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A Competitive Enterprise Institute Study May Aid the Online Casino Industry


by Hillary LaClair, Senior Editor
February 27, 2009

                The possibility of a legalized online casino industry increased considerably this week, as a Washington research facility released a position paper that supported the industry. The Competitive Enterprise Institute has presented the argument that gambling is legal in the United States, contrary to popular belief. The Institute has opined that the online casino industry has received bad publicity from politicians who use scare tactics to protect domestic gambling facilities.

                “Contrary to such fear mongering, recent examples of online gambling ‘scandals’ have been isolated incidents, and are not symptomatic of a corrupt system. In fact, gambling on the Internet is safer in many respects than gambling in the real world,” the paper reads. “Even so, such fears have resulted in repeated attempts to either limit of prohibit American’ ability to gamble online, as some members of Congress portray Internet gambling as a lawless activity involving only cheats and victims. Most attempts by Congress over the past 10 years to limit or ban online gambling have been unsuccessful, but some recent high-profile scandals at gaming sites have revived such efforts.”

                The CEI paper notes that a great deal of individuals whose finances were put in jeopardy was the  direct result of legislative action taken by the U.S. Department of Justice and the IRS. The specific incident, which occurred in 2007, withheld NETeller payments from casino-goers who were owed winnings. Several key personnel at NETeller were arrested and the affected persons were blocked from millions of dollars. NETeller has since refused to service U.S. online casino players. A similar case arose with Bodog online casino, in a civil forfeiture hearing that the casino shrugged off, where millions were seized that were intended for the payment of U.S. citizens.

                The study continued, reporting that regulation for online casinos does exist under the jurisdiction of industry groups, foreign governments and the casino owners who have established a strict set of rules for the online casinos to adhere to. Organizations such as eCOGRA allow rating systems and mediation to casino players for disputes with any internet gambling facility. Additionally, the gamblers are able to detect collusion in gambling websites, with the Absolute Poker and Ultimate Bet scandals serving as the perfect example. Gambling facilities that are traded on the London Stock exchange adhere to these guidelines to maintain a solid reputation and a position on the market.

                “As a result of gambling’s unique development in America,” the study continues, “there is no set federal regulator or official body tasked with overseeing online gambling. However, that does not mean that Internet gambling faces no government regulation. Many independently operated rating agencies offer certificates for sites that meet standards of security, legality (meaning they guarantee that age-limits are strictly upheld), and fairness. Many of these rating organizations also require Internet casinos to participate in their dispute mediation services in the event that a player feels cheated. These ratings are a viable and effective way for consumers to ensure that their rights are respected in the realm of online gambling.”

                The only form of betting prohibited by U.S. federal legislation is sports betting and Washington is the only state in the U.S. that has a specific law prohibiting internet gambling. The UIGEA does not actually criminalize the act of internet gambling, but rather the funding of any online casino activity. The U.S. government has placed financial institutions at the head of the enforcement of the Unlawful Internet Gambling Enforcement Act of 2006, without a clear definition of what actually constitutes illegal internet gambling.

                “Gambling online for money is legal in the United States, with some restrictions on sports betting… People who fall victim to fraud in online gambling operations are not lawbreakers. Internet gambling does not break any federal law and only one state in the union, Washington, expressly bans it for state residents,” the paper continues. Internet casinos can, by comparison, coordinate and track a user’s IP address and further monitor him and his gambling activity across several gambling platforms and multiple casinos, alerting sister site management and other casino operators.

                Finally, the paper points out how difficult it has become to cheat in online casinos, as any gambling website worth its weight institutes bot and collusion detectors among other fraud prevention software. The author states that cheating in the real world is much easier to pull off than on the internet. The paper also notes that land casinos are more at risk for cheating because they do not support an effective means of observation. The only dealer observation available is a video camera that is only effective when watching a player that is already suspected of cheating – and that even then it is difficult to use the video to prove any misdeeds.

                Conversely, it is easier to detect cheating in online casinos by tracking hands in the history recorded by almost every casino and the IP addresses to which they are attached and that casino operators are able to write effective software to “sound the alarm” if there are suspicious betting patterns – even if the other players are not privy to it.

                “It is far easier to cheat in real-world casinos than it is online. Online cheating requires more technical skill, is easier to track and is harder to get away with than cheating in the real world. In the real world. Cheating can take a variety of forms. For example, players can use marked cards, tamper with gambling devices, pay off dealers, move bets so they ‘pay off’ in certain table games, stack a game with confederates and employ other methods to otherwise goose the odds in their own favor. Most of these tactics are literally impossible to carry out in the virtual world.”

                The CEI concludes in the end that online gambling faces challenges common to any growing industry, as it may be tied to threats or risks that do not exist in the real world, but that it is not illegal, does not take place in a lawless “Wild West” setting and that there are no real grounds for cheating that do not exist in land casinos.

                It is uncertain what effect this study might have on the Obama administration and its decision, if any, that is made on overturning the UIGEA. One thing is for sure, the text provides online casino advocates with political clout that may be used in future legislative battles and a reason to celebrate.