Concluding a two-part series
July 3, 2001 — While most states are considering banning Internet gambling –- with a few already having done so -– the U.S. Virgin Islands and Nevada are betting the other way, despite untested legal ground and efforts in Congress to prohibit interactive gaming outright.
Opponents in Congress cite the difficulty of regulating online gambling and controlling access by minors, and also concern about gamblers squandering their money with the click of a mouse. Proposed legislation would make it illegal for players to pay for online gambling and would update the Wire Communications Act of 1961, which prohibits games of chance and sports betting over telephone lines.
Efforts in Congress to ban Internet gaming are not new. Several bills generated in the last three years have failed. And the Wire Act is very much open to debate.
Those realities, plus the belief of supporters in the industry that online gaming can be regulated, are spurring the Virgin Islands and Nevada to venture where some 60 countries have already gone to reap the billions of dollars generated each year from Internet gambling: cyberspace.
Testing legal grounds
The Wire Control Act is not clear in regard to the Internet in general, according to Frederick Handleman, solicitor general for the V.I. Justice Department and legal counsel to the V.I. Casino Control Commission. But it is clear on sports betting, which is illegal.
If the law on Internet gambling is "crystal clear, why does the United States Congress feel there is a need to ban it?" Handleman said. "Even Congress knows it’s an area open to interpretation." That, he noted, is a main reason the Virgin Islands and Nevada are pressing ahead with their efforts, adding, "Do you not act because something is nebulous?"
In Nevada, the state’s Gaming Control Commission will likely work with the U.S. Department of Justice to determine whether Internet gaming is legal or not, gaming consultant Frank Catania said. Then the commission will decide it if can be regulated.
"It’s going to take a little bit of time, no doubt," Catania, a former director of New Jersey's Gaming Enforcement Division, said. "It’s realistic to say it’s not going to happen in a year. A guess is 12 to 18 months."
In the meantime, the Virgin Islands is free to press on with its Internet gaming legislation in the hope of getting it on the books before Congress acts. The thinking is that if Congress were to prohibit online gambling after the territory had legalized it, the territory's law would be grandfathered in, as was the case with Nevada and its legalized sports betting under provisions in the Wire Act.
"I’ve heard that postulated before, especially since things are shifting so much," said Sue Schneider, an Internet gaming consultant who chairs the Interactive Gaming Council. "I don’t think that’s a scenario that is outside the realm of consideration."
Considering the stakes
What makes the idea of Internet gambling tricky for any American jurisdiction is that it is essentially illegal. But that didn’t stop the 3.5 million Americans who contributed to the approximately $2.2 billion spent worldwide on Internet gambling last year. Of the billions of dollars waged, Schneider said, 50 percent to 70 percent came from players in the United States.
What that says is that very few off-shore Internet gaming firms are concerned about accepting wagers from places with prohibitions, especially when international Internet gaming revenue is projected to reach $10 billion for 2005. Many online gaming countries and their operators say they are committed to keeping out U.S. bettors by requiring customers to fax a form of identification or by relying on technology to verify players’ country of origin through their Internet service provider. But many others are not.
That could pose a problem for law-abiding jurisdictions such as the Virgin Islands and Nevada. If the majority of current players are in the United States, essentially, then, the only places they could take business from are within their own boundaries or countries outside the United States that don’t prohibit Internet gaming.
"Nevada is the first to pass it to know where a player is from," Schneider said. "Still, the bulk of players are in the United States."
Handleman, meanwhile, said that even though the legality of Internet gaming in the United States is, at best, fuzzy, the Virgin Islands can go ahead and enact its legislation and then tax gaming firms doing business in the territory. But for the Virgin Islands to remain a respected player in the gaming industry, he added, those operators can’t accept money from the biggest market -– the U.S. mainland.
Handleman said his personal opinion is that the stakes are too high not to act. He noted that by the time the Virgin Islands legalized land-based casinos, it was the end of the boom and gambling was an amenity about as exotic as a swimming pool.
"Right now we are poised to take the lead" on Internet gaming, he said. "Rather than pick up the droppings from the cart, we could be driving the cart."