Current Government Initiatives

Justification for Regulation

One might question what the big deal is with allowing those who care to partake in Internet gambling to do so.  Those opposed to the activity have their reasons.  First, many online gambling sites require users to establish international bank accounts or give credit card numbers in order to play.  Whenever money is moving quickly and untraceably via encryption, there is cause for alarm.  Some believe that online gambling could lead to international organized crime and money laundering.   There is also the fear of fraud.  If and when gamblers win, will they actually be paid?  Currently, there is no reason to trust any of the online gambling sites.  Perhaps this is the gambler’s problem, but there are also concerns that should concern us all.
Parents are worrying about the impact of Internet gambling on children.  We know that pornography currently runs rampant on the Internet, and what is to say that gambling will not become as easily accessible and prevalent.  Of course, parental control software that can block and screen web sites containing material inappropriate for children is already available.  Internet gambling sites may want to consider becoming actively involved in promoting and advertising such software to show they are acting responsibly.

Current Laws and Precedents

U.S. legislation surrounding Internet gambling has recently been introduced within the last year.  There following three pieces of legislation are associated with the legality and prevention of Internet gambling.
   

While these laws attempt to limit Internet gambling, several loopholes exist.  First, they focus only on gambling or crimes involving interstate transactions, which leaves significant room for interpretation and appeal.  Second, even if these laws could be extended to Internet gambling, enforcement would be costly and complicated given today’s unrestricted environment.  This is not to say, however, that the government has not tried.  In early March of 1998, the federal government charged 14 people with operating six illegal on-line gambling services offshore.  The US Attorney claims the existing laws are sufficient while one of the defendant’s attorney contends that the US has no jurisdiction over operations based in countries where betting is legal.

Recently, the National Association of Attorneys General (NAAG) formed the Internet Working Group to (1) amend Section 1084 of the Federal Interstate Wire Act to ensure Internet gambling is illegal, and (2) establish a joint enforcement strategy with the Department of Justice and the Federal Trade Commission to stop the spread of Internet gambling including offshore cooperation.  Senator John Kyl (Arizona) is making waves by taking the recommendations of the Internet Working Group into the Senate.  Legislation has also been introduced in the House of Representatives, by Bob Goodlatte (Virginia) to prohibit Internet gambling.

State Activity and Legislation:  Minnesota

While the federal government has created a commission for a two-year study on issues surrounding gambling on the Internet, some states have been quicker to act.  In many states, the Attorney General has filed charges against Internet casino operators.  For example, a judge in Minnesota, where gambling is illegal, held that the state could regulate Internet betting.  The judge determined that Minnesota has criminal jurisdiction over on-line gambling if it is offered to state residents.

In this case, the state was able to prove that the defendant offered its products and services to Minnesota State residents through web advertisements.  Other courts have established that something more substantial than advertising is required in order for the state to have jurisdiction, merely having a web site that can be accessed is probably not enough.  Applicable precedents in this case include the Supreme Court finding that when a person uses a telephone to commit a crime, the offense takes effect in the place where the hearer, not the speaker, is located.  Further, the Minnesota Attorney General cited a case where person filed a rifle from an Indian reservation across a boundary into Minnesota and the Minnesota court held they could try the case because the shots took effect in Minnesota.

Targets of New Legislation

While much of the current and proposed legislation is directed at shutting down operators of Internet gambling sites, they are not the only ones being targeted.  Internet Service Providers (ISPs), index providers and advertisers, fund transfer providers, and home users could all be targets for prosecution.  However, the similar issues of jurisdiction and enforcement will also apply these groups.
 

Operators

US citizens and corporations are always subject to the jurisdiction of the US.  This country can exert jurisdiction over its citizens for conducting gambling anywhere in the world, despite that the activity may be legal in the place where it’s conducted.  Most operators hide their activities by using surrogate servers and other means, and the US would have to have the person(s) charged extradited from a foreign country to be brought into court here.  This extradition is not easily accomplished—the US must have a treaty that specifically names Internet gambling as a reason for extradition from the country in question.  No such treaties exist currently.  Further, the countries where the operations are located are presumably collecting tax revenue from corporations and would not want to lose the business.  Lastly, even if the US managed to bring an operator into court, there are still uncertainties concerning the current laws.
 

Internet Service Providers (ISPs)

Unlike site operators, ISPs are subject to federal regulation.  In some countries, the government allows only certain groups (like universities) access to the Internet.  In others, the government is the only ISP.  Given the First Amendment to the Constitution, these policies would not work in the US.

Another option for the government is extending the Federal Communication Commission’s (FCC) authority to govern content on the Internet.  ISPs would be required to now the nature of content they provide, a somewhat unrealistic expectation.  Attempts have been made to apply similar expectations to on-line service providers, but have failed with the reasoning that booksellers could not be required to know the contents of every book in the shop.

However, one significant finding was against Prodigy, an on-line service provider.  The court held that because Prodigy maintained editorial control, like a newspaper, they could be held liable for defamatory matter posted anonymously to a bulletin board.  Since then, Congress has modified the Communications Decency Act to protect ISPs: No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.
 

Index Providers and Advertisers

If the government extends the authority of the FCC to govern content on the Internet, advertising materials would be reviewed in much they same way they are for television and radio.  Since the FCC issues the operating licenses, it then has the authority to fine or suspend the license of any station that broadcasts gambling advertisements.  However, Internet advertising is on sites that are operated privately (or operated outside the US), and the FCC could not quite revoke a license it has not issued.
 

Funds Transfer Providers

This group could be the easiest for the government to go after for two reasons: the majority of firms providing financial transactions are US companies, and there are a manageable number of them.  These firms could be guilty of aiding and conspiring with an overseas casino to commit a crime and therefore be held liable.
 

Home Users

The consumers of gambling are one of the hardest groups to target.  First, there are still no clear laws asserting the illegality of gambling on the Internet.  Second, enforcement agencies would require proof of the activity.  This implies an insider (family member) reports the activity, the government sets up a sting site, or the enforcement agency uses a wiretap that is able to decrypt communication on the phone line.

On-Line Gambling Advocates

Interactive Gaming Council

Among the shouts of corruption and fraud, there do exist some advocates of Internet gambling, and they have developed some possible solutions to the concerns discussed above.  The Interactive Gaming Council (ICG) "provides a forum for companies to address issues and advance common interests in the global interactive gaming industry."   The idea is that if Internet gambling is going to exist, why not regulate it rather than putting it into the hands of overseas operators or potentially, organized crime.  The ICG has developed a Code of Conduct for the gambling industry as a whole.  The ten issues addressed in the code are: regulatory compliance, accountability, consumer privacy and data collection, truth in advertising, dispute resolution and audit trails, limiting access by minors, controlling compulsive gambling, banking and transaction processing, prize payouts, and corporate citizenship.   If adhered to, the proposed Code of Conduct could lend credibility to Internet gambling sites.
 

World Wide Web Consortium

The World Wide Web Consortium is also doing its part to build credibility among Internet sites.  For instance, they have recently developed a rating program which rates sites based on certain content criteria.  This protocol proposed to make this happen is called Platform for Internet Content Selection (PICS).  Both Microsoft Explorer and Netscape Navigator have agreed to support the protocol, however, it has yet to receive widespread acceptance.  Rating all Internet sites is also a tremendous feat that may not even be feasible.

Conclusion

While there are many issues surrounding Internet gambling, the larger questions associated with the use and regulatory environment for the Internet are critical and far-reaching.  The essential question that needs to be addressed is the following: Should the Internet be regulated?  And if so, by whom?  Entrepreneurs looking to start new Internet businesses have to be vigilant about what the government might do in response.  While resolving these questions will likely take years of struggle and debate, until then, "Happy Internet Gambling!"
 
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If you have comments or suggestions, email me at jcliffor@mit.edu