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Regulating Online Gaming: Challenges and Solutions for Regulators

Explore the implications of online gaming for regulators, focusing on the Hong Kong Jockey Club as a case study. Discover the club's impact, revenue challenges, and the risks and benefits involved. Learn about offshore gambling, regulatory models, and enforcement issues in the industry.

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Regulating Online Gaming: Challenges and Solutions for Regulators

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  1. Timothy McNally,Executive Director, Security,Hong Kong Jockey Club Online Gaming - Implications for Regulators

  2. Hong Kong Jockey Club • Sole provider of horse racing and legal betting in Hong Kong • Management of the Mark Six for the Hong Kong Lottery Commission • Largest tax payer in Hong Kong • Largest charitable donor in Hong Kong

  3. Hong Kong Jockey Club • Non-profit charitable trust • Betting turnover of over HK$83 billion (US$10 billion) in 99/00 • Tax payment of over HK$11 billion (US$1 billion) in 99/00 • Charity contribution of over HK$1.8 billion (US$120 million) in 99/00 • Total staff of almost 20,000

  4. Betting Operations • 848,000 Telebet accounts in Hong Kong • 93,000 Customer Input Terminals • Mobile betting • Two way terminals • Internet betting coming soon

  5. PREVENTS: Corruption Organised crime involvement Loan sharking Money laundering Race fixing BENEFITS: Ensure government tax revenue Ensure contribution for charity - HK model Reduce community cost Why the Monopoly in HK? Government decision to control gaming

  6. Challenges to Revenue • 95/96: HK$80.6 (US$10.34) • 96/97: HK$92.3 (US$11.84) • 97/98: HK$91.4 (US$11.72) • 98/99: HK$81.3 (US$10.42) • 99/00: HK$83.4 (US$10.69) • Decline in revenue after 1997 (all figures in $ billions)

  7. Challenges • Illegal bookmaking • Offshore operators • Illegal soccer gambling • Internet gambling

  8. Common characteristics of challenges • Pay no local taxes • No contribution to charities • No government regulation • Illegal in HK

  9. Internet Gambling • Sites offering new communication to existing sports gaming service (e.g. - Ladbrokes) • Sites offering exclusive Internet gaming (e.g. - casino) • Hundreds of sites

  10. Internet Gaming Operators • Ladbrokes, William Hill, Darwin All-Sports, Dr Ho.com, Easybets, etc • Many offer offshore books on HK horse races, some in Chinese language • Many linked to local media (SCMP, Apple Daily, etc) web sites ALL pay NO HK tax, no contribution to HK but take HK betting dollar

  11. Internet Gaming - Downside • Unregulated offshore casinos • Fraud of punters • Prey on compulsive gamblers • Easy access to minors/children • Diversion of gaming dollars without benefit to community • Trend will increase as Internet usage grows

  12. Geographical Jurisdiction Problems • Favoured offshore locations • Costa Rica (80+ operations) • Antigua (31+ Internet gambling licenses) • Curacao, Grenada, Dominican Republic (4+ Internet gambling operations licensed) • Netherland Antilles, Trinidad, St. Vincent, Cayman Islands (1 Internet gambling operation licensed)

  13. Offshore Internet Gambling • Operations licensed in tax havens • No recognition of laws in other sovereignties • No mutual assistance agreements to enforce law • No effective government regulation or oversight

  14. Enforcement Problems • Existing gambling laws drafted decades ago • Law should be technology neutral or will be surpassed): • Legislation tied to a particular technology may quickly become obsolete and require further amendment. • Global Internet surpasses legal jurisdictions Government revenue collection & regulatory authority defeated

  15. Four Regulatory Models • US: ban Internet gambling by residents • Australia: allow licensing to ensure propriety • Europe (Holland, Austria, Finland, Norway) & HK: allow licensed Internet gambling to residents only - on activities legal within their jurisdiction • Small jurisdictions (Costa Rica, Caribbean, Gibraltar, Alderney, etc): granting Internet gambling licenses

  16. Australia • Interactive Gambling (Moratorium) Act 2000 • Creates criminal offence, prohibits a person from providing an interactive gambling service unless already providing before 19 May 2000; severe punitive fines for offenders • Prohibition ceases at end of 18 May 2001

  17. Australia • Queensland, Victoria, Tasmania, South Australia, the ACT and NT not supporting 12-month moratorium on new forms of interactive gambling • Some States already providing Internet gambling licenses before May 2000 • No uniform Federal and State approach • National enquiry underway

  18. USA • Government pressure to ban Internet gambling • Interstate sports betting via Internet: Federal offence (1961 Wire Act) • State law requires legality of any gaming operation at both ends (i.e. punter & bookmaker) • 48 of 50 States have some legalised gaming

  19. US Prosecutions • Feb. 2000 - Jay Cohen, CEO of World Sports Exchange in Antigua, was found guilty in NY of violating the Federal Wire Act - 21 months jail, fined US$5,000 • L.A. based youbet.com paid US$1.3 million penalties & move operations out of California (State prosecution)

  20. Attorney General Janet Reno: • "The Internet is not an electronic sanctuary for illegal betting. If a state outlaws soliciting or accepting bets, you can't evade those requirements by going on line."

  21. United Kingdom • UK home to headquarters of major established bookmakers • Liberal regulatory framework compared to USA • grab.com: U.S. Internet gambling site was visited by 421,000 Britons in Dec. 2000 • Legal to gamble on an Internet site situated offshore

  22. UK Legal Position • Gambling legislation pre-dates Internet • New Internet betting service requires license from local licensing Magistrate • Gaming must be in licensed premises - no Internet license possible • Ladbrokes, Coral, Victor Chandler, in Gibraltar (British dependency) • William Hill in Ireland & Antigua

  23. Target: Internet Asia • Ladbrokes Cantonese service accounts for one third of online service turnover • Victor Chandler trying recruit Cantonese speakers • Far East punters targeted

  24. HK Gambling Ordinance: Proposed Amendments • Extraterritorial: bets placed with a bookmaker overseas • Prohibit promotion of above activity • Prohibit knowing use of premises for promotion or facilitation of bets • Prohibit broadcast of odds or tip via TV or radio within 12 hours of event

  25. Way Forward • Legislative treatment of Internet gambling must be a local government decision to conform with the authorisations, regulation & controls required by that jurisdiction. • If activity is prohibited in the physical world but not in the virtual world, then the Internet becomes a haven for criminal activity.

  26. HK Gambling - Way Forward • Viability of new gambling legislation? • Question of wagering on other sports? • Structure of the HK betting duty? (i.e. tax on revenue or profits?) • Public controversy over any new gambling; increased social cost? • New government solutions? HKSAR

  27. Summary • Diversion of total funds, untaxed & unregulated, leads to lower quality gaming service, with no community input • Government responsibility to balance the right of individuals to entertainment choices, establish regulatory framework, ensure international legal requirements met Betting revenue should return to the community

  28. Questions?

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