Gambling Law Update – November 2003

Gambling Law Update™

By: Lawrence G. Walters, Esq.

November, 2003

Advertising Onslaught

The Internet gaming industry continued to be rocked in recent weeks by a series of subpoenas and warning letters issued by the Missouri office of the United States Department of Justice (“DOJ”). The subpoenas, apparently targeting Websites, radio and TV broadcasters, as well as magazine and newspaper publishers, were issued to major sports information networks, media outlets and publishing companies, subpoenaing all records pertaining to advertisements by Internet gaming establishments dating back to 1997, even though no federal statutes specifically prohibit businesses from accepting such advertisements.1 The initial news of the DOJ’s intent to curtail advertising, marketing, and other financial routes that are currently being pursued surprised many in the gaming industry. The postponement of the Interactive Gaming & Entertainment Expo, which was scheduled for November in Orlando, Florida, sparked concern as many who were set to speak at the Expo had to cancel to tackle this pending situation. Included in the subpoena was a copy of a warning letter the DOJ had issued to all major radio broadcasting networks suggesting they could be in violation of the law by accepting such ads, which could open up media outlets to criminal charges of “aiding and abetting.” The warning letter does not implicitly claim any specific violation. However, it is a misrepresentation of the law at best, and is viewed as an intimidation tactic by many industry leaders.2

And the fear continues to spread – Officials with Golden Palace Internet Casino confirmed that representatives from the Howard Stern radio show contacted them, informing them it was no longer running advertisements for interactive gaming operations. A spokesperson with Infinity Broadcasting, which handles the syndication of the Stern show, confirmed that their legal department recently advised programmers to cease carrying all Internet casino and sportsbook ads.3 Published reports also indicated that Clear Channel Communications, an Indiana-based company that operates radio stations and syndicated programs all over the nation, pulled advertisements for Internet casinos and sportsbooks.4 Clear Channel admits that it is cooperating with investigators.5 Although the courts have not considered the “aiding and abetting” argument in relation to Internet gambling in the past, using laws to impose criminal liability against Internet gambling advertisers is a bit of a stretch, even for a conservative administration. While this novel approach may win brownie points with the right wing conservatives, it would set a dangerous legal precedent, and runs over the Free Speech rights of advertisers who are promoting a service that is legal and licensed in its originating jurisdiction. The idea of “aiding and abetting” Wire Act violations through the promotion of Internet gambling companies has reared its ugly head in recent months; but with so many large enterprises like city newspapers, radio stations, and magazine publications, and accepting advertisements from offshore gaming enterprises over the years, the scope of such an investigation would be particularly overwhelming. This quandary will certainly be the subject of further discussion, and will be hashed out at the upcoming gaming law seminar in Paradise Island:

Legislative Update

While the status of Internet gambling in the United States remains in constant limbo, both gambling opponents and supporters alike are stepping up last minute efforts in order to tip the scale in their favor. Originally introduced by Senator Jon Kyl (R-AZ), and recently reported by the Committee on Banking, Housing and Urban Affairs, the Kyl Bill, “S. 627” moved on for preparation on the Senate floor and was placed on the Senate Legislative Calendar. As stated in the Senate Report, the Kyl Bill, in essence, makes the receipt of funds from the payments system by the operator of an Internet gambling site, illegal. Because of the anticipated difficulty in enforcing this prohibition against persons outside a particular jurisdiction, the legislation also authorizes the Attorney General (and appropriate State officials) to seek an injunction against any person to prevent or restrain a violation of the ban, or to prohibit banks and other financial service providers from processing any credit card or other financial transaction with a specified illegal Internet gambling site. The Bill also requires the Department of the Treasury, in conjunction with the Federal Reserve Board and the Attorney General, to issue rules requiring each designated payment system, and all of its participants, to identify and prevent transactions barred by the Bill – that is payment to the operators of Internet gambling sites – through establishment of policies and procedures reasonably designed to allow identification and blocking of such transactions and to prohibit the use of payment system services for such transactions.6 However, the ranking Democrat on the House Financial Services Committee, Representative Barney Frank (D-Mass.) said there is not enough time and there are too many other issues Congress must deal with before gaming can be considered, which contrasts with the statement of the Bill’s author, Senator Kyl, who predicted last month that Congress would pass Internet gambling restrictions before adjourning in 2003. Although Frank is the top Democrat on the committee that crafted the Internet gambling restrictions approved by the House, he adamantly opposed the Bill and said it is fundamentally flawed.7 To address concerns raised by the DOJ, Kyl’s legislation would prevent Nevada and other states from legalizing Internet wagering within their borders. The American Gaming Association (“A.G.A.”) objects to this provision and is attempting to change or remove it through negotiations with Kyl’s staff. A.G.A President Frank Fahrenkopf has charged that the Kyl bill would put casinos at a competitive disadvantage against Indian gaming, state lotteries, and horse and dog racing operations.8

Despite gambling opponents best efforts to thwart Internet wagering, the industry is beginning to fight back. The Interactive Gaming Council (“IGC”), in preparation for the many challenges facing the Internet gaming industry including defending against efforts in the United States Congress to ban online gaming, announced the appointment of its new executive committee. The executive committee consists of individuals from IGC member companies, who provide day-to-day direction for the group and report to the IGC Board of Directors. Additionally, in an effort to mobilize the thousands of Americans who enjoy online gambling, the IGC developed a web site,, through which citizens can ask their Congressional representatives to oppose federal legislation that would block this form of entertainment.9 Starting this past month, in connection with, is giving players the chance to stand up and say “NO” to the prohibitionists in Washington, by taking their message and a petition sheet to the streets. will sponsor a national petition drive titled, “Don’t Tread on My Right . . . To Wager Online.” The company will have petitions available in their RV, which has been traveling throughout the United States attending professional and college football games. The company’s marketing team has been set up at various “hot spots,” asking for signatures from consumers who want to voice their support for the campaign and their right to play at Internet casinos and wager with Internet sportsbooks.

State’s Gambling Outlook

While state and federal lawmakers are working diligently to push through legislation that would prohibit Internet wagering, gambling advocates around the nation are matching that effort with a push throughout the states for increases in state sanctioned, legalized wagering. One of the legal issues surrounding Florida is the tax liability of cruise ships that leave Florida ports, the so-called “cruises-to-nowhere,” where the ships travel outside of the state’s territorial waters before opening up their casinos, and return to the state several hours later. In an appeal from New Sea Escape Cruises, Ltd. v. Florida Department of Revenue, any ship that docks in Florida and leaves state waters to let passengers gamble on it owes state taxes, a state lawyer told the Florida Supreme Court. However, an attorney for the cruise ship in question, New Sea Escape, argues that its ship is exempt because it is a Bahamian vessel engaged in foreign commerce.10 The State Department of Revenue contends that the company owes more than $1.4 million in back taxes and penalties for cruises that departed from and returned to Port Everglades in Fort Lauderdale.11 What is at stake for the Department is the up to $50 million in taxes that they would like to levy on 17 “cruise-to-nowhere” gambling ships leaving Florida’s shores each year. The state says that the cruises, which depart from and return to Port Everglades, fail to stop at a foreign port, making the activity Florida-based and subject to Florida’s use-tax law. Neither side seemed to win over the justices, who cautiously waded through the notoriously tricky waters of maritime law, gambling regulations and Florida’s exemption-riddled tax-code.12 Complicating matters are the blurry lines of international waters. They begin about three miles offshore – unless a federal crime occurs, in which case United States jurisdiction extends to 12 miles. However, Nicholas Bykowsky, an Assistant Attorney General, pointed out that merely going to international waters does not constitute engaging in foreign commerce. His court briefs argue that New Sea Escape needs to pay up because it uses state services while docked at Port Everglades.13 A move to ban the cruises to nowhere died in the legislature last year. Industry lobbyists have said it would be willing to discuss paying more taxes. The Senate plans to release a study in November outlining whether to impose a new tax on the vessels. According to the Florida Day Cruise Association, about 3 million people cruise to nowhere every year.

Meanwhile, interactive betting services are also feeling the push from state and federal lawmakers, and are preparing to fight any challenge to their business necessary. Charles Champion, CEO at, one of the leading interactive race wagering services, said racetracks actually benefit from Internet companies such as Youbet because of the revenue they generate from other states. For example, when a person in New York bets on a race in Texas through Youbet, he explained, that money is transferred into the betting pools at the track. He added that it is the offshore companies that contribute little or nothing to the purses or racetracks and, as a result, damage the sport.14 The company, which accepts wagers from more than 30 states, operates out of California, where it is one of the state’s three license holders for advanced deposit wagering, but offers its services in many states were there is a gray area around Internet wagering.

International Gambling Outlook

In response to a staunch United States position on Internet wagering, new markets are continuing to open up to eagerly fill the void and to snatch up revenue. Stanley Leisure, PLC, announced that one of its joint venture companies, Stanley Fairbet Limited, has entered into a start-up joint venture with Invicta, LLC, to develop a betting business in Romania. The company believes this transaction will have no material earnings impact on its business in the first full year. Finance Director Michael Riddy said the venture would see about 50 sports betting shops being set up in the country in 2004. “They will mainly concentrate on football betting and are a natural extension of operations we already have in Italy and Croatia. We think it will be successful because they are all football mad over there,” he added.15 The company, who has already had great success setting up similar ventures in Croatia, remains confident that its efforts will pay off.

Internet gambling is a multi-billion dollar business that is legal in over 60 jurisdictions, although the United States is not one of them. However, the United States Virgin Islands’ Casino Control Commission (“CCC”) has approved a license to a hosting company, USVI Host, Inc., to provide hosting services to Internet casinos. USVI Host won’t actually operate any Internet gambling sites. Instead, it will provide a secure Internet server and hosting facility for site operators who would like to do so. The company will be required to post a surety bond of $100,000 with the United States Virgin Island government. The operators are also required to pay the government a nonrefundable application fee of $4,000, good for two years, as well as a licensing fee of $2,000.16 The decision by the United States Virgin Islands challenges the view of the Federal DOJ that Internet gambling conflicts with the current interpretation of the Wire Act, and is illegal within its borders. The CCC unanimously approved the license after a six-month background investigation into the company, formerly known as VI Technologies Initiative, LLP.

Regardless of continuous efforts to impede on gambling operations, American riverboat operator, Isle of Capri Casinos, Inc., has announced that British regulators have approved an acquisition that would mark the company’s move into England. United States operators are betting that Britain will deregulate its market in the next year or so and are lining up projects and alliances in anticipation. Isle of Capri Casinos said it now expects, by the end of the year, to buy a two-third interest in Blue Chip Casinos, PLC, for 5 million pounds or about $8 million dollars. The remaining one-third interest is held by British private investors. Isle of Capri Casinos regards the United Kingdom as central to its international expansion. The company is planning several additional regional entertainment complexes which will feature an Isle of Capri Casino, as well as development of a local-market Isle Club concept.

Despite Internet gambling being an activity supported by the United Kingdom, PayPal UK is still not considering processing payments for European-targeted Internet gaming sites according to PayPal’s European headquarters in Dublin, Ireland.17 The UK focused PayPal is undoubtedly still feeling the sting of the $10 million settlement it had to pay as a result of transacting Internet gaming payments from United States citizens, after its $1 billion sale to eBay. The Internet gambling industry once relied heavily on PayPal as a preferred payment method, often offering incentives for players who processed their transactions through the company: This is now just a faint memory in the minds of many operators.

Problem Gambling?

A man, plagued by a run of bad luck, voluntarily banned himself from gambling in New Jersey casinos and later violated the ban, and won more than $64,000 has been ordered to forfeit it. Daniel Santangelo won $64,160 at Bally’s Atlantic City over a 10-week period last year, thereby invoking a clause in the agreement saying self-excluded gamblers “shall not collect any winnings or recover any losses.” Santangelo was among the 163 people who have signed up for the list, which was established by the New Jersey State Casino Control Commission two years ago to help problem gamblers stay away from the tables. Those who put their name the list have their names and photographs distributed to casinos, which are told not to extend them credit, let them play or send them marketing pitches in the mail. In an effort to assist in the understanding of gambling disorders, several major gaming companies, along with proceeds from three charity events have raised more than $6 million for the National Center for Responsible Gaming (“NCRG”). The center was formed in 1996 by the American Gaming Association, the gambling industry’s federal lobbying arm, to raise money for research on pathological gambling. Harrah’s Entertainment, Inc., International Game Technology, MGM MIRAGE and Park Place Entertainment Corp. each pledged $1 million over the next five years. Argosy Gaming Co., Boyd Gaming Corp. and Isle of Capri Casinos, Inc., each pledged $500,000 over the next five years. Aztar Corp. and Station Casinos, Inc., each pledged $200,000 over the same period. The Palms casino in Las Vegas pledged $50,000 over the next five years and the Hard Rock Hotel and Casino in Las Vegas pledged $37,500. Two charity golf tournaments in spring yielded $75,000 for the NCRG and a separate Gaming Hall of Fame dinner in Atlantic City raised $225,000 for problem gambling research.18 The NCRG has funded the largest number of grants devoted to gambling research of any organization, including the National Institutes of Health (NIH). The NCRG, in connection with the Institute for Research on Pathological Gambling and Related Disorders, has also developed a research program at Harvard Medical School’s Division on Addictions. Established with funding from the NCRG, the study will execute a landmark study of a Missouri government program that allows individuals to ban themselves from the state’s casinos. The two-year study – the first-ever scientific investigation of a self-exclusion program – will be funded by a $297,000 grant awarded to Harvard Medical School by the Port Authority of Kansas City, Missouri, and the Missouri Gaming Commission.19 The Institute is the only academic research center in the nation devoted exclusively to the study of disordered gambling behavior. According to NCRG Chairman Dennis Eckart, the self-exclusion project is evidence of the impact of the organization and the tremendous progress in the field of gambling research.

Lawrence G. Walters, Esq., is a partner in the national law firm of Weston Garrou & DeWitt, with offices in Orlando, Los Angeles, and San Diego. Mr. Walters represents clients involved in all aspects of online gaming operations. Nothing in this article constitutes legal advice. Please contact your personal attorney with specific legal questions. Mr. Walters can be reached at, through his website:, or via AOL Screen Name: “Webattorney.”

1 Press Release, DOJ Serves Illegal Subpoenas for Online Gaming, (10.20.03)

2 Id.

3 Kevin Smith, Stern, Other Media Outlets Pull Gambling Ads, (10.16.03)

4 Id.

5 Reuters, Justice Dept. Questions Clear Channel Gambling Ads, (11.07.03)

7 Tony Batt, Democrat Doubtful Internet Gambling Bill Will Pass, Las Vegas Gaming Wire (10.24.03)

8 Id.

9 Press Release, Interactive Gaming Council Prepares . . . , (10.26.03)

10 Associated Press Release, Casino Boats Argue Florida Tax Rules, (10.16.03)

11 New Sea Escape Cruises, Ltd. v. Florida Dept. of Revenue, 823 So.2d 161, (Fla.App. 4 Dist. Jun 26, 2002)

12 Id. 162-163

13 Marc Caputo, Sea Escape Battles State Over Taxes, (10.10.03)

14 Kevin Smith, Are Online Race Betting Services Messing with Texas? (10.15.03)

17 Press Release, PayPal Europe No to Gambling, (10.15.03)

18 Press Release, FUNDING,

19 Press Release, Institute To Play Role In Landmark Analysis Of Problem Gambling Program, (10.15.03)

Gambling Law Update – September 2003

Gambling Law Update™

By: Lawrence G. Walters, Esq.

September 2003

Landmark Legal Proceedings

In the first known case of its kind, the USA PATRIOT Act, which prohibits illegal money transmissions, is being used against credit card companies to prohibit the enforcement of debts accrued while gambling over the Internet, based on the premise that the businesses should not have processed their wagers given the alleged illegal nature of the gambling transactions. Lisa and Andrew Harding lost more than $100,000 gambling over the Internet during 2002 and 2003, prompting a lawsuit which accused Mrs. Harding of failing to pay her bills.1 The couple recently filed a countersuit with the Superior Court in Alameda County, California, against several credit card companies, including Visa, MasterCard, and Discover Financial Services. They are also suing the banks that issued the credit cards and companies they said electronically transferred funds for some of their bets, including Western Union Holdings. The countersuit claims the companies violated the PATRIOT Act and ran afoul of California’s Unfair Business Practices Act by processing the gambling transactions and violated a state prohibition against providing credit for gambling. The Harding’s attorney claims that two sections of the PATRIOT Act that apply to the Harding case:2 First, the Act makes it illegal for companies like Visa, MasterCard and Western Union to transmit funds when they know the funds will ultimately be used in some illegal activity. Secondly, the PATRIOT Act also has a “know your customer” clause for online banking and e-commerce firms to help prevent money laundering for terrorist

1 Lisa M. Bowman, Online Gamblers Sue Their Creditors, (08.21.03)

2 Kevin Smith, Visa, MasterCard Target of PATRIOT Act Suit, (08.11.03)

or other illegal activities. Rothken said the e-cash systems that Internet casinos and sports books use to get around credit card transactions rules and regulations are a direct violation of this section of the PATRIOT Act.3 Not only does the Harding case mark the first time the Internet gambling industry has seen the PATRIOT Act used in a case involving the sector, but it is the

first time the Act has been used in a civil case in the United States. The countersuit is seeking to relieve the Harding’s of their debt. If it is successful, it would not be the first case where a gambler avoided debt liability to a credit card company. In two similar suits, also brought by Rothken, both Discover Card and Visa agreed to relieve some portion of the charges that Internet gamblers had accrued. As a result of these suits and political pressure, nearly all United States’ based credit card companies have adopted specific policies prohibiting the use of their cards for Internet gambling.

In another landmark case for the industry, an Internet gambler pled guilty to charges of violating North Dakota state law in relation to Internet gambling activities. North Dakota resident Jeffrey Trauman, allegedly had no idea what he was doing was illegal when he began sports wagering five years ago. In fact, he even reported to the IRS on his tax returns that his occupation was a professional gambler.4 The state of North Dakota prohibits any gambling that

is not done in tribal casinos or for sanctioned charities. By state law, any bet over $25 on a

private premises, is an infraction, and any bet over $500 is a misdemeanor.5 The North Dakota Attorney General’s Office said it began investigating Trauman last spring, after receiving a tip. According to the Court documents, Trauman gambled on sports events at Internet gaming sites

3 Id.

4 CasinoCityTimes, Man fined for Online Gambling, (08.12.03)

5 North Dakota Criminal Code, Ch. 12. 1-28-02

from June, 2001, to April, 2003, from his residence.6 The East Central District in Fargo has ordered him to pay a $500 fee in addition to receiving a deferred sentence. A small number of states have laws that specifically prohibit Internet gambling, but prior to this decision, not one of them has attempted to take action against the casual gambler.

Wagering Woes

Bill Saum, the National Collegiate Athletic Association’s (“NCAA”) director of gambling activities, is trying to beat the odds in preventing wagering on college sports. Unlike professional players, who risk losing millions of dollars in earnings because of bets, college athletes get only the basics: scholarships that cover tuition, fees, room and board, and books. The issue surrounding college athletes now is money, which is causing concerns at NCAA that the lure of quick money could tempt a college athlete. Two high-profile cases this year have added to the NCAA’s worries. Former Florida State University (“FSU”) quarterback, Adrian McPherson pled no contest recently to gambling and theft charges after being accused of betting on FSU football games. Additionally, Washington football coach Rick Neuheisel was fired after participating in a high-stakes NCAA basketball tournament pool and then lying about it. Some studies, Saum said, reveal that 25 percent of football and basketball players wager on games, including 4 percent on the game in which their team is involved. Many use student bookies.7 To confront the issue, Saum’s game plan is to educate and reiterate the NCAA’s policy, which prohibits all forms of gambling: no betting on one’s games, no betting on other games, no pools, no exceptions. The NCAA has routinely held seminars and encouraged schools to use the NCAA’s gambling position in media guides and programs. In January, the NCAA will speak

6 North Dakota v. Jeffrey Trauman, June 9, 2003.

7 Associated Press, NCAA Stepping Up Attempts to Crack Down on Gambling, (08.18.03)

directly to college football coaches at their annual convention. But Saum believes the problem continues to grow, and the NCAA does not plan to back down on its policy.

College sports wagering is not the only betting venue that has sports enthusiasts up in arms. Several Internet gambling sites are taking wagers for Little League games as well. The Little League is taking steps through the Justice Department to stop betting on World Series games via the Internet. In recent years, live and taped television coverage of Little League games have exploded, with ESPN airing several dozen regional and national matches this year, prompting several Internet betting parlors to take wagers for these games. Nevada sports books are not allowed to accept Little League World Series bets, nor are they allowed to place lines in accordance with Nevada Gaming Commission regulation 22.120(a), which bars wagers on any “amateur noncollegiate-sporting or athletic event.” One Website operation known as Pinnacle,, was reportedly taking bets and allowing gamblers to wager on runs scored. “People have been sending us emails asking about it. If people are asking us to put lines up, we will take a look, and if information is available, a line will go up,” said Javier Van

Derbiezen, Marketing Coordinator at, in a report by USA Today.8 He went

on to say, “There is a limited amount you can wager. People do not wager $1,000, $5,000. It has to be for fun, to have a team to root for. People don’t do this like it’s the NFL. It’s more recreational. We try to keep it low-profile.” However, recreational gambling is exactly what Massachusetts CEO Mitt Romney had in mind when he made a gentleman’s bet with Jeb Bush last week on the outcome of the Little League World Series game between the Saugus Little Leaguers and the Boynton Beach, Florida, team. The diamond heroes from Saugus fought their way back more than once in the tournament to face Florida in the national finals, but couldn’t

8 Jeff Zillgitt, Big-League Web Wagering Trickles Down to Little-League Level, USAToday (08.21.03)

beat the team twice in the tournament. That meant instead of Bush sending Romney a chunk of Angus beef and some fresh-squeezed Florida orange juice, Romney & Co. enlisted the help of Legal Sea Foods to pay up, which sent two lobsters, some littleneck clams, a pint of clam chowder with oyster crackers, corn on the cob, bibs, lobster claw crackers, and a lobster pot to the Florida Governor.9 So, the question is where do we draw the line (no pun intended) on

amateur wagering? Is a friendly bet, where the total cost of the items wagered equals an excess

of hundreds of dollars, on par with a casual gambler placing a $25 wager on his son’s Little League team?

Gambling Around the States

Internet gambling has become a hot topic among state and federal lawmakers. Following the House’s passage of a similar bill in June, a Senate committee approved S. 627, which is a bill that would make credit card payments to gambling sites illegal. Now individual state’s gaming commissions are looking to expand and further develop their own gambling industry. A Michigan appeals court, in a 2 to 1 decision, reversed a previous ruling and stated that several people and businesses providing goods and services to a casino are suppliers that must be licensed. The ruling granted the Michigan Gambling Control Board exclusive authority over the license and regulation of non-Indian casinos located in Detroit. The court ruled that plaintiffs are required to “exhaust their administrative remedies” and further stated that the people and businesses must make their case under administrative rules before going to court for relief.10

9 Carol Beggy & Mark Shanahan, Mount Everest gets the Bambino; Mount Auburn gets a powerful lineup, Globe Staff, ts_a_powerful_lineup/ (08.26.03)

10 Associated Press, State Appeals Court Rules for Gaming Board in Casino Case, (08.06.03)

The Mississippi Gaming Commission is also taking an active step towards curbing gambling woes. A statewide list of people who have voluntarily banned themselves from casinos is being considered by the commission. The offered amendment allows a problem gambler to voluntarily exclude themselves from all Mississippi casinos up to a lifetime, but no less than five years, by completing a single form. The commission would also like the violators of the self- imposed ban to be convicted for criminal trespass, which could lead to a year in jail, a fine of

$1,000 or both, if they try to enter a casino. Under the current self-exclusion regulation, a problem gambler can sign two-year agreements with individual casinos. The only penalty for breaking the self-ban is that any winnings must be forfeited. The amendment will require anyone who wants to complete a self-exclusion agreement to visit a commission office, rather than the casinos. “The commission will keep track of self-exclusion agreements and provide casinos with a list of people who signed the agreement,” said Commission Director Larry Gregory. “The self-

exclusion list could be shared with the Louisiana Gaming Commission and the Choctaw Gaming Commission, which operates two casinos at Pearl River Resort,” Gregory said.11

Connecticut state officials are considering a proposal to bring gambling into Connecticut residents’ homes. The Division of Special Revenue is debating whether to allow a cable access television channel that would show horse racing and let viewer’s place bets over the phone.12 Opponents are lining up against the company’s proposal, saying it is another example of the menacing spread of gambling throughout Connecticut. They also say it is illegal. Off-Track

Betting (“OTB”) parlors, where the public can watch horse races and bet at the same time are prohibited under state law, said Attorney General Richard Blumenthal — and approving Autotote Enterprises Inc.’s request for the channel would turn every home into a virtual OTB

11 Mississippi Clarion-Ledger, Mississippi May Toughen Self-Ban Rules, (08.20.03) 12 Reported by the Hartford Courant, Horse Racing Channel Seeks Spot on Connecticut Cable TV, (08.20.03)

parlor.13 He alleged Autotote wants to expand its present telephone betting service by illegally pushing it into homes up to 12 hours a day. Autotote says broadcasting horse racing on TV is constitutionally protected commercial speech, but others disagree. A decision by the Connecticut’s Gaming Policy Board is expected in November.

The Caribbean Presses On

The Caribbean island nation of Antigua and Barbuda, at one point a booming haven for Internet casinos, is once again coming under fire. Federal prosecutors in Pittsburgh have moved to seize gold coins, a silver block and more than $1.6 million in cash from three men accused of running an illegal offshore gambling business in Antigua, Belize and the United States. Forfeiture documents filed in a United States District Court in Pennsylvania, confirmed the Internal Revenue Service is investigating Carib Sportsbook & Casino, Carib International and other corporate entities controlled by Jon R. Rogers of Toronto, Ohio, John A. Thorne of Tampa,

Florida, and another man identified as Peter T. Mowad.14 The men, along with others not named,

are under investigation for alleged unlawful transmission of wagering information, mail fraud, wire fraud and money laundering. From various locations in the Caribbean, they or their employees accepted millions of dollars in wagers on sports events from bettors in the United States, either over the Internet or by phone, according to the forfeiture document. The men are also accused of diverting millions of dollars of illegal income from Carib and a gambling supply, to a company they established in Florida, for their own benefit.15 Since the site’s launch in 1993, and until this year, court papers indicate, the three men and others operated an offshore gambling

13 John Foley, Here’s Another Bad Bet for State Residents, (08.25.03)

14 Torsen Ove, Prosecutors Want Assets of Accused Gamblers, Post-Gazette (08.02.03)

15 Id.

business known as Carib in Antigua, Belize and the United States. Officials with the federal prosecutor’s office in Pittsburgh declined to comment on the investigation. The IRS spokesperson said there was no time table on when the agency would make a decision on whether it will press charges.16

In a continued effort to determine if the United States’ efforts to crack down on offshore Internet gambling operations violate international trade accords, representatives from the United States and the islands of Antigua and Barbuda recently met in Geneva under the chairmanship of the World Trade Organization’s (“WTO”) Secretariat. Sparking a bid to have the United States brought before the WTO, Antigua and Barbuda have said that while United States laws permit domestic operators to offer all types of gambling and betting services in America, foreign operators are prohibited from supplying gambling and betting services from outside the United States. Antigua and Barbuda delivered a complaint against the United States to a WTO dispute body in June, and later the case appeared before the dispute settlement body again in July, but this time it authorized the establishment of a panel to resolve the dispute. In spite of this, neither side was able to agree upon the composition of the dispute panel that will mitigate their argument. Sir Ronald Sanders, Antigua’s Senior Foreign Ministry Official and Chief Negotiator, ultimately exercised his right to ask the WTO’s Director General to appoint the panel. The next step is for the parties to present their arguments to the dispute panel. Sanders said WTO policies dictate that the case must proceed. “It has to happen within 30 days,” he said. “There are very

16 Kevin Smith, IRS Investigates Carib, (08.15.03)

clear rules laid down on all of this, you know; there is no hemming and hawing about it. They just have to proceed on the basis of the rules.”17

National Gambling Outlook

The recent passage of legislation in the Senate may have a serious effect on the ability of Internet gaming companies to continue marketing to American customers, who comprise the largest market in Internet gaming. This, combined with the spread of prohibitionist sentiments towards Internet gambling on the rise, has industry leaders looking at innovative ways to bring in new clientele. An amusement traditionally delegated to small groups of family, friends and co- workers is fast becoming a multimillion dollar business for international online corporations. As the Internet and sports coverage has gained popularity and capability throughout the past decade, so too has fantasy football and other fantasy sports leagues. From free games to entry fees of

$1,000, there are hundreds if not thousands of different options for individuals or groups to enter a fantasy football league. Many of the fantasy football leagues, including Yahoo and, have instant scoring and messenger capabilities. formerly offered free fantasy football games, but after advertising revenue slowed on the Net, it switched to pay leagues. netted $9 million in fantasy football revenue last year, out of $11 million in overall fantasy revenue. Yahoo Sports, at, offers a free game and over 1 million fantasy football players, said Dan Berger, general manager. While Yahoo Sports tries to get players of the free game to purchase stat tracker programs or join their pay version of the game, a primary goal is to integrate fantasy football players to other parts of the Yahoo Website. He went on to say that most fantasy football players join a league so they can have bragging rights over their friends and are not primarily concerned with the prizes

17 Bradley Vallerius, No Progress for US, Antigua in WTO Dispute, (08.20.03)

involved.18 Yahoo’s free game has no prizes, while their pay version offers a trophy. ESPN, a name that is synonymous with sports, even has its own fantasy football league at offering a variety of prizes as payoff. The Fantasy Sports Trade Association found in its own survey of 455 fantasy players, that 93 percent were playing fantasy football and 63 percent were

playing fantasy baseball. The survey, conducted by the University of Mississippi, found the average player had been playing for six years and is involved in more than two fantasy leagues.19 Of course, there is always opposition where gambling interests are concerned. Rev. Tom Grey, Executive Director of the National Coalition Against Legalized Gambling, said that his group is primarily concerned with stopping lotteries, casinos, and dog and horse tracks in states.

However, he said there is a problem with sports betting and is concerned fantasy football could lead to more gambling on sports.20

Undaunted by pending legislation,, Inc., announced it may be positively impacted by legislation banning the use of credit cards, wire transfers and other banking instruments to fund Internet gambling activities by American citizens., Inc., through the operations of the company’s wholly owned subsidiary, Skill, Inc., claims it will enable the playing of poker games on the Internet without contravening proposed legislation such as, and similar to, the Kyl Bill, S. 627. Once, the only way to get into a high-stakes poker game was to sidle up to a burly guy with stubble and mob connections. Now the player is only a mouse click away. The Skill Poker system at is the development and operating division of the company, focusing on the completion and marketing of a patent

18 Vince Blaser, Fantasy Football is Booming,,1406,KNS_321_2196256,00.html (08.20.03)

19 Id.

20 Id.

pending technology known as Skill Poker. “We are excited about the anticipated launch of Skill Poker which will be the legal and possibly only choice for U.S. based online poker players,” stated Mark Glusing, President of, Inc., in a recent press release from the company.21

The Pentagon’s relentlessly vilified plan for a terrorism “futures” market was called off before it saw the light of day, but some private Internet betting exchanges may soon pick up where the government left off. It was the Pentagon’s hope that such “futures” contracts would help it take advantage of the predictive ability of markets to help prevent future attacks and track key political developments. The Internet’s ability to move information instantaneously and cheaply makes it possible to push decisions down to the level of the individual, or, at least, the individual operator of a computer. This capability has made it possible to imagine making a market out of almost anything. Futures markets for everything from box office receipts to orange juice have often proven uncannily accurate at assessing the likelihood of a potential outcome, and economists said political contracts were the next logical step.22 While Congress ripped apart plans for contracts on assassinations and terrorist attacks, the exchange also planned “futures” based on the stability of governments in the Middle East that could have yielded valuable intelligence about the unpredictable region. Earlier this year, received widespread notoriety for its “futures” contracts on when Saddam Hussein would be deposed as the leader of Iraq. Now it has contracts on when Saddam will be found, along with another on the likelihood of weapons of mass destruction being uncovered in Iraq.23 Another Website offering

21 Inc., Inc. is encouraged by Passing of the Kyl Internet Gambling Prohibition Bill, (08.01.03)

22 Eric Burroughs, Online Exchanges Mull Pentagon-Style Terror Futures, (08.11.03)

23 Id.

wagers on current affairs is, Its contracts include whether Arnold Schwarzenegger will be elected governor of California and whether British Prime Minister Tony Blair will lose his job this year. NewsFutures powers a worldwide multilingual network of exchanges that involves several different Websites and proposes a wide variety of speculation topics. In general, the bettor invests in specific outcomes by buying contracts with prices between X$1 and X$99 (“X$” is the game’s play money). While the outcome is undecided, supply and demand determine the appropriate price for these contracts. Then, when the outcome is finally known, the winning contracts are cashed in for X$100 each, while the losing contracts are worthless. Trading contracts based on broader political events, especially those of interest to global financial markets, would be feasible and help define in a more transparent way their potential impact.

Gambling Proliferation in the Americas

While United States lawmakers work diligently to forge ahead with gambling prohibition efforts, conversely, our neighbors to the South are beginning to see its money making potential. New offshore sportsbook,, is the first officially licensed and government regulated sportsbook in Panama. Panama shares banking regulations with the United States. It is also an industrialized country in which English is the primary language. Every gaming licensee must post a $500,000 bond with the government to insure payment in any disputed claim that is upheld. “Our license was three years in the making and has teeth in it to protect players. Regulatory due diligence is strict and goes over the past history of those applying for a license with a fine tooth comb, so dead beats and other bad elements are screened out

before they get very far in the process,” explained Senior Management Marty Monroe.24 The book will open with a world class betting menu for sports enthusiasts, and will soon be followed with pari-mutuel horse betting, poker tournaments and soccer from around the world. Louis Sola, vice president of Centre for Multimodal and Industrial Services (“CEMIS”), is developing a sister site in Panama and said it is nearly 99 percent ready to go. CEMIS’s site will be accessed via and will have a companion sports book with Sola is eager to be part of the foundation for online gambling in Panama, but recognizes the risk with

a new jurisdiction and trying to compete with already existing sites.25

Developments in Mexico are improving the odds that the country’s Congress is moving towards legalized casino gambling. Most important to the changing political landscape, Mexico President Vincente Fox received the resignation of the Former Minister of Tourism, and, to the surprise of most observers, appointed his Press Secretary, Rudolfo Elizando, to the key position. “This is the first time Mexico has ever had a tourism secretary who is an open advocate of casino gambling,” said former Nevada Gov. Bob Miller, who just returned from a fact-finding and consulting trip to Mexico.26 Mexico has the second-largest and fastest-growing middle class in the Western hemisphere, making it an attractive investment opportunity for companies with substantial cash flow that are targeting such demographics. In addition, the development of gambling in Mexico should help create new feeder markets there for Las Vegas. Professor Bill Thompson of the University of Nevada, Las Vegas, explained that legalizing gambling in Mexico represents an opportunity for Las Vegas-based companies such as Las Vegas Sands Inc.,

  1. Staff, BetPanAm Launch, (08.18.03)

  2. Kevin Smith, New Opportunities in New Jurisdictions, (08.25.03)

26 Rod Smith, Mexico May Be Opening to Casino, Could Benefit Las Vegas, (08.19.03)

MGM Mirage, Harrah’s Entertainment, Park Place Entertainment Corp. and Wynn Resorts that have been aggressively pursuing casino development overseas.27 The lower chamber of the Mexican Congress in December passed legislation that would have legalized gaming, but excluded casino gambling in resort destinations. That legislation later failed, however, it aided in

enabling the potential for reviving resort casinos in the upcoming Congress. Miller said one constant in conversations with Mexican leaders has been the understanding that gambling will have to be tightly regulated, transparent and void of even the appearance of corruption.28 The Mexican Chamber of Commerce has estimated casinos could attract another 11 million visitors to Mexico yearly. The Mexican Association of Hotels and Motels estimated initial costs of $1.8

billion to build 10 casinos that could generate $3 billion in total revenues a year and create 115,000 possible employment opportunities.

International Gambling Outlook

Global gambling continues to be on the rise chiefly because of technology, which makes it possible to place bets cheaply over long distances. That allows people in countries where betting and gambling are either corrupt, as in many east Asian countries, or crippled by legislation, as in the United States, to move their business to friendlier environments. Casino gaming in Guam has been, and continues to be, a controversial topic with the islands predominately Catholic population and the Catholic Church’s opposition to gambling. Speeches from various supporters of casino gaming at a “Citizens for Economic Diversity” (“CFED”) press conference looked to build a convincing case for pushing senators to vote through a Voter Introduction Program (“VIP”) bill recently submitted by the CFED. The CFED already has a casino gaming measure on the next general election ballot in November of 2004. Their VIP bill

27 Id.

28 Id.

would put the question before voters if it were to find the support it needs in the Legislature and from the Governor.29 As to whether lawmakers will vote the bill through and if the Governor will sign it into law, that remains to be seen, as does whether voters will want to take a chance on casino gaming if they have the opportunity to go to the polls on the issue.

Additionally, China is on the fast track to becoming the world’s largest Internet market within the next few years. Australian IT News reported that there were roughly 68 million Internet users in China at the end of June 2003, putting the world’s most populous nation second behind the United States in terms of people utilizing the Internet.30 Existing land-based casinos in China, isolated solely in Macau, generate in excess of $2 billion in revenues per year. According to, by 2006, China will make up 53.1% of Asia’s Internet Users, 51.2% Internet buyers, and 48.6% of e-commerce. With this type of surge in China, it comes as no surprise that Internet casinos are looking for a way to enter Asia’s multi-billion dollar gaming market. AngelCiti Entertainment, Inc., recently announced that it will be initiating a Chinese based language Internet casino, and will be adding additional Asian language based Websites. “Shares in Chinese web portals such as and Sina Corp, which have risen dramatically this year, have given clear indication that the capital markets agree this is a strong direction for AngelCiti to take. Given the immense size of the Chinese-speaking markets, and the Asian markets as a whole, we anticipate this strategic move will have a dramatic impact on our revenues for the remainder of 2003 and beyond,” remarked AngelCiti Chief of Operations Wilson Lee, who formerly headed up WebVenture Asia. Exceeding $1.2 billion dollars spent

29 Ken Wetmore, Is Casino Gambling the Best Bet for Guam? KUAM News (08.19.03)

30 AngelCiti Entertainment, Inc. Press Release, AngelCiti To Open Chinese Language Online Casino, (08.01.03)

online in 2002, it is easy to see how China is the fastest growing multi-billion dollar Internet market in the world.

Strange but True

A drug given to Parkinson’s patients may have an unexpected side-effect – compulsive gambling, the team at the Muhammad Ali Parkinson Research Center in Phoenix, Arizona, recently reported. An unusually large number of patients taking Mirapex gambled themselves into debt, while patients taking other drugs did not, the United States researchers reported. Dr. Mark Stacy and colleagues studied more than 1,800 Parkinson’s patients for one year. Of the 529 patients who received Mirapex, sold by Pfizer subsidiary Pharmacia and Co. under the brand name Pramipexole, eight developed serious gambling addictions, Dr. Stacy and colleagues reported. Although none had a previous history of gambling, “Seven men and two women were found to have gambling behavior severe enough to cause financial hardship, and two patients reported losses greater than $60,000,” they wrote in their report, published in the Journal of Neurology. The rate of pathological gambling found in the 529 Pramipexole patients was 1.5 percent, only slightly higher than the reported rate in the general population, which ranges from

0.3 to 1.3 percent. “However, this clinical observation suggests that higher dosages of dopamine agonists may be a catalyst to bringing out this destructive behavior,” Dr. Stacy explained. For most patients, the gambling behavior subsided after their drugs were changed. The researchers did not say how the drugs might cause gambling. “It may be appropriate for doctors to inform patients of this potential risk, particularly in their patients taking relatively high dosages of a

dopamine agonist, and with a documented history of depression or anxiety disorder,” Dr. Stacy cautioned in a statement released by the American Academy of Neurology.31

Lawrence G. Walters, Esq., is a partner in the national law firm of Weston Garrou & DeWitt, with offices in Orlando, Los Angeles, and San Diego. Mr. Walters represents clients involved in all aspects of online gaming operations. Nothing in this article constitutes legal advice. Please contact your personal attorney with specific legal questions. Mr. Walters can be reached at, through his website:, or via AOL Screen Name: “Webattorney.”

Gambling Law Update – August 2003

Gambling Law Update

By: Lawrence G. Walters, Esq.

August 2003


In just a matter of minutes, the United States Senate Banking Committee passed S.627, after the chairman of the committee introduced the bill and asked the Committee to approve the amendments he had already made to it. Proposed by Sen. Jon Kyl (R-Ariz.) and dubbed the Internet gambling prohibition bill, the legislation would prohibit gambling businesses from accepting credit card, electronic fund transfer or other payment methods from gamblers who bet illegally over the Internet. The bill also would set civil and criminal penalties for Internet gambling and would modify the federal criminal code to include satellite, microwave and other communications from fixed or mobile sources. The bill’s primary goal is to give U.S. law enforcement a more effective tool for fighting offshore Internet gambling sites that illegally offer their services to Americans. In June, the House overwhelmingly passed H.R. 2143, legislation that would prohibit gambling businesses from accepting credit card payments and other bank instruments from Internet gamblers. Conversely, critical to the House bill’s passage was the removal of criminal provisions that are at the center of Kyl’s Bill. However, at the last Panel hearing on S. 627, held in March, 2003, Stewart A. Baker, general counsel for the U.S. Internet Service Providers Association, urged the committee to avoid “unintended consequences” that may hurt the economic growth of the Internet, including requiring ISPs to block customer access to gambling sites not residing on their networks and not under their control. “Service providers are unable to block user access to websites on other service providers’ networks with any reliability,” Baker said. “Blocking efforts can be easily circumvented and will seriously disrupt legitimate e-commerce and speech.” The Bill is to be reported to the full Senate, although no timetable has been set.

Not So Fast…

As attempts in Congress continue in the push to ban Internet gambling, one Caribbean island is concerned the proposed law will wipe out licensed Internet casinos operating on its shores, and rob it from much-needed revenues. The Caribbean island nation of Antigua and Barbuda has succeeded in its bid to have the United States brought before the World Trade Organization (WTO) over a dispute involving Internet cross-border gambling and betting services. The WTO dispute settlement body will appoint a three-member panel to determine if United States efforts to crack down on offshore Internet gambling operations violate international trade accords. According to Sir Ronald Sanders, Antigua and Barbuda’s chief foreign affairs representative, Antigua and the United States have 20 days to agree on the three panel members.1 If they do not agree, the WTO Secretariat will appoint the panel. In the request for the establishment of a panel, Antigua and Barbuda said that while United States laws permit domestic operators to offer all types of gambling and betting services in America, foreign operators are prohibited from supplying gambling and betting services from outside the United States. This, claimed Antigua and Barbuda, constituted a violation of the General Agreement on Trade in Services (GATS) obligations under provisions within Articles VI (Domestic Regulation), VIII (Monopolies and Exclusive Service Suppliers), XI (Payments and Transfers), XVI (Market Access), XVII (National Treatment), and the United States Schedule of Specific

1 Anne Linder, WTO Panel to Arbitrate Antigua/US Dispute, (7.24.03)

Commitments.2 The federal measures were hurting the island nation’s internet gaming industry, a source of employment and government revenues. Internet gambling became a major part of Antigua and Barbuda’s economy during the 1990’s, when up to 100 different Internet gaming companies employing more than 5,000 people operated in the island nation. Today there are fewer than 40 Internet gambling companies located on the island employing half as many local residents. Island officials attribute the industry’s decline in part to the Unites States’ crackdown

on the gambling industry.3 Some 54 nations, mostly in Europe and the Caribbean, have legalized

regulated Internet gambling, according to the Interactive Gaming Council. Already there are signs that other countries may take sides against the United States. Several nations, including Canada, Mexico, Taiwan, and the European Union (E.U.) countries said that they would reserve their right to join the dispute on the side of Antigua and Barbuda.4

Eyes on the Prize

In a crowning moment for the Internet community of poker players, an accountant named Moneymaker won the World Series of Poker after qualifying in an online tournament. Advocates had aspired that the much publicized win and a $2.5 million prize would help to inspire a new generation of poker players to play online. However, a push in Congress to restrict Internet gambling is looming and Nevada regulators are eying Moneymaker’s win to see if online players should be prevented from competing next year. “We obviously don’t like it,” said Keith Copher, chief enforcement officer for the Nevada Gaming Control Board. “It’s an interesting concept that we’re really going to have to research and see whether we’re going to allow it to happen in the

2 Press Release, Small Island State Requests Panel Against the US, Bridges Weekly Trade News Digest, Vol.7 No. 24 (7.3.03)

3 Brian Krebs, U.S. Internet Gambling Crackdown Sparks WTO Complaint, dyn/articles/A24490-2003Jul21.html (7.21.03)

4 Id.

future.”5 The Justice Department considers Internet gambling illegal under the 1961 Wire Act, which was enacted to curb sports betting by telephone. The problem is that in the wake of the Wire Act’s computer age applications, electronic gambling has moved to other countries, with safe-haven links back to the United States via the Internet.6 Overseas Internet gambling has long vexed federal regulators, since Internet casinos and betting Websites licensed in other countries

are typically beyond their reach. The money that flows through overseas licensed or unregulated gambling sites is also hard to trace, frustrating monitoring by banks and credit card companies and prompting worries about money laundering by organized crime and terrorist groups. In Moneymaker’s case, it is unclear whether his $2.5 million win will be reviewed. Nevada officials

said there does not appear to be any violations of state law since Moneymaker paid the $10,000 buy-in and won the annual tournament at Binion’s Horseshoe legitimately.7

Payment Woes

With an estimated $4 billion in revenues and more than 4.9 million Americans playing on the Internet, the industry is rapidly growing. But experts have said legal uncertainties and credit card companies that have blocked Internet gambling transactions have slowed the pace. One of the first companies to sever ties with Internet gambling merchants was PayPal. The United States Department of Justice and the online payment service, which is now owned by eBay, said in a statement that they had entered into a settlement agreement. The government claims that PayPal violated the USA Patriot Act and the Wire Act by illegally processing Internet gambling transactions for customers in the Eastern District of Missouri and elsewhere between June 2000 and November 2002. The United States Attorney’s office alleged that PayPal had provided

5 Associated Press, World Wide Web: The Net Result, (7.7.03) 6 Chuck Nowlen, Congress Targets the “Crack Cocaine of Gaming,” (7.15.03)

7 Id.

services to offshore sites in violation of 18 U.S. Code § 1960, which prohibits transmitting of funds “derived from a criminal offense,” and 18 U.S. Code § 1084, which relates to the transmission of information about wagers.8 The $10 million settlement represents what both parties agreed represented forfeitable revenue that PayPal obtained from processing the gambling

transactions. Raymond Gruender, United States Attorney for the Eastern District of Missouri, said in a statement that “offshore sportsbooks and online casino gambling operations which do business in the United States generally do so in violation of federal criminal laws. Therefore, we will continue to investigate and pursue such activity.”9 The USA Patriot Act, passed just six weeks after the September 11th attacks, gave federal authorities broader powers to track money laundering and monitor online activities, among other things.

The exit of PayPal from the Internet gambling industry has since sparked many other companies to follow suit for fear of prosecution. One of America’s largest banks, Bank One, recently confirmed that its customers will no longer be allowed to use their ATM and debit cards to fund Internet gambling transactions. The Chicago-based bank is the latest of several banks and credit-card issuers trying to avoid legal issues related to Internet casinos. About 50 percent to 60 percent of Internet gambling transactions made with credit cards are denied by banks or credit- card companies, according to the Interactive Gaming Council, which represents about 70 online companies. As stated in the letter sent to account holders, Bank One said it is too difficult to differentiate between legal and illegal Internet gambling transactions, so it is forced to block them all. The Bank One letter states that “because we aren’t able to selectively approve transactions where Internet gambling may be legal, we have made the decision to decline all

8 Declan McCullagh, PayPal Settles Over Gambling Transfers, CNet News 5055237.html (7.25.03)

9 Id.

payment transactions that are believed to be Internet gambling related.”10 J.P. Morgan Chase Spokeswoman Katherine Keary said the company has blocked Internet gambling transactions for two years on its credit cards because of the legal complications.11 Visa, the world’s largest credit-card payment system, allows its merchant banks to determine whether they want to block

gambling transactions. Director of Public Affairs for Visa, Rhone Bentz, said the system enables a bank to determine whether a gambling transaction is conducted on the Internet or a licensed casino in Las Vegas or Atlantic City.12

Gambling Industry Heats Up in Britain

The United Kingdom’s Department for Culture, Media and Sport (DCMS) published the first draft clauses of a Gambling Bill as Culture Secretary Tessa Jowell called for regulations that will meet the demands of current gambling technology. The draft clauses of the Bill aim to relax outdated restrictions and provide greater choice for adult gamblers. The Culture Secretary said that the changes recognize that adults who gamble need to be trusted and treated like adults.13 The Bill allows for the establishment of a new regulator for the industry, while the Gambling Commission would still license gambling operations and key personnel. Jowell, in an address to the House of Commons, outlined key principals behind the proposed Bill which were: a crime- free gambling industry that can meet the challenges of the technological age, regulation through a new Gambling Commission with wide-ranging powers, an industry offering more choice for players, and greater protection for children and the vulnerable.14 The draft clauses call for the United Kingdom Secretary of State to be able to regulate that a certain method of

10 Andrea Ahles, No Online Gambling with Bank One Cards, (6.27.03)

11 Id.

12 Id.

13 Press Release, Draft UK Gambling Bill, (7.16.03)

14 Id.

communication, like the Internet, telephone, television, or radio, may or may not be treated as a form of remote gambling for the purposes of the Bill.15 The United Kingdom’s Gambling bill might be delayed on its way through Parliament, but it is believed any delays will be quite short. In the meantime the gambling industry in Britain is certainly taking a turn for the better, despite,

or perhaps in spite of, poor economic conditions. In an interesting development, the industry is no longer dependant on foreign high rollers hitting London. Casinos and bookies in particular seem to be turning over a steady profit, according to Jeffrey Harwood, leisure analyst at E*Trade Financial.16 With preparations being made for the oncoming deregulation of United Kingdom gambling, there is certainly a money-maker possibility in the midst.

International Gambling Outlook

As the expansion of Internet gambling continues to stretch across the globe, the opportunity is greater than ever for countries to decide whether or not they will support this rapidly growing and lucrative industry. Romania, one of the poorest nations in Europe, entered into the gambling arena with the launch of Danube Casino, the country’s first Internet casino.17 The site,, is the creation of Internet maverick Nicolae Sfetcu, who first started out as a freelancer specializing in web design and now owns Multimedia SRL. Danube Casino, partnered with Windows Casino, which is legally licensed, fully insured, certified by Safe Bet, and approved by the Electronic Gaming Commission.18 Danube Casino offers over 125 different games according to European and American standards. The gamblers have the


16 Darren, UK Gambling Industry Heats Up, (7.2.03)

17 Rob van der Gaast, Romania’s First Online Casino, (7.1.03)

18 Press Release Multimedia SRL, The First Romanian Online Casino, (6.25.03)

possibility, besides the regular prizes, to obtain extra prizes, consisting of trips, a brand new Ferrari, and other promotional materials. In order to be able to play on the site, a deposit in a casino account has to be made. All transactions are in U.S. dollars, with payments being made either by credit cards or through specialized services for the online processing of money. Bulgaria is also considering changing its legislation to attract investors from European Union countries to its gaming industry. Snezhana Koleva, Finance Ministry Euro-integration Department Officer, said that in 2005 Bulgaria would repeal the requirement for foreign

companies entering the country’s gambling business to form an association with a Bulgaria- founded firm.19 Koleva said the gambling law amendments are part of Bulgaria’s effort to harmonize its laws with European Union standards and close E.U. negotiations’ Chapter Three concerning the free movement of services. Chapter Three of Bulgaria’s negotiations with the

E.U. requires equal treatment of Bulgarians and foreigners, common licenses for financial services which should be recognized everywhere, and stabilized prices.20 At the moment, foreign investors who want to start a gambling business also have to build or buy a four or five star hotel and invest 10 million Euro, as well as create 500 jobs. Chief Expert in the European Integration Department of the Ministry, Josephina Ivanova, said that the changes in the law would be accepted by the end of 2004.21

Not all countries are so eager to jump on the Internet gambling band-wagon due to the uncertainties of the legal climate which surrounds the industry. A Dutch court, in interlocutory proceedings initiated by Foreign Operator De Lotto, has ordered the operators of 21 Internet gambling sites based in other countries to make their Websites inaccessible to residents of the

19 Business Staff, Playing for the Big Win, (6.30.03)

20 Id.

21 Id.

Netherlands.22 The Financial Times reported that a total of 40 companies had been called to court and another 42 companies have said they will take steps to exclude Dutch visitors. The gambling sites will be asked to comply with the judgment by employing software that enables operators to locate the country from which visitors are placing bets.23 In a surprising move, however, the Greek government has been warned by the European Commission for passing a law to crack

down on Internet gambling. A blanket ban was introduced in July 2002 on all electrical, electromechanical and electronic games including computer games, in all public places, including Internet cafes.24 Although Greece later clarified that the law only prohibits gambling- related games, the European Commission was “unsatisfied” with the response and has sent a

formal notice requesting more information. The commission said it is concerned that it was not notified about the law while the law was still in its draft stages, which in this case was a requirement.25 The European Commission is also concerned that the law is restricting business activity by causing difficulties for companies that sell and maintain electronic games equipment and programs, particularly in public places.

It seems that the United States was not the only country to catch the anti-Internet gambling bug. Following the move abroad, local banks in Malaysia are scrutinizing credit card payments, especially those involving Internet betting, in a move to curb the growing trend of virtual gambling among Malaysians. Banks which issued Master or Visa credit cards in the past three months have issued warnings to card holders in their statement of accounts, that payments for Internet gambling will not be honored. Three months ago, Malayan Banking Berhad

22 Press Release from, Gambling Sites Banned from Accepting Dutch Visitors, (7.4.03)

23 Rob van der Gaast, A Victory for Holland’s De Lotto over Foreign Operators, (7.1.03)

24 Drew Cullen, Greek Games Ban Breaks EC rules, (7.23.03)

25 Munir Kotadia, Greece Warned Over Gaming ‘Mess,’

(Maybank), which issues MasterCard and Visa credit cards, warned its customers that credit card payments made to Internet gambling sites were illegal.26 A Finance Ministry Official said that banks could be charged with criminal offenses if they made the online gambling payment.27 The announcement makes Malaysia the latest country through Visa and MasterCard to ban Internet gambling payments.

Scams & Shams

Massachusetts State Lottery Officials, in cooperation with the F.B.I., shut down a fraudulent Website that mimicked the official Massachusetts State Lottery site, Scam artists spoofed the Website of the Massachusetts State Lottery Commission in an attempt to steal personal and financial information from lottery players across the country. The fake lottery Website,, which was hosted by a N.Y.-based company Inc., has been taken down, because it was nearly identical to the Massachusetts Lottery Commission’s official site and even included an image of the state treasurer, according to Lottery Spokeswoman Amy Morris. Members of the operation contacted more than 200 known individuals from all over the world by e-mail and text messaging, informing them they had won a cash prize. Victims were then asked to forward a cash amount as tax and to submit sensitive financial information before winnings could be received. Once consumers clicked on a link contained in the e-mail or text messages, they were taken to an official-looking Website, asked to key in user names and passwords provided to them in the e- mail, and then asked to supply personal information, including a credit card number and a Social Security number, Morris said. Lottery officials first learned of the scam in May, but at the

26 Eddie Chua, No Credit for Gambling, 27 Id.

request of the FBI did not go public with the information because they were trying to track down the responsible individuals. The Massachusetts State Lottery has recently been in contact with all other state lotteries to insure that no other Website like this exists.28

New York police have also broken up a multi-million dollar mob gambling ring based out of Long Island. Eight men allegedly linked to the Bonnano crime family have been arrested in connection with the gambling ring. Authorities believe they were involved in a sports betting ring that raked in nearly $20 million a year. According to Thomas Spota, Suffolk County D.A., the operation was run out of wire rooms in Manhattan, the Bronx, and off-shore rooms in Costa Rica with bets being accepted via the Internet and also by telephone. Prosecutors say the operation was headed up by 54-year-old Anthony Frascone, and 44-year-old John Spirito of the Bronx. At their arraignment, the alleged ringleaders pleaded not guilty to promoting gambling. But prosecutors say that they hit the jackpot by busting up a major gambling ring run by the mob. Spota displayed thousands of dollars in cash, betting slips, guns, tape recorders, a phone and a good old-fashioned adding machine to tally up the profits. The evidence was seized by detectives who executed 15 search warrants. Prosecutors say more felony charges could come as well. The police say the Bronx wire room was run out of the home of a 93-year-old woman who was paid $500 for the use of her apartment. According the D.A.’s office, bets, which were placed

under coded names, were accepted on hockey, basketball and football games.29

28 Linda Rosencrance, Cyberscam strikes Massachusetts State Lottery, (7.9.03) 29 Lauren DeFranco, Police Charge 8 with Running Mob Gambling Ring, http://acblocal/wabc/news/wabc_071503_gambling.html (7.15.03)

Say it Ain’t So – Government Run Gambling?

Bored with football? If the Pentagon had its way, you would be able to bet on international terror instead. The United States federal government recently received a taste of its own medicine when attempts to set up “government style” gambling backfired in the media. Facing a chorus of disapproval from Capitol Hill, the Pentagon killed a program that would have had investors betting on the likelihood of terrorist attacks and assassinations. The program called the Futures Markets Applied to Prediction (FutureMAP), would have involved investors betting small amounts of money that a particular event, like a terrorist attack, would happen. In a statement, the Pentagon said it would consider what it called the “technical promise” of the plan before asking for additional funds to make it operational. The Pentagon’s hesitation over the plan followed the project’s disclosure by two Democratic senators, Ron Wyden (D-OR) and Byron Dorgan (D-ND), who expressed outrage as they revealed the planned $8 million Policy Analysis

Market program, Visitors to the site now are met only with a

blank page. Registration was set to begin August 1, 2003 with trading to begin October 1, 2003. The Internet site would allow people to place money on predictions and then collect the proceeds of traders who put money into the market but predicted wrong. A graphic on the market’s Web page showed hypothetical contracts in which investors could trade on the likelihood that Palestinian leader Yasser Arafat would be assassinated or Jordanian King Abdullah II would be overthrown. Although the Website described the Policy Analysis Market as a Middle East market, the graphic also included the possibility of a North Korea missile attack. That graphic apparently was removed from the Website hours after the news conference in which Wyden and Dorgan criticized the market.

30 VOA News, Pentagon Reconsiders Internet ‘Terror’ Market, (7.29.03)

Lawrence G. Walters, Esq., is a partner in the national law firm of Weston Garrou & DeWitt, with offices in Orlando, Los Angeles, and San Diego. Mr. Walters represents clients involved in all aspects of online gaming operations. Nothing in this article constitutes legal advice. Please contact your personal attorney with specific legal questions. Mr. Walters can be reached at, through his website:, or via AOL Screen Name: “Webattorney.”




In the context of online gambling, most discussion and analysis focuses on United States federal law. However, most commentators have ignored the myriad of potentially applicable state laws. Thus far, at least seven states have passed some form of statutory prohibition of online gambling.1 Given the deep prohibitionist streak that runs through the American legal landscape, future state-level prohibitions are likely. For example, New Jersey is currently considering the adoption of online gambling restrictions,2 and more are sure to follow.

Given the global nature of the Internet, an online gambling operator in a jurisdiction where such activities are fully legal should not consider his geographic disconnection from a prohibitionist jurisdiction to be of great protective value. For example, an online gaming operator in jurisdiction “A” may be legal and licensed in that jurisdiction, yet still could be subjected to the jurisdiction of the courts in state “B,” where the operators activities are prohibited. Some state attorneys general have begun asking questions about the legality of Internet gambling services, directed at their citizens from offshore casinos, and others have raised the issue of gambling age restrictions unique to the particular state involved.3 Any attorney general with a lust for headlines, or perhaps in an effort to energize a sagging political campaign, could easily decide to mount a prosecution under state law against a given Internet gambling site with customers residing in, or promotional efforts directed to, their particular state.4 While issues such as international treaties, extraterritorial statutory application, and comity5 may pose difficult (if not insurmountable) barriers to the application of state law to a licensed offshore gambling enterprise with no other presence in the United States, another barrier may be lurking in the United States Constitution. The individual states may lack the constitutional authority to regulate the offering of online gambling services to their residents under the somewhat esoteric principal known as the “dormant” Commerce Clause.6

Under the dormant Commerce Clause, in order to preserve some degree of uniformity and consistency in such commercial transactions, the individual states may not inconsistently regulate commercial activities that are national (or international), in nature.7 The policy underlying this constitutional restriction is well-considered: Merchants should not be expected to discern and attempt to comply with a hodgepodge of inconsistent, varying state-level restrictions on the same commercial activity.8 Instead, interstate commerce must be governed by uniform federal regulation. Examples of commercial activity that must be subject to uniform national regulation include navigation, transportation, and the purchase or sale of commodities.9 Accordingly, any state statute that imposes discriminatory restrictions on interstate commerce is per se invalid. In addition, state laws that impose multiple, inconsistent burdens on interstate commerce may also be invalid.10 While states are free to regulate commercial transactions occurring within their own borders, they are not as free to export their domestic policy into other states if such effort results in an undue burden on interstate commerce.11

Federal courts consistently apply this well-settled principle of constitutional law to strike down attempted state regulation of online services and commerce; particularly in the arena of commercial adult Websites.12 The courts uniformly rule that online services are, by their very nature, “interstate commerce” requiring a cohesive national scheme of regulation, and are therefore subject to dormant Commerce Clause analysis.13 In all cases where the issue was raised, the courts accepted the argument that state restrictions on the commercial display of adult-oriented Websites unduly burden interstate commerce and are thus unconstitutional.14

Under this reasoning, a state attorney general who attempted to enforce a state statute restricting or prohibiting online gambling may be constitutionally prohibited from doing so given the discriminatory treatment towards, or undue burden on, interstate commerce that such prohibition would impose. There can be no legitimate dispute that online gambling meets the definition of “interstate commerce.” International commerce is subject to Commerce Clause restrictions just like interstate commerce.15 Imposing a ban on Internet gambling would certainly discriminate against and burden those commercial gaming transactions.

The Commerce Clause argument becomes even stronger if another state in the country decided to legalize some form of online gambling activity. Such legalization by a single state could open the floodgates for legalization of online gambling throughout the country under the recent United States Supreme Court decision in Granholm v. Herald, et. al.16 In that case, the High Court held that individual states cannot discriminate against out-of-state wineries by

prohibiting Internet sale of wine from outside the state, while allowing in-state wineries to sell their products so long as they did not ship them across state borders. A narrowly-divided Court determined that if a state allows in-state wineries to ship directly to residents, the Commerce Clause requires out-of-state vintners to be treated equally.17 The full impact of this decision is not yet known – particularly its applicability to international transactions – but following the

Court’s reasoning, one state would not likely be permitted to prohibit the provision of online gambling activities to its citizens by out-of-state (or potentially offshore) entities, if some form of online gambling was permitted within the state.

As is evident, the dormant Commerce Clause has the potential for opening a “Pandora’s Box” of legal difficulties for regulators, and a “Genie’s Bottle” full of creative arguments for online gambling attorneys. As individual states start enforcing online gambling restrictions against players and gambling enterprises, Commerce Clause issues are certain to be raised as a defense. Legal experts and the courts will likely debate these issues for years to come, but one thing is certain: The dormant Commerce Clause creates significant uncertainty regarding the ability of state governments to constitutionally regulate Internet gambling activities.

Lawrence G. Walters, Esq., is a partner in the national law firm of Weston Garrou, DeWitt & Walters, He has been practicing for over 15 years, and represents clients involved in all aspects involved in the online gambling industry. Nothing contained in this article constitutes legal advice. Please consult with your personal attorney regarding specific legal matters. Mr. Walters can be reached at, or via AOL Screen Name: “Webattorney.”

1 Illinois: 720 ILCS 5/28-2(a-5); Indiana: SB 92; Louisiana: 14 Louisiana Revised Statute § 90.3; Nevada: NRS 463.016425(1); Oregon: Oregon Revised Statutes 167.109; South Dakota: South Dakota Codified Laws 22-25A-1-4; Wisconsin: Wisconsin Statutes § 945.03(g).

2 S-1013.

3 Well-documented enforcement efforts have emanated from the New York Attorney General, and sources indicate that the State Attorney in Louisiana is questioning the availability of online gambling services to its residents aged 18 through 20, while state law prohibits gambling by anyone under the age of 21.

4 Although the issues of international application of U.S. law are beyond the scope of this article, there have been examples of various U.S. laws being applied to individuals or companies residing in foreign jurisdictions, if their activities cause some sort of “effect” in this country. See, generally, US v. Noriega, 746 F.Supp. 1506, 1512 (S.D. Fla. 1990); U.S. v. Wright-Barker 784 F.2d 161, 168 (3d Cir. 1986).

5 “Comity” is a legal term essentially meaning co-operation between two countries, out of deference for each other’s laws.

6 The dormant Commerce Clause restricts the powers of states to regulate interstate commerce. Barclays Bank, PLC

v. Francise Tax Bd. of California., 512 U.S. 298, 114 S.Ct. 2268, 129 L.Ed.2d 244 (1994).

7 Wabash, St. L. & P. Ry. Co. v. State of Illinois, 118 U.S. 557, 574-75, 7 S.Ct. 4, 12, 30 L.Ed. 244 (1886) “For the regulation of [commerce with foreign countries and among the states] there can be only one system of rules,

applicable alike to the whole country.”

8 Id.

9 Wasbash, 188 U.S. 574-75.

10 CTS Corp. v. Dynamics Corp. of America, 481 U.S. 69, 88-90, 107 S.Ct. 1637, 95 L.Ed.2.d. 67 (1987); Southern

Pac. Co. v. State of Ariz. ex rel. Sullivan, 325 U.S. 761, 767, 65 S.Ct. 1515, 89 L.Ed. 1915 (1945); Bibb v. Navajo

Freight Lines, Inc., 359 U.S. 520, 529, 79 S.Ct. 962, 3 L.Ed.2d 1003 (1945).

11 Edgar v. MITE Corp., 457 U.S. 624, 641-43, 102 S.Ct. 2629, 73 L.Ed.2d 269 (1982); Baldwin v. G.A.F. Seelig,

Inc., 294 U.S. 511, 521, 55 S.Ct. 497, 79 L.Ed. 1032 (1935).

12 See Reno v. ACLU, supra, American Book Sellers Foundation for Free Expression v. Dean, 202 F.Supp.2d 300

(D. Vt. 2002); PSI Net, Inc. v. Chapman, 167 F.Supp. 878 (W.D. Pa. 2001), question certified, 317 F.3d 413 (4th Cir. 2003); Cyberspace Communications, Inc. v. Engler, 142 F.Supp.2d 827 (E.D. Mich. 2001); ACLU v. Johnson, 194 F.3d 1149 (10th Cir. 1999); American Libraries Association v. Pataki, 969 F.Supp. 160 (S.D.N.Y. 1997); Center for Democracy & Technology v. Pappert, 337 F.Supp.2d 2006 (E.D. PA 2004); Southeast Booksellers Ass’n

v. McMaster, 371 F.Supp.2d 773 (D.S.C. 2005)

13 Eg, Pataki at 182.

14 See FN 9 and the cases cited therein.

15 Wasbash, 118 U.S. at 574-75.

16 125 S.Ct. 1885, 2005 WL 1130571 (2005).

17 Id.

Gambling Law Update – June 2003

Gambling Law Update

By: Lawrence G. Walters, Esq.

June, 2003

On Again Off Again

The prospects of passing a bill aimed at prohibiting online gambling merchants from accepting payments in the form of credit card transactions or other bank instruments from Americans for any online gambling transactions were seriously hampered this past month as U.S. Lawmakers wrestle with this ever changing piece of legislation. Originally introduced by Rep. Jim Leach (R-Iowa) as a way to curtail online gambling, the Unlawful Internet Gambling Funding Prohibition Act (H.R. 21), also created notable exemptions for dog racing, horse racing, lotteries and casino games. But bickering between the House Judiciary and Financial Services committees resulted in the generation of competing versions of the bill. On May 15, 2003, the bill was amended, by a vote of 16 to 15, by the House Judiciary Committee to remove the exemptions for state lotteries and racing venues. Rep. Chris Cannon (R-Utah) said he offered the amendment because he was worried the bill might allow some types of gambling in Utah, where all forms of gambling are illegal. He also said the bill would create burdens on financial businesses and ISP’s, which could, under the bill, be served with injunctions to halt or prevent Internet gambling activity. After the Judiciary Committee took out language that would have exempted lawful casinos and state lotteries, the Financial Services Committee, and Rep. Spencer Bachus (R-Ala.), introduced the Unlawful Internet Gambling Funding Prohibition Act (H.R. 2143), which restored Leach’s exemptions for state lotteries and racing venues. The new piece of legislation removes any criminal or civil penalties for violators of the Act, which put the legislation outside the jurisdiction of the House Judiciary Committee. On May 21, the Financial Services Committee approved the bill in less than three minutes with no debate and no amendments. House leaders then chose to put the Bachus bill before the House instead of the amended Leach legislation. They then fast tracked the Bachus bill by scheduling it for a vote on June 3, under a suspension of the rules, which is normally reserved for non-controversial legislation. When a bill is considered under the suspended rules, it can not be amended but requires a two-thirds majority to pass. When word began to spread of the upcoming vote, opposition quickly built within both the Republican and Democratic ranks and the Bill appeared unlikely to pass without the support of Judiciary Committee Chairman James Sensenbrenner, who wanted tougher criminal penalties, and House Democrats who oppose an outright ban of online gambling. The result was the cancellation of the vote — for now that is. House staffers, however, said they would try to work out their differences and bring the bill back for a vote, possibly as soon as later this month.


Show Me the Money

As the growth of gambling continues to rapidly spread around the world into different sectors, so does the dilemma of the problem gambler. David Williams’ problem gambling cost him his life savings, dumping almost all of it into the slot machines at Casino Aztar in Indiana. Williams, a former state accountant, decided to take action in 2001 and sued Aztar. He claimed the casino knew he was a problem gambler and should have prevented him from wagering. He returned to the casino, the lawsuit argued, due to the fact that Aztar began enticing him with mailings and advertisements on gambling. The first judge to hear the case sided with the casino, but Williams is currently appealing this decision in the 7th U.S. Circuit Court of Appeals. Not unlike Williams, Richard Miller, a California resident, traveled to Las Vegas, Nevada, and obtained $40,000 in credit while gambling at Mandalay Bay Casino. After he incurred the debt, Miller petitioned for Chapter 7 bankruptcy protection. Mandalay sought a money judgment against Miller and a determination that his debt was non-dischargeable in bankruptcy. The Bankruptcy Court initially dismissed Mandalay’s Complaint after holding that gambling debts are not enforceable under California law. However, upon Mandalay’s Appeal, the 9th Circuit U.S. Bankruptcy Appellate Panel held that the Bankruptcy Court erred in dismissing the Complaint due to the fact that although a gambling debt is unenforceable in California, it is enforceable in Nevada. The issue the court then had to look at was whether California or Nevada law applies to the contract between Miller and Mandalay. To determine this, the Court looked to apply the laws of the state with the most significant relationship to the transaction and the contracting parties. If the place of negotiation and the place of performance are in the same state, the laws of that state will usually be applied. The Court concluded that due to the fact that Miller traveled to Nevada and sought out a loan there, and the contract between Miller and the casino were negotiated and preformed in a Nevada casino, Nevada law applies, and gambling debts like the one owed to Mandalay in this case, are enforceable under Nevada law. These claims are among a growing number of lawsuits that aim to hold the gaming industry responsible for exploiting compulsive gamblers.


Show Me the Money

As the growth of gambling continues to rapidly spread around the world into different sectors, so does the dilemma of the problem gambler. David Williams’ problem gambling cost him his life savings, dumping almost all of it into the slot machines at Casino Aztar in Indiana. Williams, a former state accountant, decided to take action in 2001 and sued Aztar. He claimed the casino knew he was a problem gambler and should have prevented him from wagering. He returned to the casino, the lawsuit argued, due to the fact that Aztar began enticing him with mailings and advertisements on gambling. The first judge to hear the case sided with the casino, but Williams is currently appealing this decision in the 7th U.S. Circuit Court of Appeals. Not unlike Williams, Richard Miller, a California resident, traveled to Las Vegas, Nevada, and obtained $40,000 in credit while gambling at Mandalay Casino. After he incurred the debt, Miller petitioned for Chapter 7 bankruptcy. Mandalay sought a money judgment against Miller and a determination that his debt was non-dischargeable in bankruptcy. The Bankruptcy Court initially dismissed Mandalay’s Complaint after holding that gambling debts are not enforceable under California law. However, upon Mandalay’s Appeal, the 9th Circuit U.S. Bankruptcy Appellate Panel held that the Bankruptcy Court erred in dismissing the Complaint due to the fact that although a gambling debt is unenforceable in California, it is enforceable in Nevada. The issue the court then had to look at was whether California or Nevada law applies to the contract between Miller and Mandalay. To determine this, the Court looked to apply the laws of the state with the most significant relationship to the transaction and the contracting parties. If the place of negotiation and the place of performance are in the same state, the laws of that state will usually be applied. The Court concluded that due to the fact that Miller traveled to Nevada and sought out a loan there, and the contract between Miller and the casino were negotiated and preformed in a Nevada casino, Nevada law applies, and gambling debts like the one owed to Mandalay in this case, are enforceable under Nevada law. These claims are among a growing number of lawsuits that aim to hold the gaming industry responsible for exploiting compulsive gamblers.

The Fun Stops Here

Employees who are supposed to be working too often are using company computers to surf for porn, waste time at online shopping sites or seek jackpots with online gambling sites. Corporations are deciding to crack down. More than three-fourths of the nation’s major companies are monitoring employee e-mails, Internet connections and computer files, a figure that has doubled since 1997, according to the American Management Association. In Pennsylvania, a principal has resigned over accusations she used her school computer to gamble on the Internet. Rosa Calvert, the principal at Lechman Intermediate School in Bushkill, Pennsylvania, gave up her position after district officials confronted her with details of an investigation into her computer records. District Superintendent Kenneth Koberlein says the investigation showed that Calvet spent time on several online gambling sites while she was at work, but no criminal charges will be filed. Just how far should companies go to counter slackers? While they agree the risks are real, worker advocates worry that the available technology is so powerful and privacy laws so lenient that some companies will go too far. “Counting every keystroke and watching every Web page that pops up on an employee’s computer screen could create an oppressive office atmosphere,” said George Walls, president of Milwaukee’s Local 4603 of the Communications Workers of America.
Another possible method for handling cyber slackers may lie with an Internet filtering system. Secure Computing Corporation has produced a piece of software called SmartFilter. SmartFilter, and similar software, enables organizations to build and enforce sophisticated Web-usage policies. Users can be denied access to specific Web sites, or instructed within their browser session about acceptable user standards. SmartFilter’s International Control List continuously categorizes millions of Web sites into content groups, including gambling, pornography and MP3’s.

International Gambling Outlook

Global gambling continues to be on the rise chiefly because of technology, which makes it possible to place bets cheaply over long distances. That allows people in countries where betting and gambling are either corrupt, as in many east Asian countries, or crippled by legislation, as in the United States, to move their business to friendlier environments. Britain is quickly becoming the dominating force behind the international betting industry. Britain’s first big advantage is a good reputation abroad. Place a bet in a betting shop, and you have someone solid to complain to if something goes wrong. Britain already has around three-quarters of the cross-border betting market. The government estimates, that cross-border gambling will grow to $15 billion by 2005. The big question now is what to do about customers in countries, mainly the United States, where cross-border gambling is illegal. The government’s DCMS (Department of Culture, Media and Sport) revealed their position paper “The Future of Remote Gambling,” which says that decisions on how far to abide by other countries’ laws should be left to individual businesses, who will decide whether they want to take the risk of legal action and other sanctions.
Malta may be a new addition to the European Community, but they are already looking to take full advantage of the new doors opened to them in the global betting industry. Using the Lotteries and Gaming Act, together with the pull of Malta’s excellent location and competitive tax incentives, the country is quickly becoming a compelling option for quality offshore operators. In fact, Malta has already attracted the attention of several gaming operators. Over 20 gaming operators have already been licensed. In what’s sure to be a further lure, the Chairman of the Gaming Authority has announced that new rules will be issued this year to regulate and license online gaming. The present rules for betting licenses prohibit local players from participating in the bets. This prohibition will most likely be repeated when online gaming licensing regulations will be formalized under the Lotteries and Gaming Act. This may be seen as Malta’s answer to protect its citizens from particular risks. At the same time it provides adequate regulation for all foreign players who access locally hosted and licensed websites.

National Outlook on Gambling

The results of a nationwide survey, released by the Interactive Gaming Council, indicate that the American public may be more open to the idea of licensed online casinos in the United States than previously thought. The survey, conducted by First International Resources, a New Jersey-based public opinion research firm, with the polling firm of TNS/Intersearch, contacted 1,000 American adults between Jan. 17 and Jan. 29, 2003. It found that many Americans, 68 percent, said they oppose a ban on online gambling. Practically three-quarters of the respondents, 72 percent, view gambling as a form of entertainment equal to attending sporting events or going to the movies. Equally noteworthy is that 55 percent of the respondents oppose efforts by the government to pass prohibitive legislation, and are in favor of passing regulatory measures to create licensed online casinos in the United States. Rep. John Conyers (D-Mich.), a ranking member of the House Judiciary Committee and author of H.R. 1223, which calls for the creation of a commission on online gambling licensing and regulation, is concerned about the viability and enforcement of a prohibition bill. Perhaps it is time for U.S. Lawmakers to finally put a halt to the online gambling prohibition movement, and examine ways to regulate this rapidly growing and lucrative industry. Maybe U.S. Lawmakers could learn a thing or two from the British government’s DCMS (Department of Culture, Media and Sport), who recently released its position paper “The Future of Regulation of Remote Gambling.” The document gives a depiction of the government’s view to date, as well as many other pointers to legislative structure that is being proposed for the British-based remote gambling industry. They are now using the term ‘Remote Gambling’ to encompass all of the concepts of online gaming and its various sectors such as online gambling, wireless gambling, and electronic gambling. The main point of the entire proposed remote gambling legislation will be that a Gambling Commission will deal with the detailed regulatory measures and procedures, while the Gambling Bill itself will only create an outline framework within which the rules will be set. Let’s hope that this is the beginning of countries looking at ways to regulate, rather than prohibit, the online gambling industry.
The effects of U.S. Lawmakers push for prohibition are being felt regardless of whether or not the company is located within the U.S. borders. MGM Mirage announced that it would discontinue operations of its online casino,, on June 30, 2003. Based out of the Isle of Man, an internally self-governing dependency of the British Crown, the company established MGM Mirage Online in September of 2001 with the purpose of developing an operational model that would ensure against money laundering while providing customers with the same type of game content found in Las Vegas and other U.S. gaming markets. “We set out to prove that online casino gaming could be implemented with the same high standards of regulatory integrity as land-based operations,” said Terry Lanni, Chairman and CEO of MGM Mirage. “Unfortunately, even in light of a successful working model, the legal and political climate in the U.S. and several countries around the world remains unclear. The fact is that millions of U.S. citizens currently participate in online gaming in an unregulated environment. We believe that a more sound and realistic public policy would be to regulate the activity and hold operators to the highest standards of probity and integrity. MGM Mirage Online has clearly established that the regulatory model works,” Mr. Lanni said. “We have proven critics wrong who said that online gaming could never be properly regulated. We greatly appreciate the efforts of our staff who have paved the way for the implementation of a regulatory structure from a technological perspective. We simply have to wait for the political climate to change and reality to set in,” Mr. Lanni went on to state.

Online Gambling Innovations

Live online gaming and person-to-person betting are rapidly growing sectors of the online gambling industry, providing players experiences similar to land casinos. This technology is becoming more significant as online casinos are starting to compete with big name casinos. AngelCiti Entertainment, Inc., announced that its wholly owned subsidiary Worldwide Management has reached agreement to launch its own private label version of the popular Be the Dealer person-to-person casino gaming platform that enables players to be the dealer in playing online casino games, This novel new approach to online gaming has proven exciting to players looking for a unique angle on the entertainment action. While, an online sportsbook, and CasinoWebcam, a live online gaming company, have teamed up to announce the development of EasybetsCasino, an online casino with real tables, real dealers, and real cards. EasybetsCasino will use state of the art technology and the Internet to bring the actual land based casino gaming experience into players’ own homes. Using a real time webcast, EasybetsCasino players will be able to see, hear, and play live casino games run by CasinoWebcam’s croupiers and floor supervisors. “Our customers enjoy betting on sporting events because of the excitement and fairness. When it comes to casino games, they wanted the same level of fairness and integrity. By partnering with CasinoWebcam to launch EasybetsCasino, we are now able to provide our players with the same standards of fairness and integrity associated with regulated, land based gaming,” said Tim Lambe, CEO of Easybets.
In a move that many experts believe will change the face of online gambling, Chris Moneymaker, 27, walked away with $2.5 million and the title of champion in the 34th Annual World Series of Poker, making him the first person to win the tournament by qualifying on the Internet. Players and experts said Moneymaker’s win will revolutionize poker, solidifying the merger of the Internet and big-name casinos and boosting the game’s popularity. “This is the sonic boom of poker,” said Nolan Dalla, media director for the World Series of Poker. “This means anyone in their home can become a poker player.” Of the 839 players, only 63 paid the $10,000 buy-in price. Others, like Moneymaker, qualified on such sites as, and Moneymaker was among 37 players sent to the tournament after paying $40 and qualifying at “We’ve proven that people who play on the Internet are just as good as those who play in casinos,” said Dan Goldman, vice president of marketing for
Lawrence G. Walters, Esq., is a partner in the national law firm of Weston Garrou & DeWitt, with offices in Orlando, Los Angeles, and San Diego. Mr. Walters represents clients involved in all aspects of online gaming operations. Nothing in this article constitutes legal advice. Please contact your personal attorney with specific legal questions. Mr. Walters can be reached at, through his website:, or via AOL Screen Name: “Webattorney.”

Gambling Law Update – May 2003

Gambling Law Update

By: Lawrence G. Walters, Esq.

May, 2003

Do Your Part to Make a Difference

Activists in the Internet gambling arena are taking action as state and federal governments push further in their attempt to restrain American use of Internet casinos and sports books. As a result, they are calling on all U.S. players to participate in this fight. The Interactive Gaming Council (IGC), a trade association for the international interactive gambling industry, has launched a Web site ( in which users can e-mail their elected representatives to oppose federal legislation that would block the use credit cards, checks or any other instrument of a U.S. bank for Internet gambling. Visitors to the site fill out a form to voice opposition to the House Bill, H.R. 21, introduced by Rep. James Leach (R.-Iowa), and the Senate Bill, S. 627, introduced by Sen. Jon Kyl (R.-Ariz.). When the visitor submits the form, the message is automatically e-mailed to his or her representative and senators. The routing is based on the visitor’s zip code, so the service can only be used by U.S. residents.1 Leach’s bill passed out of the House Financial Services Committee on a voice vote in March, while Kyl’s legislation is pending before the Senate Committee on Banking, Housing, and Urban Affairs. Sue Schneider, chairman of the IGC, remains optimistic regarding the outcome of this campaign. “Not only are there enough online gamblers to have political clout,” she stated “but we also expect to hear from people concerned about these deliberate efforts to diminish basic freedoms on the Internet. You don’t have to be a gambler to be wary of the Big Brother implications of these bills. Americans treasure freedom of personal choice and the right to privacy, and do not want the government to force banks to monitor every transaction that is done online.” The IGC is also providing banners that link the IGC site to gambling sites and any other sites that want to encourage their U.S. visitors to take action.2 The author has preached for years about using the strong political power wielded by online gaming webmasters, given the number of individuals who can be influenced via their Web sites. Here’s a good example of online grass roots politics in action!
Not only are Internet gambling advocates coming together to curb legislation aimed in their direction, but they have also announced a major initiative focused on reducing global poverty. A group of “industry insiders” have joined forces to create the IGIPRP, the International Gaming Industry Poverty Relief Project, which aims to raise $1 billion by 2006 to help ease global poverty. A registered charitable organization, IGIPRP describes its vision as one in which a united, healthy, secure, and growing international gaming industry provides funds to measurably relieve world poverty. “Gambling has always been a way of funding social causes, from bingo money for food banks, to casinos for community services and to lotteries for health and education spending. Many of the folks in the Internet gaming industry have felt that there should be some way for gambling at this scale – it’s really a global activity – to help a global cause,” explained Paul Lavers, a founding member of IGIPRP, CEO of Comprehensive Sports Information and operator of, regarding the ideas behind its formation. The IGIPRP website outlines some of the steps that will be required to make this innovative project a reality. A council will be formed, with the goal of regulating and improving the international gaming industry. Please visit for more information.

International Gambling Outlook

As legislation moves forward in Congress to ban Internet gambling, one Caribbean island is concerned the proposed new law will annihilate licensed Internet casinos operating on its shores, and rob it of much-needed revenues. Antigua and Barbuda, two specks of Caribbean sand that have become legalized havens for Internet casino operators, have taken action in the World Trade Organization (WTO), challenging U.S. authority to outlaw Internet betting. Antiguan authorities contend such a prohibition would breach international trade protocols. Antigua, for its part, says that with the downturn in the tourism industry, the country has come to rely on revenues generated from licensing and taxing of Internet casinos on its territory. “What we want is survival, not blood,” said Sir Ronald Sanders, Antigua’s ambassador to the WTO. The Internet betting industry employs 3,000 people in Antigua, and officials say that any attempt by the U.S. to ban Internet gambling would be in violation to its commitments under the WTO’s commercial services agreement. Without business from American gamblers, Sanders said, Antigua’s economy could once again be devastated.4 Antigua is not alone it their quest to license Internet gambling. All online gaming companies within or hosted in Panama have to be registered under the Online Gaming Act of November 12, 2002. The regulation allows for Internet international wagering. The telecommunications system is via a fiber-optic system. Internet gaming companies located in Panama enjoy complete tax exemptions, and customs duty concessions are given for imports needed to carry on Internet gaming. Offshore companies, such as Internet gaming companies are not subject to foreign exchange control. There is also a new call center incentive and training program that boasts numerous qualified bilingual workers, and a proposed law in the legislative assembly to make English the second official language, therefore eliminating the need for translations for official documents and procedures. Applications for both Internet Casinos and Sports Books are processed and issued by International Cybergaming Corp, a Master Licensor.5 Costa Rica has also had their eye on further expanding Internet gaming. BoDog Sports book & Casino has taken the first step to becoming one of the first sports book and casino operations to be officially licensed by the government of Costa Rica. “The licensing fee was something we welcomed with open arms,” said Rob Gillespie, BoDog President. “It shows the world that both private enterprise and governments can work together to better serve an industry.” Based in San Jose, Costa Rica since 1995, BoDog is very comfortable with continuing operations in the country and officially paid their licensing tax.

The Future of Internet Gambling

Former casino regulators, Frank Catania and Keith Furlong, spent five years helping New Jersey enforce its laws on gambling at Atlantic City casinos. Now, they are fighting for a far less admired segment of the gambling industry. As consultants for the Interactive Gaming Council (IGC), they are pushing a highly skeptical Congress to give up its attempts to prohibit Internet gambling. At a hearing recent hearing, members of the Senate Banking Committee joined witnesses representing college athletics and state and federal government in condemning Internet casinos as prone to fraud, and alluring to minors. Catania, formerly the head of New Jersey’s Division of Gaming Enforcement, was a lone voice who spoke in support of the $6 billion industry. He urged Congress to appoint a panel to study legalizing, regulating and taxing it. “In recent history there has not been an issue more deserving of further study than Internet gaming policy,” stated Catania. He also recently stated in an interview, “I’m basically saying that this is an industry that we will not be able to stop. Therefore, we need to legitimize it. The vast majority of Internet casino sites — the federal government estimated there were 1,800 last year — are run by operators based in places like Costa Rica and Antigua, beyond the grasp of U.S. law enforcement. And the enormous reach of the Internet has complicated efforts by lawmakers to define what is illegal. Sue Schneider, chairwoman of the Interactive Gaming Council, said Catania and Furlong speak with authority because they have studied efforts by other nations, such as Great Britain, to embrace Internet gambling.7 State governments have not completely given up their fight for a piece of the gambling pie. Gov. Kathleen Sebelius has not given up on her proposal to expand legal gambling in Kansas. “Nothing is dead,” Sebelius said recently during a news conference. Sebelius has proposed allowing slot machines and other electronic gambling devices at the state’s five dog and horse tracks and permitting a casino in Dodge City, with local voter approval. But the Dodge City provision was not included in a bill endorsed by a Senate committee to permit slot machines at tracks where voters in the surrounding county and adjacent counties approved. The bill remains in limbo during an extended recess.

Net Gambling Innovations

Internet gamblers are increasingly faced with the stress of credit card rejection as their issuing banks reject gaming transactions at disproportional rate. Over the past 12 months credit card rejection rates at online casinos have approached fifty percent contributing to considerable stress and embarrassment for cardholders who are otherwise in good credit standing with Visa and MasterCard. Adding to player stress is the fact that their successful credit card purchases are placed through un-regulated intermediaries who are not subject to the high degree of regulatory scrutiny as their land-based bank. In response to this situation, a few companies have come up with their own solution. AT&T is set to introduce prepaid cars for online purchases. AT&T’s new Prepaid Web Cents cards will be sold in varying dollar amounts with each containing a serial number and authentication PIN to be entered online. The cards, introduced this month, are so far being sold for separate sites, and though AT&T is gearing them toward parents who don’t want to fork over credit card numbers to their kids, Internet watchers believe an equal or greater profit may lie in tailoring this type of card toward the last things most parents want their kids going anywhere near: Internet gambling and adult sites. AT&T expects the cards to be available in 4,000 Uni-Marts and Speedway SuperAmerica stores by May, 2003, with more stores and Web sites added in coming months. Although several previous ventures have offered alternatives to credit cards for online purchases, this is believed to be the first and only prepaid digital-content card sold in retail locations by a major company.9 Another solution may lie with a UK-based company. Moneybookers ( has developed an e-wallet solution, which allows players to transfer funds into a secure and fully regulated account, and subsequently fund Internet casino purchases through that account. Moneybookers reportedly uses advanced fraud screening systems to help qualify cardholders thus reducing embarrassing rejections, and Moneybookers submits itself to UK Financial Services Act (FSA) regulation – the only e-wallet to do this insuring financial security.10 Mobile communications technology has been taking Europe by storm, so the success of mobile gaming, or “m-gaming,” comes as no surprise. Europe offers a strong market for software, hardware and phone companies as Europeans use short messaging service (SMS), or text messaging, to gamble on the Internet.11 However, advertisers are hoping timely, personalized marketing messages to cell phones, handheld computers, and other wireless devices will capture consumers’ attention. The emerging avenue is compelling because it costs a fraction of the price of a traditional campaign of similar scope, and it offers a relatively easy way to track who sees an ad and who acts on it. “From what we can tell, we were very pleased with the results,” said Richard Loomis, vice president advertising and marketing for Comedy Central, which recently advertised its program “Chappelle’s Show” by sending text messages to its target audience. “We’re always looking for new and different ways to connect with our audience. Both the young guys and the urban African American audience, we know, are early adopters of wireless technologies.” British research firm Ovum estimated in a report last year that global revenue from mobile advertising will reach $16 billion by 2006.12 While location-based advertising is not yet possible in the United States due to the inability of third-party firms to access location information, advertising firms say they must tread carefully. But as with unwanted e-mail ads, or “spam,” mobile marketing could offend its intended targets. In Europe, cell phone owners occasionally receive messages inviting them to dial sex lines or dating services. Travelers might receive unprompted welcome messages from the networks onto which they roam.

Smoke and Mirrors

Online Bookmaker Sportingbet Australia has filed an appeal of a Supreme Court judgment ordering it to pay back $2.6 million to Mt. Gambier trucking company, K&S Corp, which is owned by Australian trucking tycoon Allan Scott. Civil proceeding were launched in South Australia last year by Scott’s group to recover $2.68 million from Sportingbet, which was part of $22 million allegedly stolen by the company’s former secretary, Dennis Telford.13 Mr. Telford pleaded not guilty last month to stealing the funds from K&S Corp and the case is continuing. In January the London-based firm said customer numbers had risen to 837,000, making it one of the biggest online sports bookies in the world with operations in Europe, the US and Asia. Chief executive Nigel Payne has spent months in the US lobbying legislators to allow the company to trade onshore. Corporate executives aren’t the only ones accused of weaseling money out of the Internet gambling industry. A phoenix couple has pleaded guilty in the U.S. District Court to a $400,000 scam that involved using dead people’s identities to obtain credit cards. According to federal prosecutors, Ernesto Galvez, 28, and his wife Shakiya Galvez, 22, each admitted to a single felony. According to court papers the couple devised a scheme to open bank accounts and obtain credit cards under false identities, sometimes assuming the names and personal identification of deceased people. As part of his plea, Ernesto Galvez admitted making Internet gambling wagers and buying credit reports. He faces up to 15 years in prison.

Gambling Woes

A federal prosecutor has accused EBay Inc.’s PayPal subsidiary of violating the law when it facilitated Internet gambling payments last year, according to EBay documents filed with the Securities and Exchange Commission. In a letter sent to the San Jose online auction firm, U.S. Atty. Ray Gruender of St. Louis argued that PayPal violated a 17-month-old federal anti-terrorism law, the USA Patriot Act, when it handled payments for Internet casinos. The provision prohibits the transmission of funds that are known to have been derived from a criminal offense, or are intended to be used to promote or support unlawful activity. Gruender has yet to file charges against EBay. Instead, his letter proposed a settlement in which EBay would forfeit an amount equal to PayPal’s casino-related earnings from Oct. 26, 2001, when the law went into effect, to July 31, 2002, when EBay agreed to buy the electronic-payments company for $1.5 billion. In November PayPal stopped processing payments for Internet gambling companies, an activity that accounted for about 6 percent of PayPal’s 2002 revenues, eBay said.15 The U.S. attorney’s letter represents a new federal application of a law designed to help terrorism investigators. Passed only six weeks after the Sept. 11 attacks, the USA Patriot Act gave federal authorities broader powers to track money laundering and monitor online activities, among other things. In a press release, eBay stated users will no longer be able to use its PayPal online payment service to purchase items in the Mature Audiences category. PayPal will no longer process payments for adult items anywhere on the Internet. “PayPal must find the right balance between serving its community while minimizing financial risk,” the announcement stated. “PayPal management feels that exiting the adult business with a clear and consistent policy is the best decision for its business.” There are approximately 78,000 items currently listed in eBay’s Mature Audiences category. Users over the age of 18 who wish to view those items must log in and agree to special “Terms of Use.”

Lawrence G. Walters, Esq., is a partner in the national law firm of Weston Garrou & DeWitt, with offices in Orlando, Los Angeles, and San Diego. Mr. Walters represents clients involved in all aspects of online gaming operations. Nothing in this article constitutes legal advice. Please contact your personal attorney with specific legal questions. Mr. Walters can be reached at, through his website:, or via AOL Screen Name: “Webattorney.”

Gambling Law Update – April 2003

Gambling Law Update

By: Lawrence G. Walters, Esq.

April 2003

Anti-Gambling Efforts Resumed

Opponents of Internet gambling are resuming their campaign. The House Financial Services Committee recently approved legislation that would prohibit the use of credit cards checks and electronic funds transfers to pay for Internet betting transactions. Rep. Jim Leach’s bill, H.R. 21 attacks Internet gambling by cutting off its financial support, and placing enforcement burdens on financial institutions. The bill now goes to the House Judiciary Committee, where Chairman Jim Sensenbrenner is said to be a skeptical of the bill, because previous bills have been handicapped there in the past. More than $2 billion will be illegally wagered by Americans through offshore Internet gambling sites this year according to testimony before the U.S. Senate Banking Committee1. The panel held a hearing on another proposed Bill; this one by Sen. Jon Kyl, S. 627, which contains similar language to Rep. Leach’s bill. Frank Catania, former Director of the New Jersey Division of Gaming Enforcement was one of several experts to testify during the hearing. He warned that anonymous transactions would make money laundering easier, stating, “a ban on credit cards and other financial instruments for Internet gaming will likely result in the development of settlement solutions that banks cannot recognize and block – anonymous e-cash.”2 While praising legislative efforts to combat Internet gambling, Stewart A. Baker, general counsel for the U.S. Internet Service Providers Association, urged the committee to avoid “unintended consequences” that may hurt the economic growth of the Internet, including requiring ISPs to block customer access to gambling sites not residing on their networks and not under their control. “Service providers are unable to block user access to websites on other service providers’ networks with any reliability,” Baker said. “Blocking efforts can be easily circumvented and will seriously disrupt legitimate e-commerce and speech.” Congress has tried to outlaw Internet gambling for years, but no bill has passed both chambers due to procedural issues and power struggles among casinos, dog tracks and horse tracks.

Legislation to Review Internet Gambling

Not all lawmakers are out to ax the Internet gambling industry. A small bipartisan group of lawmakers wants to let states regulate and tax Internet gambling, even as others in Congress renew efforts to ban the rapidly increasing form of wagering. Rep. John Conyers introduced legislation this past month that would pave the way to legalizing Internet gambling in states interested in states interested in licensing, overseeing and collecting taxes from the growing industry.3 The Conyers bill, H.R. 1223, was introduced with co-sponsors from both political parties. The Interactive Gaming Council, a longtime advocate of regulation and licensing of online gaming, believes the Leach / Kyl bills would exacerbate the problems they seek to address. According to Rick Smith, executive director of the IGC, “The Conyers bill offers the best opportunity to protect U.S. citizens and deal with the issues that accompany this type of gambling.” “Just as outlawing alcohol did not work in the 1920s, current attempts to prohibit online gaming will not work, either,” said Conyers, the ranking Democrat on the House Judiciary Committee, in a release about his bill.

4 MGM Mirage Inc., the largest operator of Las Vegas Strip hotels, last year became the first major U.S. gambling company to open an online casino, based in and regulated by the Isle of Man off the British coast. MGM Mirage spokesman Alan Feldman said the Conyers proposal is a welcome indication that some lawmakers have open minds about how technology and the public appetite for gambling have evolved.

Federal E-mail Wiretaps Result in Convictions

Over the course of three years in the late 1990s, a Caribbean server’s Internet connections racked up more than $400 million in sports wagers – on college basketball, professional football and everything in between. The profits lined the pockets of two Americans, Duane Pede, 52, and Jeff D’Ambrosia, 42, one of whom ran the international gambling ring from a small town in Wisconsin. Pede had started out in the sports information business, printing scorecards for bookies and giving them the point spreads on various games. D’Ambrosia’s business began as a “tout” service – a way for gamblers and bookies to get recommendations on how to bet. Both enterprises may qualify for speech protection under the First Amendment. Eventually, their combined efforts in both tout and sports information came to be known as Sports Spectrum. Pede and D’Ambrosia risked trouble when they decided to branch out, starting a gambling service they could advertise to the people who used their other services, authorities say. The direct mail was easy because Pede also ran a small printing company where the two could print all their advertising materials for the new business. One of those brochures, stamped by a postage meter at Pede’s printing company, fell into the hands of the Portage County Sheriff’s Department and was forwarded to Daniel J. Graber, assistant U.S. attorney for the Western District of Wisconsin. Authorities now had a weak link, but the fact that the server was in the Caribbean was problematic. That’s where undercover IRS bettors came in, making 50 wagers – sometimes at $1,000 a pop. To minimize the government’s losses, they bet against each other. Their efforts paid off when employees at the tout services referred them to Gold Medal for placing bets. Gold Medal employees then allegedly confirmed the sports book and the other services were tied together. The federal investigation into the Wisconsin-based online betting service, Gold Medal Sports, was just the third such case ever prosecuted in the United States. It was the first time the IRS used wiretapping hardware – specially designed at the request of investigators in Wisconsin – to monitor e-mail. The intercepted e-mails were a gold mine that clearly showed Pede and D’Ambrosia troubleshooting and giving instructions to employees of both the tout services and the gambling operation. So far, six people have been convicted of federal crimes in connection with the three-year investigation. A seventh, accused of helping the bookies hide their profits in offshore banks, is scheduled for trial in May.5

Anti-Gambling Support

The U.S. National Collegiate Athletic Association voiced its staunch anti-gambling stance this past month and urged senators to pass legislation aimed at cutting off the money supply to Internet casinos. Bill Saum, the NCAA’s top gambling watchdog, said Internet gambling is especially tempting for college students. “Young people, especially athletes, have characteristics that put them at risk, such as being risk-takers, being very aggressive and believing they can do no wrong,” he said.6 MasterCard International and other credit card agencies also joined the lynch mob in attempts to hang the Internet gambling industry out to dry. “Legislation introduced in the Senate (S. 627) and in the House (H.R. 21) contains core provisions that establish a workable framework for combating illegal Internet gambling and we are committed to working with Congress as it seeks to provide a legislative solution to this important problem” said Noah Hanft, MasterCard general counsel, in a statement from MasterCard International.7 Contrary to U.S. banking regulations, the Australian finance industry is opposing moves to block Internet casino credit card transactions, warning that liability issues and difficulties in identifying gaming payments would make them too difficult. “Banks would struggle to identify gaming transactions, because online casinos often did not use correct industry codes when registering payments” said Australian Bankers’ Association director Stephen Carroll.8

The Future of Internet Gambling

The United Kingdom, as part of a major reform of its regulation of gaming, is moving steadily toward the licensing and regulation of interactive gaming. The Interactive Gaming Council, the industry’s main trade group, salutes the British approach, and calls on members of the U.S. Congress to take note. “British leaders understand the importance and the value of regulating this relatively new means of gaming,” said Rick Smith, executive director of the IGC. “I only wish the U.S. government would take such an enlightened approach, instead of futilely attempting to block a form of entertainment that millions of its citizens enjoy.” Peter Dean, chairman of the Gaming Board for Great Britain, addressed members of the IGC at their meeting in London last month. He indicated that a package of gaming regulation reforms – including the full legalization and regulation of interactive gaming – should be enacted next year, with implementation in 2005.9 A sister company of The Venetian casino resort in Las Vegas, V.I. Ltd., a subsidiary of Las Vegas Sands Inc, has been awarded an Internet gambling license from regulators in Alderney, one of the British Channel Islands. The license procurement is the first move towards establishing a Web casino that will be operated by Venetian Interactive Ltd. in conjunction with business partner SSP Gaming LLC. A launch date and name have yet to be announced, but operational plans should be finalized within the next several months, said David Friedman, assistant to the board chairman of Las Vegas Sands Inc., The Venetian’s parent company.10 In addition to The Venetian, WagerLogic, owned by CrytoLogic, has been awarded a license as a software provider from Alderney. This will entitle all current and future customers of the software house to operate Internet casinos from Alderny. Conyers added that, “Attempts to prohibit Internet gambling in the name of fighting crime and protecting children and problem gamblers will have the opposite effect. Prohibition will simply drive the gaming industry underground, thereby attracting the least desirable operators who will be out of the reach of law enforcement. A far better approach is to allow the States to strictly license and regulate the Internet gambling industry, to foster honest merchants who are subject to U.S. consumer protection and criminal laws.”11 The British Channel Islands, in particular Alderney, has gained worldwide recognition for a highly regulated gambling industry, attracting reputable businesses who will only operate within the well-regulated environment established by the Alderney Gambling Control Commission. A possible licensing alternative to Alderney may just lie in the Channel Island of Sark. Sark looks set to become the next UK-offshore gambling jurisdiction. The island, located in the English Channel between the UK and France, has already drawn up a gambling law, which received Royal assent (one of the preliminary stages for a new law) last month. But the e-Gaming Committee said that a problem with the wording could hinder the island from deriving revenues from the licenses. Committee member Jonathan Brannam said an amendment was needed to make sure the island would be able to benefit from e-gaming business.12

Internet Gambling Expansion

Deciphering the laws Internet advertising can at times be problematical, making it difficult for the Internet Casinos to reach their target audience. PLAYMGMMIRAGE .com has decided to reach out to their fan base with offline advertising at Everton Football Club. The advertising, which runs to the end of the season, will consist of two perimeter board treatments featuring the sites URL address, at the ground. Oscar Nieboer, Vice President Marketing at MGM MIRAGE Online explains, “We are always keen to explore new channels to drive awareness and recruitment and as the football season draws to a close, more interest and excitement is always generated. The forthcoming fixtures at Everton Football Club, which is a club that itself enjoys a significant fan base, will be big games, and we expect to reap substantial interest from the brand awareness campaign we will be undertaking.” The campaign sees the advertising running at the 40,200 capacity premiership club, for five major fixtures and ending on 11 May 2003.13

Even Microsoft can’t resist the opportunity to try and cash in on the ever booming gaming industry. The Microsoft owned MSN has signed up SkillJam to provide play-for-cash games to its site. already offers a popular variety of card, board and word games but the new addition gives regular players the chance to test their skills against others. The major draw of play-for-cash game sites is that newcomers usually get the chance to initially play games for free. Once they have honed their skills, they can start playing to win the chance of a variety of cash or prizes. “When people think they are better than other players they are willing to put their money where their mouth is” explained Brad Greenspan, eUniverse’s chief executive and chairman.14

Lawrence G. Walters, Esq., is a partner in the national law firm of Weston Garrou & DeWitt, with offices in Orlando, Los Angeles, and San Diego. Mr. Walters represents clients involved in all aspects of online gaming operations. Nothing in this article constitutes legal advice. Please contact your personal attorney with specific legal questions. Mr. Walters can be reached at, through his website:, or via AOL Screen Name: “Webattorney.”

1 Roy Mark, Illegal Internet Gambling Thriving, (3.18.03)

2 Rick Smith, Stark choice for the US Congress, (3.18.03)

3 Associated Press, Lawmaker Proposes Some Legalized Internet Gambling, (3.13.03)

4 Press Release, Internet Gambling Regulation Study Commission Bill, (3.14.04)

5 Gina Barton, Overseas Internet Gambling Trail Leads Back to Wisconsin, (3.14.03)

6 Paul, NCAA Urges Online Casino Ban, (3.24.03)

7 MasterCard International, MasterCard Voices Against Illegal Internet Gambling,

8 Australian Banks Oppose Online Casino Transaction Ban, (3.17.03)

9 Interactive Gaming- Will Britain Lead the Way?, (3.5.03)

10 Press Release, Venetian Interactive Granted Internet Gaming License, (3.10.03)

11 Cryptologic Awarded License for the British Channel Islands, (3.12.03)

12 Paul, Sark to Become Online Gambling Jurisdiction, (3.12.03)

13 Press Release, PlayMGMMiragecom Kick-Starts Offline Advertising At Everton FC, (3.20.03)

14 Darren, Play for Cash With Microsoft, (3.26.03)

Gambling Law Update – March 2003

Online Gambling Law Update

By: Lawrence G. Walters, Esq.

March, 2003

Net Blocking Threatens I-Gaming Sites

Attempts by the government to bar offensive websites are “technically problematic and legally worrisome” states a new study from Harvard University’s Berkman Center. The study highlights how modern Web standards have permitted thousands of domain names to share one Internet address. It concluded that instead of precisely targeting only objectionable sites, attempts to restrict Internet addresses with gambling, pornographic, or political-related content ultimately makes legitimate sites unreachable as well1. “According to my results, two-thirds of sites are hosted on Web servers with 50 or more domain names” said Ben Edelman, a student fellow and author of the report. The original version of the Hypertext Transfer Protocol (HTTP) required each Web site to have its own Internet address, which maps names like to numeric values such as In response to a perceived shortage of addresses, Http 1.1 in 1999 permitted each address to host an arbitrary number of Web domains. However current technology allows Internet Service Providers to block only IP (Internet Protocol) addresses, not domain names or URL2. Edelman’s study goes on to say that the practice of Web sharing IP addresses is so commonplace that blocking raises Free Speech problems. The study which has not yet become public, comes at a crucial time as state and national governments mull over possible methods to restrict access to objectionable Web sites which may be legal in one jurisdiction but not another.

State’s Outlook on Gambling

The HR 21, a new bill introduced by Rep. James Leach to ban Internet gambling in the U.S was introduced on January 7, 2003. This came after a similar bill failed to pass in the previous session of Congress. This bill would prohibit the use of all credit cards and other payment methods for funding internet gambling. Rep. Michael Oxley, Chairman of the House Financial Services Committee wants to put the bill on a “suspension calendar”, according to an inside source.3 If this happens the bill would go directly to the House of Representatives for a quick debate and a vote that would require a two-thirds majority. Opposition of the Leach bill is expected to hold up the suspension calendar idea. Instead, Conyers is expected to introduce a new bill this session calling for a committee to review Internet gambling in hopes to legalize it in the U.S.

With California facing a budget shortfall estimated at between $26 billion and $35 billion, Gov. Gray Davis will open negotiations next month with Indian tribes to tap a never-before-used revenue stream to help fund government in the State — gambling money4. Gov. Davis wants $1.5 billion- roughly one of every four quarters that pass through slot machines at the state’s 51 Indian casinos. Wall Street estimates put their business worth at about $5 billion a year. Despite the Davis administration’s rosy projections of a $1.5 billion budget bailout from California’s Indian casinos, tribal representatives and industry analysts say the odds of getting anything close to that amount are slim to none- and don’t bet on slim5. Even with Davis repeatedly voicing his opposition to gaming in urban areas, critics said they wonder how long he will hold to it, or if the next governor will share his objection, and whether casinos in major cities will soon seem inevitable.

Florida is also facing a potential $4 billion shortfall in next year’s budget. This has left State gambling interests betting on renewed legislative interest in allowing video slot machines. The state’s pari-mutuels, along with dog and horse breeders, have emptied more than $6.2 million into the past four state elections in hopes of encouraging state leaders to keep an open mind about expanded gambling6. The proposal would give the state Lottery Department control over the video lottery. The once reluctant legislative leaders have agreed to hearings on the video lottery. The first will be Feb. 25 before the House Subcommittee on Gaming and Pari-mutuels.

Indiana has its hands full with a case that is scheduled for trial in the state’s federal court in April. It is being watched carefully because it goes to the heart of a question that has gained notoriety as gambling proliferates across the country: Are casinos liable for failing to protect addicted gamblers from themselves? David Williams, a former state auditor in Indiana, who is now bankrupt, is suing the Casino Aztar to recover his losses. All told, he says he lost $175,000 in three years, most of it poured into slot machines so mesmerizing that he would pump coins into them at a rate of 15 a minute. The gambling, and the losses, continued even after he was banned from the casino. Williams says he was addicted to gambling and that the casino knew it. Therefore, it had an obligation to turn him away, much as taverns are obliged to stop serving intoxicated customers. Casino industry supporters say nobody is forced to go into a casino. And courts so far have agreed. Critics contend that the increasing availability of casino gambling will increase the number of addicted gamblers. They say more addicted gamblers, in turn, will increase the social and medical costs to taxpayers. These critics also suggest that litigation against casinos could increase, and follow a path similar to litigation against tobacco companies, unless states enact stricter safeguards for gamblers. What makes Williams’ lawsuit stand out from other claims is that he was banned from Casino Aztar in March 1998. He was back at the casino eight months later. It took until August of 2000 before casino managers discovered he was playing again. Gambling addiction is recognized by the American Psychiatric Association as a mental disorder similar to alcoholism or drug addiction. Williams says the adrenaline rush he experienced while playing the slots is what hooked him. The casino has a strict “self-ejectment” program to help problem gamblers — a program that is not required by state law. The casino also posts toll-free help numbers throughout the casino, as well as notices warning customers not to overspend7.

International Gambling Outlook

The future of a well known Internet Sports betting service in Taiwan could be called into doubt following raids at the offices of one of its marketing partners. The U.K. based Sportingbet plc, which runs, has been pursuing the Asian market heavily and had recently announced plans to target Taiwan to further advance their reach. This past month authorities with the Interior Ministry raided the offices in Taichung City of 101 sports, one of Sportingbet’s content suppliers, and SBC Advertising et Promotions Ltd, Sportingbet’s promotional agent. Authorities also searched the offices of a high-tech company, where they suspected Sportingbet was secretly housing servers used for funneling bets to England. Law enforcement officials in Taiwan were unable to comment regarding the findings of the raid but Andrew McIver, group finance director for Sportingbet, said the strange series of events could delay the company’s plans in Asia, but will not derail them8.

Hopes of online casino gambling operators who had their eyes set on Malaysia have been crushed this past month as the Malaysian government fortified its policy to not encourage the people of Malaysia to gamble. Although Malaysian culture is almost synonymous with gambling in the eyes of online casino operators, the decision by the state government to reject new gaming permits clearly indicates the intention of Deputy Chief Minister Tan Sri Datuk Amar George Chan Hong Nam and highlights his policy on gaming9. The Deputy Chief Minister also specifically commented about gambling through electronic systems. It’s his opinion that the state government would have no power to control the operation of gambling via such systems since the operation of gambling via electronic systems had been privately license previously to companies Cash Sweep, Sports Toto and Magnum.

Costa Rica’s government will establish a registry of online gambling companies in an effort to impose a tax on such operations. The initiatives arise as a result of recent congressional legislation that established taxes targeted at online gambling companies. Costa Rica’s online bookies must register with the company ministry and pay 10mn-24mn colones (US$26,000-$63,000) depending on the number of employees the ministry stated10. The U.S. Virgin Islands is also taking steps to further Internet gambling. Senator Shawn-Michael Malone has informed Governor Turnbull that he intends to offer a bill that would create a Virgin Islands Gambling Commission that would put all gambling operations under a single agency. The new entity would supercede all current gaming commissions11. Currently the Casino Control Commission oversees casino gaming, which is allowed only on St. Croix, and is the regulatory body for Internet gambling, which was legalized in the territory last year but is not yet operational.

Payment Problems

People’s Bank has joined several other banks in blocking the use of bank issued credits cards for Internet gambling. New York Attorney General Eliot Spitzer made the announcement that People’s and nine other banks are following in Citibank’s footsteps in blocking transaction codes for online gambling sites. The actions mean that customers can no longer use those bank-issued credit cards for funding their gambling. People’s and the other out-of-state banks have agreed to pay New York $335,000 to cover costs associated an investigation by Spitzer’s office. The office said the settlement is part of “a trend in law enforcement to focus on intermediaries in combating illegal online activity.”12 In June, Citibank agreed to block online gambling-related credit card transactions and pay $400,000 to a nonprofit group that counsels problem gamblers. It was after that agreement that Spitzer’s office started speaking with other banks that issue credit cards to New York residents. The pressure is on!

Ever since US legislators’ intimidated credit cards into refusing to deal with Internet gambling payments, Americans have been faced with a wide variety of alternatives. PayPal seemed the obvious choice for most in the community however since they too have pulled out there has been a search for a convenient replacement. Citadel Commerce Corp. is certainly proving a strong alternative. Citadel Commerce ( is offering North American players an alternative deposit option to the already crowded online financial transaction market13. Based out of Vancouver, Canada, Citadel Commerce Corp. delivers an electronic checking system which allows players to transfer money from their bank account to a casino’s e-cash processing system by writing an e-check. Companies such as E-Gold also provide similar alternatives.

Another possible option may just lie in the existing banking system. If officials with have their way, Internet gamblers will soon be funding their accounts through Internet banking services such as savings and checking accounts. The company has developed a Web site that enables consumers to pay any bill, even one to an Internet casino or sports book, through any bank that can be accessed on the Internet. Joseph Iuso, the creator of the system, said is the first and only payment company in the world to facilitate direct payments from online bank accounts in real time. Over 7 million online accounts are eligible to pay the merchant/sellers with zero chargeback’s in real time for less than 1 percent. Using the system is as easy as signing on and selecting a payment amount. If the seller has already provided the amount, it automatically appears and the consumer is asked to confirm it. Then, UseMyBank sends the payment off to the bank, which replies with an electronic confirmation that the funds are good. Payments are shown on the account as being made to UseMyBank. The company has already completed the first of three implementation phases. Iuso said phase two is under way and planning has begun for phase three. The system currently supports all major Canadian banks, and the company hopes to add major U.S. and European banks by the second quarter of this year. The system is scaled to accommodate 10,000 users a day. Iuso would like to increase that, but hardware issues have prevented that so far. Those obstacles, he said, will be overcome, however, and he hopes they will eventually process 100,000 transactions a month14.

Net Gambling Innovations

Ever since access to the Internet evolved from PC to mobile phones it has been just a matter of time until wireless gambling became available. Cell phones themselves are becoming better suited to gambling. The newest cell phones are essentially mini-PCs, with full operating systems, heavy-duty processor power and high-resolution color screens. Software within phones is also helping to further gambling. Smart phones now accept a version of the Java programming language, as well as a competing language for so-called applets, BREW, which is licensed by Qualcomm15. Developers would use an applet–easily downloadable software–to deal a card in blackjack, depositing the graphics on the user’s cell phone and sending a request to the casino’s server for a random card, says Don C. Harold, vice president of operations for Chartwell Technology, a gaming software company for online casinos based in Calgary, Canada. For now it’s only possible to gamble wirelessly outside of the United States. Software companies specializing in Internet betting are now fielding inquiries from customers outside of the U.S. who want to allow mobile users to play games and place bets. Phantom Fiber is currently in talks with several customers who want to offer wireless bets on sports, horse racing and casino games. Caribbean-based Tiger Gaming plans to feature multiplayer wireless games like poker and the popular Chinese game Big 2 using Phantom’s software.

Lawrence G. Walters, Esq., is a partner in the national law firm of Weston Garrou & DeWitt, with offices in Orlando, Los Angeles, and San Diego. Mr. Walters represents clients involved in all aspects of online gaming operations. Nothing in this article constitutes legal advice. Please contact your personal attorney with specific legal questions. Mr. Walters can be reached at, through his website:, or via AOL Screen Name: “Webattorney.”

1 Declan McCullagh, Net blocking threatens legitimate sites ,CNet (Feb. 19, 2003)

2 Internet blocking could derail innocent sites, (Feb. 20, 2003)

3 Internet Gambling in US still questionable, (Feb. 15, 2003)

4 State Eyes Casino Cash Cut, (Feb. 10, 2003)

5 Analyst: California casino plan not sure bet, (Feb. 5, 2003)

6 Linda Kleindienst, Kathy Bushouse, Gambling interests make pitch, (Feb. 17, 2003)

7 Laura Parker, Gambler says casino played him, (Feb. 24, 2003)

8 Kevin Smith, Sportingbet targeted by authorities in Taiwan, (Feb. 19, 2003)

9 Staff, Malaysia out of the game, (Feb. 3, 2003)

10 (Feb 11, 2003) (Feb 3, 2003)

12 (Feb 12, 2003)

13 Staff, Citadel set to fill vacuum left by paypal, (Feb. 10, 2003)

14 Could the solution to the e-payment crisis already exist?, (Feb. 7, 2003)

15 Chana R. Schoenberger, Gambling on mobile devices? You bet, (Feb. 10, 2003)

Gambling Law Update – February 2003

Gambling Law Update

Lawrence G. Walters, Esq.

February 2003

Efforts Renewed to Prohibit Internet Gambling

With both houses of Congress under Republican control, it should come as no surprise that lawmakers are expected to crack down on illegal Internet gambling during the current session of Congress. Leading the way once again is Rep. James Leach, R-Iowa. The House approved the Unlawful Internet Gambling Funding Act, which was introduced by Leach last year, but it died when the Senate failed to act in the last days of the 107th Congress where several democratic lawmakers were said to be blocking final passage1. The bill was then reintroduced in the House on January 7, 2003, and is now aimed at prohibiting Americans from using credit cards or other financial instruments- electronic fund transfers, wire transfers, checks, money orders and the like- for Internet gambling. However, passage of the Leach Bill could have a severe impact on the Internet gambling industry, worldwide. Gambling web sites already have been jolted by a near-total ban on the use of U.S.-issued credit cards for Internet gambling. Banks and credit card companies imposed the ban because of concerns that they could be held responsible for aiding an illegal activity or left holding the bag if U.S. courts ruled that online gambling debts were uncollectible. That has left gambling site operators searching for other payment options that cannot be easily blocked, such as digital e-cash, which will allow them continued access to their biggest market, the United States. Most experts say e-cash — a digital form of money capable of being stored on hard drives and transferred over the Internet — will eventually become the coin of the realm for online commerce because it is instantaneous, inexpensive enough to be used for payments as small as a few cents and does not require third-party clearance2. Despite e-cash’s promise, regulators and law enforcement officials have warned that its anonymous nature could provide new opportunities to commit numerous crimes, including tax evasion, money laundering and financing of terrorism. The U.S. Treasury Department warned in its 2002 Money Laundering Strategy that widespread use of e-cash or smart card payment systems would “make it more difficult for law enforcement to trace money laundering activity and potentially easier for money launders to use, move and store their illegitimate funds.”

Gambling Site Settles Suit

In one of few intellectual property disputes of its kind related to Internet gambling, a startup Internet enterprise has settled a patent infringement lawsuit against the operator of an Antigua-based Web casino. The case pitted, which is a small, financially strapped company formerly based in Las Vegas, against, considered one of the largest operators of a live gambling site on the Internet3. Home Gambling Network, a subsidiary of, owns a “method patent” that governs the process by which gamblers worldwide can use electronic financial transactions to wager on live games and events. The company’s patent was granted in the United States and therefore governs the processing of electronic transactions on live games for U.S. gamblers or for sites that are based in this country. The patent doesn’t apply to the vast majority of gambling sites, which aren’t live and merely offer a virtual version of casino games. In 2001 Home Gambling Network sued Macau casino mogul Stanley Ho, Ho’s son-in-law, Peter Kjaer, who is the site’s chief executive officer, Caribbean Online Ltd., two separate companies controlled by Ho and other parties in federal court in Las Vegas, alleging patent infringement. Last year U.S. District Court Judge Larry Hicks denied a move by Home Gambling Network to shut down the site with a preliminary injunction. Hicks also dismissed Ho and two of his Asian companies, along with two Canadian companies and three Canadian executives, as defendants on the basis that the companies and their executives had no operations in the United States. Caribbean Online Ltd. will pay Home Gambling Network an up-front fee and royalties on future revenue related to licensing the patent. Over the past few years, the company has shut down three live gambling site operators as a result of patent infringement suits.

At The State Level

Lawmakers returning to legislative sessions this month are faced with the task of determining new means of funding for the upcoming year. This has left many states looking into the area of Internet gambling. The New Jersey state Assembly committee wants to study the possibility of legalizing and regulating Internet gaming in the state. Assemblyman Anthony Impreveduto, D-Hudson, who has previously been behind efforts to bring the state’s gambling scene to the Internet, continues to press for a way to keep US dollars going to offshore businesses. Impreveduto’s bill sets up a 21-member commission to review the prevalence, status and growth of Internet gaming. The commission will also study the impact Internet gaming has on minors and the pros and cons of regulating the industry. State Sen. William Gormley, R-Atlantic, said he is against forming an Internet gaming commission because it could lead to supporting an industry that takes away capital construction dollars from Atlantic City. However web-based casinos, Internet gamblers and their Internet providers could all face felony charges and jail time under a bill recently approved by a state Senate committee in Indiana. The Senate Economic Development and Technology Committee unanimously endorsed a bill that would allow Indiana prosecutors to charge operators of Internet gambling sites with a felony4. The bill, proposed by Sen. David Ford, R-Hartford City, would not increase penalties for Internet gambling, which includes online sports betting and playing at online casinos. Such offenses already are a class B misdemeanor. Instead, the bill targets radio advertisers and Internet pop-up adds for Internet gambling sites5. Those who promote Internet gambling would be subject to a Class D felony conviction under the bill. Enforcement would fall to local prosecutors. It is unclear whether Internet Service providers that host the advertisements will be also liable under the law. Internet gambling is already illegal in Indiana under the federal Interstate Wire Act, which prohibits using telephone lines or other wire communications to place bets. But supporters of the proposal say that law doesn’t give state prosecutors enough tools to combat the growing online gambling industry.

International Gambling Outlook

German Internet cafes face an uncertain future thanks to an administrative high court in Berlin which ruled that all Internet cafes offering games on their computers will in the future be required to hold a valid gaming license. Prior to the ruling, the German Office of Economic Affairs had been closing down Internet cafes where children and teenagers were playing computer games. The main reason for the raids was supposedly the protection of children against gambling and exposure to extremely violent games. The owners of the cafes had petitioned the German courts, claiming the computers were primarily used for surfing the Internet, and therefore no special gaming or gambling license should be needed. The judge ruled that a computer-as a multifunctional device-falls under the law that requires a gaming license because it can potentially be used as a gaming device6.

As a statutory requirement of the Interactive Gambling act of 2001, Australia’s Department for Communications, Information Technology and the Arts will shortly be reviewing its own legislation. The act was put in place with the intention of controlling the commercial and social impact of online gambling. Australia has banned Internet gambling as well as its advertising, leaving cyber casinos out in the cold while granting exemptions for services such as telephone betting, racing, and lottery services. The DCITA plans to seek submissions from industry and community groups, and also external expertise on the broad range of matters to be dealt with under the review7. Central America and the Caribbean are popular bases for sports books and Internet casinos. Costa Rica, in sub-tropical Central America, has reaped the rewards of the Internet gambling industry by processing millions of dollars of mostly US bets each day. Sports books began setting up in Costa Rica in 1996, but now the government is threatening to take a slice of the pie through new fees or taxes. But what does that mean for Costa Rica? Gambling website operators say they will simply move on to the next gambling-friendly haven. Panama and Belize want the jobs and are offering free buildings, a low tax base and possibly subsidized telephone fees8. Costa Rica might consider what happened to Antigua in the mid-1990s when the Caribbean island imposed new taxes causing the Sports books to leave the island in droves.

Anti-Gambling Support

The government wants to go after the gambling winnings of parents who owe child support. Health and Human Services Secretary Tommy Thompson said that President Bush’s budget will include a proposal to increase collections by aggressively pursuing winnings. The effort is expected to collect $700 million for families over five years and $2 billion over 10 years. The cost is estimated at $40 million for five years and $90 million for a decade. Thompson said his agency is currently able to garnish wages and wring money out of lottery winnings by deadbeat parents, but needs a change in law to allow it to pursue winnings at casinos, horse tracks, keno and other venues so that money could be withheld and distributed to the family. Thompson said that could have two beneficial effects: Money from the winnings would go where it belongs — to the children — and it might discourage some parents from gambling9. The casino industry is expected to oppose the plan.

Connecticut’s “Las Vegas Nights” law has been repealed in an attempt to prevent the further expansion of casinos. The law was originally used to permit churches and civic groups to raise money via gambling. Under the new legislation they will still be permitted to sponsor raffles and bingo games.Gov. John G. Rowland signed the legislation after the House voted 83-59 in favor of repeal and the Senate gave approval by voting 25-10. The repeal was intended to help solve problems such as crime, compulsive gambling and traffic jams all blamed on the casinos. By deliberately blocking tribes from building other casinos it is hoped these problems will not get any worse. However many have argued that the measure is blatantly discriminatory10.

Are consumers sick of spam from Internet casinos? ContentWatch Inc. has recently released EmailProtect, an application that allows e-mail users to eliminate unwanted e-mails based on category11. Unlike other spam management software, EmailProtect incorporates an advanced engine that analyzes and categorizes the content of an e-mail message. With this feature, users can choose a category, such as pornography or gambling, and automatically block hundreds of phrases that would normally require writing separate word rules for each. For those who don’t mind getting new email offers from online casinos, but don’t like the graphics, EmailProtect allows users to choose to restrict images from being shown in an e-mail.

Internet Casino Innovations

Currently, most online gaming operators are located in offshore jurisdictions in order to avoid potential application of U.S. gaming laws. In relation to processing credit card transactions for online gaming, the majority of all gambling related credit card transactions are denied as banks will not honor illegal gaming debts. Inc. intends to operate an online poker card room based in the U.S. and expects universal acceptance by banks engaging in credit card transactions with little or no deposit rejection. And just how is all of this possible you ask? plans to develop the software to enable it to operate its own skill based online poker card rooms to market directly to players in the United States, Canada and worldwide. The software will be developed utilizing patented methods. The provisional patent application filed with the United States Patent and Trademark Office covers a system of determining the skill level in a tournament setting for many different card games including all forms of poker. Inc. will acquire ownership of all materials in relation to the games of Skill Poker and Skill Blackjack, in addition to the domain names,,, and SkillStud.com12. Once developed, Inc.’s poker card room will be the only online system of gaming with all operations including the game servers located on North American soil and operating within the parameters of legal skill based gaming as set forth by various jurisdictions.

Lawrence G. Walters, Esq., is a partner in the national law firm of Weston Garrou & DeWitt, with offices in Orlando, Los Angeles, and San Diego. Mr. Walters represents clients involved in all aspects of online gaming operations. Nothing in this article constitutes legal advice. Please contact your personal attorney with specific legal questions. Mr. Walters can be reached at, through his website:, or via AOL Screen Name: “Webattorney.”

1 Congressman Renews Effort to Limit Internet Gambling (January 11, 2003)

2 Mike Brunker, Critics say Legislation Could Make Money Laundering Easier,, (January 29, 2003)

3 Liz Benston, Internet Gaming Site Settles Patent Lawsuit, (January 21, 2003)

4 Internet Gambling Bill Approved, (January 13, 2003)

5 Paul, Indiana Passes Internet Gambling Bill, (January 22, 2003)

6 Court:Berlin Internet Cafes Need Gaming License, (January 10, 2003)

7 Govt Asses Online Gambling Act, (January 17, 2003)

8 Paul, Will Sportsbooks Flee Costa Rica? (January 2, 2003)

9 Plan Would Seek Gaming Winnings for Child Support, (January 14, 2003)

10 Connecticut Legislators to Discuss Fate of Las Vegas Nights, (January 6, 2003)

11 Paul, New Email Tools to Block Gambling Spam, (January 2, 2003)

12 Inc. to Acquire a Skill Based System for Online Gaming in the U.S., Inc. Press Release (January 17, 2003)

Gambling Law Update – January 2003

Gambling Law Update

January, 2003

By: Lawrence G. Walters, Esq.

Big Names Continue to Gamble on the Internet

Las Vegas casinos are gambling on the Internet. Following the move by giant MGM Mirage, several world-famous casinos plan to extend their empire into the Internet arena. Downtown landmark Binion’s Horseshoe introduced a “play for fun” website recently that is intended to serve as a first step to launching a real-money Internet casino for foreign bettors1. The play-for-fun games will allow the casino to collect email addresses from players for future marketing purposes. Binion’s Horseshoe has offered an informational website for several years which also offers a live Internet broadcast of its annual World Series of Poker. However, the Internet casino would not accept bets from anywhere in the Unites States, where the legality of Internet gambling is still an open question.

Besides MGM Mirage, other Las Vegas companies have not yet detailed their plans for a web casino. Park Place’s Internet gambling license application is pending in the Isle of Man, and representatives of the Venetian could not be reached by press time to comment on the status of their previously announced application in Alderney, one of the British Channel Islands2. The Ritz Club London Online announced a deal with the official website of leading Formula One team Jordan Grand Prix ( The site displays race team news as well as headlines from the BBC. It also provides a link to “betting” which transfers the user to the Ritz Club web site. The Ritz Club London Online benefits by having their site promoted on the Formula One team’s website and in a newsletter targeting the team’s fan and site users. Since the launching of their site in September 2002, the Ritz Club London Online has thus far proved to be a huge success. The move from being a land based casino to an Internet Casino by these big names comes as no surprise. The land-casino industry intends to take advantage of a perceived advantage in this marketplace because they merge significant brand recognition with the funds necessary to market their online product with their casino product enabling them to tackle the online casino newcomers that threaten their empire. Most brand names still require the assistance of veteran Internet gaming operations to launch a successful online casino, however.

State’s Outlook on Internet Gambling Brighten

California Gov. Gray Davis recently authorized what may be the second largest expansion of legal gambling in the history of the United States. Within ten years, California will likely surpass all other states, including Nevada, as the nation’s largest casino market. This past month Gov. Davis signed a bill permitting everyone in California to bet on authorized horse races from their homes, offices, schools, etc., by phone and computer. The new California law expressly allows Californians to place bets with an approved Off-Track Betting site outside the state, and it does not restrict those Off-Track Betting sites to the United States. Once the regulations are in place, Californians will be able to make bets by phone to approved Off-Track Betting sites in California and in other states which allow out-of-state telephone wagers, like New York, Connecticut, Oregon and Pennsylvania. The new law also allows California licensed operators to accept bets from anyone in any state. This new form of gambling is called Advance Deposit Wagering. Bettors are required to set up accounts and deposit money in advance, before they can make their long-distance bets4. The law will expire on January 1, 2008, unless the State Legislature extends it – a near certainty. The statute requires the California Racing Board to make regulations and to approve all arrangements involving Advance Deposit Wagering. Perhaps the new California law will be the breakthrough to true licensed international Internet gaming.

New Jersey may also be set to give Nevada a run for their money. This past month New Jersey passed a joint resolution (AJR51) to establish an Internet gambling commission within the state. The resolution establishes a 21 member Internet Gambling Study Commission composed of Legislators, Executive Branch officials and members of the public with expertise or interest in gambling in the State. The commission will conduct a thorough and comprehensive study of the current status and growth of Internet gambling, investigate the amount of money wagered through Internet gambling by State residents and by citizens and residents of this nation, review the extent and opportunities for gambling in the mid-Atlantic region, and analyze the impact of Internet gambling on the economic growth and financial stability of the horse racing industry and the casinos and the lottery in this State. The Commission is to make findings of fact, reach conclusions on the future and impact of Internet gambling, and make recommendations concerning the legalization of Internet gambling in New Jersey. Recommendations for legislation, if deemed appropriate, are to be made to address the financial, societal and competitive impact of Internet gambling in the State. The Commission is also required to make an interim report of its findings within six months of organizing and submit a final report within one year5.

Internet Gambling Delayed in Nevada

The possibility of the legalization of intrastate gambling in Nevada has been delayed. The state Gaming Control Board has requested input from the Legislature when lawmakers meet next February. Information passed by the board is expected to include courts decisions such as the dismissal of a class-action lawsuit by people who lost money to virtual casinos. The Fifth Circuit Court of Appeal upheld the dismissal6. Lawmakers in Nevada got the ball rolling last year, when they authorized the Gaming Board to research the possibility of drafting rules that would pave the way for online casinos in gambling. The Board was to determine whether current laws would be upheld and minors could be kept out7. Internet gambling opponents will make banning Internet gambling a top issue next year8. The Legislature may decide to pass new guidelines with updated information or may keep the existing law on the books. The original legislation included a definition of Internet gambling that was broad enough to include in-state betting.

Seminole Tribe Case Dismissed

A judge threw out the embezzlement case against three former Seminole tribe employees, acquitting all three after a 10-day trial that had spotlighted the enormous sums of cash generated by the tribal casino empire and the free-spending habits of those who controlled it. The men were accused of funneling $2.7 million of the tribe’s money into an offshore Internet gambling operation in Belize, without telling the governing tribal council. However, in a devastating blow to the government’s case, suspended Seminole Chairman James Billie testified that he had authorized every penny spent by three men accused of swindling the tribe and ordered them to quietly set up an Internet gaming operation in Central America9. Billie’s testimony, coming without immunity from future prosecution, contradicted nearly every piece of evidence put forth by federal prosecutors during the two-week trial. The case against former tribe operations director Tim Cox and two other men, was already weakened by testimony that the tribe had no rules for how it spends money.

Revolutionary Mobile Gaming

The portable gaming industry continues to boom. Last month Israeli mobile software company Zone4Play announced a deal with European mobile phone network Orange, and this month they have announced that another big European network is to offer their mobile casino games. Zone4Play is set to develop casino games for mobile network mmO2, using Pinpoint’s Fuel software platform which allows developers to bring fee-based applications to market and bill for them. The partnership was forged through Pinpoint, who is a mobile service provider. Zone4Play will deliver its games on the SMS and WAP platforms and will provide Pinpoint and mmO2 with its innovative Java 2.5G and 3G applications later on10. The games will be available to 17.25 million subscribers. Slots, video poker, black jack and other casino games will be offered. The subscribers will have the ability to experience the playing of casino games in their mobile devices, wherever and whenever they are.

Anti-Gambling Support

The return to Republican control of the Senate could make it more difficult for the gambling industry to beat back a move to ban betting on college sports. The change in Congress means Sen. John McCain, R-Ariz., the leader of the effort to end legalized betting on NCAA sports at Nevada casinos, will resume chairmanship of the Senate Commerce Committee11. At the same time, Sen. Harry Reid, D-Nev., the most influential defender of sports wagering, will relinquish his role as majority whip for the less powerful position of minority whip. Reid said the only online gambling bill he will support next year is one that includes an outright ban. “I don’t like it,” Reid told the Las Vegas Review-Journal. “It can’t be controlled. It’s ripe for cheating. And it’s open to fraud.” Reid, who will be the Democratic minority whip in the new Congress, said he and other Internet gambling opponents will make banning Internet gambling a top issue next year12. Aides to McCain indicated he is likely to reintroduce the same bill he pushed last year, but won’t decide until Congress reconvenes in January, 2003.

Another group which has severed its relationship with the Internet Gambling industry is Akamai Technologies. Akamai Technologies has begun phasing out delivery of porn and gambling sites via servers installed at universities and colleges. This past month, Akamai servers in data centers at the University of Massachusetts, Massachusetts Institute of Technology, Boston College, Dartmouth College, and the University of Maine, and apparently at several other schools, were no longer being used to ”cache,” or store, images and text from gambling and porn sites, according to business competitors of Akamai who monitor the publicly accessible devices13. Akamai is an Internet ”content delivery networking” company, which means that it hosts copies of Internet sites on its servers to enable smoother delivery to the end user. Akamai says it is no longer seeking business from pornography sites or gambling sites and is not renewing contracts that are about to expire, but has not said when it expects to be out of the business.

Bahamas Eye Internet Gambling

At a major Internet Gaming conference on Paradise Island this past month, at which the author delivered presentations, Chairman of the Gaming Board for The Bahamas called for regulations that would stabilize the fast growing industry of Internet gambling. Gaming Board Chairman Kenyatta Gibson made this appeal as he officially opened The Sixth Annual International Symposium on Internet and Wireless Gambling Law and Management. He said that The Bahamas was excited to learn more about Internet Gambling, which it does not regulate. The Government is proposing new amendments to the Gaming Act, and there is a proposed challenge in the Supreme Court of the Bahamas to lift the prohibition of Bahamians playing in local casinos. “But at the same time,” Mr. Gibson said, “let there be no doubt that The Bahamas is poised and ready to take advantage of every opportunity and trend in the gaming industry.” The Bahamas congratulates its sister CARICOM member-state Antigua and Barbuda on the pace set in establishing its Internet Gaming Services, he said14. The gold rush is on.

Lawrence G. Walters, Esq., is a partner in the national law firm of Weston Garrou & DeWitt, with offices in Orlando, Los Angeles, and San Diego. Mr. Walters represents clients involved in all aspects of online gaming operations. Nothing in this article constitutes legal advice. Please contact your personal attorney with specific legal questions. Mr. Walters can be reached at, through his website:, or via AOL Screen Name: “Webattorney.”


1 Liz Benston, Binion’s Plans to Launch Internet Casino, (December 13, 2002)

2 Vegas Casino Empire Expands Online, (December 6, 2002)

3 Linda, Ritz Strikes Deal with Formula One Team, (December 16, 2002)

4 California Legalizes Internet Gambling, (December 16, 2002)

5 News- New Jersey Legislation, (December 12, 2002)

6 E-gaming Delayed in Nevada, (December 13, 2002)

7 Online Gambling in Nevada Up to Legislators, (December 11, 2002)

8 Nevada Sen. Harry Reid Wants Internet Gambling Banned, (December 3, 2002)

9 Seminole Chairman Authorized Money for Online Gambling Operation, (December 17, 2002)

10 Leigh Phillips, Zone4Play to Design Casino Games or MM02, (December 16, 2002)

11 GOP May Help NCCA Gambling Ban, (December 13, 2002)

12 Nevada Sen. Harry Reid Wants Internet Gambling Banned, (December 3, 2002)

13 Paul, Akamai Dumps Porn and Gambling Sites, (December 12, 2002)

14 Lindsay Thompson, Bahamas Eyes Internet Gambling, (December 10, 2002)