Friday, Nov. 9, 2007

More pressure for U.S. on Internet gambling

By Sarah Polson

European Union Trade Commissioner Peter Mandelson was in Washington this week to speak to Congress about repealing the Unlawful Internet Gambling Enforcement Act signed into law last year. The UIGEA is also facing criticism from the Center for Regulatory Effectiveness.

In a Capitol Hill press gathering, Mandelson said that it's not in the best interest of American consumers to have "good, responsible competitors in this market excluded by regulatory mechanisms."

The regulatory mechanisms he is referring to are those set up by the UIGEA which don't outright ban online gambling, but instead ban banks from allowing financial transactions between U.S. residents and online gambling companies.

Most online gamblers typically pay by credit card or other electronic transfers, so the new law effectively shuts down the American market for online gambling.

According to a Reuters story, Mandelson argued that the ban was unfair to Europe, where many of the world's online gambling operations are centered.

The United States was found to be in violation of World Trade Organization rules for open trade among members because of its online gambling ban. Instead of complying with those rules, the U.S. chose to amend its agreement with the WTO, opening itself up to compensation claims from countries affected by the change.

Online gambling firms based in EU countries have asked that the EU seek up to $100 billion in compensatory sanctions against the United States for the loss of American business. Mandelson indicated he supported their claims.

"When a member of the WTO defaults on its commitments, compensation is due," Mandelson said in the Reuters story. "That's the case [with] online gambling."

The UIGEA is also fielding opposition from the Center for Regulatory Effectiveness, a D.C.-based lobby group headed by former Office of Management and Budget mandarins. The organization released a report in response to the proposed regulations recently submitted by the Treasury Department. The regulations are open for comment until Dec. 12.

The CRE focused mainly on the fact that the Treasury didn't provide objective, supported estimates of the burden that the proposed regulations would have on impacted groups, such as small businesses. According to the Paperwork Reduction Act, all regulation must include burden estimates.

The organization also noted that a large part of the burden on impacted commercial entities stems from the fact that the proposed regulations don't clarify what gambling transactions are permissible.

"The agencies have declined to state which Internet gambling transaction are unlawful and have recognized the difficulty of doing so for reasons including 'the fact that the legality of a particular Internet gambling transaction might change depending on the location of the gambler at the time the transaction was initiated, and the location where the bet or wager was received.'"

The CRE points out that although the agencies are not required to list a set of restricted transactions, the proposed rule in reality requires designated payment systems and non-exempt processors to determine what is and is not a restricted transaction in each jurisdiction in which they do business.

"Without such a determination, which underlies all identification/blocking tasks, the entire set of policies and procedures would be useless, lack practical utility and, thus, could not be approved by OMB (the Office of Management and Budget)."