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US Initiative Against On-Line Gambling Has Its Limits

by Mike Godfrey, Tax-News.com, New York

25 September 2002


The offensive against Internet gambling being mounted by the Mrs Grundy's of the US Justice Department and those in Congress is scoring some successes; but the enemy is fighting back, and an armed stand-off now seems the likely outcome pending any direction that may be given by the Supreme Court.

The Justice Department has shamed a number of credit-card operators into withdrawing facilities, and Pay-Pal, relied upon by many on-line gambling operations to process payment transactions, has been forced to exit the business; but on the other hand comprehensive anti-Internet gambling measures have repeatedly failed to pass the Senate, and the limitations of the Wire Act, which forbids the use of 'wire communication' across state or national borders to make wagers are becoming increasingly apparent.

The Wire Act is generally held to apply to contested events, obviously including sporting contests, but not to casino games, where the player is simply contesting mathematical odds. Lawyers point out that the Justice Department has never attacked a pure gaming operation, suggesting that it is well aware of the Act's limitations.

In support of this construction of the Wire Act, a federal district court judge in Louisiana has just ordered a group of gamblers to pay contested online-casino gambling debts charged to their credit cards because the Act only prohibits wagering on sports.

In Nevada, despite an advisory from the Justice Department, the legislature has been given authority by a ballot proposition to issue gaming licenses, partly in response to competition from offshore jurisdictions which are profiting from the on-line operations of a number of Nevada gaming operators. But it may not be easy for Nevada to compete against 'offshore'.

"The one thing we can offer that Nevada casinos can't is discretion," said one anonymous offshore-casino executive to wired.com's news service. "We already have many American customers who chose to leave sums of money on deposit with us rather than make credit card transactions. And we have many others who have us deposit winnings directly into offshore bank accounts rather than remit to them in the United States."

A comprehensive report on the development of Internet on-line gambling in a number of offshore jurisdictions is available in the Tax-News Reports Shop at http://www.tax-news.com/reportshop/

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