After a decade of trying, the United States Congress finally succeeded at passing a bill outlawing Internet gambling.
Senate Majority Leader Bill Frist, R-Tenn., managed in the 11th hour on Friday to tack on a prohibitive Internet gambling amendment to the 2006 SAFE Ports Act. The amendment, titled "the Unlawful Internet Gambling Enforcement Act," theoretically eliminates most forms of Internet gambling in the United States by prohibiting banking institutions from processing payments for online wagers.
Knee-jerk reactions aside, there seems to be a general lack of confidence in the effectiveness of the bill, which is expected to be signed by President Bush within two weeks.
The industry wants to know what is going to happen now that the bill has passed, so we asked the experts: What's next?
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"The very people the DOJ and the Republicans claim to be fighting--the pirates, the wise guys, the fly-by-night brigade--these residents of the shady side feel no responsibility toward the public. They're there for the money, period. And Bill Frist has just handed them a new lease on life."
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Martin Owens: It will not wipe out U.S. Internet gambling.
The lion's share of a $12 billion dollar market is not going to disappear. Alternative payment systems are already commonplace. In plain English, someone will find a way, and probably has already.
As policy, this is a giant step backward on the part of the USA.
It hurts the industry in its best places. The investors ready in the U.K. will be scared off, but these are precisely the kind of people that were coordinating with existing government regulation to streamline it into the existing scheme of things. Moreover, these are just the people who can be counted on to really care about things like responsible gambling, screening out the underage and the problem gamblers, giving back to the community and, yes, paying taxes.
But if you drive these top-of-the-line, socially acceptable and responsible parties away with strong-arm tactics and legally questionable overreaching, who will profit?
The very people the DOJ and the Republicans claim to be fighting--the pirates, the wise guys, the fly-by-night brigade--these residents of the shady side feel no responsibility toward the public. They're there for the money, period. And Bill Frist has just handed them a new lease on life.
Martin Owens is an attorney who specializes in the problems of operating gambling businesses online. Services emphasize strategic planning and preventive action in such areas as legal compliance and proper corporate structuring, as well as contracts, intellectual property protection, technology transfer, domain names, and the assorted other ramifications of operating online. Feel free to address questions and comments to mowens@trade-attorney.com.
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"Rather than combating the so called evils of Internet gambling, the new Act may leave the U.S. consumer exposed, thereby reversing the advances made over the last few years."
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Peter Wilson: Assuming the President signs the Safe Port Act, the "Unlawful Internet Gambling Enforcement" provisions in the Act are likely to cause radical changes in the online gambling market. It is already happening. Several large operators have declared that they are moving out of the U.S. market. Others are bound to follow. Even if smart legal analysis finds loopholes in the Act, the Department of Justice will still feel emboldened, whilst the boards of public companies, institutional investors and the financial services industry, may all feel that the U.S. Internet gambling market has become too risky and pull out.
Supporters of attempts to ban Internet gambling will be smiling, but the Act may prove to be a sizeable step backwards. A number of the large and reputable Internet gambling companies have started to, if not embrace, at least accept, the principles of social responsibility. We have seen the introduction of more effective age verification and the use of tools to implement spending limits, restrict periods of play and offer self-exclusion. Some operators have recruited professionally trained staff to formulate and implement policies to identify and assist suspected problem gamblers. On the payment side, the reputable banks and payment providers adhere to strict "know your client" and anti-money laundering procedures.
What will happen if all or most of the reputable and well funded operators and payment providers pull out the market? There will still be a market. There can be no doubt about that as the appetite to gamble online in the U.S. was responsible for the growth of many of the largest Internet gambling companies. The answer is that there may be a vacuum created and, in the nature of things, others will move in to fill it--others who are prepared to operate below the wire, to use less transparent and reliable ways to acquire and hold customer deposits. They may not be so concerned about public reputation, social responsibility and financial accountability. In short, rather than combating the so called evils of Internet gambling, the new Act may leave the U.S. consumer exposed, thereby reversing the advances made over the last few years.
The U.K. government knows well the problems that may arise from excessive or uncontrolled gambling and it has chosen the route of regulation rather prohibition. It has formally recognized gambling as a legitimate leisure pastime. As we run up to the implementation next year of a new remote gambling licensing scheme in Britain, the U.K. and U.S. governments appear to be in direct conflict on the issue of Internet gambling and it will be interesting to see what if any effect the U.S. government has on influencing U.K. policy in the coming months.
Peter Wilson, a partner at the Tarlo Lyons firm in London, is a specialist in the areas of gambling and licensing. He has been advising on gambling for over ten years. He has appeared before the Gaming Board of Great Britain on a number of occasions and a good proportion of his practice now involves advice on different types of Internet gambling including bookmaking, betting exchanges, pool betting, casinos, lotteries and prize competitions. He recently wrote the chapter on Internet gambling for Sweet & Maxwell's Encyclopedia of E Commerce Law.
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"Given the way this law was rushed through passage, it may be vulnerable to a legal challenge."
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Larry Walters: The new legislation will likely drive the larger companies out of the U.S. market. The law is poorly drafted and subject to challenge by the industry, but the consensus appears to be to comply and block U.S. financial transactions. That will make room for the smaller, unregulated operators to acquire U.S. players seeking a new home for their betting activities. Internet gambling will not go away, and U.S. players will find a place to bet. The real question remains: What will companies like Neteller do? Will they buckle under the pressure of U.S. authority or rely on their host country's sovereignty and continue business as usual?
Certainly, U.S. players will find it somewhat more difficult to wager online, in the short term. But as smaller operators flock to the space opened up by the exiting of larger companies, the void will be filled. This is a remarkable change from just a year ago, when consolidation and acquisition were the words of the day, and the smaller operators found it hard to survive in an industry of multi-million dollar behemoths.
A final variable is the potential for judicial review of the legislation. Perhaps one of the industry's trade groups or a larger company that has ceased offering services to U.S. players may decide to pursue a legal challenge to the legislation. Given the way this law was rushed through passage, it may be vulnerable to a legal challenge. Then it's anyone's guess what a court may do.
Lawrence G. Walters, Esq., is a partner in the national law firm of Weston Garrou, DeWitt & Walters, www.GameAttorneys.com. He has been practicing for over 15 years, and represents clients involved in all aspects involved in the online gambling industry. Nothing contained in this article constitutes legal advice. Please consult with your personal attorney regarding specific legal matters. Mr. Walters can be reached at Larry@LawrenceWalters.com, or via AOL Screen Name: "Webattorney."