Friday, June 15, 2007

"Internet redefined international trade law - the online gambling ban by US"

Internet Gambling Enforcement Act (UIGEA)

Most recently, federal government have banned not only Internet gambling but also support infrastructure of gambling provided by credit card companies. On October 10, 2006, the President signed the Unlawful Internet Gambling Enforcement Act (UIGEA), which made Internet gambling in the U.S. unlawful. But internet gambling is legal in many jurisdictions and is a source of revenues and taxes in them. The problem with implementation of laws in internet is because of overlaps of jurisdiction by geographies and conflicting public & revenue laws.

The Intention of UIGEA

“The Act's proponents cite protecting family values and preventing money laundering and terrorism as the motivation for the legislation, the underlying purpose of the Act seems to be economic in nature.”4

The number of internet gamblers is around 20 million, out of which up to 80% are from US. In a survey done on 2900 gamblers, out of which 83% played online. Seventy-three percent of those who play for real money both online and offline lost money in the past month and they lost twice the amount lost by offline-only gamblers.5 Federal law prohibits domestic remote gambling, because of which most of the companies involved in gambling are International. Taxes applied on gains are not easy to track because of international nature of transactions.

Thus, more and more capital was flowing out of US and the government misses out on tax and other revenue from this mechanism, which may have been another motive of implementing UIGEA.

Impact on International Relations

“As the rest of the world moves to accept, regulate, and profit from Internet casinos, the United States recently chose the opposite path, enacting its latest form of domestic prohibition.”6

UIGEA is a strong contradiction with the policies in Europe where countries like Britain have been working towards global legalization, regulation, and taxation of Internet gambling. UIGEA indicates the clear stand of US of no interest in a global regulation plan and that the United States will no longer provide Internet gambling revenues to other countries. It is a matter of public policy for US but by the effect principle, it is affecting the revenues generated within US of foreign nations.

The Loopholes

1. Third Party

While the wording of the UIGEA prohibits financial institutions located within the United States from transferring funds to Internet casinos, it makes no mention of transfers to or from third party payment processors. While the question remains whether the United States will attempt to regulate such websites in the future, the fact is, the UIGEA does not explicitly cover the transferring of money to third party payment processors at this time. 6

This means that the US customers can still transfer funds to offshore payment processors and then trigger these sites to deposit funds into internet casinos. Similar mechanisms using third parties like Neteller and FirePay, were used by consumers when domestic banks and credit card companies refused to honor transactions with internet gambling sites. Enforcing the domestic (public) laws on foreign website operators would be virtually impossible.

2. Paper Check

In case the UIGEA American gamblers may change to old ways of sending money and transfer funds overseas through use of checks, with no traceable transaction codes. The internet gambling companies in countries of international origin may not comply with the rule to maintain business.


Under the US Tax Code, all income for US citizens is taxable, whether earned in the US, overseas or on the Internet. Section 61(a) defines gross income as “all income from whatever source derived,” including gambling, unless otherwise provided. McClanahan v. United States, 292 F.2d 630, 631-632 (5th Cir. 1961).

The Role of WTO

WTO is an international organization dealing with rules of international trade, and is to an extent, a common forum for dispute resolution between nations.

In March of 2003, the Government of Antigua and Barbuda initiated a complaint with the WTO against United States and requested the establishment of a panel, to determine whether the cumulative impact of U.S. measures affecting the cross-border supply of gambling and betting services were in violation of the GATS.2

The Article II of the General Agreement on Trade in Services (GATS) “requires each member to immediately and unconditionally accord to all contracting parties a treatment that is no less favorable than the treatment it accords to like services and service suppliers from any other country”1.

On the Central Products Classification ("CPC") of the United Nations, gambling and betting services are listed as a subcategory of 10.D, for "other" recreational services. The Panel set up for the case examined the meaning of “sporting” and decided on whether “gambling” was a recreational activity or not. The panel also analyzed the GATS commitment of US, and whether this restriction on online gambling violates it or not.

Scope of UIGEA

The UIGEA excludes certain activities from its scope, such as certain intrastate and intratribal transactions. As for interstate betting on horses, the statute specifically exempts activities which the IHA allows. Nor does it define or alter what type of internet gambling is unlawful in the U.S.1 Therefore, the Panel agrees with the DSB that "there is ambiguity as to the relationship between, on the one hand, the amendment to the IHA and, on the other, the Wire Act, the Travel Act and the Illegal Gambling Business Act." (Original Panel Report, paragraph 6.599). In fact, the UIGEA confirms the ambiguity at issue in this dispute. The U.S., therefore, has failed to remove the ambiguity.1
Ironically, a UIGEA provision actually legalized new online gambling venues by stating that individual states have the ability to regulate Internet gambling within their borders. That "theoretically opened the door to a great deal of online gambling activity as long as companies can come up with ways to verify exactly where players are geographically located," says Todd. California, Nevada, and New Jersey could be among the states to legalize, regulate, and tax Internet poker within the foreseeable future, says professor Rose.3
The Future of Online Gambling

Researcher Pollock points to the trajectory of how other industries respond to new technologies that threaten the status quo: First fight it, then accept it, and ultimately embrace it. Pollock expects the same pattern to play out here. "After efforts by the DOJ to put a lid on it, it will be highly regulated and controlled, and handled with integrity," he says. "No one can realistically put a lid on it. 3

The growing concerns about the possible illegal transactions, lost revenues from growing online gambling industry and deteriorating international relations, may ultimately result in transformation of online gambling to a highly regulated industry. To promote comity among nations, a possible treaty between various nations offering online gambling for setting a system revenue sharing for taxes and enforcing them with due diligence, is a possibility in the future. But again, being part of public policy, it is a matter of legislative approval than a judicial discretion.

Legislative Support

On April 26, 2007 House Financial Services Committee Chairman Barney Frank introduced a bill that would allow people to gamble over internet through their US credit cards. “The issue is whether adults who work for their money in the comfort of their home should be allowed to engage in a form of recreation which is enjoyed and which has no conceivable negative impact on anybody else,” said Barney Frank at a press conference.


1. NOTE: Trade and Morality: Preserving "Public Morals" Without Sacrificing the Global Economy. Miguel A. Gonzalez- A.B. Amherst College (2003);J.D. Vanderbilt University Law School (2006).Vanderbilt Journal of Transnational Law May, 2006 39 Vand. J. Transnat'l L. 939
4. The Economic Incentive Behind the Unlawful Internet Gambling Enforcement Act. DANA GALE Yeshiva University - Benjamin N. Cardozo School of Law
September 28, 2006
5. Internet Gambling Report, Sixth Edition (The River City Group, copyright 2003.). Updated by Chuck Humphrey.
6. Over-Playing a Weak Hand: Why Giving Individual States a Choice is a Better Bet for Internet Gambling in the United States. NICHOLAS M. WAJDA. Thomas Jefferson Law Review, Vol. 29, p. 313, 2007.

*copyright@2007- written as part of course in Law

Saturday, March 24, 2007


A case of international air freight, where an apparent fraud makes the bank to make a wrongful dishonour.Details coming soon...


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Another case of back-to-back-credit transaction, where the injunction was made against the seller, with apparent fraud in the transaction


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