Online gambling, also known as Internet gambling and iGambling, is a general term for gambling
using the Internet. History
In 1994 the Caribbean nation of Antigua and Barbuda passed the Free Trade & Processing
act, allowing licences to be granted to organisations applying to open online casinos. Before online
casinos, the first fully functional gambling software was developed by Microgaming, an
Isle of Man based software company. This was secured with software developed by CryptoLogic,
an online security software company. Safe transactions became viable and led to the
first online casinos in 1994. 1996 saw the establishment of the Kahnawake
Gaming Commission, which regulated online gaming activity from the Mohawk Territory
of Kahnawake and issues gaming licences to many of the world’s online casinos and poker
rooms. This is an attempt to keep the operations of licensed online gambling organisations
fair and transparent. In the late 1990s, online gambling gained
popularity. Internet gambling websites had increased from just 15 websites in 1996, to
200 websites in 1997. A report published by Frost & Sullivan revealed that online gambling
revenues had exceeded $830 million in 1998 alone. In the same year the first online poker
rooms were introduced. Soon after in 1999, the Internet Gambling Prohibition Act was
introduced, meaning a company could not offer any online gambling product to any U.S citizen.
This did not pass. Multiplayer online gambling was also introduced in 1999. This was the
first time people could gamble, chat and interact with each other in an interactive environment.
In 2000, the first Australian Federal Government passed the Interactive Gambling Moratorium
Act, making it illegal for any online casino not licensed and operating before May 2000
to operate. The new legislation meant Lasseter’s Online became the only online casino able
to legally operate in Australia; however, they cannot take bets from Australian citizens.
By 2001, the estimated number of people who had participated in online gambling rose to
8 million and growth would continue, despite the legislation and the lawsuit challenges
which would continue to be received by online gambling.
In 2008, H2 Gambling Capital estimates worldwide online gambling revenue at $21 billion.
Forms of online gambling The Internet has made way for new types of
gambling to form online. The recent improvements in technology have once again changed betting
habits just as Video Lottery Terminal, keno and Scratchcards changed the gambling industry
in the early 20th century. Internet gambling has become one of the most
popular and lucrative business present on the Internet. In 2007 the gambling commission
stated that the gambling industry achieved a turnover of over £84 billion according
to the UK Gambling Commission. This is partly due to the wide range of gambling options
that are available to facilitate many different types of people.
Poker Online poker tables commonly offer Texas hold
’em, Omaha, Seven-card stud, razz, HORSE and other game types in both tournament and ring
game structures. Players play against each other rather than the “house”, with the card
room making its money through “rake” and through tournament fees.
Casinos There are a large number of online casinos
in which people can play casino games such as roulette, blackjack, pachinko, baccarat
and many others. These games are played against the “house” which makes money due to the fact
that the odds are in its favor. Sports betting
Sports betting is the activity of predicting sports results and placing a wager on the
outcome. Usually the wager is in the form of money.
Bingo Online bingo is the game of bingo (US|non-US)
played on the Internet. Lotteries
Most lotteries are run by governments and are heavily protected from competition due
to their ability to generate large taxable cash flows. The first online lotteries were
run by private individuals or companies and licensed to operate by small countries. Most
private online lotteries have stopped trading as governments have passed new laws giving
themselves and their own lotteries greater protection. Government controlled lotteries
now offer their games online. UK National Lottery
The UK National Lottery started in 1994 and is operated by the Camelot Group. Around 70%
of UK adults play the National Lottery regularly, making the average annual sales over £5 billion
apart from the year 2000-01 where sales dropped just below that. In its first 17 years it
has created over 2,800 millionaires. In 2002 Camelot decided to rebrand the National Lottery
main draw after falling ticket sales. The name National Lottery was kept as the general
name for the organisation and the main draw was renamed Lotto. The advertising campaign
for the new Lotto cost £72 Million which included 10 television advertisements featuring
Scottish comedian Billy Connolly and one of the largest ever poster campaigns. The new
brand and name had the slogan: Horse racing betting
Horse racing betting comprises a significant percentage of online gambling wagers and all
major Internet bookmakers, betting exchanges, and sports books offer a wide variety of horse
racing betting markets Mobile gambling
Mobile gambling refers to playing games of chance or skill for money by using a remote
device such as a tablet computer, smartphone or a mobile phone with a wireless internet
connection. In-Play gambling
In-Play gambling is a feature on many online sports betting websites that allows the user
to bet while the event is in progress. A benefit of live in-play gambling is that there are
much more markets. For example, in Association football a user could bet on which player
will receive the next Yellow card, or which team will be awarded the next corner kick.
Provably fair gambling With the dawn of Bitcoin, provably fair gambling
also became available for a global audience. These gambling sites allow the public to see
how outcomes are based on the gambler’s input and a secret number that is disclosed and
changed for the next rounds every hour for example. This allows online gamblers to verify
if the website “played” fair. Funds transfers
Gambling money online can come from credit card, electronic check, certified check, money
order, or even wire transfer. Normally, gamblers upload funds to the online
gambling company, make bets or play the games that it offers, and then cash out any winnings.
Gamblers can often fund gambling accounts by credit card or debit card, and cash out
winnings directly back to the card; most U.S. banks, however, prohibit the use of their
cards for the purpose of Internet gambling, and attempts by Americans to use credit cards
at Internet gambling sites are usually rejected. A number of electronic money services offer
accounts with which online gambling can be funded; however, many top fund-transfer sites
such as FirePay, Neteller & Moneybookers have discontinued service for U.S. residents.
Payment by check and wire transfer is also common and some gambling providers accept
Bitcoin, a digital currency. Legality
Antigua and Barbuda The government of the island nation of Antigua
and Barbuda, which licenses Internet gambling entities, made a complaint to the World Trade
Organization about the U.S. government’s actions to impede online gaming. The Caribbean country
won the preliminary ruling but WTO’s appeals body somewhat narrowed that favorable ruling
in April 2005. The appeals decision held that various state laws argued by Antigua and Barbuda
to be contrary to the WTO agreements were not sufficiently discussed during the course
of the proceedings to be properly assessed by the panel. However, the appeals panel also
ruled that the Wire Act and two other federal statutes prohibiting the provision of gambling
services from Antigua to the United States violated the WTO’s General Agreement on Trade
in Services, or “GATS”. Although the United States convinced the appeals panel that these
laws were “necessary” to protect public health and morals, the asserted United States defense
on these grounds was ultimately rejected because its laws relating to remote gambling on horse-racing
were not applied equally to foreign and domestic online betting companies, and thus the United
States could not establish that its laws were non-discriminatory.
On March 30, 2007, the WTO confirmed the U.S. “had done nothing to abide by an earlier verdict
that labeled some U.S. Internet gambling restrictions as illegal.”
On June 19, 2007, Antigua and Barbuda filed a claim with the WTO for USD $3.4 billion
in trade sanctions against the United States, along with a request for authorization to
ignore U.S. patent and copyright laws. This followed by a day similar demands for compensation
made by the European Union. Many of the companies operating out of Antigua
are publicly traded on various stock exchanges, specifically the London Stock Exchange. Antigua
has met British regulatory standards and has been added to the UK’s “white list”, which
allows licensed Antiguan companies to advertise in the UK.
Australia On 28 June 2001 the Australian Government
passed the Interactive Gambling Act 2001 (IGA). The government said that the IGA was important
to protect Australians from the harmful effects of gambling. The offense applies to all interactive
gambling service providers, whether based in Australia or offshore, whether Australian
or foreign owned. The IGA makes it an offence to provide an interactive gambling service
to a customer physically present in Australia, but it is not an offence for Australian residents
to play poker or casino games online. In stark contrast to the USA, sports betting online
is also completely legal in Australia, with many state government licensed sportsbooks
in operation, such as Centrebet, Sportingbet & Betfair.
Canada While the criminal code of Canada does not
prohibit online gambling, it does prohibit any type of gambling at an establishment not
owned or licensed by a provincial government. Not wthstanding this fact, there are an estimated
1,200 to 1,400 offshore websites that make casino type games and other gambling activities
available to Canadians. For online gambling operations within Canada’s borders, the
Canadian authorities are willing to prosecute, but as of this date, have only done so once,
when British Columbia prosecuted Starnet Communications International (“SCI”), a Delaware corporation,
run by residents of Vancouver, where one of the company’s servers was located. The court
found that SCI had sufficient contact with Canada to be prosecuted under its criminal
code. SCI was fined $100,000 and forfeited nearly $4 million in profits. It has since
moved its operations overseas. In 2004, the British Columbia Lottery Corporation (“BCLC”)
launched Canada’s first legal online casino, Playnow.com, which makes legal online gambling
available to residents of British Columbia. A survey conducted in 2007 showed that only
about 2.3% of Canadians reported participating in online gambling. However, in 2012, Manitoba
Lotteries Minister Steve Ashton estimated that gamblers in Manitoba alone were spending
$37 million a year at illegal online casinos. France
On March 5, 2009, France proposed new laws to regulate and tax Internet gambling. Budget
minister Eric Woerth stated the French gambling market would expand to adapt to “Internet
reality.” He further stated “Rather than banning 25,000 websites, we’d rather give licenses
to those who will respect public and social order.” Betting exchanges, however, will remain
illegal under the new plans. Germany
The German Interstate Treaty on gaming which came into force on January 1, 2008, banned
all forms of online gaming and betting in the country, with the exception of wagers
on horse racing. The European Gaming & Betting Association turned to the European Commission
with the request to take action against the German legislation, because such stringent
legislation violated EU rules. In 2010, the European Court of Justice ruled that the monopolised
gambling industry in Germany has to be liberalised. Schleswig-Holstein is the only German state
that has already come up with their own gambling bill allowing gambling online. From 2012,
casino operators can apply for an online gambling license in this state.
India Online gambling is a banned offense in the
state of Maharashtra under the “Bombay Wager Act”. Other acts/legislations are silent with
respect to online gambling/online gaming in India. The most recent law to address gambling
online was the Federal Information Technology Rules where such illegal activities may be
blocked by Internet providers within India. Israel
The Israel gambling law (Israeli Penal Law 5737 – 1977) does not refer specifically to
online gambling (land based gambling and playing games of chances is prohibited except in the
cases of the Israel Lottery and the Israeli Commission for Sports Gambling). In December
2005, the Attorney General ordered all online gambling operations, online backgammon included,
to close their businesses and at the same time commanded credit card companies to cease
cooperating with online gambling websites. In May 2007, the Attorney General had excluded
the online backgammon website Play65 of the ruling, due to “the unique circumstances of
the site activity”, allowing to return to full activity in Israel.
Russia Russian legislation, enacted in December 2006,
prohibits online gambling altogether (as well as any gambling relying on telecommunications
technology). United Kingdom
In 2003 Tessa Jowell, then Culture Secretary suggested a change in the British Gambling
laws to keep up with advances in technology. The Bill identified updates to the laws already
in place in the UK, and also created the UK Gambling Commission to take over from the
Gambling Board. The Commission will have the power to prosecute any parties in breach of
the guidelines set out by the bill and will be tasked with regulating any codes of practice
they set forward. The Bill set out its licensing objectives, which are as follows:
Ensuring no link between gambling and crime or disorder
Ensuring that gambling is conducted fairly and openly
Protecting children and vulnerable adults from harm or exploitation
The Bill also set out guidelines stating that gambling will be unlawful in the UK unless
granted a licence, permit or registration. It outlined the penalty for being in breach
of these guidelines, that being a maximum of six months in prison, a fine, or both for
each offence. Any person under 18 will not be allowed to gamble and it is an offence
to invite or permit anyone under the age of 18 years old to gamble.
United States The United States Court of Appeals for the
Fifth Circuit ruled in November 2002 that the Federal Wire Act prohibits electronic
transmission of information for sports betting across telecommunications lines but affirmed
a lower court ruling that the Wire Act “‘in plain language’ does not prohibit Internet
gambling on a game of chance.” But the federal Department of Justice continues, publicly,
to take the position that the Wire Act covers all forms of gambling.
In April 2004 Google and Yahoo!, the two largest Internet search engines, announced that they
were removing online gambling advertising from their sites. The move followed a United
States Department of Justice announcement that, in what some say is a contradiction
of the Appeals Court ruling, the Wire Act relating to telephone betting applies to all
forms of Internet gambling, and that any advertising of such gambling “may” be deemed as aiding
and abetting. Critics of the Justice Department’s move say that it has no legal basis for pressuring
companies to remove advertisements and that the advertisements are protected by the First
Amendment. In April 2005, Yahoo! has instigated a restrictive policy about gambling ads.
In July 2006, David Carruthers, the CEO of BetonSports, a company publicly traded on
the London Stock Exchange, was detained in Texas while changing planes on his way from
London to Costa Rica. He and ten other individuals had been previously charged in a sealed indictment
with violations of US federal laws relating to illegal gambling. While as noted above,
a United States Appeals court has stated that the Wire Act does not apply to non-sports
betting, the Supreme Court of the United States previously refused to hear an appeal of the
conviction of Jay Cohen, where lower courts held that the Wire Act does make it illegal
to own a sports betting operation that offers such betting to United States citizens.
The BetOnSports indictment alleged violations of at least nine different federal statutes,
including 18 USC Sec. 1953 (Operation of an Illegal Gambling Business). Carruthers is
currently under house arrest on a one million dollar bail bond.
In September 2006, Sportingbet reported that its chairman, Peter Dicks, was detained in
New York City on a Louisiana warrant while traveling in the United States on business
unrelated to online gaming. Louisiana is one of the few states that has a specific law
prohibiting gambling online. At the end of the month, New York dismissed the Louisiana
warrant. Also in September 2006, just before adjourning
for the midterm elections, both the House of Representatives and Senate passed the Unlawful
Internet Gambling Enforcement Act of 2006 (as a section of the unrelated SAFE Port Act)
to make transactions from banks or similar institutions to online gambling sites illegal.
This differed from a previous bill passed only by the House that expanded the scope
of the Wire Act. The passed bill only addressed banking issues. The Act was signed into law
on October 13, 2006, by President George W. Bush. At the UIGEA bill-signing ceremony,
Bush did not mention the Internet gambling measure, which was supported by the National
Football League but opposed by banking groups. In response to Unlawful Internet Gambling
Enforcement Act, a number of online gambling operators including PartyGaming, Bwin, Cassava
Enterprises, and Sportingbet announced that real-money gambling operations would be suspended
for U.S. customers. PartyGaming’s stock dropped by 60% following its announcement. Other operators
such as PokerStars, Full Tilt Poker, Bodog, and World Sports Exchange announced their
intention to continue serving customers in the U.S.
The regulation called for in the UIGEA were issued in November 2008. The regulation does
not define “unlawful Internet gambling.” In April 2007, Rep. Barney Frank (D-MA) introduced
HR 2046, the Internet Gambling Regulation, Consumer Protection, and Enforcement Act,
which would modify UIGEA by providing a provision for licensing of Internet gambling facilities
by the Director of the Financial Crimes Enforcement Network. Several similar bills have been introduced
since then in the House and Senate. In June 2009, the U.S. Department of Justice
seized over $34 million belonging to over 27,000 accounts in the Southern District of
New York Action Against Online Poker Players. This is the first time money was seized from
individual players as compared to the gaming company. Jeff Ifrah, the lawyer for one of
the account management companies affected, said that the government “has never seized
an account that belongs to players who are engaged in what would contend is a lawful
act of playing peer-to-peer poker online.” On December 3, 2009, the House Financial Services
Committee held a hearing on UIGEA and Rep. Frank’s Internet Gambling Regulation, Consumer
Protection, and Enforcement Act of 2009 (H.R. 2267) where experts in the fields of online
security and consumer safety testified that a regulatory framework for Internet gambling
would protect consumers and ensure the integrity of Internet gambling financial transactions.
On July 28, 2010, the committee passed H.R. 2267 by a vote of 41-22-1. The bill would
legalize and regulate online poker and some other forms of online gambling.
On November 22, 2010, the New Jersey state Senate became the first such US body to pass
a bill (S490) expressly legalizing certain forms of online gambling. The bill was passed
with a 29-5 majority. The bill allows bets to be taken by in-State companies on poker
games, casino games and slots but excludes sports betting, although it allows for the
latter to be proposed, voted on and potentially regulated separately in due course. However,
a Fairleigh Dickinson University PublicMind poll in April 2009 showed only 26% of New
Jersey voters approved of online sports-betting. On a national level, two-thirds (67%) of voters
polled by PublicMind in March 2010 opposed changing the law to allow online betting.
Men were more likely than women (29%-14%) and liberals more likely than conservatives
(27%-18%) to approve of changing the law to allow online betting. In May 2012, FDU’s PublicMind
conducted a follow up study which asked voters if they favored or opposed online gaming/gambling
and “allowing New Jersey casinos to run betting games online, over the Internet.” The results
showed that (31%) of voters favored while a sizable majority (58%) opposed the idea.
Peter Woolley, Director of the PublicMind commented on the results: “Online gambling
may be a good bet for new state revenue, but lots of voters don’t think it’s a good bet
for New Jersey households.” On April 15, 2011, in U. S. v. Scheinberg
et al. (10 Cr. 336), three online poker companies were indicted for violating U.S. laws that
prohibit the acceptance of any financial instrument in connection with unlawful Internet gambling,
that is, Internet gambling that involves a “bet or wager” that is illegal under the laws
of the state where the bet is made. The indictment alleges that the companies used fraudulent
methods to evade this law, for example, by disguising online gambling payments as purchases
of merchandise, and by investing money in a local bank in return for the bank’s willingness
to process online poker transactions. The companies argue that poker is a game of skill
rather than a game of chance, and therefore, online poker is not unlawful Internet gambling.
There are other legal problems with the government’s case; and, interestingly, the indictments
did not mention the Wire Act. On July 31, 2012, it was announced that two of the three
companies indicted for money laundering and forfeiture settled with the Manhattan U.S.
Attorney for $731 million without legally admitting guilt. The government also asked
the judge to approve a settlement with the third defendant, Absolute Poker.
Remote Gambling The Bill defined remote gambling as,
This would be using the internet, the telephone, radio, television of any other device used
for communication. Any operator must have a separate licence for remote gambling and
non remote gambling. The licence must state what form the remote gambling would come in
and any conditions appropriate to each operator. Offences for breaching remote gambling guidelines
are the same as breaching non-remote gambling guidelines.
Other countries Various forms of online gambling are legal
and regulated in many countries, including some provinces in Canada, most members of
the European Union and several nations in and around the Caribbean Sea.
Online gambling industry statistics In the UK, between 2009–2010, 4% of adults
had bet online. Between April 2010 and March 2011, online gambling which is regulated by
the UK Gambling Commission yielded £660.74 million, a 5% increase on the previous year.
The British regulated online gambling sector was worth a 12% market share of the British
regulated gambling industry within the same time period. Most British consumer online
gambling activity is on overseas regulated websites, and estimates place the UK consumer
market for online gambling at £1.9 billion for 2010. (Approximately three times the size
of the British regulated market). In the year to March 2011, 5000 adults were surveyed and
reported that 11.2% of them had participated in at least one form of remote gambling in
the previous four weeks. Approximately half of the respondents had only participated in
National Lottery products. Another group of interviews conducted by the Gambling Commission
In March 2011, the UK online gambling industry employed 6,077 full-time employees. A number
that has declined since 2008 where 8,918 full-time employees were in employment within the industry.
Also, there were 291 remote gambling activity licences held by 225 operators at this date.
Three of the sectors within online gambling are; Betting, Bingo and Casino which between
them turned over £13,456.07 million between April 2010 and March 2011. During this time
period, Betting turned over a substantial proportion of this amount, turning over £13,081.44
million, with Bingo and Casino turning over £26.75 million and £347.87 million respectively.
Problem gambling In the United States in 1999 the National
Gambling Impact Study stated “the high-speed instant gratification of Internet games and
the high level of privacy they offer may exacerbate problem and pathological gambling”. A UK government-funded
review of previous research noted a small scale patient survey leading to press reports
claiming that 75% of people who gamble online are “problem” or “pathological” gamblers,
compared to just 20% of people who visit legitimate land-based casinos.
A study by the UK Gambling Commission, the “British Gambling Prevalence Survey 2010”,
found that approximately 0.9% of the adult population had problem gambling issues, more
than shown in a previous study in 2007. The highest prevalence of problem gambling was
found among those who participated in playing Poker at a pub or club (20.3%), Dog races
(19.2%) and online slot machine style or instant win games (17%). Additionally the report noted
a 15% increase in overall gambling since 2007, from a rate of 58% in 2007 to 73% in 2010.
Significantly, the 2010 prevalence survey notes that whilst the overall gambling figure
had increased, the prevalence among men at 75% was not dissimilar to the amounts in two
previous surveys in 1999 and 2007 which were 76% and 71% respectively. However, the prevalence
among women for 2010 was 71%, which was higher than 68% in 1999 and 65% in 2007.
Money laundering It has also been alleged that the largely
unsupervised electronic funds transfers inherent in online gambling are being exploited by
criminal interests to launder large amounts of money. However, according to a US GAO study,
“Banking and gaming regulatory officials did not view Internet gambling as being particularly
susceptible to money laundering, especially when credit cards, which create a transaction
record and are subject to relatively low transaction limits, were used for payment. Likewise, credit
card and gaming industry officials did not believe Internet gambling posed any particular
risks in terms of money laundering.” In 2011, the U.S. Attorney for the Southern
District of New York filed United States v. Scheinberg, a federal criminal case against
the founders of the three largest online poker companies, PokerStars, Full Tilt Poker and
Cereus (Absolute Poker/Ultimatebet), and a handful of their associates, which alleges
that the defendants violated the Unlawful Internet Gambling Enforcement Act and engaged
in bank fraud and money laundering in order to process transfers to and from their customers.