09 October 2006


By Clyde Wayne Crews Jr./ Achim Schmillen
October 9, 2006

Your after-tax income belongs to you. You are free to spend it, invest it, waste it, burn it, or tithe it away — and none of that is any politicians’ business. But if some lawmakers have their way, soon you won’t be able to gamble your money away on the Internet.
Recently, the Senate passed a bill enhancing port security, and attached to the bill is a title banning acceptance of credit cards or other payment instruments to process gambling transactions. The bill now awaits President Bush’s signature, and he probably will sign it.
Earlier versions of the antigambling legislation would have required banks and Internet service providers to essentially spy on their customers, sifting through all financial transactions. Unsurprisingly, credit card companies didn’t want to be deputized as online hall monitors, responsible for ensuring that outfits for which they process card services remain gambling-free.
Thus, the latest version of the bill no longer obliges credit card companies and banks to identify firms engaged in gambling. Instead the Treasury Department and the Federal Reserve would be required to collect a list of online gambling Web sites within 270 days. After that, banks and credit card companies would be prohibited from making payments to companies on the list.
This new approach might address privacy concerns, but it runs roughshod over individual freedom and fails to address another argument by the legislation’s advocates. As Rep. Jim Leach, Iowa Republican, argues: “Internet gambling is a national security concern because it can be used to launder money, evade taxes and finance criminal and terrorist activities.”
In the post-September 11, 2001, world, politicians should be concerned about shady financial goings-on on the Internet. But legislation that enjoins cumbersome government bureaucracies to determine which companies are officially considered gambling operators will punish legitimate online businesses. Just as there have been plenty of false positive identifications in the federal airline no-fly list, it is highly probable some nongambling sites will make end up on the government’s list.
Meanwhile, it practically invites shady dealers to run phony, fraudulent operations, whether or not credit card firms work with them — there is more to the Internet than above-board Web sites, and lots of places to hide in cyberspace — and new gambling sites are sure to pop up as soon as the government lists the old ones.
And even if the government were to correctly identify all gambling sites, punters could still bet using credit cards from foreign banks and other non-U.S.-based payment methods.
Gambling Web sites are best monitored not by regulators but by online gamblers themselves. Consumers have the incentive to look for endorsements and seals of approval of the businesses with which they transact, and to avoid fly-by-night operators. Most people who choose gambling as a pastime realize the odds of winning are long and that the house usually wins. And while gambling is a problem for some, others enjoy the challenge or just think it’s fun, and are able to contain addictive impulses.
Legislation is notoriously slippery. What constitutes “gambling” is often in the eye of the beholder — or legislator. Earlier versions of the bill had exempted such activities as fantasy sports. Even investing can be a “gamble” in the sense that “the opportunity to win is predominantly subject to chance” — as the legislation defined “gambling.”
Apparently, only some gambling is bad. One gets the impression the real motive behind the legislation is not to protect against crime or terrorism but to legislate behavior. As Rep. Barney Frank, Massachusetts Democrat, noted in opposing earlier anti-gambling legislation: “If an adult in this country, with his or her own money, wants to engage in an activity that harms no one, how dare we prohibit it. … The fundamental principle of the autonomy of the individual is at stake.”
Government should not turn vices into crimes — even granting the notion that gambling is a vice, which is questionable in the context of today’s Congress. Perhaps pork barrel spending is a more serious vice, one to which Congress should direct its attention. How significant are gambling losses, really, when compared to pork barrel and other wasteful government spending for which citizens are forced to foot the bill?
Once we travel down the road of regulating behavior on the Internet, there is essentially no limit to government’s ability to regulate behavior anywhere. Washington should mind the federal budget casino instead.

Clyde Wayne Crews Jr. is vice president for policy and Achim Schmillen is a research associate at the Competitive Enterprise Institute.


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