U.S. Sending Mixed Signals to Online Gambling Industry

Residents and visitors to Washington will soon be able to access the nation’s first city-sanctioned online gambling websites. The effort was spawned last year by D.C. council member Michael Brown, I-At Large, who introduced the provision into the 2011 budget. The provision passed and was signed into law by Mayor Vincent Gray (D) in January. Internet gambling proponents like Frank said the milestone law will help D.C. dig its way out of a $300 million deficit. “Good for them. It’s very smart,” said Frank. “This will bring lots of revenue to the city, which is important.”

The 30-day congressional review period for new D.C. laws passed without any comment from Congress, but lawmakers could still intervene and reverse the law. Brown said he has not heard anything from Congress about the issue. “We got through the 30-day congressional period. Our law is now the law of the land,” he said. Frank said he didn’t think Congress would step in to block Internet gambling in D.C.: “I think we're getting to the point where majorities are saying that if adults want to gamble with their own money it’s not the government’s business."

The D.C. Lottery and Charitable Games Control Board will coordinate and provide oversight to the city’s online gambling effort. The city will also work with the Intralot USA, an Athens, Greece-based gaming company, to develop and manage D.C.’s gambling site. D.C. gamblers will pay fees to join online poker games and the D.C. government will tax a portion of their winnings. Money from fees and taxes will be placed into the D.C. general fund and then allocated for city services, Brown said. “The whole city will benefit,” he said. “It means less services cuts, takes less teachers out of the classrooms and keeps more officers on the streets.” Brown could not say exactly how much money D.C.’s online gambling effort could bring to the city but said it would be “substantial."

The city is implementing safeguards to curb abuses and gambling addictions, Brown told us. Gamers will not be permitted to use credit cards to play and must register instead with their debit cards, said Brown. “That way you can’t play unless you have the resources at the time,” he told us. The city will also offer counseling services to residents if they tell the city they have formed gambling addictions, said Brown. “Some people have been concerned about [addictions], which is fair,” said Brown. “But one thing folks need to consider is that people have been playing online poker in this city for years. But it’s been unregulated, not protected and the city was not getting any fees,” he said.

Meanwhile, the Department of Justice is playing hardball with the online gambling industry. Last week the U.S. District Court in Manhattan shuttered three gambling websites, fulltiltpoker.com, pokerstars.com and absolutepoker.com for illegal gambling offenses (WID April 18 p6). Federal prosecutors charged 11 people including the operators of the companies with bank fraud, money laundering, and illegal gambling offenses. U.S. Attorney Preet Bharara alleged that the poker companies tricked small banks into accepting payment in connection with unlawful Internet gambling in order to circumvent the Unlawful Internet Gambling Enforcement Act.

"The U.S. is clearly schizophrenic in its approach to online gambling,” said John Pappas, executive director of the Poker Players Alliance. “We have a Congress which seems to be more inclined to license and regulate online gaming and yet we have a Department of Justice that’s trying to shut down and prohibit three of the biggest online poker sites. It’s an unfair and uneven enforcement of [DOJ’s] interpretation of the law.” Pappas said DOJ’s actions amount to a severe drain on the already fragile U.S. economy. “We are hearing from thousands of online players who were making their living playing full time poker online,” he said. “And they are going to be very negatively impacted by this decision.” DOJ needs to stop prosecuting the online gaming industry and “President [Barack] Obama or Attorney General Eric Holder needs to tell them to do so,” Pappas said. “They would certainly have the support of the public to do that."

Frank was also critical of DOJ’s actions and said Bharara should focus on more pressing cases like mortgage fraud. “This is just a U.S. attorney in Manhattan with nothing better to do,” Frank said. “I wish they would go after the people creating empty houses rather than the people looking for full houses,” he said. Frank added that, if true, he could not condone the allegations of bank fraud or money laundering. “To the extent that there was evasion, that is not appropriate and I condemn that,” he said.

On Wednesday the court said it will restore the domains for two of those three online gambling websites. The operators of fulltiltpoker.com and pokerstars.com entered into a domain-name use agreement with the court on Wednesday that will reinstate their domains in order to facilitate the return of U.S. players’ money. The companies’ domain name rights should be restored by the end of the week, a court spokeswoman told us. As part of the agreement the two companies will not allow U.S. players to play poker for real money on their sites and an independent monitor will oversee the companies to ensure they comply with the agreement, the court said.

"This office expects the companies to return the money that U.S. players entrusted to them and we will work with the poker companies to facilitate the return of funds to players,” said Bharara in a press release Wednesday. The court also offered the same agreement to Absolute Poker, the third gambling website that was shuttered last week, it said. The court will continue to seek at least $3 billion in civil money laundering penalties from the poker companies involved, a court spokeswoman told us.

The American Gaming Association urged Congress and the Justice Department to take a more coordinated approach to Internet gambling in the U.S. “The actions by the Justice Department point to the clear need to strengthen laws to address illegal online gambling in the U.S,” said Frank Fahrenkopf, president of the American Gaming Association. “Tough law enforcement is the key to making such a system work, and the AGA supports strong enforcement against illegal online gambling activity in this country. But illegal activity and the risk of consumer fraud, money laundering and underage gambling will continue until the U.S. passes laws ensuring that only licensed, taxed and highly regulated companies can operate in the U.S. market.”

Frank said he and Rep. John Campbell, R-Calif., are working to repeal the Unlawful Internet Gambling Enforcement Act. “I think the law is dumb and ought to be repealed,” said Frank. “My concern is to get this all off the books and I'm surprised that the conservatives haven’t been more supportive of getting this effort repealed. I think telling adults they can’t gamble with their own money infringes on their liberty,” said Frank. “This restriction on personal freedoms is a terrible idea.”