Internet gambling perplexes feds

Mark D. Preston

Thursday, Dec. 3, 1998 | 11:35 a.m.

WASHINGTON -- Beset by limitless boundaries, the Internet has become a significant problem for federal officials who are trying to determine whether it's legal and technologically possible to regulate Internet gambling.

A National Gambling Impact Study Commission subcommittee wrapped-up hearings Wednesday on how to regulate Internet gambling. And while fresh with new knowledge, commissioners are still perplexed about how they should deal with the situation.

"Can you regulate the Internet?" Commissioner Bill Bible asked. "I think that is a question that is still open."

"The thing about the Internet is that it recognizes no jurisdictional boundaries. So jurisdictions whether it be Nevada, or Utah or California can't make a public policy choice as to what kind of gaming they want to be exposed to play in their state," Bible said. Bible is also Nevada's former Gaming Control Board chairman.

"This is a tough problem," Commissioner Leo McCarthy said. "At this stage we don't know how effectively the best possible action would be in stopping it."

Since its birth in 1995, Internet gambling has grown to become a $600 million a year industry, Internet gaming experts estimate. And its growth could be staggering. There are about 200 operational gambling sites on the Internet today, but this number could increase by 150 percent next year -- offering up to 500 game sites, said Art Rosenberg, a member of the Interactive Gaming Council.

Rosenberg testified in favor of Internet gambling and suggested that until an international control board is established to oversee the industry, the U.S. government should allow it to regulate itself.

IGC, Rosenberg said, is a trade association of companies working together to advance interactive gaming interests.

Rosenberg told commissioners there are many misconceptions about Internet gaming including "that companies that operate Internet gambling sites are illegitimate or are fronts for organized crime organizations."

"The vast majority of companies in the Internet gaming industry are comprised of legitimate businessmen, entrepreneurs and corporate entities that are merely addressing a viable market demand and opportunity," he said.

Rosenberg said he plans to open up "half a dozen" sites through his company Venturetech this year, but they will be located off-shore. The uncertainty of the government's plans to regulate and a possible permanent ban on Internet gaming was the reason Rosenberg choose to operate from a foreign country, he said.

One group staunchly opposed to Internet gambling is the American Gaming Association, the lobbying arm of the traditional casino industry.

John E. Shelk, AGA vice president, said the AGA is concerned about the integrity of Internet gaming and how it is regulated.

He said traditional gaming has to abide by a number of state regulations, while Internet gambling operators want to police themselves. Shelk said this is not only unfair, but the AGA is worried unscrupulous Internet gambling operators -- who would have to answer to no one -- could sully traditional gamers reputations.

"As a generic matter, why should people on some foreign island be self-regulated and those of us doing business in the U.S. have regulations," he said. "The fact is we support almost all of the regulations we live on to protect the integrity of the game. If there is a scandal on Internet gambling then that is going to hurt everybody."

The biggest obstacle the government faces with Internet gaming is how to enforce regulations or ban Internet gaming.

McCarthy said that if the United States regulates the Internet gaming industry, the federal government must play a prominent role because it would require diplomatic contact and treaties with other nations.

"If it is a regulatory (situation) where you are dealing with other governments and are trying to persuade them to respect the social attitudes and the individual states within our nation, it obviously has to have a lot of federal input," McCarthy said.

But Shelk disagrees with McCarthy that the federal government's regulatory role might be part of the solution.

"I don't know how you would have a federally regulated Internet gambling because then you would be opening up an essentially different regulatory regime and let the rest of us continue to operate under the state level," he said.

Shelk said the AGA doesn't have an answer on how to control Internet gambling and said until there is one, then the association is opposed Internet gambling. Shelk also said the AGA opposes federal involvement in the gaming regulatory role.

Although it might be impossible to have a ironclad ban on Internet gaming if the United States decides to pursue this route, McCarthy said it is possible to put a sizable dent in the industry by targeting the Internet gambling's support structure such as financial institutions.

"It is much too early to say we can't put the brakes on a lot of this gambling," McCarthy said. "A lot of the Internet gambling needs cooperation of credit card companies and some banks and of other business entities that are domestically based."