Internet Gambling: Innocent Activity or Cybercrime?
Laura Woods Fidelie
Midwestern State University, USA
Abstract
Internet gambling has presented a wide range of challenges
pertaining to its acceptability by world governments, regulation
of use, and potential for abuse. This paper explores the history
of Internet gambling, government attempts to regulate Internet
gambling, and the problems associated with regulation. Further it
examines Internet gambling’s costs to society and the associated
criminal element and also looks at potential solutions with
regards to regulation of this business. The author recommends that
because of the great difficulty in banning Internet gambling,
governments should regulate and tax these online business
ventures. The author suggests that because of the unclear legal
status of Internet gambling, there must be a legislation
explicitly defining what is and is not permissible activity, as
well as an emphasis on regulation by world governments and
self-regulation by the Internet gambling businesses.
Keywords:
Internet Gambling; Regulation; Criminal Element; Business
Introduction
Since its arrival on the gambling scene, Internet gambling has
created significant issues and disputes pertaining to its legal
status, regulation schema, and associated societal issues.
Internet gambling is considered a global issue, as well as an
international business venture, which has an effect upon numerous
countries (Andrle, 2004, p. 1389). Despite its global impact,
Internet gambling is primarily utilized by American citizens.
Since it is an activity in which the people of many countries
participate, Internet gambling presents unique challenges to the
United States government regarding its regulation (Tedeschi,
2003).
Gambling is an industry which has undergone many changes
throughout its existence. Though there have been periods, in
which it was considered an immoral activity, most people now
consider it an acceptable form of entertainment (Deverensky, Gupta
& Magoon, 2004). Gambling is generally controlled by state
governments in an exercise of their police powers (Rose, 2005).
However, Internet gambling’s interstate and international scope
necessitates its governance by federal law. There have been
numerous attempts to utilize current federal statutes and to pass
new legislation to effectively regulate Internet gambling (Parke &
Griffiths, 2004).
The approach currently utilized by the U.S. is to prohibit all
Internet gambling. Until recently, the U.S. government relied
almost exclusively upon the Wire Act to enforce its prohibition (Frese,
2005). However, in 2006 the U.S. government enacted federal
legislation that specifically addresses Internet gambling. This
was accomplished through the passage of the Unlawful Internet
Gambling Enforcement Act (31 U.S.C. § 5363), hereafter referred to
as the UIGEA. However, this legislation has proven largely
ineffective in providing guidance on Internet gambling regulation,
and has failed to successfully prohibit online gambling (Rose,
2008). Because of the difficulties in utilizing federal statutes
to govern Internet gambling, some states have also enacted their
own laws and policies regarding online gambling activity (Chiang,
2007).
Since Internet gambling is extremely difficult to regulate, a
complete prohibition creates extensive problems for law
enforcement. Bringing legal action against Internet gambling
participants presents significant issues for courts in gaining
jurisdiction over the participants, determining an appropriate
choice of law, and enforcing a judgment (Reidenberg, 2005). There
are also many societal issues associated with Internet gambling,
including an increase in compulsive gambling, abuse by minors,
money laundering, and the proliferation of cybercrimes. Since
prohibition has proven ineffective, it may be prudent for
governments to allow online gambling, and subject businesses to
regulation and taxation.
Background
In the year 2000, investors believed that most Internet
industries would be able to make a considerable profit as the
Internet became a prevalent force in the economy. Though many
have been unsuccessful, the Internet gambling business has been
one of the most profitable (Furlong, 2005). Over 2,000
Internet-based gambling businesses are currently in operation
(American Gaming Association). In 2005, the total revenue for
Internet gambling businesses exceeded $12 billion (Herron, 2006).
It is expected that online gambling will generate yearly revenues
exceeding $20 billion by 2010 (McMullan & Rege, 2007). There are
12 million people in the world who participate in Internet
gambling on a regular basis. Over 5.3 million of these
participants are American citizens (Tedeschi, 2003). While some
states have legalized forms of casino gambling, Internet gambling
is not permitted in any U.S. state. States view many aspects of
casino gambling as favorable, such as job creation and the local
economic stimulation. However, Internet gambling does not provide
these benefits. Instead, Internet gambling is generally viewed as
a vice activity with the potential to bring great harm to society
(Pope, 2005). Internet gambling has been associated with negative
economic consequences such as a reduction in tax revenue and
creating significant problems for banks and credit card companies
(Hammer, 2001). The perception of its undesirable effects have
resulted in Internet gambling’s continued prohibition throughout
the U.S. However, there are many practical and legal concerns
with prohibition.
Internet Gambling Regulations
Despite its acceptance by many world governments, the U.S.
prohibits all forms of Internet gambling. There have been
numerous attempts to slow this industry’s growth and to prevent
Americans from taking part in this activity. The federal
government uses its powers given by the Commerce Clause of the
U.S. Constitution to govern gambling “where constitutional
provisions, such as with Indian gambling, were relevant, where
there was concern for the involvement of organized crime, or where
the federal government might have to settle a dispute between
states” (Frey, 1998). In August, 2002, the U.S. Department of
Justice stated that it interpreted online gambling to be illegal
for U.S. citizens when the Nevada Gaming Control Board was
informed “that Internet gambling was prohibited under a series of
federal laws” (E-Commerce, 2002). The Department of Justice
stated that when prosecuting an online gambling action, it would
consider the gambling activity to have taken place within the
physical vicinity of the gambler, and within the jurisdiction of
the website’s location. Therefore, a U.S. state could be held
responsible for Internet gambling even if the majority of activity
is taking place outside the U.S. (Andrle, 2004).
Considering the fact that for many years there was no legislation
explicitly banning Internet gambling, the government relied upon
provisions of other acts that were interpreted to include an
online gambling prohibition. However, after numerous attempts by
Congress to pass a law specifically addressing online gambling,
President George W. Bush signed the Unlawful Internet Gambling
Enforcement Act on October 13, 2006. Though this Act specifically
imposes a ban upon Internet gambling, the legality and
enforceability of this law has been surrounded by issues,
confusion, and controversy.
Unlawful Internet Gambling Enforcement Act
Despite hope that
the first piece of legislation specifically addressing Internet
gambling would do much to eradicate associated problems; the UIGEA
has been riddled with criticism. First, it is questionable as to
whether the Act was properly considered by members of Congress at
the time it was passed. The UIGEA is contained within Title VIII
of the SAFE Port Act, which addresses the security of United
States ports. In a world after September 11, 2001 and at a time
in which national security breaches were becoming commonplace, it
would be difficult to find a Congressperson who did not support
strengthening U.S. port security. The SAFE Port Act passed by a
vote of 421-2 in the House of Representatives, and 98-0 in the
Senate (H.R. 4954). It is unfortunate that while they were voting
for an increase in national security, the U.S. Congress also
passed a measure that further contributes to the unclear legal
status of Internet gambling.
The UIGEA criminalizes the receipt of money for any unlawful
online gambling transaction. The UIGEA provides sentences of up
to five years in prison for violators. However, the UIGEA does
not clearly define what activities constitute an unlawful online
gambling transaction. The UIGEA’s definition of unlawful Internet
gambling includes only gambling activity made illegal under
existing state or federal law (31 U.S.C. §§5361-5367). However,
it was the lack of clarity in existing legislation that the UIGEA
was intended to elucidate. Historically, the Wire Act has been
the mechanism most frequently used by the Department of Justice in
the ban on Internet gambling. However, the legitimacy of the Wire
Act’s applicability to online gambling has been frequently
challenged (Pope, 2005). The UIGEA does not take any steps to
clarify the application of the Wire Act to Internet gambling. The
drafting of the UIGEA would have been an ideal time for lawmakers
to clearly define illegal online gambling transactions and
eliminate the need for questionable interpretation of legislation
passed before the Internet even existed. Because of its failure
to define the criminal act being prohibited, the UIGEA cannot be
properly utilized in prohibiting online gambling. Despite the
apparent victory of the UIGEA’s passage, the ambiguity of the Act
forces the government to continue looking to unclear
interpretations of other laws in its attempt to enforce a ban on
Internet gambling.
The only crime addressed by the UIGEA is the knowing acceptance of
money transfers for illegal Internet gambling (31 U.S.C. § 5363).
The UIGEA does not criminalize actually transferring money for
online gambling, only the receipt of those funds. In essence,
while the UIGEA has criminalized a financial institution’s
processing money for Internet gambling transactions, it does
nothing to restrict the gambling activity of players. The UIGEA
does not criminalize placing bets over the Internet, nor does it
prohibit sending or transferring money for Internet gambling
(Rose, 2008). This is an ineffective and impractical method of
stopping Internet gambling. Because of the significant number of
transactions large financial institutions process daily, it is
inevitable that a financial institution will unwittingly accept
online gambling transactions. However, it is unlikely that an
individual or business would take the affirmative act of
transferring money to place an online wager without knowing the
purpose for which the money was being used.
At this point in time, there is no law that specifically
prohibits placing a bet over the Internet. This is particularly
problematic because it is individual gamblers who actively
participate in online gambling, not the financial institutions
that process the payments. Placing the sole responsibility for
online gambling in the hands of financial institutions is
analogous to allowing a burglar to go free, and instead punishing
the merchant who sold him the crowbar used to break into a home.
While financial institutions may have some complicity in the
continuation of Internet gambling, allowing them to be the sole
targets of law enforcement is by no means a comprehensive method
of regulating this industry.
Another significant problem with the UIGEA is that the
responsibility of identifying gambling transactions has been given
entirely to financial institutions (31 U.S.C. § 5364). This will
likely cause these businesses to cease many legal transactions in
order to avoid potential penalties. Monitoring each transaction
will increase the cost of doing business by billions of dollars
each year, which will likely be shifted onto customers. Requiring
financial institutions to place identities on specific
transactions will certainly cause significant holdups and greatly
increase the potential for breakdown in the financial system.
Effectively monitoring each transaction and identifying those
associated with illegal Internet gambling is virtually
impossible. Financial institutions transfer trillions of dollars
a day throughout the world, making individual transaction
identification simply too cumbersome for any business to handle
(Rose, 2008). Furthermore, the Act does not clearly specify what
constitutes as an illegal Internet gambling transaction, making it
impossible for financial institutions to identify and stop the
correct transactions, even if they were able to examine each one
individually.
Another shortcoming of the UIGEA is that it does not give any
guidelines for recognizing and dealing with Internet gambling
transactions. If financial institutions are given the
responsibility of screening transactions, but are not given any
sort of uniform guidance about how to do this, it will lead to
disparate screening among institutions. Charging financial
institutions with detecting law violations without governmental
guidance leaves too much legal discretion in the hands of these
businesses. The UIGEA essentially requires financial institutions
to act as law enforcement officers in detecting and stopping
illegal Internet gambling (Tripoli, 2008). Some will certainly be
more lenient than others in reporting these transactions, which
will lead to financial institution shopping among Internet
gambling businesses.
Wire Act of 1961
Before the passage of the UIGEA, the law most frequently
used to regulate online gambling was the Wire Act. This law was
passed to aid state governments with “enforcement of their laws
pertaining to gambling, bookmaking, and like offenses and to aid
in the suppression of organized gambling activities by prohibiting
the use of…wire communication facilities which are or will be used
for the transmission of certain gambling information in interstate
and foreign commerce” (McGinty, 2005). The Wire Act makes it
illegal to take part in a betting or wagering business, and to
deliberately use a wire device to communicate a wager on a
sporting event over interstate or international lines. The Wire
Act also prohibits using a wire device to transmit money or
information for a bet or wager on a sporting event. To be
responsible for a violation of the Wire Act, an individual must
participate in gambling activities frequently and extensively, and
must know that the acts are being committed. The Wire Act is
limited in that a conviction requires involvement in a betting or
wagering business, is not applicable to individuals who place bets
over the Internet, and is only applicable to sports betting (Wire
Act, 1961).
Several recent cases have helped clarify the Wire Act’s
applicability to Internet gambling. In United States v. Cohen,
Jay Cohen ran the World Sports Exchange from an offshore sports
gambling site, and was convicted of a Wire Act violation. The
court held that Cohen had violated the Wire Act because such
betting is illegal in New York (U.S. v. Cohen, 2001). The
Second Circuit Court of Appeals “took a strong stand against
Internet gambling, putting all offshore Internet gambling
businesses…on notice that they may be criminally liable if they
accept bets transmitted from within the U.S.” (Manter, 2003).
Similarly, it was held in People ex rel. Vacco v. World
Interactive Gaming Corp., that an online gaming business
operating from Antigua had violated the Wire Act, and that the
business was subject to jurisdiction in the state of New York (People
ex rel. Vacco v. World Interactive Gaming Corp., 1999). This
holding was extended in U.S. v. Kaczowski, in which a New
York district court held that an Internet gambling operation had
violated the Wire Act since the bets at issue were made in New
York. The fact that the bets were accepted in a country where
Internet gambling was permitted did not preclude a Wire Act
violation (U.S. v. Kaczowski, 2000).
However, the scope of the Wire Act is not broad enough to regulate
all Internet gambling businesses. In In re Mastercard
International, a Louisiana district court held that the Wire
Act did not apply to Internet gambling for gaming activities other
than sporting events. The case was dismissed because the business
engaged only in online casino gambling (In re Mastercard Int’l,
2001). Because of the significant amount of ambiguity with
enforcing an Internet gambling prohibition by means of the Wire
Act, one of the original goals of the UIGEA was to ensure the Wire
Act’s applicability to all Internet gambling transactions.
However, the UIGEA has failed miserably in extending the Wire
Act’s enforceability.
Issues with Federal Gambling Regulations
In addition to the difficulty of applying federal law to Internet
gambling, the government also encounters many problems in actually
enforcing the law. One major problem is the remote locations of
most Internet gambling sites. While Internet gambling is
prohibited in the U.S., these operations often have licenses and
are legal businesses in locations such as the Caribbean, Costa
Rica, and various countries throughout Europe. Since the only
people who can be prosecuted under the Wire Act are those who are
involved in the businesses, the majority of those who could be
held responsible are located outside the U.S. (Frese, 2005).
Personal Jurisdiction
The struggle pertaining to which court has jurisdiction
over Internet transactions is a significant issue in a society in
which technology plays a dominant role (Reidenberg, 2005).
Internet transactions allow individuals throughout the world to
interact. As online transactions increase, so do the number of
associated disputes. This creates a problem for any court
attempting to gain jurisdiction over an online dispute. Many
technology companies advocate that online activities should be
granted legal immunity (Reidenberg, 2005). In order to gain
personal jurisdiction over a dispute, “a defendant must have
sufficient minimum contacts with the forum ‘such that the
maintenance of the suit does not offend traditional notions of
fair play and substantial justice’” (Int’l Shoe Co. v.
Washington, 1945). Many people who hold this viewpoint of
legal immunity strive to use the distance created by Internet
technology as the basis for denying the existence of sufficient
minimum contacts.
A lawsuit between a French organization and the American company
Yahoo! exemplifies the struggle between technology and
jurisdiction. In France it is illegal to display or transmit any
images of Nazi symbolism. However, Yahoo! allowed the
transmission of images depicting Nazi symbols on its website,
which could be accessed in France. These symbols are protected
under the U.S. Constitution, yet are banned in France. This
created a problem when a French organization brought suit against
Yahoo! for transmitting the images. Yahoo! argued that since it
was operating from within the U.S., French law was inapplicable.
Yahoo! also argued that Internet technology prevented the company
from complying with French law since images on a website cannot be
exclusively confined to users located in the U.S. (Reidenberg,
2005). The French courts rejected this argument and stated that
Yahoo! must be held accountable under French law. A California
federal court held that the French government could not exercise
jurisdiction over an American company (Yahoo v. La Ligue Contre
Le Racisme, 2001). However, this holding was overturned by
the Ninth Circuit Court of Appeals, which held that “the
California court had no personal jurisdiction over the French
parties, and that France had every right to hold Yahoo!
accountable in France” (Reidenberg, 2005). The Ninth Circuit
dismissed the case in 2006. The long process of merely
determining which court could exercise jurisdiction over this
dispute shows the many difficulties in adjudicating online
disputes.
Choice of Law
Another issue is deciding what law will be applied in determining
an outcome of the case. This is a difficult question, as the
Internet and its users are widespread and not located in a
centralized geographical area. One of the main goals of conflict
of laws jurisprudence is “to avoid forum shopping and promote an
efficient resolution of disputes when cases have international
dimensions” (Reidenberg, 2005, p. 1957). There has been some
progress in clarifying the choice of law for online disputes. In
2000, U.S. law was successfully applied to a Canadian company in
Twentieth Century Fox Film Corp v. iCrave TV, a dispute
regarding iCrave’s airing of videos within Canada (Twentieth
Century Fox v. iCraveTV.com, 2000). The Children’s Online
Privacy Protection Act, “contains a choice of law provision in its
definitions that applies the protections of the American statute
to any website, regardless of its place of origin, that collects
personal information from children” (Reidenberg, 2005, 1957). Any
organization that collects personal information within the
European Union is subject to a similar choice of law rule under
the European Directive (Directive 95/46/EC). One problem with
these provisions is that some people may conduct this activity
from a “safe haven” location. For example, the First Amendment of
the U.S. Constitution protects hate speech, pornography, and
privacy data. Since various aspects of these things are forbidden
in many countries, people who engage in such activities may seek
refuge in the U.S. to avoid prosecution (Reidenberg, 2005, p.
1958). Likewise, Internet gambling may be conducted from a safe
haven location.
Enforcement of Judgments
Once a court has heard a dispute, the distance and anonymity of
the Internet presents difficulty in enforcing a judgment. It is
particularly difficult for a court to enforce a judgment against a
company whose operations are located outside the country, as is
the case with many Internet gambling businesses. Language issues
in the previously-mentioned Yahoo! case greatly distorted the
intent of the French court’s decision when it was translated into
English. It is challenging for a court of one nation to impose
its judgment upon a foreign company when the company is not
entirely sure what action is required by the foreign court. This
confusion in the issuance of orders creates a tremendous obstacle
in the enforcement of judgments over matters with an international
scope, such as online gambling (Reidenberg, 2005, pp. 1958-59).
The
location of Internet gambling operations also presents an
enforcement issue because the countries where the operations are
located would have to cooperate with American law enforcement
officials in order to bring about a successful prosecution (Pope,
2005). The countries where Internet gambling operations are
located often rely on these businesses for the employment of their
citizens. Therefore, a host country’s government would likely be
unwilling to assist U.S. law enforcement in prosecuting and
shutting down these businesses.
Societal Costs
One question that must be addressed is whether Internet gambling
should be banned, regulated, or left alone. Gambling has long
been considered a victimless crime, in that all people who take
part in the illegal transaction are willing participants. But as
is the case with other victimless crimes, there is a price that is
often paid for online gambling. Increases in hacking, identity
theft, stalking, and cyber extortion have shown us that while the
Internet is a tremendous invention with many advantageous uses,
the crimes associated with its use have taken a toll on society.
Increase in Gambling Addiction
Many people have a problem with compulsive gambling. Because of
the anonymity of the Internet, easy access to online gambling
sites often aggravates an individual’s gambling problem
(Griffiths, 2003). By using these sites, a compulsive gambler is
able to indulge their addiction from the comfort of their own home
without witnesses. One reason that some credit card companies
refuse to transact Internet gambling payments is that so many
compulsive gamblers also have significant financial problems. The
financial issues of these compulsive gamblers then become the
problems of the credit card companies when gamblers are unable to
pay their credit card bills (Ormand, 2004). Credit card companies
must also consider the possibility that these compulsive gamblers
may not be required to pay for charges incurred from Internet
gambling because the law does not require the enforcement of most
gambling debts. Credit card companies also take a risk of
compulsive gamblers making fabricated reports of their card being
stolen in order to avoid paying the charges made to Internet
gambling businesses (Rose, 2003).
It is thought that Internet gambling is more frequently utilized
by pathological gamblers and is more closely associated with
destructive behavior patterns than casino gambling (National
Gambling Impact Study Commission, 1999). A 2002 study shows that
while Internet gambling is not the most prevalent form of gambling
among Americans, it is those who utilize Internet gambling that
are more likely to have serious gambling problems. The study
revealed that 74% of online gamblers were either problematic
(Level 2) gamblers, or pathological (Level 3) gamblers. In
contrast, only 22% of casino gamblers, who did not participate in
online gambling, reached such destructive levels (Ladd & Petry,
2002).
Studies have shown that when participating in gambling activities,
people prefer small, intimate gatherings. This preference leads
to more pathological gambling behavior associated with Internet
gambling than with a casino simply because people feel most
comfortable in their own home. When people go to a casino, at
some point they will leave and return home. When someone is able
to engage in this activity from the comfort of their living room,
there is little incentive to stop. When the ability to gamble is
combined with the familiarity of one’s home, someone with
pathological gambling tendencies can easily spiral out of control
(Tselnik, 2007).
Issues for Young Populations
Despite the legal
prohibitions against minors taking part in gambling activity,
research has shown that underage individuals do participate
frequently in Internet gambling. One reason is that minors have
extremely easy access to Internet gambling forums. While age
restrictions in casinos are generally quite rigid, the age checks
on Internet gambling sites are easily circumvented. Rather than
having a security person check identification, many sites simply
ask a participant whether they are of legal gambling age. Others
ask for an identification number for age verification. Minors are
able to get around this regulation by giving an identification
number obtained from individuals of any age. Often participants
are not asked about their age, since many gambling websites
operate from locations where there is no minimum age for gambling.
Allowing minors such easy access to online gambling creates a
problem for society since individuals who begin gambling at a
younger age have a greater tendency to have serious gambling
problems later in life (Deverensky et al, 2004). Studies have
shown that the rates of pathological gambling are much higher for
adolescents than they are for adults. It is estimated that
proportionally, adolescent populations have pathological gambling
rates approximately three times that of adults (National Research
Council, 1999). Research has also shown that adolescents with
gambling problems take greater risks, lie more frequently, have a
heightened suicide risk, have a higher risk of multiple
addictions, and are more frequently involved in criminal activity
(Deverensky et al, 2004).
These issues for adolescents are particularly relevant to Internet
gambling because of the great appeal of gambling online to a
generation that enjoys using advanced technology, and which relies
upon the Internet throughout many aspects of their daily lives.
The Internet is a very popular medium for adolescents to use for
gambling since it can be utilized in their homes without the
intrusion of their parents or casino security. Internet gambling
is also appealing because of the offers for free games and rewards
to those who participate in the games offered by that site.
Adolescents are particularly susceptible to the lure of Internet
gambling because they often do not understand that gambling
involves games of random chance. Many minors believe that they
will improve with practice, which leads them to continue
participating with the belief that they will be able to control
the events of the game. Many gambling sites attempt to lure
adolescents by setting up practice sites where no money is needed
to play. This subsequently encourages minors to make a switch to
a “for money” Internet gambling site. These practice sites are
appealing because they make adolescents feel like highly skilled
gamblers who are immune from the development of a gambling
problem. These online enticements directed at a technology-driven
generation means that the problems associated with Internet
gambling pose a very significant risk to today’s adolescent
population (Messerlian, Byrnes & Deverensky, 2004).
Online gambling has also been shown to be particularly prevalent
among college-age individuals (Kindt & Joy, 2002). Though they
are at a legal age to gamble, young college students are
especially vulnerable to the risks associated with Internet
gambling. Many of them have only recently begun living alone and
are having their first experiences with the newfound privacy of
being away from their families. This independence gives college
students the long-awaited ability to have complete control over
their activities. Most college students spend a significant amount
of time on the Internet each day. Online gambling sites provide a
means of stress relief and a welcome break from academics. When a
college student is writing a paper for a course or completing an
online assignment, it is very easy to for them to switch back and
forth between this and an online gambling activity. It has been
suggested that the lure of these gambling sites, combined with
their easy access to underage individuals and young adults, may be
creating a new breed of problem gamblers within today’s youth.
This will then lead to a host of social and economic problems that
will be faced by this generation in future years (Messerlian et
al, 2004).
Proliferation of Cybercrimes
There is no doubt that the Internet has transformed the
society in which we live and work. Communications and
transactions that used to take hours, days, or even weeks can now
be completed within mere moments. Rather than taking a trip to
the bank, we now conduct complicated financial transactions over
the Internet. We can communicate with multiple people in
different countries from the comfort of our homes. Just as these
modern conveniences were unheard of few years ago, so were
cybercrimes such as hacking, phishing, cracking, and intellectual
property theft. The Internet has also added a new dimension to
crimes that are familiar to us, such as stalking, harassment,
extortion, and identity theft, which can now be committed through
the use of a computer. Internet gambling also poses issues in
relation to a significant new area for money laundering potential
(Palmers, 2007). As new dimensions of human interaction are
opened for us, criminals who wish to exploit these advances are
sure to follow closely. These cybercrimes present a set
of unique issues for the criminal justice system. One of the most
perplexing is that while the culprit is a very real threat to the
online victim, the offender is anonymous. This lack of eyewitness
identification makes it extremely difficult for law enforcement to
identify and catch these criminals. Cybercriminals also have a
greater range of victim selection. Because these crimes are
committed over the Internet, there is no need for the perpetrator
to be located in physical proximity to their victim. A
cybercriminal has the ability to target anyone who is online.
These wrongdoers have inflicted an extensive amount of damage to a
large number of victims, thus giving law enforcement agencies a
strong interest in regulating the online channels through which
these criminals continue to violate the law. Several of these
cybercrimes are closely associated with Internet gambling.
One of the crimes that most frequently accompany Internet
gambling activity is cyber-extortion. The way that most
cyber-extortion is conducted is through the installation of virus
programs on computers belonging to online gambling businesses.
The viruses eventually consume all of the computer’s available
disc space, which effectively prevents online gamblers from
utilizing the services of the online gambling business (McMullan
et al, 2007, pp. 650-651). So long as the attack continues,
customers cannot take part in Internet gambling, and any profits
that would be seen from their business are lost.
After it becomes apparent to the gambling operation that their
business is under attack, they are then contacted and a demand for
money is made in exchange for cessation of the attack. The amount
of money involved has frequently been quite substantial. The
average demand amount is between $20,000 and $60,000 (McMullan et
al, 2006, p. 653). Culprits of cyber-extortion often choose to
conduct their attack when the activity of the gambling business is
at its peak, such as during major sporting events. Because the
amount of money demanded is often substantially less than the
amount that will be lost if the attack continues, many Internet
gambling business have chosen to simply comply with the demands.
However, the problems generally do not end with the payment of an
extortion demand. When cyber extortionists find a company that is
willing to pay in order to prevent a loss of revenue for being
offline, they often go back to the same company with more
demands. Generally, the cyber-extortion attacks cease for fewer
than six months before new demands are made (McMullan et al, 2006,
p. 652-654).
The most visible of these cyber-extortion attacks are not
performed by individual criminals, but by highly organized cells
with a clear chain of command and a relatively large operating
budget. The organization of these cyber-extortion networks
indicates that there may be a meaningful comparison to the
organized crime presence so often seen in casino gambling venues.
As with other cybercrimes, it has proven practically impossible
for law enforcement to track and punish those who commit
large-scale cyber-extortion. In reality, “many police forces
simply [do] not possess the capacity to investigate crimes that
were committed from remote places in sovereign jurisdictions where
the criminals were not even present” (McMullan et al, 2007, p.
659). Most law enforcement agencies are preoccupied with
crime-fighting agendas in their own jurisdictions, and are unable
to effectively monitor Internet-based crimes. Law enforcement
agencies are also faced with the reality that the mechanisms for
committing technologically-based crimes change rapidly. Indeed,
the deputy director of SRI International’s Computer Science Lab
stated that “we’ve known about [the threat from] botnets for a few
years, but we’re only now figuring out how they really work, and
I’m afraid that we might be two to three years behind in terms of
response mechanisms” (Naraine, 2006). There is little doubt that
by the time appropriate response mechanisms are created,
cybercriminals will have discovered a new method of committing
these online crimes.
Indeed, the web-based element of Internet gambling may even
exacerbate the criminal elements of traditional gambling.
Research indicates that in addition to traditional organized crime
alliances, advanced technology may give rise to cybercriminal
organizations which would fail to exist without information and
communications technology. While traditional organized crime
organizations necessitate that the participants be acquainted with
one another, the advent of the Internet allows people who know
each other only through online means to work together to
accomplish a common criminal goal (Choo & Smith, 2007). It is
highly problematic for society to condone an activity that
encourages the formation of additional organized crime groups
which would be impossible to form and maintain without the
assistance of advanced technology.
Potential Solutions
The U.S. government
has long advocated a need for clearer and more defining
legislation in regards to online gambling. In order to resolve
the problems associated with the prohibition of Internet gambling,
it will be necessary for gambling statutes to clearly define what
behavior is and is not acceptable under the law, and who can be
held responsible for law violations. It is also necessary for the
government to unambiguously set forth penalties for law violators,
and to ensure that these consequences are strictly enforced.
However, in order to effectively regulate online gambling, and to
avoid the extensive problems that frequently accompany gambling
among at-risk populations, the government should focus on
solutions that encourage management and supervision, rather than
total prohibition, of online gambling (Andrle, 2004). This is the
most prudent solution, since a total prohibition of online
gambling has proved impossible for the government to effectively
implement. A total prohibition will not be able to realistically
bring about the goal of reaching those populations who stand to be
injured by online gambling, such as minors and compulsive
gamblers. With today’s rapidly advancing technology and the
skills of many computer users, it is far too easy for these
individuals to circumvent an Internet gambling ban. Some experts
even suggest that a total prohibition of online gambling would
worsen the problem by discouraging legitimate American casinos,
who are equipped with thorough and effective security measures,
from establishing online gambling businesses and further
legitimizing the Internet gambling industry. Discouraging the
entrance of these respected businesses into the Internet gambling
industry will encourage the expansion of disreputable online
gambling businesses, which have little or no interest in assisting
the government by weeding out participants who are underage or who
have significant problems with compulsive gambling (Loscalzo &
Shapiro, 2000, p. 19). It has been suggested that regulation is
necessary because prohibition does not prevent, but rather
exacerbates money laundering and fraud (Hugel & Kelly, 2002).
Another issue with prohibition is that this rapidly
advancing technology will continue to grow and change in ways that
are not anticipated by prohibitive gambling statutes. Though it
is impossible to foresee exactly how this will occur, new
technological innovations will continue to advance in a way that
will provide methods for Internet gambling participants to
sidestep prohibitive legislation. Since people are unable to
foresee future challenges, lawmakers are forced to be reactive
rather than proactive in producing legislation to regulate or
prohibit Internet gambling (Parke et al, 2004). Since Internet
gambling comprises a significant portion of Internet-based
revenue, online gambling businesses have a vested interest in
seeking out and pursuing ways to get around prohibitive Internet
gambling statutes, and will likely do so through the use of
changing technology.
Another argument against total prohibition is that banning
online gambling effectively closes down one of the only
Internet-based businesses that have shown itself capable of
regularly producing a profit. A complete ban on Internet gambling
is an unwise policy because of the tremendous amount of revenue
that the government is passing up by forcing Internet gambling
businesses into the jurisdiction of other countries. It has been
estimated that the legalization of online gambling could generate
taxation income for the government in excess of $2.5 billion
(Internet Poker could Net U.S. Billions in Tax, 2006). If the
government were to allow Internet gambling businesses to operate
within the United States, online gamblers would be paying money to
American businesses, which would then be pumped back in the U.S.
economy. The U.S. government would also be able to generate a
significant amount of revenue by taxing these domestic
businesses. Instead, by forcing these online gambling businesses
offshore, American citizens, who comprise a significant percentage
of online gambling participants, are paying their money to foreign
businesses and thereby fueling the economies of other countries.
The British government has legalized Internet gambling within the
borders of its nation. Great Britain has subsequently realized a
significant amount of revenue from governmental taxation and
regulation of these businesses (Timmons & Pfanner, 2006). If the
American government was to follow the British lead of imposing
regulation rather than prohibition, similar amounts of taxation
revenue would soon be realized. The ability of American online
gamblers to transact with American gambling businesses would
likely strengthen the American economy by keeping money and
business internal. By licensing online gambling, businesses in
compliance with the law would then be permitted to run regulated
online gambling establishments. This would serve to legitimize
the Internet gambling industry and help push out the fraudulent
companies that prey on vulnerable populations.
Forward-thinking legislators have realized that the
prohibition of Internet gambling has been futile, and that it is
in the government’s best interest to regulate and tax these
profitable businesses. In April, 2007, Massachusetts
Representative Barney Frank and Texas Representative Ron Paul
introduced the Payments System Protection Act, which would prevent
the government from enacting further regulations to enforce the
UIGEA (Payments System Protection Act, 2008). Frank and Paul’s
bill called for the licensure and government regulation of online
gambling businesses. Provisions of the bill are aimed at limiting
the ability of minors and compulsive gamblers to access online
gambling, and protecting against money laundering and fraud
(Kaplan, 2007). However, the bill was defeated by the House
Committee on Financial Services. On September 11, 2008, Frank
introduced a new version of the Payment Systems Protection Act.
The goal of this Act is to simplify the process of screening
illegal online gambling transactions for financial institutions.
This Act requires the Department of the Treasury and the Federal
Reserve to produce a set of guidelines to instruct financial
institutions on exactly what procedures must be followed in
enforcing the current ban (Costigan, 2008).
Importance of Self-Regulation
Because of the absence of a coherent, uniform set of
guidelines for the regulation of Internet gambling, it is
extremely important for online gambling businesses to practice
self-regulation in order to establish themselves as a credible
business operation. The first self-regulation was started by the
creation of the Interactive Gaming Council in 1996. This group
voices its support for the government regulation of Internet
gambling, and has tried to help establish Internet gambling as an
ethical, regulated, and credible industry. In 2003, the
Interactive Gaming Council formed the eCOGRA organization. eCOGRA
stands for e-Commerce Online Gaming Regulation and Assurance.
This organization strives to work for “player protection, fair
gaming, and responsible conduct by operators, without affecting
the rights and operations of existing jurisdictions and
institutions” (Furlong, 2005, p. 213). eCOGRA operates under a
set of standards called eGAP, which represents generally accepted
principles of online business. eGAP consists of three basic
standards, which are Player Protections, Fair Gaming, and
Responsible Conduct. Internet gambling sites which meet eCOGRA’s
standards in these three areas are then given permission to show
eCOGRA’s seal of approval. This seal identifies these Internet
gambling businesses as sites that have been inspected and examined
for authenticity and credibility.
Though the formation of eCOGRA has allowed for significant
progress in establishing Internet gambling as a legitimate
industry, it does not take the place of governmental regulation of
the business. One of the goals of eCOGRA is that self-regulation
of the Internet gambling industry will allow the governments of
various nations to recognize the needs and desires of the Internet
gambling industry, and to translate these standards into governing
laws. There are many credible Internet gambling businesses that
still strongly desire government regulation of Internet gambling,
since government regulation is what will truly establish Internet
gambling as a legitimate industry (Furlong, 2005).
Conclusion
Internet gambling is both a highly profitable online
business, and a form of entertainment in which many individuals
frequently take part. The law currently prohibits Internet
gambling by means of the Unlawful Internet Gambling Enforcement
Act and the Wire Act. Despite their application to online
gambling, the UIGEA and the Wire Act have both been plagued with
substantial issues and have proven quite ineffective at preventing
Internet gambling from taking place. Regulation of Internet
gambling presents significant challenges in obtaining jurisdiction
over a dispute, making an appropriate choice of law, and enforcing
judgments rendered by a court. Despite these problems, the U.S.
government maintains that it has a strong interest in prohibiting
Internet gambling because of its easy access to minors and
compulsive gamblers, as well as potential for associated fraud and
money laundering activity.
There have been many arguments against the enforceability of
proposed regulatory schemes. However, the potential problems that
may result from government inaction, such as an increase in
problems for vulnerable populations and the growth of new
web-based crimes indicate that some type of government action is
quite desirable. Due to the virtual impossibility of enforcing a
total ban on Internet gambling, it is recommended that the
government regulate and tax online gambling businesses that have
proved themselves to be in compliance with government standards.
This would allow the government to see significant revenue from
taxation, contribution to the economy, and the legitimization of
law-abiding businesses. It is also recommended that the
government encourage online gambling businesses to join with
similar businesses in the process of self-regulation. Since such
a large number of people participate in online gambling, and the
growth in the business has been tremendous, the government must
realize that a complete ban is not practical, but that many
societal benefits can be derived from appropriate regulation.
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