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Articles in this Series
Michael Shagan
 

The Search for an International Model for Internet Gambling

22 July 1998

Internet Gambling - Problems and Opportunities

This article is the third in a series that discusses the regulatory prospects for Internet Gambling in the context of public policy in Australia and the United States. The first article ("Separate Approaches to Internet Gambling in Australia and the United States") compares and contrasts approaches to legalized gambling in these two countries. The second article ("Australia's Current Efforts to Legalize and Control Internet Gambling") reviews the "Draft National Regulatory Model for Interactive Home Gambling" ("Model"), released by the Australian State and Territory Gaming Ministers in 1997. In the current article, in addition to reviewing legislation that was recently adopted by the Australian state of Queensland, I set forth some of my own views of the Australian response to interactive gambling, as well as the prospects for coordinated legislative/regulatory approaches on an international scale.

While the current article "stands alone" from the two prior articles, it was the intention of the author for these articles to form a single treatise on the issues raised. Familiarity with the first two articles would be of benefit to the reader.

I am grateful to those persons in both Australia and the United States who have provided me their comments on these papers, and look forward to receiving additional comments. Nevertheless, the views expressed are entirely my own and do not necessarily reflect the views of anyone else. Thanks again to Interactive Gaming News for providing this forum.


As noted previously, both Australia and the United States are confronting much the same issues and dilemmas in their attempt to frame public policy towards Internet or other home gambling. However, as previously noted, my view is that Australia approaches the topic from the perspective of "legalized gambling" as part of its cultural mainstream, indigenous gambling businesses that need to be supported, and a significant source of government revenue. The United States, on the other hand, tends to approach legalized gambling as a "tainted" activity, one that - at least prior to the current generation - was tolerated at best; and is viewed as an unholy activity by an active minority in the population.

Australia's response to the difficult issue of Internet gambling is to legalize, regulate, and license, and provide pro-active advantages to those Internet service providers ("ISPs") who accept strict regulation. The American Congress' initial response [in the proposed "Kyl bill"] is to criminalize (within the constraints of the Bill of Rights), deny any state the right to develop a regulatory framework, and attempt to limit access of its citizens to foreign internet service providers.

The idea that consenting states should be able to permit their citizens to participate in Internet gambling pursuant to state regulatory efforts is not a popular one to many legislators. The idea that government might develop a proactive policy, favoring regulated interactive gambling as the best means to deter illegal operators, is simply outside the current American debate.

Several states in Australia are justly proud of their existing regulatory framework for land-based gambling. They propose to extend this framework to cover interactive gambling. They would apply strict rules and regulations, set up appropriate fees and tax schedules, and invite all who are "suitable" to apply for licenses as providers of interactive gaming activities. (There are different rules for previously-existing interactive wagering activities, and their current operators.)

Some Thoughts About the Australian Model

Earlier this year, I was privileged to have the opportunity to address a Gaming Conference in Sydney, Australia on the subject of Internet Gambling. In my presentation, I compared and contrasted U.S. and Australian attitudes towards gambling (as I did in the first article of this series.) I then made observations about the Australian Model, including the following:

  1. The Model is an excellent, and rational, attempt to solve the various problems posed by this emerging technology. And its provisions concerning "responsible gambling" makes clear that interactive gambling can provide better safeguards for problem gamblers than walk-in gambling. [See the Queensland legislation, below.]

  2. As is to be expected, the Model reflects what Australians conclude is in the best interests of Australian states, from the point of view of Australia's existing and future involvement with gambling. As such, it may not be a "perfect fit" as a model for international development of Internet gambling.

  3. The Model primarily addresses a cooperative scheme amongst the states in Australia. These jurisdictions start out with fairly homogeneous attitudes towards gambling, and thus a cooperative policy amongst these jurisdictions - based upon adopting the same model for conduct - is plausible. Moreover, the Model recognizes existing realities in Australia by excluding from the Model existing wagering operations. And there is even provision for the Australian states to "opt in" or "opt out" of the Model, in whole or in part.

  4. When applying the Model to jurisdictions outside Australia, however, where policies towards legalized gambling vary greatly, the same right of "opting out" is not provided. If a foreign jurisdiction cannot reach agreement with an Australian government that permits Australian service providers to accept business from persons located in that foreign country, the licensed provider will not be challenged by the Australian government if it accepts business in violation of the laws of the other country.

    As one commentator (Brian Farrell, Chairman of the task force that developed the Model) wrote in reviewing the Model:

    "Australian interactive gambling providers will not be required to enforce prohibitions on players participating from overseas jurisdictions that are actively trying to prohibit their residents from gambling. The taking of bets from the residents of a foreign country which prohibits internet gambling will not be considered as a grounds for action under Australian law against an Australian operator's license."

    I believe this puts undue pressure on the social policies of the objecting jurisdiction, in favor of the social policies of the jurisdiction abiding by the Model.

  5. I have no doubt that the Model would fulfill its authors' purpose of attempting to preserve existing tax revenues from gambling, and of providing the opportunity for incremental tax revenues. I have no doubt that, in the process, high standards reflected in Australian policy decisions about gambling, will be maintained. Nor do I doubt that Australian states are capable of carrying out a rigorous regulatory and oversight responsibility. But the seeming rigidity in the Model may hinder other jurisdictions from doing these same things, in accordance with their determinations about their own best policies with regard to legalized gambling.

Consider:

    A Many jurisdictions ban (for instance) casino gaming. If a government operating under the Model permits a licensee to introduce casino gaming into those jurisdictions (via the Internet), it will in effect be promoting a new form of gambling. In a sense, the Model may encourage an off-shore jurisdiction, however well-intentioned, to permit their licensees to exploit this policy difference, by accepting action on these heretofore unavailable games.

    B The United States bans fixed-odds "sports betting". U.S. states would therefore be unable to agree to access by providers of this form of gambling, even if licensed by another country, and thus may oppose international cooperation in the areas they otherwise might agree to (for instance, pari-mutuel race betting.)

    C Australia's minimum age for betting is 18. Would Australian states agree to require that their licensed providers honor another country's higher minimum age?

    D It is proposed in the Australian Model that all licensees must advertise their minimum return to the bettors (for instance, slots paying out at least 80%.) What if a jurisdiction (for instance, New Jersey) requires slots to pay out at least 83%? Will that requirement be honored as a prerequisite to accepting bets from New Jersey residents?

    E The Model favors unlimited licensing of those applicants that pass a "suitability" test and have the technical and financial ability to serve as a provider. ("The number of service providers that may be licensed will not be limited.") However, the local marketplace may not accommodate the number of eventual licensees, who will then of necessity turn aggressively to competing in other jurisdictions in order to survive financially. Thus, a plan based on competing with unauthorized gambling by authorizing a favored alternative, could end up promoting unintended proliferation, with consequent social and financial damages.

    F A controversial area concerns "rebates" to players based upon volume of play, or different rates of return to different "classes" of players. Many jurisdictions can be expected to refuse to cooperate unless their sensitivities on these matters are taken into consideration.

    G No matter how fair and efficient the regulatory scheme in the licensing country, a player's country may well require a role in the licensing and/or dispute resolution process, in order to assure compliance with its standards of fairness, and protection of its own citizens.

My conclusion is that for a Model to work, in the real world, on an international basis, it should include provision for a government to require its Internet licensees to abide by the rules of the foreign jurisdiction.

The New Queensland Statute

The first state to adopt enabling legislation with regard to the Australian Model has been Queensland. While based upon the Model, the statute includes language that suggests to this observer a potential for divergent practices, even within the framework of the Model.

The Appendix at the conclusion of this article sets forth extensive excerpts from the Queensland statute, in narrative form for ease of understanding. Set forth here are just a few of the important aspects of that statute. [The reader may choose to review the larger Queensland text at this point, or continue with this commentary and reserve perusal of the extended version of the statute to a later time.]

In March, 1998, the State of Queensland enacted an Internet Gambling statute, incorporating its version of the Model. The Queensland statute is called:

The Interactive Gambling (Player Protection) Act 1998

General Regulatory Concept

The regulation and control of interactive gambling is to be achieved through a statutory scheme consisting of this Act and the corresponding laws of participating jurisdictions for the licensing and control of persons who conduct, or exercise an important role in the conduct of, interactive games.

This Act contemplates a cooperative scheme between Queensland and other jurisdictions for the regulation and control of interactive gambling. However, this Act is not dependent on participation by any other jurisdiction in the regulatory scheme.

The "Objects" of the Queensland Act are:

    (a) to regulate and control gambling ("interactive gambling") accessible from the home involving interactive games in which the players participate by means of the internet or through some other telecommunication medium; and
    (b) to provide protection for players of interactive games; and
    (c) to provide a basis for implementing an inter-jurisdictional regulatory scheme for-
      (i) the reciprocal recognition between participating jurisdictions of licences, authorisations and other administrative acts; and
      (ii) the regulation and control of interactive gambling in the participating jurisdictions on a cooperative basis; and
      (iii) the sharing of tax revenues derived from interactive gambling on an equitable basis.
"Participating Jurisdiction" -- If the Minister is satisfied that the law of another jurisdiction is compatible with this Act, the Governor in Council may, on the Minister's recommendation, declare (a) that the other jurisdiction is to be regarded under this Act as a participating jurisdiction; and (b) that the relevant law of the other jurisdiction (including the law as amended or substituted from time to time) is to be regarded as a corresponding law. However, a declaration is not to be made under this section unless the Minister has entered into an agreement (an "intergovernmental agreement") with the prospective participating regulator that makes, in the Minister's opinion, adequate provision for the following matters- (a) the taxation of authorised games on a uniform or consistent basis; (b) collaboration between gaming officials and officers of the other jurisdiction engaged in the administration of the relevant law of the other jurisdiction; (c) mutual recognition of licences and administrative acts between jurisdictions; (d) sharing of tax revenue derived from interactive gambling on an equitable basis. A declaration under this section is to be made by regulation. An "Authorized Provider" is a person who is licensed under this Act, or under the corresponding law of a participating jurisdiction, to conduct interactive games. An "Interactive Game" is a game in which a prize consisting of money or something else of value is offered or can be won under the rules of the game and a player enters the game or takes any step in the game by means of a telecommunication device. However, "Interactive Game" does not include activities by way of, or incidental to, wagering authorised under the Racing and Betting Act 1980 or the Wagering Act 1998 if the activities are of a kind authorised under the Act at the commencement of this section...

Advertising interactive gambling

A person must not advertise an interactive game in Queensland unless the game is an authorised game. A person must not advertise an authorised game in Queensland without approval of the relevant authorised provider.

Player Registration

... A licensed provider must not allow a registered player to participate in an authorised game until the player's identity has been authenticated under the licensed provider's approved control system.

Licensed Provider

The Minister may grant an application for an interactive gambling licence only if the Minister is satisfied that (a) the applicant is a suitable person to hold an interactive gambling licence; and (b) each business or executive associate of the applicant is a suitable person to be associated with a licensed provider's operations. However, the Minister may refuse to grant an application even if the Minister is satisfied of the matters mentioned... The Minister may issue an interactive gambling licence (a) on conditions the Minister considers necessary or desirable for the proper conduct of interactive games; and (b) on other conditions the Minister considers necessary or desirable in the public interest.

Inquiries about complaints

If a complaint is made to the chief executive about the conduct of an authorised game, or the conduct of an agent in operations related to an authorised game, the chief executive must promptly (a) inquire into the complaint; or (b) if the chief executive considers it appropriate-
    (i) refer the complaint to the licensed provider who conducted the game; or

    (ii) if the authorised game is conducted by an external provider, refer the complaint to the relevant participating regulator.

Responsible gambling -- Limitation on amount wagered

(1) A registered player may, by written notice to a licensed provider, set a limit on the amount the player may wager.

Examples-

  1. The player might set a limit in relation to a particular game the player is about to play.
  2. The player might set a limit by reference to a stated maximum for all games conducted by the licensed provider over a stated period (e.g. a limit of $100 over 1 month).
  3. The player might set the limit at zero thus effectively preventing himself or herself from engaging in authorised games conducted by the licensed provider until the limit is relaxed or removed.
(2) A licensed provider must not debit a wager to a player's account contrary to a limit set under subsection (1).

Responsible gambling -- Prohibition of interactive gambling

An application may only be made under this section by (a) a person who seeks a prohibition (or the revocation of a prohibition) against himself or herself; or by (b) a person who satisfies the chief executive of a close personal interest in the welfare of the person against whom the prohibition is sought. [Note: Subsection (b) is a Queensland innovation, not in the Australian Model.]

Some Commentary Focusing on the new Queensland Statute

As demonstrated in many sections of the Queensland statute, the philosophy in Queensland will be to permit interactive gaming by "authorized providers", unlimited licensing of "suitable" ISPs for interactive gaming, and a wide latitude for recognition of interjurisdictional conduct by ISPs licensed in "participating jurisdictions." However, the statute provides enormous power to the Minister responsible for gambling to set limits and/or prohibit conduct. I believe that establishment of such power to set conditions is not only desirable, but its exercise could prove essential for the legislative scheme to be workable in a fast changing real-world environment.

Let's examine further the Queensland statue in a wider context of the overall Australian Model, and a possible system of worldwide coordination of legalised, regulated and licensed interactive gambling.

1 - Is the Queensland statute in keeping with the Australian "Model"?

Yes. The Model contemplated that each Australian state or territory would pass enabling legislation and accompanying rules, to implement the Model.

It may be, however, that the authors of the Model anticipated virtually uniform agreement on the scope and particulars of interactive gambling, across all of Australia. The language employed, empowering the Minister to act "in the public interest" when determining specific rules and conditions governing interactive gambling (both within Queensland and between Queensland and its participating jurisdictions) does have the potential of resulting in divergent games and other dissimilar conditions amongst the jurisdictions. Nevertheless, it is a logical and inevitable consequence of maintaining state (and not federal) control of such decisions.

Of course, the divergence in games and licensing conditions, referred to above, can be even more complicated when considering international (and not just interstate) relationships.

2 - Can a jurisdiction outside of Australia be a "participating jurisdiction"?

While I am an attorney, I am not familiar with the intricacies of Australian law. However, I believe the answer is "probably Yes" for several reasons.

First, I was told by an Australian official who is familiar with the Model and who has considered the question, that it would be permissible. Second, my reading of the Model indicates an intention that foreign jurisdictions can be "participating jurisdictions." Third, the Queensland Act states that it "applies outside Queensland to the full extent of the extraterritorial legislative power of the Parliament." The issue, then, is whether such extraterritorial power permits an individual Australian state to enter into an arrangement ("intergovernmental agreement") with a foreign country [or a state in that foreign country], absent any further federal legislation.

There are rumblings, however, that the Australian Federal Government may be treading into areas where it heretofore had not. The Commonwealth Minister for Justice commented on 23 June that "While [gambling is] traditionally an area of State/Territory responsibility, there is no doubt that the explosion of internet gambling means these issues need to be tackled on a co-operative basis between Commonwealth and the States and Territories. I am looking forward to the outcome of the [Federal] Productivity Commission inquiry [into the economic and community impacts of gambling] .... While the terms of reference for the inquiry are still being determined in consultation with the States and Territories, online gambling is one area that will be examined."

For purposes of this article, I assume Queensland could enter into intergovernmental agreements with foreign entities, either under current law or pursuant to federal enabling legislation enacted in the future.

3 - Under this statute, can residents of Queensland legally participate in any and all interactive gambling, operated by any and all Providers?

The short answer is "No." The long answer follows.

First, in considering the new Interactive Gambling statute, a distinction must be made between existing wagering activities, and all other gambling. Even before the new statute Queensland residents could participate in wagering on horse races and other sports betting, via Queensland TAB. This organization has 15-year exclusivity (from 1998) over all pari-mutuel betting (on both racing and sports) in that State, and utilizes an interactive telephone account wagering system. Further, TAB is permitted to offer fixed odds wagering on racing and sports (also permitted - on a more limited basis - to Queensland bookmakers licensed under the Racing and Betting Act 1980.)

Moreover, there has never been a federal prohibition within Australia for participating in such wagering across Australian state lines. There is nothing in the new law that would change this, since such wagering activities are specifically excluded from being covered by the new law. That being the case, whether it is permissible to "wager" from Queensland into another country would be governed by prior law and rules, and to the best of my knowledge this, too, has never been prohibited.

[Having said that, one could nevertheless argue that Internet account wagering is not encompassed within the existing mandate for interactive account wagering, and thus would be subject to the new statute, and thus would be subject to any limitations imposed within the scope of the Minister's discretion, as discussed below. The situation regarding Queensland TAB's exclusivity in the area of fixed odds interactive (in addition to telephone) account wagering will no doubt evolve over the next few years.]

Second, however, different rules apply to interactive gaming. Under the new law, there is wide governmental latitude to determine what will or will not be permissible. ("The Minister has an absolute discretion to refuse to authorize an interactive game for which the Minister's authorization is sought.")

Let's make up the following example: The Minister decides that it is in the "public interest" to permit Queensland licensees to operate - and Queensland residents to participate in -- roulette over the Internet, but only in "single zero" games, not "double zero" games. Now let's look at definitions and concepts within the new law.

An "Authorized game" is an interactive game that

    (a) a licensed provider is authorized to conduct under this division; or

    (b) an external provider is authorized to conduct under the corresponding law of the participating jurisdiction in which the provider is licensed. However, a game that an external provider is authorized to conduct under a corresponding law (an "externally authorized game") is not to be regarded as an authorized game if the external provider is prohibited from conducting the game in Queensland by order [of the Minister.]

    A - Applicant for licensure in Queensland as an Internet Gambling Service Provider ("ISP") wishes to operate "double zero" game: Applicant would not be licensed, at least for such a game. If the Applicant were licensed, the Licensee may not operate this game either in Queensland or outside of Queensland. ("The conditions of authorization apply to the conduct of the game both within and outside Queensland.")

    B - Licensed ISP in a Participating Jurisdiction wishes to operate single zero and double zero games within Queensland: Provider may not operate double zero game, even if permitted to do so in the other jurisdiction. ("If the Minister believes the conduct of an externally authorised game in Queensland is contrary to the public interest, the Minister may, by written notice given to the external provider authorised under the corresponding law to conduct the game, prohibit conduct of the game in Queensland.") Provider will probably be able to operate single zero game within Queensland, and publicise it there, depending upon the agreements on "reciprocity" that are set forth in the intergovernmental agreement.

    C - ISP operating from a jurisdiction that is not a Participating Jurisdiction wishes to operate single and double zero games within Queensland: Provider may not do so. ("A person must not conduct an interactive game wholly or partly in Queensland, or allow a person who is in Queensland to participate in an interactive game, unless (a) the game is an authorized game, and (b) the person is authorized under this Act or a corresponding law to conduct the game.")

    D - Person in Queensland wishes to participate in double zero game: The Queensland resident may not do so, with any Provider. ("A person in Queensland must not participate in ... an interactive game knowing that the game is not an authorized game." A violation of this provision could subject the player to a criminal charge - though apparently just a fine and not potential jail time.)

    E - Person in Queensland wishes to participate in single zero game: The Queensland resident may only do so through an authorized provider, an ISP that is:

      (a) licensed in Queensland, or
      (b) licensed in a Participating Jurisdiction where authorization to operate such game in Queensland has not been withheld.

Otherwise, the game is not considered "authorized" when operated by any other provider, and could subject the player to a criminal charge, as above. ("A person must not participate as a player in an authorized game unless the person is registered with the authorized provider who conducts the game...")

4 - Under this statute, can ISPs licensed in Queensland accept as customers any and all persons located outside of Queensland?

Short answer: That depends.

Once again, I read the statute as providing broad discretionary power to the Minister ("The conditions of authorization apply to the conduct of the game both within and outside Queensland") :

    1. There is an obligation on any licensed provider to positively identify the would-be customer and his/her place of residence, and determine that the person is at least 18 years old. ("Before registering a person as a player, an authorized provider or agent must verify the place of residence of the applicant under procedures approved by the chief executive.")
    2. For remote customers located in a Participating Jurisdiction, conditions imposed in the intergovernmental agreement might limit the rights of a licensee to accept business from that customer and still maintain the license in good standing. ("The power of the Minister … includes the power to add conditions to an unconditional license.")
    3. The Australian Model clearly contemplated that all other foreign jurisdictions were "fair game", notwithstanding the laws of the foreign jurisdiction as to participation by its residents. (Brian Farrell, Chairman of the task force that developed the Model: "The taking of bets from the residents of a foreign country which prohibits internet gambling will not be considered as a grounds for action under Australian law against Australian operator’s license.")
    4. Nevertheless, the Minister will maintain the discretion to impose, as a condition of licensing, that an ISP not accept business in violation of the laws or rules of the other jurisdiction.

In my opinion, this discretionary power can prove to be significant in the evolution of international cooperation and regulation in interactive wagering.

TOWARDS A SYSTEM OF INTERNATIONAL COOPERATION

Implications of the Queensland Approach

 

What does the Queensland interactive gambling statute imply for a system of International Cooperation?

A For jurisdictions that respect each other’s regulatory ability, and can agree on authorized games and shared taxes, there is no problem.

B For jurisdictions that choose not to license ISPs, but will permit their residents to participate in interactive gambling either without restriction or with external providers pursuant to intergovernmental agreements, there is no problem (and there is the potential of receiving tax revenues based on their residents’ gambling activity.)

C For jurisdictions that insist on prohibiting one or more forms of interactive gambling, or on exercising their own regulatory oversite, or on having their own regulators exercise a "complaint resolution" function, there is no problem if a jurisdiction such as "Queensland" accepts such limitations (and codifies them in an intergovernmental agreement.) However, if a jurisdiction such as "Queensland" refuses to accept such limitations as applying to its licensed ISPs, cooperation breaks down.

I like to describe it another way: the right of a country to "opt in" or to "opt out":

Assume there were no Federal statutory prohibition on Internet gambling, such as proposed in the Kyl bill, and the position of an American State were, "Our residents can do anything via the Internet that they can do – legally – in our land-based facilities, so long as our own regulators approve." Translated into applicable law in that State, such a position could form the basis of an intergovernmental agreement.

Note, however, that under U.S. law that governs all jurisdictions [except for exceptions built into the law], there is a national prohibition against "sports betting". Thus, the State would have to "opt out" of sports betting, and the other jurisdiction (where the ISP is licensed) would have to agree to this condition or there could be no meeting of the minds.

The end result of this kind of legalization and internationalization of interactive wagering, would likely be a sort of "crazy quilt" of rules: An ISP located in "X" could not take sports bets from citizens in "Y" but could do so from those in "Z". The ISP could not accept business on double zero roulette from those located in Queensland [my earlier example], but could take single and double zero action from those located in another country. If one jurisdiction prohibited players participating until they were 21 years old, another jurisdiction with a minimum age of 18 should require its licensed ISPs to honor the higher minimum age.

And since Queensland has seen fit to exclude "wagering" activities and providers from coverage under the new law, as the Queensland Minister develops standards for future intergovernmental agreements, it remains to be seen whether ISPs licensed in

an overseas participating jurisdiction will be permitted or barred from soliciting "wagers"

from their Queensland gaming customers.

While complicated, modern computers would have no problem in sorting all this out and maintaining the proper rules for the particular jurisdictions. I see this as a "first phase", allowing hesitant jurisdictions to move forward in interactive wagering without fear of having to sacrifice their current views on what their citizens should or should not be allowed to do. Over time, I see many of these restrictions being lifted, as the industry matures and experience grows.

But the key to all this, as indicated above, is the willingness of a "Minister" to direct the ISPs licensed in that jurisdiction to honor another jurisdiction’s determination to "opt out" in whole or in part, and not to accept business in violation of the policy of the player’s country. This means that the "public interest" may have to be interpreted to require something short of maximizing short-term revenue potential, in exchange for the orderly development of interactive gambling amongst countries with different cultures, and thus different attitudes towards legalized gambling.

Guiding Principles for Internet Gambling Legislation in the U.S. (and Elsewhere)

I agree with those who note that since the Internet does not easily recognize jurisdictional boundaries, traditional methods of regulation and control may not suffice. I also believe, however, that for the same reasons, traditional methods of "prohibition" may not suffice.

In an earlier article, I referred to the Interstate Horse Racing Act of 1978 ("IHA"), designed to deal with an analogous problem. In that situation, participants and regulators of the horse racing industry were concerned that "modern" technologies would permit entities in one state to conduct legal gambling operations on races run in another state, without the approval of the racing licensee conducting that race or the regulators of that race track licensee.

The response of the federal government was to enact new law to the effect that – while upholding the principal that States should have the primary responsibility for determining their own gambling policy, this was an instance that without some form of federal action, States might not be able to do so. The action taken, however, was not an absolute prohibition, but what I would call a "limited prohibition": States were "prohibited, unless."

In the IHA, "unless" constituted a series of consents (including regulatory bodies in participating jurisdictions), without which the offending conduct is in violation of the Federal statute. Over the past 20 years, a sophisticated and effective system of regulation and oversight has developed in response to this Federal statute.

It seems to me the IHA "model" can serve as the basis for an American model for Internet gambling. Congress could pass a statute that includes many of the well-intentioned provisions in the Kyl bill. But instead of outright prohibition, the criminal penalties would apply only unless and until a State acted to legalize and regulate Internet gambling, with regard to its citizens as players and/or its business entities as licensed providers.

 

Summary of a Proposed Internet Gambling Model

The model I propose here is not too dissimilar from the current Australian Model. And even this model may need some adjustment to make it serve better for inter-jurisdictional cooperation.

1 Activities that are not currently legal (such as U.S. "sports betting" outside of Nevada) would remain illegal and not be permissible conduct via the Internet.

2 Other activities (pari-mutuel wagering, casino games) would not be permissible conduct via the Internet until and unless

A Such conduct was not illegal under a state’s system of laws;

B The designated state regulatory body promulgated Rules and Regulations defining permissible conduct :

    1. by a resident of that state,
    2. by ISPs licensed in that state, and/or
    3. by ISPs located in another jurisdiction;

and established schedules of fees and taxes.

It would be a violation of the laws of that State (and therefore a violation of the federal statute) for an ISP to (a) operate within that State, or (b) provide gambling services to the residents of that State, unless carried out in accordance with the State-formulated system of laws and rules.

3 ISPs licensed by a U.S. jurisdiction should be prohibited from accepting business from residents of another (domestic or foreign) jurisdiction if clearly in violation of the laws of that jurisdiction. The federal legislation should enunciate a policy that the American government strives to have foreign jurisdictions reciprocate in such a policy.

4 States may enter into intergovernmental agreements, along the lines suggested in the Queensland interactive gaming statute.

5 Once these issues are addressed at the State level, that State’s criminal justice system should have primary responsibility (rather than the federal system.) [It may be that the concept of criminal penalties to players should also be addressed at the state level.]

6 The "Primary Jurisdiction" is the jurisdiction where the ISP is licensed ("Primary License"), and the "Secondary Jurisdiction" is where the player is located. Primary responsibility for ISP conduct resides in the Primary Jurisdiction. Primary responsibility for setting rules with regard to players resides in the Secondary Jurisdiction. Responsibility for dispute resolution is shared between the jurisdictions, as appropriate.

7 A condition of the Primary License should be that Primary Licensees will honor the rules of the Secondary Jurisdiction. (I can foresee a kind of limited "secondary license" in the Secondary Jurisdiction, whereby the Primary Licensee consents to be subject to legal process in that jurisdiction.)

8 Subject to constitutional considerations, a jurisdiction should have the ability to determine what kinds of advertising or marketing may be undertaken by licensees, and prohibited to non-licensees or barred concerning illegal gambling products or activities.

Conclusion

I do not believe this approach is inconsistent with the original concerns voiced by the National Association of Attorneys General, to the effect that there needs to be some legal impediment to the spread of Internet gambling so that policy makers in each state have the breathing room to determine what they think should be done about it. I do believe this approach is more realistic than "Prohibition", and would be more effective in counteracting the potential consumer frauds that we all deplore, and the unauthorized activities from which there is no economic gain to the state or its licensed businesses. It should also shift the onus of enforcement away from a new layer of federal involvement. And it would honor the principle of "States’ Rights."

At the same time, it has a better chance of receiving international acceptance and cooperation. It would permit over time the development of international standards which, when applied to Internet gambling, I expect would be far more successful than American prohibitory isolation in allowing American jurisdictions to effectively control their own policies concerning this whole new medium.

The Australian Model for Internet and other interactive gambling is based on an assumption of inter-jurisdictional cooperation in implementing interactive gambling, but mainly where the jurisdictions are already compatible and committed (or resigned) to interactive gambling by their residents. My suggestion builds on that model but adds the requirement that there be inter-jurisdictional cooperation in letting countries decide for themselves whether interactive gambling should be implemented, on a jurisdiction by jurisdiction basis. In my mind, the alternative in this disparate world is a bunch of jurisdictions cooperating, and the rest cursing them for interfering with their sovereignty, the resulting resentment and chaos not being in the "public interest" of anyone.

 

 

 

 

 

APPENDIX

In March, 1998, the State of Queensland enacted a statute, incorporating its version of the Australian Interactive Gambling "Model". The Queensland statute is called:

The Interactive Gambling (Player Protection) Act 1998

 

The New Queensland Statute

I have chosen to present this explanation of the Queensland statute in narrative form. The bulk of the material provided, as set forth in Italics, consists of actual language taken from the more than 250 sections that comprise the new statute. I have also taken the liberty of switching around sections in the statute, so that the text in this narrative form is easier to understand. (Underlining has been added to emphasise certain aspects of the statute.)

General Regulatory Concept

The regulation and control of interactive gambling is to be achieved through a statutory scheme consisting of this Act and the corresponding laws of participating jurisdictions for the licensing and control of persons who conduct, or exercise an important role in the conduct of, interactive games.

This Act contemplates a cooperative scheme between Queensland and other jurisdictions for the regulation and control of interactive gambling. However, this Act is not dependent on participation by any other jurisdiction in the regulatory scheme

The "Objects" of the Queensland Act are:

(a) to regulate and control gambling ("interactive gambling") accessible from the home involving interactive games in which the players participate by means of the internet or through some other telecommunication medium; and

(b) to provide protection for players of interactive games; and

(c) to provide a basis for implementing an inter-jurisdictional regulatory scheme for—

(i) the reciprocal recognition between participating jurisdictions of licences, authorisations and other administrative acts; and

(ii) the regulation and control of interactive gambling in the participating jurisdictions on a cooperative basis; and

(iii) the sharing of tax revenues derived from interactive gambling on an equitable basis.

Some Definitions

"Participating Jurisdiction" -- If the Minister is satisfied the law of another jurisdiction is compatible with this Act, the Governor in Council may, on the Minister’s recommendation, declare (a) that the other jurisdiction is to be regarded under this Act as a participating jurisdiction; and (b) that the relevant law of the other jurisdiction (including the law as amended or substituted from time to time) is to be regarded as a corresponding law.

However, a declaration is not to be made under this section unless the Minister has entered into an agreement (an "intergovernmental agreement") with the prospective participating regulator that makes, in the Minister’s opinion, adequate provision for the following matters—

(a) the taxation of authorised games on a uniform or consistent basis;

(b) collaboration between gaming officials and officers of the other jurisdiction engaged in the administration of the relevant law of the other jurisdiction;

(c) mutual recognition of licences and administrative acts between jurisdictions;

(d) sharing of tax revenue derived from interactive gambling on an equitable basis.

A declaration under this section is to be made by regulation.

A "Licensed Provider" means a person who has been licensed under this Act to conduct interactive games. An "External Provider" is a person who is licensed under the corresponding law of a participating jurisdiction to conduct interactive games. An "Authorized Provider" is a person who is licensed under this Act, or under the corresponding law of a participating jurisdiction, to conduct interactive games.

"Interactive Gambling Tax": A licensed provider must pay a tax ("interactive gambling tax") to the chief executive for each authorised game conducted by the licensed provider. Interactive gambling tax is to be calculated and paid on a basis fixed under a regulation. Rates of tax may be fixed having regard to the rates of tax payable under corresponding laws. From time to time (as contemplated in the intergovernmental agreement), the Minister must remit to a participating regulator a proportion of the interactive gambling tax collected or recovered from licensed providers ("interactive gambling tax revenue"). The amount to be remitted must reflect (a) the contribution of players in the participating jurisdiction to the total gambling turnover of licensed providers; and (b) the proportion of interactive gambling tax revenue properly attributable to that contribution.

Who may be a "Participating Jurisdiction"?

This Act applies both within and outside Queensland. This Act applies outside Queensland to the full extent of the extraterritorial legislative power of the Parliament.

An "Interactive game" is a game in which a prize consisting of money or something else of value is offered or can be won under the rules of the game; a player enters the game or takes any step in the game by means of a telecommunication device; and … the winner of a prize is decided (i) wholly or partly by chance or (ii) by a competition or other activity in which the outcome is wholly or partly dependent on the player’s skill.

However, "Interactive game" does not include activities by way of, or incidental to, wagering authorised under the Racing and Betting Act 1980 or the Wagering Act 1998 if the activities are of a kind authorised under the Act at the commencement of this section…

"Telecommunication device" means—

  1. a computer adapted for communicating by way of the internet or another communications network; or
  2. a television receiver adapted to allow the viewer to transmit information by way of a cable television network or another communications network; or

(c) a telephone; or

(d) any other electronic device or thing for communicating at a distance.

An "Authorised game" is an interactive game that (a) a licensed provider is authorised to conduct under this division; or (b) an external provider is authorised to conduct under the corresponding law of the participating jurisdiction in which the provider is licensed.

However, a game that an external provider is authorised to conduct under a corresponding law (an "externally authorised game") is not to be regarded as an authorised game if the external provider is prohibited from conducting the game in Queensland by order [of the Minister.]

If the Minister believes the conduct of an externally authorised game in Queensland is contrary to the public interest, the Minister may, by written notice given to the external provider authorised under the corresponding law to conduct the game, prohibit conduct of the game in Queensland.

The conditions of authorisation apply to the conduct of the game both within and outside Queensland.

The Minister has an absolute discretion to refuse to authorise an interactive game for which the Minister’s authorisation is sought.

A person must not conduct an interactive game wholly or partly in Queensland, or allow a person who is in Queensland to participate in an interactive game, unless (a) the game is an authorised game; and (b) the person is authorised under this Act or a corresponding law to conduct the game. A person in Queensland must not participate in, or encourage or facilitate participation by another in, an interactive game knowing that the game is not an authorised game.

Advertising interactive gambling

A person must not advertise an interactive game in Queensland unless the game is an authorised game. A person must not advertise an authorised game in Queensland without approval of the relevant authorised provider.

Player registration

A licensed provider must not permit a person to participate as a player in an authorised game unless the person is registered with the provider as a player. A person must not participate as a player in an authorised game unless the person is registered with the authorised provider who conducts the game as a player.

A person is not eligible for registration as a player unless the person produces evidence of a kind required by the chief executive (a) of the person’s (i) identity; and (ii) place of residence; and (b) that the person is at least 18 years of age. Before registering a person as a player, an authorised provider or agent must verify the place of residence of the applicant under procedures approved by the chief executive. A licensed provider must not allow a registered player to participate in an authorised game until the player’s identity has been authenticated under the licensed provider’s approved control system.

Licensed Provider

The Minister may grant an application for an interactive gambling license only if the Minister is satisfied (a) that the applicant is a suitable person to hold an interactive gambling licence; and (b) that each business or executive associate of the applicant is a suitable person to be associated with a licensed provider’s operations. However, the Minister may refuse to grant an application even if the Minister is satisfied of the matters mentioned.

The Minister may issue an interactive gambling license (a) on conditions the Minister considers necessary or desirable for the proper conduct of interactive games; and (b) on other conditions the Minister considers necessary or desirable in the public interest.

The Minister may decide to change the conditions of an interactive gambling license, if the Minister considers it is necessary or desirable to make the change for the proper conduct of authorised games by the licensed provider or otherwise in the public interest. The power of the Minister … includes the power to add conditions to an unconditional license.

The Minister may, on application by a licensed provider, authorise the provider to conduct a particular interactive game on conditions stated in the instrument of approval. The conditions of authorisation apply to the conduct of the game both within and outside Queensland.

The Minister may, by written notice given to a licensed provider, change the conditions on which a particular interactive game is authorized....The Minister may, by written notice given to a licensed provider, revoke the authorization for a particular interactive game...

A licensed provider may conduct an authorised game only if the licensed provider has an approved control system; and the game is conducted under the system.

A licensed provider or an agent must not provide credit to a player or a player’s account.

A licensed provider or an employee or other person engaged in duties related to the conduct of an authorised game must not, without authorisation (a) disclose information about the name or other identifying particulars of a player or (b) use information about a player for a purpose other than the purpose for which the information was given.

The disclosure of information, or its use, for a purpose other than the purpose for which it was given, is authorised if the disclosure or use is (a) authorised by the player; or (b) reasonably necessary for the conduct of authorised games; or (c) required for the administration or enforcement of this Act or a corresponding law; or (d) otherwise required by law.

Inquiries about complaints

(1) A licensed provider must inquire into (a) a complaint made to the licensed provider by a person about (i) the conduct of an authorised game by the licensed provider; or (ii) the conduct of an agent of the licensed provider in operations related to an authorised game; or (b) a complaint referred to the licensed provider by the chief executive.

(2) Within 21 days after the complaint is received by, or referred to, the licensed provider, the licensed provider must give written notice of the result of the inquiry to (a) the complainant; and (b) if the complaint was referred to the licensed provider by the chief executive—the chief executive.

(3) If a complaint is made to the chief executive about the conduct of an authorised game, or the conduct of an agent in operations related to an authorised game, the chief executive must promptly (a) inquire into the complaint; or (b) if the chief executive considers it appropriate—

(i) refer the complaint to the licensed provider who conducted the game; or

(ii) if the authorised game is conducted by an external provider—refer the complaint to the relevant participating regulator.

(4) The chief executive must promptly advise the complainant of (a) the result of the chief executive’s inquiry; or (b) the chief executive’s decision to refer the complaint to the licensed provider or a participating regulator.

 

Participation by minors prohibited in conduct of approved games or as players

A licensed provider or an agent must not allow a minor to participate in operations related to the conduct of authorised games. It is a [valid] defense … that the defendant had no reason to believe, and did not believe, that the person to whom the charge relates was a minor. A minor must not participate in operations related to the conduct of authorised games.

A person involved in the conduct of an authorised game must not allow a minor to participate as a player in an authorised game. It is a [valid] defense … that the defendant had no reason to believe, and did not believe, that the person to whom the charge relates was a minor. A minor must not participate as a player in an authorised game. A prize won by a minor by participation in an authorised game contrary to [the prior sentence] is forfeited to the State.

Responsible gambling -- Limitation on amount wagered

(1) A registered player may, by written notice to a licensed provider, set a limit on the amount the player may wager.

Examples—

1. The player might set a limit in relation to a particular game the player is about to play.

2. The player might set a limit by reference to a stated maximum for all games conducted by the licensed provider over a stated period (e.g. a limit of $100 over 1 month).

3. The player might set the limit at zero thus effectively preventing himself or herself from engaging in authorised games conducted by the licensed provider until the limit is relaxed or removed.

(2) A licensed provider must not debit a wager to a player’s account contrary to a limit set under subsection (1).

(3) A player who has set a limit under this section may change or revoke the limit by written notice given to the licensed provider. A notice increasing or revoking the limit does not have effect unless (a) 7 days have passed since the provider received the notice; and (b) the player has not notified the provider of an intention to withdraw the notice. A notice reducing the limit has effect on its receipt by the licensed provider.

Responsible gambling -- Prohibition of interactive gambling

(1) An application may be made to the chief executive in the approved form for an order (a) prohibiting a person who is resident in Queensland from participating in authorised games; or (b) revoking an order under paragraph (a).

(2) An application may only be made under this section by (a) a person who seeks a prohibition (or the revocation of a prohibition) against himself or herself or (b) a person who satisfies the chief executive of a close personal interest in the welfare of the person against whom the prohibition is sought. [Note: Subsection (b) is a Queensland innovation, not suggested in the Model.]

(3) If the application is made by a person other than the person against whom the prohibition is sought or has been imposed (the "affected person"), the chief executive must (a) give the affected person written notice of the application and the reasons for it; and (b) invite the affected person to make representations to the chief executive about the application within a reasonable time stated in the notice.

(4) The chief executive must consider representations from the applicant, and if the applicant is not the affected person, the affected person.

(5) If the chief executive is satisfied the order sought in the application should be made in the interests of the affected person and the public interest, the chief executive may make the order.

(6) The chief executive must (a) give written notice to the applicant and, if the affected person is not the applicant, the affected person— (i) stating the chief executive’s decision and the reasons for it; and (ii) in the case of a written notice given to an applicant whose application has been refused—stating that the applicant may appeal against the decision to the Queensland Gaming Commission within 28 days; and (iii) in the case of a written notice given to a person who is not the applicant but is affected by an order made on the application—stating that the affected person may appeal against the decision to the Queensland Gaming Commission within 28 days; and

(b) if an order is made on the application—give copies of the order to— (i) the affected person; and (ii) all authorised providers; and (iii) all participating regulators.

(7) An authorised provider to whom a copy of an order imposing a prohibition has been given must not accept a wager from a person, or allow a person to participate in any other way in an authorised game, contrary to the prohibition.

The Search for an International Model for Internet Gambling is republished from iGamingNews.com.
Michael Shagan
Michael Shagan