Bruno Paniccia wandered into a legal “Twilight Zone” in April when, at the recommendation of a friend, he sent $500 to an Internet sportsbook operating from the Caribbean and started winning big.
BUT THE 25-year-old insurance claims evaluator from Chatsworth, Calif., received a rude awakening after he built his bankroll to more than $5,000 during an unprecedented hot streak: His “cyberbookie” refused to pay him, saying it could not meet its obligations because the FBI had raided the U.S. offices of its parent company and frozen its bank accounts.
“Legally, I didn’t feel like I was doing anything wrong,” a dismayed Paniccia said. “To my understanding, it was not illegal to bet over the Internet as long as [it was] with an offshore. I mean, I listen to sports radio and all you hear is just ads about, ‘Call this number and you can have an offshore betting [account] and it’s completely legal.’ ”
His was a painful introduction to the strange and chancy world of Internet gambling, which exists because there are no laws specifically prohibiting it.
Despite its fledgling status, Internet gambling is generating increasing concern among legislators, regulators and gambling opponents, who see grave consequences arising from games of chance invading the home.
SHARP RISE IN WAGERING WEB SITES
The growing concern has coincided with a sharp rise in the number of online sportsbooks, casinos and lotteries, from only a dozen or so at the beginning of 1997 to about 100 a year later — a number that is bound to continue to climb in the months ahead. They range from bare-bones sportsbooks listing wagering propositions to elaborate mock casinos featuring everything from virtual cocktail waitresses to calypso bands.
Fueling the fears of opponents of Internet gambling is the ease with which an account can be opened — within minutes of making a deposit with a credit card, a user can be playing virtual versions of a variety of casino games, including blackjack, roulette, video poker and craps, or betting on almost any sporting event. Losing wagers are deducted from the user’s account and winning wagers added. A player who goes bust can quickly replenish an account and start all over again.
Like the battles being played out over pornography on the Internet and the availability of such sensitive information as bomb-making manuals, the battle over Internet wagering will ultimately be decided in the courts.
But first — while a congressional gambling commission conducts a two-year study that will include a hard look at online wagering and Congress and state legislatures consider laws to make it illegal — the war is being waged in the court of public opinion.
On one side are civil libertarians, who argue that it is unconstitutional to legislate against an online activity conducted in the privacy of one’s home, and entrepreneurs eager to get in on the ground floor of an industry that some analysts say could generate as much as $10 billion a year within a decade.
Opposing them are those who want to stop Internet gambling in its tracks. This group includes the gambling industry, which sees its $550 billion a year business threatened; certain members of Congress; the National Association of Attorneys General; and organizations like the National Coalition Against Legalized Gambling (NCALG) and Gamblers Anonymous, who worry that Internet wagering could exacerbate teen-age and problem gambling.
TO SOME, IT’S A ‘DISEASE’
“As a form of entertainment it’s a disease to 5 percent of the population that will entertain themselves into bankruptcy,” said Tom Grey, director of NCALG. “So obviously, (with) entry into a home ... the more available and accessible you make gambling, the more you compound the problem.”
The central question — whether Internet gambling is legal, illegal or exists in a legal nether world where no rules apply — is as gray as lawyers can make it.
Section 1084 of the federal Wire Communications Act, which bans the use of telephones to accept wagers on sporting events, was designed to allow federal law enforcement officials to prosecute bookies. But the law predates the popularization of the Internet by several decades, and does not specifically address legal questions arising from the use of the personal computer to make wagers.
There are other problems interpreting the act as well: It only prohibits anyone engaged in “the business of betting” from using a “wire communications facility,” which puts the casual bettor outside the scope of the law. It also exempts the transmission of wagering data on horse racing and does not make clear whether “contest” as defined by the act includes other, non-sports, games.
Other federal statutes that could conceivably be applied to Internet gambling include the Amateur and Professional Sports Protection Act, which prohibits the spread of sports betting outside Nevada and Oregon, which runs a lottery based on the results of professional football games, as well as various racketeering statutes. But none of these laws specifically deals with the Internet, and the Justice Department has taken the position that the laws must be rewritten before action can be taken against Internet gambling operations.
STATES CHALLENG SITE OPERATORS
Some states, notably Missouri, Minnesota and Wisconsin, have interpreted their anti-gambling statutes — as well as consumer-protection and anti-fraud laws — as prohibiting Internet play. Attorneys General Jay Nixon of Missouri, Hubert Humphrey III of Minnesota and James Doyle of Wisconsin have vowed to aggressively pursue companies that bring gambling to their states and have individually sued a handful of Internet casino operators and an online lottery run by the Coeur d’Alene Indian tribe of Idaho.
“This kind of activity is clearly illegal, and we’re not going to put up with it in our state,” Nixon said. “Extradition is clearly an option.”
Some states also are targeting bettors. Pending legislation in several states, including California and Connecticut, would make it a crime to use the Internet to participate in forms of gambling that are otherwise illegal in the states.
Despite the legal uncertainties surrounding Internet gambling, dozens of Web sites are accepting real money from bettors, while many others are allowing customers to play for fun while they wait for the legal waters to clear.
ACCORDING TO Sue Schneider, managing editor of Rolling Good Times Online, the Internet is currently home to about 100 casinos, sportsbooks and lotteries that allow players to lay real cash on the line.
The total take now for all of the virtual establishments is estimated at less than $100 million per year — a drop in the bucket compared to the total gambling revenue of $7.5 billion in Nevada in 1996.
But the online entrepreneurs are betting that they are on the leading edge of what will develop into a thriving industry.
All the Internet gambling sites are based offshore, mostly in the Caribbean, on the theory that U.S. law can’t touch them since the operations are legally licensed in their countries of operation.
But as Michael Simone, president and chief executive of Interactive Gaming and Communications Corp. [IGC] in Blue Bell, Pa., discovered, an offshore Web site is not necessarily a impregnable legal defense.
In February 1997, FBI agents raided IGC, which operates the Sports International sportsbook and Global Casino, both licensed in Grenada. When they left, they took with them truckloads of documents, financial records and receipts, according to a search warrant filed in the case.
‘WE ARE DOING NOTHING ILLEGAL’
“We are doing nothing illegal,” Simone said shortly after the raid. The U.S. Attorney’s Office in Philadelphia, however, took a different view of the publicly traded company’s offshore enterprises and is continuing to investigate whether IGC actually is running its gambling operation from Pennsylvania.
In 1996, Sports International generated more than $58 million in revenue, about half over the Internet and half through its phone betting service. Global Casino, which opened in June, has not yet contributed much to the company’s cash flow.
But after the FBI raid, the cash flow slowed and turned into a one-way trickle, with customers — who numbered 4,000 at the height of the 1996 football season, according to Simone — depositing $500 to open accounts but not being able to collect their winnings.
The FBI made no public announcement of the Feb. 19 raid, and the FBI, Justice Department and U.S. Attorney’s Office in Philadelphia all have declined to comment on the case. That leads customers like Paniccia, who opened his account 1 1/2 months after the raid, to view the government as the villain in the drama.
“My biggest problem with what the government is doing is the fact that for some reason they can freeze these people’s accounts … but on the other hand they’re allowing the American people to keep sending their money to this company even though [the government knows]… they can’t pay anyone,” Paniccia said.
IGC also has run afoul of the state of Missouri. Nixon, the state attorney general, sued the company in early 1996 after a member of his staff, posing as a would-be bettor, was told by an IGC representative that it was legal for Missouri residents to participate in an online slots tournament. A circuit court judge agreed, assessing $66,000 in penalties and issuing an order prohibiting the company from taking bets from state residents. Then June 27, after an undercover investigator from Nixon’s office was able to place an Internet bet through the company’s Web site, a state grand jury handed down a criminal indictment against the company and Simone. Simone is currently fighting an extradition request filed by Missouri.
FEDS ARE RELUCTANT
The involvement of states in pursuing Internet gambling operators underlines a curious situation in which states have urged the federal government to take control over an area that has long been their responsibility. The feds, however, have for the most part declined to get involved.
In June 1996, the National Association of Attorneys General asked Congress to address the problem by broadening the language of the federal Wire Communications Act to include other types of communications technology and all forms of betting. They also requested a penalty for bettors who place wagers over the Internet.
Partially in response to that request, Sen. Jon Kyl, R-Ariz., in February introduced The Internet Gambling Prohibition Act of 1997. Co-sponsored by Democratic Sens. Bob Graham of Florida and Dianne Feinstein of California, the bill would not only outlaw all Internet gambling, it would impose penalties of up to $2,500 and six months in prison for anyone who places a bet over a computer.
It also declares the “sense of the Senate that the federal government should have extraterritorial jurisdiction over the transmission to … the United States … in the placing of bets or wagers.” And finally, by requiring FCC-regulated carriers to discontinue services to those Internet sites that violate the law, the bill would allow law-enforcement agences to first request that Internet service providers [ISPs] block a wagering site, then obtain a court order if the action is not voluntarily taken.
The legislation has been praised by the states and anti-gambling forces, while drawing criticism from civil libertarians and legal experts, who note that it would be extremely difficult, if not impossible, to enforce a prohibition against Internet gambling.
“In order for a state or the federal government to be effective in legislating against online gambling, their target can only be those persons over which they have jurisdiction,” said Las Vegas attorney Anthony Cabot, author of “The Internet Gambling Report,” the most exhaustive review of the legal issues surrounding online gambling to date. “…It would be very difficult for them to enforce anything vis-à-vis the Internet against foreign citizens operating outside of the country.”
Prospects for Sen. Kyl’s legislation are unclear. The bill cleared the Senate Judiciary Committee in the fall and is expected to go before the full Senate early in 1998 after undergoing further revisions.
But it still has not cleared the House Judiciary Committee, as many legislators apparently prefer to await the National Gambling Impact Study Commission’s recommendations, expected near the end of 1998.
Established in 1996 by an act of Congress, the commission has been charged with reviewing the overall effect of gambling on the United States and delivering a report within two years.
The appearance of the Kyl bill has given birth to one of those alliances that produced the phrase “politics makes strange bedfellows.” Traditional gambling interests have joined anti-gambling and law-enforcement groups in support of Kyl’s legislation while reserving the option to get involved in Internet wagering if it becomes legal and lucrative.
LAND-BASED CASINO operators have been warned by states that they could lose their gaming licenses if they get involved in online wagering, but their inability to participate at this stage of the game has not caused undue alarm.
Frank Fahrenkopf, president and CEO of the American Gaming Association, argues that the industry has learned that competition only increases the total gambling pie. “In 1976, when New Jersey authorized casinos, some people in Nevada were in a panic,” he said.
“It’s not in any way a competitive opposition ... it is that this is an industry that can only have integrity with tough regulatory law-enforcement control.”
The lack of regulation also concerns Zane Brown, a semi-retired newspaper woman and avid blackjack player who turned to Internet gambling because of a medical condition that requires her to be on oxygen 24 hours a day.
WORDS OF WARNING
“If I had to say anything to the inexperienced blackjack player it’s “Don’t go near those casinos, they will take your money,” said Brown, who says she had played the game for more than 30 years.
Brown, who lives near Windsor, Ontario, in Canada, said she encountered more long losing streaks of 10 to 12 games in a row in several hours online than she had in her decades of play in real-world casinos. In one instance, she said, a manager of the Caribbean Cyber Casino refunded $500 she had lost playing online blackjack and confirmed her suspicion that the game was “not exactly normal.”
“He said the casino had no control over the software, which was licensed in South Africa,” Brown said. “I was absolutely stunned.”
But Leo Friday, managing director of Caribbean Cyber Casino, said that even though the blackjack software was fair, he refunded the money because of the company’s customer-satisfaction guarantee.
“I personally took care of her ... and made sure that we refunded all her money even though there was no valid claim that the odds aren’t straight,” Friday said.
TRUST IS PARAMOUNT
The issue of trust is paramount in online gambling — both for the player, who cannot see a dealer or croupier handling the cards or chips, and for the casino or sports book that stands to lose all if its reputation is tarnished.
Jeff, a sports bettor who agreed to be interviewed on the condition his last name not be used, said the online sports books are generally trustworthy. With a network of associates, he has carefully monitored virtually all of those that accept real money and found only “two or three” that have been tardy paying or simply not paid winners.
“But when you get involved in the casino games, I personally wouldn’t trust any of them,” he said. “You have no way of knowing you’re getting a fair shake.”
In an effort to build credibility, a number of companies involved in the development of Internet gambling have attempted to police themselves by forming the Interactive Gaming Council and formulating a statement of ethics and code of conduct to which all members promise to adhere.
Kendall Lang, a co-founder of the council and chief executive of Casino World Holdings, said that while the group is no substitute for government regulation — which council members say they would welcome — it has allowed the young industry to begin making its case to policy-makers.
“We feel the effort that we’re making to educate the regulators, politicians and lobbyists as to what the issues are has had a tremendous impact,” Lang said. He said council members hope that in the long term, they “will keep the U.S. from being an ostrich in the sand, burying their heads to issues that are going to be dealt with on an international level regardless of whether Sen. Kyl or any others try to pass legislation that is antiquated at its best.”
The regulation picture could change dramatically if a country with a strong international reputation for law and order were to embrace Internet gambling.
“If we have top-level countries who are getting involved with this through licensing … then it’s going to give a lot of legitimacy to the Internet gambling world,” said Cabot, a partner in the Las Vegas law firm of Lionel Sawyer and Collins. “And I think that will cause, more than anything else, the proliferation or explosion of the industry.”
That day may not be far away.
REGULATORY TERRAIN CHANGING
Australia has given preliminary approval to a regulatory scheme that would allow its states and territories to license Internet gambling. Several states are expected to give final approval to the regulations early in 1998.
Canada’s Parliament also is considering granting licenses to online casinos that follow certain ethical and financial standards.
“Because of our status as a G7 country, we can inspire confidence in the Internet sites we regulate,” said M.P. Dennis Mills of Toronto, who authored legislation to legalize Internet gambling. “This will be a multitrillion-dollar industry. Maybe there should be a percentage of that going to the Canadian treasury for our health-care system or other social programs. Regulation of these sites can only be a good thing for everyone.”
Similar sentiment seems to be prevailing in New Zealand. In a paper delivered in March at the Casino and Gaming Conference in Melbourne, Australia, Casino Control Authority executive Trevor Garrett said that Internet gambling is going to cross international boundaries no matter what governments try to do to stop it. He argued that regulation would be good for everyone, generating tax revenue and ensuring that the Internet sites would operate in a safe, legal environment.
But opponents of Internet gambling argue that just because it is difficult to eradicate is no reason it should be given official sanction.
CAN GAMBLING BE STOPPED?
“If Internet gambling sites are marginalized rather than brought to the mainstream, they’ll be kept in the background and their spread will be seriously limited,” argues Grey of the National Coalition Against Legalized Gambling. “On the other hand, legalization of Internet gambling would substantially increase the instances of problem gambling, particularly among the young. How are you going to prevent 15-year-olds from gambling on the Internet if it’s available? The result of legalization would be that we’d have a lot of people with serious social problems, and who is going to pay for that?”
Mills, the Canadian lawmaker, counters that since efforts to stop Internet gambling are futile, it should be harnessed as a revenue source.
“Gaming is here to stay in our society,” he said. “The old hypocritical moral argument against gambling just doesn’t sell any more. In our city alone we have 500 charity casinos. We should recognize that we’re not going to stop Internet gaming, but that we can make it safe for the individual player.”
Cabot predicts that while the current political mood in the United States will lead to a ban on most forms of Internet gaming, ultimately the difficulties of enforcing the prohibition will lead to widespread availability of online wagering.
“As a practical matter Congress could inhibit or impede its growth, but not stop it,” he said. “Even if sufficient resources are put toward enforcement, it’s problematic. You’d have to create a division of the Department of Justice that does nothing but police these sites and file actions to prevent ISPs from providing access.”
And taking a moral, but unenforceable, stand on the matter carries its own risks, Cabot added.
“One of the greatest dangers in our society is to pass laws and not enforce them,” he said. “It creates an atmosphere where people don’t believe that the law of the land is important.”
BUT THE 25-year-old insurance claims evaluator from Chatsworth, Calif., received a rude awakening after he built his bankroll to more than $5,000 during an unprecedented hot streak: His “cyberbookie” refused to pay him, saying it could not meet its obligations because the FBI had raided the U.S. offices of its parent company and frozen its bank accounts.
“Legally, I didn’t feel like I was doing anything wrong,” a dismayed Paniccia said. “To my understanding, it was not illegal to bet over the Internet as long as [it was] with an offshore. I mean, I listen to sports radio and all you hear is just ads about, ‘Call this number and you can have an offshore betting [account] and it’s completely legal.’ ”
His was a painful introduction to the strange and chancy world of Internet gambling, which exists because there are no laws specifically prohibiting it.
Despite its fledgling status, Internet gambling is generating increasing concern among legislators, regulators and gambling opponents, who see grave consequences arising from games of chance invading the home.
SHARP RISE IN WAGERING WEB SITES
The growing concern has coincided with a sharp rise in the number of online sportsbooks, casinos and lotteries, from only a dozen or so at the beginning of 1997 to about 100 a year later — a number that is bound to continue to climb in the months ahead. They range from bare-bones sportsbooks listing wagering propositions to elaborate mock casinos featuring everything from virtual cocktail waitresses to calypso bands.
Fueling the fears of opponents of Internet gambling is the ease with which an account can be opened — within minutes of making a deposit with a credit card, a user can be playing virtual versions of a variety of casino games, including blackjack, roulette, video poker and craps, or betting on almost any sporting event. Losing wagers are deducted from the user’s account and winning wagers added. A player who goes bust can quickly replenish an account and start all over again.
Like the battles being played out over pornography on the Internet and the availability of such sensitive information as bomb-making manuals, the battle over Internet wagering will ultimately be decided in the courts.
But first — while a congressional gambling commission conducts a two-year study that will include a hard look at online wagering and Congress and state legislatures consider laws to make it illegal — the war is being waged in the court of public opinion.
On one side are civil libertarians, who argue that it is unconstitutional to legislate against an online activity conducted in the privacy of one’s home, and entrepreneurs eager to get in on the ground floor of an industry that some analysts say could generate as much as $10 billion a year within a decade.
Opposing them are those who want to stop Internet gambling in its tracks. This group includes the gambling industry, which sees its $550 billion a year business threatened; certain members of Congress; the National Association of Attorneys General; and organizations like the National Coalition Against Legalized Gambling (NCALG) and Gamblers Anonymous, who worry that Internet wagering could exacerbate teen-age and problem gambling.
TO SOME, IT’S A ‘DISEASE’
“As a form of entertainment it’s a disease to 5 percent of the population that will entertain themselves into bankruptcy,” said Tom Grey, director of NCALG. “So obviously, (with) entry into a home ... the more available and accessible you make gambling, the more you compound the problem.”
The central question — whether Internet gambling is legal, illegal or exists in a legal nether world where no rules apply — is as gray as lawyers can make it.
Section 1084 of the federal Wire Communications Act, which bans the use of telephones to accept wagers on sporting events, was designed to allow federal law enforcement officials to prosecute bookies. But the law predates the popularization of the Internet by several decades, and does not specifically address legal questions arising from the use of the personal computer to make wagers.
There are other problems interpreting the act as well: It only prohibits anyone engaged in “the business of betting” from using a “wire communications facility,” which puts the casual bettor outside the scope of the law. It also exempts the transmission of wagering data on horse racing and does not make clear whether “contest” as defined by the act includes other, non-sports, games.
Other federal statutes that could conceivably be applied to Internet gambling include the Amateur and Professional Sports Protection Act, which prohibits the spread of sports betting outside Nevada and Oregon, which runs a lottery based on the results of professional football games, as well as various racketeering statutes. But none of these laws specifically deals with the Internet, and the Justice Department has taken the position that the laws must be rewritten before action can be taken against Internet gambling operations.
STATES CHALLENG SITE OPERATORS
Some states, notably Missouri, Minnesota and Wisconsin, have interpreted their anti-gambling statutes — as well as consumer-protection and anti-fraud laws — as prohibiting Internet play. Attorneys General Jay Nixon of Missouri, Hubert Humphrey III of Minnesota and James Doyle of Wisconsin have vowed to aggressively pursue companies that bring gambling to their states and have individually sued a handful of Internet casino operators and an online lottery run by the Coeur d’Alene Indian tribe of Idaho.
“This kind of activity is clearly illegal, and we’re not going to put up with it in our state,” Nixon said. “Extradition is clearly an option.”
Some states also are targeting bettors. Pending legislation in several states, including California and Connecticut, would make it a crime to use the Internet to participate in forms of gambling that are otherwise illegal in the states.
Despite the legal uncertainties surrounding Internet gambling, dozens of Web sites are accepting real money from bettors, while many others are allowing customers to play for fun while they wait for the legal waters to clear.
ACCORDING TO Sue Schneider, managing editor of Rolling Good Times Online, the Internet is currently home to about 100 casinos, sportsbooks and lotteries that allow players to lay real cash on the line.
The total take now for all of the virtual establishments is estimated at less than $100 million per year — a drop in the bucket compared to the total gambling revenue of $7.5 billion in Nevada in 1996.
But the online entrepreneurs are betting that they are on the leading edge of what will develop into a thriving industry.
All the Internet gambling sites are based offshore, mostly in the Caribbean, on the theory that U.S. law can’t touch them since the operations are legally licensed in their countries of operation.
But as Michael Simone, president and chief executive of Interactive Gaming and Communications Corp. [IGC] in Blue Bell, Pa., discovered, an offshore Web site is not necessarily a impregnable legal defense.
In February 1997, FBI agents raided IGC, which operates the Sports International sportsbook and Global Casino, both licensed in Grenada. When they left, they took with them truckloads of documents, financial records and receipts, according to a search warrant filed in the case.
‘WE ARE DOING NOTHING ILLEGAL’
“We are doing nothing illegal,” Simone said shortly after the raid. The U.S. Attorney’s Office in Philadelphia, however, took a different view of the publicly traded company’s offshore enterprises and is continuing to investigate whether IGC actually is running its gambling operation from Pennsylvania.
In 1996, Sports International generated more than $58 million in revenue, about half over the Internet and half through its phone betting service. Global Casino, which opened in June, has not yet contributed much to the company’s cash flow.
But after the FBI raid, the cash flow slowed and turned into a one-way trickle, with customers — who numbered 4,000 at the height of the 1996 football season, according to Simone — depositing $500 to open accounts but not being able to collect their winnings.
The FBI made no public announcement of the Feb. 19 raid, and the FBI, Justice Department and U.S. Attorney’s Office in Philadelphia all have declined to comment on the case. That leads customers like Paniccia, who opened his account 1 1/2 months after the raid, to view the government as the villain in the drama.
“My biggest problem with what the government is doing is the fact that for some reason they can freeze these people’s accounts … but on the other hand they’re allowing the American people to keep sending their money to this company even though [the government knows]… they can’t pay anyone,” Paniccia said.
IGC also has run afoul of the state of Missouri. Nixon, the state attorney general, sued the company in early 1996 after a member of his staff, posing as a would-be bettor, was told by an IGC representative that it was legal for Missouri residents to participate in an online slots tournament. A circuit court judge agreed, assessing $66,000 in penalties and issuing an order prohibiting the company from taking bets from state residents. Then June 27, after an undercover investigator from Nixon’s office was able to place an Internet bet through the company’s Web site, a state grand jury handed down a criminal indictment against the company and Simone. Simone is currently fighting an extradition request filed by Missouri.
FEDS ARE RELUCTANT
The involvement of states in pursuing Internet gambling operators underlines a curious situation in which states have urged the federal government to take control over an area that has long been their responsibility. The feds, however, have for the most part declined to get involved.
In June 1996, the National Association of Attorneys General asked Congress to address the problem by broadening the language of the federal Wire Communications Act to include other types of communications technology and all forms of betting. They also requested a penalty for bettors who place wagers over the Internet.
Partially in response to that request, Sen. Jon Kyl, R-Ariz., in February introduced The Internet Gambling Prohibition Act of 1997. Co-sponsored by Democratic Sens. Bob Graham of Florida and Dianne Feinstein of California, the bill would not only outlaw all Internet gambling, it would impose penalties of up to $2,500 and six months in prison for anyone who places a bet over a computer.
It also declares the “sense of the Senate that the federal government should have extraterritorial jurisdiction over the transmission to … the United States … in the placing of bets or wagers.” And finally, by requiring FCC-regulated carriers to discontinue services to those Internet sites that violate the law, the bill would allow law-enforcement agences to first request that Internet service providers [ISPs] block a wagering site, then obtain a court order if the action is not voluntarily taken.
The legislation has been praised by the states and anti-gambling forces, while drawing criticism from civil libertarians and legal experts, who note that it would be extremely difficult, if not impossible, to enforce a prohibition against Internet gambling.
“In order for a state or the federal government to be effective in legislating against online gambling, their target can only be those persons over which they have jurisdiction,” said Las Vegas attorney Anthony Cabot, author of “The Internet Gambling Report,” the most exhaustive review of the legal issues surrounding online gambling to date. “…It would be very difficult for them to enforce anything vis-à-vis the Internet against foreign citizens operating outside of the country.”
Prospects for Sen. Kyl’s legislation are unclear. The bill cleared the Senate Judiciary Committee in the fall and is expected to go before the full Senate early in 1998 after undergoing further revisions.
But it still has not cleared the House Judiciary Committee, as many legislators apparently prefer to await the National Gambling Impact Study Commission’s recommendations, expected near the end of 1998.
Established in 1996 by an act of Congress, the commission has been charged with reviewing the overall effect of gambling on the United States and delivering a report within two years.
The appearance of the Kyl bill has given birth to one of those alliances that produced the phrase “politics makes strange bedfellows.” Traditional gambling interests have joined anti-gambling and law-enforcement groups in support of Kyl’s legislation while reserving the option to get involved in Internet wagering if it becomes legal and lucrative.
LAND-BASED CASINO operators have been warned by states that they could lose their gaming licenses if they get involved in online wagering, but their inability to participate at this stage of the game has not caused undue alarm.
Frank Fahrenkopf, president and CEO of the American Gaming Association, argues that the industry has learned that competition only increases the total gambling pie. “In 1976, when New Jersey authorized casinos, some people in Nevada were in a panic,” he said.
“It’s not in any way a competitive opposition ... it is that this is an industry that can only have integrity with tough regulatory law-enforcement control.”
The lack of regulation also concerns Zane Brown, a semi-retired newspaper woman and avid blackjack player who turned to Internet gambling because of a medical condition that requires her to be on oxygen 24 hours a day.
WORDS OF WARNING
“If I had to say anything to the inexperienced blackjack player it’s “Don’t go near those casinos, they will take your money,” said Brown, who says she had played the game for more than 30 years.
Brown, who lives near Windsor, Ontario, in Canada, said she encountered more long losing streaks of 10 to 12 games in a row in several hours online than she had in her decades of play in real-world casinos. In one instance, she said, a manager of the Caribbean Cyber Casino refunded $500 she had lost playing online blackjack and confirmed her suspicion that the game was “not exactly normal.”
“He said the casino had no control over the software, which was licensed in South Africa,” Brown said. “I was absolutely stunned.”
But Leo Friday, managing director of Caribbean Cyber Casino, said that even though the blackjack software was fair, he refunded the money because of the company’s customer-satisfaction guarantee.
“I personally took care of her ... and made sure that we refunded all her money even though there was no valid claim that the odds aren’t straight,” Friday said.
TRUST IS PARAMOUNT
The issue of trust is paramount in online gambling — both for the player, who cannot see a dealer or croupier handling the cards or chips, and for the casino or sports book that stands to lose all if its reputation is tarnished.
Jeff, a sports bettor who agreed to be interviewed on the condition his last name not be used, said the online sports books are generally trustworthy. With a network of associates, he has carefully monitored virtually all of those that accept real money and found only “two or three” that have been tardy paying or simply not paid winners.
“But when you get involved in the casino games, I personally wouldn’t trust any of them,” he said. “You have no way of knowing you’re getting a fair shake.”
In an effort to build credibility, a number of companies involved in the development of Internet gambling have attempted to police themselves by forming the Interactive Gaming Council and formulating a statement of ethics and code of conduct to which all members promise to adhere.
Kendall Lang, a co-founder of the council and chief executive of Casino World Holdings, said that while the group is no substitute for government regulation — which council members say they would welcome — it has allowed the young industry to begin making its case to policy-makers.
“We feel the effort that we’re making to educate the regulators, politicians and lobbyists as to what the issues are has had a tremendous impact,” Lang said. He said council members hope that in the long term, they “will keep the U.S. from being an ostrich in the sand, burying their heads to issues that are going to be dealt with on an international level regardless of whether Sen. Kyl or any others try to pass legislation that is antiquated at its best.”
The regulation picture could change dramatically if a country with a strong international reputation for law and order were to embrace Internet gambling.
“If we have top-level countries who are getting involved with this through licensing … then it’s going to give a lot of legitimacy to the Internet gambling world,” said Cabot, a partner in the Las Vegas law firm of Lionel Sawyer and Collins. “And I think that will cause, more than anything else, the proliferation or explosion of the industry.”
That day may not be far away.
REGULATORY TERRAIN CHANGING
Australia has given preliminary approval to a regulatory scheme that would allow its states and territories to license Internet gambling. Several states are expected to give final approval to the regulations early in 1998.
Canada’s Parliament also is considering granting licenses to online casinos that follow certain ethical and financial standards.
“Because of our status as a G7 country, we can inspire confidence in the Internet sites we regulate,” said M.P. Dennis Mills of Toronto, who authored legislation to legalize Internet gambling. “This will be a multitrillion-dollar industry. Maybe there should be a percentage of that going to the Canadian treasury for our health-care system or other social programs. Regulation of these sites can only be a good thing for everyone.”
Similar sentiment seems to be prevailing in New Zealand. In a paper delivered in March at the Casino and Gaming Conference in Melbourne, Australia, Casino Control Authority executive Trevor Garrett said that Internet gambling is going to cross international boundaries no matter what governments try to do to stop it. He argued that regulation would be good for everyone, generating tax revenue and ensuring that the Internet sites would operate in a safe, legal environment.
But opponents of Internet gambling argue that just because it is difficult to eradicate is no reason it should be given official sanction.
CAN GAMBLING BE STOPPED?
“If Internet gambling sites are marginalized rather than brought to the mainstream, they’ll be kept in the background and their spread will be seriously limited,” argues Grey of the National Coalition Against Legalized Gambling. “On the other hand, legalization of Internet gambling would substantially increase the instances of problem gambling, particularly among the young. How are you going to prevent 15-year-olds from gambling on the Internet if it’s available? The result of legalization would be that we’d have a lot of people with serious social problems, and who is going to pay for that?”
Mills, the Canadian lawmaker, counters that since efforts to stop Internet gambling are futile, it should be harnessed as a revenue source.
“Gaming is here to stay in our society,” he said. “The old hypocritical moral argument against gambling just doesn’t sell any more. In our city alone we have 500 charity casinos. We should recognize that we’re not going to stop Internet gaming, but that we can make it safe for the individual player.”
Cabot predicts that while the current political mood in the United States will lead to a ban on most forms of Internet gaming, ultimately the difficulties of enforcing the prohibition will lead to widespread availability of online wagering.
“As a practical matter Congress could inhibit or impede its growth, but not stop it,” he said. “Even if sufficient resources are put toward enforcement, it’s problematic. You’d have to create a division of the Department of Justice that does nothing but police these sites and file actions to prevent ISPs from providing access.”
And taking a moral, but unenforceable, stand on the matter carries its own risks, Cabot added.
“One of the greatest dangers in our society is to pass laws and not enforce them,” he said. “It creates an atmosphere where people don’t believe that the law of the land is important.”
