Keeping out legal gambling

The biggest news over the last few years for Internet gambling has been the attempt by many governments to keep out foreign legal operators. Legal complaints have been filed in the World Trade Organization ("WTO") and the European Court of Justice ("ECJ") against countries like the U.S. and Italy, which have passed laws that have the real-world effect of making it a crime for a licensed online gaming site to take bets from those countries.

While the issue of whether to legalize is being debated, law enforcement officials face a more fundamental question: Can a state or nation keep out foreign legal gaming?

We now may be able to answer that question, or at least make educated guesses, due to recent decisions from not only the ECJ and WTO, but also the United States Supreme Court.

The first step is to find a statute or regulation that might apply. Most fights against remote betting stop here, because lawmakers simply have not enacted the necessary laws.

The anti-gambling laws that are on the books were designed for specific problems from other eras. The Wire Act, for example, the major federal barrier to overseas-based gaming, was passed in 1961 as part of Attorney General Robert Kennedy's "war on organized crime." It was designed to help states fight illegal bookmakers who took sports bets by telephone. No one at the time thought about the possibility of playing poker on home computers.

The federal Department of Justice, which is charged with enforcing federal laws, asserts the Wire Act covers all forms of interstate and international gambling. But the few courts that have looked at the issue have ruled the Wire Act is limited to bets on sports events and horse and dog races. So, if these courts are correct, the question of whether the U.S. Congress had the power to bar foreign, licensed Internet poker under the Wire Act, need not be answered, because that statute simply does not apply.

Of course there are other federal and state statutes. Though almost all of those have severe weaknesses, such as not clearly stating that they apply to activities taking place partially in other countries.

The recently enacted Unlawful Internet Gambling Enforcement Act does nothing to correct this problem. An underhanded political move by the failed politician Bill Frist, ex-majority leader of the U.S. Senate, this Act applies only to Internet gambling that is unlawful under some other federal or state law.

Assuming there is a law in place that makes it illegal to accept bets on a particular form of gambling, there is no doubt that a state or nation can keep out illegal gambling.

The situation gets much more complicated if the operator is acting legally under its local laws.

Still, states start with the right to bar the importation of all goods and services, even if these come from places where it is legal to sell and ship these products. The problem arises when a government has agreed, sometimes unintentionally, to eliminate its trade barriers.

Usually when a state joins a federation, like the states of the United States or Australia, or signs a treaty organization, like the European Union, it finds it has opened its borders to goods and services from its sister states or trade partners. The United States discovered that it had consented to allow in legal gambling from other member states of the WTO when it signed the WTO treaties. Its major mistake was failing to do what some other member states did: specifically list "gambling" as an activity it wanted kept out.

But decision-makers have unanimously agreed that gambling is different from other legal businesses. A government can bar foreign gaming, if it can come up with good reasons for doing so.

This is easy if the state has a complete prohibition. Utah does not have to allow in California State Lottery tickets if it does not permit anyone to sell lottery tickets to its residents.

States that want to exclude legal foreign gambling always raise the same arguments: fear of fraud, money laundering, organized crime, underage and problem gambling, and because it offends local morality. Governments cannot rely solely on the real reason – to keep out competition.

It is almost impossible to successfully argue that a state has the right to exclude a legal activity from its sister states or trade partners when that state allows only local operators to do the exact same thing.

This is what happened to the U.S. in its fight with Antigua in the WTO. The WTO ruled that the U.S. had agreed to let in legal gambling from other members of the WTO. But it then bought the argument that federal laws against remote gambling were necessary to protect Americans. So, the U.S. would have won . But Antigua raised the Interstate Horseracing Act, which allows Americans to bet on races from their homes, but only with operators in U.S. states. Since there is no reason for this discrimination against Antiguan horsebooks, the U.S. was held to be in violation of the WTO treaties.

The same type of analysis can be done with any two countries and any form of gambling, for anyone willing to spend large amounts of time and money.

© Copyright 2007. Professor I Nelson Rose is recognized as one of the world's leading experts on gambling law. His latest books, Internet Gaming Law and Gaming Law: Cases and Materials, are available through his website, www.GamblingAndTheLaw.com.