2 1 January 2003

News:

The Court of Appeal has upheld a High Court ruling that the William Hill organisation could breach a UK software gaming patent, despite hosting its games on a server in Curacao in the Netherlands Antilles.

Leading UK online gambling operators and credit card companies met just before Christmas to discuss ways to combat online fraud. The meeting, the first to bring the industry and bankers together, was attended by representatives from industry leaders such as Ladbrokes, Sportingbet, Coral, Betfair, the Tote and Littlewoods with banking organisations Visa, MasterCard and Barclaycard.

Congressman Jim Leach (R-Iowa) has reintroduced his Bill, HR 21, designed to block the use of financial instruments in illegal gambling, into the House of Representatives. The Bill is unchanged from the Bill that passed the House before Christmas. Representative John Conyers Jr (D-Michigan) has yet to reintroduce his Bill HR5760 to create a Commission on internet gambling, licensing and regulation but is planning to do so in the next few weeks.

Features:

All industries mutate and adapt depending on external forces, but the online gaming industry is set to be on the receiving end of several major changes in the next 12 months. Incidents in 2002 set the scene due to be played out in 2003.

The adoption by the Council of the EU of a new Directive on the VAT treatment of certain types of e-businesses is likely to have a significant impact on e-betting and gaming - as will be the case for the other affected e-businesses. In outline terms, under current rules, e-betting and gaming supplies that are VATable are subject to VAT by reference to where the supplier is based. Under the new Directive, which will apply from 1 July 2003, the VAT position will be determined by reference to where the consumer is based.

In what seemed like an early Christmas present for online gambling operators, a US appeals court ruled in November that the Wire Act (18 USC. § 1084) does not prohibit non-sports-related online gambling (Re MasterCard Intern. Inc. Internet Gambling Litigation, 2002 WL 31627004 5th Cir. 20 November 2002) (‘MasterCard II’). Closer analysis of the regulatory environment of online gambling in the United States reveals a much more muddled picture. Not only does the US Department of Justice continue to insist that the Wire Act does in fact prohibit all online gambling, but as evidenced by several high-profile settlements, several states also take the position that all online gambling is illegal under state law. Some of these states are beginning to aggressively enforce their criminal and civil prohibitions on online gambling.

The United States General Accounting Office (GAO) produced their report on internet gambling for the House of Representatives Financial Services Committee on 2 December 2002. Its publication has not hit the headlines; indeed it has passed almost without remark.

The reason might well be that the well researched and even handed report did not provide the ammunition desired by opponents of online gambling.

The report made no change to its interim findings that while “Law enforcement officials said they believed that Internet gambling could potentially be a powerful vehicle for laundering criminal proceeds at the relatively obscure “layering” stage of money laundering...Banking and gaming regulatory officials did not view Internet gambling as being particularly susceptible to money laundering, especially when credit cards, which create a transaction record and are subject to relatively low transaction limits, are used for payment. Likewise, credit card and gaming industry officials did not believe Internet gambling posed any particular risks in terms of money laundering. Gaming industry officials did not believe that Internet gambling was any more or less susceptible to money laundering than other types of electronic commerce.”

We publish here in full the GAO’s summary of results.

When is a game no longer a game? Well, ask an online gaming operator about Card Not Present (‘CNP’) fraud and all of a sudden the fun seems to have disappeared in the same way the cash does hitting where it hurts most: the bottom line.