Home > Internet Casino News > Loopholes in U.S. Web gaming ban could snare execs

Loopholes in U.S. Web gaming ban could snare execs

October 7, 2006

British Internet gambling companies are looking at possible loopholes in a new U.S. law designed to stop online gaming, but executives risk extradition if they try to exploit them.

Lawyers and analysts said on Friday that only criminal operators in offshore jurisdictions such as Costa Rica could afford to take the risk, while listed firms such as 888 and PartyGaming would do better to focus on Asia and Europe for growth.

Last weekend, the U.S. Congress unexpectedly approved a bill to make it illegal for banks to process payments to gambling Web sites, leading most European operators to pull out of the United States and knocking around $7 billion off their share values.

But the shares staged a modest bounce on Friday on hopes the big players would consolidate and on talk that some operators plan to argue that poker is exempt from the U.S. ban as a game of skill.

The bill defines gambling as the act of staking something of value on "a sporting event or a game subject to chance".

Shares in PartyGaming, which owns the PartyPoker Web site, rose 5.6 percent by 1236 GMT, while Sportingbet, which owns ParadisePoker, was up 5.5 percent.

But John J. Farmer, a former attorney general of the State of New Jersey, told Reuters that approach might end up in court.

"The language in the bill is not explicit," he said. "I've been told some of the language was inserted to include poker. If people tried to exploit the ambiguity in the language, it would almost certainly end up in court."

SKILL FACTOR

While it is hotly debated to what degree chance affects the outcome of individual poker games, some operators are focusing on poker tournaments, which are arranged like bridge tournaments to reduce chance.

"The closer you come to purely skill-based games, the safer you are," said Farmer. "But it's hard to say that anyone is totally safe, given the climate we're in."

PartyGaming, whose shares also got a boost on Friday from reports it was in talks to buy smaller UK rival Gamesys, said earlier this week it thought the U.S. ban would make it virtually impossible to offer poker or casino there.

"Whatever happens, this will kill off a large percentage of the casual players," said analyst Julian Easthope at UBS. "And a Web site full of really good players won't be so attractive."

Since the ban, several online blogs have revealed that poker experts had used the sites to win tens of thousands of dollars from less experienced, casual players.

888 said it would continue to expand its Asian and European operations and would look at ways to offer Americans fantasy sports games, in which players can win cash prizes for selecting successful fantasy sports teams.

Fantasy sports games were excluded from the bill after heavy lobbying by U.S. broadcasters. Sportingbet has been silent on its strategy, but a spokesman said on Friday that Chief Executive Nigel Payne was currently in Antigua discussing the ban with authorities there.

Antigua reported the United States to the World Trade Organisation in 2003 over its anti-online gaming stance, and the Sportingbet spokesman said the complaint was likely to come up in discussions.

EXTRADITION FEARS

The U.S. ban excludes Internet gambling within individual states or Indian tribal lands, prompting some operators to look at whether they could offer poker on a state-by-state basis, but they face difficulties in trying to block out-of-state players.

The bill has had a strong impact, because it leans on the highly risk-averse financial institutions to identify and block any transactions to gaming companies.

Lawyer Linda Shorey of Kirkpatrick & Lockhart Nicholson Graham told a conference on Thursday that while banks would be able to block coded credit card transactions, blocking cheques and money transfers would be more difficult. "It would also be hugely expensive," she told the World Online Gambling Law Report conference in London.

But while some offshore operators may choose to defy the law by switching to cheques and money transfers, the executives of bigger corporations would be vulnerable to U.S. prosecution. David Carruthers, chief executive of London-listed BETonSPORTS, was arrested in July while travelling through Texas. He was then fired, while U.S. authorities indicted the company on charges of failing to pay billions of dollars in excise taxes.

Sportingbet has banned staff from travelling to the United States after Chairman Peter Dicks was arrested at New York's JFK Airport last month on charges in Louisiana of "gambling by computer". He was freed after New York refused to extradite him.

Analysts say the recent extradition of the "Natwest Three" bankers involved in the Enron case from Britain to the United States shows that UK executives have little protection from extradition requests.

While Internet gambling is not illegal in the UK and would therefore not merit extradition, U.S. prosecutors would have more success if they added a crime recognised in the UK to the charges -- fraud for example.

"At the end of the day, it would come to the wording," said one analyst, who declined to be named. "If I was Mitch Garber (PartyGaming's CEO), I wouldn't risk it."

John J. Farmer echoed that view. "Any publicly traded company is going to be risk-averse and say it's not worth the risk. The demand for online gaming is clearly there, and that's going to open the door to the less reputable entities."

Discuss this News with other readers.

Related News:

Online gaming firms consider legal challenge to US ban

Where now for the gaming sector?

Online gaming in crisis after U.S. ban is passed

PartyGaming and rivals warn of U.S. gaming ban

GOP aims to crack down on Web gambling