General security

Legal Aspects of Online Gambling

Daniel Dimov
March 13, 2013 by
Daniel Dimov

1. Introduction

Since the website of the first online casino appeared in 1995, that time, the online gambling business has grown tremendously. H2 Gambling Capital, one of the most widely known providers of online gaming statistics, stated in 2009 that the market for global interactive gaming services will grow about 42 percent to USD 30 billion in 2012 from USD 21.2 billion in 2008.

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Because gambling can become a psychologically addictive and harmful behavior in some people, many countries either ban gambling or heavily control it through licensing. The purpose of this article is to briefly discuss four legal aspects of online gambling, namely: legality of online gambling (Section 2), protection of minors against online gambling (Section 3), consumer protection related to online gambling services (Section 4), and money-laundering through online gambling (Section 5). Finally, a conclusion is drawn (Section 6).

2. Legality of online gambling

This Section contains an overview of the countries that have legalized online gambling (Section 2.1) and a discussion on the legal status of online gambling in the United States (Section 2.2).

2.1 Overview of the countries that have legalized online gambling

By June 2010, 85 jurisdictions have legalized online gambling, and there were about 2,680 online gambling sites owned by 665 companies. The jurisdictions that have legalized online gambling can be categorized in three categories. The first category includes smaller jurisdictions in the Caribbean (e.g. Antigua, Costa Rica, and Curacao) and the Kahnawake Mohawk territory in Canada.

It is worth mentioning that companies in Costa Rica willing to provide online gambling services outside of Costa Rica do not need to obtain a special online gambling license, making it an attractive place for incorporating companies providing such services. What makes Costa Rica even more attractive for online gambling companies is the fact that Costa Rica does not levy an income tax on income originating from outside of Costa Rica.

The second category includes small jurisdictions in Europe, such as Gibraltar, Malta, the Isle of Man, and Alderney. The third category of jurisdictions includes the large and developed countries in Europe and some Canadian provinces. These three groups of jurisdictions legalized the provision of online gambling services primarily for income generating purposes.

It should be pointed out that there are two jurisdictional approaches for determining applicable laws with regard to online gambling services. The first jurisdictional approach is based on the location of the player. For example, Costa Rican law states that wagering does not take place at the physical location of the operator's gaming servers. Thus, while it is absolutely legal to open an online casino in Costa Rica, it is illegal for Costa Rica citizens to gamble online. The second jurisdictional approach is based on the location of the provider of online gambling services. For example, irrespective of the location of the players, it is illegal for a service provider based in the United States to provide sport betting services.

2.2 Legal status of online gambling in the United States

For a long time, the U.S. Department of Justice (DOJ) and one U.S. court have been in a disagreement over whether or not Internet gambling is legal in the United States. The disagreement concerned the scope of the Wire Act of 1961, which prohibited gambling over the "wires." The DOJ in the Clinton and Bush administrations pointed out that all forms of Internet gambling fall into the scope of the U.S. Wire Act of 1961.

While several courts have agreed with the DOJ, the U.S. Court of Appeals for the Fifth Circuit in the case Thompson v. MasterCard International et al on November 20, 2002 affirmed a lower court ruling that, under federal laws, online sport betting is illegal but casino games are legal.

Surprisingly, in 2011, the DOJ issued a ruling stating that the restrictions of the Wire Act of 1961 apply only to online sport betting. Thus, the ruling put an end to the use of the Wire Act as a tool to prosecute providers of online games that are different from sport betting.

It is worth mentioning that the majority of US States have legalized some forms of gambling but prohibited other forms. There are only two US States that prohibit any form of gambling, including lotteries: Hawaii and Utah.

3. Protection of minors

A 'Literature review of children and young people's gambling,' commissioned by UK's Gambling Commission and conducted in 2008 by Professor Gill Valentine, found that approximately 10-14 percent of young people are at risk of developing serious gambling problems. The study also found that approximately 5-7 percent of young people are problem gamblers. The abovementioned findings have been broadly correlated between studies conducted in Australia, New Zealand, Nordic countries, North America, and the UK.

In most countries, all licensed gambling operators must implement policies and procedures designed to promote socially responsible gambling, which is usually understood as taking measures to protect children. For example, UK's Gambling Commission has expressed the view that "socially responsible" online gambling should include: (1) checking for underage customers; (2) prohibiting the establishment of gambling facilities which target children and young people, whether deliberately or incidentally; and (3) refusing to provide gambling services to adults where they are accompanied by children or the young.

4. Consumer protection related to online gambling services

According to a study based on an online survey completed by 10,838 online casino and poker players from 96 countries, responsible gambling features were generally viewed positively, particularly by casino game players, those who chased losses, and younger adults (Gainsbury, Parke, Suhonen, 2013). However, over one-third of participants stated that they had a dispute with an online gambling operator. Moreover, the participants in the study reported high levels of mistrust and concerns regarding online gambling as well as confusion regarding the appropriate regulation of Internet gambling.

Taking into account the fact that cases of fraudulent casinos have been well documented, such mistrust is not surprising. The most commonly used casino frauds are refusal to pay withdrawals or cheating software with rigged payouts. Fraudulent casinos are also called "rogue casinos."

These are three ways to find out whether or not an online casino is legitimate. The first way is to ensure that the website of the online casino is audited by a third party organization like eCommerce and Online Gaming Regulation and Assurance ( or Technical Systems Testing ( An online casino bearing one of the seals of these two organizations should be regarded as a trustworthy casino.

The second way is to check the legitimacy of the online casino owner. This can be done by conducting an Internet search about the said owner and the provider of the software they use. Because most online casinos are part of a group, it should be relatively easy to find some information about the owner. In relation to the software provider, it should be noted that the most popular software providers include Microgaming, Playtech, Rival Gaming, Vegas Technology and Wagerlogic. If the online casino uses one of these technologies, it is most probably a safe online casino.

The third way is to check whether the content published by the online casino is already published somewhere. The check is based on the fact that many fake online casinos share their content. The check can be performed by copying a paragraph from the website of the online casino and pasting it into a search engine.

5. Money-laundering through online gambling

Online gambling can be exploited for money laundering. In most jurisdictions, money laundering is a criminal offence. It is defined by Interpol as "any act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources (See"

A common way to use online gambling for money laundering is to create a gambling account under a fake identity and place a certain amount of money in the account. Next, the money launderer places equal bets on the "red" and "black" fields of the roulette table as well as small bet on the "zero" field. This allows him to win almost the same amount of money as the amount of the bets. Then, the money launderer withdraws the winnings from the account and requests a document showing that the money is legitimate winnings.

Countries and international organizations have imposed obligations on online casinos aiming to prevent money laundering practices. For example, Article 14(2) of the UK Money Laundering Regulations oblige remote online casinos to verify the identities of their customers by taking adequate measures to compensate for the higher risk caused by the non-face-to-face transactions involved in online gambling. These measures may include: (1) ensuring that the customer's identity is established by additional documents, data or information; (2) supplementary measures to verify or certify the documents supplied, or requiring confirmatory certification by a credit or financial institution which is subject to the money laundering directive; (3) ensuring that the first payment is carried out through an account opened in the customer's name with a credit institution.

It should be noted that it is technologically easier to monitor online gambling activities in online casinos than gambling activities in physical casinos. In this regard, the Interactive Gaming Council, a non-profit organization that serves as a collective voice for the interactive gaming industry, noted that: "Online gaming can be one of the most watched and monitored forms of e-commerce - by licensing jurisdictions, financial institutions and various others - not to mention that, unlike land-based gaming, cash is not used in transactions."

6. Conclusion

This article has shown that online gambling is a global issue affecting virtually all countries. It examined four legal aspects of online gambling.

First, the article discussed the legality of online gambling activities. In this context, it was shown that some countries try to profit from online gambling by imposing little to no requirements for conducting online gambling activities. Other countries either strictly regulate or prohibit online gambling activities for moral and social policy reasons.

Second, the article analyzed the protection of minors against online gambling. In this regard, it was stated that, because online gambling can have a serious impact on the development of minors, many countries have imposed obligations on online casinos with the aim of protecting minors.

Third, the article examined the protection of consumers. In this regard, it was explained how fraudulent casinos may steal money from consumers. In order to avoid gambling in a fraudulent casino, players need to either ensure that the website of the online casino is audited by a third party organization, check the legitimacy of the owner of the online casino, or check whether or not the content published by the online casino is already published somewhere else.

Fourth, the article discussed the use of online gambling for money laundering. In this connection, it was pointed out that, while there is a potential for the use of online gambling for money laundering, this risk could be addressed by imposing obligations on the online casinos to establish their customers' identities online.

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Daniel Dimov
Daniel Dimov

Dr. Daniel Dimov is the founder of Dimov Internet Law Consulting (, a legal consultancy based in Belgium. Daniel is a fellow of the Internet Corporation for Assigned Names and Numbers (ICANN) and the Internet Society (ISOC). He did traineeships with the European Commission (Brussels), European Digital Rights (Brussels), and the Institute for EU and International law “T.M.C. Asser Institute” (The Hague). Daniel received a Ph.D. in law from the Center for Law in the Information Society at Leiden University, the Netherlands. He has a Master's Degree in European law (The Netherlands), a Master's Degree in Bulgarian Law (Bulgaria), and a certificate in Public International Law from The Hague Academy of International law.