The legislation, sponsored by Representative James Leach (R - Iowa), has now been re-introduced in the new Congress. It is described as an attempt: 'To prevent the use of certain bank instruments for unlawful Internet gambling, and for other purposes,' and would make it illegal to use credit cards or any form of electronic payment for the (supposedly illegal) offshore activity.

Partly as a result of the legislation, Visa, MasterCard and PayPal now refuse to process betting transactions by their members, which is causing major problems for the estimated 1,500 Internet betting and gaming sites, most of which are based 'offshore' in jurisdictions such as Antigua, Costa Rica, Vanuatu, Alderney, the Isle of Man and Malta.

In the case of PayPal, much used by the offshore sites, it was forced to retreat from participation in betting and gaming when it was acquired by e-Bay, but had already agreed with New York prosecutors to prevent local residents from making use of its system for betting and gaming transactions, and supported Jim Leach's anti-Internet-gaming legislation. The company said it would lose about 8% of its turnover when it ceased to process betting and gaming transactions in order to comply with eBay's sensitivities.

Leach claims that studies have found that Internet gaming sites are at risk of being used by criminals to launder funds and evade taxes, and provide a direct pipeline of dollars into terrorist hands. "The very characteristics that make the Internet such a valuable resource are also the reasons why it has such a huge potential to impinge on the stability of the American family, American financial institutions and our national security," Leach said.

Investment firm Bear, Stearns says that offshore gambling sites will generate more than $4 billion in revenue this year, and the bulk of that probably comes from the US. Although the Leach bill, if it passes, will inconvenience these sites, other US initiatives are potentially more damaging to the workings of the international payments system at the retail level. The IRS is progressively expanding a campaign to track down the use of credit cards by its citizens internationally, with a view to uncovering the existence of undisclosed (= untaxed) pots of money in offshore (or indeed onshore) bank accounts. This might seem reasonable enough, if the result were simply to prevent blatant tax fraud - but in the process the IRS is ripping apart the confidentiality and integrity of the credit card payment structure itself, which can only have a bad effect on international retail e-commerce. No doubt that pleases many people.

Potentially worse than the IRS is the Patriot Act, which offers the US law enforcement authorities plenty of opportunity to prevent financial institutions from offering or participating in international payment systems - and since US institutions are all-pervasive in international payments, that means a major impact for offshore jurisdictions which are hoping to host tax-efficient retail e-commerce activity.

Under the Patriot Act, the Treasury Department introduced a new set of rules last April that extended its provisions for banks and securities firms to credit-card companies, mutual funds and wire-transfer firms. The regulations required the firms to implement comprehensive money-laundering compliance programs. Among the provisions, companies were required to designate a special compliance officer, train employees to detect money laundering, commission independent audits, and establish policies and procedures to identify risks and minimize opportunities for abuse. The act also requires companies to file copies of their plans with the Treasury Department.

Patriot Act requirements are tough enough for domestic transactions, but are potentially much worse for overseas transactions. PayPal is expecting to be subject to much more stringent rules in future, and a spokesman said: "Anytime the government is in a position to add new requirements to businesses, it's a concern. The challenge is to make sure that the goal of the law and the regulations are met while still allowing individuals and entities to engage in lawful activity."

It's difficult to know what will happen, but the market has a habit of finding its way around profoudly illiberal legislation, and viewed from the perspective of a licensed gaming site operator in, for instance, the Isle of Man, the overall impact of the US legislation is certainly that.