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eBay's Strange Policies...By Hartley Henderson

Whenever anyone talks about online payment processors two names come to the forefront: PayPal and NETeller. Until August of 2002 both companies offered payment processing for online gambling transactions. Most of NETeller's business was centered around online gambling, while only 8% of PayPal's business involved that area. The vast majority of PayPal's revenues were derived from eBay purchases, so it was no real surprise when the owners of the company decided to sell the payment processing company to eBay. The United States government, and particularly the state of New York, were preparing to sue PayPal for allowing online gambling transactions, but the company settled out of court by agreeing to pay a $200,000 fine to the state and to cease processing online gambling transactions for New York residents. The fine was a pittance for the company whose owners were about to become extremely wealthy thanks to eBay's buyout, but to the New York government the symbolism was more important than the fine itself. In 2003 eBay topped up that fine by paying $10 million to the U.S. department of Justice, announced PayPal would become "corporate compliant" for 2 years and stated that its services would no longer be used for online gambling. Furthermore, it banned purchases for pornographic web sites, other adult material or anything else it deemed immoral. Clearly the company wanted to appear to be in line with the Republican's call to restore family values. Doing so would ensure that neither eBay nor PayPal would be targeted by the government again. Apparently online gambling is morally reprehensible, but peddling a Virgin Mary grilled cheese sandwich is corporately responsible.

In 2006 eBay government relations director Brian Beiron sent Robert Goodlatte a letter reiterating his belief that Goodlatte's bill was an important piece of legislation. And according to, eBay also suggested that the legislation should be tougher. In fact Brian Beiron called for the government to look at prosecuting bettors as well. Of course this could only be done by tracing betting transactions back to IP addresses, which was now permissible thanks to Section 210 of the Patriot Act. So clearly eBay, while interested in PayPal as a payment provider for its services, wanted nothing to do with online gambling ever again as it was immoral. Or did they believe this? Just after the 2 year agreement of corporate compliance ended, PayPal Europe started up talks with Betfair and today the company provides online services to two European online gambling companies. In fact, bettors can deposit or withdraw funds to their PayPal account provided they are residents of the UK, Germany, Austria, Belgium, Denmark, Finland, France, Greece, Ireland, Italy, Portugal, Spain or Sweden. Furthermore, checking eBay Europe's website shows there is a vast amount of material at auction on how to make money by betting at Betfair. So clearly the philosophy of eBay and PayPal in Europe is different than the philosophy of the same U.S. subsidiaries.

So the question has to be asked: If the "online gambling is evil" stand of eBay is a corporate policy, then why is there a difference in actions on either side of the Atlantic Ocean?

One possible reason is that the company wanted to win favour with Robert Goodlatte who is on the Congressional Internet Caucus. But another possible reason was stated in an editorial by writer Radley Balko, who in June of 2006 suggested that the main reasons the company supported the ban were protectionist. Essentially, Balko believed that eBay expected the UIGEA to be shoved through congress at some point, but that it would be impossible for the U.S. government to stop bettors from using other payment processors like NETeller since they were located in another country outside of the U.S. DOJ's reach. The government would demand compliance by U.S. banks, and faced with the prospect of huge fines and money laundering charges, the easiest thing for banks to do would be to simply disallow any transactions with foreign payment processors, essentially giving PayPal a monopoly in the United States. Curiously, one of the first acts of the U.S. Department of Justice relating to online gambling after the UIGEA passage was the arrests of NETeller's founders, followed by the citations against the four Wall Street firms underwritten by U.S. banks for dealing with online gambling companies. Consequently, all U.S. banks decided to stop dealing with NETeller. Clearly Balko was on the ball with his viewpoint.

As for why eBay and PayPal Europe have no problem with online gambling, obviously the reason is that in Europe online gambling is endorsed by the governments over there so eBay's "corporate policy" opposing online gambling is as phoney as the United State's stated reasons for opposing online gambling. The U.S. government declared that remote gambling was immoral and used that defense in trying to block Antigua from catering to the U.S. market, but in the same breath they declared that local remote gambling on horse racing and Indian gambling was OK. Of course this makes about as much sense as arguing that Appleton rum will kill you, but Captain Morgan is healthy. Fortunately, the WTO saw through this blatant double standard and ruled accordingly.

But perhaps PayPal U.S. has a different reason than stated anywhere for being a proponent of the UIGEA while acting differently in the rest of the world. One belief that is shared by everyone regardless of their views on internet gambling is that the genie is out of the bottle and it will be impossible to block online gambling in the United States forever. At some point the United States government (or more likely state governments such as Nevada) will try to get online gambling legalized for U.S. based casinos. Consequently, the UIGEA will be amended making it okay for American citizens to bet online provided the bets take place in the United States, are made with American companies and are paid for with American payment processors. If that does indeed take place, who has gained great brownie points with the United States government by being "corporately responsible in relation to online gambling" and who backed the United States when everyone else seemed to be against them?

Maybe eBay's actions aren't so strange after all.

Hartley Henderson

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