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U.S. Internet Gambling Laws: an Update

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U.S. Internet Gambling Laws: an Update Electronic Commerce & Law Report™ Reproduced with permission from Electronic Commerce & Law Report, 19 ECLR 917, 7/16/14. Copyright ஽ 2014 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com ONLINE GAMBLING The authors summarize the current state and federal frameworks governing online gam- ing and provide an update on recently introduced federal legislation. They conclude with compliance and best practices tips for companies operating in the online gaming space. U.S. Internet Gambling Laws: An Update BY MARCUS A. ASNER,CATHERINE BARNARD AND American state had legalized online gaming, Americans gambled nearly $3 billion at offshore casinos – almost IAN JAY 10% of the entire worldwide online gaming market. n February 25, 2014, Delaware and Nevada en- Freeman emphasized the need for a regulatory frame- tered into the country’s first multistate online work that would prevent illegal activity and ensure the O gambling compact, which will allow poker players integrity of games. in both states to wager against each other at the same Another witness, Professor Kurt Eggert of the Chap- virtual table. While the expansion of Internet gambling man University Dale E. Fowler School of Law, stressed is mostly occurring at the state level, the federal frame- the importance of a robust consumer protection work governing online gambling is also a shifting land- scheme, noting the increasing sophistication of auto- scape, as highlighted by the recent Congressional hear- mated poker bots – computer programs designed to ing on ‘‘The State of Online Gaming.’’ play automatically against other players, some of which The Congressional hearing included testimony from utilize sophisticated algorithms capable of beating the gaming industry leaders, social advocates, and academ- vast majority of casual players. ics. Though the witnesses offered differing views on the Andrew Abboud of the Las Vegas Sands Corporation merits (and perils) of expanding online gaming in the (which operates brick-and-mortar casinos) urged the United States, both supporters and critics alike empha- panel to reject any expansion of Internet gaming, citing sized the need for a strong regulatory regime that ‘‘the potential for money laundering, terrorism financ- would protect minors, minimize the incidence of gam- ing, fraud and other criminal activity; underage betting; bling addiction, and ensure that all gaming is conducted exploitation of those with gambling addictions, and the fairly and lawfully. impact on jobs and economic growth.’’ Many of the is- Geoff Freeman, President and CEO of the American sues raised at the hearing are addressed in pending leg- Gaming Association, observed that, in 2012, before any islative proposals. This article summarizes the current state and federal frameworks governing online gaming and provides an Marcus Asner is a trial lawyer in Arnold & update on recently introduced federal legislation. We Porter LLP’s New York Office. He can be conclude by offering a few thoughts that companies reached at [email protected] or might consider when operating in the online gaming 212.715.1789. Ian Jay is an associate in the space. Litigation practice group of Arnold & Porter’s New York office. He can be reached at [email protected] or 212.715.1083. Cath- Intrastate Gaming Laws erine Barnard is an associate in the Litigation practice group of Arnold & Porter’s New York Currently, only two states, Delaware and New Jersey, office. She can be reached at have legalized a full range of online casino gaming, [email protected] or such as electronic versions of blackjack, roulette, and 212.715.1156. slot machines, as well as online poker. Nevada, for its part, permits only online poker. The three states permit COPYRIGHT ஽ 2014 BY THE BUREAU OF NATIONAL AFFAIRS, INC. ISSN 1098-5190 2 who should not be gaming.’’ Del. Code Ann. tit. 29, § 4801(c)(1). Author Suggestions for Online To that end, Delaware permits self-acknowledged problem gamblers to exclude themselves from gaming Gambling Businesses activity for periods of one year or more. Id. § 4834(a). Gaming operators are required to prevent self-excluded s Reexamine operations to ensure that you have established and maintain robust compliance and individuals from engaging in any gaming activity, re- due diligence measures. Plans should include move such individuals from lists of those receiving any measures to ensure compliance with the laws of form of advertising and promotion, and are prohibited all jurisdictions in which you operate. from providing such individuals with services such as casino credit, check cashing services, or complimentary s Payment processors should test merchants’ on- benefits. Id. § 4834(c). going compliance with gaming policies. Refuse to Moreover, each online gaming website must include set up accounts you suspect are being created for ‘‘an advertisement for and link to additional informa- illegal purposes or at least ensure heightened tion for services for the treatment, education and assis- oversight. Immediately terminate accounts that tance of compulsive gamblers and their families.’’ Id. breach your procedures or controls. § 4834(d). Delaware’s Internet gambling law assigns re- s Take steps to help protect consumers prevent sponsibility for developing consumer protection rules and manage gambling addiction. and regulations to the Director of the Delaware State Lottery Office. Id. § 4826(c)(7). s Develop methods to determine whether any New Jersey’s Internet gaming law includes a similar players may be bots playing formulaically or ac- requirement for the maintenance of self-exclusion lists cording to automatic instructions. by online casinos. N.J. Admin. Code § 13:69G-2.1, et s Use geolocation technology to minimize the risk seq. New Jersey’s Internet gaming law is more specific of processing illegal transactions occurring be- in its warning requirements, however, mandating that a yond state boundaries. message stating ‘‘If you or someone you know has a gambling problem and wants help, call 1-800-Gambler’’ be displayed at the log-on screen and at the conclusion wagering only by individuals physically located within of each Internet gambling session. Id. § 13:69O-1.2(b). their borders. The same message must be included on a ‘‘patron pro- tection page’’ accessible to patrons during all gaming Online casino licenses in New Jersey are limited to sessions; such page must also include a direct link to existing traditional casino licensees, though licensees the Council on Compulsive Gambling New Jersey, Inc., may use the brand name of their casino, of the online as well as at least one additional organization dedicated casino licensee, or other related trade names (18 ECLR to helping individuals with gambling problems. Id. 461, 3/6/13). For example, the Borgata Hotel Casino & § 13:69O-1.2(l)(14). Spa, whose online casino is operated by Bwin.Party Moreover, New Jersey requires its casinos to gener- Digital Entertainment, uses the domain names www- ate weekly reports ‘‘identifying potential problem gam- .borgatapoker.com and www.borgatacasino.com, as blers, including those patrons who self-report,’’ though well as www.NJ.partypoker.com. Bally’s, which is the law does not specify actions that must be taken on owned by Caesars Entertainment (owner of the the basis of these reports. Id. § 13:69O-1.9(k). In addi- Harrah’s and World Series of Poker trademarks) and tion, New Jersey goes beyond the general consumer has its online casino operated by 888 Holdings, utilizes protection requirements imposed in Delaware and spe- the domain names www.HarrahsCasino.com, www.W- cifically bars the use of any automated computer soft- SOP.com, us.888.com, us.888poker.com, and ware, including poker bots or similar mechanisms. Id. us.888casino.com. § 13:69O-1.2(l)(3)(v). New Jersey also requires all elec- Delaware similarly permits online gaming only at tronic systems to be designed to automatically detect sites operated by its existing racetrack casinos: Dover potential cheating or collusive activity by players. Id. Downs Hotel & Casino, Delaware Park, and Harrington § 13:69O-1.5(h). Raceway and Casino. Nevada, unlike New Jersey and Delaware, permits Nevada, which permits casino gaming through the online gaming operators to offer only poker. Notably, state, authorizes the issuance of online gaming licenses the Nevada statute itself contains very little detail as to to resort hotels with non-restricted gaming licenses, al- the specifics of gaming operations, instead delegating though the only sites launched to date, Ultimate Poker, much of the authority to the Nevada Gaming Commis- WSOP.com, and Real Gaming, are all owned by estab- sion. Nev. Rev. Stat. § 463.750; Nev. Gaming Comm’n lished casino operators with substantial holdings in the Reg. 5A. Las Vegas area (Station Casinos, Caesars Entertain- However, pre-existing Nevada law contains provi- ment, and Michael Gaughan/South Point, respectively). sions regarding problem gambling, with a state- Several of the concerns raised at the congressional sponsored regime for problem gambling prevention, hearing, in particular those relating to consumer pro- treatment, and research, which is funded by gaming li- tection and problem gaming, are addressed in existing cense fees. Nev. Rev. Stat. § 458A.900. In addition, state regulatory frameworks. For example, Delaware’s regulations promulgated by the Commission require all Internet gambling law is intended to offer casino gam- sites offering online gambling to include an active
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