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Interview with Tom Bell, Professor in Online Gambling Regulation

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Introduction

Professor Tom Bell, an academic specialized in judiciary matters regarding online gambling, says the following in an interview: "Since the Founders certainly gambled, and legally, too, the Ninth Amendment guarantees that we, too, retain the right to gamble." Take a front row seat and listen as this Internet law and telecommunications expert relates Internet gambling's legal past, present, and future.

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This is a reprint of the interview.

Can you tell us about your background and your current employment?

"Those early (anti-gambling) bills triggered my interest because they managed--incredibly--to combine technical ignorance with hypocritical prudery." I earned my J.D. at the University of Chicago School of Law in 1993, after which I practiced law in Silicon Valley and Washington, D.C. My areas of practice included intellectual property and telecommunications law, so I felt quite at home when I joined the Program in Law and Technology at the University of Dayton School of Law. I taught courses on intellectual property, both domestic and international, and on Internet law. After a couple of years of teaching at UD, I took an academic leave of absence to serve as director of telecommunications and technology studies at the Cato Institute, a policy think tank based in Washington, D.C. Last fall I joined the faculty of Chapman University School of Law, where I again teach courses in intellectual property and Internet law. Congress first began to draft legislation banning Internet gambling while I was working at the Cato Institute. Those early bills triggered my interest because they managed--incredibly--to combine technical ignorance with hypocritical prudery and a demeaning disregard for our rights to peaceably dispose of our income as we alone see fit. I spoke out against those and subsequent proposals to ban Internet gambling, and began work on a detailed analysis that the Cato Institute will soon publish.

Is the question of banning Internet gambling in the U.S. a constitutional question or a consumer protection question?

Or is it another question altogether? "As regards consumer protection, to ban Internet gambling would do worse than nothing." Proposals to ban Internet gambling involve both those issues--and others, too. Much of what Congress does wrongly interferes with local matters under the guise of regulating Interstate commerce. With regard to Internet gambling, however, Congress really does have a plausible claim that the Constitution empowers it to preempt state laws that might otherwise interfere with national or international commerce in gaming. The error, however, lies in reading "regulate interstate commerce" as "ban interstate commerce." If the current Congress were to hew to what the Founders intended, it would understand that to regulate interstate commerce means simply to make it regular. Therefore, even if Congress does have Constitutional authority to regulate Internet gambling, it does not necessarily have authority to ban it. Indeed, the Ninth Amendment of the Bill of Rights strongly suggests that Congress has no authority to ban Internet gambling. That amendment reserves to the people all rights not expressly sacrificed to the federal government. Since the Founders certainly gambled--and legally, too--the Ninth Amendment guarantees that we, too, retain the right to gamble. As regards consumer protection, to ban Internet gambling would do worse than nothing. Nobody seriously contends that Internet gambling will disappear if banned by federal statute. To the contrary, U.S. consumers will continue to gamble online--but without enjoying the protections afforded to legal commerce. A gambler cheated over the Internet would, for instance, lose the right to bring tort or contract claims against rogue casinos. Legalizing Internet gambling would not only bolster the legal rights of consumers but also benefit them by increasing competition in gambling services. Proposals to ban Internet gambling thus aim less at protecting consumers than they do at protecting the various public and private parties that currently monopolize real space gambling services.

Do you think that online gambling will be prohibited in the U.S.?

If so, when? I currently put at about 75% the chance that the federal government will pass a law that bans the provision and consumption of online gambling services, but which exempts certain special interest groups from prosecution. Senator Kyl has said that he will attempt to resurrect his Gambling Prohibition Act in the current congress, so I expect any federal ban to issue in I could write tomes on that question! To put it in very brief, proposals to ban Internet gambling reflect the overriding flaw of federal governance at the close of the 20th Century: Diffuse costs, concentrated benefits, and pervasive political power. Consumers have only an inchoate and disorganized interest in the benefits that would flow from legalizing Internet gambling, whereas the various parties who would benefit from a ban--including state lotteries, real space casinos, and overeager prosecutors--have vested interests and established lobbies. That salient discrepancy would not matter were the federal government limited to its few and small constitutional duties. But, alas, politics has become the art of not only the possible but the improper.

Will the ban be enforceable?

In large part, no. Federal prosecutors might target a few unfortunate domestic consumers to serve as examples for the rest of us, and they might seize the assets of online casinos that fail to fully withdraw to foreign havens. But most U.S. citizens will continue to enjoy full access to overseas gambling sites.

What approach do you think players like the major ISPs, land-based gambling enterprises, and financial institutions will take?

"In the long run, however, the land-based industry could leverage its brand name capital to do quite nicely online." ISPs (and OSPs) will not eagerly assume the burdens of preventing their members from gambling online. To the contrary, they should welcome the increased traffic that would flow from legalized Internet gambling. The land-based industry has a vested interest in the status quo and does not welcome relatively unregulated competition from online sources. Furthermore, it finds it difficult, for public relations reasons, to publicly advocate yet another expansion of gambling opportunities. In the long run, however, the land-based industry could leverage its brand name capital to do quite nicely online. The problem is getting from here to there. It has chosen the clever strategy of decrying unregulated online gambling while experimenting with "dry-runs"--non-paying online games. With the advent of legalized Internet gambling in the U.S., the land-based industry will stand ready to seize the field. Financial institutions face similarly conflicting goals. Being heavily regulated, they can hardly afford to upset the federal government. At the same time, legalized Internet gambling would afford them with ample new opportunities to advance online financial tools, especially at the consumer level.

What consequences do you think prohibition will have on the online gambling industry in general?

It would certainly force gambling services to move operations and assets to overseas havens. It may also complicate access to domestic financial services, such as if prohibitionist legislation made credit card debts for online gambling services unenforceable. Apart from these deterrents to Internet gambling, however, domestic prohibitions may end up promoting the industry. Real space gambling services, relegated to mere experiments, will fall farther and farther from the cutting edge of software development. Operating software will, moreover, almost surely come to rely on encrypted transactions that federal regulators cannot detect, much less stop. As a result, by the time that federal and state governments decide that they want to regulate and tax Internet gambling (as I think they eventually will), they may well find that they have nothing to offer online gambling services--neither carrot nor stick.

What would prohibition mean to the social player?

Social players will of course worry about being caught if a federal ban extends to include mere consumers. At the margin, at least at first, that might slow growth of the industry. But because the consumer base will grow as more and more people get Internet access, the overall number of domestic Internet gamblers will probably continue to increase. Eventually, as prosecutors find a new fad, as online gambling services teach their consumers to avoid detection, and everyone learns to regard fusty prohibitions with a wink and a nudge, social players will regard Internet gambling as no worse than (officially illegal) office betting pools. "A ban on Internet gambling would encourage the development of overseas havens, legal and business strategies, and software capable of evading U.S. law." Of course it is. But with regard to Internet gambling as with regard to any activity, the power of regulators varies inversely to the freedom of exit. Internet gambling services already have a great deal of freedom to exit from domestic restrictions. Prohibition will encourage them to polish their strategies for evading U.S. law. Were the federal government to launch an Internet Gambling Regulatory Commission today, it would probably not be able to impose the same level of intrusive and detailed regulations that state gambling commissions impose on their subjects--at least not without offering some sort of carrot in return for such an easily dodged stick. The longer that the federal government waits to legalize Internet gambling, moreover, the more quick and clever online gambling services will grow.

If the law also bans the promotion of online gambling, how would such a law be interpreted by U.S. courts?

U.S. courts have, sadly, already shown little interest in defending citizens from outrageously burdensome financial regulations and criminal bans on gambling. It would take quite a lot for any prohibition on Internet gambling to trigger a court's ire.

What would an online gambling ban mean to laws that apply to the Internet in general?

Will other areas be threatened as well? On the one hand a ban on Internet gambling would set a dangerous precedent for the power of the U.S. government to invade consumers' privacy and to dragoon Internet access providers into serving as prosecutors' tools. On the other hand, a ban on Internet gambling would encourage the development of overseas havens, legal and business strategies, and software capable of evading U.S. law. In the long run, therefore, a ban on Internet gambling would not only fail itself; it would drag down with it a good deal of federal authority over the Internet in general.

Would you like to add any comments?

The looming prospect of a federal ban in Internet gambling should not blind us to the fact that, in the long run, prospects look very good for legalization. States will find it very hard to sit back and watch potential tax dollars flow to overseas havens, especially when the futility and unpopularity of prohibition grows evident. Just as states have legalized and taxed a great many other gambling services, they will eventually want to legalize and tax Internet gambling. This time, though, they may find the federal government elbowing for a place at the trough. The real question is not whether but when Internet gambling will win legalized status. In closing, it bears noting that George Washington, Thomas Jefferson, Benjamin Franklin, and a great many other Founders not only enjoyed legal gambling, but helped to promote in on behalf of their fledgling republic. Parties interested in learning more should check out my forthcoming Cato Policy Analysis, "Internet Gambling: Popular, Inexorable, and (Eventually) Legal." The facts I've uncovered make clear that the Founders took the "Pursuit of Happiness" seriously--and that modern legislators should be ashamed to treat us as undeserving of similar rights.

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