Proposed legislation on gambling could make ISPs liable for the losses and legal violations of their customers.

by Craig Liddell of australia.internet.com [June 6, 2001]

The Internet Industry Association (IIA) has uncovered a serious flaw in proposed Interactive Gambling Legislation, which could expose licensed ISPs in Australia to fines of up to $1.1 million per day for failing to ensure that users located in Australia do not access their services.

In March, the Federal Government of Australia announced its intention to pass legislation that bans online gambling, including casino games, wagering, and the sale of lottery tickets. The ban would cover online gambling offered to resident Australians but would leave Australian companies open to provide services to other countries. The ban covers interactive television (iTV) in addition to web gambling services.

While the IIA has consistently stated that it does not condone gambling, it is worried about the creation of laws within Australia that will be perceived internationally as hostile to e-commerce.

Peter Coroneos, IIA Executive Director, says, "the Electronic Transactions Act was welcomed by the industry when it was passed in 1999 because for the first time we saw online transactions given the same legal status as their offline counterparts. The present legislation represents a stark departure from the government's underlying approach of 'functional equivalence' and 'technological neutrality', which were the hallmarks of the 1999 Act."

The IIA believes the draft interactive gambling legislation excuses an operator where they use "reasonable diligence" to determine the location of users. No amount of diligence could in practice be applied to guarantee that a court would not find an ISP negelectful, the IIA says.

"In view of the massive penalties within the legislation and the fact that the defendant bears an evidential burden in relation to the provision of services, this is bad law," said Coroneos. "It may be the reason why PBL for example recently announced its intention to operate its licensed operation from Vanuatu—because it cannot manage the risk of locals accessing it here."

IIA research has confirmed that Internet Protocol (IP) addresses are not a reliable guide to the location of users. "Over 100,000 Australians could presently be wrongly identified accessing the Net from outside Australia based on either the use of 'edge devices' such as firewalls which may have a "non-au" IP address thus presenting all users behind that device as "non-au" to the gaming operator's system or because their IP addresses are derived from internet addressing blocks not sourced from within ranges correlating to Australian use," Coroneos details.

"We are aware of large Australian ISPs who assign their subscribers with addresses sourced from US IP address ranges on every connection. In addition, there are hundreds of thousands of Australian-based workers who access the net via corporate Internet feeds, which, in the case of multinationals, usually involve the use of 'foreign' IP addresses. This gives the appearance that the user is not located in Australia, when in fact they are."

Coroneos adds that the IIA had examined other technical alternatives such as traceroutes or ping times which were also found to be unreliable. "The former would be difficult to execute in real time and are liable to error if the original IP address suggests an offshore user. The latter could be deceptive with ping times within Australian potentially exceeding those from nearby countries like New Zealand."

"That leaves the operator with only a user declaration—a promise that they are not in Australia—or the use of a payment address which can also be falsified or redirected," he said.

Gartner Research believes the legislation is fundamentally flawed and doomed to failure.

In a report titled, "Australia's Proposed Online Gaming Ban Will Likely Backfire", the authors, Chris Morris and Joe Sweeney note, "The ban will likely prove ineffective in stopping Australian consumers from gambling online," the analyst predicts. "The government has suggested that the filtering of Internet traffic as done today will suffice to hinder online gaming from overseas vendors, but it is already ineffective against even the most basic static web content."

By banning online gaming vendors from the Australian market but effectively enforcing the law only against local vendors, the government will leave Australia's online market entirely to the pirates, the report says.

"The complete ban will not in itself solve the problem of online gaming but will likely push the industry into the hands of ungoverned, off-shore gaming services," the report continues, "as has begun to happen in the United States. The ban will place state lotteries and domestic casinos at a significant competitive disadvantage against ungoverned office gaming. While local and controlled vendors cannot serve domestic customers, ungoverned services have the chance to build brand awareness and business in Australia."

The report suggests lotteries will suffer most since more interactive and compelling online gaming services already threaten them. Australian lotteries have struggled for ways to compete against foreign online upstarts and have slowly realized they need to offer local, charity-driven interactive games to keep ungoverned competition out of Australia. The ban would remove this option.

At least US$300 million would be required to block Internet gaming in Australia, Gartner believes, but even the "best approach…would still not effectively stop the flow of online gaming due to the rapid evolutions in gaming services, such as streaming casinos, peer-to-peer wagering and the bundling of virtual private networks with gaming services. Australian consumers, taxpayers and local gaming enterprises will lose as customers (and their money) migrate to less-controlled overseas games."

— End

 

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