PokerStars defies US ban and risks RBS withdrawal

Gary Parkinson,City Editor
Friday 13 October 2006 00:00 BST

PokerStars, the world's second-biggest internet poker company after PartyGaming, is to carry on with business as usual despite the United States Congress's decision to outlaw internet gaming across the country.

After taking legal advice, PokerStars has concluded that the Unlawful Internet Gambling Enforcement Act does not apply to online poker. Flying in the face of the opinion of American legislators and the wider internet gaming industry, the company asserts that poker is a game of skill, not chance, and therefore not covered by the new law.

A statement on PokerStars website said: "PokerStars has ... concluded that these provisions do not alter the US legal situation with respect to online poker... The Act does not in any way prohibit you from playing online poker. Therefore our business continues as before - open to players worldwide including the US. You may play on our site as you did prior to the Act."

Royal Bank of Scotland, which is widely believed to provide payment-processing functions to PokerStars, may drop it as a corporate client after the statement. RBS declined to discuss specific clients, but said that it would do whatever is necessary to comply with the new legislation. That could lead to severing some relationships with clients, RBS said.

It emerged yesterday that RBS and Barclays are contacting clients to evaluate the extent of their involvement in online gaming in the US. Barclays, too, declined to comment but is understood to have already written to major clients. Others will be contacted within the week.

Barclays is not looking to sever ties entirely with clients conducting internet gaming business across the Atlantic, but it will not take deposits originating there. The bank will continue to take proceeds from activities outside the US by filtering revenues using such factors as credit card numbers or addresses.

The industry warns that the Act, to be signed into law by President Bush at midday in America today, will not end online gaming but will drive it underground. A spokesman for PartyGaming said: "Prohibition has never worked. Regulation does. It [the Act] will strip away protection for consumers... as easily as a flame thrower can remove paint."

The law scuppered PokerStars' plans for a £1.6bn flotation in London early next year.

Bankers at HSBC and Dresdner Kleinwort had been working towards bringing the company, which is 75 per owned by the Israeli Scheinberg family, to investors in the spring. A flotation is not now expected until 2008, if at all. Like its rivals in the sector, PokerStars derives the lion's share of its revenues from its sales in the US. No precise breakdown has ever been given by the company, but as much as 80 per cent of PartyGaming's revenues come from there as do about 52 per cent of 888's sales.

PartyGaming, the wider industry and investors have taken the view that the Act does indeed capture online poker. More than £3bn was wiped off the market value of London-listed gaming companies in a single day after Congress unveiled its plans.

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