Democrats stall on UIGEA repeal

Democrats say they may introduce a bill to overturn the online gambling legislation passed by Congress last fall. In an interview with Reuters this week, the chairman of the House Financial Services Committee, Barney Frank, said he is considering introducing legislation that would repeal elements of the Unlawful Internet Gambling Enforcement Act. Frank told Reuters he would offer more details in the next week or so, but a spokesman for the Massachussets congressman said he had not drafted a bill and had no timetable for action.

Virtual currencies raise money laundering fears

China has taken steps to regulate virtual currencies, The Register reports. As many as two-thirds of China’s internet users use QQ coins, a virtual currency which can now be traded or accepted as currency by third party companies. That has China’s central bank worried about the possible economic impact and other potential implications.

According to Business Week, online currencies are routinely used by money launderers, child pornographers and terrorist financiers. And the San Francisco Chronicle warns that American gamblers are already using virtual currencies to work around UIGEA’s prohibition on Internet gambling transactions.

Cohen conviction upheld

A federal appeals court has upheld the conviction of former World Sports Exchange president Jay Cohen under the federal Wire Act, IBLS Internet Law reports.

The ruling supports the Department of Justice's long-standing position that the Wire Act applies in Internet gambling. Gambling considered unlawful by the United States was previous possible on the Internet due to loopholes in enforcement. UIGEA aims to close some of those loopholes by obliging financial institutions to block transfers to online casinos.

Gambling crackdown linked to terror fight

UIGEA's connection with the Safe Port Act may not be as spurious as it seemed when the legislation sneaked onto President Bush's desk last October. The Las Vegas Business Press reports that the US Department of Justice is conducting its campaign against online gambling in large part to prevent funds from ending up in the hands of terrorist groups. Supporting this view, the attorney heading the DOJ online gambling crackdown, prosecutor David Litternick of the southern District of New York, is an expert on terrorism who previously handled cases involving the first World Trade Center bombing and U.S. embassy bombings in Kenya and Dar-es-Salaam.

Bank subpoenas hit gaming stocks

The US Justice Department has issued subpoenas to four major investment banks demanding information on the activities of the online gaming industry. That’s caused the shares of several gaming companies to fall sharply on the London stock exchange, the New York Times reports.
The banks all took part in initial public offerings of UK-based gaming firms. HSBC, Credit Suisse, Deutsche Bank and Dresdner Kleinwort said yesterday that they have received notices from the the Justice Department’s New York office.

The Unread Law

Poker Daddy Prof. I. Nelson Rose makes a point by point analysis of the new act. Read it. The law may mean that ISPs will be required to block traffic to unlawful sites and remove hyperlinks to any sites that violate the law. Or it may not. And a sentence at the end makes no sense at all, he says, probably because nobody actually had time to read the law before it was signed.

Austrian economists lash out at nanny state

Mark Thornton of the Mises Institute calls the passage of the UIGEA a "cheap election year ploy that purports to protect Americans and maintain moral values." He denounces the new legislation as the "very pinnacle of puritanical nannyism" and claims that internet gambling actually solves many of the negative externalities associated with gambling. By keeping vice in the closet, it does not undermine community values, he says, nor does it "expose women and children to socially undesirable activities, or introduce prostitution into communities."

The sheer naivety of the libertarian argument comes out when Thornton lists online gambling's economic benefits. "It has turned casino gaming into a normal good," he gushes, and "creates good jobs in places like poor island nations in the Caribbean."

Well, really. Gaming, online or off, will never be a "normal good" because it makes no economic sense. Normal rules of competition do not apply to gaming because more competition does not lead to better allocation of resources – the underlying aim of competition – but to an overheated market. In an area where fundamental concerns such as public order and the general interest of society are at stake, it is unreasonable to expect market forces alone to find the ideal balance. Especially without a level playing field for all the players involved.

Flawed arguments give way to plain wrong facts, however, when he singles out state lotteries for targeting low income groups. Most scientific research shows that player demographics match the general population pretty closely. And he ignores the fact that the low payout rates offered by state lotteries are mandated by regulators to ensure that gaming positively benefits communities, outweighing at least some of the risk of an activity that Thornton himself brands as "socially undesirable".

The Ludwig von Mises Institute is the research and educational center of classical liberalism, libertarian political theory, and the Austrian School of economics. Handle with care!

Online gambling will survive a nuclear war

How successful will Washington be in its campaign to block cash transfers to unlawful sites once the ban actually begins? MGM Mirage spokesman Alan Feldman's said on WSJ.com that any ban would be like trying to stop waves on the beach. Analysts predict that many Americans will turn to offshore transaction specialists like Neteller in an effort to get around the restrictions. Many are arguing that there is little that Washington can do to stop surfers from gambling if they use a third party service. "It's pretty clear you can't prevent it completely — the Internet was designed to survive a nuclear war," said gaming law expert I. Nelson Rose in the Los Angeles Times.

Bush signs SAFE Port Act into Law

The Associated Press reports that President Bush signed the SAFE Port Act into law this morning as expected. Bush made no mention of the Internet Gambling provision attached to the legislation in his remarks.

Antiguan WTO strategy may shift

The international impact of Washington's new Internet gambling law is now being felt. Red Herring reports that Antigua and Barbuda has filed a formal protest with the US State Department. The country's prime minister has sent a letter of complaint to US President George W. Bush. Antigua and Barbuda is said to be in process of "amending its complaint to the World Trade Organization to include the latest US law" which it feels strengthens its case with the WTO.

Last minute lobbying push on Port Security act

With President Bush reportedly set to sign the Port Security Act into law on Friday, rumors are flying that several key components of attached legislation are likely to be vanish from the final product or be watered down. Specifically, some observers think that a requirement that banks block transactions involving illegal gambling sites is likely to disappear. A similar provision that could force internet service providers (ISPs) to block traffic to illegal sites is also said to be the object of a serious lobbying push.

It's hardly surprising, of course, that internet companies and banks are worried that they may have to do the government's dirty work. That's par for the course. American business has a long history of resisting the regulation of cyberspace.

Of course, any serious changes would render Washington's new internet gambling law essentially toothless, making it technically illegal for Americans to gamble online, but providing no mechanism for enforcement.

Internet ban piggybacks its way to the White House

In a surprise move, the US Congress voted to approve a ban on many forms of online gambling, passing the legislation attached to a major port security bill. News of the development triggered a major international reaction as investors fled the online gaming sector.

The legislation, buried inside the Safe Port Act, makes it illegal for banks or credit card companies to process transactions involving illegal online casinos, theoretically starving impacted businesses of the revenues they need to continue operations.

President Bush is expected to the bill into law at some point in the next few weeks.

The market reaction was quick in coming. The Guardian reports "carnage" in the online gaming sector today as investors are hurrying to withdraw their money from companies which do substantial business in the North American market.

The Senate vote surprised many Washington observers, who had expected another postponement in what has been a long and drawn out process.

Arizona Republican Jon Kyl, who co-authored the bill was in a jubilant mood after the legislation passed Saturday. Kyl and fellow Republicans have portrayed the vote as necessary to protect children who might otherwise be victimized over the Internet by unscrupulous web site operators. "If Congress had not acted, gamblers would soon be able to place bets not just from home computers, but from their cell phones while they drive home from work or their Blackberries as they wait in line at the movies," said Kyl.

Smaller banks struggle to track terrorist funds

Smaller US banks are not entirely wild about the idea of having to enforce the new rules that could follow if a proposed online gaming ban goes into effect, the Wall Street Journal reports. Under the rules proposed by Congress, they would be required to block electronic transactions involving illegal Internet casinos. Lobbyists representing small to medium sized banks are arguing that the burden of monitoring 35 billion annual transactions would involve an awful lot of work and considerable expense.

Ignoring a provision in the proposed new legislation directing the government to come up with an implementation plan that wouldn't be overly burdensome for banks, the Independent Community Bankers of America says the smaller banks don't have the resources to block offshore gambling transactions.

The American Bankers Association, which represents the nation's biggest banks, has not voiced the same level of concern. But the little guys are balking at the extra work involved in modernizing their systems and keeping the list of offshore casinos updated. "It would be extremely challenging," says one consultant, adding that "it is already difficult for banks to identify electronic transfers involving (...) known terrorists and drug dealers."

This sounds a bit like the arguments proponents of online file sharing and illegal downloading have been making for years: If it's difficult and complicated to police the internet, why bother trying? Three to five years after the first critics argued that it would be practically impossible to control the flow of illicit content, the volume of illegal file sharing has dropped and companies like iTunes are doing very well, thank you.

The major banks are a self-regulated force, proactively embracing money laundering and terrorist financing issues and gaining brownie points in the process. It would be surprising if whingers in the minor league were to erode the lawmakers' resolve.