The Antigua Decision

Hope you all enjoy my article and have some comments on it...

David

________________________________________________





by David Matthews - Lasvegasadvisor.com

One of the most important news items related to Internet gambling in quite some time is the recent decision by the World Trade Organization in the dispute between the island country of Antigua and the United States. Many pundits and observers have compared this case to the David & Goliath biblical tale, where tiny Antigua took one of the mightiest federal governments in the world. The WTO ruling was the highest possible, so no appeals can follow. The results? They’re as clear as the status of Internet gambling itself: murky at best.

Antigua has a population of 67,000. The entire nation would barely populate a large town in the U. S. Yet its status in the WTO is as an equal participant. Antigua was one of the first countries to allow Internet gambling businesses to operate from within its borders. The effect on the island country has been enormous; Today, Internet gambling comprises nearly one fifth of the country's annual tax revenues.

Antigua's argument before the WTO panel was that U.S. restrictions on Internet gambling violates free-trade agreements by not allowing the companies in Antigua to freely market to U.S. customers. The initial ruling, in 2003, went against the U.S, which immediately appealed. The WTO made its final judgment last Thursday, April 7, 2005.

The U.S. is claiming victory. Antigua is also claiming victory. Every news article on the ruling seems to have its own bias. Here’s a sampling of relevant headlines:



There are many more. Go to Google News, search for "Antigua WTO," and you'll find a slew of conflicting accounts and opinions. What people do agree on -- and even U.S. trade representatives and attorneys admit it, while downplaying it -- is that the current U.S. policies and laws are violation of the WTO.



"This win confirms what we knew from the start -- WTO members are entitled to maintain restrictions on Internet gambling," said Peter Allgeier, the acting U.S. trade representative. "This report essentially says that if we clarify U.S. Internet gambling restrictions in a certain way, we'll be fine."

In other words, at this point, the U.S. is not "fine." Allgeier uses the word "clarify," while Antiguan proponents would substitute the term "legislate" in his above statement. More than mere semantics, this is a critical difference of opinion and interpretation. Here's what’s at the heart of the differing conclusions.

The U.S.' primary argument at the WTO hearings was that the WTO agreements allowed a country to restrict trade if it has a negative impact on "public morals." The U.S. contended that Internet gambling compromises the "public morals" of its citizens, so the ban is enforceable under the WTO terms. Lawyers for Antigua countered by pointing to the proliferation of gambling in the U.S., from casinos and horse racing to state and multi-state lotteries. Its argument was that America has no legislated moral aversion to gambling.

The one specific aspect of Antigua's argument that the WTO considered acceptable is that Internet wagering is permitted in the U.S. on horse racing. The Horseracing Act, a law passed in 2000, allows betting on horses over the Internet in the U.S. The WTO argued that the U.S. allows Internet wagering on horses over state borders, yet prohibits betting on horse racing at international tracks.

This is the point that the U.S. wants to "clarify" and that opponents want the U.S. to "legislate." My opinion is that it’s not so simple as clarifying. The U.S. would have to rescind the Horse Racing Act before it can prohibit Internet gambling while complying with the WTO. The horse racing lobby is rich and powerful one, and obviously strongly opposes such a prohibition. It appears as though it would take a coordinated effort between U.S. trade representatives, the U.S. Attorney General's office, and Congress to pass a law banning online horse betting. Congress, for one, would have a tough time defying opposition from the horse racing lobby.

In other words, because the U.S. will be incapable of complying with the directive from the WTO ruling body, Antigua is the winner of the lawsuit.

But what does winning really mean for Antigua?

In Antigua's opinion, it means that any American who wants to gamble online should have free access to doing so. They should be able to use credit cards, Western Union, or bank transfers. They should be able to deposit money, gamble, and cash out with no hassles. American companies that have refused Internet gambling advertising, such as Yahoo, Google, and television and radio stations, should be allowed to carry ads for Antiguan online gambling companies.

Undoubtedly, the U.S. government will take a different tack. The feds have a history of ignoring unfavorable rulings by non-binding organizations. A recent example is the rebuff of a WTO ruling against the U.S. regarding the collection of $4 billion in tariffs on lumber from Canada. I see no evidence that the Bush administration will try to comply with the Antigua ruling. In fact, I'd be surprised if we get as much as lip service.

So, from my perspective, the situation is a wash at this point. Antigua wins a moral victory and nothing more. The U.S. gets enough ambiguity that it can justify the action it was going to take anyway: none. Antigua's moral victory is the U.S.' practical victory.

For the long term, however, the WTO ruling seems like a positive for online gambling supporters. It's my belief that one such ruling provides a precedent that opens the door for other countries to follow suit. Countries like Canada, the U.K., Australia, South Africa, Israel, Costa Rica, India, and others either host online gambling providers or companies that earn their money from online gambling, such as money-transfer ooperations or third-party marketing firms working directly with online casinos, race and sports books, and poker rooms.

If these countries take this issue to the WTO and win, it wouldn’t be just a 67,000-person island country. Large first-world countries, valuable political, military, and trade partners with the U.S., could institute sanctions that could have an impact on our economy. Would the U.S. be so obstinate as to defy the WTO's rulings if these countries were involved? Possibly, but the complexity would be much greater.

If opposition begins to mount through the WTO, the U.S. could decide to ease up, perhaps even legalize, regulate, and tax the industry. Conversely, it could unleash a backlash and pass sweeping legislation banning online gambling altogether. It'll depend a great deal on what administration is in office when the situation comes to a head. It'll also depend on the American people's views toward online gambling. As each day passes, more and more people are playing online. More and more Americans are signing up at Party Poker and Pinnacle sports book and Casino On Net. It's getting to the point where someone in your office or in your department at work is probably gambling on the Internet. In fact, I'm sure a few people sitting on Capitol Hill have a bet or two down on tonight's TV game.

Overall, the WTO ruling is a positive. The original ruling (pre-appeals) was perhaps two steps forward. This latest was probably one step back, but we're still ahead of the game. Watch for the scene to heat up as online gambling companies try to advertise with U.S. companies, and sue when rejected. We'll stay on top of it as best we can.

Below is what I have sent out to several publications. Unfortunately too many places are doing their research in press releases instead of reading the opinion and speaking with an experienced international trade lawyer.

=========================================

I am writing to voice my amazement at the misleading spin the United States Trade Representative's office has placed on the ruling of the World Trade Organization Appellate Body in the landmark internet gambling trade dispute brought against the United States by the tiny island nation of Antigua and Barbuda. The USTR is publicly claiming the United States won the case. This is simply not true. Either the USTR doesn't understand the opinion, or doesn't want the general public or Congress to understand it.

A careful reading of the report issued last week shows that the WTO ruled that the United States had violated its commitment to provide access to Antiguan internet gambling providers under the General Agreement on Trade in Services (GATS). The WTO held that three federal criminal gambling statutes were being improperly used by the United States as a barrier to internet gambling providers from Antigua.

The United States had attempted to evade its violation of GATS by raising a legal "affirmative defense" under Article XIV of GATS. There are two prongs to this defense. The Appellate Body ruled that the United States met the first prong -- that the US needed the three federal gambling statutes in order to protect public morals. However, the United States failed under the second prong of the defense, referred to as the "chapeau," which is a balancing test that looks at, among other things, whether the federal gambling laws are applied consistently between domestic and foreign service providers. The Appellate Body needed to look no further than the Interstate Horseracing Act (IHA) to plainly see that the United States had its own internet and telephone gambling industry and, thus, the United States could hardly claim a moral aversion to similar services from Antigua. This ruling was based on the fact that the State of New York, among other states, had a thriving and legal internet gambling business in place (CapitalOTB). Therefore, the United States' so-called morals defense failed, and the United States lost the entire case. The Appellate Body ended its ruling by ordering the United States to bring its offending laws -- the three federal gambling statutes -- into compliance so that Antiguan gambling providers can access the huge American gambling market.

I have a personal reason to be outraged with the USTR's position in publicly claiming false victory. In 2000, I was convicted of violating one of the federal gambling laws at issue in the WTO case for operating a legal and licensed sports book in Antigua. As the founder and former President of the World Sports Exchange (www.wsex.com), I had returned to the United States to exonerate myself. I was confident that I was providing a legal services to the American gambling market and I would not be sent to prison over an international trade dispute. I eventually spent 17 months in prison in Las Vegas, and am still on supervised release.

The WTO has now ruled that the United States violated the GATS by charging and convicting me of running a licensed sportsbook from Antigua. The USTR is apparently claiming public victory saying it won because IF Congress were to tweak some federal horserace gambling laws in the future, the United States MIGHT then be in compliance with the WTO ruling. This mischaracterizes what the ruling really says. In the last paragraph of its report, the WTO Appellate Body ordered the United States to place the three federal gambling statutes into compliance so that Antiguan gambling providers can access the American gambling market. There are no appeals of this ruling. The case is over, and Antigua has won a truly David-vs-Goliath case against the United States before an impartial tribunal. Unfortunately, the initial coverage of this landmark decision merely reported the USTR's spin without considering or accurately reporting what really happened before the WTO. As one of the real victims of this trade dispute, I feel obligated to report the truth and hope you will print this letter so that I can do so.

David,

EXCELLENT WORK. You made a cloudy situation seem more nebulous if that's possible for me...

excellent writeups by david and jay c!~

thanks gents...

Jay or David,

If the UNITED STATES can ignore the United Nations without suffering any ramifications, what's to stop them from using their BULLY-LIKE tactics again?

Nice writeups. I apologize if this is a stupid question, but if the main issue seems to be with the horse wagering aspect, could the US come into compliance (or argue that it has) by legalizing all online horse wagering, including with offshore entities, but continuing to "outlaw" other forms of sports betting?

Thanks for the compliments.

Jay. I agree. There are many news articles out there putting out misinformation because they're victims of the Feds spin on things. I don't think they're intentionally reporting incorrect information; they just don't understand. One viewing of a Vegas TV show can show how little media people really understand the gambling industry. They might as well be reporting on nuclear physics. It's unfortunate that they don't do more thorough research.

Jay, if you get back into Vegas (even though you probably don't like this town too much) give me a holler. You in NYC these days?

The horse racing laws were not being challenged, that was just a side road the US took the panel down. They tried to say they needed to have the federal laws in the name of public morals. The WTO allows for a public morals defense called Article XIV, it has two prongs. The US passed the first prong, that is the need for these laws to protect public morals, and that is what they keep quoting everywhere. However, they failed the second prong which looks at among other things how similar laws and activities are carried out in their country. The panel needed to look no further than the IHA to see that the US does not have a moral aversion to gambling.

The last paragraph of the opinion orders the US to bring its federal gambling laws into compliance with the GATS. It doesn't say adjust your horse racing laws so your Article XIV defense would have been successful. Even if the US eliminated all remote gambling in the US tomorrow, or even if they removed ALL gambling completely, they still lost this case and need to bring the three federal laws into compliance. That means they need to stop applying them to Antiguan operators who are just trying to access the US market with their services.

You can't lose a case on a technicality, make some adjustments so you would have won that technicality and call yourself a winner. Besides, there are many other forms of remote gambling the panel didn't cite since once they saw the IHA there was no need to go further.

Furthermore, I don't see the US eliminating remote horse racing or anything else for that matter even if it did mean they could claim victory.


David,

I'm in the Bay area. I don't think I will be in Vegas for a long long time. And you are correct, I really don't want to be.

THE SHRINK said:

Jay or David,

If the UNITED STATES can ignore the United Nations without suffering any ramifications, what's to stop them from using their BULLY-LIKE tactics again?

Click to expand...

In the article I state that I doubt we'll even see lip service from the U.S. at this point.

Their tactics have indeed been "bully-like" especicially with American companies that have sold advertising to online gambling operations. Take no one to court, but issue subpeonas, audit books, confiscated money, all because it may be illegal.

I know some online gambling companies are already planning on pushing on this by buying ads from American media groups. If they get refused, then that also could be considered a violation of free trade. The Feds are going to put American companies in a very tough position where they'll be damned if they do and damned if they don't.

Ever since we had a change in the Attorney General's office, I haven't heard much from there about online gambling. While the new AG is undoubtedly opposed to it, perhaps he's not as aggressive in pursuing it. That, along with the Casino City Press suit, makes the online gambling issue all the more ambiguous right now. At one point I had thought we were decades away from legalized online gambling in the USA. Now I'm not so sure. Could be years instead of decades.

The Casino City suit was dismissed because they loacked standing. Since they were not one of the media companies that received a direct letter from the justice department, their case was thrown out.

Actually I knew the case was thrown out, but I thought they had the ability to take that further? They had said about pursuing it at a higher court level?

Anyway, one of the companies that has been threatened may pursue it, however. Perhaps a Don Best or a Discovery Channel (which had $3.2 million seized).

I imagine that if Casino City is done, others who qualify will file suit.

Makes sense, Jay. Thank you.

My sources say its still early, but the new AG might be more conservative than Asscroft! He is telling the DOJ to ignore court rulings on Class II slot machines. Basically federal courts ruled these machines were bingo devices and not slot machines. The US Supreme Court refused to hear the DOJ appeal so the issue was settled and these machines allow Fish and the Florida gang a chance to think they are playing slots at the Hard Rock. The new AG's staff has come out saying the decision by the courts was flawed so they basically are going to ignore it and start threatening people with criminal charges for illegal possession of slot machines.

Hope this isn't yet another sign of things to come.