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Online
Gaming Regulations
Although the regulatory
regime for land-based gaming operations is well established
in many countries, the gaming laws in such countries will not
necessarily have been amended to take account of the Internet
and the ability to offer gaming services online. Consequently,
there is uncertainty as to the legality of online gaming in
most countries and in certain others it is regarded as illegal
either per se or unless licensed by the local authorities. In
several countries, local regulators are willing to license and
regulate local and often state-owned operators, but prohibit
foreign operators. In many cases, it is argued that this is
to protect the tax and gaming revenues of the relevant government
rather than any social or moral protection for residents.
Authorities in certain
jurisdictions have taken indirect steps to restrict online gaming
by seeking to prevent or deter banks, payment processors, media
providers and other suppliers from transacting with and providing
services to online gaming operators. The application or enforcement
(or threat of enforcement) of gaming laws or regulations, or
a change in sentiment by regulatory authorities on the enactment
of new legislation prohibiting or restricting online gaming
or services used by online gaming businesses or the taking of
such indirect steps, may severely and adversely impact the business
and financial position of online gaming companies. The legality
of customers engaging in online gaming is also uncertain in
a number of countries.
Nonetheless, customers
in such countries have proved willing to engage in online gaming
despite the fact that they may be prohibited by their domestic
law from doing so.
If online gaming
were liberalized, or licensed and regulated however, particularly
in the US, online gaming companies would be likely to face increased
competition from large land-based operators and Internet companies
that may not currently offer such services as a result of the
regulatory restrictions.
The Directors recognise
that the Group faces significant regulatory risks in the United
States. In this respect, the Directors take comfort from the
following:
to date, the Department of Justice's stance that the provision
of online gaming to US residents is a violation of US federal
laws has, in large part, been based on the Wire Act. However,
in the MasterCard International Inc. case in 2002, a federal
appellate court concluded that the Wire Act does not prohibit
non-sports Internet gambling, the statutory language clearly
requires that the object of the gaming be a sporting event or
contest and that a reading of the case law leads to the same
conclusion;
there is an apparent unwillingness or inability on the part
of relevant authorities to bring actions against businesses
with no physical presence in the United States;
save in respect of a cease and desist email received by the
Group from the Attorney General of Louisiana in January 2005,
the Group has not received any notification that the Department
of Justice or any other US authority is currently considering
bringing any further action against the Group or the Directors
or that any such action is imminent;
it is possible that state and local laws that prohibit or restrict
online gaming and related services are a violation of the so-called
dormant commerce clause of the US Constitution, which provides
that state and local regulation of interstate activities is
an impermissible restriction on interstate commerce and therefore
a violation of the Commerce Clause of the US Constitution;
it is possible that federal, state and local laws that prohibit
or restrict online gaming and related services are a violation
of US obligations under international trade treaties;
proposals to enact legislation to prohibit online gaming and/or
the provision of payment processing services to online gaming
operators in the US have faced objections and opposition from
various interested parties, including the racing, lottery and
land-based casino industries, and have, to date, failed to gain
sufficient support to be passed;
the bills currently being proposed by Congressmen Goodlatte
and Leach, seeking to prohibit online gaming and /or the use
of credit cards, electronic fund transfers, bank transfers and
other payment instruments and mechanisms to fund online gaming
are likely to face difficulties in gaining sufficient support
to be enacted, as with previous attempts to introduce legislation
restricting online gaming activity and related services; and
PartyGaming has been advised that, if actions were to be pursued
against PartyGaming or its Directors in the US, there are jurisdictional
issues regarding the imposition, adjudication and enforcement
of US law against PartyGaming or its Directors, as the relevant
operating companies are not incorporated in the US and do not
have tangible assets or any physical presence there.
Reprinted with Permission From: ©
2006 PartyGaming. All Rights Reserved |
