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Bad Bet? Congress Wants to Regulate Web Wagering

Psst! Want a good bet? Americans love to gamble, legally or illegally. Want a better bet? Internet gambling has grown from a nuisance vice to a booming e-commerce empire fueled in great part by Americans. Want the best bet? Congress wants to do something about it.

Just what to do, however, is the big question for lawmakers.

Nothing? The Justice Department contends existing laws already make all Internet gambling illegal for Americans. The 1961 Wire Wager Act specifically prohibits the use of telephone lines for the purpose of placing a sporting bet. Since the Internet uses telephone lines, courts have ruled the Wire Act also covers Web sports wagering, but a recent federal appeals court decision said it was beyond the scope of the original law to include placing a casino bet online.

The feds are appealing the ruling, but even if a future court decision says the law does apply to online casinos, all of them are located offshore and beyond the jurisdiction of the U.S. That leaves the government with only two options: go after individual gamblers or convince the countries licensing offshore casinos and sports books to cease and desist. Neither seems likely.

Ban it? Sen. Jon Kyl (R.-Ariz.) wants to cut off American access to offshore casinos and sports books by prohibiting U.S. banks, credit card companies and other Internet payment systems from making payments to gambling sites. Since the offshore gambling sites are outside the reach of U.S. authorities, Senate Banking Committee Chairman Richard Shelby (R.-Ala.), a co-sponsor of Kyl's bill, says, "The only available means of effective interdiction is through the media by which the gambler and the casino interface, namely through the Internet service provider (ISP) or the payment system provider."

If the Kyl legislation passes, critics contend the online casinos will simply circumvent the legislation by arranging for offshore banks to extend credit to American gamblers.

Legalize it? Rep. John Conyers (D.-Mich.) likens attempts to ban online gambling with the national effort to ban alcohol in the 1920's. Conyers says a federal prohibition will create online gambling speakeasies controlled by organized crime or crooked operators. His answer? Legalize it, regulate it and tax it. In the finest congressional tradition, of course, Conyers wants a study done first.

Legalizing online gambling for Americans with restrictions similar to those imposed on land-based casinos would have enormous implications for the gambling industry. It is estimated that as much as 60 percent of all offshore gambling dollars come from Americans and a U.S. seal of approval would almost assuredly bring the major commercial casino operators into the online game.

What is not in dispute is that Americans are seemingly indifferent to whether or not online gambling is legal. After all, gambling is perfectly legal at the racetracks, through lotteries and at casinos. Even Bingo is sanctioned gambling in most states. Illegally, Americans bet tens of millions of dollars through office pools and local bookies. Arrests are rare.

Online gambling was just too good a bet for Web entrepreneurs to ignore. The Wire Act posed enough of a threat to convince operators to place their online casinos and sports books offshore. The law, though, proved to be no deterrent to gambling Americans, and offshore casinos and sports books have grown from about two dozen sites in 1995 to almost 2,000 last year. The House Banking Committee was told earlier this week Americans will gamble more than $2 billion through the sites in 2003.

Most Americans who gamble simply shrug their shoulders and ask what's the difference? In a word, regulation. In two words, tax revenue.

Betting Baby's New Shoes
"I describe Internet gambling as an 'evil,' and I don't use that word lightly," Sen. Richard Shelby (R.-Ala.), chairman of the Senate Banking Committee, said at Tuesday's hearing. "The dangers of gambling are manifest, and that is why gambling is so heavily regulated in every jurisdiction within this country in which it is permitted."

Shelby is a co-sponsor of Kyl's bill and, like Kyl, represents a state that makes millions from licensed, regulated casinos. Their concern, they contend, is not competition to land-based casinos from offshore sites nor even the loss of state revenues.

Instead, they say that unlicensed gambling lures minors and young adults, particularly college students armed with credit cards, into a potentially dangerous vice; sinks the hooks of addiction even deeper into compulsive gamblers who are willing to bet baby's new shoes on virtual craps; and serves as a conduit for organized crime to launder dirty money.

Shelby deftly placed a stacked deck of witnesses at Tuesday's hearing, playing out one talking point card after another for his and Kyl's position.

"Use of the Web to place bets on the starting date of a war with Iraq speaks volumes about the sordid, despicable nature of an unregulated faceless, nameless Internet gambling industry," said Connecticut Attorney General Richard Blumenthal, whose own state is home to two of the largest casinos in New England.

John G. Malcolm, deputy assistant attorney general for the Department of Justice, said online gambling "makes it far more difficult to prevent minors from gambling" since gambling Web sites can't look at their customers to assess their age and request photo identification if necessary.

"Internet gambling businesses have no reliable way of confirming that the gamblers are not minors who have gained access to a credit card and are gambling on their Web site," Malcolm said. "Although some companies are developing software to try to detect whether a player is old enough to gamble or whether that player is from a legal jurisdiction, such software has not been perfected and would, of course, be subject to the same types of flaws and vulnerabilities that could be exploited by hackers."

Sen. Chris Dodd (D.-Conn.), a member of the Senate Banking Committee, added that perhaps hundreds of thousands of Americans are going online and losing millions every day.

"That fact is not in and of itself troubling because in our country the right to throw one's money away has never been in dispute," Dodd said. "But online gambling poses particular risks that have, likewise, never been in dispute."

Those risks, Dodd said, included children's welfare and their families' finances; rigged games and money laundering.