Internet Gaming and Interstate Compacts

In 2006, President George W. Bush signed the Unlawful Internet Gambling Enforcement Act (UIGEA which made internet gambling illegal under the 1961 wire act. Tennessee Republican Senator Bill Frist tacked this nasty piece of legislation onto a must pass port security bill. The move had an immediate effect on publicly traded internet gambling companies. Stock prices fell and wiped out $7 billion. As a response many online gaming companies left the US market. In 2011 the justice department took another look at the wire act and decided that it only applied to online sports betting. This opened the door for states to set up their own internet gaming operations. So far only three states have taken advantage of the decision; Delaware, New Jersey and Nevada. Nevada is limiting online gambling to poker for now but Delaware and New Jersey plan to offer several games including internet bingo.

Some in the gaming industry argue that the nature of the Internet puts gambling in the category of “interstate commerce” and say that only the federal government has the authority to regulate internet gambling. In April 2011 the federal government seized the domains and assets of three popular poker sites. Eleven people were indicted for illegal gambling, money laundering and bank fraud. The seizures were the work of a publicity mad federal prosecutor in New York.  Player accounts were frozen and the funds topped $100 million.

The DOJ hoped to accomplish the following goals. The DOJ wanted to eliminate the temptation of internet gambling for problem gamblers and stop any underage gambling. The DOJ believes that the speed of online transactions made the online gaming industry susceptible to money launderers. The DOJ also believes that since there is no industry regulation games could be rigged. In reality the actions of the DOJ eliminated many reputable gaming sites and forced Americans to patronize unregulated offshore websites. Some Americans are now using bitcoins to avoid US gaming laws. Bitcoin transactions are quick and players can withdraw their winnings immediately. At some banks it can take as long as 12 weeks for transactions to clear.

States that were first to establish online gaming operations will have a great influence on interstate compacts. Some states that have legalized internet gambling have provisions allowing that will allow them to provide gaming services across state lines. Competition between operators will give players price advantages.