1

The International Internet Gaming Regulatory Commission

By: Dan Sarfati

I. Introduction

There was a moment in time where only a few states and Indian reservations served as

venues for flashy casinos. From Las Vegas to Atlantic City, glamorous hotels play host to these

grand casinos. Gradually, hotels began to incorporate venues for concerts, circus acts, and high-

scale restaurants in an effort to attract a larger consumer base. In order to enjoy the magnificent

luxuries the hotel casinos have to offer, a patron would make travel arrangements, book hotel

accommodations, and prepare for a weekend filled with placing wagers on a wide range of

games the casinos offered. The extensive period of domination by “brick and mortar” casinos of

the gaming market has come and gone. Today, the Internet gaming industry provides an

affordable medium for conveniently playing popular casino games such as blackjack, poker,

craps, slots and the list goes on and on.

Due to the fact great sums of money change hands between patrons and the casino second

by second, state–regulated casinos allocate a great portion of their budgets to preventive security

measures targeting fraud, rigging and theft by both casino patrons and their very employees. The

vast majority of Internet gaming sites are incorporated outside of the United States.

Consequently, a majority of these Internet gaming sites are not subject to the stringent

regulations similarly applied to their “brick and mortar” relatives located in the United States.

Without strict regulations and administrative oversight, Internet gaming patrons worldwide are

highly susceptible to incidences of fraud, rigging and theft.

The exponential growth of the Internet gaming industry in conjunction with the heavy

media coverage of gaming competitions have not only attracted a new generation of gamblers

but also a new generation of predators. The Internet gaming trade has transformed from a small

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budding enterprise to a thriving multi-billion dollar industry with no signs of slowing down.1 As

of 2005, Internet gaming has surged into a $13 billion industry annually. Revenues attributed to

online Internet gaming sites account for a projected five percent of the total global gaming gross

revenue of $258 billion in 2005.2 Additionally, North American residents accounted for roughly

forty-seven percent of the global gross gaming yield in 2005.3 Currently, Internet gaming sites,

specifically poker sites, have launched persistent marketing campaigns targeting gaming fanatics.

In addition, merchandise, video games and board games have been marketed to stimulate the

excitement actual gaming brings to its participants.4 The Internet gaming industry will only grow

larger as it seeks to meet the demand of a growing customer base.

The international community must establish the International Internet Gaming

Regulatory Commission (IIGRC) in order to license and regulate offshore Internet gaming sites.

This commission would provide licenses to offshore Internet gaming sites, promulgate

regulations for which the licensed sites are obligated to abide by, investigate fraudulent conduct

perpetrated by sites & their affiliates, decide disputes involving claims of rigging, theft, fraud,

underage usage and further legitimize offshore Internet gaming. In essence, the IIGRC would

serve the purpose of “outsourcing” the regulation of Internet gaming sites to a credible

international body.

1 I. Nelson Rose, The Law of Internet Gambling, Gambling and the Law (June 15, 1999),

available at http://www.gamblingandthelaw.com/internet.html. (last visited November 19,

2009). 2 The Internet Gambling Regulation and Enforcement Act of 2007, H.R. 2046, 110

th Cong.

(2007). 3 Id.

4 See, e.g., Official Merchandise—Harrah’s World Series of Poker,

http:// www.shopwsop.com/aspx (last visited November 19, 2009); World Poker

Outlet, available at http:// www.worldpokeroutlet.com/wsop/index.php (last visited November

18, 2009).

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The evolution of the offshore Internet gaming model makes strict regulation of Internet

casinos very difficult for the United States, its states, and foreign nations. First, this paper will

generally examine the power of state laws regulating gaming and their accompanying

inadequacies. Second, this paper will examine the existing federal laws used by authorities to

prohibit Internet gaming and expose their accompanying loopholes. Last and most importantly,

this paper will advocate the formation of the IIGRC, discuss the general provisions of the

agreement creating it, outline its structure, and conclude with a powerful justification for its

formation. For purposes of comity, preserving customer trust and maintaining the integrity of the

Internet gaming industry, it is essential the worldwide community create the IIRGC to serve as

the international “watchdog” that tightly polices Internet casinos.

II. The States’ Effort to Prohibit Internet Gaming

Generally, it is the states that administer the regulation of gaming at venues located

within its borders.5 The states have justified gaming regulation by applying the state police

powers derived from the Tenth Amendment to the Constitution. The tenth amendment gives the

states latitude to regulate this industry on behalf its citizens’ welfare and health.6 Some states

have explicitly prohibited all forms of Internet gaming. 7 For example, Nevada has promulgated

5 Andrea M. Lessani, How Much Do you Want To Bet That The Internet Gambling Prohibition

Act of 1997 Is Not The Most Effective Way To Tackle The Problems Of Online Gambling?, The

UCLA Online Institute For Cyberspace Law and Policy Archive (1998), available at

http://www.gseis.ucla.edu/iclp/alessani.html. 6 U.S. CONST. Amend. X. See also Advanced Delivery Serv., Inc. v. Gates, 183 Cal. App. 3d

967, 976 (Ct. App. 1986) (“Not only does the legislature have the power to completely prohibit

wagering on horse races, but it may also limit such wagering to persons physically present within

the enclosure”). 7 I. Nelson Rose, The Future Legal Landscape for Internet Gambling, Gambling and the Law

(November 3, 2000), available at http:// www.gamblingandthelaw.com/antigua.html (last visited

Nov. 25, 2009).

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laws directly addressing the Internet gaming industry.8 Other states implicitly prohibit all forms

of Internet gaming except for specific classes of online bets accepted at authorized local

institutions.9

The vastly expansive character of the Internet places a heavy burden on the states to

regulate the Internet gaming industry that is persuasively classified as interstate and international

commerce. State law provides the substantive grounds for determining the legality of Internet

gaming provided it does not attempt to regulate interstate commerce. Many scholars have argued

it is congress that is the province for regulating Internet gaming that crosses state lines. For

instance, Florida’s attorney general has posited that “any effort to regulate the use of the Internet

is better suited to federal regulation than to patchwork attention by the individual states.”10

Congress has determined that it is better suited to create a regulatory bill against the inherent

dangers attributed to Internet gaming. 11

III. The Federal Effort to Prohibit Internet Gaming

Congress has noted several policy concerns regarding the Internet casino industry’s

impact within the United States. First, the anonymous nature of Internet use creates serious

difficulties for an Internet gaming site to verify the age of the customer in an effort to detect an

8 See, e.g., Letter from Frankie Sue Del Papa, Nevada State Attorney General, and Jeffrey R.

Rodefer, Senior Deputy, Nevada State Attorney General Division, to Steve DuFine, Chairman,

Nevada State Gaming Control Board (Dec. 29, 2000) (on file with Nevada State Attorney

General Office), available at http://ag.state.nv.us (This letter addresses an Advisory Opinion No.

2000-38 of the Attorney General's Office, which stated “an Internet game involving [point

wagers or tickets in which no money was required, but patrons could still win prizes] ... must

receive approval from the Nevada Gaming Commission pursuant to its Regulations 14.230

through 14.250, before being exposed for play to the public, albeit on the Internet”). 9 Id. supra note 8.

10 See Scott Olson, Betting No End to Internet Gambling, 4 J. Tech. L. & Pol’y 2, para. 17

(quoting Op. Fla. Att’y Gen. No 95-70 (Oct. 18, 1995)). 11

See 31 U.S.C.A. § 5361(a) (2007).

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underage user.12

Second, unregulated offshore Internet casinos may misuse a customer’s identity,

financial information or money. 13

Third, Internet casinos operating from overseas can avoid the

reach of the U.S. courts for lack of personal jurisdiction.14

Fourth, Internet casinos do not bring

tax revenue or employment opportunities to the states, and therefore denies the U.S. government

the opportunity to enjoy the benefits created by tax revenues, licensing fees, and job growth.15

Lastly, consumers are not assured the games are not rigged or whether winnings will be paid out

by the Internet casino.16

Together, these concerns have prompted Congress to exercise its

Commerce Clause powers by implementing laws targeting Internet gaming because it implicates

interstate commerce.17

A. Analysis of Federal Laws

There are several federal laws that are relevant to question whether Internet gaming is

prohibited and each will be briefly analyzed in order to expose their flaws. The scope of these

laws generally cover bets or wagers placed at a personal computer or any web-enabled device

12

National Gambling Impact Study Commission, Final Report, 5-4 (1999), available at

http://govinfo.library.unt.edu/ngisc/reports/fullrpt.html [hereinafter NGISC] 13

See, e.g., Unlawful Internet Gambling Funding Prohibition Act and the Internet Gambling

Licensing and Regulation Commission Act: Hearing on H.R. 21 and H.R. 1223 before the

Subcomm. On Crime, Terrorism, and Homeland Security of the H. Comm. On the Judiciary,

198th

Cong., 10 (2003), available at http://judiciary.house.gov/media/pdfs/printers/

108th/86705.pdf (statement of John G. Malcolm, Deputy Assistant Att’y Gen., Dep. of

Justice)(“The potential for fraud connected with casinos and bookmaking operations in the

virtual world is far greater than in the physical realm. On-line casinos and bookmaking

establishments operate in many countries where effective regulation and law enforcement is

minimal or non-existent.”). 14

Id. 15

Bunnam Srephichet, Comment, Pirates of the Caribbean: Offshore Internet Gambling Sites

Cursed by the Unlawful Internet Gambling Enforcement Act, 30 Hastings Comm. & Ent L.J.

139, 142 (2007). 16

Anne Lindner, Comment, First Amendment as Last Resort: the Internet Gambling Industry’s

Bid to Advertise in the United States, 50 St. Louis L.J.1289, 1316 (2006). 17

U.S. CONST., art. I, § 8, cl. 3 states in relevant part that “the Congress shall have Power … to

regulate Commerce with foreign Nations, and among the several States”.

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located in a different state or nation than the server that receives the transaction.18

The Wire Act,

the Travel Act, and the Unlawful Internet Gambling Enforcement Act (UIGEA) are the most

relevant to Internet gaming prohibition.19

First, the Wire Act prohibits gambling providers from

“knowingly receiving or sending certain types of bets or information that assists in placing bets

over interstate and international wires.”20

Second, the Travel Act prohibits “interstate or foreign

travel or use of an interstate facility in furtherance of an unlawful business enterprise.” 21

Lastly,

the UIGEA is an enforcement law attempts to prohibit the processing of financial transactions

relating to unlawful Internet gambling.22

Also, the UIGEA updates existing language to bar

access to Internet casinos via the World-Wide Web. 23

Together, these federal laws form the

legislative backbone of the U.S. government’s effort to proscribe the use of offshore Internet

gaming sites by costumers residing within the nation’s borders. There remain a number of

deficiencies in existing federal laws making Internet gaming illegal despite congressional effort

to clarify, update, and pass new laws.

1. The Limited Applicability of the Wire Act to Internet Gaming

Courts frequently apply the Wire Act of 1961 to prohibit the operation of Internet

gaming.24

The Act criminalizes the knowing “transmission of a wire communication” intended to

place bets or to transmit information assisting in the placing of bets on any sporting event or

18

U.S. Gen. Account Office, Rep. No. GAO-03-89, Internet Gambling: An overview of the

Issues 11-12 (2002). [hereinafter GAO report] 19

Id. at 12. 20

GAO report, supra note 19, at 12. 21

Antonia Z. Cowan, The Global Gambling Village: Interstate and Transnational Gambling, 7

Gaming L. Rev. 251, 257 (2003). See Also 18 U.S.C. § 1955 (2000). 22

Id. supra note 16, at 147. 23

Id. 24

John D. Andrle, A Winning Hand: A proposal for an International Regulatory Schema with

Respect to the Growing Online Gambling Dilemma in the United States, 37 Vand. J. Transnat’l

L. 1389, 1396 (2004).

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contest.25

Several enforcement issues arise that are attributed to the Wire Act’s applicability in

the context of Internet gaming.26

First, individuals who engage in recreational gaming cannot be

prosecuted under the Wire Act for placing a bet online27

although they are subject to their state’s

gaming laws.28

Second, despite the clear prohibition of interstate betting on sports events or

contests29

, the Fifth Circuit has held that “the Wire Act does not prohibit non-sports-related

Internet gambling”.30

Therefore, gaming sites offering solely non-sports-related games and their

U.S. customers cannot be prosecuted under the Wire Act. Third, there is a split of authority on

the issue whether the word “transmission” in the phrase “transmission of a wire communication”

means sending and/or receiving information over in the Internet.31

Some courts have interpreted

the term “transmission” to mean both receiving and sending information, while other courts

believe the term to exclusively apply to sending information.32

Fourth, the unanswered question

whether wireless communication falls within the scope of the Wire Act curtails the Wire Act’s

authority in prohibiting Internet gaming.33

The vague character of the text of the Wire Act in

conjunction with its narrow scope makes prosecution of individual customers impossible and

gaming sites very difficult. In light of the Wire Act’s ambiguous nature, the Department of

25

United States v. Cohen, 260 F. 3d 68, 75 (2d Cir. 2001). See also 18 U.S.C. § 1084(a) (2000). 26

Jonathan Gottfried, The Federal Framework for Internet Gambling, 10 Rich. J.K. & The. 26 ¶

14 (2004). 27

See 18 U.S.C. § 1084(a); See also United States v. Barborian, 528 F. Supp. 324, 328-329

(D.C.R.I. 1981)(finding that “Congress never intended to include a social bettor within the

prohibition of the statute and that Congress did not contemplate prohibiting the activities of mere

bettors”). 28

Internet Gambling Prohibition Act of 2006: Hearing on H.R. 4777 Before the House

Subcomm. On Crime, Terrorism, and Homeland Security of the H. Comm. On the Judiciary,

109th Cong., 2d. Sess., 75, 77-78 (Apr. 5 2006). 29

In Re Mastercard, 132 F. Supp. 2d 468, 480 (E.D. La. 2001). 30

Id. at 263. 31

GAO Report, supra note 19, at 12. 32

Id. at 12-13. 33

GAO Report, supra note 19, at 12.

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Justice has acknowledged that Congress should amend the law to explicitly cover all forms of

betting and gaming.34

2. The Limited Applicability of the Travel Act to Internet Gaming

The Travel Act is a relatively archaic tool in the current fight against Internet gaming.

The Travel Act prohibits intentionally conducting an unlawful activity using a facility of

interstate commerce.35

Courts have held that the use of “the mail, telephone or telegraph,

newspapers, credit cards, and tickertapes is sufficient to establish that a defendant used a facility

of interstate commerce to further an unlawful activity in violation of the Travel Act.36

Yet similar

to the Wire Act, it is unclear whether the Travel Act also applies to the use of wireless

communications.37

The Travel Act differs from the Wire Act in that it prohibits the participation

of all types of unlawful Internet gaming without restriction.38

Also similar to the Wire Act, only

site operators and not individual customers can be prosecuted pursuant to the Travel Act.39

Questions surrounding the applicability of the Travel Act in modern times make it tricky for

federal law enforcement officials to curb Internet gaming.

3. The Limited Applicability of the UIGEA to Internet Gaming

There exists three major limitations with respect to the enforceability of the UIGEA

despite it’s intent to exclude U.S. financial institutions from accepting funds by offshore Internet

34

James D. Thayer, The Trade of Cross-Border Gambling and Betting: The WTO Dispute

Between Antigua and the United States, 2004 Duke L. & Tech. Rev. 13, ¶ 10 (2004). 35

18. U.S.C. § 1952(2) (2006). 36

Jeffrey R. Rodefer, Internet Gambling in Nevada: Overview of Federal Law Affecting

Assembly Bill, 6 Gaming L. Rev. 393, 396 (2002). 37

Pearson Liddell, Jr. et al., Internet Gambling: On a Roll?, 28 Seton Hall Legis. J. 315, 321-22

(2004). 38

United States v. Villano, 529 F.2d 1046, 1052-53 (10th Cir. 1976) (holding that gambling over

phone lines violates the Travel Act); United States v. Smith, 209 F. Supp. 907, 916 (E.D. Ill.

1962) (holding that the use of telecommunications to gamble is a violation of the Travel Act). 39

Charles Doyle, Cong. Res. Serv., Rep. No. RS21984, Internet Gambling: An Abridged

Overview of Federal Criminal Law (2004).

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casinos and their U.S. consumers. The UIGEA is based on Congress’ reliance on the following

four determinations: 1) Internet gaming is funded primarily through credit cards and wire

transfers; 2) the National Gambling Impact Study Commission recommended passage of this

type of legislation; 3) traditional mechanisms of enforcing gambling laws are inadequate; 4)

Internet gambling is increasing consumer debt problems.40

First, Section 5362(2) of the UIGEA

prohibits the acceptance of “an electronic fund transfer, or funds transmitted by or through a

money transmitting business, or the proceeds of an electronic fund transfer or money

transmitting service.”41

Following the passage of the UIGEA, U.S. credit card companies

implemented safeguards to prevent deposits of funds into the accounts of offshore Internet

casinos.42

This has led to the growth in demand for intermediate payment systems, such as

Neteller, to serve as the primary medium for transmitting funds between U.S. costumers and

offshore Internet casinos.43

After the arrest of the founders of Neteller in 2007, it is clear that

third party payment systems are likely to be classified as “money transmitting businesses” as

listed in § 5363(2) of the UIGEA.44

The UIGEA is not an effective tool for completely eliminating the use of these financial

intermediaries by U.S. customers despite the small success experienced by federal law

enforcement officials in cracking down on providers of intermediate payment systems. First,

critics of the UIGEA assert that there exists a large pool of companies offering intermediate

payment systems willing to be a third-party facilitator for American customers looking to

40

31 U.S.C.A. § 5361(a) (2007). 41

31 U.S.C.A. § 5363(2) (2007). 42

I. Nelson Rose, Viewpoint: The Unlawful Internet Gambling Enforcement Act of 2006

Analyzed, 10 Gaming L. Rev. 537, 539 (2006). 43

Benjamin C. Wickert, Note, All In, But Left Out: How The Unlawful Internet Gambling

Enforcement Act Seeks to Eradicate Online Gambling in the United States, 10 Vand. J. Ent. &

Tech. L. 215, 225 (2007). 44

See 31 U.S.C.A. § 5363(2).

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deposit, withdraw, and transfer funds to Internet casinos that subscribe to their payment system.45

Second, even if the Federal Trade Commission is successful in frightening off some companies

offering intermediate payment systems from accepting funds by U.S. customers, other companies

offering the same service will fill the void left by them.46

Lastly, issues of international

sovereignty and comity arise out of the enforcement of the UIGEA because Congress is

attempting to regulate corporations offering intermediate payment systems incorporated in other

nations.47

It is highly questionable whether other nations would honor the U.S. request for

cooperation in the enforcement of the UIGEA.48

Due to the ambiguity of its language, a second limitation arises where the UIGEA may

not apply to the operation of Internet poker sites. Section 5363 of the UIGEA begins: ”No person

engaged in the business of betting or wagering may knowingly accept, in connection with the

participation of another person in unlawful Internet gambling . . . (1) credit . . . (2) an electronic

fund transfer . . . (3) any check . . . or similar instrument . . . (4) the proceeds of any other form

of financial transaction . . . .”49

The Act defines a “bet or wager” as “the staking or risking by any

person of something of value upon the outcome of a contest of others, a sporting even, or a game

subject to chance.”50

The Act does not define “a game subject to chance” and therefore sparks

great debate over its meaning.51

If poker is considered “a game subject to chance” then under the

UIGEA, Internet poker sites may not be permitted to continue business with U.S. customers.52

If

45

Jessica Hopp, New Law Cuts Net Gamblers Line of Finance, The Tennessean, Dec. 10, 2006,

at 10. 46

Rose, supra note 41, at 539. 47

Id. 48

Id.; See also SAFE Port Act § 803 (2007). 49

Id. §§ 5363(1)-(4) (2007). 50

Id. § 5362(1) (A). 51

Id. supra note 27, at 219. 52

Id. § 5363.

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poker is not considered a “ a game subject to chance”, but rather a game of skill, then Internet

poker sites may be permitted to continue business with U.S. customers.53

If Internet poker sites

are permitted to do business with the U.S. customers, then this could potentially frustrate the

Act’s purpose of prohibiting both “traditional forms of gambling such as online poker” and the

“transmission of electronic funds . . . to pay for gambling bets”.54

The ambiguity in the language

of the UIGEA and enforcement limitations arising out of the passage of this Act creates a host of

problems for the federal effort seeking to curb the use of Internet casinos by U.S. customers.

IV. The International Internet Gaming Regulatory Commission (IIGRC)

The IIGRC must be the standard cooperative framework adopted by nations around the

world for Internet gaming regulation. First, this section will address the general provisions of the

International Internet Gaming Regulatory Agreement (IIGRA). Second, this section will outline

the structure of the IIGRC and discuss the functions of its branches. Last, this section will review

the policy concerns surrounding Internet gaming, and provide arguments in support of the

proposition that the IIGRC is certainly capable of quelling these concerns. The underlying

purpose of this section is to demonstrate that the IIGRC should serve as the model for a

transparent international regulatory body charged with promulgating and enforcing strict

regulations for Internet gaming sites to abide by.

A. The Essential Provisions of the IIGRA

By multilateral treaty, the IIGRA must be established in order to create, and enforce strict

standards that will govern the conduct of Internet gaming sites and their affiliates. Moreover, the

IIGRA will include the typical reciprocity language mandating nations to uphold the standards

53

Id. 54

See H.R. Rep. No. 109-552, pt. 1, at 5 (noting the aims of H.R. 4777).

12

and regulations outlined in the agreement.55

In light of the various attempts by Congress to

regulate Internet gaming, is it highly likely that the U.S. president would sign the IIGRA with the

advice and necessary concurrence of the Senate.56

Internet gaming has been legalized in over

fifty countries and jurisdictions. 57

On the other hand, a comparable amount of nations have

outlawed Internet gaming.58

Therefore the formation of the IIGRA is essential to the interests of

nations standing on both sides of the divisive line regarding the legality of Internet gaming. The

following subsections identify important clauses in the IIGRA and their implications.

1. Requisites for Admission Consideration of a Corporate Applicant (Licenses)

In order to obtain a license, the IIGRA mandates the corporate applicant to submit

financial statements, documentation illustrating the corporate structure of the applicant and all

related business affiliates, a certification that the applicant agrees to be subject to the jurisdiction

of the International Internet Gaming Regulatory Commission Claims Council (IIGRC-CC), and

all applicable laws relating to Internet gaming activities. The purpose of this provision is to

safeguard against underage gaming, gambling addiction, money laundering, and fraud against

patrons of Internet casinos.

2. Requisites for Admission Consideration of a Member Nation Applicant

First, nations party to this treaty consent to be bound by the regulatory scheme adopted

by the IIGRC (including the mandate that no Internet casino site is permitted to operate within its

55

For example, the North American Free Trade Agreement (NAFTA), an economic free trade

agreement among the United States, Canada and Mexico provides for the same amount of tariffs

or same tariff exemptions to all three signatories, and one nation does not give another signatory

different rights than it does to the other signatory or itself, for that matter. See SICE - Foreign

Trade Information System: North American Free Trade Agreement, available at http://

www.sice.oas.org/Trade/NAFTA/NAFTATCE.ASP (last visited on Nov. 29, 2009). 56

U.S. CONST., art. 2, § 2, cl. 2. 57

See GAO Report, Supra note 19. 58

Id.

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borders without an IIGRC license). The purpose of this clause is to funnel all sites that provide

casino games online through the powerful channel of scrutiny of corporate applicants offered by

the International Internet Gaming Regulatory Commission Administration (IIGRC-A). Second,

in order to obtain member status, the nation applying for membership must provide a detailed

explanation of its current and prior domestic schemes addressing gaming regulation. This

ensures that the common thread of reliability and accountability between nations remains intact.

The reasoning behind this clause is that it takes the presence of one “weak link” to undermine the

protective functions of the IIGRC. If one member nation lacks accountability, corporations will

seek to circumvent the laws of the IIGRC by setting up sites in that rogue member nation, while

enjoying the benefits of accreditation. Third, member nations agree to engage in every effort to

respect the laws relating to Internet gaming of another member nation. Member nations are

required to act if they have knowledge that a site incorporated within its borders is targeting

customers residing within a nation that has outlawed Internet gaming. This ensures an extra

safeguard against infringing upon another nation’s sovereignty.

3. Jurisdiction

First, nations that are a party to the IIGRA agree to recognize the jurisdiction of the

IIGRC-CC. This grants the IIGRC-CC full authority to adjudicate claims involving issues related

to violations any laws enacted by the IIGRC. Second, corporate applicants must agree to be

subject to the jurisdiction of the IIGRC-CC and its rulings. Consent to the jurisdiction of the

IIGRC-CC gives the court’s decision “teeth”. Lastly, both member nations and corporate

applicants must agree that decisions made by the IIGRC-CC are binding, and such judgments

may be enforced in the courts of the nation in which the guilty party resides or is incorporated.

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4. Information Sharing

Member nations and Internet sites alike agree to provide any and all information upon

request to the IIGRC relevant to determining compliance with IIGRC regulations. This provides

the free flow of information, and ensures expediency in resolving any issues of compliance.

5. Fees, Fines and Dues

First, corporate applicants and members agree to pay application fees, yearly dues and

monetary penalties. The IIGRC is a self-sustaining organ because the operating costs are

primarily born by the corporate members and applicants to the IIGRC. Furthermore, very little

financial strain is placed on the economies of nations party to this treaty. The absence of

financial onus mitigates against hesitation by a nation considering membership due to economic

reasons.

6. Taxes

Member sites must comply with the tax standards imposed by the legislature of the

member nation (and/or its states) in which it is incorporated or the nation (and/or its states) in

which the owners reside. This purposes of this section is to prevent tax avoidance by corporate

members and ensures that member nations realize the full tax revenues of Internet gaming.

B. Structure and Functions of the IIGRC

Similar to the makeup of the United States government, the IIGRC will be composed of

three branches: legislative, executive and judicial.59

The purpose of dividing the IIGRC into

three branches is to afford the IIGRC an effective system of checks and balances.60

The

59

See Generally U.S. CONST. 60

See Wikipedia, U.S. Government, http://en.wikipedia.org/wiki/U.S._Government (last visited

December 2, 2009).

15

following subsections discuss the characteristics of each branch of the IIRGC and their

accompanying purposes.

1. International Internet Gaming Regulatory Commission Congressional Assembly

The legislative branch of the IIGRC is the International Internet Gaming Regulatory

Congressional Assembly (IIGRC-CA). The makeup of the IIGRC-CA is modeled after the

United Nations General Assembly (UNGA).61

The IIRGC-CA consists of one person

representing each member nation. The purpose of this representation is to ensure equal

representation among the member nations.62

Similar to the UNGA, member nations elect a

Secretary General who serves as the de facto leader and spokesperson for the IIGRC.63

During its

quarterly sessions, the IIGRC-CA provides a forum for member nations to vote on: 1) issues

arising out of budget concerns; 2) questions of misconduct relating to a member nation; 3) issues

relating to admission, suspension, and expulsion of a member nation; 4) grievances between

nations; 5) proposed regulation to be followed my member sites; 6) drafted resolutions; 7)

proposal advocating the creation of an agency; 8) amendments to the IIGRC charter. Also, the

IIGRC-CA may nominate and elect officers. Lastly, the IIGRC-CA retains the right to oust a

member nation by a two-thirds majority vote.

2. International Internet Gaming Regulatory Commission Administration

The Executive branch of the IIGRC serves as the International Internet Gaming

Regulation Administration (IIGRC-A). The IIGRC-A is separated into three offices:

administrative services, regulation enforcement and treasury. The office of administrative

services is responsible for the intake of applications, review, and granting of licenses to Internet

61

See Wikipedia, United Nations, http://en.wikipedia.org/wiki/United_Nations (last visited

December 2, 2009). 62

Id. 63

Id.

16

casinos. During intake, the administrative office reviews the application of a candidate site and

accepts the requisite application fees. During the review of an application, the administration

conducts a thorough background check of the applicant’s financial statements, corporate

structure, and criminal background check of corporate directors and officers. This process is

intended to filter out any questionable applicants that may tarnish the integrity of the IIGRC if

admitted. In addition, the office of administrative services is charged with the issuing of licenses

to sites upon admission. The license includes a contract whereby the member site agrees to pay a

licensing fee and be bound to the provisions of the IIGRA in exchange for IIGRC accreditation.

Lastly, the office of administrative services is also the bookkeeper of all confidential business

information of the member sites. Such information includes financial statements, IIGRC-A

reports, and other relevant documents.

The office of regulations enforcement is designated with the responsibility of auditing

sites and nations to ensure compliance with IIGRC laws and regulations. Compliance officers

conduct routine inspections of member site operations and investigate claims made against a

member corporation or nation. Such claims include allegations of fraud, money laundering and

underage access, and other criminal activity. A compliance officer may impose a monetary

penalty (MP) against a member site or nation for failing to comply with IIGRC law. The

monetary penalties imposed vary based upon the character of the violation.

The treasury is the custodian of all IIGRC funds. Such funds include application fees,

yearly dues, MP’s, and donations. The concentration of monetary assets into a treasury facilitates

the making of responsible budgetary decisions by the IIGRC.

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3. International Internet Gaming Regulatory Commission Claims Council

The IIGRC-CC is the judicial organ of the IIGRC. The IIGRC-CC is composed nine

member justices elected to four-year terms by the IIGRC-CA. The term limits serve as a check

on the judiciary by forcing judges to think thoroughly before they make decisions on a given

case. The IIGRC-CC is given the power to decide cases or controversies through adversarial

proceedings. Such controversies are limited to claims of non-compliance with the laws of the

IIGRC. Controversies or controversies can exist between a member nation and member site, two

member nations, two member site owners or an individual and member site. Decisions by the

IIGRC-CC are made by a simple majority. Similar to the U.S. court system, the IIGRC-CC also

applies the concept of stare decisis to new cases brought before it.64

Generally, the IIGRC-CC

will obey the precedents established by prior decisions unless there is strong reason not to do so.

Lastly, a petitioner is not permitted to appeal a decision rendered by a super majority. The

rationale behind this policy is to prevent the clogging of the IIGRC-CC docket, and underscore

the finality of its decisions.

C. Policy Concerns Surrounding the Regulation of Internet Gaming Sites

There are four primary policy concerns shrouding the legitimacy of Internet gaming sites:

1) The potential for fraud over the Internet; 2) Children’s access to gambling sites; 3) An

increase in gambling addictions; and 4) The need to preserve state revenues generated by legal

casino operations.65

Each of these concerns will be examined in turn in an effort to advance to

argument that only a global effort to combat these issues is imperative.

64

Wikipedia, Stare Decisis, http://en.wikipedia.org/wiki/Stare_decisis, (last visited December 2,

2009). 65

Lessani, supra note 5, at 1.

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First, there is the powerful concern that rampant instances of fraud and theft take place

during the daily operations of an Internet casino.66

Scholar Andrea Lessani points out that in

order to appreciate the fraud concern one must understand how a gaming website operates:

Gamblers provide their credit card numbers and social security

numbers, or mail in deposits between $100 to $500, to open up

accounts. The bets that gamblers place are received by

on-site operators. On-site operators use computers to run complex

programs that simulate gambling games, such as the spin of a

roulette wheel. Upon completion of a game, an on-site operator

reports back to gamblers whether they won or lost.67

The design of an Internet casino precludes a player from determining whether a internet

game is being operated fairly.68

As a result, customers of a given Internet casino are at the mercy

of the sites operator who may decide to pervert the natural odds of a given game or report false

results of the game.69

Aside from the fairness apprehension, there are several fraud related

concerns: 1) Internet casinos have a difficult time preventing collusion; 2) Internet casinos may

elect to unreasonably delay the payouts requested by their customers; 3) unprofitable Internet

Sites may close without notice and reopen under a new domain name; and 4) site operators or

third parties may steal sensitive financial data from customers.70

Only an international

“watchdog” such as the IIGRC has the expansive resources to obtain necessary intelligence

(through the sharing of information regarding sites that engage in fraud between nations) to

locate and shut down the culpable actors engaging in fraud.

66

Id. 67

Id. (citing Beth Berselli, Gamblers Play the Odds Online: Despite Calls to Outlaw It, Internet

Gambling Takes Off, WASH. POST, Aug. 19, 1997, at A1). 68

Id. 69

Id. 70

Id.

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Second, the anonymous nature of the expansive Internet makes it difficult for gaming

sites to precisely verify the age of the user accessing the site. Third-party age verification

systems, such as the ones operated by the Social Security Administration and Department of

Motor Vehicles databases have been successful in age verification by comparing a users identity

to multiple databases.71

Such systems compare a user's identity to several databases and verify

them for accuracy.72

Since then, online gaming sites in the United Kingdom have experienced

great success in minimizing underage use after adopting the use of similar third-party age

verification services.73

It is clear that a strictly regulated Internet gaming industry is capable of

implementing a technical solution to age verification as well as to increase the level of social

responsibility of licensed Internet gaming operators.74

If individual nations are successful at

developing technology for online age verification, then the collection of resources accessible to

the IIGRC is plenty to adopt a system in excluding underage users from Internet casinos.

Third, the “around the clock” accessibility of Internet casinos exacerbates the impulsive

desire to continue to spend all of one’s money on casinos games, failing in the attempts to stop

gaming, and lying about the addiction.75

The IIGRC may institute several possible safeguards to

lessen the risk of gaming addiction. First, it may mandate member sites to require sites to adopt a

policy of having clients set bet limits on a monthly basis which cannot be raised subsequently by

71

K.C. Jones, Online Gambling Proponents Want Age Verification Software, InformationWeek,

Aug. 8, 2007, available at http://www.informationweek.com/news/internet/showArticle.jhtml?

articleID=201305023 (last visited December 3, 2009). 72

Id. 73

Id. 74

Pedro Pereira de Sena, Internet Gambling Prohibition in Hong Kong: Law and Policy, 38

Hong Kong L.J. 453, 489 (2008). 75

Jonathan Schwartz, Essay, Click the Mouse and Bet the House: the United States’ Internet

Gambling Restrictions Before the World Trade Organization, 2005 U. Ill. J.L. Pol’y 125, 130

(2005).

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the customer without contacting the Internet company.76

Second, it may adopt a policy that

member sites are not permitted to accept credit cards with a high credit line.77

Other possible

policies include: 1) limiting the speed and length of gambling activity; 2) restricting the

operation hours of Internet casinos and; 3) ensuring that information compiled by Internet

casinos related to customers’ habits are not used to encourage addiction.78

The IIGRC will not

only be responsible for Internet gaming regulation, but will also allocate funds intended to set up

a global program addressing Internet gaming addiction.

Lastly, it is argued that Internet gaming undercuts the ability for governments to tax

earnings by customers. The tax system of a developed nation, such as the U.S., obligates its

citizens to account for winnings obtained from casinos irrespect of their location.79

The IRS has

taxing authority over gaming earnings.80

Section 61(a) of the U.S. Tax Code defines gross

income as “all income from whatever source derived,” including gambling, unless otherwise

provided.81

As a solution to book keeping, the IIGRC may require Internet casino sites to keep a

76

David Ohlson, Internet Gambling (May 1999) (paper presented at the Second National

Gambling Regulation Conference, Australian Institute of Criminology in Conjunction with the

Australian Institute for Gambling Research 4), available at http://www.aic.gov.au/events/

.../1999/~/media/.../gambling99/ohlson.ashx 77

See Lasseters Corporation Ltd., Submission to the Dep’t of Comm. Info. Tech. And the Arts,

Rev. of Issues Related to Commonwealth Interactive Gambling Reg., Austl. Dep’t. of Comm.,

Info. Tech. and the Arts (May 2, 2003), at 6, available at www.dbcde.gov.au/

__data/assets/pdf_file/.../Lasseters_Corporation_Ltd.pdf. 78

See Parliament of Australia Senate, Netbets: A review of Online Gambling in Australia, §§

1.17, 2.3 (March 2000), available at http://www. www.aph.gov.au/Senate/committee/

it_ctte/gambling/report/contents.htm. 79

Chuck Humphrey, Tax Aspects of Online Gambling, http://www.gambling-law-

us.com/Articles-Notes/online-gambling-tax.htm#Taxes_and_Online_Gambling,_Part_I (last

visited December 3, 2009). 80

Joseph J. McBurney, Note & Comment, To Regulate or to Prohibit: An Analysis of the

Internet Gambling Industry and the Need for a Decision on the Industry’s future in the United

States, 21 Conn. J. Int’l L. 337, 356 (2006). 81

Id. (Citing McClanahan v. United States, 292 F.2d 630, 631-632 (5th Cir. 1961))

21

log of earnings and losses on file for member nations and customers to access. This ensures that

earnings are properly catalogued and reported to the member nations’ respective tax authorities.

V. Conclusion

The creation of the IIGRC would be an effective international solution to regulating the

Internet gaming industry. The first few decades of the new millennium have witnessed the

glamorization by major media outlets of casino games such as poker and blackjack. As a result,

the popularity of casino games has increased at a rate beyond imagination. Combine this surging

trend in customer interest with the technology of the Internet, and the creation of an enormous

demand for Internet gaming has arisen, and here to stay. In response to this demand, the

“offshore Internet casinos” have popped up with alarming frequency to “cash in” on this

booming market. Particularly, sites offering online poker games have enjoyed great success.82

The Internet gaming industry provides users the opportunity to avoid the cumbersome costs

associated with traveling to jurisdictions that permit casino games. Moreover, it permits

customers to enjoy the convenience of remaining at home while they play these games. Internet

gaming sites have stolen many loyal customers from their “brick and mortar” relatives.

To date, an individual nation has yet to come up with a full-proof regulatory scheme

addressing the policy issues arising out of Internet gaming. As we have examined, Congress has

unsuccessfully attempted on numerous occasions to effectively legislate against Internet gaming.

The free access of Internet allows the typical “offshore Internet casino” patron to avoid the

domestic laws of a state that prohibit Internet gaming. In addition, Internet casinos can escape

the jurisdiction of the court system where the customer is situated by incorporating itself in a

82

See Wikipedia, Online Poker, http://en.wikipedia.ord/wiki/Online_poker (last visited

December 3, 2009).

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foreign country. These issues underscore the necessity to create an international solution to

Internet gaming regulation.

The IIGRC symbolizes a unified international effort to create and enforce strict standards

for Internet casinos to abide by. Nations that have both outlawed and legalized Internet gaming

have a collective interest in creating a credible transparent international regulatory body that will

enforce these stringent standards. Internet casino sites also have an interest in creating the IIGRC

for purposes of maintaining full customer confidence in its virtual product. The IIGRC presents a

forum for nations to legislate laws addressing Internet gaming. Also, it provides a powerful

enforcement entity that can audit the activities of Internet casinos in an effort to maintain the

legitimacy of the service they offer. Lastly, the IIGRC offers a judicial forum intended to field

claims related to Internet gaming. As the sole international Internet casino “watchdog”, the

IIGRC would permit nations losing their individual battles to collectively win the war against

crooked Internet gaming entities.