Internet Gambling Laws

Illicit promises of fulfillment are far from subtle amid the glitzy displays of spam, banners and pop-up ads found on thousands of websites featuring porn and gambling. In the case on online gambling, the arguments against it can be somewhat compared to the days of prohibition in the late 1920s and 1930s. Did those laws curtail drinking or did they in fact, just make drinkers more inventive (and definitely illegal) when it came to finding ways to acquire their desired libations? Like the prohibition laws banning liquor, first online gambling was legal, then it was illegal and now, just maybe it will become legal again. Apparently the ambivalent powers that be can’t seem to make up their minds. But what are the real issues behind the more obvious ones and what are the consequences?

Professor I. Nelson Rose, a leading authority on gambling law states: “No United States federal statute or regulation explicitly prohibits Internet gambling, either domestically or abroad.” Still, the US government insists that certain things are illegal and worthy of prosecution. The most often cited statute used to defend gambling as a federal offense is the Wire Act, which was enacted some 40 years ago. The operative sub-section reads: “Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both.”

Allegedly, the Wire Act bans Internet sports gambling across state lines (with some exceptions now for off-track horse race betting). Its applicability, however, to non-sports betting is rife with issues and the subject of continuing debate and court activity.

All types of Internet gambling sites are flourishing. Most of them keep their businesses and servers outside the United States to try to avoid risk of prosecution. Still, U.S. firms don’t hesitate to accept online gambling ads.

Part of the problem is that each state is different when it comes to specific laws against online gambling of any kind. Also, owning an online gaming operation without proper licensing is considered illegal, and none of the states are currently granting online gaming licenses. In 1999, a National Gambling Impact Study conducted in the United States concluded that: “The high-speed instant gratification of Internet games and the high level of privacy they offer may exacerbate problem and pathological gambling.” In The UK a similar study revealed that 75% of people who gamble online are “problem” or “pathological” gamblers, compared to just 20% of people who visit legitimate land-based casinos.

According to The British Gambling Prevalence Survey of 2007, approximately 0.6% of the adult population had problem gambling issues, which remains unchanged since figures quoted in1999. The most significant problem areas were among those who participated in spread betting (14.7%), fixed odds betting terminals (11.2%) and betting exchanges (9.8%). The report also indicated a 4% drop in overall gambling, from a rate of 62% in 1999 to 58% in 2007. These two surveys clearly suggest that despite the rapid growth of Internet gambling, there has been no associated increase in the number of problem gamblers.

In addition, laws regarding online gambling are not only ambiguous, but also different in the United States and The European Union. Although the European Union calls for the conformity of gambling laws, to date, no legislation has been successfully passed to outlaw online gambling outright. In the U.S., for a long time attempts were made to legislate against online gambling, but such attempts were done on a state-by-state basis, and they all focused on different laws and practices regarding online gambling. Until recently, the activity was generally considered a legal grey area (especially in the U.S.).

Attempting to prevent U.S. Internet users from accessing offshore gambling sites is akin to an old world proverb that speaks of making “holes in water.” Financial institutions that accept credit cards, debit cards or bank account transfers make much better targets. Many banks have already banned these types of transactions, making them illegal as payment systems for Internet gambling. Should consumer protection be an issue? Some might argue that there is no need for these laws, and that stupidity is one thing that cannot be legislated against. Nevertheless, there are concerns here.

Gambling is an addiction for many people and there is more than a little potential for unscrupulous Internet gambling operators to take advantage of the more vulnerable among us. The problem is that unlike sports betting or state lotto numbers where the actual results are available in some verifiable form, there really is no way to know when playing fully computerized simulated games like black jack, roulette or slots that you have actually won or lost when a winner is announced.

There is no evidence to back up either claim and one must make a rather uncomfortable leap of faith. This is not the case with the machines in Nevada, which are highly regulated by law, more rigorously in fact than many of the electronic voting machines in most parts of the country. Slots in Vegas and their source code are pre-approved by a Nevada state agency and number techniques are carefully analyzed. The machines are required by law to provide detailed records of all pay-ins and pay-outs. Despite the regulated environment of the casinos, there is still too much room for dishonesty to rear its ugly head. There is also the fear that the largely unsupervised electronic funds transfers so much a part of online gambling are being exploited by criminal money launderers.

Senator Jim McDermott and The New Wave?

In June of last year, McDermott proposed a plan to “subject revenue from Internet gambling to taxation,” conceding that attempts to ban online gambling have been “ineffective.” The tax he has introduced is called the Gambling Regulation and Tax Enforcement Act (GRTEA). In January of 2008, McDermott publicly stated that this new tax could generate “$8 billion to $42 billion in revenue in its first ten years.” In conclusion, United States legislation about online gambling and its future has been and continues to be very unclear.

Anyone want to take odds on what happens next?