[CTRL] INTERNET GAMBLING

[Kris Millegan]

 -Caveat Lector-

from:
http://www.zolatimes.com/V3.11/pageone.html
<A HREF="http://www.zolatimes.com/V3.11/pageone.html">Laissez Faire City Times
- Volume 3 Issue 11</A>
-----
Laissez Faire City Times
March 15, 1999 - Volume 3, Issue 11
Editor & Chief: Emile Zola
-----
INTERNET GAMBLING

Popular, Inexorable, and (Eventually) Legal

by Tom W. Bell


For better or for worse, the Internet offers new ways of satisfying
age-old human desires. For the most part it serves blandly virtuous
ends, such as private correspondence, public discourse, and legal
commerce.[1] Clean living sells few stories, however, and buys still
fewer votes, so reporters and politicians tend to focus on the
Internet's salacious side. They dwell especially on pornography and
gambling, both of which mix big money with powerful temptations. In the
eyes of overeager regulators, however, Internet gambling presents
something even more shocking than sex: the threat that entrenched
gambling monopolies, nurtured and sometimes even run by government
officials, might face new competition.

This article describes the powerful demand for Internet gambling,
analyzes the forces arrayed against it, and argues against its
prohibition. Attempts to outlaw Internet gambling will inevitably fail.
The very architecture of the Internet will frustrate prohibitionists,
while consumer demand for Internet gambling and the states' demand for
tax revenue will create enormous political pressures for legalization.

Public deliberation and government action will determine whether
legalized Internet gambling comes slowly and painfully or quickly and
cleanly. All facts indicate, however, that sooner or later Americans
will legally gamble over the Internet. We should welcome this
inevitability. The legalization of Internet gambling will have several
beneficial policy impacts, and, as the Founders recognized, our right to
peaceably dispose of our property includes the right to gamble.
Lawmakers therefore can neither effectively stop Internet gambling nor
justify their attempts to do so.

Consumer Demand for Internet Gambling

Americans love to gamble. At least 56 percent of Americans gambled in
1995.[2] It was estimated that Americans would wager more than $600
billion in 1998-- nearly $2,400 for every man, woman, and child.[3]
About $100 billion of that sum would go toward illegal bets on
professional and college sports, evidence that Americans already pay
little heed to anti-gambling laws.[4] Having already embraced
traditional games of chance, Americans will almost certainly extend a
warm welcome to Internet gambling, legal or not.

The Internet offers cheap and easy access to a variety of gambling
services, bringing competition to an industry that has long operated
under highly restrictive licensing practices. Thanks to the Internet,
gamblers no longer have to fly to Las Vegas to play the slots, drive to
the nearest authorized track to play the horses, or even walk to the
corner store to play the state lotto. Consumers can now play those and
other games at home via the many Internet sites--well over 100 and
growing�that offer gambling services.[5]

Americans have already shown that they support the nascent Internet
gambling industry. Analysts calculate that of the $1 billion in revenues
that Internet gambling generated in 1997, about $600 million came from
the United States. Online casinos will have worldwide revenues of some
$7.9 billion by the year 2001, $3.5 billion of it coming from U.S.
consumers.[6]

Because the Internet offers bettors instant access to overseas gambling
sites and relative safety from prosecution, online gambling will grow
regardless of what lawmakers and prudes want. Futility, however, seldom
bars bad public policy. So it remains quite uncertain how quickly
consumers will enjoy legal Internet access to new gaming services.



The Prohibitionist Lobby

A variety of political forces pushes for a ban on Internet gambling.
Left-wing activists have shown no interest in defending consumers'
rights to assemble and speak on the Internet about gambling. And
conservatives, while nominally in favor of free markets, make notable
exceptions for activities that, like gambling, smack too much of the
pursuit of happiness. Since neither Democrats nor Republicans will
defend Internet gambling as a matter of principle, lobbyists have rushed
into the vacuum.

A number of powerful lobbies have financial reasons to favor a ban on
Internet gambling. The established, offline gambling industry has huge
sunk and overhead costs that nimble new competitors might prevent it
from recovering. The incumbent industry also brings very deep pockets to
the political process; it contributed nearly $7 million to candidates in
the 1995-96 elections.[7] Lobbyists for the offline gambling industry do
not openly demand the prohibition of Internet gambling. They have,
however, objected that Internet gambling unfairly escapes heavy
regulation [8] and have already demonstrated their power to shape
legislation banning Internet competition.[9]

State and municipal authorities, having grown fond of nurturing and
taxing local gambling, can easily see that Internet gambling might put
their cash cows out to pasture. In 1996 state authorities alone
collected $3 billion in taxes from casinos and other licensed private
gambling operations.[10] Because of their lottery monopolies, which in
1996 sold $43 billion worth of tickets (up 12 percent from 1995) [11]
and earned revenues of $14 billion [12], state authorities have a direct
stake in preventing citizens from shopping for better odds on the
Internet. After all, state and local officials collect $0.00 from
Internet gambling operations.

Even religious groups may have a conflict of interest when it comes to
opposing Internet gambling. Charitable games raked in $2.5 billion in
1995, a 3.4 percent share of the legal gambling market.[13] Whether or
not Internet gambling represents a moral scourge, it certainly
represents a competitive threat to church bingo games and the like. It
bears noting, given the fervor with which some self-appointed moral
guardians attack gambling, that few Americans regard gambling as
immoral.[14] A 1993 survey found that only 25 percent of those who did
not gamble cited moral or religious reasons.[15]

Political Efforts to Ban Internet Gambling

Both the U.S. House and Senate have recently considered bills to
prohibit Internet gambling. Although they differ in their details and
may well change as they work through the legislative process, any of the
proposed bills would, if signed into law, impose draconian, unjust, and
unenforceable restrictions on Internet gambling.[16] Sen. Jon Kyl
(R-Ariz.), sponsor of the Senate bill, summed up how many U.S.
politicians regard Internet gambling (and, undoubtedly, much else) when
he said, "I don't believe it can be regulated, so we have to prohibit
it."[17] That existing laws cover Internet gambling makes the rage for
new legislation all the more perverse. Several federal statutes plainly
outlaw the business of Internet gambling, though the paucity of relevant
case law makes their application to individual amateur bettors
uncertain.[18]

The current version of the Federal Interstate Wire Act (the Wire Act)
prohibits using interstate communications to run a gambling
business.[19] The Organized Crime Control Act of 1970 similarly makes it
a federal crime to engage in a gambling business that is illegal under
state law.[20] The federal Travel Act [21], as read broadly by the
courts, criminalizes all interstate communications [22] that attempt to
facilitate the distribution of gambling proceeds.[23] Still other
federal laws may apply to Internet gambling.[24] Federal law enforcement
agents thus lack not the authority but the will to go after Internet
gambling.

The Justice Department has admitted that federal law already prohibits
transmitting gambling information via the Internet but confesses that
enforcing the law "isn't one of our priorities."[25] Even Senator Kyl's
office admits that he "has the view that it is already against the law
to gamble on the Internet."[26] Given that courts have hardly had a
chance to apply existing laws to Internet gaming, why would Congress
rush to pass new and potentially unnecessary legislation?

A close look at recent legislative proposals suggests that, by invoking
the supposed need to address the horrors of Internet gambling, Congress
aims to expand federal power over both currently legal gambling
activities and the Internet as a whole. Enforcing the proposed statutes
would require law enforcement officials to engage in detailed, constant,
and intrusive monitoring of citizens' Internet use. That would wreak
havoc on the Internet and our civil liberties while doing little to
inhibit Internet gambling.

The Kyl Bill Senator Kyl's Internet Gambling Prohibition Act of 1997
initially banned every sort of online commercial contest, everywhere in
the United States, for everyone involved.[27] That blanket prohibition
stirred up a swarm of lobbyists [28]. however, and Kyl amended the bill.
As passed by the Senate in 1998,[29] Kyl's bill included a loophole for
certain sectors of the incumbent gambling industry, such as state
lotteries and intrastate parimutuel activities, when conducted by
parties licensed under state or federal law.[30] Another loophole
exempted widely popular fantasy sport leagues from prosecution.[31]
Apart from those concessions to special interests, Kyl's bill continued
to subject Internet gambling to a blanket ban.[32] The Internet Gambling
Prohibition Act failed to make it to the president's desk in 1998, but
Kyl has vowed to renew his fight in the 106th Congress.[33]

Kyl presented his bill as merely an update of the Wire Act, a federal
statute that already regulates wagering over the wires. In fact,
however, Kyl targeted Internet gambling for new and special penalties.
His bill would subject amateur bettors to federal liability for
gambling,[34] whereas the Wire Act applies only to people "engaged in
the business of betting or wagering."[35] Phone in your picks to the
office football pool and rest easy. E-mail them in and, under Kyl's
bill, you would face as much as $500 in fines and three months in
jail.[36] Even the Department of Justice criticized Kyl's discriminatory
treatment of Internet gambling, noting that lawmakers may find it "hard
to explain why conduct that is not a federal crime in the physical world
suddenly becomes subject to federal sanction when committed in
cyberspace."[37]

Kyl's bill would also, unlike the Wire Act, make interstate gambling a
federal crime, even when carried on between states that have legalized
the games in question.[38] The Wire Act exempts from prosecution bets
transmitted between two states, or a state and a foreign country, so
long as both jurisdictions permit such betting.[39] The Wire Act rightly
keeps the federal government out of locally legal business, whereas
Kyl's bill would create a whole new class of federal crimes.

Kyl's bill reaches beyond the Internet--and even interstate
communications--to interfere with matters better left to state and local
authorities. Its coverage includes "any information service" that "uses
a public communication infrastructure" to "enable computer access by
multiple users to a computer server."[40] Kyl's bill would thus cover
e-mail merely sent across town. Given that many office e-mail systems
rely on outside service providers, it might even cover e-mail sent
across the hall! The Wire Act that Kyl claims to take as his model
modestly, and properly, limits its scope to transmissions "in interstate
or foreign commerce."[41]

The Goodlatte-LoBiondo Bill

Although it shares the name and the professed aims of Senator Kyl's
bill, the Internet Gambling Prohibition Act of 1997 that Reps. Robert
Goodlatte (R-Va.) and. Frank A. LoBiondo (R-N.J.) introduced in the
House differs from the Senate bill in some important respects.[42]
Whereas Kyl�s bill targets only Internet users, the Goodlatte-LoBiondo
bill would expand federal law to reach all individual amateur bettors,
online or off.[43] It would make it a federal crime to telephone a
neighbor and casually bet a six-pack on the big game. Together, the two
bills thus offer a Hobson's choice between unjust inconsistency and
unjust breadth.

The Goodlatte-LoBiondo bill would require an interactive computer
service provider, once given mere notice by law enforcement agents, to
discontinue furnishing any facility that "is being used or will be used
for the purpose of transmitting or receiving gambling information" in
violation of law.[44] As discussed in the next section, the architecture
of the Internet renders this provision utterly impractical. Even if it
were enforceable, the Goodlatte-LoBiondo bill would make Internet
communications less economical, less efficient, and less secure.

The Inevitable Failure of Prohibition

Several factors will frustrate attempts to prohibit Internet gambling.
This section discusses three of them:

� First, Internet technology renders prohibition futile. The Internet's
inherently open architecture already hobbles law enforcement officials,
and relentless technological innovation ensures that they will only fall
further and further behind.

� Second, as an international network, the Internet offers an instant
detour around merely domestic prohibitions. Principles of national
sovereignty will prevent the United States from forcing other countries
to ban Internet gambling, and it takes only one safe harbor abroad to
ensure that U.S. citizens can gamble over the Internet.

� Third, consumer demand for Internet gambling and the states' demand
for tax revenue will create enormous political pressure for
legalization. The law enforcement community, which has until recently
enjoyed the media spotlight, will quickly find its calls for prohibition
drowned out by those and other political forces.

Internet Technology Renders Prohibition Futile

The very architecture of the Internet renders gambling prohibition
futile. Even the Department of Justice admits that traditional attacks
on interstate gambling "may not be technically feasible or appropriate
with regard to Internet transmissions."[45] In contrast to telephone
communications, which typically travel over circuit-switched networks,
Internet communications use packet switching.[46]

Each Internet message gets broken into discrete packets, which travel
over various and unpredictable routes until received and reassembled at
the message's destination. In other words, sending a message over the
Internet is a bit like writing a letter, chopping it up, and mailing
each piece separately to the same address. The recipient can piece it
together, but anyone snooping on your correspondence has a tougher go of
it.

Understanding Internet communications as akin to the postal system
clarifies why prohibition of Internet gambling will not work. Imagine
telling the U.S. Postal Service that it must henceforth crack down on
all letters conveying information used in illegal gambling. It would
rightly object that it already has its hands full just delivering the
mail and that it lacks the equipment and personnel to snoop through
every letter. Furthermore, it cannot always tell which messages relate
to illegal activities. People use "bet" and "wager" in everyday
conversations, whereas gamblers often speak in code. Finally, customers
of the mail service would strongly object to having the Postal Service
paw through their correspondence.

Prohibitionists could not expect the Postal Service to simply stop
delivering mail to and from certain addresses associated with illegal
gambling. The Postal Service would again object to the burdens of
implementing such a program, and citizens would again object to law
enforcement officials' spying on private correspondence. More important,
trying to cut off mail to certain addresses would utterly fail to stop
gambling: gamblers would rely on post office boxes--which they could
change at a moment's notice--and drop off outgoing correspondence with
no return address.

All of those considerations apply with equal or greater force to
Internet gambling. The high volume of traffic alone ensures that
Internet service providers would find it impossible to discriminate
between illicit gaming information and other Internet traffic.[47] It is
easier to encrypt messages, to change addresses, and to send and receive
messages anonymously over the Internet than through the postal
system.[48] The inherently private nature of the Internet would also
stymie prohibitionists. In contrast to the quasi-public and monolithic
postal system, the Internet relies on thousands of separate and wholly
private service providers to carry out its deliveries. All of them would
stridently object to the burdens of enforcing a ban on Internet traffic.
More than a few would simply refuse to cooperate.

Does that sound like a pessimistic account? To the contrary, it merely
describes the current situation. As technological innovation continues
to drive the development of Internet communications, law enforcement
officials will fall further and further behind the tricks used by
illegal gamblers.

Given the technological constraints, prohibiting Internet gambling
plainly will not work as intended. As an unintended side effect,
however, prohibition would sore-ly compromise the cost, efficiency, and
security of Internet communications. In criticizing recent legislative
proposals to outlaw the consumption of Internet gambling services, the
Department of Justice observed that "this would likely require the
backbone provider to filter messages by examining the content of traffic
flowing across its network in a way that may have serious economic and
societal consequences for Internet usage generally."[49] We would never
accept the cost--in money, time, or privacy--of authorizing the post
office to open every letter in a futile crusade against gambling.
Internet users will hardly allow their network to suffer a similar fate.

Given the inevitable failure of technical fixes, legalizing Internet
gambling offers the only viable solution. Internet Gambling Can Escape
Domestic Prohibitions Outlawing Internet gaming services domestically
will simply push the business overseas. Federal law enforcement agents
admit that they cannot stop overseas gaming operations. "International
Internet gambling? We can't do anything about it," Department of Justice
spokesman John Russell said. "That's the bottom line."[50] Even Kyl has
confessed that "this would be a very difficult kind of activity to
regulate because we don't have jurisdiction over the people abroad who
are doing it."[51]

Both practical and legal considerations ensure that no domestic ban on
Internet gambling will have an international reach. Because the Internet
provides instant access to overseas sites, to be effective, any domestic
prohibition on gaming services will have to cover the entire planet.
American law enforcement agents can�and recently did--arrest local
citizens accused of running Internet gambling businesses,[52] but smart
operators will quickly learn to set up abroad and stay there.[53]

Gaming services can find ample shelter overseas. A growing number of
countries, including Australia, New Zealand, Antigua, and Costa Rica,
have decided to legalize and license Internet gaming services.[54]
Principles of international law, which protect each country's
sovereignty, bar the United States from extraditing its citizens merely
for violating domestic anti-gambling laws.[55] Furthermore, the Sixth
Amendment of the Constitution's Bill of Rights, because it guarantees
criminal defendants the right to confront their accusers, prohibits the
prosecution of those who remain overseas while operating Internet
gambling sites.[56]

Law enforcement officials in the United States can therefore neither
arrest nor sentence anyone who offers Internet gambling services from a
safe harbor abroad.

Even if through international negotiations U.S. authorities managed to
export a domestic ban on Internet gambling, that sort of foreign trade
carries too high a price. As the Department of Justice observed in its
critique of the Kyl bill, "If we request that foreign countries
investigate, on our behalf, conduct that is legal in the foreign state,
we must be prepared to receive and act upon foreign requests for
assistance when the conduct complained of is legal, or even
constitutionally protected, in the United States."[57] That threat looms
all too large, given that most foreign states regulate speech in ways
forbidden by the First Amendment.

Political Demand for Internet Gambling

As discussed above, consumers have already demonstrated a huge demand
for Internet gambling. Soon, though, the prohibitionists will have more
than angry voters to worry about. Law enforcement agents have seized the
media spotlight by telling scary stories and demanding new powers to
crush Internet gambling. As the futility of prohibition becomes more and
more evident, however, cooler heads in state revenue departments will
begin to see Internet gambling as a huge new cash cow. Prohibition
merely ensures that Internet gamblers will ship their money to places
like Antigua, New Zealand, and Australia. State governors and
legislatures will soon demand a share of that bounty.

The same political forces that have led to the widespread legalization
of lottery, casino, and riverboat gambling will eventually favor the
legalization of Internet gambling.[58] Indeed, the trend toward the
legalization of Internet gambling has already started. When he
introduced his bill banning Internet gambling, Senator Kyl proclaimed,
"Gambling erodes values of hard work, sacrifice, and personal
responsibility."[59] He nonetheless amended his bill to ensure that the
incumbent gambling industry would remain free to exploit the Internet
(even while would-be competitors remained shut out). Kyl's generosity
attracted the attention of the Department of Justice, which noted that
"the numerous exceptions for parimutuel wagering would expand the scope
of permissible parimutuel activities beyond what is currently permitted
by existing law."[60] As Internet gambling grows and spreads, both in
its officially sanctioned legal forms and in its unstoppable illegal
ones, so too will the power of its lobbyists to wear down
prohibitionists.

Notwithstanding lawmakers' apocalyptic tales to the contrary, legalized
Internet gambling will come as no great shock. Representative Goodlatte
defended his bill to prohibit Internet gambling with the claim that
existing laws "have been turned on their head" by the Internet because
"no longer do people have to leave the comfort of their homes" to access
casinos.[61] In fact, however, nine states already allow their citizens
to access professional gaming services at home via telecommunications
devices.[62]

Far from revolutionizing American culture, legalized Internet gambling
will merely extend current social and technological trends.

The Benefits of Internet Gambling

For the reasons set forth above, attempts to prohibit Internet gambling
will inevitably fail and give way to legalization. Futility, however,
hardly suffices to bar bad public policy. It thus bears noting that the
legalization of Internet gambling offers a number of benefits.

Internet gambling will encourage the private sector to develop network
capacity and commerce. Just as real-world casinos have competed to build
innovative and appealing environments, so too will Internet gaming
services compete to offer the flashiest graphics and most sophisticated
user interfaces. That competition will result in broader bandwidth and
better software for all sorts of Internet applications.

Critics of real-world casinos fault them for luring consumers into
windowless caverns far from the real world, with money traps at every
turn and free-flowing booze.[63] Some gambling analysts even claim that
casinos, tracks, and other real-world sites rely on giving gamblers a
place to socialize, creating little communities that console losers
and--for a price--administer to the lonely.[64] Regardless of the
validity of such criticisms, they certainly do not apply to Internet
gambling. To the contrary, consumers who log on from home computers will
find it impossible to escape yelling kids, barking dogs, and all the
other distractions of the real world. Internet gambling thus offers a
more wholesome environment than its real-world counterpart.

Gamblers deserve all the benefits that other consumers of entertainment
services enjoy--including the benefits of a competitive marketplace. By
giving consumers cheap and easy access to a variety of gaming
opportunities, the Internet will bring competition to an industry that
has too long enjoyed the shelter of highly restrictive licensing
practices. Freeing the gambling market will help to ensure that only the
most honest and generous casinos succeed in drawing bettors' business.

Gamblers also deserve the same legal protections that other consumers
enjoy. Prohibition will not cut off access to Internet gambling; it
will, however, cut off access to the courts. Internet gamblers, like
other consumers, will undoubtedly suffer fraud, breach of contract, and
other legal wrongs from time to time. Prohibition ensures that Internet
gamblers, like people involved in the drug trade, will have no recourse
to legal remedies.[65] Prohibiting Internet gambling will not make it
inaccessible, whereas legalizing it will put the benefits of increased
competition within the rule of law.

On the Regulation of Internet Gambling

For the reasons set forth above, we should both recognize and celebrate
that legalization will trump the prohibition of Internet gambling. But
regulators will no doubt remain worried. What role will they have in the
brave new world of Internet gambling? Playing off that worry, proponents
of a ban on Internet gambling have argued that, if prohibition will not
work, then neither will any scheme of regulation.[66] Such an argument
fundamentally misunderstands a basic principle of governance: if they
offer greater benefits than burdens, regulations can succeed even where
prohibition fails.[67]

The comparative advantage of limited regulation over prohibition
explains why people do not illegally shoot craps in Las Vegas alleys. In
the case of Internet gambling, the benefits of winning an official stamp
of approval might convince an online casino to submit to regulation,[68]
even if that same casino could easily flout a total ban on its business.
Exactly how much regulation will the Internet gambling industry
tolerate? In all likelihood, not very much; for the reasons set forth
above, providers and consumers of Internet gambling services will find
it relatively easy to escape unduly burden-some regulations.

It may well turn out that Internet gambling tolerates only such simple
and general rules as those that common law stipulates for property,
contracts, and torts. That would still constitute regulation of a sort.
Those basic principles already suffice to make regular many other types
of commerce, after all, and would probably suffice for the rest were
commerce more free.[69] Politicians and bureaucrats might not regard it
as "regulation" to treat Internet gambling as an ordinary business, but
their preferred solution--detailed and particular rules enforced by
specialized administrative bodies--would arguably do more to make
Internet gambling subject to rent seeking and industry capture than it
would to make it regular. At any rate, such statist "irregulation" has
 little chance of affecting Internet gambling.

The Right to Gamble, Online and Off

Friends of liberty argue convincingly that the right to peaceably
dispose of one's property includes the right to gamble. Although utterly
sound in philosophical terms, such an argument will almost certainly
fail to affect public policy. Lawmakers typically care more about
practices than principles. They will thus comfortably ban Internet
gambling on the assumption that history has demonstrated the legitimacy
of prohibiting, or at least heavily regulating, games of chance.

Of course, history alone could never defeat the moral argument for the
right to gamble. Somewhat surprisingly, however, history does not even
support lawmakers who would infringe on that right. Gambling in fact
played a major role in the personal and political lives of the Founders
of the United States. The infamous Stamp Act, which triggered the shot
at Concord "heard round the world," infuriated colonists by taxing
playing cards and dice.[70] Thomas Jefferson, while drafting the
Declaration of Independence, relaxed by gambling on backgammon, cards,
and bingo.[71] Jefferson later declared the lottery preferable to
conventional means of raising government revenue on grounds that it is
"a tax laid on the willing only."[72]

Benjamin Franklin--using his era's most advanced technology--printed a
good portion of the colonies' playing cards.[73] George Washington
regularly bet on horses, gambled in card games, and bought lottery
tickets.[74] Washington also managed public lotteries, as did Franklin
and John Hancock.[75] Lotteries even helped to pay for the first home of
the U.S. Congress,[76] as well as for public buildings throughout the
new U.S. capital.[77]

Clearly, the Founders embraced gambling as part of their inalienable
right to "the Pursuit of Happiness." The historical record should give
pause even to lawmakers willing to ignore the moral argument against
interfering with the right to gamble. How could any modern politician
justify stripping the American people of rights that the Founders fought
for, won, and exercised? Certainly, the advent of Internet gambling is
no excuse for ignoring honorable historical precedents.

Conclusion

Pundits have described the Internet, typically in overblown prose, as a
powerful tool for decentralizing political power and advancing human
liberty.[78] Whether or not the Internet will live up to such hyperbole
remains to be seen. True, the Internet has frustrated censors and
brought worlds of information to our fingertips. But it has never fought
against the combined forces of big money, political power, and moral
rhetoric--not, at least, until Internet gambling began to compete with
entrenched, real-world, public and private gambling interests.

Gambling presents the Internet with the greatest test it has yet faced,
but it will probably prevail. Its prohibitionist opponents must not only
pass legislation banning Internet gambling (a relatively easy task), but
enforce it (a nearly impossible one). Sooner or later, as the futility
of prohibition sinks in, as consumers demand the benefits of competition
in gambling services, and as states tire of seeing potential tax
revenues flow to foreign jurisdictions, Americans will enjoy legal
Internet gambling.

The legalization of Internet gambling will advance vital public policy
goals. It will reaffirm the values, so dear to the Founders, of
individual liberty, property rights, and the pursuit of happiness. And
it will establish the Internet as a bona fide technology of freedom.

Notes

1. See Mary Meeker and Sharon Pearson, The Internet Retailing Report
(New York: Morgan Stanley, 1997), chap. 5,
<http://www.ms.com/misc/inetRetail.html>, for a discussion of the
relative popularity of Web sites and of various uses of the Web.

2. Kevin Heubusch, "Taking Chances on Casinos," American Demographics,
May 1997, <http://www.marketingtools.com/
Publications/AD/97_ad/9705_ad/AD970530.htm>, quoting Roper Starch
Worldwide Survey.

3. Steven Crist, "All Bets Are Off," Sports Illustrated, January 26,
1998, p. 85. Note that this sum represents what American gamblers risked
on their bets ("handle" to gambling businesses) rather than what they
lost (gambling businesses' gross revenues).

4. Ibid. It bears noting that this represents an estimate of illegal
bets on professional and college sports alone; other types of illegal
bets, such as unlicensed poker games, are not included in the estimate.

5. Allison Flatt, "Overview of Internet Gambling," Staff briefing on
Internet gambling prepared for the National Gambling Impact Study
Commission, May 13, 1998, p. 2,
<http://www.ngisc.gov/meetings/may2198/flatt.pdf>, counted over 90
casinos, 39 lotteries, 8 bingo games, 53 sports books, and various dog-
and horse-racing sites as of May 1998. For general discussions of the
scope and operation of offshore gambling sites, see Crist, p. 85; Mary
Ann Akers, "On-Line Betting Makes Some Rich, Others Edgy," Washington
 Times, January 27, 1998, p. A1; and Brett Pulley, "With Technology,
Island Bookies Skirt U.S. Law," New York Times, January 31, 1998, p. A1.

6. Sebastian Sinclair, Casino Gambling and the Internet (New York:
Christiansen/Cummings Associates, 1998), p. 8, estimates that in 1997
worldwide Internet casino revenues reached $1,090.1 million and that
revenues from the combined U.S. and Canadian market reached $603.5
million.

7. Those contributions have, moreover, been on a sharp upward trend. In
the 1991-92 elections, the gambling industry gave $1.7 million to
candidates. Peter H. Stone, "Upping the Ante," National Journal, June 6,
1998, p. 1289.

8. "We cannot support it without tough regulation," said Frank
Fahrenkopf, president of the American Gaming Association, of Internet
gambling. Quoted in Tony Batt, "Study Panel to Address Internet Gaming,"
Las Vegas Review-Journal, May 20, 1998, p. D1. Batt reports that
"Fahrenkopf and other industry supporters prefer not to dwell on the
competitive threat posed by Internet gaming. Instead they argue that the
absence of regulation could lead to a major scandal that could taint the
entire industry."

It would hardly prove surprising if the gambling industry privately
cared a great deal about the competitive threat posed by Internet
gaming, however. The incumbent industry clearly profits when licensing
practices bar new competition, but admitting that fact would harm public
relations.

9. Stone reports that the American Gaming Association successfully
lobbied Sen. Jon Kyl (R-Ariz.) to change legislation that might have
adversely affected its members' ability to advertise online. Stone, p.
1292.

10. Sinclair, p. 14.

11. "Present Legal Realities," International Gaming and Wagering
Business, August 1997, p. S55.

12. Sinclair, p. 14.

13. Heubusch, quoting Roper Starch Worldwide survey.

14. In refusing to condemn gambling, many no doubt follow the official
doctrines of their religions. For example, "[G]ames of chance (card
games, etc.) or wagers are not in themselves contrary to justice. They
become morally unacceptable when they deprive someone of what is
necessary to provide for his needs and those of others." Catechism of
the Catholic Church (The Vatican: Paulist Press, 1994), p. 580. "Brian
Rusche, director of the Joint Religious Legislative Coalition, a
mainstream lobbying group, said, 'When we scanned [Christian and Jewish]
religious writings, we couldn't find an absolute moral prohibition'
against gambling." Martha Sawyer Allen, "Gambling Doesn't Seem Quite
Right, But Is It Wrong?" (Minneapolis) Star Tribune, October 18, 1997,
p. 7B.

15. Heubusch.

16. See, for example, Adam Thierer, "Will Rain Fall on Their Field of
Dreams?" Washington Times, April 22, 1998, p. A17, criticizing bills
that would outlaw online fantasy sports leagues.

17. Quoted in Crist, p. 85.

18. For arguments that existing federal laws outlaw many types of
Internet gambling, see generally Seth Gorman and Antony Loo, "Comment:
Blackjack or Bust: Can U.S. Law Stop Internet Gambling?" Loyola Los
Angeles Entertainment Law Journal 16 (1996): 667; and Nicholas Robbins,
"Baby Needs a New Pair of Cybershoes: The Legality of Casino Gambling on
the Internet," Boston University Journal of Science and Technology Law 2
(1996): 7.

19. "(a) Whoever being engaged in the business of betting or wagering
knowingly uses a wire communication facility for the transmission in
interstate or foreign commerce of bets or wagers . . . shall be fined
under this title or imprisoned not more than two years, or both." 18
U.S.C.S. &sect 1084 (1998).

20. "(a) Whoever conducts . . . an illegal gambling business shall be
fined under this title or imprisoned not more than five years, or both.
(b) As used in this section-- (1) 'illegal gambling business' means a
gambling business which--(i) is a violation of the law of a State . . .
in which it is conducted; (ii) involves five or more persons who conduct
. . . all or part of such business; and

(iii) has been or remains in substantially continuous operation for a
period in excess of thirty days or has a gross revenue of $2000 in any
single day." 18 U.S.C.S. &sect 1955 (1998).

21. "(a) Whoever . . . uses the mail or any facility in interstate or
foreign commerce, with intent to--(1) distribute the proceeds of any
unlawful activity . . . (3)(A) . . . shall be fined under this title,
imprisoned not more than 5 years, or both. . . . (b) As used in this
section (i) 'unlawful activity' means (1) any business enterprise
involving gambling. . . ." 18 U.S.C.S. &sect 1952 (1998).

22. See United States v. Lockretis, 385 F.2d 487, 489 (7th Cir. 1967),
holding that the Wire Act prohibits "use of an interstate wire facility
with intent to promote illegal activity, and it is well within the power
of Congress to so insure the integrity of channels of interstate
commerce by such a prohibition," vacated on other grounds, 390 U.S. 338
(1967), rev'd on other grounds, 398 F.2d 64 (7th Cir. 1968); and United
States v. Smith, 209 F. Supp. 907, 916 (E.D. Ill. 1962), holding that
"Congress intended that communication facilities in interstate commerce
should be included within the scope of the prohibitions of the statute.
. . ." See also United States v. Villano, 529 F.2d 1046, 1052 (10th Cir.
1976); United States v. Kelly, 395 F.2d 727, 729 (2d Cir. 1968); and
United States v. Borgese, 235 F. Supp. 286, 298 (S.D.N.Y. 1964).

23. The plain language of 18 U.S.C.S. &sect 1952(a)(1) suggests that the
Travel Act should apply to individual amateur Internet bettors. Internet
gamblers certainly attempt to "distribute the proceeds" of gambling,
both by putting money on bets and by collecting their wins. True, a line
of cases has interpreted 18 U.S.C.S. &sect 1952(a)(3) to not render
individual amateur bettors liable under the Travel Act. See Rewis v.
U.S., 418 F.2d 1218, 1221 (5th Cir.1969), holding that interstate
bettors do not "promote, manage, establish, carry on, or facilitate the
promotion, management, establishment or carrying on of any unlawful
activity" under &sect 1952(a)(3), reversed on other grounds, 401 U.S.
808, 811 (1971), stating in dicta that "it cannot be said, with
certainty sufficient to justify a criminal conviction, that Congress
intended that interstate travel by mere customers of a gambling
establishment should violate the Travel Act." But those cases do not
address the liability of interstate amateur bettors under &sect
1952(a)(1), leaving the question unresolved.

24. See Interstate Transportation of Wagering Paraphernalia Act, 18
U.S.C.S. &sect 1953(a) (1998): "(a) Whoever . . .knowingly carries or
sends in interstate or foreign commerce any record . . . or other device
. . . for use in (1) bookmaking; or (2) wagering pools with respect to a
sporting event; or (3) in a numbers . . . or similar game shall be fined
under this title or imprisoned for not more than five years or both."
But see &sect 1953(b) of the same act, which exempts from the reach of
&sect 1953 (a) transmissions of materials the use of which is legal
under applicable state laws. See also Professional and Amateur Sports
Protection Act, 28 U.S.C.S. &sect 3702 (1998): "It shall be unlawful for
. . . (2) a person to sponsor, operate, advertise, or promote . . .
[any] wagering scheme based . . . on one or more competitive games in
which amateur or professional athletes participate . . . ." But see
&sect 3704 of the same act, which exempts from the reach of &sect 3702
various preexisting gambling schemes and any parimutuel animal racing or
jai alai game.

25. John Russell, Justice Department spokesman, quoted in Mark Camps,
"Web Sports Gambling a Sure Bet, for Now," San Francisco Chronicle, May
29, 1997, p. B3.

26. Unnamed spokesman from Kyl's office, quoted in Thomas Moore,
"Internet Gambling Receives New Blow," Las Vegas Business Press,
February 3, 1997, p. 18. Elsewhere, Kyl himself said, "Currently,
nonsports betting is interpreted as legal." Sen. Jon Kyl of Arizona,
Introductory Remarks on the Internet Gambling Prohibition Act of 1997,
Congressional Record 143 (March 19, 1997): S2560.

27. Internet Gambling Prohibition Act of 1997, S. 474 (reported in the
Senate), 105th Cong., 1st sess. (1997), &sect 1085(b)(1): "It shall be
unlawful for a person to place, receive, or otherwise make a bet or
wager, via the Internet. . . ." See also &sect 1085(c)(1): "It shall be
unlawful for a person engaged in the business of betting or wagering to
engage in that business through the Internet. . . ." and &sect 1081 (6),
defining "bets or wagers" as "the staking or risking by any person of
something of value (other than a de minimus amount) upon the outcome of
a contest, sporting event, or game of chance. . . ."

28. For a description of the lobbying power of the licensed gambling
industry and its influence on Kyl, see generally Stone.

29. See Internet Gambling Prohibition Act of 1998, Kyl (and Bryan)
Amendment No. 3266, to Departments of Commerce, Justice, and State, the
Judiciary, and Related Agencies Appropriations Act of 1999, S. 2260
(hereinafter Internet Gambling Prohibition Act of 1998, Amendment to S.
2260), 105th Cong., 2d sess., 1998.

30. See ibid. at &sect 1085(e)(1)(A), which exempts from prohibition any
"otherwise lawful bet or wager that is placed, received, or otherwise
made wholly intrastate for a State lottery or racing or parimutuel
activity, or a multi-State lottery" under certain conditions, and &sect
1085(e)(1)(B), which similarly exempts Indian games conducted on Indian
lands.

31. See Bryan Amendment No. 3267, to Internet Gambling Prohibition Act
of 1998, Amendment to S. 2260, 105th Cong., 2d sess., 1998, which
changes &sect 1081(6)(D) in the act's definition of "bets or wagers" to
exclude reasonable administrative fees paid to participate in fantasy
sport or rotisserie leagues.

32. Internet Gambling Prohibition Act of 1998, Amendment to S. 2260,
&sect 1085(b) makes it "unlawful for a person knowingly to use the
Internet or any other interactive computer service--(A) to place,
receive, or otherwise make a bet or wager with any person; or (B) to
send, receive, or invite information [intentionally] assisting in the
placing of a bet or wager. . . ." Section 1085(c) subjects gambling
businesses to a similarly broad ban.

33. "Congressional Update," Fort Worth Star-Telegram, October 22, 1998,
p. 8.

34. The Department of Justice complained that Kyl's bill would unduly
expand federal law. "In our view, extending federal jurisdiction to
cover mere bettors would be both unnecessary and unwise." L. Anthony
Sutin, acting assistant attorney general, U.S. Department of Justice,
Office of Legislative Affairs, letter to Sen. Patrick J. Leahy, May 28,
1998, p. 3; copy on file with the author.

35. 18 U.S.C.S. &sect 1084(a) (1998).

36. Internet Gambling Prohibition Act of 1998, Amendment to S. 2260,
&sect 1085(b).

37. Sutin, p. 1.

38. Internet Gambling Prohibition Act of 1998, Amendment to S. 2260,
&sect 1085(b)-(c), generally prohibits participating in or conducting
the business of Internet gambling; section 1085(e) exempts from
prosecution only intrastate wagers on state lotteries or licensed
parimutuel activities, or wagers by persons physically located on duly
licensed Indian gaming sites.

39. 18 U.S.C.S. &sect 1084(b): "Nothing in this section shall be
construed to prevent . . . the transmission of information assisting in
the placing of bets or wagers on a sporting event or contest from a
State or foreign country where betting on that sporting event or contest
is legal into a State or foreign country in which such betting is
legal."

40. See the definition of "interactive computer service" in Internet
Gambling Prohibition Act of 1998, Amendment to S. 2260, &sect
1085(a)(3).

41. 18 U.S.C.S. &sect 1084(a).

42. Internet Gambling Prohibition Act of 1997, H.R. 2380 (introduced in
the House), 105th Cong., 1st sess., 1997.

43. Ibid. at &sect 1084 (a)(2) levies criminal penalties on anyone who
"knowingly uses a communications facility for the transmission or
receipt in interstate or foreign commerce of bets or wagers. . . ."

44. Ibid. at &sect 1084(c)(2). Kyl's Internet Gambling Prohibition Act
of 1998, Amendment to S. 2260, contains similar provisions, though they
require interactive computer services to terminate the accounts only of
customers who have violated the act (&sect 1085(d)(2)(C)(i)) and in all
other instances directs courts to consider the technical and economic
burdens that the demands of enforcing the act may impose on service
providers. See &sect 1085(d)(2)(C)(ii).

45. Sutin, p. 7.

46. See generally Barry M. Leiner et al., "A Brief History of the
Internet," <http://info.isoc.org/internet/history/brief.html>; and Kevin
Werbach, "Digital Tornado: The Internet and Telecommunications Policy,"
Federal Communications Commission, Office of Policy and Plans Working
Paper Series 29, March 1997,
<http://www.fcc.gov/Bureaus/OPP/working_papers/>, pp. 16-18.

47. Internet backbone providers "may not be able to differentiate
gambling-related transmissions that are being sent by a specific user of
a particular computer system from other transmissions sent by other
users of that system." Sutin, p. 7.

48. Even though a casual gambler may find such evasive techniques too
complicated to bother with at present, Internet gambling businesses have
strong incentives to master them--and to develop and disseminate evasive
techniques that consumers will find easy to use.

49. Sutin, p. 7.

50. Quoted in Crist, p. 85.

51. Ted Koppel, "The Odds of Stopping Gambling on the Internet," ABC
Nightline, April 7, 1998, excerpt of video-taped statement by Kyl. Kyl
continued his analysis by proposing a solution to this admitted problem:
"So the way that our legislation is enforced is to simply pull the plug
at the point of entry into the United States." This reveals a
fundamental misunderstanding of how the Internet works, however. Thanks
to packet switching, Internet traffic from a given country can enter the
United States from any number of overseas sites. To bar entry of
Internet traffic from, say, Antigua, Kyl would have to bar all
international communications.

52. Professor I. Nelson Rose of Whittier Law School, an expert on
gambling law, offered this trenchant analysis of why the Department of
Justice finally decided to apply existing federal laws against Internet
gambling: Federal prosecutors had been criticized by state attorneys
general and Congress for not doing anything about Internet gaming. Now,
by striking at only six companies (and the safest six to go after from a
law-enforcement point-of-view), the U.S. Attorney General has shown that
her U.S. Attorneys and FBI agents can put the fear of God into the
entire industry--using laws already on the books. Perhaps this was the
secret agenda behind these headline-grabbing arrests. The DOJ has made
it clear that it does not support proposals being considered by Congr
ess, like the Kyl bill, which would make it a federal crime to make a
bet on the Internet. The DOJ has stated that it does not want to go
after first-time $5 bettors. Now, the DOJ has shown that the new laws
are unnecessary--at least for the easy cases. I. Nelson Rose, "Internet
Operators Arrested," Gaming Industry Litigation Reporter, April 1998, p.
9.

53. See Benjamin Weiser, "14 Are Charged with Taking Sports Bets over
the Internet," New York Times, March 5, 1998, p. A1. Weiser recounts the
first federal crackdown on Internet gambling operators and quotes
Anthony Cabot, a gambling law expert in Las Vegas, Nevada. "You're never

going to see a shutdown," Cabot said. "[T]hose who are in the industry
are going to take much greater precaution in hiding their ownership if
they are U.S. citizens."

54. For a discussion of the plans of Australia and New Zealand to
legalize and regulate Internet gambling, see Crist, p. 92. Crist, p. 88,
also discusses Antigua's licensing practices; and Akers, pp. A1, A8,
discusses practices in Costa Rica.

55. Gyneth McAllister, expeditor of international investments for the
Antiguan government, commented, "The issue for the United States should
not be whether Internet gambling should exist in Antigua or not. Antigua
is a sovereign state and isn't their concern. We are no banana
republic." Quoted in Crist, p. 88.

56. The Sixth Amendment to the Constitution of the United States reads:
"In criminal prosecutions, the accused shall enjoy the right . . . to be
confronted with the witnesses against him. . . ."

57. Sutin, p. 5. Emphasis added.

58. "Internet gambling presents . . . an entrepreneurial opportunity for
the state itself." David Post, "Betting on Cyberspace," The Recorder,
June 5, 1997, p. 4.

59. Kyl, Introductory Remarks on the Internet Gambling Prohibition Act
of 1997.

60. Sutin, p. 6.

61. Rep. Robert Goodlatte of Virginia, Statement upon introduction of
the Internet Gambling Prohibition Act of 1997, Congressional Record 143
(September 3, 1997): E1633.

62. In some cases, the relevant state laws authorize only gambling via
telephone, leaving it ambiguous as to whether or not Internet
communications using telephone lines would qualify. See Regs., Conn.
State Agencies &sect 12-571-11b(a) (1997), authorizing telephone account
wagering; Md. Bus. Reg. Code Ann. &sect 11-805(a) (1997) (same); Rev.
Stat. Neb. Ann. &sect 2-1239 (1997) (same); NY Consol. Law Service,
Racing & Wagering &sect 1012 (1997) (same); Oh. Admin. Code Ann.
3769-3-32(A) (Anderson 1997) (same); 4 Penn. Stat. &sect 325.218(b)
(1997) (same). Other state statutes speak more broadly, leaving ample
room for Internet gambling. See Kent. Rev. Stat. &sect 230.378(1)
(Michie 1996), which authorizes telephone account wagering, together
with &sect 230.210(17) (Michie 1996), which defines telephone account
wagering to include communication

by any electronic medium; Nev. Rev. Stat. Ann. 465.090-94 (1997), which
allows gambling via telecommunications when conducted pursuant to
license; and Ore. Rev. Stat. &sect 462.015(2) (1997), which authorizes
electronic media account wagering.

63. Casinos offer a "hypnotic mix of light, noise, alcohol and
day-into-night, night-into-day indulgence, to infuse in the gamblers and
vacationers a hazy, dazy sense of letting go." David Spanier, Welcome to
the Pleasuredome: Inside Las Vegas (Reno: University of Nevada Press,
1992), p. 14. Casinos "design facilities so patrons lose track of time,
. . . treating their customers as if they were rats in a cage." Bernie
Horn, communications director of the National Coalition Against
Legalized Gambling, Testimony before the National Gambling Impact Study
Commission, Washington, August 20, 1997,
<http://www.ngisc.gov/meetings/aug2097/aug20p17.html>.

64. "[T]he social rewards of gambling . . . include companionship,
empathy, and social interaction. As gamblers become socialized into a
gaming mileu [sic], their contacts with nongamblers often become less
meaningful, and they find that other settings lack the social rewards
offered by the gambling world. In order to remain part of that social
world, individuals must continue their gam-bling." John D. Rosecrance,
Gambling without Guilt: The Legitimation of an American Pastime (Pacific
Grove, Calif.:Brooks/Cole, 1988), p. 163.

65. If drugs were legalized, "consumers would have access to the legal
system to protect them against fraud and negligence on the part of the
producer. Producers would no longer have to resort to violence to
enforce contracts and ensure payments." Mark Thornton, The Economics of
Prohibition (Salt Lake City: University of Utah Press,1991), p. 151.

66. See, for example, Sen. Jon Kyl's analysis of the issue: "On one
hand, they say no way can you control this, and then they turn around
and say regulate it. I think they're being disingenuous." Quoted in Joe
Salkowski, "Betting on the Horses," April 15, 1998,
<http://dispatches.azstarnet.com/features/1998/0415.htm>.

67. An example of how gambling regulators must adapt to market
conditions is given by Rosecrance: "Although both Nevada and Atlantic
City adopted stringent restrictions to keep illegal operators from being
licensed, regulations were relaxed when it appeared that former bookies
and illicit casino managers were the only ones capable of running a
profitable gaming operation" (p. 165).

68. "[T]he state is well-positioned [with regard to Internet gambling]
to take a piece of the action as a trusted certifying authority,
reassuring consumers that activities are conducted honestly." Post, p.
4. That by no means justifies a state monopoly, however. "There is no
necessary reason that the state has to supply this certification--why
couldn't Microsoft? or Citibank?" Ibid.

69. See generally Richard A. Epstein, Simple Rules for a Complex World
(Cambridge, Mass.: Harvard University Press, 1995); Friedrich A. Hayek,
Law, Legislation and Liberty, vol. 1 (Chicago: University of Chicago
Press, 1973); and Friedrich A. Hayek, The Road to Serfdom (Chicago:
University of Chicago Press, 1944), pp. 72-87.

70. Stephen Longstreet, Win or Lose: A Social History of Gambling in
America (Indianapolis: Bobbs-Merrill, 1977), p. 31.

71. Ibid., p. 37.

72. Thomas Jefferson, The Writings of Thomas Jefferson, ed. Andrew A.
Lipscomb (Washington: Thomas Jefferson Memorial Association, 1903), vol.
17, p. 450.

73. William N. Thompson, Legalized Gambling: A Reference Handbook (Santa
Barbara, Calif.: ABC-CLIO, 1994), p. 64.

74. Longstreet, p. 31.

75. John Samuel Ezell, Fortune's Merry Wheel: The Lottery in America
(Cambridge, Mass.: Harvard University Press, 1960), p. 272.

76. Ibid., p. 108.

77. Ibid., p. 102.

78. For example, John Perry Barlow has said, "Governments of the
Industrial World, you weary giants of flesh and steel, I come from
Cyberspace, the new home of Mind. On behalf of the future, I ask you of
the past to leave us alone. You are not welcome among us. You have no
sovereignty where we gather." John Perry Barlow, "A Declaration of the
Independence of Cyberspace," February 8, 1996,
<http://www.eff.org/pub/Publications/John_Perry_Barlow/barlow_0296.decla
ration>.



------------------------------------------------------------------------

Tom W. Bell is an assistant professor at Chapman University School of
Law and an adjunct scholar of the Cato Institute. He is coeditor with
Solveig Singleton of Regulators' Revenge: The Future of
Telecommunications Deregulation (Cato Institute, 1998). This essay is
Cato Policy Analysis No. 336, March 8, 1999.

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from The Laissez Faire City Times, Vol 3, No 11, March 15, 1999
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