Where there is gambling, there is sure to be government. At this stage, most internet gambling is UNREGULATED. So, gambling on the internet is running rampant.
Some countries regulate and encourage online gambling. Some do not care. Some are looking to BAN Internet Gambling. Because of this dichotomy, many stipulate that the online wagering business will flourish and contniue to grow exponentially. The structure of the internet makes the world a borderless place, and one or more countries will find it difficult to place a ban on an internet market that exists in other countires. The only "industry" which every nation has agreed to ban on the internet is child pornography.
Once this law passed, the industry divided into two sectors: One sector gave up on the US market. (Most of these companies were publicly traded companies such as PartyPoker.com). The other sector (mostly smaller to mid-sized companies) viewed this as the greatest marketing opportunity and have been aggressively targeting the US market, seeking online US players from the companies that abandoned them.
In 2005 and 2006, 7 US states passed laws prohibiting online gambling. Those states are: Washington (SB6613), Illinois, Louisiana, Michigan, Oregon, Wisconsin and Indiana. Prior to that, a half-century old law that covers this issue is known as the Federal Wire Act of 1961. This law dictates that an American can not use the phone lines to place a bet. So, its against the law for Ralph Kramden in Brooklyn. NY to telephone his bookie in Las Vegas to place a USD $ 100 bet on the New York Giants Football team at the Superbowl. He has to physically GO to Las Vegas and bet there. The problem is that the law was written before the internet existed, so no one had a clue this technology would develop. It remains as a legal loophole for Americans to place online wagers, as many are doing currently.
But, no one can OWN and/or OPERATE a casino in the USA without a license. WIGC, a New York State corporation had a casino server in Antigua (Caribbean Nation) and ran its gambling operations from there. In July of 1999, they were found guilty in a New York State court of violating Gambling laws. The judge indicated that the casino server could be anywhere (including the planet Mars), but if the company is incorporated within a US State (ie: New York), then the company and its operations are subject to its own State's laws. On February 28, 2000, Jay Cohen, a online casino and sportsbook operator based in Antigua whose casino was taking bets from Americans, was found guilty on all counts of violating the Federal Wire Act of 1960. On August 9, 2000, he was fined USD $ 5000 and was sentenced to 21 months in prison. In June of 2002, his appeal to the US Supreme court was rejected and he must serve the full sentence.
**For this reason, most online gaming companies AND their servers are located offshore (ie: Antigua, Curacao, Dominican Republic, Venezuela, Costa Rica, etc).**
( One of the best books to read on starting an offshore corporation is Tax Haven Roadmap, by Richard Czerlau )
The tiny Caribbean island of Antigua had challenged USA legal actions in the World Trade Organization (WTO). Antigua won the case in March 2006. They also won the appeal in March 2007. The island is pressing for $3.4 billion in fines from the USA. Many European and Asian nations also had thrown their hat in the ring as well, with damages claimed by all the governments to be close to $100 Billion. The WTO may decide that all US patents, trademarks and copyrights are null and void in these countries, allowing them to reproduce and sell copied materials. Should this happen, large companies such as Microsoft, Sony, Dow Chemical and others would become the largest proponents for online gambling in order to protect their products.
On March 13, 2003, Congressman Conyers from the US House of Representatives introduced HR 1223 (also known as the "Internet Gambling Licensing and Regulation Commission Act"). The first of such bills introduced to the US House of Representatives, it proposes creating a 12 month commission to study the possibility of regulating internet gambling in the USA. What is important is that no less than 18 months after the act is passed can US Congress make any changes to the existing laws regarding internet gambling. The governments major concerns are (1) that minors will be prevented from Gambling online and (2) the money generated from Internet Gambling will not be used for money laundering and terrorism. The bill is currently in committee.
Around the same time as Conyers was introducing his bills, On January 7, 2003, the US House of Representatives introduced HR 21 (also known as the "Unlawful Internet Gambling Funding Prohibition Act"), proposed legislation to amend Title 31 of the US Code to cover internet wagering as well. The US Senate on March 13 introduced a similar bill, S 627. Both S627 and HR21 define illegal gambling and acts to prevent monetary commerce for "unlawful" gambling purposes by making unlawful financial transactions for gambling in both an online and wireless environment where no legislation exists. Both S 627 and HR 21 are extremely weak when dealing with offshore casinos, however the attempt to use the U.S. Banking system to stop all foreign related transactions is clear. On June 11, HR 21 was passed by the House. On July 31, S 627 passed the Senate Banking committee and now goes to the Senate floor for a full vote. The bills are somewhat similar to HR 556 (also known as the "Leach-LaFalce Act") and HR 2579. (Both were submitted in 2001 and failed in 2002 as they were not voted on in the US Senate during that year).
HR 3215 (also known as the "Goodlatte Bill") was submitted in 2002. It is designed to make internet gambling illegal where no legislation exists. This does not include Indian lands and States like Nevada and New Jersey that may enable online gaming in the state (see below). It does have the authority to shut down websites that do not comply with written requests from law enforcement to do so.
On October 16, 2001, the US House of Representative Members removed legislation from an anti-terrorism bill, HR 3004, proposed legislation to "combat the financing of terrorism and other financial crimes, and for other purposes." This bill came in the wake of the September 11, 2001 terrorist attacks on US soil. The bill covers money laundering and "suspicious" financial transactions. Removed were sections 303 and 304 on online gambling, which dealt with illegal financial transactions for internet gambling within the United States. The section's removal was significant, as it marks the 4th time in 3 years the US Govenment has failed to prohibit internet gambling. It also had attempted to define "unlawful internet gambling." The full text of the bill can be read HERE. This ARTICLE discusses its significance and provides a summary.
In July of 2001, Nevada State Assembly approved bill AB466, which establishes a commission to evaluate the feasibility and requirements for online gaming in the State of Nevada. The bill itself is extremely confusing, as it was attached to another bill and refers to many others, such as AB578, which sets the fees. Initially, the Casino Control Board of Nevada will test various software platforms and come up with standards required for an internet casino operation within the State of Nevada. There is no date set for the standards to be finalized. Some of the more important standards that will be set are in providing "reasonable assurance" of the following:
The tests will take some time and it is expected to be a slow process. Once implemented, Land Based casinos within the State of Nevada that qualify will apply for an internet gaming license. Most within the industry generally expect to see Las Vegas casinos having a much stronger online presence within the state of Nevada sometime around early 2003. An outline of the entire bill can be read HERE.
Many companies are considering getting a gaming license in the state of Nevada. This is a long term strategy for a physical Las Vegas presence, which will establish credibility and improve online presence. However, the State of Nevada has very strict requirements in order to obtain any form of gaming license. Full background checks of all executives and the company are standard. Any hint of wrongdoing will result in automatic rejection. In addition, for an internet license, some counties require that the land based casino have minimum of X number of rooms in the hotel, have a minimum of X number of tables in the casino, have had a gaming license for 5 years first before applying for an internet license, and so on.
To read the outline of AB466, click HERE.
In January 2001, New Jersey State Assemblymen Anthony Impreveduto (D-Secaucus NJ) and Niel Cohen (D-Elizabeth NJ) introduced A-3150, a bill proposed to regulate internet gambling within the state of New Jersey. If passed, it would allow for both land-based casinos in Atlantic City and online casinos to accept wagers from residents within the state of New Jersey. This legislation is currently one of the most controversial and most watched in the industry.
To read the FULL TEXT of the bill, click HERE.
In February and March of 2001, the Oregon State Assembly introduced bills 755 and 2823, respectively, to ban online gambling within the state of Oregon. To read the full text of the proposed measures, click here for 2823 and here for 755.
On February 23, 2001, the California State Assembly introduced bill 1229 to ban online gambling within the state of California. This bill was eventually eliminated from review. To read the full text of the proposed measure, click here.
In 1999, Senator Kyl (R-Arizona) introduced S-629, a bill to BAN gambling on the internet. It passed the Senate in December of 1999 and it "died" in the House of Representatives.
In essence, the bill had said it is unlawful for ANYONE ANYWHERE IN THE WORLD to gamble on the net, particularly in the USA. Exceptions proposed were internet gambling on Horse Racing, State Run Lotteries and Sports Leagues. As for punishment, the bill tried to have the gambler lose his account with his internet service provider (ie: America Online would cancel his account). But the proposed penalties for the company or individuals running the internet casino were severe: Jail and a Fine.
The House of Representatives introduced a similar bill (HR3125), and on July 17, 2000 it FAILED to achieve the proper amounts of votes. It is also now a dead bill. There is no doubt that these types of bills have MANY flaws, including rights to privacy and diplomatic laws. For the most part both bills were written by elderly statesmen with very limited knowledge of how the internet works. Also, there is still a strong lobby to push these types of bills through Congress (ie: Las Vegas originally did not want internet gambling, although their opinion is now looking more favorable for it). At this time the Kyl bill may be a "dead issue," as it was not voted on in the US House of representatives prior to Decmeber 31, 2000. It will need to be re-introduced into the US Senate to move forward. Make no mistake, there IS still plenty of political power trying to curb the online gaming business.
IT IS STRONGLY RECOMMENDED YOU READ THROUGH THE BILLS BELOW THOROUGHLY BEFORE COMING TO ANY DECISION ON THIS BUSINESS
On February 12, 2001, The Committee on Banking and Financial Services in the US House of Representatives submitted Bill HR 556, otherwise known as the Internet Gambling Funding Prohibition Act. This bill is particularly deadly as it is designed to make it illegal for financial institutions to process and accept payments for any online casino and sportsbook business. This includes credit cards, wire transfers, checks, electronic fund transfers. Penalties are up to 5 years prison for the gambling institution.
IT IS STRONGLY RECOMMENDED YOU READ THROUGH THIS BILL THOROUGHLY BEFORE COMING TO ANY DECISION ON THIS BUSINESS
Click to read the full text of the Internet Gambling Funding Prohibition Act (HR 556): proposed legislation to ban credit card useage for online gambling in the USA.
There are some that scoff at the enforceability of these types of proposed legislation. There are others that support it. Oddly enough, the US Department of Justice states that most anti-internet gambling bills unenforceable. Diplomatically, its a nightmare. For example, the Government of Antigua does not recognize the authority of the United States when it comes to Gambling over the internet. Antigua's policy is: "Don't tell us not to take internet wagers from Americans....Stop Americans from placing online wagers with us." Lastly, the failure of the House Bill HR3125, and the fact that the Kyl Bill was not voted on before December 31, 2000 and two other failed attempts by the US Government has created a psychological possibility that legislation of this type may not get enough votes to pass.
The bills above were prompted by the National Gambling Impact Study Commission (NGISC) report. Another excellent report worth reading is the International Association of Gaming Regulators (IAGR) report.
However, if the US Government Bans internet gambling and an offshore online casino and sportsbook operation continues to take bets from US citizens, it will not be necessary for the FBI to go offshore to arrest the principles of the online casino company. Anyone in this business at one time or another will most likely have to go to one of the conventions associated with gambling. Most of the big conventions are in Las Vegas, Nevada. If the FBI is after the principles of an offshore online gaming company, then that is the most likely place where they would be handcuffed, either at the airport or at the convention. (Jay Cohen was arrested at a US Airport). In the 3rd quarter of 2006, there were 2 arrests on US soil. After that, owners of online gambling operations have decided not to travel to the USA.
For those not familiar with the USA legislative process, it is highly recommended you read Enactment of a Law (written by Robert B. Dove, Parliamentarian, U.S. Senate). It explains how Federal Government laws in the USA are introduced, voted and passed. Also, How USA law is made is a very detailed description of the entire US Congress and US Senate legislative process (written by by Charles W. Johnson, Parliamentarian, U.S. House of Representatives).
( A report on US online Gambling Laws is in Adobe .PDF Format 1999 - University of Indiana Law Library)
( A book on US Gambling Laws, which covers online Gambling, is Federal Gambling Law 1999 - numerous authors )
The best Journal/Periodical in the industry is Gaming Law Review, published twice monthly (covers both land based and internet based legal issues).
See the conferences and expositions section for a list of conferences. Legal seminars and discussions are always brought up there.
It is also best to consult with legal experts with regard to various issues on Internet Gambling. Cole, Raywid & Braverman, L.L.P. a firm with experience in online wagering law, has more information on online gaming laws in the USA.
Also, the following individuals are known experts in the Internet Casino and Sportsbook legal field.