A New Reality: US-Based I-Gaming

5 December 2002

Amid efforts by U.S. lawmakers to prohibit online gambling, one U.S. territory has quietly gone and made I-gaming legal, to the delight of industry onlookers.

The Interactive Gaming Council, a trade organization based in Vancouver loudly applauded the movement on behalf of the U.S. Virgin Islands to regulate and tax online gambling and betting. The territory legalized Internet gambling in 2001, but it was not until Nov. 25, 2002 that it passed regulations. The IGC's director, Rick Smith, said the Virgin Islands has done the right thing by regulating the industry so that only people who are of age and located in a jurisdiction where online gambling is legal can partake.

"A comprehensive regulatory infrastructure and compliance with the licensing jurisdiction ... is a movement in the right direction."
- Rick Smith
Interactive Gaming Council

"A comprehensive regulatory infrastructure and compliance with the licensing jurisdiction--similar to the regulatory philosophies that apply to leading land-based gambling jurisdictions--is a movement in the right direction," he said. "With new technologies, there is a need for governments to review how they regulate (not what they regulate), even more so as geographical borders 'disappear' in the medium of e-commerce."

One thing the Virgin Islands did not do that may be in its favor, said Patrick O'Brien, is ask the opinion of the U.S. Department of Justice before developing and approving the regulations. O'Brien, a lawyer for the Fort Lauderdale-based firm Greenberg Traurig, said Nevada regulators made that mistake when they asked the Justice Department to weigh in on the legality of online gambling; the DOJ responded with a letter explaining that it does not regard I-gaming to be legal by the 1961 Interstate Wire Act.

"I think Nevada made a mistake by asking the Department of Justice whether Internet gaming was legal because the Department had no option but to go back and say it's not," O'Brien said. "Once they asked that question, they knew what answer they were going to get."

The Virgin Islands, on the other hand, did get an OK from its justice department. Iver A. Stridiron, a lawyer with the Virgin Islands Department of Justice, sent a letter to the Islands' Casino Control Commission saying that it disagrees with the U.S. Justice Department on whether the Wire Act applies to online casinos.

"The Virgin Islands Internet Gaming and Gambling Act would be considered consistent with a federal and territorial law as long as Internet gambling is limited to games of chance, players are of lawful age and no bets are received or taken from an individual located in a jurisdiction that prohibits gaming," Stridiron said.

O'Brien, who calls the Islands' actions "wonderful," said it could, however, bring things to a head in the U.S. Congress, where legislators who formerly didn't want to address online gambling might be spurred to take action in the face of a U.S. territory actually facilitating it.

On the other hand, should the federal government make any serious noises about banning online gambling, state governments could object, as gambling has always been an issue that's addressed by the states.

"If the federal government says they don't want any state to do it, I think the states are going to turn around and say, 'Wait a minute. We'll decide what we will and will not do,'" O'Brien said. "So, yes, it could be a showdown, but it could be a showdown that the federal government could lose, especially with the states needing tax revenue."

To view the Virgin Islands' online gaming regulations, click here.

Anne Lindner can be reached at anne@rivercitygroup.com.