The Benefits of Age Verification for Online Gambling

By: Lawrence G. Walters, Esq.

www.GameAttorneys.com

Recently, significant attention has been drawn to the issue of age verification for online gambling services, as a result of the U.K. study preformed by GamCare, Citizencard and the Children’s Charities Coalition on Internet Safety.¹ That article demonstrated that 30 of 37 online casinos and betting sites that were tested allowed minors to set up accounts. The accounts were setup using a debit card, with the minor giving their accurate address and personal information, but indicating that they were of legal age to gamble.² For the purpose of the study, a site “passed “if the account was blocked or a request was made for further proof of age and I.D., after the registration process was complete. Failing sites simply allowed the user to log on and gamble.³

This state of affairs demonstrates a critical need for some form of workable age verification for gaming Websites. Since minors are gaining increasing access to credit cards issued by various different merchant banks, credit cards can no longer be used as a form of age verification for online transactions. Moreover, VISA has notified webmasters that it specifically objects to the use of its credit cards for purposes of age verification. Therefore, it is time for an innovative solution to the vexing problem of online age verification for gaming Websites.

The adult Internet industry was faced with a similar crisis, several times in the past, when the United States government passed legislation mandating the implementation of age verification procedures for access to sexually explicit material on the Internet.⁴ Although the law has been enjoined as unconstitutional on several occasions by the federal courts, many adult Websites sought a solution to the online age verification problem, and this author responded.

Development of the BirthDateVerifier™

Several criteria were used in the development of a workable age verification solution: 1) the verification must be immediate, and the device easy to use; 2) the device must perform some manner of “verification” of the user’s age data provided; 3) some incentive must be created for the user providing accurate and truthful age data; and 4) the device must function effectively world wide, without reference to the user’s location.

Using the above-referenced criteria, this author developed the Birth Date Verifier, which uses a unique combination of the Electronic Signatures Act⁵ (“E-Sign Act”) and the Unsworn Declarations Act⁶ to create a procedure whereby the user submits the equivalent of an electronic affidavit, attesting to his or her date of birth under the penalties of perjury, and stipulating to the use of U.S. law to accomplish this task. The birth date data provided by the user is then checked against the current date as recorded on the server, to calculate the actual age of the individual on that particular day. Once it is verified that the user’s sworn data make him or her an adult, i.e., over the age of 18, the user is allowed entry to the age restricted portions of the site.

A number of adult Websites have adopted the Birth Date Verifier device as the preferred method of age verification, and a partial list of those sites can be found here. Version 4.0 of the software includes a gaming-specific age verification page, which can be seen in operation here. Under well recognized “choice of law” principles, a party to a given transaction – even an electronic transaction – can agree to use the laws of a specific jurisdiction to govern that particular transaction. When using the Birth Date Verifier, the user stipulates to the application of U.S. law for purposes of online age verification only, in order to incorporate the E-Sign Act and the Unsworn Declarations Act. Of course the choice of law provision will not be necessary for U.S.-based users, who are already subject to U.S. law, but it allows gaming sites to use these unique legal provisions for players around the world.

The online affidavit requires that the birth date information submitted on the site be accurate, under the penalties of perjury. In other words, providing false information would constitute a federal felony. Courts are not sympathetic to the claims of minors, who commit felonious acts through perjurous online transactions. Any minor gaining access to the gambling services would, by definition, be committing the crime of perjury and thus would not make a particularly sympathetic victim as compared to the responsible gaming webmaster who is attempting to implement the best age verification device available under current technology.

Of course, like any other new device dependant on legal principles, these theories are all untested. The best scenario would be for the device to remain untested, and for no client to be prosecuted for violation of any age restriction applicable to online services. However, given the recent attention to access by minors to gaming services, it is likely only a matter of time before one or more governmental entities take notice and initiate investigation or prosecution based on access to gaming sites by minors. Notably, given the criteria used by the U.K. study referenced above, the Birth Date Verifier would constitute the subsequent proof of age check required to obtain a passing grade.

While there have been few historical prosecutions based on direct age restrictions, any violation of the law by an online gambling site can be exacerbated, and defenses weakened, if minors are provided unfettered access to online gaming services. Judges, juries and prosecutors

are often less sympathetic to the claims and defenses of those who do nothing to keep age restricted materials away from children, even if such issues are never brought to the forefront in a particular prosecution. Therefore, it is in the best interests of all gaming site operators to consider a viable form of online age verification to strengthen their legal position from top to bottom. It is only a matter of time before alternative forms of online age verification are developed – whether based on finger print transmission, retina scanning or other advanced technology. However, until the technology progresses to such a point where these methods are readily available, the Birth Date Verifier provides a viable option for online gambling sites to impose a barrier to minors’ access to gambling services.

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. The Birth Date Verifier is copyrighted with the U.S. Copyright Office, and is the subject of a pending patent application with the U.S. Patent and Trademark Office. All rights reserved. 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 Larry@LawrenceWalters.com, through his website: www.GameAttorneys.com, or via AOL Screen Name: “Webattorney.”

A Breakdown of the California Gambling Advertising Suit

By: Lawrence G. Walters, Esq.

www.GameAttorneys.com

Introduction

Despite the recent scramble by search engines Google and Yahoo! to pull gambling advertising content from their sites, both have been named along with various other companies, as Plaintiffs in a class action lawsuit recently filed in San Francisco Superior Court.¹ The suit, brought by California residents Mario Cisneros, who allegedly never engaged in any Internet gambling, and Michael Voight, who claims to have used search engines in California to find gambling sites and lost $100,000, specifically names 13 Defendants, and 100 “John Doe” Defendants. The Plaintiffs are seeking monetary relief and to enjoin the Defendants from “participating in, and continuing to market, sell, and display advertising for illegal Internet gambling establishments.”² The class sought to be certified in the suit is defined as “All California residents who visited an illegal Internet gambling website and incurred losses therein each found these websites as a result of advertisements contained on Defendants and their affiliates web pages or search results.”³

CDA Immunity

The Complaint alleges that Defendants are not entitled to immunity under Section 230 of the Communications Decency Act (“CDA”) because they do not qualify as “interactive computer services.”⁴ Section 230 immunity completely protects certain Internet access providers from any claims, asserted under state law, and premised on the publication or editing of materials made available online.⁵ Notably, the types of websites deemed by the courts to be covered by Section 230 immunity have continually expanded of late,⁶ and therefore the absence of immunity is not a foregone conclusion for the search engines and certain other defendants.

The Claims

As a basis of liability, the Complaint alleges that the Defendants “obtain revenue from these Websites when they convince users to ‘click through’ to the advertisers’ websites. In the case of illegal gambling, this ‘click-through’ directs California users to Internet gambling websites where persons in California are enticed to gamble away their hard-earned savings using their home and work computers.”⁷ The Complaint further states that, “Defendants knowingly and willfully conspired with Internet gambling Websites and others to carry out these illegal gambling activities through the use of Defendants’ advertising capabilities and, in fact, carried out these advertising activities in furtherance of the conspiracy, thereby lending aid and encouragement to illegal gambling Websites. Defendants distribute these advertisements to millions of consumers and to affiliate Websites.”⁸

Factual Support

The factual background of the Complaint alleges that 1) Internet gambling is a pervasive and growing problem, and a) noted various article citing the rise of Internet gambling and its availability to U.S. residents,⁹ b) gambling by minors,¹⁰ c) compulsive gambling,¹¹ d) the potential for fraud,¹² e) the potential for organized crime,¹³ f) the potential for money laundering, and g) examined the effects of advertising for Internet gambling, and noted that “The sheer volume of advertisements for Internet sports books and online casinos is troubling because it misleads the public to believe that such gambling is legal, when in fact, it is not.”¹⁴ 2) Internet gambling is addictive to our youth, and noted articles regarding the addictive threat of Internet gambling, especially to teenagers and college students, studies concerning compulsive gambling and athletic participation. The Complaint makes reference to an article by USA Today, which noted that “Internet gambling is growing in popularity, raising the odds that people – especially the young and women – might become addicted.”¹⁵ 3) Internet gambling preys on seniors, noting that is harder for a senior citizen to recover after a gambling loss. “Older adults are, perhaps, more vulnerable than other age groups given their greater dependence on fixed incomes and more limited ability to recover to secure debt or recover from gambling losses.”¹⁶ The Complaint also alleges that “Internet casinos are preying on our older citizens,”¹⁷ and points the wide range of games now offered online and to an article found on Google entitled: “For Senior Citizens: – Why Gambling On The Internet is Good For You.” 4) Internet gambling deprives local governments of license and tax revenues, and alleges that “Internet gambling also drains tax revenues from properly licensed and regulated California Indian casinos and the California State Lottery tax revenues that would otherwise accrue to state educational facilities, or could be used to cover the costs of dealing with the social ills caused by gambling.”¹⁸ 5) Internet gambling deprives California Indian Tribes of exclusivity and State of California revenues. The Complaint notes the deal that Gov. Arnold Schwarzenegger signed with 5 California Indian tribes that gave them the right to operate an unlimited number of slot machines, and pay 15% of their revenue through various licensing fees and additional fees per machine. The Complaint stated that “Internet gambling websites, their co-conspirators and abettors, illegally take money from California citizens, without paying 15% of their revenues to California.”¹⁹ 6) Internet gambling is illegal under California law. a) California law bans conducting, playing or betting on i) most lotteries; ii) a few specific games such as faro, monte, roulette, lansquenet, rouge et

noire, rondo, tan, fan-tan, seven-and-a-half, twenty-one and hokey-pokey; iii) any banking or percentage game played with cards, dice or any device; and iv) most sports bookmaking bets and wagers.²⁰ b) Aiders and abettors to illegal gambling are guilty of violating California’s gambling prohibitions. c) Co-Conspiring to gambling violates California law. The Complaint states that “where one agrees to and does advertise, promote or otherwise facilitate illegal online

gambling, with the online gambling business, and that advertisement or promotion or encouragement takes place within California, then the agreement amounts to a conspiracy.”²¹

In evaluating the Defendants wrongful conduct, the Complaint claims that the Defendants posted sponsored advertisements in California for unlicensed gambling Websites, in that “Defendants Advertise and deceptively list numerous advertisements for Internet gambling when an Internet searcher types in the phrase ‘legal gambling,’” however, none of the Defendants provided any disclosure that gambling is in fact illegal under California law;²² 2) Defendants

advertising is expressly directed at California locations where gambling is illegal, and noted that “Many Defendants provide localized geo-tracking technologies so that advertisements can be focused on a particular region within a state. For example, Google permits to select regional areas such as the “State of California” or sub-regions in the state.”²³ 3) The Complaint cites specific examples of Defendants wide-scale “illegal” advertising services in California for Internet gambling Websites.²⁴ It also pointed to search results that generated responses on the Defendants’ websites for “illegal gambling,” “Internet gambling,” “California gambling,” and others.²⁵

The Complaint also alleges that the “advertising Defendants, and each of them, conspired in the operation of illegal gambling enterprise by knowingly and purposefully providing advertising in California to the website Defendants to advertise and promote and carry out illegal gambling in California with persons in California. The advertising Defendants knew about the content of the gambling website Defendants’ activities and knowingly conspired to provide advertising to the gambling website Defendants – an illegal act in the State of California.”²⁶

The Complaint makes note of the fact that “Advertising Defendants have for several years advertised illegal Internet gambling in California and have not taken any steps to alleviate the harm caused by this activity. Although two of the advertising Defendants, Yahoo and Google, have suggested intention to withdraw some or all of their illegal Internet advertising, as of the time of the filing of this Complaint this advertising continues.”²⁷ For this reason, Plaintiffs “seek a declaration of this court that the Internet gambling transactions and the Internet

advertisement of gambling websites in California carried on by Defendants, and each of them, are illegal (Penal Code §§230, 321, 322, 330, 337(a) and 337), and constitute illegal unfair business practices under Cal. Bus. & Prof. Code §17200.”²⁸

Novel Theories

All of the above legal theories are untested and novel when applied to online gambling advertising. As has been noted in many of this author’s articles, online gambling advertising is entitled to First Amendment protection as a form of commercial speech, and such protection may affect the viability of one or more of the Plaintiffs’ theories of liability. While the First Amendment will not provide a direct defense to the claims, since the Plaintiffs are not government actors and therefore cannot violate the First Amendment themselves, it may impact the underlying premise that gambling advertising constitutes illegal conduct; a premise which the courts have been hesitant to accept in the past.²⁹

The Plaintiffs also face significant hurdles in their attempt to bring this case as a class action. Class certification is difficult to obtain in any case, and is substantially more challenging where the damages allegedly suffered by each of the individuals making up the purported class vastly differ. Assuming for the moment that the Plaintiffs’ theories of liability are correct, and the court must calculate a damages award for the class, it may be impossible to quantify a ‘standard’ measure of damages for each class member, since each individual California resident may be affected differently by the advertising activities: Some may gamble online in response to the ads; some may become addicted to the services; some may see the ads and ignore them, and some may never see the ads and decide to either gamble or not, independent of their exposure to the ads. While the difference in damages calculations is not an insurmountable hurdle to overcome in class certification, it certainly presents difficulties for the Plaintiffs in this regard.

The Commerce Clause

Although the First Amendment may complicate the legal analysis applicable to this case, the constitutional provision that may be the death knell for this suit is the dormant commerce clause. A number of state laws that attempted to regulate content or transactions on the Internet have been struck down on commerce clause grounds.³⁰ While no case has yet determined the applicability of the commerce clause to online gambling advertising restrictions under state law, a sound argument exists that all such state laws are invalid when applied to Internet transactions and advertisements, which inherently involve interstate commerce. The commerce clause prevents the states from trying to regulate commercial activities occurring outside their own boarders, which is exactly the type of conduct that the Plaintiffs challenge in the subject Complaint. Given the undeveloped state of advertising law as it relates to the dormant commerce clause, it is impossible to predict how this issue might play out in the courts. However, it is a safe bet that one or more of the Defendants will raise it in defense of the claims.

Conclusion

Regardless how this case ends up in the court system, its filing raises broader issues. The Plaintiffs point to the industry’s focus on minors, young adults and the elderly in its marketing activities. Regardless of the truth of these assertions, the points may be well taken. The online gambling industry cannot afford to ignore the public perception that it preys on the defenseless and weak-willed. The claims pertaining to minors are particularly troublesome, and could form the basis for significant private or governmental litigation in the future, if not promptly addressed by the industry as a whole. Gambling is an adult activity. Irrespective of the arguments that might be made pro or con regarding the appropriate age at which one should be allowed to engage in social betting, minors should not be encouraged to gamble given the legal repercussions of doing so; particularly in the United States. Various options exist to verify the age of online users of gambling websites, including one developed by this author. Additional suits like the instant Complaint are inevitable. Often, perception is reality, and if enough complainants claim that gambling advertising is illegal, the average citizen will begin to accept that reality. Therefore, the more the industry can do to focus its advertising on its desired target market, and avoid spillover effect onto minors, problem gamblers, or the weak-willed, the better it will fare in the courts, and in the court of public opinion.

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 Larry@LawrenceWalters.com, through his website: www.GameAttorneys.com, or via AOL Screen Name: “Webattorney.”

Gambling Law Update™

By: Lawrence G. Walters, Esq.

www.GameAttorneys.com

APRIL 2004

WTO RULES AGAINST UNITED STATES ’ GAMBLING PROHIBITIONS

Finding that United States’ cross-border gambling prohibitions on its citizens were in violation of international trade agreements, the World Trade Organization (“WTO”) issued a preliminary ruling in favor of the Caribbean island nation of Antigua and Barbuda. The United States’ efforts to ban online gambling within its borders greatly affected Antigua and Barbuda, resulting in a loss of employment and revenue for the island nation. The WTO ruling, which will not be made public until some time in May, found that the United States was violating its commitments under the General Agreement on Trade in Services by not providing free trade in commercial services, mainly through its prohibition of online gambling transactions. The United States now has two months to appeal the ruling, and has made several anno uncements that it intends to do so. Richard Mills, a spokesperson for the U.S. Trade Representative’s Office in Washington, stated, “We intend to appeal and will argue vigorously that this deeply flawed panel report must be corrected by the appellate body.”¹ The preliminary ruling means that the United States will either have to change its policies for Internet gambling or face trade sanctions pending the outcome of the appeal.

While federal officials will not be losing much sleep over possible WTO sanctions, ignoring the ruling would further increase perceptions that the United States picks and chooses what international agreements it will honor, and may open up the possibility for future proceedings from additional countries that offer online gambling services. The case is a first for

¹ Richard Waddington, Internet Roulette, MSNBC.com at http://msnbc.msn.com/id/4594859 (3/25/04).

the WTO because the ruling involves the Internet, and because the ruling will have a direct impact on a participating count ry’s ability to regulate what it considers “moral vices.”² According to The New York Times, “Several members of Congress said they would rather have an international trade war or withdraw from future rounds of the WTO than have American social policy dictated from abroad.”³ Representative Bob Goodlatte (R-VA) said, “I t’s appalling, it cannot be allowed to stand that another nation can impose its values on the U.S. and make it a trade issue.”⁴ Conversely, the same can also be said for lawmakers who impose their moral values on legislation that affects United States citizens; so where do we draw the line?

In response to the United States’ proposed Internet gambling prohibition, the British Treasury stated, “We have taken the view that online gambling can be properly regulated through the new regulatory body: the Gambling Commission. The U.S. concerns over money laundering, problem gambling, child access and fair gambling can be controlled; but we acknowledge that regulators in the United States have reached different conclusions.”⁵ Britain believes that United States law prohibiting Internet gambling has no jur isdictio n outside the country and argued that the prohibitions apply only where the “operator” accepting bets is located and not where the punter resides.⁶ The possibility of the United States passing legislation that prohibits Internet gambling sparked an excha nge of letters between the British Treasury and United States legislators, which revealed the fundamental disagreement. “The purpose of this legislation is to prohibit U.S. citizens from making Internet wagers, specifically

² Scott Miller, WTO Ruling Said to Open U.S. to Internet Gaming, The Wall Street Journal Europe; 32-2-741-1328 at http://www.quicken.com/investments/news_center/article (3/24/04).

³ Matt Richtel, U.S. Online Gambling Policy Violates Law, WTO Rules, New York Times at

http://www.nytimes.com/2004/03/26/technology/26gamble.html (3/26/04).

⁴ Id.

⁵ John Gilmore, UK and US in Gambling Review Row, Evening Standard at http://www.thisislondon.co.uk/news/businesss/article/timid75830?version=1 (3/17/04).

⁶ Id.

with companies outside the U.S. and close the U.S. market to Internet gambling operators in the United Kingdom,” Congressman John Conyers (D-MI) wrote in a letter to the Treasury. ⁷

LEGAL PROCEEDINGS

Opponents of Internet gambling have been battling it out in court over whether a person is liable for debt acquired with a credit card while gambling at online casinos, as in the case of In re MasterCard International, Inc., Internet Gambling Litigation.⁸ In the original lawsuit, numerous class actions were filed in district courts around the country and were consolidated into two “test” cases. In the Plaintiffs’ suit against MasterCard International, Visa International and several other banks that issue MasterCard and Visa credit cards, (“Defendants”), Plaintiffs attempted to use the Racketeer Influenced and Corrupt Organizations Act (“RICO”) to avoid debts incurred when they used their credit cards to purchase credits or “chips” that were used to gamble at online casinos, and sought to recover injuries sustained from the alleged RICO violations. However, the Court ruled in favor of the Defendants and dismissed Plaintiffs’ additional RICO claims and remaining state law claims. The Court concluded that the Plaintiffs did not allege facts showing a pattern of racketeering activity or the collection of unlawful debt, a RICO enterprise, or participation in the management of the enterprise.⁹ Importantly, the Court held that the Wire Act did not prohibit the Internet gambling at issue in these cases. As for the Plaintiffs’ remaining state law claims, which concerned statutes prohibiting gambling proceed transactions, the Court noted in its dismissal that is had previously determined that the transactions at issue consist of two events: 1) Plaintiffs’ transaction with the credit card

⁷ Id.

⁸ In re MasterCard Intern., Inc., 2004 WL 369729 (Feb. 19, 2004) See also: In re Mastercard International Inc., Internet Gambling Litigation, 132 F.Supp. 468 (E.D.La.2001) In re MasterCard International, Inc. Internet Gambling Litigation, 313 F.3d 257 (5th Cir.2002) affirmed.

⁹ In re MasterCard Intern., Inc., 313 F.3d at 261.

company, whic h ends upon the receipt of credit, and 2) Plaintiffs’ subsequent online gambling.¹⁰ Plaintiffs’ claim failed because the transactions with the financial institutions at issue took place before the gambling occurred.

Lawsuits against casinos by gamblers are now becoming more prevalent throughout the Untied States. In Michigan, two “compulsive gamblers,” who signed up for a voluntary program where they were banned from casinos, have filed lawsuits against three casinos in state court alleging breach of contract since the casinos allowed them to continue gambling and failed to keep them out.¹¹ Michigan, like six other states, provides a program where compulsive gamblers can place their names on a list that enables them to voluntarily ban themselves from casinos and face arrest if they attempt to enter.¹² However, compulsive gamblers are not the only ones to bring lawsuits against casinos for gamblers’ gambling activities. In Snowney v. Harrah’s Entertainment, Inc.,¹³ the Court attempted to evaluate the advertising practices of casinos. In that case, the Plaintiff sought to exercise personal jurisdiction in California over several divisions of Harrah’s, a Nevada-based casino corporation, and their marketing company (“Defendants”). The Court concluded that some of the Defendants did not qualify for the exercise of personal jurisdiction because they did not own or operate the hotels. However, based on advertising in California,¹⁴ an interactive Internet Website,¹⁵ a toll- free number for hotel reservations,¹⁶ and other advertising activities purposefully directed at California residents,¹⁷ the Court held that the remaining Defendants who owned and operated the Nevada hotels had sufficient contacts with California to justify the exercise of personal jurisdiction.

¹⁰ In re MasterCard Intern., Inc., 2004 WL 369729 at 3 (E.D.La.)

¹¹ Wendy Davis, Gambling On Casino Cases, ABA Journal, at 18, April 2004.

¹² Id at 18.

¹³ Snowney v Harrah’s Entertainment, Inc., 2004 WL 440183 (Mar. 11, 2004).

¹⁴ Id. at 4.

¹⁵ Id. at 4.

¹⁶ Id.. at 5.

¹⁷ Id. at 4.

With all this talk of legal proceedings in the gaming industry, it is about time to mention the release of Jay Cohen from the Nellis Federal Prison Camp. Cohen was the only one of twenty-one offshore sports book operators who was indicted for violating the Wire Act to actually face charges in a United States court.¹⁸ Cohen, who plans to seek employment outside

of the Internet gambling industry, is not finished with his battle in the United States court system since his legal team has just been granted the right to appeal the dismissal of his habeas corpus petition. ¹⁹ The recent WTO ruling may also aid Cohen in his quest for vindication since it deals with the issue of cross-border gambling. “I still maintain I ran a legal business in another country,” Cohen said. “I regret that I did not get a fair trial or a fair appeals process. What if I were Chinese and ran a Website in the U.S. that was critical of China, then returned to China and was jailed? Would the U.S. support China on that?”²⁰

THE ADVERTISING ONSLAUGHT

The grey area surrounding advertising practices in the interactive gaming industry has convinced many network executives to reevaluate their advertising policies and discontinue online gambling advertisements, at least for now. Among the broadcasting giants that have already pulled Internet gambling advertisements are Clear Channel Communications, Infinity Broadcasting and the Discovery Networks. And now, amid rumors of federal government pressure, the search engines Google and Yahoo! are following suit. Google and Yahoo! have announced plans to stop taking advertising from gambling- related Websites. Although Google is pulling online gambling ads in all markets, officials with Yahoo! said they will continue to carry advertising on the company’s global sites, which are published in numerous languages and

¹⁸ IGN Staff, Cohen Again Challenges 200 Conviction,

www.igamingnews.com/index.cfm?page=artlisting&tid=4972 (3/25/04).

¹⁹ Id.

²⁰ E. Koch, Gaming Operator Freed From Prison, Las Vegas Sun at www.casinocitytimes.com/news/article.cfm?contentID=141757 (3/23/04).

marketed throughout the world.²¹ While specific legislation prohibiting Internet gambling has yet to pass both the House of Representatives and the Senate, “advertising an illegal activity ought to be illegal itself,”²² federal officials say. Family News In Focus boasted that “a quiet federal campaign against the marketing of illegal Internet gambling sites is under way and apparently having an effect.”²³ The campaign by the federal government was kicked into high gear last June, when Deputy Assistant Attorney General for the Criminal Division of the Justice Department, John G. Malcolm, sent a letter to trade groups representing publishers and broadcasters. The letter warned trade groups that their me mbers may be in violation of federal law by aiding and abetting online casinos through the acceptance of ads. However, all has been quiet since the Department of Justice’s September 2003 issuance of subpoenas, which requested all records pertaining to advertisements by Internet gaming establishments dating back to 1997.

LEGISLATIVE UPDATE

With revenues from Internet gambling bets placed from the United States toping more than $1 billion annually, according to Christiansen Capital Advisors, LLC, the National Collegiate Athletic Association, (“NCAA”), is not only maintaining its stance against wagering, it is even speaking out against casual office pools, which can range from $1 to $5 to enter. According to Bill Saum, Director of Agent and Gambling Activities for the NCAA, “Those individua ls in $1 pools might believe we’re going over the edge, but the fact is, across the U.S., the stakes grow to $10, $50, thousands of dollars, and on Wall Street, it enters into the hundreds

²¹ K. Smith, Yahoo, Google Cut I-Gaming Ads, www.igamingnews.com/index.cfm?page=artlisting&tid=5002 (4/06/04).

²² T. Phillips, Broadcasters Halt Web Gambling Ads, Family News In Focus at

www.family.org/cforum/fnif/news/a0031260.cfm (3/19/04).

²³ Id.

of thousands. It’s difficult to say pools are ‘sort of OK.’ We know, for example, that pools are an entry point for youths into gambling.”²⁴

In Washington, Senator Jon Kyl (R-AZ) continues to remain the leading anti- gambling voice. His latest effort at a prohibition bill, S. 627, passed the Banking Committee last summer. However, previous versions of this Bill have not been aggressively acted on by Congress or have died in committee. Although most industry leaders believe that this Bill has no chance of passing during an election year, the issue may once again rear its ugly head once the WTO ruling is finalized. The Bush Administration’s proposal to withhold prize money from gambling winners who owe child support was left out of the budget resolution recently approved by the Senate committee. Representative Shelley Berkley (D-NV) stated that the measure, which would force casinos to take on enforcement duties, “creates a new bureaucracy to process information and leaves the gaming business and the customer at the mercy of any mistakes or misinformation generated by that new bureaucracy. Should banks check the court records of all customers making deposits or withdrawals? Must car dealers invoke the same requirements against their customers? The answer is no, but approval of the Administration’s proposal will open the door to further costly and unreasonable mandates on our business communities.”²⁵

INTERNATIONAL GAMBLING OUTLOOK

Asian gaming markets continue to proliferate as the popularity of Internet gambling is becoming widespread throughout the region. Operators of online casinos have long viewed Asia as the Promised Land, believing that widespread prohibitions there have created a large demand for their product. Angela Ho, President of the www.DrHo888.com Website and daughter of

²⁴ K. Smith, NCAA Holds Its Stance Against Betting,

http://www.igamingnews.com/index.cfm?page=artlisting&tid=4954 (3/19/04)

²⁵ S. Struglinski, Casino Supporters Block Child Support Collection Measure, Las Vegas Sun at http://rgtonline.com/article.cfm?articleId=47852 (3/12/04).

Asian casino king Dr. Stanley Ho, said that due to rapid market growth her Costa Rica-based site has recently seen an increase in monthly wagering of up to 40 percent by the almost exclusively Asian or Asian-speaking clientele.²⁶ In keeping in line with this trend, the Philippine Amusement and Gaming Corp. (“Pagcor”) is set to launch its first Internet casino.²⁷ The company believes the move will enable them to attract new customers at home and abroad. It is anticipated that Asian nations will constitute a large percentage of the online gambling market as the use of new technologies such as mobile phones and PDA’s for wagering increases.²⁸

Internet gambling is proliferating around the globe into new sectors and providing much needed revenue to its hosting country. In Canada, the Atlantic Lottery Corporation (“ALC ”) announced plans to open an online version of its casino, a move that is already being criticized by some influential anti- gambling advocates.²⁹ ALC’s defense is that millions of gambling dollars are leaving the region through the Internet, and gambling online is only for leisure and not for money. The online casino operator estimates that Atlantic Canadians spend up to $20 million a year on Internet gambling, with most of that money going offshore.³⁰ However,

opponents of the plan are concerned over whether the gambling addict problem will only grow worse. Conversely, in response to the growing concern over “problem gamblers,” the New Zealand government has proposed a “problem gambling strategy. ” The plan is aimed at reducing any adverse effects of gambling by working with communities to increase awareness of harms;

²⁶ M. Brunker, Internet Gambling Makes Waves in Asia, MSNBC.com at http://msnbc.msn.com/id/4311924/ (2/26/04).

²⁷ ABS-CBN News, Pagcor Launches Internet Casino, located at http://www.abs- cbnnews.com/flashnewsstory.aspx?flashOID=15841 (3/20/04).

²⁸ M. Brunker, Internet Gambling Makes Waves in Asia, MSNBC.com at http://msnbc.msn.com/id/4311924/

(2/26/04).

²⁹ Maddy, Atlantic Lottery Proposes Internet Gambling, Online Casino News at http://www.onlinecasinonews.com/ocnv2_1/article/article.asp?id=4897 (3/23/04).

³⁰ Id.

the government plans to fund the effort through a proposed problem gambling levy which would be collected from the gambling sector.³¹

NATIONAL GAMBLING OUTLOOK

Options for legalized gambling are exploding around the United States – from the Internet and multi-state lottery games to riverboats and casinos at tracks dubbed “racinos.” As the legality of Internet gambling remains in constant limbo, more and more states are forging ahead with regulatory measures for other types of gambling, particularly video gambling, racetracks, and state-run lotteries. In Maryland and Pennsylvania, state legislators are attempting to legalize gambling in an effort to stop its citizens from spending money in out-of-state casinos in New Jersey, West Virginia, Delaware and New York. Although such proposals have died in the past, it is believed that since the states are facing an array of financial problems, the proposal is likely to pass.³² In Washington, the state’s House of Representatives passed Senate Bill 6481,

a Bill that will allow the state of offer advanced deposit wagering via the Internet and telephone on horse races.³³ The measure will now add Washington to the growing number of states that offer wagering to its residents through Internet and phone accounts.

Since its airing in April 2003, the Travel Channel’s World Poker Tour has become a hit with viewers and now averages 5 million viewers each week, according to the casino- manageme nt company Lakes Entertainment, making it the Travel Channel’s most-watched series ever. Bravo’s “Celebrity Poker Showdown” is also a major money- maker, with popular celebrity contestant s drawing viewers, many of them college students. The popularity of these

³¹ New Zealand Scoop, Government Proposes Problem Gambling Strategy, located at http://casinocitytimes.com/news/article.cfm?contentID=141769 (3/24/04).

³² J. Dao, Two States Trying to Keep Gambling Money at Home, New York Times at http://www.nytimes.com/2004/03/22/national/22GAMB.html (3/22/04).

³³ Tacoma News Tribune, Washington State Legalizing Online Gambling, located at

www.casinocitytimes.com/news/article.cfm?contentID=141270 (3/01/04).

shows has helped to fuel a card-playing craze around the nation and on many college campuses. Card games such as Texas Hold ‘em and other poker games have become “the thing” to do on campus with buy- in games organized by some colleges and student groups drawing hundreds, offering prizes ranging from money to televisions. In New York, the turnout at Binghamton University’s free poker tournament exceeded expectations, with approximately 260 players. Online poker companies are also looking to target students with tournaments such as the first college competition at CollegePokerChampionships.com, which began free qualifying rounds in January. ³⁴ The new craze is a concern to gambling advocacy groups who worry this will only increase the growing number of problem gamblers. However, for Steve Lipcomb, CEO of the World Poker Tour, there are things worse than college students playing poker. Lipcomb said, “Of all the things you’re confronted with in college, this seems to me to be just about the most benign form of entertainment you’ll find.”³⁵

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 Larry@LawrenceWalters.com, through his website: www.GameAttorneys.com, or via AOL Screen Name: “Webattorney.”

Gambling Law Update™

By: Lawrence G. Walters, Esq.

www.GameAttorneys.com

MARCH 2004

LEGISLATIVE UPDATE

Despite federal restrictions in the United States, the Internet gambling industry is continuing its proliferation around the world, with no end in sight. The National Gambling Impact Study Commission concluded in a recent report that Americans alone wager around $80 to $380 billion dollars with online bookmakers, which is almost one-hundred times the amount wagered legally on professional sports in Nevada.¹ To combat this, Family News In Focus and many other “pro- family” members of Congress have made passage of the Internet Gambling Prohibition Act, S. 627, a top priority. ² The sponsor of S. 627, Senator Jon Kyl (R-AZ), has declared that he will do what he can to prompt a vote on the Bill this year. If the Bill is finally passed, it will have federal bank regulators using their enforcement power to force banks to stop payments to Internet casinos, essentially making illegal most, if not all, forms of payment for online gambling. The companion legislation, H.R. 2143, passed the House of Representatives during the first session of the 108^th Congress, which unlike the Senate Bill, contains a states’ rights provision to regulate or prohibit online wagering within its borders. If the Senate passes S. 627 as well, a joint session would be held to work out the differences between the two Bills.

In spite of these efforts to prohibit gambling, United States politicians have asked the United Kingdom (“UK”) for its views on whether the federal government should prohibit

¹ Koleman Strumpf, Online Gambling Ban Doomed to Fail, Fox News Channel at www.fownews.com/story/0,2933,111025,00.html (02.10.04).

² Amanda Izsak, Pro-Family Successes Likely in Congress, Family News In Focus at

www.family.org/cforum/fnif/commentary/a0030402.cfm (02/05/04).

Americans from online gambling. Recently, Congressman John Conyers (D-Mich.) from the House of Representatives’ Judiciary Committee sent a letter to Chancellor Gordon Brown that asked for his opinion on prohibiting Americans from gambling over the Internet with companies outside of the United States.³ Emphasizing that the UK does not support such a ban, John

Healey, Economic Secretary to the Treasury, in his reply stated, “Online and telephone betting is already well established as a legal activity in this country . . . In going forward we have decided that it is better to regulate and control this activity rather than seek to prohibit it.”⁴ Some analysts in the industry believe this move may signal a change in attitude towards the legalization and regulation of Internet gambling.⁵ Lawmakers in the United States, through their prohibition efforts, may be on the verge of realizing the loss of potential tax revenue to offshore

and foreign jurisdictions.

NATIONAL GAMBLING R EGULATION OUTLOOK

The question of whether Internet gambling will be prohibited is, as of now, a gray area in the United States, where companies are shying away from the idea in hopes of staying out of the reach of the Department of Justice (“DOJ”). MasterCard International recently issued a bulletin to its member financial institutions emphasizing the necessity of compliance with all MasterCard standards to prevent the use of its system for illegal activities.⁶ MasterCard general counsel Noah Hanft stated, “Transactions that present heightened risks of potentially illegal activity include Internet payments for transactions involving gambling, pornography, and prescription

³ Alistair Osborne, US Approaches Brown on Internet Bets Prohibition, located at www.money.telegraph.co.uk/money/main.jhtml?xml=/money/2004/02/09/cnbet09.xml&menuId=242&ssheet=mone y/2004/02/09/ ixfrontcity.html (02/09/04).

⁴ Id.

⁵ Id.

⁶ Business Wire, MasterCard Reinforces Need For Compliance With Rules Prohibiting Use Of MasterCard Systems For Any Illegal Activity, Business Wire at http://home.businesswire.com/portal/site/google/index.jsp?ndmViewId=news_view&newsId=20040212005581&ne wsLang=en (02/12/04).

medications,” (emphasis added).⁷ The bulletin also noted that a member that fails to comply with its standards may be suspended or terminated and required to absorb the cost of any illegal transactions. The key standards outlined by MasterCard in a press release prompts its members to practice due diligence, placing the burden on its members to ensure that the business is not illegal, that the transactions are properly identified, and that they comply with all applicable laws.⁸ MasterCard said in its release that it is working closely with law enforcement officials in efforts to combat illegal activity. It acknowledged that it is working with a variety of federal and

state agencies including the Drug Enforcement Administration, the United States Secret Service, the DOJ and the Federal Bureau of Investigation. ⁹

Visa has also issued ne w procedural rules to its clients as well. Visa has instituted a new procedure for adding new sites to client portfolios. Effective immediately, IPSP’s are required to submit all new domains requesting credit card processing to Visa for approval. No longer

promising the same day set up for new URL’s, Visa expects this new registration process to be fairly expedient and believes that site approvals should only require two business days.¹⁰ By closely monitoring the transactions that are taking place, credit card companies are making an attempt to ensure that businesses that utilize their services are not involved with Internet

gambling.

GAMBLING AROUND THE STATES

While the current status of Internet gambling in the United States remains a question for now, some states have taken up the task of attempting to regulate this activity. The Missouri

⁷ Id.

⁸ Id.

⁹ Kevin Smith, MasterCard Tells Merchants To Halt Illegal Activity, Igamingnews.com at http://www.igamingnews.com/index.cfm?page=artlisting&tid=4878 (02/13/04).

¹⁰ Rand at EPOCH, Director of Corporate Communications, Epoch Transactions Services, New IPSP Rule From

Visa Effective Immediately, EPOCH News (02/13/04).

Gambling Commission sought to cancel Nevada-based slot machine manufacturer, Sierra Design Group’s state license because a subsidiary, Arcade Planet, Inc., allegedly offered Internet gambling in violation of state law. According to court documents filed by the Commission, Arcade Planet had more than 500 registered customers from Missouri and was offering illegal gambling to its residents.¹¹ The dispute arose out of Arcade’s pay-to-play games that had been offered at www.prizegames.com, which included solitaire and math-based puzzles.¹² Sierra maintained that the games offered on the site were skill-based, while the commission argued that they were games of chance. Arcade Planet has completely shut down its Website, which was enough to please the Gaming Commission, who is no longer pursuing the cancellation of Sierra’s license.¹³

Conversely, other states are looking to prohibit online gambling within their borders. New Jersey legislators have recently taken steps to combat online gambling as well. Senate Bill 2376 would make Internet gambling by anyone in New Jersey illegal, regardless of where the other individual in the transaction is located.¹⁴ The bill would also void credit card debt incurred while gambling online and allow only the state to recover remote gambling losses.¹⁵ However, a bill was also sponsored by Assemblyman Anthony Impreveduto, which would allow licensed casinos in Atlantic City to run gambling sites on the Internet.¹⁶ Impreveduto, who said the bill was drafted to protect children and help compulsive gamblers, believes the bill could help enable

¹¹ Rick Alm, Internet Gambling Violation Disputed, KansasCity.com at www.kansascity.com/mld/kansascity/business/7859115.htm(02/03/04). ¹² Id.

¹³ Liz Benston, Sierra Design Shuts Down Website, Casino City Times at www.casinocitytimes.com/news/article.cfm?contentID=140939 (02/20/04).

¹⁴ Kevin Smith, New Jersey Senate Revisits I-Gaming Policy, Igamingnews.com at

http://www.igamingnews.com/index.cfm?page=artlisting&tid=4895 (02/20/04).

¹⁵ Id.

¹⁶ Meredith D’Agnolo, N.J. Legislators Catching Up With High-Tech Criminals, PressofAtlanticCity.com at www.pressofatlanticcity.com/news/newjersey/020804CATCHUP.html (02/08/04).

the closure of offshore sites if more people decided to use the licensed, regulated sites.¹⁷ Additionally, the bill would tax online gambling, which would fund, among other things, groups that aid compulsive gamblers.

GAMBLING IN THE CARIBBEAN

Until recently, companies have been able to set up gambling operations offshore and take wagers with little or no worry about the federal regulations in the United States. However, the DOJ issued a letter to the United States Virgin Islands’ justice department on January 2, 2004, which informed them that operating Internet gambling services in the territory violates federal laws and the Federal Wire Act of 1961. Chair of the United States Virgin Islands Casino Control Commission, Judge Eileen Peterson, received a letter from United States Attorney for the District of the Virgin Islands, David Nissman, which warned that the Criminal Division of the United States Department of Justice in Washington “believes that federal law prohibits all forms of Internet gambling.”¹⁸ The letter further stated that the Department of Justice does not agree with the decision in In re MasterCard, 313 F.3d 257 (5th Cir. 2002), and that Section 1084 of Title 18, United States Code is not applicable to casino-style wagering. Section 1084(a) deals with the transmission of wagering information and penalties, and states in part “Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title

¹⁷ Id.

¹⁸ Bradley Vallerius, Federal Justice Department Advises US Virgin Islands Not to Host I-Gaming Services,

Igamingnews.com at www.igamingnews.com/index.cfm?page=artlisting&tid=4856 (02/05/04).

or imprisoned not more than two years, or both.”¹⁹ The letter also added that Section 2 of Title 18, United States Code, imposes criminal liability on those individuals or entities that aid, abet, counsel, command, induce or procure the commission of an offense against the Untied States,²⁰ which provides insight as to the distance the DOJ may be willing to go in its prosecution of online gambling-related activities. Despite the disapproval from the DOJ, gaming regulators in the Virgin Islands plan to move forward with initiatives for Internet gaming, but whether or not operators are still willing to relocate to the jurisdiction now remains to be seen.

However, as the United States Virgin Islands move towards regulating Internet gambling, the federal government is arguing before the World Trade Organization (“WTO”) in a fierce battle with Antigua and Barbuda, who has challenged the United States’ efforts to prohibit Americans from using credit cards to pay for Internet gambling. Antigua and Barbuda have taken the United States before the WTO, claiming its prohibitions on gambling are discriminatory and violate current trade agreements that require the United States to permit

foreign Internet companies to offer their services to Americans.²¹ Standing behind Antigua and

Barbuda in support of this action are the European Union, Canada and Japan. ²² The island nation complained to the WTO that the United States’ prohibition has had a negative effect on the country and is seriously damaging its economy. A WTO ruling is expected soon to decide

whether Internet services must be treated the same way as their traditional land-based counterparts,²³ will clarify whether a company from a foreign jurisdiction offering Internet services will enjoy the same trade privileges as its traditional land-based counterpart.

¹⁹ 18 U.S.C. § 1084 accessed at http://www.fbi.gov/hq/cid/orgcrime/statutes/1084.htm(02/25/04).

²⁰ Letter from David Nissman, United States Attorney Dis trict of the Virgin Islands, to Judge Eileen Peterson, Chair of the Casino Control Commission, (01/02/04).

²¹ Out-Law.com, Gambling On-Line: US Breaking International Law?, Out-Law.com at www.out- law.com/php/page.php?page_id=gamblingonlineus1075721021&area=news (02/02/04).

²² Id.

²³ Id.

INTERNATIONAL GAMBLING UPDATE

British policy makers at the Department for Culture, Media and Sport published new cla uses of the draft “Gambling Bill” for the UK. Although none of the new measures pertain directly to Internet gambling, the provisions include powers to freeze suspicious bets pending an investigation and to void unfair bets. Also included are provisions regarding gambling machines and licenses allowed for pubs and clubs. The draft bill seeks to balance protection for children and vulnerable adults with the needs of the gambling industry, particularly in light of the growth of the Internet.²⁴ The bill is currently under consideration by a Parliamentary Joint Scrutiny Committee, who is due to report back to Parliament on the draft no later than April 8, 2004. Then the government will consider the Committee’s report and place the draft bill before Parliament.²⁵ Also heading for a change is MGM Mirage, who has once again set its sights on the UK.

MGM, who currently owns and operates 12 casino resorts in Nevada, Mississippi, Michigan and Australia, announced that it will build a hotel-casino next to one of the largest retail centers in the UK. The completion of the project hinders upon gambling laws potentially being changed, ending rules that limit slot machine payoffs and restrict casino gambling to members who follow a dress code, and building permits being issued.²⁶ Industry observers say the UK could pass new gambling legislation by late 2004 or early 2005.²⁷ Las Vegas-based MGM Mirage would operate the casinos.

²⁴ Out-Law.com, Final Clauses of Draft Gambling Bill Published, Out-Law.com at www.out- law.com/php/page.php?page_id=finalclausesofdra1076067340&area=news (02/06/04); a copy of the proposed bill can be viewed at http://www.culture.gov.uk/NR/rdonlyres/ekiz3j7nkibhrgwkznu7ciqidr6sfutxetawsljw2pcmfc5ywuuobssbyyjccnjie5c sphoomdvzdyajeyipp3kpwqg/clauses70billdraft020204.pdf.

²⁵ Id.

²⁶ Las Vegas Sun, LV Resort Operator in UK Deal, Las Vegas Sun at www.lasvegassun.com/sunbin/stories/gaming/2004/feb/03/516288122.html (02/03/04). ²⁷ Associated Press, MGM Mirage Plans to Build Casino in UK, AP at

http://abcnews.go.com/wire/business/ap20040203_1959.html (02/03/04).

Likewise, United States casino giant Harrah’s is also set to launch its first gambling site in the UK. However, this site is targeting 35 to 48 year-old women as its main demographic. The games will be skill based, rather than casino-style games, with users paying a monthly subscription fee for unlimited access to the site. Its new site will go by the name LuckyMe, with advertising planned on Yahoo!, MSN, and offline in women’s magazines and shopping centers.²⁸ Canada may not be far behind the UK when it comes to proposing regulations surrounding Internet gambling. As a result of regulatory changes made by the Canadian Pari- Mutuel Agency last year that allow Internet wagers on horse racing, Woodbrine Entertainment Group became the first to offer legal Internet gambling in Canada when it launched www.HPIBET.com, a Website that allows wagering on horse races. Now the question being asked is whether government-run Internet casinos are next for Canada? “The entire gambling and gaming industry in Canada is government run or quasi- government run,” said David Canton,

a technology lawyer.²⁹ According to Canton, the next logical step would be government-run web casinos.³⁰ Currently, given the uncertain legal status of Internet gambling in the United States, and the fact that regulatory issues that would govern Internet ga mbling in Canada like tax collection and law enforcement are not yet in place, it is unlikely that the Canadian government

will approve widespread Internet gambling in the near future.

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 Larry@LawrenceWalters.com, through his website: www.GameAttorneys.com, or via AOL Screen Name: “Webattorney.”

²⁸ Paul, Harrah’s To Launch Women’s Gambling Site From UK, Online Casino News at www.onlinecasinonews.com/ocnv2_1/article/article.asp?id=4799.

²⁹ Anthony Corban, More Internet Gambling Sites To Come?, Standardbred Canada at

www.harnesslink.com/www/Article.cgi?ID=8785 (01/21/04).

³⁰ Id.

Gambling Law Update™

By: Lawrence G. Walters, Esq.

www.GameAttorneys.com

JANUARY 2004

2004 LEGISLATIVE UPDATE

While wagering over the Internet on horseracing across state lines has been legalized in 17 states, the United States Congress is still undecided as to whether additional forms of casino- style gaming should be prohibited. Senator Jon Kyl (R-Ariz.) continues to remain the leading anti-gambling voice in Washington. His latest effort at a prohibition bill, S. 627, passed the Banking Committee last summer, and a full Senate vote is expected early in the 2004 session.¹ If the bill is finally passed, it will have bank regulators using their enforcement power to force banks to stop payments from going to Internet casinos, essentially making illegal most, if not all, forms of payment for gambling online. The companion legislation, H.R. 2143, has passed the House of Representatives, so the squabbling is headed for an end no matter what.

Now, with revenues from Internet Gambling bets placed from the United States toping more than $1 billion annually, according to Christiansen Capital Advisors, LLC, the online gambling industry is globally expanding. However, United States casino gaming companies may be left behind due to the possible effects of these proposed regulatory measures. A panel of legal and legislative experts assembled this past month for the National Council of Legislators and Gaming States meeting in Las Vegas to address such issues. Frank Catania, a former New Jersey state legislator and gaming regulator, now represents the Interactive Gaming Council, an international not-for-profit trade association for the online gambling industry. In his address to

¹ Mike Fish, Legality of Online Gambling Remains Big Question Mark, SI.com www.sportsillustrated.cnn.com/2003/writes/mike_fish/12/26/internet.gambling (12.26.03)

the meeting’s estimated 100 attendees, including 25 legislators from gaming states, he stated that Congress, in its most recent attempt to prohibit the processing of financial instruments for the purpose of Internet wagering, stalled last summer over whether state-licensed entities would be exempted from the legislation. At issue, explained Keith Kizer, a former advisor to the Nevada Gaming Commission (“NGC”) now representing the state’s Attorney General’s Office, is whether the federal Wire Act of 1961 prohibits Internet gambling. He said the United States

Department of Justice believes it does, and as a result, a bill enabling the NGC to adopt regulations governing Internet gaming in the state cannot move ahead.² According to Kenneth Kirchner, a representative of the National Thoroughbred Racing Association, the $18 billion-a- year pari-mutuel industry was exempted from the Wire Act by the 1978 Interstate Horseracing Act, which was amended as it pertains to the Internet in 2000. That gives states the right to enact legislation allowing Internet or phone betting.³ “It makes more sense to develop a strict regulatory structure in the U.S. and let our gaming companies lead the world and individual states preserve and protect revenues,” Catania argued. “The United Kingdom is now preparing to revamp its gaming laws, by 2005, (it) would bring all gaming, including sports betting, under one regulatory agency and include licensing and regulating Internet gaming. U.K. gaming

officials have publicly stated they would not preclude their licensees from taking bets from the U.S,” he warned. ⁴ The question now is whether the casino industry will be allowed to follow suit before foreign competition takes control.

² Jack Shinar, Panel Wrestles with Internet Regulatory Issues, http://news.bloodhorse.com/viewstory.asp?id=19970 (01.11.04)

³ Id.

⁴ Id.

ADVERTISING ONSLAUGHT

The complex issue of gambling over the Internet in the United States continues to remain a complicated legal matter for many involved in the online gambling industry. Coupled with the recent attention given to gambling issues in the media, particularly the steady rise of the World Poker Tour’s television series ratings on The Travel Channel, many in and out of the industry are questioning the legality of gambling advertising. The Travel Channel’s World Poker Tour (“WPT”) has been a hit with viewers. Since airing in April 2003, it now averages 5 million viewers each week, according to the casino-management company Lakes Entertainment. That makes it The Travel Channel’s most-watched series ever. Even as the tour’s first season is being shown for the third time, the numbers just keep on growing. Bravo’s “Celebrity Poker Showdown” is also a major money maker for that channel, with popular contestants like Ben Affleck and Matt Damon drawing viewers. And soon to be launched, according to

an announcement late last year: The Casino and Gaming Television cable network, devoted entirely to gambling.⁵ The ratings boost is a gold mine for networks such as The Travel Channel, which was supported by numerous commercials for Internet casinos and poker sites during the inaugural season in which the WPT quickly became its highest rated show.

However, an ongoing federal grand jury investigation into the advertising practices of the online gaming industry convinced many network executives to reevaluate their advertising policies and discontinue the online gambling advertisements, at least for now. A spokesman for The Travel Channel confirmed to I-Gaming News that the network has stopped accepting advertising from online casinos in conjunction with its telecasts of the WPT, but the policy could

⁵ Catherine Donaldson-Evans, Vegas Baby: TV Bets on Gambling, Fox News at www.foxnews.com/story/0,2933,108056,00.html (01.12.04).

be lifted.⁶ David Leavy, a spokesman for The Travel Channel’s parent company Discovery Communications, said the decision was made solely by The Travel Channel and did not reflect input from WPT officials.⁷ The decision could affect one of the WPT’s biggest events, the PartyPoker.com Million II tournament, sponsored by PartyPoker.com, which took place on a

cruise ship last year. The winner of the event took home $1 million, one of the highest prizes on the entire WPT. The PartyPoker.com Million III is scheduled for March during a cruise to the Mexican Riviera and again is slated to be part of the WPT schedule. Leavy said network officials will study the issue. All has been quiet since the Department of Justice’s September 2003, issuance of subpoenas, which requested all records pertaining to advertisements by Internet gaming establishments dating back to 1997, along with warning letters to all major radio broadcasting networks, suggesting they could be in violation of the law by accepting Internet gambling ads. Despite federal restrictions, Internet gambling became a $6.3 billion industry last year, with $1 billion of that coming from the United States through mainly sports wagering, and is projected to reach $7.6 billion this year, according to Christiansen Capital Advisors, LLC.

GAMBLING AROUND THE STATES

A Congressional report estimates that 50-70 percent of Internet wagering comes from the United States despite the fact that no state permits Internet gambling and only one state, Nevada, permits general sports betting at all.⁸ However, since the legality of Internet gambling remains in constant limbo, more and more states are forging ahead with regulatory measures for other types of gambling, particularly video gambling, racetracks, and state run lotteries. Options for legalized gambling have exploded around the country – from the Internet and multi-state lottery

⁶ Kevin Smith, WPT Starts Season 2 with No I-Gaming Ads, IGamingnews.com at http://www.igamingnews.com/index.cfm?page=artlisting&tid=4735 (12.12.03).

⁷ Id.

⁸ L.A. Lorek, Web-site Gambling Advertising Targeted, San Antonio Express-News at http://news.mysanantonio.com/story.cfm?xla=saen&xlb=110&xlc=1110871 (01.09.04).

games to riverboats and casinos at tracks dubbed “racinos.” Republican leaders of the Alaska State House are pushing ahead on video poker and state lottery, and even more changes could be coming to the gambling scenes in Indiana, Kentucky and Ohio, who all have proposed casino and racino expansion. Lawmakers in the three states are debating proposals and legislation that would either introduce or expand casino gambling operations.⁹

This year’s recent surge in gambling activities has prompted at least one state to issue

warnings to its residents. The Montana State Department of Justice is warning its residents not to become Internet gambling entrepreneurs because doing so is illegal. The warning was prompted when they learned a company is offering Montanans the chance to set up gambling sites as well. An advertisement recently published in a Montana paper, The Billings Gazette, encouraged people to operate their own online casino, said Gene Huntington, Montana’s Gambling Control Division Administrator. The ad says the company, Sirbet.com, will help

interested parties set up a site for online sports betting and games of chance for less than $499, after which the operators can make $5,000 to $10,000 a week as their share of the profits.¹⁰ The Web site says Sirbet.com is licensed and operates from the island of Curacao in Netherlands Antilles in the Caribbean. The website’s disclaimer encourages interested people to check the laws in their area before participating.

Additionally, deadbeat parents who gamble at riverboats and racetracks would have to give their children a cut of their winnings under a bill being considered by the Indiana State Senate. The bill, sponsored by Republican Senator Richard Bray, chairman of the state’s Senate Judiciary Committee, would garnish the winnings of gamblers who owe child support. Casinos,

⁹ Patrick Crowley, State Face Big Decisions on Gaming’s Big Money, The Enquirer at http://www.enquirer.com/editions/2004/01/11/loc_gamblenext11.html (01.11.04).

¹⁰ Associated Press, State Warns Residents Against ‘Net Gambling, Las Vegas Sun at http://www.lasvegassun.com/sunbin/stories/sun/2003/dec/10/515998571.html?internet%20gambling (12.10.03)

betting parlors and racetracks would be required to check the name of any person who wins more than $2,000 against the Federal Parent Locator Service, a database used by the IRS, state lotteries and other government agencies to keep track of parents who owe child support. The money the parents owe would be deducted from their winnings and sent to child support agencies. The winner would get whatever was left. Bray’s bill, Senate Bill 143, was modeled after a national system proposed by President Bush. That program is part of a welfare reform bill awaiting action

by the United States Senate.¹¹ However, casino operators say the new program raises privacy

issues and could prove difficult to implement.

Kevin Mullally, executive director of the Missouri Gaming Commission, said that new research in Canada shows that problem gamblers signing a permanent blanket ban from casinos may not suit all problem gamblers. Some can learn to manage their disorder after being banned for a shorter period. Mullally recently told the Legislature’s Joint Committee on Gaming and Wagering, that he is drafting “a menu of options” that would let a gambler choose a certain number of years or a lifetime ban. He said he hopes to have a proposal ready for consideration by

Missouri’s Gaming Commission this spring.¹²

GAMBLING IN THE UK

Critics of the United Kingdom’s (“UK”) Government, who plan to relax the gambling laws, are due to give evidence to Parliament about the draft Gambling Bill. Proposals included in the Bill allow Internet casinos to be based in the UK for the first time, and update other aspects of remote gambling. The measures have been welcomed by the online gaming industry in the UK, who will be eager to see that they are not watered down and no new restrictions are

¹¹ Lottery Post, Indiana Bill Targets Deadbeat Parent’s Winnings, at www.lotterypost.com/threads79400.htm (01.09.04)

¹² The St. Louis Post-Dispatch, Missouri Commission Proposes Changes to Lifetime Ban, RGTOnline.com at

http://rgtonline.com/Article.cfm?ArticleId=46577&CategoryName=Headline&SubCategoryName=News (01.07.04)

imposed as the Bill goes through Parliament. The Committee is due to report on the draft bill to both Houses by April 8, 2004, making recommendations to which the Government will have to respond.¹³ Meanwhile, the Royal College says the Government has been badly advised and increasing gambling opportunities “inevitably leads to an increase in the number of those who gamble to such a degree that damage results.”¹⁴

New regulations in the United Kingdom, to prohibit children who buy the latest mobile phones with Internet access from accessing pornography and gambling, are also being adopted by the area’s six largest mobile phone operators. The new regulations, agreed to by Orange, O2, T-Mobile, Virgin, Vodaphone, and 3, will stop children from entering chatrooms, porn sites and gambling services. The regulations came after increased pressure from child protection organizations to in an attempt to halt Internet pedophilia. The regulations will ensure that companies require a customer to be over the age of 18 before purchasing a mobile phone with

unlimited Internet access. The regulations will come into force later this year. ¹⁵

INTERNATIONAL GAMBLING UPDATE

The question of whether or not to legalize gambling has been a hot topic in many foreign countries lately, and it appears that trend will continue this year. The Caribbean island nation of Antigua and Barbuda have 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. Accordingly, in December, a WTO dispute panel began hearing arguments in the case. In his opening statement, Antigua and Barbuda’s Chief Foreign Affairs Representative Sir Ronald Sanders called the United States’ Internet gaming policies “simply protectionism.”

¹³ Dominic Dudley, Gambling Bill Critics to Argue Case to Parliament, New Media Age at www.nma.co.uk/nma/story.asp?id=245683 (01.13.04)

¹⁴ Id.

¹⁵ David Batty, and Justin McCurry in Tokyo, Children to Be Shielded From Abuse Via Mobiles, The Guardian at www.guardian.co.uk/uk_news/story/0,3604,1120770,00.html (01.12.04)

Sanders charged America with breaking its obligations under the General Agreement on Trade in Services (“GATS”).¹⁶ He said, “Although the United States has advanced a number of disjointed defenses against our claims in this matter, the reality is that the United States is denying licensed and regulated Antiguan service suppliers access to the massive American gambling markets in violation of its commitments under the GATS.” A final ruling is expected early in 2004.

The question of whether to legalize gambling has been a hot topic in Thailand, where illegal casinos operate rampantly, and most agree that the issue must be dealt with. However, the government is still studying the pros and cons of such a move. In Thailand, apart from the lottery run by the government, all other forms of gambling are illegal. Many analysts feel the government should just legalize the gambling industry in order to keep money from flowing out of the country and losing out on valuable tax dollars. Others worry that the social ramifications would be too severe. A recent poll suggests that Bangkok residents remain divided on the

legalization of gambling. Many say thorough, independent studies still need to be conducted.¹⁷

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 Larry@LawrenceWalters.com, through his website: www.GameAttorneys.com, or via AOL Screen Name: “Webattorney.”

¹⁶ Interactive Gaming News, Antigua Delivers Oral Argument to WTO Dispute Panel,

www.igamingnews.com/index.cfm?page=artlisting&tid=4733 (01.13.04)

¹⁷ Sarosha Pornudomsak, Thai Government Mulls Decision on Legalizing Gambling as Debate Rages, Channel NewsAsia’s Indochina at http://www.channelnewsasia.com/stories/southeastasia/view/65499/1html (01.09.04)