[Congressional Record Volume 141, Number 179 (Monday, November 13, 1995)]
[Senate]
[Pages S17004-S17005]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         ADDITIONAL STATEMENTS

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                NEW ON-LINE CASINOS MAY THWART U.S. LAWS

 Mr. LUGAR. Mr. President, I ask that the following article be 
printed in the Record.
  The article follows:

              [From the Wall Street Journal May 10, 1995]

                New On-Line Casinos May Thwart U.S. Laws

                        (By William M. Bulkeley)

       Two companies are setting up on-line betting emporiums in 
     Caribbean countries to skirt U.S. laws that bar interstate 
     gambling from home.
       The cyberspace casinos, which will be available on the 
     internet, won't have Paul Anka, scantily clad showgirls or 
     cigar smoke. But they will offer a chance to win or lose 
     money from the comfort of the bettor's own keyboard, using 
     credit cards or money predeposited with the house.
       The Justice Department says cyberspace casinos are illegal. 
     But the companies' offshore venues may protect them. And 
     authorities will have a tough time detecting who's actually 
     betting because many other people will be playing the same 
     games for free.
       Internet gambling could be immensely popular, ``If 
     regulatory obstacles were put aside, gambling would be huge 
     on the Internet,'' says Adam Schoenfeld, an analyst with 
     Jupiter Communications, a New York market researcher. Jason 
     Ader, an analyst with Smith Barney, says legalized on-line 
     betting could be a $10 billion-a-year industry.
       Antigambling activists fear that addicted gamblers and 
     children using credit cards will bankrupt themselves from 
     their PCs. Rachel Volberg, president of Gemini Research. 
     Roaring Spring, Pa., who studies problem gambling, says the 
     young, affluent males who populate the Internet are people 
     ``we know from research are probably most likely to develop 
     difficulties related to gambling.''
       Nonetheless, Warren B. Eugene, a 34-year-old Canadian, says 
     he will open the Internet Online Offshore Electronic Casino 
     this month using computers in the tax haven of the Turks and 
     Caicos islands, Mr. Eugene, who says his business experience 
     is in video games, already has a page on the Internet's World 
     Wide Web where bettors can play blackjack with play money. 
     ``This can be a trillion-dollar world-wide business,'' he 
     says.
       Mr. Eugene predicts there will someday be a virtual Strip 
     with dozens of different casinos offering different games, 
     different odds and varying amenities such as direct deposit 
     of winnings in offshore accounts and the acceptance of 
     virtual checks. He's offering to sell the casino software he 
     has developed to other would-be gambling tycoons for $250,000 
     and a 15% cut of the profits.
       Meanwhile, Kerry Rogers, a 38-year-old Las Vegas computer 
     expert, is working on WagerNet, a sports betting service that 
     plans to locate its computers in Belize. WagerNet is awaiting 
     enabling legislation there, but Mr. Rogers is optimistic. 
     ``This is a way for a country to make revenues off of 
     gambling,'' he says. Imagine the millions of dollars bet 
     world-wide on the WorldCup'' in soccer.
       WagerNet is designed as a kind of gambler's Nasdaq, 
     matching people who bet on sporting events rather than 
     setting a line and taking bets. A bettor, who must deposit 
     $1,000, will put a proposition on the computer, and other 
     bettors can take the bet if they want. WagerNet will charge a 
     2.5% transaction fee (far less than the 10% vigorish that Mr. 
     Rogers says current sports books get), and it may bar U.S. 
     gamblers if the legal risk is too great.
       The planned betting parlors face huge obstacles in gaining 
     consumer confidence. After all, if a bettor wins big, the 
     cyberspace casino may disappear. And bettors will have little 
     assurance that unregulated electronic roulette wheels aren't 
     rigged.
       U.S. laws prohibit people in the gambling business from 
     transmitting by wire any wager information ``in interstate or 
     foreign commerce. ``Violations are punishable by two years in 
     prison and possible forfeiture of assets under organized 
     crime statutes. Some states, such as California, have laws 
     prohibiting individuals from placing bets by wire.
       Mr. Eugene says that as Canadian citizen whose business is 
     in a foreign country, he isn't subject to U.S. laws, even if 
     his biggest market turns out to be U.S. gamblers. After he 
     starts the real casino, he promises to keep taking play-money 
     bets so that U.S. wiretappers won't be able to tell which 
     players are actually gambling.
       I. Nelson Rose, a gambling law expert and law professor at 
     Whittier School of Law in Los Angeles, says he gets several 
     calls a week from people investigating the legal status of 
     on-line gambling. He says Mr. Eugene's theory may be 
     right: ``If you are a foreign national sitting in a 
     foreign country, there's a question whether the U.S. law 
     would apply to you.'' He adds that ``there may be a way to 
     do it on an Indian reservation'' as well.
       Mr. Eugene styles himself as the Bugsy Siegel of 
     cyberspace, harking back to the mobster who helped build Las 
     Vegas into a gambling mecca. And his Electronic Casino is 
     like the early Las Vegas casinos--a big flashy sign fronting 
     a tiny drab facility. The casino's main screen, known as a 
     home page in Internet parlance, is an enticing graphic 
     display of a pirate chest full of booty. For now, only the 
     blackjack game is operating.
       Mr. Eugene says he is negotiating with an accounting firm 
     to certify the legitimacy of his games and his bankroll. He 
     says he has a $1.5 million line of credit with a bank in St. 
     Maarten, a Dutch island in the Caribbean, but he declines to 
     name the bank. Mr. Eugene adds that casino authorities in St. 
     Maarten ``have the right to review our books. It's a new 
     area. They said `until you violate it. we like you. We trust 
     you.' ''
       If nothing else, Mr. Eugene's Internet Casino plan shows 
     how easily small operators can establish themselves in 
     cyberspace. After he issued a news release in March, he 
     received publicity from newspapers and TV stations in the 
     U.S., England and Canada. ``I became a multinational 
     overnight,'' he says. Already, he adds, some 2,000 people 
     have preregistered their interest in gambling at the Internet 
     Casino.
       Mr. Eugene says players will be able to wire funds to 
     individual offshore bank accounts that the casino will 
     establish or send cash through such companies as First 
     Virtual Holdings Inc., of Arlington, Va., one of several 
     companies trying to set up a secure payment system for the 
     Internet.

[[Page S 17005]]

       First Virtual lets people establish credit-card accounts 
     and use personal code numbers to perform transactions that 
     are confirmed by messages back and forth to the owner's 
     computer. One advantage of First Virtual is that it permits 
     very small transactions, so Internet Casino will be able to 
     operate even nickel slot machines. ``Internet gambling is a 
     very important, very interesting experiment,'' says Thomas 
     Feegel, vice president, marketing, at First Virtual.

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