AMERICA'S BAD BET: HOW THE UNLAWFUL INTERNET GAMBLING ENFORCEMENT ACT OF 2006 WILL HURT THE HOUSE

Fordham Journal of Corporate & Financial Law, 2007 by Shaker, PeterPaul

INTRODUCTION

America's Second Prohibition, centered on online gambling, has met criticism at home for its impractical and hypocritical nature, and earned disdain abroad for its disrespect of World Trade Organization (the "WTO") obligations to equal market access. By preventing American financial institutions from facilitating online wagers, the Unlawful Internet Gambling Enforcement Act of 2006 (the "UIGEA") ushers in an era of greater risk to American online gamblers, many of whom ignore the law and continue to place Internet wagers through less reliable means. Further, the UIGEA continues America's recent attack against online gambling providers-an attack the WTO deems a violation of the General Agreement on Trades and Services ("GATS"), to which the United States is a party. Continued resistance to these WTO obligations could come back to haunt America as the WTO may suspend trademark and copyright protection agreements, opening up a floodgate for worldwide knockoffs of American intellectual property. Congress should repeal the UIGEA, thereby preventing a Second Prohibition and protecting American intellectual property interests.

In 2006, the Internet gambling market was expected to reach $15 billion worldwide, eclipsing the 2005 total of $12 billion,1 half of which came from the pocketbooks and piggy banks of as many as 23 million.2 Internet gambling activity is specifically high in the U.S. market not because of America's greater thirst for action but rather because of America's technological advances which make Internet gaming possible.3 Gambling is a generally accepted pastime in much of the world and enjoys a $260 billion global market.4 Both the Asian and European Internet gambling markets are expected to grow as broadband Internet connects more of their cities and villages to the World Wide Web.5

In October 2006, Congress passed the UIGEA, which seeks to prevent online gambling by criminalizing fund transfers from American financial institutions to gambling websites.6 The global nature of the Internet renders the UIGEA 's aim impractical as bettors sidestep illegal fund transfers by using online third-party vendors, whose activity is beyond the reach of American lawmakers.7 Further, UIGEA conflicts with the United States' WTO commitments, specifically GATS.8

This paper argues that the UIGEA hurts American interests and should be repealed and replaced with laws that monitor and regulate Internet gambling. Part I of this paper focuses on American legislative history of gambling and the United States World Trade Organization obligations. Although individual states are the ultimate arbiters of the types of gambling that may take place within their borders, the federal government has the power to regulate interstate gambling activities. In doing so, however, the federal government must remain cognizant of America's foreign obligations, namely to the World Trade Organization. Part II presents and analyzes relevant UIGEA provisions. The bill's legislative history depicts its shadowy eleventh- hour addition to the overwhelmingly supported Safe Port Act, leaving UIGEA provisions bare and lacking real teeth. Part III looks at the domestic and foreign effects of UIGEA. At home, people are still gambling online but with fewer safeguards and higher risk. Abroad, America is publicly running afoul of its World Trade Organization obligations, an act that could cost the United States a pretty penny.

I. BACKGROUND OF AMERICA'S ATTACK ON INTERNET GAMBLING

A. America Builds its House

States have the right to regulate gambling activities within their borders, while the federal government is allowed to regulate interstate gambling activities.9 Generally, the perception is that gambling is best regulated on the local level, and that the federal government supports the states in enforcing their own laws.10 Currently, forty-eight states and the District of Columbia allow some type of gambling activity, while only Utah and Hawaii restrict all forms.11 The commerce clause allows Congress to regulate all interstate commerce, including interstate gambling.12 Federal gambling laws do not replace state laws, rather they protect them from circumvention in interstate and foreign commerce.13 Congress passed a series of laws meant to restrict gambling activities, including the Wire Act, the Travel Act, and the Illegal Gambling Business Act. M Collectively, these acts are referred to as the federal anti-racketeering laws,15 and they were intended to curb organized crime.16 These laws were not meant to usurp the states' police power over gambling activities;17 rather they were intended to bring organized crime bosses under federal jurisdiction for violating multiple state gambling laws.18

The Department of Justice (the "DOJ") takes the view that these anti-racketeering laws extend to Internet gambling businesses.19 The DOJ relies mainly on the Wire Act,20 which makes it a crime to use a wire communication to engage in the "business of betting or wagering."21 The Wire Act does not criminalize the act of gambling, only the business of gambling.22 The DOJ contends that although the Wire Act and related anti-racketeering laws predate the advent of the Internet, the Internet falls reasonably within the statute's wording.23