-Friday, May 11, 2007

Insights: Does the Frank Bill Stand a Chance?

by Emily Swoboda

In April, Rep. Barney Frank, D-Mass., introduced the Internet Gambling Regulation and Enforcement Act, which proposes a licensing and regulation regime be established in the United States. The bill could attract remnants of an exiled industry back to the United States, though it is slow in gaining traction. Furthermore, Frank has said that he would not introduce the bill for House vote unless he was sure it would pass.

So, IGN asked the experts:

What are the chances that Frank's bill will pass and will it stay in its original form? Moreover, if it passes, what impact will it have on the global online gambling industry?

"I think the most interesting thing will be to observe whether or not gamblers will begin to see themselves as a political interest group. Strictly speaking, there is no such thing as a 'right to gamble' in American law just now. But that may change if politicians come to depend on gambling votes for their jobs."
- Martin Owens

Larry Walters: It's a bit early to evaluate chances of success, but it's always more difficult to repeal or amend legislation shortly after passage than it is to pass a bill on its own. It is encouraging that Rep. Frank has taken the initiative in seeking to regulate online gaming, instead of allowing the country to pursue a hopeless prohibition policy. The Frank Bill is generating more and more support every day, but there is still a long way to go. Given the fact that the UIGEA was a Republican-led proposal, and given that the control of Congress has shifted to the Democrats, the chances of undoing all or part of the law have increased. By the same token, there was widespread, bipartisan support for the bill in the House, so this is not strictly a Republican/Democrat issue.

If passed, the bill would create significant new opportunities for U.S.-based gaming companies. We may not see companies flocking to the United States to get licenses, given the strict anticipated restrictions that will likely be imposed on any such licenses, when granted. However, U.S. licensure will presumably be required to gain access to the profitable U.S. customer market, so there will certainly be some interest in becoming licensed here.

Lawrence G. Walters, Esq., is a partner in the national law firm of Weston Garrou, DeWitt & Walters, www.GameAttorneys.com. He has been practicing for over 15 years, and represents clients involved in all aspects involved in the online gambling industry. Nothing contained in this article constitutes legal advice. Please consult with your personal attorney regarding specific legal matters. Mr. Walters can be reached at [email protected], or via AOL Screen Name: "Webattorney."

Martin Owens: I predict Congressman Frank will have his hands full getting the necessary support for this bill. It changes the balance of power between state and federal governments as far as controlling gambling, and the states won't like that, even if it does make more sense to participate in the global Internet gambling that way. Control of gambling was not a power vested in the federal government by the Constitution, so I think we might have the 10th amendment question there.

And also (there is) the Commerce Clause--the idea of avoiding unequal burdens on the stream of commerce. Suppose the federal licensing standards are stricter than a given state's--more lax. As the bill reads right now, it might be entirely possible for a gambling company to find its brick-and-mortar operations subject to one set of rules, and its online operation subject to another.

It also raises questions about the status of the Indian tribes vis-�-vis the states--another unwelcome controversy. Certainly there would have to be clarification on this point. A number of states, such as California, have already entered into compacts with Indian tribes to allow class III gaming, which specify that the Indian tribe will not offer its gambling on the Internet. So, will they have to rewrite all the compacts? That isn't clear. Since a federally recognized tribe can offer class II gaming without reference to the states, does that mean that they can all go straight online now?

Because the bill specifically states that it will not conflict with the Sports Protection Act, then no state or tribe will be able to add sports betting to their online offerings, which means the biggest single moneymaker in the industry will still be off-limits. That in turn means the offshore operators will still have a reason to exist. In addition, sports leagues, both amateur and professional, will be allowed to "opt out"--that is, veto their participation. One of the terms of the Sports Protection Act was a grandfather clause for Nevada, so Vegas will retain its legal sports betting edge.

Another point: the formal licensing of online betting on a national level in the United States will pretty much wash away any foundations for the current American stand in the WTO Antigua case. If online gaming is being offered nationwide, it will not be possible to assert that access to the U.S. market is being blocked for valid moral reasons.

I think the most interesting thing will be to observe whether or not gamblers will begin to see themselves as a political interest group. Strictly speaking, there is no such thing as a "right to gamble" in American law just now. But that may change if politicians come to depend on gambling votes for their jobs.

Martin Owens is an attorney who specializes in the problems of operating gambling businesses online. Services emphasize strategic planning and preventive action in such areas as legal compliance and proper corporate structuring, as well as contracts, intellectual property protection, technology transfer, domain names, and the assorted other ramifications of operating online. Feel free to address questions and comments to [email protected].

"There would be an audible sigh of relief from the industry (if the bill passed). The U.S. market could open up in a more organized way than ever before and it would bring legitimacy to what is widely considered, in Europe at least, as a legitimate leisure pursuit."
- Peter Wilson

Peter Wilson: Common sense dictates that a rigorous and effective licensing scheme is to be preferred over prohibition (or rather, attempted prohibition). Predictably, the passing of the UIGEA did not cause any sudden evaporation of the desire of a large number of U.S. residents to gamble online. Instead, it led to the withdrawal of the largest banks and gambling operators. As a result, U.S. consumers have less protection, there is no or insufficient debate about their needs, security or safeguards, and the government continues to lose potential tax income. Against this backdrop, a bill introducing a robust licensing scheme should become law.

It is clearly drafted both to gain political support and to meet anticipated objections. Licensing Internet gambling would bring a significant tax contribution to the U.S. Treasury. Applicants for licenses would have to undergo financial due diligence and submit to background checks. In operating, they would have to put in place safeguards to prevent underage gambling, to combat fraud and money laundering, to the protect privacy and security of customers and to combat compulsive gambling. These measures very much reflect the key licensing objectives in the United Kingdom's new remote gambling license and would provide real protection for U.S. consumers, something that to some extent (depending on where the operator was located) existed on a voluntary basis up 'til now.

The bill also contains opt-outs for those states and Indian lands that ban gambling or wish to ban Internet gambling, and an ability for Sporting Leagues to decide that there should be no Internet betting on their activities. These are not soft options as a violation of the bill is punishable by up to five years in prison.

The bill also gives a way back in the U.S. Internet gambling market for the big banks and financial institutions, which must surely help restore the status of the sector and be in the consumer's interest.

Therefore, in a sense the bill has something for everyone. Of course, the chances of it passing into law are likely to be greatly assisted by the change in the balance of power to the Democrats in both the Senate and the House of Representatives.

If the bill passed, there would be an audible sigh of relief from the industry. The U.S. market could open up in a more organized way than ever before and it would bring legitimacy to what is widely considered--in Europe, at least--a legitimate leisure pursuit. Licensing operators are likely to be considerably more effective in routing out the bad guys than prohibition could ever be. Let's face it: it must be in the interests of licensed operators to ensure that the unlicensed people competing in their market are brought to task.

We may also see the introduction on a serious scale of the big land-based U.S. gambling companies, so a licensing scheme is not a route to easy money for those who are or were in the market already. It will be a route to fair competition though and no one could complain about that.

Peter Wilson, a partner at the Tarlo Lyons firm in London, is a specialist in the areas of gambling and licensing. He has been advising on gambling for over ten years. He has appeared before the Gaming Board of Great Britain on a number of occasions and a good proportion of his practice now involves advice on different types of Internet gambling including bookmaking, betting exchanges, pool betting, casinos, lotteries and prize competitions. He recently wrote the chapter on Internet gambling for Sweet & Maxwell's Encyclopedia of E Commerce Law.

This material is copyright protected. It is, therefore, illegal to display or reproduce this article for any commercial purpose, including use as marketing or public relations literature, without the explicit permission of the River City Group.