pittsburghlive.com
When a television poker tournament caught his attention, Jim Biss
logged onto the Internet and found a site that offered free poker
games.
Three months later, he was playing for money.
"It's completely different when you play for real money," said Biss, a
38-year-old Latrobe salesman. "I don't gamble to make money, I just
gamble because it's fun."
Internet gambling is licensed in more than 80 nations outside the United States but predominately caters to Americans.
This year alone, Americans will lose more than $7.2 billion online,
nearly half of the total $15 billion in lost wagers with some 300
companies that operate about 2,100 sites, according to Sebastian
Sinclair, a researcher who studies gambling trends for the New York
consulting firm Christiansen Capital Advisers.
If the current growth continues, industry watchers predict Internet gambling revenues will reach more than $24 billion by 2010.
This weekend alone, experts predict more than $100 million will be
wagered over the internet on National Football League playoff games.
The Super Bowl could generate up to $400 million in bets.
The Steelers-Bengals game drew the most betting action last week,
according to officials from several Internet gambling companies.
Bodog.com, a leading off-shore Internet casino, reported taking in
about $3.5 million in wagers on the game and expects to get about $4
million in bets for today's game against the Indianapolis Colts. BoDog
is one of about 200 Internet sites taking wagers on the game.
U.S. Justice Department officials insist that online gambling is
illegal and that those who take the online bets are violating federal
laws here. However, they concede that the operators are not breaking
laws in the nations where they run their casinos and that bettors are
not subject to those laws, according to Laura Parsky, deputy attorney
general with the U.S. Justice Department.
So far the Justice Department has had just one successful criminal prosecution of a high-profile Internet gambling case.
Government officials insist there are sufficient laws -- some more than
a half-century old -- already in place that make Internet gambling
illegal.
The 1961 Wire Act prohibits wagers from being taken over telephone
lines. The Travel Act of 1952 outlaws distribution of proceeds from an
unlawful activity across state lines or international borders, while
the Illegal Gambling Business Act of 1955 says it's a crime if five
people engage in criminal behavior during a 30-day period and generate
more than $2,000 in a single day.
In 1998, the federal government used the Wire Act to get the first and
only major Internet gambling conviction in this country in a case
against Jay Cohen, a California businessman who operated a licensed
off-shore casino in the Caribbean island of Antigua.
Cohen and several friends set up shop there in 1997 and established the
World Sports Exchange, an Internet-based casino that took bets on
professional and college sports in the United States. A year later, the
government charged Cohen with violating the Wire Act. He voluntarily
returned to the U.S. to fight the charges, contending that federal laws
didn't apply to his offshore casino because it was licensed and
regulated in Antigua.
Cohen was convicted in February 2000 and lost subsequent appeals. He
served a 17-month federal sentence before he was paroled to a Las Vegas
halfway house.
Nevertheless, it is still unclear whether the Wire Act can be used to prosecute all forms of online betting.
Four years ago, a Louisiana court ruled against the federal government
in its attempt to shut down an online casino after finding the Wire Act
applied solely to sports wagering. Although the government lost on
appeal to the Fifth Circuit Court of Appeals, authorities say they'll
continue efforts to prosecute Internet gambling cases.
"We're always looking atenforcing criminal actions that are on the
books. Our strategy is high-profile prosecutions, education and
forfeiture actions," Parsky said.
So what does this all mean to the gambler sitting at a home computer
with a few bucks riding on the outcome of a sports event or a hand of
cards?
Nothing.
It's up the states and local governments to enforce local anti-gambling rules, according to the justice department.
For Adam Davis, 23, of Greensburg, the Internet is a gateway to
gambling when he can't get to a casino. The professional poker player
said he earns about 30 percent of his income from online games.
"It's just the ease of use," Davis said. He plays several times a week
on the Internet and participates in small-stakes games that he can "buy
in" to for anywhere from $25 to more than $4,000.
"You don't have to go to the casinos. Right now it's legal because
everything is offshore. If it's made illegal, then I'll have to look at
it more and move to either Las Vegas or Atlantic City," Davis said.
Millions of people like Davis gamble daily on the Internet with little
fear of prosecution. Some state governments have tried to clamp down on
Internet gambling, but so far only a few have passed laws banning the
activity.
Frank Frahrenkopf, president of the American Gaming Association, which
represents land-based casinos, said state initiatives to prohibit
Internet gambling are about a decade old.
"Efforts to legislate Internet gambling started 10 years ago when the
National Association of State Attorneys General met in St. Louis and
became concerned people in their states were sitting at home, logging
on and were gambling over the Internet," Frahrenkopf said. "They
realized they couldn't do anything about it."
Frahrenkopf conceded that efforts to prohibit Internet gambling by the
federal government appears at odds with the 10th Amendment of the U.S.
Constitution, which says that all powers not expressly given to the
federal government lie with the states.
"Every state is different," Frahrenkopf said.
Only two states -- Utah and Hawaii -- have no forms of legalized
gambling. Four states -- Illinois, Michigan, Indiana and South Dakota
-- prohibit all forms of Internet gambling. Three others -- Nevada,
Louisiana and Oregon -- prohibit most forms of Internet gambling but
allow some online betting, such as for horse racing.
In Pennsylvania, a bill to prohibit online gambling introduced in 2003
by state Rep. Paul Clymer, of Bucks County, died in committee. Clymer,
a Republican, said he would again seek to ban Internet gambling.
"It just reinforces the concept that there is an easy way to make money. It's fool's gold they are looking at," Clymer said.
Without any formal legislation, Pennsylvania prosecutors are limited to
state law that addresses illegal gambling, such as unlicensed video
poker machines and sports wagering, but does not specifically make
Internet gambling against the law. The state Attorney General's Office
has not made Internet gambling a priority.
"We have a gambling statute, so the tool exists, but we haven't found
to date a Pennsylvania-based operation," said Nils Frederiksen,
spokesman for Attorney General Tom Corbett. "Our focus would be on the
organizers."
Jurisdiction, the biggest obstacle for the justice department, also is
the biggest life raft held by Internet gambling operators.
One of the largest Internet gambling companies in the world is
Sportingbet.com, based in the United Kingdom with operating licenses in
England and Antigua. Nigel Payne, chief operating officer, insists the
U.S. government has no legal recourse to stop his company from offering
online wagering to American citizens.
"I'm not in the U.S. The transactions are not in the U.S," Payne said.
Payne called U.S. policy on Internet gambling hypocritical for allowing
certain other types of gambling, such as state-sponsored lotteries,
land-based casinos, slot machine parlors and horse racing, which in
some states accepts bets on-line.
"Here's what the rest of the world sees: the fact that America is the
largest gambling nation. Americans can't stand up and say they don't
like the idea of gambling. Everything the U.S. is doing is utterly
inconsistent with what Americans are doing," Payne said.
Last year, the World Trade Organization ruled the U.S. policy with
regard to online betting was illegal under international trade
agreements because it discriminates against businesses in foreign
locales. Nevertheless, the U.S. government cast the ruling in a
positive light, saying it means the United States has the authority to
institute prohibitions on Internet gambling.
Since 1994, there have been unsuccessful efforts in Congress to pass
laws that prohibit Internet gambling. Most recently, last Sept. 15, a
proposal to prohibit online gambling was defeated when the U.S. Senate
voted down an amendment to an appropriations bill, pitched by Sen. John
Kyl, an Arizona Republican, that would restrict the manner by which
Internet gambling debts would be paid. Kyl has vowed to continue his
efforts to ban online betting.
Rep. Jim Leach, an Iowa Republican, on Nov. 18 introduced in the House
a bill identical to Kyl's failed effort. That bill now sits in the
House Committee on Financial Services.
Overall, Internet gambling proponents are not opposed to regulation.
Keith Furlong, deputy director for the Interactive Gaming Council, a
trade group that represents on-line casino operators, said regulation
could help the industry.
"We feel the government should be proactive and look for ways to
regulate the industry. The government is preventing most responsible
gaming companies in the U.S. from participating in the business. I
don't believe most members of Congress know how much money is
involved," Furlong said.
The question of how much money involved is still a guess. Sinclair said
the amount of money wagered on the Internet can only be estimated, and
the amount won by Americans is unknown and untaxed.
According to the IRS, all gambling winnings must be declared as revenue
and losses can be deducted as long as the amount does not exceed the
person's winnings.
Legal, land-based casinos in the United States are required to withhold
taxes on major winnings and file reports with the IRS in those cases.
Minor winnings are not reported by casinos. Those winnings must be
declared in annual filings as income, according to David Stewart,
spokesman for the IRS office in Philadelphia.
In 2003, 1.5 million tax returns reported more than $19 million in
legal gambling winnings to the IRS. There is no way to know just how
much of the $350 billion annual revenue gap can be attributed to
underreported income from Internet gambling winnings, Stewart said.
BoDog sees regulation as a means toward legitimization and to ensure
the United States sees some tax revenue from what is now an untapped
source.
"At some point our brand will be strong enough to compete with U.S.
land-based casinos. We're a feeder system for the land-based casinos,
said BoDog founder and Chief Executive Officer Calvin Ayre. "I don't
believe passing a law in the U.S. will stop it. Passing a law that is
unenforceable is good for us. The genie is out of the box."
