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The casino establishment wants to ban Internet gambling. Congress wants to ban Internet gambling. The national Gambling Impact Study Commission wants to ban Internet gambling. But it's impossible to keep netizens from frequenting virtual casinos--a fact even Janet Reno's Department of Justice concedes. Still, an odd coalition of anti-gambling activists and entrenched casino interests may get Washington to impose prohibition--and as a result, open the door to government control of the Internet.

by D. Dowd Muska

very day, Nevadans gamble at some new and rather unique casinos. And each time they do, they’re committing a crime.
Under Nevada law it is illegal for residents to access the Internet to gamble beyond the state’s borders. In 1997, legislators made it a misdemeanor for citizens to visit virtual casinos which are not licensed by the state. When the necessary regulations are finally adopted by the Gaming Control Board, Nevadans will be able to e-mail picks to sports book operations within the state and not break the law. But since July 1997, playing blackjack at a virtual casino whose hardware is located in Belize has made Nevada residents eligible for a date with a district attorney.
It’s not often that Nevada blazes a legislative trail, but that may be the case when it comes to online betting. Arizona Senator John Kyl and Nevada Senator Richard Bryan are once again cheerleading the Internet Gambling Prohibition Act (IGPA), legislation they first sponsored in 1997. When the IGPA was drafted, it seemed as though nothing would stop Congress from imposing a federal ban on Net gambling. But thanks in part to the legislative logjam produced by the impeachment proceedings, the IGPA fell flat in the 105th Congress. This year it—or similar legislation—has a better chance for success, particularly if the report due this month by the National Gambling Impact Study Commission (NGISC) endorses a nationwide ban on online betting. But casino lobbyists, paternalist posturing and Kay Cole James notwithstanding, the near-universal agreement that personal computers should not be de facto gambling halls is starting to crack. Foreign governments are starting to legalize, regulate and tax online betting. The industry is mounting a campaign to improve its image. And civil libertarians are making the most persuasive case against prohibition: that banning virtual casinos invites an all-out assault on the right to privacy in cyberspace.

Cyberbetting

Gambling first hit the Net in 1995. While most early sites were crude—many didn’t even allow gamblers to bet real money—improvements in technology helped create a sizable market in just a few years. Researcher Allison Flatt’s 1998 analysis of Internet betting for the NGISC found that "remarkable advancements in Internet security and speed made gambling on the Internet more viable and, as a result, the industry has flourished."
In January a consultant from Christian/Cummings estimated that last year virtual casinos raked in about $650 million, half of which involved betting on sports. By 2002 online gambling revenues could top $10 billion, and Smith Barney analyst Jason Ader has predicted that if every American had access to virtual casinos, revenues could grow to $100 billion. With computers in half of the nation’s households now—and over 200 sites offering anything a gambler’s heart desires—Ader’s scenario could soon become reality.
Of course, all this betting is taking place within a legal no man’s land. American courts have yet to sort out the matter of online gambling’s legality. To many virtual casino foes, wagering over the Internet is clearly illegal under a number of federal statutes, most notably the Wire Communications Act of 1962. They believe the act—18 U.S.C. 1084—leaves no room for ambiguity:

(a) Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both.

The online gambling industry interprets the Wire Act somewhat differently. Since the language does not specifically include Internet communications, online gamers argue, there’s enough murkiness to give them some wiggle room. They also point to the increasing use of satellite Internet access—no wires, no violation of the Wire Act.
Just to be safe, American virtual-casino entrepreneurs have set up their businesses overseas. The Caribbean is home to most sites, and since their operators don’t face extrication to the states, it is domestic customers who risk running afoul of overzealous prosecutors. In other words, rolling some virtual dice carries with it the chance that you might wander into the crosshairs of an attorney general in search of a camera crew.

Monica Interruptus

Jon Kyl dislikes gambling. A lot. According to him, it "erodes values of hard work, sacrifice, and personal responsibility." Thus, the thought of millions of computer users ruining their lives by pouring their money down a cyber-hole has Kyl fuming. In 1997 he drafted the Internet Gambling Prohibition Act, an update of the Wire Act which will leave no ambiguity about whether online betting is a federal crime. Naturally, Nevada’s congressional delegation—with Bryan at the helm—is on board.
Getting government to target your competitors is a time-honored tradition in the Silver State, but plenty of national politicians whose jobs don’t depend on keeping casino executives happy have jumped aboard the IGPA bandwagon. It’s little wonder—the pro-Nanny State majority in Congress has already demonstrated its desire to control the Internet by passing two laws designed to curb online smut. (The first was swatted down by the Supreme Court and the second was overturned by a U.S. District Court in February. Apparently the constitutionality of Net regulation doesn’t appear on legislators’ radar screens.)
In 1997, it appeared that banning virtual casinos would be a milk run for Kyl, Bryan and the IGPA’s many other boosters on the Hill. With the online wagering business booming, it was easy to cite—or concoct—morality plays about the Internet gambling monster. Representative Bob Goodlatte of Virginia offered this prototypical sound bite: "Imagine coming home from work one day, only to find that your children have ‘borrowed’ the family credit card, logged onto the home computer and lost this month’s mortgage payment in a game of cyber-roulette."
"Bringing gaming directly into people’s homes, as we are beginning to see through the Internet, is so full of potential problems, and so far beyond the ability of any state to regulate, that it needs to be prohibited on a national level," Bryan said in a press release. "I simply have no confidence that gaming on the Internet can be regulated now, or any time in the future."
Bryan press secretary Karen Kirchgasser pooh-poohed the charge that her boss supported the IGPA out of obedience to his masters in Sin City: "It’s not an issue of competition. It’s a regulatory issue. On the Internet, you can’t regulate."
That belief—stressed over and over again—is the sacred tenet of Net gambling opponents. They emphasize that virtual casinos are, in NGISC member and former Nevada Gaming Control Board Chairman Bill Bible’s words, "a sucker’s bet." The regulation-isn’t-possible refrain is so crucial to the credibility of the prohibition cause that IGPA backers make a habit of ignoring opponents of their bill. In the summer of 1997 Kyl, who chairs the Judiciary Committee’s Subcommittee on Technology, Terrorism, and Government Information, held a hearing on the IGPA. Bryan testified, as did five other witnesses who toed the prohibition line. Virtual-casino representatives, civil liberties activists and Internet technology experts weren’t invited to speak.
Over the next 12 months, the IGPA was changed to accommodate a skittish horse racing industry—the tracks plan to develop in-home betting software in the near future—and then, last July, the Senate voted 90-10 to criminalize Internet gambling.
A House version of the IGPA appeared headed for passage as well, but then came Monica. Ken Starr’s impeachment referral hit Capitol Hill like a legislative neutron bomb, effectively killing all other bills for the remainder of the congressional session. Kyl and Bryan had to start all over again. And on March 23, the Internet Gambling Prohibition Act of 1999 was introduced—on the same day Kyl held another subcommittee hearing comprised of another one-sided panel of witnesses.

‘We Can’t Do
Anything About It’

Opposing the IGPA are a diverse group of activists and organizations armed with ample intellectual muscle and solid reasoning. But the most compelling argument against prohibition is quite simple: It just won’t work. Politicians’ weak (or nonexistent) understanding of the Internet is behind much of their misguided belief that online gambling can be banned. The Internet is global and highly decentralized. That means enforcing a ban will be all but impossible. As Wisconsin Assistant Attorney General—and prohibition supporter—Alan Kesner told the NGISC, "the very qualities that make the Internet the powerful force that it is today are those which go directly against the ability to regulate and effectively control what happens on the Internet."
In March Interactive Gaming Council (IGC) Chair Sue Schneider submitted a written statement—IGPA opponents weren’t invited to testify, remember—which argued that if the federal government declared war on virtual casinos, the cost to Americans’ freedoms would be high:

[The Internet] was designed specifically to circumvent blockages by sending multiple copies of electronic data in multiple packets via multiple routes. Given the world wide web’s infrastructure, the mere declaration of an activity as "illegal" will have little impact on the ability of consumers to access web sites offering such activity unless it is enforced in conjunction with broad law enforcement powers such as search warrants, sting operations, roving wiretaps, and other tactics that raise questions of privacy.

Why would such draconian tactics be needed? Because as long as virtual casinos keep their hardware beyond U.S. jurisdictions, law enforcement officials have only one way to give prohibition teeth: by monitoring Americans’ private Internet accounts. Unless some omnipotent force magically gives the federal government the resources and authority to enforce its Internet gambling ban in other countries, Americans will be able to gamble on the Web with relative ease. Keeping them from doing so will require far more resources than the federal government can currently muster. "With the advent of strong encryption software," reads an IGC fact sheet, "those who wish to place bets can do so without the threat of anyone (including most government agencies) intercepting and decoding their messages."
Some federal officials recognize the enforceability problem. Not surprisingly, they’re the one who will be in charge of carrying out the IGPA’s unrealistic dictates.
The Department of Justice doesn’t take a stand against government coercion very often, so when it does it’s worth noticing. While the department did indict 14 virtual casino operators—including Las Vegan Kerry Rogers—in March of 1998, it has consistently objected to a Net gambling ban.
In 1996, the National Association of Attorneys General lobbied the federal government to clamp down on Internet betting—and if necessary, cuff computer operators while they sit at their PCs. The DOJ rebuked the AGs’ scheme. "The department does not agree that federal law should be amended so broadly as to cover the first-time bettor who loses $5, particularly when Internet gaming is expected to mushroom and federal resources are shrinking," wrote John C. Keeney, an official with the department’s criminal division.
"International Internet gambling? We can’t do anything about it," Department of Justice spokesman John Russell admitted last year. "That’s the bottom line."

Regulate Us, Please

If the nature of the Net means online gambling can’t be stopped, is it inevitable that offshore sites will rip off bettors and teach America’s little ones the joys of credit card fraud? Not exactly. Contrary to the claims of prohibitionists, governments can and do regulate virtual casinos—and a fair amount of self-regulation is already in place.
There’s a reason why IGPA supporters use "regulation isn’t possible" as their mantra. Bryan and other gambling puppets need virtual casinos to be unregulatable. If there are ways to ensure that online games of chance are just as "fair" as the ones found in Nevada, the Silver State’s got trouble. When Las Vegas casino executives have nightmares about Internet gambling, they probably feature someone like 31-year-old Floridian Kurn Wheeler. He used to come to Sin City every few months to gamble. He doesn’t anymore—an Antigua-based virtual casino is his destination now. "It’s great. I don’t have to leave the house," Wheeler told the Washington Post. "It’s very private. There are no distractions, no dirty looks from the casino people if you win."
But Kyl and other gambling foes need virtual casinos to be unregulatable too. Few casino critics call for the shutting down of casinos across the nation. They recognize Nevada’s right to exist, so to speak—not to mention the many other jurisdictions where gambling is now legal. And if Americans can someday dial into regulated virtual casinos they way they can travel to a state or a country with regulated physical casinos, gambling itself will get a boost in legitimacy. If anti-casino puritans can sell the notion that regulation simply isn’t possible in cyberspace, it will help their crusade against America’s fastest-growing vice.
So both sides of the powerful—if mismatched—anti-Internet gambling alliance have a vested interest in silencing those with solid proposals for regulating virtual casinos.
And they’re not above appropriating of their opponents’ premises. On the rare occasion when ban proponents respond to criticism, they claim that if prohibition won’t work, then regulation won’t either. "Such an argument," the Cato Institute’s Tom W. Bell told the NGISC last year, "fundamentally misunderstand a basic principle of governance, however: Regulations can succeed even where prohibition fails if they offer benefits that exceed their burdens. That is why people do not illegally shoot craps in Las Vegas alleys."
It’s a fact Silver State casino barons would rather keep hidden, but Nevada doesn’t have a monopoly on effective gambling regulations. Many foreign nations have strong regulatory programs—and it’s these countries which are starting to legalize virtual casinos. Gyneth McAllister, a gambling regulator in Antigua, denies that her nation’s regulations aren’t sound: "We treat everybody just the same. If Jesus came down here, we’d still screen him to death."
If Caribbean nations don’t inspire confidence, how about Australia? That’s where American Wagering, Inc. recently set up shop. The Las Vegas Sun reported that the Vegas-based sports book company was "the first big, established Nevada gaming company to offer the controversial Internet gambling product."
"Australia brings the regulations and credibility to sports wagering on the Internet that assures our customers of our integrity and financial strength," said AWI Chief Executive Victor Salerno.
Although their arguments are falling on deaf ears in Washington, the online gambling industry is clamoring for the U.S. to wake up to the opportunity Australia and other nations have seized. But in the meantime, Internet gamers are taking steps to ensure their sites’ integrity. For example, contrary to the horror stories told by many politicians, virtual casinos are indeed concerned with the ages of their customers. Since online gamblers use credit cards to bet, many operations demand a Social Security number, in order to check it against a credit reporting database. Other sites require applicants to fax birth certificates, driver licenses or other forms of identification before an account can be opened.
"Regardless of the type of identity checks used," reports the IGC, "most sites require the posting of a significant amount (often a $1,000 minimum) in a wagering account to begin. Such large up-front deposits function not only to screen out minors, but to eliminate those who are less capable of sustaining losses from the betting pool as well."
As the IGC’s Schneider noted in her March statement to Congress, "Because operators pay a price for charge-backs when stolen credit cards are used by children, they have every incentive to screen out minors and verify the identities of their customers."

No Free Drinks

As for age-of-majority customers, virtual casino executives enjoy needling those who claim point-and-click gambling is more irresponsible than a visit to the Strip. Jay Cohen, who runs World Sports Exchange in Antigua, scoffs at the claim that Nevada casinos have players’ best interest in mind: "If anything, we’re more responsible. Vegas is all about sucking you in. … We don’t pour drinks down people’s throats, trying to impair their judgment."
The Netizenship prevalent throughout cyberspace can help keep virtual casinos honest as well. Center for Freedom in Technology Director Justin Matlick made note of this in the Las Vegas Review-Journal last year:

The Internet highlights how businesses and individuals can regulate themselves. Because information travels so quickly, fraudulent organizations can be rapidly ferreted out and broken down. … This is what regulators must learn: Internet users can protect themselves. They control what they read, who they communicate with, what services they use, and what they buy. With this freedom comes the opportunity to make responsible, informed decisions. While bad decisions will be made, this is the fault of the individual, not the medium.

The IGC, civil libertarians and other foes of a ban on Internet gambling have made some progress in advancing this pro-freedom perspective. Kyl’s reworked version of the IGPA does not target casual bettors, and it requires law enforcement, not Internet service providers, to prowl the Web for gambling sites.
But prohibition is still the goal, and when the NGISC issues its report this month, Internet gambling opponents are likely to get more ammunition. Many in government seem unable or unwilling to realize that the Information Age can’t be rolled back, and that means online gambling and many other controversial uses of the Internet are here to stay—Washington, D.C. be damned.
The self-preservation instinct has many in the Silver State terrified of Internet betting, but perhaps their fear is unwarranted. In time virtual casinos might significantly weaken the foundation of Nevada’s economic prosperity. Yet one could also argue that if Congress attained enlightenment and allowed gambling corporations to digitize themselves, online players would flock to brand-name sites. (What’s likelier to draw more interest, circuscircus.com or theslotshack.com? And just think of the tax revenue that would flow into Carson City.)
The Electronic Freedom Foundation’s John Perry Barlow once offered this assessment of Washington’s meddling in cyberspace: "We have government by the clueless, over a place they’ve never been, using means they don’t possess."
That’s an apt description of the policy debate over Internet gambling. The IGPA is one of the best examples of how much the Internet frustrates technocrats in Washington (not to mention professional politicians with powerful casino clients).
"Lawmakers and prohibitionists can neither effectively stop Internet gambling nor justify their attempts to do so," writes Bell. Whatever Congress does, worldwide Net gambling will continue to surge, giving Americans ample opportunities to wager over the Web. Widespread consumer demand makes the proliferation of virtual casinos a certainty. The only uncertainty about Net betting is how willing Washington is to chip away at Americans’ freedom in a fruitless attempt to stop it.  NJ

Contributing Editor D. Dowd Muska wrote about sin taxes in May's Nevada Journal. He can be contacted at ddm@npri.org.

News to Use
Cato Institute Policy Analysis No. 336:
Internet Gambling Popular, Inexorable, and
(Eventually) Legal
, by Tom W. Bell
http://www.cato.org/pubs/pas/pa-336es.html
Interactive Gaming Council
http://igcouncil.org/

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