The Global State of Online Poker: Why Taxation and Regulation of Poker Sites is Not Feasible and Poker as an E-currency Network

Let’s take a look at the current state of poker regulations with respect to different prominent countries and player pools:

In Canada for example its been pointed out by Calvin Ayre that PokerStars (under Amaya) is technically at best a legal grey area:

They know that taking PokerStars public will cause major changes in its business model.” Amaya used to just supply software to gambling sites; now it is an operator. Although PokerStars no longer offers real-money online poker in the U.S., it still serves many grey markets like Canada where online gambling’s legal status is uncertain. “I expect them to be forced out of the Canadian market and many other markets in the world now,” says Ayre. “The pressure will come from regulators in the United States, the U.K. and Canada to get out of all grey markets.

The U.S which hasn’t been able to join the global player pool since Black Friday faces the possible restoration of the Wire Act (RAWA).

In Russia “Online poker has been technically illegal in Russia since the Sports Ministry removed poker from the national sports registry in June 2009. By default poker was classified as a form of gambling, and over the next five years the Russian authorities periodically ordered Internet Service Providers to block access to online gambling websites such as PokerStars, Unibet and PartyPoker.”

Germany also recently had an ugly conclusion to a legal case related to poker:

Last week, the District Court of Munich published a decision declaring a man guilty of “illicit online gambling” breaching section 285 of Germany’s Criminal Code on an undisclosed online casino site.
According to eGamingReview, this unnamed 25-year old German resident was also ordered to repay €63,490 ($75,275) in winnings and a €2,100 ($2,490) fine.
This case could prove to be a landmark case, since it appears that not only gaming operators can be targeted in Germany for play on unlicensed sites in the country.

The UK has been going through many complex changes itself, many of which are outlined and explained here.

And Mexico, a hot spot destination for “poker refugees” fleeing strict regulations in their own respective nations, is also not at all immune from such restrictive legislation.

What is happening here, and why is poker and gambling legislation seemingly such an important and forefront issue in the daily activities of our respective policy makers? The author has a succinct and easy to follow explanation of this but first we want to check out the common misconception of what the driving force might be. Sheldon Aldelson is often blamed for the US players difficulty in joining the global player pool, and this article perfectly paraphrases the most common accepted reasons behind what is holding up unfavorable regulation:

The way Adelson sees it, Internet gambling will hurt young and economically vulnerable Americans, including those who will view it as a potential way to get out from under a mountain of student debt. He claims that there is no efficient technological way to stop minors or those suffering from alcohol or other substance abuse problems from gambling online, but that land-based casinos can prevent issues like money-laundering and stop people who should not be gambling from engaging in it

The often cited reasons being money laundering, underage gambling, and gambling addiction.  But do these things really fuel politics and regulation?  If such moralistic behavior and regulation is favorable perhaps the US wouldn’t be waging different kinds of violent war on different peoples all around the world.  Perhaps, if morals fueled policy the previous and recent use of torture by US entities wouldn’t be such a debate. If the US (for example) was actually this concerned about its’ citizens maybe it wouldn’t be legal to drone strike their own peoples or imprison them without trial (do we need links or we can use google?!)

Addiction problems have never successfully resulted in stabilization of regulations versus other substances such as alcohol and tobacco, which are clearly more destructive and have clearly taken many more lives, especially of people not directly involved in the addiction (“innocents”).

The underage excuse doesn’t hold very well to scrutiny either.  First it is always interesting how at least half of Americans seem to believe that it is not their responsibility to raise their own children but rather the responsibility government. And equally as many seem to have issues (or fears) of leaving their credit cards around these children who apparently don’t have the intelligence and morals not to STEAL from their parents (or anyone else).  It is not at all clear to the author how it is acceptable to suggest that regulation is the solution to these issues.  In fact it seems a lot easier to show that regulations are the very babysitting systems in place that cause our society not to learn how to teach and learn for ourselves. These regulations themselves are more likely to keep us stupid.

For example, one can wonder whether or not children as a whole would have problems stealing and using other people’s credit cards.  What seems more likely is the new generation of children, especially once learning about the advantages of bitcoin, and growing up with the knowledge (thankfully from the internet) that our current banking system is based on fraud, would begin to explain to their parents why credit cards are a terrible financial device.  It is the kids that are likely going to bankrupt credit card companies in the future simply from the realization that the fees are not only ridiculous but themselves essentially criminal. Not only have credit companies destroyed society and our economy but furthermore why don’t they have passwords or two factor authentication!  Such a thing would immediately put an end to any significant types of credit card fraud.

If one wants to argue then that a child still might “steal” the two factor identification information, it should be easier to show the such a child’s parent does not have the capacity to raise said child.

So what DOES fuel regulation in regards to poker?

In order to understand this phenomenon, or what the “hoop-lah” is all about we need to take a look at the origins and rational of the Wire Act:

In 1961, then-Attorney General Robert F. Kennedy proposed a package of bills, including the 1961 Wire Act, in an attempt to get at the heart of mafia organizations: their money. Soon after its passage, the Wire Act was superseded by other more effective tools to target organized crime, such as the Racketeer Influenced and Corrupt Organizations Act (RICO) in 1970. It wasn’t until the late 1990s that the Wire Act sprang back into prominence as a tool to prosecute online gambling offenses.

It is suggested that for “Robert Kennedy, the only way to tackle the Leviathan of the mafia was to cut off its profit stream. Kennedy believed that the most profitable activity for the mob was their gambling racket.”, however there is an interesting observation to be made about exactly why the Wire Act came into place.  Again what is the big deal with this particular form of gambling?  To understand this we must look at specifically what the Mob was doing to fund its organization.

“Illegal” organizations (funny right), were placing their OWN bets on top of the legal betting tracks in the US which was causing and obvious economic shift, since the Mob could then offer a better price on the customer’s wages.  Furthermore, the Mob could offer bets on events that weren’t even in the same state.  This business edge, that was mutually beneficial for the bettor as well as the Mob, created an obvious economic leak with its own (strong) force. The author’s conjecture is that it is EXACTLY this phenomenon that has ruled and continues to rule regulation, at least in respect to gambling and poker, and probably on all other respects as well.

That is too say it is the OBVIOUS economic leak that leads a regulatory body to enact change, and that Kennedy’s reasoning of fighting crime, is really just political posturing very akin to a priest explaining why a drought has occurred from the lack of a certain virgin sacrifice. Put another way, how silly is it to make legislation to fight organized crime, when the very legislation creates criminals in the eyes of the law!  Moreover, and we don’t mean to stick up for the violent tendencies of the Mob, but the Mob was in fact offering a superior product which seems criminal to the author for the government to take such a product from the people in the name of justice.  It might even be that the “legal” betting “fees” render legal wagers -ev, and that the Mob may have in fact have offered “fair” wagers.

NOW, we might understand the current environment the US and other countries face seeing how the internet functions like a modern day legal/illegal betting network like back in the 50’s and 60’s. If it can be shown that such foreign sites are in fact simply a giant economic leak in the eyes of the government then it should be easy to see exactly why poker is highly regulated all over the world and this is in fact the obvious case since most poker players are habitual losers (largely because of over raked games mind you). And so we should expect then even with the evolution of gambling to the freer internet setting, that governments would have the financial and political power to create legislation unfavorable to the general peoples freedom. This perspective may shed light on the significance of other events and related regulations such as the Antigua/US WTO dispute and the birth of the UIEGA which is seemingly an evolution of the Wire Act/Mob network problem.

This is seemingly why governments seek to tax poker sites as either a disincentive or a way to recoup the loss from the player’s respective nation to the foreign gambling site that rakes their deposits.  In effect then, poker and gambling online, can be perfectly comparable to a currency network in which a country’s money is being siphoned through massive leaks in the existing financial infrastructure.  We might call this a certain form of laundering or fraud (in the eyes of the government), but what is important to point out is that in the government’s eyes, an untaxed dollar of income is one thing, but a dollar leaving the nation is a whole other story.  The untaxed dollar might even bring value to the economy, but a dollar lost to gambling is relatively a very costly dollar.

Consequently we should understand now, the infeasibility of taxing foreign sites, as the obvious adjustment sites will make is to pass such a cost onto the players.  Fine for governments right? Not so fast!  We need to follow this line further and understand what happens to the WINNING part of poker population when the cost of playing exceeds the possible profits-they stop playing! And so you have a larger economic loss, because the inevitable losses from the bad players is no longer at all offset by the profits from the winning players, and the taxes all of a sudden hurt governments, sites, players, and the global economy (in respect to each nation).

This is in fact what is happening today, and what has happened historically in relation to such regulations, although it is not always immediately observable as the passing of taxes to the customer can be done through hidden effective rake:

As you’re likely aware, more countries are introducing taxation, increasing the impact on our business and the poker economy at large. We will continue to use a combination of rake increases and VIP Club reward reductions to address the increased taxation, but these changes will be made consistent with our past practice of sharing up to 50% of taxation with players.

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