Grey Matters: Kevin F. King, “Cutting internet gambling’s Gordian knot: geolocation and federalism on the internet” (14 July 2009)

Available at SSRN: http://ssrn.com/abstract=1433634

Abstract:
Over the last decade, internet gambling regulation has begun to seem like an impenetrable problem – a Gordian knot – that both state and federal regulators have been unable to solve. Motivated by the moral concerns of their citizens and a desire to protect revenue from casinos within their borders, several states have waged aggressive campaigns against internet gambling. While states have historically regulated gambling pursuant to their police powers, recent state enforcement efforts have been hindered by the dormant commerce clause, which forbids state regulation of interstate commerce.
 
The federal government’s parallel effort to police internet gambling has also fallen short, due to a lack of clarity in current law and the difficulties associated with regulation of offshore casino operators. Even if both of those barriers could be overcome, a uniform federal approach might still be viewed as an unwarranted intrusion into an area best left to state regulation. Ultimately, the fact that Americans continue to spend over seven billion dollars on internet gambling each year demonstrates just how unsuccessful recent state and federal enforcement efforts have been. Making matters worse, prohibition has begun to trigger sizeable direct costs for the entire nation via World Trade Organisation (WTO) sanctions, as well as indirect costs to states favouring legalised gambling in the form of lost tax revenues and licensing fees.
 
Like Alexander’s sword centuries ago, modern geolocation technologies are poised to solve the problems described above in a single stroke. Geolocation technologies make this remarkable result possible by recreating jurisdictional borders on the internet, thus mitigating the cross-border reach of gambling activities which, prior to the internet era, were possible only on a local scale. This paper introduces the concept of geolocation technologies and applies that concept to the question of federalism on the internet. In particular, the Paper uses a hypothetical federal state framework in which the states elect their substantive internet gambling policies from a limited ‘menu’ as a way to explore the advantages and disadvantages of renewed state control over this culturally sensitive and traditionally locally regulated issue.

CFR comment:
There are three interesting features to this law-student-authored article. Such pieces are quite common in US legal scholarship, for those readers not familiar with American academia. First, it does a capable job of surveying geolocation technology, which should be of interest to CFR readers generally, since it has applications to a wide range of offshore transactions. Second, the regulatory regime it proposes, which includes hard-wiring technology into the underlying structure of the internet, in the spirit of Stanford law professor Lawrence Lessig’s work on ‘code as law’, is the sort of thing to excite bureaucrats around the world. For example, imagine the IRS’ reaction to the idea that the underlying code that makes the Internet work could prevent people at American IP addresses from doing internet banking in Switzerland or Singapore. Governments in offshore jurisdictions need to get involved in internet matters to ensure that this technology is not used to hamper their efforts to provide financial services. Finally, the article offers a useful survey of the legal issues raised by internet gambling.

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Andrew P. Morriss

Andrew P. Morriss, Chairman, is the D. Paul Jones, Jr. & Charlene Angelich Jones – Compass Bank Endowed Chair of Law at the University of Alabama School of Law. He was formerly the H. Ross & Helen Workman Professor of Law and Business at the University of Illinois,Urbana-Champaign. He received his A.B. from Princeton University, his J.D. and M.Pub.Aff. from the University of Texas at Austin, and his Ph.D. (Economics) from the Massachusetts Institute of Technology. He is a Research Fellow of the N.Y.U. Center for Labor and Employment Law,and a Senior Fellow of the Institute for Energy Research, Washington,D.C., as well as a regular visiting faculty memberat the Universidad Francisco Marroquín,Guatemala. He is the author or coauthor of more than 50 scholarly articles, books, and bookchapters, including Regulation by Litigation (Yale Univ. Press 2008) (with Bruce Yandle and Andrew Dorchak), and is the editor of Offshore Financial Centers and Regulatory Competition (American Enterprise Institute Press 2010).

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