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In its preliminary findings released last week, the European Commission revealed that the stance of the United States towards internet gambling represented a violation of its World Trade Organization (WTO) obligations. A final version of the report is expected in April. The findings came after the Remote Gambling Association (RGA), which represents a bevy of publicly traded companies like Party Gaming and 888, lodged a formal complaint with the Commission in December of 2007. In March of last year, the London-based organization learned that the Commission would investigate further. Let's take a look at the fallout from the Commission's preliminary report.

Clive Hawkswood, Chief Executive of the RGA, commented in a press release, “Although we understand that the full report will not be published until next month, we are very pleased that Baroness Ashton, the E.U. Trade Commissioner, has made this early announcement.” In September, European Commission representatives spent two weeks in the United States determining whether or not any action should be taken. This could include anything from reaching a settlement independently with the United States on behalf of E.U. operators or seeking the intervention of the WTO. Hawkswood told PocketFives.com that he believes a settlement between the Commission and U.S. will be reached without WTO involvement.

Michael Waxman, spokesperson for the Safe and Secure Internet Gambling Initiative (SSIGI) told PocketFives.com, “We're not surprised that the Commission has come out with this finding. It's been clear that the U.S. has been in violation of its WTO agreements. We certainly hope that the U.S. Administration and Congress recognize that there's a simple solution for resolving this trade violation, which comes in the form of regulation.” The SSIGI has been a watchdog during the squabble with the European Commission as well as the broader internet gambling debate in the U.S.

Waxman added, “This is a great opportunity is for the Obama Administration to chart a new course and look to strengthen our commitment to the WTO and our trading partners by coming into compliance.” The regulations of the UIGEA were passed late last year and went into effect on January 19th, 2009 as so-called “midnight rules.” The financial services industry must come into full compliance by December 1st. The vagueness of the UIGEA has led to over-blocking by credit card companies like Visa and MasterCard, which has stunted online lottery purchases in North Dakota and New Hampshire. The Interactive Media Entertainment and Gaming Association (iMEGA) sought to add that development into its constitutional challenge of the UIGEA, but the U.S. government declined the request. No resolution has been reached.

Ever since the passage of the UIGEA in 2006, the RGA has had to stand back and watch as “non-U.S. companies have had to contend with actual or threatened prosecutions, forfeitures, and other enforcement actions by U.S. prosecutorial authorities under pre-UIGEA penal laws,” according to its press statement. In December, the entire internet gambling world saw Party Gaming Co-Founder Anurag Dikshit admit to violating U.S. law in a court room in New York. He agreed to pay the United States Government a sum of $300 million and may face up to two years in prison. An official sentencing hearing is scheduled for December of 2010, although many industry officials question whether he will actually be jailed.

The RGA also noted that as its member companies withdrew from the U.S. market, their shareholders lost billions of dollars. Party Gaming's online poker site, PartyPoker, was once the largest company in the marketplace. Flanked by World Poker Tour Host Mike Sexton and a windfall of advertising, PartyPoker gained considerable traction in the U.S. market before withdrawing after the UIGEA was signed into law on October of 2006. As a result, its share price on the London Stock Exchange tumbled. The actions by Dikshit may have been a result of the company desiring to be in the good graces of the United States Government should the industry ever be regulated.

In addition to Party Gaming and 888 (which owns Pacific Poker), other RGA members include CryptoLogic, Microgaming, Betfair, Playtech (which runs the iPoker Network), Sportingbet, William Hill, and Victor Chandler. Endorsers of the SSIGI include eCOGRA, the European Gaming and Betting Association, RGA, Baker Tilly, and the UC Group. The latter was recently behind a study which revealed that up to $52 billion could be raised from taxing and regulating internet gambling in the United States over the next 10 years.

The final report from the European Commission is expected next month, although no firm timeline has been given. It has offices in Luxembourg and Brussels.