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 335

Online Gambling:
An Appreciation of Legal Issues
Anurag Bana*

Online gambling has recently generated an overwhelming interest worldwide

and is being seen as a potential trading sector that could assist countries with
a 'booster shot' in reducing their accumulated fiscal deficits in an effort to
encourage domestic and world economies. But online gambling is a booming
industry that increasingly tends to command qualified attention towards
cross-border legal complexities and ambiguities amidst an approaching
inevitable future. A report from H2 Gambling Capital revealed that in 2010,
the total global revenue generated from online gambling amounted to
US$29.95 billion.' The same report stated that online gambling had grown
by 12.5 per cent in 2010 as compared to previous years and has predicted
this trend to continue in the coming years.
In March 2011, the European Commission opened a public consultation,
'On-line gambling in the Internal Market'.2 The main aim of this consultation
is to identify public policy challenges and market issues referring to the
differing regulatory models of national authorities in the European Union
(EU) that may potentially have a cross-border impact on non-European

* Anurag Bana is Senior Staff Lawyer for the Legal Projects Team at the IBA. The views,
opinions and observations expressed in this article are those of the author and do not
necessarily reflect those of the IBA or any other organisation and/or any law firm. The
author would like to give special thanks to Kexian Ng, former legal intern for the IBA
Legal Projects Team. At present she is working as a trainee lawyer with law firm Rajah &
Tann, Singapore.
1 This figure is based on a 2010 report by H2 Gambling Capital available at - www.h2gc.
com/news.php?arti cle=H2+publishes+prelniinary+eGaming+Data+for+2010+and+exte
nds+forecasts+to+2015 and as quoted in 'Online Gambling Grows in 2010', available at
www.casinoadvisor.com/online-gambling-grows-in-2010-news-item.html.
2 The European Commission public consultation on 'On-line gambling in the Internal
Market' took place from 24 March 2011 to 31 July 2011, available at http://ec.europa.
eu/internal market/consultations/2011/online-gambling-en.htm.
336 BUSINESS LAw INTERNATIONAL Vol 12 No 3 September 2011

jurisdictions. The US and the UK are renowned for having totally different
approaches towards online gambling but have recently been devising their
economic policies subject to their respective perspectives on consistency,
proportionality and non-discriminatory issues reflecting trends in sector-
specific trading industries.
Over the last two years, there has been a flurry of market activity concerning
online gambling operators as they rush to carve out for themselves a greater
share of the online gambling market. PartyGaming signed a deal to acquire
WPT Enterprises,' while 888 is supplying Harrah with software for its entry
into the UK market.' Gibraltar-based PartyGaming also merged its entity with
Bwin, the poker specialist based in Austria. The merged entity would generate
annual revenues of E682 million based on pro forma 2009-2010 data, and
underlying earnings of E196 million.5 On the other side, the US Congress
has another bill pending, introduced by its proactive Senator Barney Frank
to legalise online gambling in the country.
Given that online gambling has been recognised as a global phenomenon,
it seems imperative that an effective international regulator should be
formed to monitor the management, accountability, efficiency and sector
proportionality of the stakeholders involved in order to sustain market
confidence in trading by promoting public understanding in addition to
maintaining an appropriate degree of protection for consumers. There are
some existing independent non-governmental organisations dedicated to
regulating online gaming activity. However, as they lack enforcement powers,
their policies, at best, take the form of guidelines and recommendations.
Each country strikes a different balance between the revenues that gambling
activity promises and the inevitable negative social and moral repercussions
on society. Such a balancing act is delicate, and it is entirely within the powers
of a sovereign nation's autonomy.
This article sets out some of the pertinent legal issues that most countries
have started investigating, such as tax, money laundering, trade and the conflict
of the legality of online gambling between several related jurisdictions.

3 Nick Clark, 'Party Gaming seals first US deal since settlement', The Independent, 26 August
2009, available at www.independent.co.uk/news/business/news/partygaming-seals-first-
us-deal-since-settlement-1777235.html.
4 Pan Kwan Yuk, '888 Shares soar on Harrah's Deal', The FinancialTimes, 11 September
2009, available at www.ft.com/cms/s/0/283a2070-9ee3-11de-8013-00144feabdcO.
html?nclick check=1.
5 Roger Blitz, 'Online gambling groups seal link-up', The FinancialTimes, 30 July 2010.
ONLINE GAMBLING: AN APPRECIATION OF LEGAL ISSUES 337

Consumer protection and interest

Many countries and regulators have started to expend effort in focusing

on the aspect of consumer protection and interest to ensure that gaming
is conducted in a fair and open way. This is attributed to the fact that this
viewpoint merely seeks to provide a universally accepted minimum level
of protection for all consumers regardless of their host country's position
towards online gambling. The Gambling Commission 6 in the UK has
stated that one of the core elements of good gambling regulation is player
protection. That applies as much to remote gambling as elsewhere. An
underlying principle of the planned gambling reforms is informed adult
choice. In online gambling, accurate information should be made available to
the player that should include rules of play, game representation and rate of
return. The main areas that call for immediate concern are discussed below.

Advertising

In general, countries are able to prescribe laws to keep unwanted

advertisements out of their jurisdiction, but the availability of online search
engines such as Google and Yahoo limits the effectiveness of any prohibition
or bans on advertisements. The focus on regulation of advertisements should
be on keeping advertisements out ofjurisdictions that make online gambling
illegal and on preventing these advertisements from reaching minors.

Under-age gambling

One of the most controversial areas of online gambling relates to the

prevention of under-age people from accessing online gambling sites. With
the exception of the US, mostjurisdictions stipulate 18 as the age of majority
for gambling. In the US, possession and verification of a credit card have
been viewed as a measure of a patron having reached adult status. The
UK takes this requirement further; it stipulates that operators must verify a
patron's credit card information with reliable third-party systems and must
request physical copies of a driver's licence or a utility bill on registering.'

6 The Statement of Principles on Licensing and Regulation: Consultation Document (2005),

para 1.6.
7 Infra, eGAP.
8 E Morse, 'Extraterritorial Internet Gambling: Legal Challenges and Policy Options',
InternationalJournalof InterculturalInformation Management2007, Vol 1, No 1 pp 33-48,
p 4 1.
9 Safe and Secure: Internet Gambling Initiative, available at www.safeandsecureig.org.
338 BUSINEss LAW INTERNATIONAL Vol 12 No 3 September 2011

Trustworthiness of sites

With the advent of thousands of online gambling sites, consumers have to

make choices regarding which online sites to use. Governmental regulation
is limited for operators established beyond their jurisdiction,' and patrons
have generally been more sceptical of foreign governmental regulators."
Thus, internet patrons may have to look towards private sources to address
matters of trustworthiness.

Disclaimers

Disclaimers have been synonymous with discharging the liability of operators

in the virtual world where the flow of information is unlimited. Interesting
case law in the US provides that in order to discharge the liability of a
disclaimer, the disclaimer must be prominent and the operators have to
implement procedures that are reasonably designed to safeguard against its
content reaching unwanted persons or destinations. 2

Duty of care and social responsibility

Case law in jurisdictions such as Australia," Austria,14 Canada 5 and, to a

lesser extent, the United Kingdom," stipulates that a duty of care might be
owed by a casino to a gambler in certain circumstances. Generally, these
countries have established that a duty of care exists where the patron has
been identified as a known 'problem gambler' and the operator 'actively'
capitalised on the patron's weakness to exacerbate his gambling. eCOGRA
imports a much watered-down version of these common principles and
obligates operators to honour self-exclusion agreements and establish
measures to display prominently a player's remaining credit." There has

10 See Morse, note 8 above, 39.

11 Ibid.
12 New York v VaccoNo 404428/98, Supreme Court, 22July 1999.
13 Preston v Star City (1999) NSWSC 1273; Kakavas v Crown Ltd and john Williams VSC No
3964 of 2007.
14 Michael Leidig, 'Gambling addict wins a fortune in court ruling against casino', Sunday
Telegraph, 22 February 2004, available at www.responsiblegambling.org/articles/
Gambling-addict-wins a_fortuneincourtruling.against-casino.pdf, last accessed
6 June 2011.
15 An opinion by Sasso and Jasminka Kalajdzic, commissioned by the Ontario Problem
Gambling Research Centre, as quoted in 'Gambling nevus, province owe duty of care:
study', Law Times, date unknown, available at www.lawtimesnews.com/20061201916/
Headline-News/Gambling-venues-province-owe-duty-of-care-study.
16 Calvertv William Hill CreditLtd [2009] 2 WLR 1065.
17 Supra, eGAP.
ONLINE GAMBLING: AN APPRECIATION OF LEGAL ISSUES 339

been informal encouragement given by many countries to the gambling

industry to adopt the notion of a socially responsible approach with a shared
commitment towards preventing problem gambling, protecting vulnerable
players and ensuring the principles of good regulation. There may be a
consensus that a certain minimum protection should be accorded to these
issues. However, all actions are limited at being mere guidelines. It has
been argued that there is room for the creation of a global standard setting
board." This is best done through the enlistment of regionally representative
policy-makers to develop policy and propose market-effective solutions or
consequences worldwide."'

Regulatory issues and objectives

Tax

Which countries have the right to tax income from cross-border transactions?
How should the income from those transactions be allocated between the
countries in which the activities are conducted? How can double taxation be
avoided?o These are the main issues surrounding the rules relating to the
taxation of online gambling between countries and can only be dealt with by
reference to the traditional tax principles of residence and source of income.
At the present moment, there is no comprehensive framework to regulate
tax. In April 2002, a meeting was held at the OECD specifically concerning
the taxation of internet gambling. Although no official report concerning
this meeting was published, it has been suggested that variations in industry
structures prevented any consensus from being reached.

Money laundering

Online gambling is an activity that is highly susceptible to money laundering,

just like any other casino that deals with large sums of money. The Financial
Action Task Force (FATF), the largest intergovernmental body committed to
the development and promotion of policies to combat money laundering, has

18 J Wiebe and M Lipton, 'Internet Gambling Regulations', CanadianGamingLawyerMagazine,

May 2009, 17-18, at p 18.
19 Ibid.
20 Professor L Hinnekens, University of Antwerp, Belgium, 'How OECD Proposes to Apply
Existing Criteria of Jurisdiction to Tax Profits Arising from Cross-border Electronic
Commerce' (2001) 29(10) INTERTAX 323.
21 Karen Jeanneret-Druckman, Taxation of E-Gaming: A Brave New World ? in A Arnovitz
(ed) Cross-Border Gambling on the Internet, Challenging National and InternationalLaw
(Schultess, 2004) p 372, 1 3.3.
340 BUSINESs LAW INTERNATIONAL Vol 12 No 3 September 2011

published reports regarding this issue. 2 The FATF noted three characteristics
of the internet that make it potentially susceptible to money laundering.
These are:
1. ease of access through the internet;
2. the depersonalisation of contact between the customer and the institution;
and
23
3. the rapidity of electronic transactions.
It primarily highlights the difficulties concerned with verifying a client's
identity if an online gambling account is allowed to be opened without any
face-to-face contact. 24 Therefore it has recommended the imposition of
customer due diligence and record-keeping obligations for all transactions
2
equal to or above US$/E3,000. 5
26
The FATF report, Vulnerabilities of Casinos and Gaming Sector released
in March 2009, briefly mentioned online gaming under Chapter 4, 'Policy
Implications', by stating that online gaming required further typologies study
and sharing of cases and regulatory models as it was beyond the scope of
enquiry for the report.
The fundamental issue that remains is that internet casinos are still very
much regulated in the jurisdiction within which they are registered. This
creates the potential for differing standards of regulation, which, in turn,
leads companies to locate their businesses strategically in jurisdictions
that impose less stringent controls. It is paramount to establish a universal
regulatory standard independent of thejurisdiction an operator is established
in and independent of whether that jurisdiction has sufficiently prepared
the legal framework for such operations.

22 See, eg, Financial Action Task Force on Money Laundering, Report on Money Laundering
Typologies For 2000-2001 (1 February 2001); Financial Action Task Force on Money
Laundering, 'Review of the FATF Forty Recommendations Consultation Paper', 30 May 2002.
23 Ibid.
24 Ibid.
25 Recommendations 5, 6 and 8 to 11 of the FATF's 40 Recommendations, available at www.
4 32 250 3
fatf-gafi.org/document/28/0,33 3,en_ 79_32236930_33658140_11_1_1,00.html.
26 FATF, Vulnerabilities of Casinos and Gaming Sector,March 2009, available atwww.fatf-gafi.org/
dataoecd/47/49/42458373.pdf.
27 Joseph Skala, 'Money Laundering and Internet Gambling: A suspicious affinity?' in Cross-
Border Gamblingon the Internet: ChallengingNationaland InternationalLaw (Schulthess eds
2004, Switzerland: Swiss Institute of Comparative Law), 13.3.
28 lbid 5.
ONLINE GAMBLING: AN APPRECIATION OF LEGAL ISSUES 341

Trade

Trade is an important area that essentially requires the harmonisation of legal

policies. In the 2006 landmark case of US-Gambling,29 Antigua successfully
filed a complaint against the US in the World Trade Organization (WTO)
court on the grounds that the Unlawful Internet Gambling Enforcement Act
(UIGEA) 2006 was inconsistent with the US's fair trade obligations under the
General Agreement on Trade Services (GATS). This Act effectively outlaws
gambling by banning the use of credit cards and other financial instruments
that facilitate illegal internet gambling.
Though the panel accepted that the prevention of gambling activities
could potentially be included in the 'public morals' defence under Article
XIV(a) of GATS, it held that the measures taken were not necessary to fulfil
this aim. In doing so, it presented a two-tiered analysis. The first was that
other measures had not been explored and exhausted before adopting a
non WTO-compatible measure." The second was due to the fact that this
prohibition was directed only against foreign companies," rendering the
mechanism discriminatory and hence unnecessary to uphold its public
morals. As mentioned above, this has prompted the introduction of a bill
in the US Congress to repeal the UIGEA 2006."

Extraterritorialityand conflict of laws

Issues regarding conflict of laws and extraterritoriality can arise when

different legal jurisdictions disagree on the legality of the acts concerned.
This can involve the prosecution of a company or an individual for rendering
online gambling activities in a country that criminalises online gambling,
although online gambling might be legal in another country, which is
similarly able to exercise its jurisdiction over the matter. For example, in the
late 1990s, the US Court of Appeal convicted Jay Cohen, a US citizen, for
the operation of online gambling websites based in Antigua where online
gambling is legal."

29 United States - Measures Affecting the Cross-Border Supply of Gambling and Betting
Services, ('US - Gambling') WTO Appellate Body Report (WT/DS285/AB/R).
30 Ibid, 315.
31 Panel Report, US - Gambling, 10 November 2004, WT/DS285/R, 1 6.105.
32 Text of HR 2267 [111th]: Internet Gambling Regulation, Consumer Protection,
and Enforcement Act, available at http://www.govtrack.us/congress/billtext.
xpd?bi=hll11-2267.
33 Under Antiguan law, online gambling is legal. This prompted Antigua's filing of a WTO
complaint against the USA. See United States v Cohen, 260 F 3d 68 (2d Cir 2001), cert
denied, 536 US 922 (2002).
342 BUSINESs LAw INTERNATIONAL Vol 12 No 3 September 2011

From this case, it appears that with regard to the legality of online
gambling, operators are in a tricky situation. They are liable in situations
where they offer their services to US citizens although they are based in
a jurisdiction that legalises online gambling, and are equally liable if any
part of their activities is based in the US. It further appears that should
countries have differing standards on the legality of online gambling, the
more stringent test may have higher chances of prevailing.
The IBA has previously identified and considered three primary methods
to regulate conflicts between overlapping jurisdictional claims, in its Report of
the Task Force on ExtraterritorialJurisdictionreleased in 2009. These are based
on the strict legal hierarchy, hierarchy of types of jurisdiction and the test
of reasonableness. The report indicated a preference for the last method -
the test of reasonableness - which weighs the links between a state and its
conduct against the links between its conduct and another state.34 Although
the test allows for some flexibility, it ultimately gives weight to the primary
bases ofjurisdiction of nationality and territoriality.3 ' The question remains:
should the higher threshold of illegality always prevail? Should the Task Force
Report's conclusions be extended to the area of online gambling? And if so,
which parts of its analysis could be applied or imported? These are issues
that have yet to be addressed by the global legal community.

Conclusion: the way forward

The coordination of diverse legal policies is an essential first step to

dealing with the complex legal issues relating to the operation of online
gambling. But this in itself can pose a greater challenge at the execution
stage. However, if we take consumer protection issues specifically, it may
appear that certain important guidelines and suggested practices are in
the process of being established or have already been recognised to a
certain extent by interested entities. But for it to reach the next stage of
effectiveness, an enforcement mechanism has to be in place. Similarly,
for cross-border legal issues, certain central definitions, which pertain
exclusively to online gambling, have to be agreed on before importing other
well-established legal principles. This leads to further foreseeable factors
on governance of multinational operators, such as tracking of legitimate
source of finance, business competency, licensing criteria, etc. The last
theme on regulating the divergences in countries' positions on the legality
of online gambling has been the area that has been least explored by the

34 International Bar Association Report of the Task Force on Extraterritorial Jurisdiction

(2009), available at http://tinyurl.com/taskforce-etj-pdf at p 24.
35 Ibid 23.
ONLINE GAMBLING: AN APPRECIATION OF LEGAL ISSUES 343

global legal community. This is understandably so, as this touches on the

heart of a country's autonomy in prescribing and enforcing its own laws.
After delving into the various issues, it becomes quite clear that there is a
pressing need for these issues to be comprehensively tackled by a recognised
unified international governing entity that has adequate expertise to address
these issues. Online gambling is inevitable and is here to stay! Nations have
increasingly started opting out of their pointless defences of legal ambiguities
and structural ramblings. This relentless growth of online gambling in recent
years is approaching a point where it will become a dependable benchmark
for many economies through global trade and free will. It needs global
regulatory consideration before the complexities of the issues accumulate
to the extent that they become incapable of being resolved.

Poker 'Black Friday'

On Friday, 15 April 2011, the US Department of Justice and the Federal

Bureau of Investigation (FBI) conducted unannounced raids and initiated
action against three major online poker firms - PokerStars,Full TiltPokerand
Absolute Poker/UltimateBet. These firms were indicted on charges of illegal
gambling and money laundering.36 In addition, those individuals who
assisted these firms in allegedly deceiving US banks and financial institutions
by fraudulently processing the online payments were targeted and arrested.
The Unlawful Internet Gambling Act (UIGEA), enacted in 2006, makes it
a federal crime for gambling businesses to 'knowingly accept' payment 'in
connection with the participating of another person in unlawful Internet
gambling'. Notwithstanding the UIGEA, the three internet companies in
question continued to offer online poker services in the US. Since online
gambling is illegal in the US, online gambling companies were in turn
prohibited by US banks from opening US bank accounts to receive proceeds
from US gamblers. It is said that to get around this, the companies in question
carried out fraudulent transactional measures and tricked the banks. In the
month of May, ten more online poker firms were indicted on fraud charges
and their accounts seized. Many feel that the poker operators' increasingly
confident trading attitude in the US might have contributed to the recent
wave of arrests and seizures on 'Black Friday'. However, in the light of these
recent events, it remains to be seen how legislative efforts on proposals to
regulate will address the future of online gambling in the US.

36 'Eleven Charged in Manhattan for Fraud in Online-Gambling Money Laundering',

Bloomberg, 15 April 2011, available at www.bloomberg.com/news/2011-04-15/internet-
poker-entrepreneurs-charged-with-fraud-money-laundering-by-u-s-.html.
ru-q g