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.

The bill sponsored by state Sen. Raymond Lesniak, D-Union, specifically would allow “New Jersey residents to place wagers on casino games via the Internet,” according to the text of the legislation.

All games, including poker, would be offered through Internet wagering, the bill states.

In addition, the bill would require that the equipment used to operate the Internet wagering be located in a restricted area of a casino hotel or in a secure facility off the premises of the casino hotel, “but within the territorial limits of Atlantic County.”

The bill comes with an annual tax of 20 percent on gross revenue from Internet wagering, which would be paid into a casino revenue fund. It also provides for the creation of a Division of Internet Wagering under the direction of the state Casino Control Commission.

Additionally, the Casino Control Commission and the New Jersey Racing Commission would allow the operation of terminals at racetracks at which “individuals who have registered to participate in Internet wagering may wager on games conducted at casinos in Atlantic City.”

Those terminals would be identical in appearance to casino slot machines.

The full text of the proposed legislation, S3167, “Permits Internet wagering at Atlantic City casinos under certain circumstances,” is available here.

Source: http://www.pressofatlanticcity.com/news/breaking/article_dfdd5dcc-0375-11df-b557-001cc4c002e0.html

The results of the four-month investigation by 60 Minutes correspondent Steve Kroft, producer Ira Rosen and The Washington Post’s two-time Pulitzer Prize-winning reporter Gilbert Gaul will appear this Sunday, Nov. 30, at 7 p.m. ET/PT on 60 Minutes.

“He was raising, just really, really bad hands against very good hands. He seemed to play crazy,” says Todd Witteles, a computer scientist turned poker player who believed he was losing too much to the same person. “It seemed like he was giving his money away. Except the only thing was, he wasn’t losing. He was playing in a style that was sure to lose, but he was killing the game day after day,” Witteles, who played a key detective role, remembers.

Michael Josem, a player and a computer security expert, plotted the odds of such consistent success. “We did the mathematical analysis to find that they were winning at about 15 standard deviations above the mean…approximately equivalent to winning a one-in-a-million jackpot six consecutive times.”

The cheating, which netted the cheaters more than $20 million, occurred on two of the Internet’s most popular sites, Absolute Poker and Ultimate Bet. The two sites operate out of a shopping mall in Costa Rica and run their games on computer servers housed on an Indian reservation outside of Montreal. They are licensed by a Mohawk tribe that has no background in casino gambling, a tribe that previously made the majority of its money selling tax-free tobacco. Though such gambling is illegal in both Canada and the U.S., the betting laws in those countries have no jurisdiction on the sovereign reservation.

Some SL businesses already may be operating outside current law. Casino gambling and sports betting are pervasive in SL. The fact that bets are made in lindens, not dollars, won’t shield gamblers from possible prosecution under federal laws banning Internet gambling, says Jaclyn Lesch, a spokeswoman for the US Justice Department. “Regardless of how one pays for the bet, it is still a bet if it involves something of value. While not a credit card or cash, [virtual currencies] would still be a thing of value” especially considering the fact that they are later redeemed for cash.

As for Linden Lab, the company claims that it is not responsible for illegal acts on the part of users, just as Internet service providers like AOL aren’t responsible for actions committed by their users.

So for all of you thinking about taking your gambling and betting into the virtual world… Still illegal in the US.

“My wife would catch me playing Internet blackjack at 4 a.m.”
by Manuel Baigorri
Jul 29, 2008

WASHINGTON – Ever since he was very young, Sean G. used to drive the 275 miles between Los Angeles and Las Vegas to gamble. But when he started to gamble online, his bets – and losses – went out of control.

His initial $10 and $50 bets moved to $100 bets, and he ended up betting between $1,000 and $2,000 a week, said the Los Angeles resident, who was interviewed on the condition that he would not to be publicly identified.

“I started winning and I thought I could do that all the time,” said 39-year-old Sean. “When I lost, I didn’t get scared because I thought I could still beat it, …but it didn’t take long to take out of control.”

Sean, a middle school teacher, said the worst part of Internet gambling is that he could do it 24 hours a day and nobody would know about it.

“It’s too easy. You don’t have to get in your car and go somewhere,” said Sean. “You can do it in your bathrobe. … I was always alone.”

Sean started going to a Web site that allows users to place bets on sports events with a credit card.

Then he moved on to Internet blackjack. “That was what really got me into trouble.” The level and frequency of his bets jumped significantly. Sean became a compulsive online gambler.

“My wife would catch me playing Internet blackjack at 4 a.m. and asked me why I was doing that,” Sean recalled. “I just told her it was for fun.”

Sean said he could not pay his credit card bill, and when he had used all his credit limits “I started to steal money from my own wife. … We are not married anymore.”

“When we separated …I thought nobody is going to bother me. I can go gamble like I wanna go gamble, so I gambled more than what I did when I was married,” Sean said.

Sean said he became so obsessed with online gambling that when he lost a bet he thought something was wrong with his computer. He started to go back to real casinos more often.

“I was convinced that the Web site was cheating me, and I started going out and playing for real so that I could at least look at the cards.”

After a few years of online gambling, Sean said he was completely isolated. He said he felt like he were the only one on earth with that problem, and he wanted “to get [my] story out.”

He had heard of Gamblock, a program that costs $74.95 and prevents users from logging in on any gambling Web site. But he did not want to try it.

Sean said he had also heard of specialized addiction centers, but he had too many gambling losses to afford them.

“You’re broke, you’ve borrowed money from your family and friends, [and] you’ve stolen money,” said Sean. “I owed about $50,000…to various people.”

So he ended up going to Gamblers Anonymous, a nonprofit organization that helps people recover from gambling addiction, and he entered a recovery program where participants usually give $1 to $10 donations a meeting to support the group.

Sean said he hasn’t gambled for more than two years now.

“It feels very good. I still have financial debt to pay back, but my life is a lot better,” Sean said.

“I can concentrate on work, and my recovery and building up my relationships with my friends and family because they were destroyed when I gambled.”

Sean goes to meetings organized by Gamblers Anonymous three times a week, and he has a sponsor, a person who keeps track of his progress and gives personal advice to him.

Ara H., Sean’s sponsor, was a gambler for many years, but stopped 12 years ago. He emphasized that the recovery takes an entire life and even he still goes to meetings for himself.

“This is like medication. If I don’t take my medication, I’ll get sick and I’ll go back to gambling,” said Ara. “A lot of people stop going to meetings after a few months or years and they end up going back to gambling.”

Sean is aware of the risks.

He stopped using his computer for about six months. He also canceled all his accounts with gambling Web sites.

“I don’t want to risk losing the life I have now without gambling. If I were to place a bet, I cannot stop placing bets … and I have to make sure I don’t place one bet,” he said.

Today, the big money special interests lost and the people of Massachusetts won. Members of the House withstood incredible pressure from the deep‐pocketed gambling industry, unions and the Governor’s office.

This is the third consecutive session in which the House has overwhelmingly voted to reject the harmful expansion of gaming in the Commonwealth. The cost of creating a casino culture is too high. There are far better ways to create jobs and increase revenue The House has repeatedly pursued initiatives that spur our economy through life sciences, clean energy and other industries that far better utilize our strengths. Massachusetts has always been known for its brain power, innovation and technical expertise.

Connecticut, Rhode Island and New York all have casinos and they all have higher taxes than Massachusetts. Pennsylvania allowed slots to give property tax relief and, now, their governor is proposing a major sales tax increase.

This issue has dominated the debate here at the State House for more than six months. The Legislature had three public hearings, including a 13‐hour session this week, and proponents and opponents debated for more than six hours on the floor today before voting.

The debate on casino gambling is over. We will move on and the House will continue to work collaboratively with the Governor and the Senate to grow our economy in meaningful ways.