Previous Article WWWiz Home Next Article


Senate Opts for Internet Gambling Ban

Rather Than Regulation

by Shelley M. Liberto, Esq.

In May of this year, Senator Jon Kyl (R-Arizona) successfully garnered a unanimous vote from the Senate's Technology, Terrorism and Government Information Subcommittee to pass his Internet Gambling Prohibition Act. The Bill is marked by a policy choice of outright prohibition of Internet gambling rather than government regulation as is followed under the Australian model. The prohibition would not apply to "closed-loop" gambling intra-state. The Bill also includes a controversial provision calling for criminal penalties against Internet Service Providers for hosting illegal Internet gambling sites.

Kyl's bill would include the Internet as one of several illegal means of hosting interstate and foreign gambling under existing laws that now prohibit gambling over wire communications such as telephones. In his introductory statement, Kyl cites gambling addiction and "terrible consequences for families and communities" as the motivation for the legislation. According to Kyl, the Justice Department estimates that Internet gambling was a $600,000,000 industry in 1997. As proposed, the Act would slap cybercasino operators with fines of up to $20,000 and four years in prison for each violation. Internet casinos based on Indian reservations would also be prohibited. An earlier draft of the bill would have penalized "casual" bettors with $500 fines and three months in prison for each gambling act. This provision was dropped from the final version. Additionally, Internet Service Providers will be held criminally liable unless the provider removes or disables access to gambling sites hosted by it in a "reasonable and expeditious manner."

The Bill does, however, allow "closed-loop" subscriber-based gambling services. To qualify for the exception, Internet gambling must be authorized and operated in accordance with the laws of the state in which it is located, and be used exclusively for placing and receiving wagers within the state. Furthermore, gamblers must subscribe with the government to be allowed to gamble on such an intrastate system. They must also be physically located within the state to gamble. States would also be required to institute a customer verification and age verification system to allow gambling within their jurisdictions.

As may be expected, the proposal has been met with some controversy. Proponents of the bill testified before the House Small Business Committee that a business with 1,000 workers can anticipate increased personnel costs of $500,000 a year due to job absenteeism and declining productivity simply as a result of legalized Internet gambling. They argue that Internet gambling enhances the addictive nature of gambling because it is so easy to log on at home and place a bet. Professor John Kindt testified that electronic gambling in "virtual casinos" on the Internet is the "hard-core cocaine of gambling." Wisconsin Attorney General James Doyle testified before the Senate Judiciary Committee that, because Internet gambling is unregulated, such gambles are "sucker bets" which result in unfair pay-outs.

On the other hand, the Australian government has chosen to avoid outright prohibition in favor of regulation. Under the Australian model, Internet casinos register with the government and pay a license fee. They are also subject to direct government regulation and reporting requirements. Australians generally use the same standards for land-based gambling by doing background checks, checking the solvency of companies, and testing the fairness of the games. Proponents of the Australian model argue that the international nature of the Internet renders the proposed Act, which prohibits Internet gambling altogether, unenforceable as against off-shore casinos. Internet service providers are also concerned that the government is turning them into cyberspace police, charged with the responsibility of surveillance of their clients' activities.

The proposed Bill would not ban hotel-casinos from advertising or offering "how-to" gambling emulations on their Web sites. Nor would it stop domestic gambling on cybercasino sites located abroad. Furthermore, although the Senate voted 90-10 to ban online gambling last year, that law did not clear the full Congress. Given the history of this issue in Congress, and the regulatory alternatives offered under the Australian model, passage of the Act as law in its present form is anything but a sure bet.

Shelley M. Liberto is an attorney whose practice focuses on software- and Internet-related issues. His Web site is located at


Copyright (C) 1998 WWWiz Corporation - All Rights Reserved
Phone: 714.848.9600 FAX: 714.375.2493
WWWiz Web site developed and maintained by
GRAFX Digital Studio

Previous Article Next Article
WWWiz Home