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Oh, What a Tangled Web

26 June 2002

The Internet continues to be the focus of a lot of discussion in Washington, D.C. The vast expansion of the Internet as the number of American households with computers has now reached a majority, has ensnared lawmakers in a web of complicated issues and unsolvable problems. With major concerns about the use of off-shore casinos for money laundering, Congress has recently refocused its attention on this issue. Last week, the House Judiciary Committee favorably reported out the current bill (HR 3215) entitled "The Combating Illegal Internet Gambling Reform and Modernization Act."

This bill found its way to federal lawmakers in an attempt to address gambling on the Internet. HR 3215, sponsored by Representative Bob Goodlatte (R-Va.), has been in committee since it was introduced November 1, 2001, and arrived for a mark-up by the House Judiciary Committee's Subcommittee on Crime on March 12, 2002. The bill was then reported out of committee by voice vote and three amendments were sent along with it. The bill is an attempt to amend the Federal Criminal Code regarding interstate gambling. It would prohibit any person from engaging in a gambling business using a communication facility for the transmission of bets or wagers within the U.S. jurisdiction. Further, it would prohibit communication that would entitle a recipient to receive monetary credit as a result of bets or information assisting in the placing of bets.

On June 13, 2002, the House Judiciary Committee began consideration of the bill. Four amendments to the bill were proposed, but only two of the four were passed. Rep. Chris Cannon (R-Utah) offered the two amendments that were passed. They provide exemptions for the lottery and pari-mutuel industries. Of the two amendments that did not pass, the first would have made gambling on the Internet a federal crime, the second would have provided exceptions for the dog racing and jai alai industries. On June 18, 2002, HR 3215 was reported out of committee favorably. The bill is a modified version of legislation introduced last year by Rep. Goodlatte.

In addition, there is another piece of legislation associated with HR 3215 that is aimed at curbing Internet gambling. HR 556 is also currently making its way through the hands of federal lawmakers. The bill is sponsored by Representative James Leach (R-Iowa). This measure would ban the use of credit cards for Internet gambling and is seen as one possible means of negating wagering done via off-shore Internet casinos. Since gambling over telephone or other wires is already prohibited in the U.S. through the Wire Communications Act of 1961, virtual casinos based outside of United States soil are raking in the bulk of the Internet gambling market. An amendment similar to HR 556 was attached to the House's anti-terrorism bill because those in favor of the bill argued that Internet gambling could be used for money laundering by terrorist organizations. However, the gambling amendment was removed from the bill before the final House vote. Since that time the bill has been reported back to the full House.

The Internet has already shown itself to be a difficult medium to regulate, but the issue of on-line gaming presents rather unique circumstances in that it is not simply a form of media, but also interactive. The American Gaming Association has noted that, at the present time, the appropriate regulatory and law enforcement oversight does not exist with regard to Internet gaming to properly protect the integrity of the games, the security and legality of financial transactions, and against the potentially harmful effects of underage and pathological gambling. Although this is true at the present time, with the rapid evolution of technology, it is easy to conceive of such regulatory protections being available in a few years. In fact, the State of Nevada has begun the process of studying a system for Internet gaming regulation. When regulatory protection becomes available, the online casino industry will be at a significant competitive disadvantage with the pari-mutuel and lottery industries. Congress should be careful not to favor one aspect of the industry over another in its haste to address the current problems.

There is no precedent for this issue and lawmakers must be ever-so-careful when structuring legislation. They must use discretion when crafting a law such as this, with potentially drastic consequences for the established, physical gaming industry hanging in the balance. Lawmakers can look to physical casino gaming regulations, but that will only serve as a small template in addressing virtual casinos. Moreover, it seems as though Internet gaming has a future within the industry, which complicates the issue further. Established U.S. gaming enterprises are already developing the means to offer regulated Internet gambling.

This is a debate that has the potential to drag on into the future. If virtual casinos are to be legalized and regulated, many issues will certainly crop up. Hurdles such as regulating age and preventing pathological gamblers from wagering will all certainly need to be addressed. Until gaming interests, gamblers and especially lawmakers can establish a clear view of what is necessary, and what the consequences will be, in establishing laws that target the Internet, there will continue to be an important debate surrounding the issue.

David Waddell
David Waddell is an attorney for Regulatory Management Counselors, P.C. (RMC), which assists businesses in navigating the legislative, regulatory and licensing systems governing Michigan’s commercial and tribal casino industries. He is the co-author of The State of Michigan Gaming Law Legal Resource Book and one of the founders of The Michigan Gaming Newsletter.

David Waddell Websites:

www.michigangaming.com
David Waddell
David Waddell is an attorney for Regulatory Management Counselors, P.C. (RMC), which assists businesses in navigating the legislative, regulatory and licensing systems governing Michigan’s commercial and tribal casino industries. He is the co-author of The State of Michigan Gaming Law Legal Resource Book and one of the founders of The Michigan Gaming Newsletter.

David Waddell Websites:

www.michigangaming.com