Online Gambling Needs Clear Regulation

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ADOTAS – The legal status of online gambling services in the United States is, at best, extremely uncertain. Nevertheless, online gambling services are broadly available to U.S. residents. Advocates for online gaming and consumer protection continue to use this fact as a platform for arguing that it is time for clear and equitable regulation.

While lawmakers continue to weigh options for balancing the budget and reducing the federal deficit, the chairman of the House Energy and Commerce Subcommittee on Commerce, Manufacturing, and Trade recently convened a hearing to explore the possibility of regulated federal Internet gambling, and what such regulation would entail.

Quick History Lesson

In 2006, Congress passed the Unlawful Internet Gambling Enforcement Act (the “Act”) which restricts the flow of payments for gambling activities that are illegal where a wager is made or received. The Act requires banks to conduct due diligence and bar commercial customers from processing illegal transactions.

It excludes intrastate transactions from its definition of “unlawful internet gambling,” provided certain conditions are met. Financial institutions have complained that the law unrealistically charges them with a law enforcement-like role in blocking illegal gambling.

Since that time, federal lawmakers have held a series of hearings on proposals to undo or limit its restrictions on Internet gambling services in the United States. Although the Act specifically aimed to curtail Internet gambling by restricting the payments for gambling services, lawmakers have acknowledged that U.S. consumers still have the ability to gamble online, and that many U.S. do.

Regulatory Haze

It is difficult to argue with the notion that if online gambling is regulated in the United States, it will result in safer, regulated alternatives. That said, any experienced Internet law attorney will tell you that whether online gambling is illegal depends, in large part, upon who you ask. Gambling policy and regulation is traditionally handled by the states, but the federal government has been involved in shaping the limits of permissible conduct.

The Department of Justice has taken the position that online gambling is illegal under the Wire Act because it prohibits the use of wire communications for the interstate facilitation of wagers. With the exception of Hawaii and Utah, all states have legalized some form of gambling.

In fact, several states, including California and the District of Columbia, are considering the legalization of intrastate Internet gambling, as well. Not surprisingly, this development has promoted calls from lawmakers for the Department of Justice to reiterate that the Wire Act reaches intrastate internet gambling, too.

Further complicating the legal status of Internet gambling is the Indian Gaming Regulatory Act which gives tribes the authority to establish gaming on their lands.

Looming Legislation

Proposed legislation would regulate and tax online gambling. One bill was introduced in June and is designed to protect consumers who legally play a skill-based game online from fraud and other potential harms. The foregoing bill proposes to modify the Act’s restrictions to authorize financial services providers to process transactions for licensed gambling activities. The proposed bill would make it a crime to operate an Internet gambling facility that accepts bets or wagers from individuals within the United States without a license.

The Commerce Department would be charged with the responsibility and authority to qualify state agencies to issue licenses to qualified Internet poker facilities. States could opt-out of the program and restrict the placement of Internet bets or wagers within their borders.

The proposal is limited to Internet poker services and would not apply to sports bets or other games. Licensees would be required to implement a number of safeguards, including protections for minors, blocking of transactions from locations where a transaction is prohibited, collection of applicable taxes, and anti-fraud systems.

Another proposed bill would regulate and tax Internet gambling, but is broader than the proposed legislation described above. This bill would not be limited to online poker. Rather, it would establish federally regulated online gambling services and be administered by the Treasury Department. Similar to the foregoing proposed legislation, states would have the ability to opt-out.

Regulation Needed

While many are concerned with risks they perceive to be associated with Internet gambling, most predict that the regulation of these services would do more to protect consumers than the current unregulated environment. As it stands today, consumers are accessing online gambling websites with no protections against various risks, including identity fraud, money laundering, privacy invasions and data breaches.

Regulation of these services, along with the implementation of additional consumer protections such as money or time limits, prevention messages, limits on advertisements targeting children and problem gamblers, appear to be a sensible way to raise revenue while protecting U.S. residents.

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