Online Gambling Ban Has Failed, Should Be Ended

Posted November 6, 2009 at 4:55pm

Even more than most Americans, I’ve benefited from the freedom and growth of the Internet. Before being elected to Congress, I started several Internet-based companies, held several Internet-related patents, and created hundreds of jobs and millions of dollars in shareholder value. Based on my extensive experience, it only makes sense that it is time to scrap the ineffective attempt to ban Internet gambling in the U.S. and, instead, replace it with a regulated environment where adult consumers can elect to place a wager online with assurances that they are protected from fraud and abuse. The expansion of the Internet has spurred dramatic growth of Internet-based international commerce. With a few strokes of the keyboard, we can virtually travel the globe to purchase anything from flowers (where I made my fortune) to stocks. And, for those so inclined, there are sites to play poker or even bingo.

Despite attempts to prohibit Internet gambling — most recently through the Unlawful Internet Gambling Enforcement Act of 2006 — American consumers nevertheless are wagering online more than $100 billion annually with operators based outside the U.S., frequently based in countries with little or no regulatory framework around Internet services. Given the freedom and expansiveness of the Internet, this shouldn’t be a shock. While the UIGEA resulted in forcing many responsible, publicly traded online gambling operators to stop accepting wagers from consumers in the U.S., there are countless offshore operators that continue to conduct business as usual. There is no meaningful enforcement mechanism against offshore operators.

As a result, rather than protecting consumers, the UIGEA has simply left the millions of Americans who continue to find a way to gamble online unprotected and vulnerable to unscrupulous gambling operators. The law has also allowed billions of dollars of potential tax revenue to remain uncollected.

For some bizarre reason, while the UIGEA seeks to prohibit Americans from wagering on poker, sports and other games, it creates an exemption for wagers on horse racing, fantasy sports and state lotteries. (I’m still trying to figure out how the UIGEA’s authors determined these activities as being acceptable.) From bad to worse, the UIGEA has also been universally panned by the financial services sector, which is charged with policing unlawful Internet gambling transactions, and the law resulted in a finding by the World Trade Organization that the U.S. unfairly prohibits foreign Internet gambling operators from accessing the U.S. market, while allowing domestic companies to legally accept online horse racing bets.

Clearly, a new approach is needed.

I applaud my colleague, Rep. Barney Frank (D-Mass), chairman of the House Financial Services Committee, for introducing a common-sense framework that would allow adult Americans to gamble online in the privacy of their own homes in a regulated environment that offers numerous consumer protections. I believe that many Americans who choose to gamble will want to use verifiable, audited, honest American sites rather than shady offshore alternatives if they have that option.

The Internet Gambling Regulation, Consumer Protection and Enforcement Act (H.R. 2267), introduced last month by Frank, would replace the current, ineffective ban on Internet gambling with a strict regulatory environment where operators must be licensed and required to implement safeguards to protect against compulsive and underage gambling, money laundering, fraud and identify theft.

No one should doubt the effectiveness of the safeguards operators would use to protect consumers. The technology and tools exist, are in operation around the world today and are proven to be effective.

Beyond the opportunity to protect consumers, another significant benefit of regulation is the opportunity to generate billions in new revenue, which is desperately needed for critical government programs and deficit reduction. According to last month’s announcement by the Joint Committee on Taxation, regulated Internet gambling would allow the U.S. to capture nearly $42 billion in new revenue over the next decade.

Most recently, Sen. Ron Wyden (D-Ore.) proposed an amendment to dedicate Internet gambling tax revenue to increase low-income subsidies provided through the America’s Healthy Future Act. While this amendment was ultimately taken off the table, it illustrates how the billions in new revenue is needed and should be used for many vital, yet unfunded or under-funded, programs.

Finally, Frank’s bill would also relieve the significant burden financial service companies now face attempting to prohibit Internet gambling and would bring the U.S. into compliance with WTO rules by creating a level playing field for qualified domestic and international operators.

Regardless of what one thinks of the proper public policy approach to gaming in general, it’s time to acknowledge that this incidence of ill-conceived prohibition has failed, is failing and will continue to fail because it completely ignores the reality of the Internet. A new policy approach is needed to address this issue and protect Americans and the freedom of the Internet.

I am optimistic that Congress will support Frank’s common-sense approach that gives Americans the freedom to gamble online, if they so choose, in an environment where they are protected, just as one would expect and we all deserve. A sensible approach will better protect American consumers and generate considerable additional revenue.

Rep. Jared Polis (D) represents Colorado’s 2nd district.