Reason Magazine - Topics > Gambling

McGill Also Found That 90% of Congressmen Talk Out of Their Asses

jsullum@reason.com (Jacob Sullum) — Mon, 21 Jul 2008 13:39:00 EDT

Last month the House Financial Services Committee rejected a bill co-sponsored by Chairman Barney Frank (D-Mass.) and Rep. Ron Paul (R-Texas) that would have blocked Treasury Department regulations aimed at preventing online gambling. Speaking against the bill, Alabama Rep. Spencer Bachus, the committee's ranking Republican, explained that the Unlawful Internet Gambling Enforcement Act (UIGEA), the law that requires the regulations, is all about saving the youth of America from a potentially lethal addiction. "McGill University found that one-third of college students who gamble on the Internet ultimately attempted suicide," he averred. He added, "That is why the rate of suicide on our college campuses has doubled in the past 10 years."

In a belated response to Bachus' startling claim, the Safe and Secure Internet Gambling Initiative, an industry group, cites McGill University gambling and addiction researcher Jeffrey L. Derevensky, who says:

This assertion, which is reportedly based upon our empirical research, is not predicated upon any factual evidence. None of the studies conducted with adolescents or college students, to the best of my knowledge, have looked at a connection between Internet wagering and suicide attempts.

In a June 25 press release, Bachus revised his claim, saying, "A study by McGill University found that nearly one-third of teenage compulsive gamblers attempted suicide" (emphasis added). That sounds a little more plausible, depending on how compulsive gambling is defined. But according to Derevensky, Bachus is still wrong to cite McGill research in support of his assertion. In any case, given that only 7 percent or so of online bettors qualify as "problem gamblers" (according to a 2007 survey by the British Gambling Commission), throwing everyone who has ever gambled online into that category is a pretty big mistake. Then, too, while Bachus said suicides on college campuses have doubled in the last decade, the CDC says suicides among 15-to-24-year-olds fell by 28 percent between 1990 and 2003, then rose by 8 percent in 2004 before falling by 3 percent in 2005, the latest year for which data are available (PDF).

You can watch Bachus rail against online gambling here. I explain why financial institutions are vexed by the proposed UIGEA regulations here.

Addendum: Several commenters wondered whether Bachus is conniving or clueless. Last summer, after Radley Balko testified at a hearing on Internet gambling before Frank's committee, he described an exchange with Bachus that supports the latter interpretation.

States Cheat Lottery Players Out of Millions

rbalko@reason.com (Radley Balko) — Wed, 02 Jul 2008 23:43:00 EDT

USA Today reports that many states have continued selling scratch-off jackpot tickets long after the top prizes emblazoned all over the tickets have already been awarded. A law professor in Virginia is filing a class action suit claiming the state sold more than $20 million worth of such tickets per year for at least three years.

The states claim that the practice isn't fraudulent because smaller prizes are still available, and because lottery players can check the back of tickets (after they've already bought them) and websites for disclaimers and lists of prizes already claimed. Despite that weak defense, several states, including Virginia, have since discontinued the practice.

Virginia, by the way, has killed two of its citizens in police actions aimed at protecting residents of the Old Dominion from losing their money while gambling privately. Because those shady black market bookies might take your money under false pretenses.

White Folks Want to Run Blackjack, Too

mriggs@reason.com (Mike Riggs) — Wed, 04 Jun 2008 15:58:00 EDT

Non-indigenous casino owners are suing the state of Florida over an agreement between Gov. Charlie Crist and the Seminole Indians that grants the Seminole Hard Rock Hotel & Casino the exclusive rights to "offer blackjack, baccarat, around-the-clock poker and six high-stakes poker tournaments annually," in exchange for $100 million a year to the state's coffers:

"The Isle Casino of Pompano Beach claims the agreement between the state and U.S. Interior Department violates the federal Indian Gaming Regulatory Act, which allows tribes to play only those games already authorized in Florida.

The suit, filed Tuesday in Tallahassee, also alleges that Isle Casino would suffer irreparable injury if the tribe is allowed to open the blackjack games as planned on June 23 at its Hard Rock Casino near Hollywood."

Do the plaintiffs have a pretty good case against rent-seeking? Or, as a few sympathizers might point out, is the state finally making amends for a long history of mistreatment?

More reason on Indian gambling here.

Fake Teams, Real Money

jsullum@reason.com (Jacob Sullum) — Wed, 04 Jun 2008 07:00:00 EDT

In the 2007 romantic comedy Knocked Up, a woman who suspects her husband of having an extramarital affair discovers he is actually sneaking off to play fantasy baseball. In real life, people who participate in fantasy sports generally do not feel a need to hide what they're doing, and neither do the companies that offer them the opportunity.

Fantasy sports is a burgeoning industry in the United States, one that probably will grow even faster now that the U.S. Supreme Court has let stand an appellate ruling that makes the business easier and cheaper to run. But the legitimacy of fantasy sports highlights the arbitrariness of U.S. gambling law, which for no good reason prohibits forms of betting that many millions of Americans enjoy.

Participants in fantasy sports choose real players for pretend teams that compete against each other based on the players' real-world performance. The online industry that facilitates these contests, which emerged a decade ago, today consists of more than 100 companies, including major players such as ESPN and Yahoo! Sports, and generates about $500 million in revenue each year, mainly from participant fees and advertising, according to the Fantasy Sports Trade Association (FSTA).

The FSTA expects the industry's growth to accelerate as a result of the Supreme Court's recent refusal to hear Major League Baseball's appeal of a 2007 decision by the U.S. Court of Appeals for the 8th Circuit. Last fall, in response to a lawsuit by CBC Marketing and Distribution, which operates CDM Fantasy Sports, the 8th Circuit ruled that companies like CBC need not pay license fees to professional sports leagues because they have a First Amendment right to use players' names and statistics.

Freed from the burden of getting league permission and paying millions of dollars in license fees, fantasy sports businesses are likely to expand and proliferate. Already, the FSTA estimates, 18 million Americans play fantasy sports. Mostly they do it for fun, but they can also win prizes, ranging from bobble-head dolls to cash awards as high as $25,000.

In other words, sports fans are paying for the chance to win money in contests that hinge on the performance of professional athletes. Why isn't this gambling?

One answer is that playing fantasy sports requires knowledge and skill. But so do sports betting and poker.

Here's the real reason playing fantasy sports is not gambling: The government says it isn't. The Unlawful Internet Gambling Enforcement Act, which took effect at the beginning of last year, includes a specific exemption for fantasy sports, provided the prizes are determined in advance and the imaginary teams do not correspond to any real teams.

The latter condition is aimed at preventing fantasy sports, which the professional leagues endorse, from morphing into sports betting, which they oppose. License fees aside, the leagues like fantasy sports because they increase interest in their games.

But so does sports betting, the market for which dwarfs the size of the fantasy sports industry. A 2003 ESPN survey found that more than 100 million Americans bet on sports each year, wagering something like $100 billion.

Yet taking sports bets is legal only in Nevada, and the leagues are adamantly opposed to broader legalization because they fear it would have a corrupting effect. Or so they say. Their actions suggest they know better.

"Most of the leagues now have a deal with the Las Vegas sports consultants," notes Jim Murphy, a professional handicapper. "The leagues pay them to track improper betting trends....Anytime you read about a point-shaving scandal or that so-and-so has been charged with trying to fix a game, it was the Las Vegas bookmakers that ferreted it out."

Whatever the likelihood that promising college players or well-paid professionals would jeopardize their careers by helping to fix games, keeping sports betting in the shadows of the black market is hardly a sensible way to reduce the odds.

Supremes Say Money Can Be Touched Without Being Laundered

jsullum@reason.com (Jacob Sullum) — Tue, 03 Jun 2008 18:15:00 EDT

Two Supreme Court decisions that were announced yesterday, both involving interpretation of a money laundering statute, illustrate the malleability of the federal criminal code, which enables prosecutors to make a federal case out of almost anything and to pile on charges for the same underlying conduct. The Court imposed some modest limits on these tendencies.

In one case, a man who was caught driving to Mexico with $81,000 in cash hidden beneath the floor of his car was convicted of money laundering and sentenced to six and a half years in prison. The Court unanimously ruled that transporting the proceeds from illegal drug sales does not in itself constitute money laundering, which requires an intent to "conceal or disguise the nature, the location, the source, the ownership, or the control" of ill-gotten gains.

In the second case, a man who ran an illegal lottery in Indiana and one of his employees were convicted under a provision of the money laundering law that prohibits the use of "proceeds" from illegal activity to carry on further illegal activity. The boss was convicted for paying his employees and his winning customers, while his underling was convicted for collecting money from customers. A five-justice majority said the convictions were invalid because prosecutors had failed to show these transactions involved "proceeds" of the gambling business, which they interpreted to mean the defendants' profits.

Notably, both opinions were written by justices who are often perceived as hostile to criminal defendants, the first by Clarence Thomas and the second by Antonin Scalia. But don't get too excited. While the drug money courier and the lottery collector faced just the money laundering charges, the guy who ran the lottery was not so lucky. He no longer has to serve 17.5 years for money laundering, but he still has to spend five years in prison for daring to compete with the state of Indiana.

In a 2004 reason article, William Anderson and Candice Jackson bemoaned the ever-expanding reach of federal criminal law.

Some Bets Are Off

jsullum@reason.com (Jacob Sullum) — Mon, 19 May 2008 12:00:00 EDT

On July 16, 2006, the CEO of BetOnSports.com attacked an anti–online gambling bill that the House of Representatives had overwhelmingly approved a few days before. “We want to be regulated,” David Carruthers wrote in the Baltimore Sun. “We want to be taxed. We want to be licensed. Instead of dealing with us constructively to address issues of mutual concern, these legislators prefer to pretend that they can control the Internet. Instead of protecting the public, they would rather waste time on public posturing to their partisan base.”

It wasn’t hard to understand why Carruthers was upset. The bill, part of the “American Values Agenda” championed by House Republicans, would have classified him as a felon, subject to a five-year prison sentence for the crime of accepting bets from Americans. What Carruthers evidently did not realize was that the U.S. Justice Department already considered him a felon. On the very day his plea for legitimacy appeared in the Sun, Carruthers was arrested at the Dallas/Forth Worth International Airport during a layover between London and Costa Rica.

Carruthers, a native of Scotland, thought he was running “the largest online wagering company in the world.” But according to Catherine Hanaway, the U.S. attorney for the Eastern District of Missouri, he was running a racketeering conspiracy. Now awaiting trial in St. Louis, Carruthers faces up to 20 years in prison if convicted of racketeering or mail fraud, which he supposedly committed by advertising that BetOnSports was “legal and licensed.” Never mind that BetOnSports was legal and licensed in the U.K., where it was incorporated, and in Costa Rica, where its operations were based.

Although he had been a highly vocal and visible critic of U.S. gambling policies, Carruthers miscalculated just how determined prosecutors and politicians were to deny Americans the right to bet online. Opponents of Internet betting, including both paternalists afraid of human frailty and domestic gambling interests afraid of competition, are eager to prosecute businesses the rest of the world considers legitimate. They are prepared to go after not just the gambling sites themselves but also third-party payment processors, marketers, even media outlets that carry ads for online poker or sports betting. In doing so the prohibitionists are willing to risk the collapse of international trade agreements and saddle American financial institutions with the onerous burden of monitoring transactions for signs of “unlawful Internet gambling.” All in a vain attempt to stop Americans from doing online what they already do by the millions in convenience stores and delis, at racetracks and casinos, and in poker games and football betting pools throughout the country.

‘The Crack Cocaine of Gambling’
The bill that Carruthers criticized on the day of his arrest was the Internet Gambling Prohibition and Enforcement Act, sponsored by Rep. Bob Goodlatte, a Republican who since 1993 has represented a northwestern Virginia district that includes Roanoke and Lynchburg (home of Jerry Falwell’s Liberty University). Goodlatte had tried for years to ban online gambling, which he calls a “scourge on the Internet.” He was joined in that effort by other conservatives, including Sen. John Kyl (R-Ariz.), who calls Internet betting “the crack cocaine of gambling,” and former Rep. Jim Leach (R-Iowa), who says it “erodes family values.”

In 2006 Goodlatte’s bill was combined with a Leach bill to become the Unlawful Internet Gambling Enforcement Act (UIGEA). The law was tacked onto an unrelated, supposedly urgent measure dealing with port security, which Congress passed just before adjourning for mid-term elections in 2006.

Unlike Goodlatte’s original bill, the UIGEA does nothing to clarify or expand the Wire Act of 1961, which prohibits using “a wire communication facility” to accept bets “on any sporting event or contest.” The Wire Act applies only to people “engaged in the business of betting,” not individual gamblers. It also seems limited to sports betting, an interpretation endorsed by the U.S. Court of Appeals for the 5th Circuit in 2002. Although the Justice Department implausibly maintains that the Wire Act covers other forms of gambling as well, including poker and blackjack, all the defendants it has successfully prosecuted under the law were involved in sports betting. Even in those cases, the equation of the Internet with a “wire communication facility” is questionable, as is the extraterritorial application of the law to businesses with no U.S. presence.

While Goodlatte’s original bill would have updated the Wire Act with the Internet in mind and extended it to cover other forms of online gambling, the UIGEA does neither. It makes accepting money in connection with “unlawful Internet gambling” while “engaged in a gambling business” a federal crime punishable by up to five years in prison, but it leaves the definition of unlawful Internet gambling as fuzzy as ever. “It’s a mess,” says Nelson Rose, a professor at Whittier Law School and a leading expert on gambling law. “Nobody ever read it. There were no debates on it. It’s really a piece of garbage. It doesn’t clarify what’s legal and illegal, so the definition of what is an unlawful Internet gambling transaction depends on other federal or state laws.”

The UIGEA’s definition of unlawful Internet gambling explicitly excludes fantasy sports, in which participants create imaginary teams whose performance is judged by the real-life performance of the teams’ players. The law says these contests are OK as long as the prizes are determined in advance and the fantasy teams are not identical to any actual teams. The latter condition is aimed at preventing fantasy sports contests, which the professional sports leagues endorse, from morphing into actual sports betting, which they oppose. The leagues, which supported the UIGEA, are adamantly against broader legalization of sports betting, currently permitted only in Nevada, because they fear it would have a corrupting effect.

The UIGEA also includes an exemption for intrastate online gambling that is “expressly authorized” by state law, such as lotteries. Whether the law allows online participation in multistate lotteries such as Powerball is unclear. So is the legal status of interstate betting on horse racing via the Internet, offered by sites such as allhorseracing.com and youbet.com. The UIGEA includes an exemption for “any activity that is allowed under the Interstate Horseracing Act of 1978.” Businesses that take off-track bets and the state governments that license them read that law as allowing online betting, but the Justice Department disagrees. The UIGEA explicitly declines to resolve the issue, saying “this subchapter shall not change which activities related to horseracing may or may not be allowed under Federal law.”

Since the Justice Department is not likely to prosecute the officials who run interstate lotteries or the state-licensed businesses that take horse racing bets, the upshot is that the UIGEA leaves unmolested two politically favored forms of gambling that happen to generate government revenue and campaign contributions. (The horse racing industry donated more than $3 million in the run-up to the UIGEA, overwhelmingly to Republicans, including Goodlatte.) The law also lets brick-and-mortar casinos—another source of tax revenue and campaign money—offer remote gambling that does not cross state borders.

“No bill that would completely ban Internet gambling has advanced very far,” says Dan Walsh, director of government affairs at the Interactive Gaming Council, which represents online gambling companies. “It has to have exemptions, and when you have exemptions, you get caught in internecine fights between [Indian] tribes and commercial casinos, between horse racing and dog racing, between states that want to take lotteries online and convenience stores that don’t want the states to take lotteries online. The whole point of the bill is to stay out of those fights.”

Eliot Spitzer Doesn’t Want You to Pay for Fun
Although the UIGEA did not ban online gambling, it made life more complicated for operators of gambling websites. To begin with, it created a new federal charge, “acceptance of any financial instrument for unlawful Internet gambling,” and an additional penalty for people involved in gambling businesses that were already considered illegal. The Justice Department could have included this charge in its indictment of David Carruthers, adding five years to his potential sentence, if only the UIGEA had existed prior to his arrest.

By saying that unlawful Internet gambling includes betting prohibited by the state in which the bet “is initiated, received, or otherwise made,” the UIGEA also may have made it easier to prosecute people who accept online bets on things other than sports. About a dozen states explicitly ban online gambling, and “just about every state either has in their common law or in their state constitutions a flat prohibition on gambling that’s not expressly authorized,” says Behnam Dayanim, an attorney specializing in gambling issues at the Washington law firm Paul Hastings, which represents the Gibraltar-based online gambling company PartyGaming.

Prior to the UIGEA, other federal gambling statutes referred to state law, but none of them mentioned the Internet. Hence it was doubtful that Congress had authorized states to regulate interstate and foreign commerce, a federal power under the Constitution, by criminalizing the actions of website operators in other countries. An online casino also could argue that its acceptance of a bet from a gambler in, say, Salt Lake City occurred in Costa Rica (or wherever its server was located) and therefore did not violate Utah law.

“In one fell swoop, Congress destroyed both of those defenses,” says Dayanim. “As far as the locus [of the violation] goes, they’re saying it doesn’t matter for the purposes of UIGEA where the wager is occurring or where the business is located. And by referencing laws of a state in the definition of unlawful Internet gambling, Congress has said it’s deferring to state law on this.” It’s less clear, he adds, whether the UIGEA changed anyone’s liability under other federal laws, such as the Illegal Gambling Business Act or the Racketeer Influenced and Corrupt Organizations Act.

Nelson Rose disagrees with Dayanim’s reading of the UIGEA, saying “the only thing this statute did is it created a new federal crime of being in a gambling business and accepting money for an unlawful Internet gambling transaction.” Until the Justice Department tries to prosecute someone with no involvement in sports betting for violating the UIGEA, it won’t be clear who’s right. So far there have been no prosecutions under the new law.

Assuming that foreign operators of gambling websites avoid layovers in the U.S., the biggest problem the UIGEA created for them is its chilling effect on the processing of online bets. Under UIGEA regulations proposed by the Treasury Department, U.S. financial institutions will have to adopt “policies and procedures” that are “reasonably designed” to block transactions associated with unlawful Internet gambling. But neither the UIGEA nor the Treasury Department will say precisely which transactions those are. Given the uncertainty, the safest course for banks is to avoid any sort of online gambling, whether clearly illegal, arguably illegal, or clearly legal.

Even before the UIGEA, most U.S. credit card issuers had stopped processing online gambling transactions under pressure from state and federal prosecutors. PayPal, the online payment processor, picked up much of the slack, but in 2002 it reached deals with New York Attorney General Eliot Spitzer and the U.S. Justice Department under which it promised to eschew online gamblers. Spitzer, who got into some trouble of his own involving payments for illegal recreational activities after he was elected governor, said “this case shows that we intend to stop any company who facilitates illegal gambling transactions.” PayPal paid New York $200,000 in “disgorged profits, costs of investigation, and penalties,” a pittance compared to the $10 million the company shelled out to settle federal charges that it had violated the PATRIOT Act by transmitting funds derived from criminal activity.

Neteller, a payment processor based in the Isle of Man, stepped into the breach left by PayPal until January 2007, when company founders Stephen Lawrence and John Lefebvre, both Canadians, were arrested in the U.S. on charges of conspiracy and money laundering. Like Carruthers, they faced prison sentences of up to 20 years for helping Americans place bets via the Internet, a line of work the FBI called “a colossal criminal enterprise masquerading as legitimate business.” Last June, Lawrence pleaded guilty to one count of conspiracy, which carries a maximum sentence of five years; Lefebvre is still awaiting trial. After the arrests, Neteller abruptly abandoned the U.S. market.

Money Wandering
Despite the UIGEA and the Justice Department’s threats, several options remain for Americans who are determined to brave Bob Goodlatte’s disapproval by playing poker or placing sports bets online. “Overseas banks, because they’re not covered by the statute or the proposed regs, are going to look at this as a great opportunity to sell credit cards to Americans,” says Rose. Other methods include foreign-based e-wallets, e-checks, cashier’s checks, money orders, faux phone cards, foreign bank accounts, and payments to overseas intermediaries that do not sound like gambling operations.

“People have been setting up payment processors in all sorts of weird locations, including Russia, specifically to process gambling transactions,” says Jim Murphy, a professional sports bettor. “They’re basically just names to get money to the sports book, but instead of sending it to, say, 5Dimes Sportsbook in Costa Rica, you’re sending it to ABC Investment Consultants or ABC Shipping International in Costa Rica.”

Even an ordinary paper check in the mail will do in a pinch, since the Treasury Department has decided it would be too onerous to demand that banks scrutinize every handwritten payee’s name for gambling connections. “I don’t know of anybody who’s had serious difficulty in actually providing payment to an online operator,” says Joseph Kelly, a professor of business law at SUNY-Buffalo and co-editor of the journal Gaming Law Review.

At the same time, driving online gambling transactions underground increases the potential for fraud and money laundering, two problems Goodlatte and his allies claimed to be concerned about. “It forces people who want to play to find alternative means of funding their accounts rather than just using the most transparent system of all, the U.S. banking system,” says John Pappas, executive director of the pro-legalization Poker Players Alliance. “What we’d like to see is a regulated system that provides consumer protections.”

Passage of the UIGEA, combined with the BetOnSports and Neteller arrests, scared publicly traded gambling companies such as PartyGaming and 888.com out of the U.S. market. But scores of privately held operations, including Bodog, Poker Stars, Full Tilt, and Ultimate Bet, remained. “There still are a number of very reputable sites serving the U.S. market,” says Pappas, and “the people who were playing on the publicly traded sites have simply migrated to these other sites.”

There don’t seem to be any firm numbers on how online gambling revenue—estimated at $12 billion worldwide in 2006, about half of it from the U.S.—has been affected by the new crackdown. In February 2007, right after the UIGEA took effect, the Associated Press cited “industry observers” who estimated that online betting was “down by as much as 50 percent” worldwide. Since that would mean American betting had been completely eliminated, it seems implausible. In any case, business seems to have bounced back. “Every anecdotal response I’ve gotten is that there was a [downward] blip at first but that things are pretty much back to normal,” Kelly says.

For companies driven out of the American market, of course, the number of U.S. customers has fallen to zero. Some, such as PartyGaming, have entered into negotiations with the U.S. Justice Department to avoid civil and criminal charges based on their pre-UIGEA actions. By admitting wrongdoing, paying fines, and agreeing to asset forfeitures, they can eliminate the threat of lawsuits and prosecution while positioning themselves to re-enter the U.S. market should the legal environment become more hospitable.

The Mouse That Gambled
Not all of the foreign-based companies banished by the Justice Department’s threats have taken it lying down. The most conspicuous act of resistance was a World Trade Organization (WTO) complaint filed in 2003 by the tiny Caribbean nation of Antigua and Barbuda, home to 69,000 people and dozens of online gambling companies. Antigua argued that the United States was violating its WTO commitments by allowing some forms of domestic online gambling, including bets on horse races, while trying to stop foreign companies from serving American gamblers. Although the complaint seemed quixotic at first, in 2004 an arbitration panel agreed that America’s gambling policies amounted to a discriminatory trade barrier, a finding that was upheld on appeal a year later. Showing a comical lack of self-awareness, Goodlatte called the ruling “appalling,” saying, “It cannot be allowed to stand that another nation can impose its values on the U.S.”

The WTO said Antigua was entitled to compensatory sanctions, and Antigua asked for $3.4 billion a year, an estimate of the revenue businesses there would lose as a result of being excluded from the American market. It also suggested that, given the relative sizes of the two countries, the sanctions take the form of permission to disregard U.S. intellectual property rights, which would allow it to recoup its losses in the gambling market by selling unlicensed CDs, DVDs, and software. Last December a WTO arbitration panel agreed but limited the proceeds to $21 million a year, 42 times the $500,000 proposed by the U.S. but less than one-hundredth the figure suggested by Antigua. Mark Mendel, Antigua’s lawyer, called the award “absurdly low.”

But Antigua isn’t done. To comply with its trade agreements, the U.S. government could open its online gambling market to foreign companies, the option preferred by Antigua. Alternatively, it could impose a blanket ban on all forms of online gambling, which would eliminate the discriminatory treatment of foreign companies. Instead it has announced its intention to withdraw its trade commitment covering remote gambling. In other words, rather than changing its gambling laws so they comport with its trade commitments, the U.S. has said it will change its trade commitments so they comport with its gambling laws. Rep. Shelley Berkley (D-Nev.), who wants to study the feasibility of legalizing and regulating online gambling, calls this move “the trade equivalent of taking our ball and going home.”

In January, Antigua, joined by Costa Rica, asked the WTO to arbitrate the dispute regarding America’s unilateral revision of its trade commitments. The arbitration process could put the kibosh to deals the U.S. reached in December with the European Union, Canada, and Japan, each of which was inspired by Antigua to file its own gambling-related trade complaint. Under those deals, the U.S. promised broader access to several American service sectors in exchange for cutting remote gambling out of its trade agreements. But now that Antigua and Costa Rica have revived the issue, WTO rules say parties that have reached settlements can reconsider them. Macau and India, which have filed gambling-related WTO complaints that have not yet been resolved, could tag along as well. Meanwhile, at the urging of the Remote Gambling Association, a trade group, the E.U. is looking into the possibility of filing a new WTO complaint arguing that the U.S. government is violating its trade commitments by treating foreign businesses involved in online gambling like criminal gangs, as illustrated by the BetOnSports and Neteller cases.

Antigua’s WTO victory could play a role in those cases. A brief filed last year on behalf of BetOnSports founder Gary Kaplan (who was indicted along with David Carruthers) argues that the U.S. government’s prosecution of Kaplan violates legally binding trade agreements. The brief cites the Charming Betsy doctrine, which derives from an 1804 Supreme Court case involving a schooner of that name: “Where fairly possible, a United States statute is to be construed so as not to conflict with international law or with an international agreement of the United States.”

The authors warn that disregarding this principle could have serious international repercussions. “If the United States can today continue to enforce criminal legislation that is not only violative of binding international law norms but that has been definitely condemned by tribunals to whose rulings we have pledged to adhere,” they note, “there is nothing to prevent other countries from following the same course when faced with WTO rulings favorable to the United States and unfavorable to them.”

New York University law professor Joseph Weiler, an international trade expert who advises law firms whose clients could be prosecuted for helping Americans gamble online, took up the same theme in testimony to the House Judiciary Committee last fall. “There is no question that under international law the ban on remote betting by providers situated in WTO countries is illegal,” he said. “Despite this illegality, the executive branch has persisted in indicting and prosecuting individuals and corporations whose activities should have been protected by the binding international obligations.”

That policy, Weiler warned, “is detrimental to the reputation of the United States as a champion of the rule of law” and “is an invitation to other countries…to withdraw commitments rather than honor them.” Should China one day decide it no longer wants to respect U.S. copyrights, or should the E.U. decide to exclude U.S. agricultural products, the United States could not reasonably object to such unilateral revision of trade agreements, given the precedent it is setting in the area of gambling.

Abetting Betting
The international implications of the online gambling crackdown extend beyond trade. According to the U.S. Justice Department, anyone who operates a gambling website that’s accessible to Americans, even if it’s based in a jurisdiction where the business is legal and licensed, is criminally liable in the United States. If he should happen to visit or pass through the U.S., he is subject to arrest, prosecution, and imprisonment.

How would Washington react if an American visiting Tehran or Beijing received similar treatment because he had posted material on a U.S.-based website that authorities in Iran or China deemed indecent or subversive? How would it view a request for the extradition of such a “criminal”? “This is a very dangerous precedent,” says attorney Behnam Dayanim, “because it sets the stage for that kind of activity, and to the extent we object we would be subject to charges of hypocrisy.”

A week after David Carruthers’ arrest, London’s Daily Telegraph quoted “a source close to PartyGaming” who said, “If they start doing this they risk behaving like China.” He was referring to the Chinese government’s effort to prevent Chinese citizens from visiting websites it considers objectionable, an effort in which it had enlisted the assistance of U.S.-based search engines, to the consternation of American politicians. “The U.S. Congress that was appalled by Google’s supine attitude,” the Telegraph noted, “is the same Congress that overwhelmingly passed an anti-online gambling bill last week.”

The comparison with Chinese censorship is not so far-fetched, especially when you consider that the U.S. government has threatened to prosecute people merely for providing information about online gambling. In June 2003 Deputy Assistant Attorney General John Malcolm sent a letter to media trade groups warning that their members could be breaking the law by accepting ads for gambling websites. Under the Justice Department’s theory, running the ads could amount to “aiding and abetting” illegal gambling, a crime punishable by up to two years in prison.

“It was our attempt to be as gentle as we could,” a Justice Department spokesman told The National Law Journal in 2005. “We were letting them know that accepting advertising from an Internet gambling firm is against the law and it could be used in an aiding and abetting statute.…A lot of that pressure has worked.” This intimidation campaign has spurred cable TV channels, radio stations, magazines, search engines, and billboard companies to stop carrying ads for gambling websites.

To people who view online gambling as a legitimate business, the U.S. government’s insistence that citizens of other countries help it protect American gamblers from themselves is all the more galling because the moralism underlying it is so inconsistent. Last fall Massachusetts Gov. Deval Patrick produced a particularly glaring example of politicians’ gambling hypocrisy when he proposed a bill that would authorize three casinos in the state while at the same time banning Internet betting.

Under Patrick’s bill, people who place online bets, including casual poker players and sports bettors, could be punished by up to two years in jail and a $25,000 fine. The idea, it seems, is to protect the casinos from competition and thereby maximize the revenue they generate for the state through license fees and taxes. Similarly, a Washington state law enacted in 2006 treats most online gamblers as felons, subject to penalties of up to five years in prison and a $10,000 fine, but exempts state-sanctioned horse racing.

Protectionism helps explain why, despite all the railing against online gambling by politicians like Bob Goodlatte and John Kyl, the bill that finally passed Congress left the law ambiguous. “For me this is more about driving foreign traders out of action so Nevada and Vegas don’t lose out on business in the future,” a London lawyer told the Sunday Telegraph last year. “The moves being made now give the U.S. time to sort out the legalization of online gaming and give the Vegas brands time to establish [themselves] online.”

The American Gaming Association, which represents brick-and-mortar casinos, was officially neutral on the UIGEA, and it is not backing a bill sponsored by Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, that would create a federal system of licensing and registration for online gambling businesses while allowing states to restrict or prohibit Internet betting within their borders. But the association “strongly supports” a bill sponsored by Nevada’s Rep. Berkley that would commission a one-year National Research Council study of how best to regulate online gambling, including an examination of methods used to block bets by minors and discourage excessive betting.

“They want an objective study,” says Kelly, the law professor. “They’ve got to make the case before the American people. They’ve got to convince some of their own members.…Then the American Gaming Association, I think, would push for regulation.”

Since legal gambling sites have been up and running for years in various countries, it’s not clear why such a study is needed. Excluding minors is, in essence, a matter of identity verification, something that commercial websites ranging from banks to booksellers routinely do. The methods, which include passwords and inquiries about personal information, are not 100 percent effective, but they work well enough for millions of online businesses to function profitably. Gambling sites have a strong incentive to avoid unauthorized transactions, because they bear the burden of charge-backs if a customer turns out to be a kid with a purloined credit card. Preventing bets by self-identified problem gamblers is also a matter of identity verification, and gambling sites use other methods, such as rules against multiple accounts and preset limits on the size or frequency of bets, to discourage excessive gambling.

‘Some Human Beings Enjoy Doing It’
Opponents of online gambling nevertheless warn that legalization would lure millions of Americans into an addiction that will wipe out their savings, break up their families, and drive them to theft and suicide. “Gambling is not a victimless activity,” Goodlatte told the House Judiciary Committee in November. “Online gambling can result in addiction, bankruptcy, divorce, crime, and moral decline…the costs of which must ultimately be borne by society.…Financial ruin and tragedy are not uncommon among online bettors.”

Actually, they are. In a study sponsored by the Austrian gambling business bwin.com and reported in the Journal of Gambling Studies last year, researchers at Harvard Medical School examined the gambling patterns of more than 40,000 online sports bettors for eight months and found that less than 1 percent qualified as “heavily involved bettors” with large losses. A 2007 survey by the British Gambling Commission found that 6 percent of people who had placed sports bets online and 7 percent of people who had placed other kinds of online bets in the previous year qualified as “problem gamblers,” based on American Psychiatric Association criteria. That does not mean they faced “financial ruin and tragedy”; it means they reported at least three of 10 gambling-related problems, such as “chasing losses,” “a preoccupation with gambling,” “a need to gamble with increasing amounts of money,” and “being restless or irritable when trying to stop gambling.” Notably, the overall rate of problem gambling in the U.K. remained unchanged between 1999 and 2007, despite the rise (and legalization) of Internet betting.

Opponents of online gambling focus on extreme cases and imply they’re typical. A June 2007 hearing on Internet gambling held by the House Financial Services Committee featured testimony by an Ohio minister whose college-age son robbed a bank to pay off the debts he incurred while playing online poker. The research firm Ipsos estimates that 15 million Americans play online poker for money; most of them do not end up robbing banks. According to industry data collected by the Poker Players Alliance, the average online player spends $10 to $20 a week. Players like these are neither winning nor losing large amounts of money; they are mainly having fun, a concept that Bob Goodlatte seems to have trouble comprehending.

Barney Frank, by contrast, gets it. In July 2006, during the congressional debate over the UIGEA, Jim Leach averred that “there is nothing in Internet gambling that adds to the GDP or makes America more competitive in the world.” Frank took exception to Leach’s argument:

“If an adult in this country, with his or her own money, wants to engage in an activity that harms no one, how dare we prohibit it because it doesn’t add to the GDP or it has no macroeconomic benefit? Are we all to take home calculators and, until we have satisfied the gentleman from Iowa that we are being socially useful, we abstain from recreational activities that we choose?…People have said, ‘What is the value of gambling?’ Here is the value: Some human beings enjoy doing it. Shouldn’t that be our principle? If individuals like doing something and they harm no one, we will allow them to do it, even if other people disapprove of what they do.”

Senior Editor Jacob Sullum is a nationally syndicated columnist.

One Vice at a Time, Please

jsullum@reason.com (Jacob Sullum) — Fri, 25 Apr 2008 11:53:00 EDT

This week the Atlantic City Council voted unanimously to ban smoking on casino floors. Although the rationale is employee protection, casinos that elect to build separately ventilated smoking lounges, as permitted by the ordinance, have to make sure no gambling occurs there, even the automated kind. Urging the Casino Association of New Jersey to file a lawsuit challenging the ban, Donald Trump complains that it gives slot parlors in the Philadelphia area an unfair competitive advantage.

Meanwhile, The New York Times reported yesterday that charitable groups in states such as California, New York, New Jersey, Washington, and Minnesota have seen a sharp drop in bingo attendance and revenue in the wake of smoking bans:

Managers of charity bingo games...say smoking goes with bingo like peanut butter with jelly. Michael J. Surwill, bingo chairman at Elks Lodge No. 2501 in Ocean Springs, Miss., estimated that smokers outnumbered nonsmokers three to one at the lodge's weekly game....
Charlie Lindstrom, who runs the bingo nights at an American Legion post in Fergus Falls, Minn., said some of his former customers now drove to casinos on Indian reservations, where they can puff away, or across the border to Fargo, N.D., where veterans' organizations are exempt from that state's smoking ban.

One possible solution: allow smoking among consenting adults. Another one: impose a nationwide smoking ban, which would also take care of the accidents caused by drunken smokers looking for bars where they can light up. Which do you think is more likely?

The Politics of Poker

Sat, 05 Apr 2008 07:53:00 EDT

Now playing at Reason.tv: "The Politics of Poker" - recorded in our Washington headquarters on April 1, 2008 - featuring two of the best players in the game, Andy Bloch and Chris ("Jesus") Ferguson. Hosted by Radley Balko.

And check out these pics from the event (photos courtesy Noel St. John):

More photos here.

More Poker Hearings

rbalko@reason.com (Radley Balko) — Thu, 03 Apr 2008 15:27:00 EDT

Yesterday, Barney Frank held hearings on the implementation of the Unlawful Internet Gaming Enforcement Act.

I was traveling, so I didn't get to watch. But Declan McCullagh did:

Banks, credit card companies, and some Democratic members of Congress are predicting that forthcoming restrictions on Internet gambling will ensnare innocent customers and threaten the viability of e-commerce.
[...]
The U.S. government's "decision not to fully define unlawful Internet gambling places our members in a very difficult position," said Leigh Williams on behalf of the Financial Services Roundtable, which counts Visa, Mastercard, Bank of America, Wells Fargo, and other banks as members. "They cannot know if a transaction is restricted unless they have in hand specifics of the transaction that in almost all instances they will not have."
At the very least, Williams said, the U.S. government should provide a list of names of Internet gambling businesses that can be identified and blocked--something that regulators are unwilling to do. (One model that's been suggested is the Treasury Department's list of "specially designated" people and organizations subject to economic sanctions.)
Federal regulators have said it would be too expensive for them to create a list themselves, arguing that "the government must engage in an extensive legal analysis to determine whether the gambling Web site is used, at least in part, to place, receive or otherwise knowingly transmit unlawful bets or wagers" and that due process safeguards "would result in considerable added costs."

So they're just going to push those costs onto the private sector, effectively making your bank cop, prosecutor, and jury. Given that there's no sanction for over-blocking transactions, and that there would be considerable sanctions for not doing enough to block gambling-related transfers, Congress has created a situation where the banks' only real option is to block anything that remotely sniffs of gambling.

Meanwhile, all you need to do to get around all of this is open an account with an overseas bank. Which means they'll probably next go after Internet Service Providers, and force them to block access to gaming sites. Quite the clusterfuck to prevent people from playing cards online.

There'll Be Time Enough for Countin' When the Dealing's Done

jwalker@reason.com (Jesse Walker) — Thu, 03 Apr 2008 09:58:00 EDT

Jim Manzi on counting cards:

My experience was that it was very easy to stay under the radar of casinos....Just play solo at the quarter tables, never spike your bet above 5:1, and play no more than one hour at casino before you move on to the next one. There are about 100 casinos in Vegas, so you can play ten hours per day every other weekend and only visit a given casino once every two or three months (for an hour each time). No pit boss will know who you are or care what you're doing because you're so far down in the noise. You can make a lot of money this way. Of course, nobody will ever know that you are taking them, and the emotional satisfaction arises from walking into this multi-billion dollar enterprise and walking out with their money because you're smarter and more disciplined than they are. In a bizarre way, you succeed through classical bourgeois virtues: self-discipline, frugality, ego control and steady work.

Once you realize all this, of course, you figure out that you can make a lot more money in that giant casino called Wall Street.

Barney Frank: Feds Should Decriminalize Marijuana

rbalko@reason.com (Radley Balko) — Sat, 22 Mar 2008 10:21:00 EDT

Fast forward to about the 6 minute mark.

If we're left with choosing between the authoritarian socialism of today's GOP or the socialism-with-individual-liberty of Barney Frank, I'll take the latter in a heartbeat. We could do worse to have more like him in Congress.

Also, Bill Maher needs to read the newspaper.

More Frank eloquence on the subject of individual freedom here...

Prohibitionist Bracketeers Unite!

matt.welch@reason.com (Matt Welch) — Mon, 17 Mar 2008 08:50:00 EDT

If there's any bigger college hoops fan than Nick Gillespie, it's John Sidney McCain III. Go to his campaign website now to fill out your bracket and compete head-to-head against the Maverick! No word yet whether he's offering campaign swag to the winners like last year (UPDATE: "You'll also be eligible for great McCain 2008 prizes"!), or whether there's another potentially illegal office pool at his campaign HQ, but we can say for sure that the Arizona sports fanatic is the most influential voice on Capitol Hill for banning all gambling on college sports.

McCain supports an Internet gambling ban, wants to federalize oversight of professional boxing (and not just because his status allows him to get choice ringside seats in Vegas), rid steroids from even amateur sports via random drug tests, and regulate the supplements industry. Read all that and more in this 2004 interview with ESPN, where he commits the even more grievous sin of comparing the great-but-quiet Kareem Abdul-Jabbar (whose blog is a daily must-read) to the great-but-assholish Barry Bonds. Oh -- and he reveres John Wooden for making Bill Walton cut his hippie hair.

Friday Funnies

info@reason.com (Chip Bok) — Fri, 08 Feb 2008 07:04:00 EST

Preventing Online Poker a Matter of "National Security"

rbalko@reason.com (Radley Balko) — Tue, 05 Feb 2008 11:45:00 EST

In December, the U.S. Trade Office announced it had reached an agreement with Europe, Japan, and Canada that would involve the U.S. making major trade concessions in order to both keep its ban on Internet gambling, and simultaneously allow exemptions to that ban for state lotteries and horse racing. The agreement meant that the U.S. was willing to force U.S consumers and businesses to pay so that the federal government could prevent U.S. citizens from playing poker online.

Strangely, the federal government also refused to release the terms of the settlement. So Ed Brayton filed a FOIA request with the U.S. Trade Office to release the terms of the settlement. They responded this week. They have refused to disclose the details "in the interests of national security."

The Mouse That Would Not Die

jsullum@reason.com (Jacob Sullum) — Thu, 31 Jan 2008 16:46:00 EST

The World Trade Organization dispute over America's gambling laws, which seemed to be petering out last month after Antigua and Barbuda received a modest arbitration award and the E.U., along with Japan and Canada, reached separate settlements with the U.S., is heating up again. The $21-million-a-year award that Antigua won last month was compensation for the U.S. decision to shut foreign operators of gambling websites out of the the American market while continuing to permit some forms of domestic online betting. That protectionist policy, the WTO found, violated a U.S. trade commitment covering gambling services. Now Antigua and Costa Rica, both of which are home to online gambling businesses, have asked the WTO to arbitrate their dispute with the U.S. regarding its attempt to unilaterally withdraw that commitment. Reuters explains:

Washington announced in May last year it would withdraw gambling from the services it opened up under a 1994 world trade deal.
Under WTO rules the United States then had to offer comparable access in other services to any of the WTO's 151 members who sought it, prompting the current dispute.
The European Union has said it reached an agreement with the U.S. over access to postal and courier, research and development and storage and warehouse services in compensation.
Washington has reached similar deals with Japan and Canada.
But no agreement has been reached with four other countries seeking compensation— Antigua, Macau, Costa Rica and India.

According to the Safe and Secure Gambling Initiative, a pro–free trade group representing foreign gambling businesses, "The arbitration filing makes it possible for the E.U. to reconsider its settlement with the U.S. and join the arbitration proceeding, opening up a new phase in the Internet gambling trade dispute." Also keeping the issue alive: The Remote Gambling Association wants the E.U. to file a WTO complaint about the U.S. government's discrimination against foreign gambling businesses, which it treats like criminal gangs.

The U.S. determination to maintain its unfair, inconsistent policy regarding gambling not only abrogrates the right of adults to spend their money as they see fit in the privacy of their homes. It also undermines the integrity of the WTO. The unprecedented decision to unilaterally withdraw a trade commitment, which Rep. Shelley Berkley (D-Nev.) calls "the trade equivalent of taking our ball and going home," is bound to invite imitation by other governments that find it inconvenient to keep their promises. And if they decide to follow the U.S. lead by selectively retracting commitments they've made, on what grounds will the U.S. be able to object?

Texas Officials Surprised: Rich People Don't Play the Lotto

rbalko@reason.com (Radley Balko) — Mon, 14 Jan 2008 14:13:00 EST

The state offered up a whopping $50 lottery scratcher, hoping to lure the affluent into pissing away paychecks for the privilege of peeling flaky foil from small pieces of paper. The game was an enormous success, bridging a $93 million revenue gap in the lottery commission's budget—a gab the state had previously bridged by dipping into public school funds. One problem...

As it turns out, the $50 game, called $130 Million Spectacular, has fared best in middle-income neighborhoods typically not considered affluent, according to six months of sales data analyzed by the Houston Chronicle.
The Chronicle looked at each of the state's ZIP codes with at least 1,000 adult residents, dividing them into groups based on their median household income in the 2000 census.
The analysis found that sales of the $50 Spectacular surged across middle-income ZIP codes, seeing strong per-capita sales in areas both with incomes of just more than $30,000 and in those with earnings upwards of $50,000 and $60,000.
Sales figures dropped off in both rich and poor areas, although the state's poorest ZIP codes — those with median incomes of $20,000 or less — saw stronger per-capita sales than the richest, with incomes of $90,000 or more.

Relevant posts about Texas SWAT teams busting up private poker games here. Drew Carey video on a Texas SWAT team busting up an American Legion charity poker game here.

No Tiger, No Volcano, No Gamblers

jsullum@reason.com (Jacob Sullum) — Thu, 10 Jan 2008 12:28:00 EST

I never thought I'd live in a place where people go to Oklahoma for fun, but evidently a lot of people in Dallas pop over the border to gamble in Indian casinos. Although that's a depressing thought, it's not as depressing as the thought of gambling in this place:

Station Casinos opened a nondescript 40-by-10-foot trailer on a vacant 26-acre plot about six miles east of the [Las Vegas] Strip with just 16 slot machines....
The biggest payout on the bank of video poker and blackjack machines was $2.50....
The trailer...came complete with a portable toilet outside and, to comply with the Americans With Disabilities Act, a wheelchair-accessible entrance. A casino floor manager sat at one end of the narrow room ready to pay out winnings should there be any.

If that doesn't sound like much fun to you, that's OK, because the trailer casino was not intended to attract customers. Open just for one day, it was intended solely to satisfy a zoning requirement. To retain the option of someday building an actual casino on the land, formerly the site of the Showboat and Castaways, Station Casinos has to offer betting opportunities to the general public for at least one shift every two years. A representative of the company that provided the slot machines for the day explains:

There are probably four or five places that have to do this in order to preserve their grandfathered zoning rights to have nonrestricted gaming there. That makes the property millions and millions of dollars more valuable.

The Internet Gambling Ban

rbalko@reason.com (Radley Balko) — Thu, 03 Jan 2008 16:00:00 EST

This past December, the United States settled a trade dispute with Canada, Europe, and Japan over the recently enacted Unlawful Internet Gambling Enforcement Act.

The problem is that the law carves out exemptions for some forms of gambling, such as state lotteries and domestic horse racing, while banning most other forms, most notably poker, the most popular form of online wagering.

The most popular online poker sites are all based overseas, where online gambling is legal. This gave rise to the trade dispute between the U.S. and most of the rest of the western world.

The U.S. Trade Office won't release the terms of the settlement-an odd development itself, given that the settlement involves U.S. tax dollars, was negotiated by employees of the U.S. government, and isn't likely to involve any information related to national security. But most experts believe that given the immense popularity of online poker, and the fact that America is home not only to most of the world's poker players but also the wealthiest, the settlement was likely in the tens of billions of dollars.

The U.S. was negotiating from a position of weakness. For the last few years, the tiny island nation of Antigua has been challenging the U.S. online gambling ban in the World Trade Organization. Antigua has won every step of the way.

Last week, just days after the U.S. settlement with Europe, Japan, and Canada, the WTO awarded Antigua $21 million in annual reparations for losses to the Antiguan economy caused by the American ban on Internet gambling. Because tariffs on U.S. goods would hurt the Antiguan economy far more than the U.S. economy, the WTO gave the okay for Antigua to recoup its losses in the form of copyright infringement, essentially making the country a haven for movie, music, and software piracy.

Had the U.S. not settled with the world's economic powerhouses, we might have seen a massive battle unfold between the U.S. entertainment industry and the moral majority types behind the gambling ban.

That doesn't mean the settlement is something to be proud of. On the contrary, it's pretty despicable. It's bad enough that the federal government feels it's proper and appropriate to tell American citizens what they're permitted to do on their own time in their own homes with their own money. But it's also willing to spend tens of billions of dollars of money paid to the government by those same citizens in the form of taxes to ensure it retains that power, and that it's jurisdiction to enforce that power covers the entire globe.

Ah, but it gets worse.

The U.S. could have actually resolved all of this and preserved its precious gambling prohibition by simply making the prohibition uniform. But that wouldn't do. Just as important as the ban on Internet gambling itself were the carve-outs for politically-protected special interest groups-lotteries and horse racing. So the tens of billions the U.S. government is paying to settle the trade dispute is not only to preserve the gambling ban, it's to preserve the congressionally-granted monopoly on online wagering for interests with more political clout than poker players.

There are likely many people whose reaction to all of this is "so what?" It's tough to get too worked up over a ban on something as seemingly niche and targeted as a ban on Internet gambling. Who other than Internet gamblers should care?

Part of the problem is the mentality that comes with this kind of legislation. The gambling ban seems to have been supported by two similar approaches to governance that, although they come from opposite sides of the political spectrum, are generally quite similar.

From the right, many feel that if they're personally morally opposed to a particular consensual activity, it ought to be banned for everyone. From the left, it's the mentality that because some people can't engage in a particular activity responsibly and without harming themselves, that activity ought to be banned for everyone. One is moral paternalism. The other is Nanny State paternalism. But the result is the same. The government makes your decisions for you.

The other reason even non-gamblers ought to be concerned about all of this is that it will be difficult for the government to enforce this ban without giving law enforcement some exceptionally broad powers. Federal authorities can't arrest the owners of gaming sites because they're based offshore, in countries where gambling is legal (unless they're foolish enough to come to the U.S.). The only option, then, is to go after the gamblers themselves. That means deputizing banks, credit card companies, and Internet Service Providers to start monitoring their customers spending and web surfing habits. Because the penalties against these companies for violating the law are likely to be severe and because the law specifically exempts them from liability for over-enforcement, your bank and ISP are likely to err on the side of banning legal transactions and erroneously reporting you to federal authorities than to err on the side of leaving you alone.

You needn't make your living playing Texas Hold 'Em to worry about the effects of the government requiring your bank and ISP to spy on you. If there's any good news in all of this, it's that technology and globalization have made it increasingly difficult for Congress to enforce its own morality on our private behavior.

The bad news is that because of that, the government will continue to seek increasingly broad powers to get its way.

Radley Balko is a senior editor for reason. This article originally appeared on FoxNews.com

Scratch-Off Tickets: The Smokable Version of Lotteries

jsullum@reason.com (Jacob Sullum) — Thu, 27 Dec 2007 15:45:00 EST

Although I'm against state lotteries because they're unjustified government monopolies (that, not coincidentally, offer crappy odds), I have a hard time sympathizing with their most conspicuous critics, who are motivated by a combination of paternalism and moralism. "Scratch-off tickets are to the lottery what crack is to cocaine," a Texas state legislator tells The New York Times. He and other "urban liberal Democratic politicians" have allied themselves with religious conservatives who oppose all forms of gambling. The "liberals" are worried by "evidence that blacks and Hispanics individually spend much more than whites on the lottery."

This concern reminds me of anti-smoking activists who criticize tobacco companies for "targeting vulnerable populations"—i.e., children, women, blacks, and Hispanics, who apparently are on a par when it comes to making risky decisions, and in any event less savvy than white men. The Times reports that a 2006 Texas survey found "the typical black player spent $70 a month on the lottery, compared with $47 for Hispanics and $20 for whites." Why is that more troubling than the reverse situation would be? If the issue were simply income (a question of who is better able to afford lottery tickets) or education (a question of who is better prepared to assess the costs and benefits of playing the lottery), why bring up race at all? Are blacks and Hispanics constitutionally less capable of deciding how to spend their money?

Ernest L. Passailaigue, director of the South Carolina lottery and president of the North American Association of State and Provincial Lotteries, manages to discuss the demographics of his customers without sounding racist:

Mr. Passailaigue...does not dispute that certain games appeal more to minorities and low-income people, but he said these groups were not being singled out and the trend should not worry state lottery officials.
"It's more cultural in nature," he said. "Some people think it's O.K. to go and play golf and bet on each hole."
While golfers might have more disposable income than many scratch-off bettors, Mr. Passailaigue argued the reality was, "Culturally, people have experienced different ways not only to amuse themselves but to gamble. It's been that way for a long time in this country."

Antigua Gets $21 Million

rbalko@reason.com (Radley Balko) — Wed, 26 Dec 2007 17:16:00 EST

Cato's Sallie James writes that the WTO has awarded Antigua $21 million in damages for its trade dispute with the U.S. over our Internet gambling laws. The little island country will get to recoup the losses by suspending copyright laws within its borders, I guess until it estimates its economy has absorbed $21 million in revenue.

The amount is far less than what Antigua wanted ($3.4 billion), and far more than what the U.S. claimed Antigua was due ($500,000). Unfortunately, I doubt that $21 million is enough to instigate a war between the copyright lobby and the moral blowhards behind the gambling ban. And the recent settlement between the U.S. and Europe, Canada, and Japan means more damages taken out in copyright aren't likely.

I wonder if U.S. citizens will be able to take advantage of the ruling to buy pirated CDs and movies from Antigua, or if the RIAA and MPAA will pressure the federal government into banning Internet and postal transactions with copyright violators who set up shop in Antigua.

The good news I guess is that trade, globalization, and techology have made it much more difficult for the government to enforce dumb morality laws. The bad news is, they're still trying.

MORE: I probably wasn't clear enough in the post: The $21 million is an annual reparation until the U.S. changes its laws.

Online Gambling Companies Turn to Fight

jsullum@reason.com (Jacob Sullum) — Thu, 20 Dec 2007 12:23:00 EST

As Radley Balko noted on Tuesday, the European Union, Japan, and Canada have reached a settlement with the U.S. regarding its protectionist online gambling policy, which treats foreign-based companies that take bets from Americans as criminal organizations while tolerating certain forms of domestic online gambling, such as state lotteries and horse racing. The deal involves trade concessions (which so far have not been publicly specified) but no change in the U.S. stance on gambling. It's likely the other countries that have objected to the American policy—including Antigua and Barbuda, which filed the initial complaint that led to a series of WTO rulings condemning the U.S. for violating its trade commitments by discriminating against overseas gambling companies—also will reach settlements involving trade concessions and/or payments. Rather than let the WTO dispute fizzle out, the Remote Gambling Association (RGA), a U.K.-based trade group that represents the biggest publicly held online gambling companies, today filed a complaint against the U.S. under the the E.U.'s Trade Barriers Regulation. Among other things, the RGA argues that the U.S. government is violating international trade law by suing and prosecuting foreign companies and foreign citizens for their past involvement in online gambling:

The DOJ has repeatedly stated that all forms of online gambling are illegal, yet it continues to enforce this view only in connection with non-US businesses. In October 2006, the US enacted a new law (the "Unlawful Internet Gambling Enforcement Act", or UIGEA) which effectively criminalised online gaming provided by foreign operators while providing exemptions for protected domestic suppliers. The UIGEA forced the largest and publicly listed EU online gambling companies out of the lucrative US market, despite the WTO commitment that the US had made to offer access to its own domestic gambling market. The stock market listed EU companies collectively lost billions in market value overnight when the UIGEA took effect, whilst US online gaming companies and unlisted US-facing companies continued to operate unperturbed....
The RGA has asked the EU to investigate the discriminatory enforcement regime as an illegal barrier to trade for EU businesses.
"How would US investors and businessmen feel if they invested in a business in the United Kingdom based on international law commitments, and then suddenly the U.K. not only passed new laws forcing them to shut down their business, but then tried to throw them in jail for past activities while still allowing their domestic competitors to continue on doing the same thing?" [RGA head Clive] Hawkswood asked. "That's what is happening to our industry in the US," he added.

If the E.U. finds that the RGA complaint has merit, the trade group says, it can "pursue discussions with the US to find an appropriate solution to ending the discrimination." If the negotiations fail, "the EU could later bring a WTO case directly against the US based on these claims."

U.S. Partially Settles Internet Gambling Trade Dispute

rbalko@reason.com (Radley Balko) — Tue, 18 Dec 2007 21:51:00 EST

Unfortunate news:

The United States has reached a deal with the European Union, Japan and Canada to keep its Internet gambling market closed to foreign companies, but is continuing talks with India, Antigua and Barbuda, Macau and Costa Rica, U.S. trade officials said on Monday.
"We are pleased to confirm that the United States has reached agreement ... with Canada, the EU and Japan," Gretchen Hamel, a spokeswoman for the U.S. Trade Representative's office, said in a statement several hours after the EU had announced details of the deal it had reached with Washington.
The decision is a disappointment for European online gambling companies who hoped a case brought by Antigua several years ago at the World Trade Organization gave them a foothold to get back in the U.S. market after being kicked out by Congress last year.
In an April 2005 victory for Antigua, the WTO said a U.S. law allowing only domestic companies to provide horse-race gambling services discriminated against foreign firms.
But rather than open up the U.S. online horse-race gambling market, Congress tightened restrictions on other forms of Internet gambling last year by making it illegal for banks and credit card companies to make payments to online gambling sites.
The Bush administration also announced in May that it was retroactively excluding gambling and betting services from market-opening commitments it made as part of the 1994 world trade agreement, saying that U.S. trade negotiators had made a mistake by not expressly excluding them at the time.

It's too bad Europe, Japan, and Canada caved. Here's hoping little Antigua stays plucky.

A few observations:

First, and most obviously, the U.S. government is so hellbent on policing the online habits of its citizens, it's willing to pay what will likely be tens of billions of dollars of money in trade reparations—taken from same said U.S. citizens in tax receipts—to maintain its dumb ban on consensual online wagering.

Second, the U.S. could have resolved all of this and preserved its precious gambling prohibition by simply making the prohibition uniform. But that wouldn't do. Just as important as the ban on Internet gambling itself were the carve-outs for politically-protected special interest groups. Think state lotteries, or the horse racing industry, which has over the years given generously to the campaigns of people like Kentucky Sen. Mitch McConnell and Virginia Rep. Bob Goodlatte, who decry the immorality of online poker while also supporting carveouts for the ponies. So the tens of billions the U.S. government is paying to settle the trade dispute is not only to preserve the gambling ban, it's to preserve the congressionally-granted monopoly on online wagering for interests with more political clout than poker players.

Finally, U.S. Trade Office flack Gretchen Hamel apparently told Reuters she "isn't going to get into" the terms of the settlement. Pardon? Is the settlement not being paid with public funds? Aren't the people who negotiated the settlement employees of the U.S. government? On what grounds does the U.S. Trade Office feel it's entitled to withhold this information?

New at Reason: Drew Carey Defends Poker

Mon, 03 Dec 2007 12:49:00 EST

Maybe Dallas wouldn't be ranked as the 34th most dangerous city in America if Dallas police weren't devoting precious resources to raiding friendly poker games played by veterans. In his latest video for Reason.tv, Drew Carey examines a paramilitary-style raid on a poker game at the Veterans of Foreign Wars Post 1837 in Dallas, which has now been forced to close its doors.

"Poker is about as American as baseball and apple pie," Carey says in the Reason.tv video. "It was born here in America. Mark Twain loved it. He's a great American. Until recently, Supreme Court justices had a monthly game. They're great Americans. You'd think playing poker in a VFW hall would be about as American as anything you could do."

"This story highlights the hypocrisy that surrounds gambling in this country," said Nick Gillespie, editor of Reason.tv. "States will gladly take your hard-earned money if you want to play the government's lottery. But if you sit down with some veterans to play Texas hold 'em you may end up with cops, in full riot gear, busting down your door. No one gets hurt when consenting adults sit down for a game of cards. And there's no reason for the government to get involved."

The busted poker players have a court date on December 5, 2007.

Watch the video here.

The Addict's Veto

jsullum@reason.com (Jacob Sullum) — Wed, 21 Nov 2007 06:52:00 EST

Annie Duke, who testified at a recent House Judiciary Committee hearing on Internet gambling, is not a typical poker player. A professional for 13 years, she is the biggest female money winner in the history of tournament poker.

Gregory J. Hogan Jr. is not a typical poker player either. As his father, the pastor of the First Baptist Church in Barberton, Ohio, explained at a House Financial Services Committee hearing last summer, "Gregory Jr. is currently in prison for a robbery he committed to feed his online gambling addiction."

While Annie Duke recognizes that most Americans who play poker do it for fun, not for a living, Pastor Hogan tends to overgeneralize from his son's equally extreme experience with the game, which involved losing hundreds of dollars a day while playing 12 hours at a time. Hogan demands an addict's veto over Internet gambling: Because his son robbed a bank, he thinks, no one should be allowed to play poker online.

"I oppose any effort to legalize or even give credibility to Internet gambling," Hogan said. He called last year's passage of the Unlawful Internet Gambling Enforcement Act, which effectively requires American financial institutions to shun transactions related to online wagers, "an answer to my prayers that other families would not have to suffer as my family has."

Hogan's argument is a fine illustration of prohibitionist logic, which says anything that can be done to excess should be illegal. But as Duke noted, "If the government is going to ban every activity that can lead to harmful compulsion, the government is going to have to ban nearly every activity. Shopping, day trading, sex, [eating] chocolate, even drinking water—these and myriad other activities, most of which are part of everyday life, have been linked to harmful compulsions."

According to a survey reported in the October 2006 American Journal of Psychiatry, about 6 percent of shoppers experience "compulsive buying." Data from the federal government indicate that the rate of alcohol abuse or dependence among past-year drinkers is something like 13 percent.

By comparison, a 2007 government-sponsored survey in the U.K., where Internet wagering is legal, found that 6 percent of people who had placed sports bets online and 7.4 percent of people who had placed other kinds of online bets in the previous year qualified as "problem gamblers" based on American Psychiatric Association criteria. That does not mean they were robbing banks; it means they acknowledged at least three of 10 gambling-related problems, such as "chasing losses," "a preoccupation with gambling," "a need to gamble with increasing amounts of money," and "being restless or irritable when trying to stop gambling."

The prevalence of problem gambling among all past-year gamblers (excluding lottery ticket buyers) was 1.3 percent. Does that mean "gambling online is several times more addictive" than other forms of gambling, as Thomas McClusky of the Family Research Council claimed at the House Judiciary Committee hearing?

Not necessarily. It could simply be that people who are inclined to gamble heavily are especially attracted to online gambling. Notably, the overall rate of problem gambling in the U.K. remained unchanged between 1999 and 2007, despite the rise (and legalization) of Internet wagering.

In any case, it's plain that one cannot safely draw any conclusions about the usual experience of online gamblers from the story of the minister's son who robbed a bank to support his poker habit. According to Duke, the average online poker player spends about $10 a week, in exchange for which he has some fun and sharpens his skills.

"For the majority of Americans, playing poker is a hobby," Duke told the House Judiciary Committee. "They should have a right to choose how to spend their discretionary income, whether it be on poker or anything else." They do not expect to become poker champions, and they should not be treated like bank robbers.

Poker Players Demand Tolerance

jsullum@reason.com (Jacob Sullum) — Fri, 16 Nov 2007 13:04:00 EST

It's not often that you hear John Locke and John Stuart Mill mentioned in congressional testimony, but they both show up (along with Jefferson and Madison) in an eloquent plea for tolerance that professional poker player Annie Duke offered during this week's House Judiciary Committee hearing on "Establishing Consistent Enforcement Policies in the Context of Internet Wagers." Testifying on behalf of the Poker Players Alliance, Duke rejected the argument that online gambling must be prohibited to protect children:

Most people who seek to restrict individual freedom invoke protection of children as their motivation. I suspect they find that argument has more resonance than what is often their real motivation—to treat adults like children, and manage their choices for them....I doubt that there is anyone who is opposed to Internet gamijng because of children who wouldn't still be opposed to Internet gaming for adults, even if it could be proven to them that children can be protected.

Duke likewise challenged the claim that no one should be allowed to gamble online because some people gamble too much:

If the government is going to ban every activity that can lead to harmful compulsion, the government is going to have to ban nearly every activity. Shopping, day trading, sex, [eating] chocolate, even drinking water—these and myriad other activities, most of which are part of everyday life, have been linked to harmful compulsions. Are we moving inexorably toward a world where we prohibit online shopping because some people compulsively spend themselves into bankruptcy?...Are we going to ask banking institutions to monitor and regulate our citizens' online shopping behavior to determine when a purchase can or cannot be approved?

That last scenario alludes to federal regulations required by the Unlawful Internet Gambling Enforcement Act (UIGEA). The regulations, unveiled last month and still subject to change, demand that financial institutions adopt "policies and procedures" that are "reasonably designed" to block transactions associated with unlawful Internet gambling. But as Duke notes, the UIGEA does not define unlawful Internet gambling, and federal regulators say "they cannot and will not tell the regulated community what constitutes an unlawful Internet wager." Duke drives home the insanity of this situation:

The posture of the federal government is, "We are going to create a new federal crime, but we will not tell you what it is." In the proposed rule, the regulators explain their refusal to resolve this by saying that to do so would require them to examine the laws of the federal government and all 50 states with respect to every gaming modality, and that this would be unduly burdensome. Yet that is exactly what they are requiring the general counsel of every bank in the country to do.

Even while delving into the UIGEA's bureaucratic details, Duke does not lose sight of the principle at stake:

The issue before this committee is personal freedom—the right of individual Americans to do what they want in the privacy of their homes without the intrusion of the government....Except where one's actions directly and necessarily harm another person's life, liberty, or property, government in America is supposed to leave the citizenry alone.

Unfortunately, this message is somewhat clouded by the PPA argument, which Duke spent considerable time pressing, that poker deserves special legal treatment because it's not really gambling, since chance is not the predominant element of the game. Politically, the PPA's schizophrenia on the question of individual freedom is reflected by its support for both a Barney Frank bill that would legalize online gambling generally and a Robert Wexler bill that applies only to poker and other "games of skill." I have no doubt that poker qualifies as a game of skill, but I question the PPA's willingness to sacrifice principle and split the anti-UIGEA coalition by seeking special protection for a particular kind of online betting.

Here is a PDF of Duke's testimony. Here is my column booing last year's passage of the UIGEA. Here are Radley Balko's comments on the political strength of poker players.