12-Mar-2010
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U.S. Update: Prohibition Debate Enters Mainstream |
U.S. Update: Prohibition Debate Enters Mainstream
World Online Gambling Law Report
Volume 5 Issue 3
March 2006
U.S. Update: Prohibition Debate Enters Mainstream
With Congressional activity to prohibit internet gambling at a peak level through the Leach and Goodlatte Bills, debate and speculation builds as to whether prohibition will take effect. Rick Smith and Keith Furlong of the Interactive Gaming Council examine the latest developments.
Interactive Gaming Council
Activity in the U.S. Congress to specifically prohibit internet gambling is at a peak level. Longtime opponents of the industry have been energized by the revelations of the misdeeds of convicted lobbyist Jack Abramoff, who helped to defeat prohibition legislation six years ago (see WOGLR, Feb. 2006). While some on both sides of the issue are predicting that this will be the year that a prohibition bill finally passes, handicapping the outcome is difficult.
Two bills are pending in the House of Representatives: Rep. Jim Leach (Republican-Iowa) introduced the "Unlawful Internet Gambling Enforcement Act of 2005" in November, and Rep. Bob Goodlatte (Republican-Arizona) introduced the "Internet Gambling Prohibition Act" in February. Senator Jon Kyl (RepublicanArizona), who has tried for 10 years to ban online gambling, is expected to introduce a new Senate bill any day now. During this Congress, Kyl has unsuccessfully maneuvered to attach a ban to unrelated legislation.
The Leach bill, H.R. 4411, went through the "mark-up" process and was passed by the House Committee on Financial Services on March 15. It is now before the House Judiciary Committee. The Goodlatte bill, H.R. 4777, is also before the Judiciary Committee. Joseph Kelly, a professor of business law at State University of New York in Buffalo, says the Judiciary Committee "is often the graveyard of anti-internet gambling bills." It is in this committee where fights often erupt over exemptions, called "carveouts," to such legislation. Religious groups that strongly oppose gambling usually oppose the carveouts.
During previous efforts, both Leach and Goodlatte have said they would prefer bills with no carveouts, but political reality dictates that they be included. The horse racing industry, for example, has a powerful lobby that could kill any prohibition bill that did not exempt interactive wagering on horse races. Such betting has been legal since December 2000, and a recent report by Dresdner Kleinwort Wasserstein (DrKW) states that the U.S. horse racing industry generates more than 15 percent of its revenue from online bets. Both bills have carve-outs for interactive wagering on horse races and on Native American gaming. Neither bill exempts interactive, interstate lotteries. State legislators in several states have proposed online sales of lottery tickets.
The main difference in the two bills is their focus. The Leach bill is aimed at cutting off the financial underpinning of online gambling by making it illegal for credit cards, checks, electronic fund transfers or any other product of U.S. financial institutions to be used to fund online gambling transactions. The Goodlatte bill is aimed at updating the 1961 Wire Act, which was passed to aid in the prosecution of organized crime by making it illegal to use telephones or wire services for bookmaking. The Justice Department believes the Wire Act applies to internet casino and poker betting, but hardly anyone else - including the courts, which have ruled that it only covers sports betting - agrees. The Goodlatte bill would clarify that the Wire Act includes the internet and outlaws betting on games of chance as well as sports contests.
What's unusual this time around is the amount of discussion in the media, much of it opposed to prohibition. Proponents of online gaming may be more active than they were in previous years, but also, newspaper editors may be more receptive to airing both sides of the issue. For example, the conservative Washington (D.C.) Times ran a lengthy and sympathetic story about internet gambling on March 19. On the same day, the Los Angeles Times and Chicago Tribune published an op-ed piece by David Carruthers, chief executive of BetOnSports, that argued for licensing, regulation and taxation instead of prohibition. The following day, the New Jersey Star-Ledger ran an oped by Frank Catania, a consultant to the Interactive Gaming Council and a former head of (land-based) gaming enforcement for New Jersey, that stated the case against prohibition. Also in March, Michael Bolcerek, president of the Poker Players Alliance, got antiprohibition letters to the editor published in the St. Louis PostDispatch and the Free Lance-Star of tiny Fredericksburg, Virginia. Radley Balko, an analyst at the Cato Institute, a right-wing think tank, wrote a piece for the Arizona Republic that criticized Congress for "pushing a moral agenda" rather than "taking a realistic approach to a habit that is as old as human nature."
There are even encouraging poll results for the online gambling industry. An online poll of Wall Street Journal readers showed that 85 percent opposed a prohibition. Such a poll is not scientifically meaningful, but according to a new pro-industry Web site, OnlineGamblingMythsandFacts.com, a major U.S. polling firm, Zogby International, found that 71 percent of 30,000 likely voters opposed prohibition.
Sympathetic observers have different opinions about how all this will shake out. Lawrence G. Walters, a partner of the Florida law firm Weston Garrou DeWitt & Walters, published an analysis recently that was titled: "Life After Prohibition?" He wrote that "the online gambling industry has never been more vulnerable to adverse United States legislation than right now." In addition to the Abramoff scandal, Walters cited the unpopular war in Iraq as another reason that Republicans find internet gambling "a convenient scapegoat" or "diversion" as they prepare for midterm elections in November. The biggest threat to the industry from prohibition, he wrote, is the potential psychological impact on American bettors. An educational campaign would be needed, he advised, to explain that individual bettors would not be prosecuted.
Kelly, on the other hand, doesn't think a prohibition bill will pass by the end of this year, when this Congress comes to a close. In past years, he notes, anti-internet gambling legislation was debated in the first year of the two-year existence of each Congress. This is the second year of the 109th Congress, and its work will be shortened by the midterm elections. That will mean a likely adjournment in early October. In a March 23 report, DrKW said, "We continue to believe that a prohibitive bill has a single digit percentage chance of succeeding." The investment bank report said the "carve-outs will again be a significant stumbling block to the passage of these bills."
Two important political actors have yet to weigh in on this legislation: the American Gaming Association -- the powerful landbased lobbying organization - and the National Indian Gaming Association. Unfortunately, one organization that has taken a stand, the National Association of Attorneys General, is supporting prohibitive legislation. The Attorney General of every state except Nevada signed a letter to Congress on March 21 that called internet gambling "a threat to this carefully crafted system" of state regulation of gambling. The Attorneys General listed concerns such as problem gambling, game integrity, dispute resolution, access to gambling by minors, and money laundering. Their reasoning is flawed, the IGC believes, because these matters can only be addressed by licensing and rigorous regulation, and not at all by futile attempts at prohibition.
The Attorneys General took the same position in a report 10 years ago. They obviously have not bothered to inform themselves of the advances in technology since then. They have not consulted with jurisdictions such as Alderney, the Isle of Man or the United Kingdom to learn how these issues can be addressed. In the last 18 months, for example, two government lotteries in Canada - the Atlantic Lottery Corp. and the British Columbia Lottery Corp. - have been selling lottery games online. They have successfully blocked minors from participating, and have been able to restrict play to residents of the appropriate provinces. Far more safeguards can be employed online with modern technology and careful procedures than most U.S. officials realize.
Lastly, it's interesting to note that with all this activity in Washington, no one is paying any attention to the World Trade Organization. In April 2005, its Appellate Body upheld one of Antigua's complaints against the U.S. over the latter's prohibition of cross-border gambling services. The decision said that the U.S. cannot allow interactive betting on horse races and restrict that service to U.S. operators only. The U.S. was supposed to respond by April 3 of this year, to explain how it was going to align its laws with the requirements of the GATS, the General Agreement on Trade in Services. Antigua's ambassador to the WTO, Dr. John W. Ashe, recently complained about "the official silence from Washington." And the pending House bills would make the situation worse, Ashe added, calling them "about as directly contrary to the recommendations and rulings" of the WTO "as could possibly be imagined."
Interactive Gaming Council
Rick Smith
Email: Executive Director
Keith Furlong
Email: Deputy Director
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