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)