The US Government’s window to regulate the online gambling industry is quickly closing. Representative Peter King (R-NY) introduced the Internet Gambling Regulation, Enforcement, and Consumer Protection Act of 2013 today to address the short time the federal government has left to regulate online gambling before that power is taken completely by the state. The bill would regulate all forms of online gambling in the United States. The one exception to this bill is sports betting, which is prohibited in most states through the Professional and Amateur Sports Protection Act.
Rep. King’s bill introduces framework that would legalize and regulate online poker and casino games. No list of allowable games is included, but all casino games that fall under class III gaming would presumably be allowed. Class III games include craps, roulette, slot machines, video poker and any table game banked by the house involving cards. Poker is also specifically allowed.
The Office of Internet Gambling Oversight would be created within 180 days of the bill becoming law. This office would enforce the federal regulations and settle some disputes although some action, including licensing, could not be appealed.
States Would Have 120 Day Window to Opt Out
The bill assumes all states opt in unless stating otherwise within 120 days of the bill’s passage into law. The state governor or similarly positioned leader must contact the federal government that they wish to opt out before the 120 days and must include the reason for doing so. These reasons include that state law already requires an opt out or that the state is against federal laws that expand gambling. A state legislature could also opt out through a majority of both chambers. A state could later change its mind with 60 days notice.
Tribes would have similar rights and obligations. Reservations could opt in, even if their state opted out. Play would then be restricted to players physically located on tribal land at the time of login.
Level Playing Field Between States and Reservations
The bill creates a level playing field between commercial gaming interests and tribes. Both would have the opportunity to participate with the same terms. Tribal sovereignty is recognized, though this law would trump the Indian Gaming Regulatory Act as it pertains to online gambling. It does not affect existing gaming pacts between tribes and states.
State lotteries would be permitted to sell lottery tickets online. The horseracing industry would be allowed to operate existing off track betting over the internet. Neither of these industries is specifically permitted to operate online gambling under this bill. Licensing is ultimately up to the states though so either group may be able to get licensed, especially in states with lottery monopolies and large horseracing industries.
Licensing would be handled in one of two ways. States and tribes could set up regulatory framework through existing gaming commissions or create a new one. If a state or tribe fails to create a licensing body then the federal government would control the process. Internet licensing must be at least as stringent as the brick and mortar process, provided a casino industry already exists in the state.
Licenses would initially be issued for five years. There would be fees associated with background checks to confirm suitability. Licensing requirements include not being convicted of a felony or owing back taxes.
Taxes are not addressed in this bill. These details would be added at a later date.
Significant vendors would be required to receive licensing. These include white label operators. Minor participants, including marketing affiliates, would be required to at least register their business. The operator would be obligated to pay all fees associated with their partners.
Bad Actor Clause
The only bad actor clause associated with the bill would exclude any company that accepted or participated in offering illegal sports betting to US residents. This appears to also include affiliates or anyone else that directly profited from illegal sports betting. States would be able to adopt stricter regulations that could exclude other companies.
Orderly Exit of Unlicensed Sites
Existing unlicensed sites would be given the opportunity to exit the US market in an orderly fashion. Players must be given instructions on how to withdraw their balances within seven days of the enactment of this bill. Balances must be paid within 30 days. Any operator that fails to submit payments to players is subject to fines of three times the amount owed and up to two years in jail. The bill does not appear to give immunity to existing unlicensed operators; it simply gives the companies reasonable access to the US banking system to process payments.
Enforcement of Unlicensed Operators
Operators that continue to offer online gambling to US players without a license would be subject to fines of up to $1 million a day or the amount of all wagers accepted. Penalties may also include up to ten years in prison. Players that continue to play on unlicensed sites could find their funds subject to forfeiture. All fines would go to the US Treasury.
Internet Cafes Banned
Businesses that cater specifically to online gambling would be banned under this bill. These types of businesses have been a problem in many states that operated under gray area sweepstakes laws. This federal enactment would put all of these establishments out of business permanently.
International Players Accepted
US operators would be allowed to accept players from other countries as long as online gambling was legal in both jurisdictions. Safeguards mentioned in the bill repeatedly only mention US players. It is unknown if international players would enjoy the same safeguards.
Any person under the age of 21 would be banned from playing online poker and casino games. There are also many standard problem gambling features including opt out, temporary self exclusion, deposit limits, loss limits and banking instrument restrictions.
Player deposits must be held in segregated accounts that would be protected from a potential bankruptcy of a company. Fines of up to $750,000 and potential prison terms could be issued to operators that fail to pay players after a business closes.
Licensees would be required to submit a list of potential threats to security after its first year of operating. These include hacking attempts and bots.
Players that are caught cheating or colluding would be subject to fines and up to three years in prison. Cheats would also be banned from online gambling in the future. The use of bots and prohibited software are included in the list of crimes.
Existing Online Gambling Grandfathered
All forms of existing online gambling would be allowed as long as it was legal before the bill becomes law. This includes skill games, horseracing, and current laws in Delaware, Nevada and New Jersey. Any state that passed legislation before the passage of this bill would also have their laws grandfathered.
Study to be Released
The US Treasury must release data on internet gambling one year after it takes effect. This includes all player habits and revenue won by operators. Player specific information would not be released.