Internet Gambling

The problems of the current policy environment and how to fix them

Matthew Garbis

December, 2009


 


Introduction

            Greg Hogan Jr.’s hands shook as sweat dripped down his face. He used his one phone call to break the news to his father. “He couldn’t believe he had done it.” Says Hogan Sr., a minister. 

A 19-year-old from rural Ohio, Greg attended a prestigious private high school on scholarship for classical piano.  He then set off for Lehigh University, where he found a new love, online poker.  He studied the pros on ESPN, and before long, he was hooked.  Over the course of his daily 14-hour sessions, the pattern of up, down, deposit would repeat continually.  All $1,500 he brought with him to college for the semester were gone within 2 months.  When his bank account hit the red, his parent’s were notified, and they subsequently enrolled him in GA (Gamblers Anonymous) meetings.  Instead of the meetings helping Greg with his addiction, they turned out to be a group of Gambling addicts attempting to promote sensible gambling strategies.  Then, his dad decided to make the six-hour drive to install GamBlock on his computer. GamBlock is a $99 computer program highly regarded by addiction professionals that makes it impossible for Internet users to access any Internet casinos, on his computer.  Greg’s response; he simply went to the school library or his fraternity’s lounge. 

When all was said and done, Greg had raked up $7,500 in debt to financial institutions, friends, and family.  Then one day, Greg and a few of his friends were on their way to see a movie when he told his friend to pull over at the bank so he could deposit some money.  Greg’s turn came up in line and he handed over a note to the teller saying. “Give me all of the cash in the register. I have a gun.”  He walked out with $2,871 in cash and no gun in his backpack.  24 hours later, there Greg stood in the police station, robbed of everything he ever had. [i]

Gambling has been present in society since the beginning of civilization.  In recent times, ESPN has thrusted it from taboo to the mainstream.  The advent of the Internet made gambling accessible 24/7 to virtually everyone on the planet.  In 2008, Americans wagered close to $100 billion online. (AGA)  The current legislation in place directly confronting Internet gambling maintains a prohibitionist attitude. But, the Internet is a complex public domain, with inherent barriers to regulation within its space.  The net effect of the current legal environment is a high susceptibility to fraud, money laundering, and organized crime; a growing prevalence of problem gamblers, especially among college students like Mr. Hogan; and a loss of viable tax revenue at a time when it is more needed than ever.  

The goal of this study is to assess the risks of the current policy environment pertaining to Internet gambling in order to determine the best regulatory alternatives in order to mitigate these risks.  The study will begin with a brief outline of the history of gambling and actions taken by governing regimes to prevent or allow it.  Next, I will provide an overview of the legal environment surrounding Internet gambling. Third, I will delineate the risks of the current policy environment along with possible remedy’s to mitigate these risks. This section will prove that a prohibitionist attitude towards Internet gambling has done nothing to combat any societal issues created by Internet gambling.  Finally, I will give a brief overview of the proposed Internet Gambling Regulation, Consumer Protection, and Enforcement Act of 2009 and explain why this is the best, and only, option to create a safe online gambling environment for the American public.

 

THE ANCIENT HISTORY OF GAMBLING

            Random House defines the term “gamble” as “to play at any game of chance for money or other stakes”[ii].  The earliest scientifically proven evidence of gambling date as far back as 6000 BC in ancient Mesopotamia.  Loaded dice – which are weighted to favor particular outcomes – have been found in ancient tombs in Egypt, the Far East, and even North and South America.  The ancient Romans are said to have gambled on chariot races, animal fights, and gladiator contests.  

            During medieval times (500 AD – 1500 AD) gambling thrived throughout Europe.   It was considered legal in the areas of modern-day Spain, Italy, Germany, and the Netherlands.  England and France were much less permissive.   Gambling was only permitted to knights and the bourgeoisie.  Even for these individuals, there was a legal limit to the amount that could be lost, which is known in the present day as limited stakes gambling.  During this time period gambling was still prevalent in the private confines those not legally permitted.   

            It was during the medieval times that many popular games today played today were created.  Horseracing became a popular pastime among nobility after knights returned from the crusades with Arabian stallions and bred them to become an asset to their estate.  The earliest known reference to playing cards dates back to a 1377 Swiss guidebook.  Lotteries began to be used for public funding in municipalities throughout Europe the late 1400s.  Queen Elizabeth I, in 1567, established the first state lottery.[iii] 

 

THE HISTORY OF GAMBLING IN AMERICA

            Social standards and laws related to gambling in America have tended to cycle back and forth from prohibition to regulation since the first settlers arrived.  Entire colonies were established based on the foundation of either English or Puritan principles. The English colonies believed gambling was a harmless diversion and accepted all forms.  Puritan led colonies banned the possession of cards, dice, and gaming tables. 

By the mid 1700s, lotteries were established in all 13 colonies and were used for the original funding of many of the nations most prestigious universities such as Harvard, Yale, and Columbia University.  However, a combination of scandals along with religious and moral sentiment in opposition to lotteries slowly spread.  By 1894, Louisiana became the final state to outlaw its state and local lottery.  A year later, antigambling political forces succeeded in banning all forms of legalized gambling except horse racing in Maryland and Kentucky. (Medscape) Illegal gambling houses quickly became prevalent, and gambling of all kinds became a rampant underground criminal activity. 

The great depression brought a whole new attitude towards gambling as legalized gambling became viewed as an economic stimulus.   Lotteries were quickly reestablished all over the country.  Nevada became the first state to legalize Casino gambling in 1931.  Subsequently, massive casinos popped up in what would soon become Las Vegas, which were all funded by the same mobsters who ran the underground gambling houses for the previous fifty-plus years.  In 1978, New Jersey became the second state to legalize casino gambling.[iv]

            As of December 2009, 11 states permit casino gambling, 8 more permit racetrack gambling, 45 have state-run lotteries, and 41 permit sports betting.  While there are federal anti-gambling laws, it is generally a state regulated industry. 

Commercial casinos provided 354,000 jobs[v], and state and local tax revenues of $5.66 Billion as of 2006[vi].  More discussion will ensue later regarding the perceived economic and societal advantages and disadvantages of gambling.

 

THE ASCENT OF INTERNET GAMBLING AND THE LEGAL ENVIRONMENT SURROUNDING IT

            The widespread adoption of the Internet in the mid-1990s in households, corporations, and governments has become one of the most significant technological developments since electricity.  It has changed the way we socialize, learn, entertain, and conduct business.  For the first time ever, humans have access to infinite amounts of information in one consolidated space.  A new era of e-commerce was launched with everyone “racing to get themselves online”.[vii]

            Gambling was one of the first industries to thrive in the online environment.[viii] Although it was suspected by many to be legal in some form, the ambivalent, vague, and often contradictory laws against Internet gambling were not enough to deter businessmen from pursuing the opportunity.  The first online casino and sports book opened in 1995.  By 2005, there were 2,500 sites providing gambling services ranging from casino games to sports and pari-mutuel betting (pooled betting, primarily used for horse racing), to bingo, to lottery sales[ix].   In 2008, around twelve million people participated in some form of Internet gambling in the US market alone.[x]  U.S. bettors have been estimated to supply at least half of the revenue of the $16 billion Internet gambling industry, which is predominantly hosted overseas. [xi]

The federal government maintains the outlook that “In general, gambling is a matter of state law…Internet gambling occurs only through interstate or international means…federal law is used to protect the states from having their laws circumvented.”[xii]  The Department of Justice (DOJ), in both the Clinton and Bush administration, has expressed the view that the Wire Act, passed in 1961, prohibits all forms of Internet Gambling.  The act “makes it a crime to use telephone lines (wire communication) in interstate or foreign commerce to transmit information assisting in the placement of bets on sporting events.”  Legal experts claim the law is ambiguous due to the following issues[xiii]:

·         The internet did not exist when the law was made

·         Gambling Web sites maintained on offshore computers are not under U.S. jurisdiction

·         Internet service providers do not fall under the definition of wire communications facilities (particularly those associated with satellite and mobile–phone transmissions).

·         The law specifically mentions only sports betting, not casino games.

·         Prosecutors cannot prove that online gambling sites “knowingly” transmit bets from the U.S. citizens because the physical location of online gamblers cannot be determined.

 

 .  The U.S. Court of Appeals ruled in In re Mastercard Int’l, Inc., 313 F.3d 257 (5th Cir. 2002), that the statute’s language only reaches only sports betting. In addition, Internet gambling might be challenged through the federal Travel Act, or money laundering statutes.[xiv]

There are seven states (IL, IN, LA, NV, OR, SD, and WA) that have explicitly outlawed Internet gambling[xv].  But, state anti-gambling statutes face “the presumption that they do not apply if part of the activity takes place overseas.  Since every single Internet gambling site bases their operations out of a country other than the US, these statutes hold little significance. 

While the DOJ consistently states that Internet gambling violates federal law, federal prosecutors have, for the most part, declined to prosecute those individuals who place bets with illegal gambling businesses.  There have been a handful of prosecutions against business owners other than the MasterCard case, all ending in either convictions or cash settlements.  

One case that could have significant implications in the future is the appeal by the World Trade Organization (WTO) over a 2002 U.S. Supreme Court Ruling in the case of Jay Cohen vs. United States.  Cohen ran a sports book out of Antigua.  His legal defense was that he could not violate the Wire Act because the bet supposedly occurred in Antigua.  The Supreme Court sided with the original ruling that the gambling transactions occur both where the bettor is located and where the entity is located when it receives the bet.   The WTO ruled that by allowing U.S. businesses to take online bets in horseracing, yet barring non-U.S. companies from doing so, the United States acted inconsistently with its fair-trade commitments under the General Agreement on Trade in Services (“GATS”).   The WTO also concluded that the U.S. could justify its stance against foreign Internet gambling as a protection of public morals.  When the deadline passed without any response from Congress, Antigua can ask the WTO to apply major sanctions against the WTO.  The reason that this is such a critical ruling is because, if the DOJ were to prosecute a firm based in a country that is a major trade partner, “a much larger conundrum could be posed”. [xvi] The U.K., America’s sixth largest trade partner, housed 70 Internet gambling sites. 

Politicians have long recognized the need for legislation that directly addresses the issue of Internet gambling.  The first legislation was proposed in 1995, when Senator Jon L Kyl (1942-; R-AZ) introduced a the Crime Prevention Act of 1995, which would amend the Wire Act to specifically prohibit online gambling via the Internet and satellite technologies.  It would have allowed individual states (such as lotteries and casino games) to permit online forms of gambling already legal in their states.  Seven more new bills, all attempting to restrict Internet gambling by requiring ISPs to block access to gambling sites, came through congress until July 1999. The bills were largely considered to be “impossible to enforce”, and failed. (Doak, 2009)

On, August 3, 1996, President Clinton singed the “National Gambling Impact Study Commission Act” which established a commission to “conduct a comprehensive study of the social and economic impacts of gambling in the United States”.  In his speech, Clinton highlighted a critical comment regarding the politics of gambling when he stated, “Too often, public officials view gambling as a quick and easy way to raise revenues, without focusing on gambling's hidden social, economic, and political costs”.  The commission was the sole entity to report to Congress and the President regarding this issue until June 1999.  Their final report recommended the prohibition of Internet gambling “within the United States or among parties in the United States and any foreign jurisdiction”, prohibition of wire transfers to known Internet gambling sites or the banks representing them, and that the federal government take steps to encourage or enable foreign governments not to harbor Internet gambling organizations that prey on U.S. citizens.

Future legislation focused on prohibiting the transfer of funds from American financial institutions to Internet gambling entities.  Each year the bill would be brought to the house, and each year it would go un-passed with most attempts running out of time because of the amount of controversy surrounding the bill. During the summer of 2006, two bills were introduced to the House – the Goodlatte Bill and the Leach Bill. The difference between the two bills was that the Goodlatte Bill was created to expand the Wire Act where as the Leech bill was introduced to cease funding from payment processors to online gambling sites. Of the two, the Goodlatte bill seen the most controversy and because of that, the House combined both bills and passed the Goodlatte/Leech Bill and was sent to the Senate for review.  As time was running out before the 109th Congress would adjourn forever, Senate majority leader Bill Frist attached the bill to the SAFE Port Act, literally at Midnight, the night before it was voted on. 

Safe Ports Act was passed in the Senate with a 98-0 vote.   According to I … not a single Senator or their staffers read the bill between the time the UIGEA was added and the time it was voted on.

 

THE UNLAWFUL INTERNET GAMBLING ACT OF 2006

            The UIGEA was a source of controversy from the day it was signed into law in October 2006.  On its face, it seems like a practical way of restricting Internet gambling in the United States. The biggest problem is that it does not in itself criminalize online gambling; it is only an enforcement statute.  The UIGEA acknowledges intrastate and tribal casinos, horse racing, state lotteries, and some fantasy sports as legal forms of gambling.  Traditional casino games, however, fall under a sort of “grey area” where questions as to their legality remain unanswered. 

            From a sociological standpoint, endless parallels can be drawn between the UIGEA and the prohibition of alcohol.  “Prohibition I was a porous wall between Americans and their martinis, giving rise to bad gin supplied by bad people.  Prohibition II will provoke imaginative evasions as the market supplies what gamblers will demand”.  Upon announcement of the news that the UIGEA had passed, PartyGaming PLC and 888 holdings, the worlds largest (and publicly traded) Internet gambling firms, effectively restricted all transactions from the United States. 

            The UIGEA has not done very much to diminish the activity of Internet gambling – it has only shifted those who profit from it.  By driving out only the legitimate players, the government has allowed the market to be dominated by back-door gambling operations that are unregulated, untaxed, and more apt to be connected to organized crime.   The government has made Americans vulnerable to financial crimes. 

 

RISKS AND REMEDYS OF THE CURRENT POLICY ENVIRONMENT

In December 2009, Malcom Sparrow, Professor of Government at Harvard, released a comprehensive research study entitled, “Can Internet Gambling Be Effectively Regulated? Managing the Risks”.  Wired Safety, an Internet Safety and Educational charity commissioned the study.  It examines a range of harms associated with the current policy environment, and alternative methods for mitigating or minimizing them.   The report identifies ten specific risks that have been compiled from a comprehensive collection of peer-reviewed research.  The ten risks associated with the current policy environment are: gambling by minors, fraud by operators, fraud by players, organized crime, money laundering by players, money laundering by operators, violation of jurisdictional prohibitions, breaches of data confidentiality, lack of site security, and problem gambling.  In the following section, I will summarize threats created by the current policy environment.  Next, I will highlight the effective means for combating each individual threat, based on prior research and examples from other regimes around the world. 

            In a 2007 survey of 8,017 British adolescent (aged between 12 and 15), 8% admitted to gambling online.  30% of these adolescents reported playing free ‘demo’ games.  The study showed that, not only were teenagers engaging in non-monetary forms of gambling, but also gambling online with their own money.  It is important that attention is paid to this issue because, first off, the legal gambling age is 18.  Children are not adept to make sound decisions in a gambling atmosphere.  They represent the most vulnerable demographic group in the gambling population.  Children are likely to be exposed to gambling as a natural consequence of their involvement with the Internet and new media.  They are likely to be early adopters of these new technologies because they are more ‘techno savvy’ and less ‘techno-phobic’. 

            The primary concern regarding gambling among minors is that underage access to and use of online gambling services cannot be controlled due to the prevalence of Internet gambling sites and the lack of widespread age verification systems.   In a 2004 British study, a 16-year-old girl attempted to access 37 online gambling sites using her debit card.  She lied about her age but was truthful about all other information.  The result: 7 out of 37 sites prevented her from registering. 

            While sophisticated age verification mechanisms do exist, if a minor wants to gamble online, they will have no problem.  Prohibition may create more of a hurdle, but history proves that the make-up of the Internets infrastructure renders it impossible to prevent people from gambling online.  So, the focus shifts to how the current age verification technologies can become more effective.

            Researchers have outlined several categories of technologies for verifying the age of adults. Aristotle, Inc., a technology consulting firm, produces an identity- and age-verification service called Integrity:Direct, which uses a database of government-issued identification to verify age; the vendor claims the check takes less than 5 seconds, covers 3.4 billion people, complies with U.S. privacy laws, and is not subject to the Fair Credit Reporting Act because it does not use any credit data.   LexisNexis and its advanced linking technology combines real time access to billions of public records compiled from thousands of public and proprietary sources that can be used to verify age and identity of individuals.  If legalization is implemented, the government can use licenses as leverage to force all legitimate Internet gambling providers to use approved age verification methods.   Tax revenues could also be earmarked for educational programs for parents and minors. 

In September 2007, players at the poker website Absolute Poker initiated their own investigation into apparent cheating by a player in a tournament.  The investigation revealed that a co-owner of the company and former director of operations had acted to cheat players of amounts between $500,000 and $1 million.  In the current policy environment, fraud of consumers by site operators is a serious threat.

            Because gambling websites are often based in countries far from their target customers, they can often avoid legal accountability, and because website creation is relatively simple, a customer can be easily confused about the licenses and controls held by a particular site.  Since the enactment of the UIGEA, U.S. residents no longer have access to large gambling sites, but they do have access to less transparent offshore site operators who are more likely to engage in fraud. 

            While it can never be completely stopped, legalizing and licensing online gambling sites would increase transparency and make fraud by site operators significantly more difficult. The British Gambling Commission sets forth rules governing licensed gambling website operators, including one that requires that licensees (1) inform customers as to whether their funds are protected in the event of insolvency and (2) “be able to provide evidence to the [U.K. Gambling] Commission, if required, showing how they satisfied themselves that their terms are not unfair.”  An effective regulatory regime can combine strong and competent oversight with an effective method for lodging complaints with the regulator or law enforcement agencies.

           

            Cheating or defrauding of players by other players is an issue that has received constant attention by land-based casinos.  The Online space makes this process even easier due the presence of sophisticated technology and the absence of oversight.  “Individual players are unlikely to volunteer information that would reveal that they have gambled online…Users who doubt the legality of their own actions are unlikely to snitch”. 

            Cheating by players can take various forms.  Poker bots are automated programs that can reportedly play poker at the level of a professional tournament player.  I tried goggling “poker bot”, and sure enough, the third listing in the search was Holdem Bot 2.02.  A simpler form of cheating involves collusion on online poker tables, in which two or more players work together to share information to gain an unfair advantage over unsuspecting players.  Another form is multitabling, in which a person uses multiple accounts to enter a tournament as two or more different players and garners information in a similar way to collusion. 

        Sophisticated technology offers solutions to help combat fraud by players.  The Australian gaming company bwin has dedicated staff that deploys “state-of-the art systems that are used to analyze hands and detect chip dumping, collusion, or the use of poker bots.”  In addition to in house methods, regulatory methods to prevent cheating have been discussed at length.  Site operators can store large volumes of data on gambling transactions and present them in an easy-to-analyze format.  The regulator may require that the operator provide this data at regular intervals for analysis in the event that an inquiry or red flag is triggered.   Site operators, players, and regulators share an interest in detecting and protecting against player fraud.  Hence, cooperative regulatory oversight is easily attainable.

        The Internet presents a welcoming environment to those gambling operators pursuing organized crime.  It is easy to conceal identities, transactions can occur far from regulators, and extensive crime networks can be assembled. 

        A 1995 study on organized crime in real life casinos notes, “organized crime has been largely eliminated from bricks-and-mortar casinos. “ Extensive background checks and verification for site operators and employees is standard procedure across all jurisdictions in the United States.  Nevada laws require that an operator be an applicant: be a person of good character, honesty, and integrity; be a person whose prior reputation and criminal record do not pose a threat to the public interest of the state or of its gambling regulations; and have sufficient financial resources and business acumen to operate the establishment. 

            Requirements for Online gambling licenses can generally follow the path drawn out by the approval process of bricks-and-mortar casinos in America.  In order to receive a license, all employees should be subject to intensive FBI background checks.  Keeping the laws as they are or prohibiting Internet gambling means encouraging Americans to engage in business with criminals.

 

            Money laundering is a process through which proceeds derived from illegal activity are legitimized.   The three stages of money laundering are: the placement stage, the layering stage, and the integration stage.  The placement stage is defined as the first entry of illegal money into financial institutions or the retail economy.  The layering stage consists of activities meant to hide the trail of money, generally involving the transfer of money among multiple enteritis.  The final stage, the integration stage, is when the illegal funds are reintroduced into the economy to appear as though they were legitimate. 

            A major concern of law-enforcement agencies is money laundering among online gamblers.  Since transactions between banks or credit card companies and online gambling entities are illegal, gamblers turn to offshore-based e-wallets as a middleman.  The result is an environment that makes money laundering easier, and enforcement more difficult.

            To curb Money laundering as an issue, regulators can subject online gambling operators to the same anti-money-laundering operations that are currently in place for bricks-and-mortar casinos.  In an effective anti-money-laundering regime, site operators would ascertain data on all deposits, withdrawals, and betting transactions, and make these available to regulators for examination and analysis. 

                In addition to money laundering by players, there are concerns about money laundering by site operators.  A 2002 GAO report claimed that U.S. law-enforcement officials believed that money launderers might develop Internet gambling sites for the sole purpose of laundering money. The United States has already enacted strict regulations to combat money laundering by site operators.  In early 2007, the founders of NETeller were arrested and charged with laundering billions of dollars of in Internet gambling proceeds.  The current system would carry over to the new regulatory regime if Internet gambling were legalized.

                While there are federal laws pertaining to Internet gambling, does not have full federal jurisdiction.  Rather the legal environment renders that any state laws pertaining to the issue are respected as a priority to federal law.   Internet gambling is currently illegal in Indiana, Illinois, Montana, Nevada, Oregon, South Dakota and Washington.  But, states have no recourse against offshore sites that provide gambling services to their residents. 

                A federal licensing system would need to ensure (1) that site operators “adopt and implement systems to enforce any applicable Federal, State, and Indian tribe limitations on Internet gambling” and (2) that license applicants have a program “to verify the State or tribal land in which the customer is located at the time the customer attempts to initiate a bet or wager.”  To accomplish this, geolocation tools are necessary.  Geolocation uses Internet infrastructure information to determine the geographic location of the Internet Protocol (IP) address associated with the internet-connected device.  Public-source relocation data can often identify the location of IP addresses at the country, state, and even city level.  Geolocation software is also effectively used to restrict users in countries restricting Internet Gambling.   Internet gambling is currently illegal in the Netherlands, India, and Russia.

            Online gambling websites often hold personal and confidential information of their customers, including credit card and bank account numbers, names, addresses, and other sensitive information.  More than 259 million records containing personal information have been breached since 2005.   In Europe, most data privacy laws are highly stringent.  The European Union’s Data Protection Directive, issued in 1995, introduced strong controls on data privacy and the rights of consumers.  The United States maintains no general data privacy laws at the federal level.  Currently, 45 states have laws governing data breaches by companies.  Senator Patrick Leahy (D-VT) proposed he Personal Data Privacy and Security Act in 2009, aimed to “require data brokers and companies to establish and implement data privacy and security programs.” 

            Without regulation, gaming site operators are not willing to bear the costs of inappropriate disclosure of personal information.  This is why a regulatory mechanism is considered necessary to align the operator’s incentives with those of the consumers.  With proper incentives, the gaming site operator will engage in the security engineering, training of staff, and auditing needed to protect consumer needs. 

           

Problem Gambling and the Internet

            The national council on Problem Gambling defines it as gambling behavior, which causes disruptions in psychological, physical, social, or vocational areas of ones life.  The term “Problem Gambling” includes, but is not limited to, the condition known as “Pathological” or “Compulsive” Gambling, a progressive addiction characterized by increasing preoccupation with gambling, a need to bet more money more frequently, restlessness or irritability when attempting to stop, “chasing” losses, and loss of control manifested by continuation of the gambling behavior in spite of mounting, serious, negative consequences (NCPG).  About 1% of the U.S. population (2.3 million) meets the criteria for pathological gaming in a given year.  Another 2% to 3% would be considered to be problem gamblers.  In theory, the Internet allows problem gamblers to use the Internet to facilitate their addiction.  In comparison to brick-and-mortar, Internet gambling offers higher speed of play, anonymity, social isolation, use of credit, and 24-hour availability.

            There is not yet a true consensus on the actual effects of Internet gambling on the prevalence of problem gambling.  Many of the studies rely on player’s own estimates of their behaviors. Howard Shaffer, a professor at Harvard Medical School and one of the preeminent experts on gambling addiction, stated in a 2008 interview that:

In the scientific community there has been a long held model that increased exposure and accessibility to gambling would proportionately increase the amount of gambling related problems.  In fact, the scientific evidence does not support that. In the 1970s, the rate of problem gambling disorders was approximately .7%.  Now more than 30 years later the new research done by various investigators suggests that it’s closer to .6%. Lets just call it

about the same. (Shaffer, 2008)

Researchers at Harvard Medical School studied real-time betting activities of 48,000 Internet players over two years and found that their betting levels in Internet sports gambling and casino games were moderate.  A large-scale British study in 2007 found no increase in the rate of problem gambling in the United Kingdom since 1999, despite a large increase in the number of new gambling opportunities.  Some studies provided startling data.  Wood and Williams found that Internet gamblers, on average, reported gambling online a total of 5 hours per week, although 4% reported gambling online in excess of 20 hours per week.

            One subject that was highlighted in the introduction to this research report is the prevalence of participation in and addiction to Internet gambling among college students.  ESPN has brought poker to the mainstream, and college students aspire to emulate the success they see on TV.   A meta-analysis of 119 gambling prevalence studies estimated that respectively, approximately 5% and 14% of college students meet the criteria for pathological and problem gambling.   In a 2007 study by the University of Connecticut Health Center among 1356 undergraduates, 23% reported ever gambling on the Internet, with 6.3% reporting Internet gambling weekly.  Almost two-thirds (61.6%) of regular Internet gamblers were pathological gamblers, compared with 23.9% of infrequent Internet gamblers and 5.0% of non-internet gamblers. Huang, Jacobs, Derevensky, Gupta, and Paskus’s (2007a) national study of 20,739 student-athletes reported past year gambling estimates of 62.4% for male athletes and 42.8% for female athletes. Public health policy is urgently needed to address this serious issue.

::Desktop:Screen shot 2009-12-16 at 3.45.45 PM.png                 The National Council on Problem Gambling indicated in December 2009 “while participation in Internet gambling by U.S. residents appeared to decline after the passage of the UIEGA, we did not see a decrease in indicators of gambling problems, such as helpline calls.  Figure 1 shows that the effect may have been a decline in the yearly rate of increase in problem gambling, although outside factors such as the state of the economy may have impacted this change.  

                 The legalization of Internet gambling poses an added threat to the growth of problem and pathological Internet gamblers.  In his comprehensive 2009 study, Malcolm Sparrow five adverse effects of legalization which could increase the prevalence of problem gambling in America.  These effects are: removal of legal deterrence, introduction of trustworthy brands, increased accessibility, easier flow of funds, and advertising. 

                A 2007 UNLV survey of Nevadans showed that 12% of “non-online gamblers” would be more likely to participate in online gambling if it were licensed and regulated by the state of Nevada.   The same study revealed that 87.9% of responders noted that the current legal status of online gambling, whereas 4% indicated that their desire to gamble online was very much affected by its current legal status.   

The UIEGA caused all reputable brands of Internet gambling to cease operations in order to avoid prosecution.  Legalization would cause the return of reputable brands and increased competition into the marketplace.   Some experts argue that gamblers most likely to be influenced by the availability of trusted brand-name sites are those who gamble already.  Generally, this means that the market would largely see a realignment, not overall growth.

Currently, the US Department of Justice has the authority to prohibit the advertising of illegal Internet gambling websites.  Legalization would render a new advertising environment that is sure to draw in new users.

                Currently, only 25 states provide any funding for gambling addiction prevention programs.  Legalization of Internet gambling would allow regulators to implement public policy measures for problem gambling education and implement efforts to provide resources to those affected by problem gambling.  The federal government would be able to use new tax revenue for publicly funded prevention, counseling, and treatment programs, as well as further research to develop new tools to prevent both land-based and online gambling addiction.   Technology could be used to track and limit betting amounts for all gamblers as a mechanism to promote safe practices. 

                While there are conflicting statistics on the subject, the Internet has facilitated a new culture of gambling addicts.  The current policy environment facilitates a growing number of problem gamblers, and experts agree that prohibition would not stop them.  The best means of treating any addiction is through treatment.  By legalizing Internet gambling, the government would be able to enforce measures to treat and prevent those with online gambling addictions.  Legalization and regulation is the best answer to stopping online gambling.

 

Internet Gambling Regulation, Consumer Protection, and Enforcement Act of 2009

                Congressman Barney Frank (D-MA) proposed the Internet Gambling Regulation, Consumer Protection, and Enforcement Act in 2009.  Mr. Frank is the Chairman of the House Financial Services Committee, who has jurisdiction over the UIGEA.   The new bill would establish a regulatory and enforcement framework for Internet gambling.  Operators would be able to obtain licenses authorizing them to accept bets and wagers from individuals in the U.S., on the condition that they maintain effective protections against underage gambling, compulsive gambling, money laundering and fraud, and enforce prohibitions or restrictions on state gambling laws.  The overwhelming majority of regulatory answers to issues discussed above are confronted in this bill.  It also would provide the Department of Treasury with the exclusive authority to establish regulations and license Internet gambling operators.  License applicants would be subject to review of their financial condition and corporate structure, business experience, suitability, and criminal background checks, and agree to be subject to U.S. jurisdiction.  They would also be prohibited from accepting any type of bet or wager that is initiated or terminated in a state or tribal land that prohibits that type of Internet gambling, or any gambling or wager prohibited under the Professional and Amateur Sports Protection Act.  Any Internet gambling operator receiving a license would be required to have the following appropriate safeguards in place:

·         Ensure an individual placing a bet or wager is of legal age as defined by the law of the State or tribal area in which the individual is located at the time the bet or wager is placed

·         Ensure an individual placing a bet or wager is physically located in a jurisdiction that permits Internet gambling at the time a bet or wager is placed.

·         Protect the privacy and security of individuals engaged in internet gambling

·         Combat fraud and money laundering as prescribed by regulations issued by the Secretary of the Treasury or designee

·         Combat Compulsive Internet Gambling

 

 

Conclusion

                As gambling has developed throughout history, so too has the opinions and practices used by their governments.  There are those who believe that gambling is a fundamental human liberty and it should be the choice of the individual if they want to gamble, just like it is their choice if they want to drink alcohol.   Then, there are those who believe that gambling is detrimental to the general welfare of society and the world would be better off without it.  Although it happened through

My research has proven that an effectively regulated Internet gambling industry would facilitate a safer and lower risk environment to public health and safety then the current prohibitionist regime.  The introduction of Internet gambling brought the gambling legalization question to the Federal government for the first time in American history.   But, complexities in legal wording and international jurisdiction issues render prohibition impossible. By legalizing, regulating, and taxing Internet gambling, the federal government will be able to effectively manage all of its risks using the related tax revenues to pay for resources.   Internet gambling may be

 



[i] New york times

[ii] http://dictionary.reference.com/browse/gambling

[iii] "Gambling in the United States: An Overview." Gambling: What's at Stake?. Cengage Learning. 2009. Encyclopedia.com. 16 Dec. 2009 <http://www.encyclopedia.com>.

[iv] See Id

[v] http://www.americangaming.org/Industry/factsheets/general_info_detail.cfv?id=28

[vi] http://www.americangaming.org/Industry/factsheets/statistics_detail.cfv?id=10

[vii] Michael D. Schmitt, Prohibition Reincarnated? The Uncer- tain Future of Online Gambling Following the Unlawful Internet Gambling Enforce- ment Act of 2006, 17 S. CAL. INTERDISC. L.J. 381, 398 (2008). http://heinonline.org/HOL/Page?handle=hein.journals/scid17&div=16&g_sent=1&collection=journals

[viii] See Id

[ix] http://truthaboutgambling.com/support/upload/docs/AGA_Internet_white_paper_FINAL.pdf

[x] Schmitt

[xi] http://www.washingtonpost.com/wp-dyn/content/article/2009/11/27/AR2009112703058.html

[xii] Schmitt

[xiii] Doak, Melissa J. Gambling: What's at stake? Detroit: Gale Cengage, 2009. Print.

[xiv] Schmitt

[xv] http://www.gambling-law-us.com/State-Law-Summary/

[xvi]