Gambling Law Update

Lawrence G. Walters, Esq.

www.GameAttorneys.com

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 107^th 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 i2corp.com, which is a small, financially strapped company formerly based in Las Vegas, against DrHo.com, considered one of the largest operators of a live gambling site on the Internet³. Home Gambling Network, a subsidiary of i2corp.com, 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. Poker.com 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? Poker.com 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. Poker.com Inc. will acquire ownership of all materials in relation to the games of Skill Poker and Skill Blackjack, in addition to the domain names SkillPoker.com, SkillBlackjack.com, SkillOmaha.com, SkillHoldem.com and SkillStud.com¹². Once developed, Poker.com 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 Larry@LawrenceWalters.com, through his website: www.GameAttorneys.com, or via AOL Screen Name: “Webattorney.”

Gambling Law Update

January, 2003

By: Lawrence G. Walters, Esq.

www.GameAttorneys.com

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 (www.f1jordan.com)³. 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 Larry@LawrenceWalters.com, through his website: www.GameAttorneys.com, or via AOL Screen Name: “Webattorney.”

 

Gambling Law Update

December, 2002

By: Lawrence G. Walters, Esq.

www.GameAttorneys.com

Victory for Internet Gambling

This past month marked a key legal victory for the Internet gambling community. A federal appeals court in Louisiana upheld an earlier dismissal of a class-action lawsuit brought forth by credit card holders who have lost money gambling in Internet casinos. A three judge panel of the 5^th Circuit Court of Appeals in New Orleans upheld the dismissal saying that the credit card holders, who brought suit against the credit card companies and issuing banks alleging they violated the Racketeer Influenced and Corrupt Organization Act (RICO) by providing credit which the card holders used to gamble at internet casinos, failed to establish an unlawful act based on federal mail or wire fraud statutes. The court further went on to say that the credit card companies could not have fraudulently represented the card holder’s related debt as legal, because it was¹. Gambling supporters hope that this case helps to further their efforts to legalize Internet wagering nationwide. This ruling may leave open the possibility of legalizing non-sports internet betting in states that approve, such as traditional casino-style games of chance². But this decision may also trigger a backlash by anti-gambling forces intent on banning internet gambling in Congress.

Introduction of a New I-Gaming Bill

Congressman John Conyers, Jr., D-Mich., introduced legislation this past month to create a commission that would recommend ways federal and state governments might regulate internet gambling. The proposed bill, HR 5760, is aimed primarily at preventing underage gambling and gambling by problematic gamblers. The bill was introduced on the last day of congress and will more than likely be reintroduced at the start of the 108^th term, early next year. There was no indication from the Congressman that he personally had any particular recommendations to make at this time as to how internet gambling by minors and problematic gamblers would be prevented³. The makeup of the commission will largely dictate the direction it will take.

California Looks to Outlaw Internet Gambling

AB 1229, a bill to outlaw Internet gambling and make it a crime for a citizen of the state to gamble on the Internet, was passed by a vote of 61-2 by the California Assembly. The bill provides stiff penalties and jail terms for gambling site operators who direct their marketing to Californians. In addition to penalties, the bill also provides that anyone “aiding or abetting”

Internet gambling is guilty of a crime. This implies that anyone suggesting or promoting gambling on the Internet is subject to criminal prosecution!⁴ The measure still has to be passed by the California Senate and must be signed by Governor Davis before it becomes law.

Online Gambling Halted as Future Looms

One of the most aggressive advocates of Internet gambling, Las Vegas neighborhood casino operator Station Casinos Inc., has put its online wagering initiatives on hold due their uncertain legal status. The initiatives were undertaken to develop live casino games customers could play from televisions in their hotel rooms or from wireless devices and home computers. Instead of betting on software simulations, players would see actual images of video poker machines and other games⁵. This year a letter that addressed to Nevada regulators from the U.S. Department of Justice stated that Internet gambling over interstate telephone lines is illegal under federal law. That interpretation of the Wire Act of 1961, enacted to stop illegal sports betting, has nearly killed efforts by major casino companies and technology entrepreneurs to launch Internet gambling sites in the U.S. experts say⁶.

Leach Bill Fails to Pass in Senate

The “Leach Bill”-H.R. 556, which would have outlawed payments to Internet Casinos in hopes of choking offshore gambling sites who draw billions of dollars from U.S. based customers, has failed to pass in the Senate. The Senate reconvened briefly in November, and despite urging from the White House to schedule a vote on a version of the anti- Internet gambling bill recently passed in the House of Representatives, the measure never made it to the Senate floor.

Sports Betting Ban Efforts to be Resumed

Senator John McCain, R-Ariz., stated this past month that he will once again resume efforts next year to prohibit Nevada sports books from taking bets on amateur athletic events. Since the betting ban legislation did not pass this session of Congress, McCain will have to start over next year. But this time he has a considerable advantage. With the Republicans winning control over the Senate, he will be in a greater position to push the ban. He will also regain the chairmanship of the Senate Commerce Committee, which has jurisdiction over the proposed legislation⁷.

Florida Looks to Consider Gambling

Florida’s Governor Jeb Bush and Republican leaders have struggled with a tight budget before, but new approved spending on proposed issues have left Republican’s contemplating new means of funding. One possible alternative method that has left the Legislature divided is an expansion of legalized gambling. The state’s existing pari-mutuel industry is suffering as gamblers go to offshore boats, Indian casinos and the internet⁸. An expansion of legalized gambling could help to boost Florida’s economy while providing the funds for some much needed programs. Senate President Jim King, R-Jacksonville, who was not available for comment, has said new taxes and expanded gambling must be considered as the state faces a staggering financial crunch⁹.

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

Introduction

This is the first legal update from GameAttorneys.com, relating to the legal issues concerning the online gaming industry. We hope that participants in this industry find the information contained in these Updates helpful, given the often confusing and contradictory legal climate in this arena. Since 1997, the author has been publishing a monthly legal update for the adult Internet industry. We are now proud to launch this first Online Gambling Law Update, as a service to the virtual gaming community. Gaming Resources seeking to republish this Update are encouraged to contact the author.

Leach Bill Fails to Pass in Senate

The “Leach Bill”-H.R. 556, which would have outlawed payments to Internet Casinos in hopes of choking offshore gambling sites who draw billions of dollars from U.S. based customers, has failed to pass in the Senate. Many in the industry feared that after the damning GAO report tying the online gambling industry to money laundering activities, this bill would be pushed through on a fast track. The Senate recessed on October 17, and will reconvene briefly in November, but presently, has no plans to consider this bill.¹ Aside from an unforeseen move by Leach to attach the language of this bill to a larger piece of legislation, this is the last we are likely to see of HR 556 this year.

Citigroup Joins Fight Against Online Gambling

Citibank, the nation’s largest credit card issuer has agreed to block online gambling transactions with its credit cards. This is the latest move by a card issuer to jump on the anti-gambling band wagon following the progression over the years by Bank of America, Chase Manhattan, Direct Merchants Bank, Fleet, and MBNA to block such transactions. Citibank was commended by the Attorney General for its role in avoiding the harmful effects of gambling, and called on all payment systems and credit card issuers to follow the lead of these banks. The move by Citibank is greatly expected to significantly reduce the availability of Internet gambling to the average credit card consumer. In addition to imposing blocking mechanisms that will reject transactions coded as gambling, Citibank has agreed to pay $400,000 to groups that combat compulsive gambling and aid gamblers affected, and an additional $100,000 to the state of New York.² Some industry insiders wondered privately if Citibank reacted out of fear of criminal prosecution for facilitating online gambling transactions.

Land Casinos Venture into Internet Gambling

Some of the largest names in the casino industry in the U.S. are taking a closer look at internet gambling. U.S. hotel and gaming giant MGM mirage tossed its hat into the Internet gambling ring this month with the launch of its online casino playmgmmirage.com. The company will run its site out of the Isle of Man, where it acquired its online gaming license last year. Its services however will not be open to U.S. based gamers. The company stated: “The site is open to all participants within jurisdictions where wagering for cash online is legal and regulated.”³ MGM is also seeking a Thai partner to set up casinos in the Southeast Asian nation, Prime Minister Thaksin Shinawatra’s office said in a statement. MGM’s interest may stem from a statement by the prime minister in August supporting a move to legalize casinos.⁴ The Prime minister believes that the casinos will help to boost the country’s deprived economy. The emergence of MGM into the internet gambling arena further indicates an unwillingness of U.S. casino companies to sit on the sidelines while and increasing number of people worldwide fuel the gaming industry’s billion dollar market.

Florida Officials Arrest Men for Internet Gambling Operations

Four men were arrested by Florida law enforcement officials outside Raymond James Stadium in Tampa, for allegedly violating Florida’s gambling laws. The men worked for a promotions company hired by BetonSports.com, which accepted bets through a mobile home, parked outside the Stadium. David Carruthers, owner of BetonSports.com, claimed that U.S. Free Speech principals allow him to promote his gambling business in this country. Law enforcement officials disagreed, noting that part of the betting transaction occurred within the State of Florida.  This case sets the stage for an important legal battle over the legality of online betting in the United States.⁵

Fighter’s Tattoo Prompts Suit

Boxer Ben Tackie, in a match against Kostya Tszyu in May, was allegedly seen wearing a temporary tattoo bearing the name and logo of wallstreet.com – an internet casino and virtual sports book. The tattoo has prompted a suit by Mandalay Bay casino resort in Las Vegas against Henderson boxing promoter Millennium Events Inc., alleging it violated an agreement that forbids fighters from wearing temporary tattoos advertising virtual casinos or other entities. Millennium was accused of refusing to pay liquidated damages after the incident took place.⁶

Cohen to Begin Sentence

Jay Cohen, founder and former president of Antigua based World Sports Book Exchange, one of the largest offshore operations, reported this month to Nellis Federal Prison in North Las Vegas. He is to serve a 21 month sentence for illegal bookmaking. He was changed with violating the Wire Act by taking bets over the phone and Internet from American citizens.⁷ Mr. Cohen’s case has been closely-watched by the online gambling industry, as one of the first criminal cases brought against an Internet gaming operation. Despite speculation to the contrary, Cohen’s conviction did not prompt a landslide of criminal prosecutions against similar online gambling operators in the United States.

No more Bingo at Wal-Mart

For years, Wal-Mart has allowed weekly bingo games to be held at over 50 of its stores in the state of Pennsylvania. There was no admission fee, no charge to play, no betting occurred, and the prizes the winners received were commodity items such as toilet paper and paper towels.⁸ But that’s all about to change. Recently, that State’s House of Representatives decided Wal-Mart can no longer allow the free bingo games in its stores. The closure of the game resulted from the decision of the District Attorney that the bingo games violated the state’s small games of chance law, which only allows not-for-profit, state licensed organizations to run the games. An amendment was subsequently proposed containing a provision to allow Wal-Mart to restart the games. However, the Republican led state house decided it was gambling and refused to change the law, killing the proposal 106-92.

GAO Finds Internet Gambling Susceptible to Money Laundering

An interim report from the General Accounting Office said Internet gambling is susceptible to criminal activity, like money laundering. The reason – lack of state regulations. “Law enforcement officials believe Internet Gambling can be a significant vehicle for laundering criminal proceeds” according to the report released last month by the congressional watchdog agency. Many of the online sites that operate now are based overseas, such as sites based in the Caribbean, where offshore jurisdictions exercise little or no control over gambling site operators. The volume, speed and international reach of international transactions, along with the offshore locations of Internet gambling sites, make Internet gambling especially vulnerable to money laundering, according to law enforcement officials working with the GAO.⁹ One financial analyst said the GAO report should be seen as “a large caution sign” to those who would promote online gambling. The final version of the GAO report is due out in November.

Lottery Machines Planned for Michigan

Buying instant lottery tickets in Michigan will soon be no more difficult than purchasing candy or cigarettes from vending machines. The Michigan Lottery Commission will install instant lottery ticket vending machines at up to 500 locations across the state with prizes on the scratch off tickets varying from $1 to $1 million depending on the cost of the ticket. Anti-gambling forces are concerned with preventing children from illegally buying the tickets from these machines. Acting Lottery Commissioner Jim Kipp said that selling tickets to minors is a concern of the state as well. He stated that each vending machine will come equipped with a shut-off for the machines that can be activated by a clerk if a minor is seen attempting to buy tickets¹⁰. This is similar to the “off” button found on most computers. If it works for the State of Michigan, perhaps it will be considered a sufficient control to keep children away from Internet casinos.

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.”

1 Paul, Leach bill fails to pass in senate, OnlineCasinoNews.com (October 23, 2002)