Fed panel focuses on Internet

Friday, May 22, 1998 | 9:45 a.m.

CHICAGO -- The National Gambling Impact Study Commission took a stab Thursday at understanding the growing phenomenon of Internet gambling.

Experts in law enforcement and private business testified about the complexities of regulating and prohibiting gambling on the World Wide Web, as the nine-member panel wound up its two-day hearing here.

"The Internet has taken the gambling world by storm," Alan Kesner, an assistant attorney general in Wisconsin, said. "One of the most heavily regulated industries in the world has crashed with full force into one of the most unregulated, and inherently unregulatable, phenomenon of modern times."

The first gambling websites appeared in 1995. Today, according to research done by the commission, there are about 90 on-line casinos, 39 lotteries, 53 sports books and eight bingo operations. Most Internet gambling companies are in the Caribbean Islands, but some also are in Australia, Europe and other parts of the world.

Some observers have estimated that as much as $10 billion will be wagered over the Internet by 2000.

Kesner said the nature of the Internet makes gambling difficult to regulate and virtually impossible to prohibit.

"The Internet was designed to allow our nation's and the world's computers to communicate with each other in the event of a nuclear war or other disaster," Kesner said. "A few government bureaucrats trying to regulate Internet gambling certainly aren't going to be able to stop the ingenious workarounds built into the core of that system."

At the same time, Kesner added: "This reality does not mean that a law expressing a policy of prohibiting gambling on the Internet is inappropriate."

Kesner said state and federal law enforcement should be wary of leaving the impression they approve of unregulated gambling over the Internet.

"The Internet is not another world," he said. "It is not some new country with its own sovereign rights. It is nothing more than a highly efficient means of transmitting data seamlessly between the real places we experience every day with our own physical senses.

"We should not encourage activity in cyberspace that we would not permit in the real world."

J. Dale Youngs, an assistant attorney general in Missouri, testified that Internet gaming is banned in his state, and he urged Congress to pass the Internet Gambling Prohibition Act, introduced last year by Sen. Jon Kyle, R-Ariz.

"It is true that the prohibition of gambling activity conducted through advanced technological means presents special challenges for law enforcement, as does the fact that much of this activity is directed at states from outside the country," Youngs said. "However, these are challenges which states and federal law enforcement agencies have been meeting for many years."

Youngs said law enforcement has demonstrated that illegal gambling operations on the Internet can be stopped.

But Sue Schneider, president of the Interactive Gaming Council, a worldwide trade association, testified that prohibition wouldn't work.

"Moving a website is much easier than moving a 1920s speakeasy," Schneider said.

"The solution, I believe, is regulation."

Schneider said her association has voluntarily developed a code of conduct and is looking to establish a seal of approval to identify those operators who are fair and honest in dealing with their customers.

Additionally, she said, the same tough casino regulations enforced in Las Vegas and Atlantic City can be applied to Internet gambling.

"If federal or state governments are willing to license and supervise Internet gambling sites the way they license land-based casinos, customers will know what they're getting," Schneider said.

Tom Bell, director of telecommunications and technology studies at the Cato Institute in Washington, also argued against a prohibition of gaming in cyberspace.

Americans, he said, won't tolerate a total ban.

Of the $1 billion in revenues Internet gambling generated last year, Bell said, $600 million came from the United States.

"Law-enforcement agents have seized the media spotlight by telling scary stories and demanding new powers to crush Internet gambling," he said. "As the futility of prohibition becomes more and more evident, however, cooler heads in state revenue departments will begin to see Internet gambling as a huge new cash cow."

Bell said Internet gambling offers a "more wholesome environment" than its real-world counterpart in such cities as Las Vegas.

Gaming attorney Anthony Cabot of Las Vegas, who has written a book on Internet gambling, told the federal commission that efforts must be made to keep tabs on this new worldwide industry.

"The notion that the Internet should be left lawless and uncontrolled, where criminals can act with impunity, is unacceptable," he said.

The task of controlling Internet gambling, Cabot said, is a "daunting" one that states must come to grips with in the coming months.