Will ban end Internet gambling? Don’t bet on it
Bill may win political points, but $12 billion industry can work around it
Updated: 1 hour, 33 minutes ago
Mike Brunker
Reporter
It took Congress more than a decade to pass a ban on Internet gambling. Now comes the hard part.
After President Bush made online gambling illegal Friday by signing the port security bill containing the prohibition, federal officials will have 270 days to devise a way of identifying electronic gambling transactions and preventing Americans from taking part in them.
Many experts on gambling, e-commerce and the law say the odds are extremely long that the feds will be able to come up with a set of regulations that will accomplish what the lawmakers want to impose on what has grown to become a $12 billion-a-year industry.
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“The worst-case scenario is they’ll put in place some measures that will put a crimp on the industry for a while,” said Sebastian Sinclair, a gaming analyst with Christiansen Capital Advisors who has been tracking the online gambling sector almost since its inception. “I don’t think anyone — well, maybe except for those in Washington — believes that the industry won’t recover.”
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The biggest obstacle to an effective federal ban is the Automated Clearing House network, or ACH, an electronic processing system used by the Federal Reserve that currently can’t tell a gambling transaction from a mortgage payment.
“At this point you can’t do that any more than you can ask Western Union to block all transactions to pet food companies,” said Ken Dreifach, an attorney with Sonnenschein, Nath & Rosenthal in New York.
Dreifach, who was chief of New York Attorney General Elliott Spitzer’s Internet bureau from 2000 until earlier this year, speaks from experience, having overseen the lawsuit that led major credit card companies to halt the use of their cards for Internet gambling transactions in 2002.
“They were relatively easy practices to enforce, because the credit card systems and issuers coded these transactions, and they were essentially just able to flick a switch and block them,” he said.
“You can’t do that with ACH payments or any other number of relatively new payment mechanisms. … When you’re dealing with what is essentially a bank-to-bank, account-to- account transaction, the bank on the sending end does not keep any record of the person behind the bank account on the receiving end.”
That has experts in the field wondering how federal financial watchdogs can enforce the ban against the offshore sites.
“People are scratching their heads at what the enforcement mechanism is going to be,” Dreifach said, “whether banks are going to have to revamp their entire system of sending funds out of the country or whether the Department of the Treasury, working with investigators, is going to compile a blacklist of specific accounts that it knows are tied to illegal practices, or whether a hybrid of both, and finally, going forward how to update this information.”
A banking industry source, who spoke with MSNBC.com on condition of anonymity, said industry lobbyists succeeded in getting language inserted into the legislation that will make the regulators’ job that much harder.
“If the regulation-writing authority says it’s not feasible to try and block the check and the electronic payment, the regulations can’t require the impossible,” the source said. "Also, the regulations will have to deal with language put in at the last minute that the regulations should require the credit card companies to avoid blocking legitimate transactions.”
“Let’s just say my friends at the Fed were not itching for this bill to pass,” the source added with a chuckle.
Another problematic aspect of the bill will require federal authorities to provide Internet service providers with a list of gambling sites to be blocked, a scheme that Sinclair said has previously proven futile.
When Google and Yahoo agreed to block Internet gambling ads in response to a lawsuit filed in California, the betting site operators simply changed Internet addresses and used the portals’ automated system to buy “sponsored ads” on the sites, he said.
“What happened was in the middle of the night they’d log in and pay their money for sponsored ads, and then Casino XYZ would pop up,” Sinclair said. “The sites would find them and take them down and then it would start up again the next night.”
Furthermore, he noted, existing customers will have icons on their desktops that can “dial out” to one of hundreds of phone numbers that will connect them to the overseas gambling sites.
“If I’m an existing customer, I’ll double-click on their interface and that will find a way to connect me with one of those numbers,” he said.
http://msnbc.msn.com/id/15240569/