Editorial - Regulation Roulette: E-Commerce and Terrorism.

28 January 2003

The following article was written for the Competitive Enterprise Institute. CEI is a conservative, free-market think tank that supports principles of free enterprise and limited government, opposes government regulation, and actively engages in public policy debate.

On Jan. 7, Rep. James Leach, R-Iowa, introduced yet another Internet gambling bill, the "Unlawful Internet Gambling Funding Prohibition Act" (H.R. 21--surely just a coincidence to the card game 21, otherwise known as blackjack). The bill is the same text as H.R. 556, a bill passed by voice vote in the House during the last Congress, that failed to move in the Senate before the end of session.

Regulation because someone "might" use the benefits of e-commerce for illegal purposes is a bad idea.

The bill does not prohibit Internet gambling outright. Rather, it indirectly shuts down online gambling by prohibiting banks from processing bank instrument transactions that involve "unlawful Internet gambling" web sites. Those in the technology industry should follow the movements of this bill because it attempts to regulate electronic commerce in the name of fighting terrorism.

The means by which consumers and gambling site owners interact -- credit card payments and wire transfers -- also happens to be a medium open to abuse by those with criminal intentions. If you prohibit the credit card payments, then you negate the possibility that some of these payments will go to terrorists. According to Rep. Joseph Pitt, R-Pa., "It may be impossible to keep illegal gambling sites off the World Wide Web, but it is entirely possible to prevent American credit card companies from completing these transactions that these crooks need to make their money."

The text of the bill states that law enforcement has identified internet gambling as "a significant money laundering vulnerability."

The bill's line of reasoning goes something like this: Internet gambling consumers pay by use of credit cards and wire transfers; credit cards and wire transfers are payment mechanisms often utilized by criminal money laundering operations; terrorists utilize money laundering schemes; therefore, some consumers of internet gambling may in fact be criminals laundering money to further terrorism.

Casual references to an activity's potential link to terrorism are the latest vogue among advocates of regulation, whether the target is sport utility vehicles, illegal drugs, or internet gambling. Certain industries are more at risk than others to regulation in the name of preventing terrorism. Carried to its logical conclusion, though, the areas of technology and e-commerce are especially vulnerable to regulation in the name of terrorism.

E-commerce by its very nature is a simple business channel for almost anyone to make a buck (if not a profit). Web sites such as eBay have turned millions of individuals into entrepreneurs and small business owners. However, what facilitates legitimate business concerns also makes it opportune for those with illegal motives. Anonymity and the easy flow of funds are a boon to those surreptitiously conducting illegal activity.

Leach doesn't mind that this bill would in effect prohibit internet gambling. His recent press release states that "internet gambling serves no legitimate purpose in our society."

The millions of individuals that use these sites, whether it is for traditional casino style gambling, fantasy leagues, or the ubiquitous Super Bowl office pool, might disagree with Leach about the value of internet gambling.

Legislators and the public should be wary of the tactic of prohibiting ordinary business activities just because there might be remote and indirect links to terrorism. Terrorism is a life or death concern that should not be used by those with regulatory agendas in an emotionally manipulative way. E-commerce furthers the advancement of commercial dealings between consumers, their banks, and business owners so that transactions happen in real time between strangers without knowledge of one another's motives.

Regulation because someone "might" use the benefits of e-commerce for illegal purposes is a bad idea.

Braden Cox serves as technology counsel at the Competitive Enterprise Institute in Washington-Comma176- DC. He writes extensively in the areas of intellectual property-Comma176- e-commerce-Comma176- privacy-Comma176- and security. He obtained both his undergraduate finance degree and law degree from the University of Georgia and is a member of the District of Columbia-Comma176- Georgia and Virginia state bars.