Don't bet on Web gambling crackdown, experts say - Sunday 12th of June 2005

Online-poker company PartyGaming has warned investors that the U.S. government could interfere with its operations, but observers say that's about as likely as drawing four aces in a game of five-card stud.

U.S. law enforcers are unlikely to directly pursue PartyGaming -- which plans a public stock offering in London next week -- or any other online-gambling company due to unresolved legal questions, several industry experts said.

"It's so remote that the chances approach those of being hit by lighting," said Joseph Kelly, a professor of business law at the University of Buffalo law professor who has helped other countries draft online-gambling rules.

The U.S. Justice Department says several laws that prohibit interstate gambling apply to the Internet as well, and it intends to prosecute violators.

Under pressure from the Justice Department, services like Visa and PayPal have blocked payments to gambling sites, while media outlets and search engines like Yahoo Inc. have declined to run their ads.

That hasn't stopped millions of U.S. citizens from placing bets on offshore Web sites like PartyGaming's, which is based in Gibraltar.

Online casinos like sponsor glitzy Las Vegas conferences, and other payment services like e-gold have stepped in to handle the business that Visa and eBay Inc.'s PayPal are leaving on the table.

PartyGaming plans to go public by June 27 in what promises to be the London Stock Exchange's largest IPO in four years.

The company warned last week that anti-gambling efforts by the United States could make it difficult to advertise and collect payments, and could even result in jail time for company officials.

The Justice Department has so far prosecuted only one online gambling operation, an Antiguan sports-betting Web site run by a U.S. citizen, in 2000. Justice Department officials said that several other companies have pleaded guilty before going to trial.

The Fifth Circuit Court of Appeals ruled in November 2002 that the 1961 Wire Act, which forbids interstate telephone betting, only applies to sports-betting operations, not online casinos or poker rooms. The World Trade Organization ruled last year that the United States's anti-gambling stance violates international trade agreements, a decision the U.S. government has appealed.

"I think the Department of Justice is just sending out all these messages to avoid a confrontation where they might have to prove it in a court of law," said Frank Catania, a former gambling regulator for the state of New Jersey who now works as a consultant to the industry.

Justice Department officials said they haven't brought more cases because of a lack of resources, not a shaky legal foundation. Even if the Fifth Circuit's decision stands, two other 1960s-era anti-gambling laws can be used against Internet gambling sites, they said.

Efforts to pass an anti-gambling law that applies specifically to the Internet have stumbled in Congress since at least the late 1990s amid a thicket of competing interests: horse racing, dog racing, state lotteries, Indian casinos and anti-gambling crusaders.

Arizona Republican Sen. Jon Kyl is expected to introduce another anti-gambling bill soon. Though the bill will be updated "to reflect the explosive growth of the industry," PartyGaming's upcoming IPO is not a factor, a Kyl spokesman said.

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