Something in the Water???

11 February 1999

Perhaps it was the setting.....at conservative Christian Regent University, but the National Gambling Impact Study Commission (NGISC) Internet Gaming Subcommittee seemed possessed by moral spirits. While they expected testimony on the topic of internet gaming on Wednesday, the subcommittee met Tuesday (2/9/99) and voted 3-0 to recommend prohibition of internet gaming. It seems that both internet and tribal gaming will be the sacrificial lambs of the NGISC study.

It was clear from the comments that this stance was precipitated on the moral concerns of bringing gaming activities into the home. As a matter of fact, comments made by some of the NGISC members on the topic show just how extreme the opinions are. It was reported that some members felt that the proposed prohibition bill offered by Senator Kyl was too generous. Comments from far right Christian Dr. James Dobson as well as Californian Leo McCarthy noted that they felt there should be no exemptions in the bill. That's sure to bring howls from the parimutuel industry, lotteries, land-based casinos and fantasy sports leagues which had successfully garnered some much coveted exceptions in the last bill passed in the Senate.

But undaunted by that turn of events, Albert Angel, Vice-Chairman of the Interactive Gaming Council ("IGC") testified to the National Gambling Impact Study Commission on 2/10. He called on the Commission to endorse a comprehensive system of federal, state, and international regulation of the online gaming industry. "We believe that the best way to ensure that consumers are protected, children are kept from accessing online gaming sites, and those with gambling problems get the help they need is to craft a comprehensive regulatory framework," stated Angel. The IGC's representative outlined four principles for an effective regulatory regime in the United States: jurisdiction, licensure, enforcement, and respect for states' rights.

Despite overwhelming testimony supporting the effectiveness of regulation over prohibition, the Commission seemed predisposed to support a federal ban on interactive gaming. "A majority of commissioners appear willing to leave consumers defenseless and ignore the regulatory benefits of evolving technology in favor of a morality-based outcome," noted Angel.

In a release on the topic, the IGC stated that they believe a federal prohibition of interactive gaming, much like the federal prohibition of alcohol in the 1920s, would usurp each state's authority to decide what is best for its citizens. Moreover, the Gaming Council believes that the prohibitory approach posited by the Dr. James Dobson and other commissioners is an endorsement of a broad-based federal responsibility for raising children, which ultimately undermines parental rights.

"What's disappointing is that the Commission has rejected common-sense regulation, even though most recognize that it would be far more effective than an old-style federal prohibition," said Angel.

Attached is the written finding of facts and recommendation which were submitted to the NGISC by Angel.


Interactive Gaming Council
List of Proposed Findings and Recommendations
For the National Gambling Impact Study Commission

February 3, 1999

Findings

  • Because of the global nature of the internet, online gaming has necessarily become an international issue. More than 15% of the world's recognized governments, including such nations as Sweden, Finland, Australia, Germany, Liechtenstein, the Netherlands Antilles, Costa Rica, Domenica and Antigua, currently permit online gaming in some form. Other countries' experiences show that it is, in fact possible to regulate internet gaming. By contrast, no country has yet passed a complete prohibition of online gaming.

  • A growing roster of reputable companies are interested in providing interactive gaming. These include companies whose land-based casino operations are already licensed and regulated in the United States, e.g., Bally's (intrastate interactive wagering in Nevada) and IGT (application for internet licensure in Australia). Similarly, Fox/News Corporation and Telecommunications, Inc. have partnered to provide in-home pari-mutuel wagering in a number of states.

  • Account based, interactive pari-mutuel wagering has been permitted and regulated in the United States for more than 25 years. During this period time, there have been very few consumer-related problems, fraud, abuse, or economic damages attributable to the remote acceptance of bets over telephone lines by regulated operators.

  • Great consumer demand exists for interactive gaming, including internet casino wagering, telephone sports book betting, and other in-home and in-flight wagering and entertainment systems. In light of the growing global trend to accept and regulate these activities, unilateral prohibitions will necessarily fail. In contrast, a closely-regulated environment will not only reward those operators who fully comply with oversight and regulation, but will also be far more effective in addressing perceived needs.

  • The internet is an extraordinary medium which provides unprecedented opportunities for people in geographically diverse locations to conduct commerce, exchange information, and entertain. While the internet itself can not and should not be regulated, gaming products offered over the internet must be subject to government regulation.

  • Regulation seems, at first, a far more difficult endeavor than prohibition. However, regulation provides greater benefits, such as increased effectiveness in addressing societal and economic concerns, collection of tax revenue, and greater consumer protection.

  • A strict federal prohibition raises serious questions of constitutionality. In 1997, the Supreme Court in Reno v. ACLU, 521 U.S. 844 (1997) ("Reno I") found that the Communications Decency Act (CDA) was overbroad, and thus, an undue burden on free speech. For similar reasons, a federal district court recently declared unconstitutional the Child Online Protection Act (COPA), which was enacted after the CDA was overturned. See, ACLU v. Reno, No. 98-5591 (E.D. Pa. Feb. 1, 1999) ("Reno II"). In both cases, the courts held that the internet cannot be made to conform entirely to the needs of the most vulnerable in our society - children. To do otherwise would risk limiting the content of the internet "to that which would be suitable for a sandbox." Reno I, citing Bolger v. Young's Drug Products Corp., 463 U.S. 60 (1983).

  • The Supreme Court and other federal courts have recognized that some commercial speech available on the internet is constitutionally protected. At the very least, the question of whether advertising of gaming services (or even the gaming activity itself) is protected by the First Amendment is subject to debate.

  • The challenges currently facing those who would regulate online gaming are similar to the challenges regulators faced when gaming emerged in Las Vegas in the 1950's. However, new technology has made regulating gaming on the internet even more feasible. Technologies such as filtering software, hardware methods of identifying the origin of an online transmission, cross-relational database technology, and biometric identifiers can allow regulators to ensure that a transmission is coming from a particular individual who, under law, is eligible to participate in online gaming activity.

  • Technology also exists to ensure that online games are fair and free of fraud. Regulators currently use such technology to regulate video poker machines and other computer-based games. It would be relatively simple to extend such technology to the online world.

Recommendations

  • Enforcement efforts should be focused on the operator, not bettors. As the United States Department of Justice has stated: "Prosecuting individual bettors … would be an almost impossible task for the federal government. . . . In our view, extending federal jurisdiction to cover mere bettors would be both unnecessary and unwise." Letter from Assistant Attorney General Anthony Sutin to Senator Patrick Leahy, May 28, 1998.

  • Internet gaming companies should submit to U.S. jurisdiction if they are to offer gaming products to U.S. citizens over the internet. Operators should be required to either have a physical presence within the United States, or post a surety bond with a recognized international body if they are to enter the U.S. market. The physical presence requirement would permit regulators to regulate through the traditional methods of land-based law enforcement. Similarly, the posting of a bond provides a remedy for regulators in the event of noncompliance.

  • Licensing. Operators should be subject to licensing by the state, commonwealth, or tribal government that has jurisdiction over the actual physical location in which their server resides. The scope of regulation would be a matter of state, commonwealth, or tribal law, but should include: (a) methods to check game integrity; (b) screening of problem and underage gamblers; (c) background checks of operators and employees; and (d) collection of appropriate taxes. For those seeking to post bond instead of relocating to the U.S., standards for regulation of games offered to U.S. citizens would have to be set by federal oversight authorities. An alternative to patchwork state-by-state regulation may be a national licensure process administered by an appropriate federal agency, e.g., the Federal Trade Commission.

  • Enforcement. Enforcement efforts should primarily take place at the state level. However, the federal government should have a role in promulgating national minimum standards for regulation and consumer protection, particularly in light of the interstate and international instrumentalities and the need for coordination and comity. In the case of an operator physically located in the United States, the regulatory authority of the state in which the server is established would be the primary enforcer. For overseas operators, enforcement authority would reside primarily with the federal government.

  • Parity between cyberspace and the real world. In order to facilitate the continued growth of the internet, and to avoid discriminatory application of the law, the U.S. Department of Justice has said that one requirement of any internet legislation is that it must treat physical activity and cyberactivity in the same way, absent some significant and articulable reason. See, Letter from Assistant Attorney General Anthony Sutin to Senator Patrick Leahy, May 28, 1998. In furtherance of that goal, players physically located in jurisdictions where gaming is legal should be permitted to partake in interactive gaming. If blackjack is allowed in Las Vegas, Nevadans would be permitted to play blackjack online with U.S. based and licensed operators.

  • Respect for jurisdictional boundaries. Operators should be prohibited from offering online games to residents of jurisdictions where such gaming is specifically declared illegal by state or tribal governments. Non-gaming law enforcement authorities would be authorized to seek civil and/or criminal sanctions - including forfeiture of operating licenses - for failing to screen out gamblers physically domiciled in non-gaming states.

  • Interaction with international regulators. The International Association of Gaming Regulators (IAGR) has begun the process of developing minimum standards to facilitate and make uniform the regulation of internet gaming products. The United States should participate in these multilateral negotiations.

  • Respect of pre-existing legislation. Congress should adopt no law to abridge activities now permitted under pre-existing legislation (e.g., use of satellite technology under the Indian Gaming Regulatory Act, use of cable access under the Interstate Horse Racing Act) unless, after taking into account the balanced objectives to be achieved, a change of such law is made through direct amendment of the underlying legislation itself.