Licensed online casinos, sports books and poker rooms and state-operated Internet lotteries are now a multi-billion-dollar-a-year industry. Yet, for most governments, they are not dreams come true, but public policy nightmares.
States and countries that permit their operators to take at-home wagers from foreigners gain tax income and create jobs. But the governments where the bettors live usually get nothing. Worse, they suffer the negative side-effects created by underage and compulsive gamblers. For a jurisdiction like the federal government of the United States, cross-border gaming means exporting money and importing social problems.
So, while the issue of whether to legalize is being debated, law enforcement officials face a more fundamental question: Can a state or nation keep out foreign legal gaming?
We now may be able to answer that question, or at least make educated guesses, due to recent decisions from the United States Supreme Court, the European Court of Justice and the World Trade Organization.
The first step is to find a statute or regulation that might apply. Most fights against remote betting stop here, because lawmakers simply have not enacted the necessary laws.
The anti-gambling laws that are on the books were designed for specific problems from other eras. The Wire Act, for example, the major federal barrier to overseas-based gaming, was passed in 1961 as part of Attorney General Robert Kennedy’s “war on organized crime.” It was designed to help states fight illegal bookmakers who took sports bets by telephone. No one at the time thought about the possibility of playing poker on home computers.
The federal Department of Justice, which is charged with enforcing federal laws, asserts the Wire Act covers all forms of interstate and international gambling. But the three courts that have looked at the issue have ruled the Wire Act is limited to bets on sports events and horse and dog races. So, if these courts are correct, the question of whether the U.S. Congress has the power to bar foreign, licensed Internet poker, need not be answered, because Congress has not yet passed such a law.
There are many other ways in which a law which might bar at-home gambling will fall short in a particular situation. For example, many jurisdictions have laws making it a crime to sell a foreign lottery ticket, even if the lottery is legal where the drawing takes place. But is an Internet lottery selling “tickets”? Does the law cover a transaction where the seller is in a different country, especially if the purchaser has previously deposited money in that country?
Assuming there is a law in place that makes it illegal to accept bets on a particular form of gambling, can a government use that law against gaming that is legal where the operator is?
Sovereign governments have power over their land and people. They have the inherent power to protect their borders. There is no doubt that a state can keep out illegal gambling (although it is not easy to know whether a foreign operator is breaking its own laws).
The situation can get much more complicated if the operator is acting legally under its local laws. Many foreign governments permit their operators to take bets from other countries where the gambling might be illegal.
Still, states start with the right to bar the importation of all goods and services, even if these come from places where it is legal to sell and ship these products. The problem arises when a government has agreed, sometimes unintentionally, to eliminate its trade barriers.
Usually when a state joins a federation, like the states of the United States or Australia, or signs a treaty organization, like the WTO or the European Union, it finds it has opened its borders to goods and services from its sister states or trade partners. The United States discovered that it had consented to allow in legal gambling from other member states of the World Trade Organization (“WTO”) when it signed the WTO treaties. Its major mistake was failing to do what some other member states did: specifically list “gambling” as an activity it wanted kept out.
But decision-makers have unanimously agreed that gambling is different from other legal businesses. government can bar foreign gaming, if it can come up with good reasons for doing so.
This is easy if the state has a complete prohibition. Utah does not have to allow in California State Lottery tickets if it does not permit anyone to sell lottery tickets to its residents.
States that want to exclude legal foreign gambling always raise the same arguments: fear of fraud, money laundering, organized crime, underage and problem gambling, and because it offends local morality. Governments cannot rely solely on the real reason – to keep out competition.
Skillful lawyers can usually prevail and convince judges to uphold prohibitions on foreign, legal gaming. They have been particularly successful with remote wagering.
However, it is almost impossible to successfully argue that a state has the right to exclude a legal activity from its sister states or trade partners when that state allows only local operators to do the exact same thing.
This is what happened to the U.S. in its fight with Antigua in the WTO. The WTO ruled that the U.S. had agreed to let in legal gambling from other members of the WTO. But it then bought the argument that federal laws against remote gambling were necessary to protect Americans. So, the U.S. would have won . But Antigua raised the Interstate Horseracing Act, which allows Americans to bet on races from their homes, but only with operators in other U.S. states. Since there is no reason for this discrimination against Antiguan horsebooks, the U.S. was held to be in violation of the WTO treaties.
The same type of analysis can be done with any two countries and any form of gambling, for anyone willing to spend large amounts of time and money.
© Copyright 2005. 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
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