Wednesday, February 21, 2007

As is true of any form of technology, the Internet can be - and is - used
for constructive purposes and in harmful ways. Some Web site operators seek
to defraud unsuspecting visitors to their home pages, while others wish to
appeal to the weaknesses of those addicted to pornography or gambling. Two
significant challenges in drafting new laws to protect people from the
hazards of the Internet have been to ensure that these laws can be enforced
and that the rights of the individual are preserved. The effect of the
Unlawful Internet Gambling Enforcement Act signed into law by President Bush
in October demonstrates that these challenges can be overcome with
sufficient thought and cooperation by those seeking to protect the public
from harm. This legislation was supported by a broad range of organizations,
including many national sports groups (such as the NFL, Major League
Baseball, NBA, NHL and NCAA), electronic commerce and financial institutions
(PayPal, MasterCard, eBay and the American Bankers Association) and law
enforcement alliances (including the National Association of Attorneys
General and the Fraternal Order of Police). The act essentially forbids the
use of the Internet as an instrument to violate federal and state gambling
laws. Internet gambling, estimated to be a $12 billion per year industry,
has been used for money laundering by criminal organizations and to defraud
bettors who have no way to verify or investigate whether the virtual games
of chance that they play on some sites are managed honestly. Also, some
gambling operations abruptly close their sites if there are too many
winners, opening new ventures under different domain names. In addition,
various sites have provided free games for children, in essence encouraging
youngsters to gamble. And as with online pornography, the ubiquitous yet
private nature of these sites may lead some people to fall victim to
addictive behavior through which they spend excessive amounts of time and
money to satisfy a gambling compulsion. Moreover, online gambling can siphon
revenues from state treasuries that depend upon government-run lotteries and
the taxes that are collected on legal wagers. Nevada, apparently recognizing
the potential threats associated with Internet gambling operations, was the
first state to prohibit its residents from participating in illegal Internet
betting. Most gambling sites are operated overseas, beyond the jurisdiction
of the United States, which some have argued makes enforcement of laws
against Internet betting difficult if not impossible to enforce. One
solution to this problem is embedded in the act, with its focus on the
transfer of money between financial institutions and the online gambling
operations. This legislation compels the Department of the Treasury and the
Federal Reserve Board to issue regulations that require financial
institutions to block payments to those engaged in illegal gambling. Rather
than trying to shut down the offshore gambling operations directly, the
legislation impedes the transfer of money that are the lifeblood of these
businesses.

Further, the act refers only to gambling that violates existing federal or
state laws, thereby recognizing each state's right to develop and enforce
its own regulations on gaming.

After the passage of this legislation, publicly traded gambling operations
lost 50 percent of their market value. Cyber ventures listed on the London
Stock Exchange announced that they would no longer be accepting wagers from
players in the United States. And many Internet gambling sites chose to deny
wagering by residents of the United States, where these bets would be in
violation of existing laws.

Rather than supplying an Internet retailer with financial and personal
information directly, many consumers use digital wallets (e-wallets) such as
PayPal to more securely transfer these data and complete their transactions.
FirePay, an offshore e-wallet, has announced in response to the act that it
will not transfer funds to online gambling operations.

Last month, the two founders of a British e-wallet known as NETeller were
arrested on charges of transferring funds with the intent to promote illegal
gambling. After these arrests, the company decided to eliminate the transfer
of funds by United States bettors to Internet gambling sites, instantly
eradicating about 65 percent of its activities in this industry.

Existing technologies used by credit card companies and banks to block
illegal transactions by verifying the identities (and, if appropriate, the
ages) of the parties involved also can be helpful in enforcing the act. Most
important, this legislation illustrates one method for effectively
controlling some of the harmful effects of cyberspace.