House Approves Internet Gambling Bill

The outlook for successful passage and enforcement is still clouded for the bill sponsored by Congressmen Bob Goodlatte (R, VA.) and James Leach (R, Iowa) that looks to shut down online casinos by barring credit card companies from processing Internet gaming payments and uncovering fronts for money-laundering.

The Bill passed the American House of Representatives by a resounding 317 to 93 votes Tuesday. However, Senate passage is far from assured and the Department of Justice has warned against final language that contains "carve-out's".

A law passed in 1961 already makes it illegal to employ telephone lines for interstate gambling. In the main, the new law updates the language of that bill, applies the prohibition to Internet gambling and declares that most gambling online is illegal.

Among other things, the House of Representatives version would deputize financial institutions in helping shut down the flow of electronic transfers to "illegal gaming sites."

The over-arching assumption, not quite proven during House deliberations, is that "many" Internet sites are fronts for money laundering, drug trafficking and terrorist financing. Congress hopes to protect minors and young adults, said to be the biggest victims.

If passed, the bill would grant the Justice Department legislative fiat to forestall funds transfers to offshore gaming sites and prosecute anyone abetting or promoting "illegal gambling" via the Internet.

No similar bill has ever made it out of the U.S. Senate. In part, this is because Republican leaders there see other priorities in the few session days remaining before Congress breaks for elections.

Stockbrokerage analysts suggested as well that the Senate could take the more statesmanlike view and reject the simplistic notion of taking down the growing US$12 billion industry just to ferret out "hot money" fronts.

Faced with an uphill battle in the Senate, Congressman Leach himself admitted, "It's going to be difficult..." While there is no refuting the ethics and morality involved, the implementing provisions make it clear that the bill is not a blanket prohibition of all Web-based gaming and wagering.

The exemptions granted horse racing and state-run lotteries, for example, demonstrate compromises made with an eye toward congressional elections just three months off.

The Department of Justice has made clear its objection to precisely just such "carveout's". Rather than enforce a selective law, the Department would rather fall back on the all-encompassing 1961 law and prosecute all forms of interstate betting via the Internet.

Given these confused motives and mixed signals, the House passage of the bill did not quite trigger the expected sell-off in gaming company shares. For instance, the worldwide leader in online poker, PartyGaming Plc, actually gained 4.3 percent on the London Exchange. This despite the reality that 80% of the Gibraltar-based company's revenue last fiscal year was derived from American gamblers. U.K. online bookmaker Sportingbet Plc was ahead on the day by 2.7 percent. And the expanding Betonsports Plc jumped by 4.6 percent.

August 13, 2006
Brian Nelson