Protect Your Licence - International Regulatory Issues

11 March 2002

Last month we considered a 10,000-foot view of the key ingredients for a "world's best practice" regulatory model for interactive gambling. However, the focus was national. This month we briefly look at some international issues that may impact the direction for the regulation of interactive gambling.

Several key issues remain unresolved for regulators at this time. The resolution of these issues may have an impact upon regulatory frameworks currently in place (and contracts or business models should consider this uncertainty). For example, a list (not exhaustive) of outstanding issues follows. I am not a lawyer, so my view is not from a legal perspective, it is from the perspective of one who must assess the risks, and help companies and governments ensure they can demonstrate due diligence through technology and associated procedural controls.

  1. International trade agreements and the impact of legislation of foreign jurisdictions? That is, country A approves operators taking bets from country B, but it is illegal for citizens of Country B to place online bets. Is country A, aiding and abetting citizen from B to break the law? Recently IGN reported that the OECD has a position paper on interactive gambling and sovereignty issues. . . . Where might this go? How might this be consistent or inconsistent with the position currently being taken by the International Association of Gaming Regulators (chaired this year by Great Britain's Peter Dean CBE)? Will the WTO take a position? How might there be a trade agreement whilst some countries regard gambling as commerce and others a public health issue?

  2. Many governments are at this time considering to regulate (or oversee) interactive gambling nationally, and not at a state/provincial level. International trade agreements, taxation, telecommunications, privacy, consumer protection are all key factors. How might national government control impact provincial, state or Indian regulatory frameworks?

  3. E.U. privacy and/or the "OECD Guidelines on the Protection of Privacy and Trans-border Data Flow of Personal Data" will be required to be considered to conduct business internationally.

  4. In countries where a value added tax applies, we caution that the tax laws be understood and that the player point redemption system be developed in a manner that ensures VAT does not apply. There are generally test cases in relation to department store or other loyalty programs available.

  5. Innovative marketing and promotional methods may have different legal implications from country to country (e.g. a referral method may be seen as a "pyramid scheme," and possibly an illegal practice by some countries but not others).

  6. There is uncertainty over U.S. federal law in relation to gambling at this time with respect to 1084, the Wire Act of 1961. Additionally, at least six States of the United States expressly prohibit Interactive gambling. Some consider that the transaction (game play) occurs at the server (e.g. if I order a book from my PC, the book does not magically appear on my desk, someone has to process the order at the server). The U.S. position would seem to be that the book does magically appear (i.e. game play occurs at the PC)?

  7. What about residency versus location? Is a U.K. resident visiting Utah, USA playing from a computer in Utah, on a server in England breaking the U.S. law? The challenge is to identify not only the residence of the player but also the exact location of a player. It is to be expected that the test of reasonable care will be applied internationally. The U.S. position is not yet fully understood.

  8. There is at this time no 100 percent certainty that a player gambling at a site is over the age of consent (18 or 21 years old) in the country concerned. Documents may be forged demonstrating birth date, and a minor may have access to their parent’s passwords and user IDs. The former is a criminal matter (fraud) and the latter is a moral issue about the extent to which government regulation should enter the home.

  9. It is to be expected that the tests of reasonable care and of due diligence will be applied internationally. It is unclear if a zero-tolerance policy will be adopted by the U.S. federal government, and what impact this may have on American companies internationally.

  10. To export encryption over 128 bit in key length may violate federal law in relation to export of munitions and to do so could result in a charge of treason? How does this impact U.S.-based software development companies or game software being distributed from the States?

  11. The United States IRS requirement of taxation on international winnings (a tax on players) could make the Interactive gambling from the United States, even if it is legalized, an unviable business proposition. For example, in Australia, prizes are not taxed and not pro-rated, no matter what the size of the prize. This would have to be an attraction to international players playing on an Australian site. From the operator's perspective, the gaming tax and corporate tax might counter any benefit.

Until next time. . .

Steve Toneguzzo is the CEO and president of GGS, the recognized pioneer and world leader in regulation and business risk mitigation related to Internet Gambling Systems, security and operations for regulated markets.

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