Online Gambling Report Prohibition vs. Regulation

We can think of several reasons why governments might want to prohibit online gaming. These might include moral reasons, social reasons (e.g. concern about under-age gambling, addictive gambling, money laundering, etc.) and economic reasons (e.g. the possibility that online gaming will erode tax revenues if it competes with traditional gaming, but cannot be effectively taxed).

Our general view is that we would rather see regulation of online gaming rather than outright prohibition, but this is a topic that can generate heated debate. Aside from the issue of whether online gaming should be prohibited, there are questions about whether online gaming could be prohibited as a practical matter.

Most discussions about how to prohibit online gaming have focused on (i) operators of online gaming sites, (ii) individual consumers (iii) Internet Service Providers (“ISPs”), (iv) search engines/portals, and (v) credit card companies. Legislation aimed at prohibition would probably need to be directed at some or all of these industry “participants.”

Targeting online operators, by itself, is unlikely to result in effective prohibition of online gaming. The Internet is borderless so offshore companies can offer online gaming to U.S. residents. In many cases, it may be impossible for U.S. law enforcement officials to even determine the identity and location of the company offering online gaming. Even if the identity and location of the online company can be determined, U.S. courts may not have legal jurisdiction over the online operators.

Targeting home users also provides challenges. First, it may not be politically feasible to pass legislation aimed at punishing citizens that gamble online from the privacy of their own homes. Second, even if such a law was enacted, the enforcement issues could be significant (wiretaps and raids of personal residences would presumably be key parts of an enforcement strategy). At the end of the day, punishing citizens for casual betting is probably not going to be a high priority for law enforcement officers.

Targeting ISPs, the gateways to the Internet, is another way to pursue prohibition of online gaming. Some of the major ISPs include UNNET, G-Home, T-Online, and AT&T.; In general, enforcing prohibition would involve limiting access to the ISPs or trying to control the content offered by ISPs. Although some countries limit access to ISPs (i.e. they limit access to the Internet), this is probably not a realistic option in the U.S. It is more likely that laws aimed at prohibiting online gaming would focus on restricting content on the Internet. However, this raises practical issues (could the content successfully be blocked) and freedom of speech issues that could be significant. Similar issues arise with regard to regulation of online service providers (“OSPs”) and “backbone providers.” OSPs differ from ISPs because they offer both access to the Internet and a private network. Some of the major OSPs include (America Online, CompuServe, and Prodigy).

Regulators could also choose to focus on search engines/portals such as Yahoo, Alta Vista, Excite, and Infoseek. Different search engines work in different ways, but they all help Internet users find out what sites are available and they provide the URL address of sites. Search engines/portals also typically make a majority of their revenues from advertising. Targeting search engines as a way to implement prohibition could be based on the idea of restricting advertising about online gaming or on the idea of blocking searches related to online gaming.

Credit cards have sometimes been referred to as the “life blood of the online gaming industry.” Most transactions on the Internet involve a credit card, but other alternatives (e.g. debit cards, electronic checking, or digital cash) may become more prevalent over time. Some credit card companies already try to prohibit the use of their cards for gambling. This is partly because there is a risk that credit card obligations related to gambling could be viewed as “unenforceable gambling debts.” The issue of whether a credit card bill for a customer that used his credit card to gamble constitutes an unenforceable gambling debt is being considered in the courts.

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