An online gambling fix

Congress cracked down on most forms of online gambling four years ago, concerned that the explosion in unregulated (and questionably legal) poker and sports betting sites was promoting organized crime, money laundering, underage betting and a host of other ills. The effect, though, was simply to drive U.S. residents to sites in other countries where online gambling is legal — no less convenient and, potentially, just as unregulated.

House Financial Services Committee Chairman Barney Frank (D-Mass.) now wants to take the opposite approach; his bill (HR 2267) would create a licensing program for online gambling sites that would permit them to accept wagers from players in the United States. Rather than pretending that Americans aren’t gambling online, Frank’s bill would bring more protection to players and minors in states that are ready to stop the charade of prohibition.

Federal law has long banned betting remotely on “any sporting event or contest,” with the exception of remote betting on horse races at off-track betting parlors and tracks. Nevertheless, online gaming had grown into a multibillion-dollar business in the U.S. by the end of 2005, prompting Congress in 2006 to bar banks and credit-card companies from processing transactions linked to Internet gambling.

Players have found it easy to circumvent the law by letting gambling sites credit or debit their bank accounts directly. Although some of those sites are reputable and well regulated by foreign governments, many are not. And if they breed crime, there’s not much U.S. authorities can do to combat it. As professional poker player Annie Duke told Frank’s committee last month, the 2006 law “does not keep a single child off an Internet gaming site, nor does it provide any protections for problem gamblers or mechanisms to prevent fraud and abuse; it only regulates the banks, not those who operate the games.”

Frank’s bill, which the Financial Services Committee approved last month, accepts that Americans gamble online but tries to bring more oversight to their wagering. Through its licensing mandate, federal, state or tribal regulators could require sites to use age-verification techniques to deter gambling by minors, implement programs to identify and block problem gamblers and guard against money laundering. The mandate would also deter criminals from operating sites, although as Nevada’s experience with casinos has proved, licensing is an imperfect defense against unsavory owners.

By licensing operators in the U.S., Frank’s proposal would make it easier for financial companies to block transactions with unlicensed gambling sites. The measure also would let states and Indian reservations continue to prohibit their residents from gambling online, although the likely result is that those residents would merely be barred from gambling at regulated sites. That’s already the policy in the U.S., and it’s just not working.