Ongoing Issues and Debate with Legislation for the Legalization of Online Gambling

xxxxxx xxxxx University
The Legal Environment of Business
Fall 201x
November 16, 201x

Ongoing Issues and Debate with Legislation for the Legalization of Online Gambling The debate over gambling has been going on for decades. With the advent of the Internet, the online gaming industry essentially appeared overnight and with it came a whole new, complex area of social issues and legal interpretation. The 1961 Interstate Wire Act (“Wire Act”) was introduced by President John F. Kennedy to prevent bookkeeping on horseracing and sports gambling by organized crime syndicates. Now 40+ years later Congress has brought the Wire Act back into the spotlight as an instrument to prosecute online gambling offenses since it broadly prohibited the operation of most betting businesses in the United States. It is clear that legislators did not have the issue of the Internet when the Wire Act was passed. Critics of the Act’s applicability argue that wireless technology, which clearly does not make use of wires or telegraphs, excludes the Internet from the mandates of the law. Critics are also quick to contend that the Wire Act’s reference to sporting activities limits its oversight to gambling related to sporting events or contests (Jaffrey Shulman, 2006). Given the narrow scope of the original legislation, and the many disputes related to its potential application, the Department of Justice (“DOJ”) in 2011 reinterpreted the Wire Act and concluded that it did not extend beyond sports betting. This was a critical opinion offered by the DOJ (via their Office of Legal Counsel) that paved the way for states to legalize online poker and other casino games. Prior to 2011 the DOJ in the Clinton and Bush administrations had indicated that all forms of Internet gambling were covered by the Wire Act. Further support is found as far back as 2002 in the decision of the Fifth Circuit Court of Appeals in In re: MasterCard International Inc. (In re: MasterCard International Inc., 2002), where the court ruled that the Wire Act did not prohibit Internet gambling that was not based on sports. This was considered a groundbreaking decision for the online gaming industry. As a result of these rulings, Nevada, Delaware and New Jersey have legalized forms of online gambling, and the practice is being considered for authorization in many other states. Nevada allows betting on poker while New Jersey permits casino games and poker. Delaware allows the biggest menu of games with betting on table games, video lottery and poker (UNLV Center for Gaming Research, 2014). Even with some clarity provided by the DOJ and the Courts, confusion remains in most states about exactly what is legal and what is not. This is further muddled by various state codes that allow for horse race betting and state lotteries. This grey area is primarily related to legislation that was introduced in 2006 called the Unlawful Internet Gambling Enforcement Act (“UIGEA”). The UIGEA did not specifically make the act of gambling online illegal but it did prohibit the processing of internet transactions related to gambling. As a result, many online gambling websites stopped accepting customers from the United States. The UIGEA was passed as part of the Security and Accountability For Every Port Act of 2006 (“SAFE Port Act”) which regulated port security and included a last minute online gambling measure. The key aspect of the UIGEA was that it “prohibits gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the internet and that is unlawful under any federal state or law.”
This was significant legislation since it became illegal for gambling sites to accept deposits from customer in the United States. It also became illegal for banks and financial institutions to process such transactions. The Act did not actually make it illegal for U.S. residents to gamble online but the law created some unrest for those who wished to engage in online betting and gambling. Yet there still existed various methods for players to move funds into their online accounts including basic money orders or through phone bills. Another recent alternative for payment is through the software-based online payment system known as Bitcoin (Pathe, 2014). In fact, there are now multiple gambling sites set up on offshore servers that cater exclusively to Bitcoin transactions.
Probably the most important outcome of the UIGEA was that many reputable online gambling operators discontinued service in the U.S. market. This was further exacerbated when the U.S. government stepped up its anti-gambling efforts in 2011 arresting executives from three major international Internet poker sites (PokerStars, Full Tilt and Absolute Poker) on charges of money laundering (Titch, 2012). All relevant companies that were publicly listed on stock exchanges ceased U.S. operations almost immediately with other non-public organizations following suit. Some operators continued to onboard U.S. customers since there was a strong sentiment that companies running sites from physical locations where online gambling was legal were not subject to U.S. laws.
The UIGEA was a flashpoint for criticism as detractors against online gambling felt that the Act was not comprehensive and did not address potential societal and governance dangers. As previously noted, people could still bet and gamble online, it was just now harder to make deposits and withdrawals with players needing to stay one step ahead of the Department of the Treasury. U.S. customers now had fewer options in terms of the number of sites they could use.
Proponents of online gambling were generally against the Act being passed at all. The UIGEA simply forced out most of the reputable operators and made it more likely that U.S. residents would potentially gamble with dubious offshore gaming operators. Despite the widespread criticism and clamor to overturn it, the Act remains in place.
So the current landscape means that consumers in states where online gambling is legalized and regulated have a choice of licensed websites from which to choose. Consumers in unregulated states still need to seek out a website / gaming operator that is licensed in an online gambling jurisdiction outside of the United States. Consumer risk is increased once they take their business offshore.
Major casino companies like Caesars Entertainment and MGM Resorts want to see online gambling legalized and prefer a competitive, nationwide marketplace that will expand their brands and tap new streams of revenue. However, other major players, like the Las Vegas Sands Corp., which relies heavily upon business in Macau and Singapore prefer to see it remain illegal (O’Keefe, 2014). Las Vegas Sands CEO Sheldon Anderson is a longtime opponent of online gambling and sees it as a major threat to his brick-and-mortar casino resorts (McNew, 2014). There remains a notable industry divide and casino operators will continue to battle over the impact of online gambling as more populous states (e.g. California, Pennsylvania) look into its legalization.
The legality of online gambling remains in flux particularly without the passage of a comprehensive federal law. The absence of appropriate federal oversight and regulation is necessary for a market that is projected to reach $3.5 billion by 2017 according to Morgan Stanley (Kredell, 2014). Allowing a patchwork of code and legislation driven by individual states is not practical for a billion dollar industry. This inconsistency in policy would make it ripe for abuse whether that integrity of the games, fraud or money laundering. Ambiguity reigns as there are differences in the legality of making bets, taking bets, facilitating payments to casinos and even advertising on websites. A report from industry expert RubinBrown states, “The prospect of legalized Internet gaming on a federal level remains uncertain as the technology, player safety and the ability to regulate the industry on a national level continue to raise concerns.” (RubinBrown, 2014)
The U.S. will need to model policy on regulatory regimes in Europe and Canada where online gambling has been effectively monitored for almost a decade. The principal requirement will be ensuring the integrity of the games which will require the licensing and oversight of only trustworthy operators. Other key areas that require attention would include customer identification (particularly to exclude underage gamblers), system testing and auditing, controlling player collusion, and effective anti-money laundering programs.
Online gambling is a worldwide industry and already permeates most of the U.S.
It is an increasingly legal and regulated activity, particularly in Western European nations, that generates almost $35 billion of revenue a year (RubinBrown, 2014) but the U.S. remains a laggard. However, it is possible to create a tightly regulated online gaming industry that protects consumers, grows jobs and generates meaningful new tax revenues (Stewart, 2014) particularly if legislators follow the critical basic lessons followed in Europe.

References
Federal Wire Act (Interstate Wire Act of 1961), 18 U.S.C. chapter 50 § 1801-1804
(1961). Retrieved from http://www.law.cornell.edu/uscode/text/18/1084 In Re MasterCard International Inc. No. 01-30389 (5th Circuit November 20, 2002). Retrieved from http://caselaw.findlaw.com/us-5th-circuit/1342249.html
Jaffrey Shulman, A. (2006). The 1961 Federal Interstate Wire Act Does Not Prohibit
Online Poker. Retrieved from http://www.cardplayer.com/poker_magazine/archives/showarticle.php?a_id=13599&m_id=74 Learn More Now

Kredell, M. (2014, April). PokerNews. The Future of Online Poker in the U.S. Is Your State Next? Retrieved from http://www.pokernews.com/news/2014/04/the-future-of-online-poker-in-the-us-17927.htm McNew, S. (2014, July). The Motley Fool. Las Vegas Sands and Wynn Resorts Ltd. Take on Online Gambling. Retrieved from http://www.fool.com/investing/general/2014/07/26/las-vegas-sands-wynn-vs-online-gambling-what-this.aspx O’Keefe, K. (2014, May). The Wall Street Journal. Online Gambling Suffer Setback. American Gaming Association Withdraws Support, Citing Differences of Opinion. Retrieved from http://online.wsj.com/news/articles/SB10001424052702303749904579575540551620058?mg=reno64-wsj Pathe, S. (2014, March). Gamblers wager billions on unregulated Bitcoin betting sites. Retrieved from http://www.pbs.org/newshour/updates/bitcoin-gambling-sites-fly-regulatory-radar/ RubinBrown. (2014). Commercial & Tribal Gaming Stats ’14. Retrieved from http://rubinbrown.com/RubinBrown_2014_Gaming_Stats.pdf Security and Accountability For Ever Port Act of 2006 (SAFE Port Act), 120 Statute 1884-1962 (2006). Retrieved from http://www.gpo.gov/fdsys/pkg/STATUTE-120/pdf/STATUTE-120-Pg1884.pdf Stewart, S. (2014, March). Online Gambling Five Years After UIGEA. Retrieved from http://www.americangaming.org/sites/default/files/uploads/docs/final_online_gambling_white_paper_5-18-11.pdf Titch, S. (2012, November). Internet Gambling: Keys to a Successful Regulatory Climate. Retrieved from http://reason.org/files/internet_gambling_regulation.pdf Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), 31 U.S.C §§ 5361-5367 (2006). Retrieved from https://www.fdic.gov/news/news/financial/2010/fil10035a.pdf UNLV Center for Gaming Research. (2014, October). Schwartz compiles monthly statewide and national data for online gaming in the U.S. Retrieved from http://gaming.unlv.edu/reports/US_online_gaming.pdf Wood, L. (2013, February). Reuters. Research and Markets: Analyzing the Global Online Gambling Industry 2013-2016 Featuring 14 of the World’s Biggest Players. Retrieved fromhttp://www.reuters.com/article/2013/02/26/research-and-markets-idUSnBw1vKFjsa+118+BSW20130226