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Offshore Internet Gambling PDF Print E-mail
Written by Norton Gappy   
According to American Gaming Association  (AGA) there has been explosive growth in online gambling since the introduction of the World Wide Web.  AGA estimates, there are over 2,000 internet gambling websites which offer users the chance to wagering on sports, casino type betting, lottery, bingo, the life expectancy of popular persons, and various other non-traditional types of wagering. 

Online gambling can be a very lucrative business for its operators.  That’s why new gambling sites are opening daily.  Christiansen Capital Advisors (CCA) reports that internet gaming is a multi-billion dollar industry, expected to reach about $20 billion by 2010.  CCA reports that almost half of the internet gambler users are located within the United States, while almost all of the internet gambling operators are located outside the United States.  The reason internet gambling sites are set up offshore is so that the operators can avoid United States laws and liabilities.  

The United States Congress has enacted antigambling laws prohibiting internet gambling.  The most recent law is called the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA).  UIGEA can be found at 31 U.S.C. Section 531-5367 and prohibits the transfer of funds from a financial institution to an Internet gambling site, with the notable exceptions of fantasy sports, online lotteries, and horse/harness racing.  UIGEA’s aim is the intermediary financial institution transferring monies to the offshore gambling operators, rather than the local internet gamblers themselves.  UIGEA bans financial institutions from paying internet gambling operators for wagers made online.  Financial institutions, such as banks, credit card companies, and even PayPal presumably know the identity of the payee through merchant codes and other internal descriptions.  So, if the financial institution is barred from paying the online gambling operator, then why are there still so many online gambling sites operating overseas?

To avoid UIGEA, many gaming operators started utilizing other methods of transferring money which do not require the use of a financial institution.  For example, internet gambling users are now encouraged to use an “e-wallet.”  An e-wallet allows a user to transfer money to an offshore company, which is not a bank, and this e-wallet provider then makes payment to the online gambling business.  Another method being used is for users to utilize a HomeATM.  A HomeATM is a legal way to masks the merchant code the credit card companies use to indicate where the money is going (e.g. to an internet gambling site).  

As long as there is money in internet gambling, there will be no shortage of operators offering internet gambling online.  In addition, offshore gambling sites usually find it easier to operate overseas as there is less business interference, fewer regulations, and website gambling is much less costly to established compared with a multi billion dollar brick and mortar casino.  

So why doesn’t the U.S. go after the offshore internet gambling operators?  Well, in order to enforce any U.S. online gambling law, the U.S. Courts must have jurisdiction.  Having personal jurisdiction alone is not enough.  The U.S. must have support from the foreign country housing the gambling operator in order to bring such offenders to justice.  Often times, the U.S. does not have foreign support or a treaty with the foreign  governments housing the gambling operators.  

Some of the problems with UIGEA are the it has not worked to reduce internet gambling because it targets the operator rather than the user; UIGEA does not fend against the alternative methods of transferring monies to offshore shore gambling sites; UIGEA appears to violate the World Trade Order (WTO) standards; and it does not provide prosecutors with the proper legal tools to prosecute violators.  UIGEA has failed in many ways.  If the U.S. can not enact laws to prevent the spread of internet gambling, then maybe there should be laws to license and regulate the industry.  The hope is that licensing and regulations may eliminate many of the social ills associated with the current uncontrolled internet gambling system.  

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