Saturday, May 27, 2006

Anti-Gambling Bills Advance Through Both Houses of U.S. Legislature

Members of both the Senate and House of Representatives have introduced bills designed to update existing anti-gambling laws to cover internet gambling. The two competing bills in the House, HR 4777 and HR 4411, along with S.AMDT.1719 in the Senate, aim to strangle online gambling by preventing US-based financial institutions from transfering money to and from known gambling businesses.

From the Financial Times:

The House judiciary committee on Thursday approved legislation that would in effect outlaw most forms of internet gambling by barring US banks from processing financial transactions involving online gaming. It was the latest in an effort dating back to 1995, when the first online gambling site was launched. So far it has come up short, but that has failed to deter its supporters. The legislation is likely to be passed by the House of Representatives next month, though so far there is no movement on a companion Senate bill and the prospects for approval this year appear slim.

Thankfully, attempts to deal with internet gambling in the recent past have failed, but that doesn't mean the current bills will fail like their predecessors. And the reason for the current legislation?

According to the Justice Department’s interpretation, Americans are already barred from gambling online by a 1961 law that prohibits betting over telephone lines. But prosecutions under the law have been rare, and the courts have been divided over the whether the 1961 law applies to the internet. The proposed congressional legislation would make this clear by barring US banks from processing financial transactions related to most forms of online gambling.

Oh, spectacular. And what about the supporters of these bills?

The issue has thrown up odd coalitions in Washington. Most of the push has come from a variety of Christian conservative groups. They are opposed to all forms of gambling but in particular they are concerned that it has come right into American homes through computers, where it may be easily accessible to children.

Robert Goodlatte, the Republican author of the latest legislation, says online gambling sites, which operate from the Caribbean and other offshore locations, “suck billions of dollars per year out of the US economy, serve as a vehicle for money laundering, undermine families and threaten the ability of states to enact and enforce their own laws”.

So, that's really all it comes down to, tax money and legislating morality.

While previous attempts at legislating morality have failed (just look at alcohol and current gambling laws), I don't expect the Christian Right to ever give up easily in the face of reality. Gambling has been a fixture of American life since the founding of the colonies, in the form of lotteries, card games, dice games, horse racing, you name it, and the popularity of gambling ensures that outlawing gaming will only create a large group of citizen criminals. All attempts to outlaw so-called vices have failed, and in many cases the cure is simply worse than the malady. The prohibitionists fail to understand that forcing gaming out of the legal limelight and into the back alleys of the internet will only have negative consequences, creating numerous opportunities for organized crime and dishonest businesses to excel.

As for Representative Goodlatte's worries about losing money from the US economy and opening avenues for money laundering, he has only himself and the federal government to blame for those problems, not to mention the myriad anti-gaming laws passed by the various state governments. The companies incorporated in off-shore countries due to anti-gaming laws passed by the states and by Congress, so it's not as if the businesses had much of a choice in whether or not to incorporate in the United States. Forcing the companies to incorporate in foreign countries with lax financial laws, as with many countries in the Caribbean, has also created the problem of laundering money through the businesses. The real solution to both problems, i.e. criminal activity and loss of tax money, would be to repeal the current laws in the US banning online gaming. Fat chance of that happening, though.

After all that, still thinking about playing online games on the sly? Well, if you live in Washington state, be wary. From the Seattle Post-Intelligencer:

Beginning next month, Washington residents who play poker or make other types of wagers on the Internet will be committing a Class C felony, equivalent under the law to possessing child pornography, threatening the governor or torturing an animal.

Although the head of the state Gambling Commission says it is unlikely that individual online gamblers will be targeted for arrest, the new law carries stiff penalties: as much as five years in prison and a $10,000 fine.

Five years in prison for gambling over the internet? How the hell is that justified? I can get less for repeated DUI convictions, assault and battery, burglary...c'mon. Sounds like a bunch of overzealous legislators, yet again.

The Washington law, which upgrades online gambling from a misdemeanor, was an effort to be compatible with federal law, said state Sen. Margarita Prentice, D-Renton.

The law applies to all online gambling.

Gambling Commission Director Rick Day and Prentice, who sponsored the legislation, said the law is necessary, partly to protect the gamblers themselves.

Pull the other one, Mr. Day, it's got bells on. How will a felony conviction protect gamblers, other than ensuring that jailed citizens won't be able to gamble online?

Day said the intent of the new law is not to give agents greater incentive to track online gamblers and throw them in prison. Jailing small-time online gamblers is "not the focus of our work," he said.

But he confirmed that commission agents had gone to the homes of several state gamblers (fewer than half a dozen, he said) about a year ago to warn them that such activity was illegal. No one was arrested.

In fact, no one has ever been prosecuted in Washington -- or anywhere nationally, according to gambling publications -- strictly for gambling online.

Sure, they haven't arrested anyone, yet, but they made it clear they know who's been gambling online. Don't the Washington government and various police forces have anything better to do than go after a bunch of people playing poker from their living rooms?

As for the bills themselves, here are the links (if the links fail, just go here and find the bills either by their number or by their sponsor):

-HR 4411, Unlawful Internet Gambling Enforcement Act of 2006, sponsored by Rep. James Leach (Iowa)

-HR 4777, Internet Gambling Prohibition Act, sponsored by Rep. Robert Goodlatte

-S.AMDT.1718, an amendment to HR 2862, sponsored by Sen. Kyl

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Tuesday, May 02, 2006

Nationalization and Bolivia

Following in the stead of Venezuela, Bolivian President Evo Morales decreed on Monday that the Bolivian government will assert control over the domestic natural gas industry. Foreign energy companies are scrambling to figure out what to do next, and several foreign governments have responded negatively to the President's decision.

From the BBC:

Under the May Day decree, private energy companies will have to sell a controlling stake to the Bolivian government and renegotiate contracts.

At the largest gas fields, royalty payments will increase from 50% to 82%.

A thirty-two percent royalty hike could give entire corporate boards heart attacks, not to mention the requirement to divest a fifty-one percent share of company stock to the Bolivian government. The energy companies invested in Bolivia have little choice in the matter, seeing as Bolivia has retained the option of simply nationalizing everything and expelling the foreign companies altogether. The Bolivian government has certainly started negotiations by placing the metaphorical shotgun on the table.

Speaking of the evil foreign energy companies:

But the private gas companies, which have invested about $3.5bn in gas exploration and development since 1997, say it is a worrying development.

A spokesman for Petrobras, one of the largest foreign investors in Bolivia, called it an "unfriendly" action.

Spain's Repsol YPF is also a big player in Bolivia, and the Spanish government expressed "deep concern" at the move.

The US Exxon Mobil Corporation said it was "closely monitoring" the situation.

Other major international corporations operating in Bolivia include the British companies British Gas and British Petroleum and France's Total.

I'm sure the foreign companies are all just dancing for joy at this announcement, not to mention that foreign governments that have a vested interest in the affected companies. While nationalizing the gas industry might have won stirred nationalistic emotions in his supporters, President Morales has most definitely cooled relations with several nations, not to mention likely harming foreign investment in the process. The energy companies, who are potentially on the hook for a total loss of equipment and commidity rights, are now coming to terms with the understanding that the Bolivian government can't be trusted to stick to a contract.

Bolivia, meanwhile, is gearing up to take control of several aspects of the supply chain:

Companies have six months to negotiate new contracts with the Bolivian government. During that time, the Bolivian government says it will carry out audits of each company to determine how much it should pay for a stake of at least 51% in each.

Bolivia's state-owned energy company, YPBF, will take control of the production, transport, refinery, and sale of the gas.

And as to the specifics of the royalty increases:

With immediate effect, gas fields producing more than a daily 100 million cubic feet of gas will retain only 18% of the gas they produce, down from 50%. This is reported to apply to two fields, San Alberto and San Antonio.

Companies operating other fields will retain 40%, local media report.

Nice to see that the Bolivians are feeling generous.

Even though the President's decree gave a time period of six months for the foreign companies to negotiate new contracts with the government, troops and domestic engineers are already on the move:

About 100 soldiers peacefully took control of the Palmasola refinery in the south-eastern city of Santa Cruz, reported the news agency Associated press.

The government said soldiers and engineers were sent to 56 locations around the country.

Now that's negotiating in good faith!

Following up on Monday's display of national pride, the Bolivian government today made public intentions to extend government control to several other industries, with the mining and timber industries the main targets.

On Tuesday, Vice President Alvaro Garcia Linera said mining companies could face higher taxes and royalty payments and that the government will intensify enforcement of existing laws to break up big underdeveloped land holdings, apparently to turn them over to the poor.

While I can understand cracking down on companies that receive land rights and fail to live up to their development requirements, increasing tariffs and royalty payments on raw goods will probably only hurt Bolivia's export income. The combined weight of high taxes and high royalty payments could very well be the breaking point for raw minerals consumers, who could quite conceiveably look elsewhere for raw goods.

The government also will crack down on foreign timber companies violating conservation laws, Garcia said, and would steer companies to export finished wood products rather than raw timber.

Again, I can understand tightening the screws on companies that ignore conservation laws, but attempting to force a change from raw wood goods to finished wood products might not be easy, much less make economic sense. Bolivia's entry in the World Fact Book fails to mention any domestic furniture industry (harvesting of raw goods, preparation of foods and handicrafts are apparently the main industries beyond agriculture), so a substantial investment in equipment, factories and training would be needed. Given Bolivia's current penchant for nationalization, high tariffs and popular anti-capitalistic fervor, how many companies would be willing to take a chance on investing large sums into the Bolivian economy?

President Morales listened to the will of the people, nationalizing one industry and threatening several others, but will his decisions yield tangible results for the common citizen or will the rest of the world eschew the Bolivian economy? I hope Bolivia can live with the consequences of those actions, both good and bad.

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