Gambling Sites Folding U.S. Hand

Before President Bush evens signs a new law aimed at curbing Internet gambling, online gaming companies are preparing to pull out of the lucrative U.S. market.

In the early hours of Saturday morning, Congress approved legislation requiring banks and credit card companies to block payments to the estimated 2,300 offshore gambling sites located outside of U.S. jurisdiction.

Bush is expected to sign the bill — the Unlawful Internet Gambling Enforcement Act of 2006 — as early as this week.

Three of the world’s largest online gambling sites, all publicly traded British corporations, reacted swiftly to the legislation.

“The Board has determined that if the president signs the Act into law, the company will suspend all real money gaming business with U.S. residents and such suspension will continue indefinitely,” PartyGaming Plc, the world’s largest online poker company, said in a statement.

SportingBet Plc said the company was studying the legislation, but “should Sportingbet’s non-U.S. international banking partners determine that the Act applied to them, then Sportingbet would no longer be able to take deposits from U.S. residents and this would have a material impact on the company’s trading performance.”

Internet gambling is estimated to be a $12 billion industry with approximately $6 billion coming from U.S. bettors alone.

Another prominent gaming company, 888 Plc, said the loss of U.S. business would hurt.

“Whilst suspension of U.S. activities will have a material adverse impact on results for this year and beyond, the company has significant cash resources which are more than adequate to continue its operations and further develop its business,” 888 said in a statement.

Investors hammered the three companies’ share prices when the London Stock Exchange opened Monday morning.

SportingBet shares fell 75 percent, PartyGaming shares slid 55 percent and 888 took a nearly 40 percent hit.

The legislation ultimately passed by Congress represents a compromise between the House and Senate versions of the bill. The final version dropped a House provision updating the 1961 Wire Act, which currently bans sports wagering over the telephone, to cover all forms of Internet gambling.

The bill also stipulates that a wager must be permitted under the laws both of the customer?s place of residence and that of the operator.

The final bill exempts state-sanctioned online gambling on horse racing and lotteries.

“The Act does not clarify the definition of unlawful gambling. However, as the first piece of federal legislation dealing explicitly with Internet gaming, it does make clear that the U.S. government intends to stop the flow of funds from Americans to online gaming operators through criminal sanction,” PartyGaming said.

Once Bush signs the bill into law, the U.S. Treasury and the Federal Reserve have nine months to draft regulations to implement the law.

SportingBet said since lawmakers failed to clarify the definition of unlawful Internet gambling, the new rules and regulations will be a critical factor in its future dealings with U.S. bettors.

“The Board is unclear at this time what will be included in such regulations and procedures and how this and other provisions of the Act may or may not be enforced against non-U.S. [corporations],” SportingBet said.

In congressional hearings about the bill, the U.S. financial industry opposed the legislation.

“Our concern is that the added burden of monitoring all payment transactions for the taint of Internet gambling will drain finite resources currently engaged in complying with anti-terrorism, anti-money laundering regulations and the daily operation of our bank,” Samuel Vallandingham, representing the Independent Bankers of America, told a House subcommittee in April.

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