#122 © Copyright 2006, all rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I Nelson Rose, Whittier Law School, Costa Mesa, CA

The world of Internet gambling law has just gotten a little weirder.

The U.S. House of Representatives’ Judiciary Committee has approved bills by representatives Bob Goodlatte (R.-VA) and Jim Leach (R.-IA) to not only make operating any form of Internet gaming a crime, but also to try and stop the flow of money and even sever links to the sites themselves.

If the bills become law – and they have a long way to go – banks would be required to stop all transfers of money from a player to a gaming website.

Banks don’t mind this, since most have already determined they do not want their credit cards to be used for gambling. A credit card does represent their money, and they certainly have the right to put reasonable restrictions on borrowers.

But here Congress would be declaring Internet gaming to be so dangerous that adults would not be allowed to use their own money, from their own checking accounts, for gambling.

An unsettled question is how far banks have to track their patrons’ money. Imagine the impact on all Internet commerce if banks are not allowed to transfer funds to an ecash site like Neteller, because Neteller sends some funds on to PartyGaming.com.

Of course, even with tracing, it would be easy to get around these proposed laws. An operator could set up an overseas website to sell gold – there’s no prohibition on buying gold online with a credit card. Then, a button will light up, labeled, “Do you want to sell your gold?” If the customer says yes, he will now have ecash that he can send on to a gaming site.

A scarier provision would also allow any law enforcement agent to get a court order requiring Internet Service Providers (ISPs) like AOL to cut all links to gaming websites. This is another questionable precedent: Any local District Attorney can force ISPs to cut access to any website he considers dangerous.

An additional element of craziness has been introduced: Rep Robert Scott (D-VA) proposed an amendment to fine criminally anyone who merely makes a bet online. Scott may have been trying to point out Congress’s hypocrisy in only going after operators. But other members of Congress are now declaring that if the federal government really wants to get rid of Internet gambling, it should, for the first time, make betting a federal crime.

It’s been almost ten years since this idea of going after players was raised, and immediately dropped, by the state National Association of Attorneys Generals and Sen. Jon Kyl (R.-AZ). The agents of the federal Department of Justice, including the FBI and U.S. Attorneys, which would have to enforce any such law, wrote a letter making it clear that they did not intend to start knocking on bedroom doors to go after $5 bettors.

But others in government appear to be less squeamish about turning players into criminals.

The legislators of the state of Washington passed a law, effective June 7, 2006, that makes being involved with Internet gambling a felony. The new law is not limited to operators. Anyone who merely plays poker online has at least the potential of being convicted of a Class C felony, a category usually reserved for crimes like sex offenses.

I discussed the new law with Rick Day, Director of the Washington State Gambling Commission. He made it clear there is little chance a regular player would ever go to prison. But the new law has put a new fear into the lives of operators and their support companies, including affiliates.

There’s not much chance Washington state police are going to be conducting raids in Antigua. But making Internet gambling a felony does give law enforcement officers another weapon: RICO, short for Racketeer Influenced and Corrupt Organizations, the powerful statute designed to go after the leaders of organized crime, makes it a federal felony if an organization commits two state gambling felonies.

Speaking of Antigua… The strangest development has been the official U.S. Government response to the ruling by the World Trade Organization that federal laws discriminate against Antigua’s licensed horsebooks.

The U.S. actually won much of the dispute. The WTO ruled that the federal government had a reasonable fear of the harm remote gaming could do to children, compulsive gamblers, etc. But the WTO also ruled, as every other court or decision-maker would, that a country cannot claim that it is worried about cross-border wagers if it actually permits its own operators to take cross-border bets.

The WTO looked at the Interstate Horseracing Act. This Act was amended by Congress in December 2000 to expressly allow gamblers to make bets on horse races from their homes by phone or computer, so long as they lived in a state where such betting was legal and the licensed operator taking the bet was in a state which also made the bet legal. The WTO found that the Interstate Horseracing Act discriminates, because it is not an International Horseracing Act: only state-licensed horsebooks can take bets.

Antigua has taken the position that since the U.S. failed the test of whether they were discriminating against Antigua horsebooks, the U.S. has to open its doors to all Internet gambling. This is clearly not the law. The U.S. only has to change federal law to permit Americans to bet on horse races with licensed foreign bookmakers.

The U.S. would drop out of the WTO before it would agree to force a state like Utah to accept Internet gambling.

But the position of the U.S. is more bizarre. Ambassador Peter Allgeier, U.S. Representative to the WTO, filed a formal statement claiming the U.S. is not discriminating against Antigua operators, because all cross-border betting is forbidden by federal law, even bets on horse races! This would certainly be a surprise to the American horseracing industry, let alone the states with their interstate lotteries and tribes with linked slot machines.

The only thing I can think is that the lawyers for the U.S. were desperate to figure out how to deal with the fact the Interstate Horseracing Act does discriminate against foreign countries. So, they argued that this Act is merely a civil statute, which could not “amend” the criminal Wire Act. A creative argument, which the WTO did not buy.

It is a stretch to argue that the Interstate Horseracing Act did not authorize interstate horseracing. But continuing to make that argument after it has been rejected is simply weird.

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© Copyright 2006. Professor I Nelson Rose is recognized as one of the world’s leading experts on gambling law. His latest books, Gaming Law: Cases and Materials and Internet Gaming Law, are available through his website, www.GamblingAndTheLaw.com.