Supporters of legalizing online poker cheered the ruling but said it may create confusion and encourage the creation of a patchwork of state Internet gambling rules. Congress passed legislation in 2006 aimed at barring online gambling in the United States by prohibiting financial institutions from processing payments for online bets.

“I think that this ruling creates more confusion than clarity in the Internet gambling debate,” American Gaming Association President and CEO Frank Fahrenkopf  told National Journal in an interview.

Critics of the 2006 law say it has not prevented Americans from gambling online. Many Americans continue to gamble on websites based outside the United States, a situation that deprives U.S. players of consumer protections and state and federal governments of tax revenues, said John Pappas, executive director of the Poker Players Alliance. Pappas and others say Congress needs to step in with federal online poker legislation.

Both Pappas’ group and the American Gaming Association favor legislation that would legalize and regulate online poker. Rep. Joe Barton, R-Texas, introduced a bill last year, though Fahrenkopf’s group has not taken a formal stand on it. Supporters say poker is a game of skill and can be more easily regulated online than other forms of Internet gambling.

Barton said while the Justice memo makes clear that playing poke online does not violate the Wire Act, the department’s interpretation of the law could lead states to adopt a variety of individual laws.

“If Congress doesn’t act soon we could end up with fractured rules and regulations that vary state to state, leaving more opportunity for fraud and fewer safeguards for players,” Barton, a senior member of the Energy and Commerce Committee, said in a statement. “I plan to keep moving forward with my efforts to move H.R. 2366 through the committee process, and I am confident it will be passed by the House and Senate – hopefully in this session.”

Senate Majority Leader Harry Reid, D-Nev., also is reportedly working on online poker legislation and has been aiming to gain the support of Sen. Jon Kyl, R-Ariz., who helped craft the 2006 anti-gambling law, according to industry sources and news reports. Spokesmen for both Reid and Kyl did not respond to requests for comment.

The Energy and Commerce Subcommittee on Commerce, Manufacturing and Trade has held two hearings on Internet gambling and is likely to hold at least one more to gather additional feedback from the Justice Department and other officials on the issue. A spokesman for subcommittee Chairwoman Mary Bono Mack, R-Calif., said she has not made up her mind whether she will support Barton’s bill, which must go through her panel.

In the mean time, Connecticut’s governor, Dannel P. Malloy, speaking on the developments was concerned about the effect this could have on people who deal with gambling addictions.

“Listen, I’m not a big proponent of gaming. But what’s going to happen based on the change in position by the U.S. Justice Department … is that there’s going to be online gaming in the United States. So it’s not a question of whether it’s going to happen … (And if) all of the online potential within our state goes to companies that are outside our state, then obviously we end up the big loser.”

“We do spend about $1.9 million a year (to help problem gamblers),” Malloy told CT Post. “If you’re asking me do I think it’s foreseeable in the future we may need to spend more money, I think the answer is in the affirmative. What the right level of money is and what the actual challenges will be remain to be seen. But at $1.9 million we’re big investors and we’re probably going to have to invest more.”

Source: CT Post.

Now, Senate President Pro Tem Darrell Steinberg (D-Sacramento) has brought the two sides together in hopes of forging a compromise that lawmakers will pass, according to Mark Hedlund, a spokesman for the leader. Steinberg wants to regulate cyber-gambling “while providing revenue — hopefully hundreds of millions of dollars — to help us reinvest in public schools, higher education and public safety,” Hedlund said.

The Justice Department has reversed its long-held opposition to many forms of Internet gambling, removing a big legal obstacle for states that want to sanction online gambling to help fix their budget deficits.

The new policy merely reverses the Justice Department’s longstanding position that all forms of online gambling are illegal in the United States. It does not necessarily pave the way for national rules governing online gambling.

But experts in gambling law said Saturday that the new policy does imply that states can band together to allow gambling across state borders. The exception would be online sports betting, which is explicitly prohibited under federal law.

More here and here.

Internet gambling is the future of the casino industry, whether it’s approved at the federal or state level, a panel of online and brick-and-mortar casino executives said Tuesday.

And a New Jersey lawmaker predicted there will be a ballot question next year asking his state’s residents whether to amend the state Constitution to allow Internet gambling.

Speaking at the East Coast Gaming Congress, executives from two online betting organizations and Caesars Entertainment said the Internet provides the gambling industry its best opportunity for growth. But the prospect of a federal law permitting it appears dim in light of recent federal raids on online gambling sites.

More at ABC News.

“We are aware of the indictment only through what has been announced publicly,” Bristol, Connecticut-based ESPN said yesterday in an e-mailed statement. “For the immediate future, we are making efforts to remove related advertising and programming pending further review.”

On Friday, 11 people, including the founders of the three largest online poker companies doing business in the U.S.—PokerStars, Full Tilt Poker and Absolute Poker—were charged with offenses including bank fraud, money laundering and online-gambling offenses.

Yesterday, Bradley Franzen, one of 11 people charged last week with being part of an online gambling conspiracy, pleaded not guilty before a U.S. magistrate in New York.

Franzen, 41, of Illinois and Costa Rica, is accused of lying to banks about the nature of the transactions they were processing, and of creating fake companies and websites to disguise payments to poker companies.

Federal prosecutors in Manhattan have alleged the poker companies, which are located outside the U.S., tried to sidestep U.S. laws prohibiting banks and credit card issuers from processing gambling payments by disguising billions of dollars from U.S. gamblers as payments to nonexistent online merchants for golf balls, jewelry, flowers and other merchandise.

This crackdown is far stronger than any seen from the Bush administration, and is disappointing for those who had hoped for a better stance on civil liberties from the Obama administration. The Poker Players Alliance issued the following statement after the busts

On behalf of the millions of poker players across the country, we are shocked at the action taken by the U.S. Department of Justice today against online poker companies and will continue to fight for Americans’ right to participate in the game they enjoy. Online poker is not a crime and should not be treated as such. We are currently gathering all of the information around today’s announcement and will offer detailed analysis when the full facts become available.

Source: PPA

Reid, a Nevada Democrat, decided against adding his measure to a compromise tax-cut package amid concerns it would undermine the tax bill’s prospects for passage, the newspaper said, citing unidentified lobbyists and congressional aides.

The Internet poker legislation would keep jobs from the multibillion-dollar online gaming industry in the U.S. and empower federal and state governments to tax its revenue, Reid said Dec. 9 in a statement. The measure would help protect millions of online poker players from fraud while banning all other types of Internet gambling, he said.

“Experienced regulators already trusted by millions of Americans will maintain oversight and reputable operators with proven track records will provide a secure gaming environment for Americans,” Reid said.

Three U.S. House Republicans objected last week to what they called a “secretive, closed-door, undemocratic” effort in the Senate to pass the online-poker bill in the final days of the lame-duck Congress.

“Creating a federal right to gamble that has never existed in our country’s history and imposing an unprecedented new tax regime on such activity require careful deliberation, not back- room deals,” Representatives Spencer Bachus of Alabama, Dave Camp of Michigan and Lamar Smith of Tennessee said in a Dec. 1 letter to Reid and his Republican counterpart, Mitch McConnell of Kentucky.

House Committees

Bachus, Camp and Smith are all in line to be chairmen of committees with jurisdiction over online gambling when Republicans take control of the House in January.

Internet gambling has provoked heated debate in Congress over the past few years. Proponents say regulating online poker and other games would bring billions into federal coffers, while opponents contend that it would encourage Americans to make poor financial choices and could open the market to children.

A House committee in July approved legislation that would legalize some Internet gambling, allowing U.S. residents to place online wagers with companies the Treasury Department has licensed. It has not been taken up by the full House or in the Senate.

But Progressive Conservative Leader Tim Hudak warns Ontario taxpayers should be leery if Premier Dalton McGuinty bets on Internet gaming here.

As the Star disclosed on Saturday, McGuinty’s administration, which is wrestling with a $19.7 billion budget deficit, is “exploring” the possibility of expanding the gambling industry.

Insiders say the move is designed to “repatriate” hundreds of millions of dollars that Ontario gamblers bet offshore every year from the comfort of their computer keyboards.

Government sources said Monday that the bonanza could be an additional $500 million a year on top of the Ontario Lottery and Gaming Corporation’s (OLG) $1.9 billion profit in 2009.

In February, OLG chairman Paul Godfrey, retained by McGuinty to fix problems at the troubling gambling monopoly, said the province had to look online for future growth.

“It’s something that I would explore . . . (because) money is going out of this province to other provinces as well as offshore sites,” Godfrey said at the time.

“The fact is that it’s there at the present time all around us.”

But Hudak, who has praised Godfrey’s appointment at OLG, expressed concern that the Liberals may push forward with online gambling.

“Who is going to trust Dalton McGuinty to run an online casino?” the Tory leader told reporters at Queen’s Park on Monday.

“Listen, this guy has had two consecutive major scandals at the OLGC, they’ve gone through five CEOs, they can’t run the existing casinos let Internet gambling,” he said, referring to suspicious insider lottery wins and other problems.

“They have a voracious appetite for more and more tax dollars. They can’t control the OLGC as it is. This will be a disaster if Dalton McGuinty is running an online casino.”

Stung by offshore websites cashing in on the demand for Internet gaming, governments around the work have been legalizing online betting.

British Columbia, which last month became the first province or state in North America to offer legalized online casino gambling, has estimated it was losing $100 million to illegal websites abroad.

Proceeds from its new website, www.playnow.com, will help fund schools and hospitals. Like Ontario, Quebec and the Atlantic provinces are closely watching how online gambling plays in B.C.

While the Liberals are enticed by the lure of additional revenue, the governing party is mindful that many Ontarians, already uneasy with existing casinos, would oppose Internet betting.

But final passage of the measure is still being viewed on Capitol Hill as a crap shoot at best. “This is, by no means, a sure thing,” said a senior staffer on the financial services committee. “In fact, I’d call it a long shot.”

That’s because the window to get anything passed is quickly closing. Congress is set to take a seven-week recess, leaving a two-week window in late September before the session breaks again prior to mid-term elections. And then there is the looming possibility of a lame duck session which, which according to the Financial Services Committee staffer, does not bode well for passage of anything.

Pairs Bet

Additionally, Rep. Barney Frank, D-Massachusetts, the committee’s chairman and chief sponsor of the measure, H.R. 2267, the Internet Gambling Regulation, Consumer Protection, and Enforcement Act of 2009, has stressed he wants that bill to go forward paired with a separate piece of legislation, H.R. 4976, the Internet Gambling Regulation and Tax Enforcement Act of 2010. Sponsored by Rep. Jim McDermott, D-Washington, this bill would establish a framework for taxing Internet gambling, including industry profits and individual’s winnings. Proponents say legalizing online gambling might raise $10 billion to $42 billion in new government revenue over 10 years, according to the Joint Committee on Taxation. The House Ways and Means Committee has yet to mark up McDermott’s bill.

Getting McDermott’s companion bill through Ways and Means, and then having both that bill and Rep. Frank’s bill pass in the House, and then the Senate, all in that brief September window, while not impossible clearly looms as a tall order, conceded John Pappas, executive director of the Poker Players Alliance, a Washington, D.C.-based lobbying organization. “We are not talking about an easy task,” Pappas said.

The Menendez Card

Pappas did, however, point to yet another bill, to legalize online poker, coming together in the Senate. It could sneak through in a lame duck session, Pappas said. The bill, sponsored by Sen. Robert Menendez, D-N.J., has not yet had a hearing.

Meanwhile, as the debate rages on full tilt, opponents of online gambling continue to point to a host of negative societal ramifications that to them appear to be a sure thing should legalization come to pass.

“Internet gambling’s characteristics are vastly different than those of other forms of gambling,” said Rep. Spencer Bachus, R-Ala., during a hearing held July 21. Bachus is the ranking GOP member on the Financial Services Committee and perhaps the country’s most vociferous opponent of Internet gambling.

“Online players can gamble 24 hours a day from home,” he said. “Children may play without sufficient age verification. Betting with a credit card can undercut a player’s perception of the value of cash, leading to addiction, bankruptcy and crime.”

‘Click the Mouse, Lose Your House’

Youth are particularly at risk, Bachus said, because “when you put a computer in the bedroom or dorm room of a young person, the temptation is too great for many of them to resist.”

Quoting John Kindt, a professor of business administration at the University of Illinois, Bachus went on to label Internet gambling “the crack cocaine” of betting. “It’s ‘click the mouse, lose your house,’” he said.

By some estimates, as many as 15 million Americans play poker online for money. Online gambling is thought to generating at least a $6 billion in profits annually.

According to a May 2009 Gallup poll, 58 percent of Americans called gambling “morally acceptable,” while 36 percent called it “morally wrong.” But there are concerns. In a Pew poll in 2006, 70 percent said they think legalized gambling encourages people to gamble more than they can afford. Six percent said gambling has been a source of problems within their family.

Compulsive Betting on Rise

A spokesman for Gamblers Anonymous (who in keeping with the organization’s hallmark asked that only his first name, Chuck, be used for this article) said GA has no formal opinion on the effort to legalize Internet gambling, and that they do not comment on public policy issues. But asked whether the proliferation of online gambling sites has swelled the ranks of compulsive gamblers seeking help, Chuck said, “the answer is, unequivocally, yes.”

Chuck had no hard data to support this assertion, only anecdotal evidence. “More and more people are coming into the program and telling us they became addicted online.”

Shawn Jordon, a former compulsive gambler, cofounded a gambling addiction self-help website in 2006. He says around 1,000 people visit the site every day. Jordon said he has gathered data from all over the world suggesting that gambling addiction is soaring.

What Happens in Vegas is Now Everywhere

Historically, Jordon said, looking at any given community, whether a town with 100,000 citizens or a city of one million, various data has suggested that around 5 percent of a population would be considered “problematic” gamblers, that is, they gamble beyond what would be considered recreational. Of those, Jordon said, an estimated 10 percent would be considered “compulsive” gamblers who can’t stop and in many cases rack up enormous debts. In recent years, according to Jordon, that smaller subset of clinically compulsive gamblers has been exploding.

“So in the example of a small town with 100,000 people  instead of there being just 500 compulsive gamblers the number is now closer to 5,000,” Jordon said. “That includes people who play lottery tickets, use Indian casino poker machines, go to the race track, you name it,” Jordon said. “Once upon a time what happened in Vegas stayed in Vegas. Gambling has proliferated to the point where sadly that is no longer the case.”

Litany of Loopholes

Jordon, who resides in Calgary, says he is not opposed to the legalization of Internet gambling. “There’s no way to stop it,” he said. “The genie is out of the bottle. All we can do is help people.”

In the mid-1990s, Congress created the National Gambling Impact Study Commission which in 1999 issued a final report calling for a ban on Internet Gambling. While the federal Wire Act of 1961 expressly prohibits sports betting and other forms of gambling, peer to peer gambling, such as online poker, fell into a gray area. In 2006, Congress passed the Unlawful Internet Gambling Enforcement Act, a law aimed at discouraging financial institutions from transacting with online gambling operations. The law, subject to numerous delays and postponements, officially took effect June 1.

However, because of the various means of getting around the measure  offshore credit card accounts, prepaid credit cards, to name two examples  the Internet poker industry continues to thrive, said PPA’s Pappas.

The law doesn’t specifically ban banks from transacting with online poker sites; rather, it merely requires that banks take proper steps to make sure that they do not facilitate any illegal gambling transactions. Embedded in the law is what amounts to a safe harbor, so that banks that wish to transact with an online poker business simply needs a reasoned legal opinion that their client is not involved in restricted transactions, Pappas explained. Sports betting activity, expressly prohibited by the Wire Act, would not fall into this category. Online poker, which is not expressly prohibited, would not.

On Wednesday, the House Financial Services Committee approved a bill that would effectively legalize online poker and other nonsports betting, overturning a 2006 federal ban that critics say merely drove Web-based casinos offshore.

The bill would direct the Treasury Department to license and regulate Internet gambling operations, while a companion measure, pending before another committee, would allow the Internal Revenue Service to tax such businesses. Winnings by individuals would also be taxed, as regular gambling winnings are now. The taxes could yield as much as $42 billion for the government over 10 years, supporters said.

The two measures — which are backed by banks and credit unions but have divided casinos and American Indian tribes — are far from becoming law. A bill to legalize online poker sponsored by Senator Robert Menendez, Democrat of New Jersey, has not yet had a hearing. The Congressional timetable has little spare room before the midterm elections, and the Obama administration has not taken a position.

But the vote suggests a willingness by Congress to look for unconventional ways of plugging holes in the budget and comes as struggling states have also been looking to extract revenue from the gambling industry, which took a hit as consumers cut back on travel and entertainment during the recession but continues to reap billions of dollars in annual profits. The committee vote Wednesday was 41 to 22, with seven Republicans joining most Democrats on the panel in favor of the measure.

Last year, Colorado expanded casino hours, raised maximum-bet limits and permitted roulette and craps, while Missouri eliminated a $500 loss limit at riverboat casinos. Delaware and Pennsylvania have weighed proposals to allow the conversion of slots parlors into full-service casinos, making further inroads into the eroding Atlantic City gambling industry.

Opponents, who only four years ago, when Congress was controlled by the Republicans, secured a law that banned the use of credit and debit cards to pay online casinos, said they were aghast. “People sometimes resort to drastic things when they are strapped for cash,” said Representative Robert W. Goodlatte, Republican of Virginia, who called the new proposals “unfathomable.”

Representative Barney Frank, the Massachusetts Democrat who leads the Financial Services Committee, has been the legislation’s champion.

“Some adults will spend their money foolishly, but it is not the purpose of the federal government to prevent them legally from doing it,” Mr. Frank said.

The committee’s top Republican, Representative Spencer Bachus of Alabama, noting the passage of far-reaching changes in financial regulation this month, said that “after all the talk last year about shutting down casinos on Wall Street,” he was incredulous that members would vote to “open casinos in every home and every bedroom and every dorm room, and on every iPhone, every BlackBerry, every laptop.”

Mr. Bachus said lobbyists had spent “tens of millions” to overturn the 2006 law. “They’ve had quite a bit of success in turning votes,” he said.

Supporters of legalization said fiscal considerations played a role in their thinking. “I was looking for the money,” Representative Jim McDermott, Democrat of Washington, said in an interview. He sponsored the companion measure to allow taxation of Internet gambling; he wants to dedicate the money to education.

Representative Brad Sherman, Democrat of California, said in an interview that the money was an attractive source of financing for other programs. “We will not pass an Internet gaming bill,” Mr. Sherman predicted. “We will pass a bill to do something very important, funded by Internet gaming.”

He added, “Forty-two billion dollars over 10 years has an effect.”

The legal status of online gambling has long been murky. The Justice Department asserts that the Wire Act of 1961 prohibits it, but prosecutors have largely left individual gamblers alone.

To crack down on the activity, a 2006 law — inserted at the last minute into an unrelated bill in one of Congress’s last actions before Democrats took control — banned financial institutions from transmitting payments to and from gambling operators.

In the same year, the authorities arrested David Carruthers, a British online-gambling executive, as he changed flights at a Texas airport. He was sentenced to 33 months in prison for racketeering. Last year, the authorities ordered four banks to freeze the accounts of online payment processors that owed money to some 27,000 people who had used offshore poker sites.

But the enforcement actions have barely put a dent in the industry, experts say. Gamblers have used online payment processors, phone-based deposits and prepaid credit cards to circumvent the ban. By some estimates, American online gambling exceeds $6 billion a year.

“Today, any American with a broadband connection and a checking account can engage in any form of Internet gambling from any state,” Annie Duke, a professional poker player, testified in May on behalf of the Poker Players Alliance, which hired a former Republican senator from New York, Alfonse M. D’Amato, to lobby for the bill.

Michael Brodsky, executive chairman of YouBet.com, an online site for parimutuel horse racing, said, “As with Prohibition, illegal online gambling is thriving as an underground economy.”

Banks and credit unions said the 2006 law was poorly drafted — so much so that the Obama administration delayed, to June 1 of this year, the deadline for banks to comply with the law, to address concerns about its enforceability.

In 1999, the National Gambling Impact Study Commission urged the prohibition of Internet gambling. Attorney General Eric H. Holder Jr. has said he would not support efforts to legalize online gambling, a view shared by most state attorneys general.

“Because Internet gambling is essentially borderless activity, from a money-laundering and terrorism-financing perspective, it creates a regulatory and enforcement quagmire,” said James F. Dowling, a former special agent with the Internal Revenue Service.

And Mr. Bachus released a November letter from the F.B.I. in which Shawn Henry, the assistant director of the cyber division, said it would be difficult for companies to verify the age and location of their customers.

The bill contains measures intended to protect minors and combat compulsive addiction. It would allow states and Indian tribes to “opt out,” so players from those states and reservations would not be able to make online bets. But those governments would have a potentially lucrative incentive to allow the activity since they could then collect taxes from Internet casinos.

Before voting, the committee approved amendments to delegate enforcement duties to states and tribes, continue a ban on betting on sporting events, ban marketing aimed at children, and prohibit companies that violated the 2006 ban from obtaining licenses.