Wired Safety Study: Online Gambling Prohibition Does Not Work

by Mike Godfrey, Tax-News.com, Washington

10 December 2009

Wired Safety, an Internet Safety and Educational charity, has produced, as testimony before the House Financial Services Committee in Washington DC, a study which examines a range of harms potentially associated with online gambling, and alternative methods for mitigating or minimizing them.

The study, led by Harvard Professor Malcolm Sparrow, and published by Wired Safety Executive Director Dr. Parry Aftab, recognizes that the current US prohibitionist regime with respect to online gambling is largely ineffective in achieving its aims, and provides no platform or opportunity for the implementation of most of the relevant harm-reduction strategies, concluding that an alternative regime of legalization and regulation of online gambling should improve consumer welfare and protections.

The study acknowledges that millions of US residents gamble online through offshore gambling sites, causing all the uncontrolled gambling-related social costs. Nearly all US states permit some form of commercial gambling, and the industry is large and well-established. Clearly, policymakers have extensive precedent from which to draw strategies to mitigate the potential social harms of gambling.

According to the study, some controls used in bricks-and-mortar casinos may not translate well to online gambling, but several of the risks examined become more amenable to control online. New technologies can be effective, even for those risks that are more difficult to address online. For example, geolocation and age verification technologies can help turn potentially significant risks into manageable ones.

The study analyzes 10 specific risks that are associated with online gambling:

• Gambling by minors,
• Fraud by operators,
• Fraud by players,
• Organized crime,
• Money laundering by players,
• Money laundering by operators,
• Violation of jurisdictional prohibitions,
• Breaches of data confidentiality,
• Lack of site security, and
• Problem gambling.

The study considers it important that regulators treat each of these potential risks differently. For some risks (such as players cheating other players), the public interest and the interests of the gaming industry align, making a cooperative regulatory relationship natural.

For others (such as those involving potentially criminal conduct by operators), the study thinks a strict enforcement regime would be more appropriate. Still other potential risks (such as underage and problem gambling) call for a more nuanced regulatory approach involving a mixture of strict enforcement, effective nonprofit support, community education, and cooperation, in keeping with the more complex motivations and incentives facing site operators.

For each of the 10 risks, the study examined a set of regulatory methods and technologies that would provide a reasonable degree of risk management in a regulated environment.

According to the study, most of these methods have already been implemented in some form in other jurisdictions. The United Kingdom, Alderney, Gibraltar, and others have successfully implemented regulation, and nearly all of the well-regulated jurisdictions studied address the 10 risks to some degree.

The study believes that the establishment of a well-regulated industry under US jurisdiction would offer far better protection against online gambling‘s potential social harms than outright prohibition. Combining a thoughtful regulatory scheme with education, technology tools, and support is regarded by the study to be the most effective means of handling the realities and risks of online gambling in the United States.

The study recommends that plans for regulating online gambling include the design and use of different risk-management strategies tailored to the different classes of risk that are associated with Internet gambling.

Recommended