A Mouse That's Roaring: Antigua's Internet Gambling Battle with the U. S.

Back in May of 1993, my wife and I took a week's vacation in Antigua, a small Caribbean island with a present-day population of some 70,000 people. I brought back from that trip memories of great seafood, welcoming people, and a fondness for steel drum music (in limited quantities). At the time, the main industry on Antigua was tourism, and so it remained until the Internet came along.

A few years after our visit, a young former stock trader named Jay Cohen moved there from the U. S. with some friends and discovered gambling was legal in Antigua. They set up World Sports Exchange Ltd., one of many online gambling sites that catered to one of the largest markets in the world: the United States. Cohen's operation grew to employ hundreds of people on Antigua and it became the second-largest industry on the island.

Then (as I have noted in previous columns), the U. S. government decided to intervene against online gambling in a big way. The Justice Department began to use existing laws against domestic gambling to arrest operators of offshore gambling operations. In 1998, on a visit to the U. S., Cohen was arrested, convicted, sentenced to 21 months in jail, and went to prison in Nevada, not far from the lights of Las Vegas.

But before he went to jail, someone informed him that Antigua might have a case against the U. S. that could be tried before the World Trade Organization, an international body that adjudicates trade disputes between countries. To make a long story short, Cohen convinced Antiguan authorities and gambling interests to file suit with the WTO, and so far the WTO has agreed with them.

The principle that the WTO used makes sense. Countries have a right, it says, to prohibit certain kinds of activities in order to uphold "public morals and public order," even if people or entities outside that country are involved. For example, Muslim countries can prohibit the importation of alcoholic beverages, since Islam forbids their consumption. However, this kind of prohibition can't be used simply as an end run around fair trade practices, says the WTO. If you allow your own people to make homebrew hooch, you can't justify banning booze imports with the public morals and order rationale.

And here is where the great inroads into domestic gambling laws that the U. S. gambling industry has made, have come home to roost, so to speak. If the government were as hard on all forms of domestic gambling—Indian tribes, horseraces, Las Vegas, you name it—as they're trying to be on offshore Internet gambling, then the WTO case wouldn't have a leg to stand on. But even in the latest federal laws that prohibit banks and other financial institutions from processing offshore gambling payments, legislators have inserted exceptions for things like domestic horserace betting, again at the behest of gambling interests. Therefore, says the WTO, you can't use your morals and order reasoning to prohibit offshore internet gambling, unless you also try to wipe out domestic gambling with the same vigor.

While I have not too high an opinion about international bodies that presume to tell sovereign nations how to behave, I cannot fault the WTO on this one. The WTO is a toothless tiger in the sense that it cannot enforce its rulings except by means of other rulings. What Antigua is asking it to do in this case is to allow the small country to flaunt U. S. copyright law, which might turn the island into a massive sweatshop churning out knockoffs of Nike shoes.

I'd hate to see relations sour between the U. S. and Antigua, and realistically, I don't think the Caribbean nation is going to do anything that would seriously threaten the tourist industry, which still employs more people there than any other. And while I wish we in the U. S. had never started down the road toward legalized gambling, I have to admit that the charge of hypocrisy is one that sticks in this case.

In 1959, Peter Sellers starred in "The Mouse That Roared," a film about the fictional Grand Duchy of Fenwick. Faced with a bad economy, incompetent leadership (Sellers played three roles, one of them female), and the Cold War, Fenwick decides to declare war on the U. S., promptly lose, and then profit from whatever Marshall-plan-like aid would be forthcoming thereafter. Needless to say, things go awry, and the resulting international chaos ends up with Fenwick on top and the U. S. begging for mercy. Somehow I doubt that a similar comic-opera outcome will result from Antigua's lawsuit with the U. S. Like mineral wealth, gambling profits can addict and corrupt a healthy body politic in the long run as well as individuals, and I hope Antigua weans itself from excessive dependence on them in the future. But in the meantime, if they do get some huge settlement from the WTO, I have to admit it couldn't happen to a better island.

Sources: The Washington Post carried an article on Jay Cohen and his connection with the WTO lawsuit on Aug. 4, 2006 at http://www.washingtonpost.com/wp-dyn/content/article/2006/08/03/AR2006080301390_2.html. More recent developments are described briefly by a piece in the online technology newsletter TJ Daily at http://www.tgdaily.com/content/view/32594/118/. My previous blogs on gambling were "Online Gambling in the U. S.: Don't Bet On It" (Aug. 1, 2006) and "Legislating Morality: The Unlawful Internet Gambling Enforcement Act" (Oct. 3, 2006).