Gambling with the law

Frustrated with the law-defying nature of cyberspace, states are laying odds on the federal government to keep online gambling out of their territories.

It has long been left up to states to legalize and regulate wagers on horse races, black jack, or office football pools. But the Internet undermines that authority because citizens can lay stakes from anywhere in the country or, for that matter, the world.

Many states want to outlaw online wagering because authorities say that, if left unregulated, cybergambling will increase consumer fraud, simplify money laundering, and encourage underage betting. However, as libertarians are quick to point out during debates over online pornography, policing the Net is technically difficult and further complicated by jurisdictional differences.

"The Net is a freedom amplifier," said Tom Bell, who studies Net regulation as the director telecommunications and technology studies for the Cato Institute. "The states can shout and pass laws, and once in a while catch the most egregious offenders, but it's going to be hard for states to track most gambling."

This predicament is leading many states to relinquish some power in exchange for a federal law that bans Net casinos and makes it a felony for U.S. consumers to roll the dice online.

"For the first time in many years, we are recommending federal legislation," said Alan Kessner, the assistant attorney general in Wisconsin who chairs an Internet gambling subcommittee for the National Association of Attorneys General. The group has released two reports on Net gambling since last year. "We're going after the operators. Although the hook we have is that most of our state laws prohibit placing a bet."

CNET TV: July 13, 1997 • The Web: In-studio debate on online gambling. Click here for airtimes. • CNET Central: A look at impact of proposed law. Click here for airtimes

Another turf war is heating up over gambling sites run from Indian reservations. This week, 35 attorneys general banded together to stop the operation of a tribe's wager sites based on a reservation in Idaho.

Idaho's attorney general, Alan Lance, told the National Indian Gaming Association that the tribe's U.S. Lottery site violates the law. But on Monday, the Tribal Supreme Court affirmed a lower ruling that U.S. Lottery's operation was legal. It also concluded that the Interstate Wire Act--which bans placing bets over "wires"--doesn't apply to lotteries.

President Clinton and Congress are also appointing members to the National Gambling Impact Study Commission to conduct a two-year probe of Internet and Indian reservation gambling.

Until the issue is addressed at the federal level, states already have a few weapons to crack down on Net gambling. For one thing, the costly vice doesn't have the kind of constitutional protections that apply to other aspects of of the Net.

Minnesota, Wisconsin, New York, and Missouri are some of the first to test their jurisdictional waters. Their overriding argument is simple: When cybergamblers place bets from state where wagering is illegal, they are breaking the law.

"Wherever they are--unlawful activities that adversely affect New Yorkers, whether these activities take place in the physical world or the cyber world, my office is working to stop those illegal activities," New York Attorney General Dennis Vacco said during a recent state hearing about online gambling.

Law enforcement officials contend that accepting Net bets violates the Wire Act as well.

The law has not been clarified to include the Net, which is why the attorney general has endorsed

605 K Sen. Jon Kyl on future of Net gambling

the Internet Gambling Protection Act introduced in March. A bill authored by Jon Kyl (R-Arizona) would outlaw accepting and placing cash bets online. It would also require Internet service providers to remove gambling sites from their servers upon request by law enforcement.

The revision of the Wire Act could assist states in regulating stakes over computer networks, while another law could bollix up their effort. Surfers might be in the clear if they bet on thoroughbreds via the Net.

"The federal Interstate Horseracing Act permits, under certain conditions, an interstate offtrack wager where a legal wager is placed or accepted in one state with respect to the outcome of a horserace taking place in another state," according a report this year by the attorney generals' group on Net Gambling.

Individual states are devising their own ways the tighten the clamps on the burgeoning virtual Vegas.

In California, state Sen. Tim Leslie (R-Tahoe) introduced a bill that would make it a misdemeanor to use the Net for wagering.

And in New York, state Sen. Bill Larkin (R-New Windsor) has introduced four bills to tame Net gambling within the state borders. One outlaws forms of gambling that would violate New York's current law, such as taking or placing bets on sports teams. Another would require all online gambling companies on U.S. soil to register their sites with the New York secretary of state's office and post a bond to insure their bets in the state.

Online wager sites are countering the U.S. attack. Some are basing their operations overseas or within states where the form of gambling they offer is legal for brick and mortar operations. Others are challenging in court states' jurisdiction over the global Internet.

For example, a virtual casino called the World Wide Web sued Wisconsin in May over the state's claim that setting up wagering servers within its borders would be illegal.

A roulette and black jack site called Interactive Gaming was slapped with a court order the same month to cease taking bets from Missouri's residents. The president of the Philadelphia-based company, Michael Simone, was indicted in July for allegedly violating the court order when Missouri authorities placed bets on the site. He could face up to five years in prison or a $15,000 fine if found guilty.

In June of 1995, Minnesota sued Las Vegas businessman Kerry Rogers, founder of a sports wagering operation that is still under construction. Minnesota contends that Rogers's Web site falsely advertises that gambling on Wager Net is legal from anywhere in the world because the bets are taken and paid out from an office in Belize.

Rogers filed a motion to dismiss the case on grounds that Minnesota can't govern his business in Nevada. A judge has already ruled in favor of the state, which may set an important precedent if Rogers loses his appeal to the decision.

Currently, states sometimes cooperate with each other to bully operations into shutting down or help extradite criminals. The final outcome of Granite Gate Resorts vs. Minnesota will determine whether states can also prosecute Web site creators based outside their borders.

587 K Jay Cohen of World Sports Exchange criticizes Sen. Jon Kyl

"They want to make it illegal for consumers to place a bet over a computer. How are they going to enforce it? Are they going to raid your home, and take your computer because you decided to waste a hundred bucks betting on a football game?" Rogers said.

"The harm here is that the money won't go to the state lottery. I'm not fighting a regulator--I'm fighting the competition. And the competition has badges and guns," he added.

Minnesota admits that it is over its head in the enforcement of gambling laws online but will pursue alleged violators anyway.

"If you come into Minnesota and are seeking business, then you're doing business in our state," said Carolyn Ham, Minnesota's assistant attorney general. "We'll see if we can get [gambling] Web sites to exclude Minnesota or be taken off the Net all together by an Internet service provider."

The few test cases and legislative proposals are just a drop in the bucket, however.

Gambling has historically been a lucrative business, rooted in criminal activity, which makes government controls over online wagers seem futile, according to Jay Albanese, chair of the Criminal Justice Department at Virginia Commonwealth University, who has written several books about organized crime in America.

"The history of gambling in the U.S. has not been pretty. It has been riddled with scandals, and fixed races," Albanese said. "Criminals will look to the Net to launder money around the country and world through encrypted transactions."

But Net casino operators will not be left untouched. "It's always the vices that bring in regulation. Eventually, there will at least be a background check just to keep undesirables from running these games. Self-regulation also goes a long way, and I think the government will welcome it."

Added Cato's Bell: "States may have a role in regulating gambling by making sure the house isn't taking too many of the stakes."