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Concerns Arising from E-gaming
The transnational nature of the internet, the speed and dimensions of internet transactions and the fact that operations are based offshore, all increase the potential for abuse, particularly due to the high level of anonymity and the large amounts of money involved.
• Player Protection
It is argued that the entry of gaming into the ‘safety and normality’ of our homes could soon lead to more gambling addicts and that those mechanisms available to target conventional gambling venues in order to protect players are ineffective when applied to e-gaming.1 Gaming sites are meant to bar certain players, in particular underage players. Yet their ability to do this is sometimes questioned considering that for instance a European survey found that 17 % of those who accessed gambling sites were aged 17.2 While to screen out minors operators rely on credit cards since these are usually not available to minors, yet a minor could overcome this by using his parents’ credit card.
• Consumer Protection
Players are first and foremost customers who are using an e-gaming service. However, these customers are said not to have the same level of protection as those who take part in conventional gambling. In fact e-gaming operators are said to be in a competitive disadvantage in that consumers do not have the same assurances on the validity of licenses, the integrity of the games and their rights when a dispute arises.3 For instance, one of the justifications used by France for its policy of prohibition was ‘to ensure the integrity, the security and the reliability of gambling transactions and to watch over the transparency of the management of gambling activities.’4
• Money Laundering
E-gaming is regarded by many as a potential powerful vehicle for money laundering. Timothy Kelly, the Executive Director of the U.S. National Impact Gambling Study Commission in his testimony before the House Judiciary Committee affirmed that 'interact gaming provides anonymity, remote access and encrypted data.'5
• Tax Preservation
The prohibition argument may also carry an economic agenda in the sense that e-gaming could significantly reduce the states' tax revenues, since when playing online players reduce the use of state licensed operations.
The Key Arguments Against Prohibition
Yet, notwithstanding the above mentioned concerns, prohibition may not be an effective solution when considering certain factors which are peculiar to the internet. While telephone communications travel over circuit switched networks, through the internet each message gets broken into discrete packets that travel over various and unpredictable routes. In 1995 the U.S. Senator Jon Kyl introduced the first bill, known as the Kyl Bill, to cut off funding gambling. This was criticized by its opponents as a misunderstanding of packet switching since the latter allowed access from any overseas site to enter the U.S.
Therefore, as a consequence of this peculiar nature of the internet, players will be allowed to escape domestic prohibitions and play through sites based overseas. In addition, certain operators may be ready to keep accepting players from prohibitive jurisdictions, as in the case of the Australian based gambling website Poker.com which in response to the U.S. Unlawful Internet Gambling Prohibition Act stated that it will not be stopping U.S. Players from playing through its site and all the players account balances were 100% safe.6 Also, prohibition may be counterproductive in that while it could (arguably) prevent access to regulated sites, players will still be ready to gamble on unregulated ones, despite the risks involved. These unregulated sites do not provide players with the best player protection and harm minimization measures, as in the case of sites based in jurisdictions where e-gaming is regulated.
Another important factor is regulatory competition between states which is driving for the legalization process. Reference may be made to the fact that states have found it hard to resist the legalization of Video Lottery Terminals when these are permitted in neighbouring jurisdictions. Those states who ignore pressures coming from these neighbouring states risk having their revenues diminished, while still having to deal with the societal ills emanating from an activity which transcends national boundaries.
Regulation as a Solution to Policy Concerns
Regulation can allow gambling while addressing potential complications. There are reasons why a regulatory framework is said to be more effective than prohibition.
• Player Protection
Both problem and underage gambling can be dealt with a strong regulatory framework, in that since specialized technology such as data-tracking systems provide monitoring of transactions, it is easier to screen out compulsive gamblers than in conventional gambling.7
• Consumer Protection
Amongst other things, regulation ensures that states are aware that the games operating are those that should be operated and that the winners are paid. This is the reason why renowned jurisdictions such as Malta require the testing of software and procedures by specialists. In 2006, Malta entered into a cooperation agreement with the eCommerce and Online Gaming Regulation and Assurance (eCogra), an independent standards authority in the e-gaming industry, specifically overseeing fair gaming, player protection and responsible operators' conduct. In this agreement the Malta Lotteries and Gaming Authority approved the testing procedures and operating standards of the organization.
• Money Laundering
As seen above, as long as unregulated jurisdictions continue to exist, state prohibition to e-gaming will succeed in making players migrate to foreign sites. Regulation would make sure that operators have in place adequate controls in order to prevent money laundering through their websites, which would give security to both the players and the 'sceptical' law enforcement representatives around the world.8 Therefore a regulatory framework would ensure that episodes of money laundering which can easily occur through unregulated websites, are avoided through probity checks on the operators.
• Tax Revenues
Due to the unclear legal status of e-gambling today, the industry has not yet reached its full potential, in that 'established and reputable casinos are more attractive to bettors because of consumer recognition of an established brand name, guaranteed paybacks, and the stability of a 'brick and mortar' establishment'.9 Regulation would increase consumer confidence in the industry and as a consequence the amount gambled by people would increase. This would obviously lead to great tax revenues.
John Paul Zammit
Muscat Azzopardi & Associates
jpzammit@ma-advocates.com
1 Sychold, M., Swiss Institute of Comparative Law Research, Schultness, 2004, p.249
2 Wood , R. & Williams, R., Internet Gambling: Past, Present and Future, Research and Measurement Issues in Gambling Studies, Elsevier Publishing, 2007, p. 10
3 Miller, R., The Need for Self Regulation and Alternative Dispute Resolution to Moderate Consumer Perceptions of Perceived Risk with Internet Gambling, University of Nevada, Las Vegas (UNVL) Gaming Research and Review Journal, Volume 10, Issue 1, p. 53
4 IBLS, Online Gambling Profits and Concerns, Internet Business Law Services Book Series, (e-book), 2007
5Fox, M., Controlling Unlawful Internet Gambling Through the Prohibition of Bank Instruments, International Company and Commercial Law Review, Sweet & Maxwell, 2003, pg 4
6Wajda, N., Overplaying a Weak Hand; Why Giving Individual States a Choice is a Better Bet for Internet Gambling In the United States, Thomas Jefferson Law Review, April 2007, pg 327
7Andrle, J., A Winning Hand: A Proposal for an International Regulatory Schema with Respect to the Growing Online Gambling Dilemma in the United States, UNVL Gaming Research & Review Journal, Volume 10, Issue 1, pg 75
8Skala, J., Challenging National and International Law, Research by the Swiss Institute of Comparative Law, Schulthess, 2004, pg 346
9Lantzer D., Internet Gaming Tax Regulation; Can Old Laws Learn New Tricks?, Chapman Law Review, 2002, pg 283
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