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Tiny Antigua grabs the US by its illegal, online dice

Fighting for survival and poker

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Analysis The Unlawful Internet Gambling Enforcement Act of 2006 was rammed through Congress by the Republican leadership in the final minutes before the election period recess. According to Sen. Frank R. Lautenberg (D-NJ), no one on the Senate-House Conference Committee had even seen the final language of the bill. The Act is title VIII of a completely unrelated bill, the Safe Port Act, HR 4954, dealing with port security - Professor I Nelson Rose of Whittier Law School, Gambling and the Law: The Unlawful Internet Gambling Enforcement Act of 2006 Analyzed

Has the time actually come for Congress to read its own legislation?

In the wee hours before Congressmen could head off for their election year recess, they managed to churn out a mound of unread anti-gambling legislation. In their haste to vacate, the lawmakers added fuel to a smoldering trade dispute between the tiny island paradise of Antigua and the superpower to the north. While the conflict centers around online gambling, it could well end up disrupting the businesses of companies such as Microsoft and Google, if the US is unable to fend off the bully Antigua.

The legislation in question primarily sought to restrict access to online gaming sites for American players by criminalizing financial transactions between American financial institutions and the sites in question. It has, however, had the unintended consequence of strengthening Antigua’s hand in its dispute with America before the World Trade Organization (WTO) over the supply of cross border gambling services. As Mark Mendel, Antigua’s lead attorney in the case explained to El Reg:

The new legislation strengthens our arguments that the US permits domestic remote gambling but not foreign remote gambling, as it has a number of ‘carve outs’ for domestic operations that cannot apply to foreign ones. It is just further evidence of the discriminatory effect of US laws and the [American] government’s enforcement of them.

In its hurried attempt to penalize the foreign-based online gaming outfits without offending the American-based horse racing and Indian casino industries, Congress managed to bring into bold relief the crux of Antigua’s claim against the United States – namely that American law treats foreign suppliers of gambling services differently than its own. Such equitable treatment between trading partners forms the backbone of the WTO, and, if Antigua has its way, American intellectual property owners will ultimately pay the price for the American government’s refusal to open its market to at least certain types of internet gambling.

Cohen’s Flight

The history behind the long and bitter battle Antigua has waged for access to the American gambling market begins with the unfortunate story of Jay Cohen - the onetime president of the World Sports Exchange (WSE) (an online gambling outlet based in Antigua) - who has become the poster child for all that is wrong with American gambling law.

Prior to founding the World Sports Exchange, Cohen had been gambling legally for years in the United States, earning a lucrative living as an options market trader on the floor of the Pacific Stock Exchange in San Francisco. In 1996, Cohen resigned his position and moved to Antigua, where by early 1997 he and business partner Steve Schillinger had an online gaming operation up and running.

Cohen modeled his business on New York State’s Offtrack Betting Corporation, which operates under an exception to the federal government’s anti racketeering Wire Act. That exception allows the use of interstate phone lines for the placement of bets provided that the wager is legal in both jurisdictions - where the bet is made and where it is received. For instance, someone in Atlantic City, New Jersey can place a wager with someone in Las Vegas, Nevada since gambling is legal in both jurisdictions.

That same reasoning underpins the Interstate Horseracing Act, a civil statute that allows interstate wagering on horseracing. With gambling legal in Antigua at his headquarters, Cohen claimed cover under the exception to the Wire Act. He also believed that all of the servers were located in Antigua, which meant that his business was outside of US jurisdiction.

Not surprisingly, the Department of Justice saw the situation a bit differently. In 1998, the US Attorney for the Southern District of New York indicted Cohen and 21 others for violation of the Wire Act. The indictment claimed that the advertising by WSE in American newspapers and magazines provided sufficient jurisdiction to bring Cohen under American law.

In an effort to clear his name and legitimize the online gaming industry, Cohen voluntarily flew to New York City to fight the charges against him. The judge tossed his jurisdictional objections at his preliminary hearing, and a jury convicted Cohen on all counts. The onetime nuclear engineering student at Berkeley became the first person to be convicted in the United States for running an internet gambling business, while his former business partner Schillinger remained in Antigua, a fugitive from US law.

There was, however, a twist.

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