Analysis of the Arguments in Support of
H.R. 4777 Internet Gambling Prohibition Act and
H.R. 4411 Internet Gambling Enforcement Act of 2006
Synopsis: Never in U.S. history has such an extensive invasion of the personal and financial privacy of every American been proposed by Congress with so little public debate or apparent awareness. As proposed, every web-site access and every credit card, check and electronic funds transfer will be screened then, if the site or recipient, respectively, is on the government’s iGambling black list and selectively BLOCKED in real time. ISPs, banks and other financial concerns will be deputized by the Justice Department to search continually and instantly for iGambling in every American’s Internet access and financial transaction.
The prohibitionists pushing H.R. 4777 and H.R. 4411, use similar talking points in their support of these two severe intrusions into Americans privacy. Today, the U.S. has “zero” blocked Internet sites and China has 18,931.
[1] With the passage of H.R. 4777 the U.S. will add a minimum of 2,500 sites initially, before the tens of thousands of sites with iGambling ad banners with active hot links are added.
[2] H.R. 4777 will deputize ISPs to screen continually their roughly 100 million customers’ Internet activity to STOP a few million American iGamblers from doing what they are currently doing.
[3] H.R. 4411 will “criminalize the knowing acceptance of credit, credit proceeds, electronic fund transfers or such monetary payments by anyone in the gambling business.”
[4] “These proposals do not recognize that the check clearing system and the Automated Clearing House (ACH—[electronic funds transfer]) network do not have the same capacities as the credit card association networks to identify different types of transactions.”
[5] “This legislation, if passed, would not only necessitate a massive overhaul of our nation’s check clearing and ACH systems, but also create enormous regulatory burden requiring the deputization of financial institutions to identify and block illegal transactions.”
[6]Money Laundering is Not a Problem. According to a 2006 American Gaming Association White Paper, “Money laundering risks are somewhat diminished with online gambling since all electronic funds transfers can be electronically recorded, providing a detailed and automatic transaction trail not currently available in bricks-and-mortar casinos.”
[7] The policies of iGambling sites differ and further frustrate illegal transactions because “withdrawals often have to take place at least 48 hours after the last deposit” and because many sites put daily dollar limits on deposits and withdrawals.
[8]Underage Gambling Is Definitely Not a Problem. There have been no studies cited by the prohibitionists that demonstrate that underage iGambling is even a remote problem. In general, in order to gamble on-line one needs either a credit card or a checking account. All major U.S. credit card companies currently BLOCK the direct credit to any off-shore iGambling site. In any case, Parents should be supervising the use of a minor’s credit card. Minor-owned checking accounts in the U.S. are rare and are all joint accounts with a Parent/Guardian. The set-up time for an on-line iGambling account is seven to ten days using a checking account, involving seven separate secure actions—arguably requiring too much patience for most kids?
Compulsive Gambling Behaviors are Rare. Only about 1% of gamblers are compulsive gamblers.
[9] Unlike brick-and-mortar casinos, iGambling sites don’t extend credit to losers. Online gamblers are twice as likely to have a college degree, are younger, are more likely to be single, are more internet-savvy and have less free time than the typical casino player.
[10] Elements of this profile are less likely to create “family difficulties.” In any case, an abundance of well-advertised and promoted state lotteries, brick-and-mortar card clubs and casinos, race tracks and extensive legal iGambling carve outs (see below) will continue to aggressively tempt the compulsive gambler.
Governments Often Exempt Favored Forms of iGambling. Existing state and federal laws and the proposed bills have many carve outs for special interests: state internet lotteries, “lawful state-regulated pari-mutuel wagering activities on live horses,” “lawful regulated pari-mutuel wagering on live dogs,” “live Jai-Alai conducted on a closed-loop subscriber-based system” and state-regulated intra-state wireless and iGambling.
Nonsense: “fly-by-night Internet gambling sites.”
[11] Partygaming and 888 Holdings have London Stock Exchange market capitalizations of $8.4 billion and $1.2 billion, respectively.
[12] Others are looking to go public.
iGambling is Monitored and Regulated. Some 2,500 iGambling sites compete for the gambling dollars. Unlike the few, scattered tribal casinos and licensed card clubs who generally operate (except in Las Vegas and a few other cities) with quite limited competition iGambling sites face strong competition. While iGambling sites may initially compete on the basis of software “look and feel,” table selection and action, bonuses and sponsored tournaments; ultimately, transparency, reputation for fairness, security, web-support, collusion monitoring and quickness of financial transactions are key for repeat gamblers. Unlike brick-and-mortar casinos, the nature of iGambling supports a different type of self-regulation, self-supervision and self-discipline:
User—With software support an iGambler can track every card played, every bet, every hand, every opponent, every table, every session and every iGambling site for any time period. Suspected problems can be reported to the iGambling site.
Bloggers—Web-sites report on every major site with detailed analyses and support forums by iGamblers. Problems become widely known.
Site Supervision—A reputation for fairness, flawless security, and dependability are the key competitive elements in the iGambling market. Sites search for prohibited player software (bots), employ anti-collusion systems, do IP address checks, abide by multiple table tournament policies and use industry standard Thawte SSL (Secure Sockets Layer) Certificates for secure communications. The ongoing security and interface costs force some sites to custom brand the same underlying software network.
Jurisdiction—“Eighty-five jurisdictions around the world regulate some form of online gambling, but most such businesses are clustered in a few places. .”
[13] “A March 2005 report listed the following totals for online gambling business, by jurisdiction: Antigua (536); Costa Rica (474); Kahnawake Mohawk (Canada) (401); Curacoa (343); Gibraltar (111); United Kingdom (70) and Belize (60).”
[14] Online gambling businesses will be drawn to the United Kingdom in 2007 as it implements its Gaming Act 2005”…Despite higher UK taxes, “U.K. offers substantial advantages: (i) a stable political environment, (ii) vibrant capital markets, (iii) a reliable communications infrastructure, (iv) a large pool of skilled workers, and (v) regulations that should inspire confidence among customers and investors
iGambling is Taxed. Professional gamblers report their income either on Form 1040, line 12, business income (Schedule C) or on line 21, other income. The jurisdictions that license iGambling operations receive tax revenues for their licensing and supervision.
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[1]Jonathan Zittrain and Benjamin Edelman, “Empirical Analysis of Internet Filtering in China,” Berkman Center for Internet & Society, Harvard Law School, March 2003, 1,
http://cyber.law.harvard.edu/filtering/china/ (11 June 2006).
[2] Given the ability of creating multiple access points, this blockage will need to expand exponentially.
[3] “For 2004, estimates of online gambling revenues ranged from $7 billion to $10 billion, with U.S. bettors providing half of that amount.” Revenues are growing 20% a year and millions of Americans gamble on-line. “Deutsche Bank AG/London, Online Gaming Industry, Surreal or Real Returns?” Deutsche bank AG Report, 19 July 2005.
[4] Testimony of Samuel A. Vallandingham, Independent Community Bankers of America, Washington, D.C. at “Legislative Hearing on H.R. 4777, the Internet Gambling Prohibition Act,” United States House of Representative, Committee on the Judiciary, Subcommittee on Crime, Terrorism, and Homeland Security, 5 April 2006, 3,
http://judiciary.house.gov/media/pdfs/vallandingham040506.pdf (11 June 2006).
[5]Ibid.
[6]Ibid.
[7]David O. Stewart, Ropes and Gray, LLP, “An Analysis of Internet Gambling and its Policy Implications,” American Gaming Association, May 2006, 16,
http://www.americangaming.org/assets/files/studies/wpaper_internet_0531.pdf (12 June 2006).
[8] Mark “the Red” Harlan and Chris Derossi, “Taking Your Cash to Cyberspace—Safely,” Winning at Internet Poker for Dummies, Wiley Publishing, Inc., 2005, 65.
[9] Stewart, 15.
[10] “State of the States: The AGA Survey of Casino Entertainment,” American Gaming Association, May 2006,
http://www.americangaming.org/assets/files/2006_Survey_for_Web.pdf (12 June 2006)
[11]Rep. James Gibbons (D-Nevada), July 18, 2000,
http://www.techlawjournal.com/crime/20000718.htm(11 June 2006).
[12] June 2006.
[13] Stewart.
[14] Dresdner Kleiner Research Report on Internet Poker (June 2005).
