Don’t Bet On the United States’s Internet Gambling Laws: The Tension Between Internet Gambling Legislation and World Trade Organization Commitments

Abstract

Internet gambling has grown in popularity amongst United States citizens to the point where millions of Americans now bet billions of dollars online. The legal status of Internet gambling in the United States has been uncertain since Internet gambling sites began emerging over the last two decades. Different gambling activities receive different treatment under current federal and state statutes. The recent ruling of the Appellate Body (AB) of the World Trade Organization (WTO) in a case filed by Antigua-Barbuda (Antigua) against the United States (U.S. – Gambling) also complicates the matter. The AB ruled that a small part of current U.S. federal law regarding Internet gambling violates the United States’s commitments under existing free trade agreements. The essence of this ruling is that there are legitimate justifications for the United States to restrict Internet gambling, but that it may not do so in a way that unjustifiably discriminates against other signatories to the General Agreement on Trade in Services (GATS). On September 30, 2006, Congress passed, and on October 13, 2006, President Bush signed into law the Unlawful Internet Gambling Enforcement Act (UIGEA). Essentially, the UIGEA prohibits financial intermediaries from making payments to “unlawful Internet gambling” sites. This new law has had an immediate and severe impact on the Internet gambling industry. Within a few days of this legislation being passed by Congress, publicly traded Internet gambling websites on the England-based London Stock Exchange, where Internet gambling is legal and regulated, lost $8 billion in market value. Further, a number of sites announced that if the bill were to be signed into law, they would stop taking bets from within the United States. Yet despite this extreme reaction to the new law, even this most recent legislation does not make clear exactly which gambling activities are illegal under U.S. federal law. As its title announces, and as commentators point out, the UIGEA is merely an enforcement provision; it does not change the status of otherwise legal gambling activities. In this sense, the law also does its best to remain neutral as to the U.S. – Gambling decision. However, in specifying what it does and does not cover with regard to state autonomy over intrastate activities, the UIGEA still could raise free trade problems in light of the WTO’s recent ruling. Because of the ambiguity of current federal law, the nature of this potential conflict is not entirely clear. Though the WTO’s decision sets out clear standards that U.S. laws must meet in order to comply with the GATS, these standards still cannot be clearly applied to U.S. law until it is known what gambling activities the U.S. laws in question do and do not cover. The United States government therefore stands at a critical juncture in this matter, at which it can either choose to recognize, take a stance, and act accordingly on these issues, or to continue its current course of avoiding the problem. But even if it chooses the latter, it is important to realize that given the blatant problems with the current position, maintaining the status quo also represents a specific policy choice to ignore these problems. Analyzing the motivations underlying the measures that led to the WTO decision reveals what is at stake in taking a stance one way or the other on this issue. Uncovering these motivations and why they lead to the current situation will also show that the underlying conflict here is not isolated to the specific area of Internet gambling law, but rather is rooted in a fundamental tension between international treaty agreements on the one hand and federalism on the other.