How will feds break up online gambling rings? Follow the money

[clevfan]

Mon, Feb. 19, 2007

How will feds break up online gambling rings? Follow the money

Ft Wayne Journal Gazette
Gerard Voland

As is true of any form of technology, the Internet can be – and is – used for constructive purposes and in harmful ways.

Some Web site operators seek to defraud unsuspecting visitors to their home pages, while others wish to appeal to the weaknesses of those addicted to pornography or gambling. Two significant challenges in drafting new laws to protect people from the hazards of the Internet have been to ensure that these laws can be enforced and that the rights of the individual are preserved.

The effect of the Unlawful Internet Gambling Enforcement Act signed into law by President Bush in October demonstrates that these challenges can be overcome with sufficient thought and cooperation by those seeking to protect the public from harm. This legislation was supported by a broad range of organizations, including many national sports groups (such as the NFL, Major League Baseball, NBA, NHL and NCAA), electronic commerce and financial institutions (PayPal, MasterCard, eBay and the American Bankers Association) and law enforcement alliances (including the National Association of Attorneys General and the Fraternal Order of Police).

The act essentially forbids the use of the Internet as an instrument to violate federal and state gambling laws. Internet gambling, estimated to be a $12 billion per year industry, has been used for money laundering by criminal organizations and to defraud bettors who have no way to verify or investigate whether the virtual games of chance that they play on some sites are managed honestly.

Also, some gambling operations abruptly close their sites if there are too many winners, opening new ventures under different domain names.

In addition, various sites have provided free games for children, in essence encouraging youngsters to gamble. And as with online pornography, the ubiquitous yet private nature of these sites may lead some people to fall victim to addictive behavior through which they spend excessive amounts of time and money to satisfy a gambling compulsion.

Moreover, online gambling can siphon revenues from state treasuries that depend upon government-run lotteries and the taxes that are collected on legal wagers. Nevada, apparently recognizing the potential threats associated with Internet gambling operations, was the first state to prohibit its residents from participating in illegal Internet betting.

Most gambling sites are operated overseas, beyond the jurisdiction of the United States, which some have argued makes enforcement of laws against Internet betting difficult if not impossible to enforce. One solution to this problem is embedded in the act, with its focus on the transfer of money between financial institutions and the online gambling operations. This legislation compels the Department of the Treasury and the Federal Reserve Board to issue regulations that require financial institutions to block payments to those engaged in illegal gambling. Rather than trying to shut down the offshore gambling operations directly, the legislation impedes the transfer of money that are the lifeblood of these businesses.

Further, the act refers only to gambling that violates existing federal or state laws, thereby recognizing each state’s right to develop and enforce its own regulations on gaming.

After the passage of this legislation, publicly traded gambling operations lost 50 percent of their market value. Cyber ventures listed on the London Stock Exchange announced that they would no longer be accepting wagers from players in the United States. And many Internet gambling sites chose to deny wagering by residents of the United States, where these bets would be in violation of existing laws.

Rather than supplying an Internet retailer with financial and personal information directly, many consumers use digital wallets (e-wallets) such as PayPal to more securely transfer these data and complete their transactions. FirePay, an offshore e-wallet, has announced in response to the act that it will not transfer funds to online gambling operations.

Last month, the two founders of a British e-wallet known as NETeller were arrested on charges of transferring funds with the intent to promote illegal gambling. After these arrests, the company decided to eliminate the transfer of funds by United States bettors to Internet gambling sites, instantly eradicating about 65 percent of its activities in this industry.

Existing technologies used by credit card companies and banks to block illegal transactions by verifying the identities (and, if appropriate, the ages) of the parties involved also can be helpful in enforcing the act. Most important, this legislation illustrates one method for effectively controlling some of the harmful effects of cyberspace.


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Gerard Voland is the dean of the School of Engineering, Technology and Computer Science at Indiana University-Purdue University Fort Wayne.

[Mr Memory]

What do you expect from Indiana -- a state which has nothing to do with America?