Why do governments seek to regulate online gambling?

blog image

Claim a Bonus!

Depending on where you are located a casino may not be available in your area. This is due to government regulation. There are some jurisdictions in which online gambling is either heavily restricted or altogether illegal.

Knowing that, there are a lot of people who wonder why governments seek to regulate online gambling. There are lots of different reasons, but most of them boil down to just a few underlying things. Each of the core concerns governments have regarding online gambling will be analyzed in this post. But first, we will introduce the idea by discussing action being taken by the government of Curacao.

New restrictions in Curacao

Curacao's government announced just before Christmas their plans to change how online gambling is regulated in that country. As a constituent country of the Netherlands, Curacao has long been at odds with the Dutch government over how gambling is regulated in the Caribbean nation. So to bring things more in line with the general regulations of the Kingdom of the Netherlands, Curacao will be transferring oversight of online gambling from the Ministry of Justice to the Gaming Control Board from January 1st, 2019.

From a legal standpoint, nothing much changes among current license holders in Curacao. But much changes practically speaking. The Ministry of Justice really didn't do much more than enforce current regulations; they exercised little to no oversight. Things will change now. The Gaming Control Board is not only an enforcement arm of the Curacao government, but it also actively develops gambling oversight on a continual basis.

What does this mean to operators? It means regulators directly overseeing how they operate their games. It means tighter controls, a fresh look at banking options, greater scrutiny of fairness, etc. Done correctly, it should make for a better online gambling environment in Curacao.

Preventing money laundering

We are not exactly sure why Curacao has made the change, aside from the stated purpose of bringing their regulatory environment more in line with the rest of the Kingdom of the Netherlands, but we do know that there are a number of key issues that tend to lead to greater regulation. At the top of the list is the need to prevent money laundering.

Gambling has long been a source of money laundering since organized crime in the U.S. established the Las Vegas casino industry specifically for that purpose. Money laundering occurs by depositing money with the casino and then withdrawing a slightly smaller amount through alleged winnings. The scheme is as old as organized crime itself and no different to buying something and selling it for a bit less. This scheme can be applied to just about any product or service, however governments like to pick on gambling.

Of course in the world of gambling, money laundering is a real concern as well. The difficulty in the online space is the fact that payments can be difficult to track. Anyone wishing to launder money can use fiat cash to make a deposit via a money order, prepaid card, or one-time EFT. The money can then be withdrawn to the same account as the original deposits.

Why would anyone launder money? In order to enjoy the profits of illicit activity without leaving a record behind. People who would otherwise draw attention by depositing large amounts of money in a bank account can launder it via an online casino a lot more easily.

Actually this is a much bigger concern at land-based casinos because the casino chips are much more easily changed to cash. However again governments like to pick on the online gambling operators.

Preventing casino fraud

Another reason that governments tend to get involved in regulating online gambling is a desire to prevent fraud. While the vast majority of online gambling operators adhere to fair play standards, there are unfortunately a small handful that think nothing of cheating their customers. It is no different than what brick-and-mortar casinos might do.

Governments tend to institute licensing procedures in order to force online operators to play fairly. In order to be licensed, an operator's games have to be audited for fair play and accuracy. Operators must also adhere to a number of other standards in order to be licensed.

Licensing provides valuable information regulators can use to keep tabs on operators too. If an operator is ever found in violation of regulations, his or her license could be revoked. Penalties are usually the first course of action, but a regulatory body is not above pulling a license if problems continue.

Enhancing the competition

Next, there are some national governments that have chosen to begin regulating online gambling in order to enhance competition. Normally, you would think that government interference would hamper competition rather than enhance it. But that is not always true in the gambling space.

Gambling is an entrenched activity that has been around for thousands of years. Online gambling is relatively new by comparison. So how do online operators compete against brick-and-mortar operators who already have years of history working to their advantage?

Sometimes it takes government action to step in. For example, that's what's happening now in Sweden. The government there has recently loosened its gambling regulations in order to encourage foreign operators to seek licenses and create jobs for Swedes. The whole point of the action in Sweden is to break up the monopoly local operators have held for decades.

Sweden's plan is working nicely. Since the announcement of new online licenses for 2019, the Swedish government has already granted nearly three dozen of them (at the time of this writing). The result will be dozens of new online casinos up and running by early summer 2019. Most of those new properties will be operated by international license holders.

Taxing the gambling industry

As you've probably guessed, a big priority of governments getting involved in regulating online gambling is generating tax revenue. No secret there. Gambling is worth billions in countries like the UK, and government leaders are not about to pass up the opportunity to get their hands on some of those revenues.

Regulation offers a way to tax gambling so as to raise revenues only by targeting those people who engage in the activity. There are three basic ways tax revenues realized from gambling activities:

  • Taxing Operators - This is the strategy employed by the UK. Operators are taxed based on their profits. As for gamblers themselves, their winnings are not taxed in the UK.
  • Taxing Gamblers - Governments that do not want to tax operators can always tax gamblers. They rely on gamblers honestly reporting their winnings and paying income tax accordingly. This model is not used by many jurisdictions because it is so difficult to enforce.
  • Taxing Both - The third option is to tax both operators and gamblers alike. Although online gambling is heavily restricted in the U.S., this is the model used there - where online gambling is permitted. Both operators and gamblers are taxed on their profits.

The ability to tax would be reason enough for most national governments even if there were no other concerns. Whenever you have an industry that makes as much money as gambling, you can bet it is going to be taxed.

Combating gambling addiction

Last but not least, governments sometimes choose to get involved in online gambling in order to help control and combat gambling addiction. While the vast majority of gamblers are more than capable of playing their favorite games responsibly, there are some people who find gambling as addictive as alcohol and illicit drugs.

These sorts of gamblers need as much intervention as addicts of any other kind. But intervention alone is not enough. Prevention is also a big part of the equation. That's why in some jurisdictions, automatic spinning is not allowed on video slot games. Some jurisdictions also require online operators to time gamblers so as to warn them when they exceed a certain limit.

For example, you might be playing MegaMoolah.com on your favorite gambling site only to have a pop-up message warn you that you have been at it for 60 minutes. The warning is intended to remind you that maybe it's time to step back and go find something else to do.

You will notice that a lot of gambling sites feature a link at the bottom of their pages directing gamblers to information on how to address problem gambling. This is voluntary in some jurisdictions but mandatory and others. Where it is mandatory, the point is to direct gamblers to the kind of help they need if they believe they are suffering from gambling addiction.

Protecting players and operators

Now you know just a few of the reasons that governments decide to regulate gambling. Most of the regulations are made to appear to protect players and operators alike, but in the end it's all about tax.

If you are in a gambling-friendly environment like the UK, you have access to all kinds of games online. If you are in a more restrictive environment, your access might be quite a bit more limited. In either case, enjoy spending you hard-earned cash the way you want to.

Next Post: 10 undeniable truths of online gambling