2006 – #14 © 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 Unlawful Internet Gambling Enforcement Act, “Prohibition 2.0,” has already caused as much panic, joy and confusion as the first Prohibition.

Prohibition 1.0, the ill-fated 18th Amendment to the U.S. Constitution, went into effect in 1919 and was repealed in 1933. The “noble experiment,” as it was called, was the 19th Century Puritans’ efforts to end sin in the U.S. by prohibiting the “manufacture, sale, or transportation of intoxicating liquors… for beverage purposes.”

Now, Republican Majority Leader Bill Frist, who aspires to be the next Puritan President of the 21st Century, is going to save our souls by prohibiting the transfer of funds to online gaming sites.

Who would have thought that gambling, one of America’s fastest growing businesses, when legal, would become the ultimate sin?

Prohibition 2.0 requires federal regulators to make rules for banks, e-wallets and other payment processor to identify and block all transfers of funds for unlawful gambling transactions. Only gambling. Congress has mandated that financial institutions must prevent people from using their own money to buy this one product. There are no similar rules covering heroin or child pornography.

Whenever there is demand for something, there will be entrepreneurs willing to act as suppliers, even if the product is illegal. The most long-lasting, significant result of the first Prohibition was the creation of modern organized crime.

There are loopholes in the hastily written new Act. Like other Puritans, Sen. Frist feels he has a direct hotline to God. He didn’t need to have hearings or expert testimony or even have anyone proofread his bill. He attached it to the unrelated SAFE Ports Act, and under the rules of Congress, the only way any representative or senator could read the bill would be to vote against port security.

Entrepreneurs are already overloading my email mailbox with ideas to get around Prohibition 2.0. The most obvious loopholes are contests of skill and games in which no purchase is necessary to participate.

Like all prohibitions, the Frist bill contains silly exemptions. Prohibition 1.0 allowed alcoholic beverages used for medicines and sacramental wine. A movement started to have beer declared a medicine, and it is amazing how many men decided to become, or at least dress like, priests and rabbis.

Besides not changing the law on interstate horseracing, Prohibition 2.0 authorizes fantasy sports or “educational” games, whatever those are. And purely intra-state gambling has now been expressly made legal.

Of course, the individuals most happy with Prohibition 2.0 are the online gaming companies that are still taking bets from the U.S. The principals of privately owned online poker companies won’t be able to become instant billionaires by going public. But they are consoling themselves with the hundreds of millions of dollars that would have otherwise gone to PartyPoker.

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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.