Banning Online Gambling Appears Futile in the Internet Age

Added: April 26, 2012

Online gaming is one of the major growth industries of the internet era. Internet based interactive games are a major source of entertainment with global broadband penetration expected to reach 750 million in 2012. Gaming content is now accessible through smartphones and tablets besides desktop and notebook computers and the industry is set to continue its rapid growth. The popular Angry Birds game had 500 million downloads in 2011 with revenues of over $100 million.

While gaming is considered acceptable and even beneficial, online betting or gambling faces legal and moral strictures, particularly in the US. Gaming is said to be based on skill with entertainment as the primary motivation. Betting or gambling however involves wagering money on the outcome of the game. Online betting or gambling has been made illegal in the US since 2006. Strangely, it is illegal to play poker for money online while it is legal to do so at a licensed casino in Las Vegas or Atlantic City. It is also legal to play poker for money at private homes and even in restaurants and bars in some states. With such fallacy in law, it is not surprising that each year over 10 million Americans participate in online betting or gambling and spend an estimated $4 billion. This money flows out through illegal channels to offshore companies and in the event of fraud on a US citizen, he or she has no legal recourse.

The global online gambling industry is reported to have clocked revenues of $20 to $50 billion in 2011 with 20,000 to 30,000 active online gambling portals. The US efforts to bar its citizens from participating in this industry cannot succeed for too long.

Online gambling has had a troubled history in the US

The first online gambling portals were set up in 1994 in the island nation of Antigua in the West Indies, targeting business from US players. Two US companies contributed to the technology needed. Microgaming Inc. created the software for online casino games and Cryptologic created the platform for online money transactions. By 1998, the Antigua based online gambling industry had revenues of over $835 million. Microgaming and other companies had improved on the technology to permit multiple players to participate in a single game and to simultaneously chat with each other, making the experience more satisfying. Prize money offered also started to climb to hundreds and thousands of dollars with one notable jackpot of $160 million being shared by some 5000 winners. The US government complained to the World Trade Organization (WTO) against Antigua for permitting online gambling targeting US citizens but lost the case as US itself had casinos for gambling and online betting on horse racing.

Soon, other countries, like Australia and Canada, permitted setting up online gambling portals and in the cyber world. Thus it became impossible to prevent access to an online casino from anywhere in the world. Several attempts were made by the US congress to declare online gambling as illegal, which finally became successful in 2006, named the Unlawful Internet Gambling Enforcement Act (UIGEA). Following the enactment of UIGEA, the US made it illegal for US companies to own or operate online gambling portals. In addition, the act made it illegal for US based banks and credit card companies to process online gambling related financial transactions. Since the major credit card companies were US based, this was expected to cause serious impediment to online gambling.
The US government has sought to enforce this law through high profile arrests of US executives managing offshore gambling portals and subpoenaing European banks for inquiry into gambling related financial transactions of US nationals.

Other countries have followed a different route

The United Kingdom has always adopted a more liberal attitude towards betting and gambling, having made these legal in 1960. Ladbrokes betting shops are present throughout the UK and the online betting company Betfair is listed on the London stock exchange. In 2011, over 13 million Britons participated in online betting or gambling and the industry had revenues of $280 million. The UK government imposes a tax of 15 percent on the net earnings of online betting companies and the Gambling Commission regulates the industry. In deference to US regulations, UK requires the industry to establish that the participant resides in a country that does not prohibit online gambling. Most UK online gambling sites have installed geo-location software to confirm the location of the internet access device. However, this technology cannot keep pace with smartphones, roaming networks and virtual servers being used to filter IP addresses. There is no way to monitor an American citizen using a UK based friend as a front for his online betting transactions.

The European Union countries like Germany, France and Italy have also permitted regulated online gambling portals. Australia and New Zealand have a high percentage of their population betting on sports events and other casino games and they were quick to licence online portals. South Korea, South Africa and even Turkey, have legalized online gambling. All these countries levy taxes on the gambling portals.

In the US itself a recent study has suggested that legalizing online gambling could yield tax revenues of $42 billion over 10 years, making a significant dent in the budget deficit. Most people agree that it would be impossible for the US to continue banning online gambling and sooner the 2006 law would be repealed.

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