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April-26-2007,
Barney Frank's Proposal is A Big Letdown...By Hartley Henderson

Imagine checking a power ball lottery ticket and thinking you've won the jackpot. You go to the prize office hand the person the ticket and discover you were actually one number off, and instead of winning the $100 million grand prize you won a $500 consolation prize. That is essentially what the feeling was like after reading Frank's proposed new bill. The new proposed bill titled The Internet Gambling Regulation and Enforcement Act keeps the UIGEA and wire act in place, but allows for a legal offshore climate should it meet certain criteria. The devil is in the details of those criteria. In all fairness to Frank, he was obviously trying to put forth a bill that he felt could actually pass and decided this was only possible by keeping the UIGEA in tact.

There are several areas of concern in regards to Frank's proposal. First, Frank's bill institutes a new regulatory authority that has exclusive rights to hand out licenses pending a criminal check. That's fine, but he should have laid out criteria of what disqualifies an operator. Clearly, the new authority could be wide open to corruption and may issue licenses based on kickbacks. But more importantly it could deny licenses to legitimate operators for unfounded reasons. If the reason for disqualification is related to crimes such as embezzlement or fraud, which clearly are relevant to running an internet-based business, then there would be no complaints. But if an operator could be disqualified for say drunk-driving convictions in the past, then it becomes a joke. The idea itself is ok, but any U.S. based regulatory authority that issues the licenses must work with the offshore jurisdiction where the business is located so that licenses aren't given out solely on what the U.S. considers important. Clearly if an Antiguan based business is going to be licensed by the U.S. as legal, then Antigua should be involved.

Second, the bill proposes that the company must set up a U.S. office and pay taxes and fees to the United States on its income. Why? If the company is located offshore and doing all its business offshore, then why should it pay the U.S. government a red penny? If the United States expects taxes on gambling revenues, would it not make more sense to set up online gambling operations in the U.S. and treat them similar to land based casinos and sportsbooks? If a company is required to pay taxes and fees both in the country it's based and to the U.S. government (likely at a much higher rate), then it is unlikely many businesses would survive under those conditions. There would be no problem with the U.S. stating it expects a percentage of any fee that the hosting country charges its operators for costs incurred in enforcing the regulation, but to charge taxes to a non U.S. based company for operating outside the U.S. is ludicrous. Perhaps a better solution would require any offshore business to disclose the names of anyone who wins more than $10,000 on any game or sporting event - similar to land based U.S. casinos - to ensure that the gambler pays U.S. taxes. Mind you they had better allow the gambler to write off losses against those wins.

Lastly, Frank has stated his law is gambling neutral, but allows sports leagues to opt out if they don't want offshore betting on their sport. What a crock! If Frank expects this to be acceptable to offshore operators, then he had better ensure that any land-based casinos in Nevada allow sports leagues to opt out. In fact, some leagues have approached Nevada officials in the past to ask that gambling no longer be allowed on their sport and were told to get lost. You can't have one set of rules for U.S. sportsbooks and another offshore. As long as sports betting is legal in the U.S., you can't let the leagues set gambling policy. As well, it's almost certain that most American sports leagues would "opt out" under this proposal, which in turn would make the new bill useless with the exception of a few casino and poker rooms. Likely the only sports leagues one would be able to bet on would be the CFL, European soccer, Australian Rules Football, Rugby and Cricket. No thanks.

When voting against the UIGEA, Frank said that it was "one of the stupidest laws ever passed." If that's true, then get rid of it. Otherwise you end up with one of the stupidest laws ever passed with a few small revisions. Frank's original plan was to repeal the whole law. He should continue down that road and create a betting environment like in the UK where regulations are in place to prevent underage gambling, fraud, compulsive gambling and money laundering, but doesn't have glaring exclusions into what types of bets are allowed. Plus, the government takes reasonable taxes and fees for businesses located within their own borders. With the political wind blowing the way it is, there is a good chance he could have the whole law scrapped if he provided the right arguments. It was a nice start Barney, but you need to go further.

04-26-2007
Hartley Henderson
MajorWager.com
henderson@majorwager.com



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