Tannenbaum Helpern Syracuse & Hirschtritt, LLP
About Us Careers Contact Us Search
Home Practice Areas Industries Case Results Attorneys Publications Events Press Room

Internet Gambling

Offshore Internet betting operations are easier to find than an oasis in the desert. In response, the U.S. Congress and Department of Justice continue to pursue laws that ban Internet gambling. The biggest problem with this is that it overlooks the technical structure of the Internet and the difficulty in enforcing U.S. prohibitions on foreign governments.

Recent reports suggest that about 14.5 million gamblers wagered about $651 million over the Internet in 1998. Experts predict that the number of online gamblers will double this year alone. Still, this is just a fraction of this country's $600 billion a year "traditional" gambling industry. Online gaming companies want to capture more bets. The question is can strict prohibition curb this growing industry.

The Proposed Legislation

Gambling is a complex legal area that's been regulated for many years. In part, this comes from religious and civic efforts to control the effects that they believe casinos have on residents and surrounding communities.

One of the things that makes Internet gambling different from traditional gambling is that almost anyone can gamble from almost anywhere without regard to state lines or national borders.

The National Gambling Impact Study Commission recently concluded its two-year study for the President and Congress, and it concluded that prohibition-not simply regulation-is probably the best way to stop online gambling.

Most of the existing gambling laws were drafted to deal with brick-and-mortar places, such as casinos, bingo parlors and horserace tracks. For example, the Federal Interstate Wire Act makes it a felony to transmit bets using a telephone. Of course, this and other older laws do not make any direct reference to the Internet.

In 1999, Senator Jon Kyl reintroduced his proposed Internet Gambling Prohibition Act. The proposed legislation would prohibit the use of wire communication for interstate or foreign wagers. Cybercasino operators would face fines up to $20,000 and imprisonment.

The biggest problem facing this proposed ban on Internet gambling is that most Internet gaming sites run off computer servers in locations outside the federal government's enforcement authority. Moreover, most gaming companies can easily move their website's computer files to run off other servers. This is like a Vegas magician flashing his wand and making a rabbit disappear from the stage and reappear in Montecarlo.

Can the U.S. government force foreign governments to cooperate, turn over documents and extradite violators of U.S. laws? Countries such as Dominica, Antigua, Aruba, Costa Rica, Australia, and dozens of other countries allow online gaming companies to operate. Many countries actually grant gaming licenses to companies. Are they likely to enforce U.S. laws, or will they assert sovereignty and nurture their "virtual Vegas" industries? I think not.

The Kyl legislation also draws some fuzzy lines. It wouldn't prohibit online fantasy sports leagues, online lotteries and betting on live horse races, so long as those wagers would be legal in the bettors' state.

If you're a bettor, you should know that the proposed bill probably doesn't punish the casual bettor. The law tends to focus on gaming operations instead. Interestingly, the legislation doesn't sanction U.S. citizens who gamble on offshore gaming websites in amounts less than $2,000 a day, for not more than ten days in a row.

In May, a subcommittee of the Senate's Judiciary Committee unanimously passed the Internet Gambling Prohibition Act. Now, it's approved for full Committee consideration.

Seeking Virtual Vegas Real Estate

Gambling has been around for thousands of years. Bugsy Siegel memorialized gambling by building the Flamingo Hotel in the desert. You have to wonder where the "virtual Vegas" will find its real estate now.

Many companies are betting on the growth of Internet gaming. It's been reported that even Microsoft has pledged tens of millions of dollars to Ninemsn, an Australia-based Internet service. Mr. Gates' partner is an Australian tycoon tied to the Crown Casino in Victoria, Australia.

Kenny Rogers knows when to hold, fold and even walk away. He authorized the opening of Kenny Rogers Casino on the Internet (www.kennyrogerscasino.com). Reportedly, the license is maintained and the computer server is located in the Netherland Antilles.

More conservative online gaming operators don't want to violate U.S. laws. Some companies believe problems arise when the website development, advertising, customer service, revenue flow, and dispute resolution are all tied to the U.S. Thus, they try to disassociate their operations from the U.S. Some casinos aren't accepting money from any U.S. bettors, and credit cards can't have U.S. addresses.

Many foreign countries willingly help gaming companies find safe-havens. Some countries and companies are more scrupulous than others. However, companies that seek to operate legitimate online gaming sites can find their "virtual Vegas."

For example, Australia has recently received publicity for choosing not to ban online gambling. Instead, its federal authorities have left regulation to its states and territories.

Queensland, Australia, has tight controls. All players must register with the Queensland Office of Gaming Regulation and prove identity, residence and age. Players concerned about their addictive habits, or someone else's welfare, can report problems and request access restrictions. Gambling site operators must adhere to a code of conduct that also limits advertising and marketing of Websites. In addition, net winnings are taxed (the important part).

Although the digital age enhances gambling opportunities, it does create problems especially for those predisposed to a gambling addiction. Still, strict prohibition doesn't seem like a practical solution when it's technologically impossible to keep foreign websites out of this country.

Instead of prohibition, regulation and innovative technologies can ensure that gaming websites run legitimately and keep underage bettors out. Online support groups can help people with illnesses.

Prohibition also misses the point because it encourages U.S. operations to move to foreign havens. This leaves other countries to set the industry standards and collect the taxes. I know they'll collect the taxes. As for them setting the industry standard, we'll have to see on that one.

Click here to download mobile version

Like us on FaceBook Follow us on Twitter Get LinkedIn with us Pin It! Email Us Print this Page

Sitemap | Terms of Use | Privacy | Attorney Advertising

Tannenbaum Helpern Syracuse & Hirschtritt LLP provides legal advice only to individuals or entities with which it has established an attorney-client relationship and such advice is based on the particular facts and circumstances of each matter. Contacting us through this site, or otherwise, will not establish an attorney-client relationship with us. Any e-mail or other communication sent to THSH or its lawyers through this site will not be treated as subject to the attorney-client privilege or as otherwise confidential and you should not include any confidential information in any such communication.