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Federal Gaming Bans Undermine Federalism

Since the early days of the Republic, the question of how gambling is regulated has largely been a right reserved for the states.

Since the early days of the Republic, the question of how gambling is regulated has largely been a right reserved for the states. However, this week members of Congress will discuss legislation that would overturn state laws pertaining to gambling within their borders and create a federal ban, preventing states from legalizing online gambling in the future. They claim it is to protect minors, those with addictions, and states that do not want online gambling available to their citizens. This measure will achieve none of those goals. Rather, it will undermine federalism and drive problem gambling underground.   

Proponents of the Restoration of America‚??s Wire Act (H.R. 707) argue that the Department of Justice opened the floodgates for online gambling in 2011, when it unilaterally reinterpreted the 1961 Wire Act to apply only to online betting on sports. Yet, H.R. 707 is based on a misleading reading of history. This week, the Crime, Terrorism, Homeland Security, and Investigations Subcommittee (part of the House Judiciary Committee) will hold a hearing on H.R. 707. Members of the Subcommittee likely will hear misleading claims by H.R. 707 proponents. Many of those claims are addressed below.

The 1961 Wire Act was understood by Congress and the Department of Justice as a narrowly focused law targeting the Mafia‚??s telephone-run sports gambling racket. It wasn‚??t until the late 1990s and early 2000s that the DOJ interpreted the Wire Act to apply to all gambling on the Internet‚??with no justification for it to broaden its scope in this way. In fact, it was the DOJ‚??s 2011 memo that restored the Wire Act to its original meaning.¬†

H.R. 707 is not only legally dubious; it is bad policy. A federal prohibition on Internet gambling would harm individuals and states in various ways.   

Online gambling in America took off with the increase in Internet usage in the 1990s and became a multi-billion-dollar business long before 2011. By 1997 consumers had spent an estimated $1 billion worldwide on net gambling, with around 60 percent coming from the U.S. Between 2003 and 2010 Americans spent $30 billion gambling on foreign-owned and -operated gambling sites. A prohibition would simply push Americans back into this black market. 

Today, 85 nations‚??and three U.S. states‚??have legal online gambling and regulate it in a way that protects their citizens from crime and holds operators accountable. In the three U.S. states with online casino games‚??Delaware, Nevada, and New Jersey‚??there are no known cases of an unauthorized individual gaining access to the sites. Website operators can confirm an individuals‚?? identity by asking for a Social Security number, utility bill, state-issued ID, or credit history information. Likewise, they can pinpoint a player‚??s location through use of IP, GPS, and carrier data, as well as Wi-Fi triangulation.

Compare that security measures at brick-and-mortar casinos, which simply do a visual scan of a person‚??s I.D. Moreover, websites licensed to operate within the U.S. have an incentive to comply with U.S. laws lest they face fines or loss of their license to operate.¬†

The fear that legal online gambling will increase pathological gambling rates is understandable, but groundless. Despite unprecedented increases in the availability of gambling options, the prevalence of pathological gambling has remained relatively stable or declined during the last 35 years, according to Harvard addiction expert Howard J. Shaffer. Additionally, Harvard studies have shown that online gambling is no more addicting that betting at brick-and-mortar casinos. In fact, online gambling sites may be better equipped to identify and address patterns of problem gambling by using software that tracks player behavior. 

Some, such as Texas Governor Rick Perry argue that the Internet is a stateless territory, ‚??transcending state boundaries‚?Ě and that states cannot control this form of online commerce. That raises a worrying precedent RAWA would set. If all online commerce is interstate, then Congress would have the right to intervene in any form of online commerce, subject to federal interference. Today it is Internet gambling; tomorrow a lawmaker may take issue with online sales of ammunition, tobacco, or certain foods and beverages seen as ‚??harmful.‚?̬†

So long as an activity does not violate the rights of another person, no government should prohibit adults from voluntarily participating in it. While some Members of Congress may have a moral objection to gambling, it is neither the Congress‚??s responsibility nor its right to legislate morality. When the residents of several states decide that legal online gambling should be legal within their borders and their state representatives enact legislation to allow this, federal officials should not overturn those democratically enacted laws.¬†

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