1 The International Internet Gaming Regulatory Commission By: Dan Sarfati I. Introduction There was a moment in time where only a few states and Indian reservations served as venues for flashy casinos. From Las Vegas to Atlantic City, glamorous hotels play host to these grand casinos. Gradually, hotels began to incorporate venues for concerts, circus acts, and high- scale restaurants in an effort to attract a larger consumer base. In order to enjoy the magnificent luxuries the hotel casinos have to offer, a patron would make travel arrangements, book hotel accommodations, and prepare for a weekend filled with placing wagers on a wide range of games the casinos offered. The extensive period of domination by “brick and mortar” casinos of the gaming market has come and gone. Today, the Internet gaming industry provides an affordable medium for conveniently playing popular casino games such as blackjack, poker, craps, slots and the list goes on and on. Due to the fact great sums of money change hands between patrons and the casino second by second, state–regulated casinos allocate a great portion of their budgets to preventive security measures targeting fraud, rigging and theft by both casino patrons and their very employees. The vast majority of Internet gaming sites are incorporated outside of the United States. Consequently, a majority of these Internet gaming sites are not subject to the stringent regulations similarly applied to their “brick and mortar” relatives located in the United States. Without strict regulations and administrative oversight, Internet gaming patrons worldwide are highly susceptible to incidences of fraud, rigging and theft. The exponential growth of the Internet gaming industry in conjunction with the heavy media coverage of gaming competitions have not only attracted a new generation of gamblers but also a new generation of predators. The Internet gaming trade has transformed from a small
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The International Internet Gaming Regulatory Commission
By: Dan Sarfati
I. Introduction
There was a moment in time where only a few states and Indian reservations served as
venues for flashy casinos. From Las Vegas to Atlantic City, glamorous hotels play host to these
grand casinos. Gradually, hotels began to incorporate venues for concerts, circus acts, and high-
scale restaurants in an effort to attract a larger consumer base. In order to enjoy the magnificent
luxuries the hotel casinos have to offer, a patron would make travel arrangements, book hotel
accommodations, and prepare for a weekend filled with placing wagers on a wide range of
games the casinos offered. The extensive period of domination by “brick and mortar” casinos of
the gaming market has come and gone. Today, the Internet gaming industry provides an
affordable medium for conveniently playing popular casino games such as blackjack, poker,
craps, slots and the list goes on and on.
Due to the fact great sums of money change hands between patrons and the casino second
by second, state–regulated casinos allocate a great portion of their budgets to preventive security
measures targeting fraud, rigging and theft by both casino patrons and their very employees. The
vast majority of Internet gaming sites are incorporated outside of the United States.
Consequently, a majority of these Internet gaming sites are not subject to the stringent
regulations similarly applied to their “brick and mortar” relatives located in the United States.
Without strict regulations and administrative oversight, Internet gaming patrons worldwide are
highly susceptible to incidences of fraud, rigging and theft.
The exponential growth of the Internet gaming industry in conjunction with the heavy
media coverage of gaming competitions have not only attracted a new generation of gamblers
but also a new generation of predators. The Internet gaming trade has transformed from a small
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budding enterprise to a thriving multi-billion dollar industry with no signs of slowing down.1 As
of 2005, Internet gaming has surged into a $13 billion industry annually. Revenues attributed to
online Internet gaming sites account for a projected five percent of the total global gaming gross
revenue of $258 billion in 2005.2 Additionally, North American residents accounted for roughly
forty-seven percent of the global gross gaming yield in 2005.3 Currently, Internet gaming sites,
specifically poker sites, have launched persistent marketing campaigns targeting gaming fanatics.
In addition, merchandise, video games and board games have been marketed to stimulate the
excitement actual gaming brings to its participants.4 The Internet gaming industry will only grow
larger as it seeks to meet the demand of a growing customer base.
The international community must establish the International Internet Gaming
Regulatory Commission (IIGRC) in order to license and regulate offshore Internet gaming sites.
This commission would provide licenses to offshore Internet gaming sites, promulgate
regulations for which the licensed sites are obligated to abide by, investigate fraudulent conduct
perpetrated by sites & their affiliates, decide disputes involving claims of rigging, theft, fraud,
underage usage and further legitimize offshore Internet gaming. In essence, the IIGRC would
serve the purpose of “outsourcing” the regulation of Internet gaming sites to a credible
international body.
1 I. Nelson Rose, The Law of Internet Gambling, Gambling and the Law (June 15, 1999),
available at http://www.gamblingandthelaw.com/internet.html. (last visited November 19,
2009). 2 The Internet Gambling Regulation and Enforcement Act of 2007, H.R. 2046, 110
th Cong.
(2007). 3 Id.
4 See, e.g., Official Merchandise—Harrah’s World Series of Poker,
http:// www.shopwsop.com/aspx (last visited November 19, 2009); World Poker
Outlet, available at http:// www.worldpokeroutlet.com/wsop/index.php (last visited November
18, 2009).
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The evolution of the offshore Internet gaming model makes strict regulation of Internet
casinos very difficult for the United States, its states, and foreign nations. First, this paper will
generally examine the power of state laws regulating gaming and their accompanying
inadequacies. Second, this paper will examine the existing federal laws used by authorities to
prohibit Internet gaming and expose their accompanying loopholes. Last and most importantly,
this paper will advocate the formation of the IIGRC, discuss the general provisions of the
agreement creating it, outline its structure, and conclude with a powerful justification for its
formation. For purposes of comity, preserving customer trust and maintaining the integrity of the
Internet gaming industry, it is essential the worldwide community create the IIRGC to serve as
the international “watchdog” that tightly polices Internet casinos.
II. The States’ Effort to Prohibit Internet Gaming
Generally, it is the states that administer the regulation of gaming at venues located
within its borders.5 The states have justified gaming regulation by applying the state police
powers derived from the Tenth Amendment to the Constitution. The tenth amendment gives the
states latitude to regulate this industry on behalf its citizens’ welfare and health.6 Some states
have explicitly prohibited all forms of Internet gaming. 7 For example, Nevada has promulgated
5 Andrea M. Lessani, How Much Do you Want To Bet That The Internet Gambling Prohibition
Act of 1997 Is Not The Most Effective Way To Tackle The Problems Of Online Gambling?, The
UCLA Online Institute For Cyberspace Law and Policy Archive (1998), available at
http://www.gseis.ucla.edu/iclp/alessani.html. 6 U.S. CONST. Amend. X. See also Advanced Delivery Serv., Inc. v. Gates, 183 Cal. App. 3d
967, 976 (Ct. App. 1986) (“Not only does the legislature have the power to completely prohibit
wagering on horse races, but it may also limit such wagering to persons physically present within
the enclosure”). 7 I. Nelson Rose, The Future Legal Landscape for Internet Gambling, Gambling and the Law
(November 3, 2000), available at http:// www.gamblingandthelaw.com/antigua.html (last visited
Nov. 25, 2009).
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laws directly addressing the Internet gaming industry.8 Other states implicitly prohibit all forms
of Internet gaming except for specific classes of online bets accepted at authorized local
institutions.9
The vastly expansive character of the Internet places a heavy burden on the states to
regulate the Internet gaming industry that is persuasively classified as interstate and international
commerce. State law provides the substantive grounds for determining the legality of Internet
gaming provided it does not attempt to regulate interstate commerce. Many scholars have argued
it is congress that is the province for regulating Internet gaming that crosses state lines. For
instance, Florida’s attorney general has posited that “any effort to regulate the use of the Internet
is better suited to federal regulation than to patchwork attention by the individual states.”10
Congress has determined that it is better suited to create a regulatory bill against the inherent
dangers attributed to Internet gaming. 11
III. The Federal Effort to Prohibit Internet Gaming
Congress has noted several policy concerns regarding the Internet casino industry’s
impact within the United States. First, the anonymous nature of Internet use creates serious
difficulties for an Internet gaming site to verify the age of the customer in an effort to detect an
8 See, e.g., Letter from Frankie Sue Del Papa, Nevada State Attorney General, and Jeffrey R.
Rodefer, Senior Deputy, Nevada State Attorney General Division, to Steve DuFine, Chairman,
Nevada State Gaming Control Board (Dec. 29, 2000) (on file with Nevada State Attorney
General Office), available at http://ag.state.nv.us (This letter addresses an Advisory Opinion No.
2000-38 of the Attorney General's Office, which stated “an Internet game involving [point
wagers or tickets in which no money was required, but patrons could still win prizes] ... must
receive approval from the Nevada Gaming Commission pursuant to its Regulations 14.230
through 14.250, before being exposed for play to the public, albeit on the Internet”). 9 Id. supra note 8.
10 See Scott Olson, Betting No End to Internet Gambling, 4 J. Tech. L. & Pol’y 2, para. 17
(quoting Op. Fla. Att’y Gen. No 95-70 (Oct. 18, 1995)). 11
See 31 U.S.C.A. § 5361(a) (2007).
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underage user.12
Second, unregulated offshore Internet casinos may misuse a customer’s identity,
financial information or money. 13
Third, Internet casinos operating from overseas can avoid the
reach of the U.S. courts for lack of personal jurisdiction.14
Fourth, Internet casinos do not bring
tax revenue or employment opportunities to the states, and therefore denies the U.S. government
the opportunity to enjoy the benefits created by tax revenues, licensing fees, and job growth.15
Lastly, consumers are not assured the games are not rigged or whether winnings will be paid out
by the Internet casino.16
Together, these concerns have prompted Congress to exercise its
Commerce Clause powers by implementing laws targeting Internet gaming because it implicates
interstate commerce.17
A. Analysis of Federal Laws
There are several federal laws that are relevant to question whether Internet gaming is
prohibited and each will be briefly analyzed in order to expose their flaws. The scope of these
laws generally cover bets or wagers placed at a personal computer or any web-enabled device
12
National Gambling Impact Study Commission, Final Report, 5-4 (1999), available at