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Wednesday, March 23, 2011
Surprise: Gaming bill passes House Committees
By Andrew Walden @ 2:00 PM :: 8246 Views :: Energy, Environment

"Never let a serious crisis go to waste. What I mean by that is it's an opportunity to do things you couldn't do before." -- Rahm Emanuel

by Andrew Walden (Updated to reflect passage of the amendment by House Committees)

Gaming interests have jumped on board the bandwagon of Hawaii politicians and grifters excited by the opportunity to use Japan’s Tsunami disaster for fun and profit.

After failing to win approval from either house before crossover, the numerous gaming-related bills introduced this session all seemed dead.  But on Wednesday, two House committees approved an amendment gutting Senate Bill 755  and replacing it with language authorizing numerous types of “peer-to-peer” gambling and—more importantly--creating a Hawaii Gaming Commission to oversee it.  The proposed amendment has the support of DBEDT Director Richard Lim.

Authors of the amendment enthuse:  “The recent earthquake and tsunami in Japan may result in the loss of approximately twenty percent of the visitor market…. The legislature also finds that one way to attract visitors is to host peer-to-peer poker tournaments or championship series in Hawaii.”

But tournaments are just the tip of the iceberg.  Two online casinos would be licensed to operate 24/7/365. The proposed amendment opens with:

…one way to attract visitors is to host peer-to-peer poker tournaments or championship series in Hawaii.  Many poker tournaments and championship series held in other locations have the effect of filling hotel rooms for the duration of the tournaments, which run for several weeks at a time, with participants, their families, and supporters, as well as poker aficionados.  …Organizers of these peer-to-peer poker tournaments and championship series are eager to hold such events in Hawaii.  …However, such games are not allowed under current Hawaii because the games are classified as games of chance and are held in venues that are open to the public.

The amendment also: “Authorizes issuance of not more than two licenses to operate infrastructure for online peer-to-peer games of skill for a minimum fee of $100 million per year, 20% of total wagers, and advertising for State.”

The entire online gaming scheme rests on shaky legal ground.  The proposed amendment reads:

The legislature also find that while there are no cases on point, legal opinions have reasoned that, because these sites consist of competition in games of skills between human players and not in games of chance that are now not prohibited under Hawaii’s anti-gambling statutes, this type of gaming would not violate the federal Unlawful Internet Gaming Enforcement Act.  Additionally, the legislature finds that federal cases do not interpret the federal Wire Act to prohibit the transfer of funds that one may have earned through these human-to-human competitions from the licensed host to the players' bank account.

Contrary to these un-sourced “legal opinions,” here’s how Federal Law defines the term 'bet or wager':

“the staking or risking by any person of something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person or another person will receive something of value in the event of a certain outcome.”

The “skill competitions” as defined in the proposed amendment?  “Omaha” and “Texas Hold-em.”  The akamai reader will of course immediately recognize the difference between “game of chance” and “game subject to chance.”  An Internet poker site based in The Isle of Man, UK lists the rapidly declining selection of international sites which still allow Americans to play Internet poker as federal enforcement drives site after site out of business.

USC 31 Sec 5363 prohibits any “person engaged in the business of betting or wagering” from “knowingly accept(ing)” any type of cash, check, draft, or credit card transaction, “in connection with the participation of another person in unlawful Internet gambling.” 

If the amendment becomes law, the State of Hawaii would be “engaged in the business of betting or wagering” by collecting 20% of revenues, website ad revenues, and the $100M licensing fee from the two casinos authorized.  Thus Governor Abercrombie and every member of the Legislature who votes for the bill would be in violation of federal law.  Tragically, the penalties for these criminals would not exceed five years in the Federal Penitentiary. 

One exception to Federal Law involves Internet gambling where the players and the casino are all located on “tribal land.”  The legislature is now pushing for a State-recognized Hawaiian Indian Tribe.  The law reads: “No provision of this subchapter shall be construed as altering, limiting, or extending any Federal or State law or Tribal-State compact prohibiting, permitting, or regulating gambling within the United States.”  But State-recognized tribes have not received gaming licenses, so OHA can stop dreaming.

The amendment provides for a Gaming Commission to be set up with three members appointed by the Governor, two by the House Speaker and two by the Senate President.  They would have nearly absolute power over the two licensed casinos, including the right to:

  1. Administer, regulate, and enforce the system of gaming established by this chapter.  The commission's jurisdiction shall extend to every person, association, corporation, partnership, trust, and any other entity with a financial interest in or holding a license under this chapter, or required under this chapter to hold a license in gaming operations in the State;
  2. Issue a ten-year gaming license pursuant to this chapter;
  3. Determine the types and numbers of occupational and supplier's licenses to be permitted under this chapter;
  4. Adopt standards for the licensing of all persons under this chapter subject to the qualifications and standards set forth herein, to issue licenses, and to establish and collect fees for these licenses;
  5. Provide for the collection of all taxes imposed pursuant to this chapter, and to collect, receive, expend, and account for all revenues derived from a gaming operation within the State;
  6. Enter at any time without a warrant and without notice to a licensee, the premises, offices, facility, or other places of business of a licensee, or supplier licensee, where evidence of the compliance or noncompliance with this chapter or rules is likely to be found.

The Gaming Commission would preside over legions of employees and contractors who would then have a material interest in the growth of gaming in Hawaii. 

Politicians would naturally be attracted to this type of business, but there are rules.  Information required on the application for a casino license will include: 

A statement listing the names and titles of all public officials or officers of any unit of state government or county government in the jurisdiction in which the casino facility is to be located, and the spouses, parents, and children of those public officials or officers who, directly or indirectly, own any financial interest in, have any beneficial interest in, are the creditors of or hold any debt instrument issued by, or hold or have an interest in any contractual or service relationship with, the applicant or a qualifier.

Unlike their legislative brethren, convicted felons must wait 10 years from the date of conviction to become Hawaii Gaming Commissioners.  Information required on the application for a casino license will include:

Whether the applicant or qualifier has been indicted, convicted, pled guilty or nolo contendere, or forfeited bail for a felony within the last ten years or a misdemeanor involving gambling, theft, or fraud within the last ten years, not including traffic violations, and including the date, the name and location of the court, arresting agency, prosecuting agency, the case caption, the docket number, the offense, the disposition, and the location and length of incarceration;

Whether the applicant or qualifier has ever been granted any license or certificate issued by a licensing authority in the State, or any other jurisdiction, that has been restricted, suspended, revoked, or not renewed and a statement describing the facts and circumstances concerning the application, denial, restriction, suspension, revocation, or nonrenewal, including the licensing or codifying authority, the date each action was taken, and the reason for each action;

Previous employees of Licensed Hawaii Casinos may immediately go to work for the Gaming Commission if, “the person's interest in any gaming licensee would not, in the opinion of the commission, interfere with the objective discharge of the person's employment obligations.”

Congress’ findings when enacting the Unlawful Internet Gaming Enforcement Act include:

  1. Internet gambling is primarily funded through personal use of payment system instruments, credit cards, and wire transfers.
  2. The National Gambling Impact Study Commission in 1999 recommended the passage of legislation to prohibit wire transfers to Internet gambling sites or the banks which represent such sites.
  3. Internet gambling is a growing cause of debt collection problems for insured depository institutions and the consumer credit industry.
  4. New mechanisms for enforcing gambling laws on the Internet are necessary because traditional law enforcement mechanisms are often inadequate for enforcing gambling prohibitions or regulations on the Internet, especially where such gambling crosses State or national borders.

But the Legislature will not be spending any money on gambling addiction, financial management training or any other effort to mitigate the social ills associated with gambling.  Here’s the excuse:

“Because these internet competitions are conducted primarily with players from Asia, the mainland United States, and other parts of the world outside Hawaii, the social ills and stigma associated with gambling would not be visited upon Hawaii residents nor would the resources required to combat the social ills inherent in gambling be necessary.”

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