Internet Gaming Rules Face Long Odds

"If you operate in Antigua and take sports bets from the U.S., you are committing a felony," he said. On the other hand, sports betting is allowed in Nevada and some other states.

The legal issue is crucial because of conflicting court decisions, differing state laws and applications of older federal laws. Prosecutors and the horse-racing industry have disagreed since 1978 on whether it's legal to bet on horses across state lines. The law said it "is not intended to resolve any existing disagreements over the horseracing law."

Then-Senate Majority Leader and presidential hopeful Bill Frist (R-Tenn.) pushed the bill through Congress just before it adjourned in 2006.

Almost immediately, big players in the industry such as PartyGaming in Gibraltar, which runs the PartyPoker.com and PartyBingo.com Web sites, pulled out of the U.S. market. They had been successful in blocking similar legislation for almost a decade.

"There was a pretty concerted lobbying effort to keep this from happening," Susan Schneider, former head of the Interactive Gaming Council, a trade association in Vancouver, B.C., said in an interview.

Antigua, home to some big online gaming sites, objected through the World Trade Organization to the U.S. crackdown on Internet gambling. The WTO ruled in December that the United States must pay the island nation $21 million for violating trade rules.

The online gambling industry and its suppliers fear that the proposal to place the burden on legitimate payment operators will encourage gambling operators to set up fictitious accounts as a way around any rule.

Republican Sens. John E. Sununu (N.H.) and Pete V. Domenici (N.M.) asked regulators to come up with a list of restricted transactions.

Otherwise, they predicted, "Risk-averse financial institutions will simply choose to block every transaction" that could resemble gambling, "whether legal or not."

Advocates of regulating, taxing and licensing Internet gambling -- as some European countries have done -- think the United States should appoint a federal commission to study those issues.

In the meantime, Frank Fahrenkopf Jr., president and chief executive of the American Gaming Association, said many privately owned offshore sites continue to let Americans wager, win and lose.

"Money is fungible, and it gets to where it wants to go," Fahrenkopf said. "I don't know of prohibition of anything that ever worked."

Cindy Skrzycki is a regulatory columnist for Bloomberg News. She can be reached atcskrzycki@bloomberg.net.