TOPICS > Economy

President Bush Signs Law Banning Internet Gambling

October 16, 2006 at 6:40 PM EST
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RAY SUAREZ: An estimated 8 million Americans made wagers
online last year while playing poker, Blackjack, or betting on their favorite
sports team, from the comfort of their homes and dorm rooms.

It was as simple as point and click: Log on to a gambling
site; most are based outside the U.S. You would then set up an
account, using a third-party company to manage the funds. Add credit card
information and, within minutes, the gambling begins, at a virtual poker table
in real time, spending and losing and sometimes winning real money.

The pastime may be over for many gamblers, since the
president signed the Unlawful Internet Gambling Enforcement Act on Friday, a
piece of legislation Congress quietly attached to a bill on port security.

The act prohibits Americans from using electronic funds
transfers, credit cards, and checks in placing bets with gambling sites
worldwide. The bill holds banks and credit companies responsible for
enforcement of the law.

Several foreign online gambling businesses gave up their U.S. operations
after the bill passed. Estimates put the value of the American online gaming
market around $12 billion in 2005.

Online betting remains open

RAY SUAREZ: Some analysis now on the impact of these changes, from twopeople familiar with the industry. Keith Whyte is the executive director of theNational Council on Problem Gambling. And Lawrence Walters is an attorney whorepresents a number of online gambling companies.

And, Lawrence Walters, if you boot up today, and you go toyour Internet browser, and seek out a gambling site because you want to play afew hands, what's different today from last week?

LAWRENCE WALTERS, Internet Gambling Law Attorney: You know,from the average bettor's perspective, there's not going to be much different,other than the fact that some of the larger and better known sites may nolonger be accepting bets from U.S. citizens.

But your intro piece indicated that Americans are now goingto be prohibited from betting online. That's not really the case: The bill hasno impact on the individual player's activity.

The bill is centered on restricting certain financialtransactions, requiring that banks identify and block transactions goingthrough their servers and their systems, and requiring that the actual sites,the Internet gambling sites, stop and block these transactions. A lot of thoseare overseas, so the efficiency of that law is going to be in question.

But as far as the bettor, they can pop on the Internet andthey can get on one of many different online sports betting or casino sites andstill find a way to get the money to the right people to place the bet.

RAY SUAREZ: So one of the chief Senate proponents of thisbill, the majority leader, Bill Frist, when he said, "For me as majorityleader, the bottom line is simple: Internet gambling is illegal," hewasn't right?

LAWRENCEWALTERS: Not at that time, certainly. The Wire Act, which is the law that'smost commonly identified as the law prohibiting Internet gambling, onlyrestricted the operation of a sports betting Web site, arguably. It didn't haveany impact on online casino games or online poker, which are, frankly, the mostpopular now on the Internet. It was restricted only to sports betting.

A few states have prohibited Internet gambling. And thefederal government seems to take kind of a broad-brush approach and proclaimthat all Internet gambling was illegal, when, in fact, the law had only beenmade applicable to sports betting.

Now that this new act has been passed, the situation is evenmore confused, because the law here seems to refer back to existing law;whatever was prohibited before is prohibited now. Plus, it restricts certainfinancial transactions. So this is one that the courts, I think, are going tohave a field day with, and we won't really know what it does until some courttakes it apart and tries to interpret it.

RAY SUAREZ: Keith Whyte, do you agree with Lawrence Waltersthat, for gamblers or prospective gamblers going online today, the field reallyhasn't changed very much, they aren't doing anything that's illegal?

KEITH WHYTE, National Council on Problem Gambling: I think,for casual gamblers, this bill does create some more barriers. But for bothaddicted gamblers and those that are really serious about it, they'll find away, as Lawrencesaid.

I think the best way to sum up this bill is that it makesillegal what is illegal and it legalizes what is legal. So, in other words,this bill has a carve-out for any type of Internet gambling that is regulatedby a state. It contains a specific carve-out for the racing industry tocontinue to offer online gambling.

So, really, the prohibition of this bill -- it's illegal togamble on the Internet in states where it illegal to gamble on the Internet. Andin states where it is legal or that might want to legalize it, it's perfectlyallowable.

Cutting off the flow of money

RAY SUAREZ: What about the restrictions on banks and creditcard companies? Does it make it more difficult to have chips on your end of thetable, whether you're playing roulette or Blackjack or poker?

KEITH WHYTE: Absolutely, because, you know, the bill isinteresting, in that it doesn't make gambling on the Internet illegal. It makesfunding your wager on the Internet illegal. So the transaction is -- thefinancial transaction is what is criminalized here, not necessarily the stateof play.

But I assume, and as Lawrencesays, that people will find a way to develop offshore accounts. If this wasjust gambling or even just gambling pornography, that would be one thing. But,in essence, this bill is saying to Americans: You can buy anything you want onthe Internet, except gambling, and it's calling on the banks to try and enforcethat.

Now, segregating out a gambling transaction from anon-gambling transaction, especially if that transaction has gone through athird party Web site, somebody overseas, I think is going to be very difficult.

RAY SUAREZ: LawrenceWalters, what's an e-wallet?

LAWRENCEWALTERS: And that's what your guest was referring to. The e-wallets areessentially an electronic placeholder for money to be used on the Internet,something like Neteller will operate by setting up an account that you can putmoney in, electronic money, and then use that money for a variety of servicesor products to be used by any other merchant that accepts that money.

So what I can do is I can set up one of these accounts. Ican fund it. And then I can use that money to gamble online.

Now, what this legislation does is it says, "Well,Neteller and you e-wallets, you have to somehow identify what this money isgoing to be used for once the consumer puts the money in the e-wallet."

I don't know how they're going to possibly do that, becauseI can make the decision a split second before I transfer the funds to anInternet Web site. And there's no way that an e-wallet provider is going toknow what I'm going to do with that money ahead of time. It's going to fairlydifficult.

RAY SUAREZ: So this law doesn't make it illegal for a creditcard company or a bank cashing a check to put money in an e-wallet, thisplaceholder for money?

LAWRENCEWALTERS: Well, only if the service provider knows that the purpose of the fundsis going to be Internet gambling, and that's going to be fairly difficult toshow.

Putting a 'box' on online betting

RAY SUAREZ: Keith Whyte, is part of the problem the factthat the Web is the World Wide Web and, when you're doing things there, you'renot in any particular place? I mean, if you put money in an e-wallet so you cangamble on a site that's in the Caribbean island of Antigua,where is the money? Where does it exist?

KEITH WHYTE: Yes, it further raises the question that wethink about gambling in these 18th-century terms, these 18th-century boxes,that not only is, you know, gambling legal in one state and not another, butthe different forms are legal in different states. And we've placed a premiumon that: You know, casinos are legal in Nevada,but not in Utah.

The Internet makes a mockery of these distinctions in law. Itmakes a mockery of the way we try and keep gambling in these boxes and thinkabout them in these comfortable terms. The Internet has allowed us to dogambling anywhere, any time, on any forum. And, frankly, our 18th-century viewsand laws of gambling are really going to need to catch up with the 21st-centuryways of communication.

So, yes, to your point, it's very hard to determine legallyor policy matter where your gamble is taking place, if it takes place in theUnited States, if it takes place on a server in Bermuda, or if it takes placein Antigua, and whose law should apply.

Prohibition or treatment?

RAY SUAREZ: Well, you come from an organization on problemgambling, studying problem gambling. Does this new set of hurdles at least makeit harder for addicted gamblers to satisfy their compulsion, their desire forgame?

KEITH WHYTE: We certainly think the law does no harm. Youknow, it's not going to enable to make Internet gambling easier.

But, really, if you're going to try and help somebody with agambling problem, as many of the backers of this legislation say, making itharder for them is not the solution. It's really -- this is a health issue, andwe need funds for prevention education.

It's notable that there's not a single cent appropriated inthis bill for prevention, for education, for treatment, or for research. Soit's a way of trying to address a very serious health problem on the cheap,quite frankly. And I don't know how this bill would really help someone with agambling problem.

RAY SUAREZ: LawrenceWalters, very quickly before we go, you've both been talking about how thiswon't block a lot of people who really want to gamble. Yet, as soon as the billpassed, a lot of businesses pulled up stakes in the United States. Why did they do thatthen?

LAWRENCEWALTERS: Well, and that's a very interesting point. And to your most recentpoint, the bill, I think, will do some harm for problem gamblers, because thelarge companies that were in the space before, the publicly listed entitiesthat respect American law and have chosen to get out of the field, donatedlarge sums to the problem gambling effort.

And now those industry players are going to be replaced withsmaller, less regulated players and providers that don't donate those kinds offunds, don't have the money to do so. And, you know, prohibition has neverworked to address any kind of compulsion or addiction. And it isn't going towork here; in fact, it's going to reduce the amount of money that's availablefor problem gambling programs. So it's a crying shame.

RAY SUAREZ: LawrenceWalters, I'm going to have to stop it there. Thanks a lot for joining us,gentlemen, both.

KEITH WHYTE: Thank you.

LAWRENCEWALTERS: My pleasure.