US Congress Stymied Over Net Gambling Bill

by Mike Godfrey, Tax-News.com, Washington

17 June 2002

Efforts by the US House of Representatives Judiciary Committee to pass a bill controlling Internet-based gambling were unsuccessful again last week when multiple objections from competing gambling interests, state legislators and libertarians combined to prevent a vote on a unified text.

Virginia Republican Bob Goodlatte's bill would update the Wire Act of 1961, which bans interstate wagers, so that it would clearly apply to the Internet and other modern communications as well as telephone lines. The current wording would allow law-enforcement agents to take down gambling sites and banner ads, and stop credit-card payments to sites operating outside of the country.

The single most difficult problem is to draft a text that will ban unregulated, offshore (thus, untaxed) gambling sites without cramping existing, highly regulated gambling in states such as Nevada and Florida. It also seems next to impossible to draft wording that will allow states to operate their own internet gambling sites because of the impossibility of verifying the age of a surfer. The bill would require all visitors to be of legal age and situated within a state's borders. "There is absolutely no way to know if the person at the other end of the computer line is a minor or not," said Goodlatte.

Massachusetts Rep. Barney Frank questioned whether the government should regulate something adults did voluntarily. "If American citizens or legal residents want to gamble, let them. Why do you care?" Frank said.

The committee adjourned without voting on the bill. Many states have pushed for a law to ban Americans from using the 1,500 or so offshore gambling operations that will take in between $5 billion and $6.4 billion next year, according to estimates. While the overt reasons for the ban are moral, fears for the existing tax take from legal gambling operations are probably uppermost.

"If you want to address the offshore sites, you've got to walk this tightrope of not stepping on the toes of all the legal entities and not stepping on the toes of the states," Goodlatte told reporters after the hearing.

In May, the Judiciary subcommittee voted unanimously in favour of an update of the Wire Act of 1961, which bans interstate wagering, and which was used to convict Jay Cohen, who had been operating an on-line casino out of Antigua. The amendment would make it clear that the law applies to the Internet and other modern communications (read wireless) as well as telephone lines.

Casinos in the U.S. have been looking for ways to better incorporate online gaming into their operations, particularly following the events of Sept. 11, which caused travel to places such as Las Vegas to decline. Nevada has passed a law that could allow existing bricks-and-mortar casinos to set up online operations.

A ban on online gaming would affect more than just the gambling sites themselves; companies like West Greenwich, R.I.-based GTECH Holdings Corp. (NYSE:GTK) might also be impacted. GTECH supplies or operates lotteries for about 80 customers in 36 countries (it operates nearly three-quarters of all US lotteries), according to Hoovers.

GTECH's Dreamport unit offers gaming systems for entertainment markets, and its GameScape unit provides gaming consulting services. GTECH's Europrint/IGI operation offers interactive and promotional games, while the company's UWin! division supplies Internet wagering systems.

For a survey of offshore on-line gambling, see Tax-News.com's Report Shop at www.tax-news.com/reportshop.

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