Regulation of gambling on the Internet.

• Author: Anderson, Paul
• Position: ARTICLES - Report

1. Introduction

   Coinciding with the explosive growth of the Internet, there has been exponential growth in Internet gambling, especially sports gambling. as with many new industries, the United States Congress is currently trying to catch up as the Internet has allowed for illegal gambling activities to proliferate in a medium that is much more difficult to regulate. This contribution will focus on the regulation of Internet gambling within the United States.

   The problem of Internet gambling can perhaps best be understood by the statement of Thomas E. McClusky Vice President, Government Affairs Family Research Council, testifying before the House of Representatives concerning online gambling:

   When you add the anonymity of the Internet, the troubles caused by gambling increase exponentially. The theft of credit card numbers from customers is a very real concern and it is much easier for gambling web sites to manipulate games than it is in the physical world of highly regulated casinos. Additionally, gambling on the Internet provides remote access, encrypted data and, most importantly, anonymity. Because of this, a money launderer need only deposit funds into an offshore account, use that money to gamble, lose a small amount of that money, and then cash out the remaining funds. It is the uniqueness of the Internet when it comes to gambling that inspired Dr. Howard Shaffer, the director of Harvard Medical School's Division on Addiction Studies, to call Internet gambling the "crack cocaine of the Internet" due to the ease with which online gamblers can play from home. Online players can gamble 24 hours a day from home with no real sense of the losses they are incurring. Additionally, while many Internet gambling sites require gamblers to certify that they are of legal age, most make little or no attempt to verify the accuracy of the information. The intense use of the Internet by those under the age of 21 has led to concerns that they may be particularly susceptible to Internet gambling. Problem gamblers between the ages of 18 and 25 lose an average of $30,000 each year and rack up $20,000 to $25,000 in credit card debt, according to the California Council on Problem Gambling. In a health advisory issued by the American Psychiatric Association in 2001, ten percent to 15 percent of young people reported having experienced one or more significant problems related to gambling (McClusky, 2007). Numerous studies have attempted to gauge the extent of gambling on the Internet, both by the increase in gambling websites available, and via industry revenues. Some estimates show that internet gambling is now a $12-13 billion a year industry, with about half of that coming from gamblers in the United States (H.R. 2046, 2007). In addition, in 2007 it was estimated that nearly 2,300 different websites provide gamblers with ample opportunities to place bets online.

   Although these numbers are hard to verify as they are ever changing and virtually immeasurable within the online environment, the United States Congress has determined that internet gambling is a problem that needs to be dealt with. Considering the fact that the United States has regulated gambling in all of its forms since at least 1961 (as discussed in the previous contribution), this is not surprising. This contribution will focus on the regulation of gambling on the Internet within the United States at both the federal and state level.

3. Federal Regulation of Internet Gambling

   Although gambling is illegal in the United States, except for specific exceptions in certain states, businesses have tried to avoid this issue by setting up internet gambling operations overseas. Many of these businesses have been extremely successful as gambling on the internet has become an extremely lucrative business. However, in an attempt to combat Internet gambling in the United States, the government has used traditional gambling statutes to try to shut down these operations. This section will introduce the various federal laws that currently regulate gambling and various bills that have been recently introduced in the legislature. First, the Wire Communications Act of 1961 ("The Wire Act") (18 U.S.C. [section]1084, 2008) and the Transportation in Aid of Racketeering Enterprises Act of 1961 ("The Travel Act") (18 U.S.C. [section]1952, 2008) will be discussed as both have been used to regulate Internet gambling. Next, the Unlawful Internet Gambling Enforcement Act of 2006 (31 U.S.C. [section]5361, et. seq. 2008) will be discussed. It is currently the only Internet-specific gambling statute in the United States. Finally, recent legislation that could affect Internet gambling will be discussed.

   3.1. Regulations That Are Not Specific to the Internet

   In 1961, the government passed a variety of antiracketeering statutes. Because racketeering activities often included gambling, many of these statutes focused on regulating gambling as well. Although internet gambling was not an issue in 1961, the Wire Act and Travel Act have been used to regulate Internet gambling because the Wire Act deals with wire communications facilities, which includes the Internet, and the Travel Act deals with facilities in general.

   3.1.1. The Wire Act

   One of the most useful statutes used in trying to combat illegal Internet gambling operations is the Wire Act. The Wire Act prevents a person engaging in interstate or foreign commerce from using a wire communication facility to assist in placing a bet on a sporting event. The first part of the Act criminalizes certain types of gambling behavior as it provides that

   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 (18. U.S.C. [section]1084(a), 2008).

   Both the telephone and the Internet are considered wire communications facilities; and therefore, the government has used the Wire Act to prosecute individuals running Internet gambling operations overseas.

   3.1.2. The Travel Act

   Another important federal statute used to combat gambling is the Travel Act. Similar to the Wire Act, the Travel Act may also be used to prosecute people in the business of Internet gambling. This Act prevents anyone from using any facility in interstate or foreign commerce to distribute the proceeds of any unlawful activity, including gambling. The Travel Act specifically provides that

   a Whoever travels in interstate or foreign commerce or uses the mail or any facility in interstate or foreign commerce, with intent to-

   1 distribute the proceeds of any unlawful activity; or

   2 commit any crime of violence to further any unlawful activity; or

   3 otherwise promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on, of any unlawful activity,

   and thereafter performs or attempts to perform-

   A an act described in paragraph (1) or (3) shall be fined under this title, imprisoned not more than 5 years, or both; or

   B an act described in paragraph (2) shall be fined under this title, imprisoned for not more than 20 years, or both, and if death results shall be imprisoned for any term of years or for life (18 U.S.C. [section]1952).

   For purposes of the Travel Act, an "unlawful activity" includes illegal gambling, which can include sports betting. The courts have determined that the use of the mail, telephone or telegraph, newspapers, credit cards and tickertapes is sufficient to establish that a defendant "used a facility of interstate commerce" to further an unlawful activity in violation of the Travel Act. Obviously, as Internet gambling transactions involve the use of a credit card, these transactions can also come under the regulation of the Act.

   3.1.3. Case Law Involving the Wire and Travel Acts

   Because most cases contesting illegal gambling activities are brought under both the Wire and Travel Acts, the following cases will be used to illustrate how these laws have been applied to Internet gambling. United States v. Cohen (2001)...