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Re-Thinking Internet Gambling: International Regulatory Models and Hot Topics in 2009

Michael D. Lipton, Q.C. and Peter J. Kulick
Dickinson Wright

North American Gaming Regulators Association
2009 Annual Conference
Washington, D.C.
June 3, 2009

I.    Introduction

    The origins of gambling, according to some accounts, extends as far back as the dawn of mankind¹.   The advent of the internet traces back to the 1960s, with wide-spread use beginning by the mid-1980s.  The internet has revolutionized the exchange of information and global commerce.  It was merely a matter of time before the gambling world would intersect with the world wide web.  The intersection finally occurred in 1995 with the launch of the first internet-based gambling website.²   Some fourteen years later, the i-gambling industry has evolved into a multi-billion dollar industry populated with over 2,800 i-gambling websites.
    A global effort to ban i-gambling quickly became impractical after the launch of the first i-gambling website as nations such as Antigua and Barbados and Costa Rica moved to legitimatize i-gambling.  The remainder of North America has largely followed a different route by resorting to legislative means to prohibit i-gambling.  In contrast, some European Union ("EU") nations, most notably the United Kingdom, have authorized i-gambling and established licensing regimes.
    The virtual world in which i-gambling operates presents new challenges to regulators.  The internet alone presents an evolving array of legal issues.  The internet has become an essential component of global commerce and communication.  The internet is often described as the modern reincarnation of the proverbial "Wild, Wild, West," -- the last place on the globe with laissez-faire regulation.  In contrast, the gaming industry has historically been heavily regulated.  The regulatory issues i-gambling face are similar to traditional land-based gaming.  However, i-gambling presents an additional range of challenges due to the unique characteristic of the internet which can permit a person to act anonymously and literally reach a global audience from anywhere in the world. 
    The regulation of i-gambling in the United States formally took effect with the passage of the Unlawful Internet Gambling Enforcement Act ("UIGEA") on October 13, 2006.  The Department of the Treasury and Federal Reserve Board jointly promulgated final regulations implementing UIGEA on November 12, 2008.  Internationally, developed nations have adopted diametrically differing regulatory models.  For example, Germany and Norway, have opted to ban i-gambling, while the United Kingdom authorizes i-gambling.  Other nations have tried to operate in ambiguity by either adapting antiquated laws to i-gambling or tacitly failing to enforce existing laws.  The state of i-gambling regulation can aptly be described as a fluid state.  The fluidity can be exemplified by recent efforts in the United States to make an 180 degree regulatory change to adopt a model authorizing and licensing i-gambling.
    The historical development of i-gambling is first discussed below.  The outline then discusses the issues and approaches which have been taken to regulate i-gambling.  Current developments are then discussed.  Finally, the outline examines the future regulation of the i-gambling industry.

II.    The History and Economics of I-Gambling

A.    The Historical Development of Internet Gambling and the Early Regulatory Models of Internet Gaming

    Gambling is interwoven in the fabric of man.³   The modern history of commercial gambling in the United States dates back to more recent times when Nevada became the first state to legalize gambling in 1931.  It took over forty years later for New Jersey to become the second state to legalize commercial gambling.  In the ensuing two decades, commercial gambling has expanded to reach a total of 12 states and Tribal gaming has led to even greater prevalence of gaming in the United States.  By 2007, land-based gaming was a $34.1 billion industry in the United States alone.
    The expansion and development of i-gambling has resembled the speed at which the internet has become an essential component of everyday life.  In the decade and half after the launch of the first i-gambling website, as of 2009, there are an estimated 2,800 i-gambling websites.⁴   North American residents, despite bans on i-gaming, accounted for approximately 47% of the gross gaming revenue in 2005.⁵
    It did not take long for nations to legitimize i-gambling following the launch of the first i-gambling website.  Antigua was one of the early nations to establish an i-gambling licensing system.⁶   Antigua remains one of the more popular offshore jurisdictions in which i-gambling website operators will seek to obtain a gaming license.  In North America, the First Nations tribe, the Mohawks of the Kahnawake Territory, established the Kahnawke Gaming Commission, in part, to regulate i-gambling in 1996.  The Kahnawke Territory is located in Québec.  Over the course of the last decade, the United Kingdom, Australia, and France have similarly adopted laws to regulate i-gambling.

B.    The Economic Expansion of I-Gambling

    Practically overnight, the i-gambling industry has blossomed to a multi-billion dollar segment of the global gaming industry.  Shortly after inception, as of 1997, the i-gambling industry generated revenue of approximately $300 million.⁷   Between 1997 and 1998, revenue from i-gambling more than doubled to $651 million.⁸   Slightly over a decade later, industry experts have forecasted that i-gambling will be a $22 billion industry in 2009.

III.    Regulating Internet Gambling: Identifying the Concerns of Gaming Regulators and International Models Used to Regulate Internet Gambling

    The crossroads of the internet and gambling present a degree of uneasiness for many gaming regulators because of the anonymity and isolation in which the internet can operate.  The ability of a person to place bets from his own home and for operators to operate sites from remote -- and perhaps unknown -- locations raise legitimate regulatory concerns.  Regulators may have a suspicion regarding the identity of bettors and whether gambling games are fairly operated.  Consequently, from a regulatory perspective, there may be a reluctance to authorize i-gambling.  Despite these concerns, several developed countries have authorized and regulate i-gambling.  The following discussion, accordingly, considers regulatory concerns with i-gambling.  Next, an overview of i-gambling regulatory models are discussed.

A.    Regulatory Concerns Peculiar to I-Gambling

    An understanding of regulatory apprehension with i-gambling, provides a framework for developing a regulatory model.  Regulatory concerns with i-gambling include: (1) whether sufficient protections can be put in place to guard against the incidence of problem gambling; (2) prevention of money laundering; and (3) regulatory oversight.  In 2000, the Australian Parliament prepared a comprehensive report, Netbets: A Review of Online Gambling in Australia (March 2000), which discusses regulatory concerns with i-gambling.  The Netbets Report serves as good resource for identifying regulatory concerns and potential policy responses.

1.    Does I-Gambling Lead to an Increase in Problem Gambling?  What Practical Regulatory Measures can be Implemented to Reduce the Incidence of Problem Gambling?

    One of the primary reasons cited for banning i-gambling is a belief that gambling through the internet will increase the incidence of problem gambling.  The costs from problem gambling can be staggering, ranging from substantial monetary losses by problem gamblers to associated social costs.  Proponents frequently point to the shear number of internet sites as the casual link to increased problem gambling.  Specifically, advocates of i-gambling bans argue that the mere increase in available gambling opportunities directly leads to greater incidence of problem gambling.  The logic would then follow that limiting gambling opportunities is the most effective policy means to reduce problem gambling. 
    Although there may be a visceral appeal to an argument to limit gambling opportunities, the issue of problem gambling, and the policy solutions to combat problem gambling, are not quite as simple as a pure numbers game.  At the outset, the underlying premise of the theory -- that greater gambling opportunities leads to increased incidence in problem gambling -- may not be supported by extrinsic evidence.  For example, the Netbets Report acknowledged that independent research has questioned the existence of a casual link between increased gambling accessibility and increased problem gambling. 
    There may be several factors which contribute to problem gambling, ranging from the forum in which gambling is made available, the extent of regulation and the nature of procedures adopted to protect against behaviors which could lead to problem gambling.  The Netbets Report, for instance, suggested that the nature of accessibility to gambling opportunities can impact to extent to which there is an increase in problem gambling. 
    Simply prohibiting i-gambling could even potentially lead to a greater incidence of problem gambling by expanding market opportunities for unscrupulous operators of i-gambling websites.  Unscrupulous operators may be unwilling to operate in a regulated environment which requires licensing, but are willing to enter an unregulated environment precisely because there is no regulatory oversight, which, among other matters, would establish rules making gambling games available.  The Netbets Report concluded that there is a risk to increase problem gaming if an unregulated i-gambling regime is in place.  Thus, several factors may influence a rise in problem gambling and simply banning i-gambling may not be as effective in combating problem gambling as implementing responsible regulatory oversight.
    Second, it may not be feasible to completely ban i-gambling.  A successful ban would likely entail not only eliminating all gambling opportunities -- which would be exceedingly difficult due to the divergent attitudes toward i-gambling throughout the world -- but also incorporate sufficiently stringent penalties to deter would-be gamblers from placing online wagers.  As a result, a more practical approach may be to adopt a regulatory model that incorporates protections to reduce the incidence of problem gambling.
    The Netbets Report identified several steps which could be undertaken to reduce the incidence of problem gambling associated with i-gambling.  Initially, similar to what is already occurring in the United States, an outright ban more likely than not will simply shift domestic gamblers to place bets through offshore i-gambling websites.  The policy costs arising from such a ban could outweigh any benefits aimed to reduce problem gambling.⁹   Mechanisms that could be implemented to reduce the incidence of problem gambling within the i-gambling industry include:

•    limiting players' daily hours of gaming play;
•    player exclusion programs;
•    slowing the speed of games;
•    limiting daily and/or monthly wagers or impose lose limitations;
•    including problem gambling warnings during the log-on process; and
•    educate gamblers regarding diagnosis of problem gambling.

2.    Can I-Gambling Websites be Used to Launder Money and Perpetuate Fraud?  Regulatory Solutions to Combat Money Laundering and Fraudulent Activity

    Another concern often identified with i-gambling is that it may be used as a means to launder money.  For example, a person could attempt to launder money by advance depositing money in an account with an i-gambling website, play for a limited period of time and then withdraw funds.  The Netbets Report, while acknowledging that money laundering can be an issue with i-gambling, recognized that websites may employ mechanisms to protect against money laundering.  These mechanisms include, for example, strict player identification requirements in order to reduce the degree of anonymity, use of encryption technology and financial transaction reporting requirements.

3.    Steps Can Regulators Implement to Ensure I-Gambling Games are Conducted Fairly by Operators

    Another potential concern with i-gambling is whether gambling games are operated fairly.  The internet is ripe with spammers and other unsavory persons attempting to perpetuate frauds with the cloak of anonymity offered by the internet.  Absent a robust regulatory framework, there are concerns that i-gambling websites will operate fraudulent games.  The approach in the United Kingdom offers a prospective model.  The United Kingdom requires i-gambling software and games to meet standards similar to those applicable to gambling games operated in land-based casinos.  Moreover, as slot machine technology has evolved to become primarily computer driven, regulators' familiarity presents a practical approach to establish software standards for i-gambling games.

B.    Developing a Practical I-Gambling Regulatory Model – Examination of Existing I-Gambling Regulatory Models and the Lessons Learned

    Generally, jurisdictions have adopted two basic i-gambling regulatory models.  First, one segment of the international community has sought to ban i-gambling.  The United States, through UIGEA, is a leading example of the group of nations which have sought to prohibit i-gambling.  Second, other nations tolerate i-gambling through active regulation of operators.  The following discussion provides an overview of the basic regulatory models and the variations adopted.

1.    Analysis of Regulatory Models Banning I-Gambling and How the Models Address Regulatory Concerns

The predominate model that countries have adopted to ban or severely restrict i-gambling is embodied in the United States’ UIGEA.  The nominal justification offered to restrict internet gambling is to eliminate problem gambling behavior by reducing the available supply of gambling options.¹⁰   The true motivation of some foreign jurisdictions, however, often lies with a desire to protect state-granted gaming monopolies. 
UIGEA shifts the primary enforcement decision-making to financial institutions.  UIGEA mandates that the United States Department of Treasury and Federal Reserve promulgate regulations requiring financial institutions to "identify and block" restricted transactions.¹¹   UIGEA further directs that the regulations require financial institutions to establish "policies and procedures reasonably designed to identify and block or otherwise prevent or prohibit the acceptance of restricted transactions."¹²   Pursuant to UIGEA, these policies and procedures can operate by either: (1) allowing the payment systems and persons involved to identify restricted transactions by code and block the identified restricted transactions, or (2) preventing or prohibiting the acceptance of the products or services of the payment system in connection with a restricted transaction.¹³   A financial institution is absolved from liability for blocking any transaction it "reasonably" believes is a restricted transaction.¹⁴
Norway, the Netherlands, Finland and Viet Nam all have laws that ban internet gambling.  The means to enforce bans on internet gambling has taken varying degrees of separation from a pure UIGEA approach.  The most prevalent approach has been similar to UIGEA by placing the onus of policing internet gambling squarely at the feet of the financial institutions.

a)    The Norwegian Regulatory Model – a Modified Version of UIGEA

    The Norwegian Sorting, Norway's parliamentary body, amended three laws, including the 1995 Norway Lottery Act, in December 2008 to effectively ban internet gambling by adopting a UIGEA-style approach.  The Norwegian Ministry of Church and Cultural Affairs proposed the amendments.  Similar to UIGEA, the amended Norwegian laws prohibit Norwegian financial institutions from processing payment transactions for on-line casinos.

b)    Blacklisting Prohibited Gambling Websites in the Netherlands

    The Dutch approach to restricting internet gambling varies from UIGEA by developing a blacklist which identifies the internet sites to which financial institutions must restrict processing payments.  The Dutch blacklist was expected to be released by March 2009.  It has been represented that between 30-50 gambling websites will be identified that the Ministry has concluded illegally target Dutch residents.  The Minister of Justice has cautioned that if the blacklist approach proves to be ineffective in preventing internet gambling, then he will push for a UIGEA-style enforcement scheme.

c)    Limited Blocking of Internet Gambling in Finland

    Finland has developed a slightly different approach to regulating internet gambling by authorizing the state granted monopoly, Veikkas, to be the sole provider of internet gambling within Finland.¹⁵   Finland has recently acted to enhance its gaming laws to provide additional restrictions on internet gambling and the activities of indirect marketers promoting internet gambling sites.¹⁶   Further, under Finnish law, persons participating in illegal internet gambling can be subjected to substantial jail terms and monetary fines.¹⁷  The new Finnish laws have been met with formal scrutiny by the European Commission.

d)    Criminal Sanctions in Viet Nam

    Viet Nam is still largely a developing country that lacks a sophisticated technology infrastructure.  The increase in broadband and WiFi technology in Viet Nam has correspondingly increased the incidence of internet gambling by Vietnamese residents.¹⁸   Although gambling is generally illegal in Viet Nam, the government has not actively sought to enforce the ban on internet gambling.  Internet gambling has taken a form which differs widely from the rest of the world.  Specifically, internet gambling sites require on-line gamblers to deposit money in an account prior to gambling as opposed to extending credit to on-line gamblers.¹⁹   Moreover, the internet sites will send collectors to gamblers' homes to collect gambling debts.²⁰
    Perhaps because Viet Nam and Vietnamese financial institutions are ill-equipped to monitor payments to internet gambling sites, the response to enforce restrictions on internet gambling has differed in Viet Nam.  Viet Nam has departed from the approach adopted by other nations -- shifting front-line enforcement to local financial institutions -- by directing enforcement activities at gamblers.  The impetus for enforcement has principally come from the gamblers themselves.²¹   That is, gamblers have complained to Vietnamese police of thefts and fraudulent activity by internet gambling sites.²²   As result, Vietnamese police have confirmed that an investigation into internet gambling has been launched.²³  
    Vietnamese enforcement activities have largely been directed at criminal prosecution of gamblers, although Vietnamese legal commentators have acknowledged that local employees of internet gambling sites could also face prosecution.²⁴   Criminal sanctions in Viet Nam range from monetary penalties to prison terms if wagers exceed VND 1 million, which is equivalent to approximately $57 (U.S.).²⁵

2.    Analysis of Regulatory Models Authorizing I-gambling

    As of 2006, i-gambling was authorized in some form in 88 countries.²⁶   The United Kingdom and Australia are leading examples of developed nations which have authorized some form of i-gambling.  The below discussion summarizes the United Kingdom and Australia regulatory models.

a)    United Kingdom Comprehensive Licensing and Regulatory Oversight Model

    The United Kingdom Gambling Act 2005 permits operators of remote gambling to lawfully offer gaming through the internet in Great Britain.  The Gambling Act 2005 sets forth a licensing regime, imposing similar standards as those applicable to land-based casino gaming operations.  Licensees are required to locate equipment used in remote gaming in Great Britain.²⁷   Licensees are also required to ensure that games meet gambling and software standards established by the United Kingdom Gambling Commission.  I-gambling games are subject to product testing to ensure the games comply with standards adopted by the United Kingdom Gambling Commission.  The Gambling Act enforces age restrictions by making it a criminal offense to allow minors to place bets through i-gambling websites of a licensed operator.  To enforce the United Kingdom age restrictions, internet sites are required to use age verification procedures.
    The Gambling Act 2005 does not regulate foreign based i-gambling operators.  The United Kingdom does impose restrictions on the ability of foreign i-gambling operators to advertise i-gambling in the United Kingdom.

b)    The Australia Regulatory Paradox – Licensing System Coupled with a Ban Restricting Access by Residents

    Australia had adopted a hybrid i-gambling regulatory model.  The Australian i-gambling regulatory model creates a paradox by licensing i-gambling operators, but restricts access to Australian citizens.  Similar licensing standards are imposed on licensees as apply to traditional land-based casinos.

IV.    Current Developments in the World of I-Gambling: More Domestic and International Challenges for UIGEA and the Prospect for an I-Gambling Regime in the United States

The word "change" was successfully used as the theme for the 2008 Presidential election in the United States.  With the ushering in of a new administration and increased Democratic majorities in Congress, "change" has been the moniker of regulatory and legislative proposals in the United States.  In an industry which evolves as swiftly as the internet itself changes, external forces have aligned for significant policy changes concerning the regulation of i-gambling.  The below discussion summarizes significant current developments.

A.    European Union Likely to Initiate a WTO Challenge to UIGEA

Staying true to the controversial origins of UIGEA, in March 2009, the European Union announced that it was prepared to commence a WTO proceeding challenging UIGEA.  The thrust of a EU WTO proceeding would be similar to the successful Antigua WTO proceeding.  The EU has, however, publicly announced that it will first seek to diplomatically resolve the matter.

B.    Authorizing I-Gambling in the United States?  Congressman Frank Tries Again with a Slightly Different I-Gambling Regulatory Model

The second significant development in internet gaming is the introduction of long-awaited legislation by Congressman Barney Frank (D-MA) to authorize i-gambling in the United States. On May 6, 2009, Congressman Frank introduced the "Internet Gambling Regulation, Consumer Protection, and Enforcement Act" ("IGREA") in the U.S. House of Representatives.  IGREA has been designated H.R. 2267.  IGREA ostensibly establishes a federal regulatory regime permitting licensees to accept bets through i-gambling sites.  IGREA also allows for state and tribal government participation in i-gambling regulation by offering an avenue for direct state or tribal regulation and setting forth opt-out provisions.
    IGREA sets forth a comprehensive regulatory framework which authorizes i-gambling.  The key highlights of the regulatory framework advanced by IGREA include: (1) permissible bets and wagers, (2) the federal licensing system, and (3) state and tribal regulatory involvement.

1.    "Bets or Wagers" Permitted under IGREA
    IGREA permits i-gambling by providing that only a person who is issued a federal license may knowingly accept "bets or wagers" through an "internet gambling facility."  A significant aspect of IGREA is the exclusion of one specific type of betting – which may increase the odds IGREA is enacted – from the permitted forms of gaming.  Specifically, in an effort to forestall opposition from professional sports leagues, IGREA excludes sports wagers from the scope of permissible forms of betting.  Virtually all other forms of gaming, such as poker, other card games, virtual slot machines and table games would be permitted forms of gaming under IGREA.

2.    A Federal Licensing System Under IGREA

    The core of IGREA is the adoption of a federal licensing system administered by the Department of the Treasury.  IGREA sets forth detailed federal licensing standards.  The licensing standards are analogous to licensing standards ordinarily found in state gaming laws.  For example, the business entity operating an i-gambling site, along with key persons, would be required to be licensed under IGREA.  Licenses would be issued for a five-year renewable term.
    Included within the licensing standards are detailed provisions with respect to safeguards licensees must implement.  The safeguards include having procedures and systems which: (i) ensure that only those individuals of legal age place bets or wagers; (ii) the wager is physically located in a jurisdiction which permits i-gambling; (iii) ensure the collection of all taxes imposed on licensees; (iv) combat against fraud, money laundering and terrorist finance; and (v) combat against problem gaming by implementing problem gambling, self-exclusion and responsible gaming programs.

3.    State and Tribal Opt-Out from I-Gambling

    IGREA provides for state and tribal involvement in the regulation of i-gambling in two manners.  First, states and tribal territories may opt out of IGREA to prohibit i-gambling.  For example, should Alabama decide to prohibit i-gambling, under IGREA, a federal licensee would have to block individuals physically located in Alabama from placing a bet or wager through an internet gaming facility.  IGREA does set forth elaborate notice procedures in order for state and tribal governments to formally opt out from permitting i-gambling.
Second, IGREA allows the Secretary of the Treasury to delegate licensing and enforcement oversight to state or tribal gaming regulatory bodies.  The Secretary of the Treasury would still maintain ultimate authority and, in this respect, would retain authority to review, withhold or revoke any license.  This second means by which states and tribal gaming jurisdictions can participate in the regulation of i-gambling offers a practical regulatory solution by allowing those states with established bodies of gaming law and expertise to continue to regulate all forms of gaming.

4.    The Legislative Battle Over IGREA: Political Challenges and Potential Areas for Compromise

    IGREA is not Congressman Frank’s first legislative effort to authorize i-gaming.  Previous i-gaming legislation introduced by Congressman Frank during the 109th Congress never emerged from committee.  However, the landscape has changed in several respects, which increases the prospect that some form of IGREA may be enacted.  First, the makeup of the 111th Congress has changed substantially with an increased Democratic majority.  Second, there is a new administration which may be more receptive to i-gaming.  Third, in times of rapidly soaring budget deficits – reaching as high as $2 trillion – the federal government will begin to scour for every possible new source of revenue raising.  To that end, i gaming offers a potentially lucrative source for new federal revenue.  Fourth, the i-gaming regulatory approach embraced by IGREA differs from prior incarnations.  Significantly, IGREA expressly excludes sports wagers, which may neutralize the prior opposition of professional sports leagues.  Finally, supporters have indicated a willingness to dedicate significant lobbying resources to win passage of legislation authorizing some form of i-gambling.  Harrah's Entertainment has already announced that it would spend approximately $600,000 on lobbying efforts authorizing i-gambling.  The Poker Player's Alliance and offshore i-gambling operators will also likely actively joining the lobbying efforts to authorize i-gambling in the United States. 
    The landscape has improved the chances that some form of i-gambling will win approval in the United States.  Nonetheless, the enactment of IGREA as introduced is still a long-shot.  There are several sources of tension, any of which could block IGREA from becoming law in the United States.  These tension points include:

•    Opposition from major sports leagues.  Although IGREA carves out wagering on professional sporting events, a lobbying battle is starting to brew pitting major sports leagues against gaming businesses.  Representatives of the National Football League, National Hockey League, Major League Baseball, National Basketball Association and the National Collegiate Athletic Association all have publicly voiced opposition to IGREA.  The sports leagues contend that IGREA could be construed to allow internet based sports betting. 
•    Games of "skill" versus games of "chance".  IGREA would authorize not only card games, which are often construed to be games of skill, but also permit games of chance.  The legislative appetite may not be sufficiently large enough to swallow i-gambling legislation which authorizes games of chance.  Rather, the appetite likely only exists to consider permitting internet based poker and, possible, other card games such as blackjack.  Senator Robert Menendez (D N.J.) is expected to introduce a Senate version of IGREA which would limit the permissible internet gambling games to poker and potentially other card games.  Narrowing the scope of permissible gambling games may, however, increase the likelihood that some form of i-gambling authorization will be enacted in the United States.
•    State and tribal opt-in versus opt-out approaches.  IGREA would create an i-gambling model which would require states and tribal governments to explicitly opt-out if the jurisdiction wanted to prohibit i-gambling.  States right is almost always a sensitive issue in the United States.  Thus, the opt-out approach of IGREA may draw fire from the states leading to the demise of IGREA.
•    Federal regulation versus state regulation.  IGREA as introduced provides for the creation of a federal regulatory body to oversee i-gambling.  The bill has provisions allowing the federal government to delegate regulatory oversight to state regulatory bodies, although the federal government would still be able to override any decision or action of state regulatory bodies.  Established gaming jurisdictions, notably Nevada, which is home to Senate Majority Leader Harry Reid, may voice strong objections and, ultimately, seek to block the legislation.

C.    UIGEA and IGREA Beg the Question – What is the Practical Regulatory Approach?

    The battle over i-gambling and the enforcement of a ban on i-gambling in the United States has the makings of a Potomac two-step.  The policy goal of banning i-gambling is ostensibly to protect the public against the perceived inherent danger, including problem gambling and money laundering, of i-gambling.²⁸   Nevertheless, the statute embodying the existing i-gambling ban is fraught with several potential legal problems.²⁹   Moreover, as recited in the Australian Netbets Report, banning i-gambling in the United States more likely than not will cause residents to resort to placing wagers through unregulated offshore websites. 
    The regulatory response is driven largely by the legislative process and the laws enacted by legislative bodies.  UIGEA places United States based regulators in a precarious situation.  On one hand, UIGEA vaguely defines "unlawful internet gambling" by resorting to state law definitions.  On the other hand, UIGEA places the burden of policing prohibited conduct on the shoulders of financial institutions.  The situation faced by the New Hampshire lottery is illustrative.  Specifically, financial institutions have blocked payment processing for the purchase of lottery ticket via the internet, conduct which is permissible under New Hampshire law.  Thus, state and tribal regulators are effectively left out of the regulatory process because financial institutions will more likely than not demand guidance from the United States Department of the Treasury or Federal Reserve Board prior to authorizing payments for otherwise permissible items to be processed.
    IGREA would establish a comprehensive regulatory framework for the conduct of i-gambling and the regulation of operators.  Thus, UIGEA and IGREA beg the question what is a practical regulatory approach to i-gambling.  If the policy goal is to reduce public exposure to i-gambling, the incidence of problem gambling and money laundering, UIGEA may prove to be ineffective.  I-gambling revenue reports reveal that United States residents still actively gamble online and that the United States market still remains a lucrative market.  The policy risk is that the current legal framework could lead to greater risks of problem gambling because offshore websites may have no safeguards in place and increase the risk of money laundering.  Robust regulation of i-gambling, such as proposed in IGREA, may offer better means to meet policy goals by offering the ability to establish comprehensive problem gambler safeguards, player registration and financial transaction reporting.

V.    Concluding Comments on the Future of I-Gambling

    I-gambling has challenged policymakers and gaming regulators to develop an appropriate response to the conduct of gambling through the use of new technology.  I-gambling presents many of the same issues policymakers and regulators face with traditional land-based casinos.  Additionally, an entire new array of considerations are presented with i-gambling by virtue of the delivery of gambling opportunities through the internet.  These considerations arise because of the anonymity and isolation of which individuals may interact through the internet.  The simplistic approach to i-gambling is simply to adopt a "Not In My Back Yard" philosophy and seek to ban i-gambling.  There are, however, several shortfalls with a NIMBY-type philosophy.  The public -- which is ordinarily the prime intended beneficiary of bans on i-gambling -- may be more susceptible to risks from unregulated i-gambling.  Rather, a robust regulatory framework, which incorporates problem gambling and money laundering protections, may very well serve as a more efficient means to regulate i-gambling.

^{BLOOMFIELD  999010-100  992451v1}

1 See, e.g., Lisa Lester, Beating the Odds: Regulation of Online Gaming Stateside and Abroad, 28 J. NAT'L ASS'N ADMIN. L. JUDICIARY 621, 624 (2008).
2 The concept of internet gambling is sometimes referred to as "i-gambling".
3 See Lester supra note 1.
5 See id.
6 See Comment, Winning the Jackpot: A Framework for Successful International Regulation of On-line Gambling and the Value of Self-Regulation Entities, 2007 MICH. ST. L. REV. 753, 768 (2007).
7 See Lester supra note 1 at 621.
8 See id. at 621-22.
9 Costs from an outright ban, as identified in the Netbets Report, include: (1) loss of tax revenue; (2) difficulty, if not impossibility, of policing and enforcing a ban; (3) greater threats to problem gamblers because of the lack of regulation; and (4) driving i-gambling to be an underground activity.
10 In the United States, "[p]roponents of anti-gambling legislation have often argued that gambling leads to a corruption of moral values, and that Internet gambling only serves to accelerate the process."  Yevgeniya Roysen, Taking Chances: The United States' Policy on Internet Gambling and its International Implications, 26 CARDOZO ARTS & ENT. L.J. 873, 879 (2009).  Restrictions on internet gambling have further been justified as a means to combat problem gambling.  See id. at 880.  European nations adopting UIGEA-like restrictions have offered similar social policy goals.  As discussed below, however, the underlying motivations of European nations may be more nefarious.  That is, the true motivation may more appropriately lie with a desire to protect state-granted gambling monopolies.
11 See 31 U.S.C. § 5364 (emphasis added).
12 Id. (emphasis added).
13 See id.
14 See 31 U.S.C. § 3564(e).
15 See Finland E.U. Battle Over Online Gambling Laws, www.online-casinos.com/news/news8406.asp.
16 See id.
17 See id. 
18 See Vietnam Online Gambling Investigation, www.recentpoker.com/news/vietnam-gambling-2147.html.
19 See Online Casinos Thrive in No-Gambling State, http://english.vietnamnet.vn/social/2009/02/830590/, February 20, 2009.
20 See id.
21 See supra note 21.
22 See id.
23 See id.
24 See id.
25 See id.
26 See Lorraine Harrington, Loaded Dice: Do National Internet Gaming Statutes Violate World Trade Organization Fair Trade Access Standards?, 24 Ariz. J. Int'l & Comp. L. 769 (2007).
27 See Gambling Act 2005 § 89(2).
28 In the United States, "[p]roponents of anti-gambling legislation have often argued that gambling leads to a corruption of moral values, and that Internet gambling only serves to accelerate the process."  Yevgeniya Roysen, Taking Chances: The United States' Policy on Internet Gambling and its International Implications, 26 CARDOZO ARTS & ENT. L.J. 873, 879 (2009).  Restrictions on internet gambling have further been justified as a means to combat problem gambling.  See id. at 880.  European nations adopting UIGEA-like restrictions have offered similar social policy goals.  As discussed below, however, the underlying motivations of European nations may be more nefarious.  That is, the true motivation may more appropriately lie with a desire to protect state-granted gambling monopolies.
29 Potential legal challenges to enforcing UIGEA include, for instance, the ambiguity of the definition of "unlawful internet gambling" under UIGEA, the extraterritorial enforcement of the criminal sanctions provided in UIGEA, and constitutional concerns with respect to the breadth and sweep of UIGEA.

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Michael D. Lipton, Q.C. is a member of Dickinson Wright and the firm's global gaming practice group, which has an international gaming law practice with offices in Michigan, Nashville, Phoenix, Toronto and Washington, D.C.  Mr. Lipton has authored many articles on gaming law and anti-money laundering as it relates to the gaming industry, which have been published in leading international and national publications, and has delivered papers at numerous gaming law conferences throughout the world. He is a founding member of the International Masters of Gaming Law and its immediate past President. In 2009, he was recognized by his peers for inclusion in Best Lawyers in Canada and Chambers Global for his expertise in gaming law.  Mr. Lipton may be reached at mliptonqc[at]dickinsonwright.com.

Peter J. Kulick is a member of Dickinson Wright and the firm's global gaming practice group.  Mr. Kulick is a prolific author and speaker on gaming and tax law as it relates to the gaming industry.  Mr. Kulick holds a LL.M (taxation law) from New York University.  Mr. Kulick may be reached at pkulick[at]dickinsonwright.com.