The Law

Online gaming is a big part of Internet commerce, or e-commerce, which some consider the last great financial frontier. Even today, it is still relatively unexplored, and there are great riches to be mined in it.

Like all of the Internet, e-commerce is also relatively free of regulations. To some people, the lack of laws regarding what can and can't happen on the Internet isn't a concern. For the most part, they have found the Internet to be a pretty safe place, and they want to keep things the way they are. For others, especially some lawmakers, not having regulations in place regarding what can and can't happen on the Internet is a grave concern. They worry about such problems as shadow companies taking and running with people's money, rigged games, illegal bookmaking, and shady characters using the Internet for money laundering. And many lawmakers would like to figure out a way for the government to get a part of the billions of dollars annually flowing through the Internet.

The Wire Communications Act

Legislators have taken several approaches to imposing laws on Internet gambling. One is to apply a federal law established many years ago for a different purpose. Adopted in the early 1960s, the 1961 Wire Communications Act prohibits placing sports bets over phone lines. It calls for fining or imprisoning (or doing both to) anyone caught “engaged in the business of betting or wagering knowingly” using a “wire communication facility.” Since many bettors connect to the Internet via the same lines they use for voice communications, some authorities argue that placing sports bets — wagering on horse races, prize fights, and what have you — over the Internet is also illegal. By extension, it could be argued that other forms of online gambling are also against the law.

However, many legal experts believe that the Wire Communications Act, in its current form, only applies to betting on sporting events, not to card games or other games of chance. And since the legislation only prohibits transmissions over wires, it has no jurisdiction over transactions taking place via wireless Internet access.

The federal government hasn't had a great deal of success enforcing the Wire Communications Act. The biggest problem is that it's an old act, and it doesn't specifically mention the Internet. But there have been a few notable prosecutions — and convictions — of individuals affiliated with online wagering sites under this law.

Regulating Internet Gambling

In 1995, U.S. Senator Jon Kyl (R-Ariz.) mounted the first attempt to regulate Internet gambling with his Crime Prevention Act. This act called for punishing bettors with fines and jail time. It came under fire from many corners, and especially the Justice Department, which argued that the legislation would be virtually unenforceable, and that federal agents had better things to do than spend their time trying to track down cyberbettors.

Saying that laws against sports betting and Internet gambling advance important social policy, and that failing to adapt the 1961 law to include the Internet leaves unchecked a “dangerous and growing addiction,” Kyl attempted to get an amended version of his bill through Congress in 1997. It passed in the Senate, but the House never voted on it.

Since then, members of the House and the Senate have introduced other legislation that would amend the Wire Act and other existing laws that could relate to Internet gambling, and that would create new legislation that would regulate various facets of online gaming. None have passed, but this doesn't mean that lawmakers will abandon the issue.

According to Christiansen Capital Advisors, consumer spending on Internet gambling could increase to as much as $10 million in 2005.

The States Get in on the Act

In addition to federal laws banning Internet gambling, some states have also passed similar legislation making it illegal to gamble online. Interestingly, two states that have a heavy interest in land-based gambling — Nevada and Louisiana — led the way, obviously to protect their land-based casinos from competition.

In 1997, Nevada lawmakers passed a bill that banned any entity not licensed by the state from taking bets via any communications medium, including the Internet. Later the same year, Louisiana became the first state to specifically prohibit Internet gaming, and to penalize bettors for gambling online. Other states in which land-based casinos are located, and some that didn't have them, followed suit. By 2004, the following states had various laws prohibiting online gambling: California, Florida, Indiana, Illinois, Kansas, Louisiana, Michigan, Missouri, Nevada, South Dakota, Tennessee, Texas, and Wisconsin.

What does this mean for bettors? It should be obvious by now that the legalities of online commerce are murky, to say the least, and they are particularly muddy when it comes to online gambling. However, it's pretty clear that depending on where you live and the country that you're a citizen of, if you gamble online you're technically participating in an illegal activity. It's important to keep in mind, however, that there are no federal laws on the books, or pending legislation, which call for prosecuting online bettors. Instead, they target the companies that run online casinos and make it illegal for them to accept bets from U.S. citizens. Laws in the states have generally taken the same approach.

In March 2004, online casinos based overseas won a major victory when the World Trade Organization ruled that U.S. laws prohibiting online gambling violate international trade law. The Bush administration vowed to appeal the decision, which was seen by some as a possible first step in liberalizing U.S. laws on online gambling.

It's hard to predict where things will go with efforts to regulate online gambling. Many government officials realize it's impractical to monitor Internet activities, which makes laws that govern them almost impossible to enforce. Monitoring online activities also raises the often sensitive and controversial issues of privacy and free speech, which many officials would rather avoid. While some lawmakers are firm in their beliefs that Internet gaming should be banned, others are more open-minded and are willing to look at alternatives, such as allowing states to license, oversee, and collect taxes from online casinos. The best way to keep up with the legalities of playing online is regularly checking the status of legislation regarding it. There are Web sites that track this information; two to know about are www.thestandard.com, a news site that reports on issues related to the Internet and other technologies.

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