US Online Gambling Regulation

What's the Current Situation with Online Gambling in America?

With many online casinos no longer accepting US players you might wonder what all the fuss is about. Or perhaps you've heard about the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA) or the arrests of some prominent CEOs of online sportsbetting companies. So what is the story with online gambling exactly?

First of all, Americans should know that online gambling for real money is currently fully legal, but here is the catch – it is not legal to process payments for such transactions, meaning credit card companies and online payment companies can't process deposits or withdrawals at online gambling sites.

Currently, the law is not targeting individual players, only financial institutions. A regular player, as things stand right now, can never get in trouble for gambling online, unless they have something to do with the casino or the money exchange company. No player, and no casino, has ever been prosecuted, only sportsbook owners.

The picture is complicated by several states, such as Louisiana, that have specific legislation for online gambling while the federal government seeks to understand and create policy that deals with issues like underage gambling, money laundering, problem gamblers and...of course taxes.

In the meantime several major online casinos have been severely damaged by the loss of American business, causing stock prices to decline dramatically and reputable casinos and financial firms to pull out of the US market entirely.

NETeller, Citadel Commerce, Central Coin and Nexum have all decided to stop allowing U.S. players to conduct transactions with Internet gambling companies. Playtech, Microgaming, CryptoLogic and Net Entertainment have all pulled out of the US market. There are only a handful of offshore casinos operating online that still accept American bettors, some of which are reviewed here.

It may seem odd that a country that boasts the largest gambling mecca in the world, Las Vegas, prohibits the processing of payments related to online gambling. In part the lack of support and regulation seems to have come from these established land based casinos fearing competition. But like other start-up gambling establishments, such as Mississippi river boats and tribal casinos, there is continued and significant overall growth in the gambling industry throughout each sector. After more than 10 years of online casinos the established Las Vegas and Atlantic City casinos have not seen a decline or plateau in either patrons or profits.

Instead of drawing current gamblers away from established casino destinations, online casinos seem to be bringing in new audiences and broadening the general appeal of casino gaming. As the online gambling segment continues to grow, numbers range from 6 to 12 billion in revenue internationally for 2005, major players like Harrah's have begun to investigate the possibility of entering the market...pending the outcome of future studies and legislation of course. The total revenue for US domestic casinos in 2005 was $83.7 billion. Not bad.

For a better understanding of the critical events determining the legality and accessibility of online gambling please refer to the chronology below:

• An earlier Interstate Wire Act of 1961, often called the Federal Wire Act, was only used to charge businesses, not players, that took sports bets. This lead to a new series of problems for poker and non sports betting. The language of the law was specifically written to prevent betting across state and national lines that would allow businesses to escape the laws and regulations for each state while also keeping betting activities and profits within local borders.

• November 2002, the United States Court of Appeals for the Fifth Circuit ruled that the federal wire act is correctly interpreted as prohibiting the transmission of information used in betting across state lines but also affirmed that an earlier ruling by a lower court that did not prohibit internet gambling for 'games of chance'.

• March 2003, Deputy Assistant Attorney General John G. Malcolm testified before the Senate Banking Committee about specific problems presented by the online gambling industry. The primary topic and one of great concern to the US Department of Justice is the question of money laundering, an easy by product of an industry supporting large financial deposits with little or no supervision. The basic premise was that anonymous players and secure financial transaction encryption make online gambling especially suitable for money laundering.

• April 2004, Google and Yahoo!, the two largest search engine providers announced that they would no longer accept gambling sites for paid advertising.

• April 2005, Yahoo! lightens up a little and allows advertising for "play money" gambling site

• November 2004, the WTO (World Trade Organization) ruled that the United States was in violation of international law by making it a crime for Americans to place bets with online bookies parked offshore. This was a direct result of the small island nation of Antigua's complaint that their economy was unfairly harmed by the US laws preventing US players from gambling with businesses located there. The policy was considered protectionist, violating the principals of international treaties regarding fair competition and the WTO took it to court. The case is still pending.

• July 2006, David Carruthers the CEO for BETONSPORTS a company publicly traded on the London Stock Exchange was arrested by US authorities when he attempted to switch planes in Texas on his way to Costa Rica. He is currently on house arrest following a million dollar bail bond.

• September 2006, Peter Dicks another foreign businessman for SportingBet PLC is detained while in New York after a court in Louisiana, a state that has specific laws regarding internet gambling attempted to have the Chairman extradited to Louisiana. After a month of being detained in New York the warrant was dismissed.

• September 2006, in a last minute add-on to an unrelated amendment the Safe Port Act, known as Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006 is passed by both the House of Representatives and Senate. This legislation makes transactions from banks or other financial institutions to online gambling sites illegal. Speculation regarding Senate Majority leader, Bill Frist's motivations for attaching the legislation have ranged from his political ambitions to his conservative religious background.

• October 13, 2006, the Safe Port Act and consequently the barring of financial transactions to gambling sites is signed into law by President George W. Bush.

• January 17, 2007, two days after NETeller founders Stephen Lawrence and John LeFebvre were arrested and charged with money laundering NETeller, a global eWallet provider stopped allowing Americans to use its services to transfer money to and from Internet gambling sites.

• April 26, 2007, Rep. Barney Frank a democrat from Massachusetts introduced the Internet Gambling Regulation and Enforcement Act (IGREA). IGREA would change UIGEA as passed in 2006 by creating a licensing system that would be governed by the Director of the Financial Crimes Enforcement Network.

• June 7, 2007, Rep. Robert Wexler another Democrat from Florida introduced the Skill Game Protection Act. This would legalize Internet poker, blackjack, bridge, chess, and other games of skill.

• June 7, 2007, Rep. Jim McDermott a Democrat from Washington State introduced the Internet Gambling Tax Act. The IGTA would work to legislate Internet gambling tax collection requirements.

• June 8, 2007, the House of Representatives Financial Services Committee held a hearing with several expert witnesses to decide if internet gambling could be effectively governed to deal with several critical issues including: age verification, state and federal tax collection, money laundering and problem gamblers.

• September 26, 2008, Senator Robert Menendez introduces S.3616, the Internet Skill Game Licensing and Control Act to provide for the licensing of online skill game facilities. The act did not pass.

• January 20, 2009, Barack Obama is sworn in as US president. His attitude towards online gambling is more open than that of George Bush.

• March 18, 2009, Ron Kirk is appointed as US Trade Representative. Kirk promises to take a stand against legislation like the UIGEA that is bad for current trade agreements.

• May 6, 2009, Rep. Barney Frank holds a press conference to introduce the Internet Gambling Regulation Consumer Protection & Enforcement Act of 2009, the much-anticipated and much delayed response to the UIGEA.

• June 11, 2009, the EU warns the US that the UIGEA breaks international trade agreements, and pressures them to take action to overturn the online gambling ban.

• June 26, 2009, Barney Frank’s Internet Gambling Regulation Consumer Protection & Enforcement Act of 2009 is put on hold for a few months, as the global economic crisis demands more of his time.

The current laws have had the effect of moving business away from online gambling to local establishments and bookies, at least temporarily. Judging from the amount of activity currently taking place to understand and recommend legislation for online gambling, it seems as if the House of Representatives guided by Barney Frank and his supporters is moving in a direction that will see the current online gambling ban overturned. The new political atmosphere brought by Obama and his cabinet has brought new hope for US internet gambling laws. But for now, US players will have to play for fun or play with lesser known online gambling sites.