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Once again, U.S. tries to shut down Internet gambling

Feb 20, 2006, 7:29 am

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Online Gambling

Legislation focused on cracking down on the thriving business of online gambling was introduced in Congress this week to tighten existing laws that outlaw the practice in the U.S.

The Internet Gambling Prohibition Act, sponsored by Reps. Bob Goodlatte (R-VA) and Rick Boucher (D-VA), would update the U.S. Wire Act, which prohibits gambling over telephone wires, to cover use of the Internet to operate a gambling business.

The bill not only forbids a gambling business from accepting payments made by credit cards and electronic transfers, but also includes an enforcement mechanism to address gambling operations, located offshore, that use bank accounts in the U.S.

"For too long our children have been placed in harm's way as online gambling has been permitted to flourish into a $12 billion industry," Goodlatte said in a statement. "The Internet Gambling Prohibition Act brings the current ban against interstate gambling up to speed with the development of new technology."

Matching New Tech

The bill would allow federal, state, local, and tribal law-enforcement officials to seek help from Internet service providers to remove or disable access to Internet gambling sites that violate the act. In addition, the bill would boost the maximum prison term for a violation of the Wire Act to five years from two years.

Similar legislation has been introduced over the years, but has been thwarted consistently by notorious gambling lobbyist Jack Abramoff.

The U.S. Department of Justice has contended that companies offering online gaming to U.S. residents are in violation of existing federal laws, including the Wire Act, the Illegal Gaming Business Act, the Paraphernalia Act, and the Travel Act.

Despite the claims made by the Justice Department that Internet gaming is unlawful in the U.S., the lack of clear legislation regarding the practice has meant that there have been few legal cases brought against gambling operators.

In the MasterCard International case in 2002, a federal appellate court concluded that the Wire Act does not prohibit nonsports Internet gambling.

Online gaming company PartyGaming, which operates and, has said that state and locals laws that prohibit or restrict online gaming and related services are a violation of the "dormant commerce clause" of the U.S. Constitution, which provides that state and local regulation of interstate activities is an impermissible restriction on interstate commerce.

The BBC has reported that the new legislation could run afoul of a World Trade Organization ruling last August that the U.S. cannot block offshore online gambling sites.

Place Your Bets

It is no secret that online wagering is a multibillion-dollar business, and that most of the illegal activity originates in the U.S.  PartyGaming, which reported revenues in excess of $600 million in 2004, said 88 percent of that money came from the pockets of U.S. customers.

"Gambling is illegal in the U.S., and there are many different state laws regulating it, but all of the online gaming businesses are located overseas, where the government has no jurisdiction," said Yankee Group analyst Michael Goodman. "How will this new law be enforced? Will the government track the online activities of the millions of people involved in online gambling?"

Still, Rep. Goodlatte said that illegal online gambling adversely impacts the economy by draining dollars from the United States and serves as a vehicle for money laundering.

The Internet Gambling Prohibition Act has been referred to the House Judiciary Committee.

Antigua renews protests

The Caribbean state of Antigua and Barbuda, which in 2003 filed a complaint against the United States with the World Trade Organization over Internet gambling, renewed its protest of U.S. gambling laws on Friday after the act was re-introduced.

In a letter to U.S. Trade Representative Bob Portman, an Antigua official said that he is concerned about efforts to outlaw the Internet gambling industry and complained the U.S. has made no attempt to comply with a WTO appellate ruling last year that the U.S. end discrimination against foreign online betting companies, Reuters reports. The WTO issued an April 3, 2006, deadline for the U.S. to comply with its ruling.

The Internet Gambling Prohibition Act carries an exemption for horse racing. The WTO ruling came in response to Antigua's complaint regarding an amendment to the Interstate Horseracing Act of 1978, which allows wagering on horse racing via phone or other electronic media. The law is limited to states where such wagering is allowed and excludes foreign operators. A WTO appeals panel ruled the U.S. has not shown its laws on horse racing are equally applied to domestic and foreign Internet wagering companies, which is contrary to global trade regulations.

"The U.S. is exploring a number of different avenues to clarify there is no discrimination-even outside of legislation, Neena Moorjani, a spokeswoman for Portman's office, told Reuters. "The issue is a very narrow one...the time period for compliance has not yet expired."

Antigua and Baruda wants to bolster its online gambling industry to counter declining tourism.

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