Lack of U.S. Regulation Increases Problem Gambling

by Hillary LaClair, Senior Editor
January 3, 2009

                Despite anti-gaming laws, online casinos continue to thrive in the U.S. Experts say that the largely unregulated industry, 1,300 websites strong, is contributing to an increase in problem gaming in the U.S. In 1997, studies showed that casinos earned a revenue of $650 million annually – a number that has increased to $2 billion in the following years.

                The lack of U.S. regulated online casinos forces gamblers into the arms of shady operations who operate on offshore servers. As such, these operations can fold and run virtually overnight when suspected of fraud. Many closely monitored internet casinos, with age restrictions, deposit limits and self-exclusion policies have been made unavailable to U.S. players. Currently, an estimated $5 billion is spent on problem gamblers in the U.S. every year.

                American youths are most commonly affected by unregulated internet casinos, according to the American Psychiatric Association. Gambling rates are highest for people in their teens and twenties. A monitored industry could mean higher age restrictions and enforcement in the U.S. that is desperately needed for some. Nearly every regulated internet casino now requires a valid form of identification in order to deposit money, in most cases a valid photo ID. Additionally, many of these establishments allow their users to put a deposit or spending limit on their account, to prevent such occurrences. Some casinos have even implemented a self-exclusion policy, where users can opt to have the casino decline their account for a period of time – an option that is rarely available in land counterparts.

                “Most of the time parents aren’t monitoring what their kids are doing on the internet, so they’re just sort of free to gamble their heart’s content,” says Jean Stringer, MFT, a marriage and family counselor.

                Approximately 10 to 15 percent of U.S. and Canadian youths say that they’ve dealt with issues related to gambling. In this group, 1 to 6 percent are believed to have gambling addictions – showing several signs of problem gambling, such as preoccupation with gaming, the need to increase their bets every time, restlessness when not gambling, using internet casinos to escape from “difficult emotions,” and chasing losses with further wagers.

                Advancing technology has now allowed for several university students, as well as high school students, a credit card at their disposal – a vital instrument in gambling online. According to an article in littleabout.com, credit cards are the “mechanism that makes rolling the internet dice possible,” and that young people are “easily lured by the power of the plastic cards issued be fiercely competitive finance companies lending money at sky high rates.”

                “You invest a small amount of money, and you receive a large return. Once that happens, there’s a reinforcement element,” Stringer added. “There’s an element of denial. There has to be a certain commitment to realizing you have a problem and really wanting to stop it.”

                Stringer concludes, “I think there should be more education in the schools to warn young people {about} the potential effects of gambling on the internet.”

U.S. Government Regulations on Internet Casinos May Aid in the War on Terror

by Hillary LaClair, Senior Editor
January 2, 2009

                According to the Telegraph, security analysts have found that a branch of al-Qaeda has utilizied internet casinos to launder money for attacks. The newspaper reports that a group of computer experts have created an “online University of Jihad,” where individuals throughout Britain are trained as potential terrorists.

                The online University was created to avoid its recruits travelling to Pakistani camps, and its software, Mujahidden Secrets 2, is impervious to intelligence agents. As such, al-Qaeda militants may communicate using e-mail without retribution.  “Al-Qaeda want to create a University of Jihad online, both in a spiritual and financial sense. They want a community that can carry out attack without having to travel aboard for training,” says Terry Prattar, a specialist in counter-terrorism.

                Prattar notes that al-Qaeda has made use of the internet to finance this University, including the use of online casino gambling websites to launder money. Recruited youths are prompted to post on online forums to “prove themselves.”

                Additionally, a specialist group known as the Al Ansar Media Battalion, has posted videos of American and British troops under physical attack to “make people here feel they are taking part in what [is] going on over there,” according to Pattar.

                The internet is being used in many ways to promote insurgents. One individual, dubbed the Bagdhad Sniper, was said to have gathered a massive following through the use of social networking site, Facebook. However, coalition forces believe that they have since killed him.

                The terrorist organizations in Iraq, Pakistan and Afghanistan are additionally using Google maps as an information resource for targeting designated victims.

                Security analysts are now encouraging moderate Muslims to post in the online forums to engage in rational discussion among young people. An intelligence source has described this methods as one of “ideas, not weapons and a campaign of internet, not training camps.”

                Online casino advocates feel that the proper regulation of internet gambling could be advantageous in the war on terror. Internet companies such as E*Trade, which has been fined on two separate occasions for failing to properly implement money laundering screening, have received moderation – therefore tightening their ability to detect money laundering.

                Currently, the internet gambling websites used by terrorists are lacking any source of U.S. regulation. As such, the government is not privileged to vital information as to their whereabouts. E*Trade claims that they since have put a safeguard in place to avoid future money laundering.

                “E*trade upgraded its system to provide an automated method to monitor for this particular activity, and those systems have been in place for over a year,” said company spokesperson Pamela Erickson.

                Similar regulations could be applied to online casinos, which would then serve as a valuable tool for the government against any person or terrorist organization that is unlawfully using gambling sites for this purpose. Currently, U.S. officials report that they are using anti-gambling laws to prosecute those involved in money laundering. However, there is much information that remains unavailable while online gambling remains a criminal offense.

New York vs. Amazon.com: Bad News for Casino Affiliates

by Hillary LaClair, Senior Editor
December 31, 2008

                The U.S. may possibly have set a record number of dangerous precedents for the world of internet casino gambling this year – the latest of which, although maybe inadvertent, could criminalize online casino affiliate websites.

Earlier this year, New York State passed legislation forcing Amazon.com to pay taxes, despite Amazon not having a physical presence in the state.  A prior Supreme Court ruling has relieved Amazon of having to collect NYS taxes, stating that without the e-tailer’s warehouse or office in the state, it is the customer must declare the purchase on their next tax return.

As a result, Governor David Paterson and his legal team have argued that the affiliate marketers are Amazon’s physical presence. New York now intends to collect $50 million annually from the online retailer. Should the court rule in favor of New York, internet affiliate programs would be treated as extensions of the company’s that they advertise.  Perhaps this is good news for New York, but it is potentially devastating for online casino affiliates – especially those based in the United States.

Currently, online casino affiliate programs avoid legal prosecution from the U.S. because they are not gambling websites.  Affiliates may advertise for internet casinos, but are not responsible if the websites accept U.S. wagers. A victory for New York would mean either force the affiliate websites to block U.S. users or to shut down altogether.

Joe Brennan Jr. of iMEGA particularly fears for the outcome of the case. “You now have states that are cash-strapped and looking for new ways to bring in revenue,” said Brennan. “New York has been forward-thinking, so to speak, when it comes to approaching the internet.”

It is his belief that New York may soon follow in the footsteps of Kentucky, and pursue legal action against gambling sites. A ruling by the Kentucky Court of Appeals, according to Brennan, may allow New York to attempt a seizure of websites, including Amazon.com. “All you have to do is look at what is going on in Kentucky and see that states may have a leverage option available to them should Kentucky prevail.”

New York is among 11 other U.S. states that have banned gambling from its borders. As such, should the upcoming administration over turn the anti-internet gambling laws, NY may still decide to prevent its residents from participating.

However, Peterson is seeking a major expansion of gambling in the state to allow more multi-state lotteries and increase the hours of operation for Quick Draw games and video-lottery parlors. With the $15.4 billion deficit in the 2009-10 fiscal year, Paterson may turn to the internet to compensate. A gambling expansion could result in $308 million. If he were to consider online casinos, millions would turn into billions.

Rumor Has it that U.S. and Antiguan Trade Reps Have Reached a Settlement

by Hillary LaClair, Senior Editor
December 30, 2008

               The U.S. has been involved in negotiations with Antigua and the World Trade Organization, in Antigua’s attempt to collect on a $21 million annual settlement. The fine was levied as the result of U.S. bans on offshore internet casino gambling, which the WTO ultimately decided were not only a display of protectionism, but a violation of free trade and the General Agreement on Trade in Services (GATS).

                Since the settlement was reached, however, the U.S. has failed to pay out on a number of given deadlines. Antiguan Finance Minister, Dr. Errol Cort, has asked that Antigua be patient with the U.S. Cort noted in fall that negotiations with the WTO might continue into the next year. Rumor has it that a deal has been reached with US Trade Representative Susan Schwab.

                An article in the Salt Lake City Tribune says that the U.S. is believed to have been relieved of the $21 million per year settlement, for reasons that are classified as a national security issue.  Many are wondering what the U.S. has offered in lieu of the ban of online casinos.

                One conclusion has been that the U.S. might place a military base on Antigua, to create hundreds of jobs as well as stable revenue flow for the nation. If this is true, the outlook is grim for the future of online casino gambling in the U.S. The Department of Justice continues to lash out at offshore casino websites, and the installment of a military base essentially means that the U.S. will go to drastic measures before admitting fault for discriminating against overseas gambling establishments.

                Anti-gamblers are concerned about the potential of a military base Antigua. The worry stems from the Philippines, where decades of an U.S. military base have resulted in black markets, drug-dealing, illegal gambling and prostitution.

                Peter Riggs for the Forum on Democracy and Trade is disturbed to find that the terms of the agreement have been kept a secret. Riggs’ suspicion is that, rather than a military base, the agreement involved research and development services, as well as associated tax credits, affecting the way states do business.

                “This is potentially a very big deal,” said Riggs. “We were stunned that they classified it as national security and got away with it.”

                WTO negotiations do not stop with Antigua. The European Union is slated next on the list, with much heavier claims. The first online gambling website was launched in 1995. Now, more than 2,000 offshore sites are in operation, and will soon prove a difficult industry for the U.S. to combat.

Utah Officials Say Internet Gambling Laws Should Remain a State’s Decision

by Hillary LaClair, Senior Editor
December 28, 2008

                 In response to current negotiations between U.S. trade representatives and the World Trade Organization, Utah officials are calling for Congress to uphold the rights of individual states to form their own online gambling laws.  Should this power remain with state legislatives, Utah would maintain a zero tolerance policy in terms of online casinos.

                “Talks for the next [WTO] round are in limbo,” says Republican Representative Sheryl Allen, an advocate for states’ rights. “It’s very important that states give input and get involved before agreements get signed by 153 countries.”

                Allen heads House Joint Resolution 1, a proposition that would leave online casino gambling laws a decision of each U.S. state. As such, internet gambling would remain a criminal offense in the state of Utah.

Gambling in any form is illegal in this state, including national lottery tickets. As a result, state residents travel to bordering states, Idaho and Nevada, to purchase lottery tickets or gamble in a casino. Utah and Hawaii are the only U.S. states that have taken such a strict approach to gambling.

                Utah legislators are concerned that the negotiations may lead to legalized internet casino gambling in the U.S., and therefore negate state regulations. Utah residents would have the ability to access gambling websites from their home computer, rather than traveling to another state, and this would be within their legal rights.

                Allen claims that her concern with the legalization of internet gambling lies with the infringement of states’ rights, however, rather than with the idea of gambling online. “Many see gambling as a moral issue,” she said. “But I’m looking at it as a states’ rights issue.”

                Peter Riggs, director of Forum and Democracy and Trade, added, “States on all sides of these issues were correct to see it as a states’ issue. Some had public morals concerns, others revenue concerns.”

                According to the Salt Lake City Tribune, the United States in fact legalized internet gambling with the World Trade Organization, when the General Agreement on Trade in Services (GATS) was signed in 1994. The WTO claims that in this agreement, online casino gambling falls under the category of “other recreational services.”

                Since the signing of the GATS, however, the United States passed the Unlawful Internet Gambling Enforcement Act, when it was strategically pinned to the SAFE Port Act. With complete disregard for the WTO treaty, the U.S. criminalized all forms of internet gambling – with the exception of fantasy sports, online lotteries and horse racing.

                The U.S.’ stance on internet gambling has resulted in numerous international trade disputes. Antigua and Barbuda have been involved in litigation against the U.S., with WTO arbitration, for nearly four years. Although their attempts to lift the ban failed, both governments are seeking to violate U.S. intellectual-property law until a resolution is had.

                Utah legislators have fought for the rights of their state for the same four years. In 2005, Utah Attorney General Mark Shurtleff, with the aid of 28 other states, demanded that U.S. trade representatives fight for states’ rights.

                “Antigua has no business trying to write Utah’s gambling laws,” Shurtleff said.

Ron Kirk Named Obama’s U.S. Trade Representative

by Hillary LaClair, Senior Editor
December 18, 2008

                 Many industry officials are hopeful that the upcoming U.S. administration will reconsider the regulation of online casinos. With the escalation of international trade disputes between the U.S. and overseas gambling operators, the issue of internet gaming is quickly developing into a serious quandary.

                The failure of U.S. representatives to properly address the ongoing WTO violations is soon to create a less than amicable relationship with the E.U. According to various reports, former Dallas mayor Ron Kirk, will assume the position of President-elect Obama’s Trade Representative. Kirk will be left to resolve the altercations caused by the UIGEA, and its enforcement outside of the U.S.

                The latest in WTO arbitration against the U.S. is E.U. Commissioner Peter Mandelson’s formal request for the U.S. to cease the prosecution of overseas gambling domains, until free trade treaties can be examined and negotiations had. This is certainly not the first case brought before the World Trade Organization that has been ignored by the USTR, as Party Gamin co-founder Anurag Dikshit was recently formed into a plea and a $3 million settlement. The plea was made despite the fact that PartyGaming exited the U.S. after the UIGEA was implemented.

                Antigua was awarded a hefty settlement of the U.S. earlier this year, after the WTO found the U.S. guilty of protectionist policies toward domestic online gambling. Since the ruling, however, the USTR has failed to make payments even after several deadlines have come and gone. As such, the U.S. has opened its doors to further litigation, and a deeper blow to the already failing economy.

                Kirk succeeds Susan Schwab of the Bush administration, whose course of action in these international trade disputes has essentially been to ignore them. While she has been involved in several negotiations, she has neglected her responsibilities to the European Union.

                Kirk is known as a patron for free trade. He has been entrusted with the responsibility to maintain a good standing with foreign markets. John Murphy, Vice President for international affairs at the U.S. Chamber of Commerce praised Kirk’s efforts in keeping free trade alive.

                “Trade has been one of the only bright spots for the U.S. economy, and the Obama team is going to need every tool in its tool box,” said Murphy.

                Mickey Kantor, former USTR in the Clinton administration commented, “He’s an incredibly impressive guy with a wonderful background, particularly for this job. You’ve got to understand both substance and politics to be successful, and he certainly understands trade being from Texas.”

                Frank Vargo, Vice President for international economic affairs, while not entirely familiar with Ron Kirk, explained that Kirk’s experience in Texas should speak for his experience in trade. “Being mayor in [in] a border state, certainly he’s going to be familiar with the benefits of trade, particularly NADTA, which has benefited Texas a lot.”

                Vargo concluded that as Obama wrestles with the economy, and with foreign relations, “trade will inevitably become a priority.”In the case of the economy, many have predicted that online casino gambling will also become a priority, making Kirk’s role all the more vital.

iMEGA’s Arguments Heard

by Hillary LaClair, Senior Editor
December 16, 2008

                An early decision is anticipated in iMEGA’s lawsuit recently brought before the Kentucky Court of Appeals. A panel of three judges was said to be well prepared for the oral arguments on Friday against the seizure order of 141 internet casino gambling domains. The panel has begun to deliberate, but no official release date has been set for the final decision.

                The Internet Media Entertainment & Gaming Association’s legal team challenged the constitutionality of the seizure order. According to iMEGA’s website, the prosecution “improperly tried to create a hybrid of criminal and civil laws to justify seizing the domain names,” denying domain owners the right to due process.

                “It is not sufficient for the state or lower court judge to decide on their own that there is a criminal violation,” said lead attorney for iMEGA, Jon L. Fleischaker. “They don’t like this (online casino gambling)…so they seized the names without hearing or process.”

                Those present during the 50 minute-long hearing said that the panel were eager to listen, asking several relevant and “probing” questions of the organizations involved. The appeal follows a prior ruling in the Franklin County Court wherein Judge Wingate set what some feel is a dangerous precedent for the industry. Many online gambling advocates, including iMEGA, have argued that the State has no jurisdiction over internet domains that reside overseas.

                Associated Press said that William Johnson, representing five of the websites in question, claimed that the State does not have a law which specifically gives them the authority to seize domain names. No revisions have been made since 1974.

                “If they had wanted to correct this law, they could have done so annually,” he said. “That is a matter for the legislature to decide.”

                Fleischaker has also called attention to the US 6th Circuit’s definition of domain names – having ultimately decided that they are no more than billboards. He noted that the Horseshoe Casino in Indiana was able to advertise in Kentucky, despite the fact that gambling is illegal in the State. This of course is due to the First Amendment rights, or more specifically the right to free speech and expression.

                Fleischaker compared the domain seizures to the seizure of a billboard, saying, “That is classic prior restraint.”

                Additionally, the argument was presented that the Commonwealth has not clearly defined the “gambling devices” in question.

                iMEGA chairman was pleased with the hearing. “Clearly our attorney and lawyers representing the other groups were excellent,” said Joe Brennan Jr. “They were very comfortable with the give-and-take with the judges, and had a command of these important issues. We’re very confident that we will prevail in this matter and put a stop to this dangerous precedent being set by the governor with this action.

                “This matter has generated concerns across the online world about the abuse of governmental power. Kentucky is opening the door for any government – state and local, foreign and domestic – to use what amounts to blackmail to achieve its ends. If this precedent is allowed to stand, it’s not hard to imagine a government like China, utilizing this kind of seizure power to prevent free media, like the New York Times, from reaching their citizens.”

Kentucky Hearing Scheduled for Today

by Hillary LaClair, Senior Editor
December 12, 2008

                 Today is a monumental day for the online casino industry, as the forfeiture hearing in the Kentucky domain seizure case will finally be held. A panel of three judges will deliberate on an appeal filed by several net neutrality groups and internet gambling activists.

                The news of Kentucky’s attempt to confiscate 141 internet gambling domains is old by now, but the criticism just as strong. When the County Court Judge granted the state authority to seize the domains unless a ban was placed on its residents, a shockwave hit the industry – and the wrath of iMEGA, the PPA, and many net neutrality groups incurred.

                On many levels the ruling was challenged – in its alleged violation of the First Amendment, the Commerce Clause and the Due Process Clause, in the state having no jurisdiction over foreign online casinos, and even in the idea that it should not include games of skill, such as poker.

                The case was moved to the Kentucky Court of Appeals, most notably by the Interactive Media Entertainment and Gaming Association (iMEGA), a non-profit organization that has been long fighting for the right to gamble online. iMEGA was granted a stay in Appeals Court, and allowed to present their case, among others, before a panel of Judges Michael Caperton, Jeff Taylor and Michelle Keller, which brings us to the present.

                The highest concern for most is that if the ruling goes in favor of Kentucky, new doors will be opened to internet censorship, setting dangerous precedents.

                “This matter has generated concerns across the online world about abuse of governmental power,” said Chairman Joe Brennan. “Kentucky is opening the door for any government – state and local, foreign and domestic – to use what amounts to blackmail to achieve its ends. If this precedent is allowed to stand, it’s not hard to imagine a government like China utilizing this kind of seizure power to prevent free media, like the New York Times, from reaching their citizens.”

                The hearing will begin mid-morning, where the panel will convene briefly to hear the positions of iMEGA and the Interactive Gaming Council. Addition “friends of the court,” or amicus briefings, were submitted in writing along with iMEGA, by other interested parties like the Poker Players Alliance, further challenging the decision to seize the domains.

                It is uncertain how long the process will take. Because the briefs were first submitted in writing, it is hoped that the process will be a quick one, however it could take weeks or even months.

AGA Can’t Decide its Position on Internet Gambling

by Hillary LaClair, Senior Editor

                The prospect of legal online casino betting has had land gambling establishments tearing their hair out over the past couple of months. With the upcoming administration, internet gambling is back on the agenda, and the American Gaming Association is rushing to clarify its position.

                There are mixed feelings within the land industry as to the benefits of legalized internet casino wagering. There are some companies who support the idea of a federal regulation in online gaming, others that feel the authority to legalize egaming should lie with the states and other who fear the industry altogether as another rival with which to compete.

                The leading casino members, MGM Mirage, Harrah’s Entertainment and International Game Technology have already expressed their support for online gaming. These companies already have their feet in the door, having been involved with overseas internet gaming owners.

                The American Gaming Association as a whole has shown a more conservative outlook on internet gambling, calling for research into its regulation, benefits and disadvantages. In the recent Las Vegas Gaming Expo, it was said that internet gambling will begin to look promising for the federal government, as tax revenue could help our fading economy.

                Because the AGA’s members cannot come to an agreement on the issue, the association has initiated a study group which will analyze bills that have been proposed in the past year.

                The latest bill passed in favor of internet gambling was S 3616, the most progressive of proposed legislation in the way on internet gambling. Senator Robert Menendez’s proposal seeks to license internet gambling when it entails games of skill, such as poker.

                Before that, Representative Barney Frank pushed for HR 6870, a bill that would ensure that the UIGEA does not cause harm to the payments system. Frank has also proposed HR 5767, a bill which would prohibit the Secretary of Treasury and the Board of Governors of the Federal Reserve System from proposing, prescribing or implementing any regulation under the UIGEA. Finally, Frank is responsible for the proposal of H.R. 2046, an amendment which would provide the licensing of internet gambling facilities by the Director of the Financial Crimes Enforcement Network.

                Other legislation includes HR 2140, a proposal for the National Academy of Sciences to study and identify the proper response of the United States in the growth of internet gambling, HR 2067, to amend the International Revenue Code of 1986 to regulate internet gambling, HR 2610, to amend to UIGEA to clarify the applicability of provisions to games of skill, and establish certain requirements with respect to such games, HR 6501 to regulate internet gambling and set a trust fund for its tax proceeds, and finally HR6663, which would further clarify what the UIGEA deems as “illegal internet gambling.”

                This is not the first time that the AGA’s members have disagreed on a policy. In 1990, members were torn as to whether or not they should support gaming movements by Indian tribes that were involved with Las Vegas Casinos. The Nevada Resort Association, and later the AGA, decided to remain neutral.

AGA CEO Says Internet Gambling May be Back on the Agenda

by Hillary LaClair, Senior Editor

               Despite the Bush administration’s “midnight drop” submission of the new regulations for the UIGEA, the American Gaming Association says that Congress may consider a legalized online gaming industry. According to a report in the Reno Gazette-Journal, AGA CEO Frank Fahrenkopf feels that internet casino gambling will be the subject of much attention in the next few years.

                Fahrenkopf expects that the need to tax gaming income, with the slope of the U.S. economy the main priority for upcoming administration, will eventually be the reason for its legalization. “There have been projections circulated on the Hill that it can raise billions of dollars in new federal revenue,” he said at the Global Gaming Expo in Las Vegas. “So we can expect that the whole issue of internet gambling will be front and center in the next Congress.

                “Federal lawmakers see that potential tax revenue from Internet gaming could fuel their legislative agenda.”

                The AGA is a major organizer of the Gaming Expo, which could attract as many as 30,000 attendees from around the world.

                Fahrenkopf continues, “Congress has adopted a pay-as-you-go system. So any Congressman or Senator who introduces a piece of legislation that is going to cost something will also have to show how they are going to pay for it, either by cutting spending in one place or raising taxes in another. So we know under those circumstances, they will be looking around at a place to get additional revenue.”

                The influential executive has not said it will be an easy task however, warning that any push to legalize online casinos will be faced with years of anti-gaming work. Fahrenkopf alluded to the passing of the UIGEA last week as the Bush administration makes its exit and the efforts of the Massachussets House Financial Services Committee chairman and Democratic Representative Barney Frank to challenge this legislation.

                Frank has continued to argue for the overturn of the UIGEA, the bill passed to prohibit the transfer of funds from financial institutions to internet gambling firms, claiming that its regulations are difficult both to enforce and to interpret as far as what is considered “illegal internet gambling.” He is confident that the upcoming administration will be more lenient toward online gaming.

                “With the Obama administration, you wouldn’t see these bad regulations,” Frank told Gambling911.com

                There is also the issue of land casinos and their operators. The land casino market is already in distress, and with the addition of internet casino gambling, some feel this could be the end to the land market altogether.

                Fahrenkopf addressed the mixed feelings of various Nevada gaming companies on internet casino gambling saying, “If it were legalized, I know that Harrah’s, which now owns the World Series of Poker, would be extremely interesting in getting into that market. We know that MGM has been bullish on Internet gaming for a long time. Steve (Wynn)…I don’t know what he would do and I don’t know what some of the other operators would do.”