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Stalled compensation talks could hasten end to US online gaming ban 27/09/2007
David Gow in Brussels

The US ban on British online gaming companies such as PartyGaming and Sportingbet could be overturned as negotiations between Washington and Brussels over compensation stalled.

Lawyers for the EU are seeking compensation for the severe losses suffered by the British and European companies banned from operating in their biggest market last year, after the Bush administration cracked down on what it sees as an immoral activity.

The companies, which saw billions wiped off their share prices after the ban, would not receive any cash and instead Brussels wants Washington to open up other areas of its services industry to European firms, such as insurance or reinsurance. But such a deal could cost the US billions of dollars and it might opt to allow overseas operators back into its market under licence.

A bill to regulate and tax online gambling offered by all operators has been drafted by the liberal Democrat congressman Barney Frank.

An EU trade official said: "The UK operators and others who have lost out would get nothing. But the Frank bill would go a long way to meeting our demands."

European and US lawyers warned yesterday that the dispute posed a "systemic risk" to the credibility of the World Trade Organisation after it ruled earlier this year that America acted illegally by excluding online gaming operators from the tiny Caribbean island of Antigua.

At the same time, the White House allowed domestic operators to offer gambling over the internet and withdrew its entire $100bn gambling industry from its free trade commitments.

Raul Herrera, a Washington-based trade attorney, said the compensation merited by the EU would be a multiple of 20 or 30 times the $3.4bn of sanctions prepared by Antigua, a country with a GDP of only $1bn but home to dozens of online gaming operators that once controlled half the American market. That would imply compensation of up to $90bn

But the EU official said this was exaggerated. "If there's compensation it will not be cash but in the form of the US opening up its services industry or part of it, say insurance or re-insurance, to others and not just the Europeans under WTO rules. "

The EU online gaming industry, mainly based in the UK, employs 15,000 but faces a growing challenge from US operators such as Yahoo!, Google and Sands.

The US banned the Antiguans to protect "public morals", saying internet gambling posed uncontrollable risks to young people and encouraged fraud and money laundering. The same arguments have been used by some EU countries to protect their domestic operators, but the US defence at the WTO foundered because America allows internet betting on horse races and some lotteries.

Jonathan Cohen, a New York-based public affairs consultant acting for EU operators, said the US legal regime was "wildly inconsistent" as it allowed online fantasy sports leagues and racecourse betting but specifically banned other services provided by European firms.

Clive Hawkswood, chief executive of the Remote Gambling Association, said the European industry suffered from outrightly protectionist measures from the US. "It is using unjustified trade barriers to stop EU operators and a proper licensing system would attract many EU operators."