Wednesday, March 29, 2006

Presentation by Scott W.: US stance on internet gambling and the problem of money laundering

Many foreign nations view gambling as a legitimate form of business and have therefore erected no barriers to the formation of websites which provide residents the chance to gamble for profit. As a result, many US residents have been able to access and bet on these offshore sites. Internet gambling has furthermore become a multi-billion dollar industry over the last decade. Due mainly to low start-up costs, high profit margins, few barriers to entry, and limited direct competition, it is likely more and more internet gambling sites will emerge.
Although there is no federal statute which directly addresses wagering on the internet, US v. Cohen established internet wagering as a wire communication. US v. Cohen, 260 F.3d 68 (S.D.N.Y. 1998). The Interstate Wire Act has been used as a federal platform upon which to prosecute internet gambling site providers. The language of the Act sets forth the following conditions: any business (1) engaged in the business of betting, who (2) knowingly use a wire communication facility to transmit bets, to (3) transmit bets in interstate commerce, as long as (4) one of the two parties (bettor or receiver of the bet) receive either money or credit from the outcome of the bet. 18 USC 1084. Furthermore, individual states have asserted jurisdiction over site operators, for example, in New York, the State Supreme Court found that a resident placing a bet on website had created a virtual casino, and thus, brought the casino operator within the jurisdiction of the State. The site’s operator had thereby violated Article 1 §9(1) of the New York Constitution. People v. World Interactive Gaming Corp., 185 Misc. 2d 852.
Last year, the WTO ruled in favor of Antigua (small island state in the Caribbean) against the United States for discriminatory treatment between foreign and local operators of horse betting. This was the fourth ruling on approximately this same complaint since 2003. The US has until April 3, 2006 to pass legislation which complies with the WTO’s ruling. Currently, the only bills on this subject appear to have a purpose contrary to the WTO ruling; essentially, they attempt to further restrict any form of gambling over the internet.
Due to the large amount of money being transmitted to and from these unregistered foreign websites, tracking funds is essentially impossible. Although most instances of money laundering occur through the formation of the internet casino, there are additional alternative ways to launder funds. As a result, money laundering has become too easy for sophisticated criminals through these sites. Money laundering is the act of making illegitimate cash into legitimate funds through hiding the cash’s origin. This is done in a three step process, (1) the placement stage, (2) the layering stage, and (3) the integration stage. Money laundering can be extremely complicated because the objective is to create a “paper trail.” This can be easily done for originators of online casinos as well as by gamblers who do not use certain methods to establish their account.
My proposal goes something like this…I think internet gambling should be legalized and regulated in the United States. I believe there should be federal licensing fees required for internet gambling sites who offer games of chance to US residents. Coupled with licensing fees, the federal government should require ISPs to prevent US gamblers to have access to unlicensed internet casinos. In conjunction, these two laws would greatly complicate, if not entirely bar, money launders from effectively laundering large amounts of cash. This would also protect US citizens from fraudulent websites, and bring in considerable revenue to the government.
I would like to hear the class’s input on whether these changes could effectively reduce the problems of money laundering today’s internet casinos produce.


Blogger duffee said...

On the macro scale, isn't legalization of gambling a bad idea in that resources are not put to their most beneficial use? One could imagine that compulsive gambling would lead the rest of society to bear the costs--bankruptcies, increased social welfare benefits for families which have a compulsive gambler, lost productivity, etc. Although these problems will always exist, won't further proliferation and access to gambling only cause these problems to escalate. I think it's hard to argue that legalization is an appropriate response just because lots of people are already doing it.

1:45 PM  
Blogger DSomogy said...

Possible criticisms of government regulated gambling would likely parallel those against government regulated drug use. Yes, the market is big and so a government piece of the pie would be nice (like alcohol, tobacco, gasoline) but is this something we want in light of attendant costs (see duffee above)? Bringing it under government regulation has its advantages, but what would the administrative cost of the regulation be? Would it create another bloated bureaucracy whose expertise is dog tracks and the like?

1:56 PM  
Blogger seongyoune said...

You might have mentioned this in your presentation but what reasons do you suggest for believing that once Internet gambling is legalized in the U.S., the people who would otherwise launder money overseas will adopt the U.S. version of running Internet gambling and make themselves subject to regulation in the U.S.? My guess is that without some substantial benefit from doing so there aren't many incentives for these people to suddenly start running their money laundering businesses from the U.S. In other words, I doubt whether money laundering will be curtailed by legalizing Internet gambling in the U.S. But you could answer my doubts if you can suggest some substantial benefits from running Internet gambling in the U.S.

2:00 PM  
Blogger kkoehler4070 said...

I know that this isn't the way the United States operates, but would it be possible to take an international approach to this problem. Perhaps, negotiating a treaty with the other nations would satisfy your goals. The treaty could make sure that money laundering doesn't happen and also make sure each of the countries receive the portion of proceeds they are entitled to.

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