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World Online Gambling Law Report
United States: Prohibition or regulation debate approaches key stage
June 2006 - The next few months will determine if the U.S. is to prohibit or regulate online gambling. Prohibitionists could face a number of obstacles in passing legislation to prohibit online gambling, argue Keith Furlong and Rick Smith of the Interactive Gaming Council.
Efforts by opponents of online gambling to prohibit the practice continue to move forward in the United States. But as legislators advance their prohibition legislation, they have met increasing resistance from industry advocates, a few political leaders and in newspaper editorial pages. There also remain significant gaps between the two pieces of legislation that the U.S. House of Representatives is considering. One option is the Internet Gambling Prohibition Act, introduced in February by Republican Robert Goodlatte of Virginia and passed 25-11 by the House Judiciary Committee on 25 May. This legislation essentially extends the 1961 Wire Act - which banned use of the telephone or telegraph for sports betting - to the internet and would cover casino games as well as sports betting. The other bill, proposed by Iowa Republican Jim Leach, targets the use of creditcards, checks and other U.S. 'financial instruments' for online gambling. Called the 'Unlawful Internet Gambling Enforcement Act of 2005', it was introduced in November.
In the U.S. Senate, Arizona Republican Jon Kyl, the upper chamber's primary advocate of prohibition legislation, is focusing on other legislative priorities as well as his increasingly competitive re-election race. Therefore, he has not moved recently towards promoting prohibition in the Senate.
Public reaction to these bills has not been particularly warm. Various polls find between 70% and 85% of respondents opposing prohibition efforts. On 9 June, the Los Angeles Times took congressional representatives to task in an editorial staunchly opposing an all-out prohibition of online gambling. The Times found the [Leach] legislation to be an unnecessary burden on financial firms, which would be banned from having their services used for electronic betting. The editorial also found some hypocrisy in the bills, considering the continued exemption for online wagering on horse racing, which, thanks to a powerful lobby, has seen a halfdecade of legal safeguard in the U.S. The West Coast's largest newspaper further questioned the priorities of Congress in focusing on the banning of online gambling at a time when the nation faces so many political and social problems. The Times agreed with many leading gaming industry advocates that regulation instead of a ban on online gambling was a proper answer to the issue, citing Britain's recent legalization of internet gambling as a role model for Americans.
The media devoted further attention to the legislation this past week when Fox News' lead business commentator, Neil Cavuto, interviewed Goodlatte about his legislation (Fox News, 12 June 2006). Cavuto, generally considered an ally of the conservative cause, did not let Goodlatte off the hook for the flaws in his bill. Cavuto questioned the necessity of the legislation, as well as the severe penalties that could be incurred for not following the proposed new law. Cavuto even compared some of the proposed punishments for participating in Internet gambling to those given to users of child pornography sites.
The Virginia Republican went on the defensive in the interview, noting that the more extreme sanctions Cavuto mentioned were in fact implemented in the state of Washington, where the Democratic-controlled legislature imposed stiff laws against online gambling - including penalties for players - earlier this year. Goodlatte then tried to turn the interview in his favor, noting that his legislation only goes after 'offshore operators' of gambling sites. In an attempt to give the impression that there was a unified political front on online gambling, the Congressman noted that 49 of 50 state attorneys general supported a ban. Goodlatte also tried to pitch the legislation as assistance to the banking industry, claiming the bill would 'help the financial services industry assure money is not sucked out of the country.'
Cavuto echoed the point that much of the media and public has articulated about the proposed legislation when he asked Goodlatte about the fact that many of his constituents probably do take part in online gambling. In an allusion to Republican hopes of a surge of conservative Christian voters preserving their congressional majority in November, Goodlatte said that many in his district support the legislation because they believe 'gambling is not good for our communities.'
Although the prime argument of the prohibitionists is rooted in their moral and religious beliefs, they contend that minors and compulsive gamblers become addicted to online gambling, leading to a variety of social ills. What prohibitionists fail to note is that regulations supported by the online gaming industry would alleviate these concerns. Not wanting to appear too much the overly pious prohibitionist, Goodlatte indicated respect for those who support gambling, saying that even gambling proponents don't support what he claims is the fly-by-night organization and unregulated environment of Internet gambling.
Democrats may be receptive to a temporary prohibition that would put the possibility of online gambling before a review panel. That means the ban would have a sunset provision, allowing a reexamination of the law in 18 to 24 months. Many believe that if the Democrats re-take the House in November, Congress might become friendlier to legalization and regulation over an outright ban. Some Republicans also support the idea of a non-partisan study panel, including Representative Jon Porter of Nevada, who recently introduced such legislation. Republicans typically emphasize the rights of States vis-a-vis the Federal Government, and some believe that online gambling should be legalized in States, such as Nevada, where land-based gambling is legal. They point out that the legalization and regulation of gambling has always been left to the States to decide.
Congressional advocates of a ban with an exemption for horse race betting seem willing to ignore the World Trade Organization. Many online casino operators, of course, are based in the Caribbean and Costa Rica. Acting on a complaint from Antigua, last year the World Trade Organization ruled that the U.S. is conducting unfair trade practices, since Americans are allowed by U.S. law to bet on horse racing via the Internet, but only at American betting sites.
Some representatives of the business community have stepped up efforts to slow down the imposition of a ban. Bankers, especially at smaller community-based institutions, have expressed concerns about the regulatory burden that would be imposed on them by the Leach bill. The American Gaming Association remains neutral on prohibition legislation, but recently published a white paper on the issue that recommends a review committee. Further, some large casino companies, such as Harrah's and MGM / Mirage, have publicly stated support for licensing and regulating online gambling, believing that online gambling offers attractive synergies with their existing brick-and-mortar casino business. Major American financial firms, including Goldman Sachs, Morgan Stanley and Merrill Lynch, are making significant investments in online gaming firms based outside the United States. Global financial analysts are also advising stock traders to consider investing in these rapidly growing firms.
The hostile legislative environment in the U.S. has caused these respected Wall Street firms to be quiet and non-committal about their intentions in the American press. But they have lost lucrative underwriting fees by standing on the sidelines as initial public stock offerings of online gambling firms have shifted to the friendlier venue of the London stock market, which in the long-term puts U.S. businesses at a competitive disadvantage.
The next several months will determine whether the U.S. chooses the sensible route of a regulated and legal online gambling industry or turns down the wrong path of a more complete prohibition that further closes off the country to investment in a growing field - and protection of its consumers - while continuing the legal gray area that online gambling occupies here. Prospects for prohibition remain strong, with 133 members of Congress supporting Goodlatte's bill. With an early start to an unusually charged political season, continued dissension over the language of prohibition legislation, and a skeptical business community and general public, hope remains that this hurtful legislation can once again be avoided.
Unless otherwise stated © 1999-2005 Cecile Park Publishing Ltd.
The Interactive Gaming Council (IGC) is the leading trade association for the international interactive gaming industry, with its membership operating or supplying services to, most of the reputable gaming and wagering sites on the World Wide Web. Additional information about the IGC, including membership details, can be found at the association’s web site, igcouncil.org.
Rick Smith is the of the Interactive Gaming Council. He is a former regulator with the Queensland Office of Gaming Regulation in Australia and a former New Zealand gaming regulator.
Keith Furlong serves as the Deputy Director of the IGC, and is the Vice-President of the Catania Consulting Group, Inc., a New Jersey-based gaming consultancy and lobbying firm. He is a former Public Information Officer and Legislative Liaison with the New Jersey Division of Gaming Enforcement.
*Dan Beckelman assisted with the writing of this article
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