Internet Newsletter for Lawyers |
|---|
The legal and regulatory approach to online gambling is a complex and contradictory mix ranging from prohibition in the United States and Hong Kong to government backed regulation in the Isle of Man, Alderney and, before too long, the United Kingdom.
In the UK the Government commissioned Budd Report recommended a radical liberalisation of gambling law, including the laws concerning online gaming. The UK government has accepted most of the recommendations as can be seen in their White Paper A Safe Bet For Success.
The UK liberalisation plans have attracted a great deal of interest internationally both in the bricks and mortar casino world, with talk of Blackpool becoming the Las Vegas of Europe, and in the online field.
The Department of Culture Media and Sport plans to bring forward legislation which will make it into the Queen’s Speech for 2003 and receive the Royal Assent at the end of 2004.
Sportingbet a pure online operator, has grown rapidly to be one of the largest operators in the world, with 608,000 customers in 150 countries. Their turnover to their year end March 2002 was £991.5 million up from £324.7 million in 2001 with a profit before tax of £5 million compared to a loss of £4.2 million in 2001. Betfair a p2p betting site, which matches bets between private individuals, has also experienced substantial growth since its launch two years ago.
The growth of online gambling has not been confined to the internet. Interactive TV and mobile operators see gambling as providing a profitable source of content for new channels. Channel 4 has launched attheraces.co.uk, which combines live racing with the ability to bet on the races interactively. BskyB offers interactive betting services which are becoming a substantial source of revenue. Orange has signed up with ukbetting.com to offer a range of betting services to their mobile users.
The United States Department of Justice (DOJ) takes the view that existing Federal legislation, in particular the Wire Act (18USC§1084), makes online gambling, whether sports betting or gaming, illegal. “This statute (ie the Wire Act) makes it a crime, punishable up to two years in prison, to knowingly transmit in interstate or foreign commerce bets on any sporting event or contest,” said John G.Malcolm, Deputy Assistant Attorney General Criminal Division, US Department of Justice in a speech on November 20 in London at the Special Briefing on Money Laundering and Online Payment Systems, organised by World Online Gambling Law Report.
“It is the Department of Justice’s position that this prohibition applies to both sporting events and other forms of gambling and that it also applies to those who send or receive bets in interstate or foreign commerce even if it is legal to place or receive such a bet in both the sending and the receiving jurisdiction,” said Malcolm.
The Department of Justice has also outlined where it believes an online gambling transaction takes place. “The DOJ views a gambling transaction as occurring in both the jurisdiction where the bet is placed by the bettor and in the jurisdiction where the gambling business that receives the bet is located”, said Malcolm. “Thus, if internet gambling were regulated in the United States, it would be subject to, and would need to be in compliance with, fifty differing sets of gambling laws, which would pose unique problems”.
The Department of Justice interpretation of the Wire Act has not been accepted in some US Courts. In the Internet Gambling Overview (GAO-03-89) published by the United States General Accounting Office on December 2 2002, the authors noted: “individual courts have reached different conclusions about the types of gambling covered by the act. The statute prohibits the transmission of “information assisting in the placing of bets or wagers on any sporting event or contest.” This language has led some courts to interpret the Wire Acts as covering bets only on contests that involve sports”.
The US approach has affected the online gambling market in two major ways. Firstly the US bricks and mortar casino operators, the largest casino operators in the world, have held back from entering the online market. The first US entrant, MGM Mirage, licensed through the Isle of Man, come into the market in October but, like the established UK bookmakers, it will not accept bets from the US.
Secondly the questionable legality of online betting by US citizens and concerns about online fraud has led to the withdrawal of credit card facilities by major US banks. Although neither Visa nor MasterCard have issued policies to its members that restrict the use of the association’s credit cards for internet gambling, they have introduced procedures which allow member banks to identify and block such transactions if they so choose.
The GAO Report noted that “Officials from the eight large US based issuing member banks we reviewed, which represent more than 80 percent of the purchase volume of cards issued by Visa and MasterCard in the United States, all indicated they had implemented policies to deny payment authorisation for internet gambling transactions coming through their automated systems”.
Despite the approach of the US government and the US banks, it is estimated that the US comprises 60 percent of the online gambling market. This market is currently being served by the Caribbean operators, based in jurisdictions such as Antigua and Barbuda, and Curacao, as well as by Sportingbet in the UK. These operators are prepared to run the risks of falling foul of the Wire Act, although one such operator Jay Cohen, is now facing a 21 month sentence in a Federal prison for violating the Act.
The online gambling market is certainly a minefield of regulatory risk but blue chip bricks and mortar companies are now entering the fray. With their established brand names and a track record of probity, they are able to maintain good relations with banks and, at least outside of the US, address the problems of payment solutions.
These companies are lobbying hard for strong regulation, which will clean up the image of the industry and address problem issues such as under age gambling through working with organisations such as GamCare, the UK gambling care and advice body.
Gambling is truly a global online market, offering great profits, great risks and substantial challenges for regulators, legislators and lawyers.
Lindsey Greig is Managing Editor of World Online Gambling Law Report, which is published by Cecile Park Publishing Ltd, who also publish e-commercelaw&policy and e-commercelawreports.
Email Lindsey.greig@e-comlaw.com.
Back to Contents.