By Jeremy Herb
Between online gambling and the countless ESPN reruns of the World Series of Poker, poker has become a mainstream "sport." More than 6,000 people paid $10,000 to enter this year's World Series main event, and gambling experts say 10 to 15 million Americans wager $100 billion on all forms of Internet gaming annually. The online gambling industry—made up of offshore companies—earns somewhere between $6 and $10 billion in the U.S. each year. But it's a poker game of politics, not cards, that will decide the fate of online gambling in the U.S.
The battle rests on a bill that was passed in the final hours of the 2006 Republican-controlled Congress, when Sen. Bill Frist tacked it onto a port security bill. The Unlawful Internet Gambling Enforcement Act (UIGEA) forbids banks from accepting illegal Internet gambling transactions. In essence, it prevents would-be players from using their debit or credit cards—a standard for online payments—for Internet gambling. Those who support Internet gambling, led by House Financial Services Committee Chairman Barney Frank, are making a final plea to the Treasury Department and Federal Reserve to push back the law for one year, giving them time to repeal it. In response, Sen. John Kyl and Rep. Spencer Bachus wrote a letter to Timothy Geithner and Ben Bernanke urging them to enforce the Dec. 1 deadline. The Treasury and Fed have yet to make a decision, according to a Federal Reserve official.
The problem with UIGEA is it raised more questions than it answered. The law does not make it illegal for people to gamble online, as it focuses on bank transactions. But it failed to define what's considered "illegal Internet gambling." The Treasury and Fed, which are instructing banks on how to enforce the law, did not define illegal gambling either. "The role of financial institutions is not to be policemen of the government," says Mary Dunn, senior vice president of the Credit Union National Association. The finance industry says the law is an unfair burden and also wants it delayed. But if the law goes into effect Dec. 1, all financial institutions must demonstrate they can block online transactions.
The new law won't prosecute individual players, but the risk for gamblers is that online casinos will pull out of the U.S. market. Last week, Golden Casino announced it would no longer take deposits from American players on Dec. 1, according to a gambling trade site. PartyGaming, a publicly traded company, left the U.S. in 2006 when UIGEA passed. The company paid a $105 million nonprosecution fine to the Justice Department, which took UIGEA's passage as a "Congressional mandate" to prosecute illegal online gambling.
The Justice Department believes all Internet gambling is illegal based on the 1960s Wire Act, which was designed to stop bookies from using telephones and passed long before the Internet as we know it existed. The gambling industry disputes this, arguing the Wire Act only applies to sports-betting, not games like poker or roulette. In 2002, the Fifth Circuit Court ruled the Wire Act only applied to sports-betting, but that didn't sway any opinions at Justice. Several offshore executives of online casinos and "e-wallet" payment processors have been arrested in the past few years. In June, the Justice Department froze $33 million in payments to American players from four online casinos.
If Frank gets his online gambling bill passed, however, the Wire Act dispute would disappear. Frank's bill, along with companion legislation from Rep. Jim McDermott, would legalize and tax online casinos, though online sports-betting would remain outlawed. Online gambling could generate up to $42 billion in tax revenue over the next decade, according to a Joint Committee on Taxation report. Spurred on by efforts from lobbyists and advocacy groups, Frank has vowed to overturn what he says is an "outrageous" law. His plans have been sidetracked by finance reform, however, which has eaten up most of the Financial Services Committee's time this year.
The morality debate over Internet gambling doesn't stray far from regular gambling, with a few exceptions. Opponents say the convenience of the Internet gives gambling addicts easy access to the lure of slots and cards, and encourages underage playing. Gambling advocates argue regulated sites will be more difficult for underage players because they will have stricter age verification, and that players should have the same rights online they already have in a casino. But another argument that's also being made is poker should be legalized online because it's a skill game-not a game of chance-and therefore it doesn't fall under UIGEA or the Wire Act. Sen. Robert Menendez has also introduced separate legislation that carves out an exception for poker. "People have been playing this great skill game that's been around for a long time," says Howard Lederer, a professional poker player and member of the Poker Players Alliance. "We're playing against each other, not the house."
Even if the UIGEA is enacted, it's unlikely online gambling would disappear completely. There are ways for American players to circumvent bank regulations, including setting up a foreign bank account. "We're all holding our breath and hoping the petition will be accepted," Lederer says, but that isn't the industry's only option. Online poker could be legalized through the courts on the argument that the Wire Act doesn't apply to poker. The industry is waiting to see what happens Dec. 1 before taking any action, he says. But if they do head to court, Lederer likes the odds.