The movement to legalize Internet gaming has come mainly from the U.S. House of Representatives, most notably from Barney Frank (D.-MA). Frank has so much seniority, and the Democrats have such a large majority, that he can get any bill he wants through the House. But to become law, it must also pass the Senate, and be signed by the President.
Barack Obama will not veto a bill from the Democratically controlled Congress.
Which means everything depends upon having someone shepherd a bill through the Senate.
That shepherd has finally arrived. On August 6, 2009, Sen. Robert Menendez (D.-NJ) introduced his proposed “Internet Poker and Games of Skill Regulation, Consumer Protection, and Enforcement Act,” S.1597, the “i-Poker Act”.
Although designed to be a companion bill to Frank’s proposals, the i-Poker Act is both more and less.
It goes into much greater detail in every area, especially in areas of protection of the general public and compulsive gamblers. Yet, it authorizes only “an Internet-based game in which success is predominantly determined by the skill of the players, including poker, chess, bridge, mah-jong and backgammon.”
Where the i-Poker Act first runs into trouble is in defining poker. I have testified as an expert witness on what is, and what is not, poker. It’s not easy. But it is certainly not this:
“The term ‘poker’ means any of several card games that are commonly referred to as poker; that are played by 2 or more people who bet or wager on cards dealt to them; in which players compete against each other and not against the person operating the game; and in which the person operating the game may assess a commission fee or any other type of fee.”
Having seen how “the game commonly referred to as bingo” has resulted in unending confusion under the Indian Gaming Regulatory Act, I suppose I should thank Sen. Menendez for helping to make so much work for lawyers.
The i-Poker Act creates another great make-work project for gaming attorneys. The bill would exempt from licensing any game of skill that is now “not regarded as gambling under an applicable provision of State or Federal law . . .” Nobody know what that would mean for a state like Colorado, where a jury ruled that poker was not gambling because it was predominantly skill, but the trial judge then decided that in future cases no evidence on skill versus chance would be admitted.
The i-Poker Act is clear in some areas. For example, no one will be able to set up a club filled with terminals for online poker play.
What about overseas operators who stopped taking bets after passage of the UIGEA in 2006? Both bills contain language that looks like it was designed to exclude foreign operators.
Anyone who failed to file a required federal or state tax return cannot be licensed. And there is no opportunity to cure the mistakes. So, if someone finds an obscure state tax form that should have been filed for “doing business” in that state, the web operator is barred forever.
On the other hand, the i-Poker Act has language, missing from the House bills, declaring that an operator who files an application within the first 90 days cannot be denied a license on the ground that it took online poker bets from the U.S. In fact, this language looks like even operators who are still aiming their poker sites at the U.S. market can be licensed.
More next column.
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© Copyright 2009. Professor I Nelson Rose is recognized as one of the world’s leading authorities on gambling law and is a consultant and expert witness for players, governments and industry. His latest books, Internet Gaming Law (2nd edition just published), Blackjack and the Law and Gaming Law: Cases and Materials, are available through his website, www.GamblingAndTheLaw.com.
PART II
#2009-12 © Copyright 2009, all rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I Nelson Rose, www.GamblingAndTheLaw.com
Internet gaming bills are pending in the U.S. House of Representatives, mainly introduced by Barney Frank (D.-MA), and now the Senate, the “i-Poker Act,” by Sen. Robert Menendez (D.-NJ).
Both sets of bills appear to set up a federal licensing and regulatory system in the Department of the Treasury. But both allow state and tribal gaming authorities to be approved by Treasury to certify applicants and even take over all regulation.
Both would make it illegal to take bets without the Treasury license. Cheating would be a crime, punishable by up to five years in prison. But there is no penalty stated, other than a 50% tax on deposits, for running an honest game without a license.
The i-Poker Act, however, requires the Director of the Financial Crimes Enforcement Network (“FinCEN”) to make up a list of every unlicensed website that takes bets from the U.S. All banks and other payment processors within the jurisdiction of the federal government will then be prohibited from transmitting money to these website operators.
The bills allow states a short 90 days to opt out. If the governor fails to send a letter to Treasury opting out, that state’s anti-gambling laws will be pre-empted. In practice, means that licensed operators from a state like Nevada will be free to operate games aimed at players in big states that can’t get their acts together, like California.
There are complicated provisions involving tribes. Dozens of tribes can act quickly to license themselves and others, while demanding other operators not take bets from tribal residents.
The Frank bills have no limit on what taxes states can impose on operators, but limit the federal government to what is called a fee of 2% on deposits. The i-Poker Act increases that to 5% for the federal government and another 5% for states and tribes. This give big states, where the customers will be, incentives to support Internet gambling operated and taxed by Nevada. Under the i-Poker Act, California gets that 5% tax. (Although, if a player is on Indian land, that tribe gets the full 5% and the state gets nothing.)
Regulating states, like Nevada, can tax gross gaming revenue, or even impose a third tax on deposits, if the operator has a physical presence in that state.
But another set of tax provisions would kill the i-Poker Act. Operators have to file reports with Treasury on every player, including name, address, Social Security number, deposits, wagers, loses and winnings.
Obviously, many players will not want this information given to the I.R.S. So there will continue to be a market for overseas operators, who will figure out ways to get around the ban on money transfers, for example, by using foreign payment processors and credit cards from non-U.S. banks. The feds will still have problems trying to get at foreign websites, and the money to be made would be too much to pass up.
Which version of the future of Internet gaming will win — Frank’s or Menendez’s? The online poker operators seem to be behind the i-Poker Act, while Harrah’s is backing the Frank bills. Poker alone would be politically easier to swallow.
But the real question is what can get by the Majority Leader of the U.S. Senate, Sen. Harry Reid, Democrat, representing Nevada?
The final version will probably be the one that is closest to what the Nevada casinos want.
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© Copyright 2009. Professor I Nelson Rose is recognized as one of the world’s leading authorities on gambling law and is a consultant and expert witness for players, governments and industry. His latest books, Internet Gaming Law (2nd edition just published), Blackjack and the Law and Gaming Law: Cases and Materials, are available through his website, www.GamblingAndTheLaw.com.
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