Bet the Company?

Professor Joseph Kelly, an expert on Internet gambling law, looks at the prospects for legislation banning online gambling in the U.S.

Since 1995, Senator Jon Kyl (R-AZ) has introduced anti-internet gambling bills into the U.S. Senate. Congressmen, such as Rep. Jim Leach (R-IA) and Rep. Robert Goodlatte (R-VA) have introduced similar legislation into the House of Representatives. Occasionally an anti-Internet gambling bill will pass either the House or the Senate but not both within the two-year session.

In the 109th Congress (January 2005 – January 2007), anti-internet gambling supporters were optimistic because one House bill (the Leach/Goodlatte bill, HR 4411) passed the House (317-93) overwhelmingly on July 11, 2006 and was immediately sent to the Senate. It is one of a wish list of eighteen bills in the Republican conference briefing book to be placed on the calendar of the U.S. Senate. Few political observers would dispute the fact that the U.S. Senate would overwhelmingly pass the bill if it was scheduled for a vote in the Senate and that President Bush would quickly sign the legislation.(*)

HR4411 combines elements of both the Leach (HR4411) and the Goodlatte Bill (HR4777). Three particular provisions are of special interest. First, the bill would amend the Wire Act (18 U.S.C.1081 §3) to include all forms of gambling such as lotteries, gaming, and wagering besides sports betting.

“The term ‘bets or wagers’—
(M)eans the staking or risking by any person of something of value upon the outcome of a contest of others, a sporting event, or a game predominately subject to chance, upon an agreement or understanding that the person or another person will receive something of value in the event of a certain outcome;…”(Title 1 – Modernization of the Wire Act of 1961)

Second, the bill attempts to avoid the controversial issue of whether state-licensed interstate interactive horseracing became legal as a result of the December 2000 amendment to the Interstate Horseracing Act of 1978. The Justice Department concluded the amendment did not legalize Internet online horseracing. The World Trade Organization (General Agreement on Trade in Services “GATS”), however, concluded this amendment violated GATS in that it legalized only U.S. interstate interactive horseracing while excluding interactive foreign licensed horseracing. The matter was resolved in an unusual provision in HR 4411 which refused to address the issue.

Third, HR 4411 prohibits unlawful gambling businesses from accepting credit, checks, and electronic fund transfers but not cash. (Sec. 5362). Much of the burden for enforcing the prohibition is placed on financial transaction providers, such as banks and financial institutions (Sec. 5363, Sec. 5361).

There is, however, serious doubt as to whether the bill will be scheduled for a vote by the Senate. First, there are only about fifteen working days left in the Senate for the 109th Congress. It is doubtful whether Senate leaders would find time for this measure since it has important matters to consider such as estate tax reform, national security measures, minimum wage, and defense spending.

Second, even if there was time to introduce legislation, Kyl could be stopped by any senator who can place a “hold” on the bill. In the 108th Congress (January 2003 – January 2005), Senator Kyl’s anti-internet gambling bill was not voted on because Sen. Harry Reid (D-NV) did not like the exemption, or carve out, for an interactive lottery. Between two and six influential Republican senators have at least raised objections and/or placed a hold on HR 4411.

Third, various special interests have indicated opposition to the proposed legislation. The influential U.S. Chamber of Commerce and Independent Community Bankers of America on July 28, 2006 in respective letters to key Senators voiced their opposition to HR 4411 because it would place an undue burden on U.S. banks. Most Senators do not care one way or the other about Internet gambling. They may not want, however, to antagonize the influential Chamber of Commerce and Community Banks of America. At least two influential Republican senators have indicated opposition as a result of the above letters.

Fourth, influential and respected newspapers expressed concern about anti-Internet gambling bills. The Providence Journal editorial (August 3, 2006) headline stated “House Bets Badly on Bill” and concluded “the House bill is ridiculous, and the Senate should deep six it.” The Chicago Sun Times (July 19, 2006) and The Los Angeles Times editorial (June 9, 2006) also opposed the bill.

Fifth, the bill might not be supported by the powerful horseracing industry. The bill deliberately avoids taking a stand on the December 2000 Amendment to the Interstate Horseracing Act of 1978. According to Reuters, July 20, 2006,”the horse racing industry has some concerns” with the bill.

Sixth, the recent arrest of David Carruthers and the virtual implosion of BetOnSports as a result of the U.S. Justice Department indictments, may convince Senators that no new legislation is necessary The Justice Department has not been supportive or enthusiastic about anti-internet gambling legislation, primarily because of a fear that the bills might actually expand Internet gambling given the recognition of an exemption for state licensed interactive interstate horseracing. Bruce Ohr of the Justice Department testified on April 5, 2006 about Justice’s concerns about an expansion of gambling resulting from the bill.

For example, since the definition of the term “bet or wager” requires that the activity be “predominately subject to chance,” we are concerned whether this definition is sufficient to cover card games, such as poker…(emphasis added)

Finally, there may not be any legislation passed in the 109th Congress because of a bill (HR 5474) that would create a 9 person commission to study and make recommendations concerning legal online gambling. The bill, introduced in May 24, 2006 by Rep. Jon Porter (R-Va) has 49 co-sponsors. While the bill will not be enacted into law in the 109th Congress, it has the support of the influential American Gaming Association which generally had been sceptical as to whether Internet gambling could be effectively regulated.

Professor Joseph Kelly is a consultant with the Catania Consulting Group. He is a professor of business law at the State University of New York College at Buffalo. His works on Internet gambling have been cited by the Gaming Review Report (Budd Report) and in the recent August 19, 2005 decision of the arbitrator in the GATS (General Agreement on Trade in Services, World Trade Organization) dispute between Antigua and the U.S. He would like to thank Keith Furlong, VP, Catania Consulting Group, and Alex Igelman for assistance with this article.

* Editor’s Note: At the end of Spetmber, Congress passed a bill to strengthen port security, which includes language that prohibits banks and credit card companies from making payments to online gaming websites.