Can Intrastate Online Gambling Be Kept Within State Borders?

In 2007, not long after the regulations for the UIGEA were drafted, the DoJ announced that the part of the law that allowed intrastate online gambling was fallacious. The DoJ contended that all Internet wagering was illegal because the Internet was Interstate in nature and intrastate gambling wasn't feasible. I was curious what exactly the DoJ meant by that so I spoke to a former agent (who had just left after the election of Barak Obama) and his response was that the Internet wasn't really a secure medium so it was impossible to ensure that gambling occurs within a state's borders. The agent was clear that had the Republicans won the election in 2008 they would have set up a sting operation as soon as a state introduced online gambling, cracked their geo-locating software and forced the state to shut down its servers. The agent wasn't clear whether they would have used a proxy server from that state, a spoofing site or something similar but he did say there were several ways for someone to emulate being within a state's borders online when in fact they aren't. And no doubt more methods are now available today, almost 5 years later.

No doubt Lindsay is correct. In today's world an IP address means little. One can use a site like HidetheIP.com, Cyberghost or similar and with next to no effort, their computer will appear to be in another country or state. Out of curiosity I went to Cyberghost, set up a free account and logged in. My IP address showed as being from Hamburg, Germany and I was able to get into gambling sites which should have been off limit to North Americans (note I didn't actually play at the site). As such, Delaware will have to be far more vigilant in stopping citizens of other states from wagering, or they could indeed find themselves in violation of federal law. While the Democrats haven't been as aggressive in pursuing online gambling as the Republicans were, Attorney General Eric Holder has indicated that he isn't a fan of gambling and particularly sports betting. And one must remember that Delaware now has a sports lottery (which Holder opposed) and certainly the state will want to offer it online. So it wouldn't be surprising to see the Holder's office (or the Republican replacement) attempt the "sting operation" to place a bet from outside the state and then issue as statement to states offering the intestate wagering that their safeguards aren't sufficient and hence must cease and desist offering online gambling since it's in violation of federal law.

I asked Lindsay what GeoComply offers over and above IP identification that could indeed help a state like Delaware pass the "reasonable certainty test" and hence avoid a confrontation with the Feds. "Using additional data and 'spoofing' checks can provide that level of assurance that the US regulatory environment will come to expect. GeoComply's solution collects data on a player's surrounding wifi and cell tower access points, their MAC address, device info and operating system, latitude/longitude, as well as GPS coordinates (should it be enabled). The software is available for a multitude of devices so as to not restrict game play to certain users or their preferences – currently PC, Mac, iPhone, Android, and tablet users are served.

GeoComply also scans for any screen sharing/remote desktop applications that may be used to disguise one's location (using GoToMyPC or MS Remote Desktop programs to access a work or other remote computer to make it seem like there are in a permissible area when they physically are not). Their solution is also designed to detect the use of proxy servers which one may use to deliberating mask their location, while taking into consideration situations that are not deliberate, such as using AOL or other internet service providers who often use dynamic IP addresses to reroute consumer's internet connection. By collecting multiple data sets rather than relying on a single location method, 'reasonable certainty' will not only be much easier to achieve but also far more accurate. This is an important point not only for compliance but for revenue considerations (making sure not to block legitimate customers within permissible zones).

Looking specifically at Delaware, many operators will be challenged to find an ideal geo-location solution that will work successfully in such a small area. The smaller the jurisdiction, the more vulnerability the state will be faced with to properly screen out non-permitted players. Due to IP's lack of accuracy, often large buffer zones must be drawn inside of state border lines to account for any discrepancies in the location data collected. GeoComply's solution offers accuracy within meters and also has built-in back-end functionality that allows the operator to specify the size of their buffer zones (as small as a few or 50 meters) in order to maximize allowable players within the game play area and thus revenue, while balancing risk and compliance requirements."

Not being a techno person myself I ran Lindsay's comments by a U.S. securities expert who was impressed with the amount of detail GeoComply goes to in order to try and stop outsiders from betting into another state's servers but he was also certain that if someone was really determined to wager from outside of the state they could do so.

"In several European countries, laws were passed forcing ISPs to block access to illegal pirating sites like Pirate Bay. The countries did so, and Pirate Bay made a few small changes to its server that circumvented the ISP block. Those countries had the most sophisticated geo-locating software on the market and it proved to be a dud. Determined hackers have been able to infiltrate the most secure government servers so pretending to be located at an internet café within a state's borders wouldn't be that tough. And unfortunately for Delaware and other states looking to introduce online gambling some of the best hackers in the world work for the U.S. federal government."

The state of Delaware hasn't indicated which company it will use for geo-location although Geobytes was founded in the state and appears to be the likely choice. Delaware expects to introduce online gambling in the form of blackjack, video poker and slot machines some time in 2013 and will offer lottery tickets online as well. The state plans on offering the products on PCs, smartphones and tablets and hopes it will create up to 2,000 jobs and generate almost $8 million in revenue in the first fiscal year.

Delaware was certainly clever in announcing its intentions now. The federal government has more pressing issues with the November election around the corner so not surprisingly has paid little attention to the announcement. However, when push comes to shove Delaware will be forced to prove that they can block out of state residents from wagering at their sites. No doubt other states will be watching to see if they're successful as well.

Contact Hartley via email at Hartley[at]osga[dot]com.

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