04-Feb-2012
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Frank Catania Addresses the (U.S.) National Council of Legislators from Gaming States |
Frank Catania Addresses the (U.S.) National Council of Legislators from Gaming States
NCLGS Winter Meeting
Hilton San Diego Resort
January 6, 2006
By Frank Catania *
On December 25, 2005 there was a New York Times article entitled “Wall Street Bets on Gambling on the Web” regarding investment companies such as
Goldman Sachs, Merrill Lynch and Fidelity holding millions of dollars in shares of online casino gaming companies that are now publicly traded on the London Stock Exchange. In that article an unidentified spokesman from one major investment house was quoted, “Our analysis shows the gain from these stocks outweigh the very small risk.” Some of these online gaming companies are located in places like Costa Rica and Gibraltar, and none of these companies are American and no taxes are being paid in the United States.
Representative Bob Goodlatte a Republican from Virginia has long been a proponent of legislation prohibiting online gaming and has in the past sponsored prohibition legislation. In the Times article Mr. Goodlatte said that Internet gaming is very bad and that the Congress ought to investigate it and that maybe these investment houses are knowingly supporting and promoting illegal activity. I would say that these investment houses have received opinions from their experienced legal counsels that having holdings in these publicly traded Internet gaming companies is by no means a violation of US law.
Why do the opponents of Internet gaming want prohibition rather than regulation? Some of the main reasons are; (1) many are opposed to all forms of gaming and Internet gaming is an easy target; (2) some opponents contend that there are no controls for under-aged players; (3) Internet gaming is a haven for compulsive gamblers; and (4) terrorists are using Internet gaming to launder money to finance their terrorist activities.
I mention the position of proponents of an Internet gaming prohibition and the force behind those in Congress that are pushing for an Internet gaming ban because I believe their concerns lack credibility and would like to counter these concerns and show why there is a growing movement within several states to discuss regulation and the benefits derived from it.
Will a prohibition stop Internet gambling? The answer, if we know how the Internet works is no. The same as The Volstead Act failed in its attempt to prohibit the consumption of alcohol any act prohibiting Internet gambling will also fail. There are those that believe history repeats itself and if we look at the reasoning behind the proponents for passage of the Volstead Act they are similar to those seeking prohibition of Internet gaming. Then, as is the case now the extreme right wing conservatives preached the evils of alcohol. The Reverend Billy Sunday told audiences in the 1920’s and gave his prediction,
“The reign of tears is over. The slums will soon be a memory. We will turn our prisons into factories and our jails into storehouses and corncribs. Men will walk upright now, woman will smile and children will laugh. Hell will be forever for rent.” It didn’t play out the way the Reverend Billy Sunday thought it would. Alcohol prohibition was a failure and if anything it created an illegal trade that provided profits to organized crime while at the same time taking taxes away from the states. Professor Mark Thornton, Assistant Professor of Economics at Auburn University stated in Cato Policy Analysis No. 157, July 17, 1991,
“National prohibition of alcohol (1920-33) -- the "noble experiment" -- was undertaken to reduce crime and corruption, solve social problems, reduce the tax burden created by prisons and poorhouses, and improve health and hygiene in America. The results of that experiment clearly indicate that it was a miserable failure on all counts. The evidence affirms sound economic theory, which predicts that prohibition of mutually beneficial exchanges is doomed to failure.” The differences are small between the proponents of alcohol prohibition in the 1920’s and the proponents of an Internet gaming prohibition now. In the 1920’s alcohol was our damnation now it’s Internet gaming that will corrupt our youth, cause marriages to fail, people to loose their homes and compulsive gambling to increase. And, make no mistake it is not only Internet gaming that these groups are against; it’s all forms of gambling. Internet gambling just happens to be an easy target.
The United States must realize that the Internet is global and not confined to a country’s boundaries. It is virtually impossible to stop the flow of Internet data from one country to another. The Internet has to be controlled internationally and not nationally as is the current policy of the United States. The world realizes, and rightly so, that the Internet needs international regulation and control, however, the United States is going in the opposite direction.
A vast majority of countries realize the need to regulate Internet gaming and are beginning to adopted regulations for licensing online gaming operators and putting in place tax structures for them to receive revenues from the Internet gaming industry. The United Kingdom passed a gaming reform bill in 2005 and by late 2006 or early 2007 will have regulations in place that would allow the newly established Gaming Commission to issue interactive gaming licenses. What will this mean to the United States? It means that a major US ally will now be licensing Internet gaming operators that will not have any constrictions against accepting bets from the United States. It means that instead of the World Trade Organization hearing a case of Antigua versus the United States it might now be the United Kingdom.
Technology is advancing at lightening fast speed and the ability to exclude underage players is being used by the responsible gaming site operators. Recently the CBS News program “60 Minutes” had a segment very favorable to the idea of regulating Internet gaming. As an experiment the staff of “60 Minutes" had a son of one of their employees use his father’s credit card and try to register on three Internet gaming sites, two of which you could view on the screen. Viewers could not see the name of the second site. The first site was a publicly traded company; the third site was not. The under aged player with his father's credit card could not register with the publicly traded company’s site, but was able to register with the third site. In my opinion what this shows is that there are methods for keeping under aged players from registering which must be included in any proposed regulatory structure.
If licensed and regulated operators had access to identification data bases such as driver license and voter registration lists this would provide important information as to a player’s identity including information as to where the player is located and the player’s age. Use of credit cards would also provide important information as to a player’s age. Further, prohibiting the use of credit cards in Internet gaming is counter productive in that it not only provides information as to a player’s age and residency it also takes away any possibility of money laundering, as all transactions are overt and auditable. Just as in land based casinos keeping under aged players out will never be fool proof or 100%
What about compulsive gamblers? We must first realize that even if we abolished all forms of casinos there would still be compulsive gamblers. A compulsive gambler will always find something to bet on or another game to play, whether it is a bet on a sporting event, playing cards, horse racing or just any of the games offered by state lotteries. Just as in some gaming jurisdictions land based casinos are required to provide financing to compulsive gaming help organizations, regulation could provide funding from licensed Internet gaming operators. Plus a prohibition only prevents the most responsible US gaming companies with experience in dealing with compulsive gamblers from entering this growth industry. In some states all casino advertising must include a telephone number to a compulsive gambling organization. In Internet gaming it would be a lot easier by providing a link to the compulsive gambling help web sites.
Since everything is done in real time, with records of all transactions, programs will become available to help identify a compulsive gambler in the near future. However, Internet operators could offer more to the player that would reduce the risk of becoming a compulsive gambler. Operators could provide players with the ability to set time limits or loss limits. If a player wants to play for an hour that player could select that option or set loss limits for a day, a week or whatever time period the player wants. These options to players online are not available to players at land based casinos. Interactive Gaming News, an online gaming news portal, www.igamingnews.com, in weekly headlines for January 2, 2006 said; Get correct source
“…. the nature of the Internet may enable a much greater level of responsible gaming than is possible in traditional gaming operations. Internet gaming operators have total control over the parameters of the gaming environment, plus extensive information regarding player behavior. The number of potential responsible gaming interventions is almost unlimited.” Currently in the United States it is difficult for an Internet player to use Visa or MasterCard to gamble online. This is completely voluntary by the credit card companies because of the uncertainty of US law, and the need to not upset powerful congressmen, including those who sit on the House Committee on Financial. If players were able to use their credit cards for online gaming sites the possibility of any form of money laundering would be eliminated. Players would use their credit cards to play online and winnings could be credited back to that card. Besides providing the online site with valuable information as to exactly who is the player, the credit card companies would be able to create new jobs and get fees now being paid to stored value sites or alternate payment providers, which might be used for laundering money.
 * Frank Catania is president and a principal in Catania Consulting Group, Inc. of New Jersey, a consulting firm with extensive experience in gaming issues. An attorney, he is of counsel to Catania & Associates, Law Offices, L.L.C.
Mr. Catania’s expertise stems from his years of service as Assistant Attorney General, Director New Jersey Division of Gaming Enforcement; Vice President, Compliance Officer, Players International; Deputy Speaker of the New Jersey General Assembly, partner in the law firm of Catania and Harrington and counsel to the Law Firm of Sterns and Weinroth.
He served as the first president of the International Masters of Gaming Law, a non-profit association dedicated to the education and advancement of gaming law, vice chair and chair, respectively, of the International Association of Gaming Regulators and past chairman of the Forum of American Casino Regulators,,
Mr. Catania has been published on a wide variety of casino gaming and government-related topics in several national publications, regional newspapers, and trade publications. He was instrumental in drafting the interactive gaming regulations for the Mohawk Territory of Kahnawake and also Antigua's interactive gaming regulation revisions. Mr. Catania has been an advocate for regulation of Internet gaming and has testified before the United States Congress regarding regulation.
Mr. Catania is a graduate of Rutgers College and received his JD from Seton Hall University Law School.
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