United States: Congressional Attempts at Prohibition
United States: Congressional Attempts at Prohibition
World Online Gambling Law Report Volume 5 Issue 2 February 2006
United States: Congressional Attempts at Prohibition
US Representative, Bob Goodlatte's Internet Gambling Prohibition Act is the latest attempt to ban online gambling in the US. With the bill containing exemptions for
certain industry sectors and being introduced amidst a Republican lobbying scandal, the prospects of a gambling ban look stronger than at any point in the last seven years. Frank Catania and Keith Furlong of the Catania Consulting Group assess the latest developments.
On 16 February 2006, U.S. Representative Bob Goodlatte, a Republican from Virginia, introduced H.R. 4777, the Internet Gambling Prohibition Act. Building on reaction to the Abramoff scandal, the legislation already has over 100 co-sponsors, and the bill has been referred to the House Judiciary Committee.
The news of Representative Goodlatte's introduction of new online gambling prohibition legislation sent shock waves across the online gambling industry and has already adversely impacted the share price of numerous publicly traded online gaming stocks throughout the world.
The new prohibition legislation has gained momentum from unbelievable tales of dubious activities of a Washington "super lobbyist," Jack Abramoff. The investigation's initial findings of alleged bribes, payoffs, mismatched alliances and insider dealings are more fitting of a John Grisham novel than real workings within the nation's capitol. But this is all real; and the more details that are reported, the more the pressure builds up in the ethical bubble surrounding Washington, D.C. Many Republican lawmakers seem to think that they can compensate for the excesses of the Abramoff era by passing an Internet gambling prohibition bill.
The Goodlatte bill would expand the definition of "communication" as well as the definition of bet or wager to include a "game predominately subject to chance." It also increases the penalty for operating a gambling business to up to five years' imprisonment and it, inter alia, penalizes an operator who accepts credit cards, electronic transfers or a check.
The legislation still has controversial political implications, given its specific exemptions for fantasy sports, interactive state lotteries, Native American interactive gaming and interstate internet horseracing. It also attempts to anoint Internet service providers, or ISPs, as an internet police force. Interestingly, it defines a prohibited game as one "predominately subject to chance," which might legalize the interactive poker industry.
These events follow Rep. Jim Leach's (Republican-Iowa) legislation introduced in November: the "Unlawful Internet Gambling Enforcement Act of 2005." No action on that bill, H.R. 4411, was initially expected until later this year, which is the final session of the 109th Congress, but now all bets appear to be off.
Both Reps. Goodlatte and Leach have long been proponents of legislation prohibiting online gambling and have in the past sponsored prohibition legislation.
Further complicating the online gambling issue in Washington, and as mentioned previously in WOGLR1, a 25 December 2005, New York Times article ("Wall Street Bets on Gambling on the Web") revealed that prominent investment firms based in the U.S. such as Goldman Sachs, Merrill Lynch and Fidelity hold millions of dollars worth of shares in online casino gaming companies that are publicly traded on the London Stock Exchange. In that article an unidentified spokesman from one major investment house was quoted saying that "analysis shows the gain from these stocks outweigh the very small risk." All of these online companies are located offshore in places like Costa Rica, Isle of Man, Alderney and Gibraltar, and none of these companies are U.S.-based and therefore no taxes are being paid in the United States.
In the Times article Mr. Goodlatte reiterated his position that internet gambling is bad and that Congress ought to investigate these investment houses to determine if they are knowingly supporting and promoting illegal activity. One would have to assume that these investment houses have received opinions from experienced legal counsels with regard to the legitimacy of holdings in these publicly traded online gaming companies.
The question that comes to our mind: Why do the opponents of internet gaming want prohibition rather than regulation? In our experience, some of the main reasons include: (1) an opposition to all forms of gaming, and online gambling is perceived as an easy target; (2) a contention that there are no controls for under-aged players; (3) a feeling that online gambling is a haven for compulsive gamblers; and (4) a fear that internet gaming can be used to launder money, and that such laundered money could be used to finance terrorist activities.
The position of proponents of an online gambling prohibition in Congress lack credibility and substance. But for now the Abramoff scandal has placed the online gambling industry in a difficult position, and the industry's opposition is using all of this scandal's momentum to help their attempts to prohibit the industry.
Let's not be fooled, the Abramoff scandal has serious implications for a vote on an online gambling prohibition. The assertion from our congressional adversaries is that Abramoff bribed Tony Rudy, an aide to Rep. Tom Delay, a Republican leader from Texas. to help defeat an Internet gambling prohibition bill in 2000. The reality is that lobbying by the National Indian Gaming Association, various state lotteries, many ISPs and the Interactive Gaming Council was what defeated the legislation. Nonetheless, there is a perception among some Republicans that they need to atone for the 2000 vote.
It also did not help the online gambling industry's position that in a three-way race for the position of House Majority Leader, one of the candidates, John Shaddegg, a Republican from Arizona, proposed a five-point plan for ethical reform of the House. Point number #3 was for Congress to pass an Internet gambling prohibition bill.
Good intentions gone astray: where's the logic?
Will a prohibition stop Internet gambling? The answer, if we know how the internet works, is no. Just as the Volstead Act failed in its attempt to prohibit alcohol, any act prohibiting online gambling will also fail. There are those who 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 online gambling. 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 states. In the 1920's alcohol was portrayed as our damnation, and now it's internet gaming that will supposedly corrupt our youth, cause marriages to fail, people to gamble away their homes and otherwise destroy their lives. And, make no mistake, it is not only online gaming that these groups are against; it's all forms of gambling. Internet gambling just happens to be perceived as an easier target.
However well-intentioned U.S. policy makers are in trying to prohibit online gambling to protect citizens, the real protections will only be offered via licensing and regulation, and not by prohibition.
The global implications of the internet, where nothing is confined to a country's boundaries, need to continue as part of this debate. It is virtually impossible to stop the flow of internet data from one country to another. Most of the world realizes, and rightly so, that the internet needs international regulation and control; however, the United States appears to continuously head in the opposite direction.
In conclusion, a licensed and regulated online gambling industry is the best alternative for the future of this growth industry. It is our belief that all forms of gaming need to be regulated, and internet gaming companies and trade associations such as the Interactive Gaming Council are continuing their advocacy efforts in calling for governments to get involved in this process. There is a need for cooperation between governments and industry to attain a workable solution. And, U.S.-based gaming companies are not the only ones losing by avoidance and resistance to regulatory processes; the governments that would decide to regulate internet gaming are also losing tax revenues.
