Follow the Leaders: a Constructive Examination of Existing Regulatory Tools That Could Be Applied to Internet Gambling Ronnie D
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NORTH CAROLINA JOURNAL OF LAW & TECHNOLOGY Volume 5 Article 10 Issue 1 Fall 2003 10-1-2003 Follow the Leaders: A Constructive Examination of Existing Regulatory Tools That Could Be Applied to Internet Gambling Ronnie D. Crisco Jr. Follow this and additional works at: http://scholarship.law.unc.edu/ncjolt Part of the Law Commons Recommended Citation Ronnie D. Crisco Jr., Follow the Leaders: A Constructive Examination of Existing Regulatory Tools That Could Be Applied to Internet Gambling, 5 N.C. J.L. & Tech. 155 (2003). Available at: http://scholarship.law.unc.edu/ncjolt/vol5/iss1/10 This Comments is brought to you for free and open access by Carolina Law Scholarship Repository. It has been accepted for inclusion in North Carolina Journal of Law & Technology by an authorized administrator of Carolina Law Scholarship Repository. For more information, please contact [email protected]. NORTH CAROLINA JOURNAL OF LAW & TECHNOLOGY VOLUME 5, ISSUE 1: FALL 2003 Follow the Leaders: A Constructive Examination of Existing Regulatory Tools that Could Be Applied to Internet Gambling Ronnie D. Crisco, Jr.1 I. Introduction Many articles have explored the explosive growth of Internet gambling. As of August 2000, over forty percent of American homes has access to the Internet, and an estimated 4.5 million Americans had already gambled online at least once. 2 Some ambitious forecasts predict that by the year 2006, Internet gambling will become a $100 billion a year industry.3 Not surprisingly, the appropriate stance on online gambling has been a frequent topic of scholarly debate. A popular trend in existing literature is to compare the two most likely policy responses to Internet gambling in the United States: should it be prohibited, or should we attempt to regulate it in some way? This article begins with the assumption that in either case an effective enforcement scheme will be vital to the policy's success. To that end, this Comment examines two existing regulatory systems in an attempt to extrapolate possible characteristics of a comprehensive plan to deal with Internet gambling. The first model is the regulation of online securities trading by the Securities and Exchange Commission ("SEC"). The analysis then shifts to the enforcement of consumer protection laws in cyberspace by the Federal Trade Commission's Bureau of Consumer Protection ("BCP"). The intent of this article is not to educate the reader about the substantive law underlying either securities regulation or consumer protection. The intent is to identify techniques that regulators have employed to meet the ' J.D. Candidate, University of North Carolina School of Law, 2005. 2 David B. McGinty, The Near-Regulation of Online Sports Wagering by United States v. Cohen, 7 GAMING L. REv. 205, 205 (2003). 3 Tom Lundin, Jr., The Internet Gambling ProhibitionAct of 1999: Congress Stacks the Deck Against Online Wagering But Deals in TraditionalGaming Industry High Rollers, 16 GA. ST. U. L. REv. 845, 848 (2000). N.C. J.L. & TECH. [VOL. 5 unique cha/Ilenges of regulation and law enforcement on the Internet. Finally, the article determines which, if any, of those techniques could be adapted to the context of online gambling. Ultimately, the regulatory scheme of the SEC proves the more attractive model. A permissive regulatory environment encourages cooperation from website operators, provides incentives for operators to locate within the United States, and narrows the range of police duties shouldered by regulators. II. Background The comment begins with a summary of the status of Internet gambling under current federal law. Then, the basis for choosing each analytical model is established. Both models are replete with lessons that policymakers can adapt looking for a comprehensive legislative response to Internet gambling. A. Current State of the Law As of November 2003, no law has been enacted which restricts or prohibits Internet gambling, despite the fact that gambling websites numbered in the thousands. Since 1995, Congress has repeatedly considered legislation that would criminalize all Internet gambling in the United States, but without success. 5 The most notable legislative initiatives were the Internet Gambling Prohibition Acts ("IGPA") of 1998 and 1999, both introduced by Sen. John Kyl. The 1998 IGPA easily passed the Senate, but the House Judiciary Committee failed to approve the IGPA before the end of the 105th Congress.7 The IGPA of 1999 left out criminal penalties for individual bettors, but 4 These figures are from a popular gambling links directory. See AnteUp, at http://gamblinglinks.com/lm/ (last visited on Nov. 2, 2003) (on file with the North Carolina Journal of Law & Technology). 5 Lundin, supra note 3, at 849-53. 6Id. at 850-51. 7 Edward W. Yures, Gambling on the Internet: The States Risk Playing Economic Roulette as the Internet Gambling Industry Spins Onward, 28 RUTGERS COMPUTER & TECH. L.J. 193, 213-22 (2002); see also Lundin, supra note 3, at 851. FALL 20031 INTERNET GAMBLING was otherwise identical to its predecessor.8 It also passed the Senate, only to die in the House. Despite Congress's inaction, there have been a number of successful state and federal prosecutions of Internet gambling outfits since the mid 1990s. Prosecutors have pursued most cases under the Interstate Wire Wager Act ("Wire Act"). l0 The Wire Act provides that anyone engaged in the business of betting or wagering knowingly [using] a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest... shall be fined under this title or imprisoned." As the statutory language suggests, the Wire Act has been interpreted to apply only to sports wagering. This reading, however, is not universal; at least one state court has construed the Wire Act to prohibit virtual casino gambling sites as well.'2 The Fifth Circuit Court of Appeals, on the other hand, announced in In re MasterCardInternational, Inc., that the scope of the Wire Act excludes virtual casinos by the plain language of the statute. 13 Exactly how the Wire Act should be read in light of technological advances not contemplated by its drafters is still open for debate. 8 Yures, supra note 7, at 222. 9 See United States v. Cohen, 260 F. 3d 68 (2nd Cir. 2001); New York v. World Interactive Gaming Corp., 714 N.Y.S.2d 844 (N.Y. Sup. Ct. 1999); Missouri v. Coeur D'Alene Tribe, 164 F.3d 1102 (8th Cir. 1999). l0 18 U.S.C. § 1084 (2000). In addition to the Wire Act, Internet gambling has also been attacked under other federal statutes like the Travel Act, 18 U.S.C. § 1952, and the Wagering Paraphernalia Act, 18 U.S.C. § 1953(a). See World Interactive, 714 N.Y.S.2d at 851-53. 1 18 U.S.C. § 1084(a). 12 World Interactive,714 N.Y.S.2d at 851 (holding the Wire Act applicable to a virtual casino website). This ruling can be attributed to the novelty of Internet gambling at the time this case was decided. Before the Wire Act was construed as applying to the Internet, no form of "wire communication" could have sustained a "virtual casino," whereas it now takes relatively little effort to download appropriate software over the Internet allowing one to play classic games of chance. 1 313 F.3d 257, 262 (5th Cir. 2002). N.C. J.L. & TECH. [VOL..5 Confusion over statutory interpretation is not the only difficulty courts encounter when dealing with Internet gambling. Jurisdictional issues are also a paramount concern. As of 1999, 80% of all Internet gamblers resided in the United States.14 Yet, the majority of Internet gambling businesses are located in tax- havens like Antigua and Belize that impose virtually no formal restrictions on these enterprises. 15 Reasons for this trend include the United States' long history of criminalizing gambling and the opportunity to circumvent strict financial disclosure 6 requirements in more business-friendly nations.1 The Minnesota Court of Appeals succinctly stated the general problem of policing the Internet in one of the earliest online gambling cases. In Minnesota v. Granite Gate Resorts, Inc.,17 the court stated: We are mindful that the Internet is a communication medium that lacks historical parallel in the potential extent of its reach and that regulation across jurisdictions may implicate fundamental First Amendment concerns. It will undoubtedly take some time to determine the precise balance between the rights of those who use the Internet to disseminate information and the powers of the jurisdictions in which the receiving computers8 are located to regulate for the general welfare.' The problem for courts is not determining that jurisdiction is proper. On the contrary, courts have routinely held that marketing strategies targeting potential gamblers within the United States constitute sufficient contacts for purposes of personal 14 Antonia Z. Cowan, The Global Gambling Village: Interstate and TransnationalGambling, 7 GAMING L. REv. 251, 252 (2003). 15 McGinty, supra note 2, at 205-06; see also United States v. Cohen, 260 F.3d 68 (2d Cir. 2001) (upholding the conviction of a defendant operating out of Antigua); Minnesota v. Granite Gate Resorts, Inc., 568 N.W.2d 715 (Minn. App. 1997) (holding defendants subject to personal jurisdiction although their business operated out of Belize). 16 McGinty, supra note 2, at 206; Cowan, supra note 14. 17 568 N.W.2d at 718. 181d. FALL 20031 INTERNET GAMBLING jurisdiction.19 The problem is actually asserting jurisdiction. Website operators who hold no assets in the United States and never visit the United States can, in effect, avoid prosecution indefinitely. Moreover, the effective application of transnational jurisdictional principles is dependent on the "respect and cooperation among sovereigns and parties.",21 However, American courts have not always made fostering comity with foreign judiciaries a top priority.