The International Response to Online Gambling

This week, Mexican authorities have taken what may be the final step before formally regulating online gambling in the country.[1] Benefiting from bipartisan support, legalization has happened faster than anyone could have predicted in a country pre-occupied by more pressing concerns like drug war violence.

For decades, an unregulated online gambling black market has existed in Mexico. In fact, Mexico, and in particular Mexico’s pacific coast has been a popular relocation destination for American poker players from states like California, where online gambling is currently prohibited.

With the advent of these regulations, Mexico will no longer be an online gambling paradise and haven. In fact, the rules are far stricter and narrower than many in the gambling industry had hoped. Under the rules, Mexico’s online gambling industry will be firewall-protected entity serviced by a very limited number of servers. Websites must be operated within Mexican borders and players outside Mexico will be unable to gain access to them.

Many poker enthusiasts in the Americas had hoped that Mexico would become like Malta, Europe’s capital for online gaming. Malta is a member of the E.U. where online gambling is permitted.[2] However each E.U. member state is authorized to makes its own laws and policies regarding the legalization of online gambling. Many countries in Europe have banned it outright. Germany, in particular, has harsh criminal penalties for violations of its online gambling ban. However, even the Germany has found it difficult from preventing Germans citizens from accessing Malta’s websites from within Germany.

As a result, many in the E.U. have called for specific, harmonized regulation across all member states. Malta is highly opposed to such legislation. To understand why, one must examine how Malta became the European capital for online gaming. The origins of Malta’s online gaming industry can be traced back to the year 2000, when Malta became the first European Union country to authorize online gambling under its then existing Public Lotto Law. Companies began flocking to Malta in record numbers. The business-oriented government of Malta recognized the tremendous potential of this industry and began creating even more friendly regulations and policies toward online gambling. As an additional incentive, the Maltese government implemented a very favorable tax regime. Even as larger countries, such as the United Kingdom entered the online industry, they could not compete with Malta’s tax rates.

The online gambling industry has become a vital to the continuing success and well being of the Maltese people. Any change in E.U. regulation could send the country into a downward depression. Online gambling represents nearly twelve percent of its economy. It is doubtful that the E.U. will ever ban online gambling completely but many countries are frustrated with the Maltese governments lack of oversight with regard to those countries that ban online gambling.

A ban on online gambling is not always the answer to those issues. Outright prohibition can lead to an increase in online gambling. Online gambling is illegal in China for instance, yet China has one of the largest and most successful online gambling markets in the world.[3] How can this be possible? Well China does authorize state run lotteries but those lottery tickets are not sold online. During the recent world cup in China, thrifty Chinese businessmen saw a great opportunity to benefit from the sports betting. They partnered with the locally authorized lottery ticket sellers and began offering “sports lottery” tickets on their commercial websites. The websites began generating profit at an incredible pace. They quickly used the proceeds to pay of the local Chinese government officials and an entire sport betting industry was born. Efforts to crack down on the practice have proven unsuccessful. The major retailers were not willing to give up this burgeoning revenue source without a fight.

The next blog post will conclude the series with some lessons gleamed from the federal, state and international response to online gambling.





~ by rzlatkin on December 11, 2014.

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