PayPal, eBay Back Goodlatte

Online auction company eBay, and its online payment service, PayPal, are backing Rep. Bob Goodlatte's, R-Va., Internet Gambling Prohibition Act, despite PayPal's growing involvement with the online gambling industry.

Brian Bieron, senior director, federal government relations for eBay, sent a letter to Goodlatte, dated March 14, 2006, commending him and his staff for introducing "commonsense legislation" to combat illegal Internet gambling in the United States.

Further, the letter states that the most effective solution to the problem is giving law enforcement the power to prosecute citizens who participate in illegal gambling.

Despite holding these views, PayPal has made deals in recent months with two online gambling companies to provide them with payment services. At the end of February, PayPal's European division began permitting customers of betting exchange Betfair to deposit and withdraw funds via its service. In March, PayPal Europe announced the same services for Ladbrokes customers.

PayPal has stated very clearly, however, that it will not do business with companies that take bets from the United States.

One theory from an industry source familiar with the legislative situation is that eBay is kowtowing to Goodlatte because of his position in Congress.

"It is true that Rep. Goodlatte chairs the Congressional Internet Caucus," said the source, "so a Net-based company like eBay would probably be inclined to be deferential to him."

The source added that PayPal's volatile past with New York Attorney General Eliot Spitzer may also be part of the reason for its allegiance to Goodlatte and the government.

"When eBay and PayPal merged, Eliot Spitzer really roughed them up for PayPal's having processed payments for the Internet gambling industry. They are being contrite," the source said.

Prior to merging with eBay in 2002, PayPal was investigated by Spitzer for processing payments for online gaming companies taking bets from New York citizens. In exchange for Spitzer's office dropping the investigation, PayPal ultimately agreed to pay a US$200,000 fine and to stop processing online gambling transactions involving consumers in New York

The company stopped processing online gambling transactions altogether (regardless of where the merchants and/or consumers were located) in November 2002 and held this policy until signing the deal with Betfair.

Bieron did not respond to attempts to get his comments on his company's support for the Goodlatte legislation.

Click here to view eBay's letter to Goodlatte.