Within the last week committees in both chambers of the U.S. Congress discussed legislation geared at cutting off Internet casinos and sports books from U.S. customers by making it illegal to use credit cards and other "instruments of banking" at such Web sites.
The House Bill, authored by Rep. James Leach, R-Iowa, was passed Thursday in the House Financial Services Committee. On Monday the Senate Banking Committee held a hearing to discuss the Kyl bill. A markup for that bill probably won't come until the committee gets input from the Department of Justice. A third bill, introduced in the House by Rep. John Conyers, D-Mich., would create a commission to study the idea of regulating online casinos and sports books as an alternative to prohibition..
The I-gaming industry, of course, strongly opposes prohibitive measures, and the flurry of activity in Washington has fueled a lot of discussion. Many in the business continue to champion the cause for regulation. Others argue that prohibition would have little effect in keeping people from gambling online.
Rick Smith, executive director for the Interactive Gaming Council, has maintained that the Conyers bill is the best course of action if politicians are truly concerned about online gambling.
"The Conyers bill offers the best opportunity to protect U.S. citizens and deal with the issues that accompany this type of gambling," Smith pointed out.
Proponents of both the Leach and Kyl bills argue that something should be done to prevent the rise in run-away credit card debt and financial ruin among U.S. consumers. They also argue that Internet gambling could be used for money laundering for terrorist groups and other criminal organizations.
On the contrary, Melody Wigdahl, a financial transaction expert who specializes in online gaming, feels that as soon as traditional, regulated banking institutions are taken out of the process, the chances for criminal activity increase.
"If more 'legitimate' consumers move out of easily trackable funding options such as credit cards and use non-bank related methods that may be much more difficult to track, it will simply make the tracking of the true drug, terrorist and money laundering activities that much harder to separate from the legitimate funds moved around for gaming purposes," she said.
Wigdahl is concerned with the recent developments on Capitol Hill but also feels that movement towards prohibition in the United States isn't necessarily the kiss of the death for the industry.
"There are still several merchants that rely almost exclusively on U.S. customers," she said. "But the trend has definitely been to focus on the development of other markets. The bottom line is that while many merchants could be severely hurt, and perhaps forced to close down, I think the industry as a whole will survive."
Having said that, Wigdahl was quick to point out that alternatives to credit cards don't exactly have an easy ride. Many new systems bill themselves as being independent from banks, but that, says Wigdahl, would be a hard position to argue in a court if the Leach/Kyl legislation becomes law.
"Most of the alternative solutions still use bank systems somewhere along the system, and most would still be considered bank instruments," she said.
She added that many companies would likely challenge the bill through the courts if it becomes law, but that could be an expensive proposition.
"I would anticipate some interesting and expensive legal battles to prove or disprove the case," she said. "As is often the case with such issues, the battle itself can often be enough to kill the company."
While prohibition proponents are quick to point to money laundering and financial ruin to support their case, Wigdahl said other important issues are being overlooked.
"I think what really needs to be addressed are the peripheral issues that surround the passage of such an act," she said. "How many chargebacks to Visa and MasterCard could be generated if a several sites shut down? How many other countries will comply with the new legislation under pressure from the U.S.?"
U.S. citizens aren't the only ones gambling online, but they do represent nearly 60 percent of the market.
In introducing his bill, Conyers echoed the sentiments of many in the industry who feel prohibition will only lead to more problems.
"Prohibition will simply drive the gaming industry underground, thereby attracting the least desirable operators who will be out of the reach of law enforcement," Conyers said. "A far better approach is to allow the states to strictly license and regulate the Internet gambling industry, to foster honest merchants who are subject to U.S. consumer protection and criminal laws."
Smith pointed out that a similar commission was set up in the U.K. (the Gambling Review Body) more than three years ago, which led to England moving forward with plans to license and fully regulate online gaming.
"Regulators in Great Britain have spent considerable time studying this issue, and that country is set on a careful, deliberate course of regulating and licensing online gambling," Smith said. "I hope the U.S. Congress gives this new form of gambling equal scrutiny, and of course I believe it would reach the same conclusion as British officials."
Keith Furlong, the IGC's deputy director, also said that the Leach and Kyl bills take away people's right to choose how to spend their discretionary incomes.
"Most Americans would not appreciate their financial institutions dictating how they can spend their money," he said. "That prospect has to worry anyone involved in e-commerce generally."
Wigdahl summed up the thoughts and feelings of the industry the best when asked what
she thought was the best course of action for Congress.
"People will gamble," she said. "It is better to regulate it and track than to force it underground, which is exactly what these bills will do."