Blog 3: Policy Issues in Internet Gambling

The legislative history of internet gambling laws illustrates two problems we have already seen in the context of other attempts to modify existing laws to reach internet crimes.  First, there is the problem of enforcement in cyberspace; individuals have found ways to get around bans on internet gambling.  Second, laws purporting to govern gambling activity in cyberspace have threatened to effect unforeseen consequences outside of cyberspace in the physical world, including constitutional due process violations.

1. The Federal Wire Act.

The Wire Act of 1961, codified at 18 U.S.C. § 1084(a), prohibits anyone in the business of betting or wagering from using a wire communication facility to transmit a bet or wager or money or credit resulting from a bet or wager.  The Act does not explicitly address the Internet, for the obvious reason that it predated the Internet.   As a result, the DOJ has had trouble prosecuting online, casino-style gambling under the Wire Act.[1] In any case, it is clear that internet gambling thrived despite the existence of a federal law that was supposed to control gambling activity outside of brick and mortar facilities.

2. The Proposed Internet Gambling Prohibition and Enforcement Act.

HR 4411 was an attempt to modify the Wire Act in order to reach Internet gambling.  It was proposed in mid-2006 and essentially would have made it unlawful to transfer money in any form to a gambling website.[2] Banks would have been required to block transfers of money to gaming websites and commonly used intermediates.  Nelson Rose wrote that the bill was objectionable for two reasons in particular.  First, he wrote, dedicated gamblers would find ways around it.[3] Even if banks weren’t allowed to send their money to an online gambling intermediate, they could still send their money to a neutral, fourth-party fund transmitter like PayPal, and then PayPal could forward the money on to the intermediate.[4] In other words, it would be difficult to enforce.  Second, it might violate the due process rights of the operators of gambling websites.  Id.  The law would allow the DOJ and state attorneys to order ISPs to block access to gambling websites.  The way the DOJ or state attorney would accomplish that would be by filing a lawsuit against an ISP and requesting that the court enjoin the ISP from providing access to a particular gambling website.  The website operator would not be a party to the case, which would in effect “deny[] a Web site the right to have American patrons without having its day in court.”[5]

3. The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA)

The UIGEA, 31 U.S.C. §§ 5361-5367, was signed into law on October 13, 2006.[6] The UIGEA is an outright ban on internet gambling.  Under UIGEA, a financial transaction provider that transmits prohibited revenues to unlawful Internet gambling sites might be charged with aiding and abetting.[7] If Barney Frank’s bill does not get passed into law (see below), financial transaction providers will have to start complying with UIGEA on December 1 of this year.[8] Despite the ban, and because the only practical method of enforcement is to target banks instead of gamblers, individuals continue to gamble online using sites based outside of the United States.

4. The Proposed Internet Gambling Regulation, Consumer Protection, and Enforcement Act

A news item from June, 2009 suggests Barney Frank proposed HR 2267 because he and others objected to the outright ban on internet gambling imposed by the UIGEA.  Frank thought it would be more realistic to regulate internet gambling than to prohibit it, since people seem to be finding ways to get around the ban anyway:

“We applaud Chairman Frank’s strong leadership to advance a common sense approach to regulate Internet gambling and reverse the intrusive, ineffective, and burdensome prohibition,” said Jeffrey Sandman, spokesperson for the Safe and Secure Internet Gambling Initiative (<http://www.safeandsecureig.org&gt;).  “Despite the current prohibition, millions of Americans wager more than $100 billion annually with offshore Internet gambling operators. Rather than tell Americans what they can and cannot do online in the privacy of their homes, Chairman Frank’s approach to regulate Internet gambling would protect consumers and allow the U.S. to generate billions in new revenue to fund critical government programs.”[9]

If passed, the Act would lift the ban and instead require gambling website operators to obtain licenses.  The Act would subject licensees to taxation and would require them to put in place safeguards against fraud, money laundering, and terrorist finance.  The Act would also require safeguards to protect minors and compulsive gamblers.

5. Reasonable Regulation as Solution to Problems Imposed by Criminalization?

In this case, the problems of enforcement and due process violations raised by a total ban might be eliminated if the ban were replaced with reasonable regulation.  As to enforcement, some gambling website operators would no doubt try to carry on without a license, to escape the tax consequences of licensing, but the gamblers themselves would have no reason to choose an unlicensed operator over a licensed one.  Thus, enforcement might not be such a sticky problem.  As to potential due process violations in the method of enforcement, the DOJ would probably be able to reach website operators directly (rather than by cutting them off by enjoining ISPs from providing access to them) if licensing were required.


[1] Joseph M. Kelly, Financial Transaction Providers Needn’t Worry Too Much about Complying with UIGEA Rules, 13 Gaming L. Rev. & Econ. 196, 197 (2009).

 

[2] Nelson Rose, Congress Close To Devastating Internet Gambling, 10 Gam. L. Rev. 443, 444 (2006).

[3] 10 Gam. L. Rev. at 444.

[4] Id.

[5] Id.

[6] Kelly, supra note 1, at 196.

[7] Id.

[8] Id.

[9] News in Brief about the Gaming World, 13 Gaming L. Rev. & Econ. 195, 195 (2009).

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~ by cstockard on November 5, 2009.

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