The United States finally began requiring financial institutions to block online gambling transactions last month, just as the latest attempt to legalize such betting started moving in the House of Representatives.
We can look forward to a renewed battle over online gaming, this time taking place with governments especially desperate for alternative revenues.
The Federal Deposit Insurance Corp. sent a letter to all banks on June 30, advising them it was time at last to enforce the Unlawful Internet Gambling Enforcement Act of 2006.
The exceedingly long delay shows how divided Congress was – and remains – on banning online gambling.
The act prohibits gambling businesses from accepting payments from U.S. online gamblers.
More importantly – except for an occasional online-gaming exec caught while visiting the U.S. – the act requires banks and other financial institutions to block such payments.
All normal payment systems are covered: automated clearing houses, card systems, check-collection systems, money transmitters and wire-transfer systems.
With so much advance notice, the banks were quite prepared.
“There may have been a burden initially, but we’re hearing from members that they’ve dealt with it and are ready with what they need to handle it,” James R. Silkensen, co-president of the New Jersey Bankers Association, said Tuesday.
Silkensen described the oversight and reporting requirements under the act as not onerous, just “one more thing they have to worry about.”
“They’ll need a little more due diligence when they get new customers,” he said.
At the same time, bankers are watching a bill in the House to legalize online gambling and wondering how long before the regulations change again, he said.
On Wednesday, the House Committee on Financial Services approved legislation introduced by its chairman, Rep. Barney Frank, D-Mass., that would legalize and regulate U.S. online gaming.
If passed, the measure might open the door for an effort led by state Sen. Raymond J. Lesniak, D-Union, to legalize and regulate Internet sports betting in New Jersey. Lesniak has held back his bill until the state’s plan to reform its gaming, sports and horse racing industries is clearer.
The nation is increasingly in the minority with its ban on Internet gambling.
Britain allows it, regulates it including requiring a license, and taxes it. Italy started licensing online gaming in the spring and France is expected to begin limited legalization and regulation soon.
Nonetheless, U.S. gamblers have the largest share of online wagering with 17 percent, the consultancy H2 Gambling Capital says. The Japanese are second with 14 percent, followed by the British with 11 percent.
Online gambling was just 8 percent of the global gambling market in 2009, with revenue of $26 billion, H2 estimated. But that is expected to increase to $36 billion by 2012.
An online gambling advocate, the Safe and Secure Internet Gambling Initiative, has estimated legalization and taxation would give federal and state governments “as much as $72 billion in new revenues over 10 years.” An analysis by the congressional Joint Committee on Taxation has produced a more modest estimate of up to $42 billion in the first decade.
The trend toward legal online gambling and the potential for tax revenue in a time of revenue shortfalls will strengthen the hand of legalization supporters.
Harvey Perkins, executive vice president of Spectrum Gaming Group in Linwood, said this week, “We feel at Spectrum that due to the deficit situation of our country, we may not be able to afford being the odd man out on legalization in the foreseeable future.”
Perkins said basic details of online gaming regulation need to be worked out, such as verifying players (and that they’re adults), specifying how gambling accounts are funded and whether cash transactions of more than $10,000 are reportable, and ensuring that the games are fair and regulated.
He said gaming companies are preparing to enter the online gaming business and may be beaten to it by a longtime competitor: tribal casinos.
“We feel there may be an opportunity to perhaps have some tribal sovereign nations, because of their unique status, explore Internet-based gaming,” Perkins said. “They could potentially come to market faster than other variations despite the current federal law.”
Change in the federal prohibition of online gaming is by no means certain.
Congressional opposition is strong and entrenched, driven in part by concerns that preventing criminal infiltration would be especially difficult.
Public support for legalization is weak as well.
A poll this year by Fairleigh Dickinson Public Mind found that two-thirds of Americans “oppose changing the law to permit people to place bets over the Internet.”
Given the public opposition, the technical challenges and the lure of a big pot of taxes, the renewed battle over legalization of U.S. online gaming is sure to provide an interesting spectacle this year.