US Study Commission Explores Internet Gambling

Those who have been following the progress of the National Gambling Impact Study Commission in the US will be interested to hear that the subcommittee addressing internet gambling is definitely gearing up. On Dec. 2, '98, they held hearings in Washington DC, and IGN will run some of the testimony presented.

Below is the testimony offered by Alan Schneider, the new Executive Director of the Interactive Gaming Council who is operating out of the Vancouver, British Columbia offices of the IGC.

Also Read Art Rosenberg's Testimony

Mr. Chairman, members of the Subcommittee, my name is Alan Schneider. I am the Executive Director of the Interactive Gaming Council ("IGC" or "Gaming Council"), which is the global trade association for internet gaming operators, suppliers, and publishers. Thank you for the opportunity to testify this afternoon.

About the IGC

I would like to begin by describing what the Gaming Council is, what we do, and what we hope to accomplish. The IGC was formed in 1996 to address the difficult issues that arise from interactive gaming. It is a member-driven organization with 55 current members, many of whom operate interactive gaming sites on the world wide web.

The Gaming Council has three main missions: (1) to represent the interests of the interactive gaming industry before national and international bodies; (2) to provide support to our members on legal, ethical and technical matters; and (3) to provide fair gaming environments.

Events Around the Globe

Mr. Chairman, it is no coincidence that I came from Vancouver, Canada to testify today. Like the internet itself, interactive wagering is truly an international phenomenon, and my Canadian heritage is a testament to that.

The internet industry is rapidly developing around the globe, with new and unfamiliar businesses being created in the world of e-commerce every day. The world's first gaming site sprung up on the internet in 1995. In 1998, according to Interactive Gaming News, more than 250 web sites now offer casino-style wagering, lotteries, sports books, charity games, and other interactive games of chance. As interactive wagering becomes more accepted by consumers in jurisdictions around the world, we expect the number of sites on the web to grow exponentially.

Currently, more than 22 jurisdictions permit interactive gaming in some form. Many are located in Central America and the Caribbean. However, major industrialized nations are beginning to accept on-line wagering as legitimate entertainment. Most recent discussions have focused on Australia, and the Internet Gambling Player Protection Act in the state of Queensland. But other British Crown Colonies are following suit, as are several European nations. The International Committee of the Red Cross is experimenting with a multinational internet lottery to raise funds for its disaster assistance operations. And even in some areas of the United States, in-home interactive betting on horse races can be done through one's cable television box.

The fast growth of the interactive gaming industry is a result of the internet's architecture. Given the way the internet functions, all that is necessary for on-line commerce to thrive is a single legal jurisdiction in which to base a web site. Once the hardware and software are set up, content can be made available to almost any person with access to a computer living in an open society. Of course, countries like China and Iran can theoretically attempt to review all e-mail transactions, filtering out anti-government statements and political speech, calls for the respect of human rights, or even transactions like internet gambling which may not be sanctioned by the state. Likewise, they can invade people's homes and seize computers and software. But the invasive governmental oversight necessary to do so in totalitarian regimes is not possible in countries where, to paraphrase U.S. Supreme Court Justice Louis Brandeis, "one has the right to be let alone."

In addition, such action will severely hinder growth and development of electronic commerce. It is abundantly clear that filtering will reduce the effectiveness of internet applications as they relate to research, the flow of information, and entertainment value. Screening content for specific words will likely cause electronic gridlock on the information superhighway. For example, if the government were to screen out all e-mails containing the word "bet," it would surely affect subscribers to "BETter Homes and Gardens" magazine.

In short, with almost fifteen percent (15%) of the world's recognized governments accepting interactive wagering, it is difficult, if not impossible, for a single free and democratic nation to build an electronic wall that keeps its citizens from betting on-line.

Advocacy

As part of our advocacy effort, the IGC has been in the forefront of the debate over legislation that would completely prohibit interactive betting in the United States. We believe that the threshold question for policy makers must be whether a prohibition enacted by a single government can address consumer protection issues itinerant with internet gaming while preserving access to information and traditional expectations of privacy. Given the global reach of the internet and the manner in which data travels, we believe unilateral action can only harm those people who need protection the most. For this reason we strongly urge policy makers to debate regulation as a workable and evolving alternative to prohibition. Let me illustrate this point.

In the 1920s, America enacted a constitutional amendment prohibiting the sale of alcoholic beverages in an attempt to stop the widely accepted practice of drinking. Despite the power of federal law and the presence of Elliott Ness and other revenuers, millions of gallons of whisky were produced outside of the United States and smuggled in for sale on the supposedly prohibited black market. Your average bootlegger did not need to ensure that the people consuming his product were of legal age, or even that the product was safe for consumption, since there was no regulation for which to comply. Prohibition merely pushed the existence and activity of the alcohol industry underground and further out of the control of regulators.

The paradigm of internet gaming is similar. Much like the U.S. border in the 1920s, the electronic frontier is porous. It is virtually impossible to screen all of the e-mail traffic on the internet or block out gaming content. Current encryption technology allows for individuals to protect the privacy of their transmissions even from the eyes of well-meaning government officials. Even if we assume that an outright prohibition is technically possible, such an effort would pose serious constitutional and privacy issues.

As an alternative to monitoring e-mail usage, one suggested solution has been to force Internet Service Providers ("ISPs") to close down access to gaming-oriented web pages. Even if sites are identified and access to them denied, operators can change their URLs or "web address" in about 90 seconds in order to circumvent such an electronic blockade. We believe, therefore, that prohibition would eliminate any incentive for operators to provide fair, controlled and appropriate games while at the same time creating a crime that is expensive and difficult, if not impossible, to prosecute by American officials.

A prohibition that turns legitimate companies and operators into criminals will drive legitimate sites out of business or out of the country. In neither case, however, will adequate enforcement prevent consumers from actually accessing this type of entertainment. It will merely limit the ability of state and federal officials to regulate in the interests of consumer protection.

Prohibition vs. Regulation

This raises an important point. As much as the industry opposes prohibition, the Gaming Council does not support open and unregulated gaming on the internet either. We agree with the American Gaming Association insofar as governmental regulation of this type of commerce is absolutely necessary for consumer protection. I think you will find that this industry is one of the few technology based industries that would NOT object to governmental regulations. In fact, IGC members are actively seeking the opportunity to submit to regulation and taxation in the United States and other nations.

In the past, policymakers have wondered why, if it is impossible to prohibit online gaming entirely, it is possible to regulate it. The answer is simple: market forces. In jurisdictions such as Las Vegas and Atlantic city, illegal gambling is extraordinarily rare. Consumers recognize the value of dealing with well-regulated entities, and are unwilling to take unnecessary risks. Regulated casinos, both in cyberspace and in the real world, will crowd unregulated operators out of the market. Why would someone place a bet with the corner bookie, when he could place that same bet at the Caesar's Palace sports book, and be assured of payment if he wins. Likewise, why would someone gamble at www.flybynight.com, when he could instead play at www.taxedandregulated.com, where he would have a means for recourse in the event of a dispute? The gaming industry is one in which both operators and consumers can benefit from a well-thought out, comprehensive system of regulation.

With that thought in mind, the IGC has invited and opened a dialogue with a number of international bodies to establish a set of basic minimum standards, as well as model legislation that would apply to internet gaming operators. The Gaming Council has called on the North American Gaming Regulators Association, the International Association of Gaming Regulators, the North American Parimutuel Regulators Association, and a number of other law enforcement groups to participate in drafting such measures. We hope that the National Gambling Impact Study Commission will join us in this effort as well.

Code of Conduct and Seal of Compliance

One of the most important projects taken on by the Gaming Council has been its Code of Conduct. The Code of Conduct is essentially a list of minimum standards that the Gaming Council expects each of its members to follow. (A copy of the Code of Conduct is attached for your review.) If they do, IGC member operators are entitled to apply to use the Gaming Council's Seal of Compliance, which Mr. Rosenberg discussed this morning.

The Seal of Compliance is designed to move the interactive gaming industry to the next level. This initial phase is intended to increased consumer confidence by establishing a dispute resolution process. It also serves as a working model for international legislators and regulators by providing a framework that mandates disclosure requirements and operating standards of the operators and suppliers of interactive gaming services. Subsequent phases will address software testing and operating system compliance, regional regulatory requirements and taxation.

As consumers learn of the value of the Seal of Compliance, we hope that they will look for it before playing. Given the value of brand identity and good will in the world of cyberspace, we believe the threat of sanctions and the potential loss of the Seal will encourage ethical business practices among IGC members. Thus, the Seal of Compliance program is designed to allow the free market to reward honest operators with consumer confidence and penalize those who fail to play by the rules. While the Seal of Compliance can never take the place of a well-developed set of government-enforced regulations, we believe it is a step in the right direction. Again, however, we prefer to work with governmental entities to develop feasible solutions to concerns that you and other fact-finders have identified.

Underage and Problem Gamblers

Another area where the Interactive Gaming Council is making progress is in dealing with underage and problem gamblers.

Our members have every reason to keep kids from gambling. One member of Congress talks about children "stealing the family credit card and gambling away the mortgage." Anyone with any understanding of the credit industry recognizes that such a scenario is just not possible. When a child uses a credit card, it is neither the parents nor the merchant banks who end up paying for fraud and abuse - it is the individual operators who incur the costs and subsequent consequences. Each year, IGC members collectively accept thousands of dollars in so-called "charge backs" related to unauthorized use of credit cards. Sometimes the cards are stolen, sometimes they are used by children without parental consent. In any event, IGC members incur these costs, not the members, not the credit card companies. To claim otherwise is, at the very least, disingenuous.

Thus, the IGC and its members have decided to take proactive steps to prevent underage gambling. At the operator level, for example, sites contain some mechanism to screen out minors. Earlier this year, the Gaming Council formed a partnership with the filtering software company SurfWatchTM to ensure that the sites of IGC members were properly coded to prevent children from gambling. These are only the first steps, however. Parents still have the ultimate responsibility to know what their children are doing on-line. Nevertheless, our members want to do everything possible to keep parents informed and minors from gambling.

With respect to problem and compulsive gamblers, we recognize that addiction is a serious matter that must be addressed. One of the goals of the Interactive Gaming Council is to design a public education program which targets consumer issues. To that end, IGC members are participating is a responsible gaming effort known as the Helping Hand campaign.

The Helping Hand campaign, which is part of the IGC web site, offers the 20 Questions of Gamblers Anonymous as well as links to compulsive/problem gambling help lines and information sites. In addition, most IGC members have well-placed links to Gamblers Anonymous and other similar groups in an effort to address problem gambling.

In the near future, we also hope to provide consumers with the ability to set transaction limits, establish cooling off periods, and when necessary, lock themselves out of the system, prior to placing their first wager on-line. I am sure you will agree that the IGC is proactively addressing these issues with greater consideration for integrity and ethics that comparable industries with similar problems.

Conclusion

Mr. Chairman, we recognize that the internet poses news and unique problems for regulators seeking to protect consumers, land-based operators concerned about competition, tax collectors, and opponents of gambling in general. The industry stands ready to work with you and other organizations in this regard.

When you evaluate interactive wagering, we hope you will look at two questions:

1. Is it possible for a single government to fashion an effective, broad-based prohibition on interactive wagering? Given the events in 22 jurisdictions around the world, we think that proposition is doubtful.
   
   
2. Since internet gaming cannot be prohibited, can it be regulated and controlled? Industry leaders recognize the value of submitting to comprehensive regulation and taxation. By providing an intermediate set of sanctions, and establishing minimum standards recognized by the community of nations, consumers, children, and problem gamblers can be protected.

Mr. Chairman, that is the extent of my prepared remarks. I'll be happy to answer any questions that you or other members of the Subcommittee may have.