Gambling Law UpdateTM
By: Lawrence G. Walters, Esq.
www.GameAttorneys.com
July, 2003
The See-Saw of United States Anti-Gambling Legislation
As United States Lawmakers forge ahead with efforts to prohibit Internet gambling, the
prospects of passing a bill aimed at prohibiting merchants from accepting financial transactions
related to Internet gambling, have been seriously hindered while lawmakers wrestle with this
unpredictable piece of legislation. Originally introduced by Rep. Jim Leach (R-Iowa) as a way to
curtail Internet gambling, the Unlawful Internet Gambling Funding Prohibition Act, H.R. 21,
sought to direct, within six months of enactment, federal functional regulators to prescribe
regulations requiring any designated payment system to establish policies and procedures
reasonably designed to identify and block restricted transactions while also preventing the
acceptance of products or services in connection with a restricted gambling transaction.
However, bickering between the House Judiciary and Financial Services committees resulted in
competing versions of the Bill. The Bill was amended, by a vote of 16 to 15, by the House
Judiciary Committee to remove exemptions for state lotteries and racing venues. Rep. Chris
Cannon (R-Utah) said he offered the amendment because he was worried the Bill might allow
some types of gambling in Utah, where all forms of gambling are illegal.1
After the Judiciary Committee removed language that would have exempted lawful
casinos and state lotteries, the Financial Services Committee, and Rep. Spencer Bachus (R-Ala.),
introduced the Unlawful Internet Gambling Funding Prohibition Act, H.R. 2143, which restored
1
Anne Linder, House Committee Amends, Passes Leach Bill,
www.igamingnews.com/index.cfm?page=artlisting&tid=4240 (5.14.03)
Leach's exemptions for state lotteries and racing venues.2 The new piece of legislation removed
any criminal or civil penalties for violators of the Act, which put the legislation outside the
jurisdiction of the House Judiciary Committee. This new version still calls for a six month period
to prescribe regulations and establish policies and procedures as set forth in H.R. 21, with
enforcement by the Federal Trade Commission and Federal functional regulators. The Financial
Services Committee approved the Bill in less than three minutes with no debate and no
amendments. House leaders then chose to put the Bachus Bill, H.R. 2143, before the House
instead of the amended Leach legislation. Citing concerns about organized crime, the addictive
“crack cocaine” nature of online gambling, and a call to protect America’s children, the House
overwhelmingly decided, by a vote of 319 to 104, to support the Bachus Bill. It passed with only
one amendment, which was offered as assurance that the Act will not change any law relating to
gambling within the United States.
H.R. 2143 now moves to the Senate, which has held hearings on similar proposals.
Despite the overwhelming support in the House for Internet gambling restrictions, the outlook
for similar legislation appears uncertain. It is unknown when or whether the Senate will consider
H.R. 2143, or its own version, S. 627, which maintains the regulated gaming exemptions. Last
year, the House approved sweeping Internet gambling restrictions only to see the legislation die
in the Senate because of objections from Indian gambling interests.3 Chairman of the Financial
Services Committee, Rep. Michael Oxley (R-Ohio), has privately said he hopes to add civil and
criminal penalties to H.R. 2143 if and when the Senate passes its own version of an Internet anti-
2
Roy Mark, House Leaders Pull Bet on Internet Gambling Vote, www.dc.internet/news/article.php/2216461
(6.3.03)
3
Las Vegas Gaming Wire, Internet Gambling: Anti-Bet Action Unsure in Senate, www.rgtonline.com (6.18.03)
gambling bill, S. 627, sponsored by Sen. John Kyl (R-Ariz.).4 Like H.R. 21, the Kyl Bill
provides for a six month period for Federal regulators to prescribe regulations, and establish
policies and procedures, with enforcement by the Federal Trade Commission and Federal
functional regulators. It also provides the same civil and criminal penalties as set forth in H.R.
21, while creating exemptions for regulated gaming. Both Bills are currently pending with the
Senate Banking Committee.
Antigua Braves the United States
As legislation moves forward in Congress to ban Internet gambling, one Caribbean island
is concerned the proposed law will annihilate licensed Internet casinos operating on its shores,
and rob it from much-needed revenues. Antigua, a speck of sand that has become a legalized
haven for Internet casino operators, has taken mounted a “David v. Goliath” battle in the World
Trade Organization (WTO), challenging the United States’ authority to outlaw Internet betting.
The Caribbean nation took on the United States and asked the WTO to condemn the United
States for breaching the rules of global commerce through its ban on Internet Gambling. Aiming
to reduce dependence on tourism, Antigua has deliberately sought to attract electronic
commerce, including Internet gambling, to create jobs for young people who might otherwise
turn to the flourishing drug trade. Federal law currently prohibits online wagering and bans
foreign companies from offering wagering services to Americans. Antigua argues the policy
violates the United States’ obligations in the WTO.5 “Restrictions which bar Americans from
betting at off-shore Internet casinos are unfair and harm Antigua’s attempts to diversify its
4
Roy Mark, House Passes Internet Anti-Gambling Bill, Internet News
www.dc.internet.com/news/article.php/2220141 (6.11.03)
5
Bradley Vallerius, Antigua Moves Forward with WTO Claim vs. US,
www.igamingnews.com/index.cfm?page=artlisting&tid=4330
economy,” said Sir Ronald Sanders, Antigua’s High Commissioner in London.6 The Internet
betting industry employs 3,000 people in Antigua, and without business from American
gamblers, Sanders said, Antigua's economy could once again be devastated.7 The dispute is the
first to be brought to the WTO concerning electronic commerce since its creation in 1995, and
only the second relating to the WTO’s general agreement on trade in services.
On the European Gambling Front
Recently Europe has attempted to distinguish itself as a leader in the Internet gambling
industry, due in part to the strict regulations put in place by the Isle of Man, a small island-nation
off of the coast of Britain which has created Internet gambling regulations to offset its declining
tourism economy. Recent developments, however, have brought to light the possibility that this
emerging center for off-shore casinos in the British Isles could be going on hiatus. The news
follows MGM Mirage’s recent decision to cease operations on the Isle of Man. Citing the
uncertainty of the legal and political climate in the United States and other countries, MGM
Mirage revealed its online casino www.PLAYMGMMIRAGE.com, would cease operations on
June 30, 2003. MGM introduced its site in September 2001, which only accepted bets from a few
countries that allowed Internet gambling, and said it has shown that Internet gambling could be
conducted under the same regulatory structure that addresses security, money-laundering and
other concerns facing brick and mortar casinos. The move follows a string of other closures by
major Internet operators who have struggled to make a profit by operating in a more regulated
6
Ireland Breaking News, Antigua Takes on the U.S., www.rgtonline.com (6.24.03)
Rick Alm, Gambling & Tourism: Changes in Missouri Gambling are a Long Shot,
www.kansascity.com/mid/kansascity/business/5497555.htm (04.01.03)
7
framework than the hundreds of Internet casinos that now accept bets from Americans.8
However, the situation appears different in Alderney, the only other local base for the industry. It
has issued six licenses to date and André Wilsenach, CEO of the Alderney Gambling Control
Commission, stated, “I’m generally positive. We’re currently considering two others as well,
with major parent companies behind them.”9 Hard Rock Casino said in an email to their players
that they are moving their Internet casino operations from the Isle of Man to Alderney. Once the
move to Alderney has been completed, players will be able to access their accounts as before
from the same web address www.hardrockcasino.com. Chris Corlett, the chief executive in the
Isle of Man's Department of Trade and Industry, said officials told regulators in the Isle of Man
the move was a business decision, but indicated that the move could have been spurred by the
jurisdiction's strict regulatory measures. “They told us they are moving because of commercial
reasons and not jurisdictional reasons," he said. "Some of our licensees have expressed concerns,
but I think commercial pressures are to be expected." Wilsenach declined comment on the
regulatory approach in the Isle of Man, but he said officials in Alderney have tried to balance
sensible regulatory control with making sure its licensees can effectively compete with operators
based elsewhere.10 Alderney is one of the jurisdictions able to issue Internet casino licenses in
the British Isles and is among the most tightly regulated.
With a substantial amount of activity emanating from its shores, it is no surprise that the
European Union (EU) is preparing to amass an attack on the fragile Internet economy with a new
regulation requiring companies outside the EU to collect substantial taxes (VAT) on digital
8
Liz Benston, Casino Giant Exiting Internet Gaming,
www.lasvegassun.com/sunbin/stories/text/2003/jun/04/515171036.html (6.4.03)
9
Dominic Dudley, Fears Mount Over Casino Exodus from Isle of Man,
www.newmediazero.com/nma/sstory.asp?id=242324 (6.12.03)
10
Kevin Smith, Pulling Rank-Hard Rock Hops from Isle of Man to Alderney,
www.igaming.com/index.cfm?page=artlisting&tid=4335 (6.26.03)
services effective July 1, 2003. This rule will affect private individuals more than business
customers, due to the fact it means higher prices for European customers and more expenses for
those companies outside the EU that do digital business in Europe. The directive covers pretty
much any and every electronic service you care to imagine: website supply, web hosting, supply
and updating of software, supply of music, films and games, including -you guessed it- gambling
and games of chance. Robert Wientzen of the United States Direct Marketing Association said,
“The EU is setting up a discriminatory price structure against non-EU companies. The Internet
and e-commerce are borderless, they cannot be and should not be weighed down by geographic
and political controls. Such a broad taxing scheme will act only to limit the growth of ecommerce in the EU.”11
National Gambling Outlook
With the overwhelming passing by the House of Representatives of an Internet gambling
prohibition bill, fears over a further restriction on the overall gambling industry have been
escalating. However, a congressman who wants to prohibit Nevada sports books from taking bets
on college games said he does not expect his bill to gain momentum from the overriding vote
against Internet gambling. Rep. Tom Osborne (R-Neb.) said he does not see a strong connection
between Internet gambling and his measure to ban betting on amateur sporting events.12 Nevada
lawmakers have criticized Osborne’s Bill because it does not address illegal bookmakers.
Osborne does not accept Nevada’s assertion that its sports books can help detect point-shaving
schemes. “There’s no documented case where they have ever prevented a gambling scandal,”
Osborne said.
11
12
Dave, EU Attempting to Outdo USA on Legislation Front?, www.onlinecasinonews.com (6.20.03 )
Las Vegas Gaming Wire, Sports Ban not Expected to Gain Momentum, www.rgtonline.com (6.12.30)
In contrast, heightened concerns about money laundering for terrorist purposes will likely
lead the federal government to shift authority over federal cash reporting rules from state
regulators to the U.S. Department of the Treasury, a Washington, D.C. area attorney told a group
of security and marketing officials at an anti-terrorism conference. Nevada casinos are now
required to report all cash transactions of $10,000 or more to the federal government. However,
the state Gaming Control Board has authority over the process, which is aimed at combating
money laundering. Nevada is the only state with an exemption to federal anti-money laundering
procedures that apply to casinos in other states. That transfer of power could have significant
implications for area casinos in terms of penalties for non-compliance and mitigation
opportunities, international trade law expert Douglas Jacobson said at a Las Vegas conference
sponsored by Washington, D.C. based Homeland Education Resource Organization.13 "The U.S.
government likes to send strong messages" about non-compliance, he said, such as when it fined
Mississippi casinos $7 million for failing to file cash transaction reports with the federal
government. That was more than the $5 million settlement proposed by the state Gaming Control
Board to resolve an investigation at the Mirage that uncovered thousands of unfiled reports, he
said. On March 25th, Nevada casinos began complying with so-called "suspicious activity"
reporting requirements required of all banks and other financial institutions as part of President
George W. Bush's Patriot Act, a post-September 11th measure aimed at fighting terrorism.
Nevada has operated under its own set of rules, requiring casinos to report suspicious
transactions to Gaming Control Board authorities, since 1997.
International Gambling Outlook
13
Liz Benston, Terrorism Worries may lead to Casino Changes, reported by www.rgtonline.com (6.18.03)
As Internet gambling continues to proliferate across the international community, so do
the countries that attempt to profit from this lucrative industry. Following the approval of the
Interactive Gambling Act, or Republic Act No. 7922, by the Philippines government, the
Cagayan Special Economic Zone and Free Port, in the northeast of the Philippines, opened for
Internet gaming licenses. In close proximity to Taiwan, China, Korea, Japan and Hong Kong,
Cagayan offers a commercially attractive business model for online gaming operators to target
the virtually untapped Asian markets and international gambling community. A recent report
from Reuters on a University of Hong Kong survey shows that ninety percent of people from
Hong Kong involved in the survey had had some experience with gambling, with most saying
they had made their first bet before they were 18.14 Casinos are banned in Hong Kong but tens of
thousands of people from the territory go regularly on day trips to nearby Macau to gamble.
Jamaica has, for decades, maintained an on-and-off debate on the subject of regulating
casino gambling and while the island has legalized other forms of gambling, governments, under
the pressure of the religious communities, have drawn the line at casinos. The head of the agency
that regulates gambling in The Bahamas has now suggested that Jamaica hold a referendum to
resolve the controversial issue of whether the island should introduce casino gambling. 15 Procasino lobbyists argue that they would enhance and diversify the island’s tourism product and
draw more visitors to the island. The upshot would be greater earnings from the industry and
more jobs.
Sentiments in Taiwan, however, may not be as hopeful. In a bid to boost tourism on the
offshore islands of Penghu, DPP legislators made the statement the party will not push for
14
15
Hong Kong Can’t Get Enough of Gambling, reported by Reuters on www.rgtonline.com (6.6.03)
Stacyann Gabbidon, Vote on Casinos, says Bahamas Gaming Boss, www.jamaicaobserver.com (6.16.03)
changes to the Gambling Law in the next legislative session. DPP Legislators Parris Chang and
Tsai Huang-liang attended a tourism-promotion press conference in the legislature organized by
travel associations from Penghu County. On April 1st, the Cabinet did an about face on the issue
of gambling saying it would support amendments awaiting a review in the legislature that would
legalize casinos on outlying islands. Nonetheless, when asked by reporters whether the DPP
would support the establishment of casinos on outlying islands to boost the tourist industry there,
both Chang and Tsai said it was unlikely that the bill would be passed in the next legislative
session starting September 5th.16
United States Gambling Prohibition Onslaught
A judge Monday postponed the arraignment of Christopher Morishita, the former antimoney laundering compliance officer for the Mirage, on four criminal counts of failing to
maintain required currency transactions records, stemming from the failure to file thousands of
federally required anti-money laundering reports, until July 25th. In this case, the former Mirage
executive reportedly admitted he deliberately failed to file the required cash transaction reports
over an 18-month period and lied to his supervisors to cover up his actions. He could face up to
five years in prison and $50,000 in fines if convicted of the charges. "This should be a wake-up
call for the entire industry," said Nevada Chief Deputy Attorney General Elizabeth Quillin, who
is handling the on-going criminal prosecution. "Certainly, the attorney general is going to take
these types of cases very seriously and will look at (further) prosecutions," she said. MGM
Mirage admitted to failing to file almost 15,000 required anti-money laundering reports with the
Taipei Times, Taiwan Legislators Won’t Push for Gambling Charges, Reported by Taipei Times on
www.rgtonline.com (6.12.03)
16
federal government over an 89-week period from 2001 through 2003.17 Like MGM Mirage,
Station Casinos has come under investigation for its failure to file regulation 6A reports, which
are used to track large cash transactions by individuals in casinos, control board officials said
earlier this month. That investigation allegedly involves "hundreds" of reports.
Gambling on NCAA sports events by players and coaches is becoming a serious problem,
according to sports editorial writers across the nation. After deliberating for about 12 hours over
the course of two days, a Florida jury declared itself deadlocked 5 to 1 in the gambling trial of
former college quarterback, Adrian McPherson. The mistrial leaves the 20-year-old Florida State
University
sophomore
still
eligible
to
play
college
sports.
A conviction for
misdemeanor gambling on professional and college games would have ended the young star's
NCAA career. He also faced 60 days in jail and a $500 fine. Leon County Judge Timothy Harley
sent the jury back twice over two days, urging the panel to reach a unanimous verdict. Prosecutor
Georgia Cappleman vowed to retry the case immediately and expressed her dismay during a
brief press conference after the hearing. Two of McPherson's former friends, Otis Livingston and
Melvin Capers Jr., testified for the prosecution that they gambled with McPherson using an
online agency, SBG Global. Livingston said McPherson did bet on Florida State games, but he
could not recall if he placed bets on the team while starting as quarterback. During their case,
prosecutors pieced together two specific bets on Monday night football games that were
placed with the help of a cell phone allegedly used by McPherson. McPherson's phone records,
said prosecutor Cappleman, dovetailed perfectly with Western Union receipts and logs seized
from a computer allegedly used to place Internet bets. The ensemble of evidence formed an
17
Rod Smith, Mirage Record Case Continues, Reported by Las Vegas Gaming Wire on www.rgtonline.com
(6.24.03)
unmistakable pattern of gambling, she argued.18 Even without a retrial, McPherson could be
permanently banned from football if NCAA officials decide he bet on Florida State football
games, and could receive a one-year suspension if they think he only participated in "any
gambling activity that involves intercollegiate athletics or professional activities." Last year,
Florida basketball player Teddy Dupay was declared ineligible because of gambling. In the past
decade, there have been basketball point-shaving scandals at Northwestern and Arizona State.19
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.”
Matt Bean and Christina Lewis, Jury Deadlocks in Former Football Star’s Gambling Trial, Reported by Court
TV at www.cnn.com/2003/law/06/06/ctv.mcpherson/index.html (6.20.03)
19
Dave, Fallout from FSU Betting Scandal Continues, www.onlinecasinonews.com/ocn/article.asp?id=3485
18