then they can come in and be the pace setters for online gambling in the United States. In that case a billion dollars will look like chump change." The source also feels that they will need to open up the market to some foreign investors since failure to do so would be seen as a blatant snub at both the EU and the WTO who agreed to let them withdraw commitments in light of U.S. claims that remote gambling (except horse racing) is "immoral" and inadvertently left on their list of GATS services they were willing to allow.

A source from the WTO (WTO rules forbid direct quotes by the media) seemed to feel that if that was indeed the case the United States would have some explaining to do. "Regardless of a commitment, a Member would not be allowed to discriminate between different WTO Members in allowing trade. So if the US tolerated internet gambling from some non-US jurisdictions, but not the EU, there would be a problem." So if the U.S. feels it will satisfy the WTO by allowing a company or two from the EU to operate in a new U.S. regulatory environment, while shutting out companies from Antigua, Canada, Macao, etc. because the U.S. considers them rogue, then they will indeed be called to task by the WTO as putting up unfair trade barriers.

Hawkswood wasn't prepared to speculate on why Party Gaming was prepared to make this offer, only offering "Party Gaming has to do what it feels is in its best interest and as an organization we must accept that."

Regardless, the Party Gaming settlement does fly in the face of everything that the RGA is currently fighting for, i.e. the threat of arrest for crimes that occurred prior to those being crimes. Party Gaming and 888.com withdrew from the U.S. market immediately following the passage of the UIGEA.

The RGA is hoping for some common sense by the United States in all areas related to online gambling, but until that happens they will continue to fight for a stop to the discrimination against EU gaming operators and also will work with lobby groups to precipitate change to the UIGEA. When Peter Mandelson issues his press briefing we should get a better indication what the EU's official stance is on the whole situation.

06-04-2008
Hartley Henderson
MajorWager.com
henderson@majorwager.com

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