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Despite D.C. Legalization of Online Poker, Players Leave USA

by Michelle Minton on August 30, 2011

in Agenda for Congress, Deregulate to Stimulate, Nanny State, Personal Liberty

Post image for Despite D.C. Legalization of Online Poker, Players Leave USA

It is perhaps a little ironic that the most vocal opponents of online poker will soon be the only people in the USA who can legally play online poker. The District of Columbia is moving forward with its plans to run the pilot program, which will allow 20 to 30 places around D.C. to offer online poker within the next week or so, despite the claims of corruption during the initial phases when the plans were pushed through the legislative process. If all goes well, the virtual poker rooms will open their doors to anyone (of age) in the District by the end of the year.

The planned system in D.C. has a lot of problems from a free market standpoint. For one, a monopoly system of government run poker room eliminates competition and the benefits that come from that. In the pre-UIGEA, pre-Black Friday era of online poker, players would quickly realize if a poker website had unfair odds, shady practices, or something as simple as bad customer service and they could and did move on to other poker rooms on the Internet. There would not be such an option for D.C. online gamblers.

Even with its problems, the D.C. online poker system would set the District on a path toward legalized online gambling. Unfortunately for poker players in the rest of the United States, they are left with a choice of either driving to the brick-and-mortar casino or moving to another country.

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New Bill Would Tax Online Gambling

by Michelle Minton on June 21, 2011

in Deregulate to Stimulate, Economy, Nanny State, Personal Liberty

Yet another online gambling bill to add to the pile, Rep. Jim McDermott introduced the igaming taxation and regulation bill that he unsuccessfully introduced in 2009. While McDermott’s bill wouldn’t legalize online gambling, it is companion legislation to the bill HR 1174 introduced earlier this year by Reps. John Campbell and Barney Frank, which would legalize and regulate online wagering.

This time around, The Internet Gambling Regulation and Tax Enforcement Act, (HR 2230), which was introduced today by Reps. Jim McDermott, John Campbell, and Barney Frank, would require gambling platforms to report to the federal government on players’ financial activities and withhold a 2 percent federal tax on deposits received each month. The bill gives states the option to tax the sites an additional 6 percent on deposits. Both of these taxes would be paid by the websites and would not be paid by players.

A report from H2 Gambling Capital, released after McDermott introduced his first online gambling tax bill, looked at online wagering over a five-year period. According to the report, legalized online gambling could create 32,000 jobs, $94 billion in economic activity, and an additional $57.5 billion in tax revenue.

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Freakonomics Author Steve Levitt on Internet Poker

by Brian McGraw on May 16, 2011

in Features, Nanny State, Personal Liberty

Post image for Freakonomics Author Steve Levitt on Internet Poker

Steve Levitt, author of the well known pop-economics book Freakonomics, has a recent post explaining his opposition to the crackdown on Internet gambling. The whole post is worth reading, but here is a shortened summary of his arguments:

1) Prohibitions that focus on punishing suppliers are largely ineffective. Prohibition of internet poker is no exception.

2) Relative to the consumer surplus generated by online poker, the externalities caused are small. Government interventions should focus on cases where the opposite is true

3) From a moral perspective, it is inconsistent for the government to condone and profit from gambling on the one hand, while criminalizing private providers of Internet poker on the other.

4) Even under the government’s own laws, it would seem that there is little question that online poker should be legal.

Levitt notes that he also recently completed a paper intending to explore the skill v.s. luck argument as it relates to poker. Levitt gathered data from a sample (n=57) of poker tournaments and compared the average ROI for players that had been considered “skilled” based on data from previous years with data from the rest of the field (i.e., unknown players). Levitt found that on average the “skilled” players earned an ROI of positive 30 percent, while the unskilled earned an ROI of negative thirty percent.

(ROI represents the average return on an “investment.” In this case ROI is referring to the average amount of money a poker player wins as a percent of his/her investment, investment equaling the total sum spent in tournament entry fees. So if a player enters 10 tournaments at $100 each, and wins a total of $1500, his/her ROI would equal 50 percent, as the player wagered or “invested” $1000 to earn the $1500.)

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Online Poker is Not Illegal: U.S. Courts

by Michelle Minton on December 17, 2010

in International, Legal, Tech & Telecom

U.S. District Judge Jed Rakoff of New York sentenced convicted felon Anurag Dikshit, the co-founder of PartyGaming.com, to a meager year of probation and indicated his skepticism about the legal basis for Dikshit’s prosecution. The action follows a string of court cases that paves a legal precedent for the presumption that online gambling is in fact not illegal under any United States federal laws.

Once upon a time, Anurag Dikshit was the wealthiest man in Gibraltar. At 26 years old, he was asked by the founder of PartyGaming to write the program that would allow people worldwide to compete against one another in online games of poker.  In 2006, he was ranked as the 207th richest man in the world by Forbes magazine (by 2009, he was ranked at 701). But it all came crashing down in 2008 when the U.S. Department of Justice began prosecuting operators of online casinos that accepted wagers from American citizens.

In an attempt to buy leniency from the U.S. agency, Dikshit turned himself in, pleaded guilty to the charged of illegal Internet betting, and paid a fine of $300 million to the U.S. authorities. Dikshit’s actions angered many supporters of legal online gambling in the U.S., who have insisted for years that no federal laws prohibit citizens from engaging in online poker.

After several years’ delay, Dikshit finally received his incredibly lenient sentence, which included no jail time (he could have received up to two years in prison). The leniency did not seem to come as a result of Dikshit’s cooperation with U.S. authorities, but rather Judge Rakoff’s question of whether or not the man should have been prosecuted in the first place. According to observers, the hearing highlighted the extreme confusion of how U.S. law applies to online poker.

Judge Rakoff questioned why only Dikshit had been prosecuted, despite his cooperation and the known fact that PartyGaming’s other founders and current shareholders, Russ DeLeon and his wife Ruth Parasol, are currently living in Europe.

“Nobody else has been indicted,” said Judge Rakoff. “It has been two years since this defendant began cooperating, what’s going on?”

The lenient sentence adds to the building legal precedent in the United States that seems to exempt online poker from any of the possible laws banning online wagering. First there was the question of whether or not the 1961 Wire Act applied to online gambling, which U.S. judges and a U.S. district attorney suggested that it does not, as well as whether or not poker is a game of skill, which would exempt the activity from the Unlawful Internet Gambling Enforcement Act (UIGEA). Several cases have been decided in the last two years that set the precedent to consider poker as a game of skill.

Not Wright for Internet Gambling

by Michelle Minton on September 28, 2010 · 1 comment

in Legal, Nanny State, Personal Liberty

Some Net gamblers are lamenting the indictment of California State Senator Roderick Wright (D-Inglewood) who was indicted by a grand jury for alleged voter fraud. Wright is seen as a proponent of online gambling in California because of the bill he introduced earlier this year which would legalize online gambling in a limited form in California. If convicted of voter fraud, the chances of his bill passing are slim to none. Perhaps online gamblers in California shouldn’t be too upset.

As I wrote in June, Wright’s plans for bringing Internet gambling to California aren’t exactly ideal…to put it mildly. Actually, what I said was that Wright’s SB 1485, while apparently legalizing some online gambling, would actually have the effect of criminalizing all forms of Internet gambling except for the three state-authorized online casinos.

Sen. Rod Wright introduced SB 1485, a bill that supposedly legalizes Internet gambling for residents. What it would actually do is legalize gambling only at the three online platforms and criminalize Internet poker played anywhere else online. Currently, there are no federal laws that make online poker games a crime and the DOJ has never prosecuted individual players associated with the activity. California makes 11 names games illegal to play online, but poker is not one of them. Thus, in CA, poker is not consider an unlawful Internet gambling activity at the moment. But if a law is passed that sanctions only three online providers, chosen by the state, as SB 1485 does, then playing poker online anywhere else will be a crime. The state’s DOJ will be allowed to arrest any individual caught playing poker online at a non-sanctioned site.

Currently, California law makes 11 named games illegal to play online or any game where the operator takes a rake (a cut of the money won in each hand). Thus, online poker in the state is legal at the moment.

While some might argue that legalizing online gambling in this less than desirable form is still a step in the right direction, but is it? If Net gambling was banned throughout the United States, including California, then perhaps it would be a step forward. But as U.S. law and California law currently exist, Internet gambling is not illegal. There are currently 11 named games illegal online in California; poker is not one of those named games, thus it is technically legal in the state.

The supposed purpose of Wright’s bill is bring online gambling out of the black market, earn tax revenue for the state, and to protect consumers. While amendments will be considered, as it is now — restricted to the max — the bill won’t accomplish any of its goals.

1. It won’t add protections for consumers:

The text of the bill itself notes that millions of Californians gamble online for money. Criminalizing all but three sites will not stop players from visiting the platforms they know and like. Those online gamblers will have no protections because they will be breaking California law.

2. It pushes online gambling into the shadows:

As mentioned above, players will continue to frequent unsanctioned gambling sites, only they’ll now be criminals. If Senator Wright and any other politician talking about Internet gambling really wants to protect players, they should let all sites be legal — allowing players recourse if they’re ripped off. If, however, the state wishes to put its seal of approval on any of the platforms, that might make some new gamblers feel more comfortable about playing at those designated sites.

Whether Wright is found guilty or not, his proposal ought to be mucked.

Such limited legalization is an all around bad bet.

California poker players: 1 – Free market opponents: 0

by Michelle Minton on July 1, 2010 · 2 comments

in Culture, Legal, Nanny State, Personal Liberty, Privacy, Tech & Telecom, Trade

As I wrote yesterday, California was on the verge of passing a bill that would have allowed residents to play poker online at one of three state-authorized sites, but that would have also have made criminals out of residents who chose to play at any other site online.
The bill was withdrawn by Sen. Wright, supposedly due to pressure from pressure on all sides:

…with the Morongo Band of Mission Indians, the California card rooms that initially endorsed online poker, and three of California’s political lobbying associations for tribes pitted against the legislation — as well as anti-gambling groups and the visible absence of key players — the legislation as written was a long shot.

I'm going to get as much mileage off of this picture as I can

The Poker Players Alliance (PPA) also opposed the bill due to the criminalization of playing online anywhere but the three hubs chosen by the California department of Justice, in addition to the effect it would have on competition:

“[This bill] will not attract the best qualified and most experienced hub operators… the measure imposes a variety of operational financial barriers and preferences that will discourage or bar non-traditional telecommunications, software, and out-of-state gaming companies from applying as hub operators or subcontractors…Rather than leveraging proven Internet gaming models with recognizable brands and sizable player bases, this bill sets out to ‘reinvent the wheel’ and assumes that California players will readily migrate to unfamiliar new sites.”

The PPA supports federal legislation that overturn the UIGEA and legislation that would create a new framework to license, regulate, and tax Internet gambling.

In any case, the most beneficial action to take (apart from abolishing all laws regulating gambling and involuntary taxes) would be to overturn UIGEA and have online casinos and players fall under existing tax law.

CA to criminalize Internet poker?

by Michelle Minton on June 29, 2010 · 9 comments

in Nanny State, Odds & Ends, Personal Liberty

That is, unless you play at one of the three state-sanctioned “hubs”.

Much like other proposals to “legalize” online poker and other Internet gambling activities, proposals to legalize on a limited basis such as the proposed SB 1485 in California, seem like a step forward to online poker players who, for many years, have wagered money on the Internet in a legal gray area.  But sometimes it is better to be uncertain of your legal standing than to know that an activity you enjoy has become a criminal offense.

After the UIGEA was passed in 2006, as I have written about in the past, it was thought that online gambling would soon be officially criminalized. But when the final rule came down and the implementation date arrived (the day when all banks and credit processing companies needed to abide by the new rules), poker players realized that not much had changed in their experience of online play.

However, during the interim between UIGEA’s passage and the implementation of it’s watered-down version, a few legislators initiated bills to legalize certain online gambling activities, both federally and locally in their home states.

sen-rod-wright

Making news these days is California’s latest attempt, initiated by Sen. Rod Wright introduced SB 1485, a bill that supposedly legalizes Internet gambling for residents. What it would actually do is legalize gambling only at the three online platforms and criminalize Internet poker played anywhere else online. Currently, there are no federal laws that make online poker games a crime and the DOJ has never prosecuted individual players associated with the activity. California makes 11 names games illegal to play online, but poker is not one of them. Thus, in CA, poker is not consider an unlawful Internet gambling activity at the moment. But if a law is passed that sanctions only three online providers, chosen by the state, as SB 1485 does, then playing poker online anywhere else will be a crime. The state’s DOJ will be allowed to arrest any individual caught playing poker online at a non-sanctioned site.

Currently, California law makes 11 named games illegal to play online or any game where the operator takes a rake (a cut of the money won in each hand). Thus, online poker in the state is legal at the moment.

This type of restricted legalization is, not only offensive to defenders of individual rights, open markets, or personal privacy, but also it just will not work or do what Wright and proponents hope it will.

1. First, it will not add protections for consumers because gamblers will continue to operate at non-sanctioned sites:

The text of the proposed regulations recognize that “millions of Californians” gamble at online casinos for money. Once there are a handful of state-sanctioned casinos, Californians will continue to play at the online sites that they are familiar with or that court their business.

2. It pushes gambling further into the shadows

If the Senator is concerned about these millions of gambling Californians, he should be aware that criminalizing their chosen activity will not accomplish this goal. Rather, it simply pushes them further into the shadows. Any player who is defrauded or robbed in an online game might be too afraid to speak with authorities, lest he be charged with the misdemeanor offense of playing a game online.

3. There is no way to prevent people from continuing to gamble at the online sites they want to.

Much like UIGEA before it, this type of limited access is impossible without some other major intrusion on personal privacy (such as monitoring a person’s computer activity). Online casinos in other states or other countries will continue to serve Californians.

4. The flow of money into the state’s coffers will not increase.

Sure, criminalizing an activity adults engage in freely and that violates no other person’s rights is massive breach of regulatory authority, but it won’t even increase tax revenue for California. The gamblers who play online now will continue to play unlawfully, and have greater incentive not to report income earned online. Add in the cost of enforcement and licensing the three sanctioned hubs and the final tally may end up costing Californians more money than it brings in.

With the state’s massive deficit, the promise of millions in new revenue might convince others that this is a good idea. My advice, as it often is when it comes to the Golden State, is that gamblers or anyone else who likes to make decisions about their own life, might consider moving to Nevada.

A hearing of the proposal is scheduled today at 3:30pm PST

Choosing individual liberty is no gamble.

by Michelle Minton on June 16, 2010

in Legal, Nanny State, Odds & Ends, Personal Liberty, Tech & Telecom

On June 1st the Oregonian published an opinion piece by the editorial staff, titled “Legalization would be a gamble, too”

The basis for the editorial board’s logic as well as some of the facts cited in the article are questionable, if not downright incorrect.  The main argument the editors make is that legality of an activity should be based, not on the constitution, free will of man, or other such concepts, but rather “public” perception of the activity; if the general public finds distasteful an activity that a minority enjoys it is perfectly fine to prohibit the activity.

We still aren’t convinced that what this country needs is more legalized gambling…There are still too many unanswered questions and unknown social impacts with legalizing online betting.

Basing the law on such a tenuous foundation is only a good bet if you plan to always be in the majority, otherwise the editors at the Oregonian might one day find their favorite activities have been prohibited, say for example, off-the cuff opinion articles that haven’t been fact-checked?

According to the article:

Like alcohol during Prohibition, Internet gambling is rampant even though it is banned in the United States. Thousands of online gambling sites are available to anyone anywhere with Internet access. All of them are based in other countries outside the reach of U.S. laws and law enforcement.

Internet gambling has never been banned in the US. Though no law makes it legal, no federal law criminalizes the activity. The state of Oregon does have laws governing Internet gambling that say, “Anyone engaged in Internet gambling may not knowingly accept a credit payment from another engaged in “unlawful gambling using the Internet,” but that makes the law dependent on a definition for what constitutes unlawful gambling. Since Oregon has no other laws regulating online gambling the law is not yet in effect.

Another error committed by the article is the description of “unregulated Internet gambling”

…legalizing online gambling could provide billions of federal tax dollars every year and serve to clean up some of the dark, unregulated alleyways of Internet gambling, where identity theft, sleazy financial practices and underage players are common.

While it’s true that the US hasn’t regulated the activity, most Internet casinos are regulated by the country they’re based in and the rare instances of crime occurred in regulated casinos. Laws won’t stop criminals, but criminalizing players creates victims without recourse.

A new federal law aimed at quashing Internet gambling by requiring banks to block suspected online gaming transactions took effect Tuesday. The restrictions may have some short-term impact on the Internet gambling industry, but players will get credit cards from overseas and find other ways around the law.

But if it isn’t possible to stamp out or even slow Internet gambling, does that mean the federal government should license it, tax it and profit from it?

oregonian-editorial-board1The issues isn’t about money. It is about whether or not it’s government’s role to criminalize an activity adults willingly choose to participate in and the answer is a resounding: No.

Yes, millions of Americans already are gambling on the Internet. But does anyone know whether legalization of the most accessible, convenient gambling opportunity ever invented — available with a few clicks of a mouse wherever there’s Internet access — would greatly increase gambling activity and problems associated with gambling?

So, if this is clearly an activity that “millions of Americans” want to engage in, what gives the state government, the feds, or the editors at the Oregonian the right to prevent consenting adults from playing games online with their own money?

While we don’t know the exact repercussions of explicitly legalizing online gambling in the US, we do know that sacrificing our liberty is a much riskier bet.

Note: After writing a letter to the Oregonian expressing my displeasure with the message of the article and misrepresentation of online gambling, I received an email from the public access editor, explaining that “…except in unusual instances, we reserve our letters page for local correspondence, and your letter would not qualify”

States fold/double down on gambling in light of new regs

by Michelle Minton on June 3, 2010

in Odds & Ends

Many in the Internet gambling industry are skeptical about the impact that the new gambling laws, which went into full effect this Tuesday, will have on the industry. However, the compliance deadline seems to have prompted many states into taking major leaps on the issue of Internet gambling; some good, some bad, most mixed.

Internet gambling is still not illegal. It is perhaps the most ubiquitous myth about online play, that it was ever illegal or that the new UIGEA regulations make online gambling a crime. As I explained in my research paper The Truth About Online Gambling, Online gambling is not a criminal offense. That is, unless states explicitly make it a criminal offense. So far, only one state has gone to that extreme: Washington.

Washington State:

Last week, the Poker Players Alliance staged a rally outside of the Washington State Supreme Court which was hearing arguments to strike down a state law that makes Internet poker a class c felony. That could get a player up to five years behind bars and a $10,000 fine. Lee Rousso, the Poker Players Alliance Washington director filed a suit declaring the law unconstitutional under the commerce clause.

“This law is not about the legislature protecting the state’s citizens, but rather about protecting special interests and tribal casinos from competition.” The state has legal card rooms and casinos.” said PPA Chairman Alfonse D’Amato.

In a random poll of 400 Washington state voters, they found 79% oppose the law making criminals of online poker players. It could take 6-9 months for the court to issue a ruling.

Massachusetts:

Lawmakers in Massachusetts made an attempt in April to criminalize online poker in a bill that, not surprisingly, simultaneously licensed 2 new casinos in the state. Luckily the language in the bill criminalizing online poker was taken out.

California:

Meanwhile, California lawmakers voted this week for a bill that legalizes online gambling in a very limited parameters, by allowing the state DOJ to award three licenses to California operators for 5 years each.

The effects of UIGEA have yet to be seen, but it is certainly forcing discussion of the issue. As always, players should be very careful not to jump at the first prospect of legalization on such a limited basis. Like the ugly girl at the prom who’ll dance with the first guy who asks, overly-eager online gamblers might end up getting their toes stepped on.

Internet Gambling Regs in effect…now.

by Michelle Minton on June 1, 2010

in Odds & Ends

Today is the day that US credit processing companies must begin complying with the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). After regulatory wrangling, protests, and delays, the bill that was sneaked onto the books in the last hours (literally) of the Bush administration mandates that financial institutions have written rules in place to guarantee that they are not processing funds from “unlawful” Internet gambling activities. According to the language of the final rule for implementing the regulations, institutions must implement “policies and procedures that the Agencies deem to be reasonably designed to identify and block unlawful Internet gambling transactions.”

According to Professor I. Nelson Rose, noted legal scholar, the final rules practically nullified the original Act’s effect as a de facto ban on Internet wagering.

“The federal agencies still put the burden on the financial institutions to do “due diligence.” But what this means is banks have to do the same amount of “know your client” work with new commercial customers that they now do to prevent money laundering: basically ask the company owners what their business is and do a little checking to confirm they are telling the truth. If the new commercial customer proves it is not in the gambling business, there’s nothing more to do. If it is in the gambling business, the bank then has to ask it for its state license. The new rule says that getting a license is enough, because it is up to the states to regulate the Internet gambling operation of their licensees.”

Despite the apparent ease with which credit processing companies can circumvent the laws, some have already taken steps to comply with UIGEA by blocking all Internet gambling funds, presumably the intended desire of UIGEA’s creators. As a result, the gambling message boards are a’buzz, discussing alternative methods for depositing funds with online casino operators.

The ways for Internet gamblers to continue playing for real money remain numerous. The new laws do not apply to paper checks, wire transfers, foreign bank credit cards, or overseas payment processors. There are also new methods cropping up, perhaps in response to the new challenges online gamblers face. As I have discussed in the past, some of those methods carry risks. It is likely that, if UIGEA is not overturned, as more companies find ways around the new regulations those who have blocked transactions will change their minds.

Even if gamblers and banks can easily bypass the rules, the point remains that they shouldn’t have to feel like criminals while engaging in voluntary activities in the privacy of their own homes.

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