While it is illegal to offer wagers over the Internet in most states, a growing number of U.S. companies are profiting from a boom in online gambling and from business relationships with virtual casinos based overseas whose games can be played in the United States.
In the process, some state attorneys general say, software makers, media companies and Internet services working with overseas casinos may themselves be running afoul of the law — and may be assisting in an illegal activity in which 1 million U.S. residents a day participate.
American businesses counter that their role in online gaming is indirect, that the casinos are acting legally in the jurisdictions in which they are based, and that the U.S. and state laws are murky, mired in evolving jurisdictional questions raised by the borderless quality of the Internet.
American businesses’ involvement with overseas casinos — based typically in Costa Rica and the Caribbean — has largely transpired under the radar of regulators, and those few who have studied the matter acknowledge that prosecution of U.S. companies could be challenging. But the issue seems destined to invite increasing scrutiny as state and federal law enforcement focus increasingly on how they might take action to slow an exploding industry whose operators are based offshore.
For the moment, the legal action that is taking place is largely at the state level. The New Jersey attorney general’s office recently sued three Internet Situs Slot Deposit Pulsa Tanpa Potongan casinos — located in South Africa, St. Kitt’s and Costa Rica — for targeting the state’s residents. In the course of its investigation, the state asked three billboard companies based in United States to remove ads for Internet casinos appearing on the New Jersey Turnpike, the Atlantic City Boardwalk and the Atlantic City Expressway.
The office took no action against the billboard companies, but John Peter Suarez, director of New Jersey’s Division of Gaming Enforcement in the office of the attorney general, said that companies doing business with overseas gambling sites could be seen as abetting an illicit activity. It’s similar to a business that “has ties to organized crime,” Suarez said, noting that the U.S.-based business doesn’t have to necessarily be taking the wager to be implicated.
“If they’re profiting from it,” he said, “then they’re associated.”
Connecticut Attorney General Richard Blumenthal concurred, asserting that “anyone associated with this industry is in legal peril.” He conceded that the prosecution of indirect relationships could be difficult “at best” and that businesses could offer “a lot of defenses.” But another question, he argued, is one of business ethics.
“These companies should take a look in the mirror and ask whether they are doing the right thing, and whether they can justify being a means to victimize innocent people,” Blumenthal said.
Yahoo! Internet Life, with a paid circulation of 1.1 million the most widely-circulated magazine about the Internet, accepts advertisements from overseas casinos. Its editor-in-chief, Barry Golson, disputed the organized-crime analogy proposed by Suarez. “Some of these casinos are operated by people who are licensed in other countries,” Barry said.
But Golson added that the issue goes to the heart of emerging political, social and legal issues raised by the Internet. Indeed, Golson editorialized earlier this year about the dangers of Internet gambling — asserting the activity is addictive and unregulated — and questioned the magazine’s policy of running the ads. In an effort to stave off potential legal issues, Golson said the magazine plans to require casinos to include a disclaimer with their ads noting the activity may be illegal in some states. But as to the magazine’s long-term advertising policy, Golson said, “We are doing what everybody else is doing — waiting for some national consensus to emerge.”
The Internet gambling issue has sparked an intensifying debate. Using the Internet, individuals can now access remarkably realistic casino games from their personal computers. To critics, it is a potential source of massive addiction and loss, a veritable slot machine in every home; to proponents, an inevitability that can be a source of regulated and taxed entertainment.
For now, nearly all states, with a few notable exceptions like Nevada, outlaw Internet gambling from operating within their borders, according to I. Nelson Rose, a professor of law at Whittier Law School and an expert on gambling law. He added that all states make it a crime to run a gambling operation not expressly permitted by state law. Some states also have laws that prohibit the promotion of such games, statutes that could implicate companies in the United States that cooperate with the casinos.
On a federal level, matters are even less clear. The Justice Department said the Wire Act of 1960 prohibits offering sports wagers over the Internet. However, a federal judge in February cast doubt on whether the Wire Act would be interpreted as prohibiting offering casino games like blackjack over the Internet. In a ruling that dismissed a lawsuit against credit card companies whose services were used to gamble over the Internet, the judge, Stanwood R. Duval Jr. of the U.S. District Court for the Eastern District of Louisiana, wrote, “at this point in time, Internet casino gambling is not a violation of federal law.”
Despite the ruling, the Justice Department maintains that casino gambling, at the least, violates other aspects of federal law.
Despite its uncertain legal standing, Internet gambling is a booming business. Bear Stearns estimated that some 1,400 casino websites generated revenue of $1.5 billion last year from online gaming, a figure the investment firm estimates will grow to $5 billion by 2003.
Few, if any, of the casinos operate from the United States. But U.S. firms are getting into the act nevertheless — by offering technical expertise, consulting, advertising or promotion, said Sue E. Schneider, chief executive of River City Group, a firm that tracks the Internet gambling industry.
Among the numerous U.S.-based websites that accept advertising from overseas casinos are several of the most popular Web destinations, including MSNBC, Yahoo! and Google.com.
In the case of Google.com, the search engine accepts ads for Internet casinos but does not accept advertising from tobacco or alcohol companies, saying it does not want to promote smoking or drinking among minors. Omit Kordestani, Google’s vice president for business development, said that while tobacco and alcohol are legal, and Internet gambling is illegal in many states, “gambling is not in the same class for us” as tobacco and alcohol. Moreover, he said, Google does not believe it is in any legal jeopardy by running the casino ads. “The laws are not conclusive on this,” he said.
Yahoo! also does not accept tobacco ads, said Nicki Dugan, a spokeswoman, but does accept gambling ads. She said that there “probably is technology” that would allow Yahoo! to target the ads only to states where it is legal but said that the company is not now employing such technology.
Also getting a share of the pie are public relations firms, including at least two firms well-known for publicizing technology sector companies: Ogilvy Public Relations and Edelman Public Relations, both with headquarters in New York, have overseas casinos as clients. For three years, Edelman has worked for Intertops.com to promote the company not only overseas, in many markets where Internet gambling is permitted, and in publications in the United States. Steve Hoechster, general manager of Edelman, said that it is not clear that Internet gambling is illegal in the United States. Nevertheless, he said Intertops has signed a contract that Hoechster said indemnifies Edelman against legal action that could arise from Intertops’ breaching the law.
Another sector profiting from the business are technology and software companies. Among them is RealTime Gaming, a company based in Atlanta that makes casino programs for around 30 offshore casinos, most of them based in Costa Rica. In addition, RealTime Gaming acts as the Internet access provider for 75 to 80 percent of those sites, said Michael Staw, the company’s founder. He said he believed the company was acting lawfully, noting, “we do not run the casino in any way.”
But Daniel Schultz, the company’s director of marketing, acknowledged that the issue of whether U.S.-based firms could face legal troubles for working with overseas casinos was tricky. “That’s the $64,000 question,” said Schultz.
Others are sufficiently concerned to be modifying their activity. Until recently, SoftNet Gaming, a software company that makes programs for online casinos, had 35 employees at its Miami offices. However, Mark Anton, the president of both SoftNet and its Antigua-based parent, Atlantic West Gaming Entertainment Ltd., said he began cutting down the activities at the Miami office because he worried he might face action from the Florida attorney general. “Rather than wait for them to do anything, we’re moving to a jurisdiction where we know it’s okay,” said Anton. His operations will be moving to Antigua.
He would not be the first to face an Internet gambling-related problem from Florida. In 1998 and 1999 the state issued cease-and-desist letters to at least 10 media companies publishing or broadcasting ads for offshore casinos. The letter stated that offering gambling over the Internet was illegal and that “Florida statues criminalize the actions of any person or entity that aids and abets the commission of a criminal act in Florida.”
Les Garringer, an assistant deputy attorney general in Florida, said that to his knowledge the state has not sent similar cease-and-desist letters since late 1999 — not because the situation has subsided, he said, but because the attorney who was overseeing the matter died, and the office had begun shifting its resources to other issues.
Other states have been less aggressive. In Georgia, where RealTime Gaming is based, Daryl Robinson, counsel to the attorney general, said the issue of Internet gambling “is not on the forefront for us.” And he said that the issues are tricky because it is unclear how far the state’s jurisdiction can reach when the activity takes place offshore, and in a jurisdiction where it is legal. “The difficult question that arises is what’s the reach of a state statute when those activities are being hosted somewhere outside the boundaries of the state of Georgia,” he said.
