Chapman Law Review - Chapman University

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Chapman Law Review
Volume 5
Spring 2002
Chapman University School of Law
is provisionally approved by the American Bar Association
Number 1
Chapman Law Review
Volume 5
Spring 2002
Number 1
Executive Board 2001-2002
MARK D. SCHOPPER
Editor-in-Chief
DAVID H. LANTZER
Executive / Production Editor
KELLY M. CRAIG
Executive / Senior Notes Editor
LEIGH A. JEWELL
Senior Articles Editor
KIRA RUBIN
Finance Editor
LISA DARLING ALDERTON
Copy Editor
Staff Editors
MELANIE JO BOYER
Articles Editor
WADE HULAC
Notes Editor
MICHAEL J. FAIRCHILD
Articles Editor
DANIEL NOLAN
Articles Editor
ELIZABETH CHAND
Notes Editor
SANDRA WOODS SKAHEN
Symposium Editor
RYAN A. WILLIAMS
Technology Editor
Candidates
JEFF ASTARABADI
MARTIN BAKER
KATHRYN M. CASEY
MELANIE A. ELLS
CAROLINE HAHN
MICHAEL A. HAUBERT
ROBERT J. MAYNES
LAURA T. MORSE
DEBRA PETERSON
LISA JERDE SPILLMAN
KATE STIGALL
MARC B. THOMPSON
MICHAEL S. VASIN
RICHARD WHITLOW
BRIAN WILLIAMS
Faculty Advisor
DENIS BINDER, Professor
CHAPMAN
UNIVERSITY
ADMINISTRATION
JAMES L. DOTI
President
GARY BRAHM
Executive Vice President
HAM SHIRVANI
Senior Vice President, Provost
PARHAM H. WILLIAMS, JR.
Vice President and Dean of the Law School
JOE KERTES
Vice President and Dean of Students
SASKIA KNOGHT
Vice President and Dean of Enrollment
BOARD
OF
TRUSTEES
DONALD E. SODARO
Chairman
ZELMA M. ALLRED
GEORGE L. ARGYROS
RAJ BHATHAL
PHILLIP H. CASE
C. STANLEY CHAPMAN
IRVIN C. CHAPMAN
CARROL COTTON
CHRISTOPHER COX
ARLENE R. CRAIG
JOHN C. CREAN
BEN CROWELL
LESLIE N. DURYEA
ROBERT A. ELLIOTT
PAUL FOLINO
JERROLD A. GLASS
ROBERT GRAY
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RICHARD R. SCHMID
STANLEY D. SMITH
RONALD E. SODERLING
DOROTHY STILLWELL
R. DAVID THRESHIE
ROGER O. WALTHER
HARMON S. WILKINSON
KAREN R. WILKINSON
DAVID WILSON
EX-OFFICIO
TRUSTEES
CHARLES BLAISDELL
CARL R. HILL
GARY E. LIEBL
KATHLEEN SHELLY
DON SHELTON
JOHN SILBERSTEIN
DENNY WILLIAMS
LIFE
TRUSTEES
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HERBERT D. TOBIN
BOARD
OF
VISITORS
WYLIE AITKEN, ESQ.
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EDMOND CONNOR
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JUDGE W. MICHAEL HAYES
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TODD IRBY
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WILLIAM LOBEL
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PAUL MARX
JOEL MILIBAND
RICHARD MILLAR
FRANZ E. MILLER
DANNAH MURPHY
JUDGE ARTHUR NAKAZATO
GARY M. POHLSON, ESQ.
JUSTICE WM. F. RYLAARSDAM
WALTHER SCHINDLER
STEPHEN J. SCHUMACHER
JUSTICE DAVID G. SILLS
RUBEN SMITH
ELLIS STERN
STEVEN H. SUNSHINE
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COMMISSIONER RICHARD VOGL
DUKE WAHLQUIST
JUDGE STUART WALDRIP
JUDGE JOHN WOOLLEY
NICK YOCCA
PETER ZEUGHAUSER
DEAN ZIPSER
SCHOOL OF LAW
ADMINISTRATION
PARHAM H. WILLIAMS, JR.
Vice President, Dean
Donald P. Kennedy Chair in Law, Professor
SCOTT W. HOWE
Associate Dean of Academic Affairs
Frank L. Williams Professor of Criminal Law
JOANNE K. PUNU
Associate Dean for Student Services
SHERYL H. KRAMER
Director of Library / Associate Professor
LAW
SCHOOL
FACULTY
CRAIG ANTHONY ARNOLD
Associate Professor
TOM W. BELL
Associate Professor
DENIS BINDER
Professor
DANIEL B. BOGART
Professor
M. KATHERINE DARMER
Assistant Professor
FRANK J. DOTI
Professor
JOHN C. EASTMAN
Associate Professor
KURT EGGERT
Assistant Professor
JACLINE EVERED
Research & Writing Specialist
GREGORY H. FOX
Assistant Professor
HUGH HEWITT
Associate Professor
SUSANNA M. KIM
Associate Professor
LISA LITWILLER
Assistant Professor
CELESTINE RICHARDS MCCONVILLE
Associate Professor
JEREMY M. MILLER
Professor
SHARON C. NANTELL
Professor
NANCY L. SCHULTZ
Professor
WILLIAM L. STALLWORTH
Henry Salvatori Professor
NHAN VU
Assistant Professor
ROBIN WELFORD
Associate Professor
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Chapman Law Review
Volume 5
Spring 2002
Number 1
 2002 by Chapman Law Review
GAMING LAW SYMPOSIUM
Sports Gambling in the Cyberspace Era . . . Anthony N. Cabot
& Robert D. Faiss
1
There Are No Pequots on the Plains:
Assessing the Success of
Indian Gaming . . . . . . . . . . . . . . . . . . . . . . . Kathryn R.L. Rand
47
Caught in the Intersection Between Public
Policy and Practicality: A Survey
of the Legal Treatment of GamblingRelated Obligations in the United States . . . . Joseph Kelly
87
Appendix: An International Survey of
Gambling Debt Enforcement Law . . . . . . . . . . . . . . . . . . . . . . .
123
Gambling for the Good, Trading for the Future:
The Legality of Markets in Science Claims . . Tom W. Bell 159
The Regulation of Commercial Gaming . . Cory Aronovitz, Esq. 181
Internet Gaming Regulation:
The Kahnawake Experience . . . . . . . . . . . . . . Frank Catania
209
Appendix: Kahnawake Gaming Commission Regulations
Concerning Interactive Gaming . . . . . . . . . . . . . . . . . . . . . . . . .
224
COMMENTS
Internet Gaming Tax Regulation:
Can Old Laws Learn New Tricks? . . . . . . David H. Lantzer 281
Internet Gambling, Electronic Cash & Money
Laundering: The Unintended Consequences
of a Monetary Control Scheme . . . . . . . . . Mark D. Schopper 303
Preface
Chapman University School of Law is an institution committed to
excellence and destined to achieve a position of distinction and influence in American legal education. Building on the academic
reputation and 140-year legacy of Chapman University, the
School of Law has rapidly developed a well-regarded program of
legal education. The Law School’s success is the result of tremendous efforts by the Faculty, Administration, Students, and outstanding support from the University. The current and former
members of the Chapman Law Review are proud to have played a
role in this success.
This preface marks the fifth volume of the Chapman Law Review.
At its inception, the Chapman Law Review sought to provide a
forum for important legal issues and in turn compliment the development of a national caliber law school. Since the inaugural
issue of the Chapman Law Review in 1998, the Review has experienced remarkable success and grown tremendously in both circulation and reputation. The Law Review remains committed to its
goal of making valuable contributions to legal scholarship. This
volume of the Chapman Law Review exemplifies this
commitment.
This volume of the Law Review is dedicated to the topic of Gaming
Law and is the product of a scholarly need and innovative thinking. Legal gaming is one of the fastest growing industries in the
United States, and now exists in forty-seven of the fifty states.
Indeed, with the advent of Internet technology, gambling has become ubiquitous. More than $600 billion per year is legally wagered in America, with more than $50 billion in yearly revenue.
The extraordinary growth in gaming in the past two decades has
presented courts and legislatures nationwide with novel legal issues. Nevertheless, very little legal scholarship has been devoted
to this important area of law.
The goal of this volume dedicated to gaming law is to help create a
body of scholarly legal authority that will provide a valuable resource for elected officials, judges, scholars, lawyers, and other decision makers. In order to achieve this goal, the Chapman Law
Review assembled a group of the most prominent legal scholars in
the field to participate in its gaming-law symposium and publish
articles in the Review. This volume of the Law Review contains a
selection of the major issues in gaming law, including: Internet
gaming, sports betting, Tribal gaming, licensing and regulation,
and enforcement of gambling debts.
This volume would not have been possible without the help of numerous people. The Chapman Law Review would like to extend
special thanks to all of the individuals who participated as symposium panelists and authors in the Gaming Law Volume. Additionally, we would like to gratefully acknowledge the generous
assistance of Morrison & Foerster, LLP, the River City Group, and
Westlaw, which all helped to make the symposium possible. The
members of the Law Review would like to thank all of the Chapman professors and administrators who have contributed their
time and knowledge to the Law Review. We would like to express
our appreciation to Associate Dean Joanne Punu and Director of
Development Teri Hauser for their valuable assistance and neverending encouragement. Finally, we would like to express our
warmest gratitude to Dean Parham Williams for his strong support of the Law Review.
On behalf of the Executive Board, I would like to thank all the
members of Chapman Law Review for the efforts they contributed
to this book. Finally, I would like to thank Lisa Darling-Alderton,
Kelly Craig, Leigh Jewell, David Lantzer and Kira Rubin—whose
absolute commitment to the Law Review made this volume possible. Their enthusiasm, aptitude, integrity, and professionalism
represent the finest qualities expected of members of the legal
community.
MARK D. SCHOPPER
Editor-in-Chief
Chapman Law Review
Volume 5
Spring 2002
Number 1
 2002 by Chapman Law Review
Sports Gambling in the Cyberspace Era
Anthony N. Cabot*
Robert D. Faiss**
I. INTRODUCTION
In America, sports are a massive business; one study
* Mr. Cabot is a partner with the law firm of Lionel Sawyer & Collins, Las Vegas,
Nevada, and since 1995, he has been the chairperson of its Gaming Practice Group. In
addition to his activities with the firm, he is Adjunct Faculty for the International Gaming
Institute, University of Nevada, Las Vegas (UNLV), William F. Harrah College of Hotel
Administration, and for the Conrad N. Hilton College of Hotel and Restaurant Management, University of Houston (hotel law, graduate level). He was vice chairman and is a
member of the Board of Directors of the Gaming Law Section, State Bar of Nevada, and
vice president of the International Masters of Gaming Law. He is also a past president of
the Nevada Gaming Attorneys Association and past general counsel to the International
Association of Gaming Attorneys. He is the chairman of the Board of Advisors for the Casino Management Association and the chairman of the Annual Gaming Industry Awards.
Mr. Cabot is the co-editor of Gaming Law Review and is on the editorial board for
Gaming Research & Review Journal and Cyberlawyer. He was a monthly columnist on
“Gaming Law” for Casino Journal from 1991 to 1998. He also authored Federal Gambling
Law (1999) and Casino Gaming: Public Policy, Economics and Regulation (1996), covering
all aspects of casino gaming. He is the co-editor and contributing author of International
Casino Law (3d ed. 1999). He also is the editor and principal author of Nevada Gaming
Law (3d ed. 2000), and the co-author of Practical Casino Math (2002).
** Robert D. Faiss is a senior partner with Lionel Sawyer & Collins, Las Vegas, Nevada, Chairman of its Administrative and Gaming Law Department, and a member of the
firm for more than twenty-five years. In 1997, Faiss was named the “premier gaming attorney” in the United States and one of “The 100 Most Influential Lawyers in America” by
the National Law Journal. He also received the “Life Time Achievement Award” in gaming
law from the Nevada Gaming Attorneys and the UNLV International Gaming Institute.
In 1998, Mr. Faiss was appointed to the Bank Secrecy Act Advisory Group of the U.S.
Department of Treasury as the representative of the casino industry. The Advisory Group
provides a forum for law enforcement and financial regulators to explore with private sector representatives new mechanisms to improve and bolster federal anti-money laundering
programs, while identifying measures to reduce the financial service industry’s costs and
burdens of regulatory compliance. In 2000, Mr. Faiss was named one of “10 attorneys who
changed the legal industry in Southern Nevada” and one of the forty-three “Most Influential Men in Southern Nevada Business.” In 1999, he was chairman of the advisory commit-
1
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Chapman Law Review
[Vol. 5:1
estimates they comprise a $212 billion industry.1 Although this is
a staggering figure, it may be exceeded by the amount of money
wagered, both legally and illegally, on sporting contests. Legal
sports wagering in Nevada amounts to more than two billion dollars annually; illegal sports wagering elsewhere in the country
may total up to $380 billion per year.2 By any standard, sports
wagering is quite popular from the nation’s factories to its
boardrooms.
Sports wagering has posed particular problems for American
government for quite some time. Federal and state governments
have long struggled to maintain the validity of laws regulating
this industry. Public opinion and advances in communications
technology have created unique challenges for governmental enforcement of these laws.
In the new Internet era, government again faces a challenge
to its sports gaming laws. The rise of Internet sports wagering
has rendered these laws virtually unenforceable. As the gaming
industry struggles to integrate new technologies, government also
must deal with the realities of the Internet and the new global
marketplace. In particular, jurisdictional issues question the government’s ability to enforce its gaming laws against Internet gaming operators.
This article primarily addresses governmental problems and
options in the era of Internet sports wagering. Part II traces the
history of sports gambling in America, and the congressional response. Part II also addresses the current lack of enforcement of
American sports gaming laws, and the Internet’s contribution to
tee for selection of “The 10 Most Important Events in the History of the U.S. Gaming
Industry. ”
Mr. Faiss has devoted much of his practice to gaming law and has represented the
Nevada gaming industry in state and federal administrative, legislative, and judicial forums on major issues affecting that industry. He has represented the gaming industry in
the Nevada State Legislature for the past twenty-six years. Mr. Faiss teaches gaming law
policy at the William S. Boyd School of Law, UNLV. He was selected by the Detroit City
Council to serve as its special gaming counsel in the creation of that city’s casino regulations. Mr. Faiss lectures regularly for the Nevada State Bar Association on gaming law.
He is a charter trustee and past president of the International Association of Gaming Attorneys, and past chairman of the Gaming Law Committee, General Practice Section,
American Bar Association. He is a co-author of Legalized Gaming in Nevada - Its History,
Economics and Control, Nevada Gaming License Guide, Nevada Gaming Law (lst, 2d, and
3d eds.), International Casino Law, and Casino Credit and Collection Law.
Positions held by Mr. Faiss prior to entering private law practice include: City Editor
of the Las Vegas SUN; Assistant Executive Secretary of the first Nevada Gaming Commission; Executive Assistant to Nevada Governor Grant Sawyer, under whose direction Nevada’s present system of gaming control was created; and Staff Assistant to President
Lyndon B. Johnson in the White House.
1 Los Angeles Sports & Entertainment Commission, Economic Impact of Major
Sporting and Entertainment Events, at http://www.lasec.net/econimpact.htm (last visited
Jan. 9, 2002).
2 Robert Macy, Ban on College Sports Betting Could Cost State Books Millions, LAS
VEGAS REV.-J., May 18, 1999, at 4A, available at 1999 WL 9284014.
2002]
3
this trend. Part III details the challenges that Internet gaming
presents to federal and state governments. Part IV turns to the
specific challenge of obtaining jurisdiction over Internet gaming
operators. Finally, Part V discusses possible government responses to these challenges, and the reality of sports wagering in
the Internet era.
II.
THE HISTORY
OF
SPORTS GAMBLING
A. The Relationship Between Sports and Gambling
Sports wagering does not always operate independently of the
events upon which the wagers are placed. For example, Major
League Baseball has had a long and colorful, albeit regrettable,
connection between its personnel and illegal gamblers. The first
and most extensive scandal surfaced in 1920, when eight members of the Chicago White Sox, including the team’s star, “Shoeless Joe” Jackson, were accused of intentionally losing the 1919
World Series.3 The story ultimately became known as the “Black
Sox Scandal.”4 Although all eight players were subsequently acquitted of criminal charges, Commissioner Kenesaw Mountain
Landis banned the entire group from professional baseball for
life.5 Throughout his twenty-five-year career as Commissioner,
Landis publicly fought the influence of illegal gamblers on the
sport. In fact, during his tenure, he issued four additional lifetime
suspensions relating to illegal gambling or the bribing of players.
Subsequent scandals would not rock professional baseball to
the degree of the Black Sox Scandal; nevertheless, the connection
with gambling-related events continued. In 1970, two-time Cy
Young Award-winning pitcher Denny McLain was suspended for
three months for his alleged connection with illegal bookmakers.6
Pete Rose, baseball’s all-time leader in hits, was suspended for life
in 1989, due to allegations that Rose bet on baseball, including
games in which he was involved.7
Professional sports are not alone in recording gambling scandals; collegiate sports also suffer from the influence of illegal gam3 E.g., Eight White Sox Players Are Indicted on Charge of Fixing 1919 World Series,
N.Y. TIMES, Sept. 29, 1920, at A1.
4 E.g., Roger I. Abrams, Before the Flood: The History of Baseball’s Antitrust Exemption, 9 MARQ. SPORTS L.J. 307, 309 (1999); Ted Curtis, In the Best Interests of the Game: The
Authority of the Commissioner of Major League Baseball, 5 SETON HALL J. SPORT L. 5, 26
(1995); Ed Sherman, Sox OK, But Networks Would Have Loved Cubs, CHI. TRIB., Oct. 2,
2000, at 4, available at 2000 WL 3715820.
5 ELIOT ASINOF, EIGHT MEN OUT: THE BLACK SOX AND THE 1919 WORLD SERIES 273
(1963).
6 E.g., BaseballLibrary.com, Denny McLain, at http://www.pubdim.net/baseballlibrar
y/ballplayers/M/McLain_Denny.stm (last visited Mar. 16, 2002).
7 E.g., Matthew Bird, Gambling and Sports Scandals, at http://www.usatoday.com/
2000/century/sports/008.htm (last updated Nov. 25, 1999).
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Chapman Law Review
[Vol. 5:1
bling. In the 1990s, college athletes at Northwestern University
and Arizona State University were charged with accepting money
from illegal gambling operations to alter the outcome of games in
which they participated.8 Each preceding decade had its own
scandals as well, beginning with incidents at City College of New
York and University of Kentucky in the 1950s, St. Joseph’s University in the 1960s, Boston College in the 1970s, and Tulane University in the 1980s.9
To protect themselves from any direct relation to sports wagering and potential scandal, most professional sports leagues
adopted stringent rules against gambling and associating with
gamblers.10 These rules included banning wagering by players,
owners, and other personnel, prohibiting dual ownership of baseball clubs and legal gambling operations, and restricting professional teams from advertising or associating with legal gambling
enterprises.11
Typical of these prohibitions is Major League Baseball Rule
21, which imposes a one-year suspension on players or league personnel who bet on a game in which the gambler had no responsibility to perform, and a permanent suspension on players or
league personnel who bet on a game in which the gambler had a
duty to perform.12 Likewise, the National Collegiate Athletic Association (NCAA) has long had rules that prohibit student athletes, coaches, and other athletic department members from
wagering on sporting events.13 Current penalties for violating
these rules include suspension from games, loss of scholarship,
and permanent ineligibility from collegiate athletics.14
Despite enactment of these rules, the illegal gambling problem did not end, leading to another challenge for amateur and professional sports in the 1970s. This time the promoters were not
illegal gamblers, but state governments seeking to tie their lottery
products to professional sports. The most innovative state in this
context was Delaware. In 1976, it introduced a “Scoreboard” lottery, a form of “parlay” card wagering.15 For example, to win one
8 E.g., Ante Z. Udovicic, Special Report: Sports and Gambling a Good Mix? I
Wouldn’t Bet on It, 8 MARQ. SPORTS L.J. 401 app. A at 427 (1998); Rick Morrissey, Crossing
The Line; NCAA Fights Problem with One-Man Gang, CHI. TRIB., Mar. 11, 1999, available
at 1999 WL 2851899.
9 E.g., Morrissey, supra note 8.
10 See Robert M. Tufts, Guest Letter: Rose, With or Without Thorns, at http://www.
sportslawnews.com/Letters/Letters7.html (last visited Mar. 16, 2002).
11 Id.
12 Id.
13 NCAA Bylaws § 10.3, available at http://www.ncaa.org/library/membership/divi
sion_i_manual/2001-02/A10.pdf.
14 Id. § 10.3.1; see also NCAA, DON’T BET ON IT: DON’T GAMBLE ON YOUR FUTURE ONLINE BROCHURE, at http://www.ncaa.org/gambling/dontbetonit/ncaarules2.html (last visited
Mar. 16, 2002).
15 NFL v. Governor of Del., 435 F. Supp. 1372, 1376 (D. Del. 1977).
2002]
5
type of game, the player had to pick the seven winners in seven
selected National Football League (NFL) games.16
The NFL responded to the Scoreboard lottery by bringing suit
against the State, claiming that the football lottery violated various federal and state trademark and unfair competition laws.17
The federal district court found in favor of the State on most issues, but required the Delaware lottery to add a disclaimer that
no affiliation existed between the NFL and the lottery tickets.18
The court held that if the lottery obtained the information necessary to conduct the games from public sources after the NFL distributed it to the public, the lottery could use the information on
its parlay cards.19
Although Delaware eventually discontinued its football lottery game, Oregon initiated a similar game in 1989.20 As the
1980s came to an end, a sizable minority of other states considered legalizing some form of sports wagering. Because the sudden
proliferation of sports-based lotteries posed a significant threat to
their industries, the major sports sanctioning organizations
sought congressional assistance.
B. The Professional and Amateur Sports Protection Act
In response to the sports organizations’ concerns, U.S. Senator Dennis DeConcini (D-Arizona) introduced the Professional and
Amateur Sports Protection Act (Sports Protection Act) on February 22, 1991.21 Because of the number of states considering statesponsored sports lotteries, the bill focused on this type of wagering. According to the Senate Judiciary Committee Report, the
“bill serves an important public purpose, to stop the spread of
State-sponsored sports gambling.”22
Through the Sports Protection Act, Congress acknowledged
various problems with sports wagering. The first concern addressed was the potential impact on youth. According to U.S. Senator Bill Bradley (D-New Jersey), a former NBA star, “Legalized
sports betting would teach young people how to gamble.”23 Senator Bradley believed that children attracted to sports would soon
Id.
Id.
Id. at 1391.
Id. at 1378.
The first such game appeared in Oregon on September 6, 1989. E.g., Oregon Lottery, Game History, Sports Action, at http://www.oregonlottery.org/general/g_hist.htm (last
updated June 5, 2001); see also North American Association of State and Provincial Lotteries, Lottery History, at http://www.naspl.org/history.html (last visited Mar. 17, 2002).
21 137 CONG. REC. S2256-04 (1991).
22 S. REP. NO. 102-248, at 4 (1991), reprinted in 1992 U.S.C.C.A.N. 3553.
23 Sen. Bill Bradley, The Professional and Amateur Sports Protection Act—Policy Concerns Behind Senate Bill 474, 2 SETON HALL J. SPORT L. 5, 7 (1992).
16
17
18
19
20
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Chapman Law Review
[Vol. 5:1
associate sports with gambling, rather than with personal
achievement or sportsmanship.24
Senator Bradley and others were also concerned that the
proliferation of sports wagering might harm both the integrity of
sports through game-fixing, as well as the fans’ perception of that
integrity.25 For example, a player might miss an easy opportunity
to score at the end of a game. Even if this did not affect the game’s
outcome, it could impact who won certain wagers because of the
point spread.26 Fans might then question whether the player was
rigging the game, instead of taking fatigue or other legitimate factors into account. Senator Bradley deemed legal, state-sponsored
sports wagering to be the most objectionable form of sports wagering because it created the perception that the government approved of wagering on sporting events. As Senator Bradley
stated, sports wagering puts the “imprimatur of the state on this
activity.”27
The proposed Sports Protection Act was subsequently passed
into law,28 the heart of which is codified in 28 U.S.C. § 3702 and
reads:
It shall be unlawful for—
(1) a government entity29 to sponsor, operate, advertise, promote, license, or authorize by law or compact, or
(2) a person to sponsor, operate, advertise, or promote, pursuant
to the law or compact of a governmental entity, a lottery, sweepstakes, or other betting, gambling, or wagering scheme based,
directly or indirectly (through the use of geographical references
or otherwise), on one or more competitive games in which amateur or professional athletes participate, or are intended to participate, or on one or more performances of such athletes in such
games.30
Id.
Donald L. Barlett & James B. Steele, Throwing The Game, Why Congress Isn’t Closing a Loophole That Fosters Gambling on College Sports—and Corrupts Them, TIME, Sept.
25, 2000, available at 2000 WL 25227074.
26 A point spread is the amount of points that one team is favored over another. With
a point spread, a gambler who bets on team X may still win his wager so long as team X
does not lose by more points than the spread.
27 Bradley, supra note 23, at 5.
28 28 U.S.C. §§ 3701-04 (2001).
29 A governmental entity means any state, the District of Columbia, Puerto Rico, the
Northern Mariana Islands, Palau, any Native American tribe, any other U.S. territory, and
any subdivision of these entities. Id. § 3701(2).
30 Id. § 3702. The law creates an unusual anomaly. A person violates federal law if
he operates a sports book pursuant to state law, but not if he violates state law. Moreover,
the Act is ambiguous as to whether it is unlawful for a private person to operate a sports
book or contest that is not authorized by state law, but does not violate any state law. The
most obvious example is sports fantasy leagues, which decide results based on the performance of athletes. Based on the legislative history, these activities would not appear to violate the Act.
24
25
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7
Because some states had pre-existing, state-authorized sports
wagering, exceptions were crafted to allow them to continue;31
however, by 1999, only Oregon and Nevada had any form of legal
sports wagering. The Oregon lottery conducts a game called
“Sports Action,” based on the outcome of professional football
games,32 and Nevada has legal sports books that accept wagers on
many categories of amateur and professional sports.33 According
to Nevada Gaming Control Board figures, as of November 30,
2001, there were 147 licensed sports books in Nevada.34 During
the twelve-month period from December 1, 2000, to November 30,
2001, the total revenue realized by these operations was $126.4
million, excluding wagering on horse racing.35
In 1999, the National Gambling Impact Study Commission
(NGISC) recommended that Nevada, Oregon, Delaware, and Montana lose their exemption for collegiate and amateur sporting
events.36 The NCAA has since been lobbying Congress to pass legislation banning all betting on college and amateur sporting
events.37 Principally, the NCAA argues that several factors make
sports wagering on amateur events more problematic than wagering on professional sports. First, it asserts that student athletes
are more susceptible to Internet sports wagering because they
31 Id. § 3704. Section 3704(1) provides that § 3702 does not apply to: “[A] lottery,
sweepstakes, or other betting, gambling, or wagering scheme in operation in a State or
other governmental entity, to the extent that the scheme was conducted by that State or
other governmental entity at any time during the period beginning January 1, 1976, and
ending August 31, 1990.” Id. As a result, Oregon, Nevada, Delaware, and Montana are
exempt from the federal prohibition against state-sponsored sports wagering.
A special and peculiar exception to the Sports Protection Act was crafted for Atlantic
City, New Jersey. This exception was peculiar because New Jersey law did not authorize
the Atlantic City casinos to offer sports wagering. Dan Caesar, Sports Books in St. Louis?
No Chance, Says a 1992 Law, ST. LOUIS POST-DISPATCH, July 12, 2001, at 36, available at
2001 WL 4471413. Nevertheless, to retain the exception, New Jersey had to authorize such
sports wagering within one year after passage of the Sports Protection Act. 28 U.S.C.
§ 3704(a)(3)(A). New Jersey decided not to authorize sports wagering and lost the exemption. Caesar, supra note 31.
32 Oregon Lottery, Sports Action, at http://www.oregonlottery.org/sports/ (last visited
Mar. 17, 2002).
33 The most popular sports on which bets are wagered include football, basketball,
and baseball. Wagers are also accepted on hockey, golf, auto racing, soccer, and other
sports and athletic events. The most popular wagers are straight wagers, futures, and
parlay cards. Straight wagers are bets on the outcome of an individual game, usually adjusted according to an established “point spread.” Futures wagers are made on various
outcomes of a season so that, for example, a player may bet that his or her favorite team
will win the World Series. Parlay cards allow players to bet on multiple games at one time;
if the players’ choices are all correct, they are paid higher odds. See generally ARNE K.
LANG, SPORTS BETTING 101: MAKING SENSE OF THE BOOKIE BUSINESS AND THE BUSINESS OF
BEATING THE BOOKIE (1992).
34 NEV. GAMING CONTROL BD., GAMING REVENUE REPORT 1 (Jan. 4, 2002).
35 Id.
36 See NAT’L GAMBLING IMPACT STUDY COMM’N, FINAL REPORT 3-18 (1999), available at
http://govinfo.library.unt.edu/ngisc/index.html [hereinafter NGISC FINAL REPORT].
37 Tony Batt, NCAA Works to End to Sports Betting, LAS VEGAS REV.-J., Oct. 11, 1999,
at 1D, available at 1999 WL 9295064.
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have greater access to the Internet.38 Second, amateur athletes
are at risk because they are attracted to the aggressiveness and
control that also characterize problem gambling.39 Finally, because amateur athletes are unpaid, they are more prone to wager
on the games in which they participate, and thus, undermine the
integrity of the sporting contest.40 As of yet, Congress has neither
accepted these arguments, nor passed the recommended
legislation.
C. The Lack of Enforcement of Sports Gambling Laws
Despite the adoption of the Sports Protection Act and the recommendations of the NGISC, law enforcement efforts to deal with
illegal sports wagering have declined dramatically in the past
twenty years.41 In 1960, almost 123,000 arrests were made for illegal gambling.42 About thirty-five years later, this number decreased to fifteen thousand.43 In contrast, the number of illegally
wagered dollars has increased dramatically. In 1983, about eight
billion dollars were wagered on sports in the United States.44 By
1997, this number was estimated to be between $80 billion and
$380 billion.45 Yet, in fiscal year 1998, only $2.3 billion was bet
legally in Nevada.46 Thus, as the need for enforcement has grown,
actual enforcement has declined.
Four primary reasons appear to have caused this decline.
First, law enforcement has reallocated its limited resources to
more serious crimes. Second, the penalties assessed against those
who violate betting laws are generally low, and do not justify the
time or expense of law enforcement. Third, improvements in technology have made it more difficult to detect and prosecute offenders. Finally, illegal gambling is not perceived as a serious crime,
or even a crime at all: office pools on sporting events, such as the
NCAA basketball tournament and the NFL Super Bowl, flourish.
The media has also contributed to the decline in enforcement
by promoting the public perception that sports gambling is an en38 The Internet Gambling Prohibition Act of 1999: Hearing Before the S. Subcomm. on
Tech. Terrorism and Gov’t Info. of the S. Comm. on the Judiciary, 106th Cong. (1999)
(statement of Bill Saum, Director of Gambling Activities, NCAA).
39 Steve Brisendine, NCAA Backs College Gambling Ban, AP ONLINE, June 19, 1999,
available at 1999 WL 17815684 (statement of Bill Saum, Director of Gambling Activities,
NCAA). This statement found support in the NGISC Report. NGISC FINAL REPORT, supra
note 36, at 3-10.
40 See NGISC FINAL REPORT, supra note 36, at 3-10.
41 Robert Dorr, With Police Mostly Sidelined, Sports Bettors Run Up the Score, OMAHA
WORLD-HERALD, Jan. 31, 1999, at 1a, available at 1999 WL 4486468.
42 Dan McGraw, The National Bet, U.S. NEWS & WORLD REP., Apr. 7, 1997, at 50.
43 Id.
44 Id.
45 Id.
46 Macy, supra note 2.
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joyable and legal pastime. For example, despite the fact that Attorneys General of several states have declared Fantasy Sports
contests unlawful, several major media groups, including ESPN,47
conduct national Fantasy Sports contests.48 Additionally, the
NGISC claimed, albeit somewhat incredibly, that because point
spreads are available in almost every major U.S. newspaper,
many people do not know that sports wagering is illegal.49 The
fact that newspapers post point spreads is just one additional indication that the public enjoys wagering on sporting events. As a
result, because most states have laws against sports wagering,
law enforcement is placed in the uncomfortable position of enforcing laws that are unpopular with the public. This situation, combined with limited resources, minor penalties, and recent
technological advances, has led law enforcement to radically decrease its enforcement of sports wagering laws. Thus, illegality
has not proved to be a substantial barrier to sports wagering.
D. The New Model: Interactive Home Sports Wagering
Illegal sports wagering is becoming more prevalent due to its
increasing availability in the homes of most Americans, made possible by the growing use and availability of the Internet. More
than forty percent of American households had access to the Internet in August 2000, up from twenty-six percent in December
1998.50 By August 2000, more than 116 million Americans were
47 The Entertainment Sports Network (ESPN) is the nation’s self-proclaimed leading
radio and television sports broadcaster.
48 Fantasy Sports contests require a person to choose several athletes in a given sport
to be on his or her “fantasy team.” The person accumulates points based on the chosen
athletes’ performances over the course of a particular game or season, and the person’s
team competes against other fantasy teams. Major Fantasy Sports include American-style
football, basketball, baseball, and soccer. See, e.g., ESPN, Fantasy Games, at http://
games.espn.go.com/cgi/home/Request.dll?FRONTPAGE (last visited Feb. 17, 2002); ESPN,
Fantasy Football, at http://games.espn.go.com/cgi/ffl/Request.dll?FRONTPAGE (last visited Feb. 17, 2002); ESPN, Fantasy Basketball, at http://games.espn.go.com/cgi/fba/Request.dll?FRONTPAGE (last visited Feb. 17, 2002); ESPN, Fantasy Baseball, at http://
games.espn.go.com/cgi/flb/Request.dll?FRONTPAGE (last visited Feb. 17, 2002); ESPN,
Fantasy Hockey, at http://games.espn.go.com/cgi/fhl/Request.dll?FRONTPAGE (last visited Feb. 17, 2002); ESPN Fantasy Racing, at http://games.espn.go.com/cgi/frl/Request.dll?FRONTPAGE (last visited Feb. 17, 2002).
Whether Fantasy Sports contests are considered gambling is a matter of debate, which
revolves around whether skill or chance predominates the contest. See, e.g., State v. Hahn,
586 N.W.2d 5 (Wis. 1998). Fantasy Sports contests require skill to assess players and
strategy to properly draft players and make trades. Nevertheless, a significant element of
chance is present. A participant can draft or trade to obtain the most talented players, but
the chance that a player may become injured could eliminate his opportunity to win. Also,
because fantasy league operators have yet to be prosecuted under anti-gambling laws, the
legality of fantasy contests remains unresolved.
49 NGISC FINAL REPORT, supra note 36, at 2-14.
50 NAT’L TELECOMM. & INFO. ADMIN., U.S. DEP’T OF COMMERCE, FALLING THROUGH THE
NET: TOWARD DIGITAL INCLUSION 2 (2000), available at http://search.ntia.doc.gov/pdf/
fttn00.pdf [hereinafter DIGITAL INCLUSION].
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online.51 Moreover, Department of Commerce research shows that
Internet usage is growing among all Americans, regardless of income.52 Increased Internet use has led to a comparable increase in
Internet wagering. Bear, Stearns and Company, Inc., estimates
the Internet gambling market will reach five billion dollars by
2003.53 A significant portion of this market is sports and horse
racing, a market expected to reach $1.8 billion by 2003.54
Sports and race wagering Internet sites usually take one of
three main forms. First, the site may offer straight bookmaking
operations where the operator accepts wagers directly from the
home user. Here, the operator accepts the risk of winning or losing. Second, instead of directly accepting wagers, the operator
may serve as the broker, arranging wagers between home users
and a third party. Here, the operator receives a commission on
the wager. Third, the operator may conduct pari-mutuel wagering. This involves placing all wagers on a particular event in a
common pool. From the pool, the operator takes a commission and
the remaining money is then divided pro-rata among the winners.
Pari-mutuel wagering, although typical for race wagering, is uncommon for online sports wagering.
Internet gaming is nothing more than remote gambling. It is
accomplished by interfacing two computers, typically one in the
home and one in a jurisdiction where such gambling is legal. The
significance of the Internet has less to do with the prospect that
persons will merely use what is now considered their home computers to gamble, than the natural evolution of technology. The
future is in the growing convergence of television and computers.
The reality is that in the near future, the television may be replaced by a large monitor with a built-in computer. To the
masses, this will be a new television with extra features and
amazing communications potential. Hundreds, if not thousands,
of television and radio broadcasts will be available at one’s disposal. One could play hundreds of video games, or have access to a
virtual library larger than any physical library in the world. Consumers will be able to comparison shop for any product, and have
it delivered to their doors.
For sports gaming fans, this new technology will have similarly explosive results. One could place wagers on virtually every
professional sporting event on the planet. The possible mergers
between technology and gambling are virtually endless. For example, suppose a potential gambler is watching a football game at
Id. at 33.
Id.
MARC J. FALCONE & JASON N. ADER, GAMING INDUSTRY: E-GAMING REVISITED
ODDS WITH THE WORLD 6 (Bear, Stearns & Co., Inc. 2001).
54 Id. at 49.
51
52
53
AT
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11
home. Without leaving the couch, that person could call up an
information bar on the bottom of the screen that displays a menu
of bets being offered; all that would be required to make a wager is
the touch of a button.
Before Internet gambling can reach this potential, gaming
site operators must overcome the technological limitations of the
Internet. Two such technical obstacles include providing an adequate system for transferring bets and winnings money between
the operator and the player, and securing the gambling transactions from hackers.55 Nevertheless, sports wagering does not have
the technical problems facing some other forms of Internet gambling, namely casinos. Internet casinos generally require high
bandwidth—the ability to move large amounts of data between
the casino’s computer and the patron’s computer, necessary to create rich graphics and a multimedia experience. Because the multimedia experience is unnecessary for sports gambling, Internet
sports wagering sites do not need to be as technically advanced as
casino sites. Likewise, the interaction between a sports wagering
site and the home user is much simpler. The site only needs to
provide information about those games or events on which it will
accept wagers. In turn, the player simply chooses the type and
amount of the wager he wishes to place. Because of the wide
availability of sports broadcasts over cable and broadcast television, Internet sites do not have to provide “live” video feeds of the
sporting events, further reducing the need for sophisticated
technologies.
Beyond these technical issues, two of the most substantial
hurdles for the Internet sports wagering business are legality and
the gambler’s lack of trust. Legality may pose a hurdle because
players may be concerned about breaking the law when gambling
with an Internet gaming operator, potentially resulting in the loss
of some patrons. The gambler’s trust in the sports wagering site is
somewhat bolstered due to the nature of Internet sports wagering.
Because the outcome of the sporting event is outside the control of
the gambling operator, patrons do not have to rely on the honesty
of the operator to determine the outcome of the wagers. Conversely, with other forms of Internet gambling, such as slot machines, the outcome of the wager is decided by software created by
the operator. Whether this software produces random results or
55 Jim McGeahy, Security Challenges to Internet Gambling, in INTERNET GAMBLING
REPORT III: AN EVOLVING CONFLICT BETWEEN TECHNOLOGY, POLICY & LAW 51 (Anthony N.
Cabot ed., 1999). A “hacker” is an individual who breaches a website’s security using a
computer from a remote location. Once a hacker breaches a website’s security, he or she is
often able to change or destroy a website and access various confidential information pertaining to that site’s operations. The results of a security breach can be catastrophic for a
site operator. While some hackers are motivated by the mere desire to wreak mischief,
others are motivated by pecuniary gain.
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is rigged to cheat, the player is within the control of the operator’s
software programmer. Furthermore, fairness is also less of an issue for Internet wagering sites than for casino-style gaming because players are able to easily verify the commission charged by
the operator.
Even without the potential for cheating, the gambler’s trust
remains an issue. A patron must be able to trust the Internet
sports book operator because an unscrupulous Internet sports
book operator can simply defraud the home user. For example, a
site operator may take the money that the player deposits in the
sports book and then close the site, with no intention of returning
the deposits or paying winning wagers. Players at Internet sites
can also become victims of the operator’s bad luck or incompetence. In many jurisdictions where gambling is legal, the government requires sports book operators to maintain reserves to pay
winning bets, or to have annuities to pay winnings that are paid
over time.56 These controls, however, are not applicable to Internet gambling operators.
Thus, the historical pattern of illegal sports gambling continues. The technology revolution and the advent of the Internet
have extended legal concerns from the early problem of influence
on professional and collegiate sports, to the modern problem of
controlling widespread illegal Internet sports gambling. With
technological advances, the government now faces an increasingly
difficult challenge.
III.
CHALLENGES INTERACTIVE WAGERING POSES
TO GOVERNMENT
A natural inclination is to question why Internet gambling
poses any more concern to government than previous technological advances. Historically, technology has ushered in new ways to
gamble. The mail system allowed the Louisiana lottery to flourish
until a federal law curtailed the mailing of lottery tickets.57 Likewise, interstate telephone bookmaking thrived until the federal
Wire Act gave federal officials an effective tool to prosecute such
wagering.58 It remains unclear, however, whether new laws will
effectively counteract Internet sports gambling.
Why is the government unable to pass new laws that govern,
or simply prohibit, Internet gambling? The answer necessarily
must recognize that the Internet transcends national borders.
While other technologies—such as the telephone—have similar
capabilities, the Internet has two distinct advantages. First, the
56
57
58
E.g., NEV. GAMING REG. § 22.040 (2000).
18 U.S.C. § 1301 (2001).
Id. § 1084.
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Internet is inexpensive. The price of a telephone call between Europe and Asia may be more expensive than an entire month of
unlimited Internet access.59 In that same month, the home Internet user can contact every continent as frequently as he or she
pleases. Second, the Internet is not a single medium; it is every
form of media. The Internet can simplify and augment human interaction. It can be a print medium, a bulletin board, a television
or radio broadcasting system, an interactive computer system, or
any combination simultaneously. Thus, human activities that
often take multiple media to accomplish can be accomplished simultaneously over the Internet.
Because of its borderless nature, the Internet offers services
or information that the user may not be able to obtain near home.
For example, if sports wagering were illegal in a particular state,
a person without Internet access who wished to bet on a game
would face substantial hurdles. He may be able to buy a newspaper with the daily line, but could not obtain the current odds.
With this limited information, he would then have to find a bookmaker willing to accept his wager, and make arrangements to pay
the bookie. On the other hand, if the person had Internet access,
he could have access to wagering opportunities from his home,
and could access the current odds and commissions at various
sites. As a result, he could choose the site that offers the best
value for the wager he wished to place. Moreover, if the game was
not televised, he could follow either a live Internet broadcast of
the game, or a real time Internet play-by-play scoreboard.60
Sports gamblers may also find the Internet to be a safer way
to bet illegally because the borderless nature of the Internet
makes gambling laws difficult or impossible to enforce. The operator that takes bets can be in another state or country, while the
bettor places his bets in the privacy of his own home. In other
words, the Internet provides a cheap, easy, fast, and safe way to
break the law. The government’s natural reaction to this new
threat of Internet gaming is to search for a way to stop this new
59 For example, AT&T charges $0.14 per minute for international calls to most of Europe, in addition to a monthly rate of $2.95, AT&T Global, AnyHour International Savings
Plan, at http://www.consumer.att.com/global/english/international/int_aisp.html (last visited Mar. 29, 2002), but only $21.95 for an entire month of Internet service, AT&T,
WorldNet Service, at http://download.att.net/wnetoffer/index.html?ATT454NET (last visited Mar. 29, 2002). Several companies now provide Internet access for less than ten dollars per month, and some even provide free access. See, e.g., AOL Anywhere, AOL Pricing
Plans, at http://www.aol.com/info/pricing.html (last visited Mar. 3, 2002); Earthlink, DialUp Internet Access, at http://www.earthlink.net/home/dial/ (last visited Mar. 3, 2002); Free
Internet Access, Free & Cheap ISP Comparison Chart, at http://freeinternetaccess.home.
att.net/free-internet-access-comparison.html (last visited Mar. 16, 2002).
60 Real time play-by-play scoreboards allow Internet users to track sports action and
receive real time updates on the status of various sporting events as they occur. Various
websites offer these services. See, e.g., ESPN, College Football GameCast, at http://espn.
go.com/ncf/aboutGamecast.html (last visited Mar. 16, 2002).
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[Vol. 5:1
technology’s ability to evade local laws. Only in this way can the
government effectively implement its policies concerning gambling. But, unlike past technological advances, this task is harder
than it seems. An important question for the future of Internet
gambling is not related to the current state of the law, but rather
what the future holds for both legal and law enforcement efforts.
The attempt to regulate or prohibit Internet gambling ranges from
the simple task of drafting legislation to the more difficult task of
successful implementation.
A. Challenges Facing State Governments
Historically, in the United States, primary responsibility for
deciding gambling policy has been left to the states.61 Moreover,
state governments have undertaken the majority of gambling enforcement.62 Thus, the issue concerns what states can do about
Internet gambling. This issue is not limited to Utah and Hawaii,
which have banned all forms of gambling; rather, the issue will
impact every state.63 For instance, in Nevada it took many years
after legalization in 1931,64 to develop and refine an effective regulatory system that assures the honesty and fairness of the games,
and keeps criminals out of the industry. Even with a strong regulatory system in place, the Nevada regulators must come to grips
with the possibility that every Nevada citizen may gamble from
his living room with an unlicensed person operating offshore.
Policing the Internet, however, may be an insurmountable
problem for state governments because they lack funding, technical capabilities, and legal authority. While some states have tried
to attack Internet gambling, their successes have been few and
their efforts have become increasingly difficult. Some states have
already recognized this difficulty. For instance, Florida’s Attorney
General conceded that, “evolving technology appears to be far outstripping the ability of government to regulate gambling activities
on the Internet and of law enforcement to enforce such regulations. Thus, resolution of these matters must be addressed at the
national, if not international, level.”65
61 James H. Frey, Introduction to ANTHONY N. CABOT ET AL., FEDERAL GAMBLING LAW
1 (1998).
62 Id.
63 Internet Gambling: Hearing Before the Subcomm. on Crime of the House Comm. on
the Judiciary, 105th Cong. (1998) (opening statement of Bill McCollum, Chairman, House
Subcomm. on Crime), available at 1998 WL 44779.
64 LIONEL SAWYER & COLLINS, NEVADA GAMING LAW 10-11 (3d ed. 2000).
65 Gambling—Wire Communications—Lotteries—Use of Internet or Wire Communications to Conduct Gambling; Cruises to Nowhere, Op. Fla. Att’y Gen. 95-70 (1995), available at 1995 WL 698073.
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B. Challenges Facing the Federal Government
1. Pending Federal Legislation to Outlaw Internet and
Sports Wagering
Some courts have already interpreted the federal Wire Act as
a prohibition on Internet sports wagering.66 In addition, legislation has been introduced in the last few sessions of Congress that
would prohibit all forms of interactive gambling, as well as all
gambling on amateur sports.67 Much of the proposed legislation
has been designed to prevent the means by which individuals participate in Internet gambling by targeting the use of financial instruments that allow gamblers to make payments to Internet
casinos.68 There has also been a NCAA-backed movement underway in Congress in recent years to make all collegiate sports wagering illegal.69
In 2001, the 107th Congress introduced several bills that
would prohibit Internet wagering using the new financial instrument strategy. House Bill 2579, the “Internet Gambling Payments Prohibition Act,” prevents the use of certain banking
instruments, such as credit cards, for purposes of Internet gambling. The bill prohibits any “person engaged in a gambling business”70 from knowingly accepting “in connection with the
participation of another person in Internet gambling”71 a variety
of banking instruments such as credit cards, checks, or electronic
funds transfers.72 House Bill 3215, the “Combating Illegal Gambling Reform and Modernization Act,” would amend the federal
Wire Act to create a much more comprehensive definition of illegal
wagering, and make it illegal for gambling businesses to accept
financial instruments in connection with Internet wagering.73
66 United States v. Cohen, 260 F.3d 68, 75 (2d Cir. 2001), petition for cert. filed, 70
USLA 3562 (U.S. Feb. 22, 2002) (No. 01-1234).
67 E.g., Internet Gambling Payments Prohibition Act, H.R. 2579, 107th Cong. (2001).
68 Id.
69 Jeff Simpson, Lobbyist Wary of Bet Ban Plan Making Return, LAS VEGAS REV.-J.,
Dec. 12, 2001, at 1D, available at 2001 WL 9544432.
70 H.R. 2579. A gambling business is defined as:
(A) a business that is conducted at a gambling establishment;
(B) a business that—
(i) involves—
(I) the placing, receiving, or otherwise making of bets or wagers; or
(II) the offering to engage in the placing, receiving, or otherwise making of
bets or wagers;
(ii) involves 1 or more persons who conduct, finance, manage, supervise, direct, or
own all or part of such business; and
(iii) has been or remains in substantially continuous operation for a period in excess of 10 days or has a gross revenue of $2,000 or more from such business during
any 24-hour period.
Id.
71 Id.
72 Id.
73 H.R. 3215, 107th Cong. (2001). The Wire Act provides:
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Legislation targeting Internet gambling even became a part
of the flurry of congressional measures passed in the aftermath of
the September 11, 2001, terrorist attacks. Attempting to cut off
the ways in which terrorist organizations launder money, Congress initially included provisions in its anti-terrorism package
that would have prevented credit card payments to online casinos.74 The provisions were removed from the bill hours before passage as a result of pleas from credit card companies.75
Related to, but distinct from the Internet gambling ban, is a
proposed prohibition on all wagering on amateur sports.76 Because such wagering is effectively prohibited in forty-eight U.S.
states, this legislation is really directed at eliminating Nevada’s
exception to the Sports Protection Act. The Amateur Sports Integrity Act would make any betting on amateur sports illegal, including college athletics and the Olympics.77 It would also prohibit
(a) Except as otherwise provided in this section, whoever, being engaged in a gambling business, knowingly uses a communication facility—
(1) for the transmission in interstate or foreign commerce, within the special
maritime and territorial jurisdiction of the United States, or to or from any
place outside the jurisdiction of any nation with respect to any transmission to
or from the United States, of bets or wagers, or information assisting in the
placing of bets or wagers; or
(2) for the transmission of a communication in interstate or foreign commerce,
within the special maritime and territorial jurisdiction of the United States, or
to or from any place outside the jurisdiction of any nation with respect to any
transmission to or from the United States, which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting
in the placing of bets or wagers;
shall be fined under this title or imprisoned not more than five years, or both.
(b)(1) Except as provided in paragraph (2), whoever, being engaged in a gambling
business, knowingly accepts, in connection with the transmission of a communication in interstate or foreign commerce, within the special maritime and territorial
jurisdiction of the United States, or to or from any place outside the jurisdiction of
any nation with respect to any transmission to or from the United States of bets or
wagers or information assisting in the placing of bets or wagers—
(A) credit, or the proceeds of credit, extended to or on behalf of another (including credit extended through the use of a credit card);
(B) an electronic fund transfer or funds transmitted by or through a money
transmitting business, or the proceeds of an electronic fund transfer or money
transmitting service, from or on behalf of the other person;
(C) any check, draft, or similar instrument which is drawn by or on behalf of
the other person and is drawn on or payable through any financial institution;
or
(D) the proceeds of any other form of financial transaction as the Secretary of
the Treasury may prescribe by regulation which involves a financial institution as a payor or financial intermediary on behalf of or for the benefit of the
other person,
shall be fined under this title or imprisoned not more than five years, or both.
18 U.S.C. § 1084 (2001).
74 Financial Anti-Terrorism Act of 2001, H.R. 3004, 107th Cong. (2001).
75 Peter Edmonston, Web Gambling Gets a Break in Congress, WALL ST. J. ONLINE,
Oct. 19, 2001.
76 Amateur Sports Integrity Act, S. 718, 107th Cong. (2001).
77 Id. S. 718 § 201.
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financial institutions from accepting bank instruments connected
with “unlawful Internet gambling.”78
It is unclear why some members of Congress and the NCAA
have been such vocal advocates for legislation that would
criminalize wagering that takes place in Nevada’s highly regulated sports books. Unlike the rest of the nation, there is no evidence of campus bookies or the involvement of organized crime in
Nevada sports wagering.79 In fact, the Nevada experience has
demonstrated just the opposite: that sports wagering, when it is
highly regulated and scrutinized, forecloses the ability of criminal
elements to expand their nefarious operations through bookmaking profits.80 Because the Internet has rendered it even more difficult for federal and state authorities to eradicate sports wagering,
now, more than ever, Nevada’s model of regulation and taxation
should be emulated, not discarded.
The two reasons generally offered to support a ban on sports
betting in Nevada are baseless.81 The first is that Nevada casinos
somehow create demand for sports wagering nationwide by publishing point spreads.82 Yet anyone with even a limited knowledge
of sports wagering is aware that numerous sources, completely
unrelated to Nevada, publish point spreads and wagering information. The other commonly offered reason is that legal sports
wagering in Nevada causes citizens of other states to believe that
sports wagering is legal in their own states, which, in turn, contributes to the spread of illegal wagering. No evidence has been
offered to support this assertion. In fact, it is arguably the inaction of law enforcement in other states that has permitted the
growth of illegal wagering.83
78 Id. S. 718 § 303. Unlawful Internet gambling is defined as follows:
The term “unlawful Internet gambling” means to place, receive, or otherwise make
a bet or wager by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State
law in the State in which the bet or wager is initiated, received, or otherwise
made.
Id. S. 718 § 303(b)(3)(A).
79 The NGISC was informed that every college campus has student bookies, and that
there is an increase in organized crime’s involvement with sports wagering. NGISC FINAL
REPORT, supra note 36, at 2-14 to 2-15.
80 See AM. GAMING ASS’N, STATE OF THE STATES: THE AGA SURVEY OF CASINO ENTERTAINMENT (2001), at http://www.americangaming.org/survey2001/summary/summary.
html (last visited Mar. 16, 2002), for information about the benefits of a legalized and regulated gaming industry nationwide, and Nevada Resort Association, The Gaming Industry
in Nevada Employee Profiles, at http://www.nevadaresorts.org/industry.html (last visited
Mar. 16, 2001), for information regarding gaming’s benefits to Nevada.
81 See generally NCAA, Written Testimony of Bill Saum, Director of Agent and Gambling Activities, National Collegiate Athletic Association, before the National Gambling Impact Study Commission, November 10, 1998, Las Vegas, Nevada, at http://www.ncaa.org/
gambling/19981110_testimony.html (last visited Mar. 16, 2002) (discussing the arguments
generally proffered against legal sports wagering in Nevada).
83 See discussion supra Part II.C.
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The existing evidence suggests that, if anything, Nevada’s
sports books are tools that can be used to weed out the troubling
aspects of sports wagering. Under Nevada’s strict regulatory
scheme, Nevada sports books are required to transact their business through a computerized bookmaking system approved by
state regulators.84 These computerized systems create a detailed
record of every transaction. Furthermore, while cash transactions
are highly monitored throughout Nevada casinos, sports books are
the only casino department that must report non-cash transactions of more than ten thousand dollars.85
For their own protection, Nevada’s sports books closely monitor fluctuations in betting activity that indicate irregularities, and
must report suspicious wagers that appear to relate to illegal
sports wagering activities.86 If someone is attempting a “fix,” Nevada’s sports books may be the target. As a result, Nevada’s
sports books have been the first to alert law enforcement agencies
and those that guard the integrity of America’s professional and
amateur sports leagues to any suspicious betting activity.87 Without assistance from Nevada’s sports books, college point shaving
scandals may not be uncovered as quickly, or may not be discovered at all. Therefore, to outlaw Nevada’s $2.3 billion in annual
sports wagering with the hope that it will somehow eradicate the
$380 billion in illegal wagering would not only be naı̈ve, it would
be counterproductive to the very purpose of such an action.
Certain members of Congress have aggressively advocated
measures to make amateur sports wagering illegal in Nevada.88
However, these efforts have not yet been successful. Even if these
measures were approved, they would not affect the basic legal status of Internet sports gaming under federal law. Because the proposed changes may alter the manner in which Internet wagering
is conducted, or the types of wagers taken, it is more meaningful
to examine the current state of federal gambling law.
2. The Legality of Interactive Wagering Under Existing
Federal Law
Many federal laws regulating gambling were developed in response to advances in communications. Prohibitions against the
NEV. GAMING REG. § 22.100 (2000).
Id. § 22.061.
Id. §§ 22.120-.121.
Hearing on Pending Sports Wagering Legislation Before the House Comm. on the
Judiciary, 106th Cong. (2000) (statement of Frank J. Fahrenkopf, Jr., President and Chief
Executive Officer of the American Gaming Association) (stating “even the NCAA admits
that Nevada sports books have been helpful to them in their enforcement efforts”), available at 2000 WL 19304582.
88 Editorial, College Betting Ban, LAS VEGAS REV.-J., July 3, 2000, available at http://
www.lvrj.com/lvrj_home/2000/Jul-03-MON-2000/opinion/13885468.html.
84
85
86
87
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use of the U.S. mail to conduct or advertise lotteries came shortly
after the establishment of the federal postal system, and its use by
those promoting a national lottery.89 Likewise, prohibitions
against advertising lotteries over the radio came shortly after the
commercial availability of radios, and their use by lottery operators.90 These prohibitions were then extended to television shortly
after the introduction of that medium. Federal laws addressing
the use of telephones to conduct wagering did not appear until
well after the discovery and proliferation of Alexander Graham
Bell’s most-prized invention.91 The laws addressing telephone wagering were part of the 1961 federal legislative package designed
to cut off those activities that organized crime used for sustenance, and to assist the states in enforcing their gambling laws.
The federal Wire Act of 1961 (Wire Act) was codified as 18
U.S.C. § 1084, and generally prohibits the use of interstate telephone lines to conduct a betting or wagering business.92 Section
1084 provides in relevant part:
Whoever being engaged in the business of betting or wagering
knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting
event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a
result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both.93
Section 1084 mandates that a person be engaged “in the business of betting or wagering” to fall within its purview.94 Thus,
courts require that a party be engaged in the “sale of a product or
service for a fee.“95 The courts also require that the party be engaged in a “continuing course of conduct.”96 Consequently, where a
gambling operator charges the customers for its service, either
through accepting or brokering wagers, the continuing activities
of the operators will likely constitute being “engaged in the business of betting or wagering,” thus leaving them open to liability
under the Wire Act.
89 18 U.S.C. §§ 1301-02 (2001); see also Mike Roberts, “The Law of the Land”: Tennessee Constitutional Law: The Constitutionality of Gaming in Tennessee, 61 TENN. L. REV.
675, 678 (1994).
90 18 U.S.C. § 1304.
91 Alexander Graham Bell invented the telephone on March 10, 1876. E.g., WEBSTER’S
AMERICAN BIOGRAPHIES 84 (Charles Van Doren & Robert McHenry eds., 1974).
92 18 U.S.C. § 1084.
93 Id.
94 Id.
95 United States v. Baborian, 528 F. Supp. 324, 329 (D.R.I. 1981).
96 United States v. Scavo, 593 F.2d 837, 843 (8th Cir. 1979).
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The language “wire communication facility” in the statute refers to the technology that existed at the time of enactment, and is
defined as a system that is used to transmit writings, pictures,
and sounds “by aid of wire, cable, or other like connection between
the points of origin and reception of such transmission.”97 Given
the available wire technologies at that time, this was undoubtedly
intended to apply to telephone communications, but also has
broader implications. In 1961, the government also might have
intended to capture transmissions between ticker machines that
printed information on paper tape, as these machines were commonly used to transmit financial information, and were adaptable
for the transmission of horse race information.
In the early 1960s, little, if any, thought was given to the computer era and, more particularly, the Internet. Nevertheless, the
Wire Act applies to most methods of Internet communication. The
typical home user is connected to the Internet through his or her
home telephone system.98 Home telephone Internet service involves the use of a modem to convert the computer’s digital signals
to analog signals that can travel over copper wire.99 Modems,
however, are not the only way to access the Internet; other means
exist that were never contemplated by the Wire Act. For example,
radio and satellite communications, and other methods of transmission not involving a wire or cable, do not fall within the purview of the Wire Act. This raises the very real possibility that an
operator could supply satellite or radio gambling services without
violating § 1084. Showing that at least some part of the transmission occurs over a wire or cable may defeat this argument. The
statute does not limit the definition of a wire or cable to a copper
wire or cable.100 Therefore, computer data lines, such as T1 or T3
lines,101 which are necessary for an Internet service provider to
connect to the Internet backbone and for the operation of the Internet backbone, may constitute a “wire communication facility”
under the statute.102
18 U.S.C. § 1081.
The majority of consumers use the telephone dial-up method to connect to the Internet. DIGITAL INCLUSION, supra note 50, at 23. Permanent connections, satellite, mobile
phone, and handheld computer access are far less common. Id.
99 See, e.g., About.com Inventors, Modem, at http://inventors.about.com/library/inven
tors/blmodem.htm (last visited Mar. 3, 2002).
100 18 U.S.C. § 1081.
101 T1 and T3 lines are high-speed lines that can accommodate more users than a standard telephone line. Judith Gelernter, The Internet: Yesterday, Today, and Tomorrow,
INFO. OUTLOOK, June 2001, at 67-68.
102 18 U.S.C. § 1084. There is an argument, based on congressional intent, that the
current § 1084 would prohibit such an enterprise. Courts have broadly defined “transmission” in other contexts. See, e.g., United States v. Pezzino, 535 F.2d 483, 484 (9th Cir.
1976); United States v. Tomeo, 459 F.2d 445 (10th Cir. 1972); Sagansky v. United States,
358 F.2d 195 (1st Cir. 1966).
97
98
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In 1961, the notion that gamblers could use the telephone to
wager on anything but sporting events or horse racing was unrealistic. Thus, the bill drafters prohibited only the transmission of
bets or wagers on sporting events or contests.103 Although this
language may allow the application of the Wire Act to Internet
sports wagering, at the same time, this language may open a window of opportunity for Internet casino-style gambling operations
conducted via telephone lines.104
As currently written, § 1084 cannot be used as a tool to prosecute “casual” gamblers who participate in games by telephone or
over the Internet.105 The legislative history indicates that the
Wire Act was not meant for social or occasional bettors, but was
aimed at “persons ‘engaged in the business of betting or wagering.’ ”106 Given the legislative history of § 1084, and the economic
and evidentiary burdens involved in prosecuting private citizens
acting within the confines of their own homes, home users that
gamble by telephone or on the Internet are unlikely to face federal
criminal sanctions under this statute.
When Internet gaming first emerged, it was frequently debated whether § 1084 could be applied to a gambling operator that
operates from outside the United States.107 In an attempt to cir18 U.S.C. § 1084.
The wording of § 1084 permits a strong argument that it pertains only to sportsrelated gambling. The statute specifically applies to a “sporting event or contest.” Id. The
word “sporting” appears to predicate both the word “event” and “contest.” But see Whether
Persons May Play and Bet on Card Games Using Computers With Modems or Other Transmission Devices and Related Questions, Op. Tex. Att’y Gen. No. DM-344 (1995), available
at WL 318587 (Texas Attorney General Dan Morales explaining that § 1084 applies to betting on card games on the Internet.). Under this interpretation, the statute would be limited to the prohibition of sports-related “bets and wagers,” such as baseball, football, dog
racing, and horse racing. If so, the statute would be inapplicable to Internet casinos and
lotteries.
Legislative history and subsequent application of the statute supports this reading.
First, legislative history reveals that § 1084 was meant to apply only to sports-related betting. When explaining the bill, Attorney General Robert Kennedy explicitly referred only
to sports betting. See H.R. REP. NO. 87-967 (1961), available at 1961 WL 4794. Second,
Congress was aware of the other types of gambling that existed when it adopted the statute. This is evidenced in § 1955, which makes it a crime to conduct, finance, manage, supervise, direct, or own an illegal gambling business. 18 U.S.C. § 1955. In that statute,
Congress defined gambling broadly to include “pool-selling, bookmaking, maintaining slot
machines, roulette wheels or dice tables, and conducting lotteries, policy, bolita or numbers
games, or selling chances therein.” Id. Congress did not specifically address each of these
in the Wire Act. Therefore, Congress likely did not intend the phrase “sporting event or
contest” to be interpreted broadly to include non-sports related betting.
105 While Internet gamblers may not face prosecution under the Federal Wire Act, they
may be subject to various state and local laws prohibiting such activities.
106 Tomeo, 459 F.2d at 447 (citing 18 U.S.C. § 1084); see also United States v.
Baborian, 528 F. Supp. 324, 328 (D.R.I. 1981) (concluding that § 1084’s legislative intent
was directed at “business of gambling . . . and not mere betting“). A review of the House
and Senate Reports and the floor debates, indicates that § 1084 was intended to target
professional gamblers and bookmakers, not the ”casual“ gambler.
107 Many of the Internet Gaming prosecution cases discussed herein were defended on
the theory that U.S. courts do not have jurisdiction over Internet gaming sites operating
103
104
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cumvent the prohibitions of § 1084, most operators now offer their
telephone or Internet gambling services from locations outside of
the United States.108 The issue then becomes whether § 1084 applies to non-U.S. operators that accept wagers from U.S. residents. It now appears that the Wire Act probably applies to the
offshore operators accepting U.S. wagers.109 Section 1084 prohibits the transmission of wagers by wire communications in foreign
commerce.110 Thus, the Wire Act appears to apply to non-U.S.based operators that knowingly accept sports wagers from U.S.
citizens.
At least one offshore Internet gambling operator has learned
of the applicability of the Wire Act to his operations the hard way.
Interactive casino operator Jay Cohen ran an offshore gambling
site from Antigua, where his operations were legally licensed.111
The U.S. Court of Appeals for the Second Circuit was not persuaded by Cohen’s argument that § 1084 should not apply to Interactive gaming activities operating from a jurisdiction where
such activities are legal.112 As a result, his conviction by a New
York federal district court was affirmed.113 Yet the Cohen case
was anomalous, as Cohen made the mistake of coming to the
United States where authorities had personal jurisdiction over
him and charged him with Wire Act violations.114 While attempts
to force American law on offshore operators are in large part futile, the U.S. government has brought charges against at least
twenty-two offshore operators for violations of § 1084.115
from an offshore location. See, e.g., United States v. Cohen, 260 F.3d 68 (2d Cir. 2001),
petition for cert. filed, 70 USLA 3562 (U.S. Feb. 22, 2002) (No. 01-1234).
108 See Andrew E. Tomback & Anne K. DeSimone, Every State for Itself? Recent Approaches to Internet Gaming, GAMING L. REV., vol. 5 No. 5, at 431, 442 (2001). Gambling is
unregulated on about 1400 offshore websites. Tony Batt, Leach Takes Aim at Web Gambling, LAS VEGAS REV.-J., Nov. 23, 2001, at 1D, available at 2001 WL 9543589; see, e.g.,
CyberSportsBook.com, at http://www.cybersportsbook.com (last visited Mar. 16, 2002);
Golden Fortune Casino, at http://www.goldenfortunecasino.com (last visited Mar. 16,
2002); Luckyland Casino, at http://www.luckyland.com (last visited Mar. 16, 2002);
Planetluck Online Casino, at http://www.planetluck.com (last visited Mar. 16, 2002);
Starluck Casino, at http://www.starluckcasino.com (last visited Mar. 16, 2002).
109 See discussion infra.
110 18 U.S.C. § 1084 (2001).
111 Cohen, 260 F.3d at 70; see also Kelly B. Kramer, The Jay Cohen Affair: Lessons in
the Legality of Internet Betting, GAMING L. REV., vol. 5 No. 6, at 551 (2001).
112 Cohen, 260 F.3d at 73-74.
113 Id. at 78.
114 Kramer, supra note 111, at 551.
115 Gary Dretzka, Rolling the Dice on Internet Gambling, Casinos, Nevada Look to Create a Web of Wagering at Home, CHI. TRIB., June 15, 2001, at C1, available at 2001 WL
4083854. Yet, even in the aftermath of the Cohen case, uncertainty remains about the
scope of the Wire Act’s prohibition of Internet gambling. Until 2001, there were no reported cases applying the Wire Act to non-sports related gaming. Prior to In re Mastercard
International Inc., Internet Gambling Litigation, 132 F. Supp. 2d 468 (E.D. La. 2001), the
only cases addressing § 1084, as it applies to non-sports related gambling, were dismissed
on other grounds. E.g., United States v. Giovanelli, 747 F. Supp. 897 (S.D.N.Y. 1989); see
also United States v. Chase, 372 F.2d 453 (4th Cir. 1967); United States v. Manetti, 323 F.
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3. Difficulties With International Enforcement:
The New Global Marketplace
The position taken by the U.S. Department of Justice, and
some members of Congress, is that most Internet gambling is, or
should be, unlawful.116 Nevertheless, any actions taken by members of our government may be rendered meaningless by virtue of
the Internet’s characteristics. By its very nature, the Internet is
global in its reach. Therefore, U.S. efforts and policy must be considered in light of international developments. One of the most
difficult issues concerns how U.S. policy can be successfully implemented in a communications medium that defies national
boundaries.
Since the dawn of modern history, man has existed under a
system whereby the government has physical control over a geographic area and its inhabitants. Indeed, according to one authority, “Under International law, a state is an entity that has a
defined territory and a permanent population, under the control of
its own government . . . .”117 Modern technology has gradually
eroded government control by facilitating inter-jurisdictional
Supp. 683 (D. Del. 1971). In the cases where conviction occurred, sports betting was the
only contested activity. See, e.g., United States v. Segal, 867 F.2d 1173 (8th Cir. 1989)
(betting related to football games); United States v. Campagnuolo, 556 F.2d 1209 (5th Cir.
1977) (betting related to various sports events); United States v. Stonehouse, 452 F.2d 455
(7th Cir. 1971) (betting related to sporting events); Tel. News Sys., Inc. v. Ill. Bell Tel. Co.,
220 F. Supp. 621 (N.D. Ill. 1963) (betting related to horse racing).
Several months before the Cohen opinion, the U.S. District Court for the Eastern District of Louisiana issued an opinion in In re Mastercard, 132 F. Supp. 2d 468. The In re
Mastercard case dealt with a number of plaintiff Internet gamblers who attempted to sue
their credit card companies for illegal involvement with Internet gaming operators. Id. at
473. Their claims were based on alleged Racketeer Influenced and Corrupt Organizations
Act (RICO), 18 U.S.C. §§ 1961-68, violations, which required an analysis of underlying violations of state laws and the federal Wire Act. In re Mastercard, 132 F. Supp. 2d at 473.
Upon examination of the Wire Act’s applicability to the types of wagering engaged in by the
plaintiffs, the court interpreted the Wire Act as inapplicable to non-sports gaming. Id. at
480.
The court held that “a plain reading of the statutory language clearly requires that the
object of the gambling be a sporting event or contest.” Id. Although the court held that the
plain language of the statute is clear, rendering a look at legislative history unnecessary, it
nevertheless stated that the legislative history of recent Internet gambling legislation supports the idea that the statute applies only to sporting contests. Id. Because the plaintiffs
failed to allege they had engaged in sports betting, the court said the Wire Act did not apply
to their claims. Id. at 481. The court concluded, “Since plaintiffs have failed to allege that
they engaged in sports gambling, and internet gambling in connection with activities other
than sports betting is not illegal under federal law, plaintiffs have no cause of action
against the credit card companies or the banks under the Wire Act.” Id. As it now stands,
this is the only case law on point with respect to the Wire Act’s application to non-sports
betting on the Internet.
116 E.g., Letter from Jon P. Jennings, Acting Assistant Attorney General, U.S. Department of Justice, to The Honorable Patrick J. Leahy, Ranking Minority Member, Committee
on the Judiciary, U.S. Senate (June 9, 1999), available at http://www.usdoj.gov/criminal/
cybercrime/s692ltr.htm.
117 RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW OF THE UNITED STATES § 201
(1987) [hereinafter RESTATEMENT].
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transactions. The creation of a national mail system spurred the
development of mail fraud, as well as the advent of the first national lottery.118 More recently, the dawn of electronic bank transfers made the movement of money received from illegal
transactions more difficult to track.119 The Internet significantly
raises the stakes. We now live in a human community that exists
without traditional notions of territory. Therefore, the question
for each government is whether to extend its monopoly to a boundless territory, or to control the Internet only within its own territorial boundaries.
For many countries, this proposition is easily answered. So
long as government controls access to the Internet, it can also control what its citizens view. While this approach may be acceptable
in some regions of the world, it is unacceptable in most Western
cultures, such as the United States, Canada, Western Europe, and
Australia. The most daunting option is for a country to maintain
traditional governmental controls over its citizens, while relinquishing control of the Internet infrastructure.
Without government control over Internet access, citizens can
buy virtually anything over the Internet from a business that does
not exist anywhere but in “cyberspace.” For example, consider the
online gaming industry. Where is the sports book located? Is it
really in Antigua where it is licensed? Or is it next door, but
routed through a surrogate server in Antigua? Moreover, how
long does it take to move the Internet sports book between countries? These questions illustrate that the physical location of the
Internet business is increasingly irrelevant. These questions also
point to a greater issue: without having physical control over the
business, the government lacks the ability to control or tax gambling activity.
The basic struggle concerns whether government can control
the Internet or whether the Internet will control the government.
This issue goes beyond gambling, to include issues such as bank
fraud, consumer fraud, theft of intellectual property, copyright infringement, and child pornography, and may need to be addressed
via international treaty.
IV.
THE CHALLENGE
OF
JURISDICTION
Assuming that operating a gambling site on the Internet is
illegal, whether under national or international law, governments
must have a vehicle to enforce the particular law at issue. Prior to
See Kevin D. Doty, Mailing and Transporting Lottery Materials, in FEDERAL GAMLAW, 39, 39-40 (Anthony N. Cabot et al. eds., 1999).
119 See generally DAVID MUSSINGTON ET AL., EXPLORING MONEY LAUNDERING VULNERABILITIES THROUGH EMERGING CYBERSPACE TECHNOLOGIES (1998). See also Cash Transaction Reporting, in FEDERAL GAMBLING LAW, 247 (Anthony N. Cabot et al. eds., 1999).
118
BLING
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creation of the Internet, enforcement was accomplished more easily. For example, the sheriff could simply locate the alleged perpetrator within his jurisdiction, arrest him, and bring him before the
magistrate. The world of the Internet is much different. Mobility
allows the alleged perpetrator to be in another state or halfway
around the world. Jurisdictional battles often overshadow questions of guilt or innocence.
A. Federal Jurisdiction
A country’s ability to enforce its laws is based on three different principles of jurisdiction: “jurisdiction to prescribe,” “jurisdiction to adjudicate,” and “jurisdiction to enforce.”120 “Jurisdiction to
prescribe” is defined as the ability of the country to adopt laws
that apply to particular persons and circumstances.121 Likewise,
“jurisdiction to adjudicate” means the authority of that state to
subject those persons to its judicial process.122 Finally, “jurisdiction to enforce” is the authority of that state to use its resources to
induce or compel compliance with its law.123
1. Jurisdiction To Prescribe
The federal government may only assert extra-territorial jurisdiction in limited circumstances. Unlike territorial jurisdiction,
where a country may both apply its laws to certain conduct and
enforce those laws, extra-territorial jurisdiction refers to instances
where a country applies its laws to conduct occurring outside of its
territory.124 To enforce those laws, it must wait for the alleged
perpetrator to return to its territory, or have him returned by another nation (such as through extradition).125 Exercises of extraterritorial jurisdiction must be permissible under international
law, and must be provided for under the law of the country asserting jurisdiction.126
International law recognizes four bases for extra-territorial
jurisdiction: national, where the nationality of the offender serves
as the basis for jurisdiction; protective, where an injury to national
interest serves as the basis for jurisdiction; universal, where physical custody by any forum of the perpetrator “of certain offenses
considered particularly heinous and harmful to humanity” serves
as the basis for jurisdiction; and passive personal, where the naRESTATEMENT, supra note 117, § 401.
Id. §§ 401-02.
Id. §§ 401, 421.
Id. §§ 401, 431.
See generally 45 AM. JUR. 2D International Law § 78 (1999) [hereinafter AM. JUR. 2D
Int’l Law].
125 Id. §§ 78-80; see also United States v. Yunis, 681 F. Supp. 896, 906 (D.D.C. 1988).
126 E.g., Yunis, 681 F. Supp at 899.
120
121
122
123
124
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tionality of the victim serves as the basis for jurisdiction.127 The
second and third bases for extra-territorial jurisdiction, “protective” and “universal,” do not apply to Internet gambling. Despite
some negative commentaries on gambling, the potential injury
caused by Internet gambling is unlikely to rise to the level of injuring the “national interest” or “considered particularly heinous
and harmful to humanity.”128 Further, assuming that the games
are not fraudulent, the fourth basis, “passive personal,” also does
not apply because the player voluntarily participates in the gambling transactions. Even if a home user is a “victim” of the gambling operator, “passive personal” is an unpopular basis for extraterritorial jurisdiction and applies only to “serious and universally
condemned crimes.”129 Gambling, which is legal in many parts of
the world, including numerous jurisdictions within the United
States, is not such a crime.
However, the first basis, “nationality,” can apply to Internet
gambling. The United States can exert jurisdiction over its citizens for conducting gambling anywhere in the world, despite the
fact that the activity is legal where it is conducted.130 For example, under federal law, U.S. owned or operated aircraft cannot offer in-flight gambling even between two foreign cities.131
In the United States, a presumption exists against the extension of extra-territorial jurisdiction.132 Therefore, if the federal
government wants to extend extra-territorial jurisdiction to Internet gambling, it must amend federal law to explicitly include
operating an Internet site outside of the United States. However,
applying federal laws to Internet gambling conducted by American citizens does not present a personal jurisdiction problem for
the U.S. government. American citizens and American corporations are always subject to the personal jurisdiction of the United
States.133
2. Jurisdiction To Adjudicate
A key requirement of “jurisdiction to adjudicate” is the presence of the accused. Simply put, “no court in the United States
may bring a person to trial without his or her presence.”134 Even
Id. at 899-900.
Id. at 900.
Id. at 902.
See generally AM. JUR. 2D Int’l Law, supra note 124 (citing United States v. Reeh,
780 F.2d 1541 (11th Cir. 1986)). Nationality can also serve as the basis for federal law
enforcement officials to prosecute individuals involved in the management, operation, and
ownership of Internet gambling sites, including officers, directors, shareholders, and managers of the gambling business. Id.
131 49 U.S.C. § 41311 (1996).
132 See AM. JUR. 2D Int’l Law, supra note 124, § 80.
133 E.g., United States v. Juda, 46 F.3d 961, 967 (9th Cir. 1995).
134 RESTATEMENT supra, note 117, § 422 cmt. c(iii).
127
128
129
130
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with the advantage of having extra-territorial jurisdiction, the
federal government will find it difficult to prosecute offshore Internet gambling operators. Most operators are likely to hide their
involvement in the actual business by using a series of offshore
corporations with “nominee” directors that obscure the actual
ownership and operation.135 A company can incorporate in a Caribbean country for about three thousand dollars, with annual fees
of approximately five hundred dollars.136 Moreover, no requirement exists to keep a base of operation within the incorporating
offshore country.137 All of these factors combine to make it difficult for anyone, especially law enforcement, to determine the actual owners and operators of the corporation.
Internet operators can further complicate matters by the use
of surrogate servers. For instance, an Internet site can prevent
others from tracking the origination point by using a surrogate
server in another country.138 By stripping off the server’s header,
which indicates the origination point, the operator can make
tracking the origin of the Internet site virtually impossible. Thus,
the actual server can claim to be in a foreign country, but actually
be located within the United States. If the surrogate site operates
outside of the United States, authorities cannot use their subpoena authority to learn the location or identity of the actual
server.139 Moreover, as the potential threat becomes apparent to
the operator, the operator can easily relocate to another, more accommodating country, without disturbing its Internet site.140
A trend among Internet gambling operators is to locate their
servers in a friendly Caribbean nation.141 This presents difficult
problems for the federal government, even if it amends federal
laws to prohibit all forms of Internet gambling. If federal law enforcement officials gather evidence of the gambling activity, and
obtain federal indictments against the Internet casino operator,
135 For a cost of approximately $250, persons called “nominee” directors may be appointed and can prevent the disclosure of the names of the company’s actual directors. See
generally Global Money Consultants, at http://global-money.com/offshore/ (last visited Mar.
16, 2002) (providing an example of the ease with which companies may incorporate
offshore).
136 Id. Unless otherwise indicated, all currency figures are in U.S. dollars.
137 Id.
138 See Symposium, Panel III: The Privacy Debate: To What Extent Should Traditionally “Private” Communications Remain Private on the Internet? 5 FORDHAM INTELL. PROP.
MEDIA & ENT. L.J. 329, 365-66 (1995).
139 See FTC v. Compagnie de Saint-Gobain-Pont-a-Mousson, 636 F.2d 1300, 1316-17
(D.C. Cir. 1980) (explaining that an American court’s attempt to enforce a subpoena internationally would be an attempt to invoke the court’s enforcement jurisdiction beyond the
borders of the country, which would be a violation of international law).
140 Nicholas Robbins, Note, Baby Needs a New Pair of Cybershoes: The Legality of Casino Gambling on the Internet, 2 B.U.J. SCI. & TECH. L. 7, 51 (1996).
141 For example, see United States v. Truesdale, 152 F.3d 443, 444 (5th Cir. 1998),
where the gaming operation occurred in Jamaica and the Dominican Republic, and was
legal under both nations’ laws.
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what then? The casino operator could simply ignore service and
remain insulated from U.S. jurisdiction.
Despite the fact that a foreign government may authorize foreign-based Internet casinos, American law enforcement agencies
and courts may still enforce U.S. laws against them. The laws of
foreign countries do not bind American jurisdictions.142 The casino, however, would only be subject to the personal jurisdiction of
the United States if it were incorporated here, any of its owners or
operators were U.S. citizens, or any of the owners or operators
were physically present and arrested in the United States.143
If those involved in the Internet casino business remain
outside the jurisdiction of the United States, law enforcement officials have few options. The federal government can demand that
the country in which the Internet casino is based surrender those
involved as fugitives from justice. However, the right of the
United States to request delivery of a fugitive or federal criminal
defendant usually requires a treaty between the two nations.144
The United States has extradition treaties with only 110 countries.145 Moreover, criminal suspects can only be extradited for
committing crimes that are enumerated in the specific treaty.146
Therefore, two steps are required to extradite a casino owner or
operator from a foreign country. First, the United States must
have an extradition treaty with the foreign country. Second, the
treaty must make gambling an extraditable offense.
The federal government could also attempt to obtain extradition of a foreign casino owner or operator through international
comity. The doctrine of “comity” is based on a reciprocal courtesy
that one nation owes to another, based on notions of justice and
regard for what is due other states.147 Under this doctrine, a foreign country may voluntarily surrender a fugitive without regard
to the existence or nonexistence of a treaty. The United States
has sought extradition on the basis of comity on only a few occa142 Hilton v. Guyot, 159 U.S. 113, 163 (1895) (“No law has any effect, of its own force,
beyond the limits of the sovereignty from which its authority is derived.”). The “comity”
doctrine permits American courts to recognize the applicability of legislative, executive, or
judicial acts of another nation. However, comity is not mandatory and is not appropriate
when recognition of a foreign law is in direct conflict with a law or policy of the United
States. See Societe Nationale Industrielle Aerospatiale v. United States Dist. Ct., 482 U.S.
522, 541-44 (1987). Thus, any firm operating in a county that has laws permitting Internet
gambling cannot apply the doctrine of comity to their enterprise.
143 See United States v. Juda, 46 F.3d. 961, 967 (9th Cir. 1995).
144 18 U.S.C. § 3181 (2000); see also Factor v. Laubenheimer, 290 U.S. 276, 287 (1933);
United States v. Rauscher, 119 U.S. 407, 411-12, 429-30 (1886); United States v. Schultz,
713 F.2d 105, 107-08 (5th Cir. 1983).
145 See 18 U.S.C. § 3181 for a complete list of countries with which the United States
has an extradition treaty.
146 Rauscher, 119 U.S. at 430.
147 See AM. JUR. 2D Int’l Law, supra note 124, § 7.
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sions,148 likely because U.S. federal law enforcement officials do
not have the authority to reciprocate the effect of an extradition
based on comity.149 However, an advantage of comity is that the
foreign country has the power to surrender a fugitive accused of a
crime not named in an extradition treaty.
The reality, however, is that without an extradition treaty, a
foreign country will rarely be compelled by a sense of loyalty or
justice to surrender an Internet gambling operator. This would be
particularly true with those countries that have invited Internet
gambling operators to conduct business within their borders.150
Despite the realization that the U.S. government does not welcome their actions, these countries have encouraged Internet gambling operators.151 It is therefore unlikely that these or any
nations would consider Internet gaming a serious enough offense
to merit extradition on the basis of comity.
Though highly unlikely, the federal government could also obtain custody of a foreign Internet casino operator by force, such as
kidnapping. While abduction of a foreign criminal suspect might
seem abhorrent, it is an effective means of securing jurisdiction.
Surprisingly, most courts dealing with this issue have held that a
court’s right to try a criminal defendant is not disturbed by the
manner in which he was brought within a court’s jurisdiction.152
Following this precedent, most courts have held that an individual’s due process rights are not affected by abduction from a foreign country.153 Thus, when the U.S. government abducted
Manuel Noriega from Panama for RICO violations, the court held
that due process is denied only when the defendant proves that
the forcible abduction was accompanied by “torture, brutality, and
similar outrageous conduct.”154
Although the government could obtain jurisdiction over a foreign Internet casino operator by way of forceful abduction, it is
doubtful that illegal gambling alone could be so egregious to war148 David B. Sweet, Annotation, Application of Doctrine of Specialty to Federal Criminal Prosecution of Accused Extradited from Foreign Country, 112 A.L.R. FED. 473, § 3
(1993).
149 Ex parte Foss, 36 P. 669, 670-71 (Cal. 1894); see also 31 AM. JUR. 2D Extradition
§ 21 (1989).
150 Numerous jurisdictions throughout the globe now license online gaming. See Licensing Information: Online Gaming Jurisdictions, INTERACTIVE GAMING NEWS, at http://
www.igamingnews.com/countries.cfm (last visited Apr. 3, 2002).
151 See, e.g., Northern Territory Treasury, Gaming, at http://www.treasury.nt.gov.au/
ntt/licensing/gaming/gaming.htm (last visited Mar. 16, 2002) (touting the benefits of licensure in the Northern Territory of Australia).
152 Richard P. Shafer, Annotation, District Court Jurisdiction Over Criminal Suspect
Who Was Abducted in Foreign County and Returned to United States for Trial or Sentencing, 64 A.L.R. FED. 292, § 2 (1983).
153 See, e.g., United States v. Noriega, 746 F. Supp. 1506 (S.D. Fla. 1990).
154 Id. at 1530 (citing United States ex rel. Lujan v. Gengler, 510 F.2d 62, 65 (2d Cir.
1975)).
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rant the exercise of government force. As such, without the assistance of an extradition treaty or comity of nations, Internet casino
operators operating outside of the United States may avoid U.S.
jurisdiction to adjudicate them for their offenses. Without the
ability to extradite Internet gambling operators, the U.S. government’s best hope to deter foreign Internet gambling operations is
the use of diplomatic leverage.155
3. Jurisdiction To Enforce
The United States can enforce its laws within its own territory.156 It does not, however, have the ability to enforce its laws
outside of the United States without the consent of that nation.157
Thus, “A person apprehended in a foreign state . . . and delivered
to the United States, may be prosecuted in the United States unless his apprehension or delivery was carried out in such reprehensible manner as to shock the conscience of civilized society.”158
Additionally, in most circumstances, the United States can employ non-criminal enforcement measures against persons located
outside of the United States if it provides reasonable notice of the
claims or charges and an opportunity to be heard.159
B. Personal Jurisdiction Under The U.S. Constitution
When an American state attempts to assert jurisdiction over
a nonresident, the due process clause of the U.S. Constitution requires that the nonresident defendant have “minimum contacts”
with the forum state, such that he “should reasonably anticipate
being haled into court there.”160 Moreover, maintenance of the
suit in the forum state cannot offend “traditional notions of fair
play and substantial justice.”161 The judiciary is increasingly addressing whether these standards are met through Internet
communications.162
Much like the standards established by the U.S. Constitution,
an overriding principle of international law is that the exercise of
155 As of 1996, no international agreements existed regulating the Internet. Scott M.
Montpas, Comment, Gambling On-Line: For a Hundred Dollars, I Bet You Government
Regulation Will Not Stop the Newest Form of Gambling, 22 U. DAYTON L. REV. 163, 182
(1996).
156 RESTATEMENT, supra note 117, § 432.
157 Id.
158 Id. § 433(2).
159 Id. § 431(3).
160 World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291, 297 (1980).
161 Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (quoting Milliken v. Meyer,
311 U.S. 457, 463 (1941) (internal quotation omitted)).
162 E.g., Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119, 1124 (W.D. Pa.
1997).
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jurisdiction must be reasonable.163 However, a long-held principle
of criminal jurisdiction is that the person charged need not have
ever been physically present in the forum state or country to be
subject to its laws.164 In 1911, the U.S. Supreme Court held, “Acts
done outside a jurisdiction, but intended to produce and producing
detrimental effects within it, justify a state in punishing the cause
of the harm as if he had been present at the effect, if the state
should succeed in getting him within its power.”165 Nevertheless,
application to the Internet is testing this long-held principle.
C. State Jurisdiction to Enforce Internet Gaming Laws
Just as the federal government must conquer jurisdictional
hurdles to enforce its Internet sports gaming laws, the states must
overcome the same jurisdictional challenges to enforce their own
laws in this area. Both legal and practical problems face the
states as they attempt to enforce their laws against sports wagering in the new Internet era.
1. State Civil Jurisdiction Over the Operator
Several states have already begun to test the limits of their
personal jurisdiction over those who offer online gaming services.
The State of Minnesota has been particularly aggressive in testing
the boundaries of its personal jurisdiction in this area. Minnesota
has asserted that it has jurisdiction over online gambling anytime
it is offered to Minnesota residents.166 On the basis of this assertion, Minnesota Attorney General Hubert Humphrey III filed a
consumer protection suit against U.S. citizen, Kerry Rogers, and
his company, Granite Gate Resorts, Inc., in 1995.167 The suit alleged that the online advertising for Rogers’s proposed Belizebased “WagerNet” service was false and misleading.168
163 RESTATEMENT, supra note 117, § 403(1). This standard of reasonableness would
include factors such as: (1) the relationship between the activity and the country asserting
jurisdiction; (2) the relationship between the persons conducting the activity and the country asserting jurisdiction; (3) the character of the activity and the importance and desirability of the regulation; (4) the existence of expectations that may be injured or protected by
the regulation; (5) the importance of the regulation to the international political, legal, or
economic system; (6) the consistency of the regulation with international traditions; (7) the
extent of another state’s interest in regulating the activity; and (8) the likelihood of conflict
with another state’s regulation. Id.
164 Strassheim v. Daily, 221 U.S. 280, 285 (1911).
165 Id.
166 See Memorandum from Hubert Humphrey III, Minnesota Attorney General, to all
Internet users and providers, available at http://www.jmls.edu/cyber/docs/minn-ag.html
[hereinafter Minnesota Memorandum] (setting forth the enforcement position of the Minnesota Attorney General’s Office with respect to certain illegal activities on the Internet).
167 Minnesota v. Granite Gate Resorts, Inc., No. C6-95-7227, 1996 WL 767431, at *1
(D. Minn. Dec. 11, 1996).
168 Id. at *1-2.
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The WagerNet service would match people wishing to bet on a
similar sporting event for a charge of 2.5% of any bet.169 Because
the service only matched casual bettors, Oscar Goodman, a Las
Vegas attorney advising WagerNet, claimed that it was not actually engaging “in the business of betting or wagering,” and thus,
did not violate § 1084.170 Minnesota, however, argued that telling
potential WagerNet customers that the service was legal constituted false and misleading advertising, in violation of Minnesota’s
consumer protection laws.171
In January 1996, a Minnesota court denied Rogers’s motion to
dismiss for lack of jurisdiction.172 The state district court applied
a five-factor analysis to determine whether Rogers and his company had subjected themselves to personal jurisdiction in Minnesota: the quantity of the defendant’s contacts with the forum
state, “[t]he nature and quality of those contacts,” “[t]he connection of the cause of action with the contacts,” the “[i]nterest of the
state in providing a forum,” and the defendant’s inconvenience in
defending an action in that forum.173
Considering the first factor, the quantity of contacts with the
forum state, the court analogized WagerNet’s advertisements on
the Internet to advertisements placed in nationally distributed
magazines and newspapers. The court found no reason to treat
the particular nuances of Internet advertising differently, stating:
The Defendants attempt to hide behind the Internet and claim
that they mailed nothing to Minnesota, sent nothing to Minnesota, and never advertised in Minnesota. This argument is not
sound in the age of cyberspace. Once the Defendants place an
advertisement on the Internet, that advertisement is available
24 hours a day, seven days a week, 365 days a year to any Internet user until the Defendants take it off the Internet.174
The court flatly rejected Rogers’s argument that WagerNet
had transmitted nothing into Minnesota because it merely allowed Minnesota residents to access a Nevada-based Web site.175
The court said that if it accepted that argument, then Minnesota
residents necessarily could not be receiving anything from the
WagerNet Internet site.176 The court decided, however, that to access and interact with the WagerNet site, Minnesota residents
Id. at *4.
Dan Goodin, On-line Wagering: Place Your Bet on the Internet, LAS VEGAS REV.-J.,
July 23, 1995, at 1C, available at 1995 WL 5795946.
171 Granite Gate Resorts, 1996 WL 767431, at *1, *3.
172 Id. at *1.
173 Id. at *6.
174 Id.
175 Id. at *7.
176 Id. at *9.
169
170
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must have received electric transmissions from the Nevada-based
site.177
The obvious implication of the court’s approach is that electric
transmissions may serve as contacts between an Internet-based
gambling operation and any jurisdiction from which a user accesses that operation. The number of contacts may be debatable,
but this issue did not trouble the Minnesota court.178 Because the
advertisements were constantly available to Minnesota residents,
and the defendants knew that 1.5 million consumers viewed
WagerNet’s advertisements every month, the court concluded
“[l]ogic dictates” that the quantity of contacts with Minnesota was
substantial.179 Because Rogers refused to turn over copies of
WagerNet’s mailing lists, the court found, for purposes of the motion to dismiss for lack of jurisdiction, that the WagerNet mailing
lists contained Minnesota residents.180
The court also found that the second factor, the nature and
quality of the defendant’s contacts with Minnesota, weighed in
favor of finding personal jurisdiction.181 The court found that by
soliciting Minnesota residents, WagerNet purposely availed itself
of the privilege of conducting business within the state.182 The
court even suggested that the quality of contacts created by Internet solicitation is inherently greater than the contacts created
by other means of communication, stating, “Unlike when one puts
solicitation in the mail, the Internet with its electronic mail operates tremendously more efficiently, it generates much more
quickly and possesses a vast means of reaching a global
audience.”183
Assessing the third factor, namely the connection of the cause
of action with the contacts, the court also weighed in favor of finding personal jurisdiction.184 The court relied upon consumer protection cases, stating, “[C]ourts have routinely held that out-ofstate defendants soliciting in-state residents have purposefully
availed themselves of the privilege of conducting business within
Id. The court stated:
If that argument is correct, then the Minnesota user would not be able to obtain
anything from WagerNet. However, when the Minnesota user plugs in the URL
address for Vegas.Com, if Vegas.Com did not send an electric transmission back to
the computer user, the computer user would see nothing. He or she would see a
blank screen. The way the pictures and words get to the Minnesota residents is by
the server, Vegas.Com, automatically transmitting it back to the Minnesota
resident.
177
Id.
178
179
180
181
182
183
184
Id. at *8.
Id.
Id. at *9.
Id. at *10.
Id.
Id.
Id.
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the state.”185 The court added that the threshold for sufficient contacts is lower when a state acts in the consumer protection context
than when private litigants attempt to avail themselves of a forum reached via Internet contacts.186
The court found that the fourth factor, the interest of the
State of Minnesota in providing a forum, also weighed in favor of
finding personal jurisdiction.187 The court stated that the defendants had intentionally solicited Minnesota residents for their illegal venture, and that if Minnesota lacked jurisdiction, then its
citizens and consumers would be unprotected.188
The final factor in the “minimum contacts” analysis, inconvenience in being forced to defend against an action, was an easy
determination for the court because WagerNet’s advertisement
told potential customers that WagerNet could sue them in their
home states.189 This statement allowed the court to find that the
defendants could “reasonably anticipate being hailed into court” in
Minnesota.190 The court called this statement a “coup de grace”
that guaranteed jurisdiction.191
In September 1997, the Minnesota Court of Appeals rejected
Rogers’s appeal.192 The court of appeals expressed its understanding of the implications of any decision involving Internet
jurisdiction:
We are mindful that the Internet is a communication medium
that lacks historical parallel in the potential extent of its reach
and that regulation across jurisdictions may implicate fundamental First Amendment concerns. It will undoubtedly take
some time to determine the precise balance between the rights
of those who use the Internet to disseminate information and
the powers of the jurisdictions in which receiving computers are
located to regulate for the general welfare. But our task here is
limited to deciding the question of personal jurisdiction in the
instant case, and on the facts before us, we are satisfied that
established legal principles provide adequate guidance.193
185 Id. The court likened WagerNet’s online advertising to the advertisements mailed
to Washington residents in State v. Reader’s Digest Ass’n, 501 P.2d 290 (Wash. 1972).
Granite Gate Resorts, 1996 WL 767431, at *10.
186 Granite Gate Resorts, 1996 WL 767431, at *10.
187 Id. at *10-11.
188 Id. at *11.
189 Id.
190 Id.
191 Id.
192 Minnesota v. Granite Gate Resorts, Inc., 568 N.W.2d 715, 721 (Minn. Ct. App.
1997). In 1998, the Minnesota Supreme Court, without publishing an explanatory opinion,
upheld the Court of Appeals decision on a split vote. Minnesota v. Granite Gate Resorts,
Inc., 576 N.W.2d 747 (Minn. 1998).
193 Granite Gate Resorts, 568 N.W.2d at 718.
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The court of appeals, however, did not rely upon the lower
court’s argument that jurisdiction is established when an inanimate server sends an electric transmission into Minnesota.194 The
court of appeals also did not adopt the broad approach of the lower
court regarding the quality of Internet-based activities, as opposed to other advertising mediums.195 When examining the first
factor of the five-part test, the quantity of contacts with Minnesota, the court of appeals focused on the specific evidence that at
least 248 Minnesota computers had accessed the WagerNet site.196
The court also noted that WagerNet, through phone calls and its
mailing list, was aware that Minnesota residents were accessing
its site.197 The court held that the specific proof of Minnesota contacts and that WagerNet had knowledge of those contacts satisfied the first element of the personal jurisdiction test.198 The court
of appeals also deviated from the lower court’s reasoning regarding the second factor, the quality of contacts with the forum state.
The court of appeals did not adopt the district court’s argument
that Internet advertising creates a greater quality of contact because it is available twenty-four hours a day.199 According to the
court of appeals, all forms of advertising are quality contacts with
a forum state because they indicate “a defendant’s intent to serve
the market in that state.”200
Particularly important in the decision was the court’s comparison of advertising mediums. The court of appeals cited Minnesota court decisions involving television advertising to support its
conclusion that defendants who know their message will be broadcast in Minnesota are subject to suit in Minnesota.201 The court
made the following analogy: “Internet advertisements are similar
to broadcast and direct mail solicitation in that advertisers distribute messages to Internet users, and users must take affirmative action to receive the advertised product.”202
In future Internet jurisdiction cases, analogizing to television
cases may become a popular approach. Just as an individual who
turns on a computer and chooses to view a particular website may
be involuntarily exposed to Internet advertising, television advertising is accessed by an individual who turns on a television, and
chooses a particular channel or program to view. Commentators
Id. at 718-19.
Id. at 719-20.
Id. at 718-19.
Id.
Id.
Id. at 719-20.
Id. at 719.
Id. at 719-20 (citing Tonka Corp. v. TMS Entm’t, Inc., 638 F. Supp. 386, 391 (D.
Minn. 1985) and BLC Ins. Co. v. Westin, Inc., 359 N.W.2d 752, 755 (Minn. Ct. App. 1985)).
202 Granite Gate Resorts, 568 N.W.2d at 720.
194
195
196
197
198
199
200
201
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have raised the argument that Internet advertising is still more
dormant than television advertising.203 Advances in technology,
however, are increasingly blurring the lines between the Internet
and television.204
Courts have relied upon the uniqueness of broadcast television to justify federal regulations that are not constitutionally permitted when applied to print media or Internet content. For
instance, the federal government may regulate indecent material
on television, but may not regulate the same material on the Internet.205 However, this disparate treatment of televised content
relies on the inherent scarcity of broadcast signals and the federal
government’s special role in allocating these signals.206 Logically,
however, there may be little reason to treat Internet content differently than cable television content for purposes of state jurisdiction. This may become particularly obvious as the Internet’s
video and sound capabilities improve and the number of cable television channels increases by the hundreds.
When a company places an advertisement on a nationally distributed cable television program, the advertisement may not be
directed at any particular state or any particular viewer. Nevertheless, the advertiser has knowledge that the advertisement may
be viewed by anyone in the country who has chosen to access the
program. The same may be said of advertising placed on an Internet site, which is also available nationally. Internet operators
arguing that their websites do not subject them to personal jurisdiction in numerous states must be prepared to address the television analogy utilized by the court of appeals in the WagerNet
case.207
Rogers, the defendant in the WagerNet case, however, went
further than merely making content available on a website. By
203 Dennis Hernandez & David May, Personal Jurisdiction and the Net: Does Your
Website Subject You to the Laws of Every State in the Union?, L. A. DAILY J., July 15, 1996,
available at www.gseis.ucla.edu/iclp/dhdm.html.
204 WebTV allows a customer to access the Internet through a television. In the future,
it may be commonplace for Internet access and television signals to enter the home through
the same cables or same satellite dish and be utilized via one piece of equipment that functions as both a computer and a television.
205 Compare FCC v. Pacifica Found., 438 U.S. 726, 748-51 (1978) (upholding the FCC’s
ability to impose sanctions on a radio station for broadcasting, during the afternoon when
children may have been listening, a twelve-minute George Carlin monologue describing the
seven “Filthy Words” that you cannot say on the public airwaves), with Reno v. ACLU, 521
U.S. 844, 882-85 (1997) (striking down, as unconstitutional, provisions of the Communications Decency Act that prohibited indecent content on the Internet that could be accessed
by children).
206 See Pacifica Found., 438 U.S. at 731 n.2.
207 Granite Gate Resorts, 568 N.W.2d at 720. The U.S. Supreme Court provided material that may be useful when attempting to make this argument. In Reno v. ACLU, 521
U.S. at 854, the Court stated that the Internet is not as invasive as television or radio
because Internet users “seldom encounter such content accidentally.” The Justices are obviously more familiar with “channel surfing” than with “surfing the Net.”
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maintaining customer lists and failing to disclose them to the
court, Rogers allowed the court to assume that Minnesota residents were on those lists. In doing so, Rogers effectively conceded that he had knowledge the site was being accessed in
Minnesota. Second, Rogers had a telephone conversation with a
consumer investigator for the Minnesota Attorney General’s office
who identified himself as a caller from Minnesota.208 Finally,
WagerNet’s statement that WagerNet could sue customers in
their home states established that WagerNet was willing to avail
itself of the benefits of conducting business in Minnesota.
WagerNet and similar cases illustrate that deciding whether
a state court has personal jurisdiction over an Internet operator
may inevitably depend upon specific factual circumstances.209 As
stated by one court attempting to reconcile recent decisions regarding this issue:
At one end of the spectrum are situations where a defendant
clearly does business over the Internet. If the defendant enters
into contracts with residents of a foreign jurisdiction that involve the knowing and repeated transmission of computer files
over the Internet, personal jurisdiction is proper. At the opposite end are situations where a defendant has simply posted information on an Internet Web site which is accessible to users in
foreign jurisdictions. A passive Web site that does little more
than make information available to those who are interested in
it is not grounds for the exercise [of] personal jurisdiction. The
middle ground is occupied by interactive Web sites where a user
can exchange information with the host computer. In these
cases, the exercise of jurisdiction is determined by examining
the level of interactivity and commercial nature of the exchange
of information that occurs on the Web site.210
In Bensusan Restaurant Corp. v. King, the Court of Appeals
for the Second Circuit held that a passive website does not subject
the website’s operator to personal jurisdiction in New York.211
This decision, however, may be more a result of the New York
courts’ narrow construction of personal jurisdiction in tort cases
than of any attribute of the Internet. A different result may be
208 The telephone conversation alone may have been enough to confer personal jurisdiction. See Brainerd v. Governors of the Univ. of Alta., 873 F.2d 1257, 1259-60 (9th Cir.
1989).
209 See CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1262-63 (6th Cir. 1996); Zippo
Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119, 1124 (W.D. Pa. 1997); Bensusan Rest.
Corp. v. King, 937 F. Supp. 295, 298-300 (S.D.N.Y. 1996); Maritz, Inc. v. Cybergold, Inc.,
947 F. Supp. 1328, 1332-34 (E.D. Mo. 1996).
210 Zippo, 952 F. Supp. at 1124 (citations omitted).
211 Bensusan, 126 F.3d at 29. The Second Circuit noted that “attempting to apply established trademark law in the fast-developing world of the [I]nternet is somewhat like
trying to board a moving bus . . . .” Id. at 27.
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reached in a state like Minnesota that extends its personal jurisdiction to the limits allowed by constitutional due process.
For example, another federal district court held that Connecticut could assert jurisdiction over a Massachusetts defendant
merely for advertising on a webpage and providing a phone number for persons to call.212 The court echoed the comments of the
district court in the WagerNet case, focusing on the permanency of
Internet advertising. The court stated:
In the present case, Instruction has directed its advertising activities via the Internet and its toll-free number toward not only
the state of Connecticut, but to all states. The Internet as well
as toll-free numbers are designed to communicate with people
and their businesses in every state. Advertisement on the Internet can reach as many as 10,000 Internet users within Connecticut alone. Further, once posted on the Internet, unlike
television and radio advertising, the advertisement is available
continuously to any Internet user. ISI has therefore, purposefully availed itself of the privilege of doing business within
Connecticut.213
According to the test set out by the court, the defendant presumably availed itself of the privilege of doing business in every state.
By contrast, the United States Court of Appeals for the Ninth
Circuit has held that it would violate traditional notions of fair
play and substantial justice “for Arizona to exercise personal jurisdiction over an allegedly infringing Florida web site advertiser
who has no contacts with Arizona other than maintaining a home
page that is accessible to Arizonans, and everyone else, over the
Internet.”214 These decisions illustrate the unsettled question of
jurisdiction over Internet operators. The parameters of personal
jurisdiction over Internet activity will continue to evolve as more
courts address the issue in cases involving varying fact patterns.
Merely creating a website that can be accessed by anyone may
not be sufficient to establish personal jurisdiction, absent a showing that the site operator either actively sought business from
within the state, or directed some other form of conduct at the
state. However, economic sense dictates that operators will not
create a website and then avoid further contact or commercial interaction with customers. It may be very difficult to devise an Internet gambling operation that is commercially viable, and yet
does not create the types of contacts necessary for a state to assert
personal jurisdiction.215 Therefore, it is unlikely that issues of perInset Sys., Inc. v. Instruction Set, Inc., 937 F. Supp. 161, 164-65 (D. Conn. 1996).
Id. at 165.
Cybersell, Inc. v. Cybersell, Inc., 130 F.3d 414, 415 (9th Cir. 1997).
For example, in State v. Interactive Gaming & Communications Corp., No. CV977808 (Mo. Cir. Ct. May 22, 1997) (order granting permanent injunction and final judgment), the State of Missouri was able to obtain an injunction against an Internet gaming
212
213
214
215
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sonal jurisdiction will prevent civil enforcement against Internet
sports gaming operators.
2. State Criminal Jurisdiction Over the Operator
Although the WagerNet suit was based on false advertising,
Minnesota Attorney General Humphrey sent a message that Minnesota is willing to try to assert jurisdiction over all online gaming
operators outside of Minnesota. While obtaining civil jurisdiction
will allow the application of consumer protection laws to Internet
gambling operations, the issue of attaining criminal jurisdiction to
apply state antigambling laws is more complex.
Humphrey asserts that Minnesota’s general criminal jurisdiction statute grants jurisdiction to prosecute Internet gambling operators.216 Humphrey relies on a case where a person fired a rifle
from an Indian Reservation, across the boundary into Minnesota,
in violation of a criminal statute.217 The shooter claimed that Minnesota courts had no jurisdiction because the act that constituted
the crime (the actus reus) did not take place in Minnesota.218 Applying the Minnesota criminal jurisdiction statute and common
law, the court held that it could try the shooter because the shots
took effect in Minnesota, and therefore Minnesota was the “situs
of the crime.”219
Humphrey has analogized this case to Internet gambling, arguing that the same reasoning would give Minnesota jurisdiction
to prosecute online casino operators who offer their services to
Minnesota residents. There is some authority supporting
Humphrey’s view. As early as 1916, the U.S. Supreme Court held
that when a person uses a telephone to commit a crime, the offense takes place in the location where the hearer, not the
speaker, is located.220 The use of a telephone, however, indicates a
purposeful direction of conduct into a state. In contrast, making
an Internet site available to whoever may access it may not constitute directing conduct towards any particular state. Therefore, it
is unclear whether this logic will support criminal jurisdiction
over Internet gaming operators. In addition, many states have
operator for violating the state’s “Merchandising Practices Act.” Id. Missouri customers
had filled out account applications and paid fees to enter online gambling tournaments. Id.
Using contract principles, the Missouri Attorney General successfully argued that this conduct constituted an “acceptance” in Missouri of the Internet operator’s “offer.” Id. The
injunction requires the operator to post a notice on its website stating that it is under court
order not to accept applications from Missouri residents. Id.; see also Martin H. Samson,
Internet Law—Gambling, at www.phillipsnizer.com/int-art77.htm (last visited Apr. 18,
2002).
216 See Minnesota Memorandum, supra note 166.
217 Id. (citing State v. Rossbach, 288 N.W.2d 714, 715-16 (Minn. 1980)).
218 Rossbach, 288 N.W.2d at 715.
219 Id. at 715-16.
220 Lamar v. United States, 240 U.S. 60, 65-66 (1916).
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not expanded their common law criminal jurisdiction through the
enactment of statutes similar to Minnesota’s. Therefore, these
states may face common law limitations on territorial jurisdiction
if they attempt to assert criminal jurisdiction over Internet
gambling.221
As with issues of personal jurisdiction in civil suits, no established rule governs when a state can assert criminal jurisdiction
over acts committed via the Internet. As one federal court has
noted: “The Internet makes it possible to conduct business
throughout the world entirely from a desktop. With this global
revolution looming on the horizon, the development of the law concerning the permissible scope of personal jurisdiction based on Internet use is in its infant stages.”222
Regardless of the exact parameters of a state’s law, presumably some conduct must be directed at the forum state, and produce
an effect in that state before that state may impose its criminal
jurisdiction. As stated by the U.S. Supreme Court, “Acts done
outside a jurisdiction, but intended to produce and producing detrimental effects within it, justify a state in punishing the cause of
the harm as if he had been present at the effect, if the state should
succeed in getting him within its power.”223
The Supreme Court’s reference to bringing a defendant
within a state’s power raises another problem with criminal jurisdiction: personal jurisdiction over an out-of-state criminal defendant requires obtaining the physical presence of that defendant.224
In many cases, this would likely involve the defendant’s extradition from another state. If a state attempted to enforce its criminal laws against a defendant in another country, the extradition
problems could become insurmountable.225
Jurisdiction questions, the time and effort required for extradition from another state, and the problems that a state may face
when attempting to extradite a defendant from another nation all
raise the question of whether federal law may be used to enforce
the gambling laws of the various states. Nevertheless, as discussed above, those enforcing federal gambling laws may face similar challenges, and be rendered similarly ineffective.
221
See generally WAYNE R. LAFAVE
ET
AL., CRIMINAL PROCEDURE § 16.2(c) (3d ed.
2000).
222
223
224
225
Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119, 1123 (W.D. Pa. 1997).
Strassheim v. Daily, 221 U.S. 280, 285 (1911).
See 21 AM. JUR. 2D Criminal Law § 480 (1998).
See generally AM. JUR. 2D Int’l Law, supra note 124, § 80.
2002]
V. THE PHILOSOPHY
REALITIES OF SPORTS WAGERING
UNITED STATES
AND
THE
41
IN
If one assumes that sports wagering creates social problems,
the challenges to government cannot be met by simply passing
laws making the activity illegal. Laws only prescribe what conduct is punishable. However, if people ignore the laws, or if law
enforcement does not or cannot enforce the laws, the public policy
behind the law is frustrated. Moreover, passing laws that are ignored, not enforced, or unenforceable may be counterproductive.
Proponents of legal sports wagering make several arguments,
including:
1. The activity can be better regulated for the protection of the
player and the sport.226
2. The government can realize tax revenues.227
3. Money currently wagered with criminal organizations will be
diverted from the underground economy.
4. Making sports wagering illegal when such laws are unenforceable brings disrespect to the legal process and contributes to police corruption.
Internet sports wagering, in particular, presents the government with social challenges. The issues pushing the envelope of
Internet regulation include pornography and gambling because
these issues challenge traditional government roles. Online gambling will shape the government’s role in the Internet world more
significantly than pornography because gambling has prompted a
more diverse government reaction. Namely, in some places it is
legal, or even sponsored, while in other locations it is prohibited.228
In contrast, no government sponsors pornography or openly supports pornographers.
The possible government responses to Internet gambling are
limited. There is, of course, the prospect of an international
treaty, but the disparate approaches taken by various countries
make this option unlikely. The other government alternatives are
either assuming control of all Internet services and blocking or
regulating objectionable sites, or allowing the Internet to remain
open and uncontrolled. The latter course, however, will change
the nature of government from the purveyor of monopoly power
over its territory to a service provider. Instead of being “governed”
in the traditional sense by a territorial state, mobile Internet industries have the ability to shop around for the government services that best match their needs.
226 E.g., Ray Tennenbaum, It’s Time to Consider Legalized Sports Betting, NEWSDAY,
Mar. 22, 1999, at A27, available at 1999 WL 8163324.
227 Id.
228 See, e.g., ARIZ. REV. STAT. § 5-504(J) (2001).
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This evolution is evident in the world of Internet gambling.
The first government providers came from the Caribbean. Antigua passed legislation in early 1997 to grant licenses to Internet
operators.229 For one hundred thousand dollars per year, Internet
gaming operators are assured of little regulatory oversight, anonymity, and tax-free profits.230 St. Kitts soon followed this example, providing licenses for an initial fee of eighty thousand dollars,
and a renewal fee of forty thousand dollars per year.231 In contrast, the small island nation of Dominica requires an initial fee of
twenty-five thousand dollars, plus continuing profit participation.232 Rather than requiring a government license to operate an
Internet sports book, some countries grant “master” licenses, allowing holders to sublicense additional persons to operate Internet gambling sites.233 This allows some operators to enter the
business with lower initial licensing costs of as little as four thousand to eight thousand dollars per month.234
The price of these government regulatory services will necessarily vary according to market conditions. When few governments offered Internet gaming licenses, operators were willing to
pay one hundred thousand dollars per year for minimal government benefits. As more governments offered similar benefits, the
costs decreased. In addition, the benefits provided by governments perceived as more legitimate and offering a higher regulatory standard will come at a considerable premium. The
experience of the Isle of Man, a semi-autonomous jurisdiction in
the United Kingdom, highlights this reality. Some of the world’s
largest casino corporations lined up to apply for an interactive
gaming license from this British jurisdiction.235 These licenses
cost an annual fee of eighty thousand pounds, in addition to a
2.5% tax on gambling revenues.236
Pressure is high to be the leader in this area because the first
major country to provide viable government oversight will have, at
the very least, a temporary monopoly. Obvious benefits accrue to
both the regulated Internet operators and the sponsoring country
that offers effective regulation. Internet gambling operators have
229 E.g., Mark Fineman, ‘Virtual Casinos’ Cash in on Lax Rules in Antigua, L.A. TIMES,
Sept. 21, 1997, at A1, available at 1997 WL 13982286.
230 Id.
231 Can Gambling Work on the Internet, in INTERNET GAMBLING REPORT IV: AN EVOLVING CONFLICT BETWEEN TECHNOLOGY, POLICY & LAW 25, 37 (Anthony N. Cabot ed., 2001).
232 Id.
233 Id.
234 Id.
235 Las Vegas-based casino giant MGM-Mirage applied, and was awarded one of these
licenses. Judy Dehaven, MGM Wins License for an Online Casino, STAR-LEDGER, Sept. 21,
236 Steve Pain, E-business: Islands Gambling on a Safe Bet in Casinos, BIRMINGHAM
POST, Aug. 28, 2001, at 22, available at 2001 WL 26526735.
2002]
43
certain needs or wants and will bargain for: (1) infrastructure
support; (2) basic legality of the types of gambling that the operator wishes to offer; (3) financial infrastructure; (4) anonymity for
customers; and (5) credibility through regulatory oversight and
public accountability.
As with all negotiations, the sellers (in this case, the government) will want certain things in return. First and foremost, governments will insist on receiving fees and taxes. The fees will
presumably be used to pay for the cost of the regulatory services
provided by the government. The taxes will be used for other governmental purposes as well. Moreover, most modern civilized governments have a notion of social responsibility. For this reason,
licensing governments will seek some basic implementation of
public policy, including controls on underage gambling, bet limitations or loss limits, and minimum levels of fairness in the games.
Still, the notion that government can successfully implement
public policy by regulating Internet gambling poses its own implementation problems. Only a few years ago, it was thought that
the best regulators could do was to provide a safer gambling environment; one in which the gamblers know the games are fair and
honest, and that they will be paid if they win. Regulations requiring sites to prohibit underage gambling, or gambling in jurisdictions where interactive gaming is illegal, were thought to be
technologically infeasible. New technological advances have
changed this view.
New technology now permits Internet sites to determine, with
a high degree of accuracy, the geographic location of an Internet
user.237 This technology, in turn, allows Internet casinos to block
users from jurisdictions where such activities are illegal. Other
technologies, like retinal scans and biometric fingerprinting, while
somewhat costly, allow websites to verify the identity of players
with nearly one hundred percent accuracy.238 At least one Nevada
casino pursuing interactive gaming from an offshore location has
expressed its confidence that such technologies will permit its
planned offshore site to prevent betting by U.S. residents.239 As
these technologies become more reliable, less expensive, and more
readily available, fears about the inability to regulate will no
longer present barriers to interactive gaming.
The decision of some economically powerful countries to legalize and regulate interactive gaming may force the United States
237 See, e.g., InfoSplit, We Know Where Your Customers Are, at http://www.infosplit.
com/prod/main3.htm (last visited Mar. 16, 2002); IXIA, IxMapping - IP Host and Networks Graphoc Location Service, at http://www.ixiacom.com/products/paa/netops/IxMapping.php (last visited Mar. 16, 2002).
238 See Dretzka, supra note 115.
239 See Dehaven, supra note 235.
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[Vol. 5:1
to reevaluate the reality of the situation. The world arena
changed dramatically when Australia set standards for its states
and territories to issue Internet gaming licenses.240 Where the online industry was once a group of upstarts trying to establish a
foothold in Caribbean nations, Australia opened the door to more
mainstream interests, now including a growing list of Western,
industrialized jurisdictions.241
Uncertainty regarding U.S. law, as well as the lack of definitive congressional action, has even led some jurisdictions in the
United States to pursue the possibility of legal interactive gaming.
In 2001, Nevada’s State Legislature passed a bill authorizing Nevada gaming regulators to proceed with interactive gaming licensing if it can be conducted in accordance with all applicable laws.242
Nevada regulators are now engaged in an extensive analysis of
the laws of different jurisdictions, and the feasibility of technological controls to assure compliance with these laws.243 Nevada’s bill
further illustrates the premium that regulators believe interactive
casinos may be willing to pay to operate under a highly regulated
and respected regulatory regime. Under Nevada’s bill, licensees
would pay an initial licensing fee of $500,000, followed by an annual renewal fee of $250,000.244 These fees would be in addition to
Nevada’s 6.25% tax on gross gaming revenues.245 Additionally,
New Jersey’s legislature has introduced bills that would permit
the State to license interactive gaming operations.246
If Congress preserves the Wire Act’s current ban on online
sports wagering, or prohibits Internet gambling in its entirety,
preventing Americans from making wagers online will require the
cooperation of other countries. Specifically, other countries will
need to adopt laws prohibiting their licensed operators from accepting wagers from patrons in the United States. However, attempts by the United States, which realizes more than sixty
billion dollars each year in legal gaming revenues, to tell a small
Caribbean country to stop receiving a few million dollars in fees
240 See Adam Snyder, Odd Alliance Tackles Net Gambling, at http://www.msnbc.com/
news/130443.asp (last visited Jan. 7, 2002).
241 In addition to several jurisdictions in Australia, several jurisdictions in the United
Kingdom, including the Isle of Man and Alderney, are licensing Internet gaming
operations.
242 See 2001 Nev. Stat. 593. The Wire Act’s applicability to sports-related online wagering would limit this online gaming to non-sports wagering.
243 Jeff Simpson, Internet Gambling: Gaming Regulators Seek Legal Advice, LAS VEGAS
REV.-J., June 30, 2001, available at 2001 WL 9536797.
244 2001 Nev. Stat. 593 § 6.
245 NEV. REV. STAT. 463.370 (2001).
246 See Assemb. 568, 210th Leg., 2002 Sess. (N.J.) (allowing Internet casino gambling
by Atlantic City casinos when permitted by the Casino Control Commission); Assemb.
1532, 209th Leg., 2d Reg. Sess. (N.J.) (allowing Atlantic City casinos to take bets on live
Atlantic City casino games from remote locations, when permitted by the Casino Control
Commission).
2002]
45
annually from Internet operators, are likely to fall on deaf ears.
Even larger, industrialized trading partners and military allies,
whose citizens have gambled billions in Las Vegas casinos over
the years, may not be sympathetic to U.S. policy on this issue.
Even if such nations are sympathetic, it may not make a difference. American gamblers will still be free to gamble on most of
the current 1400 online gambling sites, which have more than
doubled since 1999.247 These sites would likely continue to offer
online sports wagering to U.S. citizens regardless of U.S. policy.
VI.
CONCLUSION
Laws intended to regulate sports gaming traditionally have
presented unique challenges to the law enforcement community.
Now, with the advent of the Internet, both federal and state law
enforcement agencies, as well as courts, are faced with new challenges. Gaining custody of and jurisdiction over Internet gaming
operators may further hinder the government anti-gaming
agenda. In light of the evolving technologies and the expanding
global marketplace, federal and state governments may be forced
to reconsider their approach to sports gaming.
247
See Dretzka, supra note 115.
There Are No Pequots on the Plains:
Assessing the Success of Indian Gaming
Kathryn R.L. Rand*
INTRODUCTION
“We had tried poverty for 200 years, so we decided to try
something else.”1 Ray Halbritter was referring to his own tribe,
the Oneida Indian Nation of New York, but the sentiment might
have applied to each of the nearly 150 tribes that decided to pursue casino-style gaming during the 1990s as a means of tribal economic development. For the last decade, gaming tribes across the
country have lauded the financial and social successes of their
casinos. The tribes’ accounts largely have been corroborated by
empirical research. In 1999, the National Gambling Impact Study
Commission (NGISC) reported that Indian gaming has allowed
tribes “to take unprecedented steps to begin to address the economic as well as social problems on their own.”2 In addition, a
study conducted by the Harvard Project on American Indian Economic Development concluded in 2000 that both surrounding localities and tribes benefit substantially from tribal casinos,
particularly in the poorest areas of the country.3 Indeed, leading
tribal gaming researchers recently concluded “the idea that the
consequences of Indian gaming are largely negative, either for In-
* Assistant Professor, University of North Dakota School of Law. B.A., University of
North Dakota, 1990; J.D., University of Michigan Law School, 1993. This article benefited
greatly from the input and suggestions of Steven A. Light, my partner and collaborator. I
would like to thank the editors of Chapman Law Review for inviting me to contribute to
this symposium issue. I also would like to thank the University of North Dakota School of
Law for its financial support of student researchers, and Sam Jandt and Rebecca Graves
for their research assistance.
1 Ray Halbritter & Steven Paul McSloy, Empowerment or Dependence? The Practical
Value and Meaning of Native American Sovereignty, 26 N.Y.U. J. INT’L L. & POL. 531, 568
(1994) (quoting Ray Halbritter, Nation Representative, Oneida Indian Nation of New
York).
2 NAT’L GAMBLING IMPACT STUDY COMM’N, FINAL REPORT, at 6-6 (1999), available at
http://govinfo.library.unt.edu/ngisc/index.html [hereinafter NGISC FINAL REPORT].
3 Jonathan B. Taylor et al., The National Evidence on the Socioeconomic Impacts of
American Indian Gaming on Non-Indian Communities 29-30 (April 2000) (unpublished
manuscript, on file with Chapman Law Review).
47
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[Vol. 5:47
dians or non-Indians, is misguided and unacquainted with the
facts.”4
If the previous reports are true, one might ask why the Boston
Globe reported in late 2000 that Indian gaming has resulted in
“[u]ntold riches for a few, smaller tribes . . . and continued poverty
for the vast majority of Indians spread out across rural America.”5
Furthermore, why did some federal policymakers respond by calling for legislation that would, in effect, make it more difficult for
many tribes to pursue gaming?6
Even as Indian gaming provides vital public revenue for
many tribes, allowing them to begin to address the collective
plight of the poorest ethnic group in the country,7 many policymakers appear eager to further remove gaming from tribal control. Indian gaming has been controversial since its advent,
raising a myriad of concerns, both substantiable and otherwise.
In the decade following Congress’s enactment of the Indian Gaming Regulatory Act,8 politics has proven as great a force as law in
shaping the practicalities of tribal gaming.9 In the past several
years, concerns appear to have shifted from whether tribal gaming
enterprises comply with applicable law to whether tribal gaming
itself—legal or not—is a desirable political outcome.
Most recently, Indian gaming has been faulted as a failed policy experiment, a criticism that has wielded a great deal of influence in the public discourse. Tribal gaming, critics charge, does
not work: it has failed to solve the “Indian problem,”10 as evidenced by continuing poverty, unemployment, and other social ills
on reservations. Accompanying this fundamental criticism is a
host of related concerns: that tribes, inexperienced in running
successful economic enterprises, may be taken advantage of by
non-Indian investors; that gaming is contrary to “Indian” values,
suggesting that “casino Indians”11 are not really Indian at all; that
4
NOMIC
STEPHEN CORNELL ET AL., AMERICAN INDIAN GAMING POLICY AND ITS SOCIO-ECOEFFECTS: A REPORT TO THE NATIONAL GAMBLING IMPACT STUDY COMMISSION 77
(1998).
5 Michael Rezendes, Few Tribes Share in Casino Windfall, BOSTON GLOBE, Dec. 11,
2000, at A1, available at 2000 WL 3354974 [hereinafter Rezendes, Casino Windfall].
6 See, e.g., H.R. 2244, 107th Cong. (2001); infra notes 66-77.
7 U.S. CENSUS BUREAU, POVERTY IN THE UNITED STATES: 2000 7 tbl.B (2000), available at http://www.census.gov/prod/2001pubs/p60-214.pdf.
8 25 U.S.C. §§ 2701-21 (2001).
9 See Kathryn R.L. Rand, At Odds? Perspectives on the Law and Politics of Indian
Gaming, GAMING L. REV. vol. 5 No. 4, at 297 (2001) (introducing special issue on Indian
gaming).
10 “Indian problem” is an old term from federal Indian policy, and it is used generally
to refer to Indian poverty and other social ills.
11 See, e.g., Chris Powell, Editorial, Pequot Museum May Feed Mistaken Guilt, PROVIDENCE J., Jan. 2, 2001, at B4, available at 2001 WL 5370897 (“Many other aspiring casino
Indians are coming out of the woodwork.”).
2002]
There Are No Pequots on the Plains
49
casinos breed organized crime; and that some tribes’ casinos are
too successful.12
Current law plays a limited role in the debate; instead, the
focus is on reforming the law to address these and other policy
concerns. Recent debate has focused on the handful of highly successful gaming tribes—particularly the Mashantucket Pequots of
Connecticut—feeding concerns that simply do not apply to a large
number of tribes, particularly in middle America. I explore this
focus on a few successful, relatively small, and often relatively recently organized tribes through what I call the “Pequot Model.”13
At the forefront of popular debate, the Pequot Model, I argue,
threatens to unduly influence policymakers by fueling assumptions that most gaming tribes resemble the Pequots.
Missing from the almost frenetic level of public debate concerning the Pequots in the popular media is a meaningful discussion of the interrelationship between tribal gaming and tribal
sovereignty. In a discourse rife with economic bottom lines and
challenges to authenticity, there appears to be little concern for
preserving tribal sovereignty from any camp other than the tribes
themselves. To the extent sovereignty is mentioned, most news
accounts are simplistically critical of tribes’ exercise of sovereignty
in the context of gaming.14 Policymakers, too, seem inclined to
gloss over tribal sovereignty concerns, choosing to focus on the
problems perceived by their non-Indian constituents.
Yet, I argue that sovereignty, rather than net profits, provides
the necessary foundation for assessing whether tribal gaming is
successful. Research conducted by the Harvard Project on American Indian Economic Development shows that tribal sovereignty
precedes reservation economic development; without strong tribal
government, tribes are unlikely to successfully pursue economic
enterprises.15 The Harvard Project research plainly indicates that
self-determination is a desirable federal Indian policy, but I argue
that policymakers also should use sovereignty as an assessment
tool. If Indian gaming strengthens tribal governments, then even
modest economic success may be expected to result in healthier
reservation communities, and an increased likelihood that tribes
See discussion infra Part II.
Although I base this model on criticism levied at the Mashantucket Pequots in particular, the model might also encompass the heightened public debate over Indian gaming
in California following the passage of Proposition 1A. See infra note 128.
14 Following the Boston Globe series, editorials decried exercises of tribal sovereignty,
called for increased federal and state oversight, and warned that “casino Indians” would
breed corruption and crime. See, e.g., Editorial, The Big Gamble, ARIZ. DAILY STAR, Mar.
17, 2001, at B6, available at 2001 WL 10337361; Editorial, No Tribal Casino Is an Island,
CHRISTIAN SCI. MONITOR, Jan. 8, 2001, at 8, available at 2001 WL 3732863; Editorial, Regulating Tribal Casinos, BOSTON GLOBE, May 21, 2001, at A10, available at 2001 WL
3934250; Powell, supra note 11; see also infra note 147.
15 CORNELL ET AL., supra note 4, at 5-8.
12
13
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[Vol. 5:47
will be able to pursue avenues of economic development outside of
gaming.
This is particularly true for tribes whose casino profits are unlikely ever to approach those of the Pequots, even those tribes
that, as described by the Boston Globe, experience “continued poverty for the vast majority of Indians spread out across rural
America.”16 To illuminate and assess the success of these tribes, I
offer a different model of Indian gaming in contrast to the Pequot
Model: the “Plains Model.” The Plains Model is based on the experiences of large, land-based “treaty tribes”17 in North Dakota,
and is an alternative lens through which to assess the impacts of
tribal gaming. The Plains Model, I posit, reveals the notable success of many gaming tribes in terms of preserving tribal sovereignty and strengthening tribal government, which, in turn,
allows those tribes to begin to rectify persisting social ills on the
reservation. Law and policy adopted in response to the Pequot
Model of tribal gaming, I argue, risks undermining the small, and
not-so-small, gains in the quality of reservation life made by tribes
like those in North Dakota and across the Great Plains.
Part I, provides a brief overview of the history of Indian gaming and the enactment of the Indian Gaming Regulatory Act, as
well as a short account of gaming’s effects on reservation economic
development. Part II recounts recent criticism of tribal gaming in
the national media and its influence on policymakers, particularly
at the federal level. In Parts III and IV, I set forth the Pequot
Model and the Plains Model, respectively. I then turn, in Part V,
to the policy implications of the models, arguing that lawmakers
should consider the Plains Model both in assessing the success of
tribal gaming and in weighing the effects of further limiting tribal
gaming and diminishing tribal sovereignty. I conclude by asserting that even well-meaning criticisms of Indian gaming that characterize the important successes of gaming tribes like those in
North Dakota as failures, run the risk of further compromising
tribes’ abilities to address often dire social conditions on reservations throughout the United States.
I. INDIAN GAMING
A. The Indian Gaming Regulatory Act
In the late 1970s, spurred by the federal government’s policy
of tribal self-determination, several Native American tribes exRezendes, Casino Windfall, supra note 5.
The term “treaty tribes” refers to those Native American tribes that entered into
treaties, many still existing, with the United States in the eighteenth and nineteenth
centuries.
16
17
2002]
51
plored various tools of reservation economic development.18 Casinos and bingo halls soon proved profitable, and tribes expanded
their gaming outfits by offering bigger prizes and longer hours.19
The Cabazon and Morongo Bands of Mission Indians in California
offered high-stakes bingo on their reservations, in contravention
of state regulations limiting jackpot amounts.20 California asserted the application of its gambling laws on the reservations,
but in California v. Cabazon Band of Mission Indians, the Supreme Court held that states could not regulate reservation gaming enterprises.21 Using the prohibitory-regulatory doctrine to
analyze California’s statute, the Court reasoned that if a state did
not prohibit a specific type of gambling altogether, the state could
not regulate that type of gambling on an Indian reservation.22 At
the heart of the Court’s decision was a balancing of competing interests: tribal and federal interests in tribal self-sufficiency and
reservation economic development, weighed against the state’s interest in regulating gambling to prevent the infiltration of organized crime.23 The Court concluded that California’s interest was
insufficient “to escape the pre-emptive force of federal and tribal
interests apparent in this case.”24
The Cabazon decision was an unexpected victory for tribes,
but as Congress already had identified Indian gaming as a potential regulatory problem, the victory came late in the game.
Shortly after the Court issued its decision in Cabazon, Congress
passed the Indian Gaming Regulatory Act (IGRA).25 One of
IGRA’s express congressional purposes was “to provide a statutory
basis for the operation of gaming by Indian tribes as a means of
promoting tribal economic development, self-sufficiency, and
strong tribal governments.”26
CORNELL ET AL., supra note 4, at 9.
Id.
California v. Cabazon Band of Mission Indians, 480 U.S. 202, 205 (1987).
Id. at 221-22.
Id. at 208-12.
Id. at 216-22.
Id. at 221.
25 U.S.C. §§ 2701-21 (2001). For discussions of the events preceding IGRA’s enactment, see W. DALE MASON, INDIAN GAMING: TRIBAL SOVEREIGNTY AND AMERICAN POLITICS
53-64 (2000), and Kathryn R.L. Rand & Steven A. Light, Virtue or Vice? How IGRA Shapes
the Politics of Native American Gaming, Sovereignty, and Identity, 4 VA. J. SOC. POL’Y & L.
381, 398-400 (1997) [hereinafter Rand & Light, Virtue or Vice].
26 25 U.S.C. § 2702. The other stated purposes of IGRA are:
18
19
20
21
22
23
24
25
(2) to provide a statutory basis for the regulation of gaming by an Indian tribe
adequate to shield it from organized crime and other corrupting influences, to ensure that the Indian tribe is the primary beneficiary of the gaming operation, and
to assure that gaming is conducted fairly and honestly by both the operator and
players; and
(3) to declare that the establishment of independent Federal regulatory authority
for gaming on Indian lands, the establishment of Federal standards for gaming on
Indian lands, and the establishment of a National Indian Gaming Commission are
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Widely regarded as a political compromise, IGRA increased
the states’ role in regulating Indian gaming beyond that mandated by Cabazon. Under IGRA’s now-familiar framework, the
type of gambling determines the regulatory jurisdiction. Tribes
have exclusive authority to regulate “Class I” gaming, consisting
of social games and traditional tribal gambling.27 With federal
oversight, tribes also have authority to regulate bingo and nonbanking card games, or “Class II” gaming.28 However, “Class III”
gaming, or casino-style gambling, requires tribes to successfully
negotiate an agreement with the state—a “Tribal-State compact”—governing the specifics of the tribal casino.29
As written, IGRA attempted to level the tribal-state negotiation table by creating a cause of action for tribes to sue states that
declined to negotiate a Tribal-State compact in good faith.30 In
Seminole Tribe v. Florida, however, the Supreme Court held that
Congress did not have the power to authorize such an action
against a state.31 Thus, the Court altered IGRA’s balance of power
between states and tribes. Subsequently, some states have refused to negotiate compacts, effectively precluding tribal casinostyle gaming within their borders.32
Many tribes successfully negotiated compacts prior to Seminole Tribe. In 1998, roughly a decade after IGRA’s enactment, 146
tribes operated Class III casinos under nearly two hundred TribalState compacts.33 Many tribes, of course, have decided not to pursue Class III gaming or, in some cases, any form of gaming. Of the
554 tribes in the United States recognized by the federal government, only a third or so conduct Class III gaming on their reservanecessary to meet congressional concerns regarding gaming and to protect such
gaming as a means of generating tribal revenue.
Id.
Id. §§ 2703(6), 2710(a)(1).
Id. §§ 2703(7)(A), 2710(b). A tribe may conduct Class II gaming only if it “is located
within a State that permits such gaming for any purpose by any person” and it is not prohibited by federal law. Id. § 2710(b)(1)(A).
29 Id. §§ 2703(8), 2710(d). Class III gaming consists of “all forms of gaming that are
not class I gaming or class II gaming,” particularly banking card games, electronic facsimiles of games, and slot machines. Id. §§ 2703(8), 2703(7)(B).
30 Id. § 2710(d)(7).
31 517 U.S. 44, 76 (1996). For discussions of potential post-Seminole Tribe procedures
under IGRA, see Alex Tallchief Skibine, Scope of Gaming, Good Faith Negotiations and the
Secretary of Interior’s Class III Gaming Procedures: Is I.G.R.A. Still a Workable Framework
After Seminole?, GAMING L. REV. vol. 5 No. 4, at 401 (2001), and Alex Tallchief Skibine,
Gaming on Indian Reservations: Defining the Trustee’s Duty in the Wake of Seminole Tribe
v. Florida, 29 ARIZ. ST. L.J. 121 (1997).
32 See Kevin K. Washburn, Recurring Problems in Indian Gaming, 1 WYO. L. REV.
427, 430 (2001).
33 NGISC FINAL REPORT, supra note 2, at 6-2. There are more compacts than compacting tribes because some tribes have separate compacts for separate gaming facilities.
Id. at 6-2 n.8.
27
28
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53
tions.34 However, of the 225 or so tribes in the forty-eight
contiguous, states nearly eighty-five percent conduct gaming.35
B. Indian Gaming and Reservation Life
As has been discussed extensively elsewhere, in the late
1980s and early 1990s, as throughout the twentieth century, reservations were places of extraordinary poverty. In terms of social
health, Native American communities exemplified the worst living conditions in the United States. Many Native Americans, particularly those residing on reservations, were poor, unemployed,
and living in overcrowded and inadequate housing in communities
with minimal government services. In some areas, reservation
unemployment topped eighty percent, even as non-Indian communities experienced historically low unemployment rates.36 Native
Americans were more likely to suffer from diabetes, alcoholism,
and fetal alcohol syndrome than other Americans.37 Indian children and young adults were two to three times more likely than
the national average to commit suicide.38 Native Americans were
also twice as likely to be victims of violent crime than other ethnic
groups; for example, Native American women were nearly three
times as likely to suffer violent crime at the hands of their intimate partners than white women.39
A decade later, conditions on many reservations are still lagging significantly behind those of other ethnic groups in the
United States. Yet there have been marked improvements for
many Native American communities, largely due to gaming revenue. The NGISC concluded, “As was IGRA’s intention, gambling
revenues have proven to be a very important source of funding for
many tribal governments, providing much-needed improvements
in the health, education, and welfare of Native Americans on res34 Id. at 6-2. Of course, not all tribal casinos are successful. Some operate at a loss,
while many others break even or make only modest profits. Id. at 6-3.
35 CORNELL ET AL., supra note 4, at 11-12.
36 Kathryn R.L. Rand & Steven A. Light, Raising the Stakes: Tribal Sovereignty and
Indian Gaming in North Dakota, GAMING L. REV. vol. 5 No. 4, at 329, 334 (2001) [hereinafter Rand & Light, Raising the Stakes]; see also NGISC FINAL REPORT, supra note 2, at 6-5
to 6-6 (testimony of Sen. John McCain).
37 CORNELL ET AL., supra note 4, at 24-26 (citing U.S. Census Bureau and Department
of Health and Human Services figures); see also Rand & Light, Virtue or Vice, supra note
25, at 394.
38 CORNELL ET AL., supra note 4, at 25 (citing 141 CONG. REC. S11881 (Aug. 8, 1995)
(testimony of Sen. John McCain)).
39 Press Release, U.S. Dep’t of Justice Bureau of Justice Statistics, Differences in
Rates of Violent Crime Experienced by Whites and Blacks Narrow (Mar. 18, 2001), available at http://www.ojp.usdoj.gov/bjs/pub/press/vvr98pr.htm (describing the results of the
BJS study, Violent Victimization and Race, 1993-98). Although white offenders primarily
choose white victims, Native Americans are more likely to be victimized by non-Indians.
Id.
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ervations across the United States.”40 Additionally, research conducted by the Harvard Project on American Indian Economic
Development “repeatedly finds that tribal gaming enterprises
yield positive economic and social benefits to those tribes that exercise their sovereignty and choose to enter the game.”41
Numerous tribes credit casinos with improving, sometimes
vastly, reservation living conditions. The Oneida Indian Nation of
New York operates the Turning Stone Casino Resort, one of the
most successful tribal gaming enterprises in the country. With
revenue from the casino, the Nation provides housing, health care,
education, employment, and other essential government services
to its members. Gaming revenue reinforces tribal sovereignty, according to one tribal official, “giv[ing] us the tools we need to
bridge the gap between merely surviving and thriving.”42
Half a continent away, the Oneida Nation of Wisconsin enjoys
similar gaming success, as extolled by a report issued by the Wisconsin Policy Research Institute, “The Oneida Tribe . . . is enjoying its first generation of prosperity in more than two
centuries. For the Oneidas, the gaming franchise has been more
successful than all previous anti-poverty programs in providing
jobs, self-esteem, and a bright future.”43 In neighboring Minnesota, the Prairie Island Indian Community credits its Treasure Island Resort and Casino with improving the lives of tribal
members by providing funds for government services, including
constructing housing, a government administration building, a
community center, and a waste water treatment facility. The
tribe also uses casino revenue to provide health care and education to its members.44 For the Tohono O’odham Nation in southern Arizona, gaming revenue has paid for a new community
college and nursing home, as well as for health care, fire protection, and youth recreation centers.45 In California, the Viejas
Band of Kumeyaay Indians uses gaming revenue to provide government services for its members, including law enforcement,
NGISC FINAL REPORT, supra note 2, at 6-2.
Joseph P. Kalt, Statement Before the National Gambling Impact Study Commission 2 (Mar. 16, 1998) (transcript on file with Chapman Law Review).
42 Kristen A. Carpenter & Ray Halbritter, Beyond the Ethnic Umbrella and the Buffalo: Some Thoughts on American Indian Tribes and Gaming, GAMING L. REV. vol. 5 No. 4,
at 311, 323 (2001) (quoting Nation Representative Ray Halbritter, Oneida Nation Annual
Report 2000, Sec. I).
43 Daniel J. Alesch, The Impact of Indian Casino Gambling on Metropolitan Green
Bay, WIS. POL’Y RES. INST. REP., Sept. 1997, at 1, available at http://www.wpri.org/Reports/
Volume10/Vol10no6.pdf.
44 NGISC FINAL REPORT, supra note 2, at 6-15 (quoting Carrel Campbell, Secretary of
the Prairie Island Indian Community).
45 Indian Gaming: Oversight Hearing on the Indian Gaming Regulatory Act Before the
S. Comm. on Indian Affairs (July 25, 2001) (statement of David LaSarte), available at 2001
WL 21757800.
40
41
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55
road maintenance, and waste removal.46 As Ernest Stevens,
Chairman of the National Indian Gaming Association, said:
Perhaps the most important point is that Indian gaming has
served to build strong tribal governments, and promote tribal
economic self-sufficiency. Tribes now have schools, health clinics, water systems, and roads that exist only because of Indian
gaming. Tribes have a long way to go because too many of our
people continue to live with disease and poverty, but Indian
gaming offers hope for the future.47
Nevertheless, despite these and other successes, casino-style gaming on reservations continues to be controversial, sparking heated
public debate.
II.
RECENT CRITICISM
OF
INDIAN GAMING
In December 2000, the Boston Globe ran a four-part series titled, “Tribal Gamble: The Lure and Peril of Indian Gambling.”48
The first article in the series asserted, “Born partly of a desire to
apply the ‘80s faith in free enterprise to the nation’s poorest ethnic
group, the story of Indian gaming is now one of congressional intentions gone awry.”49 Alluding to the fact that only about onethird of the approximately 550 federally recognized tribes have
chosen to pursue gaming, the article stated that “two-thirds of Indians get nothing at all” from tribal gaming enterprises.50 As further proof of Indian gaming’s failures, the article cited
“widespread skepticism” about the authenticity of tribes and their
members; the “virulent disputes” between gaming tribes and surrounding communities; limited non-tribal government oversight of
casinos, “already allegedly infiltrated in some places by underworld figures”; and decreased federal spending on programs benefiting Native Americans.51
These criticisms were expanded in the series’s other articles.
The second article decried the poverty of many Native Americans
in the face of the “mind-boggling wealth” of a few gaming tribes:
“[Twelve] years after the federal government made gambling a
46 NGISC FINAL REPORT, supra note 2, at 6-15 (quoting Anthony R. Pico, Chairman of
the Viejas Band of Kumeyaay Indians).
47 Indian Gaming: Oversight Hearing on the Indian Gaming Regulatory Act Before the
S. Comm. on Indian Affairs (July 25, 2001) (statement of Ernest Stevens, Jr.), available at
2001 WL 21757798 [hereinafter 2001 Indian Gaming Hearing].
48 Sean Murphy, A Big Roll at Mohegan Sun, BOSTON GLOBE, Dec. 10, 2000, at A1,
available at 2000 WL 3355062 [hereinafter Murphy, Mohegan Sun]; Rezendes, Casino
Windfall, supra note 5; Ellen Barry, A War of Genealogies Rages, BOSTON GLOBE, Dec. 12,
2000, at A1, available at 2000 WL 3355302 [hereinafter Barry, Genealogies]; Michael
Rezendes, Tribal Casino Operations Make Easy Criminal Targets, BOSTON GLOBE, Dec. 13,
2000, available at 2000 WL 30570536 [hereinafter Rezendes, Tribal Casino Operations].
49 Murphy, Mohegan Sun, supra note 48.
50 Id.
51 Id.
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staple of its Indian policy, the overall portrait of America’s most
impoverished racial group continues to be dominated by disease,
unemployment, infant mortality, and school drop-out rates that
are among the highest in the nation.”52 Indeed, the article called
tribal gaming “simply the latest in a century-and-a-half of unfulfilled promises by whites who control the federal government.”53
The Globe series next turned its attention to the federal recognition process, describing “the Indian killer,” an avocational genealogist who works to undermine tribes’ applications for federal
recognition.54 The article contended that recognition is “the key to
enormous fortunes” in gaming.55 The headline of the final article
in the series asserted, “Tribal casino operations make easy criminal targets.”56 Despite the dearth of evidence indicating criminal
infiltration of tribal casinos,57 the article cited “gaming analysts’ ”
opinion that “inadequate oversight of Indian casinos and increasingly vociferous sovereignty claims could open the door to a new
wave of criminal activity.”58
The Boston Globe series came on the heels of an Associated
Press (AP) analysis of federal unemployment, poverty, and public
assistance records, which showed that although tribal gaming operations experienced varied success, the unemployment rates on
many reservations remained far above the national average.59
“[F]or many of the 130 tribes with Las Vegas-style casinos . . .
gambling revenue pays for casino operations and debt service,
with little left to upgrade the quality of life.”60 At the same time,
however, the AP analysis indicated that Indian gaming had
slowed growth in the number of tribal members receiving public
Rezendes, Casino Windfall, supra note 5.
Id.
Barry, Genealogies, supra note 48.
Id.
Rezendes, Tribal Casino Operations, supra note 48.
Indeed, the article itself noted that “[t]o be sure, tribal gaming authorities and federal law enforcement officials insist there is no evidence of widespread infiltration of Indian
gambling by organized crime.” Id.
58 Id. Such “vociferous sovereignty claims,” according to the article, included tribal
attempts to “claim the right to act as the primary overseers of their own casinos, and to
hide financial information about gambling operations that is routinely disclosed by commercial gambling houses.” Id. The year before the Globe series, Donald Trump had been
criticized for secretly financing advertisements seeking to undermine a proposed tribal casino in the Catskills. The advertisements warned that the casino would attract crime, featuring pictures of cocaine and needles and asking, “Are these the new neighbors we want?”
Neil Swidey, Trump Plays Both Sides in Casino Bids, BOSTON GLOBE, Dec. 13, 2000, at A1,
available at 2000 WL 3355505.
59 David Pace, Casino Revenue Does Little to Improve Lives of Many Indians, Study
Shows, MILWAUKEE J. SENTINEL, Sept. 1, 2000, at 8A. For example, the Seminole tribe’s
Hollywood Gaming Center near Miami generates one hundred million dollars per year, but
reservation unemployment was still forty-five percent in 1997. Associated Press, Snake
Eyes for Tribes: Indians See Little From $8 Billion in Gambling Revenue, ABC NEWS.COM,
Aug. 31, 2000, at http://abcnews.go.com/sections/us/DailyNews/casinos000831.html.
60 Pace, supra note 59.
52
53
54
55
56
57
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57
assistance.61 Yet researchers warned that change on many reservations would be relatively slow and difficult to measure, as tribal
investment of gaming revenue likely eventually will increase educational levels, health, and family integrity for tribal members.62
The Globe series, particularly its spin on Indian gaming as
failing to help all Native Americans, particularly the poorest, commanded attention from the media, public, and policymakers. The
Wall Street Journal, reporting on the debate spurred by the Globe
series, stated that Indian gaming, “often viewed as an economic
self-sufficiency program for exploited Native Americans, is now
shadowed by controversy.”63 An editorial in the Christian Science
Monitor called for increased regulation of Indian gaming, citing
the hundreds of tribes seeking federal recognition and the ill effects of gambling generally.64 The editorial concluded, “To allow
Indian gaming to simply explode with minimum oversight would
only compound the historical injustices visited on [N]ative
Americans.”65
But the critical media analysis, particularly the Boston Globe
reports, perhaps garnered the most attention in policymaking arenas. Immediately following the Boston Globe series, U.S. Representative Frank Wolf (R-Virginia) opined, “The whole thing looks
completely and totally out of control.”66 A few days later, Representative Wolf stated at a press conference that the Globe articles
“illustrate the unforeseen inequities of the Indian Gaming Regulatory Act, which has resulted in a tainted recognition process, massive revenue windfalls for the gambling industry and a few wellconnected individuals, and worst of all, continuing poverty for
most Native Americans.”67 A few months later, Representative
Wolf, joined by Representative Robert Simmons (R-Connecticut),
61 Id. (“Participation in the Agriculture Department’s Food Distribution Program on
Indian Reservations increased 8.2% from 1990 to 1997 among tribes with casinos, compared with 57.3% among tribes without them.”).
62 Id. (quoting Jonathan Taylor, a research fellow at the Harvard University Project
on American Indian Economic Development).
63 Micah Morrison, El Dorado at Last: The Casino Boom, WALL ST. J., July 18, 2001,
at A18, available at 2001 WL-WSJ 2869838.
64 No Tribal Casino Is an Island, supra note 14.
65 Id.
66 Sean P. Murphy, Congressmen Seeking Probe of Indian Casinos, BOSTON GLOBE,
Dec. 16, 2000, at A1, available at 2000 WL 3356244 (internal quotation omitted) [hereinafter Murphy, Probe of Indian Casinos].
67 Sean P. Murphy, Indian Gaming Act Revision Sought, BOSTON GLOBE, Dec. 20,
2000, at A8, available at 2000 WL 3356457 (internal quotations omitted) [hereinafter Murphy, Revision Sought]. Reiterating the series conclusion almost verbatim, Representative
Wolf stated, “The overall picture is one of untold riches for a few smaller tribes and continued poverty for the vast majority of Indians spread across rural America.” Id. (internal
quotation omitted). Cf. Rezendes, Casino Windfall, supra note 5 (“The result: Untold
riches for a few, smaller tribes, annual revenues of $100 million or more for a couple of
dozen additional tribes near major urban centers, and continued poverty for the vast majority of Indians spread out across rural America.”).
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[Vol. 5:47
called for an investigation of the Bureau of Indian Affairs (BIA)
and the federal recognition process.68 Representative Christopher
Shays (R-Connecticut) commented on the possible impropriety of
recent BIA recognition decisions and said, “Having a casino is like
having a license to print money . . . . The money is so significant
that it can corrupt very quickly.”69 In a letter addressed to President Clinton, Representatives Shays and Wolf wrote that the “influence of organized crime on Indian gambling is alarming. Tribal
leaders often find themselves forced into affiliations with members of organized crime rings.”70
In June 2001, Representatives Wolf, Shays, and Riley (R-Alabama), introduced a bill titled “Tribal and Local Communities Relationship Improvement Act.”71 At a press conference attended by
a number of anti-gambling groups, Representative Wolf quoted
the Boston Globe series, concluding that IGRA “has failed to
broadly improve the living conditions of most Native Americans.”72
He continued:
The intent behind IGRA was that it would allow Native Americans to lift themselves out of poverty through self reliance, but
the law has not worked as it was intended . . . . If we continue to
rely on gambling for the future welfare of Native Americans
then most will continue to live in serious poverty[, while] . . . the
victims of the gambling industry will continue to mount. . . .
Gambling has ruined countless lives and increasing its prevalence will only increase the number of victims . . . . The level of
crime, suicide and bankruptcy in a community invariably rises
when a casino opens its doors.73
The proposed legislation would expand a state’s role in approving
casino-style tribal gaming by requiring approval of all TribalState compacts by the state’s governor and legislature.74 At the
press conference, Representative Wolf added, “This legislation
68 Sean P. Murphy, Probe of Tribe Designation Sought, BOSTON GLOBE, Mar. 28, 2001,
at A16, available at 2001 WL 3926416.
69 Sean P. Murphy, Decisions on Status of Tribes Draw Fire Bush Administration Reviews Parting Actions by Clinton Appointee, BOSTON GLOBE, Mar. 27, 2001, at A2, available
at 2001 WL 3926281 (internal quotation omitted); see also Sean P. Murphy, Indians Given
a Parting Boost Clinton Aides Grant 3 Groups Rights to Casinos, BOSTON GLOBE, Mar. 25,
2001, at A1, available at 2001 WL 3925789.
70 Morrison, supra note 63.
71 H.R. 2244, 107th Cong. (2001).
72 Press Release, U.S. Rep. Frank R. Wolf, Wolf Measure Would Allow State Legislatures to Have Voice in Creation of Gambling Operation on Indian Reservations (June 19,
2001), available at http://www.house.gov/wolf/2001619wolfindianleg.htm [hereinafter Wolf
Press Release].
73 Id.
74 H.R. 2244. The proposed legislation also would prohibit tribes from offering Class
III gaming on more than one parcel of tribal land, and would establish the “Commission on
Native American Policy” to complete a study of reservation living standards, including
health, infrastructure, economic development, educational opportunities, and housing. Id.
The Commission would consist of representatives from the National Governors Association,
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59
goes a long way in giving local communities a voice on whether or
not large scale tribal gambling should be allowed in their communities.”75 Senator Chris Dodd (D-Connecticut) also called for legislative reform, saying, “This is out of hand . . . . This is all about
casinos now.”76
State and federal policymakers long have been concerned
about the potential negative effects of reservation-based Indian
gaming on surrounding communities, the possible infiltration of
organized crime into tribal casino operations, and the varied social
ills commonly associated with gambling generally.77 Nevertheless, three aspects of the recent criticism levied at Indian gaming,
as exemplified by the Globe series and Representative Wolf’s actions, are of note. First, the few highly successful gaming tribes
draw disproportionate public criticism, based largely on the simple fact of their economic success, coupled with the perception that
the resulting wealth is somehow undeserved. Second, critics allege that Indian gaming is a policy failure, citing the fact that
many Native Americans continue to live in extreme poverty while
a few tribes amass extraordinary wealth. Third, despite the two
diametric poles of tribes created by such assertions, these two primary criticisms take a monolithic, pan-Indian approach, reflecting
a lack of recognition of the enormous tribal variation between the
two poles.
By failing to adequately take into account the varying circumstances, experiences, and goals of tribes, critics are able to conclude that tribes are either too poor or too rich, and thus Indian
gaming works for no tribe. Yet, as the Pequot and the Plains Models demonstrate, such simplistic assessments of tribal gaming define success too narrowly, overlooking the experiences of many, if
not most, gaming tribes across the country. The Pequot Model
stems from the experiences of the most intensely scrutinized and
highly criticized tribe in the nation, Connecticut’s Mashantucket
Pequots, and its hugely successful Foxwoods Resort Casino. The
history of the Pequots fundamentally informs questions of the
tribe’s “authenticity,” as well as its present-day status as gaming
titan.
the National Association of Attorneys General, the National Indian Gaming Commission,
local governments, small businesses, gaming tribes, and non-gaming tribes. Id.
75 Wolf Press Release, supra note 72.
76 Morrison, supra note 63.
77 For a discussion of other recent challenges to Indian gaming, see MASON, supra note
25, at 253-58.
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III.
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THE PEQUOT MODEL
A. History
At one time, the Mashantucket Pequots were one of the most
powerful presences on the present-day eastern seaboard.78 In the
mid-seventeenth century, however, English settlers emigrating
from the Massachusetts Bay Colony ignited a war with the tribe79
that nearly eradicated the Pequots.80 The victors split the few surviving Pequots into small groups controlled by rival tribes.81 In
1666, the Colony of Connecticut created a two thousand-acre reservation for the remaining Pequots in what is now Ledyard, Connecticut.82 Due to the envy of white settlers, the General
Assembly of Connecticut reduced the reservation by more than
half, to 989, acres in 1761.83 The tribe owned the 989-acre parcel
until 1855, when the Connecticut General Assembly authorized
the sale of almost eight hundred acres of the Pequots’ land.84
The Pequots’ land was sold at public auction on January 1,
1856, and proceeds were deposited in an account used to fund the
tribe’s basic needs including food, medical care, housing, and funerals, into the early 1900s.85 The initial decades of the twentieth
century saw the Pequots’ condition worsen as these funds dwindled.86 Housing on the reservation fell into disrepair and the population accordingly declined.87 Following World War II, only two
people of Pequot descent lived on the reservation: Elizabeth
George Plouffe and her half-sister, Martha Langevin Ellal.88
Elizabeth George and her half-sister protested Connecticut’s
treatment of the Pequots and the state’s attempts to enforce its
78 H.R. REP. NO. 98-43, at 2 (1983). For a brief and easily accessible history of the
tribe, see Mashantucket Pequots, Tribal Nation History, http://www.foxwoods.com/pequots/
mptn_history.html (last visited Mar. 9, 2002) [hereinafter Tribal Nation History].
79 See Laurence M. Hauptman, The Pequot War and Its Legacies, in THE PEQUOTS IN
SOUTHERN NEW ENGLAND 69, 71-73 (Laurence M. Hauptman & James D. Wherry eds.,
1990). The Pequot War lasted from 1634 to 1637. Id. It consisted of a series of skirmishes
between the settlers and the Pequots, culminating in a final battle on May 26, 1637, in
which English soldiers and their Native American allies attacked a Pequot fort while many
of the Pequot warriors were away. Id. The infamous final battle resulted in a massacre of
between three hundred and seven hundred children, women, and elderly. Id. at 73.
80 H.R. REP. NO. 98-43, at 2.
81 Id.; Hauptman, supra note 79, at 76. As a result of this split, the Pequots became
known as members of either the Eastern Pequots or the Western Pequots, depending upon
the location of their captor tribes. H.R. REP. NO. 98-43, at 2.
82 H.R. REP. NO. 98-43, at 2.
83 Id.
84 Id.
85 Jack Campisi, The Emergence of the Mashantucket Pequot Tribe, 1637-1975, in THE
PEQUOTS IN SOUTHERN NEW ENGLAND 117, 132-33 (Laurence M. Hauptman & James D.
Wherry eds., 1990). The Pequots’ land sold for $8,091.17. Id. at 132.
86 Id. at 133.
87 Id. In 1935, a state survey reported nine tribal members living on the Ledyard reservation, and another thirty-three tribal members living off the reservation. Id.
88 Id. at 135.
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61
laws on the reservation.89 The two jealously guarded what remained of the Pequot reservation and fought for improved housing
conditions.90 In 1973, however, Elizabeth George died.91 To preserve the tribe, several of her relatives considered returning to
live on the reservation.92 Concerned with the lack of adequate
housing, the relatively few remaining Pequots decided to establish
a more formal tribal structure to better seek outside help.93 During this restructuring, Elizabeth George’s grandson, Richard
“Skip” Hayward, was elected president of the tribe.94 Hayward
promised to improve reservation housing and to achieve economic
independence for the tribe.95
Hayward’s grandmother often told him that the state had stolen the Pequots’ land.96 Encouraged by research supporting these
accounts, tribal members paid careful attention to several lawsuits instituted by the Native American Rights Fund (NARF) on
behalf of tribes claiming that their lands had been sold unlawfully.97 In 1976, NARF filed a similar suit on behalf of the Pequots, seeking the return of Pequot lands sold by Connecticut in
1856.98 NARF’s legal theory for the suits was based on the NonIntercourse Act of 1790,99 which prohibited the sale of tribal lands
without prior federal approval.100 Because Connecticut had not
obtained federal approval for the 1856 sale, NARF argued that the
lands rightly belonged to the Pequots.101 This novel legal theory
garnered enough attention and success to allow NARF to negotiate a settlement with the State.102
The settlement included federal funds for the Pequots to
purchase replacement land for that which was sold in 1856, as
well as federal tribal recognition.103 After reaching the settlement
with the State, NARF similarly had to convince Congress to codify
the proposed settlement.104 In 1983, President Reagan signed into
Id. at 137-38.
Id.
Micah Morrison, Casino Royale: The Foxwoods Story, WALL ST. J., Aug. 21, 2001, at
A18, available at 2001 WL-WSJ 2873256 [hereinafter Morrison, Casino Royale].
92 KIM ISAAC EISLER, REVENGE OF THE PEQUOTS: HOW A SMALL NATIVE AMERICAN
TRIBE CREATED THE WORLD’S MOST PROFITABLE CASINO 58 (2001).
93 Campisi, supra note 85, at 138.
94 Id.; Morrison, Casino Royale, supra note 91.
95 See Campisi, supra note 85, at 139.
96 Id. at 140.
97 Id.
98 Id. at 132, 140; see also Tribal Nation History, supra note 78.
99 Campisi, supra note 85, at 140 n.65; 25 U.S.C. § 177 (2001).
100 25 U.S.C. § 177; Morrison, Casino Royale, supra note 91; Campisi, supra note 85, at
140. The federal approval must come in the form of treaty or convention entered into pursuant to the Constitution. 25 U.S.C. § 177.
101 See Campisi, supra note 85, at 132, 140.
102 Morrison, Casino Royale, supra note 91.
103 Id.
104 EISLER, supra note 92, at 85-87.
89
90
91
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law a bill that extinguished the Pequots’ claims to hundreds of
acres of land,105 provided nine hundred thousand dollars to the Pequots to entice landowners to sell their property to the tribe for
more than its actual value,106 and gave federal recognition107 to the
Pequots.108
B. Gaming at Foxwoods
1. If You Build It, They Will Come
With the return of a significant portion of their original reservation,109 the Pequots turned to other issues, particularly economic development. By the mid-1980s, the tribe had secured
loans to establish a successful bingo hall that generated annual
gross revenues of twenty million dollars, while attracting one
thousand visitors per day.110 After Congress passed IGRA, the Pequots sought to expand their gambling enterprises to include casino-style gaming, despite opposition from state and local
governments. In 1990, the tribe successfully argued in federal
court that because Connecticut allowed limited casino-style gambling for charitable purposes, such gambling did not violate state
public policy, and thus, the tribe could open a casino on their reservation.111 Although the court decision paved the way for a Tribal-State compact under IGRA, the types of Class III gaming the
tribe could offer remained controversial because the state’s laws
allowing charitable gambling did not permit slot machines.112
Aware that slot machines typically generate about two-thirds of a
casino’s revenue, the tribe aggressively pursued state authorization,113 negotiating a deal with the State for the exclusive right to
operate slot machines in exchange for a twenty-five percent state
cut of the slot revenues.114
Local lenders declined to finance the Pequots’ new, Las
Vegas-style casino.115 In 1991, the tribe, under Hayward’s leadership, found a willing financier in a Malaysian construction mag25 U.S.C. § 1753.
Id. § 1754.
Id. § 1758; see also H.R. REP. NO. 98-43, at 11 (1983) (noting that extension of federal recognition to a tribe through a statute was unusual, but desirable when settling
claims such as the Pequots’).
108 25 U.S.C. §§ 1751-60; see also EISLER, supra note 92, at 87.
109 See Michael Taylor, Keeping Tabs on Gaming: World’s Largest Casino Mob-Free,
SAN FRANCISCO CHRON., May 30, 2000, at A1, available at 2000 WL 6483374. By 2000, the
Pequots had managed to buy about two thousand acres in the area. Id.
110 EISLER, supra note 92, at 108-10.
111 Mashantucket Pequot Tribe v. Connecticut, 913 F.2d 1024, 1029 (2d Cir. 1990).
112 EISLER, supra note 92, at 130, 178-80.
113 Id. at 179-80.
114 Id.
115 Id. at 148.
105
106
107
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nate turned casino operator, Lim Goh Tong.116 Lim recognized the
potential economic success of the Pequots’ venture and readily financed a $58 million construction loan and a $175 million line of
credit to the tribe.117 In addition to interest on the two loans, Lim
would receive approximately ten percent of the casino’s adjusted
gross income until 2016.118
The Pequots’ Foxwoods Resort Casino opened its doors in
1992, and enjoyed immediate success. Located only 110 miles
from Boston and 130 miles from New York, Foxwoods attracts
over forty thousand visitors each day.119 Foxwoods is one of the
largest casinos in the world, boasting more than 5800 slot machines, a 3200-seat high stakes bingo hall, and over 300 gaming
tables, including blackjack, roulette, craps, baccarat, keno, and
poker.120 The casino’s estimated gross revenue was $1.3 billion
dollars in 1999, and the tribe paid Connecticut close to $175 million under the terms of its Tribal-State compact.121
Using casino revenue, the tribe offers a vast array of services
to its approximately three hundred members, as well as per capita
payments. Each tribal member receives a payment of at least fifty
thousand dollars per year, and some members are provided with
free homes, medical care, and day care.122 Tribal members also
receive retirement payments and educational scholarships.123
Off the reservation, Foxwoods has revitalized Connecticut’s
economy, which had suffered severely following defense cutbacks.124 Most casino patrons travel to Foxwoods from other
states, spurring a boom in construction of nearby hotels and resId. at 149-55.
See Morrison, Casino Royale, supra note 91.
Id.
Id.
Id.
Id.; FRED CARSTENSEN ET AL., CONN. CTR. FOR ECON. ANALYSIS, THE ECONOMIC IMPACT OF THE MASHANTUCKET PEQUOT TRIBAL NATION OPERATIONS ON CONNECTICUT 1 (2000).
In 2000, the combined revenue of Foxwoods and the Mohegan Sun, Connecticut’s second
tribal casino, was about $1.9 billion. See, e.g., Rick Green, With Dollars Comes Change,
HARTFORD COURANT, Sept. 23, 2001, at B1, available at 2001 WL 25323147. In September
2001, both casinos reported increased slot revenue over that of the previous year. Terrorists Fail to Inhibit Gamblers, PROVIDENCE J., Oct. 16, 2001, at A4, available at 2001 WL
22633250.
122 Jules Wagman, Indian Tribe Strikes Gold in Casino World, MILWAUKEE J. SENTINEL, Feb. 25, 2001, at 6E, available at 2001 WL 9341261.
123 See EISLER, supra note 92, at 199. On the Foxwoods web site, a young tribal member is quoted as saying, “[The tribal elders] said, ‘Just pursue your education, and you’ll
have a career already set up for you.’ I’m going straight through college to get every kind of
degree I can. And I want to be a lawyer.” Mashantucket Pequots, Tribal Members Reflect
on the Dream, at http://www.foxwoods.com/pequots/mptn_history_dream.html (last visited
Jan. 5, 2002) (alteration in original).
124 See CARSTENSEN ET AL., supra note 121, at i (“With its diverse business enterprises
and reinvestments of capital in Connecticut, the Mashantucket Pequot Tribal Nation has
become an economic growth marvel for the State and the immediate region.”).
116
117
118
119
120
121
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taurants.125 Visitors also flock to the tribe’s Mashantucket Pequot
Museum and Indian Research Center, which attracts more than
250,000 people each year.126 The Pequots’ success has resulted in
over forty thousand new jobs in Connecticut and an impact on the
state’s economy measured in billions of dollars.127
2. The Pequots Scrutinized
Along with casino patrons, the Pequots’ nearly unrivaled success also has attracted criticism. Formerly sleepy New England
communities surrounding the reservation have fought hard
against the expansion of gaming, complaining of increased traffic,
pollution, crime, and bankruptcies.128 The State of Connecticut,
along with three towns near the Pequots’ reservation, filed suit in
federal court to block the tribe from acquiring more land in trust129
and, having failed that, sought congressional intervention.130 Perhaps predictably, much of the criticism attacked the Pequots
125 Id. at 2. Nearly three-quarters of Foxwoods’s patrons come from outside of Connecticut. Id.
126 Id.
127 Id. at 4. State revenue, received in the form of direct payments from the Pequots’
and the Mohegans’ casinos, has made money raised from legalized gambling the third-largest source of revenue in Connecticut’s budget. Lyn Bixby, Gambling Now State’s 3rd-Best
Bet, HARTFORD COURANT, Mar. 11, 2001, at A1, available at 2001 WL 4554705.
128 Similar disputes are escalating in California following voter approval of Proposition
1A in March 2000, legalizing the forty or so tribal casinos that were operating at the time.
See Roger Dunstan, The Evolution and Impact of Indian Gaming in California, GAMING L.
REV. vol. 5 No. 4, at 373 (2001). Currently, sixty-two tribes have entered into compacts
with the State. Commentators have called tribal gaming in California potentially “the biggest, richest gambling industry in the world.” James P. Sweeney, High Stakes Showdown,
SAN DIEGO UNION-TRIB., July 22, 2001, at A1, available at 2001 WL 6478770. California is
home to over one hundred federally recognized tribes, and another fifty tribes have applied
for recognition. James P. Sweeney, Casino Cross Fire, SAN DIEGO UNION-TRIB., Sept. 9,
2001, at G1, available at 2001 WL 27288042. Residents in non-Indian communities near
rapidly expanding casinos have expressed concern about increased traffic and pollution,
and decreased water supplies. On the Barona Indian Reservation, east of San Diego, the
tribe has planned a $225 million expansion of its casino operation, including an 18-hole golf
course, a 390-room hotel, and a 300,000 square foot casino. The tribe’s neighbors have
complained about dry wells, plans to widen the road to accommodate more traffic, and the
tribe’s noncompliance with state and local environmental regulations. Id.; Fred Dickey,
Reversal of Fortunes, L.A. TIMES, Sept. 23, 2001, at E1, available at 2001 WL 2520109. One
reporter called the dispute “a classic settler-Indian battle with a role reversal that spins
history into dizziness.” Id. Public attention paid to one California tribe, the Augustine
Band of Cahuilla Mission Indians, may soon rival that of the Pequots. The Augustine
Band, which has a single adult member, recently signed a casino development deal with a
Las Vegas company. Mark Henry, Tribe Plans to Open Casino, PRESS-ENTERPRISE (Riverside, CA), Sept. 2, 2001, at B1, available at 2001 WL 27535668.
129 Although the plaintiffs were successful in district court, they lost on appeal. Connecticut v. United States Dep’t of Interior, 228 F.3d 82, 94 (2d Cir. 2000), cert. denied, 532
U.S. 1007 (2001). The plaintiffs argued that if the land were placed in trust, and thus, out
of the reach of state and local taxation, they would lose tens of the thousands of dollars in
tax revenues. Id. at 85.
130 Joel Lang, Reading Jeff Benedict; Should You Believe His Revelations About the
Pequots and the Making of the World’s Largest Casino?, HARTFORD COURANT, Dec. 3, 2000,
at 5, available at 2000 WL 30577605.
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themselves: the tribe was too successful, and many of its members
did not fit popular conceptions of Native Americans. Donald
Trump expressed the judgment of many when he stated that the
Pequots “don’t look like Indians to me and they don’t look like Indians to Indians.”131
As the first decade of the Foxwoods’s operation neared a close,
two book-length exposés of the tribe and its casino purported to
use investigative journalism to debunk the Pequots’ status as a
tribe. In Without Reservation,132 then-law student, Jeff Benedict,
attacked the tribe, reaching the conclusion that tribal members
were not Pequots at all; instead, he asserted, many of them were
descendants of other tribes or African Americans.133 Indeed, Benedict said that while writing the book, “I didn’t believe I was writing about Indians. I was writing about imposters.”134 The
Pequots, as Benedict tells it, were able to hoodwink lawyers and
politicians to falsely obtain tribal recognition for the sole purpose
of exploiting laws allowing Indian gaming.135 In Without Reservation’s epilogue, Benedict called for Congress to reinvestigate the
tribe’s authenticity based on the information presented in the
book.136 Some reviewers criticized Benedict’s journalism, but it
nevertheless “won instant credibility.”137 Benedict’s book made
him a hero in non-Indian communities in Connecticut, reported
the Boston Globe.138 Without Reservation was included on a Ledyard High School reading list,139 and some area residents said
Benedict should run for President.140
131 Joseph M. Kelly, Indian Gaming Law, 43 DRAKE L. REV. 501, 521 (1994) (quoting
Federal Officials Refute Trump Allegations, PR NEWSWIRE, Oct. 5, 1993); see also EISLER,
supra note 92, at 207.
132 JEFF BENEDICT, WITHOUT RESERVATION: THE MAKING OF AMERICA’S MOST POWERFUL
INDIAN TRIBE AND FOXWOODS, THE WORLD’S LARGEST CASINO (2000). Benedict’s book reportedly has been optioned for a Hollywood film. Lang, supra note 130.
133 BENEDICT, supra note 132, at 144-50. Benedict’s book opens with the story of future
Pequot tribal chair Skip Hayward filing for a marriage license in 1969 and choosing to
identify himself as “white” rather than “Indian.” Id. at 1-4.
134 Lang, supra note 130.
135 BENEDICT, supra note 132, at 109-17.
136 Id. at 353; see also Jeff Benedict, This Land Is Not Your Land, HARTFORD COURANT,
Dec. 10, 2000, at 4, available at 2000 WL 30579027.
137 Lang, supra note 130. For example, Lang noted Benedict’s conceit of recreating
past events in unlikely detail.
Most incredibly, he claimed in the book’s bibliography to have done some 650 interviews and obtained 50,000 pages of documents from town halls, libraries,
archives and courts. He had begun his research in June 1998 and finished writing
his 358-page book 21 months later. He had done all this work while enrolled in
the New England School of Law . . . .
Id.
138 Ellen Barry, Lineage Questions Linger as Gaming Wealth Grows, BOSTON GLOBE,
Dec. 12, 2000, at A19, available at 2000 WL 3355289 [hereinafter Barry, Lineage].
139 Barry, Geneologies, supra note 48.
140 Barry, Lineage, supra note 138.
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Kim Isaac Eisler’s Revenge of the Pequots141 expressed similar
doubts about the Pequots’ legitimacy, although couched in perhaps slightly milder rhetoric.142 Eisler’s story similarly focused on
the Pequots’ success using federal law and procedure to their financial advantage; yet as the book’s title indicates, Eisler suggested that turnabout may be fair play for a group nearly wiped
out by colonization.143 Nevertheless, in explaining his motivation
for writing the book, Eisler stated that he had heard “that the
whole thing was a giant scam and that Chief ‘Skip’ Hayward and
his band were nothing but imposters.”144 Eisler concluded that the
Pequots had unfairly used laws meant to benefit “real” tribes,
“creat[ing] a new modern-day paradigm that changed the face of
the country—not Native American, but Casino-American.”145 In
an article accompanying the release of Revenge of the Pequots,
Eisler implied that the answer to the problem of the Pequots may
be a return to forced assimilation.146
The comments of local residents, fueled by Benedict’s and
Eisler’s books, and the national media attention they generated,147
EISLER, supra note 92.
As one reviewer put it, Eisler’s book “lacks some of the gratuitous detail (and the
sensationalism) of [Benedict’s book] . . . . Mr. Eisler retains a healthy skepticism about the
Mashantucket quest for tribal recognition, while sympathizing with the desire of a group of
perennial have-nots to strike it rich when the law gave them an opening.” Philip Burnham,
The Enterprising Pequots and How Their Casinos Enraged, Grew, WASH. TIMES, Feb. 11,
2001, at B8 (book review), available at 2001 WL 4146689. The Washington Post called
Eisler “a thorough reporter.” Jonathan Yardley, A Game of Three-Card Monte?, WASH.
POST, Feb. 8, 2001, at C2 (book review), available at 2001 WL 2542126. Additionally, the
Boston Globe proclaimed Eisler’s book “free of such dirt . . . . Unlike the case with Benedict’s work, one need not ponder the sources or veracity of material contained in Eisler’s
work.” Sean P. Murphy, Well-Told Tale of a Battle Against the Odds, BOSTON GLOBE, Mar.
12, 2001, at B8 (book review), available at 2001 WL 3923559.
143 Kim Isaac Eisler, Why I Wrote a Book About a Tribe that Hit the Jackpot, HARTFORD
COURANT, Feb. 25, 2001, at C1, available at 2001 WL 4552543. Eisler refers to the Pequots
as a “tribe”—in quotation marks—explaining that “whether or not you accept their genealogy, the ‘tribe’ had been lost.” Id.
144 Id. To Eisler himself, it seemed “slightly unlikely” that there were Native Americans in Connecticut at the turn of the twenty-first century. Id.
145 EISLER, supra note 92, at 242.
146 Eisler, supra note 143. Eisler explained:
Gale Norton, the new secretary of the interior, is a protégé and disciple of James
Watt. It was Watt who successfully urged President Reagan to veto the Pequot
recognition bill in 1983. Watt not only believed that no new federal reservations
should be created, he would have been delighted to close down the existing ones
and to integrate American Indians into mainstream American society. I suspect
Norton shares that view.
Id.
147 A Wall Street Journal review of Eisler’s Revenge of the Pequots concluded, “Bet by
bet, the Indians are scalping customers for millions.” Allan T. Demaree, Betting on a Casino, and Winning Big, WALL ST. J., Feb. 8, 2001, at A20 (book review), available at 2001
WL-WSJ 2853644. An editorial in the Providence Journal asserted that the Mashantucket
Pequot Tribe “is essentially a creation of the casino, rather than the other way around,
insofar as the tribe had only a few active members until it hit the political lottery with its
casino privilege.” Powell, supra note 11; see also Bill Bell, Against All Odds: How Conn.’s
Pequot Tribe Hit the Jackpot, N.Y. DAILY NEWS, Feb. 11, 2001, at 20 (book review), availa141
142
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67
revealed the economic underpinnings of the “authenticity” question.148 One resident referred to the Pequots as “a shake-and-bake
and fabricated tribe,”149 while another explained that “it’s hard for
people like us, who are working our butts off . . . . They never had
a pot to pee in, and all of a sudden they’re driving in $40,000
cars.”150 An attorney for Upstate Citizens for Equality, a grassroots organization of non-Indian homeowners in New York, called
the Pequots “an emblem of what’s wrong with the whole operation
. . . . In the 1980s, if someone said ‘Indian,’ people would think of a
picture of a guy with a tear running down his face, caring for the
environment. If you say Indians now they think of casinos.”151
Benedict himself recalled his impression upon first visiting the
Pequot reservation in 1998: “I saw $40,000 vehicles, but I didn’t
see an Indian tribe.”152 Eisler, too, noted that “the amount of
money being tossed around on the reservation is obscene,” concluding that “[i]f the Pequots and Foxwoods have been victimized
by negative public attitudes, it is in part their own gaudy success
that is the culprit.”153
If one end of the spectrum is defined by the perceived intersections of tribal authenticity and newfound wealth in the Pequot
Model of tribal gaming, then the Plains Model lies at the other end
of the spectrum on both counts; tribal authenticity is not likely
open to serious challenge, while relative wealth is a virtual nonissue in the rural confines of North Dakota. As is the case with
the genesis of the Pequot Model, the histories of North Dakota’s
tribes provide the foundation for the Plains Model of tribal
gaming.
ble at 2001 WL 4676962 (calling Eisler’s book “a terrific story, with dramatic twists, political intrigues, hints of major mischief, shadowy manipulators, an unlikely rescuer and
barrels and barrels of tax-free cash”); Bob Dowling, The Making of a Casino Nation, BUS.
WK., Mar. 12, 2001, at 22E4 (book review), available at 2001 WL 2205813; Wagman, supra
note 122 (“[T]he impoverished, nearly extinct Pequots became a tribe that can stand up,
dollar for dollar, to any Arab oil shiekdom.”); Jonathan Yardley, Success Story or a Scam?,
CHI. SUN-TIMES, Feb. 18, 2001, at 15 (book review), available at 2001 WL 7218816.
148 In their briefs accompanying a federal lawsuit, the State of Connecticut and the
towns of Ledyard, North Stonington, and Preston similarly juxtaposed the Pequots’ wealth
with their “Indianness” in arguing that the tribe should be barred from acquiring further
trust lands. See generally Connecticut v. United States Dep’t of Interior, 228 F.3d 82 (2d
Cir. 2000). As the Second Circuit explained, “The Connecticut plaintiffs contend that the
Indian canon of construction has no application in this case—not to these Indians—because
of the Mashantucket Pequots’ tremendous wealth.” Id. at 92. The court went on to reject
the argument, reasoning that tribal disadvantage was not a prerequisite to application of
familiar doctrines of federal Indian law and, even if it were, the Pequots were sufficiently
disadvantaged at the time the statute in question was enacted. Id. at 92-93.
149 Barry, Lineage, supra note 138.
150 Id.
151 Id.
152 Lang, supra note 130. Indeed, Benedict characterized the tribe as a “Goliath,” with
the nearby towns and Connecticut being “David.” Id. “They all were inferior in terms of
power and ability to the Mashantucket tribe . . . .” Id.
153 Eisler, supra note 143.
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IV.
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THE PLAINS MODEL154
A. History
Upon arriving in the Great Plains of middle America, European explorers dubbed the area “the Great American Desert,” believing that the Plains could not sustain human life.155 They were
wrong, of course. Archaeological evidence indicates that humans
inhabited the Great Plains as early as twelve thousand years
ago.156 Several different Native American tribes have resided in
what is now North Dakota, including the Assiniboin, Chippewa,
Mandan, Hidatsa, Arikara, Cheyenne, Yanktonai, Cree, Dakota,
and Lakota.157
Today, North Dakota’s five reservations encompass nearly
five million acres158 and are home to approximately thirty thousand tribal members of the Standing Rock Sioux, the Spirit Lake
Nation Sioux, the Sisseton-Wahpeton Sioux, the Three Affiliated
Tribes, and the Turtle Mountain Band of Chippewa. Each of the
state’s five tribes operates a casino on reservation lands in North
Dakota.
1. The Great Sioux Nation
The Sioux, who called themselves Dakota,159 were a confederation of seven tribes: the Mdewakanton, Wahpeton, Wapekute,
Sisseton, Yankton, Yanktonai, and the Teton (also known as
Lakota).160 As early colonists achieved military dominance over
tribes in the East, including the Pequots, the Great Sioux Nation
strengthened its own intertribal government and developed an
154 The development and discussion of the “Plains Model” is based on the model
introduced by Rand and Light. Rand & Light, Raising the Stakes, supra note 36, at 336-39.
155 MARY JANE SCHNEIDER, NORTH DAKOTA INDIANS: AN INTRODUCTION 55 (1994).
156 Id.
157 Id. at 69.
158 Although North Dakota has five reservations within the state’s borders, technically
there are only four North Dakota tribes: the Spirit Lake Nation Sioux, Standing Rock
Sioux, Three Affiliated Tribes, and Turtle Mountain Band of Chippewa. The fifth reservation, that of the Sisseton-Wahpeton Sioux, straddles the North Dakota-South Dakota border, but the tribe is considered a South Dakota tribe because its tribal government offices
are located in that state. Id. at 137. I include the Sisseton-Wahpeton Sioux Tribe because
it operates a casino in North Dakota.
159 Although tribes occupying three of North Dakota’s five reservations are commonly
referred to as Sioux, this is something of a misnomer. The “Seven Council Fires” tribes—
the Dakota, Lakota, and Yankton-Yanktonai (sometimes referred to as Nakota)—made up
the Great Dakota Nation. Id. at 78-79. The tribes called themselves “kota” or allies. Id.;
Clair Jacobson, A History of the Yanktonai and Hunkpatina Sioux, 47 N.D. HISTORY, Winter 1980, at 4 n.5. “Sioux” is a French derivation of a Chippewa word used to refer to the
Dakota, “Natowesiwok,” which means “enemies” or “snakes.” Id. The French, who encountered the Chippewa before the Dakota, heard the word as “Nadouessioux,” which they
shortened to “Sioux.” Id.
160 CONRAD W. LEIFUR, OUR STATE NORTH DAKOTA 139-40 (1953); ENCYCLOPEDIA OF
NORTH DAKOTA INDIANS: TRIBES, NATIONS, TREATIES OF THE PLAINS AND WEST 96 (2001)
[hereinafter ENCYCLOPEDIA].
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economy based largely on buffalo hunting.161 Western explorers
encountered Sioux in the Devil’s Lake region of north central
North Dakota around 1738.162
By the early 1800s, the Sioux dominated a large part of the
Midwest, including what is now North and South Dakota.163 The
latter half of the nineteenth century brought the invasion of white
settlers into Sioux lands and marked a turning point for the Great
Sioux Nation. In 1868, the Sioux, under the leadership of Red
Cloud, entered into a treaty with the United States, in which the
federal government promised that settlers would enter Sioux territory only with tribal consent in exchange for the Nation’s promise to cease raiding American forts.164 Under the terms of the
treaty, the Sioux retained a large portion of land, equivalent to the
size of present-day South Dakota, just west of the Missouri
River.165 In the 1870s, however, gold was discovered in the Black
Hills, prompting the federal government to breach the terms of
the treaty, and leading to an all-out war between the Sioux Nation
and the United States.166 Although the Sioux won the infamous
Battle of Little Big Horn against Colonel George Custer, the federal government succeeded in exhausting the tribes’ resources.167
In 1876, the Sioux surrendered the Black Hills and forcibly were
relocated onto reservations established by the federal
government.168
Currently, the Spirit Lake Sioux Nation, formerly known as
the Devils Lake Sioux, is located on a reservation in northeastern
North Dakota, between Devils Lake to the north, and the Cheyenne River to the south. Just fifteen miles south of the City of
Devils Lake, the Spirit Lake reservation is nearer to an urban
area than any other reservation in North Dakota.169 The reservation is approximately 405 square miles, and home to many of the
tribe’s over five thousand enrolled members.170 Located in the
south-central part of the state, the Standing Rock reservation
161 See EDWARD H. SPICER, A SHORT HISTORY OF THE INDIANS OF THE UNITED STATES 8284 (1969).
162 Id.
163 Id. at 84.
164 Id. at 85.
165 ELWYN B. ROBINSON, HISTORY OF NORTH DAKOTA 104 (1966).
166 SPICER, supra note 161, at 85.
167 ROBINSON, supra note 165, at 178.
168 Id.
169 SCHNEIDER, supra note 155, at 139. For a brief description of the tribe’s reservation, see Mni Sose Intertribal Water Rights Coalition, Inc., Spirit Lake Tribe Community
Environmental Profile, at http://www.mnisose.org/profiles/splake.htm (last visited Jan. 7,
2002).
170 Spirit Lake Nation, at http://www.spiritlakenation.com/about.htm (last updated
Aug. 27, 2001). The tribe owns 26,283 acres; allotted trust lands comprise 34,026 acres; fee
land comprises 184,451 acres; and 375 acres are owned by either the state or federal government. Id.
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straddles the North Dakota-South Dakota border. The reservation is about forty miles south of Bismarck, the nearest urban area
and North Dakota’s state capital.171 The Standing Rock Sioux
Tribe has an enrolled membership of over ten thousand,172 and its
reservation covers a total area of 2.3 million acres, approximately
half of which is owned by the tribe.173 The Sisseton-Wahpeton
Sioux Tribe is located on the Lake Traverse reservation in southeastern North Dakota. The reservation spans five counties in
South Dakota and two counties in North Dakota, covering 250,000
acres, with about one-tenth of the acreage tribally owned.174 The
tribe has over ten thousand enrolled tribal members.175
2. Three Affiliated Tribes
The Three Affiliated Tribes are the Mandan, Hidatsa, and
Arikara Tribes. When encountered by European explorers in
1738,176 the Mandan had a population of about fifteen thousand
living in “six large, well-fortified villages along the Missouri
River.”177 According to anthropologists, the Mandan may have
come to what is now North Dakota as early as the fourteenth century when they moved west from the Mississippi Valley, and then
up along the Missouri.178 The Hidatsa became close allies with the
Mandan in the seventeenth century when they moved from the
Red River Valley to the Missouri River, near the Mandan villages.179 The Sioux pushed the Arikara northward to the Dakotas
during the 1700s,180 and the tribe eventually settled in a village
abandoned by the Mandan after a smallpox epidemic in the
1830s.181 In 1850, the Arikara joined the Mandan and Hidatsa at
Fort Berthold.182 The Three Affiliated Tribes’ reservation originally was established by the 1851 Treaty of Fort Laramie, which
granted the tribes over twelve million acres; it was reduced by
171 SCHNEIDER, supra note 155, at 147. For a brief description of the tribe, its history,
and its reservation, see Mni Sose Intertribal Water Rights Coalition, Inc., Standing Rock
Sioux Tribe Community Environmental Profile, at http://www.mnisose.org/profiles/strock.
htm (last visited Jan. 7, 2002) [hereinafter, Sioux Tribe Environmental Profile].
172 Sioux Tribe Environmental Profile, supra note 171.
173 Id.
174 Mni Sose Intertribal Water Rights Coalition, Inc., Sisseton-Wahpeton Sioux Tribe
Community Environmental Profile, at http://www.mnisose.org/profiles/sisseton.htm (last
visited Jan. 7, 2002).
175 Id.
176 Pierre Verendrye (1665-1749), a French-Canadian fur trader, arrived in North Dakota in 1738, and was the first known white man to visit the area. LEIFUR, supra note 160,
at 147.
177 Id. at 111; ENCYCLOPEDIA, supra note 160, at 6.
179 Id. at 23.
180 LEIFUR, supra note 160, at 133.
181 Id.
182 Id.
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1870 and 1880 executive orders to less than three million acres,
and then again through allotment.183
Currently, the Three Affiliated Tribes are located on the Fort
Berthold reservation, along the Missouri River in west-central
North Dakota. The creation of Lake Sakakawea by the damming
of the Missouri River permanently flooded over 150,000 acres on
the reservation.184 Along with the inundated land, the tribes lost
natural resources, long-established population centers, and farms
and ranches located along the fertile Missouri River bottomlands.185 Presently, the reservation consists of 981,215 acres,186
and is located about seventy-five miles from Minot. The tribal
government is headquartered in New Town, North Dakota, and
the tribes’ combined membership is about 8400.187
3. Turtle Mountain Band of Chippewa
The Chippewa Tribe, also called the Ojibway, was one of the
largest tribes north of Mexico in the seventeenth century.188 Originally from the area that is now Wisconsin, the Chippewa were
forced westward to Minnesota by white settlement.189 French
Jesuits visited the Chippewa in 1642, when they resided on the
shores of both Lake Huron and Lake Superior.190 At the beginning
of the eighteenth century, some Chippewa moved further west
into what is now North Dakota, establishing hunting grounds
along the Red River and just west of the Turtle Mountains.191 The
Chippewa fought against the United States in the Plains Indian
Wars until the conflict was resolved through a treaty with the federal government in 1815.192 The treaty set aside reservations for
the Chippewa in Michigan, Wisconsin, Minnesota, and North Dakota.193 The 1861 federal law establishing the Dakota Territory
also set aside ten million acres for Chippewa tribes as well as the
Metis in northeastern North Dakota. Although other Chippewa
tribes negotiated smaller reservations with the federal governSCHNEIDER, supra note 155, at 142.
MHA Nation, Garrison Dam, at http://www.mhanation.com/history/garrison_dam.
shtml (last visited Mar. 19, 2002) [hereinafter Garrison Dam]. For a recent discussion of
the legal issues raised by the building of the Garrison Dam, see Raymond Cross, Tribes as
Rich Nations, 79 OR. L. REV. 893, 962-80 (2000).
185 SCHNEIDER, supra note 155, at 143; see also Garrison Dam, supra note 184.
186 SCHNEIDER, supra note 155, at 142-43.
187 Id. For a brief description of the tribe, its history, and its reservation, see Mni Sose
Intertribal Water Rights Coalition, Inc., Three Affiliated Tribes of Fort Berthold Community Environmental Profile, at http://www.mnisose.org/profiles/3affl.htm (last visited Jan.
7, 2002).
189 LEIFUR, supra note 160, at 140.
191 ENCYCLOPEDIA, supra note 160, at 143.
192 Id. at 144.
193 Id.
183
184
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ment once the Dakota Territory was opened to white settlement,
the Turtle Mountain Band held fast. In 1892, the tribe negotiated
an agreement with the federal government in which the tribe received payment for the land taken under the 1861 law.194
The Turtle Mountain reservation is located just south of the
Canadian border in north-central North Dakota, about 150 miles
from Grand Forks. The present reservation consists of about
thirty-four thousand acres, most of it individually owned; the tribe
has also acquired another thirty-five thousand acres off the reservation.195 The Turtle Mountain Band is the state’s largest tribe,
with some twenty-eight thousand members.196 About seventeen
thousand members live on or near the reservation.197 Belcourt,
North Dakota, is home to the tribal government and, with a population of about two thousand, is the state’s largest Native American community.198
4. Commonalities
The histories of North Dakota’s tribes reveal several commonalities that define and shape their contemporary experiences, including those concerning tribal gaming. First, the federal
government recognized each of North Dakota’s tribes as a sovereign nation during the settlement era of the nineteenth century.
Tribes like those in North Dakota are commonly called “treaty
tribes,” referencing the government-to-government relations of
the tribes and United States during this time. This strong tradition of tribal sovereignty continues to shape the tribes’ priorities
and interactions with state and federal government.199
194 SCHNEIDER, supra note 155, at 151-52. This notorious agreement is sometimes
called the “Ten Cent Treaty” because the federal government’s payment to the tribe was
the equivalent of ten cents per acre of illegally taken land. Federal Emergency Management Agency, Turtle Mountain Band of Chippewa Indians, at http://www.fema.gov/reg-viii/
tribal/turtlebg.htm (last visited Mar. 13, 2002) [hereinafter Turtle Mountain Band]. In the
1980s, the federal government formally acknowledged the unfairness of the agreement. Id.
195 See Turtle Mountain Band, supra note 194.
196 Id.
197 Robert Lattergrass, Guest Lecture in Indian Gaming Law at the University of
North Dakota School of Law (Mar. 20, 2001) (speaker’s notes on file with Chapman Law
Review).
198 SCHNEIDER, supra note 155, at 154. For a brief description of the tribe’s reservation, see Mni Sose Intertribal Water Rights Coalition, Inc., Turtle Mountain Band of Chippewa Indians Community Environmental Profile, at http://www.mnisose.org/profiles/
turtlemt.htm (last visited Jan. 7, 2002).
199 For example, the Spirit Lake Nation has claimed ownership of a lake and surrounding property in northeastern North Dakota based on an 1867 treaty with the federal government. Jack Sullivan, Court May Revive Ownership Lawsuit, GRAND FORKS HERALD,
Mar. 25, 2001. The Standing Rock Sioux tribe was party to a nearly half-billion-dollar
judgment against the federal government over the ownership of the Black Hills. See, e.g.,
K. Marie Porterfield, Fort Peck Sioux Vote to Accept Black Hills Money, INDIAN COUNTRY
TODAY, Dec. 8, 1997, at A1, available at 1997 WL 18363426. Additionally, some North
Dakota tribes have refused to comply with federal laws that they believe illegally compromise tribal sovereignty. See Turtle Mountain Band, supra note 194.
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Second, the tribes in North Dakota are land-based, their reservations originally established by treaty. Economic opportunities
available to the tribes are governed in large part by the resources,
natural or otherwise, located on reservation land. As the histories
of North Dakota’s tribes indicate, reservations typically were located in areas perceived to be devoid of resources useful to white
settlers. Unsurprisingly, then, there has been little or no access to
commercial enterprises on the state’s reservations, and few opportunities to market goods or services produced on-reservation to
non-Native populations.
Third, as is typical of tribal reservations in the Great Plains,
North Dakota’s reservations consist of mostly small communities
removed from urban areas. In the recent past, tribal communities
have lacked commercial development much beyond a local grocery
store, and some homes have gone without even basic services,
such as electricity, running water, or telephone service.200 Still,
each of the state’s tribes has a membership numbering in the
thousands, many of whom grew up on and continue to reside on
the reservation. Yet the scarcity of opportunities in North Dakota’s tribal communities have led many tribal members to seek
education or employment off the reservation.
As a result of the economic constraints faced by the state’s
tribes, North Dakota’s reservations historically have been among
the poorest localities in the nation. In the early 1990s, unemployment rates on the state’s reservations were staggering, reaching
over eighty percent in some areas,201 even as the rest of the state
experienced low unemployment rates, mirroring the generally robust national economy.202 As one tribal member said, “[It’s h]ard
to see these statistics; [it’s] harder to live them.”203 Typically, tribal members living on the reservation are “[p]eople who grew up
in poverty and just don’t have anything at all.”204
B. Gaming on the Great Plains
In the early 1990s, tribes in North Dakota turned to casino
gaming as a means to alleviate poverty, provide jobs, improve government services, leverage economic development, and entice tribal members to return to the reservation. In 1992, Governor
George Sinner signed Tribal-State compacts allowing the state’s
SCHNEIDER, supra note 155, at 155.
N.D. INDIAN GAMING ASS’N, OPPORTUNITIES AND BENEFITS OF NORTH DAKOTA TRIBALLY OWNED CASINOS 3 (2000) [hereinafter 2000 N.D. INDIAN GAMING ASS’N].
202 In the first half of the 1990s, state unemployment ranged from three to six percent.
See Bureau of Labor Statistics, Local Area Unemployment Statistics, North Dakota, at
http://data.bls.gov/cgi-bin/surveymost (last visited Mar. 23, 2002).
203 Lattergrass, supra note 197.
204 Id.
200
201
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tribes to conduct Class III gaming.205 Currently, there are five tribal casino developments in North Dakota: the Four Bears Casino
and Lodge near New Town,206 owned by the Three Affiliated
Tribes; the Sky Dancer Hotel and Casino in Belcourt,207 owned by
the Turtle Mountain Band of Chippewa Indians; the Spirit Lake
Casino and Resort in Spirit Lake,208 owned by the Spirit Lake
Sioux Tribe; the Prairie Knights Casino and Resort in Fort
Yates,209 owned by the Standing Rock Sioux Tribe; and the Dakota
Magic Casino and Hotel in Hankinson,210 owned by the SissetonWahpeton Sioux Tribe.211 In contrast to the experiences of many
tribes, each of the tribal casinos in North Dakota is owned, operated, and controlled by the tribal government.212
Each of the tribes considers its casino a success, despite their
profits being a far cry from those of the Pequots’ Foxwoods.213 The
varied economic success of tribal casinos is not surprising. Even
before the spread of Class III gaming following IGRA’s enactment,
the profits of tribal bingo halls had been determined largely by
205 The 1992 compacts were scheduled to expire in 2002, but in 1999, the state’s five
gaming tribes negotiated uniform ten-year compacts with the state. David Melmer, North
Dakota Tribes Score a Coup with Gaming Compacts, INDIAN COUNTRY TODAY, Dec. 20,
1999, available at 1999 WL 28719359. Under the terms of the compacts, ten percent of the
tribes’ Class III gaming revenue is directed toward diversified tribal economic development. Id. The new compacts, signed by then-Governor Ed Schafer, take effect in 2002.
Under the new compacts, tribes may raise their betting limits and offer roulette and slot
machine tournaments. Dale Wetzel, Tribes Reach Gambling Pact: Feds Must Approve Deal
Before It’s Final, GRAND FORKS HERALD, Sept. 4, 1999, at 4. Aside from continuing tribal
gaming’s positive economic impacts on the state of North Dakota, the impetus behind the
negotiation of the new compacts was to allow the tribes to obtain long-term financing necessary to diversify tribal economic enterprises, particularly through tourism. Id.; see also
Brian Witte, Tribal Chairmen Say Compacts Helped Casinos, GRAND FORKS HERALD, Nov.
21, 2000, at 8A.
206 See Four Bears Casino & Lodge, Location, at http://www.4bearscasino.com (last updated Mar. 1, 2002).
207 See Sky Dancer Hotel and Casino, at http://www.skydancercasino.com (last visited
Mar. 23, 2002).
208 See Spirit Lake Casino and Resort, at http://www.spiritlakecasino.com (last visited
Jan. 7, 2002).
209 See Prairie Knights Casino and Resort, at http://www.prairieknights.com (last visited Mar. 19, 2002).
210 See Dakota Magic Casino and Hotel, at http://www.dakotamagic.com (last visited
Mar. 19, 2002).
211 2000 N.D. INDIAN GAMING ASS’N, supra note 201, at 1.
212 N.D. INDIAN GAMING ASS’N, OPPORTUNITIES AND BENEFITS OF NORTH DAKOTA TRIBALLY OWNED CASINOS 3 (1998) [hereinafter 1998 N.D. INDIAN GAMING ASS’N]. Each of the
state’s gaming tribes belongs to the North Dakota Indian Gaming Association, as well as
the regional Great Plains Indian Gaming Association. See generally Great Plains Indian
Gaming Association, at http://gpiga.org/home.htm (last visited Jan. 17, 2002). Both associations work with the National Indian Gaming Association to influence tribal gaming
policy on state and federal levels, as well as to share information and expertise among
tribes. See generally National Indian Gaming Association, at http://www.indiangaming.org
(last visited Jan. 7, 2002).
213 See generally 1998 N.D. INDIAN GAMING ASS’N, supra note 212, at 13.
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access to metropolitan markets.214 Nevertheless, many tribes facing dire socio-economic conditions opted for even the modest increases in employment and revenue accompanying gaming in a
rural market. As Mark Fox, a member of the Three Affiliated
Tribes and secretary of the National Indian Gaming Association,
put it, the success of Indian gaming in North Dakota is reflected
in increased reservation employment.215 For the Three Affiliated
Tribes, the casino has helped to slash reservation unemployment
from seventy percent to approximately thirty percent.216 On the
Standing Rock Sioux reservation, the tribe’s casino created 356
gaming-related jobs for Native Americans, significantly cutting
the tribe’s nearly ninety percent unemployment rate.217 Indeed,
the tribe’s casino is the county’s largest employer.218 Similarly,
the Turtle Mountain Band of Chippewa’s casino has created 360
new jobs on the reservation.219 Together, the state’s five tribal
casinos have directly created more than two thousand jobs,220 over
eighty percent of which are held by Native Americans.221
Even relatively modest casino revenue may allow a tribe to
diversify economic development. The Standing Rock Sioux, for example, have launched several casino-related businesses, including
a hotel, RV park, and marina,222 while the Three Affiliated Tribes
are starting data entry and manufactured homes businesses.223
The Turtle Mountain Band of Chippewa has used gaming revenue
to finance a start-up data entry business, and currently is pursu214 Eduardo E. Cordeiro, The Economics of Bingo: Factors Influencing the Success of
Bingo Operations on American Indian Reservations, in WHAT CAN TRIBES DO? STRATEGIES
AND INSTITUTIONS IN AMERICAN INDIAN ECONOMIC DEVELOPMENT 205, 234 (Stephen Cornell
& Joseph P. Kalt eds., 1993). If the population density surrounding a tribal casino is low,
there is little chance that the casino will bring significant “new” income for the tribe. Id.
The proximity of competing casinos and the regional propensity to gambling also influence
casino success. Id.
215 Mark Fox, Guest Lecture in Indian Gaming Law at the University of North Dakota
School of Law 4 (Apr. 24, 2001) (transcript on file with Chapman Law Review).
216 Id. Fox explained, “We have young people [for] the first time in their lives learning
about work ethic[;] [l]earning . . . what even . . . a basic checking account is all about. We
have people [who] are financing homes and cars. For the first time they have been able to
do these positive things.” Id.
217 CORNELL ET AL., supra note 4, at 32-33 (reporting that in 1995, one year after the
tribe opened its casino, reservation unemployment dropped to less than thirty percent, but
noting that the degree of reduction may have been due in part to different tribal data collection procedures); see also Timothy Egan, American Indians Restoring Plains Life, GRAND
FORKS HERALD, May 28, 2001, at 1A. The tribe’s casino also created another 123 jobs for
non-Indians in 1997. CORNELL ET AL., supra note 4, at 32.
218 CORNELL ET AL., supra note 4, at 49.
219 Lattergrass, supra note 197.
220 The Prairie Knights Casino employs 470 full-time workers, while the Four Bears,
Sky Dancer and Spirit Lake Casinos each employ 400 full-time workers. Furthermore, the
Dakota Magic Casino employs 375 full-time workers. Dorreen Yellow Bird, Researcher
Says Gambling is a Net Plus on Reservations, GRAND FORKS HERALD, Sept. 3, 2000, at 2C.
221 1998 N.D. INDIAN GAMING ASS’N, supra note 212, at 5.
223 Fox, supra note 215.
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ing recycling and construction companies, as well as tourism-related businesses.224
In addition, even relatively modest casino revenues and levels
of casino employment benefit surrounding non-Indian communities, as well as the state economy. In North Dakota, the five tribal
casinos have a total annual payroll exceeding thirty million dollars each year.225 Many workers employed at the casinos previously were unemployed and receiving public assistance. 226
According to calculations using economic multipliers,227 the annual economic benefits to the state resulting from the casinos’
payroll and purchases totals nearly $125,000,000, making tribal
gaming one of North Dakota’s top two economic engines.228 The
cumulative benefits of Indian gaming in the state are striking.
Since 1997, North Dakota has accrued nearly five hundred million
dollars in economic benefits resulting from Indian gaming.229
Revenue can revitalize communities as well as economies. In
North Dakota, none of the tribes disburses casino revenue in the
form of per capita payments;230 instead, profits from the tribal
casinos allow the state’s tribes to provide essential government
services to their members.231 Increasing employment opportunities and available government services has had the almost immediate effect of enticing tribal members to return to the
Lattergrass, supra note 197.
2000 N.D. INDIAN GAMING ASS’N, supra note 201, at 3.
226 1998 N.D. INDIAN GAMING ASS’N, supra note 212, at 5. The North Dakota Indian
Gaming Association estimates that thirty to forty percent of new hires at the tribal casinos
previously were either unemployed or receiving public assistance. Dorreen Yellow Bird,
How Gaming Pays Off, GRAND FORKS HERALD, Apr. 1, 2001, at 1D (quoting Alan Austad,
consultant to the North Dakota Indian Gaming Association). Other states, such as Wisconsin, have experienced similar reductions in public entitlements payments as a direct result
of tribal gaming. See Casinos Cut Welfare Rolls in Some Tribes, GRAND FORKS HERALD,
Sept. 2, 2000, at 3A.
227 The 2000 North Dakota Indian Gaming Association report categorizes the economic
impacts of tribal gaming in the state according to direct and secondary impacts. Direct
impacts “are those changes in output, employment, or income that represent the initial or
direct effects” of gaming. 2000 N.D. INDIAN GAMING ASS’N, supra note 201, at 11. Secondary impacts “result from subsequent rounds of spending and respending within the economy.” Id. For example, an employee may use a dollar of wages to buy a loaf of bread at a
local grocer. The grocer then may use part of that dollar to buy more bread, while the
bread supplier may in turn use part of that dollar to purchase wheat, and so on. Id.
228 Id. at 7.
229 Id. at 9.
230 Rand & Light, Raising the Stakes, supra note 36, at 338. As Mark Fox explains, the
Three Affiliated Tribes’ annual casino profits of approximately three million dollars would
result in a per capita payment for each of the tribe’s ten thousand or so members of about
three hundred dollars. Thus, the tribe has decided that the casino revenue is best spent
providing services to its members. Id.
231 For example, the Three Affiliated Tribes use casino revenue to provide members
with day-care services and educational scholarships, as well as to improve the tribe’s waste
disposal system and other conservation efforts. Id.
224
225
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reservations in North Dakota.232 As the state struggles to maintain its general population, its Native American population grew
by twenty percent during the last decade.233
As the Boston Globe series indicated, tribes like those in
North Dakota, with large memberships and little access to metropolitan markets, are unlikely to experience dramatic economic
and social rejuvenation based solely on casino revenues.234 Two
thousand new casino jobs can significantly lessen tribal unemployment, but cannot cure it.235 For example, the Turtle Mountain
Band’s casino created 360 jobs on the reservation, but with some
twenty-eight thousand members, most of whom live on or near the
reservation, the tribe must continue to combat poverty and
unemployment.236
Nevertheless, the accuracy of the Globe’s analysis stops there.
From the tribes’ perspective, casino employment and revenue provide the necessary foundation for tribal strategies to overcome reservation poverty and accompanying social ills.237 By allowing
232 Id. (“More people are coming back from urban areas partially because of the casinos. There are new job and educational opportunities, better health benefits, and fresh
ideas out there [on the reservations].”) (quoting Cornelius Grant, executive director of
North Dakota’s Rural Development Council and a member of the Turtle Mountain Band of
Chippewa) (alterations in original).
233 Discover ND, Census: Population by Race 1990 & 2000, at http://www.state.nd.us/
jsnd/Bin/lmidata.pl (last visited Apr. 12, 2002). During the 1990s, North Dakota’s Native
American population increased from 25,917 to 31,329, while its white population decreased
from 604,142 to 593,181. Id. Only six counties in North Dakota gained residents during
the 1990s; three of those counties are populated primarily by Native Americans. Timothy
Egan, As Others Abandon Plains, Indians and Bison Come Back, N.Y. TIMES, May 27, 2001,
available at http://www.nytimes.com/2001/05/27/national/27FRON.html?pagewanted=
print; see also Carson Walker, Culture, New Wealth Lure Indians Home, GRAND FORKS
HERALD, Apr. 11, 2001, at 3A. Other states, too, have seen Native Americans returning to
live on the reservation due in part to increased employment opportunities created by tribal
casinos. See, e.g., Mike Johnson, Casinos, Jobs Lure Indians Back to Better Lives on Reservations, MILWAUKEE J. SENTINEL, Apr. 30, 2001, at 1A, available at 2001 WL 9353282 (reporting that in Wisconsin, reservation populations increased by over twenty percent
between 1990 and 2000).
234 The reasons for this extend beyond the rural nature of tribal communities, shared
by non-Native localities throughout states like North Dakota.
[T]ribal governments cope with two challenges that non-Indian governments do
not face. First, they must operate between the institutions of Indian culture and
those of the larger society, balancing competing values while being constrained by
differing norms. Second, tribal governments contend with staggering social conditions the likes of which are found in few other places in America.
235 See Yellow Bird, supra note 220 (explaining that as the tribal population increases,
it becomes more difficult for the tribal government to provide adequate employment for
tribal members).
236 Lattergrass, supra note 197. The tribe’s poverty rate remains high at forty percent,
while unemployment continues to exceed fifty percent. Id.
237 See CORNELL ET AL., supra note 4, at 53.
For the Standing Rock Sioux Tribe (and other tribes similarly situated), the incremental revenue is certainly helpful, especially given the difficulty it has had developing other enterprises and the limited availability of federal funding. However,
the effect of gaming on social conditions will be limited until such tribes can lever
gaming business experience into other forms of economic development.”
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tribal governments to offer their members employment and educational opportunities, along with essential government services
such as adequate housing and health care, gaming revenue has
demonstrably strengthened tribal governments in North Dakota.
This, in turn, has helped to preserve tribal sovereignty, because
tribes have the economic wherewithal to implement tribal government decisions and programs. Casino profits also allow tribes to
diminish their dependence on state and federal programs, further
reinforcing tribal sovereignty.238
Like its counterpart, the Pequot Model, the Plains Model of
tribal gaming convincingly demonstrates the oversimplification
and lacunae in conventional narratives of Indian gaming. Such
accounts threaten to set the terms of contemporary political discourse and mediate policy outcomes, creating a lose-lose proposition for tribes from the Pequots to the Plains, and elsewhere.
V. TOWARD INFORMED POLICYMAKING
A. Misinformed Policymaking
Despite well-reasoned criticism that application of federal law
and policy to tribal gaming is, by definition, an infringement on
tribal sovereignty,239 the political reality remains that Congress,
by virtue of the Supreme Court’s interpretation of the commerce
power,240 has constitutional authority to regulate Native American
tribes in the United States. Congress has misused this power in
the past, with dire consequences for tribes. Most recently, however, the federal government has adopted a policy of tribal selfdetermination, aimed at encouraging reservation economic development and strengthening tribal governments, while decreasing
federal aid to Native American communities. Although the federal government’s self-determination policy is not above criticism,
Id.
238 See, e.g, Telephone Interview by Samuel Jandt with J. Kurt Luger, Executive Director, North Dakota Indian Gaming Association (Nov. 23, 2001) (notes on file with Chapman
Law Review) [hereinafter Luger Telephone Interview] (stating that North Dakota tribes
use casino revenue to fund unmet obligations of the federal government); see also Carole
Goldberg-Ambrose, Pursuing Tribal Economic Development at the Bingo Palace, 29 ARIZ.
ST. L.J. 97 (1997) (discussing the complexities of the interrelations between tribal sovereignty and economic independence).
239 See, e.g., Robert B. Porter, Indian Gaming Regulation: A Case Study in Neo-Colonialism, GAMING L. REV. vol. 5 No. 4, at 299 (2001) (arguing that gaming tribes assist the
dominant society in undermining tribal sovereignty by capitulating to state and federal
regulation); see also Rebecca Tsosie, Negotiating Economic Survival: The Consent Principle
and Tribal-State Compacts Under the Indian Gaming Regulatory Act, 29 ARIZ. ST. L.J. 25,
49 (1997) (“Despite the popular sentiment that the IGRA conferred a gaming ‘right’ on
Indian tribes, it is important to note that the IGRA is not the source of the tribes’ right to
engage in gaming; rather, the statute places limitation on those sovereign rights.”).
240 U.S. CONST. art. 1, § 8, cl. 3; see also County of Yakima v. Confederated Tribes &
Bands of Yakima Indian Nation, 502 U.S. 251, 257-58 (1992) (discussing the Indian Commerce Clause).
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it appears to be the most viable approach in terms of improving
reservation living conditions.241 As noted above, the advent of
widespread Indian gaming coincided with the federal government’s policy of encouraging tribal economic development. In fact,
IGRA’s express purposes include “provid[ing] a statutory basis for
the operation of gaming by Indian tribes as a means of promoting
tribal economic development, self-sufficiency, and strong tribal
governments.”242
Despite this stated policy, many policymakers appear ready
to diminish tribal sovereignty by increasing federal and state control over tribal governments, particularly in the area of tribal
gaming. Some policymakers’ apparent willingness to increase
state power over Indian gaming is in part a direct response to the
Pequots success with Foxwoods.243 As discussed above, criticism
of the Pequots and the tribe’s economic success, particularly in the
context of widespread continuing reservation poverty facing many
other tribes, essentially distills itself to the observation that the
federal government should not allow a few tribes to become
wealthy through gaming while other tribes continue to struggle.
However, this creates a false dichotomy: on the one hand, the
fabulously gaming-rich Pequots, and on the other, tribes whose
casinos provide such meager benefits that gaming simply is not
worth the trouble it causes non-Indians. That dichotomy, of
241 As one researcher asserted, studies have not found “a single case in Indian Country
where federal planning, programs, and management of the reservation economy has produced sustained economic development and social well-being. The only thing that is working is self-determination—self-government.” Kalt, supra note 41, at 2. According to the
Harvard Project on American Indian Economic Development:
[W]hat really works is true self-governance. Thus, the premise that tribes are and
ought to be treated as governments—as opposed to entitled ethnic groups, forprofit corporations, or fraternal associations—is foundational to the examination
of Indian gaming policy. Moreover, policies that do not take this premise into account risk undermining the gains made by tribes under [federal] self-determination [policy].
242 25 U.S.C. § 2702 (2001). Alongside self-determination policy, the federal government has adopted a policy of decentralizing decision-making power by delegation, a political concept referred to as “devolution.” Stephen Cornell & Jonathan B. Taylor, Sovereignty,
Devolution, and the Future of Tribal-State Relations, at 1 (paper presented at the National
Congress of American Indians Mid-Year Session, June 2000) (on file with Chapman Law
Review). As governmental control and decision-making authority continue to shift from
the federal level to state and local governments, tribes may also benefit from reduced federal controls. Id. at 1, 2. Given the experience of tribes such as those in North Dakota, it is
the diminishment of state and federal authority and the resultant primacy of tribal authority that have made the reservations better places to live. Id. at 4-5. “[T]ribal control over
tribal affairs is the only policy that works for economic development . . . . In short, if states
want Indian poverty and its off-reservation consequences to be adequately addressed, they
have to stop insisting that their rules apply to the exclusion of tribes’ rules.” Id. at 4. “The
fact is that capable and sovereign tribal governments advance state goals as well as tribal
goals. No state has an incentive to allow the kind of poverty and economic underdevelopment that has characterized Indian reservations for so long to continue to fester within its
borders.” Id.
243 See discussion supra Parts II. & III.B.2.
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course, overlooks the experience of tribes like those in North Dakota, as described in the Plains Model.244 In fact, tribes with
higher poverty and unemployment rates are likely to pursue casino-style gaming as a form of economic development—seventeen
of the country’s largest and poorest tribes have opened casinos.245
Increasing the states’ ability to dominate the compact negotiations
and limit tribal gaming likely will hurt those tribes that most
need the revenue a casino can provide.
The media and policymakers have been quick to link gaming
and continued reservation poverty, as though tribal gaming somehow has caused, or at least facilitated, current unemployment and
poverty rates.246 A better way to approach the question might be
to ask whether, without tribal gaming, tribes still would experience continued poverty, widespread unemployment, and relatively
minimal tribal economic development. In the absence of Indian
gaming, it is likely that most tribes would have had little, if any,
economic development activity on their reservations. It is, therefore, logical to assume that those tribes would have experienced
continuing poverty during the last decade without even the modest inroads afforded by tribal gaming.247
B. From the Pequots to the Plains: The Spectrum of Tribal
Gaming
How, then, should policymakers determine whether gaming
under IGRA should be encouraged as a strategy for tribal economic development? The obvious answer is to place Indian gaming in the broader context of the full range of tribal experiences,
including those of large, land-based treaty tribes. Beyond a focus
on the Pequots, the success of Indian gaming must be assessed
See discussion supra Part IV.B; see also Kalt, supra note 41, at 1-2.
[T]he phenomenal financial success of a tiny handful of tribes—led, of course, by
the Mashantucket Pequot Tribe in Connecticut. . . . obscures the facts that . . . for
every highly visible, well-run, well-capitalized casino there are many more tribal
operations that are modest enterprises providing employment and income in lowvolume, rural markets.
244
Id.
The Globe series reported that “[twelve] years after the federal government made
gambling a staple of its Indian policy, the overall portrait of America’s most impoverished
racial group continues to be dominated by disease, unemployment, infant mortality, and
school drop-out rates that are among the highest in the nation.” Rezendes, Casino Windfall, supra note 5. Representative Wolf picked up the refrain, stating that the Globe articles “illustrate the unforeseen inequities of the Indian Gaming Regulatory Act, which has
resulted in a tainted recognition process, massive revenue windfalls for the gambling industry and a few well-connected individuals, and worst of all, continuing poverty for most
Native Americans.” Murphy, Revision Sought, supra note 67; see also Murphy, Probe of
Indian Casinos, supra note 66.
247 CORNELL ET AL., supra note 4, at 29. “What would the level of economic activity
have been if the [particular tribal] casino had not been built?” Id. The answer they found
for most tribes was “simple: there would have been no significant economic activity.” Id.
245
246
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against the background of “long-standing deficits of income, infrastructure, employment, education, and social health that plague
Indian Country.”248 Improvements in the quality of reservation
life experienced by tribes like those in North Dakota may seem
small to critics, but the tribes’ perception is that gaming has benefited tribal governments and members markedly.249 As Rick Hill,
then-chair of the National Indian Gaming Association, stated:
[I]f we are still facing poverty, unemployment, diabetes and
heart disease, suicide and untimely death, you should understand that the United States forced Indian Tribes onto small,
arid, unproductive reservations while at the same time stealing
our more productive lands. Today, we are using Indian gaming
to overcome many of the conditions that the United States has
created. . . . Today, Indian gaming helps many of our Nations
and Tribes to empower our people.250
Indeed, a more careful look at tribes across the country suggests
that the 1990s marked a possible beginning of a reversal of reservation unemployment and poverty.251 Nevertheless, this reversal
is only a beginning, and a decade of casino-style gaming has not
eradicated (nor should it be expected to eradicate) the extraordinarily high levels of tribal unemployment and poverty.252
Kalt, supra note 41, at 3.
When asked if it was accurate to characterize the success of tribal casinos in North
Dakota as “modest,” Kurt Luger, the Executive Director of the North Dakota Indian Gaming Association, emphasized the necessity of considering the tribes’ circumstances prior to
opening their casinos. “When you have nothing, and then you have something,” he explained, modest is not the most accurate term. Luger Telephone Interview, supra note 238.
250 Rick Hill, Some Home Truths About Indian Gaming, INDIAN COUNTRY TODAY, Dec.
27, 2000, available at http://www.indiancountry.com/articles/perspective-2000-12-2702.shtml.
[T]he fundamental point is that because economic conditions were so dire on those
reservations that subsequently introduced casino gaming, even small amounts of
economic activity have proven a tremendous boon to many gaming tribes. While
the backlog of socio-economic deficits left by decades of deprivation remains a
daunting challenge, gaming has had a profound economic development impact on
many tribes that have introduced it.
Id.
252 Id. at 60 (enumerating several factors that limit tribes’ ability to quickly reverse
social conditions). Generally speaking, casinos can benefit tribes in two primary ways.
Kalt, supra note 41, at 2. First, casinos can provide economic benefits by creating jobs,
personal income, and government revenue. Id. While gaming-based economic development has not proved a silver bullet for reservation poverty, the economic effects of tribal
gaming “are making dents in the long-standing problems of poverty and associated social
ills in Indian Country.” Id. One factor emphasized by North Dakota tribes is the creation
of casino jobs on the state’s reservations. See 2000 N. D. INDIAN GAMING ASS’N, supra note
201, at 3. Employment opportunities created by tribal casinos are an important source of
reservation jobs for many tribes. CORNELL ET AL., supra note 4, at 32-35. Increased employment, of course, can lead to positive changes in social health generally.
Unemployment has an adverse effect on mortality, particularly from suicide and
lung cancer. It is also associated with higher incidences of suicide attempts, depression, and anxiety. The onset of unemployment is associated with greater tobacco and alcohol use. In addition, a higher proportion of families with
248
249
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Recently, tribes like those in the Great Plains have worked to
publicize issues that are relevant to them, such as tribal sovereignty, government infrastructure, employment, and health care.
Yet these issues, so central to many tribes in the United States,
get lost in the public debate over a few tribes like the Pequots,
which threatens to define policy applicable to all tribes. Kurt
Luger, the Executive Director of the North Dakota Indian Gaming
Association, speaking with characteristic bluntness, put it this
way:
We are not damn gaming tribes, we are treaty tribes. . . . We
are getting our a— kicked because of [wealthy, newly organized
tribes]. [The Plains] region needs to be highlighted, because our
treaties are going to be attacked and they are going to say,
“Hell, these aren’t a bunch of Indians, these are a bunch of gaming tribes.”253
Critics and policymakers contend that they are concerned
about the welfare of all Native Americans, and merely seek to
avoid injustice. Yet the proposed responses to the perceived
problems associated with tribes like the Pequots are likely to undo
the tenuous gains achieved by gaming for many tribes. The Boston Globe identified several North Dakota tribes as the embodiment of what it decried as the failed experiment of Indian
gaming.254 The tribes themselves, however, describe their gaming
enterprises as successes.
C. There Are No Pequots on the Plains
One significant shortcoming resulting from the oversimplification of tribal experience by the media and policymakers—dividing tribes into gaming “haves” and “have-nots”—is that it assumes
that the issues raised by a few tribes’ casinos apply uniformly to
all gaming tribes. In fact, most of the issues raised in the public
debate over the Pequots simply do not exist in the context of the
Plains Model.
unemployed adults are reported as having greater risk of domestic violence and
divorce.
Id. at 57. The second benefit casinos provide is institutional. Kalt, supra note 41, at 2.
Because gaming revenue enables tribal independence from federal and state programs and
bureaucracies, casinos can benefit tribes by strengthening tribal government and preserving tribal sovereignty. Id.; see also supra text accompanying notes 241-42.
253 David Melmer, Great Plains Leaders Flex Muscle, Insist that NCAI Include Their
Agenda, INDIAN COUNTRY TODAY, Nov. 22, 2000, available at http://www.indiancountry.
com/articles/lakota-2000-11-22-01.shtml.
254 Rezendes, Casino Windfall, supra note 5. For example, the Globe reported that in
contrast to the success of a few tribes like the Pequots, “tribes of the Greater Sioux Nation,
with thousands of members in North and South Dakota, run about a dozen gambling halls
but generate comparatively little in the way of revenue because of the tribes’ stark isolation.” Id.
2002]
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For example, the Pequots’ authenticity has been challenged
on numerous fronts. As discussed above, two recent and highly
visible exposés contend that current tribal members are not Pequots, and likely are not even “Indians” (at least as the authors
understand the term).255 Regardless of the appropriate weight to
be given such loaded accusations, authenticity simply is not an
issue for North Dakota’s tribes. Long recognized as sovereign by
the federal government, the tribes’ status as “Indian” is unlikely
to be seriously questioned. Nor can there be a plausible suggestion that the Plains tribes exist only to operate casinos. As Mark
Fox explains, “Here in the Great Plains, Indian nations fought
and died for tribal sovereignty.”256 Yet, as Luger observed, the
negative attention paid to tribes like the Pequots requires all
tribes to answer similar challenges, however ill founded.257
The debate over the Pequots raises a myriad of concerns centered on the negative effects of gambling. At the forefront, perhaps, is the theory that Indian gaming is not subject to sufficient
regulation, exposing tribes to criminal infiltration and exploitation by non-Indian management companies. In reality, tribal
gaming enterprises are subject to three levels of government regulation—federal, state, and tribal—resulting in extensive regulatory schemes,258 and there is little evidence to support the
pervasive specter of organized crime.259 Moreover, common sense
BENEDICT, supra note 132; EISLER, supra note 92.
Rand & Light, Raising the Stakes, supra note 36, at 337.
257 A cartoon in North Dakota’s Grand Forks Herald depicted two sets of Native artifacts: one in the 1800s, including arrowheads, eagle feathers, and a buffalo skin, and one
in 2000, a slot machine. GRAND FORKS HERALD, Sept. 10, 2000, at 2B.
258 Hill, supra note 250. In North Dakota, the state’s five tribes spend over five million
dollars each year and have hired over three hundred employees to regulate their casinos.
Id. Additionally, the tribes pay the costs of state regulation and oversight of tribal casinos.
Luger Telephone Interview, supra note 238. A 1998 National Indian Gaming Association
survey reported that tribes spent over $120 million to regulate gaming on their reservations. 2001 Indian Gaming Hearing, supra note 47. New Jersey spends about fifty-four
million dollars and employs seven hundred people to regulate its dozen or so major casinos;
gaming tribes in Arizona spend about twenty-one million dollars and employ two hundred
people to regulate tribal casinos in the state, and pay another five million dollars for state
regulation. Id.; see also CORNELL ET AL., supra note 4, at 15-23 (describing the regulatory
requirements at the federal, state, and tribal levels on Indian gaming and concluding that
“the scope of tribal regulations is extensive—it parallels that of New Jersey,” the state with
the “toughest” gaming regulations). Some have dismissed tribal regulation of tribal casinos
as “the fox running the hen coop.” Sean P. Murphy, Indian Casinos Spend to Limit US
Oversight, BOSTON GLOBE, Mar. 12, 2001, at A1, available at 2001 WL 3923615 (quoting
former federal gaming regulator Anthony Hope). Kalt, however, points out that as tribal
government-owned enterprises, tribal casinos yield public revenues, much the same way
state lotteries yield public revenues. Kalt, supra note 41, at 2-3. Both states and tribes use
such revenues to meet the needs of their citizens (indeed, IGRA expressly limits tribes’ use
of gaming revenues). Id.; see also CORNELL ET AL., supra note 4, at 57 (“Just as states
dedicate lottery revenues to public purposes . . . so too do tribes.”).
259 The Globe articles “also highlighted the almost complete lack of government oversight of casinos already allegedly infiltrated by organized crime.” Murphy, Probe of Indian
Casinos, supra note 66. But the Globe article was forced to acknowledge that “tribal gam255
256
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and evidence indicate that in North Dakota, it is unlikely that organized crime will infiltrate only modestly successful tribal casinos far from urban population centers. As for more pedestrian
crime, North Dakota’s tribal casinos appear to have had little, if
any, effect on the state’s consistently low crime rate.260 Indeed,
one might expect that the gains made in reservation employment
would reduce crime in those areas.261 Further, each of the tribal
casinos in North Dakota is owned and operated by the tribal government rather than an outside management company.262 In
North Dakota, then, such concerns likely should be outweighed by
the fact that Indian gaming is one of the top economic engines in
North Dakota, providing economic benefits to Indian and non-Indian communities alike throughout the state.263
How do the Pequot and Plains Models assist policymakers?
These models demonstrate that a pan-Indian approach to formulating or interpreting law or public policy affecting all tribal gaming will have detrimental and (presumably) unintended effects on
those tribes that appear to be benefiting from gaming as Congress
envisioned under IGRA. The Plains Model suggests that the perceived negative impacts of tribal gaming, as exemplified by public
reaction to the Pequots’ success, are inappropriate bases for policymaking that would affect all tribes. As the contrast between the
Pequot Model and the Plains Model demonstrates, tribes are not
monolithic.
ing authorities and federal law enforcement officials insist there is no evidence of widespread infiltration of Indian gambling by organized crime.” Rezendes, Tribal Casino
Operations, supra note 48. Additionally, although one of the “financial analysts” quoted by
the Globe stated that organized crime has been linked to casinos historically, the analyst
also said, “We’re not seeing that with Indian gaming right now.” Id.; see also CORNELL ET
AL., supra note 4, at 23 n.39 (“In hearings before a House of Representatives subcommittee
in late 1993, officials from the FBI testified that they had no evidence of widespread organized crime within Indian gaming.”) (citing Joseph M. Kelly, Indian Gaming Law, 43 DRAKE
L. REV. 501, 521 (1994)).
260 E-mail from Jan Morley, Tribal Liason for the U.S. Attorney’s Office, District of
North Dakota, to Kathryn R.L. Rand, Assistant Professor, University of North Dakota
School of Law (Dec. 6, 2001, 15:43:33 CST) (on file with Chapman Law Review); see also
Luger Telephone Interview, supra note 238; Taylor et al., supra note 3, at 26-27 (statistics
show a “substantial” decline in auto theft and robbery, and that introducing casinos into
depressed regions “would reduce the existing propensity to commit crime”).
261 Luger reported anecdotal evidence that juvenile offenses such as truancy were reduced on the reservations as a result of increased parental employment. Luger Telephone
Interview, supra note 238. “While it is typically assumed as a matter of course that any
demonstrated linkage between gaming and crime will show crime increasing following the
introduction of gaming, contrary evidence from Indian Country suggests that there are
exceptions to that common presumption.” CORNELL ET AL., supra note 4, at 28-29 (pointing
to a 1996 Wisconsin study indicating that tribal casinos had not resulted in increased crime
but rather may have reduced crime caused by unemployment).
262 See supra text accompanying note 212. Tribes’ relations with non-Indian investors
and management companies have drawn criticism. See, e.g., Murphy, Mohegan Sun, supra
note 48.
263 See supra notes 225-29 and accompanying text.
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The realities of Indian gaming are more complex than the current spate of criticism allows. First, when measured by strengthened tribal government and improved quality of reservation life,
North Dakota’s tribal casinos are successful. Their successes are
deserving of recognition and continued facilitation at the state and
federal levels. Second, to the extent that one sees the Pequots’
casino as highlighting inadequacies in current Indian gaming law
and policy, one must be careful not to assume that those inadequacies exist in all states, or apply to all tribal casinos. Public
policy that seeks to correct problems that do not exist in many
areas of the country plainly runs the risk of hamstringing effective
tribal efforts to improve reservation life through the exercise of
tribal sovereignty. Misguided public policy, rather than Indian
gaming itself, runs a substantial risk of perpetuating poverty and
unemployment for Native Americans.264 Treating all tribes alike
will not benefit any tribe. Only by recognizing the full spectrum of
tribal interests and experience, from the Pequots to the Plains,
will policymakers adequately be able to address issues arising
from tribal gaming.
CONCLUSION
From one perspective, the criticism directed at tribal gaming
makes sense: although some tribes are wealthy and healthy,
many more continue to suffer from significant social and economic
ills. This view, albeit overly—I argue fatally—simplistic, tempts
policymakers and public opinion with the corresponding simplicity
of its implicit solution: if gaming isn’t solving the “Indian problem,” then why not regulate and restrict it even further? Such a
solution, however, necessarily diminishes tribal sovereignty, and
thus likely will exacerbate the very problem it purports to solve.
Such perspectives and solutions, I suggest, are the direct result of undue focus on the Pequot Model of tribal gaming. Policymaking in response to the Pequot Model will, in the short and
long run, harm the far greater number of tribes that are beginning
to reverse the effects of extreme poverty and unemployment for
their members through gaming. Will gaming create prosperity for
all Native Americans? Plainly not, but gaming is one of the few
economic development strategies making inroads toward prosperObservers note the across-the-board negative implications.
It will be a remarkable irony—and another tragedy in a long line of Indian policy
failures—if the United States were now to turn its back on the only policy that has
shown any promise of lifting reservation populations out of poverty and despair.
Such a rejection of tribal sovereignty will have costs not only to tribes but to
states, the federal government, and taxpayers generally as Indian nations continue to languish in poverty. In backing away from meaningful self-determination, everybody loses.
Cornell & Taylor, supra note 242, at 7.
264
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ity for many tribes. Well-meaning criticisms of Indian gaming
that characterize the important successes of gaming tribes, like
those in North Dakota, as failures risk further compromising
tribes’ abilities to address often dire social conditions on reservations throughout the United States. Betting that further restricting Indian gaming would improve the lives of all Native
Americans is surely not worth the gamble.
Caught in the Intersection Between Public
Policy and Practicality: A Survey of the
Legal Treatment of Gambling-Related
Obligations in the United States
Joseph Kelly*
I.
INTRODUCTION
AND
HISTORICAL ROOTS
This article offers a survey of the law and practice of gambling
debt enforcement and recovery in the United States. Two historical sources of law influence modern gambling debt enforcement
and recovery. The English common law interpretation of the Statute of Anne is the first historical source;1 the second tradition
traces its roots to classical Rome.2 Both of these centuries-old traditions either severely limited or absolutely prohibited the enforcement of gambling debts.
England’s Statute of Anne, enacted in 1710, prohibited the enforcement of gambling debts3 and provided for a recovery action by
* Joseph Kelly, J.D., Ph.D. is Professor of Business Law at SUNY College Buffalo.
He is licensed to practice law in Nevada, Illinois, and Wisconsin. The author wishes to
especially thank Lise Napieralski, a SUNY college business student, Hendrik Brand, Shirish Chotalia, Esq., James Deutsch, Esq., George Haberling, Ana Lemos, Hector MacQueen,
Quirino Mancini, David Miers, Stephen Philippsohn, Marion Rodwell, Heidi Scott, Arvan
Van’t Veer, Thibault Verbiest, and Franz Wohlfhart for assistance in this article. All mistakes are those of the author.
1 An Act for the Better Preventing of Excessive and Deceitful Gaming, 1710, 9 Ann. c.
14, §§ 1, 2, 4 (Eng.) [hereinafter Statute of Anne].
2 See SHELDON AMOS, THE HISTORY AND PRINCIPLES OF THE CIVIL LAW OF ROME 17576 (1883).
3 The Statute’s first section states that all notes, securities, and so forth, executed
after May 1, 1711, for consideration of gambling or betting debts are void. Statute of Anne,
supra note 1, § 1. The statute reads:
[F]rom and after the first day of May one thousand seven hundred and eleven, all
Notes, Bills, Bonds, Judgments, Mortgages or other Securities or Conveyances
whatsoever, given, granted, drawn or entred into, or executed by any Person or
Persons whatsoever, where the whole or any Part of the Consideration of such
Conveyances or Securities, shall be for any Money, or other valuable Thing whatsoever, won by gaming or playing at Cards, Dice, Tables, Tennis, Bowls or other
Game or Games whatsoever, or by betting on the Sides or Hands of such as do
game at any of the Games aforesaid, or for the reimbursing or repaying any Money
knowingly lent, or advanced for such gaming or betting as aforesaid, or lent or
advanced at the Time and Place of such Play, to any Person or Persons so gaming
or betting as aforesaid, or that shall, during such Play, so play or bett, shall be
utterly void, frustrate, and of none Effect, to all Intents and Purposes whatsoever;
any Statute, Law, or Usage to the contrary thereof in any wise notwithstanding
....
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the losing gambler,4 or any other person on the gambler’s behalf,
for gambling debts already paid.5 The most interesting portion of
the statute lies in its recovery provisions. The statute permitted a
bettor who lost ten pounds sterling or more to recover his loss and
costs of litigation if he brought an action within three months.6 If
the bettor failed to sue within three months, any other person
could sue to recover the bettor’s losses; however, any such recovery was split equally with the parish poor where the wager occurred.7 The independence of the United States rendered the
Statute of Anne relevant, but not controlling. Therefore, each individual state was given the freedom to choose whether to apply the
statute and its principles. Nevertheless, the Statute of Anne has
become part of the law in a number of the states via case law or
statute.
The second legal tradition relevant to modern gambling debt
enforcement comes from classical Rome. Roman law generally
prohibited the enforcement of gambling debts; however, it provided exceptions for bets on “manly” athletic sports, such as the
javelin, wrestling, and chariot racing, where “the subject of contention was valour.”8 Roman law placed limits on the amount of
bets according to the bettor’s class status.9 Some U.S. jurisdictions continue to recognize an exception for wagering based upon
skill and allow their courts to reduce the amount of the debt to a
reasonable amount for the debtor.
Id. While the Statute of Anne was silent on an action by a winner, Blaxton v. Pye, 2 K.B.
309 (1766), barred an action by a winner to enforce a gaming debt.
4 The recovery provision states:
[A]ny Person . . . who shall . . . by playing at Cards, Dice, Tables, or other Game or
Games whatsoever, or by betting on the Sides or Hands of such as do play any of
the Games aforesaid, lose to any . . . Person . . . so playing or betting in the whole,
the Sum or Value of ten Pounds, and shall pay or deliver the same or any Part
thereof, the Person . . . losing and paying or delivering the same, shall be at Liberty within three Months then next, to sue for and recover the Money or Goods so
lost, and paid or delivered or any Part thereof, from the respective Winner . . .
thereof, with Costs of Suit, by Action of Debt . . . .
Statute of Anne, supra note 1, § 2.
5 The third party recovery provision of the Statute of Anne states:
[A]nd in case the Person or Persons who shall lose such Money or other Thing as
aforesaid, shall not within the Time aforesaid, really and bona fide, and without
Covin or Collusion, sue, and with Effect prosecute for the Money or other Thing, so
by him or them lost, and paid or delivered as aforesaid, it shall and may be lawful
to and for any Person or Persons, by any such Action or Suit as aforesaid, to sue for
and recover the same, and treble the Value thereof, with Costs of Suit, against
such Winner or Winners as aforesaid; the one Moiety thereof to the Use of the
Person or Persons that will sue for the same, and the other Moiety to the Use of
the Poor of the Parish where the Offence shall be committed.
Id.
6
7
8
9
Id.
Id.
AMOS, supra note 2, at 175-76.
Id. at 176.
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Between Public Policy and Practicality
89
The law surrounding gaming historically has been influenced
and shaped by competing “philosophical, theological, social, and
economic” beliefs.10 Those who oppose gambling point to immorality and the negative impacts on society.11 Those who support legalized gambling focus on the community’s need to create
economic activity and tax revenue,12 and on an individual’s freedom to make moral decisions.13 Modern gambling debt enforcement law is a balancing act: weighing legal tradition, conflicting
moral ideals, and economic need. The influence of historical tradition and morality can still be seen in modern gaming law. The
weight allocated to these factors varies, usually depending on the
degree of legalization of gambling in the jurisdiction. This article
discusses the way in which different states have decided to balance these often-competing interests.
United States law concerning the enforcement of gambling
debts arises under three different factual scenarios, each with different legal ramifications. The first situation arises when the casino is located and the gambler is domiciled in the same state—
“In-State Enforcement.” The second and third situations arise
when the gambler is not domiciled in the state where the debt was
incurred. In this situation, the winning party, such as a casino,
can choose to pursue one of two courses: either 1) sue the gambler
in the state where the debt was made, and then seek to enforce the
judgment where the gambler is domiciled—“Registration of a Sister–State Judgment”; or 2) sue the gambler directly in the gambler’s home state—“Direct Litigation.” The following is a
discussion of the laws that are applicable to each of these
situations.
10 Anthony N. Cabot & William Thompson, Gambling and Public Policy, in CASINO
GAMING: POLICY, ECONOMICS AND REGULATION 17, 18 (Anthony N. Cabot ed., 1996).
11 See Mark G. Tratos, Gaming on the Internet III: The Politics of Internet Gaming
and the Genesis of Legal Bans or Licensing, 610 PLI/Pat 711, 752 (2000) (“[M]uch of the
revulsion about gambling from the Christian community relates back to the casting of lots
which the Bible recorded that the Roman soldiers did in an attempt to win the robe of
Christ.”); Ronald J. Rychlak, Lotteries, Revenues and Social Costs: A Historical Examination of State-Sponsored Gambling, 34 B.C. L. REV. 11, 13 (1992) (“[T]he cost [of lotteries]
has been shouldered by the impoverished, people prone to compulsive behavior, children
and victims of gambling-related crimes.”); Erika Gosker, Note, The Marketing of Gambling
to the Elderly, 7 ELDER L.J. 185, 187 (1999) (“[S]ome believe that society has convinced the
public that people can obtain and even deserve money without working to earn it.”).
12 See NAT’L GAMBLING IMPACT STUDY COMM’N, FINAL REPORT, at 6-2 (1999) available
at http://govinfo.library.unt.edu/ngisc.indes.html [hereinafter NGISC FINAL REPORT]
(“[G]ambling revenues have proven to be a very important source of funding for many tribal
governments, providing much-needed improvements in the health, education, and welfare
of Native Americans on reservations across the United States.”); Tratos, supra note 11, at
752 (“[G]ambling proponents . . . identify its direct significant socioeconomic benefits.”);
Gosker, supra note 11, at 187 (“[S]tate and local governments view casino gambling as a
source of revenue because it attracts tourists, creates jobs, and generates taxes.”).
13 Cabot & Thompson, supra note 10, at 18 (“Societies that emphasize personal freedoms and individual choices are more likely to adopt permissive policies on gambling.”).
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IN-STATE ENFORCEMENT
Gambling can take a nearly infinite number of forms, and
each State generally has the freedom to decide whether to legalize
any form of gambling. The type of gambling that a state has chosen to legalize impacts its gambling debt enforcement or recovery
body of law. Although there is no perfect way to group the enforcement strategies that have developed among the states, some
categorization is helpful to the discussion. This section splits up
the United States into three broad categories according to the type
of gambling that each state has legalized: states with only limited
legal gambling and no casinos, states with state-licensed casinos,
and states with Native American Casinos. In general, states that
have not legalized casinos retain strict laws forbidding the enforcement of gambling debts, while those that have legalized casinos have slowly relaxed such prohibitions. It took Nevada over
fifty years after the legalization of casinos to finally legalize the
collection of gambling debts. For states that have only recently
legalized casinos, most during the 1990s, this process has just
begun.
A. States with Limited Legal Gambling (No Casinos)
Forty-eight states in the United States have some form of legal gambling; however, only twenty-eight allow casinos.14 Thus,
twenty states legalize limited forms of gambling. For example,
thirty-eight states and the District of Columbia have a state-sanctioned lottery.15 Many states also allow other types of limited
gambling, such as: bingo, video poker, and horse or dog track betting.16 This section focuses on those states that historically have
had a strong public policy against gambling, yet have legalized
some limited forms. In these states, the obvious starting point is
an examination of which parts of the Statute of Anne have been
retained as law. Modernly, three parts of the Statute of Anne remain relevant: 1) the rule that gambling debts are void; 2) the
provision that allows a loser to recover losses; and 3) the provision
that allows a third party to recover the losses of gamblers.17
Most of these states have retained the first section of the Statute of Anne, declaring all gambling debts void through specific
NGISC FINAL REPORT, supra note 12, at 1-1, 2-6.
Lottery Industry Leaders Name Michigan Lottery As One of the 10 Most Efficient in
the United States, PR NEWSWIRE, Mar. 18, 2002.
16 At the time of the NGISC report, stand-alone electronic gambling devices, such as
video poker, were legal in seven states, betting on horse races was legal in forty-three
states, and betting on greyhound dog races was legal in fifteen states. Id. at 2-4, 2-11.
17 See supra notes 1, 3-5.
14
15
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91
statutory provisions.18 Some of these states have even retained
the prohibition, notwithstanding the legality of gambling in that
state. In Kentucky Off-Track Betting, Inc. v. McBurney,19 the defendant was indebted to an off-track operator for almost $390,000
in checks exchanged for a promissory note.20 After paying eightyfour thousand dollars, the defendant stopped making payments on
the debt and the off-track operator sued.21 The defendant claimed
that Kentucky law rendered gambling debts unenforceable.22 The
court agreed and refused to recognize the balance of the debt.23
The court rejected the contention that Kentucky had impliedly repealed the prohibition by encouraging betting on horse races via
simulcast and by legalizing a lottery and charitable gambling.24
In Virginia, all gambling debts are void pursuant to “[t]he
public policy of the Commonwealth expressed through statutory
provisions . . . since 1740 . . . .”25 In Hughes v. Cole,26 the Virginia
Supreme Court refused to enforce an alleged oral agreement
among North Carolina residents, which resulted in the purchase
of a nine million dollar Virginia lottery ticket.27 Subsequently,
North Carolina decisions suggested that the agreement was unenforceable because it violated North Carolina public policy;28 however, North Carolina left the issue of enforcement to the Virginia
courts.29 The Virginia Supreme Court then concluded that under
18 E.g., ALA. CODE § 88-1-150 (2001); CONN. GEN. STAT. § 52-553 (1991); D.C. CODE
ANN. § 16-1701 (2001); FLA. STAT. ANN. § 849.26 (West 2001); GA CODE ANN. § 13-8-3(a)
(2001); 720 ILL. COMP. STAT. 5/28-7 (2002); KY. REV. STAT. ANN. § 372.010 (Banks-Baldwin
2001); MINN. STAT. § 541.21 (2001); MISS. CODE ANN. § 87-1-1 (2001); N.J. STAT. ANN.
§ 2A:40-1 (West 2000); N.C. GEN. STAT. § 16-1 (2001); OHIO REV. CODE ANN. § 3763.01
(West 2001); 73 PA. CONS. STAT. § 2031 (West 2002); R.I. GEN. LAWS § 11-19-17 (2001); S.D.
CODIFIED LAWS § 53-9-2 (Michie 2001); TENN. CODE ANN. § 29-19-101 (2001); VA. CODE
ANN. § 11-14 (Michie 2001); WASH. REV. CODE ANN. § 4.24.090 (West 1988); W. VA. CODE
ANN. § 55-9-1 (Michie 2000); WIS. STAT. ANN. § 895.055 (West 2001); WYO. STAT. ANN. § 123-106 (Michie 2001).
19 993 S.W.2d 946 (Ky. 1999).
20 Id. at 947.
21 Id.
22 Id. The Kentucky statute states:
Every contract, conveyance, transfer or assurance for the consideration, in whole
or in part, of money, property or other thing won, lost or bet in any game, sport,
pastime or wager, or for the consideration of money, property or other thing lent or
advanced for the purpose of gaming, or lent or advanced at the time of any betting,
gaming, or wagering to a person then actually engaged in betting, gaming, or wagering, is void.
KY. REV. STAT. § 372.010 (Banks-Baldwin 2001).
23 Kentucky Off-Track Betting, 993 S.W.2d at 947.
24 Id. at 948-49. Two dissenting judges, however, accepted this argument. Id. at 94950.
25 Resorts Int’l Hotel, Inc. v. Agresta, 569 F. Supp. 24, 25 (E.D. Va. 1983).
26 465 S.E.2d 820, 835 (Va. 1996).
27 Id.
28 Id. at 826 (quoting Cole v. Hughes, 442 S.E.2d 86, 90 (N.C. Ct. App. 1994)).
29 Hughes, 465 S.E.2d at 826.
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Virginia law, any such agreement would be unenforceable, though
not illegal.30
The validity of the first part of the Statute of Anne, voiding all
gambling contracts, clearly continues in Virginia. One court has
suggested that the debtor recovery provision may also be operative.31 Rahmani v. Resorts International Hotel, Inc.,32 involved a
Virginia citizen’s attempt to recover nearly four million dollars in
gambling losses at two New Jersey casinos over the course of thirteen years.33 The court, sitting in diversity, dismissed her action
holding that New Jersey law applied and did not provide for such
recovery.34 In dicta, the court noted the result would have been
the same under Virginia law,35 concluding that the Virginia law
permitting the recovery of gambling losses applies only to intrastate losses.36 The court further opined that if a Virginia gambler
could recover for out-of-state losses pursuant to the Virginia statute, “it would have the perverse effect of encouraging Virginians
to gamble, albeit out-of-state.”37
Perhaps the most unusual gambling debt case occurred in
Wisconsin, where gambling contracts were void.38 In 1990, Robert
Gonnelly cashed three checks totaling nearly twenty-four thousand dollars at a Kennel Club in order to place bets at the Kennel
Club’s dog races.39 When the State attempted to prosecute Gonnelly for issuing worthless checks, his only defense was that the
checks were gaming contracts, and therefore, void.40 The Wisconsin Court of Appeals upheld the trial court’s order dismissing the
criminal complaint because checks issued for gaming purposes are
unenforceable.41 Although the gambler was twenty thousand dollars richer, the court did not comment as to whether this was a
desirable outcome, and noted that its “task is simply to ascertain
the legislative intent of the statutes. If another result is deemed
wiser, it is for the people—through the legislature—and not for
this court to fashion one.”42
30 Id. at 827 (“At the heart of the problem is Code § 11-14, which provides in pertinent
part that ‘[a]ll . . . contracts whereof the whole or any part of the consideration be money or
other valuable thing won . . . at any game . . . shall be utterly void.’ ”).
31 Rahmani v. Resorts Int’l Hotel, Inc., 20 F. Supp. 2d 932 (E.D. Va. 1998).
32 Id. at 934.
33 Id. at 933-34.
34 Id. at 935.
35 Id. at 935-36.
36 Id. at 936-37.
37 Id.
38 WIS. STAT. ANN. § 895.055 (West 2001).
39 State v. Gonnelly, 496 N.W.2d 671, 672 (Wis. Ct. App. 1992).
40 Id.
41 Id.
42 Id. at 675. In 1997, the Wisconsin legislature amended its Statute of Anne provision, effectively taking specified forms of legal gambling out of the void debt classification.
WIS. STAT. ANN. § 895.055(3). Minnesota has achieved a similar result through case law.
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Many states have adopted the recovery provisions of the Statute of Anne.43 These states allow a gambler to recover losses typically within three to six months of the date of the wager.44 Some
states have also adopted the third party recovery provisions of the
Statute of Anne, allowing any person to sue in place of the loser if
the loser does not sue within the permitted period.45 Often, the
third party is allowed to recover treble damages; however, the
state may require one-half of the recovery be given to the government or to a specific fund, such as the county educational fund, as
was required by the Statute of Anne.46
In only a few recent cases has a plaintiff, either the debtor or
a third party, sued to recover gambling losses pursuant to the
Statute of Anne; most of these cases have been in South Carolina.
Between 1991 and 2000, video poker machines were legal in South
Carolina.47 These machines were the basis for several successful
suits for recovery under the South Carolina recovery provision,
which “varies very little in substance” from the original Statute of
Anne.48 These lawsuits addressed four main issues: 1) the correct
In State v. Stevens, 495 N.W.2d 513 (Minn. Ct. App. 1999), the appellate court dismissed
the prosecution of theft by check, based on checks written to purchase pool tabs. The court
stated, “Because Stevens’ checks were void as to the saloon and the youth hockey association, a designated recipient of pull tab proceeds, it was legally impossible for Stevens to
defraud them. Legal impossibility is a defense to the substantive crime with which Stevens
was charged.” Id. at 515.
43 E.g., ALA. CODE § 8-1-150 (2001); ARK. CODE ANN. § 16-118-103 (Michie 2001);
CONN. GEN. STAT. § 52-553 (1991); D.C. CODE ANN. § 16-1702 (2001); GA. CODE ANN. § 13-83(b) (2001); KY. REV. STAT. ANN. § 372.020 (Banks-Baldwin 2001); MD. ANN. CODE art. 27,
§ 243 (2001); MASS. GEN. LAWS ANN. ch. 137, § 1 (West 2001); MICH. COMP. LAWS § 750.315
(2001); MISS. CODE ANN. § 87-1-5 (1991); MO. ANN. STAT. § 434.030 (West 1992); MONT.
CODE ANN. § 23-4-131 (2001); N.J. STAT. ANN. § 2A:40-5 (West 2001); N.M. STAT. ANN. § 445-1 (Michie 2001); OHIO REV. CODE ANN. § 3763.02 (West 2001); OR. REV. STAT. § 30.740
(1999); S.C. CODE ANN. § 32-1-10 (Law. Co-op. 2001); S.D. CODIFIED LAWS § 21-6-1 (Michie
2001) (In 1990, South Dakota modified its law so that § 21-6-1 did “not apply to authorized
gaming and lotteries.” S.D. CODIFIED LAWS § 42-7B-55 (Michie 2001)); TENN. CODE ANN.
§ 28-3-106 (2001); VA. CODE ANN. § 11-15 (Michie 2001) (a Virginia court has stated this
section is to be liberally interpreted concerning gambling. McIntyre v. Smyth, 62 S.E. 930
(Va. 1908)); W. VA. CODE § 55-9-2 (2001).
44 E.g., ALA. CODE § 8-1-150 (six months); ARK. CODE ANN. § 16-118-103 (ninety days
or three months); CONN. GEN. STAT. ANN. § 52-554 (West 1991) (three months); D.C. CODE
ANN. § 16-1702 (three months); GA. CODE ANN. § 13-8-3(b) (six months); KY. REV. STAT.
ANN. § 372.020 (five years); MASS. GEN. LAWS ANN. ch. 137, § 1 (three months); MICH.
COMP. LAWS § 750.315 (three months); N.J. STAT. ANN. § 2A:40-5 (six months); OHIO REV.
CODE ANN. § 3763.02 (six months); S.C. CODE ANN. § 32-1-10 (three months); S.D. CODIFIED
LAWS § 21-6-1 (six months); TENN. CODE ANN. § 28-3-106 (ninety days or three months); VA.
CODE ANN. § 11-15 (three months); W. VA. CODE § 55-9-2 (three months).
45 E.g., D.C. CODE ANN. § 16-1702; GA. CODE ANN. § 13-8-3; KY. REV. STAT. ANN.
§ 372.040; N.J. STAT. ANN. § 2A:40-6; OHIO REV. CODE ANN. § 3763.04.
46 E.g., D.C. CODE ANN. § 16-1702; KY. REV. STAT. ANN. § 372.040.
47 The state referendum banning video poker machines as of July 1, 2000, was upheld
by the South Carolina Supreme Court in Joytime Distributors and Amusement Co. v. State,
528 S.E.2d 647 (S.C. 1999). For a discussion of the legal debate surrounding video poker
machines in South Carolina, see Harriet P. Luttrell, Video Poker: A Survey of Recent Developments Surrounding the Legal and Moral Debate, 51 S.C. L. REV. 1065 (2000).
48 Berkebile v. Outen, 426 S.E.2d 760, 763 (S.C. 1993).
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burden of proof;49 2) how to apply the statute of limitations;50 3)
whether a party suing in place of a losing gambler was acting in a
collusive fashion;51 and 4) whether the Video Games Machines Act
impliedly repealed the Statute of Anne remedies.52
In Rorrer v. P.J. Club, Inc.,53 the South Carolina Court of Appeals upheld a jury verdict awarding over twenty thousand dollars
to the husband of a compulsive gambler.54 The trial judge had also
awarded treble damages pursuant to a South Carolina statute.55
The basic issue on appeal was whether the trial court correctly
applied the preponderance of the evidence standard in awarding
treble damages, instead of the more difficult clear and convincing
evidence standard.56 The appellate court affirmed, concluding
that the higher standard was unnecessary because the purpose of
the statute was to protect the family of the compulsive gambler.57
The issue regarding application of the statute of limitations
was addressed in Ardis v. Ward.58 In that case, the plaintiff, Bill
Ardis, sued for actual damages plus treble damages on behalf of
Delores Ardis, who lost a total of nearly thirty thousand dollars
over ninety-three different occasions on the defendant’s video
poker machines.59 Each individual loss exceeded the statutory
loss-limit of fifty dollars.60 Mr. Ardis sued because the statute of
limitations on Delores’s action had run after three months.61 The
supreme court remanded the case and allowed Mr. Ardis to pursue
Rorrer v. P.J. Club, Inc., 556 S.E.2d 726 (S.C. Ct. App. 2001).
Ardis v. Ward, 467 S.E.2d 742 (S.C. 1996).
Mullinax v. J.M. Brown Amusement Co., 485 S.E.2d 103 (S.C. Ct. App. 1997), aff’d,
508 S.E.2d 848 (S.C. 1998).
52 Justice v. The Pantry, 496 S.E.2d 871 (S.C. Ct. App. 1998), aff’d, 518 S.E.2d 40 (S.C.
1999). The South Carolina Statute of Anne-type remedies provide:
49
50
51
In case any person who shall lose such money or other thing as aforesaid shall not,
within the time aforesaid, really and bona fide and without covin or collusion sue
and with effect prosecute for the money or other things so by him or them lost and
paid and delivered as aforesaid, it shall be lawful for any other person, by any such
action or suit as aforesaid, to sue for and recover the same and treble the value
thereof . . . .
S.C. CODE ANN. § 32-1-20 (Law. Co-op. 2001).
53 556 S.E.2d 726.
54 Id. at 730.
55 Id. at 728 n.2.
56 Id. at 730.
57 Id. at 731.
58 467 S.E.2d 742 (S.C. 1996); accord Montjoy v. One Stop of Abbeville, Inc., 478
S.E.2d 683 (S.C. 1996).
59 Ardis, 467 S.E.2d at 743.
60 Id.
61 Id. The South Carolina recovery provision provides:
Any person who shall . . . lose to any person or persons so playing or betting, in the
whole, the sum or value of fifty dollars[, can sue] within three months . . . [to]
recover the money or goods so lost and paid or delivered or any part thereof from
the respective winner or winners thereof, with costs of suit . . . .
S.C. CODE ANN. § 32-1-10 (Law. Co-op. 1991).
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the claim because a third party suit is not limited by the three
month period.62
In Mullinax v. J.M. Brown Amusement Co.,63 the South Carolina appellate court reversed a trial court’s dismissal of a wife’s
attempt to recover for her husband’s gambling debts.64 The trial
court dismissed the action because it found the suit was “brought
in a collusive fashion,” in violation of the South Carolina third
party recovery statute.65 The appellate court explained that the
statute’s intent was to prevent the gambler from receiving some
benefit from the suit.66 However, Mrs. Mullinax’s situation was
exactly what the statute intended to address: the financial ruin of
a family due to the compulsive gambling of one spouse.67 The fact
that Mr. Mullinax helped his wife prepare for the suit by providing information and documentation did not overcome this policy
and make the suit collusive.68
In Justice v. The Pantry,69 the plaintiff filed lawsuits for the
recovery of gambling debts incurred by his mother and sister at
video poker machines.70 The appellate court reversed the trial
court’s decision that the Video Games Machines Act impliedly repealed the recovery statutes.71 Similarly, in McCurry v. Keith,72
the appellate court concluded that recovery of losses was allowed,
irrespective of the legality of the gambling.73 Interestingly, a subsequent appellate decision in the case reduced the plaintiff’s recovery, using her winnings as a set off.74
Not all states have legislation mirroring the Statute of Anne.
For instance, North Carolina has no statute that allows losers to
sue to recover gambling losses.75 In State v. Hair,76 the North CarArdis, 467 S.E.2d at 744.
485 S.E.2d 103 (S.C. Ct. App. 1997), aff’d, 508 S.E.2d 848 (S.C. 1998).
Mullinax, 485 S.E.2d at 104.
Id. at 105.
Id. at 106.
Id. at 107.
Id. On remand, the jury took less than two hours to reach a verdict in favor of the
defense. It seems that the jury refused to believe that the gambler had the seventy thousand dollars he claimed to have lost. See Video Gambling Company Wins Losses Lawsuit,
POST & COURIER (Charlston, S.C.), Jan. 31, 1999, at B3.
69 496 S.E.2d 871 (S.C. Ct. App. 1998), aff’d, 518 S.E.2d 40 (S.C. 1999).
70 Justice, 496 S.E.2d at 872.
71 The South Carolina Supreme Court declined to review the appellate court’s decision
that the Video Games Machines Act did not impliedly repeal S.C. CODE ANN. § 32-1-20—
South Carolina’s State of Anne provisions. Justice v. The Pantry, 518 S.E.2d 40, 41 n.1
(S.C. 1999).
72 439 S.E.2d 861 (S.C. Ct. App. 1994).
73 Id. at 862.
74 McCurry v. Keith, 481 S.E.2d 166 (S.C. Ct. App. 1997) (setting off the plaintiff’s
recovery by $5,000, from $8,560 to $3,560).
75 State v. Hair, 442 S.E.2d 163, 166 (N.C. Ct. App. 1994) (“Furthermore, one who
pays a gambling debt owed to another, may not subsequently attempt to recover that which
he has paid.”).
76 Id. at 163.
62
63
64
65
66
67
68
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olina Court of Appeals overturned a portion of a criminal judgment requiring a defendant convicted of bribery to make
restitution in the amount of a gambling debt.77 The court noted
that because North Carolina had no provision for civil recovery, a
restitution order was inappropriate.78
B. States with State-Licensed Casinos
Nevada, New Jersey, Michigan, and Puerto Rico have large,
land-based casinos,79 while Colorado and South Dakota have
small-scale, land-based casino operations.80 Iowa, Indiana, Illinois, Mississippi, and Missouri have legalized riverboat gambling.81 Louisiana has both land-based and riverboat casinos.82
Every state has developed its own body of law to balance the historical public policy against gambling with the practical need for
legal businesses to be able to recover on credit instruments. This
section discusses the bodies of law that have developed in several
of the states that have legalized casino gambling.
1. States With Large Land-Based Casinos
a. Nevada
Nevada legalized gambling in 1931,83 but it did not legalize
the enforcement of gambling debts until 1983.84 During the intervening fifty-two years, its courts wrestled with issues related to
the Statute of Anne. For instance, in 1950, a casino sued a
debtor’s estate to collect eighty-six thousand dollars in unpaid
checks relating to gambling debts.85 The court considered whether
the affirmative defense of unenforceability of gambling debts was
still valid in light of the case law since 1872.86 The court recognized that gambling conditions in Nevada had changed,87 and analyzed the relevance of the Statute of Anne to Nevada law.88 It
noted that while portions of the Statute of Anne were clearly inapId. at 164.
Id. at 165-66.
AM. GAMING ASS’N, STATE OF THE STATES: THE AGA SURVEY OF CASINO ENTERTAINMENT, Economic Impact, available at http://www.americangaming.org/survey2001/economic_impact/TMP971869896.htm [hereinafter AGA SURVEY]; Welcome to Puerto Rico,
Tourist Information, at http://welcome.topuertorico.org/tinfo.shtml (last visited Mar. 22,
2002).
80 AGA SURVEY, supra note 79.
81 NGISC FINAL REPORT, supra note 12, at 2-7. Although Michigan, Indiana, and Illinois have casinos, the author could not find any reported litigation concerning the enforcement of gambling debts in these states.
83 Id.
84 1983 NEV. STAT. § 335, now codified as NEV. REV. STAT. § 463.368 (2001).
85 West Indies, Inc. v. First Nat’l Bank of Nev., 214 P.2d 144, 145 (Nev. 1950).
86 Id. at 146 (citing Scott v. Courtney, 7 Nev. 419 (Nev. 1872)).
87 West Indies, 214 P.2d at 149.
88 Id. at 151-54.
77
78
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plicable to contemporary Nevada law, this did not necessitate invalidating the entire statute unless the provisions were nonseverable.89 Prior case law had deemed section 1 of the Statute of
Anne the law of Nevada,90 and the court concluded that this section could be severed from the other outdated portions of the Statute of Anne.91 Furthermore, the legalization of gaming in 1931,
and subsequent legislation, did not repeal by implication the first
section of the Statute of Anne.92
Today, Nevada enforces gambling debts when credit instruments, such as markers or checks, are cashed at a casino.93 The
Nevada legislature made this change for two reasons. First, the
gaming collection rate, generally about ninety-five percent, had
“dipped below 90% for the first time in history.”94 Second, Nevada
lost a major case regarding taxation of gaming debts “removing
[the] benefit of having gaming debts remain unenforceable.”95 The
Ninth Circuit ruled that unpaid casino receivables should be
treated and taxed as income, even though the debts were legally
unenforceable.96
Under recent laws, a casino may enforce gambling debts by
immediately filing suit on any enforceable credit instrument and
the underlying debt.97 While regulations for the issuing of credit
to a patron are stringent, failure to follow the regulations does not
invalidate the credit instrument.98 Rather, such violations result
in disciplinary action by the Gaming Control Board.99 An example
of a credit instrument is a marker signed by the patron, which
may be undated and issued to a nonaffiliated company “so that the
Id.
Id.
91 Id.
92 Id.
93 LIONEL SAWYER & COLLINS, NEVADA GAMING LAW 245 (Anthony N. Cabot ed., 2d ed.
1995) [hereinafter NEVADA GAMING LAW].
94 Id. at 246.
95 Flamingo Resort, Inc. v. United States, 664 F.2d 1387, 1390-91 (9th Cir. 1982).
96 Id.
97 NEVADA GAMING LAW, supra note 93, at 248.
98 Anthony N. Cabot, Casino Collection Lawsuits: The Basics, GAMING LAW REVIEW
vol. 4 No. 4, at 325 (2000).
99 Id. Violation of the laws or regulations concerning debt collection practices are
taken very seriously by the Nevada Gaming Control Board. In August 1998, the Board
fined the Mirage Hotel and Casino, alleging that it violated South Korean law. The Mirage
collected over five hundred thousand dollars from Korean gamblers in violation of a Korean
law which required government permission to take over ten thousand dollars from South
Korea. Mirage, Tropicana Pay Off Fines, LAS VEGAS REV.-J., Aug. 21, 1998, at 2D. The
Mirage paid a $350,000 fine and agreed to “develop written policies on the collection of
Korean debts, in consultation with lawyers in that country.” Id. Litigation by the woman
who collected the money, and who claims she was wrongfully terminated by the Mirage,
was not settled until August 2001. Dave Berns, Fired Marketing Executive Settles with
MGM Mirage, LAS VEGAS REV.-J., Aug. 8, 2001, at 1D.
89
90
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patron does not have to expose his gaming to his banker or
spouse.”100
The casinos have an additional weapon to use against patrons
who refuse to pay their debts: the unpaid markers may be handed
over to the district attorney for possible criminal prosecution.101
One Illinois debtor, who owed fifty thousand dollars in markers,
pled guilty after being extradited to Nevada and “agreed to make
restitution.”102 Another gambler from Texas escaped prosecution
only by filing bankruptcy.103
In Nguyen v. State,104 the Nevada Supreme Court denied relief to a gambling debtor accused of criminal conduct for violating
Nevada’s bad check law.105 Nguyen signed markers at three casinos, then left Nevada without paying the debts incurred.106 Eventually, he entered a plea agreement whereby he pled guilty to
passing a bad check, but reserved the right to appeal the issue of
whether Nevada’s bad check law applied to casino markers.107
The appellate court had little difficulty concluding that the
marker was the equivalent of a check.108 It rejected Nguyen’s contention that a marker was not a check, but instead, a written reflection of a loan agreement.109 The court also found that “intent
to defraud was circumstantially demonstrated by his failure to
pay the full amount due within the statutory period, and by the
return of the instruments from his bank with the notation ‘Account Closed.’ ”110
Eight months prior to Nguyen, a federal district court reached
the same result. In Fleeger v. Bell,111 a gambler accumulated a
Nevada debt of over $180,000 in unpaid markers, and was eventuSee NEVADA GAMING LAW, supra note 93, at 252.
In Clark County, Nevada, a casino can refer “dishonored Markers” to the “Bad
Check Collections Unit (‘BCU’) of the District Attorney’s Office in Clark County, Nevada.
The BCU is a diversionary program, designed to encourage individuals who wrote bad
checks to pay them because of the threat of prosecution without actually incarcerating
them.” Desert Palace, Inc. v. Baumblit, Nos. 00-5058, 00-5064, 2001 U.S. App. LEXIS
17683, at *6 (2d Cir. Aug. 6, 2001). In Desert Palace, the casino referred the unpaid markers to the BCU after the debtor filed for bankruptcy. The United States Court of Appeals
affirmed a district court order that Caesars had acted improperly and its “actions constituted a deliberate violation of the automatic stay, entitling Baumblit to actual damages.”
Id. at *14.
102 John G. Edwards, Prosecutors Pursue Bad Casino Markers, Unpaid Gambling
Debts Are the Same As Worthless Checks in the Eyes of the District Attorney’s Office, LAS
VEGAS REV.-J., July 28, 1997, at 2D.
103 Id.
104 14 P.3d 515, 520 (Nev. 2000).
105 Id. at 516.
106 Id. at 517.
107 Id.
108 Id. at 518.
109 Id.
110 Id. at 519.
111 95 F. Supp. 2d 1126, 1128 (D. Nev. 2000).
100
101
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ally arrested in Texas.112 He later filed a class action complaint
alleging that the markers were “IOUs,” rather than negotiable
checks.113 The judge disagreed and granted the defendant’s motion to dismiss.114 On appeal, the Court of Appeals for the Ninth
Circuit gave significant weight to the intervening Nevada Supreme Court conclusion in Nguyen that a marker is a check, and
affirmed the district court decision.115
There is a major distinction between a casino suing on a
credit instrument and a patron’s contractual claim against a casino. Patrons who wish to file suit against a casino must first proceed via an administrative hearing.116 This distinction is based on
both practical and historical concerns. Should a patron claim that
a casino owes him money, the Gaming Control Board “with its specialized knowledge of the gaming industry, can better judge the
evidence.”117
b. New Jersey
Prior to New Jersey’s legalization of casinos in 1976,118 its
courts had to determine whether gambling debts legally incurred
in another jurisdiction were enforceable. The New Jersey Supreme Court faced this question in Caribe Hilton Hotel v. Toland,119 and held that gambling debts incurred at a licensed and
regulated Puerto Rican casino could be enforced against a New
Jersey resident.120 The court recognized a long-standing hostility
by New Jersey courts toward the enforcement of gambling
debts.121 However, it noted that the subsequent legalization of
Id.
Id. at 1129.
Id. at 1133. Fleeger’s complaint alleged violations of the Fair Debt Collection Practices Act, common law false arrest, and various civil rights violations, as well as violation of
Nevada gaming regulations. Id. at 1129.
115 Fleeger v. Bell, No. 00-15942, 2001 U.S. App. LEXIS 25491, at *7 (9th Cir. Nov. 26,
2001).
116 See NEVADA GAMING LAW, supra note 93, at 245.
117 Id.
119 307 A.2d 85 (N.J. 1973).
120 Id. at 89.
121 Id. at 86. During the nineteenth and twentieth centuries, New Jersey public policy
“condemned gambling.” The court stated:
By a comprehensive statute enacted February 8, 1797, gaming in all forms was
declared to be an indictable offense; contracts and security arrangements having
their origin in any form of gambling were declared void; money paid by a loser to a
winner might be recovered in an action in debt and if the loser failed to sue, a third
person might do so and if successful retain one-half the recovery, the balance to
pass to the State. The plaintiff in such an action might have the aid of a court of
equity to compel discovery under oath.
Id. (citations omitted). New Jersey law has retained both the provision voiding gambling
debts and the debt recovery provision of the Statute of Anne. The code provides that, “[a]ll
wagers, bets or stakes made to depend upon any race or game, or upon any gaming by lot or
chance, or upon any lot, chance, casualty or unknown or contingent event” are unlawful in
112
113
114
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bingo and lotteries, and sister-state judicial decisions, which recognize such debts, evidenced a change in New Jersey public policy
that no longer allowed the state to bar recovery of a legal gambling debt incurred in another jurisdiction.122 The court reasoned
that differences in states’ policies “should not be considered sufficient to lead a forum court to deny relief where a claim is based
upon the divergent law of . . . [an]other jurisdiction.”123
After the legalization of casinos, the New Jersey courts confronted questions related to the liability of casinos to patrons
when a casino had breached a statutory duty. In GNOC Corp. v.
Aboud,124 the plaintiff casino sued a gambler for twenty-eight
thousand dollars in unpaid gambling debts.125 The gambler counterclaimed for losses of $250,000 plus punitive damages, alleging
that the casino encouraged him to lose money by serving him alcohol.126 New Jersey has a dram-shop statute, which imposes liability on certain entities that serve alcohol to intoxicated
individuals.127 The casino filed two summary judgment motions
arguing that, as a matter of law, the casino is not responsible for
the employees who served Aboud while he was intoxicated.128 In
denying summary judgment, the court stated:
In sum, a casino has a duty to refrain from knowingly permitting an invitee to gamble where that patron is obviously and
visibly intoxicated and/or under the influence of a narcotic substance. Here there are allegations of patent and overt inebriety
coupled with the consumption of a powerful narcotic medication
prescribed by physicians summoned by and paid for by the casino itself. While under the influence of drugs or alcohol, one
suffers a deficit, to varying degrees, of cognitive faculties such
as the power to reason sensibly, to appreciate the danger of activities engaged in, and/or to exercise sound judgment.129
One issue mentioned in a footnote in Aboud, but not fully discussed,130 was whether a violation of the New Jersey Casino Control Act131 by a casino should permit a private cause of action by a
gambler. In Miller v. Zoby,132 a debtor’s estate sued a casino junNew Jersey. N.J. STAT. § 2A:40-1 (2001). Furthermore, any person who loses any money or
goods resulting from a violation of § 2A:40-1, may file a civil action and sue to recover the
money or goods paid out to the winner within six months after payment. N.J. STAT. ANN.
§ 2A:40-5.
122 Toland, 307 A.2d at 89.
123 Id.
124 715 F. Supp. 644 (D.N.J. 1989).
125 Id. at 648.
126 Id.
127 Id. at 653-54 (citing N.J. ADMIN. CODE tit. 19, § 50-1 (1988)).
128 Aboud, 715 F. Supp. at 646.
129 Id. at 655.
130 Id. at 653 n.130.
131 N.J. STAT. §§ 5:12-1 to -190 (2001).
132 595 A.2d 1104 (N.J. Super. Ct. App. Div. 1991).
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ket operator for having improperly extended credit, resulting in
gambling losses totaling $267,000.133 The court dismissed for failure to state a claim upon which relief could be granted.134 Upon
appellate review of the dismissal, the court concluded that “the
Legislature was satisfied to rely on the elaborate regulatory sanctions provided in the Act and not on private enforcement to police
the general credit practices of the casinos. ‘The key to the inquiry
is the intent of the Legislature.’ ”135
The decision in Aboud, which allowed a private right of action
against a casino for the breach of a statute, and the decision in
Miller, which did not allow a private right of action for the breach
of a different statute, both required clarification regarding which
statutes could give rise to a private right of action. Greate Bay
Hotel & Casino v. Tose136 explained and attempted to reconcile
these two cases.
In Tose, the casino sued for unpaid gambling debts totaling
over one million dollars, and Tose counterclaimed to recover over
three million dollars which he claimed to have lost between 1983
and 1987, while gambling in Atlantic City.137 The counterclaim
relied on Aboud, alleging that the casino continued to serve him
alcohol after he was clearly intoxicated.138
The district court granted the casino’s motion for summary
judgment, holding the casino could recover its damages in full.139
On Tose’s counterclaim, the court held that he could recover under
his theory, but that he was limited to those losses that were incurred within the six-year statute of limitations.140 In response,
the casino argued that because Tose was an overall winner during
those six years, he should be barred from recovering at all.141 The
court did not agree.142 It concluded that the application of such a
“net winner theory” would produce inequitable results.143 As a result, only Tose’s counterclaim remained for trial by a jury.144 The
jury was instructed “to make separate findings of liability for each
Id.
Id. at 1106.
Id. at 1108 (quoting Middlesex City Sewerage Auth. v. Sea Clammers, 453 U.S. 1,
13 (1981)).
136 34 F.3d 1228 (3d Cir. 1994). At a congressional hearing, Tose estimated his gambling losses at between forty to fifty million dollars. Laurence Arnold, Telling of $50M
Losses, Ex-Eagles Owner Rocks Gambling Panel, RECORD (Northern N.J.), July 1, 1999, at
L7.
137 Tose, 34 F.3d at 1228.
138 Id.
139 Id. at 1229.
140 Id.
141 Id.
142 Id.
143 Id.
144 Id.
133
134
135
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of seven dates on which Tose allegedly gambled while visibly intoxicated and lost money.”145
At the first trial, the jury found for the casino on four dates,
but it could not reach a unanimous verdict on the other three, and
declared a mistrial regarding those dates.146 At the second trial,
the casino was successful.147 Interestingly, the trial court hinted
that, but for Aboud, it would have granted the casino’s motion for
summary judgment because New Jersey law did not permit a private cause of action for a gambler in this area.148 Tose filed an
appeal pro se.149
On appeal, the casino argued that in light of the decision in
Miller, Aboud should be reexamined.150 Nevertheless, the court
determined that Miller and Aboud are not inconsistent; while
Miller established that no private cause of action exists for violations of the Casino Control Act, Aboud established that a cause of
action is permitted when there is another statute upon which to
rely.151 The intent of the legislature to impose liability in the latter case was clear because the legislature had addressed the issue
specifically.152
Aboud, Miller, and Tose were also relied upon in a tort case.
In Hakimoglu v. Trump Taj Mahal Associates,153 the debtor sued
in tort to recover over two million dollars in gambling debts, alleging he was visibly intoxicated at the time he gambled in the defendant’s casino.154 The defendant counterclaimed for seven hundred
thousand dollars in unpaid counterchecks and moved to dismiss
the plaintiff’s claim, alleging that New Jersey law did not permit
145 Id. (quoting Tose v. Greate Bay Hotel & Casino, Inc., 819 F. Supp 1312, 1314
(D.N.J. 1993)).
146 Tose, 34 F.3d at 1229.
147 Id.
148 Tose, 819 F. Supp. at 1316-1317. The court held that the case was controlled by
Aboud, stating:
The court acknowledges that Aboud is the law of this case and that pursuant to
the law of the case doctrine the issue will not be relitigated . . . . To the extent that
the Aboud cause of action is viewed as implied by the regulation limiting service of
alcohol to inebriated patrons, or by any other statute or regulation governing casino operations, it runs afoul of the general notion that private causes of action are
not ordinarily implied from regulatory enactments absent some indication of legislative intent . . . . The New Jersey Appellate Division has already ruled that even a
direct casino violation of the Casino Control Act does not create a private right of
action The case for an implied cause of action is even weaker where, as here, there
is no direct regulation barring the conduct which is alleged to create liability –
permitting an inebriated patron to gamble.
Id. at 1316 n.8 (citations omitted).
149 Tose, 34 F.3d at 1235 n.13.
150 Id. at 1232 n.7.
151 Id.
152 Tose, 819 F. Supp. at 1316 n.8.
153 876 F. Supp. 625, 627 (D.N.J. 1994), aff’d, 70 F.3d 291 (3d Cir. 1995). The complaint alleged negligence, intentional or malicious conduct, and unjust enrichment which
the “plaintiff . . . [had] collapsed . . . into a single theory of dram-shop liability.” Id. at 629.
154 Id. at 627.
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such a cause of action.155 The defendant also moved to strike the
plaintiff’s affirmative defense of intoxication.156 After considering
the cases discussed above, the court stated that neither dram-shop
liability, nor the Casino Control Act, supported an implied tort
law cause of action for recovery of gambling losses incurred while
intoxicated.157 The Court of Appeals for the Third Circuit affirmed
the dismissal and stated, “[W]e predict that the New Jersey Supreme Court would not permit recovery on claims such as those
asserted by the plaintiff . . . . ”158
c. Puerto Rico
Like Nevada and New Jersey, Puerto Rico has legal, regulated casinos.159 Puerto Rico is also similar to Nevada and New
Jersey in that it allows the enforcement of legally incurred gambling debts through court actions. In Puerto Rico, a “person who
loses in a game or a bet which is not prohibited is civilly liable.”160
Civil recovery of a gambling debt is limited in Puerto Rico by the
“good father” principle, which was originally found in the Spanish
Code.161 Puerto Rico does not allow any type of action to recover
winnings or debts in games of chance that are not legal within the
territory.162 Nevertheless, a person may recover bets on illegal
games if there is evidence of fraud or the debtor is a minor or
incapacitated.163
In Posadas de Puerto Rico, Inc. v. Radin,164 a gambler appealed from summary judgments entered against him in two legally and factually similar cases. The gambler received fifteen
thousand dollars in credit from each of two hotel casinos, and the
casinos sued when the gambler refused to pay the debts.165 The
court affirmed the lower court decision, which awarded the two
casinos thirty thousand dollars plus collection expenses.166
Id. at 627, 629.
Id. at 637.
157 Id. at 631. Judge Rodriguez issued an order denying motion for reargument on May
11, 1992. Id. at n.4.
158 Hakimoglu, 70 F.3d at 294. The dissent argued, “From New Jersey’s perspective,
requiring casinos to protect gamblers from losses flowing from their excessive service of
alcohol would probably also be in the public interest.” Id. at 298. New Jersey would likely
recognize a cause of action against a casino. Id. at 299.
159 Welcome to Puerto Rico!, Tourist Information, at http://welcome.topuertorico.org/
tinfo.shtml (last visited Mar. 22, 2002).
160 31 P.R. LAWS ANN. § 4774 (1991).
161 Id. The “good father” principle allows a trial court to reduce or eliminate the debt if
it is more than a good father could pay. Id.
162 Id. § 4771.
163 Id.
164 856 F.2d 399, 400 (1st Cir. 1988).
165 Id.
166 Id.
155
156
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In his appeal, the gambler advanced two arguments. First, he
argued the judgments should be overturned because the trial
court judge did not conduct evidentiary hearings to determine
whether the gambler’s debts should be reduced under the good father defense.167 The court concluded that the appellant did not
present any issues at the summary judgment hearing that were
not considered by the trial court, and an evidentiary hearing is not
mandated when the only remaining issue is an issue of law for the
court to decide.168 The court also pointed out that the parties
brought the good father defense to the trial judge’s attention on
two different occasions, and the judge had expressly rejected the
defense as meritless.169
The gambler’s second argument was that genuine issues of
material fact existed as to whether the gambler was under duress
when he signed the markers.170 The court rejected this argument
because the only evidence supporting it was an affidavit stating
that the gambler was forced to sign the credit agreements.171 The
court held that the language of the affidavit was too vague and
conclusory to successfully oppose the motions for summary judgment.172 Therefore, it appears that Puerto Rico will enforce legally
incurred gambling debts, and the Court of Appeals for the First
Circuit will uphold state or territorial laws that allow for the enforcement of gambling debts.
2. States With Small Scale, Land-Based Casinos
a. Colorado
Colorado allows gambling in three historic mining towns.173
The amount of any single wager, however, is limited to five dollars, and it only allows three types of casino games: poker, blackjack, and slot machines.174 This limited gambling was authorized
by the voters in a constitutional amendment initiated and passed
by Colorado citizens.175 Other forms of limited gambling are also
permitted, including charitable bingo games or raffles,176 a state
Id.
Id.
Id.
Id. at 401.
Id.
Id.
The Colorado Division of Gaming, Colorado Department of Revenue, Colorado
Gaming Questions and Answers, at http://www.gaming.state.co.us/dogfaq.htm (last visited
Mar. 22, 2002).
174 Id.
175 INTERNATIONAL CASINO LAW 17 (Anthony N. Cabot et al. eds., 3d ed. 1999) [hereinafter INT’L CASINO LAW].
176 COLO. REV. STAT. § 12-9-105 to -107 (2001); Colorado Department of Revenue,
Other Colorado Wagering Activities, at http://www.gaming.state.co.us/ (last visited Mar.
26, 2002).
167
168
169
170
171
172
173
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lottery,177 and horse and dog racing.178 Colorado prohibits casinos
from extending credit to players.179
Unlike many states that invalidate gaming debts pursuant to
the Statute of Anne, Colorado depends on nineteenth century case
law that prohibits enforcement actions because they are a waste of
judicial resources.180 Nevertheless, more recent case law indicates
that enforcement may be possible for legally incurred “social”
gaming debts. In Houston v. Younghans,181 the Colorado Supreme
Court was asked to enforce a debt arising from a poker game between friends.182 Such social gambling is specifically excluded
from Colorado’s gambling prohibition.183 The court found that, because the debt was not incurred as part of “professional” gambling
under Colorado law, the debt was enforceable.184
b. South Dakota
South Dakota began allowing limited casino gaming in the
town of Deadwood in November 1989; by 2001, there were forty
operating casinos.185 Blackjack, poker, and slot machines are the
only forms of gaming that are legal,186 and the state limits the
amount of any single bet to one hundred dollars.187 South Dakota
also established strict controls on check cashing at casinos,188 and
does not allow casinos or casino employees to extend credit for
gambling.189
With the exception of debts incurred for authorized gaming
and lotteries, gambling debts remain void.190 In Bayer v. Burke,191
the court interpreted the statute narrowly when it granted summary judgment on behalf of a bettor who signed promissory notes
177
The Colorado Lottery, at www.coloradolottery.com/home.cfm (last visited Mar. 26,
2002).
178 COLO. REV. STAT. § 12-47.1-815 (2002); COLO. REV. STAT. § 12-60-510 (1996); Colorado Division of Racing Events, Colorado Department of Revenue, at http://
www.state.co.us/gov_dir/revenue_dir/racing_dir/coracing.html (last visited Mar. 26, 2002).
179 INT’L CASINO LAW, supra note 175.
180 Eldred v. Malloy, 2 Colo. 320, 321-22 (1874) (“The courts of this territory have
enough to do without devoting their time to the solution of questions arising out of idle bets
made on dog and cock fights, horse races, the speed of ox trains, the construction of railroads, the number on a dice or the character of a card that may be turned up.”).
181 580 P.2d 801 (Colo. 1978).
182 Id.
183 COLO. REV. STAT. § 18-10-102(2)(d); Younghans, 580 P.2d at 802-03.
184 Younghans, 580 P.2d at 803.
186 Commission on Gaming, South Dakota Department of Commerce and Regulation,
Frequently Asked Questions, at http://www.state.sd.us/dcr/gaming/frequent.htm (last visited Mar. 22, 2002). This restriction also applies to the state’s nine Native American casinos. Id.
187 S.D. CODIFIED LAWS § 42-7B-14 (Michie 2001).
188 S.D. ADMIN. R. 20:18 app. A § 525 (2002).
189 S.D. CODIFIED LAWS § 42-7B-45.
190 Id. §§ 42-7B-47, 53-9-2.
191 338 N.W.2d 293, 293-94 (S.D. 1983).
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for over two hundred thousand dollars.192 The creditor argued
that the consideration for the notes was not a wager, but instead
was an agreement not to sue the bettor on outstanding debts for
other losses; the court did not agree.193 The court reasoned that,
while forbearance of suit is adequate consideration, the
threatened suit concerned a contract that was void because the
sole basis of the contract was gambling.194
Along with voiding all gambling debts, South Dakota law also
continues to retain recovery provisions similar to section 2 of the
Statute of Anne. Gamblers can recover gambling losses from the
person with whom the bet was made, or from the proprietor of the
place where the bet was made, if the gambler pursues a cause of
action within six months.195 If the gambler does not pursue an
action within six months, the state’s attorney will pursue an action for the benefit of the gambler’s spouse and children, or if the
gambler is not married, for the benefit of the public schools.196
These recovery provisions do not apply to losses incurred in authorized casinos.197
3. States With Casinos Connected to Water
a. Iowa
In 1989, Iowa legalized riverboat casinos on navigable waters,198 and now has ten riverboat casinos.199 Although personal
checks are lawful for certain forms of gambling, casinos cannot
accept credit cards in exchange for coins, tokens, or any other form
of credit.200 In fact, Iowa law criminalizes the collection of gambling debts.201 Currently, there are no cases in Iowa where attempts have been made to collect gambling debts. Nevertheless, it
is interesting to examine the treatment of credit cards and cash
machines in or near casinos.
Id. at 293.
Id. at 294.
Id.
S.D. CODIFIED LAWS § 21-6-1 (Michie 2001).
Id. § 21-6-2.
Id. § 42-7B-55.
Trudy D. Fountain, Rolling Down the Mississippi From Minnesota to Louisiana and
out the High Seas - Riverboat Gambling and Cruise Ship Gambling, 89 ALI-ABA 79, 82
(2001).
199 Iowa Racing and Gaming Commission, State of Iowa Licensed Facilities, at http://
www3.state.ia.us/irgc/licensees_map2.htm (last modified Dec. 31, 2001). Iowa also has two
greyhound dog racing facilities, one horse racing facility, and three Native American casinos. Id.; Iowa Racing and Gaming Commission, Indian Gaming, at www3.state.ia.us/irgc/
Indian.htm (last visited Mar. 21, 2002).
200 IOWA CODE § 99B.17 (2002); Id. § 99F.9(6).
201 IOWA CODE § 725.18. This section states, “Any person who knowingly offers, gives
or sells the person’s services for use in collecting or enforcing any debt arising from gambling, whether or not lawful gambling, commits an aggravated misdemeanor.” Id.
192
193
194
195
196
197
198
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In November 1998, the Iowa Racing and Gaming Commission
(IRGC) began eliminating cash dispensing credit card machines in
casinos.202 Previously, the legislature had debated a ban on the
machines, but never finalized its decision.203 In order to effectuate
its ruling, the IRGC denied new credit card cash machine contracts and declined to renew existing contracts.204 In January
1999, the IRCG accelerated the process by requiring the removal
of all credit card machines by the end of February 1999.205 Included in this ban were Com-Check machines.206 At that time, the
regulation did not affect Automated Teller Machines in casinos because they gave access to only limited amounts of cash.207
The IRGC’s decision was overturned by a trial judge in January 2000, because “ ‘This court remains convinced the IRGC exceeded its authority by enacting a rule that amended existing
Iowa law . . . .’ The Iowa Legislature had already spoken on the
issue of casino credit and chose to stop short of banning such cash
advances.”208 The judge also noted that the IRGC’s rule would discourage Iowa tourism because gamblers would choose to visit
states with less stringent gambling credit rules.209
b. Mississippi
Mississippi legalized dockside casino gambling in 1990.210 At
common law, all gambling debts were unenforceable.211 However,
Mississippi has passed laws creating two exceptions: patron
claims against casinos and enforcement of proper credit
instruments.
Mississippi has passed laws allowing patrons of licensed casinos to enforce claims against the casino.212 Like Nevada, Mississippi requires the exhaustion of administrative remedies in
virtually every contractual claim by a patron against a casino.213
Robert Dorr, Panel Curtails Cash Advances in Iowa Casinos, OMAHA WORLD-HERNov. 20, 1998, at 1, available at 1998 WL 5527299.
203 Id.
204 Id.
205 Greg Smith, Regulators Restrict Use of Credit at Casinos, ASSOCIATED PRESS, Jan.
22, 1999.
206 Id. These machines scan the gambler’s credit card, the gambler inputs how much
money he or she wanted to spend on gambling tokens, the gambler receives a receipt, and
the receipt could be taken to the teller to receive cash. Id.
207 Dorr, supra note 202.
208 Judge Throws Out ATM Ban in Casinos, ASSOCIATED PRESS NEWSWIRES, Jan. 20,
2000 (quoting Polk County District Judge Robert Hutchinson).
209 Id.
210 Mississippi Gaming Commission, About MGC, History, at http://www.mgc.state.
ms.us/main-about.html (last visited Mar. 22, 2002).
211 Grand Casino Tunica v. Shindler, 772 So. 2d 1036, 1038 (Miss. 2000).
212 MISS. CODE ANN. § 75-76-157 to -165 (2002).
213 Thomas v. Isle of Capri Casino, 781 So. 2d. 125, 127 (Miss. 2001) (upholding, albeit
“reluctantly,” a trial court’s denial of relief to a player who claimed a jackpot); NEVADA
GAMING LAW, supra note 93, at 252.
202
ALD,
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Patrons must first litigate their claims before the Mississippi
Gaming Commission, whose decisions are appeallable to Mississippi state courts.214 Judicial review of Commission decisions is
highly deferential. Courts will uphold any Mississippi Gaming
Commission decision unless: it violates a constitutional provision;
it is outside the Commission’s jurisdiction; it was rendered using
unlawful procedures; no evidence supports the decision; or the decision was arbitrary or capricious.215 The Commission’s violation
of one of these factors must also prejudice a petitioner’s substantial rights.216
Gambling debts evidenced by credit instruments are excluded
from the general unenforceability rule.217 These debts may be enforced directly through Mississippi’s legal process.218 However,
Mississippi courts will only enforce gaming credit instruments if
the extension of credit was proper under the Mississippi Gaming
Commission rules.219 Another interesting feature of Mississippi
law is the “Exclusion List.” This exclusion list is not voluntary,
and the regulations put an affirmative duty on a casino to report
and exclude any person on the list. Thus, a question of casino liability arises when a casino fails to fulfill its statutory duties. All
licensed casinos have a duty “to inform the Executive Director in
writing of the names of the persons such licensee reasonably believes meet the criteria for placement on an Exclusion List.”220
When it is determined that the person is a candidate for exclusion,
a petition is filed.221 Notice must be given to the person to be excluded, who has the opportunity to refute the allegations at a
hearing conducted by the Commission and reviewable by the
courts.222 This list is distributed to all licensed gambling estabMISS. CODE ANN. § 75-76-167 to -173.
Grand Casino Tunica, 772 So. 2d at 1040.
216 Id.
217 MISS. CODE ANN. § 75-76-157 (“gaming debts not evidenced by a credit instrument
are void and unenforceable . . . .”).
218 Id. § 75-76-175.
219 INT’L CASINO LAW, supra note 175, at 88.
220 MISS. GAMING COMM’N REG. III(V)(1). The regulation states:
214
215
The Executive Director may place a person on the exclusion list pending a hearing
if such person has:
(a) Been convicted of a felony in any jurisdiction, of any crime of moral turpitude
or of a crime involving Gaming;
(b) Violated or conspired to violate the provisions of the Act relating to involvement in gaming without required licenses, or willful evasion of fees or taxes;
(c) A notorious or unsavory reputation which would adversely affect public confidence and trust in gaming; or
(d) His name [is] on any valid and current exclusion list from another jurisdiction
in the United States.
Id.
221
222
Id. III(V)(4).
Id.
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lishments, which then have an affirmative duty to eject or exclude
all persons on the list.223
c. Missouri
Missouri voters approved a referendum to legalize riverboat
gambling by a sixty-three percent majority in 1992.224 However,
implementation of the new law was not a smooth process. Critics
pointed out that the new law did not exclude convicted felons from
obtaining gaming licenses, and argued that the Tourism Commission was not the proper agency to promulgate regulations simply
because gambling would presumably be a significant tourist attraction.225 The Missouri Gaming Commission was created in
1993 to address these concerns. After several challenges arising
from the Missouri constitution, Missouri now permits riverboat
gambling, including gambling at casinos built in artificial basins
located within one thousand feet of the Mississippi or Missouri
rivers.226
The original Missouri referendum placed a loss limit of five
hundred dollars per person, per excursion, on wagers placed at
riverboat casinos.227 This provision was codified by the state legislature and became part of the riverboat casino regulations
promulgated by the Missouri Gaming Commission.228 However, a
problem arose with the definition of “excursion,” which was defined as any time “gambling games may be operated on an excursion gambling boat whether docked or during a cruise.”229 Under
this definition, games can be operated continuously on boats that
are permanently docked, circumventing the five hundred dollar
per excursion loss-limit.230 The Commission’s solution was to put
the responsibility back on casinos by requiring licensees to ensure
that gamblers do not lose more than the five hundred dollar
limit.231
Missouri law also allows a person to permanently exclude
oneself from casino gambling.232 If the excluded person enters a
Id. III(V)(1).
Mo. Gaming Comm’n, The History of Riverboat Gambling, at http://www.mgc.state.
mo.us/history.htm (last visited Mar. 22, 2002).
225 Id.
226 Id. (detailing the history of gambling legalization in Missouri, including constitutional challenges, voter referenda, and the development of the “boat in a basin” laws).
227 Id.
228 MO. ANN. STAT. § 313.805 (West 2001); MO. CODE REGS. ANN. tit. 11, § 45-6.040
(2002).
229 Mo. Gaming Comm’n, supra note 224.
230 Id.
231 MO. CODE REGS. ANN. tit. 11, § 45-6.040.
232 MO. ANN. STAT. § 313.813; see also Stephanie S. Maniscalco, Gambling Addict Suits
vs. Casinos Are Foreseen: ‘Self-Exclusion’ Program May Create Duty, 15 MO. LAW. WKLY.
1409 (Dec. 17, 2001) (“The List of Disassociated Persons . . . includes more than 3,500
names.”).
223
224
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casino, that person may be subject to criminal trespass charges.233
Plaintiffs’ lawyers have suggested that if a casino does not catch a
self-excluded person, they may be subject to liability, but this concept has not been tested in Missouri courts.234
Missouri has a modern version of the Statute of Anne whereby
gamblers may recover wagering losses.235 However, there have
been no reported cases in which a gambler has attempted to recover wagers since the legalization of riverboat gambling in 1992,
so it is not clear whether a court will continue to apply the statute
to legal gambling within the state.236 It is clear from the riverboat
gaming statutes that casinos cannot extend credit for the purpose
of gambling. Casinos are not permitted to take anything of value
other than money in exchange for gambling tokens or chips.237 Violation of this provision subjects the casino to a misdemeanor.238
4. Louisiana: The State With Both Land-Based and
Water-Related Casinos
Louisiana law retains elements of Roman law. Specifically,
Louisiana law provides as follows: “The law grants no action for
the payment of what has been won at gaming or by a bet, except
for games tending to promote skill in the use of arms, such as the
exercise of the gun and foot, horse and chariot racing.”239 The Louisiana statute goes on to say, “In all cases in which the law refuses
an action to the winner, it also refuses to suffer the loser to reclaim what he has voluntarily paid, unless there has been, on the
part of the winner, fraud, deceit, or swindling.”240
Despite these laws, Louisiana courts allow casinos and their
assigns to recover what other jurisdictions would consider to be
gambling debts. In TeleRecovery of Louisiana., Inc. v. Major,241 a
Louisiana appeals court held that as assignee for two casinos, a
collection agency could bring an action to recover sixty-five thousand dollars from six checks received in exchange for the
MO. ANN. STAT. § 313.813.
Maniscalco, supra note 232. Plaintiffs’ lawyers have raised this question, “If gambling debts are not enforceable in Missouri and someone is advanced money by an ATM, is
there a challenge to enforceability of these transactions?” Id.
235 MO. ANN. STAT. § 434.030 (West 1992). This section states, “Any person who shall
lose any money or property at any game, gambling device or by any bet or wager whatever,
may recover the same by a civil action.” Id.
236 In State v. Small, 24 S.W.3d 60, 66-67 (Mo. Ct. App. 2000), the Missouri Appellate
Court denied relief to an attorney who sued casinos under section 434.030. Id. However,
the court did not address section 434.030 because it was able to dispose of the case on other
grounds. Id.
237 MO. ANN. STAT. § 313.830(6).
238 Id.
239 LA. CIV. CODE ANN. art. 2983 (West 2001). The amount may be reduced if the trial
judge finds it excessive. Id.
240 Id. art. 2984.
241 734 So. 2d 947 (La. Ct. App. 1999).
233
234
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equivalent value of chips because the transaction did not create a
gambling debt.242 The court reasoned that the statutes were irrelevant because no debt was incurred.243 The court went so far as to
state that whether the subsequent use of the chips was legal was
irrelevant because, after receiving the chips, the defendant could
have immediately cashed them.244 The purchase of chips was a
separate transaction that was legal and enforceable.245
Like Nevada, in Louisiana the State may prosecute a gambler
for writing a bad check. In State v. Dean,246 the defendant wrote
twenty-one thousand dollars worth of bad checks, and the State
charged him with writing worthless checks.247 In a motion to
quash, the defendant argued that because public policy prohibited
civil enforcement of gambling debts, it also prohibited criminal
punishment for the same conduct.248 When the trial court denied
his motion, the defendant pled guilty, but reserved the right to
appeal the denial of the motion to quash.249 The appellate court
had little difficulty affirming the conviction, even though it was a
case of first impression.250 The court emphasized that the
riverboat casino was a legitimate business allowed by the legislature.251 It opined that it would be an absurd result to say that a
patron of a legal business was free to defraud it, and then rely on
the nature of the business to escape punishment.252 The court also
noted that concerns underlying the prohibition of civil enforcement—for example, the protection of habitual gamblers—did not
apply in the criminal context because addicts of all kinds are criminally punished for the illegal acts that they commit.253
A debtor was also unsuccessful in Players Lake Charles, LLC,
v. Tribble,254 where the casino allegedly threatened criminal prosecution unless she signed a promissory note for six payments totaling over thirty thousand dollars.255 The court held the markers
Id. at 948, 951.
Id. at 950-51.
244 Id. at 950.
245 Id.
246 748 So. 2d 57 (La. Ct. App. 1999).
247 Id. at 58.
248 Id.
249 Id.
250 Id. at 59.
251 Id. at 60.
252 Id.
253 Id. at 59-60. The defendant was sentenced to two years of hard labor (suspended),
five years of probation, restitution of nine thousand dollars, and other penalties. Id. at 5861. For a critical analysis of the Louisiana decision, see Tiffany Cashwell, Casenote, A
Continuing Debate: Public Policy and Welfare Versus Economic Interests Regarding Enforcement of Gambling Debts in State v. Dean, 46 LOY. L. REV. 299 (2000).
254 779 So. 2d 1058, 1059 (La. Ct. App. 2001).
255 Id.
242
243
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that the defendant signed were not gambling debts because she
could have used the chips for non-gambling purposes.256
C. States with Native American Casinos
In any debt collection matter involving a Native American casino it is essential to first examine the terms of the relevant Tribal-State compact; a compact is mandatory for any Class III
gaming.257 In 1995, the Mashantucket Pequots passed the “Debt
Collection Law,” which established procedures for payment of casino debts.258 Pursuant to the procedures, if the debtor does not
pay the marker, the marker is presented to the bank.259 If the
bank account has insufficient funds, the debtor is contacted.260 If
the debtor refuses to pay, litigation will be initiated in the tribal
court.261 Once a tribal court judgment is entered, often by default,
enforcement is sought by bringing suit in the state where the
debtor resides.262 An emerging issue in tribal gaming is whether
gambling debts incurred at reservations are enforceable in state
courts; such judgments have been enforced in Connecticut and
New York.263
Connecticut has allowed enforcement of tribal gaming debts
in its state courts. In Mashantucket Pequot Gaming Enterprises v.
Kennedy,264 a Connecticut court concluded that the provisions of
the tribal-state compact took precedence over Connecticut statutes that did not allow the enforcement of gambling debts.265
More specifically, the court focused on the issue of whether federal
law should preempt state law in the context of Indian Gaming.266
The court determined that the issue should be resolved according
to “principles of federal preemption under the Supremacy Clause
of the United States Constitution.”267 In finding that the gaming
debts are enforceable despite state law to the contrary, the court
Id. at 1060.
25 U.S.C. § 2710(d)(1)(C) (2001). Class III gaming is defined in the negative as “all
forms of gaming that are not class I gaming or class II gaming.” Id. § 2703(8). However,
subsection (7)(B) explains that class II gaming does not include “any banking card games”
or slot machines, thus by implication, these types of games would qualify as class III gaming. Id. § 2703(7)(B).
258 Patrice H. Kunesh, Enforcement of Gaming Debts Beyond Tribal Court, LEGAL
NEWS (Mashantucket Pequot Tribal Nation), June 2001, at 1.
259 Id. at 1-2.
260 Id.
261 Id. at 2.
262 Id.
263 The Pequots claim they have also been successful in enforcing gambling debts with
judicial decisions in Massachusetts, Rhode Island, Maine, Florida, Pennsylvania, and New
Jersey. Kunesh, supra note 258, at 1.
264 No. 116860, 2000 Conn. Super. LEXIS 679 (Conn. Super. Ct. Mar. 14, 2000).
265 Id. at *19.
266 Id. at *12.
267 Id.
256
257
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favored a liberal reading of Connecticut law so as to enhance tribal sovereignty.268 Accordingly, the court held that a state policy
against gaming cannot preempt an act of Congress.269
In Mashantucket Pequot Gaming Enterprise v. DiMasi,270 a
Connecticut court recognized a tribal gaming judgment under the
principle of comity.271 Then, in Mashantucket Pequot Gaming Enterprise v. Renzulli,272 the defendant was issued two markers totaling five thousand dollars.273 When the markers were returned
for insufficient funds, the tribe attempted to contact the defendant
in order to collect upon the debt, however, the defendant refused
to respond to any correspondence.274 Persuaded by the fact that
the Connecticut courts, pursuant to that state’s compact with the
Pequots, enforced tribal court decisions “under the principle of
comity,”275 the New York trial court enforced the tribal court
judgment.276
In CBA Credit Services v. Azar,277 Native American casino employees encouraged casino patron Azar, who had already lost fourteen thousand dollars, to accept four thousand dollars in black
jack chips on credit.278 After losing these additional chips, Azar
was asked by the casino to complete a credit document and write a
check to pay for the chips.279 The check was returned due to insufficient funds and the casino assigned its collection claim to a collection agency.280 Minnesota law, which the parties agreed was
controlling, provides a specific exception from its general prohibition on the collection of gambling debts pursuant to gaming conducted under the Indian Gaming Regulatory Act.281 The specific
exception provides that a “holder in due course [with] no notice of
the illegality of the obligation,” is not barred from collecting on the
debt.282 Because the court found that the assignee was aware that
Id. at *14-15.
Id. at *13, 22-23. “The legislative history of IGRA reveals that Congress intended
the Tribal-State compact to be the exclusive means for states to exercise regulatory control
and jurisdiction over gaming activities on Indian lands.” Id. at *19 (emphasis added).
270 CV 990117677S, 1999 Conn. Super. LEXIS 2584, *1 (Conn. Super. Ct. Sept. 23,
1999).
271 Id. at *2, 14.
272 188 Misc. 2d 710 (N.Y. Sup. Ct. 2001).
273 Id. at 711.
274 Id.
275 Id. at 712-13.
276 Id. at 710-11.
277 551 N.W.2d 787 (N.D. 1996).
278 Id. at 788.
279 Id. at 790.
280 Id.
281 Id. at 789; see also Indian Gaming Regulatory Act, 25 U.S.C. §§ 2701-21 (2001);
MINN. STAT. ANN. § 541.21 (West 2000).
282 551 N.W.2d at 790 (citing State v. Stevens, 459 N.W.2d 513, 514-15 (Minn. Ct. App.
1990)).
268
269
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Azar’s checks had been dishonored, it held the debt was
unenforceable.283
III.
REGISTRATION
OF A
SISTER-STATE JUDGMENT
The Full Faith and Credit Clause of the U.S. Constitution requires that “Full Faith and Credit shall be given in each State to
the public Acts, Records, and judicial Proceedings of every other
State.”284 In Fauntleroy v. Lum,285 the U.S. Supreme Court interpreted the Full Faith and Credit Clause as restricting a state’s
examination of a sister state judgment to whether the sister state
had jurisdiction over either the person or the subject matter at
issue.286 In other words, a court cannot revisit the merits of the
substantive issues of the underlying case.287 Therefore, while public policy in many U.S. jurisdictions prohibits the enforcement of
gambling debts, these jurisdictions have uniformly concluded that
once a sister state has rendered judgment on a gambling debt, the
Full Faith and Credit Clause mandates enforcement of that
judgment.288
In a gaming debt collection case much depends, of course, on
which state’s law applies. In Harrah’s Club v. Van Blitter,289 a
Azar, 551 N.W.2d at 790.
U.S. CONST., art. IV, § 1.
210 U.S. 230 (1908).
Id. at 237.
Id.
See, e.g., Hilton Int’l Co. v. Arace, 394 A.2d 739, 744 (Conn. Super. Ct. 1977) (“The
public policy of Connecticut cannot prevail against the command of the federal constitution.”); Boardwalk Regency Corp. v. Hornstein, 695 So. 2d 471 (Fla. Dist. Ct. App. 1997)
(“Florida courts are obligated by the Full Faith and Credit Clause to recognize judgments
which have been validly rendered in the courts of sister states, including those based on
gambling debts.”); Kramer v. Bally’s Park Place, Inc., 535 A.2d 466, 469 (Md. App. 1988)
(“[T]he relevant judicial opinions and statutes do not represent a public policy so strongly
opposed to gambling or gambling debts that it overrides the lex loci contractus principle.”);
Claridge at Park Place, Inc. v. Matellian, No. 95-1748, 1996 Mass. Super. LEXIS 540, at *4
(Mass. Super. Ct. Apr. 22, 1996) (holding that although Massachusetts law did not allow
the enforcement of legal gambling debts, Massachusetts must recognize sister-state judgments concerning gambling debts); Int’l Recovery Sys., Inc. v. Gabler, 527 N.W.2d 20, 22
(Ct. App. Mich. 1995) (holding that state public policy was irrelevant to the registration of
sister-state judgments due to the Full Faith and Credit Clause); San Juan Hotel Corp. v.
Greenberg, 502 F. Supp. 34, 36 (E.D.N.Y. 1980) (allowing New York enforcement of a Puerto Rican judgment); MGM Desert Inn, Inc. v. Holz, 411 S.E.2d 399, 402 (N.C. Ct. App.
1991) (concluding that although enforcement of gambling debts is clearly against North
Carolina public policy, U.S. Supreme Court precedent rendered the Full Faith and Credit
Clause virtually free from exceptions); Hotel Ramada of Nev., Inc., v. Thakkar, No.
03A019103CV00113, 1991 WL 135471, at *3 (Tenn. Ct. App. July 25, 1991) (stating that
there are only three exceptions to the requirement of registering sister-state judgments:
lack of jurisdiction, fraud upon the foreign court, and violation of state public policy, however, Tennessee public policy does not preclude the enforcement of gambling debts incurred
in a jurisdiction where gaming is legal); Coghill v. Boardwalk Regency Corp., 396 S.E.2d
838, 839 (Va. 1990) (holding that after the United States Supreme Court decision in Fauntleroy v. Lum, Virgina could not reexamine the judgment of a sister state).
289 No. Civil R-86-21 BRT, 1988 U.S. Dist. LEXIS 18348 (D. Nev. Feb. 16, 1988), aff’d,
902 F.2d 774 (9th Cir. 1990).
283
284
285
286
287
288
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gambler tried to make California the forum state because gambling debts are not enforceable under California law.290 Van Blitter had lost approximately $265,000 on a gambling spree, which
she claimed was the result of her husband’s affairs with geishas.291
First, Van Blitter argued that Harrah’s breached its duty of fairness when it failed to control her gambling, and then exacerbated
this breach by providing her with complimentary accommodations
encouraging her to gamble further, after it became clear that she
was an unsuccessful player.292 Second, Van Blitter argued that
Harrah’s collection attempts were a breach of its contractual obligations because an unidentified Harrah’s employee had orally
agreed that the casino would not collect the debts.293
Van Blitter commenced litigation in federal district court in
California, requesting a declaration that her gambling debts were
unenforceable.294 In response, Harrah’s filed a complaint in federal court in Nevada to enforce Van Blitter’s debts.295 The California action was subsequently transferred to the Nevada federal
court.296 Although the two actions were consolidated for trial, they
remained separate in identity.297 The Nevada federal District
Court granted both Van Blitter’s and Harrah’s motions for summary judgment.298 The final order stated:
(1) Toshi Van Blitter is given and granted judgment against
Harrah’s club [in the California action], a corporation, with the
force and effect that the negotiable instruments which are the
subject matter of this action (the twenty instruments drawn
upon Van Blitter’s checking account number . . . are not enforceable in the State of California).
(2) Harrah’s Club, a corporation, is given and granted judgment
against Toshi Van Blitter [in the Nevada action] for the sum of
Two Hundred Sixty Five Thousand Dollars ($265,000), together
with interest thereon at the rate of twelve percent (12%) per annum from April 25, 1984. . . .299
The Court of Appeals explained that the summary judgment
in favor of Van Blitter did “not address the enforceability in California of a Nevada judgment on the instruments or on the obligation they represent under the principles of full faith and credit.”300
290
291
292
293
294
295
296
297
298
299
300
Harrah’s Club v. Van Blitter, 902 F.2d 774, 776 (9th Cir. 1990).
1988 U.S. Dist. LEXIS, at *2.
Id. at *4.
Id. at *4-5.
Van Blitter, 902 F.2d at 775.
Id.
Id.
Id.
Id. at 775-76.
Id. at 776 (quoting the Nevada District Court’s final order of judgment).
Van Blitter, 902 F.2d at 776 (emphasis removed).
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Thus, Harrah’s registered the Nevada judgment for enforcement
in the U.S. District Court for the Eastern District of California.301
Van Blitter then filed a motion in that court to bar enforcement of the Nevada judgment, claiming that it contradicted the
previous summary judgment, which held that her gambling debts
were unenforceable in California.302 When the federal court in
California rejected her argument, Van Blitter appealed to the
Court of Appeals for the Ninth Circuit.303 She argued that because
she had obtained a judgment, which held that her debts were unenforceable in California, enforcement of a Nevada judgment on
those debts was also barred.304 The court found this argument
“wholly without merit,” and awarded Harrah’s double costs and
attorney fees as a penalty for the “frivolous appeal.”305
Regardless of whether the state’s public policy prohibits the
enforcement of gambling debts, the Full Faith and Credit Clause
of the U.S. Constitution requires all states to enforce judgments
from sister states so long as the state had proper personal jurisdiction over the defendant. Thus, it seems that one seeking to enforce a gambling debt should first obtain a judgment in the state
where the debt was legally incurred, and then seek to enforce that
judgment in the debtor’s state.
IV.
DIRECT LITIGATION
In some circumstances, courts may enforce a gambling debt
when a casino brings an action directly in the debtor’s home state,
instead of first obtaining a judgment in the state where the gambling debt was legally incurred. In Intercontinental Hotels v.
Golden,306 the defendant incurred twelve thousand dollars in gambling debts at a Puerto Rican casino where gambling was legal.307
The casino sued the defendant in New York.308 The appellate
court reversed the trial court judgment allowing recovery, holding
that state public policy prohibited the enforcement of gambling
debts, even those incurred legally.309 The dissent argued for the
enforcement of the debt, reasoning that judicial process should not
be denied to one seeking to enforce a gambling debt when the debt
was valid where incurred. The dissent opined that state public
Id.
Id.
Id.
Id.
Id. at 776-77.
233 N.Y.S.2d 96 (N.Y. Sup. Ct. 1962), rev’d, 238 N.Y.S.2d 33 (N.Y. App. Div. 1963),
rev’d, 203 N.E.2d 210 (N.Y. 1964).
307 Intercontinental Hotels, 233 N.Y.2d at 97.
308 Id.
309 Intercontinental Hotels, 238 N.Y.S.2d at 38-39.
301
302
303
304
305
306
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policy does not absolutely prohibit gaming, as evinced by the existence of legal horse racing and bingo.310
The highest court of New York reversed the appellate court,
and reinstated the decision of the trial court.311 The court’s decision emphasized the evolving opinion in New York which “indicate[s] that the New York public does not consider authorized
gambling a violation of ‘some prevalent conception of good morals
[or], some deep-rooted tradition of the common weal.’ ”312 The
court further opined that this changing attitude was particularly
true of legal gambling, where enforcement would not create moral
problems because the state still prohibited gambling.313 Moreover,
the court held that it could apply Puerto Rican law, which allows a
court to use its discretion to reduce excessive gambling debts.314
Finally, the court emphasized the immorality of allowing New
York citizens to keep their winnings from legal gambling, but
avoid responsibility should they lose.315
Other courts have adopted the reasoning of Intercontinental
Hotels. For example, in Robinson Property Group v. Russell,316 the
Tennessee appellate court reversed a trial court summary judgment on behalf of the debtor, who allegedly owed over twentythree thousand dollars to a casino in Mississippi where gambling
is legal.317 The appellate court determined that the cash advancements were for gambling purposes rather than a loan.318 The
court further noted that in Mississippi, gambling debts are enforceable if incurred legally.319 The court cited the Full Faith and
Credit Clause of the U.S. Constitution, and stressed that full faith
and credit should be given not only to sister-state judgments, but
also to the public acts of each state.320 Adopting the reasoning of
Intercontinental Hotels, the court stated:
Id. at 42 (Stevens, J., dissenting).
Intercontinental Hotels, 203 N.E.2d at 214.
312 Id. at 213 (quoting Loucks v. Standard Oil Co., 120 N.E. 198, 202 (1918)) (alteration
in original).
313 Id. Occasionally, a New York decision will erroneously cite the intermediate appellate reasoning in Intercontinental Hotels, and ignore the reasoning of New York’s highest
court. For example, in People v. World Interactive Gaming Corp., 185 Misc. 2d 852 (N.Y.
1999), the state obtained an injunction against a New York Internet gambling company,
essentially for stock fraud and related matters. In dicta, the court stated that New York’s
constitution “contains an express prohibition against any kind of gambling not authorized
by the state legislature. The prohibition represents a deep-rooted policy of the state
against unauthorized gambling.” Id. at 846 (citations omitted). This comment ignored the
reasoning by New York’s highest court on public policy.
314 Intercontinental Hotels, 203 N.E.2d at 213.
315 Id.
316 No. W2000-00331-COA-R3-CV, 2000 WL 3313137 (Tenn. Ct. App. Nov. 22, 2000).
317 Id. at *1.
318 Id. at *2.
319 Id. at *3.
320 Id. at *4.
310
311
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We too find that it would be a great injustice if Tennesseans
could reap the benefits of gambling in states where it is legal
when they are successful, but seek shelter in Tennessee courts
when they lose. As a result, we conclude that there is nothing in
the Mississippi laws in question that outrages the public policy
of Tennessee. Therefore, the gaming contract between the parties is enforceable in Tennessee.321
The reasoning of Intercontinental Hotels has also been applied
to the registration of judgments from foreign countries. In Aspinall’s Club Ltd. v. Aryeh,322 a licensed London casino obtained a
default judgment against a New York debtor.323 When the casino
attempted to collect on the judgment in a New York Court, Aryeh
argued that New York public policy prohibited enforcement of the
debt.324 Even though the court was not compelled to enforce the
judgment under the Full Faith and Credit Clause, the court
granted the club’s motion, in part, based on the reasoning of Intercontinental Hotels.325 The court explained, “Gambling in legalized
and appropriately supervised forms is not against this state’s public policy.”326
Some states, however, have not extended the reasoning of Intercontinental Hotels and Arace to the direct litigation of a foreign
debt. In Casanova Club v. Bisharat,327 the Connecticut Supreme
Court affirmed summary judgment for a bettor who failed to pay a
gambling debt incurred while wagering at a licensed London casino.328 The casino argued that Connecticut should reexamine its
public policy in light of its state-sanctioned lottery and judicial decisions in other states allowing the enforcement of legal out-ofstate gambling debts.329 While the court recognized that the state
had legalized some forms of gambling, none of theses statutes alId.
86 A.D.2d 428 (N.Y. App. Div. 1982).
Id. at 431.
Id.
Id. at 433.
Id.
458 A.2d 1 (Conn. 1983).
Id. at 1-2. A similar result was reached in Condado Aruba Caribbean Hotel, N.V. v.
Tickel, 561 P.2d 23 (Colo. Ct. App. 1977), where the Colorado Appellate Court refused to
enforce a $14,500 gambling debt incurred in Aruba, where gambling is legal. Id. at 24.
329 The court said the result would have been different had the casino sought to enforce
a British judgment for the gambling debt. Casanova Club, 458 A.2d at 4 (citing Hilton
International Co. v. Arace, 394 A.2d 739, 742-44 (Conn. Super. Ct. 1977)). In addition, the
court indicated that the result in Casanova Club may have been different:
[If the casino had] properly invoked the statutory proviso that protects the validity
of any negotiable instrument held by any person who acquired the same for value
and in good faith without notice of illegality in the consideration. Although in its
appellate brief the plaintiff maintains that there could be no notice of illegality to
taint the negotiability and enforceability of the checks, the [plaintiff did not raise
absence of notice in any of its pleadings] in the trial court.
321
322
323
324
325
326
327
328
Casanova Club, 458 A.2d at 3 (internal quotations omitted).
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lowed the extension of credit; thus, the state public policy had not
truly changed.330 In addition, the court acknowledged that the
Second Restatement on the Conflict of Laws could support the enforcement of legally obtained gambling debts.331 However, the
court indicated that it lacked the factual basis to apply the criteria
in the Restatement.332 Thus, the court held that gambling debts,
however obtained, are unenforceable in Connecticut.333
Likewise, the Virginia courts have refused to allow suits to
recover gambling debts, even if incurred in a state where such
gambling is legal. In Resorts International Hotel, Inc. v.
Agresta,334 the plaintiff sued on a ten thousand dollar note resulting from a failure to pay legal New Jersey gambling debts.335 The
court concluded that even though the gambler did not attempt to
defend the action, the laws and public policy of Virginia will not
permit suits to recover gambling debts.336
In Texas, gambling debts remain unenforceable.337 Texas has
also refused to allow direct litigation of a gambling debt, even
though the debt was legally incurred in another jurisdiction. One
Texas gambler, George J. Aubin, appears to have learned to use
his state’s unwillingness to enforce gambling debts to his advantage. In 1969, Aubin was sued for failure to pay on promissory
notes issued to him by Louis Hunsucker.338 Viewing the promissory notes as gambling debts, the court ruled that they were unenId. at 4.
Id. The Restatement Second of Conflict of Laws provides:
Law Governing in Absence of Effective Choice by the Parties
(1) The rights and duties of the parties with respect to an issue in contract are
determined by the local law of the state which, with respect to that issue, has the
most significant relationship to the transaction and the parties under the principles stated in § 6.
(2) In the absence of an effective choice of law by the parties (see § 187), the contracts to be taken into account in applying the principles of § 6 to determine the
law applicable to an issue include:
(a) the place of contracting,
(b) the place of negotiation of the contract,
(c) the place of performance,
(d) the location of the subject matter of the contract, and
(e) the domicil, residence, nationality, place of incorporation and place of business of the parties. “These contracts are to be evaluated according to their relative
importance with respect to the particular issue.”
(3) If the place of negotiating the contract and the place of performance are in the
same state, the local law of this state will usually be applied, except as otherwise
provided in §§ 189-199 and 203.
RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 188 (1971).
332 Casanova Club, 458 A.2d at 5.
333 Id. The court noted, however, that if the casino had first obtained a judgment in
Great Britain, the court would have permitted recovery based on Arace. Id. at 4.
334 Resorts Int’l Hotel, Inc. v. Agresta, 569 F. Supp. 24 (E.D. Va. 1983).
335 Id. at 25.
336 Id. at 26.
337 Carnival Leisure Indus., Ltd. v. Aubin, 938 F.2d 624 (5th Cir. 1991), remanded to
830 F. Supp. 371 (S.D. Tex. 1993); rev’d, 53 F.3d 716 (5th Cir. 1995).
338 Aubin v. Hunsucker, 481 S.W.2d 952, 953 (Tex. App. 1972).
330
331
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forceable under Texas law.339 Then, in 1987, Aubin accrued
twenty-five thousand dollars in gambling debts while vacationing
in the Bahamas.340 When he refused to honor the drafts, the casino commenced litigation in the U.S. District Court for the Southern District of Texas.341
While granting the casino’s summary judgment motion,342 the
trial court did not make a determination as to whether the debts
were legal under Bahamian law.343 The Court of Appeals for the
Fifth Circuit reversed the trial court.344 The court stated that
Texas statutes permitting some forms of gambling would “hardly
introduce a judicially cognizable change in public policy with respect to gambling generally.”345 Furthermore, even if legislation
had changed, “such a shift would not be inconsistent with a continued public policy disfavoring gambling on credit.”346
On remand, the trial court opined that public policy against
enforcing the debt, relied on by the appellate court, had changed.
The court stated, “Asserting a sweeping public policy against gambling is anachronistic. If there really was a policy, it is totally defunct.”347 The trial court then employed a different strategy to
find Aubin liable for the debts. Determining that the instruments
issued by the casino were negotiable instruments and not gambling debts, the court found Aubin liable under a theory of fraud
because he “never intended to honor the drafts.”348
Id. at 957.
Carnival, 938 F.2d at 624.
Id.
Id.
Id. at 625 n.2. The Court of Appeal stated:
The district court looked solely to Texas law and made no determination of Bahamian law. Neither party challenges the district court’s choice of Texas law in this
case. We therefore do not rule on the question of whether the law of the Bahamas
should have been applied or whether its application would require enforcement of
Aubin’s debt. Neither party has provided evidence (or requested judicial notice) as
to Bahamian law or as to whether gambling is legal or whether gambling debts are
legally enforceable in the Bahamas. It is noteworthy, however, that the Texas
Supreme Court has stated that where collection of the gambling debt entails the
cashing of a check (inferentially of a Texas resident) on a Texas bank, Texas courts
apply Texas law.
Id. (citations omitted).
344 Id. at 626.
345 Id. at 625.
346 Id. at 626. Judge Vela concurred in what he considered a most inequitable result,
stating, “The result here may be legally justified, however it sends out a poor message to
would be gamblers. Go on credit and the House takes the risk. Aubin had profited from a
similar exception in Aubin v. Hunsucker, and once again avoids an obligation which was
knowingly made.” Id. at 627 (Vela, J., concurring) (citation omitted).
347 Carnival Leisure Indus., Ltd. v. Aubin, 830 F. Supp. 371, 374 (S.D. Tex. 1993).
348 Id. at 375-77. The court added:
Seasoned gamblers are shrewd manipulators. They know which debts are enforceable. An anachronistic public policy and misguided case law that forbid legal casinos from lawfully collecting commercial instruments and the debts arising from
them will eventually force collection efforts underground. While it may save moralistic posturing, it may cost knee-caps.
339
340
341
342
343
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Once again, the Court of Appeals reversed,349 stating:
For us to allow recovery against Aubin on an otherwise unenforceable gambling debt under a theory of fraud, when in fact
the only real allegation of misrepresentation was that Aubin
signed the markers knowing they were unenforceable in his
home state (by operation of law), would require that we recognize an exception to Texas public policy that does not exist.350
In Illinois, the law is unclear whether a legal gambling debt
incurred in another state can be directly sued upon within the
state. In Resorts International, Inc., v. Zonis,351 a federal court sitting in diversity refused to allow recovery of a twenty-five thousand dollar gambling debt in an action brought by a New Jersey
casino, irrespective of whether Illinois or New Jersey law was applicable.352 The court held that Illinois public policy precluded recovery regardless of which state’s law was applicable.353
The federal court’s reasoning in Zonis was criticized by the
Illinois Appellate Court in Cie v. Comdata Network, Inc.354 In Cie,
the plaintiff used the defendant’s services for cash advances on a
credit card to bet on races at Illinois race tracks and to gamble at a
Nevada casino.355 The court held that the cash advance was not
an unlawful gambling enterprise because the transaction between
the plaintiff and defendant was not a wager.356 The court found
further support for its holding in a 1991 statutory change that
eliminated previous lender liability for loan money that the lender
knew would be used for gambling.357 While the court specifically
rejected the analysis in Zonis,358 the Illinois Supreme Court has
not yet addressed the question.
Unlike the mere registration of sister-state judgments, recovery through direct lawsuits on out-of-state gambling debts is less
certain. Some states clearly allow direct lawsuits, some clearly do
not, and in at least one there is no clear answer. Because of this
uncertainty, it is safer for a creditor—looking to recover on a debt
incurred in another state—to first seek a judgment in the state
where the debt was incurred.
Id. at 377-78.
349 Carnival Leisure Indus., Ltd. v. Aubin, 53 F.3d 716, 720 (5th Cir. 1995).
350 Id. at 719.
351 577 F. Supp. 876 (N.D. Ill. 1984).
352 Id. at 877.
353 Id.
354 656 N.E.2d 123 (Ill. App. Ct. 1995).
355 Id. at 125.
356 Id.
357 Id. at 126 (citing 720 ILL. COMP. STAT. 5/28-7(a) (1994)).
358 Id. at 129.
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V. CONCLUSION
The enforceability of a gambling debt depends on the laws of
the particular state in which one is attempting to enforce the debt.
All states in the Union, influenced by the historical traditions
against gambling, have started from the premise that gambling
debts are unenforceable. Nevertheless, over time states have begun a slow process of legalizing gambling, which will eventually
lead to the enforcement of gambling-related debts. In general, it
appears that the greater the extent of legalized gambling in a
state, the more likely it is that the state has changed its laws to
allow enforcement. Each state has found different ways to handle
the costs and benefits of legalized gambling. Additionally, the
Full Faith and Credit Clause of the U.S. Constitution requires
every state to enforce a judgment from a sister state, regardless of
the underlying merits of the case. Thus, as long as the gambling
debt was legally made and the proper procedures were used, every
state in the Union should enforce the debt.
The appendix to this article provides an international survey
of gambling debt enforcement law, which is interesting to compare
and contrast to the U.S. system. Other countries have found different solutions to the problem of gambling related debts, and
have confronted issues that have yet to be litigated in the United
States.
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Appendix:
An International Survey of Gambling
Debt Enforcement Law
I.
INTRODUCTION
This appendix provides an international survey of the enforcement of gambling debts. Like U.S. law, gambling debt enforcement laws of many other countries have been influenced by
the Statute of Anne and Roman law. This appendix is intended to
provide additional context and issues for discussion in the U.S.
debate over the treatment of gambling debts; it is not an exhaustive analysis of the laws of each of these countries. Any person
who wishes to enforce a gambling debt in a foreign country should,
of course, first consult with counsel licensed in that country.
II.
GREAT BRITAIN
A. England
England has a long tradition of prohibiting the extension of
credit for gaming. The Statute of Anne, passed in 1710, voided all
financial agreements where gaming or wagering was an element
of the consideration for the contract.359 The statute also voided all
agreements to repay gaming debts.360 While the Statute of Anne
remains the cornerstone of British law concerning gaming debt
enforcement, Parliament’s subsequent passage of a number of
gaming acts has expanded and defined the practice of gambling
debt enforcement. The Gaming Acts that remain relevant to modern British law were passed in 1835, 1845, 1892, and 1968.361
The Gaming Act of 1835 changed the status of contracts that
arose from gaming.362 Rather than the contracts being completely
void, as under the Statute of Anne, the contracts were considered
to have been given for illegal consideration.363 A contract that is
given for illegal consideration is neither enforceable by the original parties to the contract, nor enforceable by a third party pur359 An Act for the Better Preventing of Excessive and Deceitful Gaming, 1710, 9 Ann. c.
14, §§ 1, 2, 4 (Eng.) [hereinafter Statute of Anne].
360 Id.
361 See Gaming Act, 1968, c. 65, Pt. II, § 16(4) (Eng.). The Gaming Act of 1968 reaffirms the validity of the previous Gaming Acts, but preempts the application of the acts to
the practice of accepting checks in exchange for tokens to be used for gaming or other casino purchases.
362 Gaming Act, 1835, 5 Will. 4, c. 41, § 1 (Eng.).
363 Ladup Ltd. v. Shaikh, 1983 Q.B. 225, at Judgment 1 ¶ 25 (McCowan, J.).
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chaser if he or she has notice of the nature of the debt.364 This
change protected innocent third party purchasers because a third
party who purchased the note without notice of the nature of the
debt could enforce the contract.365
The Gaming Act of 1845 reaffirmed the invalidity of gaming
debts expressed in the Statute of Anne stating, “all contracts or
agreements, whether by parole or in writing, by way of gaming or
wagering, shall be null and void.”366 Nevertheless, the Act repealed the recovery provisions of the Statute of Anne, thereafter
prohibiting such suits.367 However, the 1845 Act contains an important exception reminiscent of Roman law. The 1845 Act specifically excludes any wagers on a “lawful game, sport, pastime, or
exercise.”368 The Gaming Act of 1892 enlarged the scope of the
1845 Act by providing that any promise to pay on a contract “rendered null and void by the Gaming Act of 1845” was void.369
English courts strictly interpreted the Gaming Act of 1845 to
void contracts that arose from gambling activities. In Hill v. William Hill (Park Lane) Ld.,370 a bettor lost money and the matter
was reported to a committee of Tattersalls.371 The bettor was then
informed that if payments were not made, the bettor would be
posted as a defaulter, which would effectively prevent him from
further gambling on horse racing.372 The basic issue faced by the
Hill court was whether the decision in Hyams v. Stuart King,373
which allowed recovery by a party who agreed to forgo suit in exchange for repayment of a debt, should be followed.374 Four Law
Lords in Hill found in favor of the bettor and overruled Hyams
largely based their decisions on the Hyams dissent.375 Particularly persuasive was the dissent’s analysis of the clear language
and legislative history of the Gaming Act of 1845.376
English courts have also interpreted the Statute of Anne and
the Gaming Acts of 1835, 1845, and 1892, strictly in an attempt to
Id.
Id.
Gaming Act, 1845, 8 & 9 Vict., c. 109, § 18 (Eng.).
Id.
Id.
Gaming Act, 1892, 55 Vict., c. 9, § 1 (Eng.). The 1892 Act also made it illegal for
casinos to charge fees or commissions as a prerequisite for allowing patrons to gamble. Id.
370 [1949] A.C. 530 (Eng. C.A.).
371 Id. at 531. The committee of Tattersalls governs the settlement of bets when a
situation arises that is not covered by a particular betting rule. For example, “bets on
horseracing are historically governed by ‘Tattersalls’ Rules of Betting.” Cheltenham Festival 2002, Betting Rules: Tattersalls’ Rules, available at http://www.cheltenham-festivalbetting.com/betting_rules1.htm.
372 Hill, [1949] A.C. at 531.
373 2 K.B. 696 (1908).
374 Hill, [1949] A.C. 544.
375 Hyams, 2 K.B. at 711-23.
376 Id. at 712-13.
364
365
366
367
368
369
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eliminate schemes that seek to circumvent the prohibition on extensions of credit. An example of a scheme to circumvent prohibitions on the extension of credit may be found in C.H.T. Ltd. v.
Ward.377 In Ward, the Crockfords Club operated a legal poker
club.378 Gamblers purchased chips on their club accounts, which
could then be used either for betting or for purchasing food and
drinks at the club.379 A winning bettor could either receive cash
when redeeming his chips, or deposit the winnings in his account
for future use.380 Losers were billed weekly.381 In Ward, the defendant failed to pay, and the club sued to recover the debt. The
Crockfords Club argued that the chips were a loan made in a form
of private currency, and not subject to the prohibition against extension of credit.382 The court rejected this argument as illogical,
holding that gamblers sought to win money, not chips, and that
chips were not private currency, but a convenient symbol for accepted public currency.383 Thus, the agreements between the Club
and its patrons were unenforceable.
Parliament strengthened the prohibition against extending
credit for gaming when it passed section 16 of the Gaming Act of
1968 (“the Act”).384 The Act prohibits any gaming license holder or
employee of a license holder from making loans or extending
credit for the purposes of “(a) enabling any person to take part in
the gaming, or (b) in respect of any losses incurred by any person
in the gaming.”385 However, section 16 of the Act does allow casinos to accept checks in exchange for gaming tokens if certain criteria are satisfied.386 Under the Act, a licensed casino is allowed to
accept a check on the conditions that it is not postdated, it is exchanged for either cash or tokens,387 and it is presented for pay377
378
379
380
381
382
383
384
385
386
387
2 Q.B. 63 (Eng. C.A. 1965).
Id. at 65.
Id. at 64.
Id.
Id. at 65.
Id. at 79.
Id.
Gaming Act, 1968, c. 65, Pt. II, § 16(1) (Eng.).
Id.
Id. § 16(2).
Id. § 16(1)-(2). Section 16(1) provides:
[W]here gaming to which this Part of this Act applies takes place on premises in
respect of which a licence under this Act is for the time being in force, neither the
holder of the licence nor any person acting on his behalf or under any arrangement
with him shall make any loan or otherwise provide or allow to any person any
credit, or release, or discharge on another person’s behalf, the whole or part of any
debt,—
(a) for enabling any person to take part in the gaming, or
(b) in respect of any losses incurred by any person in the gaming.
Id. § 16(1). Section 16(2) reads:
Neither the holder of the licence nor any person acting on his behalf or under any
arrangement with him shall accept a cheque and give in exchange for it cash or
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ment within two banking days.388 In 1986, the Act was amended
to allow a gambler to exchange his or her winnings for that day for
checks the gambler cashed at the casino earlier that same day.389
The gambler may also write one large check and redeem it for all
other checks written that same day, so long as the one check covers all the previously cashed checks.390 In 1997, the Act was again
amended to allow a gambler to purchase tokens using a debit
card.391
Allowing gaming licensees to cash checks under the Act has
had important consequences for the growth of gaming in England
and the development of British gambling debt enforcement law.
The growth of gaming in England to a billion dollar industry is at
least partly attributable to the exemption that allows licensees to
cash patrons’ checks.392 More importantly, for this discussion, the
exemption has raised questions regarding when check cashing becomes an extension of credit, and whether licensees can reduce
gamblers’ debts by compromising checks that have been previously cashed.
In R. v. Crown Court at Knightsbridge, ex parte Marcrest,
Ltd.,393 the court dealt with the issue of when check cashing constitutes an extension of credit.394 In Marcrest, the appellate court
upheld a lower court decision to revoke the casino’s gaming license
for repeated violations of gaming regulations, including the unlawful extension of credit.395 The casino granted unlawful credit
in several ways: by accepting house check forms that were never
deposited; by sending checks to the licensee’s head office in order
to maintain the fiction of compliance with section 16(3); by accepting “sham” checks from patrons whose previous checks were
dishonored and the casino management knew that checks from
tokens for enabling any person to take part in the gaming unless the following
conditions are fulfilled, that is to say—
(a) the cheque is not a post-dated cheque, and
(b) it is exchanged for cash to an amount equal to the amount for which it is
drawn, or is exchanged for tokens at the same rate as would apply if cash, to the
amount for which the cheque is drawn, were given in exchange for them . . . .
Id. § 16(2).
388 Id. § 16(3). Section 16(3) states:
Where the holder of a license under this Act, or a person acting on behalf of or
under any arrangement with the holder of such a licence, accepts a cheque in exchange for cash or tokens to be used by a player in gaming to which this Part of
this Act applies, or a substitute cheque, he shall not more than two banking days
later cause the cheque to be delivered to a bank for payment or collection.
Id.
389 Gaming Act, 1968, c. 65, Pt. II, § 16(2A)(a) (Eng.) (amended 1986).
390 Id.
391 Id. (amended 1997).
392 Neil Fagan, Enforcement of Gaming Debts in Britain, 8 N.Y.L SCH. J. INT’L & COMP.
L. 7, 14 (1986).
393 1 All E.R. 1148 (Eng. C.A. 1983).
394 Id. at 1155.
395 Id. at 1157-58.
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those patrons would not be honored on first presentation; by
marking house checks with a bank where the casino knew the
gambler did not maintain an account; and by giving gamblers
credit at the tables.396 The casino’s practices were in clear violation of the language and intent of section 16, which “is to protect
punters against themselves . . . [because] [t]hey are not to be given
by the casinos so much rope that they may eventually hang themselves, figuratively or otherwise.”397
Especially interesting is the court’s discussion of what constitutes a “sham” check. The court explained that in order for a document to be a “sham” both parties must have intended the
document not to create the legal rights and obligations that it purports to create.398 Marcrest’s dealings with its customers constituted a “sham” because neither the casino, nor the gambler
believed the checks would be honored on first presentation.399
Rather, the function of the checks was to memorialize a debt to
the casino.400
Marcrest also dealt with the issue of whether acceptance of a
check for less than the value of a dishonored check gives rise to a
gambling debt in violation of section 16.401 As the court explained,
customers who gamble with cash, or trade cash for chips, do not
incur a debt with the casino because, once the customer loses the
chips, he or she owes the casino no further obligation.402 A debt
can only lawfully arise when a customer cashes a check in exchange for cash or tokens, and the check is subsequently dishonored, leaving the gambler in debt to the casino.403 On this issue,
the court stated, “[W]hen the cheque is given by the customer to
enable him to take part in the gaming, and is subsequently
dishonoured, then prima facie a debt has been incurred in respect
of losses in the gaming.”404
Section 16 has been interpreted to require that once a debt is
incurred as a result of a dishonored check, a casino must seek full
payment of the amount of the check. The casino is placed in the
position of a creditor, in violation of section 16, if it allows the
gambler to pay in installments, or it agrees to compromise the
debt for a lesser amount.405 This interpretation of section 16
places casinos in a difficult position because they cannot negotiate
396
397
398
399
400
401
402
403
404
405
Id.
Id.
Id.
Id.
Id.
Id.
Id.
Id.
Id.
Id.
at 1153.
at 1154.
at 1154-55.
at 1155.
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a settlement for anything less than the full amount of a dishonored check.406 The solicitors in Marcrest argued that under this
interpretation, casinos would suffer serious losses, which could be
mitigated by a compromise of the bad debts.407 The court was
somewhat sympathetic; nevertheless, it upheld the strict interpretation of section 16 because encouraging licensees to limit patron
losses is consistent with the policy of the statute.408
On a practical level, this interpretation of section 16 requires
licensees who accept checks that are later dishonored to seek a
court judgment on the entire amount of the dishonored check.
Only after receiving judgment on the entire amount can the licensee negotiate a compromise of the judgment.409 While trial courts
will apply the rules discussed above, there appears to be some
flexibility in gambling debt enforcement.
For example, in 1991, Ritz Casino Limited sued international
arms dealer Adnan Khashoggi for £3.2 million plus interest for
dishonored checks cashed at hotel casinos during a period of extensive gaming in 1986.410 Khashoggi defended against the suit by
claiming the debt was unenforceable because the casino allowed
him to continue gaming by illegally extending credit.411 The parties settled the case for an undisclosed sum, and Khashoggi’s
counsel said that Khashoggi “withdraws any suggestion that the
Ritz acted improperly or in contravention of the Gaming Act
1968.”412 The judge in the case appeared relieved that he did not
have to hear the case, stating that he was “very happy to hear that
[the case had settled] because it seemed to me pre-eminently an
action which was better compromised on acceptable terms than
fought to a finish. It had quite a few complexities and wrinkles.”413 Despite the litigation, Khashoggi continues to be a welcome casino patron, but the casino is no longer willing to cash his
checks.414
Although the extension of credit is illegal in England, foreign
judgments on gambling debts may be enforced, provided the debts
were legally incurred in the foreign jurisdiction.415 Courts interpret the Gaming Acts of 1845 and 1892 as applying only to gaming
Id.
Id.
Id.
Fagan, supra note 392, at 17.
Ritz Casino Ltd. v. Khashoggi, (Eng. Mar. 26, 1996) (LEXIS Country & Region,
United Kingdom, UK cases, combined courts), at Judgment 1 ¶ 1 (Thorpe, L.J.).
411 Mike Taylor, Khashoggi Settles his Pounds 8m Gambling Debt with Casino, BIRMINGHAM POST, June 6, 1998, available at 1998 WL 22710784.
412 Id.
413 Id.
414 Casino Refuses to Gamble in the Game of PR, BELFAST NEWS LETTER, June 4, 1998,
available at 1998 WL 27604391.
415 See generally Fagan, supra note 392, at 18-19.
406
407
408
409
410
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that is unlawful in England.416 Therefore, English courts will accommodate foreign law by enforcing judgments that are lawful in
those jurisdictions.417 In order to enforce a foreign judgment in
English courts, creditors must show that the English courts have
jurisdiction over the debtor.418 The courts have jurisdiction when:
1) the debtor has been served with legal process within the United
Kingdom; 2) the debtor is domiciled or an “ordinary resident” in
the United Kingdom; 3) the breach of the gaming contract was
committed within the jurisdiction of the English courts; or 4) the
debtor voluntarily submits to the English court’s jurisdiction.419
Creditors most often assert the second and third bases for jurisdiction, and it is clearly advantageous to pursue a U.K. resident in
English courts because it is likely the debtor will have assets in
the country.420
While the Gaming Act of 1968’s prohibition against extending
credit for gaming remains in effect, there is some indication of
changing policy. The 2001 Gambling Review Report, produced by
the Department for Culture, Media and Sport, recommended that
Parliament relax the prohibition by making “all gambling debts”
legally enforceable.421 According to the Report, such a change in
policy would eliminate anomalies, such as the enforceability of
debts arising from spread betting and the “palpable error rule.”422
Until Parliament makes changes similar to those recommended in
the Gaming Review Report, English gaming debt enforcement law
will remain complex.
B. Scotland
In Scotland, “the common law . . . on gaming and wagering
differs greatly from the common law of England. In Scotland it is
settled law that wagering agreements, being ‘sponsiones ludicrae,’
Id. at 19.
Id.
Id.
Id.
Id. Creditors may also seek injunctions in English courts against the assets of debtors. These injunctions freeze the debtor’s assets within the country so the creditor can
enforce any judgment granted by English courts. Id. at 22-23.
421 Gambling Review Body, Department for Culture, Media and Sport, Gambling Review Report § 26.25 (July 2001), available at http:// www.culture.gov.uk/PDF/
gambling_review_chapter26.pdf.
422 Id. The “palpable error rule” allows a licensee to deny payment of winnings when
an employee makes a mistake in the betting transaction. Id. This rule has led to inequities
such as the case of a bettor who won £259,000 but was unable to collect because the sportsbook manager did not make a photographic record of the bet. Richard Colbey, A Debt of
Dishonour Gambling Liabilities Are Not Legally Recoverable, GUARDIAN (London), Nov. 28,
1998, available at 1998 WL 18679969. The bettor was prevented from pursuing his action
in court under the Gaming Act of 1845. Id. The decision by the court was somewhat anomalous because the bettor would have been able to recover had his bet been part of a betting
pool or had he bet against a point spread. Id.
416
417
418
419
420
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are matters with which the court ought not to occupy itself.”423
The courts’ refusal to hear gambling debt cases under this doctrine has resulted in harsh outcomes. In County Properties and
Developments Ltd. v. Harper,424 the Sheriff’s Court faced a casino
seeking to recover an alleged overpayment of two thousand
pounds on a winning wager.425 The casino argued that laws, such
as the Gaming Act of 1968, involved constables and local authorities in gaming matters, and therefore, it is inconsistent to say the
matter is “beneath the dignity of the courts’ consideration.”426
While the court was impressed with the casino’s argument, it refused to enforce the debt.427
An even harsher result was reached in Ferguson v. Littlewoods Pools, Ltd.428 In that case, five members of a football pool
reportedly won £2.3 million, only to have a pool agent abscond
with the money.429 When the winners sued the pool organizers,
the defendant argued that the doctrine of sponsio ludicra applied.430 Lord Coulsfield agreed that the doctrine barred the action and dismissed the case.431 The plaintiffs reportedly appealed
to the Court of Five Judges, but could not afford to continue; the
matter was resolved in a confidential settlement that did not require Littlewoods to make any financial payment.432
In a ruling that is “thought to be the first of its kind in Scotland,”433 the Glasgow Court of Session enforced a wagering debt in
Robertson v. Anderson.434 The plaintiff’s suit alleged that her best
friend had promised to split a bingo jackpot with her.435 Lord
Carloway, convinced that there was an oral agreement, questioned the continuing validity of the sponsio ludicra defense.436 He
concluded that betting had become so prevalent in the country,
with the state even sponsoring a lottery, that the rule no longer
423 Hill v. William Hill (Park Lane), [1949] A.C. 530, 567-68 (Eng. C.A.) (citing Robertson v. Balfour, 1938 Sess. Cas. 207).
424 1989 S.C.L.R. 597.
425 Id. at 599.
426 Id. at 598.
427 Id. at 599.
428 9 Scots L. Times 309 (Outer House Ct. of Sess. 1996), available at 1996 WL
1104215.
429 Id. at 310; Bruce Mckain, Littlewoods Asks Judge to Follow Tradition and Reject
Syndicate’s Claim Over Gambling Debt; Five Sue After £2.3m Jackpot Loss, HERALD (Glasgow), Mar. 15, 1996, at 9.
430 Ferguson, 9 Scots L. Times. at 310.
431 Id. at 314, 315.
432 Hector L. MacQueen, Football Pools and Sponsiones Ludicrae, SCOTS L. NEWS,
available at http://www.law.ed.ac.uk/sln/index.asp?page=13.
433 Bruce Mckain, Bingo Winner Ordered to Share; Judge Awards £54,000 to Friend,
HERALD (Glasgow), May 16, 2001, at 5.
434 Robertson v. Anderson, at ¶ 73 (Outer House Ct. of Sess. May 15, 2001), available
at http://www.scotcourts.gov.uk/opinions/CAR0905.html.
435 Id. ¶¶ 18-19.
436 Id. ¶¶ 71-72.
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seemed valid.437 While he suggested a reconsideration of sponsio
ludicra, Lord Carloway based his decision on the fact that the
agreement was not a gambling contract but a collateral agreement.438 Lord Carloway awarded the plaintiff half the winnings
and interest at eight percent from the date the prize was won.439
Scottish law, unlike English law, completely prevents courts
from addressing gambling claims. However, recent decisions suggest that Scottish courts may soon move away from strict prohibition towards a rule favoring enforcement.
III.
AUSTRALIA
Traditionally casinos would negotiate payment arrangements
with defaulting foreign gamblers hailing from Far Eastern countries, such as Hong Kong, Singapore, Malaysia, and Indonesia.440
However, it has recently become customary for casinos to utilize
private investigators to find and take legal action against defaulting gamblers.441 This practice is ordinarily used only when negotiations for payments fail.442 Interestingly, the courts have
determined that if a gambler uses a check at an Australian casino,
and the check was drawn by a Hong Kong resident, on a Hong
Kong bank, the jurisdiction would not be Australia, where the
gambling took place, but rather Hong Kong.443
It has been reported that the Burswood Casino, in Western
Australia, recently initiated proceedings to sue six Malaysians to
recover over one million dollars (Austl.) in gambling debts, as well
as a seventh Malaysian “highroller,” who alone owes over two million dollars (Austl.), including interest.444 The largest individual
debt exclusive of interest, $2.05 million (Austl.), was reportedly
settled when a Malaysian Member of Parliament agreed to pay in
installments.445 After legal proceedings were initiated, one of the
remaining defendants, a lawyer from Klang, was reportedly makId. ¶ 71.
Id. ¶¶ 71-72.
439 Id. ¶ 73; Hector L. MacQueen, Sponsiones Ludricae and Bingo Winning Agreements, SCOTS L. NEWS, available at http://www.law.ed.ac.uk/sin/index.asp?page=111.
440 Neville D’Cruz, Casino Takes Legal Action Against Malaysians, MALAY. GEN. NEWS,
July 1, 1998.
441 Ruth Mathewson, Casinos Hunt HK Punters Over Huge Gambling Debts, S. CHINA
MORNING POST, June 14, 1998, at 3.
442 Id.
443 Id.
444 D’Cruz, supra note 440; Peter Klinger, Casino Bid to Recoup $2M from High Roller,
AUSTRALASIAN BUS. INTELLIGENCE: THE W. AUSTRALIAN, Jan. 11, 2001, at P3, available at
2001 WL 2300888.
445 Australian Casino Drops Plan to Sue Malaysian MP, AAP NEWSFEED, June 11,
1998.
437
438
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ing arrangements to settle his debt of up to one million dollars
(Austl.).446
In Australia, two recent cases, which made their way through
the courts simultaneously, both involved gamblers seeking to recover monies lost while gambling.447 In both cases the gamblers
claimed that they were problem gamblers and that the casinos
should be held liable for their losses. The state of the law remains
in flux on this issue, given that the two cases had opposite
outcomes.
In Am. Express Int’l v. Famularo,448 an unsuccessful gambler
sought to avoid paying $88,300.97 (Austl.) to American Express
(AMEX).449 When AMEX sued him for that amount, Famularo not
only counter-claimed against AMEX, but also cross-claimed
against the hotel where he had gambled.450 The gambler allegedly
obtained cash advances on his AMEX card, totaling $67,777.50
(Austl.), on 226 occasions.451 The hotel and AMEX had a contract,
which prohibited the hotel from allowing credit card use for gambling purposes, and placed a burden on the hotel to ensure that
cash advances obtained by AMEX customers would not be used for
gambling.452 The agreement also provided that the merchant was
required to follow all applicable laws.453 The hotel had allegedly
failed to comply with the Liquor Act of 1982, which states that it is
a “condition of a hotelier’s license that the licensee is not to provide a cash advance in the hotel, or permit or suffer a cash advance to be provided in the hotel on behalf of the licensee.”454
The counter-claim against AMEX was dismissed because
AMEX had no notice of the wrongful conduct.455 However, the
gambler did succeed at trial on his cross-claim allegations that the
hotel’s conduct constituted misrepresentation and unconscionable
practice pursuant to the Trade Practices Act.456 Specifically, the
gambler claimed, and the court agreed, that he was a pathological
D’Cruz, supra note 440.
Am. Express Int’l v. Famularo, No. DCC1516 BG-G1, slip op. (D.N.S.W. Feb. 19,
2001) (on file with Chapman Law Review); Reynolds v. Katoomba RSL All Serv. Club Ltd.
(1999) 81-545 A. Tort R. 63,545 (D.N.S.W.), aff’d, Reynolds v. Katoomba RSL All Serv. Club
Ltd., No. CA 41030/99 (N.S.W. Ct. App. May 2, 2001), (LEXIS, International Materials,
Australia, New South Wales Unreported Judgments).
448 Famularo, No. DCC1516 BG-G1.
449 Id. at 1.
450 Id.
451 Id.
452 Id. at 3-4.
453 Id. at 4.
454 Id.; see also Liquor Act, 1982, N.S.W. ACTS § 20(4A) (2001).
455 Famularo, No. DCC1516 BG-G1, at 4-7.
456 Id. at 41. The Trade Practices Act provides compensation to the victim of unconscionable activity. Id. at 3 (“Section 51AB(1) of the Trade Practices Act 1974 (Cth) provides: (1) A corporation shall not, in trade or commerce, in connection with the supply or
possible supply of goods or services to a person, engage in conduct that is, in all the circumstances, unconscionable.”).
446
447
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gambler, and that the hotel knew of his condition.457 The court
accepted the uncontradicted expert psychiatric testimony of Dr.
Clive Allcock that the gambler had serious problems with controlling his gambling, which were exacerbated by the gambler’s use of
alcohol.458 The gambler also proved to the court’s satisfaction that
hotel personnel told him that he could use cash advances from a
credit card to gamble.459 In fact, the hotel installed the AMEX machine in the gaming area of the hotel at the gambler’s request.460
The court held that the hotel acted with knowledge and with intent to breach its agreement with AMEX, and to break the law.461
The Famularo court was successful in distinguishing an earlier case, Reynolds v. Katoomba RSL All Services Club Ltd.462
Reynolds, a casino patron, sued the Katoomba Club for negligence
and unconscionable actions related to the his gambling losses.463
Specifically, Reynolds’s cause of action was based on an agreement between the parties to prevent Reynolds from gambling at
the club. Reynolds alleged that he was addicted to gambling and
had specifically asked the Katoomba Club to refuse to allow him to
gamble on credit, or allow his checks to be cashed.464 After several
months of honoring the agreement, Katoomba started allowing
Reynolds to gamble on credit.465 Ultimately, over a four-year period, Reynolds gambled and lost $56,968.83 (Austl.).466
The trial court found that Reynolds was a problem gambler,
that the manager of the Katoomba Club should have been aware
of that fact, and that the club cashed Reynolds checks knowing he
would use the money for gambling.467 Nevertheless, the trial
judge concluded that Reynolds had free will, and should be held
responsible for his actions.468 Most importantly, the trial court
concluded that the Katoomba Club owed no duty to the gambler.
The court noted that no case had ever found a duty of care under
such circumstances, and declined to do so itself.469
The court in Famularo distinguished Reynolds on two
grounds. First, in Famularo, the hotel made misrepresentations
Id. at 26, 31-35.
Id. at 34.
459 Id. at 19-20.
460 Id. at 16-17.
461 Id. at 41.
462 Reynolds v. Katoomba RSL All Serv. Club Ltd. (1999) 81-545 A. Tort R. 63,545
(D.N.S.W.).
463 Id.
464 Id. at 63,547.
465 Id. at 63,548.
466 Id. at 63,545.
467 Id. at 63,549.
468 Id.
469 Id. at 63,549-50.
457
458
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to the effect that the disputed cash advances were permitted.470
Second, in Famularo, the cash advances were illegal under the express provisions of the Liquor Act.471 The court ruled in favor of
AMEX, against the gambler who, in turn, was awarded judgment
against the hotel for almost the same amount.472
The Reynolds case was appealed, and the appeal was decided
after Famularo.473 The Reynolds appellate court (Reynolds II) was
less sympathetic to the gambler. On appeal, Spigelman, C.J.,
stated bluntly:
Save in an extraordinary case, economic loss occasioned by gambling should not be accepted to be a form of loss for which the
law permits recovery. I make allowance for an extraordinary
case, without at the present time being able to conceive of any
such case. . . . The interest sought to be protected is the avoidance of a risk of loss of money through gambling. That risk,
when it came to pass, was entirely occasioned by the Appellant’s
own conduct. It is not an interest, which, in my opinion, the law
should protect.474
Powell, J., distinguished Famularo on the ground that in Famularo there was no allegation of negligence.475 Rather, Famularo
involved misleading conduct in violation of the Trade Practices
Act and a breach of the Liquor Act.476 Additionally, Giles, J., also
writing for the appellate court in Reynolds II, stressed that the
casino owed no duty of care to the patron because it exercised no
control over him.477
One remarkable gambling debt case now before the courts is
that of Craig Rosendorff, who allegedly lost over four million dollars (Austl.) betting on credit with the Western Australian Totalisator Agency Board (“TAB”).478 In 1999, Rosendorff reportedly
sued the TAB, alleging that it had allowed him to use a private
betting room and place bets on credit, which he would then pay off
each Thursday.479 Rosendorff’s claim is reportedly based on the
470 Am. Express Int’l v. Famularo, No. DCC1516 BG-G1, slip op., at 37 (D.N.S.W. Feb.
19, 2001) (on file with Chapman Law Review).
471 Id. at 30-31.
472 Id. at 46. The court ordered Famularo to pay American Express $88,300.77 and
costs, and for the hotel to pay Famularo $85,043.44 plus costs, including those incurred in
his suit against AMEX. Id. at 46-47.
473 Reynolds v. Katoomba RSL All Serv. Club Ltd., No. CA 41030/99 (N.S.W. Ct. App.
May 2, 2001), (LEXIS, International Materials, Australia, New South Wales Unreported
Judgments).
474 Id. at Spigelman, C.J. opinion.
475 Id. at Powell, J. opinion.
476 Id.
477 Id. at Giles, J. opinion.
478 Lawyers Discover Compulsive Gambling, ROLLING GOOD TIMES ONLINE, Feb. 12,
1999, at http://www.rgtonline.com/h-articles/newspage2/A3128.html (last visited Mar. 11,
2002).
479 Id.
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illegality of advancing credit for gambling purposes.480 Reportedly, a significant issue in the case was whether Rosendorff would
have to prove that every one of the five hundred thousand bets
was made on credit, that no cash was advanced, and that bets
were not made from any accumulated winnings.481 Early in 2000,
the Western Australian Supreme Court reportedly held that
Rosendorff did not have to provide details on each and every bet.482
At oral argument, Justice Geoffrey Miller reportedly opined that if
Rosendorff were to be cross-examined on each bet, the trial could
take two years.483 This preliminary decision was reportedly crucial to the continued viability of Rosendorff’s claim because in the
opinion of one lawyer who represents gamblers, “Gamblers have
notoriously poor memories when it comes to remembering what
was said or done and when. They appear to live in a hazy and
unreal world where the facts are whatever is convenient for the
moment.”484
It is clear that gambling debts are enforceable in Australia.
The question of casino liability for problem gamblers, however, remains uncertain given the conflicting decisions in Famularo,
Reynolds, and the current case involving Rosendorff, the issue of
casino liability still needs to be settled.
480 Id. (quoting attorney Kevin Dundo who claimed the TAB activity violated section 33
of the TAB Act). Section 33 of the TAB Betting Act states:
The following provisions apply in relation to betting through the Board:
(a) the Board, or any of its officers, agents or employees shall not accept a bet
unless made––
(i) by the deposit of the amount of the bet in cash at a totalisator agency; or
(ii) by letter sent through the post or by telegram or telephone message received at a totalisator agency,
in accordance with the provisions of this Act;
(b) the Board, or any of its officers, agents or employees shall not accept any bet
that is made by letter or by telegram or telephone message or any horse race
unless—
(i) the person making the bet has, before the beginning of the race meeting at
which the horse race is to be held, established with the Board in accordance with this Act, a credit account sufficient to pay the amount of the bet
and has maintained the account up to the time of making the bet and the
bet is charged against that account; or
(ii) alternatively, in the case of a bet made by letter or telegram, the amount of
the bet is forwarded through the post with the letter or payment thereof is
arranged by telegram in accordance with this Act;
Totalisator Agency Board Betting Act, 1960, No. 50, § 33 (W. Austl.).
481 WA: Jeweller Allowed to Bet Millions on Credit, Court Told, AAP NEWSFEED, July
25, 2000. TAB’s lawyer said, “the TAB kept no records of credit betting, since whether a
client paid cash when a bet was placed was not recorded. Any records that were kept were
destroyed after eight weeks.” Id.
482 Id.; Mairi Barton, Claim on TAB Passes Hurdle, AUSTRALASIAN BUS. INTELLIGENCE,
Aug. 25, 2000 at 13.
483 WA: Jeweller Allowed to Bet Millions on Credit, Court Told, supra note 481.
484 Richard Brading, Gambling Litigation - The Last Word in Loss-Chasing, presented
at the Gambling Studies Conference (November 2000) (lecture notes on file with Chapman
Law Review).
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AUSTRIA
Austria generally defines gambling and wagering contracts as
“contract[s] in which the hope of an uncertain advantage is promised and accepted.”485 The Austrian Civil Code distinguishes
seven types of gambling and wagering contracts.486 The code also
provides that the political laws of Austria determine what types of
games are permissible and which are forbidden.487 These political
laws also codify the manner in which those persons carrying on
forbidden games, or who cheat in games, are to be punished.488
Generally, debts incurred as a result of entering into wagering and gambling contracts are not enforceable in court.489 This is
not to say that bets are non-binding on the parties who enter into
them. Bets that are fair and permissible under the law are binding insofar as they are paid to or deposited with the winner.490
Bets that are won as a result of fraudulent behavior, however, are
null and void.491 Rescission, a common form of contract remedy,
normally available in Austrian contracts when “the value of the
property exchanged differs by more than one-half,” is not available
for gambling and wagering contracts.492
The Austrian Civil Code exempts several forms of gaming
contracts, subjecting them instead to the general law of contracts.
These include drawing lots to settle disputes,493 and state lotteries.494 The code also includes several types of contracts that would
perhaps not traditionally be considered “gambling” or “wagering.”495 Contracts of sale, and other contracts that involve the expectation of future, yet uncertain rights are classified as gambling
or wagering contracts.496 Annuities and insurance contracts are
covered under the code, and thus, considered a type of gambling or
wagering contract.497
In sum, Austrian laws seem to simultaneously embrace some
of the more traditional notions of gambling enforcement, such as
485 THE GENERAL CIVIL CODE OF AUSTRIA § 1267 (Paul L. Baeck trans., Oceana Publications 1972) [hereinafter GENERAL CIVIL CODE].
486 The seven different types of gambling and wagering contracts are: bets, gambling,
the drawing of lots, contracts of future sale, annuities, common maintenance contracts, and
insurance contracts. Wilibald Posch, Austria, in 4 CONTRACTS 246 (Kluwer Law Int’l 1996).
487 GENERAL CIVIL CODE, supra note 485, § 1272.
488 Id.
489 Id. § 1271.
490 Id.
491 Id. § 1270.
492 Id. § 1268.
493 Id. § 1273.
494 Id. § 1274.
495 The civil code also governs “general maintenance contracts” which are now deemed
obsolete. Posch, supra note 486, at 246.
496 GENERAL CIVIL CODE, supra note 485, §§ 1275-76. See also Posch, supra note 486,
at 246-47.
497 Posch, supra note 486, at 246-47.
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providing no legal method for enforcing gambling debts, yet is
unique because it includes types of contracts that are generally
not considered to be bets or wagers in other countries. As is the
case in most other countries around the globe, in order to best understand Austria’s current gambling laws and attempt to predict
their future, one must keep a keen eye on the country’s political
climate.
V. BELGIUM
Belgian law generally regards a gaming debt as unenforceable because it is contrary to public policy and good manners.498 A
loser may not recover any monies paid under the law except when
fraud, deceit, or cheating is found on the part of the winner.499 In
1999, however, Belgian law was modified to allow the enforcement
of authorized gaming contracts.500 Authorized gaming includes
horse racing and licensed betting on the results of competitive
sports.501 The Belgian Civil Code retains the Roman law tradition
by providing for the enforceability of debts from games involving
arm exercise, foot, horse or chariot racing, tennis, and similar
games involving exercise and dexterity, provided that the enforcing court does not find the debt excessive.502
Belgian case law concerning the enforcement of gaming debts
is extremely limited.503 As a general rule, Belgian courts will enforce foreign judgments and apply foreign law only if they can do
so without violating Belgium’s international public policy.504 International public policy encompasses domestic policies, which
embody ethical, political, or economic policies fundamental to
society.505
VI.
BRAZIL
Brazilian law states that gambling debts are unenforceable.506
Additionally, any amount that has been voluntarily paid cannot
be recovered unless payment was procured through deceit, the
loser was a minor, or payment was prohibited by court order.507
498 Thibault Verbiest, The Enforceability of Gaming Debts Under Belgian Civil Law 2
(unpublished manuscript, on file with Chapman Law Review).
499 THE CONSTITUTION OF BELGIUM AND THE BELGIUM CIVIL CODE 334 (John H. Crabb
trans., Fred B. Rothman & Co. 1982).
500 Verbiest, supra note 498.
501 Id. at 3.
502 THE CONSTITUTION OF BELGIUM AND THE BELGIUM CIVIL CODE, supra note 499, at
334.
503 Verbiest, supra note 498, at 4.
504 Id. at 1.
505 Id.
506 C.C. art. 1477.
507 Id.
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Furthermore, Brazilian law provides that loans for gambling purposes are unenforceable.508 There are, however, exceptions to this
prohibition. First, the prohibition does not extend to a third-party
purchaser acting in good faith.509 Second, the prevailing view
among Brazilian legal scholars is that gambling debts incurred legally outside Brazil, in jurisdictions such as Nevada and New
Jersey, are enforceable.510 Third, the statutory language has been
interpreted to apply only to:
[C]redit granted at the actual moment of gaming and not either
before or after the act of betting. Therefore, if the credit is
granted to the patron either before or after he gambles, but not
during his gambling, the resulting debt under this reasoning
would not be unenforceable pursuant to Article 1478 of the Brazilian Civil Code.511
If a casino attempts to register a foreign judgment against a
Brazilian resident, “exequatur proceedings,” which are established by the Supreme Court of Brazil, must be followed.512 The
casino must directly submit a petition, submit to a review of service of process, and file a cause of action with one of the Brazilian
Supreme Court Justices in order to initiate an exequatur proceeding.513 The enforceability of the debt is “subject to ‘public policy’
considerations (i.e. the ‘legality’ of the underlying obligation).”514
In order to evade high costs and the low probability of success associated with the exequatur proceeding process, an action based
on a negotiable instrument signed by a gambler to “a non-casinoaffiliated company” might prove to be a more viable alternative.515
The process applicable to negotiable instruments in most Latin
American countries, such as Brazil, is precise and clearly codified,
ultimately providing more certainty than the exequatur proceeding process.
VII.
CANADA
The legality of gambling and the enforcement of gambling
debts varies by province or territory,516 just as it does in the
United States. In the four western provinces, the Statute of Anne
Id. art. 1478.
Thomas J. Skola, The Collection of Gaming Debts Outside the United States, at
http://www.poliakoff.com/publications/article_archive/collection_gaming_debts.htm (last
510 Id.
511 Id.
512 Id.
513 Id.
514 Id.
515 Id.
516 Boardwalk Regency Corp. v. Maalouf, [1992] 88 D.L.R.4th 612, 614, available at
1992 D.L.R. LEXIS 1827.
508
509
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and the English Gaming Acts of 1835 and 1845, are currently “in
force as a result of the date of reception of English laws in
1870.”517 In other provinces, such as New Brunswick, however,
English statutes passed after 1660 “did not extend to the colony of
which New Brunswick formed a part unless there was some provision in them to that effect.”518 Yet in 1786, New Brunswick passed
legislation in the spirit of the Statute of Anne, which voided all
securities given for gaming, and allowed anyone “who lost more
than 20 shillings within 24 hours,” or at one meeting to sue for
lost monies within one month.519 Nevertheless, recent Canadian
cases have uniformly enforced gambling judgments obtained in
the United States.520
In Ontario, courts will enforce gambling debts legally incurred in foreign jurisdictions, so long as such enforcement does
not “violate conceptions of essential justice and morality.”521 In
Boardwalk Regency Corp. v. Maalouf,522 the court allowed the enforcement of a New Jersey judgment against a Toronto businessman for nearly fifty thousand dollars (U.S.).523 The court
emphasized that the evidence overwhelmingly indicated that the
parties intended to be bound and governed by New Jersey law.524
The court then stated that the provisions of the Ontario Gaming
Act were irrelevant, except as an indication of the province’s public policy.525 The court stressed that recent events, such as allowing ten-dollar blackjack bets at the Canadian National
Exhibition in 1991, indicate that gambling is no longer considered
morally repugnant.526
517 Peter Bowal & Caroline Carrasco, Taking a Chance on it: The Legal Regulation of
Gambling, 22(2) LAW NOW, Nov. 1997, at 28-30.
518 Velensky v. Hache, [1981] 121 D.L.R.3d 747, 749, available at 1981 D.L.R. LEXIS
3466.
519 Id. at 751.
520 E.g., Horseshoe Club Operating Co. v. Bath, No. C954434, 1997 A.C.W.S.J. LEXIS
155710, at *4 (B.C. S. Ct. May 9, 1997) (recognizing a Nevada gambling judgment, relying
on Moulis v. Owen, 1 K.B. 746 (1907), but stating that the English Gaming Act of 1845
would not have allowed an action based on the debt); Golden Nugget Las Vegas Corp. v.
Hooi, No. C912325, 1992 A.C.W.J.S. LEXIS 31446 (B.C. S. Ct. Apr. 8, 1992) (enforcing a
Nevada gambling judgment); MGM Grand Hotel, Inc., v. Kiani, No. 9703 09761, 1997
A.C.W.S.J. LEXIS 160440 (Ont. Ct. App. Nov. 6, 1997) (holding that a Nevada gambling
judgment was enforceable rejecting the public policy defense).
521 Maalouf, 88 D.L.R.4th at 615 (Lacourciere, J., concurring).
522 Id. at 612.
523 Id. at 624.
524 Id. at 620.
525 Id. Cf. Ontario Gaming Act, R.S.O. ch. 183, §1 (1980) (“Every . . . bill . . . the consideration for which . . . is money . . . won by gaming . . . shall be deemed to have been . . .
drawn . . . for an illegal consideration.”); see also id. § 4 (gaming debts are not enforceable
in court). Operating a common gaming house is a criminal offense pursuant to the Criminal Code, R.S.C. ch. C-46, §§ 197, 201(1) (1985) (Can.).
526 Maalouf, 88 D.L.R.4th at 623. In addition, Judge Carthy favorably cited the reasoning of Intercontinental Hotels Corp. v. Golden, 203 N.E.2d 210, 212-13 (N.Y. 1964), concerning public policy. Maalouf, 88 D.L.R.4th at 624.
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Judge Lacourciere in a concurring opinion, and Judge Arbour,
in dissent, both used public policy, and the morality of gambling,
to support their opposing conclusions.527 In supporting the majority’s decision, Judge Lacourciere argued that Canada should not
shelter gamblers who run up debts in other countries; Canadian
morality required debtors, even gambling debtors, to fulfill their
obligations.528 On the other hand, Judge Arbour stressed the social costs associated with gambling, its connection to crime, and
the immorality of gambling.529 Judge Arbor further noted that the
New Jersey activities, if conducted in Ontario, would be criminal.530 In essence, by permitting “recovery of a debt outside Ontario under circumstance that would be criminal under the same
circumstances in Ontario . . . Ontario public policy . . . [must] yield
to foreign law.”531
In 1993, a Toronto lawyer lost over twenty thousand dollars
(U.S.) at an Atlantic City casino.532 When his countercheck was
dishonored, the casino sued him in the Ontario Court of Justice.533
The defendant argued that the Maalouf decision should be distinguished, as Maalouf involved registering a foreign judgment,
whereas in his case the casino commenced direct litigation in the
Canadian court.534 The trial judge found the distinction unwarranted.535 The judge opined that a person who gambles legally in
a foreign county, with the intention of using the laws of Canada to
avoid the debt, “richly deserves the courts contempt.”536 The judge
further stated that if Ontario’s Gaming Act could be used as the
debtor requested, it would “spawn an evil more heinous than the
one, ostensibly, it was intended to guard against.”537 The judge
determined that the Gaming Act, should be narrowly construed,
as societal opinion on gaming had changed, evidenced by the fact
that Ontario would soon be opening its own casinos.538
527 Maalouf, 88 D.L.R.4th at 614-16 (Lacourciere, J., concurring), 627-32 (Arbour, J.,
dissenting).
528 Id. at 618.
529 Id. at 625-31.
530 Id. at 631.
531 Id.
532 Atlantic City Showboat, Inc. v. Smith, No. 92-CU-48786, 1993 A.C.W.S.J. LEXIS
47765, at *1 (Ont. Gen. Div. July 6, 1993).
533 Id. at *2.
534 Id. at *2-3.
535 Id. at *3.
536 Id. at *4.
537 Id.
538 Id. at *3. In 1999, Ontario gaming laws were amended to permit casinos to extend
credit to a player who filled out an exhaustive credit file. Ontario Gaming Control Act,
R.R.O. ch. 385/99, § 29(1)-(4), (11), (12) (1999). A player must also sign a countercheck to
the casino, which is then deposited if the credit is not repaid within thirty banking days.
Id.
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Quebec courts reached a similar result concerning the enforcement of a New Jersey judgment in Auerbach v. Resorts International Hotel, Inc.539 In that case, the appellate court affirmed a
trial court’s decision to enforce a debt, notwithstanding the fact
that Quebec laws would have barred enforcement.540 The court
stressed that the action would have been unenforceable under the
civil code of lower Canada.541 The court likewise affirmed the New
Jersey judgment, as “it would be quite contrary to public order if
Quebec became a refuge for gamblers who could keep winnings
from a gaming or betting activity yet refuse to pay debts they had
previously contracted and acknowledged by signing some cheque
or credit note.”542
In Quebec, an unusual, and apparently not illegal, method of
providing credit for gambling has developed at the Montreal Casino, where loan sharks will lend money to players in casino
restrooms.543 Apparently, lending at ten percent for twenty-four
hours is not a criminal offense in Quebec, and loan sharks only
provide gamblers with casino tokens, not cash.544
Alberta will also enforce gambling judgments from the United
States. In MGM Hotel Inc. v. Kiani,545 a casino asked the court to
enforce a Nevada default judgment.546 Adopting the position
taken in Maalouf, the Master granted summary judgment in favor
of the casino, explaining that public policy could no longer bar relief, as gambling had become an accepted “indoor sport” in Alberta.547 The result may have been different, however, if the
Nevada casino had attempted to enforce a gambling debt directly
in an Alberta court, without having first obtained a default
judgment.
In Financial Collection Agencies Ltd. v. Edenoste,548 a collection agency that was assigned the gambler’s nineteen thousand
[1991] 89 D.L.R.4th 688, available at 1991 D.L.R. LEXIS 2159.
Id. at 688.
Id. at 690; see R.S.Q. ch. XVI, art. 2630 (2000).
Art. 2630. Where gaming and wagering contracts are not expressly authorized by
law, the winning party may not exact payment of the debt and the losing party
may not recover the sum paid.
The losing party may recover the sum paid, however, in cases of fraud or trickery
or where the losing party is a minor or a person of full age who is protected or not
endowed with reason.
539
540
541
Id.
Auerbach, 89 D.L.R.4th at 693.
Lynn Moore, Loan Sharks Hunt for Prey in Quebec Casinos: Some Money-Lenders
have been Banned from Gambling Sites, but Lending Cash is Not Illegal, VANCOUVER SUN,
Jan. 20, 1997, at B10.
544 Id.
545 No. 9703 09761, 1997 A.C.W.S.J. LEXIS 16440 (Ont. Ct. App. Nov. 6, 1997).
546 Id. at *1.
547 Id. at *12.
548 No. 9203 23830, 1994 A.C.W.S.J. LEXIS 71704 (Alta. Q.B. June 7, 1994).
542
543
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dollar gambling debt sued the gambler’s estate.549 The Master denied the plaintiff’s motion for summary judgment, and referred
the matter for trial based on the affirmative defense of champerty.550 The court then explained why this collection agency
agreement was atypical:
[I]n the normal course of business a collection agency would arrange to have legal proceedings commenced, and would look to
the client to reimburse it for an amount disbursed in having the
matter sued to judgment. Thereafter the collection agency
would be entitled to some agreed commission on funds it actually collected. That is a totally different kind of arrangement
from the one that was concluded between Gold Nugget and
F.C.A. here, where F.C.A. took over the Gold Nugget claim entirely, undertook to be itself responsible for legal expenses, and
agreed to pay Gold Nugget a certain percentage of funds collected. That sort of an arrangement appears to fit within the
definition of a champertous agreement, and appears to involve
officious intermeddling.551
In Manitoba, the English Gaming Act of 1835 was held by the
Court of Appeals to be enforceable under Manitoban law, notwithstanding various constitutional challenges.552 In Red River Forest
Products Inc. v. Ferguson,553 the respondent purchased a two hundred thousand dollar promissory note to satisfy a gambling
debt.554 The plaintiff argued that the Gaming Act of 1835 is not
valid because it was not translated into both official languages, as
is required by the Manitoba Act of 1870.555 The trial court concluded that, while the Gaming Act is valid in Manitoba, the note
was given for illegal consideration, and was therefore unenforceable.556 The appellate court agreed, stating:
The purpose of the Gaming Act is an endeavor to regulate and
prevent excessive gambling, and the primary objects of the statute are to declare every agreement, note, bill and other forms of
security, the consideration for which is money won at gaming, to
have been made or given for an illegal consideration, and to enable the loser of a wager to recover it back after it has been paid
to the winner. It is not legislation the purpose and object of
Id. at *2-4.
Id. at *22. The court cited Black’s Law Dictionary to define champerty as: “a bargain by a stranger with a party to a suit, by which such third person undertakes to carry on
the litigation at his own cost and risk in consideration of receiving, if successful, a part of
the proceeds sought to be recovered.” Id. at *12.
551 Id. at *18.
552 Red River Forest Prod., Inc. v. Ferguson, [1992] 98 D.L.R.4th 697, 698, available at
1992 D.L.R. LEXIS 2363.
553 Id.
554 Id. at 700.
555 Id. at 699.
556 Id.
549
550
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which is directly concerned with bills of exchange or promissory
notes.557
Ultimately, the appellate court rejected the plaintiff’s appeal.558
VIII.
FRANCE
French law concerning gaming and betting has evolved “from
moral prohibition, through tolerance, to modern organization as a
collective activity bringing income to the state.”559 The drafters of
the French Civil Code reluctantly welcomed this new “modern organization.”560 The drafters’ hostility concerning gaming is evident from the tone of the Civil Code, and from the existence of the
high standard that is required before any action for recovery will
succeed.561 The Civil Code states, “The law does not allow an action for a debt at play or for the payment of a wager.”562 Additionally, the Civil Code denies relief for any recovery of paid wagers
providing, “In no case can the loser recover what he has voluntarily paid, unless there . . . [has] been on the part of the winner foul
play, fraud, or cheating.”563
Consistent with the harsh standards of the Civil Code, the
Cour de Cassation564 has historically held that checks remitted to
an authorized gambling casino are void, and therefore, the loser
may still refuse to pay even if he wrote a check to the winner.565
However, the Cour de Cassation has recently reversed its prior
line of cases. Currently, checks remitted to authorized gambling
casinos are valid, and thus, lenders have recourse against losers
for the payment of the debts.566 These recent decisions make it
apparent that “modern organization” of gaming is slowly achieving acceptance in France, although the Civil Code, with its harsh
tone and standards, is still in effect to this day.
IX.
GERMANY
German casinos, like those of many other European nations,
cannot extend credit.567 German law concerning gambling debts is
557
558
559
Id. at 717.
Id. at 699.
J. Schmidt-Szalewski, France, in 2 CONTRACTS 242 (Kluwer Law Int’l Supp. 25 Oct.
1999).
Id.
Id. See also C. CIV. §§ 1965-67, available at http://www.napoleonseries.org/reference/political/code/book3/title12.cfm.
562 C. CIV. § 1965.
563 Id. § 1967.
564 Cour de Cassation refers to the highest court of ordinary jurisdiction in France.
565 Schmidt-Szalewski, supra note 559, at 242.
566 Id.
567 Compare Joseph Kelly et al., Germany, in INTERNATIONAL CASINO LAW 379
(Anthony N. Cabot et al. eds., 3d ed. 1999) [hereinafter INT’L CASINO LAW], with Magdolna
Kocsis, Hungary, in INT’L CASINO LAW supra, at 432 (“According to the Hungarian regula560
561
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clear—they are unenforceable and if the losing party pays the
debt, he may not recover any monies.568 The relevant statute
states:
[Non-binding obligation]
(1) No obligation is created by gaming or betting. What has been
given by reason of the gaming or betting may not be demanded
back on the ground that no obligation existed.
(2) These provisions apply also to an agreement whereby the losing party, for the purpose of satisfying a gaming debt or a bet,
incurs an obligation towards the other party, particularly an acknowledgment of the debt.569
Moreover, German courts will not enforce a futures contract, because futures contracts are considered to be gaming contracts.570
The courts have also refused to register foreign gambling
judgments. In Societe Generale Alsacienne de Banque SA v.
Koestler,571 the European Court of Justice held that Germany did
not have to recognize gambling debts, even if they were legal in
the country where the debt arose, so long as German law was applied in a nondiscriminatory manner.572 In Koestler, the plaintiff
was a French bank, which, on the instructions of the defendant,
placed futures orders on the Paris stock exchange.573 The defendant, a German resident, incurred a large overdraft with the bank
as a result of the losses he incurred.574 The court held that the
obligations entered into by the defendant must be treated in the
same way as debts arising out of a wagering contract.575 The court
further found that because Germany barred recovery by legal action of certain debts, such as debts arising out of wagering contracts, this cause was not actionable in court, even though it may
have been actionable in the member state in which it occurred.576
In LG Mönchengladbach,577 a German court refused to enforce
a gambling debt judgment from the U.S. District Court for Nevada.578 The German court suggested that the litigation should
tions, casinos cannot grant credit to the gamblers.”), and Malgorzata Rogowicz-Angierman,
Poland, in INT’L CASINO LAW, supra, at 454 (“In Poland casinos are not allowed to grant
credits to their clients. Any claims with regard to the games are resolved by a casino manager, and in case of any further questions, by an appropriate court.”).
568 1 B.S. MARKESINI ET AL., THE LAW OF CONTRACTS AND RESTITUTION: A COMPARATIVE
INTRODUCTION 726-27 (Clarendon Press 1997).
569 § 762 BGB. German law allows for the enforcement of a lottery or raffle contract,
only if it is approved by the government. Id. § 763.
570 Id. § 764.
571 1978 E.C.R. 1971.
572 Id. at 1981.
573 Id. at 1978.
574 Id.
575 Id. at 1979.
576 Id. at 1981.
577 Landgericht Mönchengladbach, 34 O 87/93, Aug. 6, 1994, at 1374.
578 Id.
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have been commenced directly in Germany where the bettor could
use the defense of compulsive gambling.579 In conclusion, the
court stated that it would be against fundamental principles of the
German legal system to allow an entity to profit from a person’s
gambling problem.580
X. GREECE
Greece prohibits both the enforcement of gambling debts, and
recovery actions by gamblers for sums already paid.581 However,
like many European nations, Greek law creates an exception for
recovery of gambling-related sums paid on account of fraud by the
winner.582 According to Article 844 of the Civil Code, gambling
debts do not constitute an enforceable obligation;583 there are,
however, exceptions. Greek legislation has made gambling debts
related to certain permitted forms of gaming, such as football
pools, enforceable.584 Additionally, legal casinos may be exempted
from the general prohibition against the enforcement of gambling
debts if the debts have been legally verified.585 The Greek government has reportedly begun to require casinos to “face some heavy
house rules including forcing customers to show their tax returns
as proof that they can afford to play” after the suicide of a businessman who ran up gambling debts in the amount of two billion
drachma.586
XI.
HONG KONG
Hong Kong decisions have determined that enforcement of a
gambling debt incurred legally in another jurisdiction does not violate Hong Kong public policy. In Wong Hon v. Sheraton Desert
Inn Corp.,587 the defendant issued three checks for nearly $2.5 million (U.S.) in return for twenty markers from the plaintiff’s Las
Vegas casinos.588 The defendant’s checks were dishonored.589 The
Court of Appeals affirmed the lower court’s judgment against the
Id.
Id.
Michael P. Stathopoulos, Hellas, in 3 CONTRACTS 1, 31 (Kluwer Law & Taxation
supp. 5 Sept. 1994).
582 Id. at 241.
583 John Andrews Anagnostaras & Harry Melvani, Greece, in INT’L CASINO LAW, supra
note 567, at 422.
584 Stathopoulos, supra note 581, at 241.
585 Anagnostaras & Melvani, supra note 583, at 422 (citing casino Law No. 2206/1994
(art. 3.9)).
586 Equivalent to about £4.3 million. European Business: Can’t Pay, Won’t Pay,
Mustn’t Bet, DAILY TELEGRAPH (London), Mar. 4, 1998, at 29, available at 1998 WL
3001355.
587 1995 HKC LEXIS 719 (Ct. App. July 14, 1995).
588 Id. at *6.
589 Id.
579
580
581
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defendant.590 Specifically, the court disregarded the defendant’s
contention that the markers were not a loan.591 The court noted
that the transaction was valid pursuant to Nevada law and English authority.592 Thus, there was no violation of the Statute of
Anne, which is incorporated into Hong Kong law.593 Lower courts
have similarly concluded that loans to gamblers, in jurisdictions
where they were legal, do not bar enforcement of the debt in Hong
Kong. In its decision in Wong Hon,594 for example, the trial court
opined that Hong Kong law should not dictate the behavior of
those outside of the nation.595
In Las Vegas Corporation v. Lo Yuk Leung,596 a Nevada casino
sued a Hong Kong citizen over unpaid gambling markers totaling
nearly three million dollars (U.S.).597 The debtor sought a stay of
the casino’s suit on the grounds that Nevada, rather than Hong
Kong, was the proper venue for the action.598 The court determined that this argument had no merit and was merely a delaying
tactic.599 When this argument was unsuccessful, the debtor then
utilized three defenses in response to the casino’s summary judgment motion.600 These defenses included: there was no valid
credit instrument, the Nevada law was unconstitutional, and that
recovery would be against public policy.601
The judge dismissed any evidentiary conflicts as to whether
the markers constituted valid credit instruments pursuant to Nevada law.602 On the constitutionality issue, after hearing experts
on both sides, the judge determined that the Nevada law was not
in violation of the U.S. Constitution.603 Perhaps the most interesting aspect was the judge’s analysis of whether enforcement of the
Nevada gambling debt would violate Hong Kong’s public policy.
While the court stated that gambling is generally unlawful in
Hong Kong, it noted that there was some legal, and even government-sponsored, gambling.604 Thus, it concluded that public policy did not make gambling per se illegal.605
Id. at *17.
Id. at *8.
Id. at *11, 14.
Id. at *12-14.
1995 HKCU LEXIS 95 (S. Ct. H.K. Mar. 10, 1995).
Id. at *4.
1997 HKCU LEXIS 959 (High Ct. H.K.1 Nov. 28, 1997).
Id. at *1.
Id. at *1-2.
Id. at *7-8.
Las Vegas Hilton, Corp. v. Lo Yek Leung, 1998 HKCU LEXIS 40, at *1 (High Ct.
H.K. Admin. 1 Jan. 19, 1998).
601 Id.
602 Id. at *7-8.
603 Id. at *13.
604 Id. at *18-19.
605 Id. at *19.
590
591
592
593
594
595
596
597
598
599
600
2002]
147
The defendant also argued that the debt should not be enforced because he was a compulsive gambler.606 The court rejected
this defense, explaining that persons afflicted with many types of
addictions are held responsible for their actions, and businesses
do not have a duty to protect their patrons from themselves.607 In
conclusion, the judge stated that it would be extremely arrogant to
refuse to enforce debts that were legally incurred in another
nation.608
XII.
ISRAEL
Israeli law states that contracts are void if illegal, immoral, or
against public policy.609 The Israeli courts do not consider gambling to be against a law, morality, or public policy.610 Israeli law
has legalized some forms of gambling, including its national lottery.611 Thus, so long as a gambling debt was legally incurred, it is
enforceable.612 However, Israeli law does not allow the enforcement of an illegal gambling debt.613 Israel has retained the skill
versus chance distinction from Roman law. The Israeli courts define unenforceable gambling contracts as “a gambling, lottery or
betting contract under which a party may win some benefit, the
winning being dependent on fate, guess-work or chance, rather
than on understanding or ability, and which is not regulated or
permitted by law.”614
Israeli courts have determined that foreign gambling debt
judgments are not per se against Israeli public policy.615 Should
an Israeli citizen incur a gambling debt in a foreign jurisdiction, it
will be enforced so long as the final judgment is from a country
that will enforce an Israeli judgment.616 Application for enforcement in Israel must be made no later than five years after the
date of the foreign judgment, and the debtor must have had a reasonable opportunity to present his arguments.617 Nevertheless,
the courts retain a narrow residual discretion to refuse enforcement of foreign judgments.618
Id. at *20.
Id. at *20-21.
Id. at *26.
The Contracts (General Part) Law, 1973, 27 L.S.I. 122, (1972-73).
Id.
Avaraham Katz-Oz, Words From the Chairman, at http://www.pais.co.il/new_pais/
serve/Templates/english/words.asp?p_folderID=212 (last visited Mar. 23, 2002).
612 27 L.S.I. 122.
613 Id.
614 Id.
615 Memorandum from Gil White, Attorney, Herzog, Fox & Neeman, to Joseph Kelly,
Professor of Business Law, SUNY College Buffalo (Nov. 14, 2001) (on file with Chapman
Law Review).
616 Id.
617 Id.
618 Id.
606
607
608
609
610
611
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XIII.
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ITALY
Italian law does not allow an action to enforce debts arising
from gambling or wagers, even if the debt is incurred while gambling legally.619 Italy has retained the Roman law tradition. Wagers on sporting events and racing, by both participants and
spectators, are exempt from the non-actionability rule.620 Courts
may reject or reduce claims for winnings on sporting events and
races if the court considers the amount of the wager to be
excessive.621
Italian law also does not allow the extension of credit for the
purpose of gambling because such loans are against good
morals.622 Additionally, recovery actions are not permitted.623 If
bets are placed on state lotteries or contests sponsored by the
state, a winner may file an action to claim winnings from the
state.624
XIV.
JAPAN
Gambling is prohibited in Japan, and winners may not enforce gambling claims against losers because such claims are
against public policy.625 However, a gambler who loses may be
able to recover his or her losses under a theory of restitution because the benefactor of the losses obtained the wagers
illegitimately.626
Japan has a policy of recognizing and enforcing final judgments of foreign courts.627 Ordinarily, foreign judgments that are
contrary to public policy are not enforced in Japan, but this rule is
not applied to transactional cases.628 Therefore, money judgments
from foreign courts will be enforced even if the judgment is based
on “gambling or other immoral transactions.”629 It is reported that
this rule allowed a casino to recover a gambling debt in a Japanese court when the defendant did not raise the public policy
issue.630
619
C.C. 1933, translated in THE ITALIAN CIVIL CODE 132 (Oceana Publ’n, Ind. Aug.
2001).
620
621
622
C.C. 1934, translated in THE ITALIAN CIVIL CODE, supra note 619.
Id.
P.H. MONATERI ET AL., Italy, in 3 CONTRACTS 126 (Kluwer Law Int’l Supp. 22 Jan.
1999).
Id.
Id.
HIROSHI ODA, JAPANESE LAW 206 (Butterworths 1992).
Id.
5 DOING BUSINESS IN JAPAN at 5-60 (Zentaro Kitagawa ed., 2001).
Id. at 5-64.
Id.
Id. at 5-65 (citing Las Vegas v. Chin, 794 HANREI TIMES 246 (Tokyo Dist. Ct. Dec.
16, 1991)).
623
624
625
626
627
628
629
630
2002]
149
It must be cautioned that Japan’s laws on conflicting judgments may lead to harsh results for parties seeking to enforce
gambling debts through foreign court judgments. A Japanese
debtor may sue in Japanese court to have his or her debt declared
unenforceable as against public policy.631 If a foreign judgment is
rendered prior to the Japanese court’s judgment, the foreign judgment will be enforced as res judicata.632 However, if the party
does not start an action to enforce the foreign court judgment prior
to a Japanese court rendering a conflicting judgment, the Japanese judgment will protect the debtor from enforcement.633
XV.
MALAYSIA
Malaysian courts have evidenced a willingness to enforce
gambling debts incurred legally in another jurisdiction. In Aspinall Curzon Ltd. v. Khoo Teng Hock,634 a gambler purchased
chips at a licensed casino with a check and when he lost, he
stopped payment on the check.635 The casino sued him for the
amount of the check in a British court, and then sought to register
the British judgment in Singapore.636 The defendant argued that
the judgment should be unenforceable because it is against public
policy in Great Britain.637
In dicta, the judge expressed criticism of the defendant’s public policy defense stating, “[W]hat is public policy? . . . It is a very
unruly horse, and when once you get astride it you never know
where it will carry you. It may lead you from the sound law. It is
never argued at all but only when other points fail.”638 The judge
determined that the law of the country in which the contract was
formed governs, in this case, Malaysia.639 The court then held that
the British judgment was enforceable because the contract was
lawful under Malaysian law and did not violate Malaysian public
policy.640
In another recent case, it was reported that a businessman,
Datuk Sng Chee Hua, sought to set aside a British judgment for
Id. at 5-59.
Id. However, the Japanese concept of res judicata is narrower than the American
concept. Res judicata in Japan is “strictly limited to the immediate parties and the matters
expressly contained in the formal disposition.” Id. Therefore, Japanese law does not recognize the concept of collateral estoppel. Id.
633 Id. at 5-69.
634 1991 MLJ LEXIS 147 (High Ct. Kuala Lumpur Feb. 18, 1991).
635 Id. at *5. Malaysian law permits the licensing of gaming houses. Id. at *9-10, *13.
636 Id. at *4-5.
637 Id. at *10-11.
638 Id. at *11-13 (citations omitted).
639 Id. at *10 (citing Saxby v. Fulton, 2 K.B. 208 (1909)).
640 Id. at *10, 13.
631
632
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three hundred thousand pounds.641 The gambler had reportedly
wagered at Grosvenor Casino, a licensed London entity, and his
check was dishonored.642 The High Court reportedly rejected his
argument that the enforcement of the debt was against public policy.643 The debtor reportedly withdrew his appeal and, in a settlement recorded before the High Court, agreed to make installment
payments over a stipulated period.644
XVI.
MEXICO
Mexican law does not permit the enforcement of a debt based
on “forbidden gaming proceeds.”645 The Mexican Civil Code contains recovery provisions that are similar to the Statute of Anne.
Under the Code, “Persons, or their heirs, who voluntarily pay a
debt originating from a forbidden game are entitled to demand the
return of fifty (50%) percent of what was paid. The remaining fifty
(50%) percent shall not remain with the winner but shall be delivered to public charity.”646 This rule of unenforceability also serves
to bar the enforcement of gambling debts converted into other
forms, which would otherwise constitute a legally enforceable obligation.647 Gaming debt losses from games that are not prohibited
are enforceable “as long as the amount of the loss does not exceed
one-twentieth of [the debtor’s] assets. A cause of action provided
under this Article shall be barred within thirty days.”648 Additionally, otherwise invalid “method[s] of chance” create legally recognized obligations when used to sell a dispute or divide a common
asset.649
XVII.
THE NETHERLANDS
Modern Dutch law regards gaming and wagering contracts as
unenforceable.650 A loser may only claim restitution in instances
641 Businessman’s 300,000 Pound Sterling Foreign Gambling Debt Settled, MALAY.
GEN. NEWS, Oct. 31, 2000.
642 Id.
643 Id.
644 RM1.7m Settlement Over Gambling Debt Recorded, NEW STRAITS TIMES (Malay.),
Nov. 1, 2000, at 15.
645 C.C.D.F. art. 2764, translated in MEXICAN CIVIL CODE 631 (Abraham Eckstein &
Enrique Zepeda Trujillo trans., West 1996) (Article 2764 “There is no cause of action under
the law for a claim of forbidden gaming proceeds. The Penal Code shall set forth those
games which are prohibited.”).
646 C.C.D.F. art. 2765, translated in MEXICAN CIVIL CODE, supra note 645.
648 C.C.D.F. art. 2767, translated in MEXICAN CIVIL CODE, supra note 645 (Article 2767
“Whoever loses in a game or bet that is not forbidden shall be civilly obligated to pay, as
long as the among of the loss does not exceed one-twentieth (1/20) of his assets. A cause of
action provided under this Article shall be barred within thirty (30) days.”).
650 Arthur S. Hartkamp & Marianne M. M. Tillema, Netherlands, in 3 CONTRACTS 1,
167 (Kluwer Law & Taxation supp. 4 June 1994).
2002]
151
of fraud.651 Reminiscent of Roman law, a wagering debt incurred
while betting on “games suitable for physical exercise”652 is enforceable, but a judge may reduce or dismiss the claim if the
amount is excessive.653 Dutch law will, however, enforce a loan
agreement, even if the lender was fully aware that the borrower
intended to use the money for gambling.654 Enforcement is only
denied to a direct gambling contract; any other agreements connected to gambling contracts will be enforced,655 but Dutch law
prohibits credit gaming.656 Despite the liberal enforcement rule
for third party loans, the conversion of a direct gaming debt into a
secondary obligation will not change the unenforceable nature of
the debt.657 Any person who does not violate house rules must be
permitted entry into Dutch casinos.658 Individuals may, however,
voluntarily exclude themselves from all casinos nationwide.659
XVIII.
RUSSIA
Since the demise of the Soviet Union, Russian law has been in
a state of transition and uncertainty in many areas. It has been
reported that Western creditors avoid suits in Russia partly “because of an unfavorable line of Arbitrazh court cases.”660 Although
the Russian Civil Code prohibits the enforcement of gambling
debts,661 licensed gambling is legal.662 However, gambling claims
based on fraud or extortion do receive legal protection.663
In a recent case, the Moscow Arbitrazh Court was faced with
a contract in which one bank would purchase foreign currency
from the other at a set price, and the other bank would later
purchase the same quantity of currency at the Moscow Interbank
Currency Exchange rate on a later date.664 The court concluded
Id. (citing Civil Code art. 7A:1828).
Id.
Chris Hoogendoorn, The Netherlands, in INT’L CASINO LAW, supra note 567, at 451
(“Law does not allow credit gaming . . . .”).
657 Hartkamp & Tillema, supra note 650 (citing Civil Code art. 7A:1827).
658 Hoogendoorn, supra note 656.
659 Id.
660 ‘Gaming’ Decisions May Bar Recovery in Russia on Bank Forward Contracts, RUSS.
& COMMW. BUS. L. REP., vol. 9 No. 15 (Nov. 18, 1998). The Arbitrazh Courts include the
lower Moscow Arbitrazh Court and Appellate Division, the reviewing Federal Arbitrazh
Courts, and the Supreme Arbitrazh Court, which is the court of last resort. Clifford Chance
LLP, Gaming Decision, at http://www.jura.uni-passau.de/fakultaet/lehrstuehle/Fincke/
cliff2.htm (last updated Sept. 30, 1998).
661 GK RF art. 1062, translated in, CIVIL CODE OF THE RUSSIAN FEDERATION 481 (William E. Butler trans., 2d ed. 1997); Clifford Chance LLP, supra note 660.
662 Id.
663 Id.
664 Id.
651
652
653
654
655
656
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that this foreign currency transaction “represented a bet,”665 as
the obligations of one party depended upon a condition outside the
parties’ control.666 Therefore, the court held that the claims arising from the transactions were unenforceable under Article 1062
of the Civil Code of the Russian Federation.
However, the Federal Arbitrazh Court of the Moscow Circuit
has reached the opposite conclusion on similar facts.667 Given that
Russian courts are not obligated to follow precedent,668 uncertainty remains for Western creditors seeking to enforce questionable debts. What is clear, nonetheless, is that Russian law is
hostile to the enforcement of gambling debts.669
XIX.
SINGAPORE
In Singapore, courts still follow British law, including the
progeny of the Statute of Anne. Most important is section 18 of the
Gaming Act of 1845, as incorporated into Singapore law in section
6 of its Civil Law Act.670 In Las Vegas Hilton Corporation v. Khoo
Teng Hock Sunny,671 the plaintiff sued the defendant in Singapore
to enforce gambling debts of over one million dollars (U.S.) from
unpaid markers.672 The court was concerned with three issues:
where the contract to extend credit was made; whether Nevada or
Singapore law should govern the contract; and if Nevada law governed, whether the contract was enforceable in Singapore.673
The court had little difficulty establishing that almost all
credit discussions occurred in Nevada where the casino was located.674 The court then applied the test of the “closest and most
real connection” to determine the appropriate law to be applied.675
The court concluded that Nevada law applied.676 The court also
stated that gambling was not per se illegal in Singapore.677 It
665
666
667
Id.
Id.
GK RF art. 1062, translated in CIVIL CODE OF THE RUSSIAN FEDERATION, supra note
661.
668
669
Clifford Chance LLP, supra note 660.
GK RF art. 1062, translated in CIVIL CODE OF THE RUSSIAN FEDERATION, supra note
661.
670 Sun Cruises Ltd. v. Overseas Union Bank Ltd., 1999 S.L.R. LEXIS 182, at *6 (High
Ct. May 31, 1999) (citing Civil Law Act Cap. 43, § 6 (1994)). Neither the Gaming Act, 1710,
nor the Gaming Act, 1835, are part of the current law of Singapore. Id. at *13.
671 1996 S.L.R. LEXIS 468 (High Ct. Aug. 3, 1996). For an analysis of public policy
issues in this case, see Yeo Tiong Min, Comment, Are Loans For International Gambling
Against Public Policy?: Las Vegas Hilton Corporation t/a Las Vegas Hilton v. Khoo Teng
Hock Sunny, 1 SING. J. OF INT’L & COMP. L. 593 (1997).
672 1996 S.L.R. LEXIS at *14.
673 Id. at *7.
674 Id. at *28.
675 Id. at *29.
676 Id. at *30.
677 Id. at *31.
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noted that although gambling contracts were void, there was no
law actually banning gambling in all forms.678
The court held that the transaction in question was not in violation of section 6 of the Civil Law Act because it was a loan.679
The court cited to Halsbury’s Laws of England as authority for the
argument that loans are not governed by the prohibition.680 The
court held that when a gambling debt is incurred in a jurisdiction
where gambling is legal, the debt is enforceable.681
The decision in Las Vegas Hilton has been confined to its facts
by four subsequent Singapore decisions: Star Cruise Services v.
Overseas Union Bank Ltd.,682 Sun Cruises Ltd. v. Overseas Union
Bank Ltd.,683 Star City Pty. Ltd. v. Tan Hong Woon,684 and Quek
Chiau Beng v. Phua Swee Pah Jimmy.685
In Star Cruise Services, the plaintiff unsuccessfully sought to
enforce a nine hundred thousand dollar (Sing.) debt. The defendant counterclaimed for $9.1 million (Sing.), which he had paid
the plaintiffs.686 Several issues were presented to the court by the
facts of the case, resulting in a forty-three-page decision.687 The
court determined that the fact that the gambling losses were
called loans in the transaction documents was irrelevant, and
merely a matter of semantics.688 The gambling debts had been incurred on gambling cruises offered by Panamanian ships that had
no destination.689 The court noted that Panamanian law was substantially similar to Singapore law regarding gambling debts,690
but determined that Singapore law should be applied.691
In exhaustive detail, a significant part of the opinion explained why the relevant British statute, section 18 of the Gaming
Id. at *40.
Id. at *33.
Id. (citing 8 HALSBURY’S LAWS OF ENGLAND ¶ 607 (Butterworths 4th Ed. 1996)).
Id. at *34.
1999 S.L.R. LEXIS 181 (High Ct. Apr. 30, 1999).
1999 S.L.R. LEXIS 182 (High Ct. May 31, 1999).
2001 S.L.R. 95 (High Ct. May 21, 2001), aff’d, Star City Pty. Ltd. v. Tan Hong
Woon, No. 600093 of 2001, slip op. (Ct. App. Feb. 25, 2002) (on file with Chapman Law
Review).
685 2000 S.L.R. LEXIS 97 (High Ct. Nov. 24, 2000).
686 Star Cruise Serv., 1999 S.L.R. LEXIS 181, at *17.
687 Id.
688 Id. at *21.
689 Id. at *95-96.
690 Id. at *71. The court stated:
In Panama the core provision is embodied in art 1490 of the Civil Code. The material part of it provides that ‘The law does not provide cause of action to recover
what has been won in a game involving luck, stake at cards, or chance but the
losing party may not repeat (sic) what he has voluntarily paid.’ It means that
although gaming is lawful, a gaming debt cannot be enforced and if paid cannot
ordinarily be recovered. This is not surprising because of the way gaming transactions have been viewed almost universally.
Id. at *82-83 (alteration in original).
691 Id. at *85.
678
679
680
681
682
683
684
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Act of 1845, made gambling debts unenforceable for lack of consideration.692 The court concluded that the 1845 Act, as interpreted
by the courts, also barred derivative contract litigation because it
was merely an attempt to circumvent the law.693 The court
stressed the importance of looking at the underlying purpose of a
contract to determine whether it was a gaming contract.694 It
stated that if a debtor is given a loan and complete control of the
funds, even if the loaning party knows it will be used for gambling, the loan will not be treated as a gambling debt.695 However,
if a lawyer attempts to make a gambling debt appear to be a legitimate loan, the court determined that the lawyer would be subject
to discipline.696 The court explained that section 6 does not prohibit gambling, nor does it prohibit the payment of gambling
debts—gambling debts are debts of honor that should be paid—
instead it merely prohibits the use of the courts to enforce such
debts.697
In Sun Cruises Ltd. v. Overseas Union Bank Ltd.,698 the court
once again refused to enforce a five hundred thousand dollar
(Sing.) gambling debt.699 While the defendants pled various defenses, they were only successful on the argument based on section 6 of the Civil Law Act.700 The court held that the five hundred
thousand dollar (Sing.) cashier’s order, given in exchange for gaming debts, was null and void, and the action on the cashier’s check
was an attempt to recover gambling winnings and was therefore
void.701
Almost immediately after the Star Cruise and Sun Cruises
cases were decided, a debtor who lost $360,000 (U.S.) to a Las
Vegas casino sought to reopen a judgment against him that had
been decided on the basis of the earlier Las Vegas Hilton decision.702 In Poh Soon Kiat v. Hotel Ramada of Nevada t [sol] v.
Tropicana Resort & Casino,703 the court recognized the Star Cruise
and Sun Cruises decisions, but concluded that, even if it agreed
with these decisions, it did not have the power to set aside the
earlier judgment.704
692
693
694
695
696
697
698
699
700
701
702
703
704
Id. at *32.
Id. at *49-50.
Id. at *59.
Id. at *69.
Id. at *72.
Id. at *81 (citing section 6 as the Singapore equivalent of the Gaming Act of 1845).
1999 S.L.R. LEXIS 182 (High Ct. May 31, 1999).
Id. at *5.
Id. at *13.
Id. at *19.
1999 SLR LEXIS 216, at *6-7 (High Ct. June 30, 1999).
Id.
Id. at *8, 11, 18.
2002]
155
In Quek Chiau Beng, a gambler lost $160,000 (Sing.) at an
Australian casino.705 The court, the same that had earlier adjudicated the Sun Cruises and Star Cruise cases, held that the claims
were forbidden by Singapore law and could not be heard.706 The
court emphasized that, unlike the allegations in Las Vegas Hilton
Corp., the allegation in this case contained no indication that the
transaction was a loan.707 Finally, the court held that no action
could have been brought in Australia, and the plaintiff, a junket
operator, had no standing to litigate.708
In Star City Pty. Ltd., the plaintiff sought to collect $194,840
(Austl.) from the defendant for, what the casino characterized as,
unpaid gaming loans.709 The defendant traveled at the plaintiff’s
expense to a Sydney casino, and exchanged five house checks,
each worth fifty thousand dollars (Austl.), for chip purchase
vouchers that he then exchanged for chips.710 In deciding the applicable law, the court concluded that section 5(2) of the Civil Law
Act of Singapore was controlling.711 The court determined that
section 5(2) prohibits actions to recover gambling winnings, acting
as a procedural bar to the plaintiff’s action.712 The court noted
that the only real issue was whether the plaintiff sought recovery
of gambling winnings.713 The court then analyzed British cases in
order to illustrate that British courts were hostile to attempts to
circumvent English anti-gaming laws.714 The court concluded
there was no essential difference when a check was exchanged for
chip purchase vouchers instead of for chips.715 In its conclusion,
the court cited a law review article that argued section 5 was not
an attempt to ban immoral behavior, but an attempt to avoid the
waste of judicial resources on such behavior.716
Early attempts to enforce gambling debts in Singapore were
successful. However, modern Singapore courts have been uniformly unwilling to enforce those debts, regardless of how the underlying transactions were structured.
2000 S.L.R. LEXIS 97 (High Ct. Nov. 24, 2000).
Id. at *17.
707 Id. at *14-15.
708 Id. at *17.
709 2001 S.L.R. LEXIS 95, *7 (High Ct. May 21, 2001).
710 Id. at *6.
711 Id. at *26.
712 Id. at *12-13.
713 Id. at *13.
714 Id. at *13-23.
715 Id. at *23.
716 Id. at *26 (citing Yeo Tiong Min, Loans for Extraterritorial Gambling and the
Proper Law: Loh Chee Song v Liew Yong Chian, 1998 SING. J. LEGAL STUD. 421, at 428-29).
705
706
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XX.
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SOUTH AFRICA
South African law is a mixture of Roman-Dutch, with influences from the British common law.717 Gambling debts were historically considered naturalis obligatio, or debts of honor, which
were legally unenforceable.718 However, legislation, such as the
National Gambling Act 33 of 1996 and the Lotteries Act 57 of
1997, has legalized gaming nationwide.719 Subsequently, each of
the provinces has also passed legislation making gaming debts legal and enforceable.720 One issue that the courts have struggled
with is whether a legal gambling debt in one province can be enforced in another province.721
In Sea Point Racing CC v. Pierre de Villiers Berrange N.O.,722
the South African courts were faced with the question of whether
a gambling debt from one province could be enforced in a sister
province.723 The plaintiff, who was a Cape Town-based bookmaker, was suing the estate of a decedent from another province
for nearly four million rand in gambling debts.724 A court a quo
considered the issue of whether or not it could enforce the debt,
and applied the Western Cape Gambling and Racing Law No. 4 of
717 See generally WILLE’S PRINCIPLES OF SOUTH AFRICAN LAW 20-21, 27, 35-37 (Dale
Hutchinson et al. eds., 8th ed. 1991).
718 F. Willem Grosheide, The Gentleman’s Agreement in Legal Theory and in Modern
Practice – the Dutch Civil Law Perspective (1998), at http://www.library.uu.nl/publarchief/
jb/congres/01809180/15/b6.pdf (last visited Mar. 26, 2002).
719 BRSA § 13(1)(f) of National Gambling Act 33 of 1996; BRSA § 14(2)(i) of Lotteries
Act 57 of 1997.
720 See Marita Carnelley, Case Note, Enforcement of Lawfully Incurred Gambling
Debts, DE REBUS 57 (May 2001).
All these Acts contain a provision that any gambling debt lawfully incurred is enforceable in a court of law, notwithstanding provisions of the common law or any
other law to the contrary (Lotteries Act (s 65), National Gambling Act (s 18), Gambling and Betting Act 5 of 1997 (Eastern Cape) (s 87); Free State Gambling and
Racing Act 6 of 1996 (s 95); Gambling and Betting Act (Gnuteng) 4 of 1995 (s 75);
KwaZulu-Natal Gambling Act 10 of 1996 (s 92); Mpumalanga Casino and Gaming
Act 5 of 1995 (s 87); Northern Cape Gambling and Racing Act 5 of 1996 (s 93(1));
Northern Province Casino and Gaming Act 4 of 1996 (s 91); North West Casino,
Gambling and Betting Act 13 of 1994 (s 90(1)) and the Western Cape Casino and
Racing Law 4 of 1996 (s 79(1)).
Id.
721 Section 18 makes “gambling debts incurred by any person in the course of any gambling activity regulated by law . . . enforceable in a court of law.” Gaming Ass’n of South
Africa (Kwa-Zulu Natal) v. Premier of Kwa-Zulu Natal, 1997 (4) SALR 494, 501 (Natal
Provincial).
722 No. AR 774/99, slip op. (High Ct. Kwazulu-Natal Provincial Aug. 1, 2000) (on file
with Chapman Law Review).
The learned judge in the court a quo found that the Western Cape Legislation only
applied within the territory of that province and could not affect the law as it
applies to this province. He found that the KwaZulu-Natal legislation could only
regulate gambling within this province and could not purport to regulate gambling
transactions elsewhere.
Id. at 3.
723 Id. at 2.
724 Id.
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157
1996, which states: “Any debt lawfully incurred by a person . . . in
the course of gambling shall . . . be enforceable in a court of law.”725
However, that court found that the Western Cape Gambling Law
could not affect the law that must be applied in the KwaZulu-Natal Province. The court then referred to the common law, which
states that “a gambling debt is an obligation which is valid but not
recoverable through the courts.”726 That court dismissed the application with costs.727 On appeal, the court pointed out that the
lower court overlooked section 18 of the National Gambling Act.728
Thereafter, the Kwazulu-Natal Division of the High Court of
South Africa reversed the trial court, holding that gambling debts
are enforceable throughout South Africa pursuant to the National
Gambling Act.729 Judgment was granted in favor of the
plaintiff.730
XXI.
SPAIN
Traditionally, Article 1798 of the Spanish Civil Code did not
allow gamblers to pursue an action to recover winnings or lost wagers unless there was fraud, or the gambler was a minor or incapacitated.731 However, in 1995, the Supreme Court of Spain
recognized a significant exception: if a gaming contract is entered
legally, winnings are recoverable.732 The court said that enforcing
legal gambling debts was consistent with the Spanish Constitution’s principle of assuring the conduct of legal businesses.733
Article 1801 of the Spanish Civil Code requires a loser to pay
legal gambling debts.734 However, courts have discretion to either
dismiss the suit or reduce the debt to the “extent it exceeds the
wages of a prudent administrator.”735 Spain will enforce gambling
debts incurred in other countries if there is a treaty or judicial
cooperation agreement between Spain and the country where the
debt accrued.736
Id. (citing § 79(1) of Western Cape Gambling and Racing Law 4 of 1996).
Id. at 3.
727 Id.
728 Id.
729 Id. at 4.
730 Id.
731 C.C. art. 1798, translated in CIVIL CODE OF SPAIN 420-21 (Julio Romanach, Jr.
trans., Lawrence Publ’g Co. 1978).
732 E-mail from Ana Lemos, Co-founder and Former CEO of the Spanish Center for
Legal Studies on Gaming, to Joseph Kelly, Professor of Business Law, SUNY College Buffalo (Sept. 4, 2001) (on file with Chapman Law Review).
733 Id.
734 “One who loses in a game or bet that is not prohibited is civilly liable.” C.C. art
1801, translated in CIVIL CODE OF SPAIN, supra note 731, at 421.
735 Id.
736 Lemos, supra note 732.
725
726
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XXII.
[Vol. 5:87
SWITZERLAND
Switzerland traditionally did not allow the enforcement of
debts, bills of exchange, or promissory notes that arose from gambling debts.737 Even debts that were transferred to a third party
in good faith were not enforceable.738 Voluntary payments of gambling debts could be recovered if the payee acted unfairly when the
debt was made, or if the gambler attempted to recover his or her
money prior to actually placing a bet.739 Switzerland also would
not enforce foreign gambling debt judgments that creditors attempted to register in Swiss courts.740
It appears that the Swiss attitude toward enforcement of
gambling debts is changing, as more casinos open in the country.
In 1998, Switzerland amended its Code of Obligations so that
debts legally incurred in authorized gaming establishments
within Switzerland are enforceable.741 Also, in late 2000, a Swiss
court reportedly enforced a 1998 British judicial decision requiring a Swiss gambler to pay almost £770,000.742
737 CO art 513, translated in 1 SWISS CODE OF OBLIGATIONS 174 (Swiss-Am. Chamber of
Comm. 1990)
738 CO art 514, translated in 1 SWISS CODE OF OBLIGATIONS, supra note 379.
739 Id.
740 See Yves P. Piantino, Recognition and Enforcement of Money Judgments Between
the United States and Switzerland: An Analysis of the Legal Requirements and Case Law,
17 N.Y.L. SCH. J. INT’L & COMP. L. 91, 119 n.157 (1997).
741 CO art. 515a(D) (2001).
742 Sperrfrist 1200 Schonzeit fuer Zocker ist Vorbei Bundesgericht Laesst Betreibung
eines Spielers zu, Schweizerische Depeschenagentur AG (SDA), Dec. 1, 2000.
Gambling for the Good, Trading for the
Future: The Legality of Markets in
Science Claims
Tom W. Bell*
I.
INTRODUCTION
Good ideas do not always lead to legal acts. Setting up a market in science claims,1 for instance, certainly sounds like a good
idea. Such a market could effectively open a shortcut to the future, giving us the means to answer crucial scientific questions
more quickly, accurately, and cheaply than we can at present.
Notwithstanding their salient benefits, however, U.S. law does not
clearly approve of markets in science claims. They do not fit
neatly into any category created by common law, statute, or regulation, and their legal status remains untested by the courts. This
article aims to dispel some of the legal uncertainty surrounding
markets in science claims and thus to help chart a path toward
their implementation.2
Given that they remain almost wholly untried, and thus
largely unknown, Part II offers a concise introduction to markets
in science claims. Part III then compares the transactions supported by such a market with their closest analogs in extant U.S.
law: gambling and commodity futures trading.3 That comparison
finds the policies behind such laws generally more sympathetic to
markets in science claims than the laws themselves, though even
the latter offer some hope. Nonetheless, recognizing that some
* Associate Professor, Chapman University School of Law. B.A., with Honors, University of Kansas; M.A., University of Southern California; J.D., University of Chicago. I
thank Robin Hanson, Ken Kittlitz, Denis Binder, and Stuart Benjamin for commenting on
drafts of the paper; Carl A. Royal, esq., for sharing his knowledge of commodity futures
law; and Donna G. Matias for editorial comments. Copyright 2001, Tom W. Bell. All rights
reserved.
1 In very brief, a “science claim” constitutes a statement provable within a specified
and finite period of time by authoritative means. For details, see infra Part II.
2 By way of full disclosure, I note that I have an interest in seeing markets in science
claims made legal because I would like to see one established in honor of the late Dr. Julian
L. Simon. Toward that end, I have won the permission of his widow, Dr. Rita A. Simon, to
research the possibility of creating the Simon Market in Science Claims. See generally The
Simon Market in Science Claims, Quantifying the Current Consensus, at http://
www.simonmarket.org (last visited Jan. 11, 2002).
3 This article concerns only the law of the United States, though of course some general observations may well hold true of the law of other countries.
159
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people refuse to let bad laws stand in the way of good acts, Part IV
considers a few alternative strategies for implementing fully functional, if somewhat less than fully public or legal, markets in science claims.
II.
THE WHY
AND
WHAT
OF
MARKETS
IN
SCIENCE CLAIMS
Scientific progress has given us increasingly healthy,
wealthy, and well-informed lives.4 A chorus of critics, however,
warns that our modern lifestyles threaten to repay us with nightmares such as rising sea levels, genetically engineered monsters,
and nano-terrorism.5 Doomsayers often err on the dramatic side,
of course. Paul Ehrlich once predicted, for instance, that the
human race would run out of food by the year 1977.6 But the press
loves a good horror story, legislators cannot ignore public fears,
and none of us can risk misjudging a potential disaster. How,
then, can we accurately resolve public policy questions that turn
on disputed scientific claims?
Current means of publicly debating science questions do not
work very well. The mass media too often dish up sensationalized
and overly simplified reports. Official investigations move slowly,
rely on “official” opinions, and favor mushy committee-speak over
hard truths. Studies produced by think tanks and policy institutes raise questions of bias.7 Clearly, we need a better mechanism for resolving scientific disputes.
A better mechanism would ideally give honest, accurate, and
timely answers to complex scientific questions. It would generate
a precise numerical measurement of the current expert consensus
about any given issue. Far from elitist, it would reward innovative and accurate predictions from any and all sources. Such an
epistemic mechanism would look still better if it stimulated public
interest in scientific and technological issues, generated its own
funding, and lay ready at hand. Markets in science claims, a type
of “idea futures” market, offer just such a means of tackling difficult and important questions.8
4 In the interest of brevity, “science” herein covers both the theoretical and applied—
or what might be called “technological”—aspects of science.
5 See, e.g., Bill Joy, Why the Future Doesn’t Need Us, WIRED, Apr. 2000, available at
http://www.wired.com/wired/archive/8.04/joy.html.
6 See PAUL R. EHRLICH, THE POPULATION BOMB 36-40 (1968).
7 Such questions arise because think tanks and policy institutes typically rely on continuing contributions from their supporters, most of whom expect such organizations to
favor particular points of view.
8 Robin Hanson apparently coined the term “idea futures” and has written several
groundbreaking papers on markets in such instruments. See, e.g., Robin Hanson, Could
Gambling Save Science? Encouraging an Honest Consensus, SOC. EPISTEMOLOGY, Jan.
1995, at 3, available at http://hanson.gmu.edu/gamble.html [hereinafter Hanson, Could
Gambling Save Science?]; Robin D. Hanson, Decision Markets, IEEE INTELLIGENT SYSTEMS,
May/June 1999, at 16, available at http://hanson.gmu.edu/decisionmarkets.pdf [hereinafter
2002]
Gambling for the Good, Trading for the Future
161
I will here briefly outline the features of such a market in science claims by way of a simple example, drawing heavily on the
work of Professor Robin Hanson.9 Although drawing analogies to
gambling and futures trading helps to explain how such markets
function, careful readers should resist letting those pedagogical
tools unduly sway them. As argued in Part III, the type of market
in science claims described here differs in some important respects—important legal respects—from gambling or futures trading. It also bears keeping in mind that the following example
keeps details fairly thin and prices unrealistically low in the interest of simplicity.
Suppose that you have a theory, highly unorthodox but well
reasoned and consistent with the available evidence, about the
correlation between heat waves and earthquakes.10 Not having an
advanced degree in geophysics or a reputation in the field, you
find it hard for anyone to take your theory seriously. To demonstrate your confidence—and perhaps turn a profit in the process—
you turn to a market in science claims.
First, you carefully word your claim to say, in essence, that
within twenty years the professional geophysical community will
have embraced your theory. You call your claim “HeatQuake” and
name an impartial, authoritative third party to judge the claim on
its own terms five years hence. Next, you have the science market’s bank print a matched pair of coupons, one marked “HeatQuake true = $1,” the other, “HeatQuake false = $1.” As those
labels indicate, the holder of the first coupon can redeem it at the
issuing bank for $1 if and when the HeatQuake claim proves true,
whereas the holder of the second can do likewise should HeatQuake prove false. The bank sells you the pair of coupons for $1,
Hanson, Decision Markets]; Robin Hanson, Idea Futures: Encouraging an Honest Consensus, EXTROPY, Winter 1991-92, at 7, available at http://hanson.gmu.edu/ifextropy.html
[hereinafter Hanson, Encouraging an Honest Consensus]; Robin Hanson, Idea Futures:
How Making Wagers on the Future Can Make It Happen Faster, WIRED, Sept. 1995, at 125,
available at http://hanson.gmu.edu/ifwired.html; Robin Hanson, Shall We Vote on Values,
But Bet on Beliefs? (2000) (unpublished working paper, George Mason University, Department of Economics), available at http://hanson.gmu.edu/futurachy.pdf [hereinafter Hanson, Vote on Values].
I use “markets in science claims” herein because I intend to discuss a market hosting
only those sorts of claims that will give it the best case for legality, whereas Hanson describes “idea futures markets” largely in functional terms, without barring them from hosting claims more likely to fall within the scope of gambling or commodity futures trading
laws.
9 For Hanson’s website devoted to such markets, see Robin Hanson, Idea Futures, at
http://hanson.gmu.edu/ideafutures.html (last visited Jan. 5, 2002), and Robin Hanson, Idea
Futures Publications, at http://hanson.gmu.edu/ifpubs.html#Hanson (last visited Jan. 5,
2002), for a collection of related writings.
10 The example comes from Guo Ziqi et al., Spatial Detect Technology Applied on
Earthquake’s Impending Forecast (Nov. 5-9, 2001) (paper presented at the 22d Asian Conference on Remote Sensing), available at http://www.crisp.nus.edu.sg/~acrs2001/pdf/
192Guo.pdf.
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calculating that because the claim cannot turn out to be both true
and false, it will only have to pay off one of the two coupons.
Finally, you launch trading on the HeatQuake claim by offering to sell the “HeatQuake false” claim on the science market for
$.75. You keep the “HeatQuake true” coupon, looking forward to
redeeming it later. In contrast, a professional geophysicist who
hears about your offer, and thinks your theory ridiculous, snaps
up the “HeatQuake false” coupon with the thought that she will
redeem it and make an easy $.25 on the deal. At that point, your
HeatQuake (true) claim trades at $.25 per coupon, showing that
those playing the market regard your theory as twenty-five percent plausible.
That price-per-coupon does not yet mean much, of course, because only one coupon has swapped hands. But soon other professional geophysicists want to get in on what they regard as a sure
deal. So you return to the bank, buy more coupon pairs, and sell
“HeatQuake false” coupons to those skeptics as well. Their demand convinces you to raise the price of “HeatQuake false” to $.84
per coupon, and then to $.96 per coupon. In fact, demand grows so
great that you can no longer afford to buy new coupon pairs from
the bank. Fortunately, speculators, intrigued both by the extreme
odds and by a paper about your theory that you have published on
your webpage, join your side of the betting, increasing the market’s capitalization and pushing HeatQuake’s price up from its
$.04 per coupon low to $.12 per coupon. At that point trading
slows, your critics having spent as much as they dare and the
speculators on your side unwilling to risk more money on behalf of
your theory.
A few months later, however, a Taiwanese researcher publishes a study showing a statistically significant correlation between heat waves and earthquakes. Some of your former
adversaries become anxious upon hearing the news and offer to
sell their “HeatQuake false” claims at a slight loss. That moves
HeatQuake’s price to $.19 per coupon, thus reflecting a new assessment of your theory. More favorable research issues and the
price moves again, and so on and so forth, HeatQuake’s value at
any given time quantifying the consensus of all who back up their
opinions with money.
This example skimps on many interesting details, as noted
above, and a few very important ones. Readers should refer to
Hanson’s writing for both more complete descriptions of “idea futures” markets, of which markets in science claims constitute a
type, and for point-counterpoint treatment of many possible objections. Hanson’s work also describes the many advantages to such
markets: they quantify the current consensus about complicated
issues quickly, cheaply, and accurately; they reward valuable in-
2002]
163
formation no matter where it comes from; they force wildly inaccurate or under-informed pundits to “put up or shut up”; they
generate public interest in current scientific disputes; they allow
parties affected by the topics covered in science claims to hedge
against risk; they require no taxes but instead can fund themselves; and, as the following examples show, they could start operating tomorrow.11
Although no fully functioning market in science claims currently exists, various play-money versions and real-money analogs offer illuminating examples. The Foresight Exchange,12 a
play-money market designed to test Hanson’s theories, has been
operating on the World Wide Web since 1994.13 It includes hard
science claims (such as CFsn, which predicts the success of cold
fusion),14 humane science claims (such as F-Pres, which predicts
the United States will have a female president before 2014),15 and
fun claims (such as King, which predicts that Prince Charles will
be crowned the King of England).16 A handful of other web-based
markets, because they function more like popularity contests than
measures of objective criteria, prove somewhat less instructive.
These markets include the Hollywood Stock Exchange, on which
players use “Hollywood Dollars” to trade “shares” of actors, movies, and music artists;17 PolitiStock, on which players use “PolitiS-
See supra note 8.
Foresight Exchange Prediction Market, at http://www.ideosphere.com/fx/main.html
(last visited Jan. 26, 2002). For a one-time alternative to the Foresight Exchange that has
recently stopped active operation, see The U.S. Idea Futures Exchange, at http://
www.usifex.com (last visited Jan. 26, 2002).
13 Robin Hanson et al., The Story of the Idea Futures Web Site, at http://hanson.gmu.edu/if-prix.html (last visited Jan. 26, 2002).
14 Foresight Exchange Prediction Market, Claim CFsn - Cold Fusion, at http://
www.ideosphere.com/fx-bin/Claim?claim=CFsn (last visited Apr. 1, 2002). As of April 1,
2002, CFsn traded at twelve units, indicating a current consensus that the claim has a
twelve percent likelihood of proving true. Id.
15 Foresight Exchange Prediction Market, Claim F_Pres - Female President Before
2014, at http://www.ideosphere.com/fx-bin/Claim?claim=F_Pres (last visited Apr. 1, 2002).
As of April 1, 2002, F_Pres traded at forty-one units. Id.
16 Foresight Exchange Prediction Market, Claim King - Prince Charles Remains Heir,
at http://www.ideosphere.com/fx-bin/Claim?claim=King (last visited Apr. 1, 2002). As of
April 1, 2002, King traded at eighty-three units. Id.
17 Hollywood Stock Exchange, at http://www.hsx.com/ (last visited Jan. 6, 2002). It
bears noting, however, that the value of some items traded on the Hollywood Stock Exchange (such as MovieStocks) relates directly to an objective measure (such as box-office
receipts). See Hollywood Stock Exchange, Glossary, at http://www.hsx.com/help/glossary/
(last visited Mar. 26, 2002); see also Laura Pedersen-Pietersen, The Hollywood Stock Market: You Can’t Lose, J. REC. (Okla. City, Okla.), Jan. 13, 1998, available at 1998 WL
11956867 (“HSX is designing a system in which its traders can invest real money in film
projects. Keiser [one of HSX’s creators] said the idea, which is geared to cash-hungry independent film producers rather than big studios, will soon be before the SEC for approval.”).
11
12
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[Vol. 5:159
tock softMoney” to do much the same with politicians;18 and Wall
Street Sports, which targets athletes for similar treatment.19
Thanks to the proverbial distinction between talking and
walking, no market limited to mere play-money can fully duplicate the incentives generated by a market using real money. The
Iowa Electronic Markets (IEM) offers the best example of the latter.20 The IEM offers a real-money on-line futures market where
real-world events, most notably the outcomes of political elections,
determine contract payoffs.21 Even though the IEM limits accounts to five hundred dollars,22 it has proven more accurate, on
average, than polls in predicting election results.23
Unfortunately, for all its help as an example of what a market
in science claims might accomplish, the IEM offers little help in
clarifying the law generally applicable to real-money idea futures
markets. As discussed below, IEM operates by the grace of a special “no action” letter issued by the Commodities Futures Trading
Commission (CFTC), which states “that as long as the IEM conforms to certain guidelines, the CFTC will take no action against
it.”24 Even if it wanted similar treatment, a market in science
claims could not count on getting it.25 Absent that one lucid statement by the CFTC, however, and as Part III reveals next, U.S. law
does not speak clearly for or against markets in science claims.
III.
THE UNCERTAIN LEGAL STATUS
SCIENCE CLAIMS
OF
MARKETS
IN
With regard to each area of law discussed in this Part, theory
proves more forgiving than practice. The policy goals that justify
banning all but a few carefully circumscribed forms of gambling
and commodity futures trading do not convincingly justify placing
identical constraints on a market in science claims. But the laws
18 See PolitiStock, The Political Stock Exchange, at http://www.politistock.com/ (last
visited Jan. 26, 2002); see also PolitiStock, PolitiStock FAQ, What is softMoney?, at http://
www.politistock.com/about/faq.shtml#whatissoftmoney (last visited Mar. 26, 2002).
19 See Wall Street Sports, at http://www.wallstreetsports.com/ (last visited Jan. 26,
2002).
20 See IEM, Iowa Electronic Markets, at http://www.biz.uiowa.edu/iem/ (last visited
Jan. 26, 2002).
21 See IEM, Iowa Electronic Markets, Frequently Asked Questions, at http://
www.biz.uiowa.edu/iem/faq.html (last visited Jan. 7, 2002).
22 See IEM, Iowa Electronic Markets, IEM Basics, Applying for an Account, at http://
www.biz.uiowa.edu/iem/trmanual/IEMManual_1.html (last visited Jan. 26, 2002) [hereinafter IEM, Applying for an Account].
23 See IEM, Iowa Electronic Markets, Previous Market Performance (Graphs), IEM
Accuracy Compared to Polls, at http://www.biz.uiowa.edu/iem/media/previous.html (last
24 IEM, Iowa Electronic Markets, Frequently Asked Questions, Is It Legal?, at http://
www.biz.uiowa.edu/iem/faq.html (last visited Jan. 26, 2002) [hereinafter IEM, Is It Legal?].
25 See discussion infra Part III.B.2.
2002]
165
passed to enforce those policy goals, evidently not having been
written with a science claim market in mind, risk crushing it.
A. Science Claims as Gambling
Although a market in science claims would come close to qualifying as a gaming service, it would arguably differ from traditional types of gambling on both legal and policy grounds. The
legal question presents the closest shave because answering it requires a somewhat metaphysical—and therefore uncertain—inquiry into whether chance predominates over skill in predicting
the outcome of scientific disputes. The policy question proves less
problematic, since none of the reasons for outlawing or heavily
regulating gaming appear to apply to markets in science claims.
This section discusses each question in turn.
1. Gaming Law
Although gaming remains largely the province of state law,26
which varies from state to state, the common law generally requires proof of three elements to establish the existence of a gambling transaction: prize, chance, and consideration.27 The first
and third elements would indisputably apply to a fully functioning
26 Although several federal statutes apply to gambling, they typically rely on state
law for substantive definitions. See, e.g., 18 U.S.C. § 1955(b)(1)(i) (2000) (defining “illegal
gambling business” as one in “violation of the law of a State or political subdivision in
which it is conducted”); see also Racketeer Influenced and Corrupt Organizations Act
(RICO), id. § 1961(6) (defining “unlawful debt” in part by reference to state gambling laws);
Indian Gaming Regulatory Act, 25 U.S.C. § 2703(7)(A)(ii) (1995) (defining “class II gaming”
in terms of state law). Other federal statutes assess criminality based on state gambling
laws. See, e.g., Transportation of Gambling Devices Act, 15 U.S.C. § 1172(a) (1997) (exempting from illegality transport of gambling devices to any state or state subdivision that
has legalized the gambling device in question); Interstate Horseracing Act of 1978, id.
§ 3002(3) (defining “interstate off-track wager” in terms of state law); Wire Transfer Act, 18
U.S.C. § 1084(a) (making illegal under federal law the use of interstate telecommunications
facilities for placing wagers illegal in either the sender or recipient’s state); Charity Games
Advertising Clarification Act of 1988, id. § 1301 (excusing from illegality interstate transport of lottery tickets permitted by authorities of affected states); Racketeering Act, id.
§ 1953(b) (excusing from illegality interstate transport of wagering paraphernalia if legal
under state law).
27 Ronald J. Rychlak, The Introduction of Casino Gambling: Public Policy and the
Law, 64 MISS. L.J. 291, 294 (1995); Roland J. Santoni, An Introduction to Nebraska Gaming Law, 29 CREIGHTON L. REV. 1123, 1129 (1996); see also State v. One Hundred & FiftyEight Gaming Devices, 499 A.2d 940, 951 (Md. 1985) (describing three elements of gambling as “consideration, chance and reward”); State v. One ‘Jack and Jill’ Pinball Machine,
224 S.W.2d 854, 860 (Mo. Ct. App. 1949) (“(1) consideration or risk, (2) chance and (3)
reward or prize”); Commonwealth v. Two Electronic Poker Game Machines, 465 A.2d 973,
977 (Pa. 1983) (“consideration, a result determined by chance rather than skill, and a
reward”).
States also criminalize or regulate by statute a wide variety of games of chance. See,
e.g., CAL. PENAL CODE § 330b (West 2001) (outlawing slot machines). They do not, however,
frown on games of skill as a general matter. See, e.g., id. § 330b(4) (exempting “predominately games of skill” from scope of statute). No state appears to have specifically targeted
idea futures markets for the same treatment they have given, say, poker.
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[Vol. 5:159
market in science claims. With regard to the prize element, a
market participant would profit after having beat others in predicting the outcome of any particular controversy. Indeed, the
prospect of such a prize, together with the bragging rights that
come with it, serves as a vital incentive to draw players, and the
information they bring with them, into the market. With regard
to the consideration element, a market participant would have to
buy into one side of a particular claim, via purchase of a “yes” or
“no” coupon, in order to qualify for the prize.
Whether a market in science claims would qualify as a gambling service thus turns on the second of the three elements:
chance. Here, the law grows murky. It cannot be that any element of chance, when combined with prize and consideration, suffices to create a gambling transaction; otherwise the most routine
sort of business would likewise qualify. Even annuities, treasury
bonds, and certificates of deposit, though they qualify as safe investments, present some risk of loss. So goes life.28 The question
thus becomes: how much chance does it take to qualify a transaction as gambling?
Authorities generally agree that under U.S. law, gambling
arises when chance predominates over skill or knowledge in determining whether one who has offered consideration wins a prize in
return.29 It is hard to specify, in the abstract and in general, how
a market in science claims would fare under that test. Participants in a such a market—especially successful ones—would no
doubt aver that they rely far more on talent than chance, and it
does seem plausible that intelligence and education would determine who wins most claims. The notion that relatively ignorant
participants might unwisely rely on luck when trading on the
market would not prove the contrary. As the California Court of
Appeals has explained, “It is the character of the game rather
than a particular player’s skill or lack of it that determines
whether the game is one of chance or skill.”30
28 For a delightfully philosophical judicial disquisition on the matter, see United
States v. McDonald, 59 F. 563, 565-66 (N.D. Ill. 1893).
29 See Johnson v. Phinney, 218 F.2d 303, 306 (5th Cir. 1955) (“With respect to the
element of chance, the authorities are in general agreement that if such element is present
and predominates in the determination of a winner, the fact that players may exercise
varying degrees of skill is immaterial; and the game or device is a lottery.”); Opinion of the
Justices, 795 So.2d 630, 635-36 (Ala. 2001) (collecting authorities elucidating the “American Rule,” under which a scheme is a lottery if chance is the dominant factor in determining the result of the game even if skill or knowledge plays some role); Finster v. Keller, 96
Cal. Rptr. 241, 246 (Cal. Ct. App. 1971) (“The test is not whether the game contains an
element of chance or an element of skill, but which of them is the dominating factor in
determining the result of the game.”). But see United States v. Rich, 90 F. Supp. 624, 62930 (E.D. Ill. 1950) (finding bookmaking scheme not a lottery, gift enterprise, or similar
scheme under federal law on grounds, “there is always present something more than a
mere guess and there is nothing which resembles the distribution of prizes by lot”).
30 Finster, 96 Cal. Rptr. at 246.
2002]
167
Nonetheless, the ultimate determination of whether chance
predominates over skill or knowledge would probably depend on
the science claim in question—and on the judge or jury making
that determination. Consider the variety of claims currently at
play on the Foresight Exchange, a web-based play-money idea futures market.31 At one extreme fall claims like NDSen, which asserts that before 2012, there will be a U.S. Senator not affiliated
with either the Democratic or Republican parties,32 and Ms.A,
which asserts that before 2006, a woman will play in a professional major league sports game.33 Though they hardly pose the
same odds as roulette, winning those kinds of claims will require a
significant, and arguably a predominant, share of luck. At the
other extreme fall claims like GBch and Neut.34 GBch asserts that
Goldbach’s Conjecture, which posits that every even number less
than three is the sum of two primes, will be settled by 2021.35
Neut asserts that the “rest mass of the electron neutrino is greater
than 0.01 eV in ordinary space.”36 A mathematician or theoretical
physicist could surely resolve those claims solely by dint of talent.37 Other claims fall at various points along the spectrum that
stretches from pure chance to pure skill. The parties responsible
for operating a real-money idea futures market would face the difficult and somewhat risky job of categorizing which claims fall on
the gambling side of the law.
It thus remains uncomfortably uncertain whether an aggressive prosecutor would allege that a market in science claims constitutes gambling. Although in recent decades gambling has won
legal status in an increasing number and variety of real-space loSee Foresight Exchange Prediction Market, supra note 12.
Foresight Exchange Prediction Market, Claim NDSen - Indie Senator by 2011, at
http://www.ideosphere.com/fx-bin/Claim?claim=NDSen (last visited Jan. 26, 2002).
33 Foresight Exchange Prediction Market, Claim Ms.A - Woman Major-Leaguer By 1/
1/06, at http://www.ideosphere.com/fx-bin/Claim?claim=Ms.A (last visited Jan. 26, 2002).
34 Foresight Exchange Prediction Market, Claim GBch - Goldbach Conjecture by
2020, at http://www.ideosphere.com/fx-bin/Claim?claim=GBch (last visited Jan. 29, 2002);
Foresight Exchange Prediction Market, Claim Neut - Neutrino Mass >0, at http://
www.ideosphere.com/fx-bin/Claim?claim=Neut (last visited Jan. 21, 2002).
35 Foresight Exchange Prediction Market, Claim GBch - Goldbach Conjecture by
2020, at http://www.ideosphere.com/fx-bin/Claim?claim=GBch (last visited Jan. 29, 2002).
36 Foresight Exchange Prediction Market, Claim Neut - Neutrino Mass >0, at http://
www.ideosphere.com/fx-bin/Claim?claim=Neut (last visited Jan. 26, 2002). Physicists define an eV (electron-volt) as the kinetic energy acquired by an electron losing one volt of
potential. See About, Homework Help, Definition of Electron-Volt, at http://physics.about.com/library/dict/bldefelectronvolt.htm (last visited Mar. 26, 2002).
37 Indeed, one probably would have done so long ago were a sufficient amount of real
money at stake. Again, it makes no legal difference whether some participants in the market for such claims rely on luck rather than the expertise of a mathematician or physicist.
“It is the character of the game rather than a particular player’s skill or lack of it that
determines whether the game is one of chance or skill.” Finster v. Keller, 96 Cal. Rptr. 241,
246 (Cal. Ct. App. 1971).
31
32
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[Vol. 5:159
cales38—albeit under very heavy regulatory burdens—that fact offers scant solace to an enterprise that almost certainly would have
to operate over the Internet were it to operate effectively at all.39
Fortunately, courts, as a rule, interpret criminal statutes narrowly.40 Regardless, the broad language of statutes that outlaw
gambling and the penalties that they impose41 might well give
pause to anyone interested in operating or entering a market in
science claims.
2. Gaming Policy
In contrast, it appears quite plain that a market in science
claims, as a matter of policy, would differ crucially from gambling
enterprises. Lawmakers have outlawed or heavily regulated gambling purportedly because it presents an avoidable risk42 of social
harm43 and offers few if any social benefits in return.44 None of
38 Rychlak, supra note 27, at 303 (“As more and more states seek to take advantage of
the enormous profits that can be derived from legalized gambling, new games, locations,
and variations have swept across the nation.”).
39 See discussion supra Part II (describing web-based operation of exemplar markets);
see also discussion infra Part III.A.2 (describing the policy concerns that generally fuel
suspicion of web-based operations versus real-space locales).
40 See United States v. Lanier, 520 U.S. 259, 266 (1997) (“[T]he canon of strict construction of criminal statutes, or rule of lenity, ensures fair warning by so resolving ambiguity in a criminal statute as to apply it only to conduct clearly covered.”). This rule has
particular salience in cases presenting entirely new facts to a court, as would be true of a
court analyzing the legality of a market in science claims for the first time. Id. (“[D]ue
process bars courts from applying a novel construction of a criminal statute to conduct that
neither the statute nor any prior judicial decision has fairly disclosed to be within its scope
. . . .”).
41 See, for example, CAL. PENAL CODE § 337a (West 1999), specifying penalties for:
Every person, . . . [w]ho, whether for gain, hire, reward, or gratuitously, or otherwise, at any time or place, records, or registers any bet or bets, wager or wagers,
upon the result, or purported result, of any . . . contest, or purported contest, of
skill . . . or upon the result, or purported result, of any lot, chance, casualty, unknown or contingent event whatsoever; or . . . [w]ho lays, makes, offers or accepts
any bet or bets, or wager or wagers, upon the result, or purported result, of any . . .
contest, or purported contest, of skill . . . is punishable by imprisonment in the
county jail for a period of not more than one year or in the state prison.
Id.
42 Rychlak, supra note 27, at 298. Early American colonists objected to gambling
largely because it represented a discretionary and wasteful diversion from more important
projects. Id.
43 E.g., John Warren Kindt, The Economic Impacts of Legalized Gambling Activities,
43 DRAKE L. REV. 51, 60-70 (1994) (relating evidence of social harm caused by legalized
gambling). But see ROGER DUNSTAN, GAMBLING IN CALIFORNIA IX-12 (1997) (“Any Attempt
to Quantify Social Costs is Highly Speculative”); Mike Roberts, The National Gambling
Debate: Two Defining Issues, 18 WHITTIER L. REV. 579, 590-99 (1997) (offering skeptical
review of claims about relationship between gambling and crime); id. at 599-608 (offering
skeptical review of claims about harms suffered by compulsive and underage gamblers).
44 See Kindt, supra note 43, at 51-60 (criticizing claims made on behalf of economic
benefits of legalized gambling); id. at 81-83 (criticizing claims that legalizing gambling captures taxes otherwise lost on illegal gambling activities). But see DUNSTAN, supra note 43,
ch. IX (analyzing economic benefits of legalized gambling, both generally and with particular regard to California).
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those three blameworthy features appear likely to attach to markets in science claims.
First, a market in science claims would not create risks solely
for the sake of entertainment; rather, it would aim to quantify unavoidable risks already present in the world. In other words,
whereas a casino manufactures chance, a market in science claims
would merely report it. Second, the dry subject matter and slow
pace of a market in science claims seems quite unlikely to encourage the sort of compulsive or underage gambling that worries
critics of the gaming industry.45 Third, and most important, a
market in science claims would offer significant social benefits.
The prices of its claims, because they would quantify current consensus views about complex and often important scientific issues,
would constitute a positive externality capable of enriching the
understanding of interested laypeople, policy makers, and the
public at large.46 Whereas legalized gambling at best diverts us
from life’s woes and eases our taxes,47 markets in science claims
promise to help us see into the future.
B. Science Claims as Commodity Futures Trading
Several ramifications, most of them somewhat discouraging,
would follow if dealing in science claims qualified as commodity
futures trading subject to the Commodity Exchange Act (CEA),48
the federal statute that establishes the authority of the CFTC to
regulate such trading. In that case, the parties who wanted to
start a market in science claims would either have to convince the
CFTC that they had surmounted the relevant—and hardly trivial—regulatory hurdles or that the CFTC should grant them a
special exemption from regulation.49 Neither option would prove
easy, and failure to successfully pursue either would cast doubts
on the legality of any science claims market subject to the CEA.50
There remains a third option, however, that would raise relatively
45 See Hanson, Could Gambling Save Science?, supra note 8, at 11 (“[S]cience questions are generally too long term to be a problem, offering no more ‘action’ than long-term
stock investments.”).
46 See Hanson, Decision Markets, supra note 8, at 16-17.
47 See GUY CALVERT, GAMBLING AMERICA: BALANCING THE RISKS OF GAMBLING AND ITS
REGULATION (Cato Policy Analysis No. 349, 1999) (describing benefits of gambling). Calvert
objects to state gaming monopolies, however, on grounds that they unfairly and inefficiently shift tax burdens onto gamblers’ shoulders. Id. at 11.
48 7 U.S.C. §§ 1-27f (1999).
49 See discussion infra.
50 See, e.g., 7 U.S.C. § 2(a)(1)(A) (granting the CFTC exclusive jurisdiction over “accounts, agreements . . . and transactions involving contracts of sale of a commodity for
future delivery, traded or executed” on markets subject to CFTC regulation); id. § 6(a) (providing that, absent an exemption by the CFTC, “it shall be unlawful for any person to . . .
[deal] in . . . a contract for the purchase or sale of a commodity for future delivery (other
than a contract which is made on or subject to the rules of a board of trade, exchange, or
market located outside the United States, its territories or possessions) unless” in connec-
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few legal difficulties: instead of creating a freestanding specialized market, convince an exchange already regulated by the CFTC
to start listing science claims. This section will explore each of
those three options in turn. First, though, it must grapple with
the preliminary question of whether dealing in science claims indeed falls within the scope of the CEA.
1. Do Science Claims Fall Within the Scope of the CEA?
Would the transactions supported by a market in science
claims qualify as commodity futures trading subject to the CEA?
Here, as in the discussion of gambling law above, a firm answer
proves elusive. It at least seems safe to say that the intangible
nature of science claims would not alone suffice to remove a market in them from the scope of the CEA. The CEA defines “commodities” so broadly as to include “all services, rights, and
interests in which contracts for future delivery are presently or in
the future dealt in.”51
The CFTC might thus argue that a market in science claims
deals in contracts for the future delivery of rights, each such right
embodied in a coupon purchased at a value between $0 and $1
when its associated claim remains unresolved and redeemable at
$0 or $1 when the claim settles.52 The CFTC would arguably err
in that characterization, however. A more accurate account might
have it that a market in science claims deals in contracts for the
present delivery of rights, as embodied in coupons redeemable at
$1 each in the event a particular claim holds true.53 To put it more
concisely, and no less accurately, a science claim market deals in
the spot purchase and sale of the coupons themselves.
The subtle distinction between those two characterizations
makes a significant legal difference. As both a matter of policy
and law, the CEA does not cover contracts that settle with the
delivery of the underlying commodity. The CEA draws the justification for its very existence from the notion that buying and selling contracts for the future delivery of a commodity, rather than
buying and selling commodities intended for actual delivery, invites dangerous speculation.54 In essence, “[a] futures contract enables an investor to hedge the risk that the price of the commodity
tion with a CFTC-regulated exchange); id. § 6c(b) (prohibiting transactions in commodity
futures in violation of CFTC regulations).
51 7 U.S.C. § 1a(4).
52 See discussion supra Part II (describing how decision markets function).
53 One of Robin Hanson’s earliest works on decision markets included, as an illustrative insert, a green coupon payable in the event a nanocomputer having particular specifications exists by the year 2020. See Hanson, Encouraging an Honest Consensus, supra
note 8.
54 See Lynn A. Stout, Why the Law Hates Speculators: Regulation and Private Ordering in the Market for OTC Derivatives, 48 DUKE L.J. 701, 721-24 (1999).
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will change between the date the contract is entered and the date
delivery is due—without having to take physical delivery of the
commodity.”55 The CEA does not cover contracts intended to effectuate future delivery, much less contracts that effectuate immediate delivery.56
Understood as a forum for dealing in claim coupons, therefore, a market in science claims cannot fall within the scope of the
CEA. The market could easily manage to ensure not only the future delivery of claim coupons in satisfaction of participants’ contractual rights, but also the instantaneous delivery of them. The
market might, for instance, cast coupons in digital form, encrypt
them, and download them immediately to purchasers’ computers.57 “Sell” transactions would function the same way in reverse, with sellers uploading the encrypted certificate. Better yet,
the market could function as a peer-to-peer network wherein coupons transfer directly to and from participants’ computers via the
Internet, without passing through the market’s servers at all.
If that technological account proves unilluminating, it might
help to think of claim coupons as akin to lottery tickets—albeit
tickets for a “lottery” where skill or knowledge predominates over
chance in determining which coupons win58—and the market as a
place where people gather to buy and sell their rights to various
jackpots. Notably, the CFTC claims no jurisdiction over transactions in lottery tickets. Nor could the CFTC distinguish between
these cases by claiming that the odds attributed to a science claim
fluctuate, given that a lottery’s odds may vary with the number of
tickets sold.59
Admittedly, this line of argument may sound like the legal
equivalent of a programming hack—a trick designed to fool a system into generating unintended or even unwanted results.
Courts, like systems administrators, naturally frown on such maneuvering. As the Ninth Circuit observed, “[S]elf-serving labels
that the defendants choose to give their contracts should not deter
the conclusion that their contracts, as a matter of law, [are futures
55 Commodity Futures Trading Comm’n v. Noble Metals Int’l, Inc., 67 F.3d 766, 772
(9th Cir. 1995); see also Stout, supra note 54, at 722 (CEA does not apply “to contracts that
are intended to be settled by delivering the underlying good or service.”).
56 7 U.S.C. § 2(a)(1)(A) (specifying that the CFTC has jurisdiction over, in relevant
part, “transactions involving contracts of sale of a commodity for future delivery . . . .”)
(emphasis added).
57 Compare the analogous technologies used by such digital cash services as PayPal
and Javien. PayPal, at http://www.paypal.com (last visited Mar. 16, 2002); Javien, at http:/
/www.javien.com (last visited Mar. 29, 2002).
58 See supra Part III.A.1 (explaining legal standard for defining gambling
transactions).
59 Lottery services thus often include a disclaimer such as this one from the West
Virginia Powerball Gameshow: “The odds of winning will vary, depending on the number
of entries received by the Lottery.” West Virginia Lottery, Powerball The Game Show, at
http://www.state.wv.us/lottery/gameshow.htm (last visited Mar. 16, 2002).
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contracts subject to the CEA].”60 Nonetheless, courts should not
read the CEA expansively. The Act specifically cautions that it
shall not be “construed as implying . . . that” transactions specifically excluded from, exempted from, or otherwise not subject to it
“would otherwise be subject to this Act.”61
Suffice it to say that because a market in science claims would
neither operate exactly like nor serve all the same goals as the
markets lawmakers evidently had in mind when they enacted the
CEA,62 it remains an open question whether a court would hold
that a market in science claims falls within the scope of that Act.
It remains a vital question, too. As the next subsection illustrates,
if markets in science claims do not escape the scope of the Act,
they will almost certainly have to rely on the good will of CFTC
regulators to operate within the bounds of U.S. law.
2. Markets in Science Claims Under the CEA
Suppose for the sake of argument that the sorts of transactions supported by a market in science claims fall within the scope
of the CEA. Thanks to amendments made by the Commodity Futures Modernization Act of 2000,63 the CEA now includes loopholes that can save even commodities avowedly within its scope
from almost all CFTC regulation. Most pertinently, the CEA now
leaves almost untouched64 transactions in “excluded” commodities
entered into on a principal-to-principal basis by eligible contract
participants in an electronic trading facility.65 Yet the CEA defines the relevant terms so as to make even that, the most promising loophole, a problematic fit for markets in science claims.
It appears at least plausible that any of the claims associated
with the coupons traded on a market in science claims would qual60 Noble Metals Int’l, 67 F.3d at 773 (quoting Commodity Futures Trading Comm’n v.
Am. Metal Exch. Corp., 693 F. Supp. 168, 192 (D.N.J. 1988)) (alteration in original) (internal quotation omitted). In the transaction critiqued by the court, the defendants claimed
they had delivered metal to investors by transferring title to it, even though the metal
remained in a third-party depository. Noble Metals Int’l, 67 F.3d at 772-73. In that case,
there existed a tangible commodity separate from the title. Id. The intangible nature of
science claims, in contrast, ensures that the commodity (the right to payment contingent on
a claim’s settlement) effectively merges with the title (the coupon documenting the right).
61 7 U.S.C. § 2(i).
62 See Hanson, Decision Markets, supra note 8, at 18 (“Accepted functions of markets
now include entertainment, capitalization, and hedging, but not information aggregation,”
and explaining that information aggregation is the primary function of an idea futures
market.).
63 Pub. L. No. 106-554, 114 Stat. 2763 (2000).
64 7 U.S.C. § 2(d)(2) requires only that excluded electronic trading facilities satisfy the
applicable requirements of §§ 7a, 7a-1, and 7a-3, which in general call for self-regulatory
processes.
65 Id. § 2(d)(2), (e)(1); see also CHARLES W. EDWARDS ET AL., COMMODITY FUTURES MODERNIZATION ACT OF 2000: LAW AND EXPLANATION 26-27 (2001). For the definition of “electronic trading facility,” see 7 U.S.C. § 1a(10).
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ify as an “excluded commodity” under the CEA,66 whether as an
“index based on . . . values, or levels that are not within the control
of any party to the relevant contract,”67 or as a “contingency . . .
that is—(I) beyond the control of the parties . . . and (II) associated
with a financial, commercial, or economic consequence.” 68
Granted, that interpretation stretches the statutory language a
bit because it is not clear that the values of science claims would
constitute indexes under the former provision, or that their values
would be associated with the sorts of consequences specified in the
latter one.69 But commentators have already concluded that commodity futures based on weather forecasts—instruments already
in trade70 and not far removed from the sorts of claims in which a
science claims market would traffic—fit the CEA definition.71
Furthermore, CFTC regulations themselves interpret the Act in
terms broad enough to include science claims, explaining that
commodities have:
(i) A nearly inexhaustible deliverable supply;
(ii) A deliverable supply that is sufficiently large that the contract is highly unlikely to be susceptible to the threat of manipulation; or
(iii) No cash market.72
The first two criteria arguably hold true of a science market claim
because there exists no theoretical limit to the number of opposing
true/false assessments that might attach to any particular claim.73
The first two criteria notwithstanding, the third criterion seems
66 It bears noting that in the rather less likely event that the rights traded on a science claims market qualified as commodities subject to the CEA, but not as “excluded commodities,” they would certainly qualify as “exempt commodities” under the Act. See 7
U.S.C. § 1a(14) (“The term ‘exempt commodity’ means a commodity that is not an excluded
commodity or an agricultural commodity.”). Were it found to transact in exempt commodities, a market in science claims would at best qualify for slightly more stringent regulatory
burdens than it would under the least regulatory approach afforded to excluded commodity
electronic trading facilities. Id. § 2(h)(3)-(5); EDWARDS ET AL., supra note 65, at 28-29.
67 7 U.S.C. § 1a(13)(iii).
68 Id. § 1a(13)(iv).
69 According to one commentator, excluded commodities also impliedly refer to nonfinite processes, Louis Vitale, Comment: Interest Rate Swaps Under the Commodity Exchange Act, 51 CASE W. RES. L. REV. 539, 587 (2001), whereas the claims on a science
market, because they would include judging deadlines, would resolve in a finite period.
70 See, e.g., Neela Banerjee, When Bad Weather is Good Business, N.Y. TIMES, Aug. 13,
2000, § 3, at 4, available at 2000 WL 25031051 (interviewing Ravi Nathan, portfolio manager of weather derivatives at Aquila Energy, regarding nature and uses of weather derivatives); Chicago Mercantile Exchange, Weather Products, at http://www.cme.com/products/
index/weather/products_index_weather.cfm (last visited Jan. 9. 2002) (discussing weatherbased futures traded on the exchange).
71 EDWARDS ET AL., supra note 65, at 26.
72 17 C.F.R. § 37.3(a)(1) (2002); see also id. § 37.3(a)(5) (specifying that commodities
meeting those criteria qualify as “excluded commodities”).
73 See Hanson, Could Gambling Save Science?, supra note 8, at 16-18; Hanson, Vote
on Values, supra note 8, at 22-24 (discussing why idea futures markets resist
manipulation).
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sufficient to bring science claims under the rubric of the CEA because claim coupons are not the sort of thing you can generally
buy and sell on the open market.
A market in science claims would have to satisfy still other
statutory definitions, however, before it could qualify for the loophole that allows certain transactions in excluded commodities to
largely escape CFTC regulation. What about those other terms of
art? The CEA does not define “principal-to-principal,”74 though
common sense and common law would indicate that most transactions on a market in science claims would, or by market rules easily could, qualify as such because a typical participant—a
professional scientist or educated lay person—would play the
market on his or her own behalf. A market in science claims
would also easily qualify as an “electronic trading facility” as defined by the Act.75
The problem arises with the definition of “eligible contract
participants,” a label that the CEA generally reserves for financial
institutions, financial professionals, or individuals having at least
five million dollars in assets.76 That describes very few scientists
or educated lay people, yet the success of any market in science
claims would rely on their participation. The definition of “eligible
contract participants” thus effectively closes the regulatory loophole most promising for markets in science claims. To put it more
precisely, and to introduce the second means of escaping CFTC
regulation of commodity futures falling within the CEA’s scope, no
scientist or educated lay person would qualify as an eligible contact participant unless the CFTC specially judged him or her “eligible in light of the financial or other qualifications of the
person.”77 The CFTC would no doubt have wide discretion in making such a judgment.78
More generally, the CFTC might allow a market subject to its
jurisdiction to engage in futures trading by specially excusing that
market from regulation.79 Unlikely though that option may
sound, the CFTC has in fact established something of a precedent
EDWARDS ET AL., supra note 65, at 27.
7 U.S.C. § 1a(10) (2001).
Id. § 1a(12).
Id. § 1a(12)(C).
See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843-44
(1984) (holding that an agency’s interpretation of an ambiguous statute will have controlling weight unless manifestly unreasonable).
79 7 U.S.C. § 6(c) (allowing the CFTC to exempt a class of transactions from its regulations on a finding that it would serve the public interest). But see id. § 6(c)(2)(B)(i) (allowing such exemption only for transactions between “appropriate persons”); id. § 6(c)(3)
(defining “appropriate persons” largely to include only financial institutions and professionals). Only one loophole arguably allows the CFTC to exempt from its regulations the
sort of science claims market described herein. Id. § 6(c)(3)(K) (including “other persons
that the Commission determines to be appropriate in light of their financial or other qualifications, or the applicability of appropriate regulatory protections”).
74
75
76
77
78
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for liberating idea futures markets from its oversight. The only
real-money idea futures market operating within the reach of U.S.
law, the Iowa Electronic Market, operates by the grace of a noaction letter received from the CFTC.80 That letter not only saves
the IEM from the running the gantlet of CFTC regulations but
also, thanks to the preemptive force of federal regulation, arguably81 saves the IEM from liability under state gambling or bucketshop laws82 that would potentially interfere with the CFTC’s regulatory authority.83 To win such benefits, however, the IEM had to
make a concession: no individual’s account can exceed five hundred dollars.84
Even if the CFTC were willing to issue another such no-action
letter, no market in science claims could accept a five hundred dollars per account cap without losing some of its functionality. If
the CFTC were willing to impose a less restrictive account limit—
high enough, say, to fund a comfortable living for a renegade but
ultimately correct scientist—a market in science claims might
still fulfill much of its promise, of course.85 If the CFTC were furthermore willing to forego blunt account caps for the more tradi80 IEM, Is It Legal?, supra note 24 (“The CFTC has issued a ‘no-action’ letter to the
IEM, stating that as long as the IEM conforms to certain guidelines, the CFTC will take no
action against it.”).
81 In fact, neither the CFTC nor the IEM expressly claims that the no-action letter
preempts state law, and the precise legal question appears to remain unresolved. Practically speaking, though, state prosecutors and regulators have left the IEM in peace.
82 See Kevin T. Van Wart, Preemption and the Commodity Exchange Act, 58 CHI.KENT. L. REV. 657, 659 n.15 (1982) (“The term ‘bucket shop’ refers to firms that offer customers the opportunity to bet on changes in futures market prices without actually entering into futures transactions on the contract market.”).
83 See Am. Agric. Movement, Inc. v. Board of Trade, 977 F.2d 1147, 1157 (7th Cir.
1992) (“State laws specifically directed towards the futures markets naturally operate in an
arena preempted by the CEA.”); Rasmussen v. Thomson & McKinnon Auchincloss Kohlmeyer, Inc., 608 F.2d 175, 178 (5th Cir. 1979) (“[T]he Commodity Exchange Act preempts
all state laws inconsistent with its provisions.”); Thomas Lee Hazen, Rational Investments,
Speculation, or Gambling?—Derivative Securities and Financial Futures and Their Effect
on the Underlying Capital Markets, 86 NW. U.L. REV. 987, 1013-17 (1992); Van Wart, supra
note 82, at 720 (“Congress has vested solely in the CFTC both authority to determine
whether to designate a contract market for a proposed future, and exclusive jurisdiction for
the regulation of such markets after their designation.”); id. at 662-63 (discussing how,
before the advent of federal preemption, states’ “bucket shop” laws restricted the operation
of futures markets).
For a preemption provision only very recently added to the CEA, and especially suitable for a science claims market capable of benefiting from the “excluded commodity” loophole, discussed supra, see 7 U.S.C. § 16(e)(2) (“This Act shall supersede and preempt the
application of any State or local law that prohibits or regulates gaming or the operation of
bucket shops (other than antifraud provisions of general applicability) in the case of . . . an
agreement, contract, or transaction that is excluded from this Act . . . .”) (citation omitted).
84 See IEM, Applying for an Account, supra note 22 (“The minimum investment for
U.S. Dollar denominated accounts is $5.00 and the maximum is $500 per account. Investments may be increased at any time, provided they do not exceed the maximum $500 limit
. . . .”).
85 Its hedging functions might suffer, however. If account limits were set at one hundred thousand dollars, for instance, an insurer could hardly buy claims payable in the
event of global warming as a hedge against the losses caused by rising sea levels.
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tional and subtle tools of position limits (which restrict the size of
any trader’s stake in a particular contract),86 or trading limits
(which restrict the size of particular transactions),87 a market in
science claims might operate still more effectively. Thanks to the
Chevron doctrine88 and the CEA’s broad language about such matters,89 however, the CFTC would have near-absolute discretion to
give a market in science claims as little leeway as it gave to the
IEM—or even less.
In summary, a freestanding market in science futures would
face several options, each legally uncertain and none without risk,
for accommodating U.S. commodity futures regulations. First,
proponents of a market in science futures might successfully argue that it does not engage in commodity futures trading, at least
not the kind covered by the CEA. In that event, the market would
not win CEA’s protective preemption of state laws, such as those
criminalizing or regulating gambling. Second, should a market in
science claims find itself subject to the CEA, it could attempt to
qualify for the “excluded commodity” loophole that would largely
free it from CFTC regulation. It looks highly probable, however,
that the CFTC would have wide discretion to thwart any such attempt. At the least, to judge from precedent, the CFTC would
probably not exclude a market in science claims from its regulations without also imposing crippling conditions. That makes the
third option—seeking a no-action letter from the CFTC—similarly
unattractive.
3. Listing Science Claims on an Existing Market
Although markets in science claims may very well have
trouble meeting the CEA’s requirements if they fall within the
scope of that Act, science claims themselves might not face the
same difficulty. The claims would have to find a new home, however, on a market already approved by the CFTC. Of the five
types of exchanges defined by the CEA,90 registered derivatives
transaction execution facilities (DTEFs)91 appear most suitable for
hosting science claims.
See 7 U.S.C. § 6(a).
Id.
See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843-44
(1984) (holding that an agency’s interpretation of an ambiguous statute will have controlling weight unless manifestly unreasonable).
89 See 7 U.S.C. § 6(c)(1) (“In order to promote responsible economic or financial innovation and fair competition, the Commission . . . may . . . exempt any agreement, contract,
or transaction (or class thereof)” from most of the requirements of the CEA.).
90 EDWARDS ET AL., supra note 65, at 21.
91 7 U.S.C. § 7a (establishing DTEFs); see also EDWARDS ET AL., supra note 65, at 3133 (discussing DTEFs). In general terms, because DTEFs host trading only in contracts
that resist manipulation, they operate under comparatively little CFTC oversight.
86
87
88
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177
The Commodity Futures Modernization Act of 2000 recently
amended the CEA to give trading facilities broad discretion in the
types of claims they issue.92 Essentially, when a DTEF submits a
new contract for approval,93 the regulations deem the contract approved unless the CFTC objects to it as not conforming to CEA
standards.94 What standards would the CEA apply to such contracts? The same standards (among others) already applied
above95 in explaining why science claims qualify as “excluded commodities”: the underlying commodity may have a nearly inexhaustible deliverable supply, a supply so large as to render the
contract highly resistant to manipulation, or no cash market.96
The Act also separately provides that DTEFs can elect to transact
in excluded commodities.97 It thus looks likely that DTEFs could
support trading in science claims.
This is not to say that most people would be able to participate directly in science claims hosted on DTEFs. Direct participants would in general have to qualify as “eligible traders,” a term
that would fit very few of the people from whom a market in science claims would need input in order to fulfill its potential.98 By
working through a futures commission merchant, however, professional scientists and educated lay people could indirectly win access to science claims trading on a DTEF.99
Would a DTEF have any interest in issuing science claims?
Such markets exist100 to make money, after all, and it does not
appear extraordinarily likely that the transaction fees charged for
trading in science claims would generate a great deal of revenue.101 Still, it might generate enough positive public relations to
justify some costs, and benefactors interested in promoting science
claims might help out as well. Here, as with regard to markets
generally, we can only guess what services parties would find
worth their while to sell.
See EDWARDS ET AL., supra note 65, at 21.
A “contract” in this context represents the very thing traded on the DTEF: a contract for the payment of a particular sum contingent on a particular condition. It should
thus call to mind the coupons traded on a market in science claims.
94 See 7 U.S.C. § 7a-2(c)-(d); 17 C.F.R. § 40.3 (2001).
95 See discussion supra Part III.B.2.
96 7 U.S.C. § 7a(b) (describing requirements for contracts traded on a DTEFs).
97 Id. § 7a(g).
98 Id. § 7a(b)(3); see also id. § 1a(12) (defining “eligible contract participant”).
99 Id. § 7a(b)(3)(B); see also id. § 1a(20) (defining “futures commission merchant”). Relying on agents such as futures commission merchants would plainly disqualify a science
claims market from the loophole discussed, supra, in Part III.B.2, as that loophole requires
principal-to-principal transactions.
100 Or, more precisely, would exist; at present, no DTEFs exist. CFTC.gov, Table of
Registered DTEFs, at http://www.cftc.gov/dea/deadtefs_table.htm (last visited Jan. 25,
2002).
101 Markets in science claims appear unlikely, after all, to generate the sort of trading
volume generated by for-profit commodities futures markets.
92
93
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IV.
ALTERNATIVES TO FULLY PUBLIC
SCIENCE MARKETS
[Vol. 5:159
AND
LEGAL
As the above analysis suggests, it will not be easy for a market in science claims to win clearly legal status under U.S. law.
No discussion of the legality of such markets would be complete,
however, without at least a brief mention of a few more subtle, if
sometimes less legal, approaches to the problem. This Part considers three such strategies, each having a lower cost-to-risk ratio
than the next.
At the high end of the cost-to-risk spectrum falls the strategy
of keeping a science claims market wholly in-house, open only to
the members of a commercial firm. Hewlett-Packard, for instance,
has found that internal idea futures markets consistently beat official forecasts at predicting printer sales.102 Siemens has experimented with similar markets,103 and the Department of Defense
has invited proposals for the development of limited-access futures markets for its use.104 The law appears to regard such markets as purely private affairs, not subject to the regulatory
burdens that might attach if the public could participate in
them.105 They thus pose little legal risk. A market in science
claims would probably not achieve its potential unless it were
open to a very large variety and number of participants, however,
and to try to bring them all within the bounds of a private firm
would probably not prove cost-effective.
As an alternative presenting a more moderate cost-to-risk ratio, Internet gambling sites based offshore could host and offer
public access to markets in science claims. That option presents
more peril in theory than in actuality, as U.S. law can neither effectively regulate overseas gambling sites nor bar U.S. citizens
from patronizing them.106 It remains doubtful, however, that operating out of such sites would serve science markets very well. It
may sound encouraging that Internet-based bookmakers have alHanson, Vote on Values, supra note 8, at 11.
Hanson, Decision Markets, supra note 8, at 19.
104 See Small Business Innovation Research, Department of Defense, Defense Advanced Research Projects Agency Submission of Proposals, DARPA SB012-012: Electronic
Market-Based Decision Support, at http://www.acq.osd.mil/sadbu/sbir/solicitations/sbir012/
pdf/darpa012.pdf (last modified Apr. 30, 2001) (requesting submissions for proposals to
“[d]evelop electronic market-based methods and software for decision analysis, to aggregate information and opinions from groups of experts,” and to identify “a group of knowledgeable market participants . . . .”).
105 See, e.g., CAL. BUS. & PROF. CODE § 17539.3(a) (West 2001) (stating that certain
statutes regulating the offer of betting to the public “shall not apply to a game conducted to
promote the sale of an employer’s product or service by his employees, when those employees are the sole eligible participants”).
106 See TOM W. BELL, INTERNET GAMBLING: POPULAR, INEXORABLE, AND (EVENTUALLY)
LEGAL 2 (Cato Policy Analysis No. 336, Mar. 8, 1999).
102
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ready offered bets on unconventional topics like political races107
and the likelihood of aliens landing in Washington, D.C.108 Nevertheless, a bookmaking service cannot duplicate markets in science
claims because it typically relies on a bookmaker, rather than the
interplay of market participants, to set the odds on a claim.109
Bookmakers consequently avoid carefully estimating the odds on
difficult and obscure scientific disputes, preferring to set safe odds
on flashy and amusing claims likely to draw in customers who will
migrate to sports betting.110 It may also prove true that demand
for online versions of more conventional types of gambling would
make running a market in science claims relatively unprofitable
for Internet bookmakers and casinos. At any rate, given that a
market in science claims touts as one of its main benefits the dissemination of soberly accurate measures of experts’ consensus
views on matters of pressing concern, having the market located
in the Internet equivalent of the Las Vegas strip threatens to
largely defeat its purpose.
At the low end of the cost-to-risk spectrum, a market in science claims could ignore the legal uncertainties and simply charge
ahead, trusting that authorities would not notice, not care, or at
least not succeed in convincing a court that so well-intentioned a
project ought to give rise to civil or criminal liability. That strategy could prove either a heroic success or a foolhardy failure. It
has not gone completely untried, however. Perhaps showing how
much advocates of a market in science claims want to get one up
and running, they have indeed flown one under the law’s radar.
Though documentary proof naturally remains somewhat scanty,
the tax-exempt Foresight Institute111 for some time test-ran a
real-money idea futures market accessible only to its high-level
donors.112 It recently discontinued that experiment, however, and
has now focused its research on ways of making a similar market
available to the public at large.113 At present, it does not look
likely that anyone in the United States will attempt the still more
risky scheme of publicly launching a full-blown, real-money market in science claims.
107 See, for example, the bets offered by the Antigua-based Intertops website. Intertops.com, Betting, Politics, at http://www.intertops.com/sportsbook/cgi-win-2/
itwww.exe? (last visited Jan. 10, 2002).
108 See Leander Kahney, Y2K Disaster? You can Bet on It, WIRED NEWS, Sept. 27, 1999,
available at http://www.wired.com/news/news/culture/story/21946.html.
109 Hanson, Could Gambling Save Science?, supra note 8, at 20-21.
110 Id.
111 See Foresight Institute, at http://www.foresight.org (last visited Jan. 19, 2002).
Notwithstanding the similarity of their names, the Foresight Institute and the Foresight
Exchange, discussed supra Part II, have no formal ties.
112 Trustworthy people closely involved with the Foresight Institute have spoken to me
of such a market and have given me qualified permission to mention their work here.
113 Correspondence is on file with the author.
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V. CONCLUSION
Advocates of markets in science claims should take heed but
take heart. The brightest prospect for such markets winning fully
legal status under U.S. law—qualifying them as neither a form of
illegal gambling nor as commodity futures trading subject to the
scope of the CEA—looks quite bright, indeed. A market in science
claims could then set up operations on U.S. soil with no more regulatory worries than those that typically come with the start-up of
a for-profit business or tax-exempt organization. At present,
though, with a dearth of controlling cases or clearly applicable
statutes, it remains uncertain whether a market in science claims
would enjoy so easy a path to legal respectability. Persuading an
exchange already regulated by the CFTC to issue science claims
thus offers an attractive, if perhaps expensive, alternative.
Those two approaches—aiming for the legal gap between
gambling and commodity futures trading or taking regulatory
shelter under an existing commodity futures exchange—offer the
most obvious routes toward making markets in science claims
fully operational in the United States. They do not offer the only
routes toward that end, however, as there remain somewhat less
attractive, because somewhat less than fully legal, alternatives.
Given all the ways to work with or around the law, and the fundamentally sound policy reasons for doing so, it seems worthwhile
and realistic to aim at putting the theory of markets for science
claims into practice. When good ideas find no outlet in lawful
acts, after all, good acts can change our ideas about the law.
The Regulation of Commercial Gaming
Cory Aronovitz, Esq.*
I. INTRODUCTION
The gaming industry is subject to special scrutiny, beyond
that given to other industries.1 Many people fear that gaming will
produce substantial negative impacts on society, either because
gaming has a colorful past filled with unsavory individuals, or because it has the potential to wreak social havoc, absent direct and
continuous oversight.2 Therefore, all jurisdictions that allow gaming have adopted some form of regulation—a structure to govern
all conduct within the gaming environment.3 Although certain
specific policies and goals may differ among communities, all gaming regulation strives to maintain the integrity of the gaming environment and to assure the public that the games are fair.
To achieve integrity and fairness, legislation and administrative implementation must act as one. The will of the people of
each jurisdiction comprises that jurisdiction’s public policy. The
* Cory Aronovitz is the founder of The Casino Law Group. His practice concentrates
in the area of casino and gaming law. He is a member of the Gaming Law Review editorial
board, a founding member of the International Masters of Gaming Law, and an adjunct
professor of gaming law at the John Marshall Law School. In August 2000, Cory was
named one of the “Top 40 Lawyers Under 40” by the Chicago Law Bulletin for his contributions to the gaming industry. He is a former legal counsel to the Illinois Gaming Board and
has worked for a boutique gaming law firm in Atlantic City, New Jersey, as well as developing a gaming law practice group for two large national law firms.
1 NAT’L GAMBLING IMPACT STUDY COMM’N, FINAL REPORT, at 3-1 (1999), available at
http://govinfo.library.unt.edu/ngisc/index.html [hereinafter NGISC FINAL REPORT]; Bruce
P. Keller, The Game’s the Same: Why Gambling in Cyberspace Violates Federal Law, 108
YALE L.J. 1569, 1569 (1999).
2 NGISC FINAL REPORT, supra note 1, at 3-1; Janne Giroir Siegel, 24 Pro: What
“They” Don’t Want You to Know About Casino Gambling, 30 ARK. LAW. 24 (1996) (noting
negative impacts, including: regressive taxation, social costs, reshuffled spending in local
economy, and increased organized and street crime); see also Earl L. Grinols & David B.
Mustard, Measuring Industry Externalities: The Curious Case of Casinos and Crime
(March 2001) (unpublished manuscript, on file with Chapman Law Review) (discussing the
negative impacts associated with gaming: crime, business and employment costs, bankruptcy, suicide, social service costs, direct government regulatory costs, family costs, and
abused dollars).
3 Paul D. Delva, Comment, The Promises and Perils of Legalized Gambling for Local
Governments: Who Decides How to Stack the Deck?, 68 TEMP. L. REV. 847, 849 n.13 (1995)
(“Regulation can be defined as ‘the expression of government, in the nature of a rule of
conduct, imposed upon rather than implicit in a situation, conventional in character, and
generally operating with form requirements, precise quantities, or administrative arrangements.’ ” (quoting FREUND, LEGISLATIVE REGULATIONS 3 (1932), reprinted in 3 C. DALLAS
SANDS ET AL., LOCAL GOVERNMENT LAW § 14.01, at 14-2 (1994))).
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public needs its lawmakers to codify these policies in the form of
legislation. In turn, administrative implementation is necessary
to execute these legislative directives. Therefore, successful gaming regulation inherently relies upon clear public policy, well-defined legislative goals, and a method of administrative
delegation.4
This article focuses on how to successfully regulate commercial gaming, using Midwest gaming, primarily the Illinois regulatory system, as a backdrop. Part II addresses the reasons for
authorizing gaming and the purposes of gaming regulation. Part
III identifies the forms of successful gaming legislation, and the
essential elements needed to draft such legislation. Part IV discusses legislation implementation through delegation. Finally,
Part V explores the proper role of gaming regulators, including
promulgating rules, setting policy, and enforcing legislation.
II.
THE REASONS FOR AUTHORIZING GAMING
PURPOSE OF GAMING REGULATION
AND THE
The reasons for authorizing gaming are conceptually distinct
from the purpose of gaming regulation. Reasons for authorizing
gaming are often reactionary; conversely, the purpose of regulating gaming is normally to effectuate established legislative policy
directives.5 Legislatures authorize gaming for two principal reasons: to derive economic benefits from the gaming industry and to
react to market competition. Each reason is based on different
policy considerations and goals, and requires a different method of
implementation. As a result, the reason for which a legislature
authorizes gaming determines its legislative directives. Ultimately, this means that the purpose and method of regulating
gaming depends upon the underlying reason for authorization.
A. Economic Benefits Derived from Gaming
Economic benefits derived from gaming typically include economic revitalization, employment opportunities, tax revenue, and
increased tourism.6 Thus, a legislature considering authorizing
gaming must first determine the specific type of economic benefit
its community desires, based on its needs. This decision requires
lawmakers to consider “moral, political, health, safety, social, and
economic reasons” that are important to their constituents.7 Once
4
ANTHONY N. CABOT, CASINO GAMING: POLICY, ECONOMICS
AND
REGULATION 11
(1996).
Id. at 12-13.
Id. at 59-65; see also Siegel, supra note 2, at 24; Lawrence J. Truitt, The Regulation
and Economic Impact of Riverboat Casino Gambling in Illinois, in GAMBLING PUBLIC POLICIES AND THE SOCIAL SCIENCES 131 (William R. Eadington & Judy A Cornelius eds., 1997).
7 CABOT, supra note 4, at 12.
5
6
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identified, the specific economic benefits should be expressed as
the legislature’s public policy, and included in the legislation as
the “legislative intent.”
1. Economic Revitalization
Economic revitalization, one benefit of authorizing gaming,
encompasses casino development, non-gaming capital investment
that supports new gaming development, municipal infrastructure
improvements, and small business opportunities.8 Lawmakers
can control these aspects of economic revitalization through legislation. Such control may take the form of express provisions for
the size, scope, location, and minimum investment of new gaming
development, the allocation of tax revenue for municipal infrastructure improvements, the procurement of a percentage of goods
and services from preferred vendors,9 and assistance to start-up
businesses through grants or other credit support.
Authorized gaming in Illinois is one example of successful
gaming-driven economic revitalization. In 2000, the eight casinos
comprising the Illinois Casino Gaming Association spent over
sixty-three million dollars on capital improvements to their facilities.10 Additionally, local gaming taxes collected from The Empress Joliet Casino and Harrah’s Joliet Casino enabled the City of
Joliet to invest $7.3 million in neighborhood improvements, and
$2.5 million in the Joliet Historical Society renovation.11
2. Employment Opportunities
Authorizing casinos also generates jobs in the community. In
addition to the actual casino jobs created when casinos are authorized, casino jobs have a 1.7 multiplier. This means that every casino job creates 1.7 other, non-casino jobs.12 The addition of a
casino creates employment opportunities in numerous industry
sectors: public service, construction, entertainment, laundry,
waste removal, local transportation, banking, food and beverage
distribution, and social services.
8 Id. at 62-63; see also AM. GAMING ASS’N, STATE OF THE STATES: THE AGA SURVEY OF
CASINO ENTERTAINMENT, at 7-18 (2001), available at http://www.americangaming.org/sur
vey2001/sur_index.html [hereinafter AGA SURVEY]; Randolph Baker, Lessons from a Decade of Riverboat Gaming: A Personal Perspective, GAMING L. REV., vol. 5 No. 5, at 451, 458
(2001).
9 These are typically comprised of local preference or minority business enterprises.
10 ILL. CASINO GAMING ASS’N, 2000 ANNUAL REPORT 2 [hereinafter ICGA 2000 REPORT]; see also AGA SURVEY, supra note 8, at 7-18 (providing an overview of the economic
impact by casinos in various jurisdictions).
11 See ICGA 2000 REPORT, supra note 10, at 2.
12 CABOT, supra note 4, at 63. In 2000, approximately 370,207 casino employees were
employed by commercial and Native American casinos. AGA SURVEY, supra note 8, at 5.
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In June 1999, the National Gambling Impact Study Commission (NGISC) published a report of findings from its two-year investigation into the status of gaming in the United States.13 In
the report, the NGISC cited a 1996 Arthur Andersen study regarding the influence of gaming on the American economy.14 Arthur Andersen discovered that in 1995, the entire casino industry
directly employed almost three hundred thousand people, who collectively earned approximately $7.3 billion in wages.15 The study
also found that nationally, the average wage for casino employees
was higher than the average wage of workers in most related
fields.16 Furthermore, in that same year, casino jobs indirectly
supported over four hundred thousand non-casino jobs, which in
turn paid $12.5 billion in wages.17
Although casinos are self-contained, handling their own labor-intensive, day-to-day operations, casinos typically obtain
goods and services needed to support the facility from local vendors.18 Accordingly, casinos create many local employment opportunities. For example, in 2000, the eight members of the Illinois
Casino Gaming Association spent over $13 million for meat, $2.7
million for vegetables, and $1.7 million for laundry and dry cleaning services with local vendors.19
Another benefit of casino-created employment is that casinos
draw employees from diverse backgrounds and experiences. Employment opportunities in casinos range from entry-level jobs, requiring little or no education, to senior executive positions for
those with advanced graduate degrees. Regardless of their job titles, casino employees have tremendous opportunities to advance
within the company. Because gaming is a niche industry, casinos
tend to promote from within, through in-house training programs.20 Casinos also benefit from such training programs because they create employee loyalty, motivate employees to
See NGISC FINAL REPORT, supra note 1, at 7-6.
Id.
Id.
Id. (noting that in 1995, the national average wage for casino employees was
twenty-six thousand dollars).
17 Id. Indirect jobs are jobs outside of the casino that support the gaming operation
and its employees; those that provide goods and services to the casino, and the local businesses that provide to the employees—restaurants, bars, cleaners, food marts, video stores,
and so forth.
18 Id.
19 See ICGA 2000 REPORT, supra note 10, at 2.
20 For example, Harrah’s website displays the following employment advertisement:
Harrah’s Entertainment, Inc. offers a world-class salary and benefits package designed to reward extra effort and encourage professional development. We also
provide one-to-one mentoring, ongoing skills training, and outstanding opportunities for advancement. . . . Stick with Harrah’s, and you can go places. Just climb
aboard the most progressive career building system in the industry . . . . With
programs like . . . the company-wide internal job posting system, you’ll have every
opportunity to turn your job at Harrah’s into something more.
13
14
15
16
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advance, create skilled employees readily available for casino expansion into new jurisdictions, and minimize the need for
recruiting.
Authorized casino gaming also creates educational and training opportunities for casino employees. Notwithstanding the
proliferation of gaming in recent years, few educational programs
exist that provide students with the skills necessary to work in a
casino.21 To bridge the education gap, Illinois casinos provided
over sixty-nine thousand hours of training to a diverse workforce
in 2000.22 This workforce was made up of over fifty percent women and more than twenty-nine percent minorities.23 The sheer
volume of jobs created, abundant educational opportunities, and
inclusion of minority employees in the workforce combine to make
employment opportunities one of the principal benefits of authorized gaming.
3. Tax Revenue
Gaming is a lucrative business; however, the legislature can
restrict participation in that business opportunity. Therefore,
gaming companies accept the fact that jurisdictions will impose
heavy taxes on the gaming industry, in exchange for the opportunity to conduct gaming. While tax rates vary among jurisdictions,
gaming is usually taxed at a rate higher than the rates imposed
upon most other industries.24 Illinois imposes the highest gaming tax in the United States.25 In 2000, this high tax rate yielded over $512 million in gaming tax revenues.26 In Nevada,
Harrah’s, Our Culture, at http://www.harrahs.com/employment/our_culture.html (last visited Mar. 26, 2002).
21 The University of Nevada, Las Vegas offers educational programs designed to graduate students that are prepared to work in the gaming industry. See UNLV, University of
Nevada Las Vegas, Graduate Catalog, Fall 2001 - Spring 2003, available at http://www.
unlv.edu/pubs/catalogs/graduate/research.html.
22 ICGA 2000 REPORT, supra note 10, at 2.
23 Id.
24 AGA SURVEY, supra note 8, at 5. In 2000, tax revenue from gaming was the leading
source of tax revenue in Nevada. Id. In fiscal years 1999 and 2000, tax revenue from
gaming was within the top five sources in Indiana, Louisiana, Mississippi, and New Jersey,
generally behind tax on individual income, sales, and gasoline and petroleum. Id.
25 Id. at 7-18 (listing the gaming tax rates for a number of jurisdictions and showing
Illinois as the highest); see also 230 ILL. COMP. STAT. 10/13(a) (2001). Specifically, Illinois
imposes a sliding scale tax rate as follows:
15% of annual adjusted gross receipts up to and including $25,000,000; 20% of
annual adjusted gross receipts in excess of $25,000,000 but not exceeding
$50,000,000; 25% of annual adjusted gross receipts in excess of $50,000,000 but
not exceeding $75,000,000; 30% of annual adjusted gross receipts in excess of
$75,000,000 but not exceeding $100,000,000; 35% of annual adjusted gross receipts in excess of $100,000,000.
Id.
26 ILL. GAMING BD., 2000 ANNUAL REPORT 9 (2001), available at http://www.igb.
state.il.us/annualreport/2000IGB9.pdf [hereinafter ILL. 2000 REPORT]; see also AGA SURVEY, supra note 8, at 2 (discussing that in 2000, commercial casinos exclusive of Native
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gaming tax revenues account for more than half of all public
budgets.27
Despite these figures, gaming opponents argue that gaming
tax revenue is not a societal benefit, and that the social consequences of gaming exceed any value received from these revenues.28 The gaming industry, together with communities that
have received direct benefits from gaming, largely dispute these
claims.29 These gaming proponents cite the lack of empirical studies that support the anti-gaming position regarding social consequences.30 In any event, each legislature considering authorizing
gaming makes its decision by weighing any perceived social costs
against the vast possible revenues.
4. Tourism
Many people have long believed that gaming attracts tourism.31 Because gaming is not available in all areas, it follows that
many people who wish to gamble travel in order to do so. Tourism
creates an economic benefit for a community when it creates an
“ ‘extra demand[,]’ as opposed to switching demand” from an existing industry to gaming.32 If gaming attracts existing tourists to
participate in a new activity, then a shift in spending results. Any
such shift ultimately has a negative impact on the community
from which the tourism was drawn away.
When tourists have equally convenient access to several gaming locations, other factors will ultimately decide which location
they visit. The availability of non-gaming amenities such as entertainment, dining options, and hotel accommodations may be a
factor in tourist decisions. Tourists may also consider the manner
in which a jurisdiction has regulated gaming when making a decision. Regulatory factors in tourist decisions may include loss limits,33 cruising,34 gaming sessions,35 or the types of games offered.
American gaming facilities paid approximately $3.5 billion in taxes); ICGA 2000 REPORT,
supra note 10, at 2 (noting the distribution of revenues as $410 million to the state and
$102 million to local governments).
27 CABOT, supra note 4, at 61-62 n.122.
28 See generally Grinols & Mustard, supra note 2.
29 See generally AGA SURVEY, supra note 8, at 19; ICGA 2000 REPORT, supra note 10,
at 2 (highlighting investments made in the local communities); .
31 Tourism “introduces new cash into the community from nonresidents.” Id. at 60.
32 Id.
33 A “loss limit” is the fixed dollar amount that a casino patron may put at risk for a
given gaming session. E.g., MO. REV. STAT. § 313.805(3) (2001) (limiting the loss at five
hundred dollars per player, per excursion).
34 E.g., IND. ADMIN. CODE tit. 68, r. 8-1-1(3) (2001) (defining “full excursion,” which is
another term for cruising).
35 Id. r. 8-1-2(c)(1) (describing a gambling excursion schedule, which is another term
for gaming session).
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For example, certain gaming markets in Illinois were at one
time at a disadvantage because they were subject to more restrictive gaming regulations than nearby Iowa casinos.36 Illinois casinos were required to cruise on the water, and were therefore
unable to compete with Iowa casinos not subject to the same requirement.37 Patrons clearly favored the ability to come and go at
their leisure from the casinos in Iowa, as opposed to the restricted
schedules and gaming cruises required by the Illinois
regulations.38
Similarly, the possibility exists that casinos will be forced,
through competition with other casinos, to offer non-gaming
amenities already available within the community. These additions may cannibalize local businesses. In New Jersey, casinos
forced out local businesses, resulting in the closing of many family-run restaurants and taverns, which had withstood decades of
hard times.39 Regardless of whether such non-gaming amenities
were within the core business of the New Jersey casinos, the casinos were forced by competition to become “destination properties.”40 If a customer were unable to find a product or service at
one casino, he or she would go to a competitor. As a result, casinos
felt compelled to offer non-gaming amenities that local businesses
had previously offered to the public.41
36 For example, Rock Island Boatworks, Inc., an Illinois riverboat licensee, located
directly across from Iowa licensees, which were not required to cruise, operated at a competitive disadvantage, evidenced by an increase in revenues of approximately eighty percent after the 1999 amendments to the Illinois Riverboat Gambling Act authorized
dockside gaming. ILL. 2000 REPORT, supra note 26, at 31.
37 See ILL. GAMING BD., 1999 ANNUAL REPORT 31 (2000), available at http://www.igb.
state.il.us/annualreport/web99igb9.pdf [hereinafter ILL. 1999 REPORT] (comparing adjusted
gross receipts for Rock Island fiscal years 1998 and 1999, and showing an increase of
19.09%). The Illinois Riverboat Gambling Act was amended in 1999, allowing dockside
gaming beginning in June 1999. 230 ILL. COMP. STAT. 10/3(c) (2001). It is the author’s
belief that the amendment had a direct impact on the increased revenues. See IOWA RACING & GAMING COMM’N 491-5.6(99F)(2)a (2001), available at http://www3.state.ia.us/irgc/
CH5.pdf. (detailing excursion gambling boat uniform requirements, “The excursion season
shall be from April 1 through October 31 of each calendar year. An excursion gambling
boat must operate at least one excursion each day for 100 days during the excursion season
to operate during the off-season . . . .”).
38 See ILL. 2000 REPORT, supra note 26, at 31.
39 See N.J. CASINO CONTROL COMM’N, CASINO GAMBLING IN NEW JERSEY: A REPORT TO
THE NATIONAL GAMBLING IMPACT STUDY COMMISSION 27-28 (1998). See generally Marla K.
Nelson, Casino Gambling in Atlantic City: A Sure Bet for Whom?, at http://www.asu.edu/
caed/proceedings99/NELSON/NELSON.htm (last visited Mar. 25, 2002).
40 A “destination property” is a property that offers the patron many amenities including gaming, various dining options, spas, night clubs, various entertainment options including shows or reviews or headline entertainers, one of a kind visual attractions
(fountains, volcanoes, art, gondola rides), shopping, and a pool, beach, or marina. A destination property is a resort that provides the guest with so many options that there is no
reason for that person to leave the property.
41 For example, in Atlantic City the Trump Taj Mahal has the Hard Rock Café, Trump
Taj Mahal Casino Resort, Restaurants, at http://www.trumptaj.com/restaurants/Default.
htm (last visited Apr. 18, 2002), Caesar’s has shopping at The Shops on Ocean One, The
Shops on Ocean One, at http://www.oceanonemall.com/ (last visited Mar. 30, 2002), and
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These results illustrate the importance of careful legislative
planning and regulation. A legislature seeking to receive the economic benefits of tourism by authorizing gaming should, therefore, be clear about its goals, and set in place policies that address
these concerns in the manner best for the community.
B. Reaction to Market Competition as a Reason for
Authorizing Gaming
Competition with neighboring states is the other primary reason that many states authorize gaming. “If neighboring states
have gambling, and people cross state boundaries to place their
bets, the state without gambling may suffer the adverse consequences that are caused by gambling, without receiving the benefit of increased revenue.”42 The reality of market competition with
other states forces lawmakers to react, justifying the enabling legislation by pointing to gaming’s economic benefits. Lawmakers
reason that regardless of competition, authorizing gaming will result in economic benefits to a given state because the state will
thereby at least receive its proportionate share of the gaming
revenues.
For example, one must ask whether Illinois would have enacted its riverboat casino law in 1990, if Iowa had not authorized
gaming the previous year.43 Indiana and Missouri subsequently
authorized gaming, arguably in response to Illinois’s new gaming
law.44 In addition to the need to prevent discretionary income
from crossing state borders, however, Illinois, Indiana, and Missouri each presumably envisioned that gaming would stimulate
the stagnant economy common to most jurisdictions during that
time period.45
In Illinois, the legislature’s stated purpose for enacting the
Riverboat Gambling Act46 was to “benefit the people of the State of
Illinois by assisting economic development and promoting Illinois
Bally’s has a spa, Park Place Entertainment, Bally’s, Spa Services, at http://ww.ballysac.com/ (last visited Mar. 30, 2002).
42 Ronald J. Rychlak, The Introduction of Casino Gambling: Public Policy and the
Law, 64 MISS. L.J. 291, 326 (1995); see also IN. GAMBLING IMPACT STUDY COMM’N, REPORT
TO THE GOVERNOR, THE SOCIAL, FISCAL, AND ECONOMIC IMPACTS OF LEGALIZED GAMBLING IN
INDIANA 15 (1999).
43 See Truitt, supra note 6, at 130, 132 (indicating Illinois enacted gaming legislation
in response to Iowa’s gaming law); see also ILL. 2000 REPORT, supra note 26, at 9 (showing
year 2000 adjusted gross receipts increased by more than twenty-one percent over 1999
after the 1999 amendment authorizing dockside gaming); James Platz, Expanded Gaming
Vote Nears in Indiana, BLOOD-HORSE MAG., at http://news.bloodhorse.com/viewstory.asp?
id=8261 (last updated Feb. 26, 2002).
44 Missouri authorized gambling in 1992, and Indiana in 1993. INTERNATIONAL CASINO LAW 33, 92 (Anthony N. Cabot et al. eds., 3rd ed. 1999) [hereinafter INT’L CASINO
LAW], see also IND. CODE § 4-33-1-1 (1993); MO. REV. STAT. § 313.800-.850 (1993).
45 230 ILL. COMP. STAT. 10/2 (1993); IND. CODE § 4-33-1-2 (1993).
46 230 ILL. COMP. STAT. 10/1-10/23.
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tourism.”47 The Riverboat Gambling Act describes the economic
benefits as “enhance[d] investment, development and tourism in
Illinois”48 but mandates that gaming be conducted in a manner
that preserves the “public confidence and trust in the credibility
and integrity of the gambling operations and the regulatory process.”49 Therefore, to protect the public trust and the integrity of
the games, the Riverboat Gambling Act provides notice to the
gaming industry that the “regulatory provisions of this Act are designed to strictly regulate the facilities, persons, associations and
practices related to gambling operations pursuant to the police
powers of the State, including comprehensive law enforcement
supervision.”50
III.
ESSENTIAL ELEMENTS
OF A
GAMING LAW
As previously discussed, creating a law authorizing gaming
involves a three-step process: (1) determining public policy, (2) defining goals, and (3) implementing legislation. Once the underlying public policy is identified and the legislative goals are defined,
the legislature must adopt and implement laws reflecting these
policies and goals to govern how gaming will be conducted. The
third and final step, implementing the legislation, is critical to the
success of the gaming venture. Implementation is very different
from the first two steps of the lawmaking process because it requires lawmakers to make calculated decisions about concepts
that they may not fully comprehend. When determining public
policy and defining goals, lawmakers rely on their experience and
familiarity with the values and needs of the community. Dedicated lawmakers are intimately involved with the needs and
pressing issues of their community, and usually typify the values
of their constituents. Implementation, however, goes beyond this
inherent legislative expertise.
Although there are many components in a comprehensive
gaming law, the key provisions must include licensing, operational controls, enforcement, tax, and accounting and audit.51 In
addition, sensitive issues regarding compulsive and underage
gambling, alcohol consumption, and the scope of the gaming facility are essential elements, which must be taken into consideration
to create a well-crafted gaming law.
47
48
49
50
51
Id. § 10/2(a).
Id. § 10/2(b).
Id.
Id.
CABOT, supra note 4, at 13-14.
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A. Regulatory Models
While all gaming laws incorporate provisions designed to
maintain the integrity of the games and to protect against the infiltration of organized crime, the public purpose behind these provisions differs. Two well-established, general public purposes
relate to gaming, and two different regulatory models have been
developed to further these distinct purposes.
The first regulatory model, commonly referred to as the “Nevada model,” seeks to maximize the economic benefits of gaming,
and allows the industry to meet market demands with little regulatory involvement, including determining the number, location,
and size of gaming facilities.52 Although business decisions are
vested with the industry, integrity and suitability issues are
strictly regulated.
The other approach, commonly referred to as the “New Jersey
model,”53 is in stark contrast to the Nevada model. This model
focuses on the potential negative impacts of gaming, and establishes a comprehensive regulatory framework that strictly governs virtually every aspect of the business.54 Interestingly, while
Nevada has experienced tremendous growth and capital investment over the last five years, New Jersey did not have any new
development for ten years, following the opening of the Taj Mahal
in 1990.55
In both models, the administrative investigation and enforcement functions are independent and separate from the administrative decision-making. In Nevada, the Gaming Control Board
investigates and enforces the gaming law and submits its findings
and recommendations to the Gaming Commission for its determination.56 In New Jersey, the Division of Gaming Enforcement investigates and enforces the gaming law, while the decision
function is vested in the Casino Control Commission.57
Illinois is an example of a hybrid model, midway between the
Nevada and New Jersey models. This hybrid regulatory scheme is
typical of the “emerging jurisdictions,” including Iowa, Indiana,
Missouri, and Louisiana.58 The hybrid model vests all regulatory
functions in one agency and limits the number of casino licenses
Id.
Id.
The Borgata, a joint venture between Boyd Gaming Co. and MGM-Mirage Inc., is
the first new casino development in Atlantic City in the last ten years, and is scheduled to
open Summer 2003. See Jonathan Kandell, Betting on the Boardwalk, CIGAR AFICIONADO,
Dec. 2001, at 136, 136-44.
56 See NEV. REV. STAT. 463.140 (2002).
57 N.J. REV. STAT. § 5:12-77 (2001); id. § 5:12-63.
58 “Emerging jurisdiction” is a term that the author uses to describe the proliferation
of regulated commercial gaming in the 1990s.
52
53
54
55
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that may be issued.59 In addition, the same agency investigates,
enforces, and decides all aspects of the gaming environment. Mississippi has created a second form of the hybrid model. Mississippi subscribed to the Nevada model in part, including no
restrictions on the potential number of available licenses.60 Unlike Nevada, however, Mississippi has a single regulatory body.61
B. Components of a Comprehensive Gaming Law
As previously mentioned, there are several components to a
comprehensive gaming law. These include licensing, operational
controls, law enforcement, taxation, and accounting and auditing.
Each component merits individual discussion.
1. Licensing
Licensing is governmental control that determines who will
profit from gaming activities, and who may associate with the
gaming industry. The level of regulatory scrutiny varies, depending on a party’s level of involvement in the gaming industry. Typically, the level of regulatory scrutiny increases when there is an
increased level of involvement.
Five general groups are involved in gaming, and each is
treated differently with respect to licensing.62 Group I includes
owners and operators, those individuals who profit from gaming.63
Officers, directors, and shareholders of a private gaming entity,
and those who own or control the voting rights of at least five percent of a publicly-held gaming company, are included in Group I
applicants.64
Group II includes manufacturers of gaming equipment and
“key” casino employees.65 Group II applicants are employees who
are disclosed on the corporate organization table and who have
substantial management responsibilities.66 This group includes
the casino manager, financial operations controller, vice-president
of casino operations, operations controller, director of security or
See 230 ILL. COMP. STAT. 10/5(a)(1) (1993); id. § 10/7(e).
Compare MISS. CODE ANN. § 75-76-67 (1999), with NEV. REV. STAT. 463.0129.
MISS. CODE ANN. § 75-76-7. Nevada uses a two-tier system that consists of the Nevada Gaming Commission, NEV. REV. STAT. 463.022, and State Gaming Control Board,
NEV. REV. STAT. 463.030. See also Nevada Gaming Commission and State Gaming Control
Board, Nevada Gaming Regulation, at http://www.gaming.state.nv.us/about_regulation.
htm (last visited Mar. 26, 2002).
63 Id. Gaming devices and equipment differ between jurisdictions, but typically include slot machines, tokens, cards, dice, and other games’ essential parts (such as roulette
wheels and the big six wheel). Id. at 363-94 (discussing various gaming devices).
64 Id. at 248, 272-77.
65 Id. at 248.
66 Id. at 248, 283-98.
59
60
61
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surveillance, cage manager, slot and table games manager, credit
and collections manager, and pit bosses.67
Applications for Group I and II licenses require the most comprehensive and detailed investigation into an applicant’s financial
and criminal background, personal and family associations, and
overall reputation.68 This licensing investigation requires the applicant to file an application containing very detailed
information.69
Group III includes non-gaming or associated equipment manufacturers and suppliers, other casino employees,70 lessors, junket
representatives, gaming schools, unions, and some lenders.71
Group III license applicants must also undergo a high level of
scrutiny and submit an application with detailed personal information.72 Nevertheless, the Group III application is not as encompassing as the application for Groups I and II.73
Group IV includes providers of non-casino goods and services
and non-gaming employees.74 The Group IV application is significantly shorter in length and focuses on the applicant’s criminal
background.75 In some jurisdictions, a Group IV applicant is not
required to file any application. However, in these jurisdictions,
the gaming authority retains the right to require a license application at any time.76
Finally, Group V includes all other individuals who do not fit
in the aforementioned groups, including gaming patrons or other
persons or entities. Group V typically includes anyone that the
gaming authority wishes to exclude from the gaming facilities in
its jurisdiction, or desires to know more information about beId.
Id. at 248, 298-319 (discussing different criteria considered by gaming regulators in
assessing gaming license applications).
69 For an example of an owner and key person application, see New Jersey Casino
Control Commission, Applying for a Casino Employee License or Casino Service Employee
Registration, at http://www.state.nj.us/casinos/applications.htm (last visited Feb. 24, 2002).
70 “Casino Personnel” generally includes cashiers, dealers, floor persons, internal auditors, pit clerks, security guards, slot attendants and mechanics, marketing personnel,
and surveillance operators. See CABOT, supra note 4, at 248, 283-98.
71 Id. at 248.
72 Id.
73 For example, in New Jersey, the key employee application, “Personal History Disclosure Form 1-B,” requires the applicant to provide detailed financial information, including cash on hand, investments, real estate holdings, assets, and insurance policy
information. New Jersey Casino Control Commission, Casino Key Employee License Application, available at http://www.state.nj.us/casinos/phd1b.pdf. On the other hand, the
New Jersey group three application, “Personal History Disclosure Form 2-A,” is much
shorter and does not request as much detailed information. New Jersey Casino Control
Commission, Casino Employee License Application, available at http://www.state.nj.us/ca
sino/phd2a.pdf.
75 See, e.g., New Jersey Casino Control Commission, Casino Service Employee Registration Application, available at http://www.state.nj.us/casino/phd4a.pdf.
76 See ILL. ADMIN. CODE tit. 86, § 3000.220(b) (2002).
67
68
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cause of a relationship with the casino, its key persons, or other
employees or suppliers.77 There is no registration or licensing for
this group. Instead, members of this group are simply banned
from the casino or prohibited from doing business with a casino.78
License applications in all groups must provide the information necessary to complete the investigation and determine
whether the applicant is “eligible” and “suitable” to participate in
gaming.79 An applicant is deemed ineligible if he has been previously convicted of a felony or a misdemeanor involving theft or
gambling, or any state or federal crime involving moral turpitude.80 Additionally, any applicant who provides false information
to the gaming authority is deemed “ineligible.”81
Gaming authorities should have broad powers to assess the
background and integrity of applicants. For example, the Illinois
Gaming Board was able to deny a dealer’s license application
based on his prior New Jersey conviction for a “disorderly person
offense” involving shoplifting.82 Although such offenses were not
considered crimes in the convicting jurisdiction, the offense would
have been considered a crime in Illinois, and therefore, prevented
the approval of the applicant’s license.83 Legislation additionally
should provide regulators the authorization to conduct in-depth
background investigations and mandate that applicants give “full
cooperation,” or risk denial.84 Likewise, legislation should place
the burden of proving suitability for licensing upon the
applicant.85
Lawmakers should also make it clear that licenses are a revocable privilege, rather than a right. This standard enables the
gaming authority to hold the licensee to the highest standard during the license period. If the license term is limited, then the license is a revocable privilege that may be renewed only if the
licensee meets the burden of proving continued suitability. In
other words, the gaming authority can refuse to grant or renew a
license, and neither has to afford the denied applicant an automatic opportunity to be heard, nor provide for judicial review. InSee CABOT, supra note 4, at 248.
Id. Jurisdictions with self-exclusion programs require compulsive gamblers to register with the gaming authority. See, e.g., 25 Ill. Reg. 7794 (proposed June 29, 2001); 2001
MO. GAMING COMM’N, ANNUAL REPORT TO THE GENERAL ASSEMBLY FISCAL YEAR 2001, at 3134, available at http://www.mgc.state.mo.us/annual%20reports/2001/annual2001.pdf.
80 See, e.g., 230 ILL. COMP. STAT. 10/7(a) (2001).
81 Id.
82 Mastro v. Ill. Dept. of Revenue, 667 N.E.2d 594, 595, 597-98 (Ill. Ct. App. 1996).
The New Jersey shoplifting conviction was a crime involving dishonesty, which disqualified
plaintiff applicant for an occupational license in Illinois, even though the New Jersey law
did not consider the shoplifting conviction a crime. Id.
83 Id. at 597-98.
85 Id.
77
78
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stead, a denied applicant must request a hearing within the time
specified by regulation, or risk that the denial will become final.86
2. Operational Controls
Another of the main objectives of gaming regulation is to monitor the casino’s day-to-day operations. To effectively monitor
casinos, gaming authorities require that each casino implement
and strictly follow a comprehensive system of controls. Often, the
jurisdictional gaming authority will prescribe a set of minimum
controls, commonly referred to as the Minimum Internal Control
System Standards (MICS).87 The MICS typically focus on gaming
activity, including the conduct of games, the handling and movement of cash, chips, tokens or other similar items of value, and the
accounting and document trail for all transactions.88 In general,
the MICS related to the conduct of games dictate a universal
method of dealing, shuffling, collecting wagers, and paying winning bets.89 Casino operators must meet or exceed the MICS; any
deviation from the MICS is a red flag to surveillance that wrongdoing, such as collusion or cheating, may have occurred.
With regard to the movement of cash and cash equivalents,
the MICS usually require the involvement of several types of employees, such as security personnel, cage cashiers, and slot or table games personnel. The MICS also generally require constant
rotation so that employees have neither a set schedule nor systematic or regular pairings. The constant shuffling of personnel and
interaction with other disciplines act as a deterrent to internal
theft.
The MICS related to accounting and recording of transactions
is similar in concept to the MICS for the handling of cash. The
accounting MICS incorporate multiple forms that require the signature of several different types of employees. For example, if a
table game needs to refill its chip inventory, the dealer, the table
game supervisor or pit boss, the cage cashier, and the security
guard must all sign a “fill slip” to verify that the order is equal to
the actual amount of chips. In addition to these multiple forms,
many accounting MICS require the casino operator to review all
records and to document each transaction in a log subject to regulatory review or independent audit. Consistent review and detailed log entries should indicate any irregularities that must be
reported to the jurisdictional gaming authority.
86
87
88
89
See, e.g., ILL. ADMIN. CODE tit. 86, § 3000.405(b)(3) (2002).
Id. § 3000.300-.320.
See, e.g., ILL. ADMIN. CODE tit. 86, § 3000.320.
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3. Enforcement of Laws and Regulations
Yet another essential element to the effective regulation of
commercial gaming is the government’s ability to enforce its laws
and regulations. Enforcement can either take the form of detection and discipline or prevention.90 Detection and discipline involve discovering violations of law, regulation, or internal
controls, and imposing fines or restrictions on the offending licensee.91 On-site agents or instruments of the gaming authority enhance the ability to detect violations.92 One of the most effective
tools used in detection is video surveillance.93 A typical surveillance system incorporates sophisticated video cameras, strategically placed throughout the facility, and controlled from a remote
location. The surveillance operator is highly trained in detecting
deviations from the MICS, as well as in the techniques typically
used in cheating. Surveillance systems allow operators to view a
specific area of the facility on command, as well as to zoom in and
capture detailed images. In most regulatory schemes, the on-site
agents have independent surveillance command centers, separate
from the operator centers.94
Unlike detection, prevention seeks to reduce regulatory violations through education, training, and deterrence.95 For instance,
programs designed to identify underage and problem gamblers, as
well as intoxicated patrons, are valuable to avoid a potentially
dangerous situation or regulatory violation. These programs also
serve to put the operator on notice of the importance of compliance
and the consequences of non-compliance.96 However, prevention is
dependent on successful detection and discipline. If regulatory violations are regularly detected and consistently disciplined, then
operators and employees are deterred from both intentional and
negligible regulatory violations.97
4. Taxes
Tax revenue is perhaps the primary economic benefit that a
jurisdiction derives from the authorization of gaming. Gaming
taxes typically focus on the patron and the casino. Taxes on paCABOT, supra note 4, at 501.
Id.
Id.
See, e.g., ILL. ADMIN. CODE tit. 86, § 3000.850.
CABOT, supra note 4, at 501.
The consequences of non-compliance include issuance of a disciplinary complaint,
which could result in a fine or a notation to the licensee’s file. The file notation will be
reviewed when the licensee makes a renewal request, and could lead to restrictions on the
licensee and its activities, mandated reporting requirements, or other additional expenses
to ensure compliance.
97 CABOT, supra note 4, at 501-02.
90
91
92
93
94
95
96
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trons include admission, sales, and income taxes. Casino taxes include state and local taxes on gross, adjusted gross, or net
revenues;98 the quantity of games or gaming devices; the size of
the casino floor; or the license privilege.99 When determining how
much tax should be assessed, jurisdictions must consider competing markets and other leisure activities. If gaming taxes are too
high, then casinos may pass the expense on to the customer in the
form of higher costs, making the gaming product less attractive in
comparison to other activities and gaming markets.
Regardless of the tax structure, tax assessment affects casino
output. Casino output is properly determined by the number of
games, the size of the facility, the amount of investment, the number of employees, and the payout percentage.100 Government can
control output through legislation, such as a minimum capital investment requirement, restrictions on casino size or number of
games, and minimum payout percentage requirements. However,
patrons can also control output; once minimums are set, market
competition will drive payout percentages, types of games offered,
and capital investments required.
Illinois utilizes the highest gaming tax structure in the
United States.101 In addition, Illinois restricts the number of
“gaming positions” to 1200,102 and requires a minimum payout
percentage for slot machines.103 In comparison, Indiana has a
twenty percent tax on gaming revenues and no limit on the number of gaming positions.104 Likely, the most significant difference
between Illinois and Indiana is that Indiana requires its casinos to
“cruise” on the water in order to conduct gaming, whereas Illinois
does not.105
Illinois and Indiana casinos are vying for the same patrons in
some regions, competing not only with fellow licensees, but also
with casinos across the state border.106 As a result, actual payout
98 Adjusted gross revenue is the amount wagered by patrons less winnings paid by
casinos.
100 Id. at 443.
101 AGA SURVEY, supra note 8, at 7-18.
102 See ILL. ADMIN. CODE tit. 86, § 3000.606 (2002), which provides that 1200 gaming
positions are counted as ninety percent of all electronic gaming devices (slot machines), ten
positions for craps tables, and five positions for all other table games.
103 Id. § 3000.660.
104 See IND. CODE § 4-33-13-1(a) (2002) (imposing a twenty percent tax on adjusted
gross receipts).
105 Id. § 4-33-9-2(a). Gaming may occur while docked if “the master of the riverboat
reasonably determines and certifies in writing that . . . ” certain conditions would “present
a danger” to the safety of the passengers, the vessel is undergoing mechanical or structural
repair, or the master was notified that a condition exists that would cause a violation of
federal law. Id. § 4-33-9-2(b).
106 Illinois licensees, Grand Victoria (Elgin), Empress (Joliet), Harrah’s (Joliet), and
Hollywood Casino (Aurora) compete with Indiana licensees, Blue Chip Casino (Michigan
City), Harrah’s (East Chicago), The Majestic Casino (Gary), and Trump Casino (Gary). See
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percentages in both states far exceed the minimum required by
law;107 however, Indiana casinos can offer more games than Illinois casinos, but must cruise in order to do so. Therefore, patrons
having equal travel times to both locations must choose between
the ability to enter and leave at will versus an almost guaranteed
gaming position with a slightly worse payout percentage.
The tax on gaming revenues is typically neither the only tax
imposed on casinos, nor the only cost that impacts the bottom line.
Jurisdictions must be cognizant of additional obligations imposed
on casinos. High taxes, minimum investment, competition, and
local economic obligations all have a substantial effect on the casinos’ final gaming “product.”
For example, consider the result in the U.S. Virgin Islands
(Virgin Islands). The Virgin Islands legislature passed gaming
legislation that was substantially similar to the New Jersey Casino Control Act,108 presumably because the Virgin Islands are located in the same federal judicial circuit as New Jersey, and the
legislature wanted to rely upon an existing body of common law.
Despite its intentions, the Virgin Islands failed to account for the
market differences between the islands and New Jersey; while
New Jersey attracts patrons within a two hundred mile driving
radius,109 St. Croix is a destination resort dependent on air travel
and cruise ship tourists. Regardless of these stark differences, the
Virgin Islands law imposed restrictions and minimums similar to
those in New Jersey.110 As a result, little, if any, interest in gaming development has occurred in St. Croix.111
ILL. 2000 REP., supra note 26; IND. GAMING COMM’N, 2000 ANNUAL REPORT TO THE GOVER(Feb. 28, 2001), available at http://www.state.in.us/gaming/pdf/00_report.PDF.
107 ILL. GAMING BD., JANUARY 2002 MONTHLY RIVERBOAT CASINO REPORT 5 (2002),
available at http://www.igb.state.il.us/revreports/. Illinois uses the term Electronic Gaming Device for what is commonly referred to as a slot machine. Additionally, the term Adjusted Gross Receipts (AGR) refers to the amounts wagered less the patrons’ winnings.
The AGR is reported as either the percentage of bets retained by the casino or the percentage of returns paid out to the patron. In December 2001, the AGR for the Electronic Gaming Devices in Illinois were: Elgin – 5.75% retained or 94.25% returned; Joliet Harrah’s –
7.35% retained or 92.65% returned; Empress – 6.7% retained or 93.3% returned; and Aurora – 6.36% retained or 93.64% returned. Id. The total average was 6.27% retained or
93.73% returned. Id. The December 2001 AGR for Electronic Gaming Devices in Indiana
was significantly more favorable to casinos than in Illinois. The averages for casinos in
Indiana were: Michigan City 6.47% or 93.53% return, East Chicago 8.21% or 91.79% return, Hammond 7.24% or 92.76% return, and Gary Majestic Star 7.15% or 92.85% return
for a total average of 7.3% retained by the casinos or 92.7% returned to patrons. Therefore,
Indiana casinos held 0.76% over the amount held by Illinois casinos. See IND. GAMING
COMM’N, DECEMBER 2001 MONTHLY REPORT 5-8 (2001).
108 Virgin Islands Casino and Resort Control Act of 1995, 32 V.I. CODE ANN. §§ 401-99
(2001).
109 JASON N. ADER ET AL, BEAR STEARNS GLOBAL GAMING ALMANAC (1999).
110 INT’L CASINO LAW, supra note 44, at 264.
111 Since passage of the gaming act in 1995, only one casino has opened. See VacationSt.Croix, Casino Gambling, at http://www.vacation-stcroix.com/department.cfm?ID=42
(last visited Mar. 29, 2002).
NOR
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5. Accounting and Audit
Accounting and audit procedures, whether pursuant to law or
regulation, are necessary to control and protect the revenues generated from gaming activities.112 Accounting procedures provide a
detailed picture of cash flow and can assist in detecting internal
theft, commonly referred to as “skimming.” Furthermore, accounting procedures can determine whether unlicensed, and possibly unsuitable, persons are profiting from gaming activities.113
The audit function of accounting is a companion tool that can
identify non-compliance with internal controls.114
The casino industry presents unique accounting and audit difficulties; unlike other industries, the government has a vested interest in gaming revenue maximization and accurate gaming
revenue accounting.115 For example, Illinois casinos are taxed on
adjusted gross receipts.116 However, the Illinois Gaming Board allows the casinos to deduct costs associated with the direct promotion of a gaming activity from the adjusted gross receipts total. A
typical direct promotion is an “enhanced payout” on an approved
game, such as a slot machine.117 Understandably, casinos prefer
enhanced payouts or other direct promotions over other forms of
marketing because the state shares the expenses, resulting in a
lower tax obligation. Therefore, a detailed set of internal controls
and accounting procedures to identify such an adjustment during
an audit is necessary to assure regulators of strict compliance.
Tracking wagers poses another accounting challenge, unique
to the gaming industry. In contrast to most other industries, the
gaming industry does not create a record of all transactions. It is
impossible, and would be impractical, to try and record each bet
made by every player at all tables. However, each gaming table
has a sizable “bank,”118 and unlike adjusting gross receipts, both
the casino and the state have a vested interest in table transactions. Only detailed internal controls related to the issuing of
credit, re-filling the table chip inventory, dealing of the gaming,
Id.
Id. (noting that audits are integral to the regulation of gaming because the industry
is primarily a cash business).
115 See CABOT, supra note 4, at 396-97.
116 See 230 ILCS 10/13(a) (1999); id. § 10/4(h) (defining adjusted gross receipts).
117 Illinois defines “enhanced payout” as follows:
An event sponsored by a Riverboat Gaming Operation wherein Gaming patrons
participate in a Game or an approved variation of a Game and thereby qualify for
receiving, upon a specified outcome in such Game, a payment or thing of value in
excess of payouts contained in the Internal Control System or as displayed on the
Gaming Device. The cost of such excess payment or thing of value may be subtracted from Gross Receipts in determining Adjusted Gross Receipts.
ILL. ADMIN. CODE tit. 86, § 3000.614(a)(1) (1999).
118 The term “bank” relates to the inventory of cash or cash equivalents (chips) at each
table used to pay winnings to patrons.
112
113
114
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paying and collecting wagers, and the dealer’s approach and departure from the table, together with accounting procedures related to the dealer’s activities and ability to audit the game’s
“performance,”119 can assure the safeguarding of revenues.
Accounting requirements should focus on the issue of access,
which generally includes access to the facility, sensitive areas, the
games, the cash and cash equivalents, and information.120 Access
controls limit the scope of an audit, narrows the accounting function, and shrinks the number of individuals who are accountable
for a particular aspect of the gaming operation. For example, consider slot machines; those who collect the money do not have access to any other part of the game. Similarly, those who maintain
the game do not have access to the control areas—the revenue collection areas within the game, the storage areas for dice and
cards, the cashier area, and player information. Access limits assist in accounting for the entire gaming operation and allow independent or government auditors to perform a narrow, focused
review as opposed to reviewing all records when looking for a specific area of concern.
The elements discussed above are both integral and essential
to the effective regulation of commercial gaming. Without them,
maintenance of the integrity of the gaming environment is almost
impossible. Other elements are not discussed, but nonetheless,
are effective tools in gaming industry regulation. Issues related to
the disclosure of records, advertising, hours of operation, promotions and give-a-ways, and the hearing or review process are important issues that should be part of any well-regulated system.
While appropriate if addressed by legislation, these additional elements are adequately covered by regulation or agency policy. Furthermore, because these elements do not pertain to sensitive
issues, it is appropriate to address them as they arise.
C. Other Sensitive Issues
Other sensitive issues of gaming regulation relate to social
concerns. While sensitive issues are not integral to the regulatory
process, they should be considered and addressed as essential elements of gaming regulation, rather than as other elements that
are commonly addressed when they arise. Compulsive and under119 All casino games are rooted in mathematical probabilities, meaning the casino
knows the theoretical performance of a particular game based on the rules and elements of
that game. For example, odds related to the game of craps is based on the number of combinations for a particular number. The mathematical probability of the number twelve is
based on its single possible combination using two dice—two sixes. Similarly, other games
have a mathematically derived theoretical hold percentage or casino advantage. If an audit on a particular game deviates from that mathematically known theoretical hold, then
the casino can monitor the individuals associated with that game.
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age gambling, alcohol consumption, and the scope of authorized
gaming are the most common sensitive issues that confront
lawmakers and regulators. Typically, these issues are addressed
in the gaming legislation where, with varying degree, lawmakers
provide a framework for regulators to follow. Nevertheless, legislative directives must take into account opposition and criticism
from anti-gaming interests that regulators will likely face when
promulgating rules or setting policy. Opponents of gaming will
likely complain that not enough is being done to prevent compulsive and underage gambling. Additionally, gaming opponents will
likely allege that regulatory agencies exceed their authority and
fail to follow the will of the people when addressing issues related
to the scope of gaming.
1. Compulsive Gambling
Compulsive or pathological gamblers account for a small percentage of all adults who participate in legal gaming activities.121
Typically, casinos do not consider compulsive gamblers to be good
customers; although they will likely risk losing everything in order to gamble, casinos actually prefer repeat customers that gamble with discretionary income in exchange for receipt of
entertainment value. Regardless of the gaming industry’s position and sincere concern for compulsive gamblers, those impacted
by compulsive gamblers’ habits, such as a spouse or other family
members, frequently target the casinos to vent their frustrations.
Given the emotional aspect of compulsive gambling, regulatory involvement is crucial to establish and maintain neutrality.
Missouri has been the leader in regulatory programs that address problem gambling.122 The Commission takes a proactive approach to the problem; it offers free compulsive gambling
counseling to both problem gamblers and their family members.123
The Commission also created a voluntary exclusion program,
whereby problem gamblers can isolate themselves from the temptations of gaming.124
121 The American Psychiatric Association “classifies pathological gambling as an impulse control disorder and describes 10 criteria to guide diagnoses, ranging from ‘repeated
unsuccessful efforts to control, cut back, or stop gambling’ to committing ‘illegal acts such
as forgery, fraud, theft or embezzlement to finance gambling.’ ” NGISC FINAL REPORT,
supra note 1, at 4-1 (citing the American Psychiatric Association Diagnostic and Statistical
Manual of Mental Disorders).
122 The Missouri Gaming Commission, through its website, provides a wealth of information on this topic. See Missouri Gaming Commission, Problem Gambling, at http://www.
mgc.state.mo.us/problem.html (last visited Feb. 24, 2002).
123 Missouri Gaming Commission, Problem Gambling, at http://www.mgc.state.mo.us/
pg_intro.htm (last visited Feb. 24, 2002).
124 Compare Missouri Gaming Commission, Voluntary Exclusion Program, at http://
ww.mgc.state.mo.us/vep.htm (last visited Mar. 29, 2002) (directing Missouri casino operators to “remove Disassociated Persons from all direct marketing lists; refuse check cashing
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Illinois specifically addresses compulsive gambling in its
Riverboat Gambling Act,125 and the Illinois Gaming Board has
proposed a voluntary exclusion rule.126 However, the proposed
rule has raised numerous concerns by Illinois casinos regarding
potential liability.127 Although the proposed rule provides for a
waiver of liability in favor of the Board and the State for any damages related or incidental to the program, the rule provides no
similar provision for the casinos.128 Aside from self exclusion programs, tax revenues can be earmarked for compulsive gambling
programs, and casinos can be required to post information about
compulsive gambling—both effective tools that also should be considered by lawmakers and regulators.
2. Underage Gambling
Underage gambling is another very sensitive issue for casinos. Every gaming jurisdiction in the United States prohibits
those under a certain age from entering casinos or participating in
gaming activities.129 Regulators must enforce the age requirement
set by statute and, at the same time, confront pressure from the
public, which actively monitors the issue. Therefore, regulators
are best served by holding casinos to a strict liability standard.
Under this approach, if an underage person gains access, the casino is disciplined—a powerful deterrent. While a typical disciplinary action involves a generally insignificant fine, the casino must
report the regulatory action to every jurisdiction where it is licensed, and the action will be considered when the casino requests
a renewal of its license.130 Additionally, the far-reaching conseprivileges; and deny participation in player programs”), with ILL. ADMIN. CODE tit. 86,
§ 3000.750-.793 (proposed May 30, 2001), available at http://www.igb.state.il.us/whatsnew/
750thru793june01.pdf (proposing a voluntary self exclusion program).
125 230 ILL. COMP. STAT. 10/13.1 (2002).
126 25 Ill. Reg. 7794 (proposed June 29, 2001).
127 Frank J. Fahrenkopf, Jr., Statement Before the Illinois Gaming Board (May 3,
2000), at http://americangaming.org/media_update/speeches/speech.cfm/id/21 (last visited
Mar. 25, 2002); see also State Weighs Problem Gambling, GAMBLING MAGAZINE, at http://
gamblingmagazine.com/articles/40/40-467.htm (last visited Mar. 29, 2002).
128 See 25 Ill. Reg. 7794.
129 I. Nelson Rose, Gambling and the Law: Minimum Legal Age to Place a Bet, at
http://www.gamblingandthelaw.com/agechart.html (last visited Mar. 13, 2002) (providing
the minimum age required to wager at various gaming activities including lottery, parimutuel, and casino in each state).
130 See ILL. ADMIN. CODE tit. 86, § 3000.237(b) (2002). For example, in Illinois:
Upon issuing a renewed Owner’s license, the Board may restrict the term of the
renewal to any period of less than 4 years, and may impose additional restrictions
and conditions on the renewed license. In deciding whether to issue a restricted
license, the Board shall consider: 1) The standards applied under Section
3000.236(b) in renewing a license; 2) The business practices and regulatory history
in Illinois and other jurisdictions of the licensee, its Key Persons and affiliates; 3)
The licensee’s reputation and associations; and 4) Any other information considered by the Board to be relevant to renewal of the license.
Id.
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quences and public demand for compliance has led to the development of focused training programs.131 For example, some
jurisdictions impose criminal sanctions on the casino if an underage gambler is caught in the casino.132
3. Alcohol Consumption
Alcohol is a sensitive issue for casinos because of local regulation, hours of consumption, and complimentary drinks for casino
patrons. Like compulsive gambling, alcohol consumption invokes
strong emotions. Furthermore, gaming opponents morally opposed to casinos often are also opposed to alcohol consumption.
Conversely, casinos typically consider alcohol a necessary component to the overall entertainment value of their product, giving
away drinks to gamblers, regardless of the time of day. Additionally, local bar owners often see casinos as a threat to their businesses. Given these competing interests, the regulatory agency is
best suited to harmonize all positions. Lawmakers should consider incorporating a section that grants jurisdiction to the gaming authority for all aspects related to alcohol within the casino.133
4. Scope of Gaming
The scope of gaming relates to the physical attributes of the
casino, such as the location, size, number and types of games, and
type of facility. Through legislation and regulation, a jurisdiction
can control or limit the possible negative appearance of gaming.
a. Location
Location can be restricted to those areas in most need of economic development, but lawmakers must take caution in drafting
so as not to violate principles of special legislation.134 For example, in Illinois, lawmakers directed the Gaming Board to issue licenses in locations on certain rivers in the city of East St. Louis,
but refused to issue licenses in areas with populations in excess of
131 For a detailed discussion regarding underage training programs, see Harrah’s “Project 21” Program, Harrah’s, Responsible Gaming, at http://www.harrahs.com/about_us/
code_5_legalage.html (last visited Feb. 24, 2002).
132 N.J. STAT. ANN. § 5:12-119 (West 1996) (imposing penalties on casino employees for
allowing an underage person in the casino unless entry was gained through fraud or other
mitigating evidence).
133 See, e.g., 230 ILL. COMP. STAT. 10/5(c)(18) (2001).
134 Black’s Law Dictionary defines “special law” as “[o]ne relating to particular persons
or things; one made for individual cases or for particular places or districts; one operating
upon a selected class, rather than upon the public generally.” BLACK’S LAW DICTIONARY
1397-98 (6th ed. 1990). The Missouri Supreme Court found that the language in the referendum exempting the Admiral casino and the leased sites along the St. Louis riverfront
from cruising to be a “facially special law,” which is presumed to be unconstitutional. Harris v. Mo. Gaming Comm’n, 869 S.W.2d 58, 65 (Mo. 1994).
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three million.135 Legislation can also limit where, within a certain
area, the facility may be located. For example, requiring that the
facility be on a navigable waterway, or not within a certain radius
of a school or church, are both effective means of restricting
location.
b. Limits on Size
Limits on size may apply to the facility itself, the number of
facilities, the size of the gaming space, or the number of games.
Lawmakers have the option to draft detailed requirements or direct the regulatory agency to enforce a broad policy by adopting
regulations. In addition, limits on size may be contingent upon
other development requirements. For example, Illinois limits
owners to two riverboats per license.136 Owners are permitted to
operate both riverboats at the same time, but are required to comply with the restriction on the number of gaming participants.137
However, the Illinois Riverboat Gambling Act does not define a
gaming position. Instead, the Gaming Board promulgated a rule
on how to calculate 1200 gaming participants.138 Conversely, in
New Jersey, casino size is contingent on the number of hotel
rooms—the more hotel rooms in a casino, the larger the casino can
be.139
c. Type of Facility
The type of facility relates to the appearance of the development and the amenities offered. Regulation in this area requires
regulators to balance local preferences140 with the casino developer’s preferences.141 For example, Louisiana’s authorization of a
single, land-based casino in New Orleans142 prohibited the addi135 Illinois statutes, as originally enacted, only excluded Cook County because Chicago
(a city within Cook County) has a population in excess of three million; however, the 1999
amendment removed the population restriction. Compare 1999 Ill. Legis. Serv. 91-40
(West), with 230 ILL. COMP. STAT. 10/3(c) (2001).
136 230 ILL. COMP. STAT. 10/7(h).
137 Id.
138 ILL. ADMIN. CODE tit. 86, § 3000.606 (2002). The Illinois Administrative Code
provides:
The number of Gaming participants will be determined by the number of Gaming
positions available and such positions will be counted as follows: a) Positions for
Games utilizing Electronic Gaming Devices will be determined as 90 percent of the
total number of devices available for play; b) Craps tables will be counted as having ten Gaming positions; c) Games utilizing Live Gaming Devices, except as provided in subsection (b) will be counted as having five Gaming positions.
Id.
139 N.J. STAT. ANN. § 5:12-83 (West 2002).
140 This typically includes the community’s customs, heritage, morals, and tourism
experience.
141 This typically may include theme or brand recognition, prior design success, and
competing non-gaming amenities.
142 LA. REV. STAT. ANN. § 27:241 (West 2002).
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tion of non-gaming amenities, such as hotel rooms and restaurants. In Illinois, the original riverboat statute restricted the
facility’s appearance to either a nineteenth century replica of an
Illinois riverboat or a cruise ship.143
Legislation that focuses on essential elements will maintain
the integrity of the gaming environment, while legislation that addresses the sensitive issues will alleviate concerns based largely
on emotions and beliefs. The areas discussed herein should be incorporated with other areas of specific concern to lawmakers and
their constituents. However, lawmakers need to be careful when
drafting gaming laws so as not to exceed their authority, include
special legislation, or violate the state’s constitution.
Regardless of the economic or competitive need for gaming,
anti-gaming interests will always be present to challenge the
law.144 Often there is a limited timeframe in which to pass a gaming statute; however, if the law is deficient, correction will be a
long and arduous task. Similarly, if the law fails to address a key
concern and requires amendment, it will likely be difficult to get
the necessary support for passage without concessions to special
interests groups. Unfortunately, it is probable that such special
interest groups may not fit within the intent or policy considerations of the original law.145
IV.
DELEGATION
AND THE
ROLE
OF THE
REGULATOR
In the gaming context, the legislature’s primary responsibility
is to draft and adopt a gaming law that contains a clear public
policy and well-defined goals. However, the legislature is not
equipped to implement or enforce its law. Instead, lawmakers
230 ILL. COMP. STAT. 10/6(f) (2001) originally read,
The licensed owner shall . . . certify that the riverboat: (1) has the authorized
capacity required in this Act; (2) is accessible to disabled persons; (3) is either a
replica of a 19th century Illinois riverboat or of a casino cruise ship design; and (4)
is fully registered and licensed in accordance with any applicable laws.” (emphasis
added indicating language removed from amended statute).
Compare 1999 Ill. Legis. Serv. 91-40 (West), with 230 ILL. COMP. STAT. 10/6(f). Some commentators have noted that “[t]he original rationale for confining gambling to the water was
that it would limit the impact on local communities while gambling would still be accessible. In addition, if casinos did not succeed, they could pull anchor and sail away without
leaving empty buildings behind.” Rychlak, supra note 42, at 309 (citation omitted).
144 See generally Akin v. Mo. Gaming Comm’n, 956 S.W.2d 261 (Mo. 1997) (challenging
games of chance); Harris v. Mo. Gaming Comm’n, 869 S.W.2d 58 (Mo. 1994) (challenging a
state statute authorizing riverboat gambling).
145 230 ILL. COMP. STAT. 10/11.2. Illinois law allows for the relocation of a license into
an area that was originally excluded in exchange for, in the author’s opinion, dockside gaming. See Lake County Riverboat L.P. v. Ill. Gaming Bd. 730 N.E.2d 524, 533 (Ill. Ct. App.
2000) (holding the plaintiff did not have standing to challenge the 1999 amendments to the
Illinois Riverboat Gambling Act, and that only owner licensees could bring suit). In the
author’s opinion, given that the 1999 amendments included an inseverability clause, and
that the remaining licensees saw their revenues increase over forty percent with dockside
gaming, it is unlikely that a challenge will ever occur.
143
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delegate that job to a regulatory agency, which allows the legislature to direct the regulator to carry out the policy goals established in the gaming law.146 Gaming legislation that broadly
directs the regulatory body to promulgate regulations necessary to
effectuate the intent of the law allows for changes in business conditions, public perception, and competitive factors.147 Vesting discretion in the regulatory body is attractive to casino developers for
a number of reasons. First, the regulators are faced with the difficult issues on a daily basis and better understand the concepts
presented by the gaming industry. Second, rule promulgation is
an easier and faster process than statutory amendment. Finally,
if appropriate, a regulatory policy may be issued at will, without
waiting for legislative approval.148
By comparison, gaming legislation that is overly specific often
restricts and interferes with the regulatory function, and is unattractive to investors. With overly specific legislation, little discretion is afforded to the regulatory body. The regulator is limited to
the role of enforcer, and is unable to assist in the maturation of
the gaming industry. In addition, the regulatory body risks being
viewed as an industry partner or sympathizer when it lobbies for
statutory change. Thus, regulators may opt not to request statutory changes to avoid scrutiny or questions regarding their integrity. As a result, there is little interest in operating in such a
regulatory environment, and the purpose of gaming, deriving economic benefits, is never realized.
For example, when the Virgin Islands authorized casinos on
St. Croix, the legislature nearly copied the entire New Jersey Casino Control Act.149 The legislature reasoned that because New
Jersey was in the same federal judicial circuit, adopting a developed body of law would simplify gaming regulation.150 However,
lawmakers failed to take into account the market differences between the two locations. Whereas New Jersey had a market of
29.9 million adults within a two hundred-mile driving radius, St.
Croix is dependent on air and cruise ship tourism.151
Despite these differences, the Virgin Islands gaming law required a significant initial investment to receive a license.152 The
law also required a minimum number of rooms and non-gaming
CABOT, supra note 4, at 12-13.
See, e.g., 230 ILL. COMP. STAT. 10/5.
Illinois law requires administrative agencies to comply with rulemaking procedures, as opposed to issuing policy, which does not require the agency to follow any process.
See Ill. Gaming Board, Policy Interpretation & Action Transmittal, 86 Ill. Admin. Code. tit.
86, §§ 3000.100, .240, .320, available at http://www.igb.state.il.us/regs/index01.01.pdf, for
an example of Board policy.
149 See discussion supra Part III.A.4.
150 Id.
151 Id.
152 INT’L CASINO LAW, supra note 44, at 263-64.
146
147
148
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amenities, as well as limited casino floor space proportional to the
number of rooms developed.153 Because the development requirements were pursuant to law, the regulators were unable to approve proposals from prospective operators that did not meet the
investment standards.154 Although the regulators met with interested parties that presented information related to the difficulty
in recouping their respective investment level set by law, the regulators were without discretion. As a result, the regulators were
left with nothing to regulate.
The better regulatory scheme is achieved through delegation
and discretion. Lawmakers should direct the regulatory body to
implement the law.155 In turn, regulators fulfill that responsibility
by controlling the gaming environment, which typically includes:
approving license applications; setting up hearing procedures related to license denial and disciplinary action; controlling the
types of games that may be offered; adopting the rules of such
games; setting the conditions under which gaming facilities may
operate including hours of operation; and deciding who may work
at the facility.156 To effectively control the gaming environment,
the legislature should provide regulators direct authority to do
“that which is necessary.”157
Additionally, regulators should have the ability to hire state
law enforcement officers as personnel assigned to conduct investigations because those officers have wide-ranging access to criminal and background information.158 Law enforcement officers are
also important to demonstrate to the public, as well as to the gaming operators, that the gaming authority is present at the gaming
32 V.I. CODE ANN. § 435 (2001).
INT’L CASINO LAW, supra note 44, at 263-64.
See, e.g., 230 ILL. COMP. STAT. 10/2-10/3 (2001).
For example the Illinois legislature provided the Illinois Gaming Board broad
discretion:
There is hereby established within the Department of Revenue an Illinois Gaming
Board which shall have the powers and duties specified in this Act, and all other
powers necessary and proper to fully and effectively execute this Act for the purpose
of administering, regulating, and enforcing the system of riverboat gambling established by this Act. Its jurisdiction shall extend under this Act to every person,
association, corporation, partnership and trust involved in riverboat gambling operations in the State of Illinois.”
153
154
155
156
157
230 ILL. COMP. STAT. 10/5(a)(1) (emphasis added).
158 The Illinois legislature has provided the Illinois Gaming Board such power:
The Board shall have jurisdiction over and shall supervise all gambling operations
governed by this Act. The Board shall have all powers necessary and proper to
fully and effectively execute the provisions of this Act, including, but not limited to
. . . [t]o hire employees to gather information, conduct investigations and carry out
any other tasks contemplated under this Act.
Id. § 10/5(c)(16). In addition, § 10/5(d) states, “The Board may seek and shall receive the
cooperation of the Department of State Police in conducting background investigations of
applicants and in fulfilling its responsibilities under this Section.” Id. § 10/5(d).
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facility.159 These regulatory agents monitor the gaming floor, inspect the gaming devices, operate the independent surveillance
room, eject patrons who violate the gaming law, assist local law
enforcement in arresting those who violate municipal law, assist
federal authorities investigating fraud, money laundering or other
crimes by known criminals, and accept patron complaints related
to the facility.
Vesting an independent regulatory body with the discretion to
implement the gaming law assures the preservation of the gaming
environment’s integrity. Nevertheless, checks and balances
should be incorporated into the system in order to avoid the unlikely possibility that a regulatory decision was the result of
outside influence. Another important aspect of regulatory discretion relates to rule promulgation. Generally, rules are grouped
into sub-parts including definitions, license categories and responsibilities, internal control systems, the conduct of gaming activities, security systems, hearing procedures, and accounting and
auditing procedures. They put the industry on notice with regard
to how it should run its operations and the standards expected by
regulators. Rules also inform the industry about the consequences of non-compliance.
V. CONCLUSION
As previously stated, all jurisdictions that allow gaming adopt
some form of regulation. Regardless of the regulatory scheme, the
ultimate goal of regulation should be maintaining the integrity of
the gaming environment and assuring the public that the games
are fair. The successful regulation of commercial gaming
combines well-drafted legislation with administrative implementation.
Well-drafted legislation stems from a clear understanding of
the reason for authorizing gaming. Lawmakers that take the time
to develop a public policy for gaming will be able to incorporate
provisions that have meaning and purpose. Issues of specific concern or importance to a community are properly addressed in legislation, along with the key elements addressed herein. The
essential elements will preserve the integrity of the gaming environment and allow the regulatory body to implement the law.
Illinois provides the following duties:
The Board shall have general responsibility for the implementation of this Act. Its
duties include, without limitation . . . [t]o be present through its inspectors and
agents any time gambling operations are conducted on any riverboat for the purpose of certifying the revenue thereof, receiving complaints from the public, and
conducting such other investigations into the conduct of the gambling games and
the maintenance of the equipment as from time to time the Board may deem necessary and proper . . . .
Id. § 10/5(b)(6).
159
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With proper regulation, commercial gaming can provide benefits to a community that no other industry can provide. From infrastructure improvements and the creation of jobs, to increased
tourism, gaming has proven to be a business sector that has the
ability to stimulate an economy in times of recession; it has also
become a dominant entertainment option for American adults.
Gaming has evolved into a corporate format that focuses on customer satisfaction, brand name recognition, and social concerns.
The transformation from an industry that many thought was controlled by unsavory individuals, to today’s ownership and management structure, is largely attributable to advancements in
government regulation.
Internet Gaming Regulation:
The Kahnawake Experience
Frank Catania*
I.
INTRODUCTION
In late winter 1999, shortly after my resignation as Director
of the New Jersey Division of Gaming Enforcement (NJDGE), the
Mohawks of the Kahnawake Territory approached me to assist
them with the development of regulations for Internet gaming.
The idea of regulated Internet gaming from a location in North
America intrigued me, as most discussion regarding Internet gaming regulation was taking place in Australia1 and various nations
throughout the Caribbean.2
* Frank Catania is an attorney and principal in Catania Consulting Group, Inc. of
New Jersey, a consulting firm with extensive experience in gaming issues. He has a particular expertise in gaming compliance, and has been a staunch supporter of regulating Internet gaming. He was instrumental in the promulgation and implementation of the
Regulations Concerning Interactive Gaming for the Kahnawake Gaming Commission. He
actively develops and directs the implementation of lobbying, issues management, media
relations, community affairs, and government advocacy programs for all clients.
Frank Catania is the president of the International Masters of Gaming Law, an organization made up of attorneys specializing in gaming from jurisdictions worldwide. He is a
former Director of the New Jersey Division of Gaming Enforcement (DGE), the regulatory
and enforcement agency responsible for maintaining integrity and trust in all Atlantic City
gaming operations. As division Director, he was a driving force in updating the New Jersey
Casino Control Act by fine-tuning the balance between regulatory necessity and economic
stewardship.
Mr. Catania served as the vice president in charge of compliance for Players International, Inc. where he was instrumental in resolving compliance issues the company had
encountered prior to his appointment, allowing the company to be sold to Harrah’s.
Frank Catania serves as Chair of the International Masters of Gaming Law, has
served as the chair and vice chair of the International Association of Gaming Regulators
(IAGR), and was a co-founder and past chairman of the Forum of American Casino Regulators (FACR). Prior to accepting Governor Whitman’s appointment as Director of the DGE,
he served in the New Jersey General Assembly as Deputy Speaker. He has been published
on a wide variety of casino gaming and government-related topics in several national publications, regional newspapers, and trade publications. He is a graduate of Rutgers College
and received his J.D. from Seton Hall University Law School.
1 See Melanie Beeby, Gaming Set For An Online Revolution, AUSTL. FIN. REV., Jan. 8,
2 See Joseph M. Kelly, Internet Gambling Law, 26 WM. MITCHELL L. REV. 117, 124-31
(2000) (describing efforts to regulate and license Internet gaming in various Caribbean
jurisdictions).
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My first introduction to Internet gaming occurred a few years
previous while serving with the NJDGE.3 Like many other gaming regulators, I had numerous concerns about this new and expanding form of gaming. Nevertheless, after careful
consideration, I was convinced that a philosophy of strict regulation would provide a far better solution to my concerns than attempts at prohibition. In the end, I decided that the development
of regulations for Internet gaming in the Kahnawake Territory
was a challenge worth pursuing. But, before agreeing to work on
these regulations it was important for me to gather information
about the Kahnawake Mohawks, the tribal government, and their
position as a sovereign government within the Province of Quebec.
Because the tradition and workings of the Kahnawake Mohawk government were an important consideration for me, I will
briefly summarize the history of the Kahnawake Mohawks and
their status within Canada before discussing the regulations and
my opinions regarding well-regulated Internet gaming. The regulations discussed in this piece appear as an appendix.
II.
THE KAHNAWAKE MOHAWKS
Kahnawake is a Mohawk Territory just across the St. Lawrence River from Montreal.4 It has approximately 7500 inhabitants and is governed by the elected Mohawk Council. 5
Kahnawake has its own police force, court, schools, hospital, fire
department, and social services.6 All of these services and others
are funded, operated, and controlled, either directly or indirectly,
by the Mohawk Council.7
In July 1994, a hotly contested referendum for a land-based
casino was defeated by a slim margin.8 Despite this defeat, the
Mohawk Council established the Kahnawake Gaming Commission (KGC) in 1996.9 The KGC’s main purpose was to effectively
3 This introduction occurred at the International Association of Gaming Regulators
conference in Puerto Rico where I was a panel member discussing Internet gaming.
4 See, e.g., Mohawk Council of Kahnawake, Map of Kahnawake, at http://
www.kahnawake.com/tourism/kahnawake.htm (last visited Feb. 7, 2002).
5 The Mohawk Council is elected every two years and consists of one Grand Chief and
eleven Chiefs; all Council members are full-time legislators. Mohawk Council of
Kahnawake, Grand Chief and Council, at http://www.kahnawake.com/council/chiefs/index.htm (last visited Feb. 7, 2002).
6 See Mohawk Council of Kahnawake, Mohawk Council of Kahnawake, at http://
www.kahnawake.com/council/index.htm (last visited Feb. 7, 2002).
7 Council oversight is implemented through a number of agencies that are accountable to the Mohawk Council. Id. The schools and hospital are under control of separate
boards; however, the Council appoints the boards.
8 The casino proposal was defeated 724 votes to 627. Kahnawake Casino Issue Over,
Re-elected Chief Says, TORONTO STAR, July 4, 1994, at A4, available at 1994 WL 7974843.
9 The Kahnawake Gaming Commission was established on June 10, 1996, pursuant
to the provisions of the Kahnawake Gaming Law, MCR No. 26/1996-97. Kahnawake Gam-
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211
regulate all gaming activities in the Territory.10 Therefore, when
the Mohawks began to consider the Internet gaming idea, they
gave the KGC the task of promulgating the necessary regulations.
The KGC is composed of three part-time commissioners, all
Mohawks.11 One commissioner serves as chairperson.12 The KGC
has a director that oversees the commission’s daily operations, legal counsel, and support staff.13 The KGC enforces and applies
the regulations with limited resources by using independent contractors to perform various duties, such as background and probity investigations of all applicants.14 The objective of the
Mohawks has always been to regulate Internet gaming in the
same manner as traditional “brick and mortar” casino jurisdictions.15 This was an important consideration for me as it proved
that the Kahnawake Mohawk leadership and I shared a similar
underlying opinion—for Internet gaming to be successful, it would
require the same strict regulation as traditional casinos.
A. Indian Sovereignty and Canadian Law
Under Canada’s Constitution Act of 1867, the federal government is assigned the power to legislate with respect to “Indians,
and lands reserved for the Indians.”16 The Indian Act purports to
establish a regulatory scheme for all matters related to aboriginal
peoples in Canada.17 Although it still exists, the Indian Act is in
the process of being abolished and replaced with “government to
government” agreements between Canada and aboriginal “First
Nations.”18 This process began with an amendment to the Canadian Constitution Act in 1982, which states, “The existing aborigiing Commission, The Commission, at http://www.kahnawake.com/gamingcommission/ (last
visited Mar. 2, 2002) [hereinafter The Commission].
10 The goal of lawful regulation and control is expressed in the Kahnawake Gaming
Commission Regulations. KAHNAWAKE GAMING COMMISSION, REGULATIONS CONCERNING INTERACTIVE GAMING § 4 (1999), available at 5 CHAP. L. REV. 224-280 (2002) [hereinafter KGC
REGS.].
11 At the time this piece was written, the three commissioners were Alan Goodleaf,
Lindsay Leborgne, and Iris Rice. The Mohawk Council of Kahnawake appoints the commissioners. The Commission, supra note 9.
12 Appointment of the KGC Chairperson is done by the KGC internally. Alan Goodleaf was appointed in August 2001.
13 Chuck Barnett is the first and current “Administrator” to the KGC. Generally, the
Administrator is responsible for assisting the KGC in the various aspects of its operations:
processing applications, fielding complaints, and ensuring fees are paid.
14 The National Fraud Center conducts the background investigations for the KGC.
15 “Brick and mortar” casinos are casinos that have a physical presence which players
visit.
16 CAN. CONST. (Constitution Act, 1867) pt. VI (Powers of the Parliament) § 91(24).
17 Indian Act, R.S.C., ch. I-6 §§ 1-122 (2001) (Can.).
18 See generally Canada Kahnawake Relations, Canada Kahnawake Relations Information Site, at http://www.kahnawake.com/ckr/default.htm (last visited Mar. 23, 2002).
Kahnawake has, for the past twelve years, been engaged in discussions with Canada to
develop a new relationship that would acknowledge Kahnawake’s jurisdiction in over
twenty-five different areas, including gaming. A draft document called the Canada/
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nal and treaty rights of the aboriginal peoples of Canada are
hereby recognized and affirmed.”19
The Canadian federal government acknowledged the right to
self-government.20 The federal government’s approach has been to
discuss and reach practical, workable agreements with regard to
self-government, rather than to try and define self-government in
abstract terms.21 This process has been followed and discussions
are held on a regular basis between the governments of Canada,
Quebec, and Kahnawake.22 These discussions include Internet
gaming, and, contrary to some published reports,23 neither the federal government nor the government of Quebec is contemplating
any imminent action that would disrupt Internet gaming currently originating from the Kahnawake Internet service site.24 In
fact, since the establishment of the Kahnawake Peacekeepers—
resulting from the Tripartite Policing Agreement in 1995, when
the Kahnawake Peacekeepers became the primary police force in
the Territory—there has never been a time when another law enforcement agency has entered into the Kahnawake Territory without an invitation from the Kahnawake Peacekeepers.25
The Mohawks have always asserted their sovereignty and jurisdiction in the Kahnawake Territory. They have neither been
defeated in battle, nor have they ever waived or forfeited any of
their sovereignty in a treaty with any government.26 The
Mohawks are proud of their history and let it be known to the
world.27
Kahnawake Umbrella Agreement is presently being vetted in the community of
Kahnawake and in Ottawa.
19 CAN. CONST. (Constitution Act, 1982) pt. II (Rights of the Aboriginal Peoples of Canada), § 35.
20 Id.
21 See, e.g., Self Government Agreement Signed for BC Interior Indian Band, CANADIAN PRESS NEWSWIRE, July 7, 2000, at J1 (reporting signing of agreement between Canadian federal government and the Westbank First Nation); see also Canada Kahnawake
Relations, Canada Kahnawake Relations Process: Keypoints, at http://kahnawake.com/ckr/
key-elements/CKR%20Process_key.htm (last visited Feb. 7, 2002) (discussing efforts by the
Kahnawake Mohawks to establish government-to-government relations with the Canadian
federal government).
22 See, e.g., Editorial, Making Some Progress in Kahnawake, TORONTO STAR, Oct. 21,
1998, available at 1998 WL 30719188 (regarding inter-governmental negotiations over tobacco taxes and highway intrusion).
23 Id.
24 I have been personally involved in some of the private meetings that have taken
place.
25 This has not occurred since June 1988. See John C. Mohawk, Echoes of a Native
Revitalization Movement in Recent Indian Law Cases in New York State, 46 BUFF. L. REV.
1061, 1067-69 (1998) (detailing a raid by Quebec police on the Kahnawake territory).
26 The Canada Kahnawake Relations website provides a brief history of the Mohawks,
including their victory over the U.S. Army in the War of 1812. See Canada Kahnawake
Relations, History & Culture of the Mohawks of Kahnawake, at http://kahnawake.com/ckr/
1812.htm (last visited Feb. 7, 2002).
27 Id.
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B. The Creation of Mohawk Internet Technologies
To own property or to form a business in Kahnawake the principal owners must be Mohawks; no foreign companies can be established in the Territory.28 Therefore, the Mohawk Council
established a wholly-owned company, known as Mohawk Internet
Technologies (MIT), for the operation of its Internet business in
Kahnawake.29 MIT was responsible for developing the infrastructure necessary to host all Internet businesses, including gaming
sites, with the proceeds flowing to the Mohawks through MIT.30
MIT, its officers, directors, and key personnel31 are required to be
licensed, as would individual gaming operators.32 The company’s
responsibility focuses on the overall operation of a server farm;33 it
is not involved in the operation of gaming sites.
Again, the KGC believed that the only way to regulate Internet gaming was with the same strict regulations established for
traditional casinos in jurisdictions throughout the world. The regulations had to possess four characteristics: comprehensive, to address the same issues as those facing traditional casino
regulators; enforceable, to offer important protections to players;
responsible, to assure that games are fair and honest; and capable
of creating reputable operators, to ensure that players would be
paid their winnings. The KGC members, Chairman Arnold Goodleaf, Chief Lindsay LeBorgne, Allan Goodleaf, attorney Murray
Marshall, and I worked diligently to prepare a set of interactive
28 Section 28(1) of the Indian Act provides:
Subject to subsection (2), a deed, lease, contract, instrument, document or agreement of any kind, whether written or oral, by which a band or a member of a band
purports to permit a person other than a member of that band to occupy or use a
reserve or to reside or otherwise exercise any rights on a reserve is void.
R.S.C., ch. I-6 § 28(1) (2001) (Can.). Section 29 of the Indian Act provides, “Reserve lands
are not subject to seizure under legal process.” Id. § 29.
29 See Mohawk Internet Technologies, Mohawk Internet Technologies . . . Setting the
Standard for Co-Location ISPs in the 21st Century, at http://www.mohawk.ca/index.html
(last visited Feb. 7, 2002) [hereinafter Mohawk Internet Technologies]. MIT describes itself as a “professionally managed environment supporting e-business activities world
wide.” Mohawk Internet Technologies, Key Policies and Procedures, at http://
www.mohawk.ca/policies/policiesf.html (last visited Mar. 23, 2002).
30 See Mohawk Internet Technologies, supra note 29 (describing MIT as a “unique
business initiative of the Mohawk Council of Kahnawake and its business partners”).
31 See KGC REGS., supra note 10, § 7.
32 Id. §§ 9-14.
33 The Lycos Tech Glossary defines “server farm” as follows:
A server farm is a group of networked servers that are housed in one location.
A server farm streamlines internal processes by distributing the workload between the individual components of the farm and expedites computing processes
by harnessing the power of multiple servers. The farms rely on load-balancing
software that accomplishes such tasks as tracking demand for processing power
from different machines, prioritizing the tasks and scheduling and rescheduling
them depending on priority and demand that users put on the network. When one
server in the farm fails, another can step in as a backup.
Lycos, Lycos Tech Glossary, at http://webopedia.lycos.com/TERM/S/server_farm.html (last
visited Mar. 2, 2002).
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gaming regulations that would be at least as effective as those
used in other gaming jurisdictions.
The Mohawks’ concept was unique. MIT would build the site
and rent space to Internet gaming operators for a monthly fee.34
The KGC would be responsible for licensing all those involved in
the Internet gaming portion of their Internet enterprises, including MIT.35 There would be no substitute for the requirement to
submit to a suitability investigation. Nevertheless, a limited investigation is allowed if a company or person is currently licensed
in a legitimate gaming jurisdiction because that company or person has already demonstrated the character, honesty, and integrity to be involved in gaming.36
The server site established by MIT is situated in an old mattress factory that is within a few hundred yards of two major fiber
optic trunk lines that run through the Kahnawake Territory.37
Today, this server farm is one of the most technologically-advanced Internet gaming server farms in the world.38
III.
THE KAHNAWAKE REGULATIONS CONCERNING
INTERACTIVE GAMBLING
A. The Kahnawake Advantage: Regulation and Licensing
Although the draft Kahnawake regulations were based on the
interactive gaming regulations used in Queensland, Australia,39
the structures differed.40 Part I of the Regulations Concerning Interactive Gaming (KGC Regulations) specifically gives authority
to the KGC to adopt and enforce their own regulations41 and also
states that the adopted regulations are not dependent on ratification by any other jurisdiction or regulatory body.42 This language
was an important acknowledgement of the Kahnawake Mohawk
tradition of sovereignty. In addition, an important part of any Internet gaming regulation is the prohibition of all Internet gaming
not licensed under those regulations. The Mohawks were aware
34 See generally Mohawk Internet Technologies, Services and Capabilities, at http://
www.mohawk.ca/services/services.html (last visited Mar. 2, 2002).
35 This included some members of the governing Mohawk Council due to their involvement with MIT.
36 See KGC REGS., supra note 10, § 32.
37 The server farm has been described as an “unmarked gray building” and a “twostory fiber-optic jungle” closed to photographers. Marci McDonald, Cybergambling on the
Reservation, U.S. NEWS & WORLD REP., Oct. 16, 2000, at 46.
38 The high-tech equipment comprising the server farm cost an estimated $2.5 million
(U.S.). Id.
39 Interactive Gambling (Player Protection) Regulation 1998, No. 286 (Queensl. Stat.).
40 Kahnawake has one centralized location operated by MIT, while those in Australia
can be in different locations. There is no tax in Kahnawake, only a monthly rental fee.
41 KGC REGS., supra note 10, §§ 1-3. Part I was enacted on July 8, 1999, pursuant to
§ 35 of the Kahnawake Gaming Law. Id. pmbl.
42 Id. § 3.
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that legalizing Internet gaming in the Territory, without a prohibition against non-licensed Internet gaming sites, could result in
other groups attempting to establish Internet gaming sites within
the Kahnawake Territory.
The KGC also recognized that its regulatory scheme would be
scrutinized by the world; it did not want to acquire the same negative reputation as several other Internet gaming jurisdictions,
particularly the reputation of some loosely regulated jurisdictions
in Central America and the Caribbean.43 This intent is made clear
in Part I of the KGC Regulations concerning economic development and player protection.44 Thus, the games provided by the
licensees must be fair and honest, winners have to be paid
promptly, and player account information must be held in the
strictest confidence.45
B. Licensing Requirements
The KGC Regulations provide for two basic licenses46 other
than individual licenses for key persons: an Interactive Gaming
License47 and a Client Provider Authorization.48 The Interactive
Gaming License is the license held by MIT and it is not likely that
any other Interactive Gaming Licenses will be issued. While the
regulations do not set a limit on the number of Interactive Gaming
Licenses, the requirement that they be established in Kahnawake
limits licenses to only Mohawk companies.49 A non-Mohawk can
neither establish a business nor own any property in Kahnawake.
Therefore, only a Kahnawake Mohawk with the resources to establish a company and build a facility within the territory could
apply for a Gaming License.50 A Gaming License applicant would
additionally need to prove to the KGC that he or she possesses the
qualifications to be issued an Interactive Gaming License. The
drafters of the KGC Regulations provided the regulatory structure
for the potential issuance of other Interactive Gaming Licenses,
yet they knew the likelihood of another successful application for
this kind of license was almost non-existent.
43 See, e.g., Kelly, supra note 2, at 128-30 (providing a brief description of the
problems arising from inadequate regulation of Internet gaming in Antigua).
44 See KGC REGS., supra note 10, §§ 1-5.
45 Id. § 4.
46 License application forms can be reviewed online at the Kahnawake Gaming Commission web site and are similar in form and content to applications used by traditional
casino jurisdictions. The information provided by the applicant is vital in providing the
regulators a starting point to begin their field investigation. See Kahnawake Gaming Commission, Interactive Gaming Regulations, at http://www.kahnawake.com/gamingcommission/ (select “Form 1”) (last visited Mar. 2, 2002).
47 KGC REGS., supra note 10, §§ 9-14.
48 Id. §§ 15-26.
49 Id. § 8.
50 Id.
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The primary license is the Client Provider Authorization. An
Internet gaming company that wants to do business from
Kahnawake must reach an agreement with MIT as to the terms
and conditions of its operation and the amount to be paid for use of
MIT’s facility. Once a company reaches an operation agreement
with MIT, the company must then apply to the KGC for a Client
Provider Authorization.51 The agreement with MIT does not take
effect until the license is granted by the KGC.52
License fees are currently ten thousand dollars (Can.) per annum,53 with an additional five thousand dollars placed on deposit
with the KGC to cover the cost of the license investigation.54 If the
investigation is complex and involves more time, then costs can
increase.55 On the other hand, an applicant already licensed in a
gaming jurisdiction that conducts an investigation comparable to
that done by the KGC can be accepted after a cursory investigation of the applicant’s current status in the jurisdictions where
licensed.56
The KGC employs an outside firm with extensive investigatory background and experience in the gaming industry to conduct
the suitability investigations. To date, this procedure has been
very successful and has provided the KGC with the proper facts to
make an informed decision whether to grant or deny an applicant’s license. The ten thousand dollar annual license fee collected from the Interactive License Holder and the Client Service
Providers is the only revenue source for the KGC, from which it
must pay all of its operating expenses.57
C. Who Must Be Licensed and How to Qualify
All company applicants must file a Business Entity Information Form.58 The company, as well as all partners, directors,
shareholders with equity of ten percent or more, the chief executive officer, board members, and key employees,59 must complete
Id. §§ 15-26.
Id. §§ 22-24.
Id. § 182.
Id. §§ 10-11.
Id. § 18.
Id. § 32.
This amount is exclusive of the fees collected for license investigations.
KGC REGS., supra note 10, § 10(a).
“Key person” means a person who:
(a) occupies or acts in a managerial position, or carries out managerial functions,
in relation to operations carried out under an Interactive Gaming License or
Client Provider Authorization;
(b) is in a position to control or exercise significant influence over the operations
conducted under an Interactive Gaming License or Client Provider
Authorization;
(c) occupies or acts in a position designated in the license holder’s or authorized
client provider’s approved control system as a key position;
51
52
53
54
55
56
57
58
59
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an application and provide the information requested therein.60
Again, this requirement is very similar to the requirements for the
traditional casino industry, and indicates the desire of the
Mohawks to regulate in the same manner as any other small gaming jurisdiction.
The KGC only grants licenses when it is satisfied the applicant possesses the good character, honesty, and integrity that the
KGC considers necessary for holding a gaming license in
Kahnawake.61 This is the same standard applied to gaming license applicants in states such as New Jersey, Nevada, and Michigan.62 To sustain its credibility, the KGC will not entertain the
license application of anyone that does not possess any of the
above requirements or has the propensity to associate with known
criminals or persons of questionable character.63
In addition to honesty, integrity, and good character, applicants must have the financial ability and technical capacity to operate an Internet gaming site.64 The information provided on the
application, as well as the results of the independent agency’s investigation, must provide evidence of the applicant’s ability to operate and manage a successful Internet gaming business.65 Once
the KGC accumulates all of the data, it makes one of three decisions: grant a license, deny a license, or request additional inforSubsections (a) and (b) apply to a position only if the position is designated by the
Commission by written notice given to the license holder or authorized client provider as a key position.
Subsection (a) applies to functions only if the functions are designated by the Commission by written notice given to the license holder or authorized client provider
as key functions.
Id. § 7. This definition is purposely broad to enable the KGC to declare a person a “key
person” requiring licensing. Key persons must file according to the same procedures set
forth in the licensing section of the regulations. The application is filed with a non-refundable deposit of $2500 (Can.) to cover the cost of a suitability investigation. The same procedure is followed as in the licensing of Interactive Gaming Licenses and Client Provider
Authorizations. Key licenses are subject to the same amendment, suspension, and revocation actions as set forth above, with the same types of procedures.
60 Id. § 10.
61 Id. § 29(a).
62 In New Jersey, “[e]ach applicant shall produce such information, documentation
and assurances as may be required to establish by clear and convincing evidence the applicant’s good character, honesty and integrity.” N.J. STAT. ANN. § 5:12-84(c) (West 2002). In
Nevada, for example:
Any person who the commission determines is qualified to receive a license, . . .
having due consideration for the proper protection of the health, safety, morals,
good order and general welfare of the inhabitants of the State of Nevada and the
declared policy of this state, may be issued a state gaming license . . . .
NEV. REV. STAT. § 463.170(1) (2002). Similarly, Michigan law states that “[i]n determining
whether to grant a casino license to an applicant, the board shall also consider . . . [t]he
integrity, moral character, and reputation . . . of the applicant.” MICH. COMP. LAWS ANN.
§ 432.206(5)(a) (West 2001).
63 See KGC REGS., supra note 10, §§ 29-30.
64 Id. § 29(b)-(d).
65 Id. § 29(e).
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mation determined necessary to make an informed decision.66
This power provides the KGC with the latitude necessary to handle out-of-the ordinary applications.
The KGC’s duty to determine license applicants’ suitability is
complex and of utmost importance; it is this process that excludes
those not qualified to be part of the Internet industry and protects
the public, as well as the entire Kahnawake Internet gaming industry. In some cases, the regulations provide for issuance of a
temporary license when the KGC is satisfied that the applicant
appears suitable and is likely to be issued a permanent license.67
Thereafter, the KGC is not obligated to issue a permanent license
if, during the course of the applicant’s investigation, issuance does
not appear justified.68
D. License Renewals
Licenses are normally issued for a period not to exceed two
years.69 During the license period, it is the licensee’s responsibility to inform the KGC of any new circumstances, such as large
stock transfers, complaints filed in other jurisdictions against the
licensee or any of the company’s licensed employees, or any circumstance that could potentially affect the licensing of that entity
or person.70 Failure to report such a change in circumstances
could result in the KGC taking punitive action against the licensee, including license revocation.71
Three months prior to the expiration of a license, the licensee
must submit a renewal application to the KGC with the appropriate fees to cover the cost of updating the initial suitability investigation.72 The original license does not automatically qualify a
licensee for renewal. Rather, the renewal application is scrutinized in the same manner as the original application.73 Survival
of a well-regulated Internet gaming jurisdiction depends on the
demonstration by all licensees of impeccable integrity and the
gaming regulators’ reputation for enforcement.
E. Enforcement Authority: License Suspension and Revocation
The KGC Regulations give the KGC the authority to suspend
or revoke a license where the license holder has been: 1) deemed
no longer suitable to hold a license; 2) convicted of an offence
66
67
68
69
70
71
72
73
Id.
Id.
Id.
Id.
Id.
Id.
Id.
Id.
§ 19.
§ 38.
§ 40.
§ 23.
§ 35.
§ 37.
§§ 48-50.
§ 54.
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against the KGC Regulations or the regulations of another gaming
jurisdiction; 3) indicted or convicted of a crime the KGC deems
affects its ability to hold a license; 4) contravened a term or condition of the Interactive Gaming License or Client Provider Authorization; 5) failed to discharge its financial duties; or 6) declared
bankrupt or insolvent, or is compelled to wind-up its business for
any reason.74
The KGC Regulations provide a “show cause” procedure that
the KGC and licensees must follow.75 Where the public is not in
jeopardy, the KGC serves the licensee with written notice containing the proposed action, grounds for the proposed action, facts
forming the basis for the proposed action, and proposed suspension period.76 The KGC Regulations allow the licensee to respond
to the KGC and show cause why the proposed action should not be
taken.77 The time within which a licensee must respond is determined by the KGC and is based upon the severity of the alleged
infraction.78 In cases that threaten damage to the public or to the
KGC’s reputation, the KGC can impose an immediate suspension
or revocation that will remain in effect until the matter is responded to or considered at the “show cause” hearing.79 In all
other cases, the licensee has the ability to first respond in writing
within the time set forth in the order.80
If the licensee elects a “show cause” hearing,81 the licensee has
the opportunity to both respond in writing and present oral testimony regarding the issues raised in the “show cause” order.82 The
KGC will consider the evidence and decide whether the acts or
omissions are serious enough to adversely affect the integrity of
the games, or are adverse to the public interest.83 The KGC’s decision may include an amendment, suspension, or revocation of the
licensee’s license.84
F. Control Systems and Approved Equipment
Control system requirements have been part of the KGC Regulations since their adoption on July 8, 1999. These provisions
give the KGC authority to establish rules and procedures to detect
and prevent suspicious activities such as money laundering.85 The
74
75
76
77
78
79
80
81
82
83
84
85
Id.
Id.
Id.
Id.
Id.
Id.
Id.
Id.
Id.
Id.
Id.
Id.
§ 62.
§§ 63-69.
§ 63.
§
§
§
§
§
§
§
§
64.
68.
63(e).
70.
72.
73(b).
76.
111.
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KGC Regulations require the licensees to know their customers
and to report suspicious activities to the KGC or an appropriate
law enforcement agency.86 A description of the control systems
must be submitted to the KGC. It must describe the computer
software used to conduct the interactive games, explain the accounting system and procedures, and include a chart of accounts
and administrative systems and procedures.87 The control systems must also include operational standards for maintenance, security, storage and transportation of equipment used for the
interactive games, and procedures for paying winnings and maintaining facilities.88 The KGC examines the control systems and
either approves them or recommends changes necessary to gain
approval.89
The KGC must approve all equipment and software the licensee uses.90 The KGC is currently considering revisiting this area
to allow for implementation of a set of technical standards that
can be used by independent testing companies for the purpose of
testing licensee systems and software.91 Under this new program,
the KGC will provide the technical standards to which all gaming
software must conform. The licensee must then submit a certification from an accredited testing lab indicating that the software
met these standards. The licensee will be required to submit any
proposed software modifications that affect the random number
generator or the outcome of the game, but will not be required to
submit certifications when only the graphic portion of the gaming
software is changed. The costs will continue to be borne by the
licensee and not by the Commission.
G. Player Protections and Age Requirements
The KGC Regulations place an emphasis on player protections and the duty of the KGC to uphold these protections. One
protection includes the requirement that all authorized client
providers provide games that are not obscene, indecent, or offensive.92 The KGC is adamant with regard to this provision and will
not tolerate any obscenity on any of their licensees’ sites. In fact,
the KGC has the right to deny a license to an applicant that has
obscene, indecent, or offensive sites, even if those sites are not reId.
Id. § 116(a).
88 Id. § 116(c), (d).
89 Id. § 121.
90 Id. § 128(a).
91 The KGC is working with BMM North America, a testing company located in Las
Vegas, Nevada, to provide a set of technical standards for all of the games provided; they
should be included in the KGC Regulations shortly.
92 KGC REGS., supra note 10, §§ 4, 142-43.
86
87
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221
lated to gaming.93 The KGC even requires that the licensee have
controls in place to restrict players’ attempts to use obscene, indecent, or offensive screen names.94
Also for the player’s protection, licensees cannot register a
player unless that person produces evidence of identity, place of
residence, and age.95 A player’s account is only accessible by that
particular player, and he or she may only do so to obtain the balance or to withdraw funds paid into the account.96 A player cannot play without sufficient funds in his account and must comply
with all rules of the game being played.97 The original KGC Regulations required a player to be at least twenty-one years old to
participate.98 However, a 2001 amendment reduced the minimum
age to eighteen in conformance with many of the gaming laws in
other parts of the world.99
The licensee does not have access to the player’s account, except to debit the account, and must remit funds to the player by
check no later than the first business day after requested by the
player.100 Otherwise, license holders or client service providers
can only access the account when the account shows no activity for
more than ninety days.101 If the account is dormant for a period of
ninety days, the balance of the funds in the account must be returned to the player. If the whereabouts of the player are unknown, the funds must be transmitted to a special account
established by the KGC for this purpose.102 Another important
player protection is the requirement that the licensee keep the
names of all its players in confidence.103 Exceptions to this regulation include a player’s authorization necessary for the conduct of
the games and administration and enforcement of the KGC
Regulations.104
The KGC Regulations also include an innovative feature that
allows players to exclude themselves from play.105 Once a player
registers to be excluded, the exclusion cannot be changed without
a cooling off period of seven days.106 Furthermore, the KGC ReguId.
Id. § 142.
Id. § 145.
Id. § 147.
Id. §§ 148-49.
Id. § 145(a)(iii).
See generally I. Nelson Rose, Gambling and the Law: Minimum Legal Age to Place
a Bet, at http://www.gamblingandthelaw.com/agechart.html (last visited Feb. 7, 2002) (listing the minimum age requirements in various jurisdictions).
100 KGC REGS., supra note 10, §§ 150, 152.
101 Id. §§ 152-53.
102 Id. § 153.
103 Id. § 154.
104 Id. § 155.
105 Id. § 157.
106 Id. § 159.
93
94
95
96
97
98
99
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lations provide a player’s family the right to seek an exclusion by
application to the KGC.107 Once a player’s family submits an application, the player is provided an opportunity to respond. The
KGC bases its decision on the family’s application and the player’s
response.108 A gaming addiction fund was also established in the
territory, with all fines and monetary penalties deposited therein,
along with any contributions made by licensees.109
H. Compliance Requirements: Records, Audits, and Money
Laundering
Another area of Kahnawake gaming regulation that is similar
to traditional casino regulation includes rules regarding records,
record storage, accounting, auditing controls, and money laundering.110 The KGC can request any and all records of the licensee
without showing cause.111 An unresponsive licensee is subject to
fines, suspension, or revocation of its license.112 Certain gaming
records designated by the KGC must be kept in an approved place
and not destroyed for a period of five years from the time of the
gaming transaction.113 Accounts must be kept in the form of generally accepted accounting principles and must be available to the
KGC at all times.114 Audits should be completed as soon as practical after the end of the licensee’s fiscal year, but no later than
three months after the close of its fiscal year.115
The KGC is currently reviewing proposed amendments that
would require licensees to know their clients.116 Contrary to common belief, it is not easy for a player to launder money obtained by
illegal means through an Internet gaming site.117 Most transactions are by credit card when the player signs on or registers to
play.118 While players have the ability to wire funds, these funds
are easily traceable and sending large amounts of cash is not feasible. The only party with means to launder money obtained
Id. § 163(b).
Id. § 164.
Id. § 169.
Id. §§ 209-10.
Id. § 220.
Id. § 26.
Id. § 207.
Id. §§ 209-13.
Id. § 219(a).
The KGC is considering amending the KGC Regulations to deter those trying to
launder monies received from illegal means. The policy of “knowing your customer” used in
land-based casinos is among the amendments under consideration and will likely be included in the KGC Regulations within a short period of time.
117 See, e.g., Kristie Lu Stout, Net Casinos Under Scrutiny for Money Laundering, at
http://asia.cnn.com/2001/BUSINESS/asia/10/21/hk.ecasinolaundering/ (last visited Feb. 7,
2002).
118 See, e.g., Internet Gaming Commission, Frequently Asked Questions, at http://
www.internetcommission.com/faq.asp (last visited Feb. 7, 2002).
107
108
109
110
111
112
113
114
115
116
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223
through illegal activity is the licensee; however, money laundering
by licensed casino owners is almost non-existent in a well-regulated environment where all licensees must be found suitable after an extensive background investigation.
IV.
CONCLUSION
Internet gaming is a relatively new challenge for gaming regulators and policy makers throughout the world. The Internet has
changed the way people go about their daily lives, and with this
change comes the difficulty of adopting laws, rules, and regulations to meet new challenges. The Mohawks have established a
regulatory scheme to protect people that participate in gaming entertainment over the Internet. This protection is achieved by assuring players that operators licensed by the KGC have passed a
strict suitability investigation, including a financial check to assure that the operator has the resources to pay winning bets, and
a technology check to ensure that the games are fair and honest.
The Kahnawake Mohawks have taken the lead regulating Internet gaming. The reality is that Internet gaming exists and continues to grow in popularity; the only way to monitor and control
this new form of gaming is through strict regulation. Of course,
there will be those who continue to seek prohibition of Internet
gambling based on a belief that gambling is immoral or has adverse consequences on the moral fiber of society. This ongoing debate raises a fundamental question about the role of
government—whether the state should protect the individual
from himself by minimizing temptations. My only response to
those who hold this position is that government-enforced morality
has a consistent record of failure, as evidenced by our past
failures.119
Internet gaming regulation will do far more to restrict the social ills that accompany problem gaming than will any attempt at
prohibition. Moreover, unlike prohibition, strict regulation can
work. The question to consider is not whether we will have online gaming—we already do, and it will continue unless we ban
the Internet itself. Rather, the question is whether we should
have well-regulated, on-line gaming or unregulated, underground,
on-line gaming. To this end, the Kahnawake Mohawks have
taken the lead, and I believe it is only a matter of time before
others follow.
119 One of the most notable failures, the Volstead Act, 1919, ch. 85, 41 Stat. 305 (repealed 1933), which did little to stop the distribution and consumption of alcohol. See, e.g.,
Eugene M. Christiansen, Selected Materials On Social, Economic, and Technological
Trends, 1998 A.L.I. 489. “The noble experiment, as it is sometimes called, failed with disastrous consequences.” Id. at 504.
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Appendix:
Kahnawake Gaming Commission
REGULATIONS CONCERNING
INTERACTIVE GAMING
These Regulations were enacted by the Kahnawake Gaming
Commission (“the Commission”) on 8 July/Ohiarihkó:wa, 1999
pursuant to Section 35 of the Kahnawake Gaming Law.
TABLE OF CONTENTS
Part I: Jurisdiction; Purpose; Prohibition; Definitions . . .
Part II: Certified Premises; Applications; Conditions;
Suitability; Temporary Authorizations; Renewals;
Amendments; Revocation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part III: Key Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part IV: Agents and Agency Agreements . . . . . . . . . . . . . . . .
Part V: Control Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part VI: Approved Equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
Part VII: Mandatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . .
Part VIII: Investigations and Monitoring . . . . . . . . . . . . . . .
Part IX: Fees and Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part X: Compliance Requirements . . . . . . . . . . . . . . . . . . . . . .
Part XI: Records and Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part XII: Prizes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part XIII: Aborted Games . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part XIV: Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part XV: Complaints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part XVI: Duty to Report; Offences . . . . . . . . . . . . . . . . . . . . .
Part XVII: Independence of Commission & Officials . . . .
Part XVIII: Inspectors; Qualifications; Powers;
Identification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part XIX: Powers of Entry & Inspection . . . . . . . . . . . . . . . .
Part XX: Stop Directions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part XXI: Miscellaneous Powers; Failure to Comply . . . .
Part XXII: Forfeiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part XXIII: Notice of Damage; Liability of Officials;
Appeal and Review; Proceedings; Service; Confidentiality; Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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244
245
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249
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261
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262
263
265
266
267
273
274
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277
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PART I – JURISDICTION
1. The Commission may, subject to the provisions of the
Kahnawake Gaming Law (the “Law”) and Regulations enacted
thereunder, issue a gaming licence (an “Interactive Gaming Licence”) to a person or persons, authorizing the conduct of authorized games by means of a telecommunication device, including the
Internet. The Commission may also, in accordance with the provisions of these Regulations, authorize the holder of an Interactive
Gaming Licence to host one or more client providers that will conduct authorized games (a “Client Provider Authorization”).
2. These Regulations apply to all interactive games conducted by
or from premises situated within the Mohawk Territories of
Kahnawake (the “Territories”), including interactive games involving players situated both within and outside the Territories.
3. These Regulations may serve as a basis for the harmonization
of regulatory schemes concerning interactive gaming in other jurisdictions and for co-operation and mutual assistance between
the Kahnawake Gaming Commission and other regulatory bodies.
However, these Regulations are not dependent on the ratification
or approval of any other jurisdiction or regulatory body.
PURPOSE
4. The purposes of these Regulations are:
(a) to provide a lawful basis for the regulation and control of
interactive gaming and interactive gaming related activities conducted within and from the Territories as a means
of promoting and preserving economic development, selfsufficiency and peace, order and good government within
the Territories;
(b) to ensure that interactive gaming and interactive gaming
related activities are conducted responsibly, fairly, honestly and in the best interests of Kahnawakero:non and
all other affected parties;
(c) to ensure that the operators of interactive games treat
players fairly; that they pay winners promptly and that
all information related to player accounts is held in the
strictest confidence.
PROHIBITION
5. Except as permitted by these Regulations, interactive gaming
and interactive gaming related activities from or within the Territories is prohibited.
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DEFINITIONS
6. The definitions provided in the Law have the same meaning in
these Regulations.
7. For the purposes of these Regulations:
“agency agreement” means an agreement between a licence holder
or authorized client provider, and another person:
(a) appointing the other person as an agent;
(b) describing the agent’s authority;
(c) stating the conditions under which the agent acts as, and
remains, an agent of the licence holder or authorized client provider, and
(d) stating other matters agreed between the agent and the
licence holder or authorized client provider.
“agent” means a person who carries out any of the following functions, within or outside the Territories, for a licence holder or authorized client provider:
(a) registering a player;
(b) establishing a player’s account;
(c) accepting deposits for, or authorizing withdrawals from, a
player’s account, or
(d) any other functions the Commission may classify as an
agency function.
“applicant” means any person who on his or her own behalf or on
behalf of another has applied for an Interactive Gaming Licence, a
Client Provider Authorization, a temporary authorization or a renewal of an Interactive Gaming Licence or Client Provider
Authorization;
“application” includes an application to the Commission for an Interactive Gaming Licence, a Client Provider Authorization, a temporary authorization and a renewal application;
“appropriate resources” means financial resources:
(a) adequate, in the Commission’s opinion, to ensure the financial viability of operations conducted under an Interactive Gaming Licence or Client Provider Authorization,
as the case may be; and
(b) demonstrably available from a source that is not, in the
Commission’s opinion, contrary to any law applicable
within the Territories;
“appropriate services” means the services of persons who have appropriate experience to ensure the proper and successful conduct
of interactive games;
“authorized client provider” means a person who has, by virtue of
a Client Provider Authorization issued by the Commission, been
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authorized to conduct interactive gaming and interactive gaming
related activities within or from the Territories;
“authorized game” means an interactive game that a licence
holder or an authorized client provider is permitted to conduct
under the Law and these Regulations;
“control system” means a system of internal controls and administrative and accounting procedures for the conduct of interactive
games by a licence holder or authorized client provider;
“decision” includes:
(a) conduct engaged in to make a decision;
(b) conduct related to making a decision, and
(c) failure to make a decision.
“dishonest act” includes fraud, misrepresentation, theft and any
other act or omission which the Commission deems to be a dishonest act;
“gaming records” means all records directly or indirectly related to
the interactive games provided by a licence holder or authorized
client provider, including but not limited to player account information, wagers placed and outcomes of games played;
“interactive game” means a game in which:
(a) a prize consisting of money or something else of value is
offered or can be won under the rules of the game;
(b) a player:
(i) enters the game or takes any step in the game by
means of a telecommunication device, including the
Internet; and
(ii) gives, or undertakes to give, a monetary payment or
other valuable consideration to enter, in the course of,
or for, the game; and
(c) the winner of a prize is decided:
(i) wholly or partly by chance; or
(ii) by a competition or other activity in which the outcome is wholly or partly dependent on the player’s
skill.
“interactive gaming” means wagering by means of interactive
games accessible from the player’s premises in which the player
participates through the Internet or other telecommunications
medium;
“interactive gaming related activities” means any activity or business that the Commission considers reasonably related to interactive gaming or to the operation of interactive gaming, including
any business that offers goods or services to persons who participate in interactive gaming conducted from or within the
Territories;
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“Kahnawakero:non” means a person identified as a Mohawk and a
member of the community of Kahnawake pursuant to the
Kahnawake Membership Law, as it may be amended from time to
time;
“key person” means a person who:
(a) occupies or acts in a managerial position, or carries out
managerial functions, in relation to operations carried out
under an Interactive Gaming Licence or Client Provider
Authorization;
(b) is in a position to control or exercise significant influence
over the operations conducted under an Interactive Gaming Licence or Client Provider Authorization;
(c) occupies or acts in a position designated in the licence
holder’s or authorized client provider’s approved control
system as a key position;
Subsections (a) and (b) apply to a position only if the position
is designated by the Commission by written notice given to
the licence holder or authorized client provider as a key
position.
Subsection (a) applies to functions only if the functions are
designated by the Commission by written notice given to the
licence holder or authorized client provider as key functions.
“key relationship” means a relationship between a licence holder
or an authorized client provider and another person as a result of
which the other person is a key person.
“licence holder” means a person to whom the Commission has issued an Interactive Gaming Licence;
“person” includes an individual, corporation, partnership, limited
liability company and any other business entity recognized under
the laws applicable within the Territories;
“player” means a person who has attained the full age of twentyone (21) years and who participates in an interactive game ;
“player’s account” means an account:
(a) in the name of the player:
(i) at a financial institution, or
(ii) with a body approved by the Commission, and
(b) against which the licence holder or authorized client provider has a right to debit the amount of a wager;
(c) that is established on a basis under which the player may
only have direct recourse to the account:
(i) to ascertain the balance of funds in the account or to
close the account;
(ii) to obtain the whole or part of an amount paid into the
account as a prize in authorized game, or
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(iii) as authorized by the licence holder, authorized client
provider or the Commission.
PART II – CERTIFIED PREMISES
8. The Commission will, by resolution, certify premises as suitable for the purpose of conducting interactive gaming or interactive
gaming related activities, provided:
(a) the premises are wholly situated within the Mohawk Territory of Kahnawake;
(b) the owners or lessees of the premises satisfy all other eligibility criteria for a gaming licence provided in the Law;
(c) the owners or lessees of the premises have established an
Internet Service Provider (“ISP”), and all required support
services which, in the Commission’s sole discretion, are capable of providing suitable and reliable Internet and telephonic services to the public;
APPLICATION FOR INTERACTIVE GAMING LICENCE
9. An application for an Interactive Gaming Licence must be submitted to the Commission in the form attached as Schedule “A” to
these Regulations.
10. To be considered by the Commission, an application for an
Interactive Gaming Licence must contain all of the information
requested in the form attached as Schedule “A” and be accompanied by:
(a) if applicable, a Business Entity Information Form attached as Schedule “B” to these Regulations;
(b) Personal Information Forms attached as Schedule “C” to
these Regulations for each director, shareholder with ten
(10%) per cent or more ownership of or controlling interest
in the applicant, partner and Chief Executive Officer of
the applicant, and
(c) a non-refundable deposit in the amount of Five Thousand
($5,000.00) Dollars.
11. The applicant is responsible to the Commission for all costs
incurred by the Commission related to the processing of the application. In the event these costs exceed the amount of the original
deposit, the Commission will notify the applicant in writing to
provide a further non-refundable deposit or deposits in such
amounts as the Commission may determine. In the event the
Commission does not receive payment of a further deposit within
ten (10) days of the date of the Commission’s notice to the applicant, processing of the application will be suspended until the further deposit is received.
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12. Subject to the foregoing section, the Commission will
promptly consider the application and will:
(a) grant the application and issue an Interactive Gaming
Licence;
(b) deny the application, or
(c) return the application to the applicant with a request for
additional information.
13. In the event an application is denied, the Commission will
give its reasons for the refusal in writing to the applicant.
14. An Interactive Gaming Licence will not be granted for a period of time exceeding two (2) years.
APPLICATION FOR CLIENT PROVIDER AUTHORIZATION
15. The Commission may authorize a licence holder to host a client provider for the purpose of conducting interactive gaming and
interactive gaming related activities on the premises of the certified establishment.
16. An application for a Client Provider Authorization must be
completed by the proposed client provider and submitted to the
Commission by the proposed client provider with the knowledge
and consent of the relevant licence holder. The application must
be in the form attached as Schedule “D” to these Regulations.
17. To be considered by the Commission, an application for a Client Provider Authorization must contain all of the information requested in the form attached as Schedule “D” and be accompanied
by:
(a) if applicable, a Business Entity Information Form attached as Schedule “B” to these Regulations;
(b) Personal Information Forms attached as Schedule “C” to
these Regulations for each director, shareholder with ten
(10%) per cent or more ownership of or controlling interest
in the proposed client provider, partner and Chief Executive Officer of the proposed client provider, and
(c) a non-refundable deposit in the amount of Five Thousand
($5,000.00) Dollars.
ten (10) days of the date of the Commission’s notice to the appli-
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cant, processing of the application will be suspended until the further deposit is received.
promptly consider the application and will:
(a) grant the application and issue a Client Provider
Authorization;
(b) deny the application, or
(c) return the application to the licence holder and the proposed client provider with a request for additional
information.
20. The Commission will consider each application for a Client
Provider Authorization independently from the Interactive Gaming Licence to which it is proposed to be appended and independently from any other Client Provider Authorization already
appended to the Interactive Gaming Licence.
give its reasons for the refusal in writing to the licence holder and
the proposed client provider.
22. In the event an application is granted, the Client Provider Authorization will be added as an addendum to the licence holder’s
Interactive Gaming Licence and a certified copy will be provided
to the authorized client provider.
23. A Client Provider Authorization will not be granted for a period of time exceeding two (2) years.
24. A Client Provider Authorization is only valid and enforceable
for so long as the Interactive Gaming Licence to which it is appended is in good standing.
25. A licence holder is responsible for supervising the activities of
an authorized client provider and is jointly and severally liable
with the authorized client provider for any and all acts or omissions of the authorized client provider.
26. Any breach of the Law or these Regulations by an authorized
client provider may result in the immediate suspension or revocation of the Client Provider Authorization and of the Interactive
Gaming Licence to which it is appended.
CONDITIONS FOR GRANTING OR DENYING APPLICATION
27. The Commission may grant an application for an Interactive
Gaming Licence or a Client Provider Authorization only if the
Commission is satisfied that:
(a) the applicant is suitable to hold an Interactive Gaming Licence or Client Provider Authorization, and
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(b) each director, shareholder with ten (10%) per cent or more
ownership of or controlling interest in the applicant, partner and Chief Executive Officer is suitable to be associated with an applicant’s operations.
28. The Commission, in its sole discretion, may deny an application even if the Commission is satisfied of the matters mentioned
in foregoing section.
SUITABILITY OF APPLICANTS
29. The Commission will consider an applicant suitable to hold an
Interactive Gaming Licence or a Client Provider Authorization as
the case may be, if the applicant can satisfy the Commission of the
following:
(a) the applicant’s good character, honesty and integrity;
(b) the applicant’s good business reputation, sound current
financial position and financial background;
(c) the applicant has arranged, or is arranging, a satisfactory
ownership, trust or corporate structure;
(d) the applicant has, or is able to obtain, appropriate
resources, services and technical ability to conduct
interactive gaming;
(e) the applicant has the ability to conduct interactive games
under an Interactive Gaming Licence or Client Provider
Authorization, and
(f) any other matter prescribed under a law applicable within
the Territories or which the Commission deems
appropriate.
30. The Commission will consider each director, shareholder with
ten (10%) per cent or more ownership of or controlling interest in
the applicant, partner and Chief Executive Officer of the applicant
suitable, if the Commission is satisfied of each person’s:
(a) good character, honesty and integrity;
(b) good business reputation, sound current financial position
and financial background, and
(c) general suitability to be associated with a licence holder or
authorized client provider.
31. The Commission, or such person as the Commission may appoint, will conduct a thorough investigation into the matters referred to in the foregoing sections to determine the applicant’s
suitability to hold an Interactive Gaming Licence or Client Provider Authorization and the suitability of each director, shareholder with ten (10%) per cent or more ownership of or controlling
interest in the applicant, partner and Chief Executive Officer of
the applicant to be associated with a licence holder or authorized
client provider.
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32. The Commission may consider proof that an applicant has
been licensed to conduct gaming in another jurisdiction as prima
facie evidence of the applicant’s suitability to conduct interactive
gaming within the Territories.
INTERACTIVE GAMING LICENCE AND CLIENT
PROVIDER AUTHORIZATION
33. Interactive Gaming Licences and Client Provider Authorizations will be in the form prescribed by the Commission and will, in
addition to any other matter which the Commission deems to be
appropriate, specify:
(a) the name, address, telephone number, fax number and email address of the licence holder or authorized client
provider;
(b) the address of the certified premises from which the
licence holder or authorized client provider will conduct
interactive gaming and interactive gaming related
activities;
(c) the authorized games the licence holder or authorized
client provider are permitted to conduct;
(d) commencement and termination dates of the licence or
authorization;
(e) any other terms and conditions that are in the public
interest and that the Commission, in its sole discretion,
considers necessary or desirable for the proper conduct of
interactive games;
(f) a clause stating that the Commission and its members,
employees and agents are not liable for any damages,
losses, costs or liabilities incurred by a licence holder or
authorized client provider, and
(g) a clause stating that the licence holder or authorized
client provider has agreed to indemnify the Commission
against any claims, demands or actions and any resulting
damages, awards or costs (including legal costs) brought
by any third party against the Commission in relation to
the acts or omissions of a licence holder or authorized
client provider.
34. An Interactive Gaming Licence and a Client Provider
Authorization:
(a) subject to the provisions of these Regulations, may be
amended, suspended or revoked for any breach of the
Law, these Regulations, the terms and conditions of the
Interactive Gaming Licence or Client Provider Authorization or any direction issued by the Commission;
(b) are not valid unless and until the prescribed fees have
been paid in full, and
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(c) may not be sold, transferred, mortgaged or assigned.
MATERIAL CHANGE REPORTS
35. Every licence holder, authorized client provider and holder of
a temporary authorization, including every applicant, must report
to the Commission any material change to the information provided to the Commission for the purposes of an application (a “material change report”).
36. A material change report must be in writing, must clearly
identify the material change in question and must be received by
the Commission not later than seven (7) days from the date on
which the material change was effective.
37. Failure to report a material change to the Commission as required by this Part may result in the immediate amendment, suspension or revocation of the Interactive Gaming Licence, Client
Provider Authorization or temporary authorization to which the
change relates. In the case of an application, failure to report a
material change is a sufficient grounds for denial of the
application.
TEMPORARY AUTHORIZATIONS
38. After receiving an application for a Client Provider Authorization, accompanied by the required forms and non-refundable deposit, and pending the completion of the Commission’s
investigations into the application and matters related thereto,
the Commission may, at the request of the applicant, issue a temporary Client Provider Authorization ( a “temporary
authorization”).
39. The Commission will only issue a temporary authorization
when it is satisfied that:
(a) the applicant proposes to append its Client Provider Authorization, in the event it is granted, to an existing Interactive Gaming Licence and the relevant licence holder has
indicated in writing that it has no objection to the issuance of a temporary authorization to the applicant;
(b) the applicant appears to be suitable and is likely to be issued a Client Provider Authorization;
(c) it is not contrary to the public interest to issue a temporary authorization.
40. The issuance of a temporary authorization does not impose
any obligation on the Commission to issue an Interactive Gaming
Licence or Client Provider Authorization.
41. A temporary authorization will specify each of the matters set
out in section 33 and is subject to the provisions of section 34.
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42. In the event an application for a temporary authorization is
granted, the temporary authorization will be added as an addendum to the licence holder’s Interactive Gaming Licence and a certified copy will be provided to the holder of the temporary
authorization.
43. A licence holder is responsible for supervising the activities of
the holder of a temporary authorization and is jointly and severally liable for any and all acts or omissions of the holder of a temporary authorization.
44. Any breach of the Law or these Regulations by the holder of a
temporary authorization may result in the immediate suspension
or revocation of the temporary authorization and of the Interactive Gaming Licence to which it is appended.
45. A temporary authorization will not be granted for a period
exceeding six (6) months.
46. The provisions of these Regulations that apply to Client Provider Authorizations and authorized client providers also apply,
adapted as required, to a temporary authorization and to the
holder of a temporary authorization.
RENEWAL APPLICATIONS
47. An application to renew an Interactive Gaming Licence or Client Provider Authorization must be submitted to the Commission
in a form approved by the Commission (a “renewal application”).
48. To be considered by the Commission, a renewal application
must contain all of the information requested in the form and be
accompanied by a non-refundable deposit in the amount of Five
Thousand ($5,000.00) Dollars.
49. A renewal application must be received by the Commission
not less than three (3) months prior to the termination date of the
Interactive Gaming Licence or Client Provider Authorization.
incurred by the Commission related to the processing of the renewal application. In the event these costs exceed the amount of
the original deposit, the Commission will notify the applicant in
writing to provide a further non-refundable deposit or deposits in
such amounts as the Commission may determine. In the event
the Commission does not receive payment of a further deposit
within ten (10) days of the date of the Commission’s notice to the
applicant, processing of the renewal application will be suspended
until the further deposit is received.
promptly consider the renewal application and will:
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(a) grant the renewal application and renew the Interactive
Gaming Licence or Client Provider Authorization for a period of two (2) years;
(b) deny the renewal application, or
(c) return the renewal application with a request for additional information.
give its reasons for the refusal in writing to the applicant.
53. In deciding whether to grant a renewal application, the Commission will consider any complaints, concerns or problems that
may have arisen in the previous licensing period related to the
licence holder or authorized client provider and will deny the renewal application if, in the Commission’s sole discretion, the complaints, concerns or problems are sufficiently serious or numerous.
54. An Interactive Gaming Licence or Client Provider Authorization that is renewed under this Part is subject to the all provisions
of these Regulations concerning Interactive Gaming Licences or
Client Provider Authorizations, adapted as required.
AMENDMENTS TO LICENCE OR AUTHORIZATION
55. The Commission may amend a condition or conditions of an
Interactive Gaming Licence or Client Provider Authorization if
the Commission considers it is necessary or desirable to make the
amendment for the proper conduct of authorized games by the licence holder or authorized client provider or that the amendment
is otherwise in the public interest.
56. If the Commission decides to amend a condition or conditions
of an Interactive Gaming Licence or Client Provider Authorization, the Commission must promptly give the licence holder and, if
appropriate, the authorized client provider, written notice (the
“condition notice”) of the change and the reasons for the change.
57. The power of the Commission under this section includes the
power to add such new conditions as the Commission, in its sole
discretion, deems appropriate.
58. Before amending a condition or conditions of an Interactive
Gaming Licence or Client Provider Authorization, the Commission must follow the show cause procedures set out in these
Regulations.
59. The licence holder or authorized client provider, as the case
may be, must return the existing Interactive Gaming Licence or
Client Provider Authorization to the Commission within seven (7)
days of receiving the condition notice.
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60. On receiving the Interactive Gaming Licence or Client Provider Authorization, the Commission will:
(a) amend the licence or authorization in an appropriate way
and return the amended licence or authorization to the licence holder or authorized client provider; or
(b) if the Commission does not consider it is practical to
amend the licence or authorization, issue a replacement
licence or authorization, incorporating the amended conditions, to the licence holder or authorized client provider.
61. An amendment of conditions takes effect on the date set by
the Commission.
SUSPENDING OR REVOKING A LICENCE
OR AUTHORIZATION
62. The Commission may suspend or revoke an Interactive Gaming Licence or Client Provider Authorization on the following
grounds:
(a) the licence holder or authorized client provider is no
longer suitable to hold an Interactive Gaming Licence or
Client Provider Authorization;
(b) the licence holder or authorized client provider has been
convicted of an offence against the Law or these
Regulations or a gaming act of another jurisdiction;
(c) the licence holder or authorized client provider has been
convicted of an indictable offence or other crime the
Commission, in its sole discretion, deems to affect the
suitability of a licence holder or authorized client
provider;
(d) the licence holder or authorized client provider has
contravened a term or condition of the Interactive Gaming
Licence or Client Provider Authorization;
(e) the licence holder or authorized client provider has failed
to discharge financial commitments for the licence
holder’s or authorized client provider’s operations or the
Commission has reason to believe that such failure is
imminent;
(f) the licence holder or authorized client provider is
insolvent, has been petitioned into bankruptcy or has
applied to take advantage of any bankruptcy law;
(g) the licence holder or authorized client provider has a
trustee, receiver, manager, liquidator or administrator
appointed for it under the provisions of the laws of any
jurisdiction;
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(h) the licence holder or authorized client provider applies
for, or is compelled by any means or for any reason, for a
discontinuance or winding-up;
(i) the Interactive Gaming Licence or Client Provider
Authorization was obtained by a materially false or
misleading representation or in some other improper way,
or
(j) any other ground that the Commission, in its sole
discretion, determines is material and sufficient for the
purposes of this section.
SHOW CAUSE PROCEDURE
63. Before amending, suspending or revoking an Interactive
Gaming Licence or Client Provider Authorization, the Commission must give the licence holder, and if appropriate, the authorized client provider a written notice (a “show cause notice”) that:
(a) states the action (the “proposed action”) the Commission
proposes taking;
(b) states the grounds for the proposed action;
(c) outlines the facts and circumstances forming the basis for
the grounds;
(d) if the proposed action is suspension of the Interactive
Gaming Licence or Client Provider Authorization, states
the proposed suspension period, and
(e) permits the licence holder, and if appropriate, the authorized client provider, to show within a stated period (the
“show cause period”) why the proposed action should not
be taken.
64. The show cause period will be established by the Commission
and will be specified in the show cause notice.
65. The Commission must promptly serve a copy of the show
cause notice on:
(a) each person (an “interested person”) the Commission believes has an interest in the Interactive Gaming Licence
or Client Provider Authorization if the Commission
considers:
(i) the person’s interest may be affected adversely by the
amendment, suspension or cancellation of the licence
or authorization; and
(ii) it is otherwise appropriate in the circumstances to
give copy of the notice to the person.
66. A person upon whom a copy of the show cause notice is served
may make written representations about the matters raised in the
notice to the Commission within the show cause period.
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67. The Commission will consider all written representations (the
“accepted representations”) made during the show cause period
by:
(a) the licence holder or authorized client provider; or
(b) any interested person upon whom a copy of the show
cause notice is served.
68. Notwithstanding any other provision of these Regulations, the
Commission may amend, suspend or revoke an Interactive Gaming Licence or Client Provider Authorization immediately if the
Commission believes:
(a) a sufficient ground exists to amend, suspend or revoke the
licence or authorization, and
(b) the circumstances are so extraordinary that it is imperative to amend, suspend or revoke the licence immediately
to ensure:
(i) the public interest is not affected in an adverse and
material way; or
(ii) the integrity of the conduct of interactive games by
the licence holder or authorized client provider is not
jeopardized in a material way.
69. An immediate amendment, suspension or revocation:
(a) must be effected by written notice served on the licence
holder, and, if appropriate, the authorized client provider;
(b) is effective from the moment the notice is served, and
(c) continues in effect until the matters set out in the show
cause notice are decided by the Commission.
HEARING
70. A licence holder or authorized client provider who has received a show cause notice, may, within the show cause period,
request a hearing before the Commission to respond to the matters raised in the show cause notice.
71. Upon receiving a request for a hearing, the Commission will
set a date for the hearing (the “hearing date”) and will immediately notify the licence holder or authorized client provider in
writing of the hearing date.
72. At the hearing, the licence holder or authorized client provider will have the opportunity to bring written and oral evidence
to respond to the matters raised in the show cause notice.
DECISION
73. If, after considering the accepted representations, or in the
case of a hearing, all the evidence adduced before it, the Commission finds that:
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(a) a ground or grounds exist to amend, suspend or revoke
the Interactive Gaming Licence or Client Provider Authorization and/or;
(b) the act, omission or other item constituting the ground is
of a serious and fundamental nature and either:
(i) the integrity of the conduct of interactive games by
the licence holder or authorized client provider may be
jeopardized in a material way, or
(ii) the public interest may be affected in an adverse or
material way;
the Commission may amend or revoke the Interactive Gaming Licence or Client Provider Authorization or suspend the
licence or authorization for such period of time and on such
conditions of re-instatement as the Commission deems
appropriate.
74. If the Commission directs the licence holder or authorized client provider to rectify a matter and the licence holder or authorized client provider fails to comply with the direction within the
time allowed for compliance, the Commission may revoke the Interactive Gaming Licence or Client Provider Authorization or suspend the licence or authorization for such period of time and on
such conditions for re-instatement as the Commission deems
appropriate.
75. The Commission must promptly serve written notice of the
decision to amend, suspend or revoke a licence or authorization on
the licence holder and, if appropriate, on the authorized client
provider.
76. A decision to amend, suspend or revoke a licence or authorization takes effect on the date specified by the Commission.
77. If an Interactive Gaming Licence or Client Provider Authorization is under suspension, the Commission may, at the request of
the licence holder or authorized client provider, reconsider the duration of the suspension.
78. The Commission must promptly serve written notice of its decision on the licence holder or authorized client provider.
PART III – KEY PERSONS
79. A person must not accept employment as a key person, or
agree to carry out as an employee the duties of a key person, unless the person is a key person licencee.
80. A licence holder or authorized client provider must not employ
a person to carry out the functions of a key person, unless the person is a key person licencee.
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81. If the Commission reasonably believes a person, other than a
key person licencee, is a key person, the Commission may, by written notice given to the person, with copies to the licence holder or
authorized client provider with whom the key relationship exists,
require the person either to apply for a key person licence or to
terminate the relevant key relationship, within seven (7) days of
receiving the notice.
82. The person must comply with the requirement within seven
(7) days of receiving the notice or such other period of time that
the Commission may specify in the notice.
83. If the Commission does not approve an application for a key
person licence made by a person of whom a requirement has been
made under the foregoing section, the Commission may, by written notice given to the person, with copies to the licence holder or
require the person to terminate the relevant key relationship
within the time stated in the notice and the person must comply
with the requirement within the time stated in the notice.
84. A person does not incur any liability as a result of action
taken to comply with a notice under this section.
85. If a requirement is made of a person under the foregoing sections and the person fails to comply with the requirement, the
Commission may, by written notice given to the licence holder or
require the licence holder to take any necessary action to terminate the key relationship within the time stated in the notice and
the licence holder or authorized client provider must comply with
the requirement.
86. A licence holder or authorized client provider does not incur
any liability because of action taken to comply with a notice under
this section.
APPLICATION FOR KEY PERSON LICENCE
87. An application for a key person licence must be made to the
Commission in the form attached as Schedule “E” to these
Regulations.
88. An application for a key person licence must be accompanied
by:
(a) a letter from the licence holder or authorized client provider addressed to the Commission confirming the existence or proposed existence of the key relationship;
(b) a Personal Information Form attached as Schedule “C” to
these Regulations completed by the proposed key person;
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(c) a non-refundable deposit in the amount of Two Thousand
Five Hundred ($2,500.00) Dollars.
incurred by the Commission related to the processing of the application for a key person licence. In the event these costs exceed the
amount of the original deposit, the Commission will notify the applicant in writing to provide a further non-refundable deposit or
deposits in such amounts as the Commission may determine. In
the event the Commission does not receive payment of a further
deposit within ten (10) days of the date of the Commission’s notice
to the applicant, processing of the application will be suspended
until the further deposit is received.
90. The Commission may, by written notice given to an applicant
for a key person licence, require the applicant to give the Commission further information or a document that is necessary and reasonable to help the Commission consider and decide the
application.
91. Subject to receiving the required non-refundable deposits, the
Commission will consider an application for a key person licence
and either grant or deny the application.
92. The Commission is required to consider and decide an application only if the applicant agrees to having the applicant’s photograph and fingerprints taken.
93. The Commission will consider an applicant suitable to hold a
key person licence, if the applicant can satisfy the Commission of
the following:
(a) the applicant’s good character, honesty and integrity;
(b) the applicant’s good business reputation, sound current financial position and financial background;
(c) the applicant’s general suitability to carry out functions
for a licence holder or authorized client provider as a key
person.
94. The Commission will investigate an applicant for a key person
licence to help the Commission decide whether the applicant is
suitable to hold a key person licence.
95. Written notice of the Commission’s decision to grant or deny
an application for a key person licence must be given to the applicant and the licence holder or authorized client provider.
96. If the Commission denies an application for a key person licence, the written notice will include reasons for the decision.
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KEY PERSON LICENCE
97. A key person licence will be in the form prescribed by the
Commission and will include the following:
(a) the key person licencee’s name;
(b) a recent photograph of the key person licencee;
(c) the date of issue of the licence;
(d) the conditions of the licence;
(e) other conditions or particulars the Commission deems to
be appropriate.
98. A key person licence will not be issued for a period exceeding
two (2) years.
99. A key person licence may be renewed by the Commission in
accordance with the procedures for renewing an Interactive Gaming Licence or Client Provider Authorization as provided in these
Regulations.
A key person licence lapses if there has been no key relationship between the key person licencee and a licence holder or
authorized client provider for a continuous period of one (1)
year.
100. The Commission may issue a key person licence:
(a) on conditions the Commission considers necessary or desirable for the proper conduct of interactive games; and
(b) on other conditions the Commission considers necessary
or desirable in the public interest.
Amendments to the conditions of a key person licence will
be governed by the principles and procedures provided in
these Regulations for amending the conditions of an Interactive Gaming Licence or Client Provider Authorization,
adapted as required.
SUSPENDING OR REVOKING A KEY PERSON LICENCE
101. Each of the following is a ground for suspending or revoking
a key person licence of a key person licencee:
(a) the licencee is not, or is no longer, suitable to hold a key
person licence;
(b) the licencee has been convicted of an indictable offence;
(c) the licencee has contravened a condition of the licence;
(d) the licencee has contravened a provision of the Law, these
Regulations or the provision of a gaming act of any other
jurisdiction;
(e) the licence was obtained by a materially false or
misleading representation or declaration or in some other
improper way; or
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(f) any act, omission or conduct the Commission finds
adversely affects the integrity of the interactive games or
affects the public interest in an adverse and material
manner.
102. If the Commission believes a ground exists to suspend or revoke a key person licence, the Commission will apply the principles and procedures provided in these Regulations for suspending
or revoking an Interactive Gaming Licence or Client Provider Authorization, adapted as required.
PART IV – AGENTS AND AGENCY AGREEMENTS
103. A licence holder or authorized client provider may only appoint a person as an agent for the licence holder or authorized client provider if:
(a) the person is, in the case of an individual, at least twentyone (21) years of age; and
(b) the appointment is made under an agency agreement:
(i) in a form approved by the Commission;
(ii) stating the agent’s place of operation; and
(iii) including any other provisions required by the
Commission.
104. The Commission must not require the inclusion of a provision in an agency agreement unless the Commission believes on
reasonable grounds that the inclusion of the provision is reasonably necessary to ensure:
a) that the integrity of the conduct of interactive games is not
jeopardized, or
b) the public interest is not adversely affected.
105. Within seven (7) days after entering into an agency agreement, the licence holder or authorized client provider must give
the Commission a copy of the agreement.
106. An agency agreement may only be amended with the written
approval of the Commission.
107. The Commission may withhold approval of a proposed
amendment only if it is necessary to do so in the public interest or
to protect proper standards of integrity in the conduct of interactive games.
108. A licence holder or authorized client provider must at least
once every six (6) months, give a return to the Commission providing a certified list of the licence holder’s or authorized client provider’s current agents.
109. Each of the following is a ground for directing the termination of an agency agreement:
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(a) the agent is not, or is no longer, suitable to be an agent;
(b) the agent has been convicted of an offence against the
Law or these Regulations, or the gaming Act of any other
jurisdiction;
(c) the agent has been convicted of an indictable offence;
(d) the agent has contravened a provision of the Law, these
Regulations or a corresponding law, being a provision a
contravention of which does not constitute an offence, or
(e) any other grounds the Commission, in its sole discretion,
deems appropriate.
110. If the Commission believes a ground exists to suspend or revoke an agency agreement, the Commission will apply the principles and procedures provided in these Regulations for suspending
or revoking an Interactive Gaming Licence or Client Provider Authorization, adapted as required.
PART V – CONTROL SYSTEMS
111. The Commission will establish specific rules and procedures
for licence holders and authorized client providers for the purpose
of anticipating and preventing suspicious activities whereby monies obtained by illegal means are deposited into and removed from
players’ accounts, which will include:
(a) provisions for the licence holder or authorized client provider to ‘know their players’;
(b) protocols for licence holders and authorized client providers to recognize, address and prevent suspicious activities
concerning players’ accounts;
(c) requirements for licence holders and authorized client
providers to monitor and report to the Commission suspicious activities concerning players’ accounts;
112. A licence holder and authorized client provider may conduct
an authorized game only if:
(a) the licence holder has an approved control system; and
(b) the game is conducted under the system.
113. A licence holder and authorized client provider may change
the approved control system only:
(a) if directed by, or with the approval of, the Commission;
and
(b) in the way directed or approved by the Commission.
CONTROL SYSTEM SUBMISSION
114. A licence holder or authorized client provider may make a
submission (a “control system submission”) to the Commission for
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approval of the licence holder’s or authorized client provider’s proposed control system.
115. A control system submission must be made in writing:
(a) at least ninety (90) days before the licence holder or authorized client provider proposes to start conducting interactive games; or
(b) if the Commission in its sole discretion deems it appropriate, at a later date to be determined by the Commission.
116. A control system submission must describe and explain the
licence holder’s proposed control system and in particular must
include:
(a) for the conduct of interactive games:
(i) accounting systems and procedures and a chart of
accounts;
(ii) administrative systems and procedures, and
(iii) computer software;
(b) the general procedures to be followed for the conduct of
interactive games;
(c) the procedures and standards for the maintenance, security, storage and transportation of equipment to be used for
the conduct of interactive games;
(d) the procedures for recording and paying prizes won in interactive games; and
(e) the procedures for using and maintaining security
facilities.
CONTROL SYSTEM CHANGE SUBMISSION
117. A licence holder or authorized client provider may make a
submission (a “control system change submission”) to the Commission for approval to change the licence holder’s or authorized
client provider’s approved control system.
118. A control system change submission must be made in
writing:
(a) at least ninety (90) days before the licence holder or authorized client provider proposes to start conducting interactive games under the approved control system as
proposed to be changed, or
(b) if the Commission, in its sole discretion, deems it appropriate, at a later date to be determined by the
Commission.
119. A control system change submission must contain particulars of the proposed changes of the licence holder’s or authorized
client provider’s approved control system.
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CONSIDERATION OF CONTROL SYSTEM SUBMISSIONS
120. The following sections apply to a control system submission
or control system change submission made to the Commission by
a licence holder or authorized client provider.
121. The Commission will consider the submission and will,
within a reasonable period of time:
(a) approve the proposed control system or proposed change
of the approved control system;
(b) refuse to approve the proposed control system or proposed
change of the approved control system, or
(c) request such additional information as the Commission
may require to either approve or refuse the submission.
122. In considering the submission, the Commission may submit
the proposed control system, or the approved control system as
proposed to be changed, to testing by the appropriate services retained by the Commission.
123. In considering whether to give an approval, the Commission
will consider:
(a) whether the submission satisfies the requirements under
this Part for the submission;
(b) whether the licence holder’s or authorized client provider’s proposed control system, or approved control system as proposed to be changed, is capable of providing
satisfactory and effective control over the conduct of interactive games.
124. The Commission must promptly serve the licence holder or
authorized client provider with a written notice of the Commission’s decision to approve or to refuse to approve a control system
submission or submission to change a control system.
125. If the Commission refuses to approve a submission under
this section, the written notice must state the reasons for the decision and, if the Commission believes the submission can easily be
rectified to enable the Commission to give an approval, the notice
must also:
(a) explain how the submission may be changed; and
(b) invite the licence holder or authorized client provider to
resubmit the submission after making the appropriate
changes.
126. The Commission may, by written notice, direct the licence
holder or authorized client provider to change its approved control
system within the time, and in the manner stated in the notice
and the licence holder or authorized client provider must comply
with the direction within thirty (30) days of the date on which the
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notice is received or such other period of time as the Commission
may specify.
127. If the licence holder or authorized client provider does not
comply with the Commission’s direction, the approval for either or
both the licence holder’s or the authorized client provider’s control
system will be terminated.
PART VI – APPROVED EQUIPMENT
128. A licence holder or authorized client provider will apply to
the Commission:
(a) for approval of the interactive gaming equipment proposed to be used in the conduct of authorized games by the
licence holder or authorized client provider, or
(b) for approval to modify regulated interactive gaming
equipment used in the conduct of authorized games by the
129. The applicant must be accompanied by a non-refundable deposit in the amount of Five Thousand ($5,000.00) Dollars.
ten (10) days of the date of the Commission’s notice to the applicant, processing of the application will be suspended until the further deposit is received.
131. Subject to the foregoing section, the Commission will:
(a) consider the application;
(b) submit the equipment to the appropriate services retained
by the Commission to evaluate the equipment, or the
equipment as proposed to be modified, to decide the application, and
(c) after completing the consideration of the application and
carrying out the necessary evaluation, approve or refuse
to approve the equipment or modification.
132. The Commission must promptly serve the licence holder or
authorized client provider with written notice of the Commission’s
decision.
133. If the Commission decides to refuse to give an approval, the
notice must state the reasons for the decision.
134. A licence holder or authorized client provider must not use
any interactive gaming equipment in conducting an authorized
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game unless the equipment is approved interactive gaming
equipment.
135. An agent of a licence holder or authorized client provider
must not use any interactive gaming equipment for the conduct of
an authorized game by the licence holder or authorized client provider unless the equipment is approved interactive gaming
equipment.
136. A licence holder, authorized client provider or agent must
not modify approved interactive gaming equipment unless the
modification is approved by the Commission in writing.
LOCATION OF APPROVED EQUIPMENT
137. A licence holder and an authorized client provider must ensure that all approved interactive gaming equipment used by the
licence holder and authorized client providers for the conduct of
authorized games is situated at:
(a) the premises of the certified establishment; or
(b) a place approved by the Commission.
PART VII – MANDATORY PROVISIONS
138. The provisions in this Part apply to all Interactive Gaming
Licences, Client Provider Authorizations and temporary authorizations issued by the Commission.
139. A licence holder or authorized client provider must not allow
a player under the full age of twenty-one (21) years to participate
in operations related to the conduct of authorized games.
140. A person involved in the conduct of an authorized game must
not allow a player under the full age of twenty-one (21) years to
participate as a player in an authorized game.
141. A prize won by a player under the full age of twenty-one (21)
years by participation in an authorized game contrary to the foregoing subsection is forfeited to the Commission. The Commission
will disburse any such forfeited prizes to charitable community organizations within the Territories.
NO OBSCENITY
142. A person must not participate in an authorized game under a
name or designation that is obscene, indecent or offensive.
143. A licence holder or authorized client provider may refuse to
register a person as a player in an authorized game under a name
that is obscene, indecent or offensive.
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PLAYER REGISTRATION
144. Licence holders and authorized client providers may only
register a person as a player on receipt of an application for registration in a form approved by the Commission.
145. A person is not eligible for registration as a player unless the
person produces evidence of a kind acceptable to the Commission:
(a) of the person’s:
(i) identity;
(ii) place of residence; and
(iii) evidence that the person has attained the full age of
twenty-one (21) years.
146. A licence holder or authorized client provider must not allow
a registered player to participate in an authorized game until the
player’s identity has been authenticated under the licence holder’s
or authorized client provider’s approved control system.
PLAYER ACCOUNTS
147. A player’s account must be established in manner that the
player may only have direct recourse to funds in the account:
(a) to obtain the balance of funds in the account and close the
account; or
(b) to obtain the whole or part of the amount paid into the
account as a prize in an authorized game; or
(c) as authorized by the licence holder or the Commission.
148. A licence holder or authorized client provider must not accept a wager from a player in an authorized game unless a
player’s account has been established in the name of the player
and there are adequate funds in the account to cover the amount
of the wager.
149. A player who participates in an authorized game must comply with rules of the game as notified to the player under the conditions on which the game is authorized.
150. A licence holder or authorized client provider must, at the
request of the registered player in whose name a player’s account
is established, remit funds standing to the credit of the account as
directed by the player no later than the first business day after
the request is received.
151. A licence holder or authorized client provider must not provide credit to a player or a player’s account or act as agent for a
credit provider to facilitate the provision of credit to a player or a
player’s account.
152. A licence holder or authorized client provider must not have
recourse to funds in a player’s account except as follows:
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(a) to debit to the account, a wager made by the player or an
amount the player indicates the player wants to wager in
the course of an authorized game the player is playing or
is about to play;
(b) to remit funds standing to the credit of the account to the
player at the player’s request;
(c) as otherwise authorized under these Regulations.
153. If no transaction has been recorded on a player’s account for
more than ninety (90) days, the licence holder must remit any remaining balance to:
(a) the player; or
(b) if the player cannot be located, an account established by
the Commission and designated as the account to which
payments are to be made under this section.
CONFIDENTIALITY OF PLAYER INFORMATION
154. A licence holder, authorized client provider or an employee
or other person engaged in duties related to the conduct of an authorized game must not, without authorization under the following section:
(a) disclose information about the name, or other identifying
particulars, of a player; or
(b) use information about a player for a purpose other than
the purpose for which the information was given.
155. The disclosure of information, or its use for a purpose other
than the purpose for which it was given, is authorized if the disclosure or use is:
(a) authorized by the player;
(b) reasonably necessary for the conduct of authorized games;
or
(c) required for the administration or enforcement of the Law
or these Regulations.
RESPONSIBLE GAMING
156. A registered player may, by written notice to a licence holder
or authorized client provider, set a limit on the amount on each
individual wager or total amount over a specific period of time,
that the player may wager.
157. To prevent himself or herself from engaging in authorized
games conducted by the licence holder or authorized client provider, the player may set the limit at zero.
158. A player who has set a limit under this section may change
or revoke the limit by written notice given to the licence holder or
authorized client provider.
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159. A notice increasing or revoking the player’s limit will not
have effect until seven (7) days from receipt of the notice by the
licence holder or authorized client provider provided the player
has not notified the licence holder or authorized client provider of
an intention to withdraw the notice.
160. A notice reducing the limit has effect on its receipt by the
161. A licence holder or authorized client provider must not accept a wager from a player contrary to a limit set for the player
under this section.
162. An application may be made to the Commission in the approved form for an order:
(a) prohibiting a person from participating in authorized
games; or
(b) revoking an order under paragraph (a).
163. An application may only be made under this section by:
(a) a person who seeks a prohibition or the revocation of a
prohibition against himself or herself; or
(b) a person who satisfies the Commission of a close personal
interest in the welfare of the person against whom the
prohibition is sought.
164. If the application is made by a person other than the person
against whom the prohibition is sought or has been imposed (the
“affected person”), the Commission must:
(a) give the affected person written notice of the application
and the reasons for it; and
(b) invite the affected person to make representations to the
Commission about the application within a reasonable
time stated in the notice.
165. The Commission must consider representations from the applicant, and if the applicant is not the affected person, the affected
person.
166. If the Commission is satisfied the order sought in the application should be made in the interests of the affected person and
the public interest, the Commission may make the order.
167. The Commission must:
(a) serve written notice on the applicant and, if the affected
person is not the applicant, the affected person:
(i) stating the Commission’s decision and the reasons for
it, and
(ii) in the case of a written notice given to an applicant
whose application has been refused, stating that the
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applicant may appeal against the decision to the
Court of Kahnawake, and
(iii) in the case of a written notice given to a person who is
not the applicant but is affected by an order made on
the application, stating that the affected person may
appeal against the decision to the Court of
Kahnawake, and
(b) if an order is made on the application, serve copies of the
order on:
(i) the affected person, and
(ii) all licence holders and authorized client providers
within the Territories.
168. A licence holder or authorized client provider to whom a copy
of an order imposing a prohibition has been given must not accept
a wager from a person, or allow a person to participate in any
other way in an authorized game, contrary to the prohibition.
GAMING ADDICTION FUND
169. The Commission will establish and maintain at a financial
institution in or near the Territories, a fund (the “Gaming Addiction Fund”) to be used for the purpose of treating and assisting
persons who may be suffering from an addiction related to
gaming.
170. The Commission will determine the programs and services to
be funded by the Gaming Addiction Fund and will administer the
funds provided to those programs and services.
171. The funds held in the Gaming Addiction Fund will not be
used to reimburse players for monies they may have lost through
gaming activities.
172. The Gaming Addiction Fund will consist of:
(a) all fines and penalties imposed by, and paid to, the Commission pursuant to these Regulations;
(b) contributions from licence holders and authorized client
providers.
173. The Commission may establish incentive programs to encourage licence holders and authorized client providers to contribute to the Gaming Addiction Fund.
PART VIII - INVESTIGATIONS AND MONITORING
174. The Commission will investigate licence holders, authorized
client providers, key persons and agents to assist it in determining
whether the licence holder, authorized client provider, key person
or agent is suitable to hold, or to continue to hold, an Interactive
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Gaming Licence or a Client Provider Authorization issued by the
Commission.
175. The Commission may at any time investigate a licence
holder, authorized client provider, key person or agent only if the
Commission reasonably suspects the licence holder, authorized
client provider, key person or agent is not, or is no longer, suitable
to hold a licence or authorization issued by the Commission.
176. In investigating a licence holder, authorized client provider,
key person or agent the Commission may, by written notice given
to the person, require the person to give the Commission information or documentation the Commission considers relevant to the
investigation and the person must comply with the requirement.
MONITORING PROGRAM
177. The Commission may approve a program for the ongoing
monitoring of licence holders, authorized client providers, key persons and agents.
178. The Commission is responsible for ensuring that investigations under an approved monitoring program are conducted in accordance with the program.
179. A licence holder, authorized client provider, key person or
agent must, at the request of the Commission, do anything reasonably necessary to allow an Inspector to monitor the person’s
operations.
180. The Commission may take whatever action is necessary
under this section to ensure the integrity of the conduct of an authorized game.
181. The Commission may, by written notice given to a licence
holder or authorized client provider, restrict the licence holder or
authorized client provider from the conduct of an authorized game
unless an Inspector is present and the licence holder or authorized
client provider must comply with the direction.
PART IX – LICENCE FEES
182. A licence holder must pay an annual licence fee as required
under the conditions of a Interactive Gaming Licence in the
amount of Ten Thousand ($10,000.00) Dollars.
183. An authorized client provider must pay the authorization
fees as required under the conditions of a Client Provider Authorization in the amount of Ten Thousand ($10,000.00) Dollars.
184. A licence holder or authorized client provider must pay to the
Commission a penalty on the amount of a licence or authorization
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fee outstanding (the “unpaid amount”) as at the end of the period
allowed for payment.
185. The penalty is ten (10%) per cent per annum of the unpaid
amount calculated on a per diem basis from the date the fee was
due until it is paid in full.
186. A licence holder is jointly liable for the payment of an authorized client provider’s annual fees, including penalties, for any
authorized client provider for which the licence holder is
responsible.
187. The amount of a licence fee, authorization fee or penalty payable under this Part is a debt payable to the Commission and may
be recovered by action in a court of competent jurisdiction.
188. A licence holder or authorized client provider must not evade
the payment of an amount payable by the licence holder or authorized client provider as a licence or authorization fee.
COSTS INCURRED BY THE COMMISSION
189. A licence holder or authorized client provider is responsible
to pay all costs incurred by the Commission related to a particular
Interactive Gaming Licence or Client Provider Authorization (the
“costs incurred by the Commission”), including the following:
(a) applications for an Interactive Gaming Licence or Client
Provider Authorization, and all matters related thereto;
(b) investigations and monitoring of or related to an Interactive Gaming Licence, Client Provider Authorization or
Key Person Licence;
(c) complaints received against a particular licence holder or
authorized client provider, and
(d) any other matter related to a particular Interactive Gaming Licence or Client Provider Authorization in regard to
which the Commission incurs costs.
190. Costs incurred by the Commission are due and payable on
the date the licence holder or authorized client provider receives a
statement of account from the Commission detailing the costs in
question (the “statement of account”).
191. A licence holder or authorized client provider must pay to the
Commission a penalty on the amount of a statement of account
outstanding (the “unpaid amount”) more than thirty (30) days after the date of receipt.
192. The penalty is ten (10%) per cent per annum of the unpaid
amount calculated on a per diem basis from the date the statement of account was due until it is paid in full.
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193. A licence holder is jointly liable for the payment of the full
amount of any statement of account received by an authorized client provider, including penalties, for any authorized client provider for which the licence holder is responsible.
194. The amount of a statement of account or penalty payable
under this Part is a debt payable to the Commission and may be
recovered by action in a court of competent jurisdiction.
195. A licence holder or authorized client provider must not evade
the payment of a statement of account payable by the licence
holder or authorized client provider.
196. Failure to pay a statement of account may result in the
amendment, suspension or revocation of an Interactive Gaming
Licence or Client Provider Authorization.
PART X – COMPLIANCE REQUIREMENTS
197. The Commission will establish rules concerning:
(a) the conduct of authorized games by licence holders or authorized client providers;
(b) prizes in authorized games conducted by licence holders
or authorized client providers;
(c) such other matters for which it is appropriate to make
rules for the purposes of the Law and these Regulations.
198. The Commission will provide copies of all rules it establishes
to licence holders and authorized client providers.
199. Licence holders and authorized client providers will post copies of all rules established by the Commission on their Internet
sites.
200. Licence holders and authorized client providers will ensure
that their key persons, agents and employees have a good working
knowledge of all rules established by the Commission.
201. A licence holder or an authorized client provider may make
submissions to the Commission about a rule or proposed rule.
202. A licence holder or an authorized client provider must comply with the rules established by the Commission.
203. Licence holders and authorized client providers must ensure
that:
(a) their agents and the persons with whom they have a key
relationship are aware of the rules established by the
Commission, and
(b) their agents and the persons with whom they have a key
relationship, comply with the rules and any relevant
directions.
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PART XI – GAMING RECORDS
holder or an authorized client provider:
(a) approve a place (the “approved place”) nominated by the
licence holder or authorized client provider as a place for
keeping the licence holder’s or authorized client provider’s
gaming records;
(b) specify a gaming record of the licence holder or authorized
client provider (an “exempt gaming record”) that is not required to be kept at the approved place;
(c) specify a gaming record of the licence holder or authorized
client provider that may be kept temporarily at a place
other than the approved place, and the period for which,
or the circumstances in which, the record may be kept at
the other place;
(d) approve the keeping of information contained in a gaming
record in a way different from the way the information
was kept when the record was being used by the licence
holder or authorized client provider; or
(e) approve the destruction of a gaming record the Commission considers need not be kept.
205. A gaming record mentioned in subsection 204 (c) is also an
“exempt gaming record”:
(a) for the period stated in the notice; or
(b) while the circumstances stated in the notice exist.
206. The Commission may specify a gaming record for subsection
204 (b) only if the Commission considers there is sufficient reason
for the record to be kept at a place other than the approved place.
207. Unless the information previously contained in the gaming
record is kept in another way under an approval of the Commission, a licence holder or authorized client provider must keep a
gaming record for five (5) years after the end of the transaction to
which the record relates.
208. The foregoing section does not apply to a gaming record that
has been destroyed under an approval of the Commission.
ACCOUNTING RECORDS
209. A licence holder or authorized client provider must:
(a) keep accounting records that correctly record and explain
the transactions and financial position for the licence
holder’s or authorized client provider’s operations conducted under the Interactive Gaming Licence or Client
Provider Authorization; and
(b) keep the accounting records in a way that allows:
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(i) true and fair financial statements and accounts to be
prepared from time to time; and
(ii) the financial statements and accounts to be conveniently and properly audited.
210. A licence holder or authorized client provider must prepare
financial statements and accounts as required by this section giving a true and fair view of the licence holder’s or authorized client
provider’s financial operations conducted under the Interactive
Gaming Licence or Client Provider Authorization.
211. The financial statements and accounts must include the
following:
(a) trading accounts, if applicable, for each financial year;
(b) profit and loss accounts for each financial year, and
(c) a balance sheet as at the end of each financial year.
212. A licence holder or authorized client provider must give reports to the Commission as required by this section about the licence holder’s or authorized client provider’s operations under the
Interactive Gaming Licence or Client Provider Authorization.
213. The reports must be given at the times stated in a written
notice given to the licence holder or authorized client provider by
the Commission and must be in a form approved by the
Commission.
holder or authorized client provider, require the licence holder or
authorized client provider to give the Commission further information about a report within the time stated in the notice to help
the Commission acquire a proper appreciation of the licence
holder’s or authorized client provider’s operations and the licence
holder or authorized client provider must comply with the requirement within the time stated in the notice.
215. A licence holder and an authorized client provider must not
give the Commission a report containing information, or further
information about a report, the licence holder or authorized client
provider knows to be false, misleading or incomplete in a material
way.
FINANCIAL INSTITUTION ACCOUNTS
216. A licence holder or authorized client provider must keep a
financial institution account, or financial institution accounts, approved by the Commission for use for all banking or similar transactions for the operations conducted under the Interactive
Gaming Licence or Client Provider Authorization.
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217. A licence holder or authorized client provider must not use a
financial institution account approved by the Commission other
than for a purpose for which it is approved.
AUDITS
218. As soon as practical after the end of a financial year, a licence holder or authorized client provider must, at the licence
holder’s or authorized client provider’s own expense, cause the
books, accounts and financial statements for the operations conducted under the Interactive Gaming Licence or Client Provider
Authorization for the financial year to be audited by a certified
public accountant (the “auditor”).
219. The auditor must:
(a) complete the audit within three (3) months after the end
of the financial year; and
(b) immediately after completion of the audit, give a copy of
the audit report to the Commission and to the licence
holder or authorized client provider.
220. On receiving a copy of the audit report, the Commission may,
by written notice given to the licence holder or the authorized client provider, require the licence holder or authorized client provider to give the Commission further information about a matter
relating to the licence holder’s or authorized client provider’s operations mentioned in the audit report and the licence holder or authorized client provider must comply with a requirement within
the time stated in the notice.
PART XII – PRIZES
221. If a player in an authorized game conducted by a licence
holder or authorized client provider wins a monetary prize, the
licence holder or authorized client provider must immediately
credit the amount of the prize to the player.
222. If a player in an authorized game conducted by a licence
holder or authorized client provider wins a non-monetary prize
the licence holder or authorized client provider must:
(a) have the prize delivered personally or by certified mail to
the player; or
(b) give the player written notice of an address in the Territories at which the prize may be collected.
223. In the event a non-monetary prize in an authorized game
conducted by a licence holder or authorized client provider is not
collected within three (3) months after notification of the place at
which it may be collected, the licence holder or authorized client
provider:
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(a) may dispose of the prize by public auction or tender or in
some other way approved by the Commission;
(b) may pay for the disposal from the proceeds of sale; and
(c) must:
(i) pay the remainder of the proceeds into the relevant
player’s account;
(ii) if there is no current player’s account, remit the remainder of the proceeds to the former player, or
(iii) if there is no current player’s account and the licence
holder or authorized client provider is unaware of the
whereabouts of the former player, pay the remainder
of the proceeds into an account established by the
Commission and designated as the account to which
payments are to be made under this subparagraph.
224. If a claim for a prize in an authorized game is made to a
licence holder or authorized client provider within five (5) years
after the end of the game, the licence holder or authorized client
provider must:
(a) immediately try to resolve the claim; and
(b) if the licence holder or authorized client provider is not
able to resolve the claim, by written notice (a “claim result
notice”) given to the claimant, promptly inform the
claimant:
(i) of the licence holder’s or authorized client provider’s
decision on the claim; and
(ii) that the claimant may, within ten (10) days of receiving the notice, ask the Commission to review the
decision.
225. If the claim is not resolved, the claimant may ask the Commission to review the licence holder’s or authorized client provider’s decision on the claim, or if the claimant has not received a
claim result notice, to resolve the claim.
226. A request to the Commission under the foregoing section:
(a) must be in the approved form; and
(b) if the claimant received a claim result notice, must be
made within ten (10) days after receiving the notice.
227. If a request is made to the Commission, the Commission or a
claims committee appointed by the Commission, must carry out
investigations the Commission considers necessary to resolve
matters in dispute and render a decision in writing to the claimant and the affected licence holder or authorized client provider.
228. If a prize is not claimed within five (5) years after the end of
the authorized game in which the prize was won, the entitlement
to the prize is extinguished and the prize is forfeited to the Com-
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mission. The Commission will disburse any such forfeited prizes
to community organizations within the Territories.
PART XIII – ABORTED GAMES
229. If, after making a wager in an authorized game conducted by
a licence holder or authorized client provider, a player’s participation in the game is interrupted by a failure of an operating or telecommunication system that prevents the player from continuing
with the game, the licence holder or authorized client provider
must refund the amount of the wager to the player as soon as
practical.
230. If an authorized game conducted by a licence holder or authorized client provider is started but is not successfully completed because of human error or failure of an operating or
telecommunication system, the licence holder or authorized client
provider:
(a) must immediately inform the Commission of the circumstances of the incident, and
(b) must not conduct a further game if the game is likely to be
affected by the same error or fault.
231. After investigating the incident, the Commission may, by
written notice to the licence holder or authorized client provider,
direct the licence holder or authorized client provider to:
(a) refund the amounts wagered in the game to the players;
and
(b) if a player has an accrued credit at the time the game miscarries, pay to the player the monetary value of the credit;
or
(c) give the licence holder or authorized client provider such
other directions the Commission considers appropriate in
the circumstances and the licence holder or authorized client provider must comply with the directions.
232. If a licence holder or authorized client provider has reason to
believe that the result of an authorized game has been affected by
an illegal activity or malfunction of equipment, the licence holder
or authorized client provider may withhold a prize in the game.
233. If a licence holder or authorized client provider withholds a
prize under this section, the licence holder or authorized client
provider:
(a) must immediately inform the Commission of the circumstances of the incident; and
(b) must not conduct a further game if a recurrence of the illegality or malfunction is likely.
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234. After investigating the incident, the Commission may, by
written notice to the licence holder or authorized client provider:
(a) direct the licence holder or authorized client provider to
pay the prize; or
(b) confirm the licence holder’s or authorized client provider’s
decision to withhold the prize, but direct the licence
holder or authorized client provider to refund amounts
wagered in the game and the licence holder or authorized
client provider must comply with the direction.
PART XIV – ADVERTISING
235. A person must not advertise an interactive game in the Territories unless the game is an authorized game.
236. A person must not advertise an authorized game in the Territories without approval of the relevant licence holder or authorized client provider.
237. A person who advertises an authorized game must ensure
the advertisement:
(a) is not indecent or offensive;
(b) is based on fact, and
(c) is not false, deceptive or misleading in a material way.
238. If the Commission reasonably believes an advertisement
about an authorized game does not comply with the foregoing sections, the Commission may direct the person appearing to be responsible for authorizing the advertisement to take the
appropriate steps:
(a) to stop the advertisement being shown; or
(b) to change the advertisement.
239. The direction must:
(a) be in writing;
(b) state the grounds for the direction; and
(c) if it is a direction to change the advertisement, state how
the advertisement is to be changed.
and the person to whom a direction is given must comply with the
direction.
PART XV – COMPLAINTS
240. A licence holder or authorized client provider must inquire
into:
a) a complaint made to the licence holder or authorized client
provider by a person about:
(i) the conduct of an authorized game by the licence
holder or authorized client provider;
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(ii) the conduct of an agent of the licence holder or authorized client provider in operations related to an authorized game; or
b) a complaint referred to the licence holder or authorized client provider by the Commission under section 243.
241. Within twenty-one (21) days after the complaint is received
by, or referred to, the licence holder or authorized client provider,
the licence holder or authorized client provider must give written
notice of the result of the inquiry to:
(a) the complainant; and
(b) if the complaint was referred to the licence holder or authorized client provider by the Commission, to the
Commission.
242. The Commission’s address, telephone number, fax number
and e-mail address must be prominently displayed on the licence
holder’s or authorized client provider’s Internet site with a notification that complaints may be addressed directly to the
Commission.
243. If a complaint is made to the Commission about the conduct
of an authorized game, or the conduct of an agent in operations
related to an authorized game, the Commission must promptly:
(a) inquire into the complaint; or
(b) if the Commission considers it appropriate, refer the complaint to the licence holder or authorized client provider
who conducted the game.
244. The Commission must promptly advise the complainant of:
(a) the result of the Commission’s inquiry; or
(b) the Commission’s decision to refer the complaint to the licence holder or authorized client provider.
245. A complaint must:
(a) be in writing;
(b) state the complainant’s name, address, telephone number
and e-mail address; and
(c) give appropriate details of the complaint.
PART XVI – DUTY TO REPORT DISHONEST OR
UNLAWFUL ACTS
246. In the event a licence holder or authorized client provider, or
an agent of a licence holder or authorized client provider, becomes
aware, or reasonably suspects, that:
(a) a person, by a dishonest or unlawful act affecting the conduct or playing of an authorized game in the Territories,
has obtained a benefit for the person or another person; or
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(b) there has been an unlawful act affecting the conduct or
playing of an authorized game,
within twenty-four (24) hours of becoming aware of, or suspecting,
the dishonest or unlawful act, the licence holder, authorized client
provider or agent must give the Commission a written notice advising the Commission of all facts known about the matter.
GAMING OFFENCES
247. A person must not, in relation to an authorized game, dishonestly obtain a benefit by any act, practice or scheme or otherwise dishonestly obtain a benefit through the use of any device or
item.
248. For the purposes of the foregoing section, a person obtains a
benefit if the person obtains for themselves or another person, or
induces a person to deliver, give or credit to the person or another
person, any money, benefit, advantage, valuable consideration or
security.
249. A person must not, directly or indirectly:
(a) forge or alter a gaming record; or
(b) knowingly use or attempt to use a forged or altered gaming record.
250. A person must not impersonate a licence holder or authorized client provider, an agent, a key person, a member of the Commission or anyone acting in an official capacity under the Law or
these Regulations.
251. Members of the Commission and anyone acting in an official
capacity under the Law or these Regulations must not ask for, receive or obtain, or agree to receive or obtain, any money, property
or benefit of any kind for himself or another person for an improper purpose.
252. A person must not give, confer or obtain, or promise or offer
to give, confer or obtain, any money, property or benefit of any
kind to, on or for a Member of the Commission and anyone acting
in an official capacity under the Law or these Regulations for an
improper purpose.
253. For the purposes of the foregoing sections, “improper purpose” includes:
(a) for the official to forego or neglect the official’s functions
under the Law or these Regulations;
(b) for the official to use, or take advantage of, the official’s
office improperly to gain a benefit or advantage for, or facilitate the commission of an offence against the Law or
these Regulations, or
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(c) to influence the official in the performance of the official’s
functions under the Law or these Regulations.
254. An employee, whether a key person or not, of a licence holder
or authorized client provider must not take part in an authorized
game if directly involved in functions related to the conduct of the
game.
255. Any prize won by a person by participation in an authorized
game contrary to the foregoing sections is forfeited to the Commission. The Commission will disburse any such forfeited prizes to
community organizations within the Territories.
PART XVII – INDEPENDENCE OF THE COMMISSION
AND OFFICIALS
capacity under the Law or these Regulations must not take part in
any authorized game.
capacity under the Law or these Regulations must not:
(a) accept or solicit employment from a licence holder, an authorized client provider or an agent;
(b) be an employee in any capacity of a licence holder, an authorized client provider or an agent; or
(c) knowingly have, directly or indirectly, a business or financial association with a licence holder, an authorized client
provider or an agent.
258. A person must not, for one (1) year after ceasing to be a
Member of the Commission and anyone acting in an official capacity under the Law or these Regulations, without the Commission’s
approval:
(a) accept or solicit employment from a licence holder, an authorized client provider or an agent;
(b) be an employee in any capacity of a licence holder or an
authorized client provider or an agent; or
(c) knowingly have, directly or indirectly, a business or financial association with a licence holder, an authorized client
provider or an agent.
259. In the event a Member of the Commission or anyone acting
in an official capacity under the Law or these Regulations knowingly has, directly or indirectly, a business or financial association
or interest with another person who is an applicant for an Interactive Gaming Licence or Client Provider Authorization, immediately after the Member of the Commission and anyone acting in
an official capacity under the Law or these Regulations becomes
aware that the other person is an applicant for an Interactive
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Gaming Licence or Client Provider Authorization, the Member or
official must give written notice of the Member or official’s association or interest to the Commission and the Commission will by
written notice given to the Member or official, direct the Member
or official to end the association, or give up the interest, within the
time stated in the notice. Failure to comply with such direction
will result in the immediate termination of the Member’s position
on the Commission or the official’s employment by the
Commission.
PART XVIII – INSPECTORS
260. The following persons are Inspectors for the purposes of
these Regulations:
(a) Members of the Commission;
(b) A person holding an appointment as an Inspector under
this Part (an “Appointed Inspector”);
(c) A person who holds an appointment as an Inspector under
a corresponding law and is authorized in writing by the
Commission to act as an Inspector under these Regulations (an “External Inspector”).
QUALIFICATIONS FOR APPOINTMENT
261. The Commission may appoint a person as an Inspector if:
(a) the Commission considers that the person has the necessary expertise to be an Inspector and;
(b) the Commission considers the person to be suitable to be
an Inspector in consideration of:
(i) the person’s character; and
(ii) the person’s current financial position and financial
background.
INVESTIGATION OF INSPECTORS
262. The Kahnawake Peacekeepers may investigate a person to
help the Commission decide whether the person is suitable to be
an Inspector.
263. The Commission may approve a program for investigating
Appointed Inspectors at any time in order to verify whether or not
the person is suitable to be an Inspector.
CRIMINAL RECORD REPORTS FOR INVESTIGATION
264. If the Commission conducts an investigation with regard to
an appointment of a person as an Inspector or the verification of
an Appointed Inspector, the Commission may request a criminal
background check to be provided by the Kahnawake Peacekeepers
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or such other agency as the Commission may deem to be
appropriate.
POWERS OF INSPECTORS
265. An Inspector has the powers given under these Regulations.
266. An Inspector is subject to the directives of the Commission in
exercising those powers.
267. An Inspector’s powers may be limited:
(a) as a condition of the Inspector’s appointment or;
(b) by written notice given by the Commission to the
Inspector.
IDENTIFICATION CARDS
268. The Commission must issue each Inspector an Identification
Card which:
(a) includes a recent photograph of the Inspector;
(b) is signed by the Inspector and a Member of the
Commission;
(c) includes an expiry date;
(d) identifies the person as an Inspector under these
Regulations.
269. A person who ceases to be an Inspector must return the person’s Identification Card to the Commission as soon as practical,
but no later than fifteen (15) days after the date on which he or
she ceased to be an Inspector.
PRODUCTION OF IDENTITY CARD
270. An Inspector may exercise a power in relation to someone
else only if the Inspector either produces the Inspector’s Identification Card for the other person’s inspection or has the Identification Card displayed so it is clearly visible to the other person.
271. If for any reason it is not practical to comply with the foregoing section before exercising the power, the Inspector must produce the Identification Card for the other person’s inspection at
the first reasonable opportunity.
PART XIX – THE POWER TO ENTER PLACES WITHOUT
CONSENT OR WARRANT
272. An Inspector may, without the consent of the occupier of a
premises or a warrant issued by a court of competent jurisdiction
enter:
(a) a public place;
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(b) a place where an authorized game is being, or is about to
be conducted, or
(c) a place where a licence holder, an authorized client provider or an agent carries on business at any time when the
place is open for carrying on business or otherwise open
for entry.
ENTRY WITH CONSENT OR WARRANT
273. Unless an Inspector is authorized to enter a place under the
foregoing section, an Inspector may enter a place only if its occupier consents to the entry or if the entry is authorized by a warrant issued by the Court of Kahnawake or other competent
authority.
CONSENTS AND WARRANTS FOR ENTRY
274. This section applies if an Inspector intends to ask an occupier of a place to consent to the Inspector or another Inspector
entering the place. Before asking for the consent, the Inspector
must tell the occupier:
(a) the purpose of the entry and;
(b) that the occupier is not required to consent.
275. If the consent is given, the Inspector may ask the occupier to
sign an acknowledgement of the consent (the “Consent
Acknowledgment”).
276. The Consent Acknowledgement must state that the occupier
has been told:
(a) the purpose of the entry;
(b) that the occupier is not required to consent;
(c) the occupier gives the Inspector consent to enter the place
and exercise powers under this Part, and
(d) the time and date consent was given.
277. If the occupier signs the Consent Acknowledgement, the Inspector must promptly give a copy to the occupier and to the
Commission.
APPLICATION FOR A WARRANT
278. An Inspector may apply to the Court of Kahnawake or other
competent authority for a warrant. The application must be
sworn and state the grounds on which the warrant is sought.
ISSUANCE OF A WARRANT
279. The Court of Kahnawake or other competent authority may
issue a warrant only if it is satisfied there are reasonable grounds
for suspecting:
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(a) there is a particular item or activity that may provide evidence of an offence against the Law, these Regulations or
other law applicable within the Territories and;
(b) the evidence is at the place or may be at the place within
the next seven (7) days.
280. The warrant must state:
(a) that an Inspector may with necessary and reasonable help
and force enter the place and exercise the Inspector’s powers under this Part and;
(b) the offence for which the warrant is sought;
(c) the evidence that may be seized under the warrant;
(d) the hours of the day or night when the place may be entered, and
(e) the date, within fourteen (14) days after the warrant’s issue, the warrant ends.
GENERAL POWERS OF INSPECTORS AFTER
ENTERING PLACES
281. For monitoring or enforcing compliance with the Law or
these Regulations or any other law applicable within the Territories, the Inspector may:
(a) search any part of the place;
(b) inspect, measure, test, photograph or film any part of the
place or anything at the place;
(c) take an item, or a sample of or from an item, at the place
for analysis or testing;
(d) copy a document at the place;
(e) access, electronically or in some other way, a system used
at the place for conducting an authorized game or other
interactive game or for administrative purposes related to
the conduct of an authorized game or other interactive
game;
(f) take into or onto the place any person, equipment and
materials the Inspector reasonably requires for exercising
a power under this Part;
(g) require the occupier of the place, or a person at the place,
to give the Inspector reasonable help to exercise the
Inspector’s powers under paragraphs (a) to (f), or
(h) require the occupier of the place, or a person at the place,
to give the Inspector information to help the Inspector
ascertain whether the Law, these Regulations or any
other law applicable within the Territories is being
complied with.
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FAILURE TO HELP INSPECTOR
282. When making a requirement mentioned in subsection 281 (g)
or (h), the Inspector must warn the person it is an offence to fail to
comply with the requirement.
283. A person required to give reasonable help under subsection
281 (g) must comply with the requirement.
284. A person of whom a requirement is made under section 281
must comply with the requirement.
SEIZING DOCUMENTS OR ITEMS AT PLACES THAT MAY
BE ENTERED WITHOUT CONSENT OR WARRANT
285. An Inspector who enters places that may be entered under
this Part without the consent of the occupier and without a warrant, may seize documents or items at the places if the Inspector
reasonably believes the documents or items are evidence of an offence against the Law, these Regulations or any law applicable
within the Territories.
SEIZING DOCUMENTS OR ITEMS AT PLACES THAT MAY
ONLY BE ENTERED WITH CONSENT
OR WARRANT
286. If the Inspector enters the place with the occupier’s consent,
the Inspector may seize any document or item at the place if:
(a) the Inspector reasonably believes the document or item is
evidence of an offence against the Law, these Regulations
or any law applicable within the Territories; and
(b) seizure of the document or item is consistent with the purpose of entry as told to the occupier when asking for the
occupier’s consent.
287. If the Inspector enters the place with a warrant, the Inspector may seize the documents or items for which the warrant was
issued.
288. The Inspector may also seize any other documents or items
at the place if the Inspector reasonably believes:
(a) the documents or items relate to an offence against the
Law, these Regulations or any law applicable within the
Territories; and
(b) the seizure is necessary to prevent the documents or items
being:
(i) hidden, lost or destroyed; or
(ii) used to continue, or repeat, the offence.
289. The Inspector may seize documents or items at the place if
the Inspector reasonably believes they are being, have been, or are
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about to be, used in committing an offence against the Law, these
Regulations or any law applicable within the Territories.
SECURING DOCUMENTS OR ITEMS AFTER SEIZURE
290. Having seized documents or items, an Inspector may:
(a) move the documents or items from the place where they
were seized (the “place of seizure”) to a secure location
under the exclusive control of the Commission, or
(b) leave the documents or items at the place of seizure but
take reasonable action to restrict access to them.
TAMPERING WITH DOCUMENTS OR ITEMS SUBJECT
TO SEIZURE
291. If an Inspector restricts access to documents or items subject
to seizure, a person must not tamper, or attempt to tamper with
the documents or items, or any means used to restrict access to
the documents or items, without an Inspector’s approval.
POWERS TO SUPPORT SEIZURE
292. To enable documents or items to be seized, an Inspector may
require the person in control of them:
(a) to take them to a stated reasonable place by a stated reasonable time; and
(b) if necessary, to remain in control of them at the stated
place for a reasonable time.
293. The requirement:
(a) must be made by notice in the approved form; or
(b) if for any reason it is not practical to give the notice, may
be made orally and confirmed by notice in the approved
form as soon as practical.
294. A further requirement may be made under this section about
the same documents or items if it is necessary and reasonable to
make the further requirement.
RECEIPTS TO BE GIVEN ON SEIZURE
295. As soon as practical after an Inspector seizes documents or
items, the Inspector must give a receipt for them to the person
from whom they were seized.
296. However, if for any reason it is not practical to comply with
the foregoing section, the Inspector must leave the receipt at the
place of seizure in a conspicuous position and in a reasonably secure way.
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297. The receipt must describe generally each document or item
seized and its condition.
298. This section does not apply to documents or items if it is impractical or would be unreasonable to give the receipt, given the
nature, condition and value of the documents or items.
FORFEITURE
299. Documents or items that have been seized under this Part
are forfeited to the Commission if the Inspector who seized the
documents or items:
(a) cannot find their owner, after making reasonable
inquiries;
(b) cannot return them to their owner, after making reasonable efforts; or
(c) reasonably believes it is necessary to retain the documents
or items to prevent them from being used to commit an
offence against the Law, these Regulations or any law applicable within the Territories.
300. In applying the foregoing section:
(a) subsection 299 (a) does not require the Inspector to make
inquiries if it would be unreasonable to make inquiries to
find the owner; and
(b) subsection 299 (b) does not require the Inspector to make
efforts if it would be unreasonable to make efforts to return the documents or items to their owner.
301. If the Inspector decides to forfeit documents or items under
section 299, the Inspector must tell the owner of the decision by
written notice.
302. Section 301 does not apply if:
(a) the Inspector cannot find the owner, after making reasonable inquiries; or
(b) it is impractical or would be unreasonable to give the
notice.
303. The notice must state:
(a) the reasons for the decision;
(b) that the owner may appeal against the decision to the
Commission within twenty-eight (28) days;
(c) how the appeal may be made; and
(d) that the owner may apply for a stay of the decision if the
owner appeals against the decision.
304. In deciding whether inquiries or efforts are to be made or
notice given about a document or item, the document or item’s nature, condition and value must be considered.
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RETURN OF DOCUMENTS OR ITEMS THAT HAVE
BEEN SEIZED
305. If documents or items have been seized but not forfeited, the
Inspector must return them to their owner:
(a) at the end of six (6) months; or
(b) if a proceeding for an offence involving the documents or
items is started within six (6) months, at the end of the
proceeding or any appeal from the proceeding.
306. A document or item must be returned to its owner once the
Inspector determines its evidentiary value has ceased.
ACCESS TO DOCUMENTS OR ITEMS THAT HAVE
BEEN SEIZED
307. Until documents or items that have been seized are forfeited
or returned, an Inspector must allow their owner to inspect them
and, if it is a document, to copy it unless it is impractical or would
be unreasonable to allow the inspection or copying.
PART XX – DIRECTION TO STOP USING AN ITEM
308. This section applies if an Inspector reasonably believes:
(a) an item used in the conduct of an authorized game is unsatisfactory for the purpose for which it is used; and
(b) the continued use of the item may:
(i) jeopardize the integrity of the conduct of authorized
games; or
(ii) adversely affect the public interest.
309. The Inspector may direct the person who has, or reasonably
appears to have, authority to exercise control over the item to stop
using the item, or allowing the item to be used, in the conduct of
authorized games.
REQUIREMENTS ABOUT STOP DIRECTIONS
310. A direction given to a person under the foregoing section (a
“Stop Direction”) may be given orally or by written notice (a “Stop
Notice”).
311. However, if the direction is given orally, it must be confirmed
by written notice (also a “Stop Notice”) given to the person as soon
as practical.
312. A Stop Direction may be given for an item at a place occupied
by a licence holder, an authorized client provider, an agent or
other person involved within the Territories in the conduct of an
authorized game.
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313. A Stop Direction does not apply to a use of an item carried
out for repairing or testing the item.
314. A Stop Notice must state:
(a) the grounds on which the Inspector believes the item is
unsatisfactory; and
(b) the circumstances, if any, under which the Stop Direction
may be cancelled.
315. A person to whom a Stop Direction is given must comply
with the direction.
PART XXI – POWER TO OBTAIN INFORMATION
316. This section applies if:
(a) an Inspector finds a person committing an offence against
the Law, these Regulations or any law applicable within
the Territories; or
(b) an Inspector finds a person in circumstances that lead, or
has information that leads, the Inspector reasonably to
suspect the person has just committed an offence against
the Law, these Regulations or any law applicable within
the Territories.
317. The Inspector may require the person to state the person’s
name and residential address.
318. When making the requirement, the Inspector must warn the
person that it is an offence to fail to state the person’s name or
residential address.
319. The Inspector may require the person to give evidence of the
correctness of the stated name or residential address if the Inspector reasonably suspects the stated name or address to be false.
320. A person of whom a requirement is made under the foregoing
section must comply with the requirement.
POWER TO REQUIRE PRODUCTION OF DOCUMENTS
321. An Inspector may require (a “Document Production Requirement”) a person to produce or make available for inspection by the
Inspector at a reasonable time and place nominated by the
Inspector:
(a) a document issued to the person under the Law, these
Regulations or any law applicable within the Territories;
(b) a document required to be kept by the person under the
Law, these Regulations or any law applicable within the
Territories;
(c) if the person is a licence holder or authorized client provider, a document kept by the licence holder or authorized
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client provider about the conduct of authorized games by
the licence holder or authorized client provider; or
(d) if the person is an agent, a document kept by the agent
about the conduct of authorized games by the licence
holder or authorized client provider by whom the agent is
appointed.
322. The Inspector may retain the original of the document or, in
his sole discretion, copy it and return the original to the owner of
the document.
323. If the Inspector copies the document, or an entry in the document, the Inspector may require the person responsible for keeping the document to certify the copy as a true copy of the
document or entry.
POWER TO REQUIRE ATTENDANCE OF PERSONS
324. An Inspector may require a person, or an executive officer of
a corporation, of whom a Document Production Requirement has
been made to appear before the Inspector to answer questions or
give information about the document to which the Document Production Requirement relates.
325. An Inspector may require any of the following persons to appear before the Inspector to answer questions or give information
about the operations of a licence holder or authorized client
provider:
(a) the licence holder or authorized client provider or, if the
licence holder or authorized client provider is a corporation, an executive officer of the licence holder or authorized client provider;
(b) an employee of the licence holder or authorized client
provider;
(c) an agent for the licence holder or authorized client provider or, if the agent is a corporation, an executive officer
of the corporation;
(d) an employee of an agent mentioned in paragraph (c);
(e) another person associated with the operations or management of:
(i) the licence holder or authorized client provider; or
(ii) an agent mentioned in paragraph (c).
326. An Inspector may require any of the following persons to appear before the Inspector to answer questions or give information
about an agent’s operations:
(a) the agent or, if the agent is a corporation, an executive
officer of the agent;
(b) an employee of the agent;
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(c) the authorized client provider that is the agent’s principal
or, if the principal is a corporation, an executive officer of
the corporation;
(d) another person associated with the operations or management of:
(i) the agent; or
(ii) the authorized client provider that is the agent’s
principal.
327. A requirement made of a person under this section must:
(a) be made by written notice given to the person; and
(b) state a reasonable time and place for the person’s
attendance.
328. When making the requirement, the Inspector must warn the
person that it is an offence to fail to comply with the requirement.
FAILURE TO COMPLY WITH REQUIREMENT
ABOUT ATTENDANCE
329. A person of whom a requirement is made under this Part
must not:
(a) fail to appear before the Inspector at the time and place
stated in the notice imposing the requirement; or
(b) when appearing before the Inspector:
(i) fail to comply with a requirement to answer a question or give information; or
(ii) state anything the person knows to be false or
misleading.
POWER TO REQUIRE FINANCIAL RECORDS
330. This section applies to a person who is the manager or other
principal officer at a place of business of a financial institution at
which:
(a) a licence holder or authorized client provider keeps an account in relation to the operations of the licence holder or
authorized client provider; or
(b) an agent keeps an account in relation to the agent’s
operations.
331. An Inspector may, by written notice given to the person, require the person to give to the Inspector, within the time stated in
the notice, not to be less than seven (7) days:
(a) a statement of account for the account; or
(b) copies of cheques or other records relevant to the account;
or
(c) other particulars or documents relevant to the account
stated in the notice.
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332. An Inspector may make a requirement under the foregoing
section (a “Financial Records Requirement”) only with the written
approval of the Commission.
EFFECT OF COMPLIANCE WITH FINANCIAL
RECORDS REQUIREMENT
333. No liability for breach of trust or on any other basis attaches
to a person who is the manager or other principal officer at a place
of business of a financial institution merely because the person
complies with a Financial Records Requirement.
334. No liability for breach of trust or on any other basis attaches
to a financial institution merely because a person who is the manager or other principal officer at a place of business of the institution complies with a Financial Records Requirement.
335. A person of whom a Financial Records Requirement is made
must comply with it within the time stated in the relevant notice,
unless the person has a reasonable excuse.
PART XXII – FORFEITURE ON CONVICTION
336. On conviction of a person for an offence against these Regulations, the Court may order the forfeiture to the Commission of:
(a) anything used to commit the offence; or
(b) anything else which is the subject of the offence.
337. The Court may make the order:
(a) whether or not the item has been seized; and
(b) if the item has been seized, whether or not the item has
been returned to its owner.
338. The Court may make any order to enforce the forfeiture it
considers appropriate.
DEALING WITH FORFEITED ITEMS
339. On the forfeiture of a item to the Commission, the item becomes the Commission’s property and may be dealt with by the
Commission as the Commission considers appropriate.
340. Without limiting the generality of the foregoing section, the
Commission may destroy the forfeited item or sell the forfeited
item at public auction and disburse the net proceeds to community
organizations within the Territories.
PART XXIII – NOTICE OF DAMAGE
341. This section applies if:
(a) an Inspector damages something when exercising or purporting to exercise a power; or
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(b) a person acting under the direction of an Inspector damages something.
342. The Inspector must promptly give written notice of particulars of the damage to the person who appears to the Inspector to
be the owner of the item.
343. If the Inspector believes the damage was caused by a latent
defect in the item or circumstances beyond the Inspector’s control,
the Inspector may state that belief in the notice.
344. If, for any reason, it is impractical to comply with the foregoing section, the Inspector must leave the notice in a conspicuous
position and in a reasonably secure way where the damage
happened.
345. This section does not apply to damage the Inspector reasonably considers trivial.
PROTECTING OFFICIALS FROM LIABILITY
346. In this section: “Official” means:
(a) a Member of the Commission;
(b) an Inspector; or
(c) a person acting under the direction of an Inspector.
347. An Official is not civilly liable for an act done, or omission
made, honestly and without negligence under these Regulations.
GENERAL ENFORCEMENT OFFENCES
348. A person must not state anything to an Inspector the person
knows to be false or misleading.
349. A person must not give an Inspector a document containing
information the person knows to be false, misleading or
incomplete.
350. Section 349 does not apply to a person if the person, when
giving the document:
(a) tells the Inspector, to the best of the person’s ability, how
it is false, misleading or incomplete; and
(b) if the person has, or can reasonably obtain, the correct information and gives the correct information.
351. A person must not make an entry in a document required or
permitted to be made or kept under these Regulations knowing
the entry to be false, misleading or incomplete.
352. A person must not obstruct an Inspector in the exercise of a
power or someone helping an Inspector in the exercise of a power.
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DECISIONS NOT SUBJECT TO APPEAL OR REVIEW
353. A decision of the Commission made, or appearing to be made,
under the Law or these Regulations about an Interactive Gaming
Licence or Client Provider Authorization, a person with an interest or potential interest in an Interactive Gaming Licence or Client Provider Authorization, the authorization or revocation of the
authorization of an interactive game:
(a) is final and conclusive;
(b) cannot be challenged, appealed against, reviewed,
quashed, set aside, or called in question in another way,
and
(c) is not subject to any writ or order of any court, a tribunal
or another entity on any ground.
PROCEEDINGS FOR OFFENCES
354. An offence against sections 247, 249, 250, 251 or 252 (dishonestly obtaining a benefit, forgery, impersonation or bribery) is an
indictable offence.
355. Any other offence against these Regulations is a summary
conviction offence.
356. A proceeding for an indictable offence or a summary conviction offence under these Regulations shall be heard at the Court of
Kahnawake.
357. If a Business Entity commits an offence against a provision
of these Regulations, each of the Business Entity’s key persons
and directors also commits an offence, namely, the offence of failing to ensure that the Business Entity complies with the
provision.
358. Evidence that the Business Entity has been convicted of an
offence against a provision of these Regulations is evidence that
each of the Business Entity’s key persons and directors committed
the offence of failing to ensure that the Business Entity complies
with the provision.
359. However, it is a defence for a key person or director to prove:
(a) if the key person or director was in a position to influence
the conduct of the Business Entity in relation to the offence-the key person or director exercised reasonable diligence to ensure the corporation complied with the
provision; or
(b) the key person or director was not in a position to influence the conduct of the Business Entity in relation to the
offence.
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360. A person who attempts to commit an offence against the Law
or these Regulations commits an offence.
SERVICE
361. Service of any notice provided for in these Regulations may
be effected by personal service, registered mail, facsimile transmission or e-mail to the licence holder, authorized client provider
or their agent. Except as otherwise provided in these Regulations,
other than for personal service, service is effective from the moment the notice is sent. Personal service is effective from the moment the notice is received by the licence holder or authorized
client provider.
CONFIDENTIALITY OF INFORMATION
362. A person who is, or was, an Inspector, officer, employee or
Member of the Commission, must not disclose information gained
by the person in performing functions under these Regulations.
363. The foregoing section does not apply to the disclosure of information by a person:
(a) for a purpose under the Law, these Regulations or any
other law applicable within the Territories;
(b) with a lawful excuse; or
(c) under an approval of the Commission.
364. Before giving an approval for disclosure of information, the
Commission must:
(a) give written notice of the proposed approval to any person
whom the Commission considers likely to be affected adversely by the disclosure; and
(b) give the person the opportunity of making a submission
about the proposed approval within the time stated in the
notice, not to be less than fourteen (14) days.
FORMS
365. The Commission may approve forms for use under these
Regulations.
COMMENT
Internet Gaming Tax Regulation:
Can Old Laws Learn New Tricks?
David H. Lantzer*
I.
INTRODUCTION
The tide is changing in Internet gaming law and practice. Internet gaming has been largely restricted to countries with little
or no regulatory structure, whereas first-world countries such as
the United States, Canada, and several in the European Union
prohibit the establishment of Internet gaming facilities. However,
these prohibitions have not had the intended result of restricting
the growth of Internet gambling. Not only has Internet gaming in
countries with lax regulation grown, but officials in countries such
as Australia and Great Britain have legalized Internet gaming establishments in an effort to internalize gaming revenue.1
A lively discussion that ensued in 1995 continues today regarding the merits of prohibition and legalization of Internet gaming in the United States. These issues are largely beyond the
scope of this Comment. The focus of this Comment is analysis of
regulatory schemes after legalization. Therefore, part one begins
with a short discussion of current world events that point to the
* Juris Doctor Candidate, Chapman University School of Law (anticipated graduation date May 2002). I would like to thank the staff and editors of Chapman Law Review
for their hard work. Special thanks to Mark D. Schopper for his ideas and inspiration,
Kelly M. Craig for her tireless efforts in making this comment better, and Professor Tom
W. Bell for his insight and wise comments. Copyright 2002, David H. Lantzer, all rights
reserved.
1 See Mike Brunker, Australia, U.S. at Odds on Net Betting, at http://www.msnbc.
com/NEWS/287419.asp (last visited Nov. 4, 2001) [hereinafter Brunker, Australia, U.S. at
Odds]; Mike Brunker, Britain Embraces Internet Gambling, at http://www.msnbc.com/
news/540530.asp (last visited Nov. 4, 2001) [hereinafter Brunker, Britain Embraces].
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likelihood of legalization in the Unite States and the need for regulation. Part two discusses federal and state regulatory issues.
Federal issues discussed include the Commerce Clause, statutes
already in place that allow for the collection of wagering taxes,
and federal revenue sharing. The discussion of state regulation of
gaming concentrates on states’ power to regulate gaming under
the police power and multi-state lotteries. Finally, part three
makes proposals for collection and allocation of Internet gaming
tax revenues that will allow states to maintain their traditional
control of gaming while exploiting a new source of revenue.
A. The Inevitability of Internet Gaming?
Internet gaming has largely been an offshore industry since
its introduction in 1995.2 However, a shift is occurring, and countries that once prohibited Internet gaming are looking at new possibilities for legalization and regulation.3 Two primary benefits
exist for Internet gaming companies located in countries with little or no regulation. The first benefit is cost savings from the lack
of regulation. Internet gaming companies receive a warm welcome from countries such as Costa Rica because the companies
create high paying jobs with benefits.4 Companies, in turn, find
Costa Rica attractive because it has loose laws regulating Internet
gaming, and companies operate under municipal licenses.5 The licensing fees in countries such as Costa Rica and Antigua are often
much less than licensing fees for casinos in the United States.6
2 See generally Mark G. Tratos, Gaming on the Internet III: The Politics of Internet
Gaming and the Genesis of Legal Bans or Licensing, 610 PLI/Pat 711, 719-22 (2000); Seth
Gorman & Antony Loo, Blackjack or Bust: Can U.S. Law Stop Internet Gambling?, 16 LOY.
L.A. ENT. L. J. 667-69 (1996).
3 Most notably, Australia and Great Britain recently enacted laws that allow casinos
in these countries to accept bets and wagers over the Internet. See Brunker, Australia,
U.S. at Odds, supra note 1; Brunker, Britain Embraces, supra note 1.
4 Marianela Jimenez, Costa Rica A Paradise for Online Gambling Firms Lax Regulations and Cheap Labor Force Lure Offshore Bookies Catering to U.S. Residents, PRESS DEMOCRAT (Santa Rosa, Cal.), Oct. 25, 2000, at A13, available at 2000 WL 24341002.
5 Id.
6 Id. Antigua charges a licensing fee of one hundred thousand dollars per year. Id.
In October 2000, Costa Rica announced that it would require Internet gaming operators to
undergo background checks and pay a $150,000 licensing fee. I. Nelson Rose, Gambling
and the Law: Understanding the Law of Internet Gambling, ALI-ABA COURSE OF STUDY,
SF89 ALI-ABA 175, 204 (2001) [hereinafter Rose, Understanding the Law]. Conversely,
Nevada’s Internet gaming bill proposes to charge five hundred thousand dollars every two
years for licensing plus a six percent tax on all Internet gaming profits. Mike Brunker, Net
Betting Bill Signed in Nevada, at www.msnbc.com/news/578499.asp (last visited Nov. 4,
2001) [hereinafter Brunker, Net Betting]. In addition to charging lower licensing fees, Antigua’s flat fee is significantly less complicated to calculate than licensing fees charged by
Nevada—such as $250 per slot machine, NEV. REV. STAT. 463.385 (2001); a ten percent
excise tax on all amounts paid for admission, food, drink, and merchandise sold in a casino,
NEV. REV. STAT. 463.401 (2001); and up to one thousand dollars per game in an establishment, NEV. REV. STAT. 463.380 (2001). While these fees apply only to land based casinos, it
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283
The second advantage to locating offshore is that Internet
gaming companies do not have to worry about liability under U.S.
federal or state law. No U.S. statutes specifically address Internet
gaming.7 However, the section on transmission of wagers in the
federal Wire Act8 prohibits the use of a “wire communication facility for the transmission in interstate or foreign commerce of
bets.”9 The Wire Act was enacted prior to the emergence of the
Internet, but because Internet communications are generally carried over wires, the statute applies.10 The Wire Act raises serious
questions regarding criminal liability for operating Internet gaming sites in the United States.11 Penalties for Wire Act violations
may include loss of a state gaming license or seizure of property if
U.S. state and federal courts are able to assert jurisdiction.12
The advantages of setting up Internet gaming sites offshore
are outweighed by the opportunity to profit from legalized Internet gaming in the United States and other first-world countries. Estimates of Internet wagering are in the hundreds of
millions of dollars, but the exact figure is unknown.13 These large
amounts are attributed to increased Internet access, especially in
the United States; improvements in software that allow for instantaneous gaming and improved sound and graphics; increased
confidence in online financial transactions; and licensing measures in countries such as Australia and Antigua.14 Revenues will
likely increase as the chilling effects of complicated financial
transactions are removed by Internet gaming companies in countries with sophisticated regulatory systems.15 The likely reason
for the anticipated increase is consumer comfort. Established and
reputable casinos are more attractive to bettors because of consumer recognition of an established brand name, guaranteed
paybacks, and the stability of a “brick and mortar” establishis likely that fees charged to Internet gaming providers in the United States will have
similar complications.
7 I. Nelson Rose, Gambling and the Law: Internet Gambling: Statutes and International Law, ALI-ABA COURSE OF STUDY, SE81 ALI-ABA 231, 234 (2000) [hereinafter Rose,
Statutes and International Law].
8 18 U.S.C. § 1084 (2000).
9 Id.
10 Gorman & Loo, supra note 2, at 671.
11 Id. at 671-72.
12 Rose, Understanding the Law, supra note 6, at 204-05.
13 NAT’L GAMBLING IMPACT STUDY COMM’N, FINAL REPORT, at 2-15 to 2-16 (1999) available at http://govinfo.library.unt.edu/ngisc/index.html [hereinafter NGISC FINAL REPORT].
The Report cites two studies that estimate Internet gaming revenues at $300 to $445.4
million in 1997, and $651 to $919.1 million in 1998. Id. While a dispute exists regarding
the exact amounts, both studies estimate that revenue doubled from 1997 to 1998. Id.
14 Id. at 2-16.
15 See Mark G. Tratos, Gaming on the Internet, 3 STAN. J.L. BUS. & FIN. 101, 111-12
(1997).
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ment.16 Established gaming companies will continue to lobby for
legalization and regulation of Internet gaming in the United
States and other countries in order to capitalize on the will of
consumers.17
The lure of increased revenue and consumer preference will
likely result in federal and state governments enacting legislation
to legalize and regulate Internet gaming. Federal and state governments are continually trying to collect greater amounts of
much-wanted revenue.18 Taxes and licensing fees on Internet
gaming offer state and federal governments a large and previously
untapped source of revenue.19 Because Internet gaming is a new
source of revenue, few laws govern the amount of revenue that
might be realized.20 Governments have the authority to enact legislation and promulgate regulations that will maximize revenues
while allowing for the growth of Internet gaming. A relatively
clean slate encourages governments and businesses to negotiate
regulatory solutions that will benefit all parties.
B. The Need for Regulatory Models
It is in the best interests of federal and state governments to
find ways of policing the industry since it appears legalization of
Internet gaming would provide a valuable new source of tax revenue. The goals of regulation should be to provide stability, collect
and distribute tax revenue, prevent gambling by minors and problem gamblers, prevent the influence of criminal elements, and ensure fair games with known odds.21 The need exists for
regulations addressing collection and allocation of gaming tax revenues because federal and state governments lack an incentive to
pass Internet gaming regulations without the carrot of additional
tax revenue.
16 Id.; Stevie A. Kish, Betting on the Net: An Analysis of the Government’s Role in
Addressing Internet Gambling, 51 FED. COMM. L.J. 449, 453-54 (1999).
17 In fact, some large casino owners such as MGM Mirage, Park Place Entertainment,
and Harrah’s Entertainment are actively lobbying for Internet gaming and have already
developed “for-fun” gaming that can be transformed into for-profit gaming in a very short
time. Mike Brunker, Online Gambling Goes Global, at http://www.msnbc.com/news/
544764.asp (last visited Nov. 1, 2001) [hereinafter Brunker, Online Gambling].
18 Tratos, supra note 15, at 113-14.
19 Id. Nevada casinos collected $9.6 billion in winnings and paid $561.5 million to the
state in taxes in 2000. Jeff Simpson, Experts Promote Legalization of Internet Gambling,
LAS VEGAS REV.-J., May 16, 2001, at 3D, available at 2001 WL 9534745. Current projections of worldwide Internet gaming taxed at the rate of 6.25% could generate approximately $156 million in new tax revenue. Id.
20 See infra Part II.A.2 (discussing I.R.C. § 4401).
21 Bradford S. Smith, Roundtable Discussion: The Role of Regulators, ALI-ABA
COURSE OF STUDY, SC91 ALI-ABA 465 (1998). Industry stability, problem gambling prevention, crime, and fairness are beyond the scope of this comment; for a discussion on these
issues see NGISC FINAL REPORT, supra note 13, at 5-4 to 5-6; Kish, supra note 16, at 45354.
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No commercial Internet gaming sites currently exist in the
United States. Most sites are located in the Caribbean, Central
and South America, and Australia.22 Geography is not a bar to
Americans who want to use the Internet for gambling. The great
appeal of the Internet is that it allows the transmission of data
across large distances, including national and international borders.23 The Internet creates a problem for legislators and courts
because of the difficulty of enforcing judgments against foreignbased operations.24 Federal and state governments are largely
powerless to enforce penalties against foreign Internet gaming
companies because of a lack of personal jurisdiction.25
Legislative attempts to ban Internet gaming have been unsuccessful, and proposed legislation will also be ineffective as long
as bettors are exempt from prosecution.26 Arizona Senator Jon
Kyl introduced the Internet Gambling Prohibition Act of 1999.27
The proposed bill would have significantly amended the Internet
Gambling Prohibition Act of 1997 that the Senate approved, but
the full Congress did not pass.28 Placing any bet on the Internet
would have been a federal offense under the 1997 act.29 The 1999
See discussion supra Part I.A.
The Internet has been variously described as “a medium through which people in
real space in one jurisdiction communicate with people in real space in another jurisdiction;
. . . a collection of networks; a giant network which interconnects innumerable smaller
groups of linked computer networks; and a decentralized, global medium of communications.” Tom Lundin Jr., The Internet Gambling Prohibition Act of 1999: Congress Stacks
the Deck Against Online Wagering but Deals in Traditional Gaming Industry High Rollers,
16 GA. ST. U. L. REV. 845, 858 (2000) (internal quotation omitted) (citations omitted). The
federal government defines the Internet as “[t]he international computer network of both
Federal and non-Federal interoperable packet switched data networks.” Id. at 859 (quoting the Electronic Communications Act, 47 U.S.C. § 230(e)(1) (1998) (alteration in
original)).
24 Lundin, supra note 23, at 862. One method of dealing with the problem is through
treaties. See, e.g., Rose, Statutes and International Law, supra note 7, at 250-52. The difficulty is in enforcement of prohibitions rather than in asserting jurisdiction over Internet
gaming sites. In State v. Granite Gate Resorts, Inc., No. C6-95-7227, 1996 WL 767431, at
*1 (D. Minn. Dec. 11, 1996), the Attorney General of Minnesota successfully brought suit
against an Internet sports wagering company incorporated in Nevada, with its primary
place of business in Belize. Minimum contacts were established by the amount of advertising on the Internet that reached Minnesota. Id. at *6-7. The fact that defendants kept
track of users proved they knew that computers in Minnesota were accessing the site. Id.
at *8. Defendant purposely availed itself of Minnesota law by including a provision on its
site that said the company had a right to file action against users in the user’s home forum
or in Belize. Id. at *11.
25 Conducting Internet gaming may be a criminal offense under federal and state
laws, but enforcing penalties against foreign nationals is difficult. The United States has
extradition treaties that allow extradition for criminal fraud, but no treaties exist for extradition for illegal gambling. Rose, Statutes and International Law, supra note 7, at 251. For
a thorough discussion of the difficulties governments face in asserting personal jurisdiction
over Internet gaming companies see Anthony N. Cabot & Robert D. Faiss, Sports Gambling
in the Cyberspace Era, 5 CHAP. L. REV. 1 (2002).
26 See discussion infra notes 27-43 and accompanying text.
27 S. 692, 106th Cong. (1999).
28 Internet Gambling Prohibition Act of 1997, H.R. 2380, 105th Cong. (1997).
29 See Lundin, supra note 23, at 865.
22
23
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bill would have exempted individual bettors from federal prosecution for placing wagers via the Internet.30 States may still bring
criminal prosecution under state law against individual bettors
who place wagers on the Internet, but the federal government has
yet to pass a bill specifically outlawing Internet gaming.
Any law that criminalizes placing bets over the Internet will
face serious enforcement difficulties. The basic problem is identification of gamblers who place bets at offshore Internet casinos.31
The identities of individual gamblers may be hidden from law enforcement as encryption technology becomes more prevalent.32
The second problem is that in order to bring a criminal action
against bettors, law enforcement will need to intercept betting information while it is being transmitted. The nature of the Internet as a decentralized network or series of networks makes it
very difficult for officials to know where to place a tap on communication lines.33 Law enforcement will not have the evidence necessary for conviction without intercepted bets. Finally, law
enforcement may be reluctant to attempt enforcement of Internet
gaming prohibitions because of doubt about the success of enforcement efforts both domestically and internationally.34 A complete
ban on Internet gaming will not effectuate the desired goals of
providing stability, preventing problem gambling, ensuring the
fairness of games, and providing revenue due to these enforcement difficulties. Internet gaming will continue to exist overseas
at unregulated sites because bettors will not be sufficiently discouraged from participating in illegal gambling.
Regulation of Internet gaming offers a preferred solution to
the perceived problems of Internet gaming for several reasons.
First, federal and state governments can obtain results through
regulation that are unattainable with a ban on Internet gaming.
Gambling in some form is legal and regulated in forty-eight states
and the District of Columbia.35 Laws that address public and legislators’ concerns already exist.36 Casino regulators perform background checks on companies applying for casino licenses, casino
employees, and companies doing business with casinos in order to
Id. at 851.
Regulation will not face the same difficulty in identifying gamblers because the
gamblers will willingly provide identifying information in order to access Internet gaming
sites. See infra notes 41-43 and accompanying text.
32 Kish, supra note 16, at 463.
33 Gorman & Loo, supra note 2, at 691.
34 Kish, supra note 16, at 462-63.
35 See Ronald J. Rychlak, The Introduction of Casino Gambling: Public Policy and the
Law, 64 MISS. L. J. 291, 303-04 (1995). Hawaii and Utah are the only states that prohibit
all forms of gambling. Id. at 304. In 1994, thirty-seven states and the District of Columbia
conducted lotteries; twenty-four states allowed Indian gaming; six states allowed riverboat
gambling; and twenty-three states allowed casino gambling. Id.
36 See generally Smith, supra note 21.
30
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prevent the influence of organized crime.37 Additionally, regulators set the rules of games and promote fair games by ensuring
that casinos pay out the required amount to gamblers.38 Operators have an interest in following regulations in states that allow
gaming and abiding by laws in states that do not allow gambling
in order to protect their licenses.39 Finally, casinos welcome Internet gaming legislation and pledge to assist governments in regulating Internet gaming.40 The casinos maintain that regulation
of Internet gaming will be relatively easy because an electronic
record of each bet will be created. These electronic records will
allow for “precise auditing and control.”41 With current software,
prohibiting underage gambling will still be a problem.42 However,
if casinos develop more reliable age verification procedures they
may be able to accurately determine the bettor’s age, monitor bets,
and restrict problem gamblers.43 Legalization and regulation allow legislators to accomplish the goals of limiting Internet gaming
and generating revenues with the willing assistance of casinos.
The regulatory solution is preferable to a ban because regulation
will generate revenue and ultimately offer more control over Internet gaming than an unenforceable ban.
II.
EXISTING REGULATORY MODELS:
POSSIBILITIES AND PROBLEMS
The two possible sources of laws to regulate Internet gaming
are the Commerce Clause44 and the police powers retained by the
states.45 Federal laws exist or may be enacted to regulate Internet
gaming under the Commerce Clause. Such laws provide a framework for collection and distribution of revenues from Internet
gaming. On the other hand, states may enact laws to regulate
gaming under the police power. State legislatures will determine
whether their citizens can use the Internet to place bets at regulated casinos and sports books. Effective regulation of Internet
gaming should incorporate elements of both state and federal law.
Id. at 467.
Id. at 468.
Kish, supra note 16, at 464.
Internet Gambling: Hearing Before the Subcomm. on Crime of the House Comm. on
the Judiciary, 105th Cong. (1998) (testimony of Sue Schneider, Managing Editor and Chief
Executive Officer of Rolling Good Times OnLine), [hereinafter Schneider testimony] available at 1998 WL 58226.
41 Id.
42 Simpson, supra note 19.
43 Id.
44 “The Congress shall have Power . . . To regulate Commerce with foreign Nations,
and among the several States, and with the Indian Tribes.” U.S. CONST. art. I, § 8, cl. 3.
45 Police powers retained by the states are affirmed in the Tenth Amendment of the
Constitution. “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” U.S.
CONST. amend. X.
37
38
39
40
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A. Federal Regulation
1. Congress’s Power to Regulate Internet Gaming Under
the Commerce Clause
Congress can clearly regulate Internet gaming under the
Commerce Clause. The Commerce Clause allows Congress to regulate commerce with foreign nations or among the several
states.46 Placing bets across state or international lines falls into
the category of commerce among the several states or with foreign
nations for several reasons. First, bets travel through channels of
interstate commerce—phone lines and the Internet. Second, instrumentalities of interstate commerce—money or credit—are
traveling through those channels. Furthermore, current reports
on Internet gambling reveal that the amounts of money being wagered over the Internet are sizeable.47 The amounts being wagered support the conclusion that Internet wagering has a
substantial impact on interstate commerce.
However, it is not clear whether Congress can regulate Internet gaming that is restricted to intrastate systems such as
closed circuit Internet gaming, purchasing state lottery tickets via
the Internet, or pari-mutuel betting48 using the Internet.49 It may
be argued that congressional regulation or a ban on purely intrastate activities may violate the Commerce Clause because intrastate activities would not satisfy the “substantially affect[ing]
interstate commerce”50 requirement for the federal government’s
legislation to be constitutional.51 However, the Court in United
46 U.S. CONST. art. I, § 8, cl. 3. At least one commentator questions whether Congressional regulation of Internet gaming can pass the three-part test for Commerce Clause
regulation set out in United States. v. Lopez, 514 U.S. 549 (1995). David Goodman, Proposals for a Federal Prohibition of Internet Gambling: Are There Any Other Viable Solutions to
This Perplexing Problem?, 70 MISS. L.J. 375, 396-98 (2000). Lopez delineates three areas
in which Congress may regulate under the Commerce Clause: 1) activities that use the
channels of interstate commerce such as roads, railroads, and phone lines; 2) activities that
implicate instrumentalities of interstate commerce including people and things moving in
interstate commerce; and 3) activities that have a “substantial relation to interstate commerce.” Lopez, 514 U.S. at 559. Goodman questions whether Internet gambling has the
necessary “substantial relation” in order to pass muster under Lopez. Goodman, supra
note 46, at 396-98.
47 NGISC FINAL REPORT, supra note 13, at 2-15 to 2-16.
48 Pari-mutuel betting is a system commonly used for gambling on horse and dog
races in which all money bet on a race is divided for payment to bettors holding tickets for
first, second, or third place after a statutorily determined deduction for maintenance and
profits. See generally IND. CODE § 4-31-2-12 (2002); NEV. REV. STAT. 466.028 (2001); R.I.
GEN. LAWS § 41-3.1-6 (2001); W. Flagler Amusement Co. v. Commissioner, 21 T.C. 486
(1954).
49 Kish, supra note 16, at 458.
50 Lopez, 514 U.S. at 559.
51 Kish, supra note 16, at 457. A question arises as to whether placing purely intrastate wagers violates the Federal Wire Act since the same lines of communication are used
for both intrastate and interstate wire communications. Federal fraud statutes may be
instructive. Fraud by wire, radio, or television are unlike mail fraud in that the criminal
activity must cross state lines in order to give rise to a federal offense. 18 U.S.C. § 1343
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States v. Lopez stated, “we have upheld a wide variety of congressional Acts regulating intrastate economic activity where we have
concluded that the activity substantially affected interstate commerce.”52 Federal regulation of purely intrastate gaming activity
would also place Congress in the awkward position of regulating
the same types of gaming that are traditionally regulated by the
states under the police power.53 Commerce Clause jurisprudence
leaves open the question of whether Congress can prevent states
from developing their own strictly intrastate Internet gaming
systems.
While questions remain about Congress’s ability to regulate
intrastate Internet gaming, the Commerce Clause clearly gives
Congress the power to regulate interstate gaming via the Internet. The breadth of Congress’s power under the Commerce
Clause and the fact that Congress already has the power to tax
wagers leave little room to question Congress’s power to make
laws that regulate Internet gaming.54
2. The Federal Wager Tax
The federal government currently has the ability to collect
taxes on wagers regardless of whether the wagers are authorized
under state law. The Federal Excise Wagering Tax allows the federal government to collect a tax equal to 0.25 percent of the
amount of any state authorized wager.55 The federal government
collects a tax of two percent on any wager not authorized by state
law.56 The tax applies to any person, or corporation, engaged in
(2001) (“Whoever . . . transmits . . . by means of wire, radio, or television communication in
interstate or foreign commerce, any writings . . . for the purpose of executing such scheme
or artifice.”) (emphasis added). This is in contradiction to the rule for mail fraud, which
dictates that any use of the mails for fraudulent activity, whether interstate or intrastate,
gives rise to a federal offense. Id. § 341; Annulli v. Panikkar, 200 F.3d 189, 200 n.9 (3rd
Cir. 1999) (“There are two elements of a mail or wire fraud charge: ‘. . . a scheme to defraud, and . . . a mailing or wire in furtherance of that scheme.’ Wholly intrastate use of
the mails for fraud violates the mail fraud statute. In contrast, the federal wire fraud statute requires interstate use of the wire.”) (citations omitted); Smith v. Ayres, 845 F.2d 1360,
1366 (5th Cir. 1988) (stating wire communications must cross state lines in order to satisfy
the statute and purely intrastate communications are beyond the reach of the statute).
52 Lopez, 514 U.S. at 559.
53 Goodman, supra note 46, at 398.
54 See discussion infra Part II.A.2 (discussing federal wagering tax).
55 I.R.C. § 4401(a)(1) (West 2002).
56 Id. § 4401(a)(2). The use of the dual rate structure is not considered an improper
penalty on unauthorized wagers because of the likelihood of a higher rate of return on such
unauthorized wagers. United States v. Hallmark, 911 F.2d 399, 401 (10th Cir. 1990) (citing United States v. Constantine, 296 U.S. 287, 297 (1935)). The dual structure does not
violate tax uniformity requirements because the distinction between legal and illegal wagering is geographically neutral. Hallmark, 911 F.2d at 402. However, the wagering tax
has been successfully challenged on Fifth Amendment prohibition of self-incrimination
grounds. See Marchetti v. United States, 390 U.S. 39 (1968) (reversing petitioner’s conviction for tax evasion on the grounds that public registration for occupational Wagering Tax
Stamp would constitute self incrimination since local Internal Revenue Service offices
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the business of accepting wagers.57 The tax also applies to any
wager placed in a wagering pool or lottery.58
The wagering excise tax may appear to be an easy fix for the
collection of Internet gaming revenue. However, the definition of
what is covered under the statute and exceptions to the tax may
cause problems in applying it to Internet gaming. Wagers covered
by the tax may not be broad enough to include Internet gaming.
The definition of “wager” under the statute is limited to:
(A) any wager with respect to a sports event or a contest placed
with a person engaged in the business of accepting such wagers,
(B) any wager placed in a wagering pool with respect to a sports
event or a contest, if such pool is conducted for profit, and (C)
any wager placed in a lottery conducted for profit.59
The clear language of the statute includes sports books within its
scope, but not necessarily casino type games.
No cases have decided the issue of whether “contest” in the
Federal Wagering Excise Tax Act may be expanded to include casino games. However, the statute has been broadly construed
thus far to exclude only bets that are purely social or friendly.60 In
United States v. Simon, the court upheld the appellant’s tax evasion conviction for accepting bets on sporting events.61 He argued
on appeal that he was not in the business of taking wagers because he did not derive most of his living from the wagering business or engage in the business for profit.62 The court disagreed
stating, “The purpose of the language engaged in the business of
accepting wagers was to exclude from coverage of the Act only bets
of the purely social or friendly type.”63
In another case, the statute was construed to cover betting
that provided intangible benefits such as increased publicity and
goodwill instead of direct profit.64 The district court held that the
application of I.R.C. § 4421 was overbroad in cases where only an
indirect profit is realized.65 The Court of Appeals reversed, holding, “There is nothing in the word ‘profit’ . . . which indicates that
the gain referred to must be derived from the wagering pool itshared registration information with state law enforcement authority); see also Grosso v.
United States, 390 U.S. 62 (1968) (expanding holding of Marchetti to include monthly payments of Wager Tax since reporting was regularly shared with state prosecuting
authorities).
57 I.R.C. § 4401(c).
58 Id.
59 Id. § 4421(1) (2000).
60 United States v. Simon, 241 F.2d 308, 310 (7th Cir. 1957).
61 Id. at 312.
62 Id. at 309.
63 Id. at 310 (internal quotation omitted).
64 United States v. D.I. Operating Co., 362 F.2d 305 (9th Cir. 1966).
65 Id. at 306.
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self.”66 More important for the current discussion, the court examined the legislative intent of the statute and found, “The
committee reports . . . reveal that [the excise tax] was intended to
make ‘commercialized gambling’ help meet ‘the present need for
increased revenue . . . .’ ”67
If the language of the wagering tax is interpreted in the same
way as language in the Wire Act, the tax will not apply to Internet
casino games. The federal Wire Act68 contains a similar definition
of wager,69 and a federal district court in In re MasterCard recently held that the Wire Act does not apply to casino style Internet gambling.70 Plaintiffs alleged that credit card companies
and issuing banks violated the Wire Act by engaging in “a worldwide gambling enterprise” when they assisted Internet casinos in
transmission of Internet casino and sports wagers and gambling
debt collection.71 The court held that defendants’ business relationship with Internet casinos did not violate the Wire Act prohibition against transmission of gambling information because the
Wire Act prohibition does not include casino gambling or other
games of chance.72 According to the court, the plain language of
the Wire Act treats “event” and “contests” as both being modified
by “sporting.”73
The definition of “lottery” in the wagering excise tax statute
may also be problematic in applying the wagering tax to Internet
gaming. Under the statute, lotteries do not include games in
which “the distribution of prizes or other property is made, in the
presence of all persons placing wagers in such game.”74 This definition excludes any table game or slot machine in a “brick and
Id. at 308.
Id.
18 U.S.C. § 1084 (2000).
The Federal Excise Wagering Tax places a tax on “any wager with respect to a
sports event or a contest.” I.R.C. § 4421(1) (emphasis added). Similarly, the Wire Act includes within its scope persons who use wire communication facilities to place “bets or
wagers on any sporting event or contest.” 18 U.S.C. 1084(a) (emphasis added).
70 In re MasterCard Int’l, Inc. Internet Gambling Litig., 132 F. Supp. 2d 468 (E.D. La.
2001).
71 Id. at 475 (internal quotation omitted).
72 Id. at 481.
73 Id. at 480. The court also cited case law to support its conclusion. Specifically, the
court cited United States v. Sellers, 483 F.2d 37, 45 (5th Cir. 1973) (overruled on other
grounds by United States v. McKeever, 905 F.2d 829 (5th Cir. 1990)) (“The statute deals
with bookmakers . . . .”); United States v. Marder, 474 F.2d 1192, 1194 (5th Cir. 1973)
(stating the government satisfied the first element of the statute when it proved defendant
provided information relative to sporting events); and United States v. Kaczowski, 114 F.
Supp. 2d 143, 153 (W.D.N.Y. 2000) (finding that plain reading of the statute demonstrates
the criminality of placing bets or wagers on any sporting event or contest using interstate
or foreign communication). The in re MasterCard court went on to discuss recent legislative attempts to amend the Wire Act to include games of chance, and prohibit Internet
gambling entirely through the passage of the Internet Gambling Prohibition Act of 1999.
In re MasterCard, 132 F. Supp. 2d at 480-81.
74 I.R.C. § 4421(2)(A)(iii) (2001).
66
67
68
69
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mortar” casino because people are physically present when wagering and when winnings are distributed. However, the statute is
still applicable for two reasons. First, lotteries are not the only
form of wagering covered under the statute. Wagering on sporting
events and contests also falls under the statute. Second, Internet
gamblers are not physically present when wagering or when accepting winnings. Therefore, even if Internet gaming is considered a lottery or other similar type of wager, the statute does not
preclude collection of the tax because people wagering are only
present on the Internet and not physically in the casino.75
Several statutory exceptions exist to the § 4401 wager tax.76
First, pari-mutuel betting is exempted from the tax.77 This exemption is inapplicable to Internet gaming if the bettor is betting
against the house and not in a pool with other bettors. The second
exemption is for coin-operated devices.78 This exemption also does
not apply to Internet gaming because the bettor would necessarily
be using digital cash, a credit card, or a separate bank account.
The final exemption is for state-conducted lotteries and other
sweepstakes or wagering pools conducted by an agency of the
state acting under state law.79 This exemption will not apply to
Internet gaming run by private parties like casinos. If states run
their own Internet gaming sites, then these sites would be exempt
from the § 4401 wagering tax. Such a system would presumably
obviate the need for federal intervention provided states allow
only their own citizens to play and exclude those who are not
permitted.80
The wagering excise tax provides an effective means for the
federal government to collect revenue from Internet gaming providers. The statute has been tested in the courts and has passed
constitutional muster to date.81 While the definition of activities
covered under the wagering tax may need to be expanded to encompass Internet casino gaming, none of the exemptions preclude
its application to Internet gaming. However, the states must be
able to share in the revenue collected by the federal government in
order to make application of § 4401 attractive to the states.
Id. § 4421(2).
Id. § 4402.
77 Id. § 4402(1).
78 Id. § 4402 (2).
79 Id. § 4402 (3).
80 See infra Part II.B.1 (discussing state police power). Nevada recently enacted a bill
to allow Internet gaming by its own citizens provided casinos can exclude minors and people in jurisdictions that do not allow gambling. Brunker, Net Betting, supra note 6.
81 See discussion supra note 56.
75
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3. Federal Revenue Sharing With the States
Distribution of revenue to the states after collection by the
federal government is the next hurdle to a federal regulatory system.82 Federal revenue sharing with the states is not a new concept. States receive a large part of their revenues through federal
revenue sharing programs initiated in the early part of the twentieth century.83 Revenue sharing programs were developed in response to federal retention of land that had previously been
transferred to private use.84 Since state and local governments
are prohibited from taxing federal land, states were deprived of
property tax revenue when the federal government retained lands
for national parks and forests.85 Congress enacted laws to share
national forest timber production and user fees,86 onshore mineral
production,87 federal lands grazing fees,88 and payments in lieu of
taxes for certain lands held by the federal government89 in order to
decrease the burden of federal lands on the states.90 Some of the
revenue sharing laws have been curtailed in recent years because
of the federal government’s desire to retain revenue and encourage development through preferential leases; however, federal land use revenue sharing remains an important part of state
budgets.91
Congress has also approved revenue sharing among the
states where no federal lands were involved. Such sharing of revenues was approved when Congress allowed the formation of the
Port Authority of New York and New Jersey.92 The Port Authority
compact was formed by New York and New Jersey in 1834, and
approved by Congress as required under Article 1, § 10 of the Constitution.93 The agreement between New York and New Jersey allows the two states to share “toll revenues to various facilities
within the Port Authority’s network.”94
82 See discussion infra note 130 and accompanying text regarding the tax “nexus” required in order for states to impose a direct tax on out-of-state casinos.
83 Michael E. Shapiro, Sagebrush and Seaweed Robbery: State Revenue Losses from
Onshore and Offshore Federal Lands, 12 ECOLOGY L.Q. 481, 485-87 (1985).
84 Id. at 485-86.
85 Id.
86 16 U.S.C. § 500 (2000).
87 30 U.S.C. § 191 (2001).
88 43 U.S.C. § 315 (1986).
89 31 U.S.C. §§ 6901-06 (1983).
90 Shapiro, supra note 83, at 485-86.
91 Id. at 482-83. The federal government contributed almost $500 million to states
from onshore mineral leasing programs in 1983; approximately $225 million from forestry
leases in 1984; and “over $100 million as payments in lieu of taxes in 1984.” Id. at 482.
92 N.Y. UNCONSOL. LAW § 6401 n.1 (McKinney 2000) (1834 agreement between New
York and New Jersey “consented to by Congress, Act June 28, 1834, c. 126, 4 Stat. 798”).
93 Fort Lee v. Port Auth., No. CIV.A.87-1238, 1988 WL 24146, at *3 (D.N.J. Mar. 14,
1988).
94 Id. at *1.
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Congress could act under either federal revenue sharing laws
or allow states to pass their own laws regulating Internet gaming.
Federal revenue sharing has the advantage of centralized tax collection. Tax statutes, such as the Federal Wagering Excise Tax,
would be employed to collect taxes. Gaming taxes could then be
distributed to states that allow Internet gaming by their citizens.
Federal collection and distribution provides a fairly efficient
means of accomplishing the goals of Internet gaming regulation.
Federal revenue sharing would also avoid some of the bureaucratic problems that would arise under cooperative agreements
among the states.95
B. State Regulation
1. The Police Power
States traditionally regulate gambling under their police powers.96 The police power allows states to regulate in the interest of
the health, safety, morals, and welfare of citizens.97 Gambling has
historically been regulated by the states under the police power
because gambling is considered a vice activity that affects the morality of citizens.98 The police power gives states the authority to
regulate gaming to the point of completely banning all gaming activity within the borders of the state.99
Federal gaming regulation has been designed and used to assist states in enforcing gambling regulations. The federal government yields to the wishes of the states in determining gambling
policy because states are better able to determine the will of the
people.100 The federal Wire Act prohibits people in the business of
betting and wagering from using wire communications to take
bets in interstate or foreign commerce on any sporting event or
contest.101 However, the Wire Act has an important exception for
the use of wire communication facilities to transmit information to
be used for news reporting or to assist bettors in placing bets on
See discussion infra Part III.
See supra note 45.
See Berman v. Parker, 348 U.S. 26, 32 (1954) (“Public safety, public health, morality, peace and quiet, law and order—these are some of the more conspicuous examples of
the traditional application of the police power to municipal affairs. Yet they merely illustrate the scope of the power and do not delimit it.”).
98 See Thomas v. Bible, 694 F. Supp. 750, 759-60 (D. Nev. 1988) (“Licensed gaming is a
privilege conferred by the state and does not carry with it the rights inherent in useful
trades and occupations. . . . Licensed gaming is a matter reserved to the states within the
meaning of the Tenth Amendment to the United States Constitution.”) (citations omitted);
Rose, Understanding the Law, supra note 6, at 181.
99 Peter Brown, Regulation of Cybercasinos and Internet Gambling, 547 PLI/Pat 9, 14
(2000). Most states currently allow some form of gambling whether casinos, lotteries, Indian gaming, or, more recently, riverboat casinos. Only two states, Utah and Hawaii, have
complete bans on all gambling activities. Id.
100 Goodman, supra note 46, at 379.
101 18 U.S.C. § 1084 (2000).
95
96
97
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sporting events between states where such bets are legal.102
States determine the legality of placing wagers while the Wire Act
assists “prohibitionist states in keeping their citizens free from operators based in foreign jurisdictions.”103 The Wire Act and other
federal statutes do not determine the legality of gambling in any
particular state or for the nation as a whole. Rather, federal statutes assist states in effectively enforcing their own laws by providing a federal cause of action against violators whom states would
otherwise have difficulty prosecuting.
Several issues arise for states applying the police power to Internet gaming. First, states have a problem with inconsistency.
For example, if a state passed a law that criminalized acceptance
of wagers by parties located outside the state but allowed acceptance of wagers by casinos inside the state, the effect of the law
would be to create a double standard in which the type of activity
allowed in the legislating state is prohibited in other states.104
Such a law would also violate the Dormant Commerce Clause,
which prevents states from enforcing laws that facially discriminate against commerce in other states in areas where Congress
has not acted.105 When states pass legislation that facially discriminates against commerce in areas that Congress has not acted, courts will apply strict scrutiny to hold the legislation
“virtually per se invalid . . . unless the state can show that [the
legislation] advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.”106
A state law that allows acceptance of bets by casinos within the
state while prohibiting acceptance of bets by casinos outside the
state discriminates by restricting commercial activity outside the
state while allowing—and possibly encouraging—the same type of
activity by casinos located within the legislating state. A law of
this type would clearly impact interstate and foreign commerce
Id. § 1084(b).
Rose, Statutes and International Law, supra note 7, at 237; see also United States v.
Southard, 700 F.2d 1, 20 (1st Cir. 1983) (“Section 1084 (a) was not passed to protect bettors
from their gambling proclivities. Its stated purpose was to assist the states in enforcing
their own laws against gambling.”); H.R. REP. NO. 87-967, at 2633 (1961):
102
103
The purpose of this legislation is to assist the various States, territories, and possessions of the United States and the District of Columbia in the enforcement of
their laws pertaining to gambling, bookmaking, and like offenses and to aid in the
suppression of organized gambling activities by prohibiting the use of or the leasing, furnishing, or maintaining of wire communication facilities which are or will
be used for the transmission of certain gambling information in interstate and
foreign commerce.
Id. (statement of Robert F. Kennedy, Attorney General of the United States).
104 Rose, Understanding the Law, supra note 6, at 201.
105 Pharmaceutical Research & Mfrs. of Am. v. Concannon, 249 F.3d 66, 79 (1st Cir.
2001).
106 Id. (internal quotation omitted).
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since it would cut off the flow of money from the legislating state
to other jurisdictions.
Finally, the police power only gives states the authority to
regulate gaming within their borders. It does not provide a workable model that allows states to benefit from the revenues that
can be generated by Internet gaming. For such a model, states
will have to turn to existing cooperative ventures or build a workable system from the ground up.
2. Multi-State Lotteries
Multi-state lotteries such as Powerball provide a possible
model for states to regulate Internet gaming. Multi-state lotteries
have become popular in the past ten years because of their promise to provide much needed state funding.107 The lure of Internet
gaming for states is similar, provided states can actually realize
revenue from Internet gaming. While multi-state lotteries appear
to be an obvious parallel to Internet gaming, important differences preclude using a multi-state lottery type system as a regulatory model for Internet gaming.
a. Structure
Multi-state lotteries are cooperative ventures between states’
independent lottery commissions. State lottery associations run
multi-state lotteries in their home states, and any revenue generated by the sale of multi-state lottery tickets stays within the
state where the ticket is sold.108 The Multi-State Lottery Association is a non-profit organization owned and operated by the various state lotteries.109 Powerball, which is run by the Multi-State
Lottery Association, is a fifty percent payout game; therefore,
states must pay back fifty cents in prize money for every dollar
spent on tickets.110 Individual states are responsible for paying
small cash prizes, and all of the states contribute to a common
prize pool for jackpots.111 This arrangement allows states with
smaller populations such as Rhode Island and South Dakota to
participate in a lottery with a much larger prize pool than can be
107 Powerball is the largest of the multi-state lotteries. Currently twenty-two states
participate in Powerball or other games administered by the Multi-State Lottery Association. States currently participating in the Multi-State Lottery Association are Arizona,
Colorado, Connecticut, District of Columbia, Delaware, Indiana, Idaho, Iowa, Kansas, Kentucky, Louisiana, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Mexico,
Oregon, Rhode Island, South Dakota, Wisconsin, and West Virginia. Multi-State Lottery
Association , About MUSL, at http://www.musl.com/muslabout.shtm (last visited Mar. 26,
2002).
108 Multi-State Lottery Association, Frequently Asked Questions, at http://www.musl.
com/faq.shtm (last visited Mar. 26, 2002) [hereinafter Frequently Asked Questions].
109 Id.
110 Id.
111 Id.
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generated by the states’ residents alone. The payoff for the states
is that each state can use the revenue generated by the multistate lottery in any way its legislature deems appropriate.112
Despite the fact that multi-state lotteries are obvious cooperative ventures between the states, the lotteries do not appear to be
in violation of the Interstate Compacts Clause.113 No federal
courts have ruled on this issue, but in Tichenor v. Missouri State
Lottery Commission,114 the Supreme Court of Missouri held that
Missouri’s participation in the Multi-State Lottery Association did
not violate the Interstate Compacts Clause because the multistate lottery was not a threat to the federal government’s sovereignty.115 The court reasoned, “The purpose of the federal constitutional provision is to protect the federal government against
threats to its sovereignty by reason of combinations of states.”116
The multi-state lottery cooperative agreement is not a threat to
sovereignty because the agreement exists “to foster a gambling enterprise designed to benefit the treasuries of participating states
. . . [but] Congress retains its power to regulate lotteries to the full
extent of its delegated powers.”117 Congress has not asserted its
power to regulate or prohibit multi-state lotteries to date. While
questions remain about the constitutionality of multi-state lotteries because of the lack of congressional activity and federal litigation, the states have decided the issue in favor of retaining the
lotteries.
b. Applicability: Physical v. Internet Presence and
Public v. Private Control
Despite their apparent legality and success in generating revenue, multi-state lotteries do not provide a workable model for Internet gaming revenue collection and allocation. Two problems
arise with applying the multi-state lottery model to Internet gaming. First, lottery laws prohibit the purchase of lottery tickets
across state lines, while interstate Internet gaming by definition
requires the transmission of money and bets across state lines.
Second, multi-state lotteries are state run while Internet gaming
will be conducted by privately held casinos and bookmakers.
112 Examples of lottery revenue use include “mass transportation in Arizona; economic
development in Kansas; natural resources in Minnesota; school aid and crime control in
Montana; senior citizens and state parks in West Virginia; [and] property tax relief in Wisconsin.” Id.
113 U.S. CONST. art. I, § 10, cl. 3. (“No State shall, without consent of Congress . . . enter
into any Agreement or Compact with another State . . . .”)
114 742 S.W.2d 170 (Mo. 1988).
115 Id. at 176.
116 Id.
117 Id.
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Multi-state lottery tickets must be purchased in a state sponsoring the lottery; the sale of tickets is not permitted over the Internet.118 Lottery tickets may be purchased through the mail or on
a subscription basis, but the person ordering the tickets or subscription must live within a state sponsoring the lottery.119 The
Multi-State Lottery Association carefully spells out rules regarding transportation of lottery tickets across state or international
lines. The Association rules cite 18 U.S.C. § 1301, which provides:
Whoever brings into the United States for the purpose of disposing of the same, or knowingly deposits with any express company or other common carrier for carriage, or carries in
interstate or foreign commerce any paper, certificate, or instrument purporting to be or to represent a ticket, chance, share, or
interest in or dependent upon the event of a lottery . . . or, being
engaged in the business of procuring for a person in 1 State such
a ticket, chance, share, or interest in a lottery, gift, enterprise or
similar scheme conducted by another State (unless that business is permitted under an agreement between the States in
question or appropriate authorities of those States), knowingly
transmits in interstate or foreign commerce information to be
used for the purpose of procuring such a ticket, chance, share, or
interest; or knowingly takes or receives any such paper, certificate, instrument, advertisement, or list so brought, deposited, or
transported, shall be fined under this title or imprisoned not
more than two years, or both.120
The statue is interpreted to include only those who are in the business of selling lottery tickets outside the tickets’ state of origin.121
Therefore, a person who lives in a state that is not part of the
Multi-State Lottery Association may purchase a Powerball ticket
so long as: it is purchased in a state while physically present in
that state;122 the purchaser is not purchasing the ticket with the
intent to dispose of the ticket in another state; and the entire
transaction is completed in the state permitting the lottery.123
Internet gaming, on the other hand, assumes that players will
place bets across state lines. In fact, it is the ability of the Internet to communicate rapidly across large distances and jurisdictional lines that makes it such an attractive medium for gaming.
Internet technology allows gamblers to place bets in their own
homes; whether the state in which the gambler lives has “brick
and mortar” casinos or sports books is immaterial. The Internet
gambler does not have to physically cross state lines in order to
118
119
120
121
122
123
Frequently Asked Questions, supra note 108.
Id.
18 U.S.C. § 1301 (2000).
Frequently Asked Questions, supra note 108.
Id.
Id.
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place a wager as a lottery player would do if his or her home state
did not have a lottery. If an Internet gaming company accepts
bets from out of state residents, it is guilty of the very conduct the
Multi-State Lottery Association seeks to avoid by restricting sales
of lottery tickets to physical purchases within states that license
or sponsor lottery games.
The second major difference between multi-state lotteries and
Internet gaming is that the lotteries are owned and administered
by state governments,124 while Internet gaming sites are generally
owned and operated by privately held corporations. For example,
Rupert Murdoch is heavily invested in Sports Internet Group
PLC, an Australian company that takes wagers from people in the
United States;125 Ladbroke’s, Coral, Stanley Leisure, and William
Hill are Britain’s largest bookmakers, and all plan to close their
offshore Internet operations and open sites in Britain as soon as a
regulatory system is in place;126 and casinos in the United States
support regulation of Internet gaming so they can open sites and
capitalize on additional revenues.127 No current plans exist for
state run casinos or Internet gaming sites.
The fact that Internet gaming will be a private enterprise
complicates any regulatory scheme and makes imposing a system
similar to the multi-state lottery difficult. States that allow multistate lotteries have direct control over the lottery in their own
state, and each state owns a share in administrative bodies such
as the Multi-State Lottery Association.128 States will not have the
same type of direct control over for-profit Internet casinos or
sports books in other states. At the very least, Internet gaming
will force states to impose one more level of regulation such as a
compact for collection of revenues between a state that allows casino gaming and a state that allows its residents to place wagers
in another state via the Internet.
An illustration of the differences and complications may be
helpful. Under the multi-state lottery system, Rhode Island sells
Powerball tickets and keeps the revenue from those tickets with
the exception of money that must be paid into the common jackpot
prize pool.129 Rhode Island does not have to depend on any other
state for collection of lottery revenue. Conversely, if Rhode Island
allowed Internet gaming but did not allow physical full service
casinos, it would have to contract for collection of revenue with a
state that allows physical casinos such as Nevada. Rhode Island
124 See generally KAN. STAT. ANN. § 74-8731 (2000); Louisiana Lottery Corporation, at
http://www.lalottery.com/about.html (last visited Mar. 26, 2002).
125 Rose, Understanding the Law, supra note 6, at 205.
126 Brunker, Britain Embraces, supra note 1.
127 Brunker, Online Gambling, supra note 17.
128 See discussion supra Part II.B.2.
129 Frequently Asked Questions, supra note 108.
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cannot impose a direct tax on Nevada casinos since Rhode Island
does not have a sufficient “tax nexus” with Nevada casinos.130
Rhode Island would also have difficulty determining the amount
of Internet gaming by its citizens in Nevada. Therefore, Rhode
Island would have to depend on Nevada to regulate casinos and
turn over revenue generated by Rhode Island bettors. Such a system is complicated for states whose citizens place bets and for
states taking bets over the Internet since those states will have a
reporting responsibility to other states.
III.
PROPOSALS
FOR
INTERNET GAMING TAX REGULATION
Most scholarship on Internet gaming to date has focused on
the merits of prohibition versus regulation or the difficulty of enforcing a ban on Internet gaming; little attention has been given
to the positive impacts of workable regulation and what might
constitute workable regulation. Articles that focus on regulatory
models do not provide sufficient incentive for states to adopt regulation.131 In order for well regulated Internet gaming to become a
reality in the United States, states must be able to realize some
benefit from allowing their citizens to place wagers via the Internet. Each of the following proposals would allow state and federal governments to realize revenue from Internet gaming, while
maintaining states’ traditional authority to regulate gaming
under the police power.
A. Opt In Provisions for the States
Congress could amend the Federal Wager Excise Tax132 to include a provision for states to “opt in” to a federal tax collection
program on Internet gaming sites. At the same time, Congress
130 See Tom W. Bell, All’s Not Fair in Internet Tax Wars: Those Buying Over the Web
Shouldn’t Pay for Unused Infrastructure, L.A. DAILY J., Feb. 1, 2001, at 6, available at
http://www.tomwbell.com/writings/TaxWars.html. Bell argues that a long standing Supreme Court precedent prohibiting states from collecting taxes on purchases made by consumers in states where retailers do not have a physical presence should be applied to
Internet purchases because purchases over the Internet consume fewer public services
than purchases made in traditional malls and shopping centers. Similarly, Internet casinos do not place the same strain on public services as physical casinos, and states that only
allow gaming over the Internet will not have sufficient contacts with gaming providers to
enforce tax laws. Id.
131 See Michael P. Kailus, Do Not Bet on Unilateral Prohibition of Internet Gambling to
Eliminate Cyber-Casinos, 1999 U. ILL. L. REV. 1045, 1068 (1999). Kalius proposes a “Seal
of Approval” regulatory model for Internet casinos. Id. at 1080. Under this model, Internet
casinos that meet licensing requirements would receive a “Seal of Approval” from the regulatory body. Id. In order to obtain a license, operators would have to “demonstrat[e] a clear
ability to provide major prizes as promised to players” and undergo background checks. Id.
The problem with this model is that there is no incentive for states to adopt regulation as
opposed to an outright ban. The model provides some protection for consumers, but states
can achieve the same protection through a ban.
132 I.R.C. § 4401 (West 2002).
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301
could amend the statute to allocate a percentage of the tax to
states that allow their citizens to gamble on the Internet. Under
this regulatory model, the Internal Revenue Service would collect
taxes from Internet gaming providers. Providers would be under
an obligation to report all Internet wagers and pay taxes on those
wagers much as casinos currently report income and pay taxes.
Electronic records of all wagers placed over the Internet would facilitate reporting.133
A federal “opt in” program has two primary advantages.
First, much of the legal and bureaucratic infrastructure needed to
collect and distribute tax revenue is already in place; the modification should not impose significant new costs. The Federal Wager
Excise Tax, with minor modification, is applicable to Internet
gaming, and the federal government already has sophisticated
revenue sharing programs with the states. The method of taxation and distribution of funds from Internet gaming would not be
significantly different from methods employed for collection and
distribution of mineral, timber, and grazing fees. The second advantage to an “opt in” program is that states maintain their police
powers by having the choice of whether to allow citizens to gamble
on the Internet. By using registration software, casinos will be
able to determine the origin of wagers to make sure people are not
placing wagers from states that do not wish to participate in the
program. Of course, citizens of those states will still be able to
access offshore Internet gaming sites, but they will not enjoy the
protections of highly regulated American casinos.
B. State Distribution Under Federal Supervision
Another possible regulatory model would be to have states
with casinos collect and distribute taxes to states that allow Internet gaming. The primary advantage to this model is that it
leaves the majority of regulation in the hands of the states. States
would decide whether to allow Internet gaming, and they would
negotiate with provider states for the best possible deal. As with
the “opt in” model, casinos would have electronic records that facilitate accounting.
The problem with this model is that transaction costs to the
states will be higher. Provider states will have to account for wagers placed by citizens of non-provider states, and non-provider
states will have to make sure provider states are being honest in
their accounting. Mistrust between the states could lead to increased litigation among the states over gaming revenues. Staterun regulation will also increase transaction costs by forcing
states to enter and administer multiple compacts between pro133
Schneider testimony, supra note 40.
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vider and non-provider states. Not only would provider states
have compacts with each non-provider state that allowed its citizens to gamble on the Internet, non-provider states would also
enter multiple compacts with provider states. This may lead to a
sort of forum shopping wherein one provider state would promise
higher returns than another and non-provider states would use
existing compacts to coerce better returns. A state-run system
would likely prove to be too complicated and too contentious to
help states effectively achieve their regulatory goals.
IV.
CONCLUSION
Internet gaming is not an issue that will simply go away. Internet casinos have emerged as the newest form of gambling, and
there is no indication that the number of sites offering gambling
will decrease. Americans are unlikely to curtail their gaming activities on the Internet.134 The likelihood of legalization of Internet gaming gives rise to the need for regulation. Congress and
the states must change their attitude toward Internet gaming in
order to prevent underage and problem gambling and insure fair
games on the Internet. However, lawmakers will not be willing to
make these changes unless they have some incentive.
Existing laws allow the federal government to collect and distribute revenue from Internet gaming. Employing the Federal
Wager Excise Tax and revenue sharing statutes is the most efficient means of providing legislatures with the incentive they need.
States will maintain their traditional police power to regulate
gambling within their borders by choosing whether they wish to
“opt in” to the federal program. States could also expect the assistance of gaming providers who have an interest in keeping their
licenses and realizing additional profits. This incentive will encourage providers to develop better software that will curtail underage and problem gambling.
Cooperation by private, federal, and state entities is the best,
and possibly only, way to control burgeoning Internet gaming.
Regulation by state and federal governments would allow reliable
operators to open gaming sites in the United States that offer
greater consumer protection and encourage bettors to place wagers at domestic casinos. Federal and state governments could
then tax operators and realize revenue from an otherwise untapped source. Now is the time to take the necessary steps to keep
more revenue from going to offshore sites.
134 See generally NGISC FINAL REPORT, supra note 13, at 2-15 to 2-16; Jon Baumgarten
et al., Washington Watch, CYBERSPACE LAW. vol. 6 No. 6, at 13 (2001).
COMMENT
Internet Gambling, Electronic Cash & Money
Laundering: The Unintended Consequences
of a Monetary Control Scheme
Mark D. Schopper*
I. INTRODUCTION
Entrepreneurs have exploited technological advances and
consumer demand to build a global gambling market on the Internet. In response, members of the U.S. Congress have repeatedly attempted to pass legislation prohibiting Internet gambling.
Although all federal legislative attempts to place an outright ban
on Internet gambling have failed, attempts to find an enforceable
method of prohibition continue. Congress’s most recent attempt to
prevent Americans from gambling on the Internet is contained in
proposed legislation, the Unlawful Internet Gambling Funding
Prohibition Act (UIGFPA), which would institute a monetary control scheme in the United States preventing the use of credit cards
and other bank instruments for Internet gambling.1 The raison
d’etre for this legislative effort is purportedly to prevent money
laundering.
This comment examines the monetary control scheme being
considered by Congress, and the possible consequences of using it
as a method of enforcing a prohibition on Internet gambling. To
* Juris Doctor Candidate, May 2002, Chapman University School of Law. The author would like to thank Kelly M. Craig (Senior Notes & Comments and Co-Executive Editor) for providing technical expertise, valuable editorial suggestions, and never-ending
encouragement toward the production of this comment. The author would also like to
thank Professor Tom W. Bell and Debra Peterson for their exceptionally helpful input.
Copyright 2002, Mark D. Schopper, all rights reserved.
1 H.R. 556, 107th Cong. (2001).
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this end, the comment identifies related issues involved in Internet gambling, money laundering, and the emergent technology
of electronic money. This comment will seek to show that the current proposal pending in Congress to ban the use of credit cards
and other payment systems as a means of preventing Internet
gambling will not only fail to achieve its intended result, but may
in fact unleash market forces that could have vast and unintended
consequences—including the promotion of both Internet gambling
and money laundering.
For a glimpse of the likely results of the UIGFPA or similar
monetary control schemes, consider the following scenario: more
than one million Americans per day log on to the Internet and
play casino-style games or make sports wagers for real money.
The federal government moves to prohibit this activity. After numerous failed attempts at passing prohibition legislation, the government develops what appears to be an “effective” method of
achieving this goal: a monetary control scheme that would effectively make it impossible for Americans to fund their Internet
gambling activities. To this end, the government passes legislation banning the use of credit cards, checks, and electronic funds
in Internet gambling. It claims these measures are necessary to
thwart criminals and terrorists from laundering the proceeds of
their illegal activity through Internet gambling sites. Millions of
Americans, denied the use of their credit cards for Internet gambling, seek alternative funding mechanisms.
The market quickly realizes that an alternative mechanism
already exists in the form of electronic money, and gamblers begin
using it to place bets or play casino-style games on the Internet.
This alternative method of payment is completely anonymous, untraceable, and more secure than a credit card. Unlike current
payment systems, such as credit cards, the new payment mechanism allows for immediate payoffs, much like in “brick and mortar” casinos. Internet gambling therefore becomes even more
attractive to potential online gamblers. Indeed, the numerous advantages of this alternative payment mechanism lead to its use
for other transactions on the Internet. As a result, the alternative
payment method enjoys widespread use, and it soon becomes a
commercial success.
And here is the clincher: this alternative method of payment
is perhaps the most powerful and untraceable money-laundering
tool ever imagined by criminals. Additionally, once the alternative payment method “catches on,” it would be nearly impossible
to stop its use without pulling the plug on the entire Internet (and
maybe not even then). Current congressional efforts to ban credit
cards and other payment methods for use in Internet gambling
2002]Internet Gambling, Electronic Cash & Money Laundering 305
could facilitate a consumer shift to this alternative method of payment–“electronic money.”2
II.
BACKGROUND
A. Internet Gambling
To gamble on the Internet, consumers use personal computers
to access Internet gambling websites offering sports wagers or casino-style games of skill or chance.3 Internet gamblers locate
gambling websites much the same way as they would any other
website: through search engines, online advertising, or a variety
of other methods. The gambler generally has two types of gambling from which to choose—casino-style games, “such as blackjack, poker, slot machines, and roulette,”4 and sports wagering.5
Most Internet gambling sites require the gambler to fill out
an online registration form,6 and to open an account with the gambling site or a related bank.7 Once the account is established, the
gambler needs to fund the account; payment can be made via
credit cards, debit cards, wire transfers, checks, smart cards, or
other electronic payment systems.8 Until recently, approximately
ninety-five percent of Internet bets or wagers have been made
through use of credit cards.9 The Internet gambler uses a credit
card to fund a “front money” account with the Internet casino or
related bank,10 which can then be used to wager up to the amount
of the available balance. A gambler’s winnings are usually “distributed as checks in the mail, bank drafts, or credits to the [gambler’s] credit or debit card account.”11
As of 2001, the burgeoning Internet gambling industry was
valued at approximately two billion dollars (U.S.) annually.12 This
2 The terms electronic money (e-money), electronic cash, and digital cash are used
interchangeably throughout this comment. Various names have evolved for electronic
money: It is referred to as digital cash, electronic cash, digital money, cyberpayments, and
cybercash. Sarah N. Welling & Andy G. Rickman, Cyberlaundering: The Risks, The Responses, 50 FLA. L. REV. 295, 298 (1998).
3 See ANTHONY CABOT, THE INTERNET GAMBLING REPORT IV 5-12 (2001).
4 NAT’L GAMBLING IMPACT STUDY COMM’N, FINAL REPORT at 5-3 (1999), available at
http://www.govinfo.library.unt.edu/ngisc/index.html [hereinafter NGISC FINAL REPORT].
5 Id.
6 Id.
7 Id.; CABOT, supra note 3, at 26-27.
9 See Kevin Ferguson, Wells Fargo Bars Use of ATM, Credit Cards for Online Gambling, LAS VEGAS REV.-J., Dec. 15, 2000, at 3E, available at 2000 WL 8216923 (quoting
Internet gambling analyst Sebastian Sinclair).
10 CABOT, supra note 3, at 26-27.
11 Michael P. Kailus, Note, Do Not Bet on Unilateral Prohibition of Internet Gambling
to Eliminate Cyber-Casinos, 1999 U. ILL. L. REV. 1045, 1049 (1999).
12 Jon Baumgarten, Alec Farr, & Susan Brinkerhoff Proskauer Rose LLP, Congress
Again Confronts Internet Gambling, CYBERSPACE LAW. vol. 6 No. 6, at 13 (Sept. 2001) [hereinafter Congress Again Confronts]. Unless otherwise indicated, all currency figures are in
U.S. dollars.
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figure is projected to exceed six billion dollars by 2004, with about
half of this figure originating from gamblers in the United
States.13 The number of Internet gambling businesses has multiplied in a few short years to at least two hundred,14 offering a combined total of more than 1400 websites at which a patron can
gamble.15 These online gambling websites are accessible to anyone with Internet access—anywhere in the world.16 The physical
location of these “virtual casinos” is presently outside of the
United States, in places like Antigua or the Netherlands Antilles.17 The main reason for the lack of domestic Internet gambling
sites is that ambiguity in U.S. federal law currently makes it unclear whether some forms of Internet gambling are legal.
The federal government has traditionally left decisions regarding the legalization of gambling to the states.18 Furthermore,
courts have generally held that the regulation of gambling is a
right reserved for the states by the Tenth Amendment to the U.S.
Constitution.19 Nevertheless, there are federal statutes that apply
to gambling.20 Thus, it is conceivable that the federal government
could regulate Internet gambling and, in fact, Congress has made
numerous attempts to do so. Citing the rapid expansion of Internet gambling and the Internet’s borderless nature as potent
reasons for intervention, members of Congress have attempted to
bring this form of gambling under federal control.
From 1995 to the present, legislation has been introduced in
both the House of Representatives and Senate to prohibit Internet
gambling.21 Internet gambling opponents claim that prohibition is
necessary to deal with, among other things, social problems and
criminal activities linked to gambling.22 However, members of
Congress opposed to Internet gambling have been unsuccessful
with their legislative attempts to place an outright ban on this
Id.
Congress Again Confronts, supra note 12.
See CABOT, supra note 3, at 5-12.
Congress Again Confronts, supra note 12.
Stevie A. Kish, Note, Betting on the Net: An Analysis of the Government’s Role in
Addressing Internet Gambling, 51 FED. COMM. L.J. 449, 450 (1999).
19 Peter Brown, Regulation of Cybercasinos and Internet Gambling, 547 PLI/Pat 9, 14
(1999).
20 See, e.g., The Wire Act, 18 U.S.C. § 1084 (2001).
21 See Congress Again Confronts, supra note 12; Joseph M. Kelly, Internet Gambling
Law, 26 WM. MITCHELL L. REV. 117, 134-150 (2000). As of the writing of this comment, two
bills are currently making their way through the U.S. Congress. H.R. 556, 107th Cong.
(2001) (sponsored by Rep. Leach (R-Iowa)); H.R. 3215, 107th Cong. (2001) (sponsored by
Rep. Goodlatte (R-Virginia)). Congress is expected to consider the legislation in 2002.
Tony Batt, Leach Takes Aim at Web Gambling, LAS VEGAS REV.-J. Nov. 23, 2001, at 1D,
available at 2001 WL 9543589 [hereinafter Batt, Leach Takes Aim].
22 For a good discussion of the perceived dangers of Internet gambling, see Theresa E.
Loscalzo & Stephen J. Shapiro, Internet Gambling Policy: Prohibition Versus Regulation, 7
VILL. SPORTS & ENT. L.J 11 (2000).
13
14
15
16
17
18
activity. Consequently, some members of Congress are now trying
to prevent the use of certain bank instruments for Internet gambling. Before discussing the merits of this proposed monetary control scheme, it will be helpful to understand the political climate
in the U.S. Congress regarding Internet gambling, and how prohibition efforts have arrived at this monetary control methodology.
B. Efforts to Prohibit Internet Gambling
There have been a number of unsuccessful attempts to pass
Internet gambling prohibition legislation. These unsuccessful attempts have varied in both approach and stated purpose. In fact,
the legislative approach has evolved significantly over the past
seven years, as opponents of Internet gambling have gradually
come to realize that Internet gambling is extremely difficult to
regulate.
The first proposal to prohibit Internet gambling was introduced by Senator Jon Kyl (R-Arizona) as part of the 1995 Crime
Prevention Act.23 It targeted individual gamblers and would have
imposed a harsh one-year prison sentence.24 The proposal died in
committee.25 In 1997, Senator Kyl proposed the Internet Gambling Prohibition Act, again attempting to criminalize Internet
gambling.26 This bill was more successful than Senator Kyl’s previous attempt. After undergoing a series of revisions, a version
was approved by the Senate in July 1998,27 but failed in the House
of Representatives. Undaunted, Senator Kyl reintroduced the bill
in March 1999,28 and the Senate unanimously passed a revised
version.29 Nevertheless, the bill again died in the House of
Representatives.
Representative Bob Goodlatte (R-Virginia) has also introduced legislation to prohibit Internet gambling. His bill, the Combating Illegal Gambling Reform and Modernization Act,30 would
update the Wire Act.31 Courts have held that the current statutory language restricts the applicability of the Wire Act to “sport23 See 141 CONG. REC. S19110-07 (1995) (overview of the Crime Prevention Act of
1995), available at 1995 WL 755393.
24 Id. In addition to the prison sentence, the convicted individual’s computer equipment would be confiscated. Id
25 Id.
26 See Internet Gambling Prohibition Act of 1997, S. 474, 105th Cong. (1997).
27 Compare S. 474 (introduced by Sen. Jon Kyl on March 19, 1997), with 144 Cong.
Rec. S8815 (1998) (Senate Bill 474 as passed by the Senate, July 23, 1998).
28 S. 692, 106th Cong. (1999).
29 See 145 CONG. REC. S14863-02 (daily ed. Nov. 19, 1999).
30 H.R. 3215, 107th Cong. (2001).
31 The Wire Act, 18 U.S.C. §1084 (2001). The Wire Act provides criminal liability for
anyone who engages in “the business of betting or wagering” using:
[W]ire communication facility for the transmission in interstate or foreign commerce of [1] bets or wagers or [2] information assisting in the placing of bets or
wagers on any sporting event or contest, or for the transmission of [3] a wire com-
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ing events or contests”, thus excluding casino-style games.32 The
proposed revisions to the Wire Act would include nearly every
type of gambling conducted over the Internet, including casino
style games.33 Unlike the Kyl bill, however, the Goodlatte legislation targets the offshore Internet casino operator rather than the
individual gambler. A number of commentators contend that Representative Goodlatte’s proposed legislation would be difficult to
enforce, and could be easily circumvented.34 In light of this view, a
third legislative approach, which targets the payment mechanisms used by Internet gamblers, has surfaced in Congress.
C. Congress’s Monetary Control Schemes and Internet
Gambling
1. Efforts to Disrupt Payment Methods Used by Internet
Gamblers
In the National Gambling Impact Study Commission’s
(NGISC) 1999 report on gambling in America, the NGISC recommended prohibition of Internet gambling to the President and
Congress.35 The NGISC recommended “the passage of legislation
stating that any credit card debts incurred while gambling on the
Internet are unrecoverable.”36 It also endorsed “the passage of legislation prohibiting wire transfers to known Internet gambling
sites, or the banks who represent them.”37 The NGISC recommunication which entitles the recipient to receive money or credit as a result of
bets or wagers.
Id.
32 In re MasterCard Int’l Inc., Internet Gambling Litig., 132 F. Supp. 2d 468, 480-81
(E.D. La. 2001).
33 H.R. 3215.
34 E.g., Tony Batt, Bill to Ban Web-Based Gambling Toughened, LAS VEGAS REV.-J.,
Nov. 2, 2001, at 1D (Las Vegas gaming expert and Internet gambling specialist, Anthony
Cabot, taking the position that Goodlatte’s bill will not stop the expansion of Internet gambling); Peter Hardin, U.S. Backs Goodlatte Bill Barring Internet Gambling, RICHMOND
TIMES-DISPATCH, Dec. 2, 2001, at A26 (Frank Catania, former Director of the New Jersey
Division of Gaming Enforcement, criticizing the bill, and Representative Robert Scott questioning whether the bill will be effective).
The Commission recommends to the President, Congress, and the Department of
Justice (DOJ) that the federal government should prohibit, without allowing new
exemptions or the expansion of existing federal exemptions to other jurisdictions,
Internet gambling not already authorized within the United States or among parties in the United States and any foreign jurisdiction. Further, the Commission
recommends that the President and Congress direct the DOJ to develop enforcement strategies that include, but are not limited to, Internet service providers,
credit card providers, money transfer agencies, makers of wireless communications systems, and others who intentionally or unintentionally facilitate Internet
gambling transactions. Because it crosses state lines, it is difficult for states to
adequately monitor and regulate such gambling.
Id.
36 Id.
37 Id.
mended prohibition, in part due to its conclusion that Internet
gambling sites provide criminals with “easy” money-laundering
opportunities.38
Not long after the NGISC made its recommendations, Congress began looking at this method of prohibiting Internet gambling. In May 2000, the House Committee on Banking and
Financial Services introduced House Bill 4419,39 which included
language that would have made it illegal for an Internet gambling
operation to accept a bank instrument in connection with Internet
gambling.40 The logic underlying this scheme was that if the flow
of money to Internet gambling sites could be blocked, Internet
gambling would be effectively prohibited. Representative John
LaFalce (D-New York), who cosponsored the bill, stated that the
bill offered the “only realistic approach for restricting the expansion of Internet gambling by restricting the electronic payments
that make online betting and, thus, Internet gambling possible.”41
Although Congress did not enact House Bill 4419, its concept
has survived. The idea of preventing Internet gambling by this
monetary control approach resurfaced shortly after the World
Trade Center and Pentagon terrorist attacks of September 11,
2001. House and Senate negotiators agreed to include moneylaundering legislation in the Anti-Terrorism Package to be sent to
President Bush.42 Included in this legislation was a provision
prohibiting payments for wagers to Internet gambling sites. The
prohibited payment methods would have included credit cards,
checks, or funds transferred electronically.43 The House Financial
Services Committee pushed for the bill, which would have made it
illegal for banks or credit card companies to intentionally process
illegal Internet gambling transactions.44 The inclusion of the Internet gambling provision was reportedly for the purpose of
preventing money laundering linked to terrorism.45 The bill represented a tactical shift by Internet gambling opponents; unlike
the bills proposed by Senator Kyl and others to prohibit “Internet
gambling,” the inclusion of anti-Internet gambling language in the
Anti-Terrorism Package was to prevent “money laundering.”
The Justice Department, including the Federal Bureau of Investigation (FBI), supported the legislation.46 Some legislators
Id. at 5-6.
H.R. 4419, 106th Cong. (2000).
Id.
Congressional Panel Seeks to Ban Credit, Debit Card Use for Online Gambling,
CARD NEWS, June 28, 2000, available at 2000 WL 4447497.
42 Money Laundering Monitor, Business Crimes Bulletin: Compliance and Litigation,
vol. 8 No. 9, at 2 (Oct. 2001).
43 Congress Again Confronts, supra note 12.
44 Money Laundering Monitor, supra note 42.
45 Congress Again Confronts, supra note 12.
38
39
40
41
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pushed for even stronger legislation;47 they sought to prohibit all
forms of Internet gambling, including Internet gambling not considered illegal in the jurisdiction in which it was located.48 The
proposed monetary control scheme and its justification also had
critics. Not everyone in Congress liked the idea of prohibiting Internet gambling through the money-laundering legislation. For
example, Representative Ron Paul (R-Texas) and other legislators
criticized the legislation, arguing that the connection between Internet gambling and terrorism was too weak for such legislation to
be a part of the broader money-laundering package.49 Representatives of both the financial services industry and the gambling industry, who also opposed the legislation, joined these legislators.
Financial industries, which would have been impacted by the
prohibition, opposed the bill, maintaining that it would be difficult
to enforce.50 Credit card giants like Visa International (Visa),
MasterCard International Inc., Bank One Corp., and Bank of
America supported this contention and lobbied against the legislation, claiming that it simply would not work.51 They pointed out
that individuals purchasing “electronic cash” with their credit
cards for use in online gambling could easily bypass the proposed
prohibitions.52 Moreover, one Visa senior vice president predicted
that such “alternative forms of payment will become the payment
system of choice for Internet gambling.”53 Visa representatives
also claimed the bill would place an undue burden on Visa and
other credit card companies.54 Representatives of the gambling industry reported to a congressional panel that a ban on Internet
gambling would be unsuccessful for a number of reasons, claiming
that the Internet is a borderless medium, and that alternative
47 Id. Representative John LaFalce, who has also introduced anti-Internet gambling
legislation in the past, for example, 147 CONG. REC. H4377-06 (2001) (introducing House
Bill 2579), available at 2001 WL 819229, was behind the push to add the “legal gambling”
language to the bill. The LaFalce language would have made it illegal for states to legalize
Internet gambling within their borders. Money Laundering Monitor, supra note 42.
49 Tony Batt, House Panel Oks Internet Gambling Restrictions Move, LAS VEGAS REV.J., Oct. 12, 2001, at 7A, available at 2001 WL 9541371.
51 Congress Again Confronts, supra note 12; see also Kathleen Day, Money-Laundering Bill Passes: House Strips Measure of Web Gambling Limit Opposed by Banks, WASH.
POST, Oct. 18, 2001, at E1, available at 2001 WL 29162604.
52 Congress Again Confronts, supra note 12; see also Gambling on The Internet: Hearing Before the Subcomm. on Oversight and Investigations of the House Comm. of Financial
Services, 106th Cong. (2001) (written Statement of Mark MacCarthy, Senior Vice President, Public Policy Visa U.S.A.), available at 2001 WL 21757109 [hereinafter MacCarthy
Statement].
53 MacCarthy Statement, supra note 52.
54 Congress Again Confronts, supra note 12; see also MacCarthy Statement, supra
note 52.
payment systems were already available for those who wished to
gamble online.55
Apparently, the opposition to the inclusion of an Internet
gambling prohibition in the money-laundering bill was effective
because the provision was stripped from the bill eventually
presented to the President.56 Undaunted, many in Congress are
still attempting to prohibit Internet gambling through similar legislation. As of the writing of this comment, a bill currently being
considered by Congress aims to prevent the use of credit cards and
other bank instruments for Internet gambling.57
2. Unlawful Internet Gambling Funding Prohibition Act
United States Representative James Leach (R-Iowa) sponsored the UIGFPA.58 The stated purpose of the legislation is “[t]o
prevent the use of certain bank instruments for unlawful Internet
gambling, and for other purposes.”59 The UIGFPA would prohibit
financial service organizations, such as credit card providers, from
collecting the gambling debts of customers who use credit cards to
gamble online.60 The bill would also impose penalties on financial
institutions that knowingly participate in Internet gambling
transactions.61 The civil and criminal penalties include fines and
up to five years in prison.62
The UIGFPA, lists, inter alia, the following congressional
finding: “Internet gambling conducted through offshore jurisdictions has been identified by United States law enforcement officials as a significant money laundering vulnerability.” 63
Additionally, Representative Leach, in his testimony before the
House Judiciary Committee, Subcommittee on Crime, stated, “Internet gambling specifically is a particularly attractive method to
launder money because of the heightened level of anonymity and a
virtual lack of governmental regulation.”64
The concern that Internet gambling could become a “haven”
for money laundering is justified. In the words of one commentaCongress Again Confronts, supra note 12.
Day, supra note 51.
H.R. 556, 107th Cong. (2001).
Id.
Id.
H.R. 556 § 5. This section states, in pertinent part, that financial intuitions may
not engage in “Paying, transferring, or collecting on any check, draft, or other instrument
drawn on any depository institution with the actual knowledge that any person is violating
section 3(a) of the Unlawful Internet Gambling Funding Prohibition Act in connection with
such check, draft, or other instrument.” Id.
61 H.R. 556.
62 Id.
63 Id.
64 Illegal Gambling: Hearing on H.R. 556 Before the Subcomm. on Crime of the House
Comm. of the Judiciary, 107th Cong. (2001) (testimony of U.S. Rep. Leach), available at
2001 WL 1519433.
55
56
57
58
59
60
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tor, “The greatest criminal threat posed by the blossoming virtual
gaming industry is the unprecedented potential it presents for
criminal elements seeking to launder their ill-gotten gains.”65 The
NGISC concluded that Internet gambling might provide an “easy
means” for criminals to launder their illicit funds.66 Additionally,
the FBI claims that offshore Internet gambling sites are a great
resource for money launderers, and has reportedly investigated
two websites that it claims were being used by organized crime to
launder money.67 Moreover, beyond Internet gambling there appears to be a general link between money laundering and computer technology. The Financial Crimes Enforcement Network
(FinCEN),68 a branch of the Treasury Department, has found evidence that computers and the Internet in general are being used
to facilitate money laundering.69
Regarding enforceability, many members of Congress generally view the approach of the UIGFPA to be the best method of
preventing Americans from gambling at offshore websites.70 At
first glance, this method of enforcement seems logical. Credit
cards provide consumers with a mechanism to fund their online
gambling. Theoretically, if you cut off the funding source, Americans will not be able to gamble online. However, the monetary
control scheme has much broader implications than its supporters
realize. Indeed, the UIGFPA may unintentionally promote an
anonymous form of e-money as a replacement of credit cards for
Internet gambling. Ironically, this form of e-money could poten65 Jon Mills, Internet Casinos: A Sure Bet for Money Laundering, 19 DICK. J. INT’L L.
77, 78 (2000).
66 See NGISC FINAL REPORT, supra note 4, at 5-6. The NGISC report describes the
possible method of laundering money via Internet gambling as follows: “To launder money,
a person need only deposit money into an offshore account, use those funds to gamble, lose
a small percentage of the original funds, then cash out the remaining funds.” Id.
68 The Financial Crimes Enforcement Network is an arm of the Treasury Department. FinCEN, About FinCEN/FAQS, at http://www.ustreas.gov/fincen/af_faqs.html (last
visited Mar. 29, 2002). FinCEN states its mission as follows:
[T]o support law enforcement investigative efforts and foster interagency and
global cooperation against domestic and international financial crimes; and to provide U.S. policy makers with strategic analyses of domestic and worldwide trends
and patterns. FinCEN works toward those ends through information collection
analysis and sharing, as well as technological assistance and innovative, cost-effective implementation of the Bank Secrecy Act and other Treasury authorities.
FinCEN, Mission, at http://www.ustreas.gov/fincen/af_mission.html (last visited Mar. 29,
2002).
69 See generally FINCEN, U.S. Treas. Dept., A SURVEY OF ELECTRONIC CASH, ELECTRONIC BANKING AND INTERNET GAMING, FINANCIAL CRIMES ENFORCEMENT NETWORK (2000),
available at http://www.ustreas.gov/fincen/e-cash.pdf [hereinafter FINCEN, SURVEY OF
ELECTRONIC CASH].
70 Internet Gambling Bills Should Be Enacted Separately, Leach Says, WASH. INTERNET DAILY, Nov. 30, 2001, available at http://www.offshoretoday.com/NEWS/19892_8.
html [hereinafter Leach Says].
tially lead to an actual increase in Internet gambling and money
laundering.
D. Money Laundering
Money laundering is a process through which criminals legitimize proceeds derived from illegal activity.71 It is a serious form of
criminal activity, not only in the United States, but worldwide.72
Between five hundred billion and two trillion dollars in illicit
funds are estimated to be laundered every year.73 Money laundering has been shown to facilitate all types of nefarious activity, including “terrorism, fraud, robbery, corruption, bribery, extortion,
immigrant smuggling, kidnapping, and tax evasion.”74
The actual process of laundering money is a complicated
method of disguising the origin of money so that it appears to have
been derived from legal activity. This legitimization of money is
generally carried out in a three-stage process: (1) the placement
stage, (2) the layering stage, and (3) the integration stage.75
“Placement” requires physically moving the illicit funds into financial institutions or the retail economy.76 The second stage,
“layering,” generally involves multiple wire transfers of the funds,
or other complex financial transactions.77 The layering process
disguises or eliminates any audit trail, thereby making it difficult
for law enforcement to trace or pinpoint the origin of the funds.78
The final stage, “integration,” involves reintroducing the funds
back into the economy to appear as though they were legitimate.79
The integration of illicit funds into a legitimate economy is difficult for law enforcement to detect without an audit trail established during the placement or layering stage.80
Law enforcement agencies in the United States rely on a comprehensive financial transaction reporting system imposed on
U.S. banks and other financial institutions to detect and prevent
money laundering.81 Under the Bank Secrecy Act, banks and
other financial institutions are required to record and report fi71 Andres Rueda, The Implications of Strong Encryption Technology On Money Laundering, 12 ALB. L.J. SCI. & TECH. 1, 7-8 (2001).
72 See Mills, supra note 65, at 77.
73 Rueda, supra note 71, at 7.
74 Id. at 8.
75 FinCEN, U.S. Treas. Dept., Suspicious Activity Reporting and Casinos, at http://
www.treas.gov/fincen/sarcasin.html (last visited Mar. 16, 2002).
76 Id. “During placement, the money is most vulnerable to detection and seizure. To
assist in the placement stage, the funds may be initially smuggled across a nation’s borders
and placed into financial institutions located in foreign countries.” Id.
77 Id.
78 Id.
79 Id.
80 ROGER C. MOLANDER ET AL., CYBERPAYMENTS AND MONEY LAUNDERING 6 (Rand
1998).
81 Rueda, supra note 71, at 8-9.
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nancial transactions to the federal government.82 The information
supplied by these financial institutions creates a “paper trail,”
which is then used by law enforcement to “trace laundered funds
to the illegal activity from which they were originally derived.”83
E. Electronic Money
1. E-Money
Since at least 1992, a process had been contemplated that
would allow a person to “transfer money (or credentials) over an
electronic network and obtain a service without the service provider ever knowing the actual identity of the individual but with
the assurance that money would be received for the service or that
the individual had the appropriate credentials to receive the service.”84 With the advent of e-commerce, and a corresponding demand for an efficient form of online payment, this process has
materialized in the form of electronic money.
Electronic money is a digital representation of money that can
be placed on a computer hard drive, smart card, or other device
with memory, including cellular phones and other electronic communication devices.85 Electronic money payment schemes, which
currently consist of smart cards and computer-based e-money, allow for the storage and redemption of financial value.86 Simply
put, electronic money is a money replacement based on encryption
technologies,87 which disguise the electronic information so that
only the intended recipient can access its meaning.88 In the context of e-money, the information that forms the basis of the money
can be encrypted to a level that makes it completely anonymous
and untraceable—even to its issuer.89
The process of obtaining and using electronic money is
straightforward. A consumer purchases e-money with a form of
conventional money or credit. The e-money can then be stored on
a smart card or memory-based electronic device until the conId.
Id. at 8.
Marc Rotenberg, Fair Information Practices and the Architecture of Privacy: (What
Larry Doesn’t Get), 2001 STAN. TECH. L. REV. 1, 51 (2001).
85 FINCEN, SURVEY OF ELECTRONIC CASH, supra note 69, at 15.
86 Id.; see also Dreams of a Cashless Society: Virtual Money v the Real Thing: It Remains a Challenge to Connect the Futuristic Payment Methods to a 14th-Century Banking
System, ECONOMIST, May 5, 2001, available at 2001 WL 7318797 (Reportedly, mobile-phone
users in countries like Germany, Austria, and Spain can already send money using their
phones with a service called Paybox.).
88 Id. at 17-18.
89 See Welling & Rickman, supra note 2, at 322. DigiCash, one of the first e-money
providers, offered encryption technology so strong that it could not track how its customers
used the e-money, making the currency completely anonymous. Id.
82
83
84
sumer is ready to spend it.90 With computer-based e-money, a government or private business issues an electronic coin or note that
“represents a claim against the issuer and can be redeemed in exchange for traditional money (e.g., dollars).”91 Once the coin or
note has been issued, it can be used online over wires or wireless
technology.92 Unlike credit cards, this coin or note can be used
without the assistance of a bank or other traditional financial
institution.93
Another form of e-money is based on “smart-card” technology.
A smart card resembles a credit card in physical form.94 After a
consumer purchases a smart card, he or she can then load it with
electronic money at a “vending machine, bank, ATM, personal
computer over the Internet, or through a specially equipped telephone.”95 Once the e-money is loaded on the card, the money can
then be spent over the Internet or through other communication
devices.96
Consumers can spend e-money online, much the same as they
do cash at the local shopping mall. Individuals can also use emoney in anonymous peer-to-peer transactions. In this regard, emoney is essentially an electronic form of real-world cash. Emoney has many advantages over real cash, though. For example,
because e-money lacks the geographical constraints of traditional
cash,97 one can transmit electronic money to another country as
easily as transmitting it across the street.98 Electronic money is
efficient and economical to store and transmit, which ultimately
lowers the cost of exchange.99 Additionally, it offers a number of
advantages over credit cards, including lower transaction costs,
immediate transaction processing, and a reduced potential for
fraud.100 Although one risks having his or her identity stolen with
credit cards, identity theft is not an issue with electronic money.
Because e-money can be encrypted and used anonymously over
the Internet, it offers significantly better privacy than credit cards
FINCEN, SURVEY OF ELECTRONIC CASH, supra note 69, at 15.
David D. Friedman & Kerry L. Macintosh, The Cash of the Twenty-First Century,
17 SANTA CLARA COMPUTER & HIGH TECH. L.J. 273, 278 (2001).
93 Id.; Michael Anastasio, The Enforceability of Internet Gambling Debts: Laws, Policies, and Causes of Action, 6 VA. J.L. & TECH. 6, 19 (2001).
95 Wendy J. Weimer, Note and Comment, Cyberlaundering: An International Cache
for Microchip Money, 13 DEPAUL BUS. L.J. 199, 223 (2000-2001).
97 See Friedman & Macintoch, supra note 91, at 279.
98 Henry H. Perritt, Jr., Legal and Technological Infrastructures for Electronic Payment Systems, 22 RUTGERS COMPUTER & TECH. L.J. 1, 56 (1996).
99 See Friedman & Macintosh, supra note 91, at 280.
100 Rueda, supra note 71, at 29; Declan McCullagh, Digging Those Digicash Blues,
WIRED NEWS, at http://www.wired.com/news/print/0,1294,44507,00.html (last visited Mar.
16, 2002).
90
91
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and even traditional cash.101 In contrast, “credit cards and checks
are not anonymous” because they leave an audit trail that can be
followed and that can identify one or more of the parties to the
transaction in question.102
With all of the obvious benefits of electronic money, it is easy
to see why commentators believe it has the potential to revolutionize the modern economy.103 Some commentators predict “[t]he
transition from a paper-based monetary system to an electronic
payments system will reduce transaction costs, expand markets,
and empower individuals.”104 This is high praise. Indeed, electronic money has received such laudatory praise from pundits and
commentators that it could lead one to believe it is exactly what
the consumers of the world need.105
Nevertheless, electronic money also has drawbacks, which
have caused federal law enforcement agencies and the Treasury
Department to voice serious concerns about this new form of currency. Most notably, the Treasury Department is concerned with
the potential use of e-money in “money laundering, offshore banking, and tax havens.”106 A Treasury Department report recently
warned that “technologies such as the Internet and electronic cash
could thwart the federal government’s efforts to conduct surveillance of bank and credit card transactions.”107 Thus, the potential
effect of the widespread use of e-money is that law enforcement
may be unable to detect and prevent money laundering and other
serious crimes.
Friedman & Macintosh, supra note 91, at 278.
Id. at 275.
103 Welling & Rickman, supra note 2, at 299.
104 JAMES A. DORN, Introduction to THE FUTURE OF MONEY IN THE INFORMATION AGE 2
(James A. Dorn ed., 1997).
105 See Alan S. Frankel, Monopoly and Competition in the Supply and Exchange of
Money, 66 ANTITRUST L.J. 313 (1998).
101
102
The right to monopolize new, cost-saving forms of money and payment systems
has for centuries been guarded jealously by those lucky, powerful, or resourceful
enough to obtain it. From gold coins to debit cards, market power by banks and
their clearinghouse organizations has combined with price coherence-the tendency
in some markets for competing products to transact at a single common price-and
Gresham’s Law to generate significant monopoly and profits. Suppliers of money
and payment systems have taken advantage of transaction costs and vigorously
used vertical pricing restrictions, reinforced by statutes, to export onto others the
incidence of their market power, thereby facilitating and exacerbating the exploitation of that market power, increasing the harm to consumers, and stifling
competition between rival payment systems.
Id. at 359.
106 McCullagh, supra note 100.
107 Declan McCullagh, Feds: Digital Cash Can Thwart Us, WIRED NEWS, at http://www.
wired.com/news/print/0,1294,38955,00.html (last visited Mar. 24, 2002).
2. The Outlook for E-Money
The commercial potential of e-money technology has spurred
many commercial entities to venture into the market. Scholars
and commentators have suggested that electronic money could
“revolutionize the consumer market and eventually make traditional cash obsolete.”108 However, to date the e-money market has
not been successful in the United States.109 In fact, “electronic
money barely registers in terms of overall volume of [U.S.] payment transactions.”110 Some analysts estimate that in 2002, only
one percent of online transactions will be made using e-money.111
Understandably, the lack of consumer demand has caused
real problems for e-money providers. A recent Wired News article
reported “[t]he electronic cash landscape is littered with the looted
corpses of companies that tried and failed to compete with credit
cards for online purchases.”112 The electronic currency market pioneer, DigiCash, was one of the first victims, having declared bankruptcy in 1998.113 It sold its domain name and patents to eCash
Technologies, another electronic money company,114 which is having troubles of its own.115 In fact, all of the early leaders in the
online money field are “either bankrupt or have gone through
complete overhauls.”116 This corporate bad news has not deterred
financial institutions and software developers in the United
States from embracing the promising technology and developing
new forms of e-money.117
Welling & Rickman, supra note 2, at 300.
FINCEN, SURVEY OF ELECTRONIC CASH, supra note 69, at 12. Various forms of electronic e-money are already available in a number of countries and have reportedly enjoyed
“relatively wide acceptance” in Europe and the Far East. Id. Electronic money is reportedly available in places like Great Britain, Denmark, Belgium, Brazil, Mexico, Argentina,
Colombia, and other countries in Europe and South America. Id.; Welling & Rickman,
111 Show Me E-Money, WIRED NEWS, at http://www.wired.com/news/print/0,1294,
13277,00.html (last visited Mar. 27, 2002) (Forecast made by Jupiter Communications).
112 McCullagh,, supra note 100.
113 Id.
114 Id.
115 Id. In March 2001, eCash laid off twenty-five of its sixty-five employees. Id.
116 Noah Shachtman, Does P2P Fit Consumers’ Bill?, WIRED NEWS, at http://www.
wired.com/news/print/0,1294,36709,00.html (last visited Mar. 16, 2002).
117 A number of U.S. banks and financial institutions have already developed, or are
currently developing a form of electronic currency. Mark G. Tratos, Gaming on the Internet, 3 STAN. J.L. BUS. & FIN. 101, 110 (1997). The Mark Twain Bank of St. Louis was the
first bank in the Untied States to offer electronic cash accounts. Id. Both Visa and American Express are supporting the development of Internet currencies. Rueda, supra note 71,
at 36. Even the software giant Microsoft is apparently making plans to enter the electronic
cash market. Microsoft was awarded a patent in June 1998 on technology, which allows for
anonymous electronic cash transactions. Chris Oakes, MS Patents Anonymous Ecash,
WIRED NEWS, at http://www.wired.com/news/technology/0,1282,13277,00.html (last visited
Mar. 29, 2002). The Microsoft technology reportedly could allow consumers to make untraceable transactions on the Internet. Id.
108
109
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The market for e-money has struggled in large part because
Internet consumers have become comfortable using credit cards to
make online purchases.118 Because credit cards are not sufficient
for all forms of e-commerce, however, some demand has been created for new forms of payment. An example of a new type of payment system benefiting from increased demand is the “PayPal”
system. This online payment system, launched by a Silicon Valley
duo in 1999, found an ideal application with the online market
and auction service eBay.119 PayPal offers the innovative service
of providing Internet users with a way to transfer money via email.120 The company struggled until early 2000, when customers
of eBay, which reportedly has 42.4 million registered users,
gained access to PayPal’s service.121 Before the advent of PayPal,
eBay customers generally had to pay for their online purchases by
sending a check via traditional mail.122 This process reportedly
added a week or more to individual transactions.123 When eBay
users realized that PayPal would allow them to pay or be paid
instantly by e-mail, they began flocking to the service.124 Although PayPal had only about ten thousand users in 1999, the
number of registered users has grown to more than thirteen million in 2002, and continues to grow.125
PayPal is not electronic money per se; however, its payment
scheme approximates the use of e-money. It is therefore a good
indicator of the potential of e-money. It is also a good example of
how e-money can thrive when coupled with a well-matched application and consumer demand.
III.
DISCUSSION
A. The Feasibility of the UIGFPA
At first glance, it appears that the UIGFPA could be successful at blocking access to Internet gambling through a credit card
prohibition. As previously noted, most Internet gamblers fund
118 DigiCash Outta Cash, WIRED NEWS, at http://www.wired.com/news/print/0,1294,
16113,00.html (last visited Mar. 16, 2002).
119 eBay claims to be the world’s largest online marketplace. Its company overview
states that it was founded in September 1995, and is “the leading online marketplace for
the sale of goods and services by a diverse community of individuals and businesses.”
eBay, Company Overview, at wysiwyg://2/http://www.ebay.com/community/aboutebay/over
view/index.html (last visited Mar. 27, 2002). “Today, the eBay community includes 42.4
million registered users, and is the most popular shopping site on the Internet when measured by total user minutes according to Media Metrix.” Id.
120 Adam Cohen, PayPal’s Big Play; An Online Payment Firm Rises from the Dotcom
Ashes, TIME, Feb. 11, 2002, available at 2002 WL 8385732.
121 Id.
122 Id.
123 Id.
124 Id.
125 Id.
their gambling activity with credit cards. The underlying premise
of the UIGFPA is simple: if Internet gamblers cannot fund their
online wagers with credit cards, then they cannot gamble. The
burden of enforcing this monetary control scheme will fall on the
shoulders of credit card providers.126 Under the UIGFPA, any
credit card provider that knowingly processes a gambling transaction could face both criminal and civil penalties.127 Moreover, the
UIGFPA would prohibit credit card providers from collecting the
gambling debts of customers who use credit cards to gamble online.128 The threat of these penalties has understandably caused
concern among credit card providers. One commentator has noted
that the UIGFPA “might motivate banks, wishing to avoid additional regulation and the threat of penalties, to try to pre-empt
passage [of the UIGFPA] by stepping up their efforts to reject
gambling transactions.”129 In fact, there is some indication that
the UIGFPA has motivated credit card companies to do this.
In 2002, credit card companies are reportedly rejecting online
gambling transactions at an ever-increasing rate.130 Two factors
appear to explain this trend. The first factor is a rash of cases in
the United States by Internet gamblers seeking to have their
credit card debts, which they incurred while gambling online, declared unenforceable as against public policy.131 Thus far, these
cases have been unsuccessful;132 however, they remain a cause of
concern for credit-card providers. The second factor is the uncertainty caused by the UIGFPA. As a result of this uncertainty,
many credit card companies are processing fewer Internet gambling transactions, and some credit card providers have completely banned the use of their credit cards for Internet gambling.
The result has been a corresponding drop in Internet gambling.133
The UIGFPA is already having an effect, without having been enacted. Thus, at first glance it appears that the UIGFPA could be
successful.
H.R. 556, 107th Cong. (2001).
Id.
128 Id.
129 Matt Richtel, A Credit Crisis for Web Casinos: Card Companies Are Growing Wary
of Online Betting, N.Y. TIMES, Jan. 12, 2002, at C1.
130 Id.
131 See, e.g., In re MasterCard Int’l Inc., Internet Gambling Litig., 132 F. Supp. 2d 468
(E.D. La. 2001) (where plaintiffs, who lost money to Internet casinos while using credit
cards to finance their wagers, sued credit card companies for injunctive relief, claiming the
debts were unenforceable); Jubelirer v. MasterCard Int’l. Inc., 68 F. Supp. 2d 1049 (W.D.
Wis. 1999) (plaintiff, who lost twenty dollars plus a $4.95 processing fee at an Internet
casino, sued his credit-card company and bank under RICO).
132 In re MasterCard, 132 F. Supp. 2d at 468; Jubelirer, 68 F. Supp. 2d at 1049. But see
CABOt, supra note 3, at 288-89 (discussing Providian v. Haines, a California case, which
settled out of court).
133 Richtel, supra note 129.
126
127
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Nevertheless, two main factors will likely frustrate the success of the UIGFPA. First, Internet gambling is, by all accounts,
too popular with Americans to be eliminated without great difficulties. Second, alternative payment schemes are available to fill
the gap left by credit cards, some of which, such as e-money, are
based on technology that make enforcement of a ban impracticable at this time.
The first factor that will frustrate the success of the UIGFPA
is that Internet gambling has become a very popular activity with
Americans. The number of gamblers located in the United States
placing sports wagers or playing casino-style games at Internet
websites is estimated at over one million per day.134 Moreover, although limited statistics are available on the total number of
unique visitors to gambling sites every month, one study placed
that number at 13.6 million for December 2001.135 The reality is
that Internet gambling provides the gambler with “an outlet for
sports gambling as well as casino-style gambling far beyond what
a local bookie can offer and far less expensive than a vacation to
Reno.”136 The consumers who enjoy this form of entertainment are
unlikely to suddenly refrain en masse from Internet gambling
solely because their chosen payment method will no longer work.
Americans have already shown that they will gamble, regardless of whether it is legal to do so. The U.S. federal and state governments have been incapable of preventing illegal gambling,
even before recent campaigns to prohibit Internet gambling
emerged. Studies have shown that for every one dollar wagered in
United States with a legal sportsbook, another thirty-four dollars
are wagered with illegal bookies.137 The situation is no different
with Internet gambling. As noted, the federal Wire Act makes
sports wagering over the Internet illegal. Nevertheless, offshore
bookies take more money in bets on the Super Bowl than all the
sportsbooks in Las Vegas combined.138 Thus, it is readily apparent
that Americans are going to gamble, regardless whether it is legal
to do so. If Americans are willing to gamble on sports, even when
it is clearly illegal, it logically follows that they will also continue
to participate in Internet gambling despite the UIGFPA, so long
as they can find an alternative payment mechanism to credit
cards.
Batt, Leach Takes Aim, supra note 21.
Leslie Walker, Gambling Sites Betting Heavily on Advertising, WASH. POST, Feb.
24, 2002, at H7, available at 2002 WL 13820521.
136 John Edmond Hogan, Comment, World Wide Wager: The Feasibility of Internet
Gambling Regulation, 8 SETON HALL CONST. L.J. 815, 816 (1998).
137 Mike Roberts, The National Gambling Debate: Two Defining Issues, 18 WHITTIER L.
REV. 579, 602 (1997).
138 Ryan D. Hammer, Note, Does Internet Gambling Strengthen the U.S. Economy?
Don’t Bet On It, 54 FED. COMM. L.J. 103, 107 (2001).
134
135
The second factor that will frustrate the success of the
UIGFPA is the availability of alternative payment methods to
credit cards. Currently, there are a number of alternative payment instruments that Internet gamblers can use.139 However,
many of these traditional methods of transferring funds would
also be prohibited by the UIGFPA, including wire transfers,
checks, drafts, money orders, and other similar payment instruments.140 Therefore, a key assumption underlying the proposition
that Internet gambling will continue despite the UIGFPA is that
Americans will find an alternative method of transferring funds to
Internet gambling sites, which the government cannot effectively
prevent. These consumers have options. In fact, even Representative Goodlatte, one of the sponsors of current legislation to prohibit Internet gambling,141 has acknowledged that potential
alternative payment instruments to credit cards exist.142 Nevertheless, Goodlatte argued that the inconvenience to gamblers of
having to use alternative payment systems would solve “the largest portion of the problem.”143 This view seems overly optimistic.
In fact, as a result of the recent initiative by credit card companies to limit gambling transactions, Internet casinos and Internet gamblers have already begun looking for alternative
payment methods. Many Internet gamblers and casinos have already turned to “third-party credit card processors like SureFire
or PayPal” to continue using credit cards to place online wagers.144
These processors enable Internet gamblers to use their credit
cards at Internet casinos even if the casinos do not have a relationship with the bank that issued the credit card.145 This method
of payment is already in jeopardy, however, because companies
like MasterCard are implementing policies forbidding the use of
their credit cards at third-party processors for Internet gambling.146 Moreover, this method of payment would also be made
illegal by the UIGFPA.147 Regardless, these recent efforts to circumvent the credit card companies’ self-imposed bans illustrate
that Americans will seek out ways to fund their online gambling
despite a legislated credit card prohibition. Thus, the question to
be answered concerns how gamblers will transfer their funds to
139 Alternative payments systems could include: e-money, checks, wire transfers,
money orders deposited with the Internet casinos, credit cards issued by banks outside the
United States, etc.
140 H.R. 556, 107th Cong. (2001).
141 H.R. 3215, 107th Cong. (2001).
142 Leach Says, supra note 70.
143 Id.
144 Richtel, supra note 129.
145 Id.
146 Id.
147 H.R. 556, 107th Cong. (2001).
322
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[Vol. 5:303
Internet casinos. The best prospect by far is anonymous electronic
money.
Although Internet gamblers rarely use electronic money for
payment at online casinos today,148 this could quickly change if the
UIGFPA is enacted. Internet gamblers will look for alternative
payment methods, and they will likely have plenty of help in finding them. Unregulated offshore operators have no incentive to
prevent Americans from accessing their websites. With billions of
dollars at stake, one can well imagine that innovative offshore operators will provide their customers with a payment mechanism
consistent with the developing need. Again, the most obvious
choice is anonymous electronic money. An anonymous form of emoney would be of great long-term benefit to offshore Internet casino operators, chiefly because e-money would ensure access to the
lucrative U.S. gaming market.
Arguably, the broad restrictions of payment mechanisms in
the UIGFPA could be interpreted to cover e-money. Nevertheless,
because there are anonymous forms of e-money issued abroad that
can be purchased over the Internet, there is no practical way to
enforce a ban against the use of e-money for Internet gambling.
Accordingly, Americans wishing to gamble online can purchase emoney over the Internet with a credit card, and then use it to
gamble at offshore sites, rendering any monetary control scheme
like the UIGFPA obsolete. In addition to potentially rendering
the UIGFPA obsolete, e-money could actually bring about an increase in Internet gambling.
B. The Unintended Consequences of the UIGFPA
1. The UIGFPA and E-Money Could Promote Internet
Gambling
Passage of the UIGFPA will likely promote e-money as the
payment method of choice for Internet gambling. If e-money does
become the payment method of choice, there is the very real potential that Internet gambling will increase as a result. As previously noted, Internet gambling is currently funded by “front
money” and credit card accounts. These payment mechanisms
have been called an “impediment to the growth of the Internet
gambling industry.”149 There are a number of reasons for this position, including the fact that these methods of placing bets “lack
immediacy, security and anonymity.”150 E-money has the potential to remove these impediments.
148
149
150
See Anastasio, supra note 93, at 19.
Id.
Gamblers generally “expect immediate payment of wagers”
when they win.151 Under the current credit card model, though,
gamblers do not have immediate access to their deposited funds
and thus have no way of knowing if the Internet gambling site has
credited their account until the gamblers actually request a withdrawal of their funds.152 With e-money, however, “immediacy”
would no longer be an impediment to the growth of Internet gambling. A gambler would no longer have to wait for a check in the
mail or a charge back to his or her credit card or debit card account.153 Indeed, with e-money, gamblers’ winnings could be immediately transferred to their personal computers.154 Thus, an
Internet gambling operation could configure its site to either
transfer winnings to a gambler after every win, or when the gambler chooses to cash out.155
There are a number of other ways in which e-money would
improve the Internet gambling experience and thereby make it
more appealing to current and potential gamblers. The fear of
fraud is another problem hindering the growth of offshore Internet gambling operations.156 Documented cases exist of Internet
gambling operators who did not pay or return deposits or winnings to gamblers.157 Immediate payback could largely eliminate
this problem, and thereby make Internet gambling more attractive to potential gamblers. The anonymity of e-money will also
make Internet gambling attractive to potential gamblers.158 Particularly troublesome to many Americans is the audit trail left by
their transactions with Internet gambling sites. This trail leaves
gamblers open to possible charges of both illegal gambling and tax
evasion.159 With anonymous e-money, the government would have
little, if anything to trace. As a final reason for its appeal to Internet gamblers, e-money is less expensive than credit card
transactions.160
With immediate payoff, better security, anonymity, and lower
transaction costs, the benefits of e-money to the Internet gambler
cannot be overstated. The functionality of e-money, combined
with these other benefits, would make Internet gambling much
more attractive to people inclined to gamble. Moreover, even
those individuals previously deterred by the problems associated
Id. at 26.
Id. at 27.
Id. at 25-29.
Id. at 29.
Id.
Id. at 32.
Id. The two operators were shown to have been involved with bank fraud, and both
were known to have associations with organized crime. Id.
158 Id. at 29.
159 Id.
160 Id.
151
152
153
154
155
156
157
324
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[Vol. 5:303
with credit cards and other payment methods might be persuaded
to try Internet gambling.
2. The UIGFPA Could Promote Money Laundering with Emoney
Commentators have repeatedly predicted that technological
development and the advent of online commerce would bring a
wave of new private and public electronic currencies.161 These
new currencies currently exist and are being further developed.
However, as noted, they have thus far been largely unsuccessful.
Consumer demand is the greatest factor in any commercial success, including payment systems. Congress’s proposed monetary
control scheme could create (and arguably already has created)
consumer demand for an alternative to credit cards, such as emoney. Moreover, with millions of Americans gambling on the Internet every day, legislation such as the UIGFPA could very rapidly create the consumer demand necessary to facilitate
widespread use of electronic money. As the PayPal/eBay example
demonstrates,162 development in the various needs of online consumers will continue to strongly influence the design of future
electronic money systems. As one commentator aptly stated: “A
basic need of a society is money, the form of which adapts contextually. History, replete with examples, confirms that the evolution (or devolution) of monetary systems hinges upon the varying
needs of society.”163 The millions of Americans participating in Internet gambling will need an easy to use and untraceable form of
payment to circumvent the UIGFPA. E-money is exactly that.
Because the type of e-money that will eventually become standard in the marketplace could be heavily influenced by the
UIGFPA or similar monetary control scheme, serious consideration should be given to the consequences that might flow from the
type of e-money the UIGFPA would unintentionally promote. The
following discussion focuses on the potential negative consequences of widespread use of e-money, including its use as a
money-laundering tool and its effect on the government’s power to
regulate. This discussion is based on the premise that the
UIGFPA would promote an anonymous e-money system for the
Internet gambling market, which would act as a catalyst for the
proliferation of this form of e-money for other uses.
Friedman & Macintosh, supra note 91, at 274; Rotenberg, supra note 84, at 51.
See discussion supra Part II.E.2.
163 Lewis D. Solomon, Local Currency: A Legal and Policy Analysis, 5 KAN. J.L. & PUB.
POL’Y 59 (1996).
161
162
E-money holds the potential for large-scale criminal use.164
The most obvious criminal use is money laundering. The potential use of electronic money as a facilitator for money laundering is
enormous.165 Indeed, electronic money is ideal for money-laundering purposes. Millions of dollars can be stored on a laptop computer or on a cellular phone with memory and can be transferred
anywhere in the world with the simple push of a button.166 The
transfer of funds takes only seconds167 and can be accomplished
with available anonymous re-mailers concealing the point of origin.168 Consequently, money launderers and other criminals could
pass millions of dollars worth of electronic money back and forth
around the world by computer Internet access or by cell-phone
calls. Encryption-based e-money would achieve this result, while
avoiding U.S. banks and the financial transaction reporting
system.169
Electronic money has applications in all three stages of money
laundering, but the stages where it is most applicable are placement and integration.170 In the placement stage, money launderers could readily avoid the financial reporting systems because the
e-money could be laundered independently of the financial institutions historically needed to achieve placement.171 Electronic
money could also be used to facilitate the integration stage of
money laundering. Exporting large amounts of currency in electronic form to countries that have little or no money-laundering
controls and reintegrating it into the global economy could accomplish this integration.172
The most significant threat posed by anonymous e-money is
its potential to bypass traditional money-laundering controls. As
noted, anonymous forms of electronic money do not leave a paper
trail.173 These anonymous forms of e-money, which can be exchanged multiple times in unrecorded peer-to-peer transactions,
are understandably the most troublesome for law enforcement.174
First, these forms of e-money can “facilitat[e] the money launderer’s task by approximating the functionality of cash.”175 Second, electronic money “moves along multiple channels largely
164 The Future of Money, BUS. WK., June 12, 1995, available at http://www.business
week.com/1995/24/b3428001.htm.
165 Id.
167 Id.
168 MOLANDER ET AL., supra note 80, at 19.
170 See discussion supra Part II.D.
172 Id. at 91.
175 Id.; Rueda, supra note 71, at 44.
326
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outside the established network of banks, checks, and paper currency overseen by the Federal Reserve.”176 This “disintermediation” 177 removes third-party banks and other financial
institutions, which are subject to governmental oversight.178 The
removal of these “choke points,” which are used to regulate the
flow of currency, helps money launderers avoid traditional money
tracking methods.179 In sum, e-money is a money launderer’s
dream.
Not surprisingly, FinCEN views the development of technology like electronic money as the single-largest potential moneylaundering threat.180 FinCEN currently estimates that less than
one percent of computerized money laundering is detected and
prosecuted.181 FinCEN’s view of electronic money is shared by a
number of legal commentators as well, some of whom have suggested that the government consider placing broad-based restrictions on electronic money.182 In fact, the criminal potential for
electronic money is so great that a number of legal scholars believe that some governments will likely oppose the advent of private currencies altogether.183 This solution may not be practical
for the United States, however, because such domestic restrictions
or regulations could be “undermined by the widespread availability in the United States of electronic currency issued abroad.”184
Electronic money may “take off” regardless of what steps Congress takes toward Internet gambling. Congress should be very
careful, however, not to encourage an anonymous form of e-money
before it is prepared to deal with the consequences. One scholar
noted that “[i]n many ways the foundation of the federal government’s power rests on its prerogative to create and manipulate
The Future of Money, supra note 164.
Disintermediation removes the “choke points” though which illicit money generally
passes, effectively limiting governmental access to the information it needs to trace the
funds as they pass through financial institutions. MOLANDER ET AL., supra note 80, at 16.
178 Id.
179 See Rueda, supra note 71, at 4; see also MOLANDER ET AL., supra note 80, at 16.
180 Welling & Rickman, supra note 2, at 310. In fact, FinCEN is so concerned with the
money laundering potential of electronic cash that it commissioned a think tank to produce
a study on the subject. See MOLANDER ET AL., supra note 80, at ix.
182 Id. at 327. Welling and Rickman suggest that the government keep a number of
considerations “in mind.” Some suggestions they make include:
[L]imiting the value of electronic cash that can be put on smart cards and Internet-based accounts and limiting the number of peer-to-peer transactions. More
importantly, the government should work to be sure (1) that electronic cash systems are engineered to produce an audit trail; (2) that the trail can be decrypted
on a showing of probable cause by use of the Clipper Chip; and (3) that the trail
can be followed by continuing efforts toward international cooperation.
176
177
Id.
Rueda, supra note 71, at 92. One way to combat this would be through international regulation involving multilateral efforts enforced by sanctions. Id.
183
184
money—the medium of exchange.”185 The government may not
have the power to manipulate e-money. Interestingly, the “very
feature that makes such monies threatening—encryption—may
make it impossible for governments to enforce [a] ban.”186 One
electronic money expert points out “[y]ou don’t need a nation-state
to do finance. All you need is financial cryptography.”187 Accordingly, anonymous electronic money has the potential to strip the
federal government of much of its power.
Clearly, money laundering would be greatly facilitated by the
proliferation of an anonymous form of e-money. Moreover, the
government’s power to regulate or tax could be seriously impeded
by anonymous electronic money.188 Even the Treasury Department has recognized these potential problems and is looking at
ways to combat them.189 With this in mind, Congress should take
a second look at the UIGFPA before deciding to enact it. At the
very least, if Congress is compelled to regulate Internet gambling,
it should search out other methodologies and not encourage a form
of electronic money it cannot effectively monitor, let alone control.
Some form of e-money will eventually become commonplace and
will benefit society in many ways. However, it is not clear
whether it will be an anonymous and untraceable form that will
eventually dominate the market. Congress should play a role
(knowingly) in determining which type of electronic money takes
hold in the marketplace. For the reasons set forth in this comment, it should be apparent that electronic money, as anonymous
and untraceable as real cash, would be a regulator’s nightmare.
Nevertheless, this is exactly the type of e-money the UIGFPA will
promote. Therefore, Congress and the President should examine
the issue very carefully before enacting the UIGFPA.
C. A Workable Solution
Both encryption and electronic money will eventually make it
impossible for the government to prevent Americans from gambling via the Internet.190 The reality is that U.S. legislators opposed to Internet gambling are seeking to exercise control over a
borderless medium that is not within the control of the federal
government. Such reality begs the question of what could and
Solomon, supra note 163.
McCullagh, supra note 100 (quoting Robert Hettinga, founder of the Digital Commerce Society of Boston and co-founder of the Financial Cryptography Conference).
188 The Future of Money, supra note 164.
189 McCullagh, supra note 100.
190 The technology of encryption is beyond the scope of this comment. However, for a
good discussion of this topic see Christopher D. Hoffman, Note, Encrypted Digital Cash
Transfers: Why Traditional Money Laundering Controls May Fail Without Uniform Cryptography Regulations, 21 FORDHAM INT’L L.J. 799 (1998).
185
186
187
328
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[Vol. 5:303
should be done regarding Internet gambling and money laundering. Two options are available: Congress can either continue to
try to pass a domestic prohibition on Internet gambling, or it can
legalize and regulate it.
A domestic prohibition will not likely have an effect on Internet gambling as a money-laundering platform. One scholar has
noted that “international cooperation is a prerequisite to any prevention of money laundering through Internet casinos.”191 Furthermore, because many jurisdictions have legalized Internet
gambling,192 international cooperation on this issue will be a difficult task.193 Without international cooperation, Internet casinos
will remain a money-laundering threat because, “[i]n order to detect, and then prosecute, money laundering through on-line casinos, law enforcement must be able to either monitor the
businesses for suspicious transactions, or periodically review their
financial records for such transactions.”194 Monitoring Internet
casinos would be impossible if gamblers are using anonymous emoney, even if U.S. law enforcement had access to the financial
records of these offshore sites.
If the true purpose behind the anti-Internet gambling legislation were to hinder money launderers, then the legalization and
regulation of Internet gambling in the United States would be a
better solution than prohibition.195 A well-designed and well-regulated Internet casino located in the United States would not be a
good vehicle for money launderers because all gambling transactions could be recorded and readily traceable. Credit cards,
checks, or money transfers could be used at the sites removing
consumer need for electronic money, and creating an audit trail
for law enforcement to monitor suspected criminals. In addition,
even if e-money were used at domestic Internet casinos, other verification processes could be developed to identify the gambler.
Indeed, the best way to monitor suspicious currency transactions is to “monitor” them. If Internet casinos were located in the
United States, the federal and state governments would have the
Mills, supra note 65, at 86.
By 2000, fifty-five countries had legalized some form of Internet gambling. CABOT,
193 See Mills, supra note 65, at 96-115.
194 Id. at 114.
195 This proposition assumes that Americans would choose to place their wagers and
gamble at a brand name, licensed, and regulated domestic casino. This is a fairly safe
assumption given recent survey results showing approximately sixty percent of Americans
believe that offshore Internet casinos are fixed. Lori Enos, Most Net Gamblers Say Fix Is
In, E-COMMERCE TIMES, Sept. 6, 2000, at www.osopinion.com/perl/4204 (last visited Mar.
26, 2002). This proposition was also put forth by former director of the New Jersey Division of Gaming Enforcement and Internet gaming expert, Frank Catania. Illegal Gambling: Hearing on H.R. 556 Before the Subcomm. on Crime of the House Comm. of the
Judiciary, 107th Cong. (2001) (testimony of Frank Catania, Director of the New Jersey
Division of Gaming Enforcement).
191
192
ability to do so. The technology of computers, combined with competent regulation, would likely enable an even greater level of control than that found in the traditional “brick and mortar” casinos.
If legitimate gambling enterprises in the United States were given
the legal right to open web-based casinos, then techniques and
safeguards could be designed to minimize the problems associated
with money laundering.
Admittedly, effective regulations and a regulatory process
would need to be developed to address legalized Internet gambling.196 The complexities of this medium make regulation a
daunting task. Nonetheless, a comprehensive legal framework
regulating domestic Internet gambling could develop standards
and license qualified entities to provide reliable and honest entertainment for Americans.197 More importantly, regulation could
reduce criminal activities and other social costs associated with
Internet gambling.198
If Internet gambling operations are not allowed to exist legally in the United States, American gamblers will continue to access the offshore market. This market is largely unregulated or
loosely regulated by foreign governments, representing a significant and growing problem in online gambling.199 Because offshore
Internet gambling operations are not going to vanish, and the
United States government cannot effectively prevent Americans
from accessing these offshore sites, these operations will remain a
platform for money laundering.
Legalization of Internet gambling is the key to hindering
money laundering. In fact, FinCEN concluded in a recent survey
that most countries subscribe to the position that Internet gambling legalization with oversight and regulation is a “workable solution” from economic and law enforcement standpoints.200 The
United States should consider this solution.
IV.
CONCLUSION
Congress’s monetary control scheme, as a method of dealing
with Internet gambling, will only produce an undesirable outcome. Unfortunately, as with so much legislation, outcome is less
important than appearance with the UIGFPA. If the legislative
196 In fact, examples are already in place. See Frank Catania, Internet Gaming Regulation: The Kahnawake Experience, 5 Chap. L. Rev. 209 app. (2002).
197 Some of the factors a regulatory scheme might include are: background checks of
operators, prize payment bonding, cash reporting practices, random testing of games and
software to ensure fairness and compliance, licensing requirements, procedures to protect
against money laundering, prevention of underage gambling, methods to identify and help
problem gamblers, and tax revenue reporting practices.
198 Loscalzo & Shapiro, supra note 22, at 27.
199 See Kelly, supra note 21, at 117.
330
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[Vol. 5:303
motive behind the UIGFPA is really to thwart money laundering,
then legalization and regulation would be a far better method.
This proposition is, of course, only true if the regulation is sensible. Legalization and regulation may not be a magic potion that
will cure all of the ills associated with Internet gambling. Nevertheless, it is clear that legalized and regulated Internet gambling
in America would be far superior to the monetary control scheme
being considered by Congress. Ultimately, the United States will
be forced to develop an appropriate policy toward Internet gambling. In doing so, the government will achieve, through legalization and regulation, what it could not through prohibition.
Because the realities surrounding Internet gambling are so
strongly in favor of legalization, it becomes clear that the appropriate question is not whether it should be legalized and regulated, but why it should not.

Chapman Law Review - Chapman University

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