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Online Gambling Law | Free Finanical Law Essay

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Summary

This report discusses online gambling from the gamblers, governments and gambling companies perspectives, the report is divided up into the following areas:-

1. Introduction

Online gambling isn’t relatively old as it’s only been going since the 1990’s, the first casino to start was in 1995 when the internet was just started to attract more people mentions UNC (2006), but the first online gambling website attracted its market and growth was increasing dramatically year on year, more online casinos were launched to attract this big flux of gamblers, in 2001 the total global revenue was $3 Billion and by July 2005 the number of gamblers visiting online gambling sites had hit 30 million in the one month alone describes UNC (2006) , a year later the global revenue for online gambling were estimated to be $15 billion in 2006 according to Pfanner (2006), the number of games offered has also increased, which ranges from online casino’s, lotteries, sports betting and bingo, with bingo expected to be see the greatest increase due to its audience its targeting, because of this surge in online gambling it has been a controversial issue throughout the world, countries are constantly updating their laws to keep up with online gambling and the issues it bring with it. This report gives an outline to the current laws which are in place and how the citizens of those countries are binding by the laws or even finding loop holes within them.

Whilst researching into online gambling it was evident that the research would have to be split up into continents to provide a clear report on the laws within specific country in those continents, the list below shows the continents and the countries which laws have been researched.

1 - Europe - U.K, Germany, Russia 2 - Asia - China, Hong Kong 3 - North America – U.S.A, Canada 4 – Australia

2. Should Online Gambling be Legal?

2.1 What are the current global online gambling laws?

2.1.1 Europe

The U.K. until recently had very dated laws regarding gambling with some passed as early as 1963, a new act was passed called the “Gambling Act 2005” which came into force in September 2007, this didn’t mean banning online gambling it meant the powers of the gambling board would be transferred to the gambling commission which had also been setup before the new act came into place, and granting licenses would transfer from the magistrates to the local authorities plus the commission will now have the ability to regulate online gambling which was never in place before, and cover three main objectives which are outlined in the act described by OPSI (2005) are “preventing gambling from being a source of crime or disorder, being associated with crime or disorder or being used to support crime,” the second objective is rather an important one as it “ensures gambling is conducted in a fair and open way” most probably to avoid corruption, this is done by having gambling regulated as mentioned before, the final objective is protecting children and vulnerable people from harm of gambling, it’s not known how they will protect the vulnerable people but it’s thought children will be protected by having more age checks on online gambling.

This new law also coincided with the changing of gambling advertisement rules on the television and radio and other types of media. Advertising to promote gambling has been tightened up by the new rules, they main five points are advertisements must not condone or encourage gambling, it must not exploit children and the vulnerable people, imply that gambling fixes money issues, link gambling to seduction, sexual success or attractiveness, and must not appeal to children or young people according to ASA (2007). Although these new rules have been in place since September 2007 there have already been two companies in breach of these rules according to Hough (2008).

Already there has been a lot of debate about the new act which had been brought in, MP’s have been defending it mentioning it is “not to grab tax revenue” according to the Sports Minister Carbon (2006), but the gambling industry doesn’t see it this way, but changing the law to license online gambling is seen as a good thing through-out the U.K as it is thought it gives the gamblers more confidence and rights when it comes to place their bets, and will most likely aim to reduce the problems with regulated sites that are seen global wide, which is corruption, fraud and addiction.

Germany recently brought in a new law at the start of 2008 which saw a complete ban to web based gambling and betting, this was due to unanimous decision by the 13 of the 16 individual states within Germany and because the majority have approved the new gambling system it means it had to be made nationwide according to IHT (2007), but the ban isn’t going to be permanent as its due to expire at the end 2011 mentions Matussek (2007). This new law now means German citizens residing in the country are not permitted to gamble on any online gambling website or betting site but will still be able to place bets on horse racing, this laws also gives each individual state the power to issue orders to Internet Service Providers to completely ban access to the gambling sites they see as illegal and also stop banks from processing money transactions to them, the new law also coincided with the change in the advertising regulations, this means it will make it illegal for advertising of gambling over the internet and through the television as it could no longer invite or entice customers to play merely just “inform them about the possibilities” to play mentions IHT (2007), if this hadn’t been done the subliminal messages from the advertisements could of left Germans with an addiction to want to play on these gambling website which would of entail made the whole problem much worse than before any of these new laws were passed.

Before the law was passed the EU threatened Germany with legal action if they continued to do so as “EU countries are not allowed to block firms of other member states from operating in their home markets if they allow domestic companies to operate gambling sites and lotteries, and run betting operations“, according to BBC News (2007). If the EU succeed in reversing Germany’s law on online gambling it will mean countries within the EU deciding to change their will have to rethink to avoid being probed by the EU commission.

Russia is currently in the process of over hauling all their current laws of online gambling as well as ‘bricks and mortar’ gambling casino’s within the country, according to Online Poker Portal (2005) Russian gamblers made $5.3 billion of the total online gambling revenue in 2005, its not known whether these figures are fully accurate as a credible source couldn’t be found but the figure does suggest its true as it fits in with the total online gambling global revenue of $15 billion in 2006. Back in 2004 the government realised this was a massive problem within the country and it needed to be fixed, they plan to completely reform gambling within the country by outlawing online gambling by at least 2009 and banning casino’s from operating outside the four “zones are the Altai Territory , Primorye , the Kaliningrad Region , and on the border of the Rostov Region and the Krasnodar Territory” according to ogpaper (2008), but they must comply to the specific requirements which are the company must have assets of at least $22.4 million by June 2007 mentions ogpaper (2008), these new laws outline will hopefully reduce the number of Russians gambler within the country as these areas specified above are big international tourism areas, and don’t hold contain large numbers of local residents.

When this new law comes into place in 2009 it will be good to see if the EU actually decides to probe Russia as well for banning online gambling within its country, as either way it will cause outrage within the EU, but is Russia just another one of the country trying to protect its people from harm, time will tell whether this is true or not.

2.1.2 Asia

In China the current gambling laws make it illegal for any gambling to take place online according to Richardson (2005), this doesn’t stop the citizens of the countries though as its estimated millions still gamble every night, because of this the Chinese president has launched a crackdown to tackle this problem and try and eradicate the illegal gambling, according to Garner (2007), and this led to in 2006 alone of 1.1 million citizens being prosecuted regarding 347,000 cases according to Garner (2007) , but why is china so adamant on clamping down on the gambling? Well they believe online gaming has ruined the internet in china and damaged young Chinese citizens growth and restricted their opportunities, which entail goes against Chinas policy of “building a harmonious society” Garner (2007) final mentions.

Although there is the clamp down on online gambling the government is thinking about completely changing its view on online gambling by legalizing it mentions Kanellos (2006), if this did go ahead they could regulate gambling which would then mean they could get their cut of the revenue made in the country, this would solve the problem in China but it could make it much worse as Chinese citizens already have gambling problems wouldn’t it make it worse if it was legalized, the only way this could be controlled is by having very strict regulations put in place for example they could only bet a fixed amount a month and help would be there for the citizens with gambling addictions, China could still decide not to change the law, but either way gambling companies should be helping with this problem at the moment, but they don’t care all they are bothered about is their back pockets.

Hong Kong which has been regulating gambling since 1977 when it outlawed nearly all the types of gambling apart from horse and pony betting conducting by the Hong Kong Jockey Club and the Lottery conducted by the Hong Kong Lotteries Board and football betting according to Brunker (2004), although this article does seem to be relatively old the law hasn’t changed since. Online casinos are still not permitted within the country and there isn’t any plans to change this either. This law still isn’t as straight forward as it may seem though as those types of gambling are not permitted to be offered from foreign providers Brunker (2004) goes to mention, but this amendment to the law was only introduced in 2002. Although there aren’t many types of gambling permitted within the region it still manages to make 11 percent of governments tax revenue Brunker (2004) later describes.

Illegal gambling within Hong Kong is an issue at the moment, this generates greater annual revenue than Hong Kong Jockey Club who is the only licensed body to place bets with, and it doesn’t appear that online gambling companies are blocking the bets from Hong Kong, as why would they refuse business? It will be good to see if Hong Kong does decide to clamp down on the issue of illegal online gambling within the country the next few years as its clear the laws on gambling won’t change over there anytime soon.

2.1.3 North America

In 2006 the U.S.A introduced a law which banned the transfer of funds from banks and credit cards, the Act was called the ‘Unlawful Internet Gambling Enforcement Act’ which took the congress more than a decade to pass according to Brunker (2006), this now meant it was not illegal to gambling online for Americans but it meant the banks and gambling websites faced legal action if they were caught accepting payments from American citizens, this lead to online gambling companies withdrawing the services to U.S.A, the gambling companies were in fury that this law had been passed as U.S.A made $12 billion in revenue on online gambling in 2006 along according to Brunker (2006), he also goes on to mention that the gambling industry may never fully recover from this due to number of online gamblers situated in America which can no longer legally gamble online, but it didn’t all seem to be all bad as Sebastian Sinclair a gaming analyst mentioned the government may put “a crimp on the industry for a while” according to Brunker (2006).

This law was changed in 2007 to allow online gambling within U.S.A. but only if gambling companies complied with the regulations which were part of the new ‘Internet Gambling Regulation and Enforcement Act’ described by the House Financial Services Committee (2007), the change in this law was seen as a success in the eyes of the EU and the gambling companies as they had lost billions thought the previous act which was passed in 2006, the U.S.A also faced sanctions due to the previous law and has to award Antigua and Barbuda $21 million according to BBC News (2007).

With this new law in place it will be interesting to see if gambling in America grows to its previous size before the ban came in place in 2006, if it does the new law obviously isn’t going to work effectively enough to help reduce the online gambling revenue.

Canada is currently a very big part of online gambling as at the moment it has 443 online gambling casino’s licensed to hold their servers there, this has led to 60 percent of the worlds online gambling traffic going through the country according to Hansen (2007), the country is also home to the company ‘Cryptologic’ who are the main creators of online casinos.

Canada didn’t follow U.S.A’s ban on online gambling back in 2006, this must of been because they wanted to avoid the legal action which U.S.A faced, but it has been a debate the government has been having after the U.S.A introduced the Unlawful Internet Gambling Act, but its believed this won’t ever go ahead as it would inevitably effect the gambling companies situated within Canada and their profits which would in turn have a knock-on effect on the government’s finances.

2.1.4 Australia

A while back in the 1990’s Australia was experiencing server problems with gambles the suicide rates had soared due to this and bankruptcy was on the increase, the government tackled this problem by targeting the online casino’s by completely banning them from targeting citizens of Australia, this new act which was brought in on 2001 didn’t just affect companies which were situated in Australia but also foreign companies, if they didn’t comply to the act sever penalties would be enforced upon them, the ban included all types of online gambling which are “gaming and wagering services, including poker machines, casino games, sports betting and lotteries” according to Out-Law (2001). Whilst other nations have faced or been threatened with legal action by imposing ban’s regarding online gambling Australia never has which is strange, this could be due to when the ban was imposed as it was 5 years before the U.S.A passed the ban on online gambling, and in 2001 online gambling was only starting to see big increases in their revenue.

2.1.6 Online Gambling laws findings

Online gambling is one of the biggest and most controversial issues currently affecting countries would wide, the laws outlined above shows how countries are constantly changing their laws to adapt to the 21 century, it also shows that the majority of the countries outlined above didn’t allow online gambling but a few of these countries plan to change the laws as they want to get their cut of the $25 billion the global online gaming market which its set to be worth in 2010 according to PartyGaming (2006)

Essay Marking

2.2 What are the Loop holes and implications in the laws?

2.2.1 Europe

The law Germany introduced in January 2008 which banned citizens residing in the country from using online gambling and betting websites was seen as a bad idea in the eyes of the EU and betting companies, as mentioned earlier it gave the individual states the power to stop gambling websites from been accessed and ban financial institutes from transferring funds to them, it’s thought that there aren’t any loop holes in the law though, but this all depends on how fast the individual states are at blocking new online gambling websites which become available, this will be very interesting to see if this has been prepared for before the law came and what the duration from a new gambling site being report to one being blocked.

The implications of the new in Germany affected many companies worldwide and outraged the EU as it breaks the free trade rules and is currently being investigated by the EU as well, but it’s not clear as yet if they will actually face any penalties from this as the law was only introduced at the start of 2008 its unclear of the scale of the problem.

The new advertising rules in the U.K may slightly affect the online gambling market as the new advertising rules which came into force at the same time as the new gambling act which is September 2007 severely restricted the adverts, one of the main rules was the gambling companies must be regulated by the gambling commission, and they must comply with the three main objectives which were mentioned earlier in the report and if they broke any of the rules they would face a £5,000 fine or a two year prison sentence according to the BBC News (2005), although two adverts have been banned for being in breach of these laws according to Hough (2008).

2.2.2 Asia

Online gambling in China is a big problem this is causing serious affects to the gamblers, it’s not clear how much they spend on average per year, but it’s expected to be a vast amount, this proves that the law in China which currently ban online gambling doesn’t work as the residents can still access the gambling websites. China has launched a massive crackdown on illegal online gambling which is most likely to coincide with the Beijing Olympics this year as it’s expected that the games will push the number of residents gambling online even higher. Because the country lives under the communist rule it’s very hard to find accurate findings on how online gambling is affecting the country’s economy let alone the citizens but it’s expected to be a few billion dollars.

Hong Kong has the same issue with China in respect that it’s got an enormous amount of illegal gamblers which entail generate more revenue than the Hong Kong Jockey Club which is estimated to be approximately $30 million, the exact scale of the problem is still not know but Hong Kong don’t seem to be taking the heavy handed approach to the situation china is which citizens and organised gangs are taking as an advantage to gamble with very low fear of prosecution.

2.2.3 North America

Although online gambling is now legal for American’s to transfer funds to gambling websites as long as the companies comply with the new rules which came in force, but whilst it was banned in 2006 it didn’t mean it was illegal for a citizen to access the gambling websites it was only illegal for financial institutes to transfer funds to the sites and gamble on them which was mentioned earlier, this caused these websites from withdrawing their services to U.S.A by blocking U.S.A IP addresses as they didn’t want to face legal action as it would be very costly.

Whilst this law was in place a loop hole was discovered which meant accessing and using online gambling websites could be done again, the way around this was to mask the American IP address with a Canadian one this could be done with ease by using findnot.com an IP redirecting service, but the American’s couldn’t just use the gambling sites again with their standard bank accounts they would have to create a Click2pay or Epassport to transfer the funds over as gambling sites were prohibited from accepting wagers from US citizens according to PR Leap (2007), but once these steps had been taken the new law didn’t stop any American, even if they got caught using online casino’s they wouldn’t face legal action as the new law wasn’t to prosecute American’s but merely to stop the transfer of funds.

If a citizen was found to be playing online gambling or a gambling company was found to be providing a service then they would face legal action, but whilst this law was in place not one citizen was prosecuted for gambling online, it all appears as if none of the gambling companies faced prosecution for providing a service to the U.S.A, this may of been due to the EU probing the law which had been introduced.

When U.S.A introduced the ‘Unlawful Internet Gambling Enforcement Act’ in 2006 it severely affected the gambling companies, the biggest companies hit were the ones situated in the U.K one of these ‘Party Gaming’ which was worth approximately worth £5 billion before the U.S.A law passed saw £2 billion of its value wiped off virtually overnight according to BBC News (2006), 888Holdings had also seen their shares fall by 45 percent mentions Oates (2006) virtually overnight too, this was getting quite serious as the share price of all the online gambling companies was down a vast amount, it was clear how important online gambling in the U.S.A was, Oates (2006) also mentioned that 888Holdings in the six months to the end of June 2006 it outlined 52 percent of its revenue came from the U.S.A.

2.2.4 Australia

In Australia there is a ban on online gambling as mentioned earlier but as the ‘boom’ on online gambling didn’t really happen until approximately 2003 it isn’t clear how it would of affected the gambling companies but it’s know that gambling companies don’t want to offer services to residents within the country as they would face severe penalties. Citizens of Australia would have been biggest group to be affected by this law as it would have helped to ease the problems which had been gradually happening in the country prior to the law, it’s expected that suicide and bankruptcy rates will now be down considerably because of this.

2.3 Are there any global white bill papers going to be passed?

On the 14th December 2007 Canada narrowly avoided a change to the bookmaking laws which would have seen a complete ban to online gambling and betting according to Poker Pages (2007), the bill proposed was to change "telephone and telegraph" to "any form of telecommunication", as currently in the country it is illegal for gambling to happen over a telephone line, but this would of shut down all the gambling servers within the country as mentioned before 60 percent of the global online gambling traffic flows through the country, if this had happened it would of severely affected online gambling worldwide for some time. This proposal had gone through four House of Commons committee hearings without anybody realising the impact it could have to online gambling mentions Poker Pages (2007), this is quite bad really but luckily one alert senator questioned the bill before it was passed, this may now make members in the committee meetings question the bills before they progress any further to narrowly avoiding damaging these bills create.

As mentioned before Russia is proposing on banning online gambling by 2009 but it’s not clear whether it will actually be passed by then as there is an incredible amount of work the country has to do, but the bill is in the process at the moment, this may get a lot of criticism from the gambling companies as well as the EU as its going to severely affect their profits, if Germany manage to keep the law which is currently in place which bans online gambling then Russia should hopefully be able to proceed with the current proposal without facing legal action but it’s thought that this obviously won’t happen as when they joined the EU they signed it to abide by the conditions outlined, one of these is to do with free trade which Russia are wanting to break, it would also be interesting to see what the Russian citizens think of the bill proposal, they may be outraged with it and think that the government is trying to control them, but reports haven’t been released at the moment which give a clear view of Russians opinions of the bill.

China have proposed changing the law regarding online gambling but a proposed bill has yet to surface as these talks are still in the early stages, there could also be the possibility of this never getting passed though, and as the country is communist the officials won’t be bothered about their citizens views on the subject, one major issue china should look into which was mentioned before is the impact the law could have on the citizens as this is critical as its thought legalizing gambling could only make it much worse.

3. Who Does or should govern Online Gambling?

3.1 Is online gambling morally wrong?

This has been a debate for years and each government struggles to decide whether to control their citizens by protecting them from the effects of online gambling, but this can be seen as having a ‘Nanny State’ where the government removes any harmful effects away from the people, other countries ignore the effects of online gambling has to their citizens as the amount of income it brings to the governments in taxes is phenomenal, and from the figures which were obtained from how much revenue was made from online gambling in 2006 alone was approximately $15 billion so this shows that online gambling is an enormous market which will only carry on growing, but is banning online gambling morally right?, well one country in Europe which banned it as mentioned earlier is Germany, by them bringing this new law in which now makes it illegal not only breaks their countries law but also the European Union laws because they are restricting free trade amongst other countries, because of this it is currently being investigated by the E.U. commission, if E.U. rules that Germany acted inappropriately by introducing the ban what will happen to other countries proposals for online gambling bans within the E.U.

Whilst the law was in place which banned the transfer of funds to financial institutes to online gambling websites was a “Class C felony” According to Washington Votes(2006) which is on the same level with animal cruelty, child molestation and rape, how can this be fair, although if prosecuted the financial institute and gambling companies wouldn’t face the same sentences of someone who had committed one of the other more serious crimes within the class but it would still remain on the criminal record, if the U.S.A had kept this law in place it would of just pushed online gambling further underground and increased fraud, having the law makes it the equivalent of the 1920’s ban on alcohol mentions Jowell (2006).

Is gambling considered morally right within religion? Although the Bible doesn’t directly speak about gambling, it mentions about the legitimate ways of money and possessions passing from one person to another, 1 Thessalonians 4:11,12 says “To meet our needs, we should do our own business and work for an income (not take what other people earned)”. [Matt. 20:1-15; James 5:4], the second mentioning of this is in 2 Thessalonians 3:10-12 – “Like Paul, people should work so they can eat their own bread (not other people's bread). If they will not work, they should not eat.” The conclusion from this is that people must either work to earn a living or offer a service that the other party is able to benefit from. Gambling does not fall into either of these categories, for a gambler to win there must always be a loser.

3.2 Should there be a governing body?

There are already a few different governing body’s regarding online gambling, in Canada the ‘Kahnawake Gaming Commission’ regulate the gambling companies who operate their server from the country, this has led to 443 online gambling companies being regulated but these regulations don’t do a great deal for the users registered to those gambling websites, the main principles for the commission is that only suitable persons who are permitted can operate in Kahnawake, to make sure the games are fair and that the winner is paid.

The UK recently launched the gambling commission who are the body who govern the online gambling companies who offer services to citizens within the country, and any gambling website which wants to attract British citizens residing in the country must be regulated and follow the strict rules which were mentioned earlier whilst describing the law. Although the customers will praise having a governing body gambling companies may not like it as it costs money to join these schemes which they feel is a tax grab and is just out to make money off the gambling companies backs, but there is one major positive which is the gambling companies must follow ‘the book’, if not they could face prosecution and severe fines.

The EU should consider having a governing body controlling all the online gambling companies which are available to the citizens in the EU, considering countries in the EU are constantly changing their laws and because of this they are facing legal action due to breaching the free trade rules, if a governing body was setup it could tackle all the issues it could stop countries having to take drastic action and outlawing online gambling.

Asia is a continent in desperate need of a governing body which could control the illegal online gambling within China as this is a growing issue, but its felt that because it’s a communist country they wouldn’t want a governing body controlling them, but if China change their laws to legalize gambling they must create their own governing body or the amount of gamblers will cascade into an extreme amount causing extensive financial problems for the country.

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4. Conclusion

Whilst researching laws and problems within Asia it became clear it was very difficult to find reputable sources for information and financial statistics became very scarce this may have been to do with the countries in that continent are communist. The biggest problem with the laws were constantly changing world wide with a short period of time especially with the U.S.

The report also proves how important rules and regulations are in controlling online gambling, it can be seen as having a ‘nanny state’ but more about helping the citizens or limiting them from the harm gambling can have, it shows that some countries have much work to do to fix the problems which have happened through it.

To conclude the next 5 years are going to be the most important years to online gambling as the worldwide laws are going to be a controversial issue on whether its legally right to change it from its current state, but hopefully the best thing that will come out of it will be a governing body which will govern online gambling not just in one country but a range as this will tackle wide spread issues, its hoped that the EU will be the first large governing body as this would be the only way to fix the current issues of online gambling in the countries without outlawing it.

References

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