Gaming Law "In the News" ...
A Catania Consulting Group Client Newsletter November 16, 2008
Integrity, Leadership, Experience ...
Frank Catania, Esq. President, former Assistant Attorney General, Director NJ Division of Gaming Enforcement, VP Compliance Players International. frank@cataniaconsulting.com
Gary Ehrlich, Esq. VP, former Assistant Attorney General, Deputy Director NJ Division of Gaming Enforcement. gary@cataniaconsulting.com
Keith Furlong, VP, former Public Information Officer & Legislative Liaison NJ Division of Gaming Enforcement. keith@cataniaconsulting.com
Joseph Kelly, Esq., Associate, Professor of Business Law, SUNY College Buffalo. jkelly@cataniaconsulting.com
Bush Administration Dirty Tricks Never Cease
In the aftermath of a historic U.S. election, the Federal Reserve and Treasury released a finalized proposed rule with regard to UIGEA. The regulation was a result of the UIGEA law, which was passed through Congress in the dead of night strategically hidden within a larger Port Security measure.
The push to finalize the proposed rule was criticized in political circles as “midnight rule making,” approving new regulations during the lame duck months after a new president is elected. The proposed rule is also controversial because a new short term Bush administration appointee advocating for finalization of the proposed rule recently left a law firm which represents the National Football League (NFL), possibly the strongest advocate for passage of UIGEA. A recent Washington Post news article (R. Jeffrey Smith, Washington Post, November 12, 2008) confirmed that William Wichterman, who with others at the Covington & Burling law firm earned $2.8 million lobbying for the NFL against Internet gaming and on other matters from 2004 through March, worked on the gambling restrictions in the White House Office of Public Liaison. U.S. Congress House Financial Services Committee Chairman Barney Frank (D – MA) has been especially critical of the last minute pursuit of posting UIGEA regulations and Wichterman’s role. Mr. Frank has sponsored alternative legislation to regulate and tax online gambling.
The effective date of the rule is January 19th, the day before President Obama takes office. However, the date by which banks and payment systems are required to be in compliance is December 1, 2009. Overseas banking institutions are not subject to UIGEA regulations http://www.federalreserve.gov/newsevents/press/bcreg/20081112b.htm
American Gaming Association's Change of Heart With Regard To Legalized Online Gambling
The American Gaming Association (AGA), the U.S. land-based casino industry trade association, lead by Frank Fahrenkopf, recently acknowledged that some of their member companies are interested in exploring future online gambling opportunities. The AGA's board of directors includes representatives of many of the largest U.S. casino companies. In past years, the AGA has been less active on issues related to online gambling legalization and regulation, and some would argue have been an obstacle to efforts to license and regulate online gaming in the U.S.
The change of position occurs as some of the larger U.S. gaming companies have expressed an interest in online poker and other casino style games.
Tough economic times, where gamblers are less likely to spend money traveling to casino destinations, and the success of Harrah's World Series of Poker despite tough conditions within the casino industry, have likely played a role in the AGA's reversal.
Antigua & Barbuda Granted White List Status in the UK
As of November 21, 2008, remote gaming operators licensed in Antigua and Barbuda will be allowed to advertise in the UK. An announcement of the issuance of the white list certification to Antigua and Barbuda was made on November 7 and the Caribbean nation becomes the second non-EU country to receive white list classification. Director of Gaming, Kaye McDonald, stated that her team was proud to have finally achieved the recognition of global leaders, in the regulation of the gaming industry and said the white listing reaffirmed their commitment to adhere to the principles of supervision and oversight of the industry. Catania Gaming Consultants was part of the process having worked with Antigua for several years.
NJ Tropicana Appeal Puts Casino Sale in Limbo
In October, the New Jersey Supreme Court unexpectedly agreed to hear the appeal of the Atlantic City Tropicana Casino from the denial of its casino license by the Casino Control Commission last year. That decision had been upheld by an appeals court, and a Conservator was in the process of attempting to sell the facility. One potential buyer had been the Cordish Company, a Baltimore developer, for $700 million.
On October 30, the Commission extended the sale deadline until January 21, 2009, while a legal battle over the fate of the facility rages on several fronts. The Tropicana parent company has requested that the Commission return control of the casino to it. There may also be involvement by a Delaware Bankruptcy Court, which is handling the overall Tropicana bankruptcy.
Tropicana’s appeal was argued before the Supreme Court on November 17, and no issues were raised that had not been briefed and argued below. The Court reserved decision (as is customary), and it remains uncertain when the Court will issue its decision.
US Department of Justice Nixes Indiana Lottery Privatization
In October,2008,the United States Department of Justice informed the Governor of Indiana that a "lottery privatization" of a state lottery would violate federal law.. The DoJ informed Indiana that a state lottery "must be conducted by the state and only by the state". This will have a chilling effect on states attempting to increase lottery revenue by letting private enterprise manage an intrastate lottery. Professor Joe Kelly of Catania Gaming Consultants said: "States typically pay great heed to legal opinions expressed by the Department of Justice. DoJ opposition forced North Dakota to shelve its plans to set up an interstate poker operation... and federal concerns were also a significant factor behind the recent reluctance of the California state legislature to approve intrastate online poker games."
Federal vs. State Internet Gambling Regulation: Why Not Have Both?
(Full text of article in November 2008 I-Gaming Business by Frank Catania) or http://cataniagaming.com/articles/Federal_v_State.html
As much of the rest of the world has moved toward acceptance and mature regulation of Internet gambling, the United States prohibition has become increasingly self-destructive and indefensible. For that reason, many observers now believe that it is only a matter of time before Internet gambling in some form is legalized in the United States.
If that were to happen, it would immediately raise the question of who would regulate Internet gambling, the federal government or individual States? Until now, it has been uniformly accepted that gambling regulation remains the province of the individual States under the Tenth (“States’ Rights”) Amendment to the United States Constitution. The federal government has never regulated gambling (except on Indian lands), and has only prosecuted offenders of various federal criminal codes.
During the past term of Congress several bills have been introduced regarding Internet gambling, with the most notable sponsor being Representative Barney Frank (D-MA). Rep. Frank introduced H.R. 2046, which if enacted into law, would establish a federal Internet gambling regulatory program. A companion bill, H.R. 2607, sponsored by Representative Jim McDermott (D-WA), would amend the IRS Code to establish licensing requirements and fees for Internet gambling operators. In fact, all the congressional bills introduced, with the exception of H.R. 2140, would create a federal agency to regulate Internet gambling. H.R. 2140, introduced by Representative Shelly Berkley (D-NV), would authorize a study of Internet gambling to provide a proper United States response. Rep. Berkley’s bill had the endorsement of the American Gaming Association, which supports state rather than federal regulation of Internet gambling.
However, Internet gambling is not the same as land-based casino gambling. Until recently, a person who wanted to gamble had to physically travel to a casino facility. Now, with the rapid development of communication technology and the growing popularity of the Internet, gambling has become a borderless activity with no physical constraints. As long as a player has a computer or phone connected to the Internet, he or she can log on from anywhere and play poker or some other form of casino-style game.
Of course, since the player is not present and cannot put his money in a slot machine or down on a card table, Internet gambling requires a means of getting money from the patron to the virtual casino and back again. Such intermediaries are known as “payment processors,” and can be anything from banks and credit card companies to third party cash account depositories. State gaming regulators have little experience with payment processors, since the processors’ activities constitute more of a banking transaction than a gambling transaction. However, federal regulators have a great deal of experience in regulating banking facilities.
My suggestion is that, instead of viewing Internet gambling regulation as an all federal or all state proposition, we resolve the issue by allowing each sovereign to continue to do what is does best. Individual States, which already have experience in regulating gambling activities, should be allowed to regulate Internet gambling to the extent the States that decide to opt into the Internet gambling and regulatory process. The federal government should assume responsibility for the regulation of payment processors.
States could be given three options: regulate; prohibit; or do nothing. If a State decided to regulate, it would adopt regulations it deemed sufficient provide player protections to its citizens. This might vary from state to state. Other states could decide they would rather prohibit than regulate, which would be their right as individual States. Some States might decide to take no action at all, leaving it entirely up to their citizens to decide. A State-licensed Internet gambling site would be allowed to accept players from States in which it was legal or States in which no action had been taken, but not from States in which Internet gambling had been prohibited.
The federal government would enact legislation providing that online gambling was illegal unless licensed and regulated by a State. The legislation would provide a regulatory structure whereby the federal government, through the Department of the Treasury, would regulate the payment processing for the online gambling industry. The payment processing would not only include state-regulated Internet gambling, but also the payment processing for sites located offshore in approved Internet gambling jurisdictions. These offshore sites would have to block play from States in which Internet gambling had been prohibited.
The federal government would receive revenue by charging a small percentage on every payment processed. Based on the worldwide revenues of Internet gambling, this system could bring in annual revenues of millions (even billions) of dollars without adding any substantial additional federal bureaucracy.
Although States would be precluded from imposing any processing fees, they would be allowed to collect income taxes as well as other incidental tax revenues from operators located within their borders. Because of the competition to attract operators, States would have to offer attractive tax rates.
States might also require players within their borders to register for a small fee. This could be collected online, and would assist in preventing underage players from registering, since the State could easily cross-reference each individual with its various data bases such as driver’s licenses.
If everyone interested in establishing an Internet gambling regulatory structure in the United States, state and federal officials, land-based as well as some online operators and software providers, were to sit down and discuss the issues, I am sure a mutually beneficial resolution could be found. However, as long as Internet gambling legalization and regulation continues to be viewed as a “zero sum game” which only one party can win, we will either not see any resolution soon or see a resolution with flaws.
