Policing the Internet: Nevada Gaming's Top Cop Speaks Out

6 January 2000
Can Nevada's regulatory experience with traditional casinos be the model for legalized on-line casinos? As Nevada Gaming Control Board Chairman Steve DuCharme points out, it's just not that simple.

The Kyl Bill banning Internet betting in the United States appeared ready to hibernate in committee as the Senate ignored it last month during preparations for Congress' regular year-end recess just after Casino Journal went to press. But, prodded from slumber by U. S. Rep. Bob Goodlatte's companion bill that was just sped to the House Judiciary Committee, the Kyl Bill is likely to lope across Capitol Hill again early next year.

Casino operators are keeping an eye on it, even more than when it was first introduced in 1997. Technological improvements in computer hardware and software, broader household use of the Internet in the United States and other countries, and an apparently proven popular U. S. acceptance of gambling as entertainment make corporate development of World Wide Web gambling sites far more feasible than when U. S. Sen. Jon Kyl, R-Ariz., started fretting about it.

Kyl has vowed to kill Internet gambling in the United States. Like Goodlatte, R-Va., and many supporters of both bills, he believes it will harm children, and he fears compulsive gamblers will be running amuck in their bedroom slippers, maxed-out credit cards at hand, with no possibility of regulation.

"In states like Nevada," says Nevada's Republican congressman, Jim Gibbons, "the gaming industry is well-regulated and its activities are tightly monitored. Allowing gambling to be performed on the Internet would open the floodgates for corruption, abuse and fraud."

Regulation of virtual casinos would prevent that, many proponents of on-line gambling say. Some claim they've invented the software or techniques to identify sly children and glassy-eyed adults at the other end of the computer network and cut them off. Then there's the operators who run the virtual casinos in some of the 42 nations now licensing or at least registering them as legal-and fee-paying-operations. They say what happens in the small, inexpensive rooms where their computer servers are located is no business of Kyl or anyone else in the United States.

And some, like members of the Interactive Gaming Council and others impressed by and envious of the $600 million flowing into 300 to 400 on-line casinos last year-with revenues predicted to reach $1.5 billion next year-say regulation is key to making on-line gaming work for U.S. companies. Regulated on-line gaming could be legal U.S. gaming.

If Americans know how to do anything, a few say, it's how to regulate gambling. Especially in Nevada. So who better to regulate this new kind of gambling, on-line proponents say, than the people who have all that experience making traditional, land-based casinos scrupulous?

"Nevada is the gaming capital of the world, and they could be, if they so chose, the Internet gaming capital of the world," a California manufacturer of Internet gaming software told Casino Journal Publishing Group's National Gaming Summary earlier this year. "It's certainly doable," he claimed, "but they're burying their heads in the sand."

Casino Journal asked Nevada Gaming Control Board chairman Steve DuCharme about the prospects. He has headed the board, the investigatory and enforcement arm of the Nevada Gaming Commission, since former chairman Bill Bible stepped down late last year.

CJ: Some on-line gaming companies say regulation is the key to the success of Internet gambling, and they cite the Nevada Gaming Control Board as an ideal possible regulator because of its reputation with traditional land-based casinos. What would you have to do if Internet gaming became clearly legal and the board suddenly had to regulate it?

DuCharme: You've got a lot of issues to resolve before anybody decides they want to regulate it now.

I guess the first issue is, "Is this good public policy? Do you want to have Internet wagering for casino-style games and sports wagering?"

Then there's the public policy question, "Do certain jurisdictions want this-would another jurisdiction like Arizona want us, in Nevada, to have our companies exposing these games for play in their state?"

It's not the same as a citizen of Arizona driving across the border to gamble in Laughlin. It's more like our people would be going into their state and opening up casinos and betting parlors without them having any say over it.

That's what's going on right now; this Internet wagering is available almost everywhere.

Some people will tell you they have the technology to restrict access to only those jurisdictions where it's legal; but just by our experimenting and testing the system, we find there are very easy ways around that. The most simplistic is using an Internet service provider who is from outside your jurisdiction. If we use a service provider from Canada, they would think we were from Canada-or they would have no way of tracking it back to Nevada. So there currently are just too many ways to circumvent these supposed technical safeguards.

Then you have the whole issue about "Is gaming or gambling good?"

In Nevada, they legalized gaming in 1931. The stated reason was to promote tourism to Nevada. Las Vegas, particularly, but Nevada generally, have grown into tourist destinations. We have entrepreneurs investing-now probably the entry level is close to $1 billion for these megaresorts-and they're employing 4,000 and 5,000 people and providing all kinds of jobs.

Internet wagering does none of that for Nevada. It doesn't cause people to come to the state. It doesn't have any secondary revenue-generating capability.

The taxing revenues could be almost anything you want, that's true. But I think almost every jurisdiction has found that if you legalize gaming just to generate taxes, it's a very regressive tax and it's not generally good public policy.

Taking that one step farther, we have, even in Nevada lately, given some consideration to problem gaming or compulsive gaming. We are seeing problem gambling within our citizens. Internet gaming would probably lend itself to abuse by compulsive gamers. What social benefit is it for someone to be sitting home at 3 o'clock in the morning in their house robe and slippers playing 21 against themselves on their credit card?

While Nevada operators have been able to successfully sell gaming as an entertainment factor, in conjunction with the resorts and fine dining and other entertainment, the act of displaying casino-style games in somebody's home on somebody's PC just doesn't have the same social value.

CJ: Do such points now effectively stand as policy at the Gaming Control Board and the Gaming Commission?

DuCharme: Currently, by regulation, Internet wagering is not allowed. The board, the commission, and the Nevada Legislature would, I'm sure, entertain any reasonable introduction of changes to the regulations and the statutes. However, the board and the state of Nevada are not in a position to independently undertake research to try to develop technological safeguards and a sophisticated regulatory apparatus to at least minimize the dangers, or to ensure the integrity, of Internet wagering.

It's a two-step hurdle for that. First, the policy-makers in the state of Nevada-and that's not me, that's the legislators, the governor, the Gaming Commission-need to be convinced that Internet wagering based in Nevada would be good public policy. Then somebody would have to figure out a way to research and develop a strong and efficient regulatory apparatus. And that would be expensive at this point.

CJ: How so? What would be involved?

DuCharme: First, you're going to have to develop technology that would prevent these games from being deployed in jurisdictions that don't want them.

The point of ensuring the operators' integrity and credibility, we can easily do, because that's what we do here on a daily basis for all of our close to 3,000 licensees that are in the state currently. That part wouldn't be a problem. It's the technology part. There are too many uncertains out there at this point.

I think what you're finding is some jurisdictions that are trying to take on this battle are legalizing it or authorizing Internet wagering and then trying to develop regulatory methods later, as they go on. That is really not a good way to regulate a privileged industry.

CJ: If a new set of regulations were written specifically for Internet gambling, how would they differ from existing regulations?

DuCharme: Existing regulations have been crafted over the past 40 years, based on the evolving casino-style gaming here. It's possible that people who are interested in conducting Internet wagering might propose possible regulations and develop technology that would give some regulatory agencies some comfort on some of the issues we spoke of earlier. They'd have to do the R&D, if you will, on developing a regulatory apparatus and then bring it forward. At that time, state agencies could review it and get involved in the process and refine it.

On the other side, I guess possibly some interested individuals could go to the Legislature and say, "This is going to be good for the state and we're interested in doing it. We want you, the legislators, to appropriate money for some state body to do the R&D and develop the regulations." That could be done, but that would require a statute change and some money to be appropriated.

Clearly, you're going to have to have computer technology experts to try to develop some kind of firewalls or safeguards to where, if you're not going to completely ban it, you're going to minimize the exposure of gaming to minors, minimize the exposure to credit-card fraud, the exposure of gaming in jurisdictions where it's not wanted or legal. All of those things are going to have to be worked out.

CJ: Has anyone in your organization come up with any ideas on how circumventing safeguards could be prevented?

DuCharme: No, we have not.

CJ: What do you think of other countries' licensing procedures for Internet gaming sites?

DuCharme: I can't comment because I don't know what the suitability requirements and investigatory techniques are in those jurisdictions. I do know that some jurisdictions in Australia have fairly sophisticated gaming regulatory agencies-and I don't have any personal knowledge that they're the ones doing these investigations or licensing-but, as I said before, you can build a very strong agency to do thorough background investigations. And you could ensure the integrity and credibility of the operator. That's not impossible. It's the technology behind it that remains to be seen.

CJ: What's your prediction for Internet gambling becoming legal in the United States?

DuCharme: What I see in the wind is a whole lot more gray. I don't think we're going to get to black and white within the next couple of years. And that's unfortunate. I think everybody would be better off if we made a decision that we're going to go with it or we're not going to go with it. Keeping a gray area kind of promotes illegitimate operations, and that will tend to tarnish any legitimate operator in the future.

CJ: What about passage of the Kyl Bill? That's practically a betting proposition these days.

DuCharme: Yeah, and I'm guessing it's going 6-to-5 against passage this year. But I'm sure that if it's not successful this year, there will be another version next year.

There needs to be something done about Internet gaming. This is an issue the federal government needs to address. It cannot be left to the states. They don't have the resources to have 50 different sets of regulatory and enforcement arms.

CJ: Has anyone from the federal government-the Department of Justice or other agencies-contacted the Gaming Control Board for ideas or opinions on Internet gaming regulation or enforcement?

DuCharme: No, but we provided input to the National Gambling Impact Study Commission throughout their two-year investigation. I believe one of their recommendations was that if any area of gaming would lend itself to federal regulation, it would be Internet wagering. And I totally agree, particularly where enforcement is concerned, because you're going across state lines.

CJ: Does the technology that's available-or not available-pose an enforcement problem? Some agencies have said enforcement of an Internet gaming ban would be very tough, almost impossible.

DuCharme: The Internet is vast, uncharted territory, and, yes, it is an enforcement problem and concern. But just because it's going to be tough to enforce doesn't mean that somebody doesn't need to address the issue. Otherwise, you're just going to have these illegal sites set up everywhere, and they'll be fleecing each jurisdiction's citizens until somebody says, "I've had enough of this." Still, it's very costly for states to be the world's policemen.

CJ: How does Indian gaming relate to this ?

DuCharme: That would be a whole separate little problem-or big problem-because of the assertion that tribes are sovereign, and would this federal regulation or enforcement apply to them.

Currently, the way I understand it and read it, for tribes to deploy games in Nevada, they would have to be compacted and licensed by us. I think that's the way we would read that in the future. Anyone in any state deploying a gambling game in Nevada would require Gaming Commission approval. But, if Internet gaming were to be legal-that's just a whole different issue.

CJ: One recent study shows that the demand for at-home gambling is going up quickly. Can gambling regulation stand up to the changes the Internet is bringing to the world society?

DuCharme: The policy-makers, specifically in this state, are going to have to make a determination whether they think it's good public policy for citizens to have that type of unrestricted access to gaming in whatever form they decide to legalize.

For many, many years, the state of Nevada's policy has been that it's a privileged industry that needs to be highly regulated to ensure the public confidence. Part of that is that gaming has to be conducted in public so that everybody can see how gaming is conducted and have the confidence that it's conducted honestly. That's one of the fundamental requirements of our public-policy statement, that it must be open to the public and not restricted in any manner. I don't know that Internet gaming currently meets that requirement.

CJ: Are you getting a sense that traditional gaming companies in Nevada are eager to get into Internet gambling if it becomes clearly legal?

DuCharme: It's not dissimilar to when Indian gaming was right on the horizon. I think a number of Nevada companies had mixed emotions. They said, "This could be detrimental to our business investment in Nevada. However, if it becomes legal and it becomes the norm, we as public companies owe it to our stockholders to maximize their investment, and so we would be derelict if we didn't." And they had the expertise in the industry.

Right now, they're in the same position about Internet gaming. They're saying, "We think this could be detrimental to our basic core business, which is casino-style gaming. However, if it's going to become the law of the land and legalized, nobody does it better than us, so let's do it."

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