How the UnInGEn-ious Act Will Encourage Internet Gambling

by on October 8, 2006

I earlier described why the Unlawful Internet Gambling Enforcement Act of 2006 (the “UnInGEn-ious Act”) will put the domestic financial services industry at the disadvantage of overseas competitors capable of escaping U.S. regulations. How will Mastercard, Visa, and their ilk react to the resulting loss of business? More likely than not, by seeking shelter in one of the UnInGEn-ious Act’s safe harbors. The result: legal Internet gambling will increase in the U.S.

The UnInGEn-ious Act targets only with “unlawful internet gambling.” Section 5362 of the Act defines that term to specifically exclude certain forms of intrastate, intratribal, or interstate horseracing gambling. The Act thus plainly clears the way for a few types of legal Internet gaming. Domestic financial services might well join the lobbying to encourage states and tribes to develop new gambling services that qualify for the UnInGEn-ious Act’s express safe harbors.

Domestic financial services will most want, however, to enter the large markets for interstate and international casino and sportsbook internet gambling. Could those types of gambling also fit within the UnInGEn-ious Act’s safe harbor provisions? Almost certainly, but only impliedly.

The federal government has traditionally, and properly, declined to interfere with gambling that does not offend the laws of any state. Thus, for instance, the federal Wire Act contains a safe harbor exempting from liability “the transmission of information assisting in the placing of bets or wagers on a sporting event or contest from a State or foreign country where betting on the sporting event or contest is legal into a State or foreign country in which such betting is legal.” 18 U.S.C. 1084(b). The Illegal Gambling Business Act likewise covers only a business that violates “the law of a State or political subdivision in which it is conducted” 18 U.S.C. 1955(b)(1)(i).

To its credit, the new UnInGEn-ious Act apparently shares its predecessors’ respect for states’ rights. Prior to delineating the various specific safe harbors alluded to above, the Act defines “unlawful internet gambling” to apply only to a bet or wager “unlawful under any applicable Federal or State law in the State or Tribal lands in which the bet or wager is initiated, received, or otherwise made.” § 5362(10)(A). To ensure that busybody states cannot complain about internet gambling transactions that merely pass through their territories, § 5362(10)(E) specifies that “The intermediate routing of electronic data shall not determine the location or locations in which a bet or wager is initiated, received, or otherwise made.”

The UnInGEn-ious Act thus sends a clear signal to state legislatures and the lobbyists who love them: If you legalize casino or sportsbook Internet gambling, the feds will not intervene. A single state could, by recognizing the right of its citizens to gamble on in-state or overseas websites, create many new opportunities for taxation. Those tax revenues will increase, moreover, once other states follow suit and thereby create a national market for legal internet gambling. California residents might thereby gamble in New Jersey without ever leaving home.

Legislators would get more tax revenues to play with. Consumers would benefit from easier access to gambling services and, thanks to the effects of increased competition, better odds. Bricks-and-mortar casinos and sportsbook operations would have to figure out how to upload their services, granted, but that would merely put them on the same footing as businesses like The New York Times or Home Depot.

And domestic financial services? They would win access to new and large markets in legal internet gambling transactions, markets safely sheltered from the reach of the UnInGEn-ious Act. Domestic financial services will probably not want to offer credit to gamblers, granted. Under common law, courts generally refuse to enforce gambling debts–even debts run up on legal games. But that would still leave domestic financial services free to offer gamblers debit cards and the like.

The authors of the UnInGEn-ious Act portray it as a blow against Internet gambling. In fact, however, the Act allows states to legalize Internet gambling and encourages the domestic financial services industry to lobby states to do so. In retrospect, then, perhaps I was unfair in labelling it “the UnInGEn-ious Act.” Given that it stands to achieve the exact opposite of its stated goal, perhaps we should call it “the UnInGEn-uous Act.”

[Crossposted to Agoraphilia.]

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