Some Bets Are Off

The strangely selective and self-defeating crackdown on Internet gambling.

Jacob Sullum from the June 2008 issue

(Page 3 of 4)

In January, Antigua, joined by Costa Rica, asked the WTO to arbitrate the dispute regarding America’s unilateral revision of its trade commitments. The arbitration process could put the kibosh to deals the U.S. reached in December with the European Union, Canada, and Japan, each of which was inspired by Antigua to file its own gambling-related trade complaint. Under those deals, the U.S. promised broader access to several American service sectors in exchange for cutting remote gambling out of its trade agreements. But now that Antigua and Costa Rica have revived the issue, WTO rules say parties that have reached settlements can reconsider them. Macau and India, which have filed gambling-related WTO complaints that have not yet been resolved, could tag along as well. Meanwhile, at the urging of the Remote Gambling Association, a trade group, the E.U. is looking into the possibility of filing a new WTO complaint arguing that the U.S. government is violating its trade commitments by treating foreign businesses involved in online gambling like criminal gangs, as illustrated by the BetOnSports and Neteller cases.

Antigua’s WTO victory could play a role in those cases. A brief filed last year on behalf of BetOnSports founder Gary Kaplan (who was indicted along with David Carruthers) argues that the U.S. government’s prosecution of Kaplan violates legally binding trade agreements. The brief cites the Charming Betsy doctrine, which derives from an 1804 Supreme Court case involving a schooner of that name: “Where fairly possible, a United States statute is to be construed so as not to conflict with international law or with an international agreement of the United States.”

The authors warn that disregarding this principle could have serious international repercussions. “If the United States can today continue to enforce criminal legislation that is not only violative of binding international law norms but that has been definitely condemned by tribunals to whose rulings we have pledged to adhere,” they note, “there is nothing to prevent other countries from following the same course when faced with WTO rulings favorable to the United States and unfavorable to them.”

New York University law professor Joseph Weiler, an international trade expert who advises law firms whose clients could be prosecuted for helping Americans gamble online, took up the same theme in testimony to the House Judiciary Committee last fall. “There is no question that under international law the ban on remote betting by providers situated in WTO countries is illegal,” he said. “Despite this illegality, the executive branch has persisted in indicting and prosecuting individuals and corporations whose activities should have been protected by the binding international obligations.”

That policy, Weiler warned, “is detrimental to the reputation of the United States as a champion of the rule of law” and “is an invitation to other countries…to withdraw commitments rather than honor them.” Should China one day decide it no longer wants to respect U.S. copyrights, or should the E.U. decide to exclude U.S. agricultural products, the United States could not reasonably object to such unilateral revision of trade agreements, given the precedent it is setting in the area of gambling.

Abetting Betting
The international implications of the online gambling crackdown extend beyond trade. According to the U.S. Justice Department, anyone who operates a gambling website that’s accessible to Americans, even if it’s based in a jurisdiction where the business is legal and licensed, is criminally liable in the United States. If he should happen to visit or pass through the U.S., he is subject to arrest, prosecution, and imprisonment.

How would Washington react if an American visiting Tehran or Beijing received similar treatment because he had posted material on a U.S.-based website that authorities in Iran or China deemed indecent or subversive? How would it view a request for the extradition of such a “criminal”? “This is a very dangerous precedent,” says attorney Behnam Dayanim, “because it sets the stage for that kind of activity, and to the extent we object we would be subject to charges of hypocrisy.”

A week after David Carruthers’ arrest, London’s Daily Telegraph quoted “a source close to PartyGaming” who said, “If they start doing this they risk behaving like China.” He was referring to the Chinese government’s effort to prevent Chinese citizens from visiting websites it considers objectionable, an effort in which it had enlisted the assistance of U.S.-based search engines, to the consternation of American politicians. “The U.S. Congress that was appalled by Google’s supine attitude,” the Telegraph noted, “is the same Congress that overwhelmingly passed an anti-online gambling bill last week.”

The comparison with Chinese censorship is not so far-fetched, especially when you consider that the U.S. government has threatened to prosecute people merely for providing information about online gambling. In June 2003 Deputy Assistant Attorney General John Malcolm sent a letter to media trade groups warning that their members could be breaking the law by accepting ads for gambling websites. Under the Justice Department’s theory, running the ads could amount to “aiding and abetting” illegal gambling, a crime punishable by up to two years in prison.

“It was our attempt to be as gentle as we could,” a Justice Department spokesman told The National Law Journal in 2005. “We were letting them know that accepting advertising from an Internet gambling firm is against the law and it could be used in an aiding and abetting statute.…A lot of that pressure has worked.” This intimidation campaign has spurred cable TV channels, radio stations, magazines, search engines, and billboard companies to stop carrying ads for gambling websites.

To people who view online gambling as a legitimate business, the U.S. government’s insistence that citizens of other countries help it protect American gamblers from themselves is all the more galling because the moralism underlying it is so inconsistent. Last fall Massachusetts Gov. Deval Patrick produced a particularly glaring example of politicians’ gambling hypocrisy when he proposed a bill that would authorize three casinos in the state while at the same time banning Internet betting.

Under Patrick’s bill, people who place online bets, including casual poker players and sports bettors, could be punished by up to two years in jail and a $25,000 fine. The idea, it seems, is to protect the casinos from competition and thereby maximize the revenue they generate for the state through license fees and taxes. Similarly, a Washington state law enacted in 2006 treats most online gamblers as felons, subject to penalties of up to five years in prison and a $10,000 fine, but exempts state-sanctioned horse racing.

Protectionism helps explain why, despite all the railing against online gambling by politicians like Bob Goodlatte and John Kyl, the bill that finally passed Congress left the law ambiguous. “For me this is more about driving foreign traders out of action so Nevada and Vegas don’t lose out on business in the future,” a London lawyer told the Sunday Telegraph last year. “The moves being made now give the U.S. time to sort out the legalization of online gaming and give the Vegas brands time to establish [themselves] online.”

The American Gaming Association, which represents brick-and-mortar casinos, was officially neutral on the UIGEA, and it is not backing a bill sponsored by Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, that would create a federal system of licensing and registration for online gambling businesses while allowing states to restrict or prohibit Internet betting within their borders. But the association “strongly supports” a bill sponsored by Nevada’s Rep. Berkley that would commission a one-year National Research Council study of how best to regulate online gambling, including an examination of methods used to block bets by minors and discourage excessive betting.

“They want an objective study,” says Kelly, the law professor. “They’ve got to make the case before the American people. They’ve got to convince some of their own members.…Then the American Gaming Association, I think, would push for regulation.”

Comments

Naga Sadow|5.19.08 @ 12:07PM|#

As an employee of a brick and mortar casino, I wholeheartedly endorse gambling as a legitimate pasttime . . . if you go through my company that is, otherwise it should be illegal and you should be treated as a common criminal. j/k

TallDave|5.19.08 @ 12:07PM|#

I bet if they just started them "short-term hedge funds" the whole problem would go away.

TallDave|5.19.08 @ 12:07PM|#

started calling*

BakedPenguin|5.19.08 @ 12:32PM|#

I'm a little more fortunate than most, as I have friends in the UK who are willing to lend me their addresses so that I have a "UK" account. FOAD, Goodlatte.

Eliot Spitzer\'s Ghost|5.19.08 @ 12:35PM|#

Beware BakedPenguin! I WAS a *@!#ing steamroller once. I may be again . . .

|5.19.08 @ 12:53PM|#

Here's hoping that this will be a shiny thread in the coming "Democrats get everything they want" storm. The Clinton years were pretty good for gambling and porn, not so much for drugs and pop music lyrics.

|5.19.08 @ 12:55PM|#

Somebody, anybody, tell me again why the GOP is more "libertarian" than the Demorats. Please.

BakedPenguin|5.19.08 @ 12:58PM|#

If Obama pledged to legalize online gambling and (even just medical) marijuana, I'd vote for him in a heartbeat. I suspect he won't, so go LP stooge!

Eliot - it would be great if Goodlatte was busted for gambling on college football or something.

J|5.19.08 @ 1:40PM|#

Barney Frank is the man. I disagree with him on so many economic issues, but time and time again he shows himself to be one of the most rational, honest politicians.

I'm from his district, and while I wish he would lay off the socialist stuff, I still feel like he better represents me than 99% of congress would.

Paul|5.19.08 @ 2:24PM|#

Based on what I read in this article, it seems that the U.S. government is pretty successful at scaring the pants of anyone selling gambling or payment services. We can make fun of it all we want, but looks like some legit businessmen are looking at real prison time.

Never underestimate a governments ability to regulate or ban something by sheer force of will.

Lajaw|5.19.08 @ 2:50PM|#

as soon as the welfare system is dismantled, and my tax money will not go towards idiots, I will support gambling of every sort. But until the welfare "safety net" is gone, I cannot support gambling because of the idiots that do so and lose their shirts that I must then support through the welfare system. But until everyone is solely responsible fore themselves in all matters financial and otherwise, it is best to make gambling illegal.

|5.19.08 @ 3:45PM|#

I will trade a 2% reduction in my marginal income tax rate for personal and civil liberties anytime.

OK - I know that makes me a "socialist" - but goddamnit - I like my vices, freedom, and "sins" too much.

|5.19.08 @ 3:45PM|#

Lajaw wins the thread. You can't get any more insightful than that.

In fact, in the same spirit, since some people drive without car insurance and their accidents drive up my rates, let's ban driving until all those slackers are insured. It's the only fair way.

|5.19.08 @ 3:57PM|#

Welfare, HUD, and the food stamp program are less than 2% of the federal budget.

I want to see a "Libertarian" complain about the military taxes he pays sometime.

Granted - I don't support either - fuck welfare and fuck the military. They are both evil. One just costs a lot more than the other.

|5.19.08 @ 4:00PM|#

I want to see a "Libertarian" complain about the military taxes he pays sometime.

You're new here, aren't you, shrike?

|5.19.08 @ 4:11PM|#

Lajaw: Why ban gambling for the vast majority that is able to gamble responsibly, just because a small minority gets in trouble?

By the same logic, why shouldn't we reintroduce prohibition and ban alcohol?

Paul|5.19.08 @ 7:38PM|#

it is best to make gambling illegal.

Cool.

What does this article have to do with making gambling illegal?

Paul|5.19.08 @ 7:42PM|#

I will trade a 2% reduction in my marginal income tax rate for personal and civil liberties anytime.

You must mean an increase of your marginal tax rate?

Funny, 'cause what we got is an increase of our marginal tax rates in exchange for our civil liberties. They increased our taxes, we gave them our civil liberties.

|5.19.08 @ 7:51PM|#

Yes, you interpreted my error correctly, Paul.

I value what little freedom I have left and Big Government has no enemy in either major party,

|5.20.08 @ 12:22AM|#

Good article Mr. Sullum.

|5.20.08 @ 12:54AM|#

The Unlawful Internet Gambling Act was the last straw for me. I was a Republican for over forty years. The RP has lost my vote.

rechoboam|5.20.08 @ 8:12AM|#

"as soon as the welfare system is dismantled, and my tax money will not go towards idiots, I will support gambling of every sort. But until the welfare "safety net" is gone, I cannot support gambling because of the idiots that do so and lose their shirts that I must then support through the welfare system. But until everyone is solely responsible fore themselves in all matters financial and otherwise, it is best to make gambling illegal."

Well if gambling is taxed (extortionately, in most cases) the resulting tax influx should pay for the welfare. I assume the nation makes a profit on nicotine overall, to take another example.

z|5.20.08 @ 9:50AM|#

The Unlawful Internet Gambling Act was the last straw for me. I was a Republican for over forty years. The RP has lost my vote.

It should be noted that 1. UIGA was passed a month before the 2006 elections. 2. There was a LOT of publicity about it in the online poker world. 3. Republicans were slaughtered.

|5.20.08 @ 11:07AM|#

GABLING IS NOT ILLEGAL!

What, that's right, this debate over Poker is one of semantics.

Do not believe me, awes.

Go to YAHOO, MSN, LYCOS or most any other home page and click GAMES.

Then click SKILL, you will find anywhere from 25-100 'skill' games played for money at companies located IN the United States or owned by the same.

The games marketed on the SAME page as children's games include card games such as Hearts, Spades, Solitaire, Free Cell, Rummy, Poker Solitaire and a host of others.

The same company that owns Fox News, the bastion of the conservatives, owns the largest via MSN and AOL - World Winner.

WHERE IS THE OUTRAGE?

No, gambling is NOT ILLEGAL.

PokerKeep|5.20.08 @ 12:01PM|#

This is one of the first articles in a main stream media publication to address this issue from an unbiased point of view. Kudos to Reason Magazine and Jacob Sullum for a job well done.

U.S. regulation and taxation are going to happen probably within the next year or eighteen months. It's the only logical solution to this complete fiasco called UIGEA.

Support our right to gamble online. Join the Poker Players Alliance (http://pokerplayersalliance.org/) and support APCW (http://www.apcwinteractive.org/) in their efforts to legalize and protect the industry and it's players.

Skinski|5.20.08 @ 5:05PM|#

I agree, U.S. regulation and taxation will happen ! I pay my taxes , I've served my country , and will be a cold day in hell before my Government stops me from playing my cards in my own home.

As PokerKeep said , "Support our right to gamble online. Join the Poker Players Alliance (http://pokerplayersalliance.org/) and support APCW (http://www.apcwinteractive.org/) in their efforts to legalize and protect the industry and it's players."

|5.20.08 @ 9:37PM|#

Cast your vote for online gambling: http://www.parade.com/articles/editions/2008/edition_05-11-2008/Intelligence_Report

|5.21.08 @ 12:24AM|#

Jacob, excellent job capturing the entirity of the issue. Probably the best reporting I have seen in my time following the post UIGEA media.

Well done to you and the editors at Reason for publishing such a fine article.

|5.22.08 @ 9:33AM|#

Very, Very good article! It does a great job of explaining what a double standard the gov't has if it does not benefit them. Also on imposing the views of a few men in congress on the American public. (which elected them into office). It sounds to me like all hell is getting ready to break loose. Once again great article.

DG|5.23.08 @ 3:05AM|#

This is the best article I have read on the UIGEA. Thank you Jacob.