National Internet gaming strategy

Summary: "The Danish model for regulation of the gaming market - which is based on the assumption of a nationally defined and controllable territory - is coming under pressure from the global Internet. The monopoly position ensured to the state gaming companies by virtue of the legislation and the strongly developed distribution apparatus is being undermined by the advent of Internet. The gaming markets have begun to overlap each other and form the framework of a potentially global gaming market. In order to contain the threat from foreign gaming providers illegally marketing their games in Denmark, it is proposed that the state should take measures to block payment transactions to foreign providers. At the same time, attractive Danish games should be offered on the Internet. As both the USA and the majority of the European countries oppose a global gaming market, it should prove possible in the long term to firmly cement the principle of nationally regulated gaming markets in international agreements."

The Danish model is under pressure

Establishment of a working group

In view of the pressure Internet is placing on the Danish model for regulating gaming, the Minister for Taxation established an inter-ministerial working group in December 1999 to pave the way for the modernization and unification of the existing gaming legislation. In addition, the group was to assess the possibilities for maintaining national control of the Danish gaming market on the Internet.

Discussion paper for a political debate

The working group has now published its conclusions and recommendations in the report "The future of gaming in Denmark - the need for unified gaming legislation". As Peter Loft, Chairman of the working group writes in his preface, the report is primarily a discussion paper for a political debate on how we B in a world that has experienced a technological revolution with the invention of the Internet B can balance the various gaming policy considerations in unified and modern legislation at the beginning of the 21^st Century.

 

Contents:

The brave new world of gaming
Three continents - three different strategies
Prohibition in the USA
Regulated liberalization in Australia
National regulation in Europe
An internationally visible Internet gaming strategy
Proposal for a national Internet gaming strategy
Blocking
Danish Internet gaming
Monitoring, information and certification
International negotiations

 

The brave new world of gaming

From an isolated point of view, Internet gaming provides many advantages for the gambler as a consumer. Firstly, Internet makes it easy to gamble. Secondly, the prizes are likely to be higher because the game providers save on the previously expensive distribution network and hence are able to raise the winnings percentage. Thirdly, Internet extends the assortment of games through the development of new games that can only be run on Internet. Fourthly, if the Internet gaming market is allowed to develop uncontrolled by the state, Danes will most likely experience a far greater degree of competition on the market since the Danish market will transform from a state-controlled national market to a free international market.

Internet also entails dangers for the very same consumer, however. Thus Internet erases the boundary between the private and the public space in that the nearest gaming opportunity is literally just a click away. This will also increase the risk of pathological gambling and mean that young people will be exposed to gaming to a far greater extent than at present. Internet also makes it more difficult for the consumer to judge a game provider's credibility. The risk of being cheated is undoubtedly considerably greater when gaming over the Internet. Internet thus enhances the immediate need for strong consumer protection. Such protection cannot be guaranteed on a global Internet gaming market, however.

With the spread of Internet as one of the most important media for trade in digital products and services, it is not just the protection of Danish consumers that is at risk, but the whole of the Danish model for regulation of the gaming market.

In a historical perspective, consumer protection together with the fight against crime and the desire to limit private profit making and instead finance public benefit purposes with the income from gaming comprise the four key objectives that have controlled Danish gaming legislation since the time of absolute monarchy, and about which there is currently broad consensus in the Danish Parliament.

These objectives are currently fulfilled through a structure whereby the state plays the key role. Thus the state not only ensures consumer protection and combats crime through state regulation and control. By allowing gaming companies such as the Danish pools and lottery agency, Dansk Tipstjeneste Group, and the Danish state lottery "Klasselotteriet", the state also ensures that the profit from the market is channelled to public benefit purposes. In addition, the market includes a number of private gaming providers who, like the state, either donate the profit to public benefit purposes or in return for their licenses and permits pay a high duty to the State Treasury.

Internet and the associated risk of subsequent globalization of the Danish market also entails the risk that the structure of the Danish model, with its emphasis on a high degree of regulation, will be undermined. This will probably take place in step with the development of e-trade. In other words, the Danish model has come under pressure in a situation where there are neither international regulations nor authorities able to effectively protect the gambler on a global market and concomitantly ensure that the profit goes to public benefit purposes in the individual countries.

Three continents -three different strategies

Due to the Internet, the consequences of the fact that other countries allow their gaming companies to target citizens of other states are being felt to a much greater extent in Denmark than previously. Internet is the catalyst for a collision between the Danish regulatory model, which insists on a well-defined national market, and the regulatory models of certain other states, which view globalization via Internet as a possibility for the national gaming industry to "export" to the rest of the world. Not surprisingly, this difference is particularly apparent in the different attitudes of the countries to regulation of gaming on the Internet.

Comparison with the western countries with which Denmark normally compares itself reveals three different strategies in the question of regulation of the Internet gaming market. As ideal examples, the inter-ministerial working group on gaming legislation in Denmark focused on three continents: the USA, Australia and Europe.

Prohibition in the USA

"It is vital that we legislate to prevent the Internet from being used as an instrument of gambling and establish an effective mechanism - specifically tailored to this new medium - for enforcing that prohibition" (Senator Jon Kyl, US Senate, 19 November 1999).

As the quote by senator Jon Kyl, one of the key political figures in the US gaming area, shows, the prohibition strategy is at the centre of the debate in the USA, where Internet casino games in particular - usually run from the Caribbean islands - are popular among Americans. The same conclusion was reached by a commission established by the Congress and the President after 2 years of work in a comprehensive report on gaming in the USA (National Gambling Impact Study Commission Final Report, 1999). In the report's chapter on the Internet, the Commission recommended maintaining the prohibition on Internet gambling in the USA and strengthening the fight against the illegal gaming companies.

The main grounds given for a prohibition in the USA are the social costs and not least the fear that the Internet will cause an explosion in the number of pathological gamblers. From this point of view the Internet's greatest benefits thus become its greatest drawbacks:

• Gaming is brought directly into the home.
• The costs of finding and conducting the game are in principle minimal.
• The new technology can create individualized interactive games.
• The Internet will bring gaming right into the lives of young people, whose personal computers provide them with access to gaming.

It is particularly the spread of electronic casinos and gaming machines on the Internet that is expected to cause problems, i.e. types of gaming where according to American experience the risk of pathological gambling is greatest.

In the USA, Internet gaming is considered to be prohibited under current law⁽¹⁾. The prohibition, however, is not directed at the Internet. The 1961 Wire Act simply prohibits all gambling via electronic communications media.

The American Department of Justice is of the opinion that the current prohibition is sufficient. Thus several lawsuits have already been won against American citizens accused of having organized or promoted illegal Internet gaming from the Caribbean states.

Criticism that the Wire Act is not specifically directed at the Internet is nevertheless the reason why Senator Jon Kyl introduced "The Internet Gambling Prohibition Act" before Congress in 1997. This so-called Kyl Bill contains a special prohibition against Internet gaming and concomitantly proposes the introduction of special measures to combat illegal Internet service providers. The most significant proposals are an increase in the maximum and minimum penalties and a requirement that Internet service providers have to be able to block communications between an illegal gambling provider and American gamblers if so required by the authorities.

The Kyl Bill was adopted by the Senate on 19 November 1999 under the title Senate Bill 692. In accordance with the American Constitution, the Bill should thereafter have been processed in the House of Representatives. However, this procedure was rendered superfluous by the submission of an almost identical Bill to the House of Representatives by Bob Goodlatte on 21 October 1999. After examination in various committees the Bill was put to the first vote on 17 June 2000. The Bill received majority support but was not passed because it did not achieve the required 2/3 of the votes. The negotiations on prohibition of Internet gaming is now continuing in the House of Representatives on the basis of a new but similar Bill - "Comprehensive Internet Gambling Prohibition Act of 2000" introduced by House Member Conyers⁽²⁾

Excerpt from Senator Jon Kyl's speech to the Senate when introducing the Bill "It prohibits any person engaged in a gambling business from using the Internet to place, receive, or otherwise make a bet or wager, or to send, receive, or invite information assisting in the placing of a bet or wager......... provides criminal penalties for violations, authorizes civil enforcement proceedings by Federal and State authorities, and establishes mechanisms for requiring Internet service providers to terminate or block access to material or activity that violates the prohibition (Senator Jon Kyl, US Senate, November 1999)."

The inter-ministerial working group considers that a prohibition following the American example is neither a realistic nor a desirable strategy in Denmark. Gaming is already ingrained in daily life and as Internet is increasingly becoming one of Danish society's most important communications and entertainment media, it seems unnatural to prohibit gaming on the Internet.

Even though Internet by virtue of being a hypereffective distribution medium will undoubtedly increase the amount of and exposure to gaming in society and hence increase the risk of pathological gambling among Danes, the working group believes that the technological progress in the wake of the Internet will also provide the possibility to develop effective protection measures.

With the Internet technology it will become possible to effectively monitor gaming consumption by the individual gambler. It will also be possible to implement obligatory pauses. The new technical possibilities provided by Internet are in fact manifold. The working group believes that under the right conditions, the new technology will be able to strengthen prevention of pathological gambling to a degree that has not been possible with traditional gaming media⁽³⁾. From the point of view of pathological gambling, which is a key issue in the American debate, the answer thus seems more likely to be to allow regulated gambling on the Internet rather than prohibit it.

As an example of regulated access to provide Internet gaming, the working group focused on Australia, where a number of states have already granted or are expected to grant permits to private gaming providers.

Regulated liberalization in Australia

Australia is presently one of the leading nations as regards the development and provision of gaming over the Internet. Internet gaming is currently provided by approx. 14 licensed companies in six different states (Northern Territories, North West Territories, ACT, Tasmania, Victoria and Queensland). The number of companies is expected to increase in the coming years when the remaining Australian states and territories pass the necessary legislation.

In federal Australia, regulation of gaming is a state responsibility. Thus at the federal level, only a draft model for the regulation of Internet gaming has been passed (The Draft Regulatory Control Model) that the states can follow when drawing up their legislation.

Regulation of the gaming market by the Australian states is characterized by the fact that it does not hinder the private gaming companies from marketing games to other citizens. Thus the picture is not only one of a liberalized market where companies can freely apply for licenses from the authorities in a number of states or territories where the necessary legislative framework is in place, but also one of an open market that aims to export to the rest of the world.

An example of these new globally oriented types of company is Centrebet, which is established in Alice Springs, Northern Territories. The company was founded in 1992 by a local bookmaker. Centrebet launched its first homepage in 1996 and a Danish homepage already in 1997. In 1998, Centrebet launched Norwegian, Swedish and Finnish homepages. Centrebet has specifically targeted much of its business at the Scandinavian market because access to and use of Internet is so widespread among the population (approx. 20 percent of Centrebet's turnover derives from Scandinavian customers).

In accordance with its global marketing strategy, Centrebet currently has over 30,000 permanent clients in some 80 countries⁽⁴⁾. Centrebet's Development Manager, Mr. Michael Miller, believes that the future growth will come from foreign markets.

"In terms of geography we expect to recruit somewhere between three percent and five percent of our future new clients from within Australia and the remaining 95 percent to 97 percent from offshore" (Netbets - A review of on-line gambling in Australia, Senate Select Committee on Information Technologies, 2000, p. 17).

Centrebet has been a success. In fact it is now among the five leading Internet homepages in the world with between 20,000 and 100,000 hits per day. In 1997, Centrebet's Internet turnover accounted for 50 percent of the total Australian e-trade ("Netbets - A review of online gambling in Australia", Senate Select Committee on Information Technologies, 2000). Internet gaming must therefore be considered a major growing Internet industry in Australia.

The Australian model with regulated liberalization of the Internet gaming market undoubtedly has a number of advantages for both the Australian consumer and the Australian economy. The licensed Australian gaming companies provide well-regulated games. Moreover, the Internet gaming industry - like other Internet-based businesses - is a growth industry with the potential to generate increasing export income for Australia⁽⁵⁾.

Australia is in conflict with itself With regard to Internet gaming in Australia one can presently detect a conflict between the federal government and the governments of the individual federal states. The federal government is worried that the Internet has already caused an explosion in new cases of pathological gambling and the Prime Minister John Howard, who has previously argued for prohibition of Internet gaming, has therefore introduced a one-year moratorium on the issuance of permits for new Internet gaming (the moratorium ended on 18 May 2001). In April the Government tabled a Bill aimed at limiting the availability of interactive gaming services to Australians (the Interactive Gambling Bill 2001). The Bill, which entails that Australian gaming providers will no longer be permitted to provide Internet gaming to the country's own citizens, does not hinder the Australian gaming providers from marketing gaming to the citizens of other countries, however. At the present time it is uncertain whether the Bill will be passed (for more information the reader is referred to: http://www.noie.gov.au/).

Moreover, the Australian federal states consider a high degree of regulation to be a valuable marketing tool for foreign Internet gaming companies, which consequently choose to establish themselves in Australia with a view to operating globally.

In the opinion of the working group, Australia can rightly be considered a pioneer in relation to the development of international Internet gaming within the framework of a regulated private market. It is also the working group's view, though, that the Australian model is not sustainable in the long term. The model risks coming under both internal pressure from the gaming companies and external pressure from the international community.

The Australian model cannot guarantee that the Internet gaming companies will remain in the country instead of moving to less regulated markets. It can thus become extremely difficult to maintain a high level of regulation and taxation due to the risk that dissatisfied companies might move elsewhere. In the long term, Australia faces the risk that companies already established in the country will flee from Australian regulations and taxes.

The development in the British bookmaking industry is a good example of this risk. In Great Britain, in contrast to the other European countries, the bookmaking industry is considered an ordinary business and in contrast to the charitable lotteries thus has had free access to accept bets via the Internet.

Not even the very low betting duty of between 6.75 and 9 percent on bets has prevented a number of bookmakers from establishing themselves outside Great Britain after having first built up a loyal clientele and a good reputation, however. They now provide Internet gaming to the British from tax havens such as the Channel Islands and Gibraltar. As a consequence, the government has come under increasing pressure from the domestic bookmakers to further reduce the gaming duty or even to abolish it completely⁽⁶⁾.

This example shows that there is a well-founded risk that in the long term, the state will not be able to maintain a high gaming duty and guarantee its citizens a high degree of protection on a liberalized, global market. In order to attract/keep the gaming companies it will thus have a strong incentive to reduce gaming duties to a minimum and correspondingly slacken any expensive regulatory requirements.

In the international community one can concomitantly detect clear signs of the formulation among leading states such as the USA and the majority of the European countries (see below in the section "National regulation in Europe) of a clear norm that it is unacceptable for states not to hinder national gaming companies from providing games to citizens of other countries unless special agreements on this exist. The Australian federal states, whose policy helps infringe other countries' legislation⁽⁷⁾, risk appearing as pirates in the international community. This risk will become increasingly current in view of the fact that gaming will probably find its way onto the foreign policy agenda in both the USA and Europe in the coming years. The working group thus expects that due to the Internet, gaming will transgress from a solely domestic policy issue to also becoming a foreign policy issue.

In the USA this process is already quite advanced. Thus one of the recommendations of the previously mentioned 1999 report "The National Gambling Impact Study Commission Final Report" is that the American government should take the foreign policy initiative to persuade other countries not to house gaming companies that profit from American gamblers. The previously mentioned Kyl Bill concerning a direct prohibition on Internet gaming contains a similar requirement.

The most significant indication that gaming is becoming an American foreign policy issue, though, is a new Bill proposing to prohibit the use of credit cards and other forms of payment in the bank sector for payment of gaming stakes over the Internet (Internet Gambling Funding Prohibition Act)⁽⁸⁾.

Excerpt of the Internet Gambling Funding Prohibition Act. Section 4. Internet gambling in or through foreign jurisdictions a) In General - it is the sense of the Congress that, in deliberations between the United States Government and any other country on money laundering, corruption, and crime issues, the United States Government should encourage the enactment and enforcement of laws in such country to prevent Internet gambling and the use of the financial payment and transfer systems to facilitate Internet gambling. b) United States votes in international financial institutions - The Secretary of the Treasury shall instruct the United States Executive Directors of each international financial institution (as defined in Section 1701 (c) of the International Financial Institutions Act) to oppose any loan, disbursement, or other utilization of resources by the international financial institution, other than to address basic human needs, for any country that the Secretary of the Treasury determines (1) permits a high level of participation in, and the use of the financial payment and transfer systems to facilitate Internet gambling by United States citizens and residents; and (2) is not effectively implementing measures to limit participation in, and the use of the financial payment and transfer systems to facilitate Internet gambling by United States citizens and residents. c) Denial of access to the payment system - In case of any country with respect to which the Secretary of the Treasury has made a determination under subsection (b), the Secretary and the Board of Governors of the Federal Reserve System shall take such action as the Secretary and Chairman of the Board, after joint consultation, determine to be appropriate to limit or preclude access to the United States payment system by financial institutions that are chartered by, or organized under the laws of, such country or have their principal places of business within such country. d) Report required - The Secretary of the Treasury shall submit an annual report to the Congress on the deliberations between the United States and other countries on issues relating to Internet gambling.

The Bill was introduced before the House of Representatives on 10 May 2000 and must be considered as one of the most far-reaching political initiatives hitherto in the fight against unlawful Internet gaming companies. The Bill contains requirements that the government should place Internet gaming on the agenda in international negotiations on issues such as money laundering and corruption, but also empowers the American Secretary of the Treasury to impose sanctions on countries who do not effectively hinder payments from and to American gamblers via banks and other means of payment such as credit cards in connection with Internet gaming. The Bill specifically highlights the possibility of denying certain countries' banks access to the American monetary system.

In March 2001, the Bill was still at the committee stage in the House of Representatives.

National regulation in Europe

The large majority of European countries have issued or are expected to issue permits for Internet gaming in accordance with a policy that allows regulated (and often state-controlled) gaming that is only directed at each country's own citizens. This European unanimity is expressed, for example, in connection with cases under the European Court where the countries' governments have made statements in support of preservation of their right to regulate their own gaming markets.

A significant exception is Great Britain, which has given its bookmakers unhindered access to direct their gaming business at other countries, e.g. Denmark. As mentioned earlier, the historical reason for this is that bookmakers have not been considered as gaming companies, but as ordinary businesses. Hence bookmakers are not regulated as gaming. In the gaming policy area itself, though, there is no doubt that Great Britain supports the principle of nationally regulated markets. The Gaming Board for Great Britain thus also participates actively in the meetings of the European gaming authorities' cooperation forum GREF (Gaming Regulators European Forum). GREF (www.gref.net) has served as a forum for debate and exchange of information over the past 10 years.

One of GREF's main achievements is the drawing-up of an ethical codex at its 1998 meeting in Helsinki stipulating clear norms for the future behaviour of the European states with regard to the Internet. One of the most important items in the codex states that Internet gaming should be directed solely at a country's own citizens, or alternatively only at citizens in countries with whom special international agreements have been entered into. The codex has no international legal standing, but is nevertheless a pronounced expression of the European countries' unanimity as regards the norms for regulating Internet gaming.

Dansk Tipstjeneste Group's monopoly is challenged from London
	- Telegram from the news bureau Ritzau dated 7.12.2000.
Dansk Tipstjeneste Group's monopoly on sports gaming in Denmark is now being seriously threatened on the Internet. At the beginning of January, the firm Bet24 will start offering bookmaker gaming on the Internet. The firm is located in London but the initiative is a purely Danish one. The man behind Bet24 is one of Dansk Tipstjeneste Group's former Marketing Directors, Holger Kristiansen. It was he who designed Dansk Tipstjeneste Group's bookmaker game "Oddset" which was launched in 1994."From the purely commercial point of view it is the right time to start bookmaking on the Internet. People are getting used to paying over the Internet," explains Holger Kristiansen to the magazine "TIPS-bladet fredag". Holger Kristiansen left Dansk Tipstjeneste Group a year ago and started the football site "www.Bold.dk". He has now withdrawn from the daily management and moved to London, where he is in the process of completing the establishment of Bet24, which will have two employees in addition to himself."

An internationally visible Internet gaming strategy

As mentioned earlier, the various countries' different gaming policies are starting to collide as the gaming markets begin to overlap each other because of the Internet.

In the opinion of the working group, these interstate conflicts can best be solved through negotiation on a common set of gaming regulations under the auspices of for example the OECD or the WTO.

In the light of European-American unanimity that the gaming market should be regulated nationally, the working group believes the development of an international consensus regarding the principle of restricted national markets as being realistic.

The working group shall therefore recommend that Denmark develops an internationally visible Internet gaming strategy with a view to promoting the establishment of a common set of norms in the international community and to contain the globalization of the Danish market that has already taken place and which will undoubtedly accelerate within a few years if the state does not take action against foreign companies illegally providing gaming to Danes via the Internet.

The Internet has placed the state in an awkward position as regards the possibilities to enforce the prohibition on the unlicensed provision of gaming in Denmark. As a result of the Internet, the territory in which the prohibition is to be enforced has potentially become global. This is due to the fact that if an action can be deemed to have an effect in Denmark, it falls within Danish legal jurisdiction. The problem is that it will not usually be possible to enforce the prohibition in the case of gaming providers located abroad. Thus the state will not be able to control the Internet gaming market through the threat of criminal proceedings against illegal provision of gaming.

In acknowledgement of this, the working group has investigated the possibilities for developing alternative control measures. The investigation was based on the observation that the markedly decreasing transaction costs associated with Internet sales and marketing are one of the chief reasons why the Danish market increasingly risks becoming the sales and marketing target of for example Australian gaming companies.

A means of containing the increasing globalization of the gaming market, at least in the short term, could be for the state to increase the transaction costs of the foreign gaming companies who are presently easily able to offer games to Danes.

Based on the above considerations, the next section presents the working group's proposal for a four-element Internet strategy:

Proposal for a national Internet gaming strategy

Blocking

Under certain circumstances the state may make it obligatory for private organizations to carry out special supervisory duties. An example is Statutory Order 991 of 6 November 2000 on Information and Content Services with Integrated Charging (Previously Code 900 Services), i.e. premium rate subscriber numbers, which was issued pursuant to Act 418 of 31 May 2000 on Competitive Conditions and Consumer Interests in the Telecommunications Market. The Statutory Order imposes special supervisory duties on telecommunications network providers and information service providers in connection with the allocation of premium rate subscriber numbers to providers of information or content services. Among other things, the telecommunications network provider must ensure that gaming is not provided via premium rate subscriber numbers. The supervisory duties also encompass the duty to close previously allocated numbers in cases where the provisions of the law are infringed.

The working group has considered the possibility for introducing a similar supervisory duty with regard to gaming on the Internet. This could apply to those Danish Internet service providers who allow access to the illegal Internet gaming homepages.

Excerpt from the Ministry of Research Statutory Order on premium rate subscriber services Supervision 14.-(1) According to section 28(2) and (3) of the Act on Competitive Conditions and Consumer Interests in the Telecommunications Market, the duty to supervise that rules laid down pursuant to section 28(1) of the Act (sections 4-11 and section 13(1), no. 2, subsections (2) and (4)) are complied with rests upon the provider of telecommunications networks or telecommunications services who has reassigned the premium rate subscriber number to the relevant provider of information or content services. (2) Pursuant to the provision mentioned in subsection (1), providers of telecommunications networks or telecommunications services shall refuse to reassign a number to a provider of information or content services, or dispossess the provider of a number already reassigned, if the provider of the information or content service fails to substantiate within a short time limit set by the telecommunications provider that the rules issued pursuant to section 28(1) of the Act will be complied with in future, or if the rules are violated repeatedly.

Digital crimes

The international community is at a crossroads as regards regulation of the Internet. The issue is regularly debated in all major international fora as part of efforts to develop a consensus concerning the principles for regulation of the Internet, which the majority of experts consider will necessarily have to be based on internationally or globally acknowledged principles⁽⁹⁾. One of the key issues is the fight against the so-called digital crimes, i.e. traditional crimes committed via the Internet - and which are therefore committed without any great risk of detection.

The list of known digital crimes in Denmark includes:

•  Breach of copyright (pirate copies)
•  Child pornography
•  Credit card swindles
•  Spam (unwanted mail)
•  Espionage (hackers)
•  Viruses

The working group recommends adding the illegal provision or promotion of gaming to the list of digital crimes in Denmark.

With very little variation, the list of digital crimes is an international list that is used as the basis for a debate on whether the Internet will transform into a lawless zone if regulation in some form or other is not imposed. Of particular focus in the international debate is the relationship between regulation and self-regulation on the Internet. Adherents of regulation are particularly considering the possibility to filter Internet communications with a view to blocking illegal communications⁽¹⁰⁾.

How can Internet communications be blocked?

From the technical point of view one can distinguish between two types of blocking:

•  Application-level blocking
•  Packet-level blocking

Application-level blocking takes place with the help of a so-called "proxy-server" that enables customer requests for Internet communications to be compared with a list of addresses (URLs) of homepages that violate Danish law. If the address of a requested homepage is included on the list, the customer's request is refused.

Packet-level blocking takes place with the help of a so-called "router". Information is communicated over the Internet in small packages, i.e. the information is split up into numerous small packages that each find their own (most rapid) way to the recipient. This technique is also the explanation why Internet traffic is so effective. The router is made to handle these packages. It examines each package's Internet Protocol address (the recipient's address) and transmits it on in the direction of the relevant channel. In this case blocking is carried out by reprogramming the router to not only check the recipient's address, but also the sender's address, which is usually contained in the package as well. The router will thereafter be able to easily compare this address with a list of addresses of illegal gaming sites with a view to blocking the further transmission of the package.

In addition to the above-mentioned blocking techniques it is also possible to filter with the aid of special software programmes at the user level, i.e. by installing filter programmes such as the Net Nanny on individual computers in private homes, public libraries, etc.

French court force Yahoo to block Frenchmen from access to auction homepage containing nazi material On Monday 20 November 2000, a Paris court ruling gave the American Internet service provider Yahoo Inc. three months to implement technical measures to block access by French citizens to Yahoo's auction homepage on the Internet. The background for the ruling is a lawsuit filed in early 2000 by an anti-racist and anti-nazi student group alleging that Yahoo Inc., which is also established in France, violated French law by providing French citizens with access to an auction homepage where Nazi material can be bought and sold. The ruling, which will probably be appealed to a higher court, is considered by experts in Internet law to be epoch-making because it extends the limits for when national legislation shall be enforced on the Internet. In the specific case the French judge ordered Yahoo to implement blocking in order to comply with the French prohibition against the sale of nazi material, irrespective of the fact that the computers, contents and companies are located in the USA. The judge concluded - after having heard several experts - that blocking measures by Yahoo could be up to 90 percent effective. Yahoo's subsidiary company in France already complies with the French legislation and does not permit the sale of Nazi material on its homepage.

Who is behind the Internet? The various actors behind the Internet's structure are: 1) Network operators, who provide the overall communications infrastructure (e.g. the telecommunications networks, wide band or satellites, etc.). 2) Internet service providers or Access providers, who sell access to the Internet. 3) Hosts, who rent space on a server to customers. 4) Content providers, who provide the information that is available via www and who provide services such as e-mail, search engines, etc.

Why is blocking generally considered to be ineffective?

Blocking has a number of deficiencies and entails certain socioeconomic costs:

•  It is technically possible to circumvent blocking - both by the user and by the provider. This requires a certain degree of expertise, however.
•  Blocking can be circumvented by using foreign Internet service providers. For blocking to be really effective, international cooperation is therefore required.
•  It is unclear what the costs of implementing blocking techniques will be in the form of delays in the flow of communications and expenses for technical  equipment. The question is also who is to bear these costs.
•  Blocking can be perceived as censorship due to the risk that completely lawful www homepages might inadvertently be blocked.

A number of these points of criticism concerning blocking of communications on the Internet seem to be of less relevance in the gaming area, however:

•  The objective is not to block the way for thousands of e-mails containing illegal material. The objective is to block communications to a relatively small number  of illegal gaming homepages (approx. 10 gaming homepages are presently estimated to be directed at the Danish market).
•  By blocking known gaming homepages there is little risk of concomitantly blocking access to material or other sites that are not prohibited.
•  Even though blocking can be circumvented by either the gaming provider, who informs his clients directly of a change of address by e-mail, or by the gambler,  who uses an Internet service provider abroad, the blocking of certain homepages will raise costs sufficiently to hinder the majority of Danes from seeking  access to the homepage. This effect will be enhanced if the Dane is concomitantly provided easy access to attractive Danish Internet gaming, cf. the section  below entitled "Danish Internet gaming".

Why is the Internet so difficult to control? The technology behind the Internet was originally developed for military communications in situations where it could be predicted that large parts of the communications network would be destroyed by enemy attacks. The fundamental idea was to ensure that information always reached its destination even if part of the network was out of operation. The principle for the flow of information on the Internet can be simplified as follows: If there is no connection in one part of the network, the information will automatically flow to the destination via alternative routes other than the direct route. This principle for the flow of information on the Internet means that all attempts to block certain information on the Internet are very vulnerable to even very small holes in the efforts (excerpt of memorandum to the working group from the Ministry of Research dated 7 June 2000).

Foreign experience with blocking

The working group is not aware of any cases where blocking has hitherto been used by modern democratic societies in the fight against the illegal provision of gaming. In the USA though, the possibility has been placed high on the agenda in the debate on the fight against illegal Internet gaming.

The national gaming commission's report National Gambling Impact Study Commission Report (1999) concluded that blocking is too costly a method for the American society:

"Holding ISPs responsible for information passed through their routers raises technical concerns. Most of the 6,500 ISPs within the United States are local providers. Installing hardware that monitors information would be too costly for most operators and could lead to a dramatic slowdown in the general transmission of information on the Internet as well as the possibility of failures within the system. Likewise, filtering devices may rule out legally posted Web sites, including those with helpful information on where to receive treatment for problem or pathological gambling" (Internet gambling, 1999)."

In the previously mentioned Kyl Bill on the prohibition of Internet gaming, however, blocking plays a key role. The Kyl Bill does not propose general supervisory obligations similar to those imposed on providers of telecommunications networks or telecommunications services in Denmark in the premium rate subscriber area (former Code 900 Services) by the above-mentioned statutory order issued pursuant to the Competitive Conditions and Consumer Interests in the Telecommunications Market Act. The Internet service provider is only under legal obligation to block access to specific addresses if it becomes aware of unlawful activities or has been informed by the authorities that such activities take place. In Australia such a notification model was introduced by law in order to remove homepages containing child pornography.

Blocking raises transaction costs

In its overall assessment the working group emphasizes that there is international agreement that Internet blocking raises the transaction costs for providers of illegal Internet gaming. Thus from the isolated point of view of wanting to raise transaction costs, blocking can be considered an appropriate instrument for combating illegal Internet gaming. The risk of being blocked will make it both more uncertain and considerably more difficult and more expensive to market gaming directed at Danes via the Internet.

In a wider political perspective, however, the working group finds it doubtful whether the duty to monitor and block communications to illegal gaming homepages can presently be considered a politically acceptable instrument.

Blocking and the Danish IT policy

A proposal that imposes costs on Internet service providers and which in the last analysis therefore risks making it more expensive for customers to use the Internet will conflict with Danish IT policy, which aims to promote e-trade:

"Since the establishment of an actual IT policy in 1994, the key aim of the Government's IT policy has been to promote the use of IT and the network society. The fundamental idea is that the global network society and the new economy is the framework in which the Danish welfare society has to survive and develop. A policy that seeks to screen Denmark from the international development will rapidly side-track the Danish welfare society. Instead the Government's IT policy requires Denmark to take the lead in developing the network society, among other means through 24-hour digital public services, the build-up of a high level of IT competence among the public and easy and cheap access to the network society's technologies for all population groups" (Ministry of Research, 7 June 2000).

Internet and child pornography in Australia In Australia the Senate has adopted an amendment to the communications legislation requiring Internet service providers to block communication to specific addresses as soon as the addresses of illegal homepages have been notified to them by the authorities. The amendment is founded on the desire to protect children and it is not believed that it could be applied in the case of illegal gaming. Senate passes Internet Content Legislation The amended Bill establishes a complaints-based legal regime, using existing systems and methods of classifying content, administered by the Australian Broadcasting Authority (ABA), to regulate the carriage of content over the Internet; ensures, that Internet service providers (ISPs) are not, in the first instance, liable for material carried on their service, but that primary responsibility for such material lies with the creator of the material; ensures that, once notified of the existence of illegal or highly offensive material on their service, ISPs have a responsibility to remove or block access to such material; ensures that, in the case of overseas-hosted material, ISPs develop a Code of Practice which sets out the "reasonable steps" (including "technical and commercial feasibility") that an ISP will take to block access to illegal or highly offensive overseas-hosted material; provides that the ABA, rather than the service provider, will be the first point of contact for complaints about Internet content; establishes a community/industry body to monitor online material, to provide advice about the complaints mechanism, to provide community education and information and to operate a public complaints "hotline" to receive information from the public about offensive material and to pass on this information to the ABA and to relevant law enforcement agencies in Australia or overseas. (Ministry for Communications, Information Technology and the Arts)

The Danish political attitude on the IT front reflects the general attitude throughout Europe. At the European Council Summit in Lisbon on 23-24 March 2000, the European heads of state set the goal that Europe should become the world's most competitive and dynamic economy within 10 years time. In this connection the European governments were in agreement that a major precondition for this goal is a growing e-trade.

Blocking in relation to other digital crimes

The question of whether the gaming legislation should impose upon Internet service providers a general duty to monitor with a view to be able to block Internet communications cannot be answered without considering how the state combats other types of digital crime. In the opinion of the working group, the question of blocking illegal gaming on the Internet should also be answered in the light of the general legal policy debate on the prevention of digital crimes.

In this connection the working group has chosen to base its deliberations on the Ministry of Justice's committee on economic and data crimes. The committee was established on 21 October 1997 with the task of proposing changes in the criminal code to take into account the development resulting from the changed patterns of economic crime and modern technology, including changes in the Administration of Justice Act's rules governing intervention in communications secrecy in the light of the new forms of communication. The committee submitted two subreports of which the second concerned the fight against child pornography on the Internet (Subreport II, No. 1377, 1999).

The working group notes that the possibility to introduce supervisory obligations with respect to blocking such things as illegal e-mails containing child pornography was not included in the committee's considerations.

A majority recommended - as the most radical of all proposals - to impose requirements on Internet service providers to store log information on e-mails for a specific period of time (up to 6 months)⁽¹¹⁾.

On this background the working group believes that it would be out of proportion in relation to Internet service providers to require a general duty to monitor Internet communications with a view to blocking communications to illegal gaming homepages. Compared with the illegal sale and distribution of child pornography, the illegal provision of gaming is a less serious offence.

The working group nevertheless stresses that a Danish host is under legal obligation to remove illegal gaming homepages from its server if it is aware of their existence or is notified of their existence by the authorities.

Such a legal position necessitates that Danish hosts implement a high degree of self-regulation. A self-regulation based on clear ethical codices will concomitantly be the best foundation for voluntary cooperation with the authorities⁽¹²⁾.

The Internet service provider Get2net's desire to clean up among its homepages is the most notable example hitherto of self-regulation in the Danish branch. In spring 2000, Get2net announced that it will clean up among the approx. 300,000 Danish customers who use Get2net as a host. In future, for example, it will not be possible to have homepages containing anti-feminist pornography. Get2net subsequently assigned a so-called crawler the task of vetting all of its customers' homepages.

In the opinion of the working group, not even the commercial Internet service providers will be able to make do with just being pure information providers as is the case today. The Internet market cannot prosper in a regulation-free atmosphere, but needs some form of regulation able to ensure the necessary confidence in the medium among users. For this reason the working group believes that the Internet service providers will in future be forced to draw up clear ethical guidelines and invest in the technical possibilities to exert a form of self-censorship of the information that is stored on and disseminated from their servers and routers.

Control of the payment stage

The key factor as regards the provision of Internet gaming is safe transaction of payments. The payment stage can thus be considered the illegal gaming providers' Achilles heel. The Ministry of Taxation has good experience with contact to Danish banks concerning the closure of bank accounts belonging to foreign providers of illegal bookmaker and pools gaming.

The latest bank action by the Ministry of Taxation was in 1998 and involved a bank account belonging to the Australian gaming provider Centrebet. In approaching the bank the Ministry of Taxation argued that pursuant to Section 10(1) of the Pools and Lottery Act, it was illegal to facilitate participation in foreign gaming, and that this included the receipt of payments by a bank for transfer to the foreign gaming provider's bank account either here in Denmark or abroad in cases where the bank is or should be aware that the payment represents a stake in a foreign betting game.

As a result the Danish bank immediately closed the account voluntarily. It is the Ministry of Taxation's opinion that the remainder of the bank sector immediately took heed of this case and that foreign gaming companies have not since been able to open Danish bank accounts.

Excerpt from the National Gambling Impact Study Commission Report: "In at least two cases, individuals have named credit card companies and their banks in lawsuits for permitting them to use their credit cards for illegal Internet gambling. The first in a California state court, stemmed from a bank's attempt to collect a $70,000 debt, incurred through gambling, on 12 credit cards. The resulting countersuit sought to prevent credit card companies from "permitting their credit cards from being used or accepted on Web sites, that accept illegal bets from residents of the State of California". A similar federal court case in Wisconsin contends that credit card companies and banks have "aided and abetted" illegal gambling and therefore should not be able to collect what are illegal gambling debts."

American considerations on the responsibility of the payment transaction provider

Since 1999, the possibility of stopping the flow of payments to the illegal Internet gaming providers has been a hot issue in the American debate on enforcement of the prohibition against Internet gaming in the USA. In 1999, the American National Gambling Impact Study Commission recommended making credit card debt accrued from Internet gaming unrecoverable.

The Commission's recommendation was inspired by a number of cases where American gamblers had refused to pay gaming debts to the banks that had issued the credit cards used to gamble over the Internet. In the subsequent court cases the American gamblers had successfully claimed that the debt was unrecoverable since the banks had helped facilitate illegal gambling. Since then the banks have tightened the rules governing the use of credit cards.

In spring 2000, the report's recommendations were followed up by a new Bill entitled "Internet Gambling Funding Prohibition Act" aimed at preventing the use of certain bank instruments for Internet gambling and other purposes. The Bill, which is considered to be the most promising attempt to prevent illegal Internet gaming, criminalizes the use of credit cards, electronic payments, checks or every other form of financial transaction in connection with payment of Internet gaming stakes.

The proposal, which has been well received by the Congress and the American public, is currently under consideration by the House of Representatives. If the proposal is adopted it will place considerable pressure on the American bank sector and credit card organizations, which can be forced to ensure greater control of their customers' use of credit cards, debit cards, etc.

Excerpt from the Internet Gambling Funding Prohibition Act - Sec. 3. Prohibition on acceptance of any bank instrument for Internet gambling. a) IN GENERAL - No person engaged in a gambling business may knowingly accept, in connection with the participation of another person in Internet gambling - (1) credit, or the proceeds of credit, extended to or on behalf of such other person (including credit extended through the use of a credit card); (2) an electronic fund transfer or funds transmitted by or through a money transmitting business, or the proceeds of an electronic fund transfer or money transmitting service, from or on behalf of the other person; (3) any check, draft, or similar instrument which is drawn by or on behalf of the other person and is drawn on or payable through any financial institution; or (4) the proceeds of any other form of financial transaction as the Secretary may prescribe by regulation which involves a financial institution as a payer or financial intermediary on behalf of or for the benefit of the other person.

Blocking of credit card payments

Inspired by the American political debate in the gaming area, the working group has investigated whether it is already technically feasible for the Danish financial sector to block credit card payments by Danes to illegal foreign Internet gaming providers.

The significance of this question lies in the fact that credit card payments are presently the dominant payment form on the Internet gaming market, being the only global concept for consumer-level payment transactions. What is important for the gaming providers is to find payment solutions suitable for the often rapid games.

In order to obtain an expert evaluation the working group has contacted the Danish Payment Systems (PBS), which currently processes all credit card transactions made using Danish VISA, MasterCard and Eurocard for the Danish banks.

Who is PBS? Danish Payment Systems (PBS) is an internationally unique company whereby the Danish banks have joined forces to develop and run a common infrastructure. PBS thus functions in the credit and payment card area as their central processor, i.e. as the organization that authorizes and clears payments between the acquirer and the bank. Read more about PBS on www.pbs.dk

Self-regulation in the credit card organizations

PBS has informed the working group that a certain degree of self-regulation already takes place among the credit card organizations VISA, MasterCard and Eurocard in the gaming area. After having lost money on insincere gaming providers on the Internet, the companies now forbid the banks to enter into payment agreements with gaming providers lacking a license or permit in the country in which they are established. On the other hand, the credit card companies' new policy does not exclude agreements with gaming providers who have a licence or permit in the country they are based in. This means, for example, that the gaming company Centrebet, which holds a permit from the government of the Northern Territories in Australia, will continue to be able to provide gaming directed at Danes over the Internet and concomitantly receive payment via the credit card organizations' payment system.

Technical possibilities for blocking payments

PBS also informed the working group that within a year, VISA, MasterCard and Eurocard will require that all enquiries submitted to PBS in Denmark concerning approval of payment will have to be accompanied by a code informing whether the payment recipient is a company operating on the Internet (Merchant Category Code (MCC)).

A special MCC code has been assigned to Internet gaming companies, the so-called MCC 7995. The MCC code is allocated to the acquirer, i.e. the customer's bank, when the redemption agreement is entered into with the payment recipient, i.e. the Internet gaming provider.

As far as concerns VISA and Eurocard, the MCC code will supplement the information that already accompanies every transaction, i.e. card number, name of the company and home country, and what branch the company belongs to. In the case of MasterCard, however, such information will not always accompany the code. At the present time, MasterCard leaves it up to the acquirer to decide how much information needs to be included in the authorization request to PBS⁽¹³⁾.

Visa requirements to acquirers Special provisions for online gambling merchants: An acquirer must ensure that: An online gambling merchant complies with all Visa International operating regulations pertaining to electronic commerce transactions. Each online gambling merchant has a valid license or other appropriate authority to operate its website under the local law of its country of domicile. A transaction completed by an online gambling merchant is identified with both: - Merchant Category Code 7995, even when gambling services are not the merchant's primary business. - The Quasi-Cash/Online Gambling Transaction indicator in the authorization and clearing messages.

PBS believes that with the aid of MCC codes, which are intended to strengthen the credit card companies' risk management capacity, it will also be technically possible to block payment transactions to known foreign gaming providers who illegally provide gaming directed at Denmark. Such blocking only requires that the authorities notify PBS that a specific foreign gaming provider violates Danish legislation.

PBS will be able to help the authorities with investigations aimed at identifying the illegal gaming providers, including tracing those who change acquirer and hence business number with the aim of hiding their identity. PBS will also be able to inform the authorities when new gaming providers appear on the Internet.

In the opinion of the working group, blocking via PBS must presently be considered effective since VISA, Eurocard and MasterCard dominate the Danish market. Thus 93 percent of all credit cards in Denmark are issued by VISA, Eurocard or MasterCard, i.e. cards that are all processed by PBS (PBS is also the issuing bank for Eurocard). The diagram below prepared for the working group by PBS indicates the distribution of cards issued as of December 1999.

Cards issued by Diners Club, which accounts for 7 percent of the market, are neither issued by Danish banks nor by PBS. The payment transactions are also processed abroad. A corresponding requirement on the blocking of transactions in connection with illegal gaming would also be applicable to Diners, however, provided Diners is established in Denmark⁽¹⁴⁾.

Practical example of blocking a transaction in the VISA system

In practice, an Internet payment takes place by the gambler providing his credit card number to the gaming provider (Phase 1 in the box below), who subsequently contacts the bank with whom it has entered into a card redemption agreement (Phase 2). The aquirer investigates whether the payment can be accepted pursuant to the terms of the agreement. Thereafter the acquirer contacts VISA (Phase 3), which ensures that an authorization enquiry is transmitted to the issuing bank in Denmark (Phase 4). In Denmark the enquiry will be processed by PBS, which processes all such enquiries on behalf of the Danish banks. In other words, PBS is the only input and output channel for VISA. It is in this phase that PBS has the possibility to refuse approval of the payment to specific Internet companies. In the first instance PBS identifies the payment recipient as a foreign Internet gaming company with the help of the MCC code, which always accompanies the authorization enquiry. Hereafter PBS compares the company's name and address with the authorities' "black list". If the company in question is one illegally providing gaming in Denmark, PBS refuses to approve the payment, with the consequence that the illegal provider cannot receive the Danish gambler's stake.

Practical example of blocking a transaction in the VISA system Phase 1: Card holder ® payment recipient A Danish card holder pays his stake over the Internet using his VISA/Dankort. The payment recipient, e.g. an Australian gaming company, initiates the payment transaction. Phase 2: Payment recipient ® acquirer The payment recipient, i.e. the gaming provider, has to ensure that the acquirer (usually a bank) with which he has a VISA redemption agreement, will acquire the payment, i.e. that the acquirer will make the Danish customer's payment. The payment is therefore sent for authorization at the VISA acquirer, who in this case is probably a service provider or the bank's IT centre in Australia. At the acquirer the payment is validated in accordance with the agreements between the payment recipient and the acquirer. Phase 3: Acquirer ® processing centre If everything is in order between the payment recipient and the acquirer, the acquirer must ensure that the issuing bank will authorize the payment on behalf of the card holder. As a foreign credit card is involved, the Australian acquirer forwards the authorization enquiry to VISA's processing centre in London. Phase 4: Processing centre ® issuing bank/service provider VISA's processing centre in London identifies the issuing bank on the basis of the card number information in the authorization enquiry. The enquiry is forwarded on to the issuing bank's processing centre. PBS is the service provider for VISA/Dankort issuers in Denmark and hence it is PBS that receives, processes and answers the authorization enquiry. If the payment recipient is included on the list of gaming providers who illegally provide gaming in Denmark, PBS refuses to authorize the payment. This message is sent to the payment recipient via VISA in London and the Australian bank that serves as the acquirer. As a consequence of the blocking, the Australian gaming provider cannot receive the Danish gambler's stake.

The future market for processing credit card payments

The Danish banks currently recommend repeal of Section 20 of Act 414 of 31 May 2000 on certain means of payment. The consequence of this will probably be greater competition on the Danish market for processing payment transactions. Section 20 of the Act presently hinders the banks from collecting a charge in connection with the administration of card payments. The Danish Bankers Association believes that repeal of Section 20 of the Act will also generate competition on a market where, due to the ban on charges, the banks have had no economic incentive to compete. ("The credit card market of the future: The banks' proposals for the future credit card market" (in Danish), Danish Bankers Association, 2000). The question is whether it will also be possible to implement blocking of card payments to foreign providers of illegal gaming on a market with a greater number of payment transaction companies in open competition.

In the above-mentioned proposals for the credit card market of the future, the Danish Bankers Association suggests that the processing function is most effective when carried out centrally due to the benefits of large-scale operations. It is thus expected that the banks will most probably continue to use PBS to carry out the processing function, i.e. authorization and subsequent clearing of credit card transactions.

The working group emphasizes, though, that an effective blocking system does not depend on PBS's monopoly position in that a prohibition in the gaming legislation against the processing of payments to illegal foreign gaming providers will apply to all banks, financial institutions and credit card companies who issue credit cards in Denmark.

Due to the general character of the prohibition in relation to issuing banks in Denmark, it is irrelevant whether or not the service provider is established in Denmark provided that the issuing bank is based in Denmark. As a consequence, a Danish bank that issues a card that is processed abroad will still be required to ensure that the foreign service provider blocks payments from Danes to illegal foreign gaming providers when so requested by the authorities.

The working group believes that the bank sector will remain willing to closely cooperate with the authorities concerning enforcement of the Danish prohibition against the unlicensed provision of gaming. The gaming legislation's requirements concerning the monitoring and blocking of certain transactions will thus become a new market condition that the whole branch - both banks, card organizations and service providers - will have to adjust to in the future.

Can blocking be circumvented?

The consultancy firm Fischer & Lorenz, which assisted the working group with descriptions of the market's development, does not think that it will be possible to maintain an effective blocking system in the long term. In their report, Fischer & Lorenz point to three possibilities for circumventing blocking:

The first possibility pointed out by Fischer & Lorenz is that the regulations for card acquirers have been liberalized by the credit card companies. Thus all companies that operate in more than two countries in Europe can freely choose which company to use to acquire their international credit card payments. As a consequence, these companies are no longer bound by the national acquirers and can therefore easily circumvent the Danish blocking.

In response, the working group states that a blocking system such as described here is not linked to the acquirer, but to the issuing bank and hence to the authorization process described above. As far as concerns the most popular cards, the authorization enquiry still has to be sent to Denmark. Moreover, it will always be possible to hold the Danish issuing bank responsible even if the service provider that processes the cards on behalf of the issuing bank is located abroad.

The second possibility pointed out by Fischer & Lorenz is that the identity of the payment recipient can be hidden, for example by using a payment service such as Intersafe Global LLC, which renders the final recipient invisible. In addition, it is also possible to veil one's identity for a short period by regularly changing acquirer.

In response, the working group notes that from discussions with PBS it believes that good possibilities still remain for tracing the correct identity of the payment recipient and that one's correct identity as an Internet gaming provider cannot be kept hidden for very long. Moreover, it must be very expensive to regularly change acquirer.

The third possibility pointed out by Fischer & Lorenz is that payment solutions could be developed that are solely designed for the Internet and which do not involve the banks. For example, the company Webcard (www.webcard.as) will soon be ready with a purely electronic payment form corresponding to payment with a telecard.

The working group acknowledges that the technological development is in full swing as regards the development of new forms of electronic payment that will not necessarily require communication to Danish payment transaction services and which therefore will probably be able to circumvent a Danish blocking system such as described here. However, new payment forms specifically designed for the Internet are first expected to become widespread in connection with growth in the e-trade market for ordinary consumers. Finally, it is considered improbable that the new payment forms specifically designed for the Internet will not be subjected to state control and regulation. Alone the risk of money laundering speaks in favour of this. Consideration should thus be given to introducing an international prohibition on the use of these payment forms for Internet gaming.

The working group recommends blocking certain credit card payment transactions

A key factor in the working group's considerations on the blocking of certain credit card payments was the information that the credit card organizations already carry out internal monitoring of all transactions and hence already have the necessary technical capacity. In contrast to the Internet service providers, the requirement for all transactions to be monitored with a view to blocking payments to illegal gaming providers will not impose any appreciable extra costs on the payment service providers or banks. The possibility thus already exists in the branch.

The working group considers it important that blocking will make it considerably more difficult for the foreign gaming providers to target their gaming directly at Danes via the Internet. The risk of a gambler's credit card payment being blocked will in all likelihood be considered as a major cost by the providers. For that reason the Danish market will become less interesting.

The working group also sees the possibility of cooperating with the banks on blocking certain payment transactions as a chance to play the role of pioneer with a view to initiating a dynamic international process whereby several countries require the banks to block payment transactions to illegal gaming providers. A situation in which an increasing number of countries impose the same requirements on the banks will probably lead to pressure on the actual credit card organizations for a global plan to deny access to use their credit cards for gaming providers who do not restrict themselves to their own national borders.

The working group thus recommends that the new gaming legislation should require issuing banks to block for Internet credit card payments when the recipient is one identified by the authorities as a foreign provider of illegal gaming.

Danish Internet gaming

Another important precondition for preserving a nationally regulated market is that the Danish gamblers are retained on the Danish market through the provision of regulated Danish games on the Internet. This recommendation should also be seen in the light of the long-term uncertainty of being able to block the payment to illegal gaming homepages.

In this connection the working group attaches great importance to the possibilities of the state-controlled companies - the public benefit lottery "Klasselotteriet" (www.klasselotteriet.dk) and the state gaming agency Dansk Tipstjeneste Group (www.tips.dk) - to pave the way in the launching of Internet gaming.

In February 2000, the state lottery "Klasselotteriet" was the first state gaming company to launch its lottery on the Internet. The gambler can now order his lottery ticket directly over the Internet. In addition the homepage also provides the possibility to make the payment via PBS.

Dansk Tipstjeneste Group has informed the working group that it has implemented a pilot project on the Internet where some 1,000 persons are invited to participate in one of its games. Thereafter it is planned to launch all of the group's games on the Internet. The time horizon is probably within a year of positive completion of the pilot project. Dansk Tipstjeneste Group has also stated that it is participating in various working groups concerning the utilization of WAP technology, and a new advanced TV studio has been established on Dansk Tipstjeneste group's premises that will be used in connection with digital TV productions. Even though Dansk Tipstjeneste Group primarily considers the Internet as a supplement to the existing sales channels via dealers, it will give positive consideration to the possibility of developing games specifically designed for the Internet in the longer term.

The working group believes that in view of the fact that Dansk Tipstjeneste Group can provide games of all types and has a good image as a safe gaming company that distributes its profit to charitable purposes, it should have good possibilities to move into the Internet market.

A consumer survey on the general attitude of Danish gamblers to the Internet shows that there is presently widespread distrust of foreign Internet gaming providers (ACNielsen AIM, 1999 report). The survey shows that Dansk Tipstjeneste Group is ranked higher on the confidence scale than any foreign firm. The same survey shows that the fact that Dansk Tipstjeneste Group distributes its profit to charitable purposes is one of the reasons why many gamblers choose the group's games.

Fischer & Lorenz believe that from a purely commercial point of view, the optimal marketing strategy on the Internet would be to enter the market as rapidly as possible in order to ensure a dominant position as early as possible. Fischer & Lorenz also consider that Dansk Tipstjeneste Group has good chances of attracting Danish gamblers on the Internet if the group is given the possibility to take more risks on the market.

From the historical point of view, Dansk Tipstjeneste Group has previously solely had to make as much profit as possible in order to make allocations to the many public benefit activities supported. With the Internet and hence the threat of competition from abroad it becomes just as important that Dansk Tipstjeneste Group demonstrates an ability to retain Danish gamblers through the provision of attractive games with attractive prizes if the company is to continue to be able to allocate large sums to charitable purposes.

The Danish gaming providers and the fear of pathological gambling

A negative consequence of gaming providers entering the Internet market is that gambling becomes more widespread in society with the consequent risk that easy access to gaming over the Internet can increase the frequency of pathological gambling.

As mentioned earlier, however, the working group believes that prohibition of Internet gaming is neither realistic nor desirable. In contrast, the Danish providers should take the risk of pathological gambling carefully into consideration. A lack of awareness of pathological gambling can lead to criticism that Danish gaming providers help to create new pathological gamblers.

The working group does not believe that it is presently possible to impose special requirements on gaming providers through legislation. The working group justifies this by the fact that the necessary scientific basis does not exist.

No significant research on the causes of pathological gambling has been carried out in Denmark. Foreign research findings are also limited. With the adoption of the Act on Gaming Machines Offering Cash Winnings in May 2000, however, the economic preconditions have been established for Danish research in the area. From 1 January 2001, a 1 percent levy will be charged on the gross stake of all gaming machines encompassed by the Act in order to generate funds for treatment and investigation of pathological gambling. The research allocation, which comprises 1/3 of the levy proceeds, is to be administered by the Ministry of Research. The remaining 2/3 of the levy proceeds is to be used for the treatment of pathological gamblers, for example at the treatment centre Ringgården or other institutions able to manage the task. The funds are to be administered by the Ministry of Health.

Once the necessary scientific foundation has been established, it will be possible to draw up special legislation concerning organization of the games, etc.

Monitoring, information and certification

The present subdivision of the gaming legislation among several ministries has hitherto hindered the establishment of a specialized administrative unit for the whole of the gaming area. The adoption of a unified regulatory act would enable the gaming authority already established pursuant to Act No. 462 of 31 May 2000 on Gaming Machines Offering Cash Winnings to take over the administration and control of the regulation of Danish gaming.

The future central gaming authority's responsibilities with regard to the Internet should include:

Monitoring of the Internet. Effective blocking of payment transactions as described here necessitates monitoring of the global gaming market on the Internet such that "black lists" of illegal foreign gaming providers can be kept up-to-date.

Official Internet portal and certification. The working group suggests the establishment of a portal for legal Danish Internet gaming on the authority's homepage. The direct link between the legal Danish Internet gaming homepages and the gaming authority should be in the form of certificates issued by the gaming authority. The certificates are the gamblers' guarantee that the homepage complies with Danish law.

Information campaigns. The gaming authority will have to implement information campaigns, among other things concerning the known risks associated with Internet gaming. Corresponding information campaigns are already known from the tobacco, alcohol and narcotics areas. The gamblers should be informed that if they participate in foreign gaming over the Internet, they lose the consumer protection provided them through Danish law.

International cooperation among authorities. The Internet is not only synonymous with the risk of globalization of the market, but also with the chance of a global and rapid inter-state exchange of ideas and strategies in the gaming area. It is important that the Danish authorities actively participate in the development of this exchange in organizations such as GREF and other relevant fora.

International negotiations

As already emphasized earlier, one of the working group's clear messages is that active international efforts in the gaming area should be accorded high priority.

Gaming can no longer be exclusively considered an aspect of Danish domestic policy. Because of the Internet, gaming should also be an aspect of foreign policy. As mentioned earlier, such an attitude is already expressed in the American Congress, and can be expected to be expressed in a number of countries that see their sovereignty in the gaming area threatened by other countries' policies.

Together with the other European countries and the USA, Denmark should work towards placing the topic on the agenda in the OECD and WTO, perhaps in connection with other negotiations on topics within the economic and financial areas, with the aim of placing pressure on countries who see an economic interest in a global gaming market on the Internet.

On the bilateral level, the Ministry of Foreign Affairs should communicate Denmark's attitude to those countries that refrain from hindering their gaming providers from providing gaming to Danish citizens.

1. Despite the prohibition, lawful Internet gaming is actually available in the USA in autonomous native American territories, where the gaming industry has become a major source of income in recent years. The Internet gaming provided by native Americans is under attack from several sides in the American debate, however.

2. The full text of the Kyl Bill and the Coyners Bill and up-to-date information on the political negotiation process in the Congress is available at: www.house.gov

3. The working group refers among other things to two Australian reports: "Australia's Gambling Industries", Productivity Commission, 1999, and "Netbets - A review of on-line gambling in Australia", Senate Select Committee on Information Technologies, 2000.

4. Centrebet, which has been owned by the American company Jupiters Ltd since 1998, no longer sells to American citizens because of the risk that the owners will be prosecuted in the USA.

5. South Africa has followed Australia's success in establishing an Internet gaming industry with great interest. The August 1999 government report "Project South Africa - Internet gaming and South Africa: Implications, Costs and Opportunities" concludes that Internet provides South Africa with good possibilities for becoming one of the dominant parties on the global gaming market.

6. On 7 March 2001, Minister of Finance Gordon Brown promised to completely remove the duty from and including next year.

7. The Australian company Centrebet commits punishable offences under current Danish gaming legislation by providing bookmaker games directed at Danes.

8. The full text of the Bill is available on the House of Congress homepage: www.house.gov

9. cf. "Verantwortung im Internet" (Waltermann og Machill (ed.), 2000) and "Civilizing the Internet", (Kizza, 1998).

10.The working group bases this on the following international analyses of the technique: "Gambling on the Internet", (Report to the International Association of Gaming Regulators (www.iagr.org), 2000) and "Report on Australia's Gambling Industries", (Australia's Productivity Commission, 1999).

11.In the resultant Bill, which was introduced on 27 April 2000 and adopted on 26 May 2000, this proposal was not included, however. It proved necessary to more closely examine the practical, technical and economic consequences before a final decision is reached on the question of whether or not to introduce a requirement for Internet service providers and telecommunications companies to record log information and to store this information (e.g. for 6 months). In collaboration with the Ministry of Research, the Ministry of Justice will examine this question more closely.

12.England must be considered as the European pioneer in this area. The British Internet service providers, who were the first in Europe to begin to draw up ethical codices, are cooperating with the British authorities on the development of so-called "Rating systems", i.e. systems that allot special codes to www homepages and hence enable users to filter the information they gather on the Internet ("Civilizing the Internet", Kizza, 1998, p. 104).

13.The credit card organizations impose large fines on acquirers who do not register the payment recipient under the correct code or who do not gather correct information.

14.Diners presently has a branch in Brøndby, Denmark (see www.diners.dk).