A Survey of Electronic Cash, Electronic Banking and Internet Gaming 1
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A Survey of Electronic Cash, Electronic Banking and Internet Gaming 3

TABLE OF CONTENTS

PREFACE ..........................................................................................................................5

FOREWORD ..........................................................................................................................7

INTRODUCTION ............................................................................................................... 11

ELECTRONIC CASH .......................................................................................................... 15

INTRODUCTION ................................................................................................... 15

SMART CARDS/STORED VALUE CARDS........................................................ 15

The Basics ..................................................................................................... 15

Stored-Value Card Issuers ............................................................................ 16

COMPUTER E-CASH ............................................................................................ 19

The Basics ..................................................................................................... 19

E-Cash Issuers............................................................................................... 19

REGULATORY POLICY......................................................................................... 20

SUMMARY OF ELECTRONIC CASH IN THE NEAR TERM ......................... 22

ELECTRONIC BANKING .................................................................................................. 25

INTRODUCTION ................................................................................................... 25

TECHNOLOGY ....................................................................................................... 26

Security.......................................................................................................... 26

Opening an Account.................................................................................... 26

GROWTH................................................................................................................. 27

Internet Banking Websites and Growth...................................................... 27

Cost of Services ............................................................................................ 30

REGULATORY OVERSIGHT................................................................................ 31

Financial Crimes Enforcement Network (FinCEN) .................................. 31

Federal Financial Institutions Examination Council ................................. 32

Federal Reserve System................................................................................ 33

Federal Deposit Insurance Corporation ...................................................... 33

Office of the Comptroller of the Currency ................................................. 34

Office of Thrift Supervision ......................................................................... 35

National Credit Union Administration ...................................................... 35

Recent Regulatory Developments ............................................................... 35

CRIMINAL ACTIVITIES ....................................................................................... 36

PROSPECTS ............................................................................................................. 37

INTERNET GAMING ......................................................................................................... 39

INTRODUCTION ................................................................................................... 39

COMMERCIAL DEVELOPMENT TRENDS ....................................................... 39
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Participants ................................................................................................... 40

Growth .......................................................................................................... 40

Site Location ................................................................................................. 41

FINANCIAL OPERATIONS .................................................................................. 41

GAMING WEBSITES.............................................................................................. 42

Design and Structure.................................................................................... 42

Legal Issues.................................................................................................... 42

Licensing Questions ..................................................................................... 43

Site Security and Transactions..................................................................... 43

DEVELOPMENTS IN THE UNITED STATES.................................................... 44

Federal Legislation........................................................................................ 44

FinCEN Survey of State Legislation............................................................ 45

Federal Civil and Criminal Cases ................................................................ 46

Indian Gaming Regulatory Act ....................................................... 46

State Civil and Criminal Cases.................................................................... 47

Florida ............................................................................................... 47

Indiana .............................................................................................. 48

Maryland........................................................................................... 48

Minnesota ......................................................................................... 48

Missouri ............................................................................................ 49

New York .......................................................................................... 49

Wisconsin ......................................................................................... 49

Private Lawsuits............................................................................................ 50

The Interactive Gaming Council ................................................................ 51

CONCLUSION ........................................................................................................ 51

APPENDICES ....................................................................................................................... 53

Appendix A. SMART CARD TECHNOLOGY AND SECURITY.................... 55

Appendix B. INTERNATIONAL REGULATION OF ELECTRONIC CASH ..... 59

Appendix C. LEADING U.S. INTERNET BANKS ............................................. 61

Appendix D. A SAMPLE OF INTERNATIONAL INTERNET BANKS

 AND WEBSITES, FEBRUARY 2000 .......................................... 63

Appendix E. INTERNET BANKING AROUND THE WORLD ...................... 67

Appendix F. INTERNATIONAL REGULATION OF ELECTRONIC

BANKING ....................................................................................... 71

Appendix G. INTERNET GAMING REGULATORY POLICY AROUND

THE WORLD .................................................................................. 73

Appendix H. INTERNET CASINOS AND SPORTSBOOKS .......................... 81

Appendix I. COMPANIES RELATED TO INTERNET GAMING

OPERATIONS ................................................................................ 97

SOURCES ............................................................................................................................. 99

ENDNOTES ........................................................................................................................ 107
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 5

PREFACE

S

ince 1995, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN)

has been examining the potential regulatory and law enforcement implications of emerging

technology-driven payment mechanisms, such as smart card and Internet-based electronic

cash, electronic banking, and Internet gaming. This initiative was undertaken within the

context of FinCEN’s mission to support and strengthen domestic and international antimoney laundering efforts.

By developing and maintaining an understanding of how these products work and the role they

play within the financial system, FinCEN is better able to make informed judgments with regard

to the development of effective anti-money laundering controls. In our pursuit of this goal, we

work closely with other U.S. government authorities and maintain a dialogue with key members

of the financial services industry. FinCEN’s practice is to formulate strategies and programs that

minimize the risk of money laundering and other financial crimes, without inhibiting the continued

growth of these new payment systems.

In order to share with others some of the findings that have resulted from our efforts in this

area, FinCEN has produced this report on Electronic Cash, Electronic Banking, and Internet

Gaming. The report addresses key commercial developments with regard to these three

components of electronic commerce, as well as associated regulatory issues and noteworthy

law enforcement actions.

Your comments regarding the content and usefulness of this report are welcome. Any

comments or questions may be directed to Shaun W. Lonergan, Special Assistant for Regulatory

Program Initiatives, at (202) 354-6416 or by e-mail at loners@fincen.treas.gov. Media

inquiries should be made through FinCEN’s Office of Communications at (703) 905-3770.

James F. Sloan

Director
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A Survey of Electronic Cash, Electronic Banking and Internet Gaming 7

FOREWORD

N

ew technology-based payment systems are emerging to present dynamic opportunities for

business and consumers alike. Along with these opportunities, however, come challenges

for governmental authorities. In rising to meet these challenges, FinCEN, together with other

components of the U.S. Department of the Treasury and the Government as a whole, must

consider various factors to determine the appropriate course of action to follow with regard to

public policy. In assessing the need for anti-money laundering controls, FinCEN takes into

account broad issues of financial policy but also recognizes that technology-based products may

be susceptible to money laundering and may, therefore, need to be subject to regulatory oversight. The oversight, however, should not impede the continued growth of electronic commerce.

Furthermore, while FinCEN’s efforts focus on law enforcement and regulatory issues, the agency

is sensitive to the need for balancing enforcement interests with those of customer privacy,

market independence and other consumer issues.

In this context, FinCEN has been examining the potential regulatory and law enforcement

challenges that may result as electronic payment systems continue to grow. This report discusses

three distinct types of financial products and services that are technology-based: Electronic Cash,

Electronic Banking, and Internet Gaming. Each of these products and services facilitates the

electronic transfer of financial value, often in an immediate and secure fashion. These technologybased financial products may also provide a degree of anonymity to the individuals conducting

the transactions. For this reason, in addition to providing various benefits for legitimate commerce,

these systems may create new vulnerabilities for financial crimes.

The Institute for Technology Assessment (ITA) addressed this point in its October 1997 report

Digital Money: Industry and Public Policy Issues. According to the ITA report, “Any financial

crime— such as embezzlement, insurance fraud, or various ‘cons’— can probably be adapted to

digital money. But digital money holds special appeal for money launderers.” The report notes

that, unlike bulk currency, digital money may be easily concealed, and ITA indicates that some

traditional anti-money laundering controls, which were designed to create “choke points” for

physical cash transactions, may not be effective in the cyberspace environment.

FinCEN’s approach to addressing these issues has been a two-step process: First is education,

which is the primary purpose of this report. The nature and operating characteristics of these

new financial systems must be understood; to do this, the organization maintains dialogue with

members of the financial services industry. FinCEN’s first step in advancing this dialogue

occurred in September 1995, when it conducted a Cyberpayments Colloquium at the New

York University School of Law. The Colloquium brought together financial service providers,

software developers, academics, consumer representatives, and regulatory, policy, and law

enforcement officials to discuss advances in the design and implementation of emerging electronic

payment systems.

Since the Colloquium, FinCEN has continued to deal directly with members of the industry to

exchange information and discuss issues of mutual concern. This practice is consistent with the
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mandate of the National Money Laundering Strategy of 2000, which calls on “The Departments

of the Treasury and Justice and the federal financial regulators... to continue outreach to the

private sector to ensure that anti-money laundering safeguards respond to new technologies.”

The second component of FinCEN’s initiative on new payment technologies deals specifically

with money laundering prevention. FinCEN relies upon its knowledge of existing money

laundering techniques and methodologies to prevent the misuse of new payment systems for

criminal purposes. In May 1996, FinCEN, in cooperation with the National Defense University,

hosted a computer-based cyber-money laundering simulation exercise in which participants used

advanced decision-making techniques to create hypothetical money laundering scenarios. By

drawing upon varied resources for their unique perspective or knowledge, FinCEN hopes to forecast

potential new money laundering methodologies and, where possible, to develop preventative

measures in cooperation with industry. FinCEN’s efforts in this regard continue and thus far have

generated a great deal of “thinking outside the box” and new information.

In June of 1997, FinCEN hosted more than 60 senior-level officials from throughout government

and industry at a one-day exercise designed to facilitate discussion on the unique regulatory and

law enforcement policy issues raised by emerging technology-based payment systems. Among

the issues considered at the exercise was the application and effectiveness of existing antimoney laundering controls, such as the Bank Secrecy Act (BSA), in the cyber-space environment.

Although consensus was not reached with regard to an appropriate anti-money laundering

strategy or specific action items, the participants agreed that the government should be continually

evaluating these issues in anticipation that some regulatory and/or other policy actions could

become necessary as these payment technologies mature. Since that meeting, as will be discussed

in this report, there has been growth in the industry, and there have been regulatory rulings

relating to both electronic cash and electronic banking.

Internationally, technology-based payment systems have also received extensive attention. In

June, 1996, the G-7 Heads of State called for a cooperative study to investigate the implications

of recent technological advances which enable sophisticated methods for making retail electronic

payments. Consistent with this objective, a working party was created and it produced a report

that developed a broader understanding of the policy issues facing governments as a result of

electronic money. In that same year, a new recommendation [No. 13] was added to the Financial

Action Task Force’s (FATF’s) “Forty Recommendations on Money Laundering;” the recommendation states that “countries should pay special attention to money laundering threats inherent

in new or developing technologies that may favor anonymity, and take measures, if needed, to

prevent their use in money laundering schemes.” During the November 1999 Experts Meeting

on Money Laundering Typologies, the FATF continued to focus attention on this issue by

conducting specific discussions on the money laundering risks posed by electronic banking.

The Caribbean Financial Action Task Force (CFATF), like the FATF, has begun to consider

these issues as well. In May 1998, the CFATF, together with FinCEN and the Commonwealth

Secretariat, convened a meeting in Port of Spain, Trinidad, to examine and discuss the implications

of these new payment systems. Delegates from more than 25 nations and representatives from

various international organizations joined with corporate officials from the financial industry
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 9

to develop a “Conclusions and Recommendations” paper, which serves as a guide to technologyrelated policy issues for member governments. In May 1999, the CFATF in cooperation with

FinCEN conducted a follow-up seminar on electronic banking and the potential implications for

money laundering and financial fraud.

In summary, FinCEN will continue to work through organizations such as the FATF and the

CFATF to develop an effective global approach for safeguarding financial systems from the

money laundering risks posed by new payment technologies. FinCEN will also maintain its

ongoing efforts with the private sector to track industry growth and to raise the level of

awareness with regard to new and still emerging technology-based financial services. Finally,

FinCEN will continue to work with its various government partners to continually assess U.S.

regulatory and law enforcement anti-money laundering programs in order to ensure that the country

is prepared to meet any challenges that may be presented by the technology of the 21st century.
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A Survey of Electronic Cash, Electronic Banking and Internet Gaming 11

 INTRODUCTION

T

he phenomenal growth in the use of

personal computers (PCs), fueled in part

by the availability of the Internet, has

spawned new industries and activities in

electronic commerce. More than half of all

American households owned a PC at the end

of 1998. The public has taken to this electronic

technology much faster than it did to radio

and television, the technologies of previous

eras (see Figure 1). The U.S. Commerce

Department reported that American consumers

spent $5.3 billion (excluding sales of travel

and event tickets) making online purchases

during the 1999 Christmas season. More than

50 million households have connected with

the Internet in just four years, and many

analysts credit technology stocks for keeping the

current stock market boom alive. Conventional

wisdom says that the future is very bright for

electronic commerce.

Every day, businesses and services that

traditionally have required face-to-face

contact or customer travel to the business

site are establishing themselves on the

World Wide Web. Bookstores, newspapers,

network news organizations, brokerage

houses, clothing manufacturers, cosmetics

companies, and grocers are establishing

websites and selling their diverse goods and

services over the Internet. Even those

institutions that were once considered the

most staid and conservative— banks, savings

and loans, thrifts, and credit unions— are

making their services available via the

Internet to those customers who want to do

their banking at home. Furthermore, the

entertainment industry is not standing idly on

the sidelines during this period of entrepreneurial change: for the first time, the Internet has given gaming (i.e., casino and sports

gambling) entre into homes worldwide.

ELECTRONIC CASH

New technology is altering our perception of

what may constitute money and is also

changing the nature of monetary transfers

within the financial system. Electronic cash, or

“e-cash,” is a digital representation of money

and may reside on a “smart card” or on a

computer hard drive. Using special readers,

stored monetary value is subtracted from the

card or, in the case of computer e-cash,

monetary value is deducted from the electronic

account when a purchase is made. When the

monetary value is depleted, the card is either

discarded or, in some systems, value is restored

Source: Based on information obtained from Washington Post,

“Internet Gets Down to Business,” June 20, 1999, A17.

Figure 1

Number of Americans Connected to the

Internet, 1993 and 1999, in millions
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using specially equipped machines. Telephone

calling cards are the most widely used storedvalue smart cards.

Smart cards may also employ microprocessor

chips and integrated circuits (ICs). In addition

to monetary value, these cards are able to

store vast quantities of data in a highly secure

manner. This new smart card technology is

capable of serving many functions, including

credit, debit, security (building or computer

access), and storage of medical or other records.

A stored value smart card may be loaded with

e-cash in several ways: at a kiosk or a vending

machine, at a bank or automated teller machine,

via personal computer over the Internet,

through use of a hand-held electronic purse or

wallet, or through use of a specially equipped

telephone (including mobile or cell phones).

Depending on the specifications determined

by the issuer, e-cash value stored on a smart

card may be transferred between individuals in

a peer-to-peer fashion or between consumers

and merchants.

Although Americans have not yet taken to

the use of stored-value smart cards and/or

other types of e-cash, industry experts report

relatively wide acceptance of such products in

Europe and the Far East. In order to encourage

global use of e-cash, analysts point to the need

for international standards that make possible

inter-operability between systems. Making

available multiple applications (that is, stored

value, credit, debit, physical security access,

Internet payment capability, retail loyalty

programs, etc.) on a single smart card would

also increase the cards’ acceptance in the

global marketplace, according to experts.

As such acceptance grows, many governments

and their respective law enforcement and

financial oversight authorities recognize their

responsibility to carefully monitor technological

developments and industry standards in order

to prevent the misuse of smart cards and other

emerging financial instruments for illicit

purposes. Although to date a cautious

approach has been favored in most nations,

concern about the potential rapidity and

anonymity of certain types of e-money

transactions has led some governments to

consider imposing regulatory controls within

the context of their existing anti-money

laundering programs.

ELECTRONIC BANKING

Banks have adapted to electronic technology

and to the Internet faster than many analysts

predicted. Demographic changes (more

young people with highly developed technological skills and comfort in using the technology), combined with low-cost online banking

software packages, make PC and Internet

banking a dynamic growth area (see Figure 2).

According to industry analysts, over 85 percent of financial institutions in the United

States plan to introduce Internet banking

services by the year 2003. The investment

Source: Based on information obtained from Washington Post,

“Internet Gets Down to Business,” June 20, 1999, A17.

Figure 2

U.S. Adult Population Using

the Internet Regularly, 1999
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 13

banking firm of Goldman-Sachs recently

predicted that cyberbanking (Internet-only

banks) will make up 20 percent of the banking

industry in two to three years.1

Whether increases in cyberbanking will result

in genuine growth in the industry will depend

to a certain extent on the adoption of industrywide standards. Many of those who attempt to

follow the development of electronic banking

and accumulate reliable statistics are hindered

by confusing or imprecise terminology. Even

though the terms Internet banking, web banking,

PC banking, and electronic banking may refer to

different services, banks and consumers often

use the terms interchangeably. Some banks,

for example, advertise on a bank website but

don’t actually offer banking transactions via

the Internet. Other banks offer PC banking;

that is, they offer their customers proprietary

software that allows home banking from the

customer’s computer. Although PC banking is

electronic banking, it is not Internet banking.

In the latter type of banking, which allows

web-based transactions, a bank customer can

use any PC that has an Internet connection to

conduct banking transactions. True Internet

banking allows customers to perform all

transactions on the Internet, with the exception

of making cash deposits or withdrawals. To

comprehend the fundamental difference

between PC banking and Internet banking, one

need only recall the necessity of direct dial-up

connection between the user and the bank (in

PC banking) versus the global reach and complete openness of the Internet’s world wide web.

Financial regulators and law enforcement

officials in many jurisdictions are monitoring

with great interest the rapid development of

the electronic banking industry. Inadequately

regulated or unregulated electronic banking

systems may be used to conduct anonymous

transactions and to obscure audit trails, acts

that may facilitate money laundering and

hinder traditional investigative techniques,

especially those requiring the analysis of

financial records.

In the United States, electronic banks—

whether PC or Internet operations— are

subject to the same regulations as brick-andmortar banks. The same is not true for all

jurisdictions, however. Some observers suggest

that in order to guard against widespread

criminal misuse, international standards for

electronic banking should be established by

governments as these systems progress and

their consumer acceptance increases.

INTERNET GAMING

Another emerging type of technology-based

financial activity is Internet gaming (casino

gambling, sports betting, and lottery via the

Internet). The number of gaming sites on the

Internet has grown rapidly in just a few years,

rising from approximately six in 1996 to more

than 600 in 2000. This growth has attracted

the attention of legislators and policy makers

worldwide. Officials from various law enforcement agencies have expressed concern that

Internet casinos could become venues for

money laundering and other types of financial

crime, particularly in light of the fact that

brick-and-mortar casinos have been used for

illegal activities in the past. This potential for

criminal misuse is compounded in jurisdictions

where Internet gaming is legally permitted but

not subject to regulatory oversight.

Discussions regarding the legal status of

Internet gaming in the United States are

taking place both at the state and the federal

level. Most state governments consider virtual

gaming sites to be within their domain (as is

the case with brick-and-mortar casinos), and,

in advance of any new federal legislation,

many of them have taken the position that
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Internet gaming is illegal under their existing

laws. As a result, a number of states have

instituted criminal and civil legal proceedings

against individual Internet gaming operators.

In 1998, 1999, and 2000, bills that would

have, in effect, banned Internet gaming were

introduced in both the U.S. Senate and the

House. No final action on this legislation had

been taken as of July, 2000.

This report summarizes the commercial and

technological developments and the regulatory policy issues associated with the emerging

electronic cash, electronic banking, and

Internet gaming industries. As of 2000, all

three activities were positioned to continue

growing at a rapid pace (see Figure 3). However, lack of standardization in smart card

technology, concerns about security risks and

lack of privacy in electronic banking, and

questions about regulation of Internet gaming

may temper the spectacular growth witnessed

since 1995.

Growth may come through other developments, however. PCs are only one of many

potential Internet transport mechanisms, and

technological changes are forecast that could

make the PC an Internet dinosaur. Cell

telephones (so-called smart cellphones),

televisions, connected organizers, Internet

pads, and smart telephones fitted with screens

and cameras for two-way videos and rudimentary computing powers will allow people easier

and more portable access to the Internet. As a

result, financial transactions may become

more numerous and less dependent upon the

physical location of the parties or the intercession of traditional payment methods. The use

of mobile phones for Internet banking, for

example, is one of the fastest developing

trends in Europe and Asia.

However, the concern for personal privacy is

rapidly becoming a leading worldwide issue.

As people take advantage of being more interconnected through electronic communication,

they are increasingly worried about others

who may eavesdrop on private electronic

conversations, compile databases containing

personal information, steal confidential

financial data, or destroy private records—

either by accident or through malice. Financial information that flies through cyberspace

is susceptible to theft and misuse, and until

reliable safeguards are established, the fear of

the loss of privacy will be present in the public

consciousness.

Source: Based on information obtained from Washington Post,

“Internet Gets Down to Business,” June 20, 1999, A17.

Figure 3

Revenue Generated by the Internet,

1995 and 1998, in billions
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 15

ELECTRONIC CASH

INTRODUCTION

T

he terms electronic cash, e-cash, or

e-money refer to electronic payment

schemes that enable consumers to store and

redeem financial value. They operate via stored

electronic units of value. Paid for in advance

by conventional money and representing

equivalent units in real currency, these funds

can be transferred between vendors and

individuals using compatible electronic

systems, in some cases without resort to banks

or other financial intermediaries. E-cash (or

e-money) comes in two basic forms: smart

card e-cash and computer e-cash.

E-cash is most often downloaded from its

respective system through special terminals

(for example, specially equipped ATM

machines, computers, or cell-phones) onto

smart cards. Such cards are called stored-value

smart cards. E-cash can also be downloaded to

personal computer hard disks via a modem.

The “money” remains stored until the user

spends it. In the case of smart cards, the

“money” is spent by transacting it with

another individual, in vending machines,

turnstiles, toll-collecting devices, or retailers’

terminals. In the case of computer e-cash, the

“money” is spent over the Internet. Each e-cash

transaction reduces the amount of stored

“money” (value).

SMART CARDS/STORED

VALUE CARDS

THE BASICS

A smart card consists of a specifically designed

integrated circuit chip embedded in a plastic

card. The chip contains either a set of contacts

that physically connects with an electronic

reader or an aerial for contactless operation.

Because they contain one or more electronic

chips or integrated circuits that can store and

protect information, smart cards are also

called chip cards or integrated circuit cards. If,

in addition to integrated circuits, a smart card

contains a microprocessor chip, it can calculate

addition and subtraction of value. The

capabilities of their embedded chips are what

make smart cards “smart.” Many so-called

smart cards are, in fact, only memory cards

because their chips do not contain a microprocessor. Memory cards can store data and

value, but they cannot perform complex

calculations. If they are used to store value,

as, for example, is the case with telephone

cards, they can deduct value only from the

total available as the card is used.

Smart cards are to be distinguished from the

most common form of card technology for

automatic reading— the magnetic stripe card.

Based on a much older technology than that

used in smart cards, magnetic stripe cards carry

encoded information in strips of magnetic tape

bonded to a plastic or paper carrier. Because

the magnetic coding resides on the outside of

the card, the data are vulnerable to tampering.

Data can also be erased or corrupted by stray

magnetic fields.

Magnetic stripe cards and smart cards also

differ as to the amount of data that can be

stored on the card. Smart cards can store up

to 500 times more data than can a typical

magnetic stripe card. They can also store it

more securely because of software installed

in the chips that is designed to prevent

unauthorized usage. Consequently, smart cards
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Table 1.

Number of Smart Cards in Circulation, 1997

 Region Cards Sold Market Share

Europe 870,000,000 66.9%

Asia/Pacific 225,000,000 17.3%

Americas 165,000,000 12.7%

Rest of world 40,000,000 3.1%

Total 1,300,000,000 100.0%

Source: Based on information obtained from

Card Technology Magazine, June 1998.

offer an attractive alternative to traditional

magnetic stripe cards, whether they are used

for stored value, debit or credit functions,

or for non-financial transactions such as

building access or computer access and retail

loyalty schemes.

The capability to store value on a card’s

chip— value that can be expended as well as

replenished— is one of the m ajor attributes of

sm art cards. The sim plest stored-value sm art

card is one with a single store of value issued

by a particular com pany and usable to buy

goods and services only from that com pany

(i.e., closed circulation). Such types of cards

function alm ost like a telephone card and are

used, for exam ple, in vending m achines.

W hen a stored-value card is designed to be

used in open circulation (that is, when it is

possible to use the card to buy goods and

services from several different suppliers), it is

term ed anelectronic purse, or e-purse.

Because of the limitations associated with

card readers, some of which are not able to

read card computer chips, smart cards may

combine two different technologies on a

single card, coming equipped with both a

microchip and a magnetic stripe. Known as

hybrids, these cards can be read by a variety

of readers of differing capabilities. Hybrid

smart cards are currently being used to help

introduce smart cards to consumers and

merchants.

Smart cards have proven much more successful

in Europe, and to a lesser extent in Asia, than

in the United States (see Table 1). Their

success is in part a result of the relatively

centralized banking system in Europe, which

makes the issuance and servicing of smart

cards easier and less costly. In the United

States, the banking system, although decentralized, has developed a highly efficient

system of automated check processing and

has invested extensively in magnetic stripe

card technology. This payment system infrastructure makes checks, credit cards, and

magnetic stripe cards more attractive and

considerably less expensive to process than

stored-value smart cards. In addition, the

U.S. telecommunications industry is capable

of faster, cheaper, and more reliable service

than is found in most other countries, including

European countries.2

STORED-VALUE CARD ISSUERS

In the late 1990s, three stored-value e-cash

systems suited to the smart card form—

VisaCash, Mondex, and Proton— were

prominent in international markets. Various

smaller schemes play important roles in

restricted markets. Visa International, the

world’s largest credit card company, introduced

VisaCash, its version of smart card e-cash, in

1995. The card is intended to be used for

small purchases such as a cup of coffee, a

newspaper, a pay phone call, cinema tickets,

or public transportation. VisaCash cards

store units of prepayment and come in two

main types— disposable and reloadable.
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 17

Disposable cards, loaded with predetermined

value, typically come in denominations of

local currency, for example, US$10. In 1999,

VisaCash disposable cards were available in

the United States in $10, $20, $50, and $100

denominations. When the value of the card

is used up, the user discards the card and

purchases a new one from a card dispensing

machine. Reloadable cards, which are issued

by banks, come without a predefined value,

although in early trials Visa placed an upper

limit of $100 on its reloadable cards. When

the stored value is used up, the user can load

new value onto the card at specialized

terminals and ATMs.

Since the mid-1990s, important VisaCash

pilots either have been concluded or are

currently under way in the United Kingdom,

Japan, and the United States. In October

1995, a pilot was undertaken at Visa’s

headquarters in California. A larger and more

widely publicized trial occurred in 1996 at

the Summer Olympic Games in Atlanta.

Although results of the Atlanta test were

mixed, Visa has also continued with pilots in

such locales as Hong Kong; Kobe, Japan; and

Leeds, England, where 60,000 VisaCash

cards were in circulation during 1998. Visa

is also assisting the People’s Bank of China to

introduce a chip-based payment card called

Golden Card. The bank believes two hundred

million or more Golden Cards will be in use

by 2004. Visa has also supplied the technology for the introduction of smart cards into

the bus and rail network in Seoul, South

Korea, and, during 1998, launched a

VisaCash pilot in Kobe, Japan. By late 1999,

about 8 million VisaCash cards had been

issued in more than 60 VisaCash programs

worldwide.

Mondex, another major smart card e-cash

scheme, was created in 1993, when National

Westminster Bank in Britain announced

development of an electronic low-value

payment system to be used for simple, everyday

cash transactions. The Mondex microchip

contains a “purse” in which Mondex value is

held electronically. The purse is divided into

five separate pockets, allowing up to five

different currencies to be held on the card at

any one time. The microchip also contains

security programs.

Because the value is electronic, Mondex e-cash

can be transferred over a telephone line or the

Internet directly to a retailer, business outlet,

or an individual, eliminating the need for

intermediaries such as banks or other third

parties. Thus, the Mondex system eliminates

the difficult task of sending cash to remote

locations. Although a large amount of value

theoretically can be loaded onto a Mondex

e-purse card, thus far issuing banks have acted

to limit Mondex value. For example, in a

current trial in the United Kingdom, an upper

limit of electronic value has been set at 500

British pounds (about US$800).

Source: Based on information obtained from Mike Hendry,

Smart Cards Security and Applications, Boston, 1997, 44.

Figure 4

Smart Card Sales, Selected Years, 1975-1995,

in millions of cards
18

In July 1996, 17 major world financial

institutions founded Mondex International;

among the founders were its original developer,

National Westminster Bank, Midland Bank,

Hongkong & Shanghai Banking Corp., Wells

Fargo, AT&T, and 10 major banks in Australia

and New Zealand. The following November,

MasterCard International acquired a majority

stake in Mondex and since then has licensed

the program worldwide on a regional basis.

Mondex International is responsible for

managing the Mondex e-purse technology

and brand name as well as new product

development. Multiple tests are being

conducted simultaneously in the United

States, China (Hong Kong), New Zealand,

Canada, and the United Kingdom. The largest

pilots are in the United Kingdom (31,000

cards) and Hong Kong (20,000 cards).

MasterCard plans to create a multifunction

card using Mondex technology in its credit

and debit cards, which total 350 million

worldwide. In 1999 there were about two

million Mondex-enabled cards in use around

the world.

Proton, a third major smart card e-cash

scheme, is a rechargeable electronic purse

developed by Banksys, a Belgian Electronic

Funds Transfer network operator, and is

marketed by Belgian banks. Proton is

similar to VisaCash in that its value is

denominated in units of prepayment; it is

likewise intended to be used for low-value

purchases from shops or from vending

machines. Proton cards can be reloaded at

ATMs, payphones, specially equipped home

phones, and via the Internet in amounts

ranging from 100 to 5,000 Belgian francs

(US$3 to US$170).

As of the end of 1999, Proton was involved

in five national rollouts. One is located in

the Netherlands, where a group of retail

banks launched a reloadable smart card chip

wallet called Chipknip in October 1995. The

national rollout began in October 1996;

within two years, more than 12 million cards

were in circulation. In addition to functioning

as an electronic purse, Chipknip cards can be

used for identification, retail loyalty, ticketing,

and public transportation. Other rollouts are

underway in Australia, Belgium, Sweden, and

Switzerland.

In July 1998, Banksys, American Express, Visa

International, and ERG, the card manufacturing

company, created Proton World International

for the purpose of further developing the Proton

platform and expanding its use worldwide.

American Express, in particular, licenses Proton

on a world-wide basis and has undertaken

pilot tests of its own, including one with the

U.S. Marine Corps. By late 1999, Proton-based

systems had been licensed in 18 countries, and

more than 30 million Proton cards were in

circulation around the world.

Other stored value e-cash schemes include

the GeldKarte system in Germany, developed

by a group of German banks. Based on the

number of cards issued, it is the largest

electronic purse system in current use.

However, Geldkarte may be used only within

Germany. Initial tests were completed in

1996, and as of late 1998, more than 50

million cards had been issued in Germany.

In the United States, Touch Technology

International has developed a fully featured

open electronic purse system that is being

tested in Hawaii and France. The computer

firm Hewlett Packard has also licensed an

electronic purse system, this one developed

by SIBS, a Portuguese payment network.

Hewlett Packard intends to market the SIBS

system internationally, beginning in Spain

and Costa Rica.

(For information on smart card technology

and security, see Appendix A.)
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 19

COMPUTER E-CASH

THE BASICS

Computer e-cash, as noted above, entails the

issuance of electronic units or electronic value

that can be used for payment in place of

currency. Often also called e-money, computer

e-cash made its appearance, primarily in the

United States, in about 1995, and is used in

virtual transactions over the Internet.

Computer e-cash exists solely in cyberspace;

in contrast with currency or smart cards, it

does not exist in tangible form.

When using computer e-cash, the customer

buys value from an authorized provider, as he

would with a smart card. Computer e-cash

value, however, is then stored either in the

customer’s home computer or in a safe online

repository. When the funds are spent, the

e-cash value is credited to a retailer’s e-cash

account that must later be transferred to the

retailer’s regular bank account. Computer

e-cash is marketed as an alternative to credit

cards for normal Internet transactions.

E-CASH ISSUERS

CyberCash and DigiCash are two examples

of early computer e-cash payment systems.

CyberCash, which was founded in 1994 in the

United States, began offering CyberCoin

services in September 1996. CyberCash, Inc.

touts CyberCoin as the Internet equivalent of

pocket change because payments can be made

in increments as small as $.25. The upper limit

of value is set at $10. CyberCoin features units

of prepayment, as is the case with VisaCash,

and operates via software installed in a personal

computer. The payment service uses the

existing banking network system and does not

require the opening of a new account at a

specific bank. Because payment by CyberCoin

involves the transfer of funds between

established bank accounts, such payments can

generally be traced without great difficulty. In

1997, in addition to offering CyberCoin and

its credit card service, CyberCash, Inc.

initiated an electronic check system called

PayNow Service.

DigiCash, Inc. was founded in 1989 in the

Netherlands. In 1994 DigiCash announced

e-Cash, a software-based payments system

that allows users to send electronic payments

from any personal computer to any other

personal computer or work station using any

computer network, including the Internet. To

use e-Cash, a customer opens a special bank

account with a bank that issues it. e-Cash

differs from CyberCoin in that e-Cash is electronic value itself and not units of prepayment.

e-Cash is similar to Mondex in that it can be

circulated outside existing banking networks.

In contrast with Mondex, however, once e-Cash

is issued, the amount of expended value cannot

be divided into smaller denominations, a

feature that discourages continuous transfer.

In order to prevent multiple use of electronic

value, each value amount of e-Cash is given

an encoded serial number (blind signature).

When an amount of electronic value is brought

to a bank, the serial number is checked. Only

when the number has not been previously

used can the value be accepted by the bank.

Four banks— three in Europe and one in

Australia— currently offer the e-Cash product.

In the United States, the only bank to

experiment with e-Cash, Mark Twain Bank of

St. Louis, Missouri, discontinued the project

in September 1998. That same year, DigiCash,

Inc. moved from the Netherlands to Palo

Alto, California. After filing for bankruptcy in

November 1998, DigiCash was sold in August

1999 to eCash Technologies, Inc., of Seattle,

Washington, a manufacturer of Internet

payment software. eCash Technologies
20

continues to market eCash worldwide,

calling it P2P, “person-2-person” Internet

payment service.

Other electronic money systems continue to

be developed. For example, in November

1999, Confinity, Inc., based in Palo Alto,

California, announced its PayPal service,

which allows a user to send cash to anyone

with an e-mail address. The money is charged

to the user’s credit card or bank account. It

resides in an account maintained by PayPal

until the recipient requests payment, which is

effected either by check or as a credit to the

recipient’s credit card or bank account. All

payment transactions are made through

PayPal’s central server, which ensures the

security of transactions. Every user is registered

by name, and, according to the company, each

transaction is traceable.

Confinity is also developing software for a

handheld organizer called Palm Pilot that

would allow a user to wirelessly beam money

from one Palm Pilot to another. Such

“beamed” transactions will also go through

PayPal’s central server. Both Confinity

products are intended to make person-toperson payments as easy and convenient as

making purchases from on-line businesses.

Western Union has announced that it, too, is

developing a service to enable individuals to

send funds over the Internet.

REGULATORY POLICY

As electronic money has come into use

during the 1990s, the question of the need

for regulation has arisen. Various U.S.

government agencies are tracking developments associated with new electronic payment

technologies. Where appropriate, they are

evaluating related regulatory policy issues and

issuing advisories about possible measures to

inhibit the money laundering potential of

these payment methods.

Within the Treasury Department, a departmentwide effort under the leadership of the

Comptroller of the Currency, took an early

and wide-ranging look at the issues confronting

government by the emerging e-money technologies. The Financial Crimes Enforcement

Network (FinCEN), the Secret Service, and

other Treasury law enforcement bureaus

participated in this effort, examining the

potential impact of e-cash systems on the

Treasury’s law enforcement responsibilities.

In an effort to address consumer concerns

arising from the new electronic payment

technologies, the Treasury in 1996 organized

the Consumer Electronic Payments Task Force.

Included in its membership were senior level

officials from the Office of the Comptroller of

the Currency (OCC), the Board of Governors

of the Federal Reserve System, the Federal

Deposit Insurance Corporation (FDIC), and

the Federal Trade Commission (FTC).

According to the task force’s report, “the

mission of the task force was to identify, in

partnership with private industry and the

public, consumer issues raised by emerging

electronic money technologies and to explore

the extent to which innovative responses were

being developed that are consistent with the

needs of the developing market.”

In 1997, the task force held two public hearings

and a series of information exchanges with the

financial services industry. In April 1998, the

task force issued a report on its findings that

focused on electronic money products and

such issues as access for all consumers, user

privacy, and disclosure of consumer rights and

responsibilities by issuers. The task force did

not recommend new regulation at this time

but did foresee a government role in promoting

responsible self-regulation by the industry.
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 21

The cautious position of U.S. regulators is

clear from a speech given by the Comptroller of

the Currency in 1996. At a conference on the

role of government and electronic money and

banking in Washington, D.C., the Comptroller

stated, after noting that the public and private

sectors should work together wherever possible:

“We should avoid premature regulation. We

recognize the dangers of involving government

too early in such a rapidly evolving area and

do not want to chill or unduly influence the

market by encumbering it with regulation that

may quickly become outmoded, inappropriate,

or detrimental.” However, he also noted that

regulators should be prepared to act when

necessary, because “waiting too long to address

problems also will impede the full development

of this promising market.”3

The Comptroller’s views are clearly representative of those across a wide spectrum of

federal government opinion makers. In

September 1996, the FDIC issued General

Counsel’s Opinion Number 8, which addressed

the issue of whether stored value represents

an insured deposit. Also that month, the

agency held a public hearing on stored value

and electronic payment systems in which

experts explored regulatory issues. Congress

has held a series of hearings since 1996 and

has explored various issues but has not

passed specific legislation.

The most recent regulatory action with regard

to electronic cash came in August of 1999, in

connection with the Treasury Department’s

issuance of a final regulation on the application

of the Bank Secrecy Act (BSA) to those nonbank financial institutions called “money

services businesses” (MSBs). Investigations

previously had revealed that certain segments

of the MSB industry, which in 1996 accounted

for $200 billion in financial transactions, are

susceptible to money laundering. As noted by

the Treasury Secretary, “Enhancing anti-money

laundering requirements for MSBs demonstrates Treasury’s firm commitment to close off

all avenues used by money launderers to move

their illicit funds into the economy.”

Included under the rule’s definition for MSB’s

are money transmitters, issuers, redeemers and

sellers of money orders, traveler’s checks,

stored value (electronic cash), check cashing

businesses, and currency exchanges. Although

issuers, sellers, and redeemers of stored value

are defined as MSBs, they, unlike the other

types of institutions, are not required to

register with FinCEN or to maintain a list of

their agents under the final version of the rule.

This exemption for electronic cash reflects

FinCEN’s efforts to strike an appropriate

balance between law enforcement’s need for

accurate information about the owners and

locations of MSBs, and the concern that small

businesses and developing industries be spared

unnecessary and intrusive regulation. Issuers,

sellers, and redeemers of electronic cash are,

however, subject to certain BSA reporting

requirements, including currency reporting in

instances of cash transactions exceeding the

$10,000 reporting threshold.

Other U.S. government regulators, such as

the OCC, have issued guidelines to banks

and examiners on the handling of stored

value products. For example, in September

1996, the OCC disseminated guidelines on

stored value systems to national banks,

alerting them to risks and to other issues

the banks may need to consider when

dealing with such systems. This approach is

in keeping with the regulators’ conviction

that, at present, it is best to allow the

electronic money industry to develop

without the hindrance of government

regulation.

(For efforts at international regulation of

e-cash, see Appendix B.)
22

SUMMARY OF ELECTRONIC

CASH IN THE NEAR TERM

At the end of 1999, an estimated 1.5 to 1.7

billion smart cards were in worldwide circulation.

Of this total, 23 million were Visa chip cards,

including more than 8 million VisaCash cards.

Also in circulation were about 30 million

Proton cards and roughly 2 million Mondex

cards. Other forms of electronic money

worthy of mention were CyberCash and eCash.

Both operated via personal computers and the

Internet, although they were considerably less

significant in terms of volume than chip—

based e-purses.

The immediate future of electronic cash was

expected to be closely tied to smart cards, the

platforms that can carry electronic money on

their chips. Although there was general

agreement among analysts that smart cards

were a viable technology, there was some

disagreement about the pace and size of smart

card growth.

Datamonitor, a New York firm, predicted in

a 1998 report that by 2000 the number of

smart cards issued worldwide would number

3.85 billion, most of them phone cards.4

Datamonitor expected that although Europe

would continue as the largest market for

smart cards, the most rapid growth would

occur in the United States. Growth elsewhere

would be concentrated in the Asia/Pacific

market, followed by Canada and Latin

American nations. The impetus behind

smart card growth was expected to be multiapplication cards, which Datamonitor

predicted would number some 350 million

in 2002.

Forrester Research, another American firm,

made a more cautious assessment.5 In a 1998

report of their own, Forrester analysts did not

anticipate widespread use of smart cards in

the U.S. and Canada until at least the turn of

the century, and they expressed little confidence

in multi-application smart cards in the

immediate future. They predicted that by

2002, card totals might reach 4.7 million, up

from 429,000 in 1997. A company spokesman

commented that although many people

expected the market to explode, Forrester

did not foresee that type of growth in the

next five years.

Frost & Sullivan, a third U. S. technology

research firm based in Mountain View,

California, assessed the worldwide smart card

market in late 1999.6 The firm anticipated

29 percent growth for 1999, mostly in the

telecommunications industry. Noting some

leveling-off of growth while smart card

technology moved from the development

phase to practical application, Frost &

Sullivan, nonetheless, foresaw the number of

smart cards rising steadily from 900 million in

1997 to about 3.6 billion in 2002 to perhaps

5.7 billion in 2004 (see Figure 5). Europe

would continue to dominate the market,

followed by the Asia/Pacific region, Latin

America, and North America.

In this country, stored value smart cards are

currently limited to a few highly controlled

pilots (including “closed systems” such as

college campuses), and electronic money

barely registers in terms of overall volume of

payment transactions. The federal government remains interested, however, in the

potential of electronic means of payment. In

March 1998, a Presidential panel expressed

hope that the U.S. government would be fully

committed to electronic commerce within

three years.

It unveiled a plan to integrate electronic

purchasing tools, including smart cards, with

commercial electronic payment processing

by 2001.
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 23

As early as 1996, the General Services

Administration (GSA) took the lead in

coordinating an interagency management

approach to electronic commerce, including

smart cards.

By late 1998, GSA had prepared a set of

guidelines designed to ensure that federal

agency smart card initiatives would be

interoperable and not a hodgepodge of incompatible card programs. The guidelines are

intended to encourage those federal agencies

with an interest in smart card systems to

design them with similar architecture and

interface. During 1999 GSA refined the

requirements of what it called its Smart

Identification Card, and in early January

2000 released a request for proposals from

private vendors to produce it. GSA hopes to

have the first multi-application and

interoperable Smart Identification Cards in

circulation by late 2001.

In the meantime, GSA has instituted a smart

card pilot among a group of its own employees.

Beginning in May 1999, some 400 employees

received multi-application smart cards in a

test of the technology. GSA hoped to

expand the pilot to include even more

employees in 2000.

The GSA pilot and the Smart Identity Card

have been of significance beyond U.S. government circles. It is possible that these initiatives

may help foster other compatible smart card

systems in the United States if, as some industry

executives expect, the federal government

becomes the catalyst for the introduction of

smart cards to the U.S. public.

Whatever the varying assessments of the

potential of stored value smart cards and

e-cash, at the end of 1999 these industries

were still in their infancy. The basic technology

was at hand but, according to many analysts,

the public acceptance and the broad applications necessary to make smart cards truly

viable were still a few years away.

What was certain at the end of the 20th

century was that electronic payment schemes

and smart cards had arrived on the scene.

What was uncertain was how quickly they

would be perfected and how quickly they

would gain acceptance among consumers.

Source: Based on information obtained from Frost &

Sullivan, “The World Market in Review [1999].” <http://

www.smartcardcentral.com>

Figure 5

Smart Card Growth, 1996-2004,

in millions of cards per year
24
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 25

ELECTRONIC BANKING

INTRODUCTION

E

lectronic banking is an umbrella term for

the process by which a customer may

perform banking transactions electronically

without visiting a brick-and-mortar institution.

This report examines the basic technology

and applications of electronic banking, the

growth of transactional websites, the geographic

distribution of electronic banking activities,

the regulatory bodies and instruments

connected to electronic banking, fraudulent

Internet banking institutions, and the trends

and prospects for transactional banking

activities. An Appendix to this report

provides a list, with websites, of selected

Internet banks.

The following terms all refer to one form or

another of electronic banking: personal

computer (PC) banking, Internet banking,

virtual banking, online banking, home banking,

remote electronic banking, and phone banking.

PC banking and Internet or online banking

are the most frequently used designations. It

should be noted, however, that the terms used

to describe the various types of electronic

banking are often used interchangeably.

PC banking is a form of online banking that

enables customers to execute bank transactions

from a PC via a modem. In most PC banking

ventures, the bank offers the customer a

proprietary financial software program that

allows the customer to perform financial

transactions from his or her home computer.

The customer then dials into the bank with

his or her modem, downloads data, and runs

the programs that are resident on the

customer’s computer. Currently, many banks

offer PC banking systems that allow customers

to obtain account balances and credit card

statements, pay bills, and transfer funds

between accounts.

Internet banking, sometimes called online

banking, is an outgrowth of PC banking.

Internet banking uses the Internet as the

delivery channel by which to conduct banking

activity, for example, transferring funds, paying

bills, viewing checking and savings account

balances, paying mortgages, and purchasing

financial instruments and certificates of

deposit. An Internet banking customer

accesses his or her accounts from a browser—

software that runs Internet banking programs

resident on the bank’s World Wide Web

server, not on the user’s PC. NetBanker defines

a “true Internet bank” as one that provides

account balances and some transactional

capabilities to retail customers over the World

Wide Web. Internet banks are also known as

virtual, cyber, net, interactive, or web banks.

To date, more banks have established an

advertising presence on the Internet—

primarily in the form of informational or

interactive websites— than have created

transactional websites. However, a number of

banks that do not yet offer transactional

Internet banking services have indicated on

their websites that they will offer such banking

activities in the future.

Although Internet banks offer many of the

same services as do traditional brick-andmortar banks, analysts view Internet banking as

a means of retaining increasingly sophisticated

customers, of developing a new customer

base, and of capturing a greater share of

depositor assets.7 A typical Internet bank site

specifies the types of transactions offered and
26

provides information about account security.

Because Internet banks generally have lower

operational and transactional costs than do

traditional brick-and-mortar banks, they are

often able to offer low-cost checking and highyield certificates of deposit.

Internet banking is not limited to a physical

site; some Internet banks exist without

physical branches, for example, Telebank

(Arlington, Virginia) and Banknet (UK).

Further, in some cases, web banks are not

restricted to conducting transactions within

national borders and have the ability to make

transactions involving large amounts of assets

instantaneously.

8

According to industry analysts, electronic

banking provides a variety of attractive possibilities for remote account access, including:

• availability of inquiry and transaction

services around the clock;

• worldwide connectivity;

• easy access to transaction data, both recent

and historical; and

• “direct customer control of international

movement of funds without intermediation

of financial institutions in customer’s

jurisdiction.”

TECHNOLOGY

SECURITY

Concerns over security, privacy, and reliability

have led consumers to take a cautious approach

to electronic banking. Hence, banks seek to

assuage customers’ fears about the safety

of their Internet financial transactions by

providing information about the technology

and the safeguards they employ. Banking

institutions stress that they provide safe

internal operational controls— that is,

layered security.

A variety of software packages are available

to support electronic banking activities.

Internet-based transactions rely on browsers as

front-end software. The transactions require

three levels of security: first, an encryption

standard, either a Secure Electronic Transaction

(SET) or a Secure Sockets Layer (SSL)

protocol that assures message integrity, allows

for the transfer of a digital signature for

authentication procedures, and provides

confidentiality for the data that flow between

a Web server and a browser; second, firewalls

and filtering routers; and third, an internal

operating system that provides protection for

stored information. As an added measure of

security, customers are assigned a personal

identification number (PIN) and a password

for accessing their accounts. SSL provides

data encryption and message integrity for an

Internet connection; it can also provide server

authentication, provided the user knows the

steps to authenticate. SSL security protocol on

the Web server and customer browser ensures

that authenticated data have been received

from the customer. Although SSL often

involves very strong encryption, the banking

industry seems to prefer the SET protocol

because SET provides for the authentication of

all parties to the transaction and SSL does not.

OPENING AN ACCOUNT

There are several ways to open and fund an

electronic banking account in the United

States. Customers who have existing accounts

at brick-and-mortar banks and want to begin

using electronic banking services may simply

ask their institution for the software needed

for PC banking or obtain a password for

Internet banking. Either approach requires

minimal paperwork. Once they have joined
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 27

the system, customers have electronic access

to all of their accounts at the bank.

New customers can establish an account

either by completing a PC banking application

form and mailing it to an institution offering

such a service or by accessing a bank’s website

and applying online for Internet banking. In

either instance, the customer can fund the new

online account with a check, wire transfer,

or other form of remittance. No physical

interface between the customer and the

institution is required.

GROWTH

Despite concerns about security, reliability,

and privacy, electronic banking is positioned

for dynamic expansion. Growth of the

Internet, consumer comfort with technology,

and demographics (younger persons in

higher income groups), combined with lowcost PC and Internet banking solutions,

have made that expansion inevitable. The

former CEO of Bank One Corporation

believes that the demographics of Internet

use are indicative of the potential expansion

of Internet banking. (In only four years, the

Internet has reached 50 million households.

During the 1998 Christmas season, approximately $8.6 billion in retail goods was sold

over the Internet, more than three times

higher than predicted.) The former Bank

One CEO notes that “there is no banking

transaction— other than taking deposits—

that can’t be done on the Internet. You

make all your payments, you get your loans,

you get your mortgages.”9

INTERNET BANKING WEBSITES AND

GROWTH

Websites of banks on the Internet may be

either information-only sites or transactional

sites. As of late 1999, most bank websites were

informational, but of those that offered

transactional capabilities, the ability to check

account balances and histories, to transfer

money between accounts, and to pay bills

electronically were the most common offerings. Many banks, however, attempted to

advance their standing by suggesting unique

value or services. A senior analyst with Gomez

Advisors noted that in their campaigns to woo

customers, banks “will all find ways to describe

themselves as being different.”10 However,

over time, and as banks compete for customers,

the trend is for these services to lose their

uniqueness and to become standard.

Reports on the number of institutions offering

Internet banking services vary among

government, private, and trade sources. Some

of this discrepancy is caused by terminology,

in particular, the generic use of the term

electronic banking and the assumption that the

term Internet banking refers to a customer’s

ability to conduct banking on the Internet,

even though it may signify nothing more than

a bank’s establishment of a website. Further,

reporting sources often do not specify whether

the institutions referred to are banks, thrifts,

or credit unions.

Although there appears to be no comprehensive

list of Internet banks, a number of sources

provide data on Internet banking. However,

these sources categorize their data differently,

are compiled with varying degrees of

thoroughness, and often provide conflicting

information. Among others, the following sites

provide information on electronic banking:

• The Bank Rate Monitor site < h ttp://

www .bankrate.com /brm /new s /rev /rev 1.as p> on

its “Bankrate.com Web site reviews” page

provides weekly reviews of U.S. financial

institutions’ websites and indicates whether

access is by Internet, the institutions’

software, other software, or dial-up network.
28

The site evaluates Internet banks by website

and assesses content, design, and interactivity.

• The Online Banking Report < h ttp://

www .onlinebankingreport.com >, which has

webpages for “True Web Banks and Credit

Unions” and “100 Largest Web Banks,”

lists those institutions that provide account balances and transaction details to

retail customers over the Web and includes the institution’s service provider

and the date added. However, the list is

not complete, and relies upon banks to

submit information if they are not on

the list.

• The AAAdir Directory of Banks, Credit

Unions, and Financial Information on the

Internet < h ttp:www .aaadir.com > indicates

whether or not a bank offers Internet

banking and requests that mistakes and

omissions be forwarded to the site.

• Gomez Advisors < www .gom ezadv is ors .com >

offers an Internet Banker Scorecard that

provides information on a given bank’s

website, overall costs except for loans, and

the benefits and shortfalls of its services.11

Based on the expansion of sales of Internet

banking applications, it is expected that

Internet banking will continue to increase

rapidly. Internet banking surpassed PC banking

activity during 1999.12 Large banking institutions are spending billions of dollars to put

customers online. Smaller institutions are also

buying packages from software companies to

deliver global corporate cash management

services via the Internet.13

Data on Internet banking have been

collected by the Federal Government,

particularly the Federal Deposit Insurance

Corporation (FDIC) and the Office of the

Comptroller of the Currency (OCC). As of

Source: Based on information obtained from: Kori L. Egland, Karen Furst, Daniel E. Nolle, and Douglas Robertson,

“Banking over the Internet,” Quarterly Journal, [OCC] , Vol. 17, No. 4, December 1998, 30, and FDIC data.

Figure 6

Growth of Transactional Bank and Thrift Web Sites, 1995-1999
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 29

late 1999, the FDIC counted 1,132 FDICinsured banks and thrifts with transactional

websites out of a total of approximately

3,500 banks and thrifts with websites. This

figure represented an increase from 368

transactional sites a year earlier and from

103 transactional sites in late 1997 (see

Figure 6). It also meant that out of about

10,500 federally insured banks and thrifts in

late 1999, almost 11 percent offered transactional banking, more than a three-fold increase

from late 1998 but still a relatively small

percentage of banking activity. FDIC data

collection has been enhanced by a June 30,

1999, request that banks and thrifts report

their website addresses on their quarterly

financial reports.

As of late 1999, at least eight U.S. banks were

”branchless” or “Internet-only” banks

according to the FDIC. By definition, these

banks use the Internet as their primary

delivery channel, although some may also

maintain a “token” branch office:

• CIBC National Bank

< www .m arketplacebank.com >, headquartered

in Maitland, Florida, but owned by

Canadian Imperial Bank of Commerce;

operates on the Internet under the brandname Marketplace Bank.

• CompuBank < www .com pubank.com >,

opened for business in late 1998.

• First Internet Bank of Indiana

< www .firs tib.com > , the only state chartered

Internet bank.

• G & L Internet Bank < www .glbank.com >, a

thrift institution that opened for business in

October 1999, in Pensacola, Florida.

• NetB@nk < www .netbank.com >, a former

subsidiary of Carolina First Bank.

• Principal Bank < www .principal.com >, a

subsidiary of the Principal Financial Group.

• Security First Network Bank

< www .s fnb.com >, operated as a U.S.

subsidiary of the Royal Bank Financial

Group (Canada).

• Telebank < www .telebank.com >, one of the

earliest true “branchless” banks and a

wholly owned subsidiary of E*Trade Group,

as of January 2000.

In some cases, traditional brick and mortar

banks that have added Internet capabilities

have chosen to market their Internet

banking product under a different name,

which, in some instances, makes it appear as

if the Internet function is a separate bank.

The following is a list of Internet banks

with different names that are actually

divisions of FDIC-insured depository

institutions as noted:

• BankCaroLine < www .bankcaroline.com >,

Carolina First Bank, FSB, Traveler’s Rest,

South Carolina.

• BankDirect < www .bankdirect.com >, Texas

Capital Bank, Dallas, Texas;

• DirectBanking.com < www .directbanking.com >,

Salem Five Cents Savings Bank, Salem,

Massachusetts.

• Discover Card < www .dis cov ercard.com >,

Greenwood Trust Co., Wilmington,

Delaware.

• Ebank.com < www .ebank.com >, Commerce

Bank, Atlanta, Georgia.

• EverBank < www .ev erbank.com >, Wilmington

Savings Fund Society, FSB, Wilmington,

Delaware.
30

• First National Bank of the Internet

< www .fnbinternet.com >, First National Bank

of Cherokee, Woodstock, Georgia.

• Marketplace Bank < www .m arketplacebank.com >

CIBC National Bank, Maitland, Florida;

serves as the website for CIBC National

Bank.

• Membership B@nking

< www .am ericanexpres s .com >, American

Express Centurion Bank, Oakland, California.

• NBank < www .nbank.com >, The First

National Bank of Commerce, Commerce,

Georgia.

• USAccess Bank < www .us acces s bank.com >,

Porter Bancorp, Louisville, Kentucky.

• USABanc < www .us abanc.com >, Bank

Philadelphia, Philadelphia, Pennsylvania.

• WingspanBank < www .w ings panbank.com >,

First USA Bank (BancOne), Wilmington,

Delaware.

(For additional information on selected U.S.

Internet banks, see Appendix C.)

Industry sources estimated that, in the

second half of 1999, only about 6-7 percent

of U. S. households banked online. Online

banking, however, holds great potential for

businesses as well as for individuals. Among

banks offering transactional Internet services,

a sizeable number currently offer Internetbased services tailored to business. Such

services are likely to become increasingly

important to businesses of all size. Industry

analysts expect that demand for business

services will be another stimulant to growth

in Internet banking, which they predict will

increase fourfold during the next four to

five years.

COST OF SERVICES

Electronic banking, both PC and Internet,

costs banks less than does providing services

in the traditional brick-and-mortar setting. In

1998, Booz Allen estimated that the cost per

banking transaction was:

$1.07 branch service

$0.54 telephone (average)

$0.27 ATM-full service

$0.02 PC banking

$0.01 Internet banking

Other sources, however, point out that the

cost of Internet banking is greater than these

Booz Allen figures indicate because of the

overhead cost of installing and servicing

Internet transactions. The true cost possibly

ranges from $.07 per transaction to as much as

$0.26, according to one estimate.14 PC banking,

because it is a proprietary “dial-up” system

serving individualized remote users, is more

expensive than Internet banking, which

features a centralized system that can reach

an expanding number of customers at low

incremental cost.

An expert on Internet banking who is affiliated

with Grant Thornton LLP, an international

accounting and management consulting firm,

thinks that Internet software and service

providers offer community banks competitive

prices for total software and assistance packages that facilitate their entry to Internet

banking. He believes that Internet start-up

costs are equivalent to the approximate cost of

one to two tellers. He views the expansion of

Internet banking as providing opportunities to

gain market share.15

(For a list of selected international Internet

banks and websites, see Appendix D. Appendix E

discusses Internet banking in different regions

of the world.)
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 31

REGULATORY OVERSIGHT

The growth of electronic banking has introduced various challenges for financial

regulatory officials. Government authorities

must continually evaluate commercial

developments in order to formulate strategies

and programs that minimize the risk for

financial fraud and money laundering,

without inhibiting the continued growth of

the industry.

Today’s electronic bank may consist of no

more than a computer server and a telecommunications connection and, depending on its

location, may be subject to a wide range of

regulatory treatment— from very robust and

effective programs, to very lax or nonexistent.

In addition, an electronic bank whose practices come under suspicion by regulatory and

law enforcement authorities may be difficult to

investigate because of the remote and global

projection capabilities of the Internet and

other telecommunications technologies. The

victims of a bank fraud and/or the perpetrators

of a money-laundering scheme may be half-aworld removed from the physical location of

an electronic bank’s computer servers. Online

payment technologies may also pose other

unique problems vis-à-vis concealed transaction

identities and insufficient or non-existent

audit trails.

Banking supervisory activities and antimoney laundering activities are closely

linked in many nations. However, as previously noted, authorities around the globe

have widely ranging standards for regulatory

oversight and supervision, a factor that

may greatly influence their ability to

effectively deter money laundering and other

financial crimes.

On the positive side, in the mid-1990s, the

Institute of International Bankers detected a

global trend toward harmonizing supervisory

and regulatory standards and noted that

“initiatives to increase coordination of regulatory authorities continue to be undertaken,

especially through the Basle Committee on

Banking Supervision.”16 The Basle Committee,

composed of regulatory officials from the

major financial nations of the world and

headquartered in Basle, Switzerland, issued a

report in March 1998, in which it identified

some of the risks that banks engaging in electronic banking and electronic money may

face. The Committee also considered measures that banks and bank supervisors could

take to deal with those risks.17

The committee identified three risk categories

as most important: operational risks, which

involve threats to the security of bank systems

or products; legal risks, which may arise from

violations of or non-conformance with laws,

rules, and regulations; and reputational risks,

which result from bank practices or products

that may lead to a loss of public confidence.

Although none of these basic risks is new in

the banking industry, the specific ways in

which the risks arise, as well as the magnitude

of their impact on banks engaging in electronic

banking, may be new for bankers and supervisors

alike, the committee warned.

Although the committee dissolved itself after

issuing its report, a successor group has been

formed to pursue the issue of risk in electronic banking. Chaired by the current U.S.

Comptroller of the Currency, this electronic

banking group held its initial meeting in

November 1999.

FINANCIAL CRIMES ENFORCEMENT

NETWORK (FINCEN)

In the U.S., a number of federal agencies

oversee the financial activities of the banking

sector. FinCEN, under the Department of the
32

Treasury, is responsible for establishing

policy and for overseeing all aspects of Bank

Secrecy Act (BSA) compliance by more

than 200,000 U.S. bank and non-bank

financial institutions, as well as for coordinating federal and state government

programs relating to administration and

enforcement of the BSA. This authority

includes oversight of BSA supervisory,

examination, and civil enforcement activities

and coordination with federal and state

criminal investigators.

Regulations issued by FinCEN require banks

and other financial institutions to keep and

maintain records, file reports, establish programs

to guard against financial crime, and report

suspicious transactions to the government.

The Suspicious Activity Reporting (SAR)

system, which is administered by FinCEN on

behalf of the participating agencies, has

developed into a primary anti-money

laundering mechanism, both in the United

States and abroad.

In the context of its responsibilities and

authority under the BSA, FinCEN actively

monitors the development of the online

banking industry. By fully understanding the

nature and functional characteristics of

banking operations conducted in the Internet

environment, FinCEN is better able to

determine appropriate BSA program initiatives to prevent money laundering. FinCEN

uses written publications and outreach

briefings to disseminate information on

industry developments and other issues

pertaining to regulatory and law enforcement strategies.

FEDERAL FINANCIAL INSTITUTIONS

EXAMINATION COUNCIL

The Federal Financial Institutions Examination

Council (FFIEC), established in 1979, is a

formal “interagency body empowered to

prescribe uniform principles, standards,

and report forms for the federal examination of financial institutions by the Board of

Governors of the Federal Reserve Board,

the Federal Deposit Insurance Corporation

(FDIC), the National Credit Union

Administration (NCUA), the Office of the

Comptroller of the Currency (OCC), and

the Office of Thrift Supervision (OTS),

and to make recommendations to promote

uniformity in the supervision of financial

institutions.” The FFIEC publishes various

guides and information booklets for

electronic banking. Among these publications

is the FFIEC Information Systems Handbook,

which provides an overview of information

systems concepts, practices, FFIEC work

programs, and information system controls

should be be consulted prior to developing

a transactional website.

Another such reference tool for planning,

developing, and deploying transactional

websites is the Interagency Guidance on

Electronic Financial Services and Consumer

Compliance, CEO Memorandum 90. This

publication provides guidance in assessing

the implications of some of the emerging

electronic technologies for the consumer

regulatory environment, an overview of

pertinent regulatory issues, and suggestions on how to apply existing consumer

laws and regulations to new electronic

financial services.

During 1999, U.S. bank regulatory agencies

under FFIEC auspices expanded their

Information System (IS) examination

program to include not only banks and thrifts

but also Internet banking vendors. The

purpose of the expansion is to improve the

security of on-line banking. Currently, the

FFIEC IS Subcommittee is coordinating this

interagency initiative.
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 33

FEDERAL RESERVE SYSTEM

The Federal Reserve System serves as the

nation’s central bank. The system consists of a

seven-member Board of Governors and twelve

Federal Reserve Districts located in major U.S.

cities. The mission of the Federal Reserve

Board (FRB) is to provide the nation with a

safer, more flexible, and more stable monetary

and financial system. The Board is responsible

for conducting the nation’s monetary policy;

maintaining the stability of the financial

system; protecting the credit rights of consumers; and providing certain financial services to

the U.S. government, the public, financial

institutions, and foreign official institutions.

The Board has supervisory and regulatory

responsibilities over banks that are members

of the Federal Reserve System, bank holding

companies, international banking facilities in

the U.S., Edge Act and agreement corporations,

foreign activities of member banks, and U.S.

activities of foreign-owned banks.

In June 1999, commenting on a forthcoming

General Accounting Office report on electronic

banking, the Chairman of the Federal Reserve

wrote that the growth of Internet banking has

been fairly gradual, and “we have not seen

significant risks emerge. As Internet services

become a more widespread and significant

part of banking operations, however, we

expect to devote more supervisory resources

to examining these activities.”18 The Federal

Reserve has enhanced its monitoring regarding

Internet banking and is developing more

powerful automation tools in order to aid

more generally in examination and review.

FEDERAL DEPOSIT INSURANCE

CORPORATION

The Federal Deposit Insurance Corporation

(FDIC) is the government agency that insures

approximately 10,500 savings institutions,

thrifts, and commercial banks. Whether it

plans to offer only traditional physical

operations, to offer both Internet and physical

operations, or to be a fully virtual bank, a

start-up institution follows that same application process for Federal Deposit Insurance.

Although applications for Internet-based banks

are reviewed more carefully with respect to

system security and Internet-related aspects of

the banks’ business plans, the regulations,

laws, and policies for the application process

are the same for all banks. A new bank must

follow the standard application/approval

process in order to obtain FDIC authorization

to operate a transactional Internet bank

service. Existing banks desiring to add this

capability may do so; however, they are subject

to review and approval during the FDIC’s

next examination.

In order to advance efforts to deter fraud and

other financial crimes, the FDIC maintains

two public information systems, both of which

are available through the agency’s website.

The first system, a computer search engine,

allows Internet users to query an FDIC database to determine whether an institution has a

legitimate charter and is an FDIC member.

All electronic banking and Information

Systems information (for example, exam

procedures, guidance letters, etc.) is available

at <www.fdic.gov/regulations/information/

index.html>. From this page, bankers may

access all relevant exam procedures, manuals,

and official statements, and consumers may

access an area that allows them to search for

online banks to confirm legitimacy and

insured status.

The FDIC also issues Special Alert Financial

Institution Letters (FILs) that warn of suspicious

banking activities by entities that may be

conducting unauthorized banking operations

in the United States or abroad. These institutions may be soliciting deposits on the
34

Internet, offering credit card services, and

so on, and may lack both FDIC insurance

and a bank charter.

In February 1997, the FDIC was the first

federal regulator to develop and issue

electronic banking examination procedures

and to train its examiners accordingly. The

agency maintains an internal program for

Electronic Banking Subject Matter Experts,

who receive specialized technical training that

allows them to perform examinations of more

technologically sophisticated institutions.

OFFICE OF THE COMPTROLLER OF

THE CURRENCY

The Office of the Comptroller of the Currency (OCC), under the Department of the

Treasury, charters, regulates, and supervises

national banks, and supervises federally

licensed branches and agencies of foreign

banks. National banks, that is, banks with

the words national or national association in

their title, or the letters N.A. or N.T. following their titles, represent approximately 28

percent of all insured commercial banks in

the United States. They make up about 57

percent of the total assets of the banking

system.19 The OCC supervises more than

2,500 banks.

The OCC is similar to the FDIC in its

regulatory process for net banking activities.

Under the Bank Service Company Act, a

statutory requirement mandates that banks

notify the OCC within 30 days if a vendor is

providing information technology processing

services— that is, an Internet banking package.

The law applies equally to the FDIC and the

Federal Reserve Board. If the bank is supplying

its own technology, it is not required to notify

the OCC. New banks such as CompuBank

come under the requirements governing the

regular licensing process.

The OCC is taking a pro-active stance towards

supervising bank use of technology and the

risks posed by that technology. The following

publications and activities represent some of

the measures undertaken by the agency:

Internet Banking Handbook Published in

1999, this handbook provides information to

examiners and banks about the risks and

examination procedures for Internet Banking.

The examination procedures were tested in

several examinations prior to publication.

Issuances In recent years, the OCC has

issued a broad range of guidance, including:

• Certificate Authority Guidance (BB99-20);

• Infrastructure Threats from Cyber-terrorists

(BB99-9):

• Technology Risk Management: PC Banking

(BB98-38);

• Technology Risk Management (BB98-3).

Internet Banking Survey To better guide the

OCC’s activities relating to Internet banking,

specialists conducted a survey of the OCC’s

portfolio managers in the fourth quarter of 1999.

The survey indicated that 45 percent of national

banks plan to have transactional web sites by the

end of 2000. Approximately 90 percent of large

banks offer Internet banking today.

Internet Banking Working Group The OCC

established this working group to coordinate

its multiple efforts to ensure that the agency

thoroughly evaluates its Internet licensing,

regulation, and supervision responsibilities.

Technical Tools The OCC developed a series

of internal technical tools to assist the monitoring of risks pertaining to Internet banking.

The OCC, well aware that technology is changing the banking industry, is reviewing its Bank

Information System examination program to
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 35

keep pace with technology and banks’ growing

reliance on vendors and service providers.

OFFICE OF THRIFT SUPERVISION

The Office of Thrift Supervision (OTS), also

under the Department of the Treasury, is the

primary regulatory agency of all federal and

many state-chartered thrift institutions.

Such institutions include savings banks and

savings and loan associations. OTS regulates

approximately 1,120 institutions, and was the

federal banking regulatory agency to charter

the first pure Internet bank (Security First

Bank, in 1995). Since January 1, 1999, the

Electronic Operations Rule has allowed U.S.

savings and loan institutions to offer their

traditional services electronically. This

provision authorizes thrifts to use personal

computers, the Internet, the World Wide

Web, telephones, and automated teller and

loan machines to deliver banking services.

Thrift institutions that intend to provide

electronic banking services must notify the

OTS 30 days in advance. The 30-day notice

is required for both brick-and-mortar facilities

and “pure” cyberbanks. Thrifts using new

electronic technologies must also follow the

framework of the interagency Community

Reinvestment Act (CRA) regulations and

interpretations.20

Two reference tools available from OTS

for planning, developing, and deploying

transactional websites are:

• Thrift Activities Regulatory Handbook,

Information Technology, Section 341 (describes

a safety and soundness examination program

to evaluate technology risk— useful for

planning, deployment, and operation of

information systems);

• Policy Statement on Privacy and Accuracy of

Personal Customer information, CEO

Memorandum 97 (offers information for

customers on privacy policies available

on websites).

NATIONAL CREDIT UNION

ADMINISTRATION

The National Credit Union Administration

(NCUA) is an independent federal agency

that supervises and insures more than 6,800

federal credit unions and insures almost

4,200 state-chartered credit unions. The

NCUA does not require that credit unions

submit to a pre-approval and regulatory

process for Internet banking activities.

However, examiners review such activities

during their onsite contacts, which are

conducted at least once a year, and evaluate

Call Report requirements, which are

reviewed at least twice a year. NCUA estimates that about 250 of the approximately

1,700 credit unions with websites offer

interactive services.

RECENT REGULATORY

DEVELOPMENTS

In March 1999, the U.S. House Banking and

Financial Services Committee passed an

amendment to H.R.10, requiring that federal

banking agencies study banking regulations

“regarding the delivery of financial services,

including those regulations that may assume

that there will be no person-to-person

contact during the course of a financial

services transaction, and report their

recommendations on adapting those existing

requirements to online banking and lending.”

The regulatory agencies must submit a report

to Congress on their findings and conclusions

as well as recommendations for legislative or

regulatory action deemed appropriate within a

year of enactment of the Financial Services

Act of 1999. The act was signed into law on

November 12, 1999.
36

In July 1999, the U.S. General Accounting

Office submitted a report to Congress that

evaluated the efforts of the five regulatory

agencies to investigate and supervise Internet

banking activities.21 GAO found that nearly

44 percent of supervised banks had failed to

fully implement regulators’ recommendations

to reduce risks associated with on-line banking.

The GAO report discussed problems specific

to supervising Internet banking and made

recommendations for improving examination

procedures and for limited extension of

regulatory authority.

(For Information on International Financial

and Regulatory Institutions, see Appendix F.)

CRIMINAL ACTIVITIES

With the global spread of electronic banking

comes an increased risk for criminal abuse by

those individuals engaged in money laundering,

fraud, and other financial crimes. Electronic

banks, particularly those operating from traditional “bank secrecy” jurisdictions, offer many

unique services that may be misused for the

purpose of laundering illicit funds. However,

given that the online banking industry is as yet

in the nascent stage, discussion of specific moneylaundering scenarios remains hypothetical.

In contrast, investigators have documented

that financial fraud, usually perpetrated by an

online bank against its customers, is occurring.

The fraud often takes the form of unlicensed

institutions that accept deposits in violation of

federal and/or state law. Both the OCC and

the FDIC issue public alerts with regard to

financial institutions that are thought to

engage in questionable banking activities.

For example, the alerts flag institutions not

chartered by a recognized regulatory agency,

institutions whose deposits are not properly

insured by the FDIC, and institutions whose

management is not properly bonded to conduct such business. Customers are urged to be

cautious when depositing funds in flagged

institutions. The alerts target both brick-andmortar and online institutions.

Netware International Bank was the subject of

the OCC’s Suspicious Transactions Alert 97-14,

issued in June 1997. The “subject entity” was

soliciting deposits on the Internet and offering

high interest rates. The bank’s deposits were

not insured by the FDIC, nor had the North

Carolina Commissioner of Banking granted

the bank a charter. After being advised by the

OCC, the FDIC issued Special Alert FIL-71-97,

addressing the OCC’s concerns. In July 1997,

after the execution of a search warrant by the

Federal Bureau of Investigation, the bank

ceased operations. Netware’s officers are being

prosecuted for bank fraud, mail fraud, and

money laundering in Statesville, North

Carolina. In May 1999, guilty pleas were

entered in two of three cases— 5:99 CR6

(United States v Bear) and 5:99 CR7 (United

States v Skeen). The third case, 98 CR221

(United States v David Bear), was still pending at the end of 1999.

The First Bank of Internet, an entity with a

Chicago, Illinois, mailing address, announced

in March 1995 that it was initiating transaction

processing services for Internet electronic

commerce. Despite the use of the term bank

in its title, the First Bank of Internet was

neither chartered nor a lending institution,

nor was it covered by FDIC or FSLIC insurance or regulations. Although the bank

released a procedures guide with instructions

for vendors and customers and provided an

e-mail address for verification purposes, in

actuality it was a Visa ATM card site used for

purchasing transactions over the Internet.22

The OCC issued an alert warning of unauthorized banking activity by this entity (OCC Alert

95-11) on April 26, 1995. The “bank” is no

longer in business.
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 37

The European Union Bank, registered offshore

in Antigua and Barbuda, is another bank cited

for suspicious activities. Chartered in 1995 with

a $1 million investment, the bank collapsed in

August 1997. Within one week, the bank had

fired all of its employees and its co-founders

had disappeared, allegedly absconding with $8

million to $10 million in depositors’ money.

The bank touted itself as an Internet institution

with private, tax sheltered banking services.

The Bank of England and the OCC (Alert 96-40)

issued warnings about the bank’s operations in

October 1996; the FDIC followed in April

1997 (FIL-29-97).23 The OCC warned that the

bank was soliciting deposits on the Internet,

was offering high interest rates, lacked the

protection of the FDIC, and was operating

without authorization, supervision, or regulation

by any U.S. financial institutions regulator. The

director of the Idaho Department of Finance

ordered the bank to cease soliciting deposits

from Idaho residents over the Internet, alleging

that the bank, which was operating without a

state or a federal charter, was illegal. The

Antigua and Barbuda government also issued a

fraud alert and was seeking the bank’s

co-founders, reportedly two Russian nationals

linked to organized crime.

PROSPECTS

Electronic banking is a growth industry. A

flood of “banks”— state banks, community

banks, and thrift institutions— as well as

businesses and financial investment firms have

opened transactional banking sites. International

Data Corporation, a research firm, notes that

sales of Internet banking applications, including

the software to build websites, reached more

than $93 million in 1998.24 International Data

projected sales increases of 250 percent in

1999, with Internet banking applications

accounting for approximately 33 percent of

all U.S. banking applications on the market.

The bank consulting firm of Dannenberg and

Kellner predicts that Internet banking will

become more attractive and more competitive

when institutions offering such services expand

their distribution systems and offer personal

online financial advice over the Internet.

As the industry continues to grow and expand

globally, so too will the opportunities for fraud

and money laundering, particularly in bank

havens and offshore financial services centers.

Customers of facilities located in such spots are

known to exploit legislative loopholes or banking

provisions that facilitate clandestine activity. In

the face of this challenge, regulatory authorities

have continued to assess their policies, to

identify flaws and, as is appropriate, take action

to minimize the risk of criminal misuse of the

banking system. Given the global nature of the

Internet environment, however, this effort must

include multilateral consultations among concerned governments if it is to be successful.
38
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 39

INTERNET GAMING

INTRODUCTION

I

n the last three years, the Internet gaming

industry has undergone enormous expansion,

going from twelve websites at the beginning of

1997 to an estimated 600-700 sites in early

2000. (For the purpose of this report, the

term Internet gaming describes web-based

casino gambling, sports betting, and lottery

operations.) Although the actual amount of

current or future gaming conducted via the

Internet cannot be measured or predicted

easily, experts are confident that upcoming

technology improvements and the relative

ease of establishing such sites will continue

the trend of expansion.

Gaming websites are located in a large number

of jurisdictions, including Africa, the Asia/

Pacific region, the Caribbean, and Western

Europe. In the United States, where gambling

regulation has been primarily a state responsibility, there are many proponents of federal

legislation that would prohibit the transmission

or use of Internet gaming services. Although

continued world expansion of this industry is

not hard to predict, the legislative process

necessary to establish United States policy

remained unfinished in mid-2000, and the

effort to establish legal controls is ongoing.

This chapter of the report provides information

on several aspects of Internet gaming. The

first section evaluates the speed at which

Internet gaming is growing and factors involved

in the development of the commercial market

for Internet gaming and the types of financial

activity possible using current systems. That

discussion is followed by a description of

gambling websites as they now exist,

emphasizing the types of customers that are

targeted and how the sites attempt to deal

with obstacles such as customers’ security

concerns, legal issues unique to the United

States market, and technical problems. The

next section discusses the various approaches

of national and some regional jurisdictions

where there is a current or projected market

demand for Internet gaming.

The fourth section discusses recent enforcement

actions in the United States, focusing on civil

and criminal cases that charge Internetgaming related misconduct and on recent

efforts to establish federal legislation that

criminalizes Internet gaming. The final section

of the chapter examines the prospects of

Internet gaming based on the conditions

described in the preceding sections.

COMMERCIAL

DEVELOPMENT TRENDS

The rate of growth of Internet gaming is a

matter of speculation, as is the total amount of

money spent per year. The number of gaming

sites also is a matter of speculation: most

current estimates range between 300 and 700,

with new sites appearing constantly and others

going out of business. (Rolling Good Times

Online, a source of such information, reported

282 individual sites accepting real-money

wagers in February 1999.) According to reports,

sites may be established with relatively low

capitalization for equipment, software, setup,

and maintenance expenses. However, final

startup costs depend on the amount required

for licensing and bonding by the jurisdiction in

question. Once a site is in operation, it must

achieve a relatively high volume of gaming

transactions to make a profit.
40

One gaming expert estimates that $10 must

be wagered for every $1 of revenue realized

by an Internet gaming operator.

PARTICIPANTS

According to the former chair of the Interactive Gaming Council (IGC), the growth of

Internet gaming has been fueled mainly by

the work of young computer and marketing

specialists interested in applying their technology in a high-risk venture with some

prospects of profitability. However, larger

software and electronics companies, many of

which have connections to other, more

conventional parts of the computer and

telecommunications industries, are playing

an increasing behind-the-scenes role in the

Internet gaming industry. The character and

long-term prospects of this role are not clear.

Some of those companies sell gaming systems

outright to gaming operators; others take an

ongoing percentage-licensing fee. According

to the former IGC chair, the number of

companies with such involvement has grown

slowly but steadily, with most companies

appearing to maintain the balance of their

activity in jurisdictions with more established

financial regulatory programs until governments set firmer national policies.

GROWTH

Estimates of the total amount of business

done annually by the industry range from

$6 billion to $60 billion. $10 billion has been

cited by one industry analyst as the most

accurate estimate for 2000. A complicating

factor in gauging the growth of Internet

gaming is the uncertain legal status of the

industry (especially as it relates to the

United States), which may have caused

many operators to conceal their financial

situation and sometimes their identity. The

overall lack of clear regulation also makes

it difficult to determine how many enterprises are entering the field and how many

are folding. For example, Antigua, which

boasts of its strict licensing regime, has

issued a list of seven or eight unlicensed

gaming websites that were operating from

Antigua in 1998. Further complicating

matters is the frequent ownership or licensing (the relationship often is not clear) of

multiple sites by the same corporate entity

and the tendency to change site names or

use variations of the same name in different

levels of advertising. Online casino and

sportsbook listings often give both the

parent and the subsidiaries the same status,

and often both levels have websites that

seem to represent a single casino or

sportsbook. An example is Casino Fortune

of Trinidad, which apparently went from

being a single casino to being the corporate

name of several casinos, including one in

Botswana, owned by a company called the

Sunny Group. Meanwhile, Casino Fortune

maintains a separate gaming website exactly

like the other casinos.

About 15 companies develop and sell turnkey

interactive gaming software for Internet gaming

operations. Their number is growing slowly but

constantly. According to an IGC expert, the

largest volume of such sales has been produced

by Atlantic International Entertainment, Inc.

and Microgames. Other major players are

Cyberoad of Canada, Casino World Holdings of

Antigua, CyberSpace Casino Tech and Handa

Lopez of California, and Cryptologic of

Vancouver. However, some gaming operators

have established relationships with more

conventional software companies such as

Electronic Data Systems Corporation, the

supplier of Global Internet Corporation, a

Dominica-based Internet operator.

Whatever the growth rate or current level

of activity, it is certain that since 1997,
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 41

those depending on the U.S. market have

been substantially slowed by the uncertain

legal status of Internet gaming operations in

the United States. Major supplier companies

such as Virtual Gaming of Antigua and GLC

(formerly Gaming Lottery Corporation) of

Gibraltar have formally declared that they

will avoid direct contact with the American

market as long as state and federal laws are

interpreted as prohibiting the offering of

Internet gaming services in U.S. jurisdictions. Australia’s largest online operation,

Centrebet, terminated all U.S. commerce

in 1998.

SITE LOCATION

The number of countries currently licensing

Internet gaming also is a matter of speculation. One industry analyst estimated 20

such countries in November 1998. Among

those known to offer some form of licensing

are Antigua, Australia, Austria, the

Bahamas, Belize, Costa Rica, Dominica,

the Dominican Republic, Ecuador,

Gibraltar, Grenada, the Netherlands

Antilles, St. Kitts, and Venezuela. However,

the definition of “licensing” also differs by

jurisdiction.

Observers of the industry have pointed

out that websites often label themselves

licensed by virtue of holding only a

general license to conduct business, as

opposed to a specific license for Internet

gaming. The latter license may not be

granted in jurisdictions such as Costa Rica

and Venezuela, even though Internet

gaming operations apparently are based in

both countries. In addition, many casinos

operate in countries that do not license

Internet gaming. The choice of a site

location for Internet gaming may have

nothing to do with whether or not a

country licenses the operations.

FINANCIAL OPERATIONS

An important marketing tool for the Internet

gaming industry is the ability to transfer

money quickly, inexpensively, and securely—

attributes that conventional casinos, lotteries,

and sports betting venues offer to their

customers. A person who enters an interactive

gaming website wishing to place a bet first must

register and deposit a prescribed minimum

amount of money (most often $300) with which

to establish an account. The conventional

ways of placing that money are (1) providing

the number of a credit card from which a cash

advance is taken and transferred to the casino

operator, (2) sending a check or money order,

or (3) sending a wire transfer or other

remittance of funds. The bettor is able to

gamble at the website only when the account

has been established. As the bettor gambles,

money is added to or subtracted from the

initial amount. The bettor may request that a

check be sent for the remaining balance at any

time; most operators guarantee a short turnaround for this service.

According to one Internet gaming analyst,

the conventional methods of transfer have

impeded the growth of the industry because

they do not provide enough security (a large

sum must be forwarded or a credit card number revealed), speed (the transfer of funds via

wire or other remittance system takes time), or

anonymity (personal information, especially

age, also is required to establish an account).

There is, in fact, a substantial record of

shadow websites collecting such deposits for a

period of time and then disappearing, in the

process destroying consumer confidence.

He notes that, although money order,

check, and credit card transactions still are

the most frequently used payment methods for

establishing accounts, several more efficient

methods of cash transfer are either on the
42

horizon or already in limited use. These

include stored-value smart cards, which can

store digital information about an account, and

electronic cash (e-cash). These new payment

mechanisms have the advantages of security

and speed. However, at present, high transfer

fees make digital cash impractical for the

interactive gaming industry. Another problem

is that several varieties of digital cash are

competing for the market, creating a situation

where a prospective bettor’s home computer

might be equipped for a type of digital cash

incompatible with a given gaming website.

Theoretically, as these problems are overcome, a

consumer will be able to use e-cash across a wide

range of purchases; this marketing approach is

being taken by both the provider companies and

the gaming companies that offer e-cash as a

payment option. At present, however, a relatively small percentage of the Internet gaming

community is connected to an e-cash system.

When gaming establishments offer account

establishment via conventional credit card

within a five-minute period, the additional speed

of e-cash does not seem to be a great advantage

even though the security and anonymity of

the technology may prove more attractive.

GAMING WEBSITES

DESIGN AND STRUCTURE

Gaming websites vary enormously in size and

structure. Some are simple three-page sites

with no additional links, and some are elaborate (and often repetitive) collections of ten

or more links and sublinks. Most home pages

offer a menu of links. The most common

listings are:

• “About Us” (which may or may not contain

information about the workings of the

company);

• “Contact Us” (usually one or more email

addresses with assurance that someone will

be available to address problems);

• “Frequently Asked Questions” (mostly

about how to deal with transmission and

software glitches, often also addressing legal

issues associated with the questioner’s

location);

• “Help” (a list of solutions to possible financial and payment problems);

• “Rules” (sometimes a general statement of

how games are to be played and money

handled, sometimes a detailed description

of how each game is to be played); and

• “Security” or “Security Features” (a list of

ways in which a betting transaction with this

website will be expedited and protected).

LEGAL ISSUES

The question “Is gambling on the Internet

legal?” brings a variety of responses; some

sites simply fail to ask it. Some sites, such as

Global Sports in Costa Rica, say that the only

jurisdiction that counts is the one where the

site is located; since they are licensed in Costa

Rica, for example, Global Sports maintains

that gambling is legal no matter where the

customer is sitting. Some sites warn the

customer to check local laws before entering.

A few list states such as Indiana and Minnesota

as jurisdictions where Internet gaming has

been declared illegal. And many simply say

that the status of a patron’s Internet gaming

activity is a complex problem that has not

been decided definitely or consistently. The

question of taxability of winnings is addressed

by about half of the sites, often with the

answer that no accounting of winnings goes to

any customer’s government, and that it is the
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 43

customer’s responsibility to determine tax

requirements and to comply with them. In any

case, it is clear that customers cannot and

should not rely on site operators for complete

and accurate legal guidance.

LICENSING QUESTIONS

The subject of licensing and specific regulatory requirements is omitted entirely on

many gaming websites, and in some cases

there is no mention of ownership or location.

When licensing is mentioned, the terminology differs somewhat. Some sites state the

case directly and briefly (for example, “Casino Money is fully licensed by the government of Venezuela.”) In a few cases, there is

mention of bonding, periodic monitoring, or

other regulatory activity. In other cases, the

issue of licensing and location becomes split,

as in “Casino Money is a fully licensed

sportsbook operating in Venezuela,” a construction that may indicate that the location

and the licensing jurisdiction are not the

same. Compare the more specific statement,

“Casino Money is fully licensed by and

operating in Venezuela.”

According to several websites that comment

regularly on Internet gaming, the term license

is commonly used by the gaming business to

bolster its credibility and authenticity to

would-be customers. In some jurisdictions,

such as Australia, advertisement of a license

is indicative that background checks have

been made, that a special fee has been paid,

and that the business is subject to periodic

monitoring and auditing. In other jurisdictions such may not be the case. The term

license may indicate that a franchise has

been issued to the operator by a software

and electronics firm that supplies it. In

other words, the business is licensed by

another firm but not necessarily by a

government entity.

SITE SECURITY AND TRANSACTIONS

Also prominent in many (but not all) websites

are efforts to reassure the customer of the

security and reliability of gambling at that site.

In 1998 the Bettorsworld website listed about

twenty online casinos and sportsbooks that

were reported not to be paying out winnings

or to be chronically late in paying. The

motivation of such a list may be suspect.

However, other sources also indicate that a

large number of gaming websites are of the flyby-night variety. A fair number on

Bettorsworld’s list still have websites and

presumably still take bets. Because even the

reportedly reputable Bettorsworld cannot be

relied upon to provide information as to the

current status of some sites, gaming enterprises make every effort to reassure the

potential customer.

Nearly all sites go into substantial detail about

how financial transactions are handled,

usually offering a wide variety of ways to

transmit money to open an account. Methods

for the collection of winnings are prominently

mentioned, as are encryption systems designed

to improve the security of credit card use.

Most sites claim to have the most exciting

games, the most sophisticated software, and

the most customers. Many sites also offer play

for fun (especially recommended by some sites

for U.S. customers who live in states that

prohibit gambling for money).

According to one industry analyst, the

technological level of most interactive gaming

sites still is far below the expectations of

Americans accustomed to efficient television

and telephone transmission. Despite the

advertising emphasis on the “virtual experience

of gambling in your own home,” game play

often is slowed by long image downloading

processes and frequent computer crashes; the

system works only as well as its least-efficient
44

link, which often is the user’s own PC. And

there still is no reliable way for a customer to

be sure he or she will not be cheated by rigged

games or nonpayment of winnings, will not be

breaking some law, or will not have a creditcard number misused.

DEVELOPMENTS IN THE

UNITED STATES

Throughout its history, gambling regulation in

the United States has been the province of

state governments. As such, the range of legal

gaming activity in the states is quite varied.

Only two states—Hawaii and Utah— prohibit

gambling altogether. The other states permit

an array of legalized activities, ranging from

bingo, lottery, and race wagering, to full-scale

casino gambling. In addition, under authority

granted by the Indian Gaming Regulatory

Act of 1988, native American tribes have

established casinos, lotteries, and bingo halls

on tribal land in approximately 30 states. In

total, more than 500 casinos exist in the

United States today.

FEDERAL LEGISLATION

After two years of research into all aspects of

gambling in the United States, the congressionally mandated National Gambling Impact

Study Commission issued its final report in

June 1999. The commission’s recommendations

on Internet gaming include the following:

• that the federal government prohibit all

Internet gambling that is not already

explicitly permitted; that the United States

Department of Justice develop enforcement

strategies against Internet service providers,

credit card providers, money transfer

agencies, makers of wireless communications

systems, and “others who intentionally or

unintentionally facilitate Internet gambling

transactions”;

• that legislation be developed to prohibit

wire transfers to known Internet gambling

sites or to banks that handle their accounts;

• that any credit card debts incurred in Internet

gambling be made legally unrecoverable;

• and that “the federal government take steps

to encourage or enable foreign governments

not to permit Internet gambling organizations

that prey on U.S. citizens.”

The Internet Gambling Prohibition Act was

first introduced by Senator John Kyl (R-AZ) in

March 1997. The 1997 Kyl Bill would have

amended the Interstate Wire Act of 1961,

which prohibits the use of telephone and

telegraph communications facilities for the

placing of bets on sporting events. The

amendment would include the Internet,

which did not exist in 1961, among the

forbidden media. The final version of the

legislation subjected individual Internet

bettors as well as Internet gaming entrepreneurs

to a fine and/or prison.

The Kyl Bill was passed by the Senate by a

vote of 90 to 10 in July 1998. However, the

companion House bill, introduced by

Congressman Bill McCollum (R-FL), did not

reach the House floor for a vote before the

congressional session ended in the fall of 1998.

In March 1999, Senator Kyl introduced a

new Internet gaming bill that was substantially similar to the 1998 version. Unlike the

earlier version, the new bill does not make

placing a bet via the Internet a federal

crime; it provides exceptions for fantasy

sports, parimutuel betting, state lotteries,

gaming activities permitted by the Indian

Gaming Regulatory Act and by agreements
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 45

between states and Indian tribes based on

that law, and legally placed bets on horse

races. The bill also provides federal authorities

injunctive powers to shut down web sites; and

it requires gaming companies to comply with

state licensing and enforcement standards.

In June 1999, the Senate Judiciary Committee

approved the 1999 version of the Internet

Gaming Law by a vote of 16-1, sending it to the

Senate floor for consideration. The bill calls for

up to four years imprisonment and up to $20,000

in fines for operators of online casinos and

sportsbooks, and it would extend the provisions

of the Federal Wire Act to cover gambling on

the Internet as well as by telephone and wire.

On November 19, 1999, by a unanimous vote,

the Internet Gaming Prohibition Act passed the

Senate just prior to the start of the Congressional holiday recess, but the House has not

yet passed any comparable legislation.

In April 1999, Congressmen Bob Goodlatte

(R-VA) and Frank LoBiondo (R-NJ)

announced that they would introduce their

bill in the House of Representatives after the

National Gambling Impact Study Commission

issued its final report in June 1999. On

November 3, the House Judiciary Committee’s

Subcommittee on Crime approved the

Internet Gambling Prohibition Act introduced

by Congressman Goodlatte and five cosponsors.

However, the bill was defeated in the full

House on July 17, 2000, falling 25 votes short

of the two-thirds majority necessary for passage.

Following the defeat, Goodlatte indicated that

he intended to continue seeking passage of the

legislation before the end of the current

session of Congress in December. If he fails, the

bill would have to start again with committee

hearings in the next session of Congress.

Another piece of legislation, the Internet

Gambling Funding Prohibition Act, was

introduced in the House of Representatives on

May 10, 2000. This new bill would prohibit

the use of credit and debit cards, checks, bank

drafts, and electronic transfers to place bets,

collect winnings, or otherwise conduct

gambling activities on the Internet. On

June 28, 2000, the bill was approved by the

House Banking Committee and, as of August 10,

was awaiting further action.

FINCEN SURVEY OF STATE

LEGISLATION

Early in 1999, FinCEN sent a survey to the

offices of the attorneys general of all the states

and United States territories and the Office of

the Corporation Council of the District of

Columbia. The survey posed three questions

related to the jurisdictions’ policy toward

Internet gaming:

• whether the jurisdiction has statutes or

regulations dealing with gaming in general

and, if so, whether any of them might apply

to Internet gaming;

• whether any existing or future statutes of

the jurisdiction apply specifically to Internet gaming;

• whether the jurisdiction had pursued any

criminal or civil actions pertaining to

Internet gaming.

Responses were received from 19 states, the

District of Columbia, and Guam.25

Responses to the question of applicability of

current laws or regulations to Internet

gaming overwhelmingly expressed the

opinion that laws designed for conventional

gambling could be interpreted to apply to

Internet gaming, depending on the circumstances of a particular case. The criterion

most often cited is legal establishment that

Internet gaming actually occurs within the
46

boundaries of the state in which the gambler

is physically located.

Although no responding jurisdiction cited a law

or regulation specifically enacted to address

Internet gaming, one section of the Nevada

Gaming Control Act lists the Internet as a

“medium of communication,” giving the State

Gaming Control Board official jurisdiction over

Internet gaming. In New Jersey, an article of the

state constitution says that any new form of

gaming must be approved by referendum before

being legalized. Therefore, according to the

spokesperson for the state attorney general’s

office, the current interpretation of that article

makes Internet gaming illegal. Ohio’s interpretation is that any form of gambling that is illegal

by state law in conventional form also is a

violation of state law when it is disseminated in

the state via a computer system. The Alabama

Attorney General’s office interprets the

definition of gambling devices in the state

code— ”any device, machine, paraphernalia, or

equipment that is normally used or usable in the

playing phases of any gambling activity”— as

including Internet equipment. The interpretation

implicitly includes the Internet under the state

laws prohibiting conventional forms of gambling.

Alabama has taken no criminal or civil action

against Internet gaming, but the decision in a

1999 criminal case, brought for possession of

obscene material for transmission via the Internet, rejected the defense that the relevant law

preceded the development of the Internet and

therefore was not applicable. In Arizona and

Tennessee, the authority to prosecute such cases

rests with local and district prosecutors, respectively, rather than the state’s attorney general.

FEDERAL CIVIL AND CRIMINAL CASES

In March 1998, the United States Attorney

for the Southern District of New York indicted

21 U.S. citizens for conspiracy to transmit bets

and wagers on sporting events via the Internet, in violation of the Interstate Wire Act of

1961. At that time, the U.S. Attorney General

issued a statement indicating that Internet

gaming would be considered illegal under

existing federal law.

The defendants were owners, operators, and

managers of nine offshore sports betting

companies based in Curaçao, Costa Rica,

the Dominican Republic, and Antigua, all

of whom had conducted some part of their

business in the United States. All were

identified after federal agents placed

telephone bets via an 800 number from

New York (territory where such bets are

illegal) and were paid when successful. One

defendant, the president of SDP Global of

Costa Rica, pled guilty and promised to pay

a fine of $750,000 and close his operation.

As of February 2000, ten other defendants

had pled guilty to the charges and reached

settlements, and six remained officially

fugitives because they had not answered

the charges. As of that date, only one

defendant, Jay Cohen, had gone to trial.

On February 28, 2000, the United States

District Court in Manhattan found Cohen,

the owner of the Antigua-licensed World

Sports Exchange, guilty of violating the

Federal Wire Act.

Indian Gaming Regulatory Act (IGRA)

As some states were testing how the Indian

Internet lottery fit with state law, a case at

the federal level was expected to eventually

determine whether Indian tribes have special

status that allows them to use long-distance

telephone lines and the Internet to transmit

the lottery to customers in the 33 states

where lotteries are legal. In 1997 the Coeur

d’Alene Tribal Court in Idaho ruled that the

federal Indian Gaming Regulatory Act

(IGRA) protected the tribe’s lottery from
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 47

interference by state legal authorities and

that long-distance telephone companies

could not refuse 800 service by citing the

1961 Wire Act or state laws. (The tribe also

argued that long-distance and Internet

communication were needed because their

distance from population centers presented a

competitive disadvantage.) AT&T, the

company chosen to provide this service,

found itself caught between the tribal court

decision, violation of which could lead to a

contempt citation, and the possibility that

supplying an 800 number would lead to

criminal prosecution by states whose attorneys general had advised that such service

would be considered a violation of state law.

In August 1997, AT&T sought declaratory

relief in federal court.

In December 1998, the United States

District Court for the District of Idaho

denied a complaint brought by the Coeur

d’Alene Indian tribe against AT&T for

having refused the tribe an 800 number to

be used by customers playing its National

Indian Lottery. The court ruled that the

tribal court ruling did not require AT&T to

supply an 800 number in any state where

transmission of gaming activities would

violate state law. In such states, a separate

agreement must be reached to address the

state’s regulatory interests before the lottery

can be offered.

The special status granted by the IGRA was

ruled to apply only to gaming activities physically located on the reservation, a line of

reasoning that caused the closing of both the

telephone and Internet phases of the lottery,

although the ruling itself applied only to

telephone lines. If the lottery is deemed not

to be entirely operated on tribal lands, the

Internet phase is open to criminal prosecution

by receiving states in the same way that

offshore websites with some operations in the

United States have been prosecuted. The tribe

appealed the decision to the United States

Ninth Circuit Court, which remanded the case

to a Missouri state court in September 1999.

Argument of the tribe’s legal standing continued

in that court into 2000.

STATE CIVIL AND CRIMINAL CASES

Several states have taken legal action against

individuals and companies that have offered

offshore Internet gaming services to individuals

within the state jurisdiction. Authorities have

initiated civil and criminal cases, issued

official policy statements, and sought to restrict

transmission in other ways. The following

discussion is a summary of some of the state

actions to date.

Florida

In December 1997, the Attorney General of

the State of Florida signed an agreement

with Western Union to the effect that the

latter company cease providing Quick Pay

money transfer services from Florida residents

to known offshore gaming establishments.

Quick Pay is a reduced-fee system normally

used to expedite collection of debts or

payment for goods. According to the Florida

State Attorney General and a Western

Union spokesman, in 1998 the policy of

Quick-Pay restriction yielded satisfactory

results, and the prohibition of the use of

Quick Pay accounts for gaming purposes was

upheld in the federal court case Cheyenne

Sales Limited v. Western Union Financial

Services International. No known website,

however, includes mention of the restriction

on the use of Western Union services by

Florida residents.

The state also was able to persuade the

media to stop advertising offshore gaming

sites. Florida contended that the advertising
48

of such sites in the state constitutes doing

business in the state and invokes all the

legal restrictions inherent in aiding and

abetting such activity. In this case, those

restrictions include the placing of illegal

bets (i.e. a form of gambling not specifically

permitted by law), which is a misdemeanor,

and running a betting operation, which is a

third-degree felony.

Indiana

In 1998 Indiana’s Attorney General issued a

policy statement on Internet gaming. The

statement was in response to concerns

expressed by the Indiana Commissioner of

Higher Education about the proliferation of

gambling on college campuses. The Attorney

General noted that Indiana law prohibits all

forms of gaming that are not specifically

permitted, i.e. river boat gambling, pari-mutuel

betting on horse races, charitable gambling,

and the state lottery. He further asserted that

a person placing a bet from Indiana with an

offshore gaming establishment was engaged in

in-state gambling just as if the person engaged

in conventional gambling. He then concluded

that the solicitation and acceptance of

wagers are subject to prosecution under

Indiana state law.

Following the statement, the Attorney

General’s office sent email messages to more

than 100 offshore Internet gaming operators

demanding that they cease offering their

services in the state and that they post a

warning on their websites that using them is

illegal for Indiana residents. (Two such

warnings have been discovered, on the sites

of 123 Casino and Sportsbook in Grenada,

and AAA Casino, whose location is unknown.)

According to the Attorney General, the main

reason for his warning was to bring attention to the danger of exposing minors to

Internet gaming, not to enforce a given law.

As of March 1999, Indiana had not developed a policy regarding criminal sanctions

against Internet gaming enterprises offering

their services in the state.

Maryland

In 1997 the Office of the Attorney General of

Maryland reached an out-of-court agreement

with RealTIME, which offered Internet games of

chance to users and whose equipment was located

in Maryland. RealTIME, which had argued that it

should not be prosecuted in Maryland because it

was not offering gambling to residents of Maryland, agreed to cease its operations in Maryland.

Minnesota

In 1997 the Attorney General of Minnesota

brought suit against Granite Gate Resorts, a

Nevada corporation, and its president, Kerry

Rogers, based on the defendants’ operation

of a Belize-based Internet sports betting

operation. The lawsuit alleged that Granite

Gate and Rogers engaged in deceptive trade

practices, false advertising, and consumer

fraud by offering Minnesotans access to sports

betting. Such betting is illegal under state law.

The trial and appellate courts rejected the

defendants’ argument that Minnesota courts

lacked jurisdiction because the defendants had

merely placed information on the Internet and

Minnesotans had chosen to access it. The

appellate court concluded that “Granite Gate’s

advertising had an effect in Minnesota, that the

effect was intended, and furthermore that

Internet advertising is not different from other

advertising forms such as telephone solicitation

or radio advertising.” Minnesota courts had

previously concluded that such advertising

allowed sufficient contacts with potential

customers to establish personal jurisdiction.

The Minnesota Supreme Court affirmed the

appellate court’s decision in April 1999.
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 49

Missouri

In April 1997, the State of Missouri brought a

civil suit against Interactive Gaming and

Communications of Pennsylvania, which ran

the Sports International Internet sports

betting establishment of Antigua, and against

its chief executive officer, Michael Simone.

As in Minnesota, the case was based on

state consumer law. The case was initiated

when a state law enforcement agent saw an

advertisement for the sports betting website

and placed a wager over the company’s 800

number, which was located in Pennsylvania.

As a result of the state’s civil case, a restraining

order and fine were issued. A second wager,

placed after the restraining order, led to a June

1997 criminal indictment against Interactive

Gaming and Communications for promoting

gambling by allowing Internet bets of more

than $100. Simone eventually pled guilty to a

lesser charge and was fined.

Consistent with its position that state law

prohibits Internet gaming, Missouri also

sought a permanent injunction against the

Internet lottery run by the Coeur d’Alene

Indian Tribe of Idaho. The case was removed

to the federal level, where in 1999 the United

States Court of Appeals rejected a district

court decision that the lottery was protected

by the 1988 Indian Gaming Regulation Act.

The court held that the lottery would be

protected only if the gaming occurred on

Indian lands. At the direction of the Court of

Appeals, the case has been remanded for a

decision on the legal location of the lottery,

which would be the basis of a final decision.

New York

In October 1998, the New York State Attorney

General’s office brought civil charges against

Casino International, an Antigua-based

Internet gaming company, for several violations

of state gaming laws. This action was taken

pursuant to New York state law forbidding all

forms of gambling except the state lottery. The

Attorney General’s office alleged that Casino

International maintained an illegal Internet

gaming site in the United States through two

Internet Service Providers (ISP) based in Long

Island, New York.

The gaming company failed to respond to the

state’s charges, and in May 1999, a default

judgment was issued. According to the Attorney General’s office, Casino International

distributes its gaming website through ISPs in

every U.S. state. Although the company

claims to be licensed by the Antiguan

government, the Free Trade Zone Commission, which is the official licensing body, does

not support this claim.

According to the Attorney General’s office,

the settlement did not hold the New York

ISPs responsible for the alleged violation.

The Attorney General’s office likened the

ISP’s position to that of an express mail

service that unknowingly delivered illegal

drugs; as part of the injunctive relief in the

case, the New York ISPs were simply forbidden

to continue the practice.

New York also brought a civil case in 1998

against World Interactive Gaming Corporation,

an Internet casino operator and a subsidiary of

Florida-based Atlantic International Entertainment, for fraudulent solicitation of stock

investments and for violation of several federal

and state gambling laws based on operation of

an Internet casino. That case is pending.

Wisconsin

In September 1997, the State of Wisconsin

filed suit against three Internet gaming

operations: Net Bet, Online International,

Inc., and the Coeur d’Alene Indian lottery.
50

Net Bet, based in Nevada, operated Casinos

of the South Pacific in the Cook Islands,

whose website advertisement said that only

residents of Nevada, Minnesota, New Jersey,

and the Cook Islands were prohibited from

placing legal bets. In May 1998, the Net Bet

defendants agreed to include Wisconsin in their

list of prohibiting jurisdictions and to cease

sending betting information into Wisconsin.

Online International, Inc., a Wisconsin-based

corporation, planned to operate an Internet

gaming website from a location in that state to

supply Internet gaming to jurisdictions outside

the United States. In late 1998, the corporation

was ordered by the court to dissolve. In the

third case, that of the Coeur d’Alene Indian

lottery, the court held that the tribe was

immune from suit but that Wisconsin does

have jurisdiction over Unistar, the company

engaged by the tribe to run its Internet lottery.

Unistar was alleged to have advertised gaming

on a website aimed at Wisconsin residents (an

action that the tribe could not authorize outside

its reservation), misrepresenting the legality of

gambling in the state. In May 1999, after the

tribe and Unistar had shut down their lottery

following a separate court ruling in Idaho, they

agreed not to offer the lottery to Wisconsin

residents until they had obtained a specific

ruling on its legality from a court in Wisconsin.

PRIVATE LAWSUITS

Private lawsuits also have set precedents for

the nature and treatment of Internet gaming.

In 1997 a Texas citizen, Tom Thompson, sued

Handa-Lopez, Inc., operator of the Curaçaolicensed Casino Royale Internet casino, for

nonpayment of winnings. In a case before the

United States District Court, Western District

of Texas, the company claimed it had aimed

no explicit advertising at Texas, and hence

had established none of the contacts that are

necessary for a state to have jurisdiction. The

plaintiff argued (and the court agreed) that

the act of Internet advertising implicitly

includes everyone in the world able to access

the website, thus automatically establishing

the minimum contact that is needed for due

process. Here the court confirmed what

some Internet gaming enterprises say is a

fundamental principal: if they seek business

worldwide, they must be prepared to operate

lawfully worldwide.

In 1998 a different type of court test challenged

the status quo of Internet gaming operations.

After losing more than $70,000 in gambling on

at least ten different Internet sites, California

resident Cynthia Haines was sued by her bank

for nonpayment of the accrued debt on several

credit cards. Haines countersued, claiming

that the credit card companies were profiting

from Internet gaming activity, and argued that

such profit taking is both illegal and unfair

because no authority regulates Internet gaming.

The defendants argued that the case was

inadequate because the plaintiff had sued only

the credit card companies and not the Internet gaming companies, and that in California

such a case could not be based on admittedly

illegal conduct by the plaintiff. Experts

projected that a finding for the plaintiff could

end the credit-card option for Internet gaming

companies, forcing them to rely on other

forms of payment. Beginning in July 1999, a

series of out-of-court settlements were

reached with the companies that Haines had

sued.

As a result of the Haines case, MasterCard

has announced rules for the use of its credit

cards for Internet gambling. According to

the new rules, in the future all Internet

casino merchants seeking to use MasterCard

must post on their websites a notice that

Internet gaming may not be legal in the

state where a potential participant is located,
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 51

and that it is the responsibility of the consumer to ascertain his/her state’s legal

position. In addition, Internet merchants

must ascertain and record the state or

country of each potential customer, and

card-issuing institutions such as banks must

receive notice of all Internet gaming transactions. Such notification make it possible

to code records for future reference.

According to MasterCard, the new rules

are an effort to accommodate the wide

variations in the legal status of Internet

gaming around the world and the role of

MasterCard as a payment system for individuals, banks, and merchants in many

different countries. Visa International has

adopted similar requirements for its merchants.

(See Appendix G for a discussion of Internet

gaming regulation around the world.)

THE INTERACTIVE GAMING

COUNCIL

In 1996, Internet gaming companies formed

the Interactive Gaming Council (IGC), an

international trade group within the Interactive

Services Association (ISA). The stated goals

of the IGC are to provide a forum for legitimate

companies to discuss problems and advance

their interests, to establish fair industry guidelines that will improve customer confidence,

and to represent the industry in public policy

discussions and disseminate information about

such issues. The IGC now has at least 55

members, but only a partial membership list is

available because some companies prefer not

to be publicly identified.

The Council has pushed for an industrywide code of conduct that would include,

inter alia, truth in advertising, privacy and

confidentiality for customers, strict licensing

requirements, and observance of the gaming

laws of jurisdictions from which customers

may be placing bets. In 1998 the IGC proposed

an independent, international Internet

Gaming Control Board that would be

overseen by the ISA and would establish an

international certification and regulation

system for Internet gaming licensees.

CONCLUSION

Two diametrically opposed regulatory

philosophies currently exist with regard to

Internet gaming: a strategy calling for

legalization and regulatory controls and a

strategy prohibiting such activity.

Opposition in the United States to legalized

Internet gaming is based on several factors.

First, there is the fear that Internet gaming

and, more specifically, the underlying financial activity, offer unique opportunities for

money laundering, fraud, and other crimes.

Government officials have also expressed

concerns about underage gaming and

addictive gambling, which some claim will

increase with the spread of Internet gaming.

Others point to the fact that specific types

of Internet gaming may already be illegal

under state laws.

On the other side of the argument is the

strategy of legalization and regulation, which is

urged by the IGC on behalf of the worldwide

industry. Many countries subscribe to this

approach and have found that strategies other

than prohibition are workable from their own

economic and law-enforcement perspectives.

Regardless of which strategy is pursued,

technological advances are likely to have great

impact on the development and implementation

of policy. For example, in 1998, Atlantic

International Entertainment announced plans

to develop a “portable gaming center” that

would bring virtual casinos and sports betting

to conventional television sets via telephone

lines. Such a device would make offshore
52

gaming operations available to customers who

do not have computers or Internet access.

Technology is also moving the industry rapidly

toward a point where financial transactions can

be fully opaque. Although electronic cash has

not “arrived” in the commercial world at

large, it is being mentioned with increasing

frequency by Internet gaming sites as a way to

guarantee security, a factor which experts cite

as one of the chief concerns of potential

Internet gaming customers.
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 53

APPENDICES
54
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 55

APPENDIX A

SMART CARD TECHNOLOGY

AND SECURITY

TECHNOLOGY

Multi-application Operating Systems and

Interoperability

Cards that contain chips capable of performing

multiple tasks are regarded as the future of the

smart card industry. Despite the fact that

e-cash has proven successful as a stand-alone

in Europe, it is not enough simply to offer

stored value. This point was made in two pilot

programs in the United States, one with

VisaCash at the 1996 Summer Olympic Games

in Atlanta, Georgia, the other involving

VisaCash and Mondex in 1997-98 in New York

City, New York. The results were disappointing,

according to industry executives. Usage was

low, technical glitches hindered transactions

in New York, and both trials showed that unless

the smart card offered other applications in

addition to stored value, American consumers

saw no advantages in using it as opposed to

cash, debit, or credit cards. Consequently,

major smart card systems are developing and

perfecting cards that combine e-cash functions

with such tasks as building access, personal

computer access, and participation in retail

loyalty programs.

Combining functions on one card presents

problems, however. For example, “firewalls”

need to be constructed between different

applications so that one application does not

interfere with another. Many industry analysts

also caution against expecting that a single

“supercard” can do everything, everywhere;

they say that it might make better sense for a

card to house logically connected functions.

In such a scenario, a consumer might carry

one card housing personal information such

as medical and insurance data; another card

for business authentication, including building

access and travel; and yet a third card with

a series of e-purse applications for cash

replacement. From a business perspective, in

instances where multiple applications reside

on a single card, the companies involved in

the shared project will have to work out which

company owns what aspect of any given

project and how it is to be managed.

Both MasterCard and Visa are currently

promoting their respective operating systems

as the best standard for multi-application

cards. MasterCard has developed and is testing

a multi-application operating system called

MULTOS; the system is based on Mondex

technology and can be openly licensed. To

promote MULTOS, MasterCard created an

industry consortium in 1997 called MAOSCO

(Multi-Application Operating System

Company) that includes American Express,

Europay International, and Mondex International. Visa has countered with the Visa Open

Platform, Visa’s version of a Java Card that

uses the Java software language. MULTOS

and the Visa Open Platform offer a path

away from the proprietary systems that have

characterized the smart card industry to date.

In October 1998, Microsoft Corporation

announced that it was developing a smart card

operating system for use with its Windows

software. Microsoft released the new system,

called Windows for Smart Cards, in midNovember 1999. Company executives said

that the first application of the card would be

in the mobile phone market, but they foresaw

network access, loyalty, health care, debit and

credit, and cash applications in the future. At
56

the end of 1999, at least 30 trials and projects

were reported underway in Europe and North

America using Windows for Smart Cards.

The quest for multi-application cards makes

interoperability among different systems

essential. Currently there are about 20 different

systems. Interoperability involves creating

industry standards that allow different ware

developers to easily join a given operating

system and coordinating different organizations

in order to complete a common transaction.

Some analysts say that designing a common

operating system, that is, getting cards from

different issuing organizations to work in each

other’s readers, is less the issue than is the

development of a common set of specifications

governing the behavior of specific functions (such

as debiting, crediting, or e-purse transactions).26

With respect to e-purse applications and

interoperability, MasterCard stands behind

its Mondex e-purse scheme. In March 1999,

Visa, American Express, and Europay International countered with the release of what

they called Common Electronic Purse

Specifications (CEPS). CEPS is intended to

define the requirements for all components

needed to implement a globally interoperable

electronic purse system. Visa claims that

organizations representing more than 90

percent of the world’s electronic purse cards

have agreed to implement CEPS. Visa

intends to use the Proton World International

consortium, which Visa joined in mid-1998,

to support CEPS. In mid-November 1999,

Proton World demonstrated the first e-purse

based on CEPS technology, the first step in

what the consortium hopes will be a full-scale

rollout of CEPS-enabled smart cards by 2001.

Chips

Most current research on smart card technology is focusing on improvements in chip

capacity, card packaging, and readers. Smart

cards may be grouped into three basic chip

types: serial memory, protected memory, and

microprocessor. Serial memory cards offer

no protection or security. Protected memory

cards are the most frequently used smart

card and are typically used to store units,

tokens, or monetary value. The most

secure smart card is the microprocessor

card. The semiconductor industry continues

to introduce new smart card chips that

have more processing power and memory

than older versions, allowing chips to store

more sophisticated operating systems and

encryption data.

Card Packaging

Advances are also being made in the areas

of card packaging and readers. The vast

majority of smart cards in circulation today

are “contact” smart cards. When such a

card is being used, the gold contact plate on

the card must make physical contact with a

reader in order for information to be read

from the chip. “Contact” smart cards with a

magnetic stripe are called hybrids (see

Smart Cards).

Card Readers

In addition to developing a new generation

of chips and contactless cards, terminal

manufacturers are delivering a wide variety

of smart card readers, including telephone

readers. Some leading manufacturers, for

example, are shipping computer keyboards

with built-in card readers. Most of the

major point-of-sale manufacturers, including Verifone and Hypercom, have released

a new generation of point-of-service

terminals, all smart card enabled. New

classes of devices— network computers,

for example— feature integrated smart

card readers.
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 57

SECURITY

Smart cards have been touted as intrinsically

secure devices. If proper security and

authentication measures have been built

into them, smart cards are arguably more

secure than cash, simple debit cards, or

magnetic stripe cards. They are considered

safe places to store valuable information

such as account numbers, passwords,

personal information such as medical

records, and monetary value. In the case of

multi-application cards, before any of the

card’s applications such as e-purse can be

activated, an identity for that application

must be established either by the cardholder

or by the terminal into which the card is

inserted. When the application runs, it can

only access data and perform operations

that have been explicitly allocated to the

established identity.

Security is not an issue for some types of

stored-value cards. Disposable cards, for

example, available from card dispensing

machines, are not specific to the card holder.

Merely a convenient substitute for cash, they

do not require authentication; their stored

value is available to whoever happens to hold

the card. Many smart cards, however, especially

those featuring electronic purses, often require

some form of user identification or authentication

as protection against unauthorized access.

This type of security not only protects the card

purchaser’s “stored value,” but also the card

issuer’s investment; the latter may lose money

if the value in the electronic purse can be

manipulated or counterfeited.

Current means of securing stored-value smart

cards include passwords or personal identification numbers (PINs), and physical or

behavioral characteristic (biometric)

checks.27 Each system has its advantages and

disadvantages. Although passwords allow

the user to delegate the authority to use

them, they can be learned by subterfuge,

guessed, or given away. In addition, physical

and behavioral characteristics can vary or

even change outright; they are also often

difficult to transmit via telephone lines.

These identification methods may be used

independently, or, alternatively, in combination;

for example, identification may require a card

and password or card and biometric.

PINS

The most common form of personal

identification is the password or PIN. A

PIN’s biggest advantage is its low cost. Because

the PIN is either right or wrong, the software

required to check the PIN is quite simple.

PINs are well suited to situations in which the

value to be protected is small, such as is the

case with e-purses. They are not well suited to

high-security applications because of the

reasons cited above.

Better security results when passwords are

combined with another form of identification.

An example of the latter form of authentication is a new, lightweight smart card reader

for personal computers. The card reader

allows a user to enter a PIN on a PC keyboard, where it is validated by a smart card.

However, the validation occurs without PC

processing, which might result in a breach

of security.

Digital Signatures

Signature verification, or digital signature, is an

increasingly popular form of user identification.

One of its greatest advantages is portability.

Smart cards using such a verification system

allow a user to carry a digital signature from

one PC to another and enable the user to

conduct secure electronic transactions from

any computer.
58

Biometrics

So-called biometric methods of authentication

encompass finger/thumbprint, hand geometry,

eye scans (retina and iris), and even facial

recognition.28 Different biometrics use different

body characteristics, but the principle is

fundamentally the same in all cases. Using a

camera, sensor, or other device, a person’s

physical trait is digitized, encrypted, and filed

away in a database.

Finger/thumbprint is the oldest form of remote

identification test and relies upon systems that

can capture the minutiae of a fingerprint.

Depending on the system, resolution can be

quite coarse. Retina scanning has been used

for several years. It has mostly yielded to the

newer technique of iris scanning, however,

which appears to be the more reliable of the two

optical scanning approaches. Such scanning

measures the flecks in the iris of the eye,

which have been found to be stable over time.

Biometrics offer great advantages in authenticating identity, especially if they are used in

conjunction with a PIN or another identification method. They and other authentication

methods are part of a larger concern with

security vis-à-vis stored-value smart cards.

The industry is constantly searching for new

and better techniques to protect stored-value

cards, especially their chips. Although the

chips on cards themselves are generally

secure, they can potentially leak information

during a transaction with a reader. To foil

potential hackers, chip makers have been

searching for both software and hardware

improvements. Among the techniques being

considered is the insertion of digital “noise”

into the transaction to mask voltage switching

patterns in the chip. Such “noise” does not

affect the performance of the card but does

make it more difficult for hackers to pinpoint

patterns in the chip’s operations.29

Finally, all types of smart cards operate as part

of a larger security system that includes

terminals, readers, and personal computers.

As industry spokesmen point out, any security

chain is only as strong as its weakest link. This

maxim is definitely the case with smart card

systems. Breaches can occur at any point

along the security chain, not just in the card

itself. In many cases, these spokesmen say,

there may be easier ways to obtain information

or financial value than by compromising a

smart card.
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 59

APPENDIX B

INTERNATIONAL

REGULATION OF

ELECTRONIC CASH

EUROPEAN REGULATION

In contrast with the United States, European

nations have been engaged— at least nominally— in the regulation of electronic cash

in its smart card guise. In July 1998, the

European Commission, a body that proposes

legislation for the European Community,

issued new proposed regulatory directives

for the use of electronic cash that were

designed to “facilitate the development of

electronic commerce within the EU” and to

“[create] legal certainty for electronic

money.”30 The directives seek to establish a

regulatory framework in which minimum rules

would strengthen confidence in electronic

cash by businesses and consumers. According

to these minimum rules, consumers would

be permitted to use electronic cash to make

small payments in euros, the new European

currency in limited use as of January 1999,

without having to convert national currencies;

traditional credit institutions and other

firms issuing electronic cash would be

regarded as equal financial entities; and

electronic cash institutions would be able to

offer services throughout the EU provided

they were under the supervision of their

home countries.

The first of two proposed directives would

modify the definition of credit institutions to

include electronic cash firms. Such firms

would be permitted to operate throughout the

EU even if they did not offer a full range of

banking services. They would, however, be

subject to EU banking regulations, including

reserve requirements.

The second directive would restrict the

business activities of electronic cash institutions to the issuance of electronic cash and

closely related financial and non-financial

services, as yet undefined. It would also require

them to abide by a set of rules, including

authorization by competent authorities;

minimum initial capitalization of ECU

500,000 (US$550,000); restriction of

investments to liquid, low-risk assets; sound

management practices; and adherence to prior

EU money laundering and supervision

directives. The proposed directives have been

submitted to the EU’s Council of Ministers

and the European Parliament for adoption.

If accepted, they would be legally binding

on all 15 states.

The European Commission regards its

proposed directives as a model framework not

just for Europe but for the entire world. At a

forum in Washington, D.C., in early December

1998, the Commission’s Director-General told

his U.S. audience that Europeans regard the

directives as entirely compatible with a global

approach because they are limited, consumerfriendly, and flexible. He noted Europe’s

natural advantages in dealing with electronic

cash and commerce across national borders,

given that Europeans live in an environment

where cross-border activity is already a reality.

Financial Action Task Force

To facilitate cooperation on the international

level, the Financial Action Task Force

(FATF) was created in 1989 by the Group of

Seven (G-7) Heads of State to combat global

financial crime. FATF currently consists of 26

countries plus the European Commission and

the Gulf Cooperation Council. Its membership

includes the major financial center countries

of Europe, North America, and Asia. Its goal
60

is the development and promotion of policies

to combat money laundering, specifically

requesting that its members adopt and

implement legal, financial, and lawenforcement anti-money laundering standards.

FATF has discussed regulation of electronic

cash as part of the larger issue of money

laundering on national and international

levels. Consequently, provisions governing

electronic cash are often grouped with other

financial controls pertaining to money

laundering and even to electronic commerce

via the Internet.

Basic to FATF’s work are “The Forty Recommendations of the Financial Action Task

Force on Money Laundering,” drafted in 1990

and revised in 1996.31 These recommendations

set out a basic framework for anti-moneylaundering efforts covering the criminal justice

system and law enforcement, the financial

system and its regulation, and international

cooperation. All nations, not just FATF

members, were encouraged to adopt the

recommendations. By late 1998, all FATF

members had enacted some form of antimoney-laundering legislation in accordance

with FATF’s basic directives.

Although the recommendations mostly

address financial regulatory and law enforcement controls, one recommendation alerted

member states to “pay special attention to

money-laundering threats inherent in new or

developing technologies that might favor

anonymity,” referring to developing

electronic means of payment. This concern

with new payment methods figured prominently in two FATF reports, “FATF-IX

Report on Money Laundering

Typologies“(February 1998) and “FATF-X

Report on Money Laundering Typologies”

(February 1999).32 Both reports expressed

concern about the potential use by money

launderers of stored-value smart cards, online

banking, and electronic cash payments in so

far as they involve rapidity and anonymity of

transactions, broken or missing audit trails,

and independence of the traditional banking

system. Recommendations included placing

limits on the functions and capacity of

stored-value smart cards, including maximum

value and turnover limits; linking the new

technologies to financial institutions and

bank accounts; and standardizing recordkeeping by financial institutions.

FATF experts noted in their 1999 report that

in the absence of specific national legislation,

decisions to add these recommendations to

electronic payment systems had so far been

left to system developers. They warned that

without consistent standards and appropriate

regulatory oversight, the new payment

technologies would undoubtedly prove

attractive to money launderers. At the same

time, they reported that there were no known

instances of money laundering involving the

new technologies.
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 61

APPENDIX C

LEADING U.S. INTERNET

BANKS

The following are among the top-ranked

Internet banks cited by Gomez Advisors as of

late 1999:

• Security First Network Bank <http://

www.sfnb.com> was the first United States

bank to offer fully transactional electronicbanking services over the Internet. The

bank was granted Office of Thrift Supervision

(OTS) approval on May 10, 1995, and

opened to the public on October 18, 1995.33

The bank’s website offered what it calls

“some pretty compelling reasons” for banking

with it. For example, for the first six

months, the bank charged no monthly

maintenance fees and no required minimum

balance. After the trial period, the account

remained free so long as the customer

maintained a minimum balance of $1,000

or made a monthly direct deposit. The bank

also offered its customers 20 free electronic

payments monthly and a free ATM or debit

card, as well as a free first order of paper

checks. The bank promoted “some of the

highest” Money Market and CD rates

(unspecified) with protection by “military

grade” security, FDIC insurance, and its

own no-risk guarantee. In 1998 Security

First sold its banking operations to the

Royal Bank of Canada and announced it

would concentrate on selling its Internet

banking technology through its subsidiary,

Security First Technologies (S1).

• Netb@nk <http://www.netbank.com>, a

thrift institution, was granted OTS approval

on July 14, 1997. AIB became the first

approved and regulated all-Internet bank

and the second OTS-approved Internet

institution. Net.B@nk of Roswell, Georgia,

is the bank’s official title.34

• CompuBank <http://

www.compubank.com>, headquartered in

Houston, Texas, was launched in October

1998. The bank was the first virtual bank

granted a national charter from the OCC.

It qualifies for FDIC insurance and also

offers its customers insurance protection

from unauthorized transactions from their

accounts.35 The bank pays a $20 finders fee

per depositor for new Internet accounts.

The OCC charter allows the bank to

perform transactions on a nationwide basis.

CompuBank is also a member of the Federal

Reserve Bank system.

• In November 1998, Wells Fargo Bank

<http://www.wellsfargo.com> announced

new online banking initiatives. Two pilot

locations— each with five computer terminals

with Internet connections— were set up on the

campuses of the University of Washington

in Seattle, and the University of Nevada,

Las Vegas. (Each site also has two employees

on hand to answer customer questions.)

College campuses were chosen because

bank officials believed that students would

be more open to using online banking

options than most bank customers. To

attract student accounts, the branches

initiated extended hours, from 7:00 a.m. to

7:00 p.m.36

• USAccess Bank <http://

www.usaccess.bank.com>, a branchless

Internet bank, began operations on

February 1, 1999, claiming to be the first

Internet bank to provide direct Internet

lending.37 The bank, a division of Central

Bank USA Inc., part of the holding company

structure of Porter Bancorp, offers the usual
62

online banking services, but distinguishes itself

from its competitors because it “grants

same-day loan approvals— secured and

unsecured— as well as lines of credit over

the Internet.”

• The First Internet Bank of Indiana <http://

www.firstib.com> began operations on

February 22, 1999. Chartered by the state’s

Department of Financial Institutions on

October 9, 1997, and approved by the FDIC

on October 27, 1998, the bank’s founders say

it is the first state-chartered virtual bank.

The bank offers checking, money market

savings, CDs, loans, credit cards, and ATM

cash cards, with services provided through

Virtual Financial Services Inc.’s FiNet frontend software.38 In the future, the bank plans

to offer online images of cleared checks,

electronic delivery of periodic account

statements, and mortgage loans.

• TeleBank <http://www.telebank.com>, a

branchless Internet-based bank located in

Arlington, Virginia, that is insured by the

FDIC, offers a variety of Internet banking

deposit products, including CDs and interest

checking, and money market and savings

accounts. As of March 1999, TeleBank did

not originate loans, but did seek to purchase

secured mortgages. Because of TeleBank’s

deal with Yahoo Finance, customers who

open accounts through that portal are

required to maintain a balance of $1,000 to

qualify for ATM refunds. The program,

ATM Refunder, seeks to win customers by

automatically refunding ATM fees— up to $6

per month— imposed by other banks on

customer accounts.39 In January 1999,

TeleBank became the first virtual bank to

cross the $2 billion deposit threshold, the

first such bank to be counted among the top

50 federally chartered savings banks.40 In

June 1999, Telebanc Financial Corporation,

the parent company of TeleBank, and

E*Trade Group, Inc. announced that they

would merge. The merger, approved in

January 2000, unites the nation’s largest

“pure-play Internet bank” with an online

personal financial services company. In

January 1999, E*Trade Group, Inc. announced that it would bring investment

banking services to the Internet in a new

company called E*Offering.

• Chase Manhattan Bank <http://

www.chase.com> officially inaugurated

Internet banking in February 1999— for

free. Chase Online Banking will deliver

real-time account data to consumers and

small-business customers. Chase has

enrolled 400,000 online customers since

1997 and is still adding 1,000 daily.

41

• Salem Five Cents Savings <http://

www.salemfive.com>, a small private bank

in Salem, Massachusetts, is one of the

nation’s top Internet banks. The first bank

to go online in New England, and one of the

first nationwide, Salem Five has $1 billion

in assets, with more than $60 million in

virtual bank deposits. Chairman and Chief

Executive Officer William Mitchelson says

that Internet deposits lag behind other

delivery channels, but are growing exponentially as the younger customer base

becomes more affluent and more computer

literate. Mitchelson sees retaining traditional

customers as the new challenge inasmuch as

Internet banking provides opportunities for

consumers to bank anywhere.42

• Bank of America’s interactive division

<http://www.bankamerica.com> plans to

offer its online banking customers simple

account activity on PalmPilot. (Services

are offered on PalmVII; testing began in

1999.43) This service is another example of

banks having to offer unique services to

attract customers.
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 63

APPENDIX D

A SAMPLE OF INTERNATIONAL INTERNET BANKS AND

WEBSITES, FEBRUARY 2000

[This is by no means an exhaustive list.]

ASIA AND PACIFIC

Australia

Advance Bank http://www.stgeorge.com.au

BankSA http://www.banksa.com.au

Suncorp Metway http://www.suncorpmetway.com.au

Westpac http://www.westpac.com.au

[includes ChallengeBank and

Bank of Melbourne customers]

Hong Kong

Chekiang First Bank http://www.cfb.com.hk/cfb/english/intro.html

Malaysia

Southern Berhad Bank http://www.sbbgroup.com.my

New Zealand

BankDirect [ASB Bank Limited] http://www.bankdirect.co.nz

National Bank of New Zealand http://www.nationalbank.co.nz

Thailand

Thai Farmers Bank http://www.tfb.co.th

CENTRAL AND SOUTH AMERICA/CARIBBEAN

Argentina

Banco Francés http://hb.bbv.com.ar
64

Brazil

Banco Boavista [BoavistaNet] http://boavista.com.br

Banco Itaú http://www.itau.com.br

Banco do Estado de Sao Paulo

[Banespa] http://www.banespa.com.br

Bradesco [BradescoNet] http://www.bradesco.com.br

Chile

Banco Santiago http://www.bsantiago.cl

Colombia

Sucursal Virtual Bancolombia http://www.bancolombia.com.co

Ecuador

Filanbanco http://www.filanbanco.com/es

Guatemala

Multibanco http://www.bancafe.com.gt

Mexico

Grupo Financiero Bital http://www.bital.com.mx

Paraguay

Interbanco http://www.infonet.com.py/interbanco

Banco Real http://www.bancoreal.com.py

Peru

Banco Wiese Sudomeris http://www.wiese.com.pe

NORTH AMERICA

Canada

Bank of Montreal http://www.bmo.com

Toronto Dominion Bank http://www.tdaccess.com
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 65

EUROPE

Austria

Bank Austria http://www.bankaustria.com

P.S.K. Telebanking http://www.psk.co.at

Steiermärkische Bank und Sparkassen

http://www.bank-styria.co.at

Belgium

KBC Banque & Assurance http://www.kbc.be

Finland

Merita http://www.merita.fi

France

Banque Directe http://www.Banquedirecte.fr

BNP http://www.bnpgroup.com

Crédit Agricole http://www.credit-agricole.fr

Crédit Lyonnais http://www.creditlyonnais.com

Crédit Mutuel http://www.creditmutuel.fr

Germany

Dresdner Bank http://www.dresdner-bank.de

National Bank http://www.nationalbank.de

Raiffeisen-Volksbank eG Mainz http://www.rvb.de

Stadtsparkasse Köln http://www.stadtsparkasse.de

Ireland

AIB http://www.24hour-online.ie

Italy

Banca di Roma http://www.bancaroma.it

Banca Popolare Commercio

e Industria http://www.bpci.it

Banca Popolare di Milano http://www.bpm.it
66

Latvia

Paritate Bank http://www.paritate.com

Sweden

S-E-Banken http://www.swp4.vv.sebank.se

FörenginsSparbanken http://www.foreningssparbanken.se

Postbanken http://www.postbanken.se

Handelsbanken http://www.handelsbanken.se

Switzerland

Banque Cantonale Vaudoise http://www.bcv.ch

Basler Kontonalbank http://www.bkb.ch

Crédit-Suisse http://www.en.credit-suisse.ch/directnet

BEKB/BCBE http://www.bekbnet.ch

Solothurner Bank SoBa http://www.soba.ch

UBS http://www.ubs.com

United Kingdom

Barclays Bank http://www.is.barclays.co.uk

Bristol & West http://www.bristol-west.co.uk/

Nationwide Building Society http://www.nationwide.co.uk

AFRICA AND MIDDLE EAST

Israel

Israel General Bank http://www.igb.co/il

Jordan

Arab Bank in Jordan http://www.bankarabi.com

Nigeria

First City Merchant Bank http://www.fcmb-ltd.com/fcmb_ebanking.htm

Allstates Trust Bank http://www.allstates.com.ng/service.htm

South Africa

Nedbank http://www.nedbank.co.za

First National Bank http://www.fnb.co.za
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 67

APPENDIX E

ELECTRONIC BANKING

AROUND THE WORLD

Electronic banking has taken hold across the

United States and is extending its reach into

other geographic areas of the world, especially

those where infrastructure and demographics

are in place to support such communications.

Although electronic banking is more widespread in parts of Europe, Central and South

America, and Asia than it is in Africa and

the Middle East, it is difficult to pinpoint

geographic concentrations. In many cases,

the structure and language of promotional

materials make it difficult to ascertain whether

a particular institution offers telephone,

electronic, PC banking, or Internet banking—

the latter with actual transactional capabilities—

or whether the website merely offers an

interactive or informational service. In general,

experience with virtual banks outside the

United States has been limited to online

brokerage firms and Internet divisions of

traditional financial institutions.

The paragraphs that follow are intended

solely to provide a frame of reference for

understanding how electronic banking activities

are developing worldwide.

The number of overseas institutions offering

electronic banking services continues to

increase. Some of the growth in this area

comes from banks that already have a large

international and domestic presence. For

example, Citibank, which has a worldwide

network, offers Internet banking, but only in

some of the countries in which it has

branches, such as Belgium, Brazil, Germany,

Hong Kong, and the United Kingdom.

Citibank’s PC banking activities, however,

are much more widespread.

There are numerous links to international

banking sites on the World Wide Web;

however, close examination reveals that

although a number of sites provide some

degree of transactional capability, others are

posted exclusively for advertising purposes. In

this report, attempts were made to be as

thorough as possible and to differentiate

between the two types of sites. Examples of

non-U.S. banks offering electronic banking

services follow.

Caribbean/Central America/South America

Electronic banking, particularly Internet

banking, is not yet widespread in the

Caribbean/Central America/South America

region. Branches of large international banks,

for example, Citibank and ABN AMRO, are

more likely to have transactional websites

than are indigenous banks. One notable

exception is Bank Bital, a Mexican bank that

offers full service Internet banking. Several

Brazilian banks also offer electronic banking

services, including Banco Boavista and Banco

Itaú. Other banks in South America with

transactional capabilities include: Banco

Francés <http://hb.bbv.com.ar> (with

branches in Argentina, Uruguay, Brazil, and

the Cayman Islands); Paraguay’s Interbanco

<http://www.infonet.com.py/interbanco> and

Banco Real <http://www.bancoreal.com.py>;

Peru’s Banco Wiese Sudameris <http://

www.wiese.com.pe>.

Western Europe

Electronic banking services generally are

available throughout Western Europe.

According to Forrester Research Inc.,

Europe’s move to Internet banking services—

mostly in the form of traditional banking
68

operations— will be led by Germany and

Switzerland.44 This forecast is supported by

Deutsche Bank’s February 1999 announcement

that it plans to merge Bank 24, a bank

conducting business both telephonically and

over the Internet, with its 1,450 retail

branches. The new bank, called Deutsche

Bank 24, combines branch and direct banking

into a single entity.

45

A variety of other German banks offer

electronic banking services: National-Bank

<http://www.nationalbank.de>, Dresdner

Bank <http://www.dresdner-bank.de>, and

Stadtsparkasse Köln <http://

www.stadtsparkasse.de>.

Numerous Swiss banks offer electronic

banking services: BEKB/BCBE <http://

www.bekbnet.ch>, Solothurner Bank SoBa

<http://www.soba.ch>, Banque Cantonale

Vaudoise <http://www.bcv.ch>, Basler

Kantonalbank <http://www.bkb.ch>, UBS

<http://www.ubs.com>, and Credit Suisse

<http://www.en.credit-suisse.ch/directnet>.

Interestingly, the latter’s website contains the

following disclaimer: “...the services and

securities otherwise offered in these Web Sites

are for legal reasons not being offered in the

United States, to U.S. residents or U.S. persons

as defined under US securities law. The same

is true for residents of the UK and Japan.”

None of the other Swiss banking sites contains

such a notice.

France’s Crédit Agricole <http://

www.paris.credit-agricole.fr> uses a unique

strategy to entice customers to Internet

banking: a satellite television connection.

The bank’s project manager noted that

although computer ownership is “fairly

low” in France, almost every household has

a television set. Hence, Crédit Agricole,

working with the French satellite television

provider TPS, introduced its own TPS

channel, CA TV, which allows TPS

customers to conduct electronic banking

activities through their television sets.

Bank management reported that if customers accept TPS they will be ready to transition to Internet banking once the capability

for satellite connection to the Internet

becomes available.46

Sweden was one of the first countries to offer

Internet banking. In late 1997, it was reported

that 11 of Sweden’s biggest banks had, or were

planning to offer, Internet banking in 1998.47 In

1998, it was noted that one of the country’s

largest banks had 100,000 customers with

Internet banking accounts. The Postbanken

notes on its website <http://

www.posten.postnet.se>, however, that a

Swedish personal number or Norwegian or EU

country citizenship is required for use of its

Internet payment service.

Banks in the United Kingdom also offer Internet

services. For example, from about mid-October

1998 through the end of the year, Prudential, a

life assurance company in the United Kingdom,

drew about 150,000 customers with its launch

of “Egg,” an Internet banking service offering an

eight percent interest rate. As a result of the

influx, the company was overwhelmed and had

to double its staff to 150 persons.48

Another British institution, Barclays Bank

<http://www.barclays.co.uk>, offers free

unlimited access to the Internet through its

Barclays.net service, which enables its

customers to sign up for Internet banking

services. The Barclays.net service is free to the

bank’s customers other than for the cost of a

local telephone call while online.

Middle East and Africa

Because of under-developed communications

infrastructure, Internet banking does not have a
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 69

large presence in Africa and the Middle East.

Nonetheless, some banks offer electronic banking services. Nigeria’s First City Merchant Bank

<http://www.fcmb-ltd.com/

fcmb_ebanking.htm> provides telephonic

e-banking. Another Nigerian bank, Allstates

Trust Bank <http://www.allstates.com.ng/

service.htm> offers unspecified electronic

banking services— the description fits an

Electronic Smart Card Account. However, the

Allstates site also describes a Unified Banking

Service, an independent telecommunications

system with satellite earthstations and a microwave radio link for providing online services.

South Africa has several banks with transactional websites. NedBank <http://

www.nedbank.co.za/1.online/

online_netbank.html> provides full-service

banking for clients of its Internet banking arm,

NetBank. First National Bank <http://

www.fnb.co.za> also offers netbanking services.

The Arab Bank in Jordan <http://

www.bankarabi.com/ask/faq.html> has a

website stating that the bank does not

allow clients to use the Internet to open

an account with any of its 370 Arab Bank

branches worldwide, nor does it provide

customer account information over the

Internet because of concerns about

adequate security. The bank notes, “Should

this change in the future, we will definitely

consider embarking on the Internet for

such requirements.” However, the Arab

Bank’s Phonebank service provides access

to accounts at any time, via PIN number,

for such services as account balances,

transactions, statements, and internal

funds transfer within local Arab Bank

branches.

Israeli banks began providing limited service

over the Internet in 1997, when banks

received approval to use it to provide account

information; 55,000 customers receive such

information. In fact, the website for Israel

General Bank <http://www.igb.co/il/

bankhtml/english/online_banking.html> notes

that its customers can access bank services

via the Internet, including information on

customer accounts, but that transactions are

not yet permitted.

In March 1999, Israel’s Supervisor of Banks

announced that Israeli banks will be allowed

to provide Internet banking transactions,

pending approval, after examination of the

security of their systems. Customers will be

permitted to open savings accounts and buy

and sell securities but will not be able to

transfer funds from one account to another

or to pay bills via the Internet because of

security risks.49 The website for Israel

General Bank notes that “once the necessary

legal steps have been taken, customers will

also be able to implement transactions via

the Internet.”

Asia and Pacific

Electronic commerce is still evolving in Asia

and the Pacific. There is conflicting evidence

on the development of electronic banking.

Some analysts say it is increasing; others say

growth is stagnant because of lack of customer

confidence. In addition, a great difference

exists among the countries of the region in the

level of development and infrastructure

needed for electronic commerce. Electronic

banking services are currently more widely

available in Hong Kong than in other areas.

Chekiang First Bank [Hong Kong] <http://

www.cfb.com.hk> has a Web Banking Service

available to all of its Phone Banking Service

users. Services include time deposit instructions,

account transfers, Hong Kong dollar account

transfer to a third party account with the bank

(maximum daily cycle limit HK $10,000), and

buying or selling foreign currencies during
70

office hours. The maximum limit per

transaction is HK$500,000 or equivalent.

Hong Kong’s JETCO Joint Electronic Teller

Services is scheduled to provide its 49-member

bank network with Internet banking, the first

Internet Certification Authority for such

services in Hong Kong. The integration

project is led by Hewlett-Packard in partnership with CyberTrust, and will provide the

banks with digital certification for Internetbased transactions.

Malaysia’s Southern Berhad Bank’s Direct

Access (SBB Direct) <http://

www.sbbgroup.com.my> promotes itself as an

electronic banking and commercial site,

offering “true direct banking.” However, the

service is actually an intranet dial-up service.

(Because Malaysian regulations do not allow

financial transactions to be conducted over

the Internet, Internet banking services in

Malaysia would be illegal.) Financial transactions must be accessed from the bank’s

intranet dial-up service— with “every phone a

branch...”— and branches operational around

the clock. For persons interested in the bank’s

services, the website provides phone numbers

and an email address.50

In April 1998, Thai Farmers Bank <http://

www.tfb.co.th> announced a move to

target corporate customers and launch

Thailand’s first Internet banking service

in the third quarter, 1998. The bank

expected that all of its corporate customers

would use Internet banking by 2000.51

In October 1998, however, the bank

announced that Internet banking services

would not be provided until early 1999.

Initially, banking services will involve

customer inquiries concerning account

balances and statements, and then will

expand to online utility service payments.

Full Internet banking services for personal

accounts are seen in the future. However,

the bank intends to survey customer

requirements and patterns before increasing

services, particularly because Thailand

has “little demand...for the use of the

Internet for financial transactions at

the moment.”52
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 71

APPENDIX F

INTERNATIONAL

REGULATION OF

ELECTRONIC BANKING

INTERNATIONAL ORGANIZATIONS

Financial Action Task Force

As noted under “Financial Action Task Force

on Money Laundering” in the “Electronic

Cash” section of this report, the organization

has expressed concern about the regulation of

Internet banking, particularly in areas where

banking operations are protected by a high

level of secrecy and little or no proof of identity

is needed to open accounts. In its February

1998 report on money laundering trends, the

FATF discussed the potential implications of

emerging payment systems such as electronic

money and Internet transactions. The FATF’s

February 1999 report also addressed “misuse

of the Internet and other new payment

technologies for fraud and the transmission

of illicit funds.”53

Caribbean Financial Action Task Force

The Caribbean Financial Action Task Force

(CFATF), is an organization of Caribbean basin

states that have agreed to implement common

countermeasures to address the problem of

money laundering. At its October 1997

meeting, the CFATF Council of Ministers

endorsed a plan to develop a program aimed at

sensitizing regional governments to the possibilities of money laundering through emerging

cyberspace technologies. Thereafter, a May

1998 workshop was held to discuss “Money

Laundering Through Emerging Cyberspace

Technology.” The workshop participants

included government officials and industry

representatives from approximately 25

nations. CFATF also held a spring 1999

electronic banking seminar to expose senior

government officials to emerging technologies

and assorted regulatory, legal, and law

enforcement policy issues.

Offshore Group of Banking Supervisors

The Offshore Group of Banking Supervisors

was established in 1980 as a forum for supervisory cooperation between banking supervisors

in offshore financial centers.54 In “On-site

Examination Checklist,” an annex to The

Supervision of Cross Border Banking, a report

prepared by a working group of members of

the Offshore Group of Banking Supervisors

and the Basle Committee on Banking Supervision, 18 items of regulatory interest are

enumerated as issues to be raised during

on-site examinations. Although the checklist

does not specifically address electronic banking

issues, it does ask what requirements banks

and banking groups must fulfill in order to

become authorized in their jurisdictions;

whether there are differences in types of

banking licenses issued and conditions

imposed; and whether the home supervisory

authorities of such entities are allowed to

conduct on-site inspections. These issues are

a part of an overall regulatory environment

related to electronic banking.
72
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 73

APPENDIX G

INTERNET GAMING

REGULATORY POLICY

AROUND THE WORLD

REGULATORY POLICY AROUND THE

WORLD

In the face of a rapid increase in the Internet

gaming industry and the likelihood that it

will reach new populations of users in the

near future, national governments (and, in

some cases, state and regional governments

as well) have taken a variety of approaches to

regulation. Some have dealt with Internet

gaming as an unmitigated threat, some as

an economic opportunity, and most as a

distinctly mixed blessing that brings unprecedented legal complications. Those three

views correspond approximately to three

types of strategy for dealing with the new

industry: prohibition, regulation, and

maintenance of the status quo until the

nature of the industry and its problems

becomes more clear. In few cases has a final

strategy or set of regulations been accepted as

fully satisfactory; the phenomenon is too recent

and its dimensions are too unlike those of other

legal issues for most jurisdictions to have fully

determined all the ramifications and turned

that understanding into policy. Contributing

to uncertainty is the unknown dimension of

the industry and the actual rate at which it is

growing; collection of industry-wide information on those subjects is obstructed because

not all enterprises publicize their profits or

business transactions.

ASIA/PACIFIC

Australia

Australia has chosen to permit Internet gaming

in a strictly regulated environment, at the level

of state and territory government. In the last two

years, Australia’s efforts to develop a workable

system of Internet gaming regulations have

attracted considerable attention. Sports and

casino betting are extremely popular in Australia;

according to the Tasmanian Gaming Commission’s

figures, in 1997 and 1998 combined gambling

expenditures were estimated at about $94

billion. At the same time, use of the Internet

has become a very popular activity. State and

territory governments in Australia have

concluded that these trends will mean that

many of their citizens will rapidly become

customers of whatever Internet gaming is

available, regardless of government actions to

control the process.

The Australian Commonwealth government

does not currently regulate the domestic

gambling industry, except under the Financial

Transaction Reports Act of 1988, which was

passed to prevent money laundering, largescale tax evasion, and certain other activities

of organized crime. That act designates

conventional casinos and online gaming

providers as “cash dealers” and requires them

to identify customers under certain circumstances. The act also requires cash dealers to

report specified types of financial transactions

and suspicious transactions to the Australian

Transaction Reports and Analysis Centre

(AUSTRAC).
74

In 1997, Australia began working on a national

set of guidelines for Internet gaming activity.

In 1998 the commonwealth government

assigned the project of researching the industry

and recommending a national strategy to the

Productivity Commission, an independent

agency that serves as the Australian

government’s principal review and advisory

body on microeconomic policy and regulation.

The commission’s draft report was issued in

July 1999; the final, three-volume report was

issued in December 1999, after a round of

consultations with government agencies and

public hearings.

Like the report of the United States National

Gambling Impact Study Commission, the

Productivity Commission report addresses

Internet gaming as a segment of the overall

gambling issue; the impetus for both reports

came from public concerns about gambling in

general. The final Australian report, however,

devoted 67 pages to “Policy for New

Technologies,” compared with the more

nominal treatment of Internet gaming in the

NGISC report. Among the key judgments

of the Australian report are the following

statements: “There are...grounds for regulation

of Internet gambling, along the lines of

regulations applying to other gambling forms.

The Commission considers that there are ways

of controlling online gambling sufficiently to

exercise such regulations...,” and “Managed

liberalisation— with tight regulation of licensed

sites to ensure integrity and consumer

protection— has the potential to meet most

concerns, as long as the approach is national.”

The Productivity Commission’s final report is

available at the Internet website

<www.pc.gov.au/inquiry/gambling/finalreport>.

The Select Committee on Information

Technologies of the Australian Senate also is

conducting an inquiry into domestic online

gambling. The committee is examining the

present extent and impact of online gambling;

the feasibility of limiting access, especially for

minors; the adequacy of current state and

territory regulations on online gambling; and

the need for national legislation on the

subject. The committee issued a report on its

findings in March 2000. Following the issuance

of the Productivity Commission’s final report,

the Australian Prime Minister, disturbed by

the rapid growth of Internet gambling, directed

that a Ministerial Council on Gambling be formed.

That council, which would be formed by the

chief ministers of all the states and territories,

would investigate the feasibility and

consequences of banning Internet gambling.

Regulation at the State and Territory Level

In 1998 and 1999, several Australian

jurisdictions prepared or adopted legislation

legalizing and regulating Internet gaming.

Those jurisdictions include Queensland; the

Northern Territory; Tasmania; Norfolk Island

(a small offshore island with dependency

status); the Australian Capital Territory,

which includes Canberra; and most recently

Victoria. A national regulatory framework

(commonly referred to as the National Model),

developed by gaming ministers from all the

states, has served as a model for legislation in

the states of Queensland and Victoria and in

the National Capital Territory. The stated

purpose of this framework is to minimize the

negative impact of gambling originating from

overseas or from illegal sources by providing

alternative products that are carefully

monitored and, in addition, to prohibit illegal

domestic operations that would put customers

at risk.

Although several states and territories have

enacted regulatory legislation, the types of

activity covered and the degree of regulation

vary somewhat. The Queensland Interactive

Gambling (Player Protection) Act went into
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 75

effect in October 1998. The most comprehensive of the laws currently in effect, the act

stipulates the regulatory framework for interactive gaming, provides for the issuance of

licenses to approved recipients, allows for

taxes to be levied on licensed operations,

and provides a full regime of protections for

customers and the community in general. The

law also provides for cooperation with other

Australian jurisdictions that regulate interactive gaming. Queensland is now accepting

license applications.

In Tasmania, legislation was passed in 1998

permitting conventional casinos to offer

interactive gaming but prohibiting Tasmanian

citizens from participating. In December 1999,

existing legislation was amended to permit the

issuance of licenses to new interactive gaming

providers. Tasmania’s law continues to

prohibit Tasmanian citizens from participating,

however. Norfolk Island has reversed a longheld position against gambling by passing laws

permitting and regulating conventional and

Internet gaming, but it too prohibits its citizens

from participation in Internet wagering. As

of January 2000, four Internet license applications were under consideration by the

Norfolk Island Gaming Authority, and none

had yet been granted. The Australian Capital

Territory’s legislation, also enacted in 1998,

appears aimed primarily at customer protection.

License issuance began there at the end of

1998. As of January 2000, New South Wales

did not yet have legislation. The Northern

Territory has allowed and regulated conventional

and Internet gaming for several years.

Australian Regulatory Philosophy

The emphasis on protecting the consumer

first, which seems to predominate in most of

the Australian jurisdictions, means that

gaming sites must prove conclusively that they

are well-backed financially and intent on

providing reliable service. Among consumer

protection provisions are the prohibition of

participation by minors and the prohibition of

extension of credit; mandatory self-exclusion

by problem gamblers; protection of customer

privacy; submission to audits; mandatory

complaint procedures; and the licensing of

all directors, executive officers, and major

stockholders.

The approach of Australian jurisdictions to

taking bets from customers in the United

States varies considerably, and little has been

said about establishing a formal policy on this

matter. In the absence of formal regulations,

individual casinos are deciding how to deal

with this issue. Sites in Tasmania and Norfolk

Island seem to welcome all patrons while

prohibiting local participation. On the other

hand, the largest individual Internet operation,

Centrebet of Darwin, stopped taking bets from

customers in the United States in 1998 pending

legislation or other policy determinations in

the United States.

The Anti-Gaming Movement

Australia also has a counter-movement that

advocates prohibiting rather than regulating

Internet gaming. The rapid expansion of

conventional gambling services has drawn fire

from many politicians. In 1998, a senator

representing South Australia proposed to the

Productivity Commission that Australia

prohibit domestic gaming companies from

offering their services via the Internet and

prohibit foreign Internet gaming operations

from making their services available in Australia.

The senator, whose position was supported by

the prime minister and the national treasurer,

argued that children would have too much

access to gambling if it were on the Internet,

especially considering children’s natural

attraction to sports. Coming on the heels of

the Productivity Commission’s final report,
76

which summarized the first comprehensive

investigation of the subject, the Prime Minister’s

immediate call for continued scrutiny of

Internet gambling was widely construed as an

escalation of the anti-gambling movement.

The Prime Minister stressed particularly the

scale of problem gambling; the Productivity

Commission reported that 290,000 Australians

are problem gamblers, whose addiction causes

an estimated loss of US$2 billion annually.

EUROPE AND CANADA

Gaming Regulators European Forum

The 1998 meeting of the Gaming Regulators

European Forum in Helsinki issued a Position

Statement on Gambling on the Internet. It

held that each country should be responsible

for policy on such activity in its jurisdiction

and that other jurisdictions should respect

such policies. It called for full regulation of

gaming in countries deciding to allow it, with

participation restricted to the residents of that

country and to individuals in other countries

with which reciprocal agreements exist.

Control measures also would address gambling

addiction, honest gaming procedures, player

confidentiality and security, and prevention of

money laundering. No punitive measures

would be taken against a bettor participating

from a jurisdiction prohibiting such activity.

The forum suggested that cross-border controls

would have to be at the level of the Internet

service provider (ISP). Contracts between

ISPs and gaming operators might require that

the ISP prevent access to addresses in

jurisdictions that are legally off-limits. (The

practical possibility of placing such responsibility

has been much discussed in the United States

and elsewhere; it generally has been concluded

that ISPs do not have the capability to monitor

the nature of every transmission that passes

through them.)

United Kingdom

In the United Kingdom, the National Gaming

Board regulates about 120 conventional

casinos, many of which are considered by

industry experts to be among the world’s most

reputable gaming companies. Some of the

best-known British casinos, such as Victor

Chandler, William Hill, Ladbrokes, and

Blandford Betting, have used their standing in

the traditional gaming industry to move into

the Internet field. However, the Gaming

Board’s most overriding policy is that commercial gaming shall occur only on licensed

premises and not on other private property.

The board has recognized that Internet

gaming inherently belongs to the latter

category, but it also recognizes the difficulty of

enforcing a ban on such activity. One British

gambling expert has expressed the opinion

that it likely is legal for a British citizen to bet

on the Internet if the host is located in another

country, especially if that country is in the

European Union. British money-laundering

regulations, based on European Council

guidelines, apply mainly to financial institutions; however, a Code of Practice for

casinos sets strict standards for investigation

of suspicious transactions.

After delaying consideration of a ban on

Internet gambling in 1999 because of the

relatively low occurrence of Internet gaming

in Great Britain, in early 2000 the Gaming

Board began a review of that phase of the

industry. A factor in that review was the start

of Internet gaming operations by the major

companies listed above, many of which have

moved their operations to offshore locations

such as Gibraltar and Alderney Island, where

Great Britain’s wagering taxes (ranging from

6.75 to 9 percent) do not apply. The board is

expected to make recommendations on

Internet gaming policy sometime in the first

half of 2000. A new Gambling Review Body,
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 77

including experts from a variety of fields, was

scheduled to begin a comprehensive review of

the entire gambling industry in May 2000,

with a final report due in mid-2001. That

body’s purpose is to recommend changes in the

Gaming Act of 1968, considered the most

important law covering gambling activities.

Other European Countries

Internet gaming operates in at least three

other European countries: Germany, Austria,

and Liechtenstein. A government-sanctioned

Internet lottery in Finland also has been

reported. In Germany, Nierfeld’s Internet

Casino recently became the first such operation

in that country. However, because German

law does not permit gambling, either

Nierfeld’s is operating from another venue

and claiming to be German, or it is an illegal

operation. Liechtenstein’s Millions 2000

Internet lottery, an extension of an existing

conventional lottery operation, is run directly

by the government and dedicates substantial

percentages of its revenues to charities. It is

the only such operation in the country.

Austria’s Interwetten, which began operation

in 1989 and established a positive reputation

as a phone-betting service, opened an online

service in 1997 to expand its market beyond

Central Europe. Interwetten now claims to

have customers worldwide. Austria prohibits

transmission of Internet gaming into the

country (making an exception for Millions

2000) and has a strict regulatory system for

operations based in Austria.

Canada

Canada appears to be going through the same

evaluation process as Australia relative to

legalizing and regulating Internet gaming.

The Canadian government has declared the

importance of gaining control over an industry

that could be dangerous to consumers and

whose products in fact already are available to

Canadians without any effective controls at

all. As early as 1997, legislation has been

proposed in the Canadian Parliament to

regulate Internet gaming. According to the

sponsors of the bill, current law prohibits

setting up a virtual casino or sportsbook on

Canadian soil. Although the bill submitted in

1997 received substantial support in Parliament,

it was not enacted, and no legislation on the

subject had emerged as of early 1999. In 1998

Canada extended its money laundering statute,

which was passed before casino gambling

became a significant industry, to include

private casinos licensed by Canadian provinces.

THE CARIBBEAN

Caribbean Financial Action Task Force

In May 1998, the Caribbean Financial Action

Task Force (CFATF) sponsored an exercise

entitled “Exploring Money Laundering

Through Emerging Cyberspace Technologies:

A Caribbean Based Exercise,” in Port of

Spain, Trinidad. Representatives included

senior-level officials from 25 countries,

multinational organizations, and the banking

and casino industries. Delegates were

confronted with a large number of unique

policy issues, including those that pertain to

Internet gaming. Much of the focus of the

exercise concerned the vulnerability of

cyberspace-based payment systems, including

Internet casinos, to money laundering and

other types of financial fraud.

Several interesting perspectives were offered

during the exercise. One such perspective was

that different countries had reached divergent

conclusions about how to conduct investigations

of persons and entities seeking to gain a

license to operate gaming establishments in

CFATF jurisdictions. In the cyberspace
78

context, licensing was seen as especially

critical because of the transborder nature of

many of the services delivered through the

network. One argument that emerged in the

discussions held that jurisdictions with a

strong commitment to rigorous and effective

oversight of potential Internet gaming establishments could be “held hostage” by the

weak enforcement and oversight policies of

their neighboring countries. The “cascading

downward” effect of regulatory coverage

triggered by weak enforcement in any single

jurisdiction was argued to be more severe in

cyberspace but hardly a unique problem in

the region.

The participants also identified the collection

of records and other data relating to suspicious

financial activities as another important

element of any effective system of oversight

and supervision. On this issue, it was argued

that cyberspace presented a unique series of

challenges because the legal status of transaction records was unclear in a number of the

jurisdictions represented at the CFATF

exercise. Added to this fact was the potential

problem of how to share suspicious transaction

information across transnational borders. A

number of participants noted that evidence

obtained in a neighboring jurisdiction would

not necessarily be admissible in their courts.

Another subject of considerable comment at

the CFATF exercise concerned the role of

supervision and external audit in maintaining

the integrity of government oversight. On the

issue of how to execute “on-site” inspections

of Internet gaming establishments, it was

broadly acknowledged that new technological

means would likely be required in order to

establish effective procedures for auditing and

analyzing records of these Internet operators.

The exercise participants agreed that they

should weigh the pros and cons of various

regulatory options, including how to address

the types of problems raised above, as they

consider Internet casino gaming operations in

their jurisdictions.

Antigua

Antigua, which many refer to as the prototypical Internet gaming base, has the largest

concentration of websites among the

Caribbean nations. Prior to the expansion of

Internet gaming in the mid-1990s, Antigua

had no gaming regulatory body and hence no

experience in controlling the activities of

such an industry. A regulatory structure for

Internet gaming has been in place since

1997, when the government passed the

“Standard Conditions for Licensing of Virtual

Casino Wagering and Sports Book Wagering

in the Antigua and Barbuda Free Trade and

Processing Zone.” That regulation enabled

the existing Free Trade and Processing Zone

Commission to license approved persons to

run the sites, as it does for other types of

business in the island’s tax-free zone. An

anti-fraud division exists to investigate

customer complaints.

Among the legal restrictions included in the

law are the prohibition of sublicensing and

license transfer, of submitting false information

during the licensing process, of failure to

fulfill all commitments to players, and of

making false promotional statements. The

law also stipulates that software must be

tested and that gaming programs must comply

with gaming industry standards. The annual

license fee is $100,000 for a casino and

$75,000 for a sports book; a 20 percent tax is

levied on overseas telephone bills. The

Commission claims that its mandatory background check has eliminated 300 applicants.

The island now is considering revision of its

gaming statutes on the model of

Queensland’s 1998 Interactive Gambling

(Player Protection) Act.
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 79

Dominica

The Commonwealth of Dominica, located just

south of Antigua, has issued perhaps the most

official policy statement supporting gaming

and other Internet activities as a part of the

country’s economic welfare. In mid-1998 the

government announced its intention to open

the first government-operated Internet casino,

specifically noting that no jurisdictions,

implicitly including the United States, would

be forbidden as targets for transmission.

Dominica also grants gaming licenses by

contract with individuals; terms of the contract

differ as to the number of nationals to be hired

and the duration of the contract, as well as the

percentage of gross revenues to be paid to the

state (usually 5 percent). If that amount comes

to less than $25,000 in a given year, the latter

amount is paid. The registration fee is $15,000.

Licensees agree to independent auditing and

are required to report the addition of any third

parties to the enterprise. The license includes

favorable terms for international communications access; concessions on work permits and

equipment import; and tax exemption on

income, revenues, and winnings by nonDominican customers. Licenses are issued by

the Ministry of Finance, Industry and Planning.

The government processes license applications

with the help of the Domini Corporation, which

advertises itself as a government-appointed

agent that can guarantee swift processing,

provide consultation in developing Internet

gaming operations, and provide software

and hardware. Domini has “associate law

offices” in New York, London, Montreal,

and Antigua.

Other Caribbean Nations

Gaming regulations in other Caribbean nations

such as St. Kitts, Grenada, and the Netherlands

Antilles— all of which have between 10 and

25 gaming sites— do not appear to have any

comprehensive provisions. The Internet

gaming license in St. Kitts is issued by the

Ministry of Trade, Industry, Caricom Affairs,

Youth, Sports, and Community Affairs. The

one-sentence document says that the cabinet

has approved the applicant’s request to engage

in casino games and sports betting using the

Internet.

In some Caribbean nations, the licensing

procedure is unclear. In Grenada the licensing

authority issue was put in question by a

dispute between a gaming site operator that

claimed to have received exclusive licensing

authority from the government and another

operator bearing a license ostensibly issued

directly by the government. In the Netherlands

Antilles, there is an understanding that

disputes over the practices of individual

gaming establishments will be resolved

according to existing laws, but at present

there appear to be no regulatory provisions

specifically designated to facilitate the resolution

of such disputes.
80
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 81

APPENDIX H

A REPRESENTATIVE LISTING OF INTERNET CASINOS AND

SPORTSBOOKS AS OF MID-1999

The table that follows is a compilation of approximately 200 Internet gaming operations. [Note:

This list was current as of mid-1999. As the industry is in constant flux, the information should

not be interpreted as all-inclusive.] The data are taken from websites, online website listings,

and other sources. In the “Location” column, both geographical and website location are

given— when available. In some cases, a casino or sportbook name has been identified, but a

search has not located a website for that name. The absence of a website may mean that the

operation is no longer in business, or it may mean that the website for that operation is found

under a different name. If there is specific information that the operation is no longer in business, that fact is noted in the “License” column. In some cases, neither the website nor other

information provides the geographic location of the operation. In the “License” column, a definite “yes” or “no” indicates that a specific statement on the site’s license has been found; a “n.a.”

means that no information on that status has been found.

The “Comments” column summarizes several types of other information about the operation

that may be of interest: legal status, change of location or status, limitations on users stated on

the website, connections with other Internet operations, parent companies or software providers,

date established, and languages and games offered. In the first three categories, all such information

available has been included; information in the other categories is meant to be representative

rather than inclusive.

COMPANY LOCATION LICENSE? COMMENTS

AAA Casino unknown

www.aaacasino.com

n.a. 55 specific note to U.S. citizens: "don't

participate if illegal in your state

(Arizona, Illinois, Indiana, Minnesota,

Missouri, Nevada, Wisconsin)";

specific note about Indiana

ABC Islands Costa Rica

www.abc.com

yes moved from Netherlands Antilles 1998

Ace in the Hole

Online Casino and

Sportsbook

Costa Rica 56 yes

Aces Casino and

Sportsbook

Margarita Island (Venezuela) yes; Antigua and

Venezuela

est. 1998; English, German, Dutch,

Spanish, French

Aces Gold Casino Curaçao

www.acesgold.com

n.a. est. Oct. 1998

Acropolis Casino Dominican Republic

www.acropoliscasinos.com

yes
82

COMPANY LOCATION LICENSE? COMMENTS

Action Sports

Wagering

St. Martens, V.I.

www.actionsportswagering.com

n.a.

Active Gaming Curaçao

www.activegaming.com

n.a. blackjack, baccarat, poker

All-Star Sportsbook Margarita Island (Venezuela)

www.allstarsportsbook.com

yes; Venezuela,

Antigua

support company EFS Caribbean;

also has computers in Antigua, St.

Kitts, and Canada; 23 casino games

Allied Sports Curaçao out of business as of

1998

Antigua Casino and

Sportsbook

Antigua

www.antigua.org

yes est. 1999; owned by Playstar Corp.

(Canada)

Arizona Sportsbook Mexico out of business

Arrowhead

Sportsbook and

Casino

St. Kitts

www.casinolive.com

yes uses Carib F/X software

Atlantic City Casino Antigua

www.atlanticcitycasino.com

yes owned by company in Vancouver,

B.C.

Atlantic Interbet

Casino

Antigua

www.atlanticinterbet.com

yes

Atlantis Casino Belize

www.casino-atlantis.com

n.a. owned by Atlantis Gaming, Ltd. of

Antigua; sold in 1998 by Atlantis

Gaming Co. of U.S.

Avalon Casinos Dominica

www.avaloncasinos.com

yes est. 1996; states "your local laws must

permit betting:

Avatar Casino Bahamas yes est. August 1998; owned by Canadian

company; chat feature

Bali Casino Curaçao

www.balicasino.com

n.a. owned by Curaçao company

Best Bet Casino Dominica (no website found) n.a. bingo, lottery, slots, keno, poker

Best Bet Sports Costa Rica

www.bestbetsports.com

yes also has casino operation; est. 1996
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 83

COMPANY LOCATION LICENSE? COMMENTS

Bid Caesar's

Sportsbook

Antigua

www.bigcaesars.com

yes also called Carib Sportsbook and

Caribbean Sportsbook

Big Daddy

Sportsbook

Costa Rica

www.bigdaddy.com

yes est. 1996; only credit card and bank

wire payment

Bingo of the Americas Costa Rica yes parent company Cybergames;

revenues to Red Cross of the

Americas and First Lady's Charities

ag ainst Cancer and Infantile Diseases

Bookies Café Curaçao

www.bookiescafe.com

n.a.

Bowman International Mauritius, Isle of Man

www.bowmans.co.uk

yes long-time U.K. operation; recently

entered Internet

Bugsy Online Casino Antigua

www.bugsyonline.com

yes est. 1997

Canbet Australia

www.canbet.au.com

yes small operation; est. 1998, Canberra;

software from eCom Solutions,

Canberra

Carib Sportsbook Antigua

www.caribsports.com

yes also known as Boss's Casino (q.v.)

Caribbean Sportsbook

Caribbean Cyber

Casino

Grenada

www.ccasino.com

yes uses MicroGaming Systems software

Caribbean Health and

Housing Foundation

Antigua

www.onlinelottery.com

yes est. 1997

Caribbean Island Dominican Republic

www.caribbeanisland.com

yes est. June 1998; offers e-commerce

using credit card

Casanova's Trinidad

(no website found)

n.a. one of five casinos run by Sunny

Group under name Casino Fortune

Casares Gibraltar

www.casares.com

yes began 1995 as InterKeno, expanded

1996 ad Bet4ABetterWorld, renamed

1998; 20% of revenues to New World

Foundation and other charities

Casino Alitalia Dominican Republic

www.casinoalitalia.com

yes est. 1998; offers e-commerce with

credit cards

Casino Australia Curaçao

www.casinoaustralia.com

n.a. uses CryptoLogic e-cash; owned by

Bardanac Holdings of Netherlands

Antilles; "no gambling for money by

U.S. players"
84

COMPANY LOCATION LICENSE? COMMENTS

Casino Café Casino Netherlands Antilles

www.casinocafe.com

n.a. uses Cyberbookies of North America

software; also known as Bookies

Casino Café and Sportsbook

Casino Caribe Dominican Republic

www.casinocaribe.com

yes Japanese and English; market list

claims U.S. customers

Casino Cash Margarita Island

www.casinocash.net

yes

Casino Casino Dominica (possible)

www.casinocasino.com

n.a. site offers software, turnkey gaming

operations, even licenses

Casino CoCo Costa Rica

www.casinococo.com

yes

Casino-Crystal Antigua

www.casinocrystal.com

n.a. connected with CasinoInn; uses

CryptoLogic e-cash

Casino Fantasy location unknown

www.casinofantasy.com

n.a. Japanese, English, Chinese, German,

Spanish, French; equipment from

Cyber Technologies, Inc. of Las

Vegas; uses e-cash; site not available

to U.S. customers

Casino Fortune Trinidad

www.casinofortune.com

yes umbrella organization for five casinos

(four in Trinidad, one in Botswana);

est. January 1997; electronic funds

transfer

Casino Forum Trinidad

www.casinoforum.com

n.a.

CasinoInn Antigua

www.casinoinn.com

yes branch of World-Wide Telesports

(WWTS); uses CryptoLogic e-cash

Casino International Antigua

www.4casino.com

no has been listed as defunct; branch of

WWTS

Casino Internationale Curaçao

www.casino-internationale.com

n.a. e-cash offered

Casino of the

Americas

St. Kitts out of business

Casino of the Kings Antigua

www.i-casino.com

n.a. uses EFS Caribbean equipment; also

a sportsbook

Casino on Air location unknown

www.casinoonair.com

no uses EFS Caribbean software; eight

languages
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 85

COMPANY LOCATION LICENSE? COMMENTS

Casino-on-Net Antigua

www.casino-on-net.com

n.a. est. 1997

Casino Regal location unknown

www.casinoregal.com

n.a. uses CryptoLogic e-cash

Casino Royale Curaçao

www.funscape.com

yes est. 1995, under Funscape

International

Casino Royal Magic Ireland

www.aroyalmagicstreet.com

yes; Ecuador uses MonaCard encryption system

(Monaco) for payment security;

administered by Gertman S.A. of

Luxembourg

Casino Tokyo Antigua

www.casinotokyo.com

yes Japanese version of CasinoInn

Casino Tropicale Costa Rica

www.casinotropicale.com

yes at Hotel Barcelo, Guanacaste;

licensed six years for conventional

operations

Casino Vega Internet

Casino

Costa Rica

www.casinovega.com

yes est. 1999

Casinos of the South

Pacific

Cook Islands

sp.cosp.com

yes claimed huge profit first week open

Casinos of the World St. Kitts

www.casinosoftheworld.com

yes

Centrebet Brisbane, Australia

www.centrebet.com.au

yes taken over by Jupiters, a large

conventional casino, 1998; no U.S.

customers served

Classic Casino and

Sportsbook

British Virgin Islands

www.classiccasino.com

n.a. eight languages; EFS Caribbean

e-cash; owned by SoftecSystems,

Vancouver

Club Casino Liberia (no website found) n.a. seven languages; est. 11/96; owned

by Dutch Intercoin Co.; "licenses in

various countries"

Club Colonial Costa Rica

www.cccsportsbook.com

yes

Club Rio Casino Venezuela

www.clubrio.com

yes owner is Starnet International

(Canada); uses EFS Caribbean

equipment

Constellation Casino Antigua

www.virtcasino.com

n.a. supplied by Virtual Gambling

Technologies throug h its Antig ua

branch; sportsbook phase is

International Sports Market (q.v.)
86

COMPANY LOCATION LICENSE? COMMENTS

Country Club Casino Tasmania

www.murchison.com.au

yes owned by Federal Hotels of Australia

Cowboy Casino Antigua

www.cowboycasino.com

yes one of seven casinos using software

from Bossmedia of Sweden, via

Global Network Ltd., licensee

Cryatal Palace Trinidad (no website found) n.a. under Casino Fortune group (Sunny

Group)

Cyberbetz Dominica

www.cyberbetz.com

yes owned by Global Intertainment Corp.

of Vancouver; est. 8.98 after purchase

of Netbetz; casino and sportsbook

Cyberbookies Netherlands Antilles

www.cyberbookies.com

n.a. connected with Casino Café

CyberSino Netherlands Antilles

www.cybersino.com

n.a. owned by Scylinx Corp. of

Netherlands Antilles

Cyberspades (location unknown)

www.cyberspades.com

n.a.

Cyber Thrill Bahamas

www.cyberthrill.com

n.a.

Darwin All Sports Darwin, Australia

www.betthe.net

yes est. Jan. 1997; is Internetarm of

International All Sports, advertised as

Australia's largest independent

bookmaker; onto Internet 6/98;

reportedly doing US$1 million per

month of business 1998

Davidson Sports

Betting

Sydney, Australia

www.sportsbetting.aust.com

yes est. July 1997; will go online only

when New South Wales adopts

regulation laws

Dial-a-Bet Dominican Republic out of business 1998

Diamond Club Casino Antigua

www.diamondclub.com

yes one of seven casinos using software

of Bossmedia of Sweden, via Global

Network, Ltd., licensee

Emerald Palms

Sportsbook

Costa Rica

www.epalms.com

yes

English Harbour

Casino Online

Antigua

www.englishharbour.com

yes owned by English Harbour

Entertainment, Antigua

English Sports Betting Jamaica and Antigua no on Antig ua's "no license" list 1998;

site says betting illegal for U.S.

customers
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 87

COMPANY LOCATION LICENSE? COMMENTS

Eurobet Sports Gibraltar

www.eurobet.com

yes only customers outside U.K.; very

p rimitive site

First Live Casino St. Vincent

www.firstlive.com

n.a. roulette only

Five Star Casino Antigua

www.fivestar.com

yes one of seven casinos using software

from Bossmedia of Sweden, via

Global Network, Ltd., licensee

Galaxiworld St. Kitts

www.galaxiworld.com

yes owned by Gaming Lotte ries

Communication Ltd. (GLC Ltd.); est.

12/98; reported wagers US$3.1 million

that month

Galaxy Sports and

Casino

Curaçao yes p rosecuted in New York federal case,

1998; bought 1998 by "group of

international investors," including

Royal Technologies telecom

company; renamed operation Royal

Sports

Gamblers Palace Costa Rica

www.gamblerspalace.com

yes est. 8/98; casino and sportsbook

Gibraltar Sports St. Kitts (no website found) yes owned by Gibraltar Sports, Inc.;

spokesman: "There's no safety on the

Internet; we don't do anything on it at

all."

Global Casino Grenada out of business owned by Michael Simone of

Pennsylvania; out of business after

Missouri civil and criminal cases of

1997; sold to International Gaming o f

Vancouver, 12/97

Global Sports

Connection

Costa Rica

www.betmaker.com

yes p rosecuted and pled guilty in New

Yo rk federal case, 1998

Global SportsNet Antigua (no website found) no specifically named as unlicensed in

1998 Antigua list of licensees

Gold Club Casinos Antigua

www.goldclubcasino.com

yes one of seven casinos licensed to

Global Network Inc., using software of

Bossmedia of Sweden; probably

sublicensing to many other casinos in

Antigua

Gold Coast Curaçao

www.gcibet2.com

yes also called Goldcoast Race and

Sportsbook

Golden Hollywood

Casino

Dominican Republic

www.goldenhollywood.com

yes est. October 1998

Golden Jackpot Venezuela

www.goldenjackpot.com

yes licensee is U.S. Sports Casino; lists

winners in U.S., but says play only

allowed in "your particular state";

English and German
88

COMPANY LOCATION LICENSE? COMMENTS

Golden Palace Casino Antigua

www.goldenpalace.com

yes links connect with Nierfeld's Internet

Casino (q.v.); "Golden Palace Group,"

all in Antig ua, includes 28 casinos;

wholly owned by Antiguan company

Grand Dominican

Casino

Dominican Republic

www.g randdominican.com

yes est. 9/97; active with U.S. customers,

run by Tecnologia Co., headed by

Joseph Tedeschi and group

Grand Holiday Casino Curaçao (no website found) out of business

Grand Online Casino Antigua

www.g randonline.com

yes connected with Triple Win Casino

(q.v.)

Grand Prix

Sportsbook and

Casino

Costa Rica

www.casino.grandprixsports.com

yes developed by CyberRoad of Canada;

has EBanx e-cash system

Grand Riviera Antigua

www.g randriviera.com

yes under same management as Triple

Win and about 25 other sites; a

"private company" that would not

divulge its name

Grand Towers (location unknown)

www.g randtowers.com

n.a.

Inet Sportsbook Costa Rica

www.inetsportsbook.com

yes also called Sports Bettor's Paradise;

est. 1996

InterBingo Gibraltar (no website found) yes associated with InterKeno, under

NetGame, Ltd.

Intercasino Antigua

www.intercasino.com

yes under WWTS group; est. 1996; offers

19 games

InterKeno Gibraltar (no website found) yes InterKeno was former name of

Casares (q.v.) --current association

unknown

InterLotto Liechtenstein

www.interlotto.li

yes direct government sanction; run by

International Lottery in Liechtenstein

Foundation; also known as Millions

2000

International Action

Sports

St. Kitts

www.international-action.com

yes

International Sports

Market

Antigua

www.virtsports.com

yes sportsbook phase of Constellation

Casino; six languages

Intertops Antigua

www.intertops.com

yes est. 1997; based in Austria;
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 89

COMPANY LOCATION LICENSE? COMMENTS

Interwetten Austria

www.interwetten.com

yes est. 1989 as phone-betting op.; online

in 1997; in Vienna; advertises tax-free

winnings, targeting Americans

Island Casino Costa Rica (no website found) out of business

Island Sports Curaçao (no website found) n.a. under new management 6/98

Island Superbook St. Kitts yes bought 6/98 by Gibraltar Sports

Jackpot Palace Antigua

www.jackpotpalace.com

n.a. advertised as coming in 1999;

licensed to Global Network Ltd.; using

software of Bossmedia of Sweden

Jupiters Casino Australia

www.broflo.com.au

yes conventional casino, Conrad Jupiter's

Gold Casino on Queensland's Gold

Coast, purchased Centrebet 1998 and

went online for first time, excluding

U.S. customers

The King's Casino Botswana (no website found) n.a. under Casino Fortune group based in

Trinidad (Sunny Group)

Kings Casino Antigua

www.kingscasino.com

n.a. no relation to Botswana operation

King's Sportsbook Grenada out of business

Ladbroke's United Kingdom

(no website found)

yes a top telephone bookmaker; no

reported Internat operations but does

have U.S. customers and is potential

Internet operation

Lasseter's Australis (no website found) yes conventional casino; reportedly will go

online second half of 1999 from Alice

Springs, Northern Terr.

Las Vegas

Sportsbook

Dominican Republic

(no website found)

n.a.

Loose Lines Margarita Island (Venezuela)

www.looselines.com

yes advertises that its location makes

betting legal for all

Majestic Sports Costa Rica

(no website found)

n.a.
90

COMPANY LOCATION LICENSE? COMMENTS

Mapau Casino Trinidad

www.mapau.com

yes in Casino Fortune group (Sunny

Group)

Megasports Antigua

(no website found)

n.a. website not complete 3/99;

advertising for U.S. customers;

Megasports also now has Australian

site at www.megasports.com.au

Millions 2000 (see

InterLotto)

NASA Sportsbook Costa Rica

www.betonsports.com

yes moved from Antigua 1998

NetBet (see

Sportingbet)

Netbetz Dominica yes bought 1998 by Global Intertainment

Corp.; name changed to Cyberbetz

New York Casino Antigua

www.newyorkcasino.com

yes licensed to Global Network, Ltd.,

using software of Bossmedia of

Sweden

Nierfeld's Internet

Casino

Germany

www.nierfeld.com

n.a. claims to be first Internet casino in

Germany, but German law does not

permit Internet gaming; location

unknown

Oasis Casino Curaçao

www.oasiscasino.com

n.a.

Olympic Sportsbook Jamaica

www.thegreek.com

n.a.

Omni Casino Antigua

www.omnicasino.com

yes also known as Omni of the

Caribbbean; in WWTS group; claims

Antigua license puts it outside U.S.

jurisdiction; est. 8/97

123 Casino Grenada

www.123casino.com

yes casino and sportsbook; est. 6/97; site

says Indiana and Missouri residents

have been warned of betting illegality

Online Sports Bet Costa Rica

(no website found)

n.a.

Paradise Sports St. Kitts

www.paradisesports.com

yes uses Carib F/X software
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 91

COMPANY LOCATION LICENSE? COMMENTS

Paradise Sportsbook Costa Rica

www.paradisesportsbook.com

n.a.

Parlay Teaser Costa Rica

parlayteaser.com [sic]

n.a.

Planet Poker location unknown

www.planetpoker.com

n.a. "abides by all rules and regulations of

the jurisdictions in which it operates,"

i.e., specifically refuses to identify

location

Playboy Sportsbook Costa Rica

www.playboysportsbook.com

n.a. est. 1996

Players Casino and

Ssportsbook

has several casinos with ISPs in

Caribbean -- no specific location

found

www.playersonly.com

n.a.

Post Time Sports Antigua

ww.post-time.com

yes est. 1996; affiliated with Bettorsworld

listing service

Premier League Antigua

www.premierleague.com

n.a. est. 1998

Queens Club Casino Antigua

(no website found)

n.a. advertised as coming in 1999;

licensed to Global Network Ltd., with

software from Bossmedia of Sweden

Quick Pay Sports Costa Rica

www.quickpay.com

n.a.

RKR Sports Curaçao

(no website found)

out of business affiliated with Gold Coast and Top Turf;

all gone by 1998

RYO International Antigua

www.twinklingstar.com

yes casisno and sportsbook; est 1997

Ramses Valley of the

Kings Casino

Antigua

www.thevalleyofkings.com

n.a. member of Golden Palace (q.v.)

Group

Real Casino Costa Rica

(no website found)

n.a. customer list purchased 1998 by

Cyberbetz

Rich's Sportsbook Dominican Republic

(no website found)

out of business 1998
92

COMPANY LOCATION LICENSE? COMMENTS

Ritz Casino Trinidad

www.theritzcasino.com

yes one of five under Casino Fortune,

Sunny Group

Riviera Casinos location unknown

www.rivieracasinos.com

n.a. English and German versions

Rosie's Casino Costa Rica

www.rosiescasino.com

yes also known as Rosie's Chalk Garden

Casino

Royal Island Casino

and Sportsbook

Costa Rica [possible]

www.royalisland.com

n.a. est. 8/98, possibly as a new version

of Island Casino

Royal St. Kitts Hotel

and Casino

St. Kitts

www.royalstkitts.com

yes standard hotel casino for 15 years

Royal Sports Curaçao

www.royalsports.com

yes new name of Galaxy Sports; bought

by international group headed by

Royal Technologies telecom company

SBG Global Costa Rica

www.sbgglobal.com

n.a.

Safari International Antigua

www.safari-casino.com

yes est. 1997

Sands of the

Caribbean

Antigua

www.thesands.com

yes under WWTS group

7by7 Casino location unknown

www.7by7.com

n.a. English and Japanese

Shamrock Sportsbook Costa Rica

www.shamrock.com

n.a.

ShoreBet Sportsbook Dominica

www.shorebet.net

yes est. 8/98

Skybook Margarita Island (Venezuela)

www.skybook.com

yes Las Vegas-owned

Specfund Antigua

(no website found)

yes
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 93

COMPANY LOCATION LICENSE? COMMENTS

Specfund Antigua

(no website found)

yes est. 1998

Sport Fanatik Venezuela yes ten languages; uses EFS Caribbean

software; sportsbook and casino

Sportbet.com Costa Rica

www.sportbet.com

n.a.

Sportingbet.com United Kingdom (Alderney Isl.)

www.sportingbet.com

yes run by Blandford Betting; established

conventional bookmakers in England

for 14 years

Sports Bettor's

Paradise

Costa Rica

www.inetsportsbook.com

yes also known as Inetsportsbook; est.

1996

Sports Interaction Dominican Republic

(no website found)

out of business money transactions reportedly went to

Ireland

Sports International Antigua/Grenada

www.gamblenet.com

no listed by Antigua on "no license" list

5/98

Sports Market Curaçao

www.sportsmarket.com (site

"under construction")

n.a.

Sports Net Bet Costa Rica

www.sportsnetbet.com

yes est. 1996

Sports Offshore Antigua

www.sportsoffshore.com

yes also known as SOS

Sports State Curaçao

(website temporarily down)

n.a.

Sterling Sportsbook Dominican Republic

www.wagepage.com

yes

Sunrise Casino (location unknown)

www.casino-sunrise.com

n.a. uses Alesco Ltd. software

Sunset Casino Antigua

(no website found)

yes advertised as coming in 1999;

licensed to Global Network Ltd.; using

software from Bossmedia of Sweden
94

COMPANY LOCATION LICENSE? COMMENTS

Super Casino Dominica

www.supercasino.com

yes links also go to Casino Casino; run by

Super Casino, Ltd.

Superbet Venezuela

www.superbet.com

yes est. 6/98

TABCORP Victoria, Australia

(no website found)

yes formed 1994 by privatization of

Victoria Totalizer Agency Board (TAB),

which ran off track race betting for the

govenment; may move to Internet

soon (New South Wales's TAB went

online early in 1999)

TVCCasino Costa Rica

www.tvccasino.com

n.a. est 8/97; parent company is Lucheafar

(Dutch); also sportsbook

Triple Win Antigua

www.triplewin.com

yes under Gold Club Casino group

USA Casino Antigua

www.usacasino.com

yes licensed to Global Network Ltd.; using

software from Bossmedia of Sweden

Ultimate Sports

Betting

Costa Rica

www.ultimatesportsbetting.com

yes est. 1/97

Universal Sportsbook Dominican Republic

(no website found)

n.a.

VIP Sports Netherlands Antilles

www.vipsports.com

yes

Victor Chandler United Kingdom

www.victorchandler.com

yes; Gibraltar long-time conventional bookmaker in

England, with offices in Hong Kong,

Thailand, Gibraltar; recently into

Internet; moving into U.S. market

Virtual Casino Online Antigua

www.virtcasino.com

yes run by Virtual Gambling Technologies,

Inc. through Antigua subsidiary; also

runs Constellation Casino and its

International Sports Market sportsbook

Wagersports Bahamas

(no website found)

out of business

Wall Street Casino Dominican Republic

www.wallstreet-casino.com

yes est. 8/98 "licensed and audited"
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 95

COMPANY LOCATION LICENSE? COMMENTS

William Hill United Kingdom (Isle of Man)

www.williamhill.co.im

yes conventional bookmaker since 1934;

high reputation; recently into Internet

Wild West Frontier

Casino

St. Kitts

www.wildwestfrontier.com

n.a. new 3/99; run by International Gaming,

Ltd.; "100 percent European owned"

Winner's Way Dominican Republic

(no website found)

out of business? target of 3/98 New York prosecution;

owner pled guilty; website "removed

for nonpayment"

Wizard of Odds Dominical Republic

www.wizardofodds.net

yes est. 1998

World Sportsbook Antigua

www.worldsportsbook.com

yes subsidiary of Starnet Communications

International of Vancouver

World Sports

Exchange

Antigua

www.wsex.com

yes target of 3/98 New York prosecution;

owner Jay Cohen has fought the case

World-Wide

Telesports (WWTS)

Antigua

www.wwts.com

yes target of 3/98 New York prosecution;

owners charged but remain fugitives;

sublicense numerous other

operations; had prior solid reputation;

software from Microgaming Systems

Inc.

World Wide Wagering Dominica

www.wager.dm

yes sportsbook and casino

World Wide Web

Casinos

Antigua

(no website found)

no Antigua lists as not licensed; based in

Orange County, CA; owns

conventional casino, St. James Club,

in Antigua

Wrest Point Casino Tasmania

(no website found)

yes owned by Federal Hotals of Australia
96
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 97

APPENDIX I

COMPANIES RELATED TO

INTERNET GAMING

OPERATIONS

AMERICAN WAGERING, INC.—

Bookmaking company in Las Vegas and owner

of Megasports, which has a casino in Antigua;

opened Internet wagering operations in

Canberra, early 1999, under license from the

Australian Capital Territory, in partnership with

Australian firm AWA of Sydney, a gambling

group so far frustrated by New South Wales’s

failure to legalize gaming in its jurisdiction;

Internet name will be Megasports.

ATLANTIC INTERNATIONAL ENTERTAINMENT, LTD.—Developer of Internet

games and parent company of World Interactive

Gaming Corp. of Delaware and New York,

which was sued in 1998 by the Federal Trade

Commission for illegal solicitation of investors

in its Golden Chips Internet Casino, and by the

State of New York for running an illegal Internet casino, also the Golden Chips Casino.

ATLANTIS GAMING, INC.— Recipient

of first license from Softec Systems Caribbean,

subsidiary of Starnet Communications International; has gaming licenses in Antigua and

operates CasinoLand; formerly owned Atlantis

Casino in Belize.

AUSTRALIAN MEDIA, LTD.—Owns

exclusive franchise for online gaming on

Norfolk Island, Australia, and uses software

from New Discoveries (U.S.); ownership of

Australian Media unknown.

BOSSMEDIA— Swedish firm running six

casinos (soon to be nine, per advertising),

in Antigua; licensed to Global Network

Ltd.; two branch companies in Antigua—

Boss Casinos and Webdollar— employing

50 people altogether.

COMMERCE AND COMMUNICATIONS

INC.— In Antigua, mainly a software provider; has Antigua license for Internet gaming

as of 1998.

CRYPTOLOGIC— Software development

company based in Toronto; operator of

virtual casinos; developed an e-cash system

in which players establish accounts via

credit card, check, money order, or wire,

with encrypted financial information. Its

casino system, Intercasino, was sold to its

subsidiary Intertainment Antigua, which

licensed it to World Wide Telesports

(WWTS), Antigua, with all bets received,

processed, and stored in Antigua. WWTS

uses Cryptologic’s e-cash for secure money

transactions.

CYBEROAD GAMING CORPORATION—

Vancouver; owns or supplies operations in St.

Kitts and Costa Rica.

CYBERGAMES— Costa Rica; runs Bingo of

the Americas under contract with the Red

Cross of the Americas, and also five casinos in

Dominica and Antigua, purchased in 1998;

development agreements with three other

casinos and four conventional casinos in

Costa Rica. Until 1998, called Professional

Sports Holdings, Inc. Runs its Costa Rica sites

through RCI de Costa Rica, SA.
98

CYBER SPACE CASINO TECH, LTD.—

Location unknown; specializes in Internet

gaming; works with Carib F/X and other

software suppliers.

ELECTRONIC FINANCIAL SERVICES

(EFS) CARIBBEAN— Provider of encryption

and processing systems for financial transactions security, using STAR-MX software, to

Internet gaming operations; calls itself an

“international currency converter and secure

Internet transaction gateway.”

GLOBAL INTERTAINMENT INC.—

Vancouver and Hong Kong; no U.S. citizens

as principles; market focus Asia and Europe.

Owner of Cyberbetz Internet gaming

operation, Dominica.

INATOS, LTD.— Advertises as lowest-cost

Internet service provider in Great Britain;

designed Stopwatch Internet soccer betting site.

INTERACTIVE GAMING AND COMMUNICATIONS— Operated through

Grenadian subsidiary, Global Casinos,

beginning February 1997. Also ran

WiseGuy Sports Wagering System, Global

Casino, and Sports International, all in

Grenada. Reported 1996 turnover was

US$58.6 million. Brought to court in Missouri in 1997; owner Michael Simone sold

the company to International Gaming Corp.

of Vancouver, December 1997.

MEGASPORTS— Division of American

Wagering, Inc.; in mid-1998 received Australian license in Canberra and plans to base new

international operations in Australia

NTN GROUP— Australia; newly formed

(2/99) company to develop, market, and

operate gaming systems of the Australian

Internet Gaming Company Coms21; shape

and activity still to be determined.

NETGAME, LTD.—Gibraltar; operates

(operated?) InterKeno and InterBingo

PAN INTERNATIONAL GAMING—

Seattle; owns Tropical International Sports of

Antigua (q.v.)

STARNET COMMUNICATIONS INTERNATIONAL—Founded 1995; Antigua-based;

called “the Microsoft of casino software vendors”;

has numerous gaming subsidiaries, including

World Sportsbook, World Lotteries, World

Racetracks, World Gaming Casino; online

revenues processed through Electronic Financial

Services Caribbean, based in Antigua, using

technology from another branch, Starnet Canada.

Electronic commerce certified by Bank of

Montreal. Another subsidiary, Softec Systems

Caribbean, licenses turnkey customized Internet

gaming systems, including that of Atlantis Gaming

Inc. of Antigua, operator of CasinoLand.

TELECOMMUNICATIONS INFRASTRUCTURE SUPPORT SERVICES

(TISS)— Long Beach, CA, provides turnkey

systems and consultation for casino sites and

software; until 1998 owned Sports Market

gaming site, Curaçao.

TROPICAL INTERNATIONAL

SPORTS— Antigua, through Whitfield

Holdings of Antigua, leases hardware and

software from PAN International (q.v.); until

sometime in 1998, was called RSB and was

based in Dominica.
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 99

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A Survey of Electronic Cash, Electronic Banking and Internet Gaming 105

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106

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http://www.bankrate.com

http://www.cnnfn.com

http://www.fdic.gov

http://GrantThornton.com/gtonline/

http://www.iib.org

http://www.internetnews.om

http://newsbytes.com

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http://www.onlinebankingreport.com/fullserv

http://www.ots.treas.gov

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Websites consulted:

http://www.bettorsworld.com

htp://www.lotteryinsider.com.au

http://www.rgtonline.com (Rolling Good Times Online)
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 107

ENDNOTES

1 “More Consumers Bank on the Web,” The Washington Post, June 1, 1999, D1.

2 Scott B. Guthrey, “Smart Cards in Web-Based E-Commerce,” in Mary J. Cronin, ed., Banking

and Finance on the Internet (New York: Van Nostrand Reinhold, 1997), 147; Mitsuo

Yamaguchi et al., Electronic Money: Its Impact on Retail Banking and Electronic Commerce

(Tokyo: F.I.A. Financial Publishing Co., 1997), 20-22.

3 See “Remarks by Eugene A. Ludwig, Comptroller of the Currency,” in conference entitled

“Toward Electronic Money & Banking: The Role of Government,” September 19-20, 1996.

http://www.occ.treas.gov/emoney/ludwig.html

4 “Industry Analysis Firm Predicts 38 Percent Annual Growth in Smart Card Market,” Report

on Smart Cards, 12, No. 2 (February 2, 1998), 1-2, 11.

5 “Forrester Study Reassesses Smart Card Use in N. America,” Report on Smart Cards, 12,

No. 3 (February 16, 1998), 3-5.

6 Frost & Sullivan, “The World Market in Review [1999],” and “A Look at the Asian Pacific

Smart Cards Market: 1999 and Onwards.” http://www.smartcardcentral.com.

7 “Banks Can No Longer Ignore the Internet,” Bank Investment Services Report, 7, No. 2,

January 11, 1999, 5.

8

James R. Richards, Transnational Criminal Organizations, Cybercrime, and Money Laundering:

A Handbook for Law Enforcement Officers, Auditors, and Financial Investigators (Boca

Raton: CRC Press, 1999), 66.

9 “Bank One CEO Bets $500M on Internet’s Sales Potential,” American Banker, 164, No. 34,

February 22, 1999, 5.

10 “Kentucky Gets Full-Service Internet Bank,” Lexington Herald-Leader, February 2, 1999, n.p.

11 <http://www.gomezwire.com/Finance/Banks/scorecard/index.cfm?cat=1>

12 “IDC Predicts Internet Banking Explosion.” <http://www.electronicbanker.com/html/news/

020299_4.htm>.

13 Erika Morphy, “Making Cash Flow,” Export Today, July 1998, 28.
108

14 Jackie Cuevas,”The Internet Banking Horizon: Bleak or Bright for Community Banks?”

Journal of Internet Banking and Commerce. [online] <http://www.arraydev.com/commerce/

JIBC/9811-14.htm.>; Leisha Yerkes, “Growing with Technology: The Benefits of Internet

Banking,” Bankinfo.com, October 13, 1998 <http://www.bankinfo.com/ecomm/growing.html>;

“Testimony of James D. Kamihachi....” citing Stephen C. Franco and Timothy M. Klein, 1999

Online Banking Report, and Piper Jaffray, February 1999, 23, who placed the cost of a customer transaction via a telephone call center at US$0.84. and the Internet cost at US$0.26.

15 “Bankers Back Two Alternatives to Tellers: Internet and ATMs,” GT Online: Industries.

[from Currency, 11, No. 1, Spring 1998; <http://www.GrantThornton.com/gtonline/finance/

currency/sp98b.html>

16 Institute of International Bankers. Global Survey of Regulatory and Market Developments in

Banking, Securities and Insurance. <http://www.iib.org/global/1998>

17 Risk Management for Electronic Banking and Electronic Money Activities. Basle, Basle

Committee on Banking Supervision, March 1998.

18 “Comments from the Board of Governors of the Federal Reserve System,” Electronic Banking:

Enhancing Federal Oversight of Internet Banking Activities. GAO Report, July 1999, GAO/

GGD-99-91, 41.

19 <http://www.occ.treas.gov/customer.htm>

20 “Rule to Let S&Ls Offer Services Electronically,” Report on Smart Cards, December 14, 1998,

8; Federal Register, 63, No. 156, 43327-30, August 13, 1998 (Department of the Treasury.

Office of Thrift Supervision. 12 CFR Part 555, No. 98-77, RIN 1550-AB00); “OTS Updates

Electronic Operations Rule to Help Thrifts Better Compete,” OTS 98-89, November 30, 1998;

Department of the Treasury. Office of Thrift Supervision. Transmittal TR-212. Federal Register,

63, No. 229, 65673-83, November 30, 1998.

21 General Accounting Office, Electronic Banking: Enhancing Federal Oversight of Internet

Banking Activities. GAO Report, July 1999, GAO/GGD-99-91.

22 “Announcement,” March 20, 1995. <http://virtualschool.edu/mon/ElectronicProperty/FBOIInfo>

23 “State Business of Banking Laws and the Internet,” 21st Century Banking Alert No. 97-9-10,

September 10, 1997. <http://www.ffhsj.com/bancmail/21starch/970910.htm>

24 “IDC Predicts Internet Banking Explosion,” Electronic Banker. <http://

www.electronicbanker.com/html/news/020299_4.htm>

25 States participating in FinCEN Survey: Alabama, Alaska, Arizona, California, Colorado,

Georgia, Hawaii, Iowa, Maryland, Minnesota, Nebraska, Nevada, New Jersey, New York,

Ohio, Oklahoma, Rhode Island, South Carolina, Tennessee.

26 Lauren Bielski, “Smart Cards, Coming Up to Bat,” ABA Banking Journal, 90, No. 11

(November 1998), 67-69.
A Survey of Electronic Cash, Electronic Banking and Internet Gaming 109

27 Mike Hendry, Smart Card Security and Applications (Boston: Artech House, 1997), 67-69.

28 Ibid., 75-77.

29 Jerry Ashworth, “Researchers’ Smart Card Attack Discovery Spurs Industry to Search for Fixes

to Systems,” Report on Smart Cards, 12, No. 13 (July 20, 1998), 3.

30 European Commission, “Electronic Money: Commission Proposes Clear Regulatory

Framework” (July 29, 1998). European Union website: <www.europa.eu.int>.

31 Financial Action Task Force on Money Laundering, The Forty Recommendations of the

Financial Action Task Force on Money Laundering (Paris: FATF Secretariat, OECD,

June 28, 1996).

32 Financial Action Task Force on Money Laundering, FATF Annexes: Annual Report, 1997-

1998 (June 1998) (Paris: FATF Secretariat, OECD, June 1998); and Financial Action Task

Force on Money Laundering, FATF 1998-1999 Report on Money Laundering Typologies

(Paris: FATF Secretariat, OECD, February 1999).

33 James R. Richards, Transnational Criminal Organizations, Cybercrime, and Money Laundering:

A Handbook for Law Enforcement Officers, Auditors, and Financial Investigators (Boca

Raton: CRC Press, 1999), 66.

34 Richards, 66; “OTS Approves Internet Bank to Provide Range of Services,” OTS News

Release, July 14, 1997, OTS97-44. <http://www.ots.treas.gov/docs/7744.html>

35 Michelle Samaad, “Cyber-Banking Breaks New Ground, Expands Toward Mainstream,” Bank

Rate Monitor, January 12, 1999. <http://www.tele-bank.com/media_bank_monitor.asp?>

36 “Wells Fargo Bank Eliminates Human Tellers in Trial,” November 6, 1998. <http://

www.cnnfn.com/digitaljam/newsbytes/121028.html>

37 “New Virtual Banks Coming Online,” Electronic Banker. <http://www.electronicbanker.com/

html/news/020999_3.htm>

38 “New Virtual Banks Coming Online,”Electronic Banker. <http://www.electronicbanker.com/

html/news/020999_3.htm>

39 Marjanovic, Steven, “Web Bank’s Revenue up 120% in Year,” American Banker Online,

February 8, 1999. <http://www.tele-bank.com/media_ambank3.asp?>

40 Michelle Samaad, “Cyber-Banking Breaks New Ground, Expands Toward Mainstream,” Bank

Rate Monitor, January 12, 1999. <http://www.tele-bank.com/media_bank_monitor.asp?

41 Carol Power, “Chase, Playing Catch-UP, Adds Web Access to Its Online Banking Service,”

American Banker, 164, No. 38, February 26, 1999, 10.

42 “Small-Fry Salem Five Cents Savings Masters Internet,” FutureBanker, 3, No. 2,

February 1999, 43.
110

43 “E*Trade, BofA and Visa to Offer Wireless Web Access Via PalmPilot,” FutureBanker, 3,

No. 2, February 1999, 27.

44 “Viva La Internet Banking,” Financial Service ONLINE, January 1999, 6.

45 “Deutsche Breathes Life into Retail,” Retail Banker International, No. 406, February 18, 1999, 7.

46 Margaret McKegney, “Credit Agricole to Link Web Banking to Satellite Service,” Financial

NetNews, 3, No. 43, October 26, 1998, 1ff.

47 “Sweden No 1 in Internet banking,” <http://www.tagish.co.uk/ethosub/lit5/d842.htm>.

48 “Customers Flock to New Internet Banking Business in Britain,” Evening Standard [London],

January 19, 1999.

49 Benny Run, “Online Bank Transactions to Begin in Israel,” InternetNews.com. March 23, 1999.

<http://www.internetnews.com/intl-news/article/0,1087,6_84871,00.html>

50 “Southern Bank Direct.” <http://www.sbbgroup.com.my/sbbdirect/index.html>

51 “Thai Farmers Bank to Launch Internet Banking in Late 1998,” April 6, 1998. <http://

www.cnnfn.com/digitaljam/newsbytes/110170.html>

52 Sompit Potipattanakorn, “Electronic Banking Comes to Thai Farmers Bank,” The Nation

[Bangkok], October 6, 1998. <http://www.cnnfn.com/digitaljam/newsbytes/119206.html>

53 “FATF-IX Report on Money Laundering Typologies,” February 12, 1998; “Financial Action

Task Force On Money Laundering,” 1998-1999 Report on Money Laundering Typologies. (Paris:

FATF Secretariat), February 10, 1999.

54 Current members of the Group are Aruba, Bahamas, Bahrain, Barbados, Bermuda, Cayman

Islands, Cyprus, Gibraltar, Guernsey, Hong Kong, Isle of Man, Jersey, Lebanon, Malta,

Mauritius, Netherlands Antilles, Panama, Singapore, and Vanuatu.

55 Information was not available at the time of writing.

56 Reference was made to the existence of the casino, but no website was located.