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// PUBLIC GAMING INTERNATIONAL // January/February 2016
Debunking Myths about
Internet Gambling:
Unfounded Fears about
Money Laundering, Terrorism
Funding, and Crime
S
upporters of a nationwide ban on Internet gambling
claim legalizing the activity would increase crime and
fuel terrorism. But all the evidence—including the
two-year experience of various states with regulated
online gambling—belies those claims. Preventing states from le-
galizing and regulating online gambling would simply push Ameri-
can online gamblers back into the black market, where crime is
far more likely. In addition to being ineffective, a national online
gambling prohibition would be unconstitutional. Regulation of In-
ternet gambling is not a matter covered by any of the enumerated
powers granted to Congress by the Constitution, and, as such, falls
under the 10th Amendment jurisdiction of the states.
In the heated discussions about online gambling, a common mis-
take is the conflation of legal, regulated online gambling with illegal
off-shore Internet gambling. Supporters of a nationwide ban on In-
ternet gambling claim legalizing the activity would increase crime
and fuel terrorism. But all the evidence—including the two-year
experience of various states with regulated online gambling—belies
those claims.
Preventing states from legalizing and regulating online gambling
would simply push American online gamblers back into the black
market, where crime is far more likely. In addition to being ineffec-
tive, a national online gambling prohibition would be unconstitu-
tional. Regulation of Internet gambling is not a matter covered by
any of the enumerated powers granted to Congress by the Consti-
tution, and, as such, falls under the 10th Amendment jurisdiction
of the states.
The FBI has never said that online gambling
increases crime.
In September 2013, J. Britt Johnson, Deputy Assistant Director
of the Federal Bureau of Investigation’s (FBI) Criminal Investiga-
tive Division, wrote to Congress to express concerns about the po-
tential of online gambling to facilitate money laundering. While
the letter is often cited as evidence that the FBI opposes legalizing
online gambling, it actually makes the case for regulatedInternet
gambling. Johnson identifies several mechanisms criminals might
use to launder money—all of which are virtually impossible in the
legal market that has arisen in the U.S. since he penned the letter,
for the reasons described below.
Depositing and withdrawing large sums requires
compliance with the Bank Secrecy Act.
Online casinos are considered financial institutions, and there-
fore have to comply with the same anti-money laundering statutes
as banks, including the USA PATRIOT Act and Bank Secrecy Act.
They must collect Social Security numbers from players, file Cur-
rency Transaction Reports for transactions exceeding $10,000, and
file Suspicious Activity Reports for any suspicious transaction that
exceeds $5,000. Sites located overseas do not have to comply with
these anti-money laundering requirements.
Criminals cannot transfer money on regulated
online gambling sites.
As Johnson notes, criminals may launder funds through play-
er-to-player transfers, but in the U.S. regulated online gambling
market, this is impossible. Transfers between accounts are strictly
forbidden in all regulated U.S. online casinos.
Federal and state laws require players to be
physically located within one of the states where
online gambling is legal.
The three states that currently license Internet casinos require
sites to identify players’ physical location. Despite claims that hack-
ers can “spoof ” their location by changing the IP address to ap-
By Michelle Minton
Competitive Enterprise Institute