U.S. Ban on Online Gambling on Way Out?

When it comes to gambling, there has never been a shortage of opinion amongst the masses. Either people favor it or they feel strongly that it accompanies some of society's more depraved behaviors, along with attracting crime, and is a negative temptation for our youth.

Regardless of what side of the table you are on, most folks can agree that they would like less government regulation when it comes to indulging in their leisure activities of choice. But such becomes far less clear when the government jumps in.

As hard as we might try to understand the present United States federal laws on the books when it comes to gambling, and especially with the advent of constantly evolving computer technology, legislation has not kept pace.

Additionally, lawmakers are too often wont to ignore a problem, lest it detract from their popularity, and more importantly, when it might interfere with receiving campaign cash from certain lobbying industries.

So they drag their proverbial feet until an issue reaches a fever pitch and it simply must be addressed; even if it is not in a cohesive manner or in the best interests of their constituents.

Also, with respect to gambling, I have previously documented in several previously published articles that many state governments in the U.S. have already started to craft legislation in hopes of feeding their depleted coffers by further relaxing their laws to allow more access to gambling.

Everything from expanding brick and mortar gambling casinos to advancing racinos and adding slot machines at horse race tracks to allowing intrastate and interstate online gambling are seen collectively as a potential bonanza that will cure all ills for the empty tills lining their budgets. And it is estimated by the federal government that there could be as much as a $42 billion windfall over a 10-year stretch in taxable revenue.

It is quite interesting, but not by virtue of coincidence, that most of this seeming rush to pass such legislation by U.S. states comes at the same time that the U.S. Congress is plotting ways to overturn the only recently implemented Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), through a proposed law by Congressman Barney Frank (D-MA) that he originated in 2009.

It just won its initial approval in the U.S. House of Representatives through its Committee on Financial Services on July 27, 2010, on which Rep. Frank is the Chairman. Known as House Resolution 2267 (H.R. 2267) or the Internet Gambling Regulation, Consumer Protection and Enforcement Act, the House Financial Services Committee's approval is it but the first phase of its passage, required by both houses of the U.S. Congress.

In short, the UIGEA was a nice way for the U.S. government to keep offshore online betting casinos at bay from the American consumer. It was initially enacted in October 2006, but was never implemented until June 1, 2010, after many long delays by the federal government's U.S. Department of the Treasury in compelling U.S. banking institutions to honor its rules.

However, the main problem, which will continue to haunt H.R. 2267, is the actual legal definition of "illegal online gambling," thus creating all kinds of loopholes and wiggle room, from the living room gambler to organized crime, to skirt the law.

And also of concern in the presently active UIGEA is that banks remain the only legally accountable parties subject to penalty and prosecution for furnishing offshore online gambling to U.S. residents, while the U.S. gambler placing the bet remains safe. And to date, banks and payment processors are still unclear as to which transactions are actually required to be blocked.

Due to the difficulty in deciphering a non-finite system for the processing of legal U.S. based online gaming transactions, consumers' credit cards and debit cards cannot only be blocked or frozen, but accounts are often cancelled.

Furthermore, a consumer, ignorant of the UIGEA, could innocently go to a gambling site, not even knowing from where it emanates and later find that their credit line or checking account is in peril, simply by clicking on an illicit site.

So for now, that is the best that the U.S. government has served up, as concerns online gaming. But not shy to out-do itself, even if it compounds a dysfunctional process even more so, the federal government has plans to muck it up again through a poorly framed H.R. 2267; almost immediately setting it up to fail.

H.R. 2267 is overly broad and murky, yet will intrinsically involve the U.S. Department of the Treasury and the U.S. Internal Revenue Service (IRS), amongst other U.S. federal agencies, for starters.

It is merely a wish list without the necessary mechanisms in place to not only generate the hoped for tax revenue, but for enforcing the law itself. And it stands to open the floodgates for illicit online gaming, incongruous with what it should be designed to do.

It would leave online gambling sites left to police themselves, merely under the purview of the U.S. federal government.

And like most other large pieces of U.S. legislation that has been conveniently rushed through to final Congressional passage, H.R. 2267 is another boiler plate document of mandates to be fulfilled at a date certain after it is already signed into law.

But due to its ambiguity, which seemingly appears by design, H.R. 2267 calls for provisions and assorted amendments that cover a wide array of issues. And it is worth noting several of them here, in order to show how arduous it will be for its desired compliance.

Firstly, it authorizes the U.S. Secretary of the Treasury to create a licensing program for regulations and enforcement of the law, issuing licenses to online gambling entities, effective for a period of five years.

Thus, it prescribes the licensing requirements for such internet gambling entities and prohibits operation of an Internet gambling entity that knowingly accepts bets or wagers from persons within the U.S. without the necessary license issued from the U.S. Department of the Treasury.

The law would prohibit a person, deemed prohibited from gambling with an online gambling entity, from collecting any winnings. Such a system to screen a gambler's veracity must be created by each gambling entity, and to be overseen by the federal government. And such is pure folly at this juncture.

H.R. 2267 would require that an online gambling entity pay required taxes to the IRS. And most curiously of all, each gambling entity, itself, would need to implement safeguards against fraud, money laundering, and terrorist financing.

In addition, each online license would require that gambling sites have strong protections in place to prevent minors from gambling online, and to prevent inappropriate online advertising targeted to underage gamblers or specifically aimed at compulsive gamblers.

Not only must the gambling site maintain a list of compulsive gamblers, but must block them from site access. And it cannot allow access to its site for those individuals who are delinquent on child support payments. These are just some amongst many other illusory imperatives.

Enforcement of U.S. law for the prevention of and tracking of electronic transactions of funds sent to terrorist organizations abroad has been weak at best through the U.S. Department of the Treasury, nine years since September 11, 2001. And to essentially require online websites to take on such a task is laughable.

Other proposed mandates include that debit cards only be used for transactions, to the exclusion of credit cards. Offshore online gambling operations such as PokerStars.com, FullTiltPoker.com and UltimateBet.com, which allowed U.S. players to access their sites after the UIGEA went into effect, will be banned from acquiring a U.S. license, as well as other entities that intentionally violated this U.S. law.

Each state and Indian tribe may opt-out of the federal legislation during the first year after its enactment, requiring that their residents abide by respective local laws.

And sports betting, with the exception of U.S. based horse racing and para-mutuel betting, would be disallowed, much to the delight of the professional and college sports industries. U.S. state lotteries, should they eventually become accessible online, would also be exempt. (For more information on horse racing betting - join now!)

But perhaps falsely anticipated with this new law is the notion that gamblers will be allowed much freedom to do as they wish in the privacy of their own homes. However, given the bevy of requirements for oversight, nothing could be further from the truth. Deadbeat dads need not log on, as previously noted.

But more realistically, beginning with Internet Service Providers or ISPs, one would expect that they would have to be the gatekeeper for gathering initial information as to whether the gambler is even eligible to gamble, based upon their state of residence, if that state has opted out. And the banks would be the second line of defense, cutting off the gambler's funds if need be, should the online gambling site find that it is a documented compulsive gambler placing the bet.

And should a player gain access to a legitimate site, then the process begins as to whether they are of majority age, has been flagged as a delinquent parent, or has a criminal background. Without such due diligence, the individual gambling site is subject to losing its license.

Certainly none of these entities are law enforcement agencies, so for the federal government to expect legitimate oversight to be realized at these levels seems more than silly.

The purpose of this report was to give a glimpse into what lurks ahead for U.S. online gaming and is not intended to disparage the gambling consumer nor the gambling industry. Rather, the intent is to highlight some of the future changes in law which may not best serve the public or the industry.

And contrary to the online gaming industry's millions of lobbying dollars spent in Washington, D.C. in order to help initiate this latest planned legislation, it might be best for it to restrain its glee, at this time.

For one only needs to look at the present economic condition of Las Vegas, NV. It has now been proven, going back to the onset of the current recession in 2008, that the gambling industry is indeed no longer recession proof. Yes, in time Vegas and its hurting East Coast counterpart, Atlantic City, NJ, will both rise again.

However, with a 14.5% unemployment rate that Las Vegas presently owns, it is evidence for when entire economies are dependent upon the gambling industry for the creation of jobs and funding municipal programs, disaster can ensue. Therefore, for entire U.S. state and federal programs' very survival to be based upon discretionary income from gambling has lawmakers living in a fool's paradise.

Hopefully, in the coming weeks and months, prior to the entirety of the U.S. House of Representatives approving H.R. 2267 and before it is sent on to the U.S. Senate, that not only will cooler heads prevail, but that a better proposed outcome will exceed before everyone's chips are cashed in. Cheers!

Comments and Conversation

August 19, 2010

suzanne bourne:

A very well informed article and must read for all who need transparency into what the legislation means for all concerned.

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