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Six Stories that Dominated the Online Gambling World in 2007: Part I...By Hartley Henderson

With 2007 coming to an end, it is time to look at the year in review. Without question, six developments in online gambling had the most impact on bettors, gambling establishments and politicians.


The word itself causes many bettors, politicians and even investors to cringe. In October of 2006, following the passage of the UIGEA, NETeller made it known to the gambling world that it would not be changing its practices. All customers, including Americans would be able to use the service as they always had. The company stated it would closely monitor the U.S. situation and possibly could even stop transfers to gambling sites by Americans at some point, but until such an announcement was made it was business as usual. However, things changed quickly for the payment processor when the founders of the company, John Lefevre and Stephen Lawrence were arrested by U.S. authorities and charged with several offenses, including money laundering. Immediately the company shut down trading on the AIM stock market and within a week closed off all U.S. accounts. Logically, American customers asked for EFT transfers, but were shocked to find those transfers never came through. The reason quickly became evident when it was announced that the DOJ had confiscated $50 million worth of EFT withdrawals made by Americans who tried to get their money out. The events that followed from the company were nothing less than deplorable. The company announced that Americans could not withdraw funds and then disallowed p2p transfers between Americans and people from other countries who tried to help their counterparts get the money out. The result essentially was that all American funds were being held hostage by the DOJ in a NETeller escrow account. U.S. customers started offering their NETeller balances on eBay to foreigners for pennies on the dollar, and a group, the NETeller Coalition, was formed with the goal of getting the money back.

The whole scenario was made all the worse because of the ineptitude and lack of caring by company executives in the Isle of Man, particularly the customer relations department. Whenever an unforeseen event occurs within any publicly traded company, the natural course is to call a meeting of the heads and discuss a plan of action to reassure customers and shareholders that things are being looked after. The course of action NETeller opted for was to run around like a chicken with its head cut off, shun the media who were trying to find out what the company was doing to address the situation and, worst of all, berate customers who dared to call them to find out what the story was and what was happening to their funds.

Promised deadlines came and went, the website was never updated, and consequently speculation of all sorts was allowed to run rampant. Eventually in March the company announced that it reached an agreement with USAO and Navigant to have money returned to Americans and details would be released within 75 days. Americans were left wondering what devil was in the details. Were they going to be forced into an IRS audit in exchange for getting the money out? Were they going to have some money withheld? Were they going to be put on some kind of watch list? It was not inconceivable that for some Americans the price of getting the money back would be higher than the amount they had tied up at NETeller. In fact, some websites even wrote that IRS audits were inevitable. NETeller was saying nothing to help reassure customers, as any decent company would. To make matters worse, the case against Lefevre and Lawrence was held over time after time, causing even more concern as to what arrangement the USAO had worked out with NETeller.

Then in another bizarre development, NETeller announced that Canadian customers could no longer use the service to fund gambling websites. There was no rhyme nor reason for that decision since Canada was not aiming to follow the U.S. lead with regards to making online gambling illegal. But in true NETeller fashion, company executives gave no reason for that decision. Fortunately for Canadians, unlike Americans, Canadians were able to get the money from the company without any trouble. Eventually the issue did work itself out. In July Lefevre and Lawrence pleaded guilty to charges and actually stated that they "came to realize what they were doing was wrong," although many, including myself, found this to be a blatant lie and a slap in the face of consumers who faithfully used the service they developed. In exchange the founders received a lesser sentence than they could have gotten. Later on NETeller made an announcement that American customers could make a request for an EFT withdrawal for the full amount and the money would be deposited into their bank accounts. NETeller ceded to the USAO all the money that was held by the DOJ, as well as the money in the escrow accounts. NETeller relisted on the AIM and started catering to all countries, excluding the U.S., Canada and Turkey.

To this day, however, questions still are left unanswered. Why did NETeller cut off Canadian customers? What do they know that Canadian bettors don't? And most importantly, what deal did NETeller come up with in exchange for allowing Americans to receive their funds? Does the IRS now have a long list of people it will monitor in April to see if they have been reporting gambling revenue? This mess may be far from over.

United States/Antigua WTO dispute

The WTO dispute between Antigua and the United States has been playing out for years. The WTO ruled in favour of Antigua and then reaffirmed this decision with an appellate ruling. According to the appellate body, the United States agreed to allow WTO countries to provide recreational services to the U.S., including gambling services. The USTR had every opportunity to remove gambling from the agreement when they signed it, but chose not to. The appellate decision made it clear that the U.S. was in breach of commitments because it was trying to stop remote gambling services to the U.S. while allowing it domestically via. Interstate horseracing. The U.S. had two options, either stop remote gambling domestically or allow Antigua to freely provide gambling services to Americans. 2007 was the year where America had to decide how it was going to abide by the WTO decision.

The U.S. exhausted its appeals, and in early 2007 the USTR conceded defeat in the dispute. The decision America chose to come into compliance with its commitments, however, was unexpected. Instead of trying to work out a deal with Antigua or agree to stop remote gambling on horse racing, the US Trade Representatives chose instead to rewrite the commitments to remove gambling from those recreational services other countries could offer to them. This decision stunned all parties, especially Antigua's lawyer Mark Mendel who stated that he never believed this was an option the U.S. would choose. Aside from the fact it is unprecedented and undermines the whole WTO system of agreements, it also forced the U.S. to make concessions to all countries who believed they could have been affected by the new rules.

Calls went out for other countries to submit claims in compensation for the U.S.'s decision to rewrite its commitments. And in June the European Union, Japan, Canada, Costa Rica, Macau and India asked for compensation as a result of America's decision. No amounts for compensation were disclosed, although it was rumored that the EU could be seeking upwards of $100 billion in trade concessions. In the meantime Antigua was entitled to compensation for the U.S.'s refusal to live up to the agreement and was also entitled to compensation as a result of the rewrite. Antigua submitted a claim to the WTO requesting $3.4 billion per year in compensation and the U.S. countered with $500,000. Antigua also asked that the WTO allow this compensation to be applied in the area of intellectual property rights.

In November, Japan, Canada and the EU settled with American trade representatives. The EU agreed to trade concessions in the areas of shipping and storage. The decision they reached was far less than most felt they could have received and also did nothing for the gambling companies the EU claimed to have submitted the claims on behalf of. In fact, some European companies have now launched a lawsuit against the U.S. claiming the EU did not look out for their interests with the deal. Furthermore, in a "clarification" statement just prior to Christmas the USTR made it known that the deal it reached with the EU did nothing to change things in the area of competition in shipping, leaving many in the EU wondering whether they received any real compensation at all. Consequently, the deal with the EU may not be over with yet.

The WTO also came to a decision regarding Antigua and rewarded the country with $21 million in compensation, far less than Antigua requested. More importantly though, it did allow the country to apply the compensation by ignoring American intellectual property rights, which seems to have many in the U.S. government seething and warning Antigua about actually following through with this option. If Antigua offers legal versions of software, movies and music for pennies per version, $21 million will create quite a few copies circulating in America and elsewhere. The WTO came to the agreement using speculation and deciding hypothetically how much Antigua could have made if they were allowed to offer remote horse race betting in the U.S. The decision was clearly far lower than most in the gambling world were expecting, but the permission to override copyrights and patents could prove to be far more lucrative than any amount of compensation in other forms. 2008 will tell for sure.

Passing of the UIGEA Regulations

The Attorney General's office, in conjunction with the Treasury Department, was given the duty of drafting regulations that would instruct the banks and other payment processors on what they were required to do to enforce the UIGEA. The banks made it clear that they needed clear instructions on what constituted an illegal payment and also wanted a list of banned companies that would enable them to detect payments which were not legal per the UIGEA. The banks already tried to block transactions from gambling companies whenever possible, and even demonstrated such to congress. But when dealing with millions of transactions every minute, it's hard to isolate those that are online gambling related unless a company identifies it as such. After all, for every gambling related transaction, there are thousands of non-gambling transactions, and searching out that one illegal gambling transaction could be like looking for a needle in a haystack.

In October, long after the 270 day deadline congress gave the AG's office to draft the regulations, the regulations were finally released. Unfortunately for the banks, the regulations did nothing to address the bank's concerns. Instead of giving the banks and processors clear instructions and a list of companies to look out for, the Treasury and AGs office instead told the banks that it was their duty to establish procedures to make sure they identify and block "illegal" online gambling transactions. So in better words, the AG's office passed the buck. The regulations that were released defined ACH systems, wire transfer systems, check systems and money transmitting systems like Western Union. The regulations then put the onus on the first American receiver of money to ensure that the transaction was not related to gambling.

The banks stated prior to the release of the regulations that it would be easiest to try and block any gambling related transaction because gambling is identified by a code, not by a company name. Consequently, if they simply disallowed banks to be used for any gambling transactions, they could block most of them. But the government tied the bank's hands and told them that this wasn't acceptable. The banks had to guarantee that no "legitimate" gambling proceeds were blocked, and consequently if any legal gambling proceeds from horse racing, lotteries, tribal gaming, fantasy sports, etc. were blocked, the banks or other payment companies would be held responsible. And the banks and other payment companies were given until this month to draft these procedures for the AG and treasury to review.

Not surprisingly, the banks came back just this month claiming that the regulations that were drafted were confusing and conflicting and the instructions they were given were unreasonable. They also had a real issue with the notion that they would de facto be the "transactions police", which they claim is not their job. In better words, the banks wanted more clarity or the ability to block every gambling related transaction when identified. They also vehemently rejected the $4 million figure the AG's office estimated it would cost banks to police all transactions. Thus far the AG's office has not budged nor have the banks. Hence, the UIGEA regulations sit in limbo, because in reality they are unenforceable and put the full onus on the banks. It will be interesting to see what magic formula the AG and Treasury departments can enact in 2008 to make the impossible a reality.

Part II will cover the last three stories that dominated the online gambling world in 2007.

Hartley Henderson

If you would like to make or read comments about this article, you may do so by visiting the Mess Hall forum at where a thread has been started. Please click HERE

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