50 Shades of Black Markets

written by I. Nelson Rose

Gray markets have become big business.  The American Gaming Association estimates Americans bet $511 billion with illegal and unregulated operators, costing legal sites $44.2 billion in gross gaming revenue and states $13.3 billion in taxes.

American regulators can’t do much about foreign criminal competitors.  But you would think state regulators would become concerned when the very companies the regulators themselves have licensed are the ones which may be breaking the law.  The $511 billion estimate is only how much Americans bet.  It does not include the hundreds of billions of dollars in wagers which our licensed gaming sites accept from players overseas, where gambling is illegal.

But regulators don’t even have a definition of what makes a gray market gray.  At least not a definition that works.

Everyone should agree, at least, on what makes a black market black.  This is a jurisdiction, usually a nation or state, where it is a crime to make or accept a wager.  Iran, for example.  It illegal under U.S. federal law to do business with Iran.  There are exceptions; but taking wagers online from gamblers physically in Iran, is not one of them.

Further, Iran makes it clear that gambling is forbidden not only by government, but also by religion.  The Islamic Penal Code of the Islamic Republic of Iran, Book Five, the only part of the Penal Code that has been adopted permanently, states, “Gambling by any means is forbidden and the offenders shall be sentenced to one to six months’ imprisonment or up to 74 lashes; and if they commit gambling publicly, they shall be sentenced to both the punishments.”

But, that is not enough, under the prevailing standards of gaming regulators, to take Iran out of the category of gray market.  Since virtually every jurisdiction makes it a crime for their residents to make bets online with foreign operators, American regulators have imposed an additional requirement: To be a black market, the foreign governments has to actively enforce its prohibition on internet gambling.

I suspect that this rule is designed to make it easier for U.S.-licensed operators to take bets from abroad.  China, for example, an enormous market for internet gambling, makes it very clear that it violates both its civil and criminal laws for anyone in China to make a bet online, and for anyone anywhere in the world to accept such a wager.  But operators licensed by U.S. states, and other Western jurisdictions, have never had their licenses suspended, nor even paid a fine, for taking billions of dollars in bets from China.

What about Iran?  It turns out Iran does, in fact, actively enforce its anti-gambling laws — both inside and outside its territory.  As does China.  Naturally, foreign nations have the most influence with their neighbors.  Iran, for example, has closed down sites and forced Turkey to extradite an online gaming operator.

Applicants and licensees in U.S. states do not always voluntarily spell out in detail all the bets they are accepting from foreign nations, nor what those nations are doing to enforce their anti-gambling laws.  Turns out, even if they did, regulators would often still say, “That’s O.K.  Iran [or wherever] is still only a gray market.”

Because there is one more test.

According to New Jersey gaming regulators, a foreign jurisdiction only slips from being a gray market into a black market, if the foreign government notifies the New Jersey regulators, in writing, that it is illegal for New Jersey-licensed operators to take bets from its residents.  

The only jurisdiction that has ever notified New Jersey is the Bahamas.

For some reason, the Islamic Republic of Iran has never written to the New Jersey Division of Gaming Enforcement or the New Jersey Casino Control Commission to tell them that it violates its laws for New Jersey licensees to take bets from its residents.

Until New Jersey regulators receive that complaint, its licensed gaming operators can claim that taking wagers from Iran, and every other country – except the Bahamas – doesn’t violate their licenses.  

They’re just gray markets. 

© Copyright 2023, all rights reserved worldwide.  Gambling and the Law® is a registered trademark of Professor I. Nelson Rose, www.GamblingAndTheLaw.com.

I. Nelson Rose

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