Betting on Uncle Sam

Online gamblers are waiting for legislators to make their Wild West world a safer place to wager -- but the government keeps waffling.


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Farhad Manjoo
October 5, 2002 11:30PM (UTC)

The man calling himself Screwed had had a bad night. He'd spent a few late hours playing roulette at his favorite online casino, his luck had soured, and now he was at Winner Online, a popular gambling discussion site, griping to anyone who cared to listen about why he thought he'd been wronged.

In his messages, Screwed -- whose profile describes him as "retired," but who is otherwise anonymous -- offered a complex tale of big winnings going bust, thanks to some sort of snafu. At 4 a.m. one September morning, he wrote, after many rounds of roulette, he hit a big jackpot -- or, at least, he thought he'd won big, as his account showed more than $10,000 in chips. But when he went to cash out, the online casino wouldn't accept his password. When he managed to reach a customer service representative on the phone, the rep told him that the whole thing had been a "computer glitch": Screwed had, indeed, won big, the casino acknowledged, but the site had accidentally given him too much money to begin with, so he'd been betting with money that was not his own. Screwed was furious -- and that's why he ended up at Winner Online.

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The legality of Internet gambling in the United States is routinely described as "murky." With few exceptions, it is illegal to set up an Internet gambling site in the U.S. But is it legal for a U.S. resident to place a bet at an offshore site, or to use an American bank account or credit card to pay for bets? The answer depends on whom you ask: representatives of state governments, the federal government, federal courts, various legal experts, and trade organizations with an interest in the matter all offer conflicting interpretations of how the law applies to gambling online. But the one thing that all of these parties agree upon is that, regardless of legality, gambling is thriving online, especially with Americans.

In the absence of regulation, gamblers have devised elaborate grass-roots systems to vet the hundreds of online casinos now in operation. There are dozens of "gambling portals" -- like Winner Online, where Screwed was sounding off -- and "player's associations" set up to work like an Internet version of a neighborhood watch program, with everyone keeping an eye out for thieves. Some of these groups even act as arbitrators, getting back thousands of dollars for players who were cheated.

On Oct. 1, the U.S. House of Representatives passed the Internet Gambling Enforcement Act, in an attempt, many members of Congress said, to stem the rise of online gambling. The bill, sponsored by Reps. Jim Leach, R-Iowa, and John LaFalce, D-N.Y., prohibits financial companies -- such as banks, online payment services and credit card companies -- from making payments to "unlawful" gambling sites. "We shut off the money, we shut off the sites," Rep. Spencer Bachus, R-Ala., told the Associated Press.

Maybe. Many gamblers note that American financial companies have already shied away from processing Internet casino payments. Many players now use foreign-based payment systems that are probably outside the scope of U.S. law. Which means, gamblers say, that people will continue to bet online even if the bill passes -- only then, they warn, the online gambling economy will be completely underground, under the domain of foreign governments over which U.S. law might be powerless. (It's not clear that the Leach-LaFalce bill will pass, as it still requires approval by the Senate; that body is currently bogged down with weightier issues, and the end of the congressional term is fast approaching.)

Lawmakers who support the Leach-LaFalce bill offer two main reasons for their opposition to Internet betting: they worry that online casinos could be used as fronts for money laundering, and they worry about problem gamblers. But pushing gambling further underground only exacerbates those problems, proponents of legalized gambling say. If everyone betting online is using a foreign payment service, how will the government know if someone is using a casino to hide ill-gotten money? Even gambling-addiction help groups aren't very keen on the House bill. People with gambling problems, they argue, would be better served if there were rules governing online casinos' responsibilities to those groups, and if there were online casino-funded programs to help them.

In the face of the proposed legislation, which they view as flawed, online gamblers are issuing a curious plea to the government: Monitor us! Instead of using their ad hoc regulating systems, virtually everyone involved in online gambling -- from the casinos to the players to the consultants -- would prefer to live under the sunshine of the legal system. Online casinos are perhaps the world's only industry that is actively inviting U.S. taxation. The only way to make online gambling less of a crapshoot, they say -- the only way to make it safer, for both players and society -- is to do what's done for other forms of gambling in the 47 states where some sort of wagering is legal: Regulate, regulate, regulate.

Among Internet gamblers, it's an article of faith that the government can never shut down online casinos. Sounding much like MP3 downloaders who defy record companies to stop them from trading music, gamblers say that the Internet is too vast, too fluid and too international to prevent any site from offering games of chance in return for money. "They can't do anything about it," said Damian Dunlap, a real estate broker in Los Angeles who was one of few Internet gamblers willing to talk to Salon on the record. "What are they going to do? Unless they start checking everybody's computers, and they can't do that."

The Leach-LaFalce bill doesn't say anything about checking people's computers. Its main function is to prevent American financial firms from paying casinos -- but it also outlines a thicket of exemptions and exceptions to the rule, actually creating a class of "lawful" Internet gaming sites in the process, and not offering a clear definition of what's legal and what isn't. Because of these caveats, it was the sort of legislation that virtually everyone could agree on: It passed by a voice vote, earning the unlikely support of both the Christian Coalition and the National Thoroughbred Horseracing Association (the former supported the bill in the belief that it would stop betting online; the latter in the belief that it would not).

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But Dunlap, the gambler in Los Angeles, and several other regular players pooh-poohed the idea that the government could stop gambling by outlawing payments to gambling sites. "Now they have Neteller," he said of gambling sites. "You can even send your check in. The government can't stop that."

Neteller, an online payment system that's a virtual clone of PayPal, but which is based in Canada and not subject to U.S. law, is another article of faith among online players. There are now several Neteller-type systems based all around the globe, and Americans can freely transfer funds to those accounts, which can then be transferred to online casinos. To hear American gamblers tell it, these systems guarantee that betting online will forever remain free of impediments.

The truth is somewhat more complicated, though. Just as the record companies couldn't shut down all the file-trading apps but could make file trading more frustrating, it appears that authorities who've gone after "financial instruments" used for online gambling have had some success. This year, Eliot Spitzer, New York state's attorney general, has pressured many credit card companies to block payments to Internet betting, which -- by court decision -- is explicitly illegal in New York. In March, Spitzer also managed to get PayPal to stop letting New Yorkers pay online casinos. And when eBay announced plans to purchase PayPal in July, the company said that it would cease to do business with casinos altogether.

"And that caused the [online gambling] industry to really go through a contraction," says C.M. Booth, the director of marketing at bet2gamble.com, a site that rates and reviews online casinos. "The end of the credit card payment method has really put the hurt on them."

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But the contraction may be only temporary, as gamblers and gambling sites scramble for alternatives. There's an undeniable demand for Internet casinos, and gamblers say they're finding all sorts of unregulated payment systems to get around the PayPal and the credit card ban -- a fact which should alarm lawmakers, some of whom have expressed concern that Internet casinos may be used to aid organized crime and terrorists.

The specter of casino-financed terrorism was first raised by Rep. Michael Oxley, R-Ohio, and Dennis Lormel, chief of the financial crimes section of the FBI, at a House hearing not long after Sept. 11, 2001.

"We've heard from law enforcement officials that there's a link between offshore Internet gambling, and money laundering," Oxley said. "A lax regulation of offshore Internet gambling operation would seem to lend itself to the possibility that large amounts of terrorists' funds could be laundered through these sites with relative impunity. What are your comments in that regard?"

Lormel responded that Oxley's scenario was a "possibility." Sept. 11's hijackers, he said, "certainly exploited our system as well as they could. So it certainly is a concern and we certainly should be vigilant in monitoring that. And certainly, beyond the terrorism, the network of enterprises that certainly do exploit that particular area is something we must look at."

Lormel said that, at that time, the FBI had two pending investigations in "our organized crime side of the house" looking into money laundering through online casinos. He did not detail the specifics.

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Could the mob or al-Qaida be using online casinos and payment systems to transfer funds? Many gamblers say that these are, at best, alarmist hypotheses; there's no proof -- at least no public proof -- that it's occurring. But if evil people did want to use these systems for evil ends, they'd probably find the current, freewheeling atmosphere -- where everything is illegal and nothing is monitored -- more accommodating than a closely watched environment.

"We already see the beginning of an 'arms race' of alternative payment processors targeting the gambling market," said Mike Craig, co-owner of the Online Players' Association, a group of online gamblers and casinos. "Many are not regulated as financial institutions. The effect of this particular bill is to give a boost to the industry of anonymous and unregulated international electronic money transfer." The Leach-LaFalce bill, Craig added, could end up making money laundering easier than ever before.

In the real, off-line world, where gambling is strictly regulated, the man who called himself Screwed might have found recourse in the law. In the online world, he lodges his complaint at the "Best and Worst Casinos" section of the Winner Online message board, where there are many messages about various casinos' practices.

Screwed's original message was followed by a flurry of player opinions on the matter. It turned out that Screwed's problem was not your typical case of online flimflammery; the casino he was playing at is a reputable firm, and, as many of the people in the message board saw it, the company had not blatantly stolen his money, and had indeed suffered a genuine problem.

Screwed, too, conceded that there was a real glitch. The question to the group, though, was what to do about it. Should Screwed collect any of his winnings, even though -- technically -- he hadn't been playing with his own money? Should he collect half? None?

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The debate at Winner Online was rigorous, covering all aspects of the supposed scam. Some people were convinced that Screwed was trying to pull a fast one on everyone in the group; many people said that it was his fault for not noticing that he'd been playing with more money than he'd put in. Screwed responded that he hadn't noticed because it was late and he was tired, and the casino should pay. A few people agreed with him, and condemned the casino, saying they'd never go there.

In the offline world, there would have been a clear-cut, courtroom resolution; one party would have been reprimanded, one would have been vindicated, and the whole proceeding would have had the imprimatur of the government. Here at Winner Online, though, each party goes home poorer: Screwed doesn't get any money, and the casino may lose some customers.

Because of such problems, a few groups more formal than this message-board system have emerged to make monitoring more stringent. The most powerful of these is Mike Craig's OPA; its mission is to connect "honest players" with "fair casinos." When a dispute arises between a player and a casino, the executives of the OPA -- who are independent of the casinos -- try to mediate a resolution. They have some leverage with each party: If a player is found to be dishonest, he can be stripped of OPA membership, and will no longer have the right to get money back from a casino. If a casino is found to be unfair, it can end up on the OPA's "not recommended" list, which is not a good thing. The carrot-and-stick approach seems to work well -- in the two years that the group has been operating, it has recovered $400,000 from casinos.

But players still have problems with shady casinos, and shady casinos tend to be the only ones available to people in countries where Internet gambling isn't explicitly legal, Craig said. In an e-mail message, he noted that the United Kingdom has legalized Internet gambling, letting gamblers "play online with similar protections to what they have around the corner at home."

But "this is not available to Americans, Canadian, Hong Kong, or Australian bettors, unfortunately," he added. "Some jurisdictions in small countries have legalized online gambling and have gaming commissions, but they have not been very responsive to players' complaints or effective in offering clearly superior casinos to those operating completely without regulation. There is also a significant percentage of completely fraudulent casinos that don't even attempt a pretense of play or payout."

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Casinos based on the Isle of Man, the self-governing territory island in the British Isles, are generally recognized to be the most well-regulated, and therefore the most fair. "The Isle of Man is the hardest place in the world to get a casino license," said Booth, of Bet2Gamble.com. "They also require background checks; they require casinos to have X amount of money."

Because of its strict policies, there are only a handful of Internet casinos based on the island, according to Booth. Most recently, MGM Mirage, the company that owns some of Las Vegas' biggest hotels, unveiled its own online casino -- www.playmgmmirage.com -- based on the Isle of Man. But MGM Mirage's casino and the others based on the island refuse to take bets from Americans; the uncertain U.S. legal atmosphere makes it impossible for them to do so.

"They're doing this at their own risk," said Frank Fahrenkopf, president of the American Gaming Association, the commercial casino industry's trade group. "They have to be very careful about who they offer bets to. Should it be shown that they're accepting bets from Americans or allowing minors to gamble, they face very serious sanctions from [state governments, like Nevada's] that provide them licenses." MGM Mirage did not respond to requests for interviews.

Fahrenkopf described MGM Mirage as the commercial gaming corporation most "bullish" on the Internet. Other land-based casinos, he said, are more conservative, and as a matter of policy, his group is officially against the legalization of online gaming. "It's very clear," he said, "that the regulators do not believe it's possible today, that the mechanism exists so they could properly regulate it."

But he did not rule out the possibility of his member casinos someday embracing legalized online gaming, because many of them, he said, see it as a source of added revenue. MGM Mirage obviously expects to make money from its venture; if it works, other casinos will surely see an opportunity there.

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And Fahrenkopf dismissed the idea that online casinos were any kind of competition for the real deal. "We realize that people who go to Vegas don't just go to stand in front of a slot machine and push a button. They go for the entertainment -- the meals, the shows, the hotel rooms," he said. "The guy who's going to sit in his den with a can of Coors while playing against some robot machine in Belize -- he's not the same customer."

Lawmakers who support legislation to make it harder to gamble online often cast Internet gambling as a morally dangerous activity. For example, James Leach, co-sponsor of the House bill, has called Internet gambling "a danger to the family."

And certainly some of the gamblers' opposition to the proposed law is in response to this talk of gambling being immoral. "I should be able to do what I want with my own money," says Dunlap, the gambler in Los Angeles. "I live in Los Angeles, and there's casinos all around here. What about those? And I can pay for porn but I can't gamble online?"

But others aren't happy with the law because they think it won't do any good. Keith Whyte, the director of the National Council on Problem Gambling, is someone who's aware that gambling is, for some people, a life-and-death problem; it can be a danger to families and individuals. But he doesn't like to put the issue in moralistic terms. Instead, he says, problem gambling is a recognized mental health disorder, and people suffering from it need clinical help.

"When you consider how widely accepted it seems to be, you see that gambling is normal in America," Whyte says. Eighty-five percent of Americans have gambled once in their lives, and legal commercial gambling makes about $65 billion a year. In most states, Whyte says, "nobody with a telephone has any problem betting on sports."

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Whyte concedes that "there are risk factors to Internet gambling -- the use of credit, and we know from clinical studies that problem gamblers tend to do it when they're alone." But out of the billions that casinos make each year, only about $20 million is spent on treating problem gambling, Whyte says. "We would rather see efforts made to help people with the problem -- funding research, that type of thing -- rather than making something legal or illegal. This is like trying to stop alcohol abuse by making drunk driving illegal."


Farhad Manjoo

Farhad Manjoo is a Salon staff writer and the author of True Enough: Learning to Live in a Post-Fact Society.

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