Since the first online casino launched back in 1995, the nation – in fact, the world – has been buzzing about Internet gambling.  With the recent initial public offering of PartyGaming on the London Stock Exchange, a decision in Nevada to legalize mobile gaming devices at casinos and a host of legislative and regulatory activities in Washington, that buzz has turned into a deafening roar. 

At the AGA, we have up to this point viewed Internet gambling with a somewhat wary eye.  The commercial casino industry is one of the most regulated industries in the country, offering built-in protections for our customers.  Also, commercial casinos have the added advantage of bringing jobs and tax revenue to local communities.  Unfortunately, the same can’t be said of online gambling, and to this point it has been the position of the AGA board that we are opposed to Internet gambling because we do not believe the technology currently exists to provide for rigorous regulation of this sector with the appropriate level of legal and law-enforcement oversight. 

Several differing versions of Internet gambling legislation have come before Congress over the years, and the AGA has developed three tests that any bill must meet.  Internet gambling legislation must protect the right of each individual state to regulate gaming within its borders; ensure that no legislation creates competitive advantages or disadvantages between and among commercial casinos, Native American casinos, state lotteries and pari-mutuel wagering operations; and that no form of gaming that currently is legal will be made illegal. 

Attempts by U.S. authorities to prohibit online gambling have been exceedingly complex to this point.  In fact, there has long been disagreement between the U.S. Department of Justice and the U.S Courts over whether or not Internet gambling is legal in the United States.  According to the U.S. Justice Department, the Wire Act of 1961, which prohibits gambling over the “wires,” applies to all forms of Internet gambling, making it illegal under existing law.  But the U.S. Court of Appeals for the Fifth Circuit has interpreted the statute differently, affirming in 2002 a lower court ruling that under federal statutes, sports betting conducted over the Internet is illegal, but casino games are legal. 

This dichotomy of views was further complicated this spring, when the World Trade Organization’s (WTO) appellate panel handed down its own mixed decision on the right of the United States to curb Internet gambling within its borders. The panel’s decision reversed a WTO ruling made last year that said the U.S. government’s efforts to criminalize gambling conducted on offshore Internet sites were in violation of the WTO commercial services accord. 

Although U.S. officials hailed the new WTO ruling as a victory, the decision mandates that the United States has the authority to limit online gambling only if it is non-discriminatory in its regulations.  However, the WTO concluded that the mere existence of the Interstate Horseracing Act, which allows for interstate wagering in the horseracing industry, causes the U.S. actions overseas to be discriminatory.  Possible remedies would be to limit the horseracing industry’s allowable services or open the market to foreign competition. 

To further muddy the waters, Nevada Governor Kenny Guinn recently signed Assembly Bill 471 into law, authorizing the Nevada Gaming Commission to adopt regulations governing the use of mobile communication devices for gaming in the public areas of licensed gaming establishments that operate at least 100 slot machines.  The statute defines communications technology as technology that can securely transmit bets or wagers by wireless network, wireless fidelity, wire, cable, radio, microwave, light, optics or computer data networks – a list that excludes the Internet.  Before licensing, the Commission must ensure that games are safe and reliable, as well as setting up safeguards to ensure that all applicable age and identity requirements can be verified.

Here in Washington, longtime Internet gambling opponent U.S. Sen. Jon Kyl (R-Ariz.) has drafted an updated version of legislation he hopes will limit illegal, offshore Internet gambling.  The approach of this new legislation is similar to Kyl’s bill from the last Congressional session, which would have prohibited the use of financial instruments in Internet wagering transactions.  Kyl characterizes his new legislation as an “enforcement bill,” simply giving certain state and federal law enforcement agencies the tools to combat Internet gambling. The prominent difference from earlier versions is how Internet gambling is defined. Previous versions broadly defined Internet gambling, while the latest bill specifies that current statutes, such as the Wire Act of 1961, would have legal authority over the practice. 

The horse racing industry has proposed minor changes that would exempt pari-mutuel wagering allowed by the Interstate Horseracing Act from the definition of a bet or a wager.  This exemption would cover wagering conducted at racetracks or OTB outlets, but would not extend to home wagering over the Internet.  Although this provision would not change current law, it would show Congressional intent that differs from the traditional interpretation by the Department of Justice. 

So, as we approach 10 years of attempts to legislate Internet gambling prohibitions, it appears that, despite myriad efforts, we are no closer to establishing how this no-longer-new sector can be regulated and/or legislated.  The problem lies in the fact that activities to this point raise more questions than answers.  Will new federal legislation have any impact considering most online payment services are now also located offshore?  How will the WTO react to Kyl’s bill?  Will the Justice Department apply the Wire Acts to the now-legal handheld gaming devices in Nevada? 

Perhaps the most important question of all surrounds whether perhaps the technology does now exist to properly regulate and tax Internet gambling.  This is the big unknown, and finding the answer could have significant impacts well beyond the current sphere of Internet gambling.  Some have suggested a one-year Congressional study commission of Internet gambling.  Such a commission would study the impacts of online gambling and report back to Congress their recommendations on the best way to deal with the issue, essentially evaluating whether legalization, regulation, and taxation may be a more viable option than banning Internet gambling.  This is without question a new direction, but one that federal officials may find appropriate given the current landscape. 

It is doubtful that any legislative remedy will be 100 percent successful in making Internet gambling go away.  Perhaps the best thing we can do to control it is to first understand it.