U.S. Gambling Culture Spreads to Wall Street

By Diane M. Grassi

In 1995 we saw the emergence of internet casino gambling, which includes playing games of chance such as poker, blackjack, and roulette as well as betting on sports events. By the year 2000, nearly 300 companies around the world operated almost 2,000 internet gambling websites. And in 2005, worldwide online gambling revenue is expected to be over $US10 billion for such operators while a total of $US 200 billion is expected to have been wagered.

Widely an issue of intense debate since its inception, the criminality of online gambling has been argued at the U.S. Department of Justice as well as in the halls of the U.S. Congress. But since internet gaming sites are primarily offshore, U.S. residents are presently not held accountable for breaking federal law in the absence of such precedent. However, individual states may mandate such practices illegal, going after banking institutions to prevent such transactions, for example, but individuals have not been prosecuted.

The prevalence of online gaming and the large revenues enjoyed from it has however prompted major U.S. brokerage firms to claim their piece of the pie. At stake is whether or not the Department of Justice will apply the Wire Act of 1961 in enforcing the law and how long it will be before the Congress can agree on passing new legislation which will help strengthen the Wire Act. The main dispute is that the Wire Act was intended exclusively for placing bets on the phone to bookmakers for sports events, and was largely put in place by then U.S. Attorney General, Robert F. Kennedy, in order to discourage organized crime and bookmaking. Whether the law now applies to communication between a home computer and an establishment or casino not located in the U.S. still remains a gray area.

But in the era of industrial globalization, it appears that firms such as Goldman Sachs & Co., Merrill Lynch & Co. and Fidelity Investments are willing to risk the vagueness of the law in order to make investments on behalf of their clients by way of stocks and mutual funds. By providing financing for offshore casinos the question remains as to whether they are skirting the law as well as whether they are making reliable investments for their clients, for whom most have no idea that their mutual funds are involved in such ventures.

It is now commonplace for American firms to invest in overseas corporations, even those which may be considered illegal under U.S. federal law, such as those manufacturers utilizing sweatshops and child labor or by outsourcing business to countries which do business with other countries sanctioned by the U.S. government. However, the issue of online gaming is perhaps just the latest industry in worldwide commerce in which laws and customs have not yet caught up to it, given the sophistication of the technology involved.

The argument is whether someone who generates a gambling transaction from their living room to a country outside of the U.S. qualifies as an illegal U.S. transaction and whether or not it can be reasonably policed beyond U.S. shores. In addition to the Wire Act, the Professional and Amateur Sports Protection Act was enacted in 1992, which banned all wagering on sports events in all states except those with pre-existing operations in the states of Nevada, Oregon and Delaware. That was followed by both President Clinton’s administration as well as the present President Bush’s administration both of which conveyed that the Wire Act applied to all forms of internet gambling and therefore illegal under existing law.

Yet the U.S. Court of Appeals for the Fifth Circuit in 2002 interpreted the Wire Act in another way. In Thompson v. MasterCard International et. al., the court affirmed a lower court ruling that according to federal statutes sports betting conducted over the internet is illegal, but casino games are legal. As such, since the Wire Act was specifically enacted to prevent sports betting, it would seem that the court got it right, with the gambling industry arguing that banning online gaming would require additional legislation.

And in 2004 the World Trade Organization got their say when the Caribbean Island nation of Antigua sued the U.S. government in 2003 in an effort to block U.S. actions to prohibit online gaming. The WTO ruled that the U.S. government was in violation of commercial services accords, and that the U.S. could be subject to trade sanctions. But Elliott Spitzer, New York State Attorney General, through his Internet Bureau Office lodged an investigation against national banking institutions based out of New York such as Citibank, N.A., Bank of America, N.A., JP Morgan Chase & Co. and MBNA America Bank, N.A., that process credit card transactions online. They as well as Visa and MasterCard agreed to voluntarily block transactions to online gambling sites with respect to the laws of the state of New York. However, other states must set up their own mechanisms in preventing such gambling.

While the societal impact of gambling has been debated endlessly for decades, from mental health issues to risk of bankruptcy, the evils of gambling will continue to prey upon those most vulnerable. However, the repercussions of online gambling are too new for them to be realized as yet on a grand scale. And while we hear of more and more minor children and young adults using credit cards to participate in online gaming, according to experts, more research and education needs to be done in order to warn children and their parents about irresponsible gambling.

But with respect to those who choose not to gamble, the issue of brokerage houses maintaining mutual funds, unbeknownst to their clients, by investing in offshore betting by way of the internet, will perhaps present unanticipated complaints, once consumers become more aware of how their life savings are being invested.
As such, Americans should have the choice of investing in a product which has been deemed illegal by several U.S. administrations. Without a clear and decisive law, which does not conflict with cyberspace jurisdiction as well as world trade policies, such transactions continue to go on unabated.

Until there is legal clarity, however, the online gambling industry will continue to trump any perceived notion of criminality. And since 2005 saw no new legislation proposed by either the House of Representatives or the Senate to restrict online gaming, it appears that the U.S. would rather gamble itself, in doing nothing about it, rather than protect its consumers and those most susceptible to its ills. Rather than owning up to their responsibilities to protect the interests of the American people and thereby U.S. consumers, both the U.S. government and U.S. corporations would rather wager that most will not care about their cashing in, either.