12-Mar-2010
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10 YEAR REVIEW: ONLINE GAMING, AN EVOLVING INDUSTRY |
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10 YEAR REVIEW: ONLINE GAMING, AN EVOLVING INDUSTRY
ONLINE GAMING: AN EVOLVING INDUSTRY
As published in Casino Gaming International
July 2005
By IGC Chair: Mark Stone, IGC Executive Director: Rick Smith and IGC Deputy Director: Keith Furlong
It is hard to believe that the online gaming industry is approaching a ten-year anniversary. Originally a small, niche component of the overall eCommerce universe, the recent announcements of initial public offerings and stock exchange listings for a few large online gaming operators show that the industry has matured into a multi-billion dollar category of its own.
We have seen young entrepreneurs turn management of their companies over to seasoned management executives from all walks of corporate life, including the gaming and technology industries and consumer products firms.
The Interactive Gaming Council (“IGC”) was created in November 1996 as an affiliate of the Washington DC-based Interactive Services Association and is currently incorporated in Canada with its head office in Vancouver. Members are operators of Internet gaming sites, software suppliers, portals, e-commerce providers, processors of financial transactions, marketing and advertising companies, information-providers and other companies related to this industry.
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One of the IGC’s core motivations has been to play a key role in advocating for government regulation. The IGC has consistently promoted an environment where there is an absence of fraud, both fraud by players as well as fraud by operators, and this is why we have positioned our association in favor of strict government regulation. A chief concern of the IGC is protection of the consumer, with particular emphasis on the prohibition of underage participants and the provision of assistance for compulsive gamblers, two highly emotive issues over which the industry is often criticized.
Our position is based on the philosophy that a clear distinction needs to be made between attempts to regulate the Internet and attempts to regulate gambling. If a type of gambling product is permitted within a jurisdiction, then the nature of the delivery medium should not affect the nature of what is being regulated or the legal status of the product. If gambling is lawful, the means of distribution should not affect the lawfulness.
Our efforts are especially well known in the U.S., but our organization has also been active in Australia, New Zealand and Europe, particularly the UK. In the early days of our organization, U.S. efforts were important for multiple reasons, including the leadership position and reach of the U.S. government, the high percentage of revenues attributable to U.S. players and the fact that most international credit card transactions, at some time or another, have some nexus with the U.S.
The IGC has been proactive throughout the international Internet gaming industry. In the UK, the IGC provided written testimony to the Gambling Review Body during the consultation phase of the review process that resulted in legislation being passed in 2005. The new legislation will, among other outcomes, establish a Gambling Commission whose duties will include the regulation of remote gambling.
AN INDUSTRY MATURES, BUT NOT WITHOUT CRITICISM
The online gaming industry has faced and continues to face criticism. The issues and hurdles encountered by the industry vary: credit card fraud, locked player accounts associated with disputes over promotions, spam and pop-up advertisements, underage and problem gambling, and the alleged potential hot-bed for money laundering.
ONLINE CASINO PROMOTIONS
While IGC members who operate gaming sites are committed to fair and honest gaming practices, these same casino websites are sometimes the victims of player fraud. Over the years, a few players have managed to profit from manipulating promotions at the expense of everyone else. Some, for example, in an effort to gain unauthorized additional financial benefit, have registered multiple accounts in different names, when the rules of a promotion clearly limit players to only one account.
The situation can be best summarized by quoting a representative from GoneGambling.com, an Internet site that got caught in the web of this promotional abuse: “Integrity is a 2-way street. Unfortunately, there are a lot of devious people in the real world (and seemingly growing in numbers by the day). They seem really intrigued by any opportunity to corrupt the system, especially where there is the potential for a dollar.”
While the difficulty often arises from the unscrupulous activities of a few players, the process of dealing with these problems, jointly, has been one of the growing pains associated with our expanding industry.
SPAM & POP-UPS
In an effort to increase awareness about the issue of spam and to promote reputable business practices, the IGC developed and distributed an Advertising Code of Practice for member operators and software developers. The Code warns against unsolicited advertising, including spam, data protection and pop-up ads.
Spam often originates from a third-party marketing company or affiliate rather than from the actual gaming operator. But regardless of the source, spam needlessly alienates many consumers who would otherwise bear no ill will to online gaming. As with any industry, a business that engages a third party should be held accountable for the actions of that third party engaged to perform work on their behalf. Our concern is that increasing spam complaints about online gaming websites would provide fertile ground for U.S. Senator Jon Kyl and his allies to continue their misguided attempts to prohibit online gaming.
Our hope was that the Advertising Code would be a first step toward an international industry standard. However, until such standards are widely adopted, the IGC will continue to lead by example.
IGC members, by the nature of their business, and the customers who play at the members’ sites, by the nature of their choice in entertainment, are heavy Internet users. We all see first-hand how spam impacts the enjoyment and usefulness of the Internet.
In addition to spam, the Advertising Code covers other issues relevant to the operation of an online business in a responsible manner, for example, adherence to privacy and data protection requirements. The Code states that advertising should not be false or misleading, especially with regard to the odds of winning, should be in good taste and should not focus on minors or be displayed at sites frequented by minors. The website should contain the name and address of the operator, contact information for complaints, and accurate information about the jurisdiction and gaming license under which the site operates.
Adoption of this Code is another example of the IGC’s commitment to high standards in an environment of industry self-regulation. But enforcement of these policies really requires regulation by governmental jurisdictions. If the government licensed and regulated this industry, it would be in a position to force an operator, for example, to stop spamming or to make the proper disclosures on its website. In most of the world’s land-based gaming jurisdictions, government regulators ensure that casinos behave properly. And that is the way things should work in cyber space.
UNDERAGE & PROBLEM GAMBLING
The IGC has been a consistent voice for the responsible interactive gaming industry, making the case for regulation and player protection to governments, gaming regulators and policy makers throughout the world. The IGC continues to emphasize that perceived problems of underage and problem gambling can best be resolved through a combination of up-to-date technology, proper internal controls and regulatory oversight.
In land-based gaming, jurisdictions devote significant resources to preventing minors from gambling. Obviously, the physical presence of illegal minors helps to facilitate their identification. Yet, even with the opportunity presented by the physical presence of minors, no gaming jurisdiction is 100 percent effective in keeping minors from gambling. By contrast, many tools, including data cross-checks and age verification software, are currently available for use with efforts to exclude minors from participating in gambling online. The IGC contends that stringent computerized screening mechanisms implemented by Internet gambling operators, and monitored by regulators, will be more effective than existing measures used by land-based casinos in preventing most minors from gambling.
With new technologies, there is the need and the opportunity for a stringent registration process for players wishing to participate in online gambling. Coupled with this should be equally stringent 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; enforce maximum wagering limits, either for individual bets or total bets over a designated period of time; and to block participation by specified players or classes of players, such as college athletes.
We take seriously the issue of gambling by minors, and our members undertake steps to prevent this. However, protection of children would be better accomplished through a robust program of government licensing and regulation. The IGC will continue to accomplish as much as industry self-regulation permits in an endeavor to prevent underage gambling, but we again call on legislators to recognize that government regulation, and not futile attempts at prohibition, is the means to achieve this critical objective.
MONEY LAUNDERING
Law enforcement personnel often worry that casinos and sports books provide opportunities for criminals to launder money. But in a submission to the Financial Action Task Force (FATF), the IGC pointed out that online gambling, with a combination of regulatory oversight and use of technology, while facing the same threats as real-world gambling facilities, is in a better position to address these risks. The FATF, based in Paris, is an international organization devoted to combating money laundering.
The IGC in its written testimony argued that stringent player registration and ongoing verification processes for online gambling, in conjunction with the appropriate regulatory oversight and banking regulations, can more than satisfy the “know your customer” requirement that underpins any fight against money laundering. Combined with the advanced computer technology that’s available to website operators, this acts as a strong deterrent to money launderers. With software technology tools, online gambling operations can scrutinize “inconsistent” behavior, capture and report the transaction, and freeze the funds pending investigation. Cash transaction and suspicious transaction reporting as well as appropriate AML training should also be a critical component to online gambling regulation. .
While there have been no documented cases that legal online gambling sites have laundered money, vigilance is needed. The concern is not so much with the money coming in to an online casino or sports book, but with the money going out. IGC members have policies that prevent transfers of funds (winnings or return of deposits) to parties other than the individual who originated the transaction. Operators can’t let players tell the casino to send checks or wire money all over the place. Money must go only to the player who registered at the site and did the betting. It is also best if the money goes back the same way it came in. In other words, if a player starts playing on a credit card deposit, it is best if any winnings are credited to the same credit card. Unfortunately, most U.S. credit card issuers won’t permit that and where this is permitted credit card use is restricted in terms of how much can be paid back directly to a card.
The ultimate weapon against money laundering, the IGC believes, is government regulation of the online gaming industry, ensuring that the industry is subject to the same regulatory requirements as regulated land-based gaming organizations.
As part of its commitment to licensed and highly regulated interactive gaming, the IGC stands ready to work with any government organization. In addition to its submission to the FATF, IGC representatives have met with officials from the U.S. Federal Trade Commission to discuss common concerns about preventing minors from gambling online. The IGC has drafted a regulatory position paper that it has forwarded to various regulators and policy makers including the International Association of Gaming Regulators.
THE NEED FOR GOVERNMENT REGULATION
The most recent important developments for the online gambling industry include the United Kingdom gambling reform legislation and the final decision of the World Trade Organization regarding Antigua’s complaint that the U.S. prohibition of Internet gambling violates U.S. commitments under the General Agreement on Trade in Services.
The reform of the UK’s antiquated collection of gambling laws, the Gambling Bill was passed on 7 April 2005, included provisions for licensing and regulating remote (interactive) gambling, including Internet casinos, sportsbooks, betting exchanges and poker. The law creates a powerful new Gambling Commission that will have the authority to ensure that licensed remote gambling businesses are operated fairly. The Commission will also be charged with ensuring that criminal activity such as money laundering is prevented, and that players are protected by harm minimization measures, not the least of which are blocking minors from gambling at these sites and mitigating problem gambling.
This long-awaited reform in the UK is a huge step forward for the cause of regulated remote gambling. After almost ten years a first world government, one that has successfully regulated terrestrial gambling for years, is taking responsibility for the regulation of this rapidly growing form of gambling. Rather than opposing the industry, as is the U.S. approach, or pretending it will go away, the British are stepping up to the challenge of regulation.
The UK will be setting an example of how this industry can be properly regulated so that consumers can be protected and society’s interests can be served. Our members want to be licensed, regulated and taxed just as the mainstream gaming industry is in most countries. Other jurisdictions in the region such as Alderney, Isle of Man, Malta and Gibraltar are also leading the way in promoting a responsible, regulated industry.
In the U.S., not only does an often-proposed online gambling prohibition bill intrude on the rights of states to regulate gaming, often establishing financial institutions as Internet police, it abdicates the duty of government to regulate gaming for the protection of citizens and the potential to earn revenue from legitimate businesses.
For eight years, anti-gaming legislators in the U.S. Congress have tried using various mechanisms to prohibit online gaming, from making it the responsibility of Internet Service Providers to anointing the U.S. financial services industry as the Internet police to threatening large media companies with potential charges of aiding and abetting a crime for airing online gaming advertisements.
During this last session of U.S. Congress, the 108th Congress, Sen. Kyl and his allies has come closer than ever before in his quixotic quest to prohibit offshore online gaming. At the same time, he has criticized the World Trade Organization for what he calls an attempt to impose another entity’s will on the U.S. – quite a paradox. The House of Representatives passed the Unlawful Internet Gambling Funding Prohibition Act and the Senate Banking Committee approved a similar bill that Kyl introduced. But the full Senate was busy working on other issues and did not act on the Kyl bill.
Internet gambling is a difficult and complex policy issue. The simple solution is to make Internet gaming illegal, and hope that it stops. However, if governments want to provide protection for the consumer, then the answer is regulation. Present U.S. policy not only fails to protect U.S. citizens, it prevents U.S. companies – including some of the world’s largest and most respected gaming companies – from any involvement in interactive gaming, while permitting them to open land-based mega-complexes in the casino enclave of Macau. If governments refuse to regulate this form of gambling and refuse to let responsible companies participate, they create opportunities for unethical, unsavory operators.
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