Through the Looking Glass: Prohibiting Online Gambling by Expanding It?
How this is an issue similar to the net neutrality issue
This is not my usual kind of diary because this is not really a partisan issue, but is an interesting window into the way our laws are made and how some bills are advertised as doing exactly the opposite of what they actually do. To give you the full picture, I had to go into some depth, so bear with me.
Amid all the discussions on this blog and others about the important issue of net neutrality, the House Judiciary Committee is in the midst of considering a bill (originated in the Financial Services Committee) which would also make fundamental changes to the way the government regulates activity on the internet, albeit in a lesser way. Ironically, the Judiciary Committee will markup both the Sensenbrenner/Conyers net neutrality bill (which is an aggressive approach to keeping a free and open internet) and a bill dubbed the "Internet Gambling Prohibition Act," that is about as intrusive a bill as you can imagine and actually expands gambling on the internet for some lucky special interests. At the same time, in an unprecedented way, it places financial services institutions in the unwanted position of playing cyber snoop and cyber cop.
What is the Law
To understand this bill, let's review what the current law is with respect to internet gambling. I am simplifying this a bit, but essentially under our federalist system, gambling -- so long as it is conducted intra-state, has traditionally been left to states to regulate or prohibit. The legal picture changes when the gambling wager is transmitted from one state to another. Then, it becomes a federal matter. Our current federal law, the Wire Act, prohibits the interstate transmission of bets or wagers. If a common carrier is notified that an illegal gambling enterprise is using its phone service, for example, it is required to cut off service to that enterprise after notifying the customer.
As someone here who is more technologically inclined can explain better than I can, when someone places a bet on the internet, you can be pretty sure that, at some point, it was transmitted interstate. Thus, the Bush Justice Department and the Clinton Justice Department have both taken the view that internet gambling is illegal under current federal law.
If internet gambling is currently illegal, then why do we need an "Internet Gambling Prohibition Act"? The answer is an amazing look inside how, in this Congress, bills purport to do one thing but actually do exactly the opposite.
Hidden Agenda
Reading the bill, way down near the end, there is the following language: "Nothing in this section shall be construed to prohibit an activity allowed under Public Law 95-515 (15 U.S.C. 3001 et seq.)" That's strange. Usually bills have the name of whatever Act or activity they are exempting. Not here, you have to look it up. When you do, you find it is the Interstate Horse Racing Act.
Why in the world is that there? It seems the horse racing industry snuck a special interest provision in an appropriations conference report a few years back. This provision would have faced the opposition opf the majority of Congress had it been subject to separate vote. That provision exempted horse racing from certain civil penalties for interstate bets. But it left the criminal prohibitions of the Wire Act untouched and the Justice Department has taken the view that this activity is still subject to criminal prosecution. The horse racing industry does not like that and is now asking Congress for another special interest carveout, this time from the Wire Act and they got in this bill. At the same time, they are getting more onerous regulation of their competitors, casino gaming, the dog racing industry, jai alai, and tribal gaming.
So there you have it, gambling is already illegal on the internet. We have an "Internet Gambling Prohibition Act" that says all internet gambling is illegal, except for horse racing. The Internet Gambling Prohibition Act expands gambling on the internet.
Enforcement Problems
The backers of this bill claim there is an enforcement problem when it comes to internet gambling. Obviously, there is some merit in that claim. One only has to spend a few moments visiting various websites to find banner ads offering internet gambling websites. This is the case because most of these businesses are based outside of the United States and are therefore difficult for federal law enforcement officers to reach.
The bill's backers have a solution for this problem they would ban some, not all, internet gambling transactions and require credit card companies to disallow internet gambling transactions by customers. Currently, credit card companies require that merchants "code" transactions so that the general type of transaction or goods or services purchased are known to the credit card company. But the examination of the transaction usually stops there. Under this bill, credit card companies would face civil penalties if they do not disallow internet gambling transactions.
I think this is a disturbing precedent. I do not want banks, on behalf of the federal government, sniffing through every transaction a customer makes. The banks don't want to do it either.
It is also an impossible task. There are more ways that an internet gambling enterprise can evade "coding" than I can list. The business can code the transaction as something else. The gambler can convert credit to e-cash or some other form of uncoded payment. The list goes on and on.
More Alice through the Looking Glass
But, most galling, the backers of this bill claim that opponents of the bill are beholden to special interests. Aided by some in the national media, they claim Jack Abramoff somehow corrupted the House's vote on this issue.
Aside from wondering what proponents are really saying about their Republican colleagues who oppose the bill, this is rank hypocrisy. A bill that purports to expand internet gambling, but expands it, is the anti-special interest position? And it wasn't Jack Abramoff who first said that the bill expands gambling, it was career prosecutors in the Clinton Justice Department.
For the record, there are partisan interests on all sides of the bill. The only people who have ever lobbied me on behalf of this "anti-gambling" legislation, however, have been horse racing interests.
The fact is that this is not a partisan issue. In the past when this bill has been considered, a number of Republicans, including Judiciary Chairman Jim Sensenbrenner, have opposed its unprincipled approach to this issue.
What should we do about internet gambling?
I think internet gambling is here to stay. Let me lay my cards on the table: I do not personally like gambling but the only rational approach I can imagine is to regulate it, not prohibit it. We should license internet gambling businesses and, in exchange for that license those businesses should agree to abide by a code of conduct that would include disallowing minors from gambling, capping aggregate daily bets at a certain amount and other measures to identify problem gamblers, and consumer protection and capitalization requirements.
To be sure, the fly by night, offshore, and illegal businesses will remain. But I think their customer base will dry up. Gamblers want to go where they know they will get paid and where the game is fair. That will be the licensed internet gambling business.