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.

Conyers Calls Credit Card Ban “Ineffective”

Rep. John Conyers thinks Kyl’s legislation would do little to stop online gambling and is pushing for Congress to create a commission to examine the feasibility of strictly licensing and regulating the Web gaming industry.

“Just as outlawing alcohol did not work in the 1920’s, current attempts to prohibit online gaming will not work either,” contends Conyers.

The veteran lawmaker says state regulation of online gambling will ensure fair games, drive out shady operators and provide potential tax revenue for cash-starved states.

“Today, gambling is a highly regulated, $26 billion industry that creates tax revenue for the states and provides a safe environment for 52 million people who gamble in U.S. facilities,” Conyers recently wrote in an editorial. “The commission will explore whether the same conditions that afford safety and fair play in land-based casinos can exist for Internet-based casinos.”

Conyers’ commission would also study whether money laundering, underage gambling, and gambling addictions are better addressed by an “ineffective ban” or by strict state regulation.

“If you want to prevent money laundering, the last thing you would do is eliminate the financial controls and record-keeping that credit cards and U.S. bank accounts provide,” Conyers said in his editorial. “To the contrary, a regime where there is strict oversight by the states and transparent record-keeping is more likely to give law enforcement the tools to prosecute criminals.”

In addition, he claims there is no evidence that Internet gambling is any more susceptible to money laundering than other types of e-commerce.

Conyers further contends children can be kept off of gambling Web sites by requiring the use of a credit card, PINs, and other screening devices. Likewise, he says, problem gamblers can be controlled by setting financial limits on an individual’s gambling through the use of shared record-keeping.

“Until now, Republicans and Democrats have stood together against those who wanted to cut off access to the Internet, restrict its boundaries, or use it for some special purpose,” Conyers wrote. “Except in the narrow areas of child pornography and other obvious criminal activities, Congress has rejected attempts to make Internet service providers, credit card companies, and the technology industry policemen for the Internet.”

He added, “We should not head down this road now. If we do, we’ll be joining countries like Iraq, China and other totalitarian regimes who limit their citizens’ access to the Internet.”

ISPs Say Don’t Blame Us

Sitting squarely in the crosshairs of whatever Congress decides to do are Internet service providers (ISPs), whose basic mantra is “don’t blame us.” While praising legislative efforts to combat online criminal conduct, Stewart A. Baker, general counsel for the U.S. Internet Service Providers Association, urged the Senate Banking Committee to avoid “unintended consequences” that may hurt the economic growth of the Internet, including requiring ISPs to block customer access to gambling sites not residing on their networks and not under their control.

Baker said the way to reliably combat illegal Internet gambling is to make sure that the content is removed from the Internet at the source where it resides on the Internet.

“Service providers are unable to block user access to Web sites on other service providers’ networks with any reliability,” Baker said. “Blocking efforts can be easily circumvented and will seriously disrupt legitimate e-commerce and speech.”

He added that, “Language should be included in Internet gambling legislation that service providers do not have any duty to block or disable customer access to websites nut under that service provider’s control or residing on its system. Requiring service providers to block access to websites not under their control threatens the functionality of the Internet.”

Baker outlined for the panel five basic principles the ISPs want to see incorporated in any online gambling legislation including, perhaps most importantly, language that clearly states that no ISP has any duty or obligation to monitor its networks for illegal activity.

“Service providers do not have the ability or means to monitor their networks, not should they be required to serve as policemen for the Internet,” Baker said. “That would be like holding the telephone company liable for illegal activities that occur over the phone.”

Baker also insisted any Internet gambling bill should contain clear notice and takedown procedures, the right to challenge a takedown notice and immunity for good faith efforts to comply with a notice.

“Internet gambling proposals should give service providers the ability to challenge a notice in the instance that the notice does not pertain to illegal activity,” Baker said. “Service providers should have the ability to contest the legitimacy of a notice. Notices should not have the full weight of the law without giving a website any type of process to appear and refute a notice.”

As for immunity in good faith efforts to comply with a notice, Baker said if an ISP is acting under the orders of law enforcement, it should be given protection from potential lawsuits resulting in the unintentional takedown of innocent material.

Betting on Dithering

Of more than a dozen technology bills so far introduced in the 108th Congress, Kyl’s online gambling bill appears to be on the fastest track. Its already cleared a House committee and, according to Shelby, the legislation will go to the Senate by April or May. Whether either chamber will actually pass the bill or any other legislation regarding online gambling is no sure thing.

There are questions if Kyl’s backdoor attempt to ban online gambling could actually be enforced or is even necessary since credit card companies and other online payment systems based in the U.S. have already agreed to not make payments to offshore casinos and sports books. There is also sure to be opposition from legislators who view the bill as an attempt by the religious right to put its morality stamp on what is a complicated legal issue ripe for the law of unintended consequences.

Congressional handicappers give the Arizona lawmaker’s bill, at best, a 50-50 chance of passage. A similar bill passed the House in the 107th Congress but failed to pass muster in the Senate.

As for Conyers’ effort to authorize a commission to study the possibility of legalizing online gambling in the U.S., in Congress its always easier to put off a decision by studying it further. The early line on his proposal, though, is that it is a long shot since most lawmakers don’t relish the prospect of being portrayed as pro-vice in their re-election bids.

As an object lesson for those who oppose the anti-gambling forces, many legislators can point to state lawmakers who championed state lotteries and found themselves voted out of office.

Congress may ultimately dither over the issue for two years and prefer to take the status quo route. In the meantime, will Americans continue betting online?

You bet.

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