Bush Signs into Law Online Gambling Transaction Ban

As widely anticipated, President Bush this morning signed a bill whose principal purpose is to tighten security measures for the nation's sea ports. But attached to that bill at the very last minute -- in order to prevent Democrats running for re-election next month from stopping it -- was a federal ban on banking institutions knowingly transferring funds to businesses or individuals that may conduct gambling operations in states and areas where gambling is prohibited.

It isn't an outright gambling ban, or "prohibition," but for several of the world's online gambling casino operators -- most of whom, curiously, reside outside the US -- it may as well have been. One key reason is that the law now mandates that banks work out some type of transaction security system within the next nine months, that can electronically block funds transfers to institutions on a blacklist.

Even though this list may include certain online casino operators in this specific case, the technology could very well be extended in the future to apply to any kind of suspect organization, including potential organized crime or terrorist sources.

During this week alone, five more British-based firms -- Leisure & Gaming plc., FireOne, Fairground Gaming Holdings, Sporting Bet, and BetCorp -- announced their exit from the US gaming market.

Previously, the transaction ban was a bill unto itself, though it had been held up by significant opposition. A successful strategy late last month by Senate Majority Leader Bill Frist (R - Tenn.) succeeded in getting the bill attached to a terrorism security bill that no one wants to be seen as openly opposing, at least this close to an election.

Ironically yesterday, in a clear indication that, these days in the gaming business, you can't win for losing, the European Commission announced it is opening an inquiry into whether member nations are restricting access to their Internet gaming markets. Under EU law, it is actually illegal for a licensed business based in one nation not to conduct operations openly and fairly with other nations, even if that business is gambling.

Some of these European operations are state-owned, such as national lotteries, some of whose business is conducted online. If a European-based gambling firm or agency wanted to conduct online business legally under the new US law, it would need to implement the electronic protections yet to be devised, which would protect them from transacting with someone within a US state or territory where gambling is prohibited.

Under EU law, a member nation cannot prohibit or restrict citizens' access to any form of gambling, if at the same time that nation runs or sponsors its own lottery. France is one such state, and is one of the major centers for Internet-based gambling in Europe. Yet French authorities recently arrested executives of a Monaco-based gambling firm after they set foot in French territory, ostensibly for "violation of French gambling laws."

In the name of eradicating state-held gambling monopolies, such as those that EU commissioners claim exist in France and six other nations, lawmakers are pushing for new regulations which would mandate that state-owned and private gambling firms (those that remain) cannot withhold service to their customers based on where they're located.

As a result, quite conceivably, if these firms actually do implement the specific electronic protection measures the US law mandates, they may actually come under scrutiny by the EC, and could face penalties. Suddenly, the fact that those British firms are discontinuing their business in rapid succession, makes more sense.