Frank Internet Gambling Bill Woos with Federalism

Internet gambling backers cautiously support the bill. But one source we queried doubted its chances in the Senate. Sen. Dodd (D-Conn.) is called a likely sponsor in that chamber, but the source, a former state gambling regulator, said such a move conflicts with Dodd’s legislative record and could hurt his presidential aspirations. Two members who pushed the ban through last year -- ex-Rep. Jim Leach (R-Ia.) and ex-Senate Majority Leader Bill Frist (R-Tenn.) -- are gone.

Frank has fought long against curbs on Internet gambling. In last year’s debate on the Unlawful Internet Gambling Enforcement Act, Frank said if bettors aren’t “harming others,” they should be allowed to gamble online (WID March 16/06 p1). He also cited technical measures at the time to ensure that children couldn’t place online bets, such as Web filters. The gambling ban “is an inappropriate interference on the personal freedom of Americans and this interference should be undone,” said a statement by Frank: Bettors now flouting the law don’t have “meaningful consumer protections.” In 2005, online gambling grossed $13 billion worldwide, about 5% of gaming revenue overall, with 47% coming from N. America, the bill said. Frank’s committee will hold a hearing on Internet gambling regulation in June, he said.

Treasury Dept. Oversight, Technical Blocks

Frank’s Internet Gambling Regulation & Enforcement Act would rely on technical measures to enforce opt-out. House Financial Services Committee background materials propose IP address geolocation to fix a would-be bettor’s jurisdiction and claim it’s 99% effective. The committee said bettors’ “registration information” with operators could be used to confirm future logins and block others from using their accounts.

Operators could block minors by requiring users to provide basic personal data plus “details of an identity document” like a Social Security number, to be passed to a payment services provider and checked against “several sources of information,” committee materials said. Limiting wager size and transactions per period, checking for “unusual spending patterns” or letting users put themselves on a block list could limit compulsive gambling, the materials said.

The bill would authorize the director of the Financial Crimes Enforcement Network (FinCEN), a Treasury Dept. unit, to oversee a federal regime, reporting annually to Congress including state and league limitations, applicant stats, fee collection and enforcement actions. It would require gambling sites to apply for a one-year license, providing financial statements, documentation on corporate structure and business relationships, and certification that the applicant will abide by U.S. jurisdiction. Applicants would have 20 days to challenge license application rejections.

Several “appropriate” safeguards would be required for licensed operators. They would have to keep out people under 18, protect user privacy and security, collect any applicable federal, state or tribal taxes on each wager and licensee, guard against fraud and money laundering, and identify and halt compulsive online gambling. Similar to U.S. rules specific to porn operators and verification of performers’ ages, the bill would let law enforcement demand records and data from gambling operators as long as data are stored within 500 miles of the operators’ U.S. presence. Violating state or league bans could earn fines, up to 5 years in prison or both.

The bill “could be the start of some sensible thinking about how you regulate” Internet gambling, consultant and former N.J. gambling regulator Frank Catania told us. Frank’s emphasis on states’ rights is appropriate, given gambling’s regulatory history, Catania said. It’s strange that online lotteries have remained legal, considering they're the “biggest violators of any type of advertising etiquette,” making grandiose claims about player winnings that private online gambling sites avoid, Catania said.

The concession to sports leagues is mostly for political show and won’t do much in practice, the ex-regulator source said. The NFL has always opposed online gambling on pro football and other leagues are unlikely to diverge, the source said. But Catania saw the provision as appropriate. “It’s a lot better off to have a regulated industry rather than what they have done” in last year’s law.

Geolocation: Time-Consuming to Circumvent

The bill’s reliance on geolocation to enforce state law makes sense, although geolocation can be circumvented with a bit of work, experts told us. Geolocation largely is used at a country level, said Ed Lin, business development mgr. for geolocation provider MaxMind. Gambling websites abroad use the technology, say, to redirect U.S. visitors to a page notifying them of U.S. law. But the technology also is used to hone ad targeting, he said. MaxMind has clients in Sweden, Spain, U.K., Australia and even Costa Rica, where many gambling sites locate, lured by low tax rates, Lin added.

Geolocation on a state or regional level isn’t common, and though it has a “fairly high accuracy rating… it’s not going to be 100%,” Lin said: “There isn’t really a centralized source where this [location] information is collected.” AOL routes most of its traffic through its Va. hq proxy servers, and dial-up connections can go to a central call center from a remote calling location like Europe, although “you can put in rules to mitigate that.” Frank’s bill specifically mentions “intermediate routing” and says it won’t determine where a bet starts or ends for the purpose of jurisdiction.

Users can get around geolocation through websites intended to shield user privacy, such as Anonymizer.com, but such sites often have “relatively static” IP addresses and can be flagged, Lin said. Users also can employ open proxy servers -- typically “hijacked home computers” but also those intentionally left open to shield others’ privacy -- which are “very difficult to detect.” Searching for open proxies takes time, and they're mostly used by “fraudsters,” not consumers wanting to evade state laws, Lin said.

The bill’s language probably means that upon registration a user’s physical address would be checked against his IP address, and if the IP is traced to another state, an operator must block the user, said Peter Eckersley, Electronic Frontier Foundation (EFF) staff technologist. The Tor routing tool, which EFF offers for download, could be used to get around geolocation, he said. The tool “chooses a random exit node every 10 minutes, so users appear to jump all over the planet.” But to bypass state restrictions, users would have to configure Tor to “consistently use exit nodes in one state where online gambling was legal and where [users] had registered an address,” Eckersley said.

IP geolocation has improved markedly from error-prone early attempts, Catania said. SportingBet has had success for years blocking minors and users from banned jurisdictions, he said: “These companies have proven it’s not a big problem.” YouBet, which offers online betting for horse racing, probably already is blocking potential bettors by state through geolocation, Interactive Gaming Council Deputy Dir. Keith Furlong said. Some sites simply mail a registration package to prospective bettors with a login passcode that is less prone to be misused, he added. The U.S. law is driving rogue gambling sites to develop “completely anonymous” payment processing methods, “and we don’t want that,” Catania added.