The IGC's Submission to the Nevada Gaming Commission
The IGC's Submission to the Nevada Gaming Commission
Ms Marilyn Epling Executive Secretary Nevada Gaming Commission November 20, 2002 Dear Ms Epling: The following is submitted on behalf of the Interactive Gaming Council (“IGC”) in response to the Nevada Gaming Commission accepting public input on:
(i) The legality of interactive gaming; (ii) Technical safeguards relating to the security and reliability of interactive gaming systems and reasonable assurances that players will be of lawful age and communicating only from jurisdictions where such communications are lawful; and (iii) The public policy of the State of Nevada to foster the stability and success of gaming, as it relates to interactive gaming. Each of the above points is addressed in turn below. (i) The legality of interactive gaming: The legality issue is one that will not be easily settled given pending legislation in Congress and recent court decisions, specifically the In Re: MasterCard decision from the 5th Circuit U.S. Circuit of Appeals. The IGC asserts that the industry, regardless of the nature of the product, should be regulated and subjected to common standards. As with land-based gaming, revenue will be generated, appropriate socio-economic research performed and players protected. And importantly, strong internal compliance requirements will remove the potential for money laundering. While the Department of Justice’s opinion states the Wire Act captures casino style games as well as sportsbetting products, the In Re: MasterCard decision in Louisiana contradicts that opinion by excluding casino style games. The differing opinions over where the transaction occurs, obtaining evidence and filing of complaints exists in all e-commerce— not just gaming. The IGC is finalizing a policy statement, for those important items that should be incorporated in a regulatory model. This document closely follows the AUSModel, the principles contained in the GREF Position Statement on Internet Gaming, and, I suggest, reflects the principles espoused by the International Association of Gaming Regulators (although yet to be formally endorsed). As with most, if not all, regulatory jurisdictions, legislation is drafted with a view to land-based gaming is not designed for new technologies, not drafted with the Internet in mind. In fact, pieces of legislation within the one jurisdiction conflict with other gaming legislation in that jurisdiction, due to the power of the respective industry groups and to the nature of the product. In our view, the best regulatory solutions available to protect consumers and assure fair and honest gaming should be consistent in all gaming legislation. Regulations in jurisdictions such as Australia, Isle of Man, Alderney, Kahnawake Territory, Vanuatu all require the highest level of compliance, whether related to probity or to issues such as money laundering. (ii) Technical safeguards relating to the security and reliability of interactive gaming systems and reasonable assurances, that players will be of lawful age and communicating only from jurisdictions where such communications are lawful. In land-based gaming jurisdictions, significant resources are devoted to preventing minors from gambling. Obviously, the physical presence of minors helps to facilitate their identification. Yet, even with the opportunity presented by the physical presence of minors, no gaming jurisdiction is 100% effective in keeping minors from gambling. By contrast, many tools, including data cross checks and age verification software, are currently available to exclude minors from participating in gambling online. I contend that stringent computerized screening mechanisms implemented by Internet gambling operators, and monitored by regulators, will be more effective in preventing minors from gambling than existing land-based measures. This is one of the areas of control that needs to be addressed by regulation and not prohibition. With new technologies, there is a need for a robust (well-regulated) registration process for players wishing to participate in interactive gambling. Coupled with this should be the presence of verification procedures for each time a person wishes to participate in any form of gambling. New technologies actually provide regulators with tools not previously available in most traditional forms of gambling, including the ability to provide an audit trail for each transaction, to limit players to total or individual amounts bet, and to block participation by specified players or classes of players, such as college athletes. Similar arguments have been made with regard to problem gamblers. That is, if they must be present in a casino to gamble there is more of a chance that they can be identified and assisted. But is this assumption accurate? How many problem gamblers are actually identified and assisted by casino personnel? It would appear that a computer-based system that allows a gambler to self-exclude or to establish loss limits, stands a far greater chance of being effective than the systems in place in most casino jurisdictions today. In fact, computer technology provides an opportunity to identify patterns of behavior that may lead to problem gambling, and offer intervention when necessary. Sure, a gambler who is determined to gamble can hop from Web Site to Web Site, but a gambler who is determined to gamble can hop from one form of land-based gaming to another, including government-run lotteries with a prize pool in the hundreds of millions and a return to player of not much over 50%. Online, rules of games and reports of a player’s activities can be made readily available, as can contact details for bodies that aim to assist those with possible problem or compulsive gambling issues. One example, and it is only but one example, of ensuring that games operating are actually the games that should be operating, is the “New solution for Internet Gaming Systems Verification Testing” approach adopted by BMM International, as described at http://www.bmm.com.au/PressReleases/System%20integrity%20verification100602.pdf From the geographical locale issue come solutions from companies such as Digital Envoy (http://www.digitalenvoy.net/), and Quova Inc.’s geolocation and IP-mapping software, currently in place for MGM Mirage’s licensed Internet gaming site out of the Isle of Man. These companies have developed accurate and reliable location-based technologies. Companies such Kerzner Online, Action Online and MGM, let alone the many other reputable companies currently involved in this form of entertainment, and comprising representatives with vast experience from the land-based gaming industry, do not want to jeopardize reputations, individual or corporate, by engaging in operations that are anything but professional and credible. If gaming is lawful, the means of distribution should not affect the lawfulness. That being said, use of the Internet, as well as other forms of new technologies, in gaming, and in e-Commerce generally, is undeniably a difficult and complex public policy issue, as evidenced by the debates in the U.S. Congress. With the advent of new technologies, accompanied by an increasing acceptance by the public, there is greater incentive for jurisdictions, and industry, to work together cooperatively. There are existing regulatory models that include provisions for inter-governmental agreements and for the collection and remittance of taxes among participating jurisdictions. At an international level, work by regulators is in progress with a view to establishing international guidelines for regulating the industry. “Online gaming invites money laundering.” The initial claims, made in Congressional hearings and reports of the U. S. State Department and the Financial Action Task Force, were that Internet gaming could be used to launder tainted funds, such as narcotics proceeds. Money laundering, inherently, depends upon stealth. However, online gaming is one of the most watched and monitored forms of commerce – by licensing jurisdictions, financial institutions and various others – not to mention that, unlike land-based gaming, cash is not used in transactions. In its Consultation Paper on money laundering (CP46), the UK’s FSA (Financial Services Authority (“FSA”) as enshrined in the Financial Services and Markets Bill), recognized that a comprehensive, regular and effective training program is vital in the fight against money laundering. This clearly is the role that the IGC expects to play with its membership and in conjunction with bodies such as the FATF. With the FATF Consultation Paper emphasis on KYC, online gambling operators, like financial institutions, do not have the benefit of face-to-face transactions, relying instead on the technology and pragmatic solution to overcome this impediment. The FSA’s new anti-money laundering measures, as a first big step, require affected parties to take as many as four separate pieces of evidence of an individual’s identity as part of acceptable KYC procedures. Moreover, most operators, partly in response to regulatory requirements in their respective jurisdiction, require their licensees, during the registration process, to obtain information from customers that can be used to verify their identity - name, personal residence address, date and place of birth, telephone number and email address, etc. This information can be cross-referenced with credit card registration information, wire instruction and other similar information. The confirmation information plays an important role with the release of unusually large refunds or deposits. Furthermore, financial institutions that contribute to the deposit cycle contribute to the verification process with their at-source checklist. These include credit card issuers, financial institutions that maintain the customer’s bank accounts from which wires are transacted and emerging e-cash intermediaries. Technology will continue to provide the tools to identify suspicious transactions and the record keeping to account and report these transactions and suspicious transactions. Proper regulatory oversight and compliance will incorporate laws and procedures to ensure the suitability of owners, managers and others involved in gambling activities. (iii) The public policy of the State of Nevada to foster the stability and success of gaming, as it relates to interactive gaming. As stated on the Nevada Gaming Commission and Nevada Gaming Control Board website, the State's public policy concerning gaming (Public Policy of the State Concerning Gaming (NRS 463.0129)), in part, is as follows: “The legislature hereby finds, and declares to be the public policy of this state, that: · The gaming industry is vitally important to the economy of the state and the general welfare of the inhabitants. · The continued growth and success of gaming is dependent upon public confidence and trust that gaming is conducted honestly and competitively, that the rights of the creditors of licensees are protected and that gaming is free from criminal and corruptive elements. · Public confidence and trust can only be maintained by strict regulation of all persons, locations, practices, associations and activities related to the operation of licensed gaming establishments and the manufacture or distribution of gambling devices and equipment. · All establishments where gaming is conducted and where gambling devices are operated, and manufacturers, sellers and distributors of certain gambling devices and equipment must therefore be licensed, controlled and assisted to protect the public health, safety, morals, good order and general welfare of the inhabitants of the state, to foster the stability and success of gaming and to preserve the competitive economy and policies of free competition of the State of Nevada. · To ensure that gaming is conducted honestly, competitively and free of criminal and corruptive elements, all gaming establishments in this state must remain open to the general public and the access of the general public to gaming activities must not be restricted in any manner except as provided by the legislature.” The focus of Nevada’s public policy for interactive gaming remains the same as that which applies to land-based gaming, specifically, the key principles of the fairness of the product, the integrity of those involved, the protection of revenue, and the presence of appropriate responsible gaming measures. The IGC endorses oversight and regulation of online gambling to prevent money laundering and underage and compulsive gambling. Its support for Internet gaming regulation is concentrated on the exact issues that opponents of Internet gaming regulation and proponents of complete prohibition address. Nevada will hopefully be a powerful voice is stating that effective regulation will do more to protect consumers, including underage and compulsive gamblers, then any form of prohibition. The key issues of such an approach are protection of minors, appropriate problem / compulsive gambling measures, protection of revenue and the integrity of products and probity of those involved. Further, by all estimates billions of dollars are still being bet over the Internet with very little, if any, oversight or guarantee that the operators of these sites are fair and honest or that protections are in place to keep children and compulsive gamblers away. These revenue projections imply that a percentage of these monies are from U.S. citizens and leave the United States with no subsequent benefit, directly or indirectly, to Nevada or the U.S. (including no dedicated funds for protecting children and problem gamblers through education or other programs). Summary: New technology, specifically the Internet, and the resulting borderless marketplace has complicated traditional gaming issues and facilitated new types of gaming, including government products. Not the least of the issues is how governments wish to regulate. They will have to move away from the traditional captured environments and work together with industry to ensure best practices are not only required but also adopted. The acceptance of a global market for online gaming is a reality unless the Internet itself it banned, which is unlikely. Rather than allow the industry to continue in uncharted territory, regulation is needed to solidify, instill confidence and to create a new revenue source. Not the least of the issues that can be addressed through regulation are responsible gaming practices (harm minimization in other terminology) and money laundering – something more likely to occur in online auctions rather than in a highly regulated, well-audited system. Otherwise, some online gaming will continue unregulated and move underground. The question of prohibition needs to be addressed. The IGC urges regulators and governments to move away from any recommendation to deputize sectors within an industry, for example ISPs, and instead focus on working with members of the online gaming industry to develop workable controls and regulation. The IGC looks forward to further discussions and to participating in the development of a regulatory model for the online gaming industry. The IGC would welcome the opportunity to meet with the Nevada Gaming Commission and is committed to working with regulators and government to advance the common cause of industry and governments. Please contact Mr. Rick Smith, Executive Director via email at
with any questions or the IGC office to request additional information at (604) 732-3833.
