Online Gambling

On July 25, 2007, the online community Second Life barred players from gambling inside its virtual world. Second Life is just the most recent Web site to be caught up in the U.S. government’s crackdown on online gambling.

Internet gambling is generally illegal in the United States, but there are still some gray areas. One such gray area relates to a 1961 law, the Federal Wager Wire Act, which forbids people from using telephone lines to conduct gambling. It is not entirely clear if this law forbids people from gambling on the Internet, since some—but not all—Internet traffic is carried by telephone wires. A few operators of online casinos have been convicted of breaking this law, but anti-gambling groups and some members of Congress would like to see U.S. laws strengthened to make online gambling unquestionably illegal.

The anti-gambling groups achieved some of their goals late in 2006 with the passage of the Unlawful Internet Gambling Enforcement Act. This law did not make it illegal for individuals to participate in online gambling, but it did make it illegal for banks and other financial institutions to transfer funds to most online gambling sites. Online lotteries and online betting on horse races were not affected by the law, but online poker—which has become increasingly popular—was.

Another gray area relates to the definition of “gambling.” When a person is betting with real money, or with chips or other virtual currency that can easily be converted back and forth to real money, this is clearly gambling under U.S. law. However, when a person “gambles” with virtual money that has no real-world value, this activity is not subject to the same U.S. gambling laws. (Second Life’s gambling operations operated in this gray area. Players in Second Life’s casinos gambled with Linden dollars, the virtual currency of the online world, rather than with real money. The problem was that Linden dollars were and are fairly easy to convert to real-world money.) Thus, some operators of online poker sites have been able to avoid the U.S. government’s crackdown on online gambling by ceasing to allow players to play with real money and by advertising their sites as places to learn how to play poker rather than as an online casinos.

The biggest challenge for U.S. efforts to end online gambling is the global reach of the Internet. Online gambling is a legal, regulated business in several English-speaking countries, including Australia, South Africa, and Antigua, and Britain has also moved to ease its regulations on online gambling. For an American gambler, Web sites based in these countries are just as easy to access as sites based in the United States. Although some of these offshore sites have stopped accepting wagers from gamblers in the United States, many of them continue to do so.

Antigua, a small Caribbean country where running international online gambling sites is a major industry, has also fought against U.S. laws that threaten the profitability of online gambling. Antigua has brought several complaints against the United States before the World Trade Organization (WTO), an international body that mediates trade disputes and enforces free-trade agreements. The WTO sided with Antigua, but the U.S. responded, not by amending its laws against online gambling, but by starting a process to re-write its obligations under a trade treaty. On July 24, 2007, Antigua asked the WTO to allow it to launch trade sanctions against the United States to protest the U.S. failure to abide by the WTO decision.