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America Online

Controversy swirls around internet gambling regulations

The worldwide web is both literal and figurative-in one aspect, the phrase finds its source in the internet, which has forever changed the way people interact with one another. But the web also references globalization, which has seeped into our collective consciousness and brought the world to our attention.

With the growing interconnectivity that now drives our everyday lives, business and leisure are instantaneous experiences, brought to you by the worldwide web. The internet facilitates both professional needs and play time, a fact most easily demonstrated by the case of online gaming.

Internet casinos, poker websites and other online gaming resources bring people together from all over the globe to spend money and make money, to risk it all on a game of chance or test their abilities with games of skill.

As it stands, the United States-a willing participant in global trade agreements, conventions and other capitalist-driven endeavors-has decided to remove itself from the worldwide web when it comes to online gambling. However, a new president and his administration could very well change the rules of the game.

Rules and Regulations

Two congressional acts have halted the rise of online gaming as a viable business in the United States-at least for now. The Interstate Wire Act of 1961 prohibits the use of “wire communication facilities” (which could now be interpreted as the internet) to bet and receive money from wagers. Though the act explicitly refers to sporting events or contests, many gaming opponents have used the legislation to fight online gaming in its entirety.

In 2002, the U.S. Fifth Circuit Court of Appeals ruled that the Interstate Wire Act only pertains to electronic sports betting across state and national borders, and does not expressly prevent online gaming (a phenomenon no one could have anticipated in 1961).

Online gaming foes in Congress set out to clarify the law as defined by the Interstate Wire Act. At midnight on September 29, 2006, both the Senate and House of Representatives passed the SAFE Port Act, a bill based on boosting security at U.S. ports. Tacked on in the last moments before passage was Title VIII of the act, also known as the Unlawful Internet Gambling Enforcement Act of 2006.

The legislation, which had been the subject of much discussion prior to September 29, had never before appeared in versions of the SAFE Port Act. The UIGEA prohibits financial institutions from transferring money to online gambling websites. Internet gaming supporters would later protest the late hour at which the language was added to the bill, but it was too late. President George W. Bush signed the act into law on October 13, 2006.

UIGEA was not implemented until January 19, 2009, the day before President Barack Obama took office. In the two years preceding the bill’s implementation, some important members of Congress took up the mantle of clarifying the act’s vague language as to what constitutes an illegal gaming website (language that would thus necessitate banks to investigate each transaction and enforce the law).

With confusion over which transactions banks must police, mistakes are cropping up all over the place. In New Hampshire, where they allow online lottery subscriptions, credit card companies are blocking transactions between customers and the lottery website, as if they were illegal (they are not).

One man in particular is attempting to clear the air as far as internet gambling: U.S. Rep. Barney Frank, Democrat from Massachusetts, is one of online gaming’s legislative champions. In April 2007, he proposed the Internet Gambling Regulation and Enforcement Act, which would repeal the UIGEA and provide a licensing system for gambling websites.

Frank’s bill never made it to the House floor for a vote, but he has not given up: He told the Financial Times he intends to “reintroduce a bill in the next few weeks to establish a licensing and regulatory framework for online gambling operators.” With Democratic majorities in both the House and Senate, as well as a Democratic president, Frank says he’s confident this bill will succeed.

Frank did manage to clear the way for passage of the Payment System Protection Act of 2008 by the House Committee on Financial Services last September. The bill would categorize types of online gaming and exempt certain websites (such as those relating to poker, thought to be a game of skill) from the UIGEA. The bill was never introduced to the House floor for a vote, though it seems Frank intends to pursue all avenues until the UIGEA is repealed, or at the very least modified.

In addition to Frank’s protests, both the online gaming community and financial institutions have voiced concern over the UIGEA. After the bill was passed in 2006, online gaming operators like Sportingbet and PartyGaming cut off service to U.S. customers to comply with the new law. The websites were financially slammed by the lack of American business, and most have come out in opposition to the law. After the bill’s regulations were outlined in November 2008, the Poker Players Alliance, a U.S. nonprofit organization that represents poker players, spoke out against President Bush’s decision to push the UIGEA forward.

“Today’s action finalizes a truly bad public policy-one that even the banks and federal regulators called unworkable in congressional testimony,” wrote PPA Chairman Alfonse D’Amato in a letter to the group’s more than 1 million members. “However, the PPA remains optimistic that the new administration and the new Congress will recognize the failures of the UIGEA and will act swiftly in the new year to overturn this flawed policy.”

Many in the online gaming community think that with Frank’s encouragement and congressional support, President Obama will repeal the UIGEA. Obama has expressed an interest in keeping an open mind about the UIGEA; however, new U.S. Attorney General Eric Holder said during his Senate confirmation hearings in January that he would actively enforce the UIGEA. The president and his administration have yet to act on any legislation regarding online gambling.

Official Position

In the midst of the controversy swirling around internet gambling, the American Gaming Association became the eerily calm eye of the storm. Many onlookers from outside the gaming industry looked to the AGA for its stance on the topic. The official position: neutral.

AGA President Frank J. Fahrenkopf Jr. talked to the Washington Post just after the UIGEA was passed, and told the newspaper that his members were not worried about the state of internet gambling-after all, there was no competition between online gaming and the thrill of a casino experience at the time.

“The guy who comes home and goes to his den and cracks open a can of beer and bets on the internet is not really our customer,” Fahrenkopf said at the time. “We never viewed the internet as being competitive.”

The trade group has maintained that internet gambling needs to be the subject of a thorough study, such as the one proposed by U.S. Rep. Shelley Berkley of Nevada in 2007’s Internet Gambling Study Act. The act would enable the National Academy of Sciences to study online gaming and how the United States should react to its future growth.

Any other pieces of legislation regarding the subject of internet gambling must meet three requirements to garner support from the AGA: first, the legislation must not impede upon states’ ability to regulate their own gaming industries; secondly, it must not create advantages or disadvantages among mainstream casinos, tribal casinos, state lotteries and parimutuel operations; and last, it must not infringe upon any form of gaming that is currently legal.

Individual AGA members, such as Harrah’s Entertainment and MGM Mirage, have their own vested interests in internet gambling. Harrah’s owns the popular World Series of Poker brand, which could easily parlay into an online gaming experience with its own cash flow. In 2001, MGM Mirage became the first U.S. casino operating company to start an offshore gambling website. The site, based on the Isle of Man off the British coast, was inaccessible to U.S. players, who comprise 70 percent of the internet gambling base. The website folded in 2003.

“There may be a business outside of the U.S. but the cost of doing this when you’re complying with U.S.-style regulations is significant,” said MGM spokesman Alan Feldman to the Associated Press at the time. “To lock out 70 percent of the market while you’re operating on a cost basis that’s so high means it’s not a viable business in the long term.”

Crisis in Kentucky

Gaming is an issue of states’ rights, though perhaps the state of Kentucky went too far when it recently attempted to seize 141 gaming-related domains. The owners of the sites were located in other states or countries, but Governor Steve Beshear pointed to state law in his quest to grab the sites: According to Kentucky law, certain gambling devices are illegal.     

The state decided websites fell under the category of illegal gambling devices, and a Franklin County Circuit Court judge granted an order that transferred ownership of the domain names from their owners to Kentucky.

The Interactive Media Entertainment and Gaming Association pursued an appeal, and on January 20, the Kentucky Court of Appeals ruled in favor of iMEGA and the websites it represents. According to the court, domain names themselves are not gambling devices.

“The judges clearly agreed with our interpretation of the law and, thankfully, this reverses what would have been a terrible precedent for our country and the internet,” iMEGA Chairman Joe Brennan said in a press release.

Some of the world’s most successful gambling websites were seized as part of the Kentucky fiasco, including PokerStars, Full Tilt Poker and Absolute Poker, among others. While the court’s recent judgment protects the sites for now, Kentucky is in the process of appealing the decision to the state Supreme Court.

The battle over online gambling in Kentucky is further evidence of the grey area that has always been the internet.

Worldwide web

Though the confusion around internet gambling continues unabated in the United States, other countries have a firm grasp upon online casinos and their revenues.

The European Union is an example of one such entity that has regulation of internet gambling down pat, even strongly encouraging its members to legalize online gaming (most recently Finland).

Caribbean countries have also legalized online casinos. The island of Antigua and Barbuda licenses internet gambling operators, and when the United States began actively cracking down on internet gaming, the island’s government headed straight for the World Trade Organization.

The WTO found that U.S. prohibitions on Antigua’s services violated the General Agreement on Trade in Services, and in 2007 ruled that the United States had done nothing to rectify the situation. Both Antigua and the European Union have pursued action against the United States for its restrictions on internet gaming and the effect they have upon the global nature of business today.

Until the United States clarifies its internet gaming laws and re-evaluates past legislation, it is unlikely that online gaming will be allowed to infiltrate the country’s borders-at least not without a fight.

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