Cyber casinos.

So far only a few states have attempted to regulate gambling on the Internet, but with 500 sites and limited federal involvement, more legislatures soon will.

For electronic Bugsy Siegels, the stakes have been raised in the Internet casino game. At least two states have considered Internet gambling regulation, and last December a Minnesota trial court held that the state has jurisdiction over a Las Vegas company offering gambling services on the Web.

Today there are almost 500 gambling sites on the Internet. Almost a dozen of these allow players to wager real money. These cyber casinos offer everything from sports books to lotteries to virtual slots and table games. Relatively low start-up capital and operating expenses and the millions of prospective customers add up to a very profitable business. However, concerns about consumer protection, adverse effects on legal gaming establishments, underage gambling and gambling addiction have led Congress to include Internet gambling as an issue to be studied by the National Gambling Impact and Policy Commission. In addition, U.S. Senator Jon Kyl from Arizona plans to reintroduce a bill from last session that would amend the federal Interstate Wire Act to explicitly prohibit Internet gambling.

The Interstate Wire Act prohibits a business from using telephone wires to transmit wagers. The Justice Department has determined that the current act gives it jurisdiction over Internet gambling operations, but concedes that prosecution of such businesses is not a priority at this time. The feds have, in effect, left regulation up to the states.

Minnesota has taken the lead in cracking down on these operations. Hubert Humphrey III, the state's attorney general, filed suit against Granite Gate Resorts, a Las Vegas company, for consumer fraud and false advertising.

The suit was filed against Granite Gate because the company could be served in Las Vegas. Most Web casinos, however, are based off-shore in places like Belize or Antigua, making jurisdiction over them especially hard. "In Belize, a subpoena from Minnesota wouldn't mean anything. They would just laugh at you," says Carolyn Ham, the assistant attorney general prosecuting the case.

Granite Gate disputed Minnesota's jurisdiction over the Web operation. The suit alleged that Granite Gate, by advertising a cyber sports book to Minnesotans over the Internet, was falsely claiming that placing sports bets is legal in Minnesota. Humphrey points out that in fact, state and federal law expressly prohibit such wagers. Granite Gate moved to dismiss the case, arguing that the state has no jurisdiction over it because its Web site was not designed to actively solicit business in Minnesota. In addition, the company noted that all wagers go through off-shore accounts in Belize. "The people from Minnesota are going to a remote gambling operation to participate, the operation is not going to Minnesota," explains Shari Steele, a lawyer with the Electronic Frontier Foundation.

The state trial court ruled, however, that operating a Web site amounts to plating an advertisement in Minnesota that is "available 24 hours a day, seven days a week, 365 days a year." This is enough contact to establish jurisdiction by the state. Minnesota is now free to ask for an injunction requiring the site to either cease operations or prohibit Minnesotans from registering as players. Humphrey has hailed the ruling as a clear statement that "there is no 'Internet exception' in [Minnesota's] consumer protection laws."

The case may be the first to establish state jurisdiction over the Internet, finally allowing states to go after cyber-savvy lawbreakers. Although it is arguable whether the case may be applied to other types of illegal activities, Internet casino operators at the very least must now take precautions against violating state and federal laws. Just as technology enabled them to set up their businesses in the first place, it will help them ensure that players from the United States or certain states do not register to play on their Web sites. Other options for on-line casinos include establishing all operations off-shore, which might remove them from U.S. jurisdiction altogether, or offering games for free. Several Web sites are betting on these options already; whether such precautions will solve their legal problems, however, is a risk Internet casinos are willing to take.

FIRST ATTEMPTS

Virginia and Wisconsin have attempted to control Internet gambling through legislation rather than litigation. Even though one bill never made it out of committee and Internet gambling restrictions were struck from the other before it passed, the attempts are noteworthy. They are among the first times state legislation was considered to regulate the use of computers for betting or wagering.

Virginia House Bill 7, as introduced, included prohibitions against on-line gambling with state-owned computers so state employees wouldn't be tempted to gamble on the job. The bill, sponsored by Delegate Robert Marshall, lost those provisions during committee changes. Marshall says administrative rules have since been implemented to regulate the activity.

Wisconsin's bill will most certainly be reintroduced this session. "It's clear that Internet gambling is something that we want our laws to address," says Kelly Kennedy of the attorney general's office.

Impetus for the legislation, which was killed in committee, came from Attorney General James Doyle, who asked the Legislature to take on the issue. Assembly Bill 1055 would have applied to all wire communications, not just computerized communications. The bill was an attempt to clarify that the wire communications regulated in current gambling statutes include the Internet. Proposed penalties included fines up to $10,000, up to two years in prison or both.

IT'S UP TO STATES

Internet gambling is currently in its infancy, but it promises to grow large enough to compete with its older sibling, legalized gaming. Until the federal gambling commission makes its recommendations to Congress, the states will be on the front line of the fight against cyber casinos. Whether they choose litigation or legislation as their weapon, jurisdiction over the on-line bookmakers and pit bosses will be their biggest obstacle.

Anneliese May is researching information policy issues for NCSL.