Online Gambling Essay, Research Paper

The Social and Legal Problems Posed by Online Gambling

Introduction

Not only has the Internet brought gambling into the home, it has made it anonymous and readily available to virtually anyone at any time and at any place. As a result, the popularity of Internet gambling has skyrocketed over the past few years. Since the first virtual online casino started up in 1995, the industry has grown to over 450 gambling websites. In 1997, Internet gambling produced at least $200 million in business. Conservative estimates conclude that online gambling will bring in at least $3 billion of annual revenue by 2002. Gambling over the Internet can be performed in most traditional manners. Virtual casinos and sports books, however, continue to lead the online gambling industry.

A typical on-line gambling experience is as quick and easy as turning on your computer and going to your favourite gambling Web site. Gamblers first click on a link that takes them to an account-opening page where they can access their account and/or deposit more money. Once the account is opened, funds can be deposited by using a credit card, certified check, money order, or through a wire transfer. When the account has funds, gamblers are ready to play. If they win, the amount of the bet will automatically be credited in their account. If, however, they lose, the loss will be deducted from their account.

While Internet gambling popularity continues to grow, so do the concerns surrounding the business. Questions concerning the legality, potential dangers and moral issues have made this industry a controversial topic. In this paper I will first briefly examine the social/political concerns about online gambling. I will then discuss the two main legal approaches that Canada could take in dealing with online gambling and the issues involved in these approaches.

Social/Political Concerns

As Internet gambling rises in popularity, concern over its potential effects have grown as well. While traditional forms of gambling have been subject to much criticism, online gambling has raised its own specific concerns. Four of these are fraud, gambling by minors, increased addiction, lost state revenue.

Fraud:

The inherent nature of online gambling leads to questions of how gambling on the Web can be properly investigated to prevent the potential for fraud. Without regulation, online gamblers have no way of being sure whether the games are operated fairly. There’s just no way to tell if virtual dice, roulette or cards are rolled, spun or dealt randomly or whether they’re responding to a sequence to cheat customers.

Other opportunities for fraud on gambling sites include abuse of credit card information and failing to pay out any winnings the bettor may accumulate. A typical online casino requires the user to submit credit card information before participating in any of the games. Once this information is transferred it is in the hands of the online company and subject to potential abuse. Furthermore, the payment of winnings has been subject to fraud in the past. When too many gamblers win, online operators have simply shut down their web sites, without paying off the winnings, and moved to a new online gambling site. With the difficulties in identifying and locating site operators, gamblers may be left with no recourse.

Minors:

Whether or not one supports legalized gambling as an acceptable form of entertainment for adults, it is unlikely that anyone could make the same argument for children. Thus a second major concern associated with online gambling involves its availability to minors. Obviously, it is easier for a minor to access online gambling websites than other avenues of gambling. This accessibility is due to the growth of Internet access in homes and the anonymity of Internet users. Arguably, many times it is virtually impossible for online operators of gambling sites to determine the age of the user. With unlimited potential for minors to access these online gambling sites, opponents of this industry argue that the only way to keep children away is to prohibit these sites to everyone.

Addiction:

Gambling addiction is another major concern that arises in the context of Internet gambling. Gambling addiction has always been a concern, however, opponents of online gambling argue that legalized online gambling will lead to an even greater increase in gambling addictions. Unlike traditional casinos where gamblers use real chips or money, online gamblers place bets with the click of the mouse where there is no tangible representation of money:

Video gambling, because of its instant feedback mechanism, is known to addict gamblers faster than other forms of gambling; hence, sociologists and psychiatrists widely refer to it as the crack-cocaine of gambling addiction.

Another reason for the potential of increased gambling addictions is attributable to the ease of access to the activity. Traditional casino gambling requires a gambler to visit the casino’s location where most have limited hours of operation. With the increase of Internet gambling, gamblers can now stay in their own homes and immediately place their bets 24 hours a day, seven days a week. It has also been argued that compulsive gambling is more frequent when the player is anonymous. It is suggested that gamblers who have lost an incredible amount of money are more likely to keep betting on their computers than if they were sitting at a table with others watching.

Loss of Revenue:

In the United States another concern about Internet gambling is loss of tax revenue. Americans are required to pay taxes on lottery winnings and one argument raised in favour of prohibiting online gambling is the need to protect state revenues generated by legal and state-run gambling operations (i.e., state lotteries). Internet gambling offers users the ability to avoid paying taxes on winnings because of the difficulty in tracking online gambling winnings.

Although Canadians aren t faced with this particular problem because lottery winnings are not taxable income, there is the concern that the legalized government run gambling operations would lose revenue because many gamblers choose to spend their money online. Many traditional casinos have expressly voiced their concerns over Internet gambling arguing that this loss of revenue would significantly reduce the legal gambling industry. The reduction, arguably, would mean a loss of jobs and provincial funding generated from these revenues.

Possible Legal Approaches

Many jurisdictions have been struggling with the implications of Internet gambling and how they should react to it. There are no simple or obvious solutions to the question of what should be done as is evidenced by the wide range of approaches around the world. A number of small jurisdictions such as those in the Caribbean have embraced the opportunities and have specifically granted Internet gambling licences (often for relatively small fees and with no duty payments because of the employment benefits); some jurisdictions within Australia are also following the path of licensing along with extensive regulation; a number of European countries now permit their already licensed gambling operators to offer Internet services but to residents only; and the USA is still seeking a way in which it can effectively prevent Internet gambling by its residents, whether offered by operators at home or abroad.

There are two main approaches that Canada could take to deal with online gambling. The first is to continue prohibiting online gambling either through the current gambling offences in the Criminal Code or by way of new legislation specifically banning internet gambling. The second approach is to create a new legal framework for licensing and regulating a legalized online gambling industry in Canada.

Prohibition:

In Canadian law, section 207(4)(c) prohibits lottery schemes operated on or through a computer, video device or slot machine if it is not conducted and managed by a provincial government. Internet gambling is likely illegal under this section although this provision was not created specifically in contemplation of online gambling. At this time Canada has not enacted any new legislation that specifically addresses gambling on the Internet.

In America, the government is moving towards adopting legislation what will attempt to specifically ban online gambling. Congress is currently considering proposed legislation that would prohibit most forms of online gambling. The most important bill is the Internet Gambling Prohibition Act (IGPA). This bill is also known as the Kyl Bill because of its initial proposal from Senator Jon Kyl.

The IGPA was initially introduced into Congress in 1997 but never successfully passed through Congress. In 2000, Senator Kyl reintroduced the bill with some significant changes. The new version is quite lengthy and complicated and cannot be examined in depth in this paper. Specifically, the bill states: it shall be unlawful for a person engaged in a gambling business to use the Internet or any other interactive computer service to place, receive, or otherwise make a bet or wager. Essentially, this bill would outlaw most Internet gambling except for fantasy sports, state lotteries, and betting on activities such as dog racing and horse racing.

In response to the American approach, it is often argued that attempting to ban online gambling is na ve and counterproductive. Whether or not banning internet gambling is desirable, issues such as enforceability, increased usage, and assorted jurisdiction problems all appear to be obstacles to effective prohibition of this industry.

Enforcing Internet gambling laws would be a major problem for authorities. Arguably, even if future legislation is enacted, the online gaming industry will not be shut down. In explaining the futility of such a ban, Tom Bell states that the Internet s inherently open architecture already hobbles law enforcement officials, while relentless technological innovation ensures that they will only fall farther and farther behind.

The anonymous identity of users remains one of the key aspects of cyberspace enforcement. [T]he ease with which an Internet gambler may disguise his or her identity makes it difficult to trace users of Internet gambling sites. Furthermore, indecipherable and untraceable financial transactions, accomplished through the use of encryption and electronic money, could essentially thwart law enforcement’s ability to trace violations of gambling laws over the Internet. Even if law enforcement officials are able to find the identity of online gamblers, it may be in vain because of the time constraints of tracking them. Arguably, most users will have stopped playing by the time officials are able to track them and thus efforts spent on tracing would be useless.

An enormous amount of funding would have to be allocated to law enforcement to allow even a chance at proper enforcement. Appropriate funding would be needed for providing more law enforcement officers, equipment, training, search warrants, subpoenas and prosecuting the criminals. Meaningful prohibition of the online gambling industry could become a very expensive and time-consuming approach.

Jurisdictional issues create further obstacles to preventing online gambling. Concern stems from whether Canada or the U.S. could exercise jurisdiction over online gambling companies outside the country in order to prosecute for the offence of providing Internet gambling. The answer doesn’t seem to be clear. As previously mentioned, some other countries have already legalized and regulated Internet gambling. Antigua, and other such countries that have legalized the industry are not likely to cooperate with Canadian or American officials in prosecuting individuals who run what in their country constitutes a legitimate online gambling company.

Attempts to implement Canadian or U.S. laws on a country that has chosen to legalize such an activity have the potential to create a strain on political, legal, and social relations between the respective countries. Ultimately, this strain could even lead to a reduction of the Internet. If every state and nation attempts to apply its laws with respect to Internet activities it deems illegal, the end result will be an Internet that satisfied the lowest common denominator in terms of acceptable activity Furthermore, [v]alues and morals are so different and the desire to regulate so different especially from country-to-country that agreeing to a common framework would be difficult.

Legal prohibitions are pointless if they cannot be enforced. In the case of online gambling it appears that both practical and legal barriers will cause significant difficulty for law enforcement.

Legalization and Regulation:

The fundamental question is whether Internet gambling can be controlled, and to what extent. As discussed, it appears that legislative attempts to eliminate this industry will ultimately be ineffective. Therefore, it would seem a more useful approach to dealing with problems of online gambling would be to legalize and regulate the industry. Online gambling companies could be licensed and regulated by the government. Other countries have recognized this new technology and look forward to a potential gain in economic growth by providing a safe-haven for entrepreneurs interested in starting an Internet gambling business. Whether or not online gambling is good for our society is irrelevant if it cannot be prevented. Regardless of the law Canadians can continue to gamble online without much fear of legal consequence. If the government refuse to legalize and regulate a form of this industry in Canada other countries will increasingly profit from Canadian business while the provinces of Canada lose revenue. Essentially the provincial governments will not be able to maintain their monopoly of the gambling industry if they have to compete with online gambling sites from around the world.

Although regulation cannot prevent all of the societal harms gambling can cause, it could definitely take steps towards that goal. Australia, for example, has implemented what it calls the Draft Regulatory Model. Under this regulatory model, a number of basic principles are included to help control, not eliminate the online gambling industry in Australia.

First, a variety of regulations can be imposed to reduce the chance of fraud and further acquire a percentage of profits from Internet gambling. Licensing of service providers pursuant to background checks and determination of financial capacity to pay out winnings should be instituted. These licensing and fee requirements should help reduce the potential for unlawful practices of online gambling companies. Although evasion of licensing requirements and government monitoring might easily be accomplished by online casino operators, online gamblers would have the choice to interact only with those who are licensed. Thereby providing an incentive for compliance and offering online gamblers some assurance that they are dealing with legitimate organizations.

In order to combat the serious concern of minors being able to gamble online requirements for player authentication should be implemented. It is now possible to block children’s access to online gambling sites by using a registration procedure that is cross-verified with available databases. Also governments should provide education to parents and schools on the dangers of unmonitored Internet use by children. Greater use of filtering programs in home and school computers could go a long way in solving this problem.

To reduce the potential for addiction and financial loss, maximum limits on wagering should be set. Also, contact information and further assistance for problems of gambling addictions should be advertised on gambling websites.

Conclusion

Gambling on the Internet has become an enormous industry worldwide. This explosive growth will surely continue with improved technology and more accessibility of the Internet to users in all corners of the world. There are several concerns to the growth of Internet gambling including addiction, bankruptcy, availability to minors, fraud and other crimes, and loss of revenues. Currently, there are no effective mechanisms that can totally eliminate the Internet gambling industry. Furthermore, issues such as lack of enforceability, as well as problematic jurisdictional issues appear to severely limit the government’s ability to enforce existing and future laws. Therefore, legislative attempts will ultimately fail in their objective to prohibit this industry.

Instead of fighting a losing battle, it seems logical to regulate and monitor this type of gambling. By doing this, Canada will be able to more effectively manage the obvious concerns that surround this industry. Furthermore, by implementing a scheme where Internet gambling is not prohibited, but regulated, Canada should be able to turn these same concerns into positive aspects by providing reassurances that protect users and facilitate a viable entertainment and economic industry.