New EC report denounces US gambling laws

June 19, 2009

Le rapport de la Commission Européenne critique la législation américaine sur les paris en ligne (French version)

Following a complaint submitted by the Remote Gambling Association (RGA) concerning obstacles to trade in remote gambling services inconsistent with WTO rules, the European Commission has examined the US legislation on the matter and published a report containing its conclusions on June 10, 2009.

The RGA’s complaint concerned the legislation imposing a ban on Internet gambling, the measures taken to enforce that legislation, and the fact that the legislation is enforced in a discriminatory way.

According to the US Department of Justice (DoJ), federal laws prohibit all types of gambling over the Internet. However, the Unlawful Internet Gambling Enforcement Act (UIGEA), implemented in order to enhance enforcement mechanisms of existing laws, “explicitly excludes from the definition of unlawful Internet gambling intrastate transactions, intratribal transactions, and activities allowed under” the Interstate Horseracing Act. Despite not being explicitly authorized, these activities are therefore regarded as legal by operators of these sectors.

Moreover, according to the Commission’s findings, “a substantial number of States appear indeed to allow some form of remote or Internet gambling”. For example, Nevada allows licensed operators to offer different sorts of gaming and betting activities.

While US operators of certain types of Internet gambling activities can continue to operate and prosper, the enactment of the UIGEA has led to EU operators being forced to stop offering their services to US residents. Furthermore, the DoJ has launched enforcement actions against EU suppliers, or in some cases has threatened to do so.

The findings of the European Commission reveal that US legislation, its enforcement and the DoJ’s actions against EU gambling operators are inconsistent with the US obligations under the General Agreement on Trade in Services (GATS).

According to the EC, the measures at issue are violating Articles XVI and XVII of the GATS (concerning market access and national treatment), and cannot be justified under Article XIV.

In addition, the treatment applied by US authorities to EU operators has notable adverse trade effects on companies affected by the measures at issue, the EU gambling market, and on specific regions of the Community (e.g. Malta). The EC also considers the DoJ’s investigations as having foreseeable additional adverse trade effects.

Consequently, the EC concludes its report with the opinion that it is in its interest to act against the obstacles to trade revealed by the examination of US laws on Internet gambling. However, it notes that any action should take account of the ongoing process towards the withdrawal of the US GATS commitments on gambling and betting services (the EU and the US have already agreed on compensation measures).

In any case, the withdrawal of the US commitments will not have retroactive effects, and will not prevent due action against the cases brought by the DoJ in respect of past trade, in violation of the commitments of the US at the time.