UIGEA, WTO rules at odds

A preliminary report issued by the European Commission on March 26, 2009, stated the United States' 2006 Unlawful Internet Gambling Enforcement Act (UIGEA) is discriminatory and violates World Trade Organization rules. A complaint by the London-based Remote Gambling Association triggered the European Union's year-long Trade Barriers Regulation investigation.

In an RGA press release, Clive Hawkswood, RGA's Chief Executive expressed hope for a prompt settlement that "will ensure that EU operators are properly safeguarded, especially in relation to trade that took place prior to the introduction" of the UIGEA.

"We would also hope and expect that the U.S. authorities will act in good faith and immediately suspend any threat of enforcement action pending further discussions with the EU," he added. "There really should be no need for the EU to refer this matter to the WTO if the U.S. responds reasonably."

While the report stated that WTO action is justified, it suggested resolving the issue directly with the U.S. administration.

WTO has muscle

The WTO found against the United States when Antigua filed a similar complaint against the United States for breaking its own trade commitments. Melody Wigdahl, Vice President of Sales and Marketing at UseMyBank Services Inc., has specialized in the gambling industry since 1997. She said the U.S. "flagrantly ignored" the WTO's ruling in the Antigua case.

However, she indicated it is very different when an entity as strong as the European Union brings a complaint. "I don't see how the U.S. can ignore the situation like they did the first time," Wigdahl said. "This could have very far reaching consequences, other trade agreements across Europe." European companies reportedly lost billions in market value as a result of the UIGEA.

Wigdahl said, given this recent EC statement and the fact that the American Gaming Association (which had funded the opposition to Internet gambling) is now backing the licensing of Internet gambling, everyone in the industry – from analysts to operators – expects a U.S. licensing act soon.

Meantime, Rep. Barney Frank, D-Mass., is re-introducing a bill to repeal the UIGEA. Advocates of Frank's bill estimate repealing the UIGEA would provide the United States $52 billion over the next decade.

New code needed

Wigdahl feels the best approach, and the one most likely to be adopted, is strict licensing of U.S. land-based casinos for Internet gambling, including vigilant oversight and full vetting of people involved in such ventures. She said casinos could even provide loyalty programs that would apply to their physical and virtual sites. The financial relief to the United States could be significant.

Wigdahl believes the flawed method in use for dispersing gambling gains contributed to the crackdown on Internet gambling domestically and internationally. Winnings are paid out as credit card transaction reversals. Because no code exists for credits of gambling gains, they appear to be chargebacks, making it impossible for issuing and merchant banks to accurately measure fraud rates for Internet gambling. She suggested creating such a credit code.

She further stated that if the major card brands don't do something to address this issue, the prepaid space could take up the slack, most likely in the form of closed-loop casino cards.

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