Will the 'Wild West' of internet gambling face a showdown in Congress?
This article first appeared in the St. Louis Beacon, July 18, 2013: WASHINGTON – Internet gambling, which was dealt a heavy blow by Congress a few years ago but granted a reprieve by the Justice Department in 2011, is now facing another round of scrutiny on Capitol Hill.
“What works on the floor of a casino – in Las Vegas, Atlantic City, Biloxi or St. Louis – may not work in the virtual world of online gambling,” said U.S. Sen. Claire McCaskill, D-Mo., on the challenge of regulating internet gaming.
McCaskill co-chaired a Senate hearing Wednesday with U.S. Sen. Dean Heller, R-Nev., into the potential impact of the spread of internet gambling on consumers and law enforcement. U.S. Sen. Roy Blunt, R-Mo, also asked questions at the hearing.
Back in 2006, Congress passed a law – the Unlawful Internet Gambling Act – that blocked nearly all online gaming. But late in 2011, the Justice Department’s criminal division issued a memorandum opinion “that removed almost any federal prohibition to online gaming,” McCaskill said.
That action, in turn, paved the way for states to legalize online gaming within their borders. Online poker is running in Nevada and New Jersey; Delaware residents will have access to online casino games this fall; and as many as 20 other states – many of them starved for revenue – are looking into possible legalization of online gaming.
“The landscape for the gambling industry and consumer protection has dramatically changed,” said McCaskill, adding that it is “entirely appropriate that Congress plays an oversight role to determine the consequences to American consumers.”
At the hearing of the Commerce Committee’s panel on Consumer Protection, Product Safety, and Insurance, Heller and McCaskill asked witnesses to explain how internet gaming could be used to launder money and what could be done to prevent young people and gambling addicts from being exploited.
“Organized crime is using offshore online operations to launder their profits,” alleged Chuck Canterbury, president of the Fraternal Order of Police, adding that terrorist groups “could be using the same strategies to launder funds.” Some of the same fears were expressed by Jack A. Blum, a Washington-based lawyer who investigates money-laundering compliance.
Staffers for Missouri’s senators said they were not aware of any current move to legalize online gaming in the state. Blunt told reporters he is “much more concerned” about the impact of “unregulated competitors” on the state’s highly regulated traditional gambling facilities than he is about “what the Missouri Lottery might decide to do, or what kind of licensing process might go on.”
Blunt said the Justice Department’s ruling in 2011 “really created a Wild West environment of offshore and other unregulated gambling sites. . . This has become one of the most used tools to launder illegal money, as well as a way to encourage gaming by young people and others who have no business being in that gaming environment.”
Blunt added: “I’m convinced it is an area that would benefit from some overall federal regulating scheme (and) that all the states would benefit from understanding” those regulations.
Without naming Missouri, McCaskill said she expected more states “to move ahead to legalize internet gambling. And as more states act to legalize internet gambling, I expect to see states authorize interstate compacts to allow their residents to conduct cross-border wagering.”
What will be the consequences for consumers when advanced technology, coupled with such interstate compacts, “make it incredibly easy for consumers to gamble across state lines without stepping foot outside their front doors,” McCaskill asked?
“Does a patchwork of state laws and regulations sufficiently protect consumers from fraud? Can it prevent underage and problem gambling? Does the expansion of online gambling provide more conduits for criminal activity, such as money laundering?”
Heller, whose state regulates the nation’s largest complex of brick-and-mortar gambling establishments in Las Vegas, also expressed concerns about the spread of internet gaming. “Congress needs to provide clarity and guidance on these issues,” Heller said. “If we do not, this illegal market will continue to grow where millions of consumers are put at risk and criminals can act freely.”
Matt Smith, president of Catholic Advocate, blamed a “pro-gaming coalition of large states desperate for more revenue and foreign-owned gambling companies” for pressuring the Justice Department into its 2011 ruling.
“We urge bipartisan congressional action to restrict the imminent expansion of on-line gambling throughout states, lotteries, and off-shore operators,” Smith told senators. “Federal restriction of on-line gambling is vital, urgent, and consistent with recent congressional intent.”
McCaskill seemed inclined to pursue possible legislation. “Is the current, state-based regulatory regime prepared to handle all of these potential problems?” she asked, noting that Congress has passed gambling laws related to racketeering, sports betting, financial transactions and Indian gaming.
“Online gaming is inherently an interstate matter,” McCaskill said. “Congress has an important role to play in overseeing the expansion of online gaming.”