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[NOTE: This document has been edited for classroom use. See this alternate source for the original text.]
1. Nature of the Potentially Unlawful Conduct
The growing availability of the Internet and other emerging technologies has had a dramatic impact on gambling businesses. Studies estimate that between 1997 and 1998, Internet gambling more than doubled, from 6.9 million to 14.5 million gamblers, with revenues more than doubling from $300 million to $651 million. A recent estimate reported 300 Internet gambling sites in operation. This rapid rate in the growth of Internet gambling is alarming and has caused several problems for federal, state, tribal, and local governments in the enforcement of their gambling laws.
First, the Internet is attractive to organized crime groups that operate gambling businesses, because it allows virtually instantaneous and anonymous communication that can be difficult to trace to any particular individual or organization. There is also the possibility of abuse by unscrupulous gambling operators. The ability for operators to alter, move, or entirely remove sites from the Internet within minutes makes it possible for dishonest operators to take credit card numbers and money from deposited accounts and close down. Operators may tamper with gambling software to manipulate games to their benefit. Unlike the highly-regulated physical world casinos, assessing the integrity of Internet operations is difficult. Gambling on the Internet also may provide an easy means for money laundering, as it provides criminal anonymity, remote access, and access to encrypted data.
Second, the anonymous nature of the Internet also creates the danger that access to Internet gambling will be abused by underage gamblers. Gambling businesses have no surefire way of confirming that gamblers are not minors who have gained access to a credit card and are gambling on their websites. The government has received numerous complaints from concerned and affected citizens regarding this problem.
Third, because the Internet provides people with the opportunity to gamble at any time and from any place, Internet gambling presents a greater danger for compulsive gamblers and may cause severe financial consequences for the player and those dependent on the player's resources (e.g., dependent children).
As the National Gambling Impact Study Commission recently found:
Internet gambling is raising issues never previously addressed and exacerbating concerns associated with traditional forms of gambling. While preventing underage gambling and reducing problems associated with problem and pathological gambling are concerns for all forms of gambling, reducing these concerns is particularly challenging for Internet gambling. The Internet provides the highest level of anonymity for conducting gambling to date. . . . Screening clients to determine age or if they have a history of gambling problems is difficult at best.
These problems are exacerbated by the international scope of the Internet. Although the United States has determined that there is a strong law enforcement priority to prohibit Internet gambling, other countries have chosen to allow unrestricted Internet gambling (as certain countries in the Carribean have done) or, in the alternative, to regulate betting and wagering on the Internet. The United States government, in its assessment of existing and needed laws, must adopt solutions that do not interfere with the operation of these lawful foreign gambling operations, while protecting its citizens from the transmission of bets or wagers into or from the United States.
2. Analysis of Existing Law
The federal government has traditionally deferred to the states to regulate or prohibit gambling activities, devoting its attention to gambling activities involving criminal matters (e.g., organized crime and fraud) or matters involving interstate or foreign commerce. States, in turn, have considered their communities' moral beliefs, evidence of the social impacts of gambling, and concerns about associated criminal activities, in deciding how to address gambling. In the late 1950s, however, states discovered that the telephone and other communications facilities were transforming gambling into more of a federal issue. Illegal bookmaking operations, often run by organized crime groups, were using these technologies to transmit gambling information rapidly between states and to and from foreign locations.
In view of the growing use of such technology by bookmaking operations in furtherance of their criminal activities, then-Attorney General Robert F. Kennedy proposed legislation in 1961 to help states enforce their gambling laws and combat organized gambling activities. The bill was passed and codified at 18 U.S.C. § 1084. Section 1084 makes it a crime for an individual engaged in the business of betting or wagering to use a "wire communication facility" to transmit in interstate or foreign commerce bets or wagers, or information assisting in the placing of bets or wagers, on any sporting event or contest. See 18 U.S.C. § 1084.
Because the Internet is a "wire communication facility" as defined in 18 U.S.C. § 1081, section 1084 is sufficient legal authority to prohibit the use of the Internet to engage in gambling activities related to sporting events or contests. Indeed, even in those instances where the Internet travels over non-traditional communication facilities (e.g., microwave or satellite), the "wire communication facility" definition still applies, because the statutory definition includes facilities other than wire and cable that can aid in the transmission of data between "the points of origin and reception of such transmission," 18 U.S.C. § 1081.
Accordingly, law enforcement agencies are currently prosecuting individuals engaged in the business of betting or wagering in foreign countries who knowingly transmit illegal sports bets and wagers to or from U.S. residents. For example, in March 1998, the United States Attorney's Office for the Southern District of New York filed criminal complaints against 22 defendants for conspiracy under 18 U.S.C. § 371 to violate section 1084 and with section 1084 violations for the operation of online gambling sites. The websites involved in this prosecution were operated in countries in the Carribean and South America, including the Dominican Republic, Curacao, and Antigua. As of the time of this report, several defendants have pled guilty while others await trial.
Other federal statutes that may be relevant to online gambling operations include 18 U.S.C. § 1953 (interstate transportation of wagering paraphernalia); 18 U.S.C. § 1955 (prohibition of illegal gambling businesses); 18 U.S.C. §§ 3001-3007 (Interstate Horseracing Act); 18 U.S.C. §§ 1301-1307 (criminal statutes relating to lotteries); and 28 U.S.C. §§ 3701-3704 (prohibiting any lottery, sweepstakes, or other wagering scheme based directly or indirectly on one or more competitive games in which amateur or professional athletes play).
3. Investigatory Challenges
On the one hand, as noted above, existing laws have provided the basis for successful prosecutions against Internet gambling. The use of credit cards for the bulk of gambling over the Internet also means that detailed records of such transactions are likely to exist. These records may be used as evidence of criminal conduct once alleged gambling operations have been identified. Indeed, the existence of such records may well have reduced the level of illegal, online casino gambling that is conducted from U.S.-based website operators. On the other hand, however, online casino gambling has largely shifted to offshore locations, where it may be difficult for U.S. law enforcement agencies to gain access to relevant records. In addition, the use of fraudulently obtained credit card numbers can limit the usefulness of transaction records generated by the use of such cards.
Some legal changes are also needed. Although existing federal laws provide an adequate basis for prosecuting traditional forms of gambling on the Internet, new telecommunications technology has brought about entirely new types of electronic gambling, such as interactive Internet poker and blackjack, that some gambling operations claim are not prohibited by section 1084 as it currently exists. As a result, section 1084 needs to be amended to clarify the law and to remove any doubt as to whether new types of gambling activities made possible by emerging technologies are prohibited.
The Department of Justice, working with the Departments of Commerce and Treasury and the Office of the U.S. Trade Representative, has drafted amendments that would ensure that individuals in the business of betting and wagering do not use communications facilities to transmit bets or wagers in interstate or foreign commerce, within the special maritime and territorial jurisdiction of the United States, or to or from any place outside the jurisdiction of any nation with respect to any transmission to or from the United States. Specifically, these amendments would, among other things:
Last year, both the House and the Senate introduced The Internet Gambling Prohibition Act of 1999 (H.R. 3125 and S. 692); the Senate version passed in November 1999. This proposed legislation, however, would leave traditional gambling statutes in effect for non-Internet media, while creating special rules for Internet gambling. This non-technology-neutral approach would create overlapping and inconsistent federal gambling laws. In addition, these legislative proposals contain a number of broad exemptions from its general prohibition on Internet gambling. Such exemptions are not only questionable as a matter of policy, but, because they would apply only to Internet gambling, they would exacerbate the problems created by the existence of a separate legal framework for Internet gambling.
Existing federal laws generally prohibit individuals from transmitting bets or wagers (using a "wire communication facility," which includes the Internet) on sporting events or contests in the U.S. The advances of the Internet, however, have made it necessary to update existing federal laws to ensure that they are technology-neutral and prohibit new as well as traditional forms of online gambling activities. Law enforcement also needs better mechanisms by which to track and identify online gambling businesses. The anonymous nature of the Internet complicates the ability of law enforcement to successfully track online gambling operators.
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