For online gaming firms, the United States is a very lucrative market. However, there are several legal risks involved. North America is home to 24% of all online gamblers in the world, and the majority of gambling companies host their sites in Curacao.
Individual states in the United States have the power to enact legislation that apply exclusively to their own territory. On the other hand, there are Federal Laws that apply throughout the country thus safeguarding state rights. As a result, the legal situation surrounding online gaming in the country is extremely complicated.
What this often means is that iGaming operators often need to either partner with an existing licensed operator (often called “white labeling”) or look offshore to the “grey” market, which comes with a bunch of important legal implications of it’s own. We’ll take a look at a couple options below, but either way it’s worth discussing these options with a lawyer of firm who specialise in gambling and/or casinos before making any decisions.
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The Law: Licenses & Gambling for US-based Online Casinos
One of the first legal documents you or your lawyers will need to understand is the Federal Wire Act, which talks about online gambling and wagering. Following hot on the heels of that legislation is the Illegal Gambling Business Act. This Act was created to work in tandem with other legislation, such as the Federal Wire Act, in order to target a source of revenue for organized crime. Unlike the Federal Wire Act, the Illegal Gambling Business Act is based on a predicate state crime and is intended to assist states in implementing their interstate gambling laws.
The third and most important bit of legislation for iGaming operators is the Unlawful Internet Gambling and Enforcement Act of 2006. It’s the cornerstone of USA based online gambling federal law. At its’ core the Act forbids gambling establishments from knowingly accepting payments in connection with another person’s involvement in a bet or wager that requires the use of the Internet and is illegal under any federal or state law (referred to in the Act as “limited transactions”). Treasury and the Federal Reserve Board are both required by the Act (in consultation with the U.S. Attorney General) to issue regulations requiring any participants in payment systems that may be used for illegal Internet gambling to have policies and procedures in place that are sufficiently designed to detect and obstruct restricted transactions, or otherwise discourage or ban their processing.
So that just covers the Federal legalities, but each State will have unique local laws around iGaming in that region. A good lawyer will be necessary in advising the ins and outs of each states legal requirements.
What States Allow Online Gambling?
As previously mentioned, each state takes a different view to online gambling and the legalities vary widely. Illinois, for example, has renewed its gambling laws to allow for online sports betting. The new Illinois Gambling Act, like many other states with similar legislation, does not allow any other kind of online casino. A partnership with a local land-based casino is required to receive an online gambling license in New Jersey. Financial disclosures and game testing will follow if the commercial agreement is successful. Pennsylvania and West Virginia have both followed the same mechanism as of mid-2020.
As of 2021, the majority of states are still not allowing online gambling, but the trend is changing slowly. Many states have recently made substantial progress in the online gaming industry. New Jersey was a pioneer in the legalization of online gaming. In reality, online gambling has been legal in the country for a long time. Overall, online casinos have made a whopping 1.4 billion dollars in profit. Annual growth has exploded since legalization.
Your best bet is to do your own research and consult with a legal professional to decide which path would be best for your specific case.
Going Grey: The Offshore Route
Online gambling firms are hosting their activities in off-shore countries that have legal gambling licenses, as well as using off-shore money transfer facilities, as a result of these Federal gambling rules. However, as the recent arrests of the founders of companies like PokerStars, Full Tilt Poker, and Absolute Poker demonstrate, even doing so carries risks. There are a lot of “grey areas” in the legislation around these types of operations and you could easily find yourself in hot water if you don’t follow the letter of the law.
If you decide to go the offshore route, the idea would be to get a license from an offshore location. Let’s take a look at these top 3 most popular offshore licenses for operators targeting the US market:
Curacao Gaming License
Curacao has the world’s fastest, most cost-effective, and least bureaucratic licensing procedure, allowing entrepreneurs to reinvest 100% of their earnings back into their businesses thanks to a 0% tax rate and 0% VAT on all online gambling revenue. This is why it is frequently recommended as a great place to start an offshore iGaming company.
Kahnawake Gaming License
The Kahnawake Mohawk Territory is a First Nations reserve in Quebec, Canada, that licenses online gambling operators from around the world. It has expanded to become one of the industry’s largest registries, with over 250 major names in online casino, poker, live gaming, eSports, lotto, sports betting, and more since 1999. It’s a well-known jurisdiction with high compliance and ethics standards.
Malta Gaming License
Malta is regarded as the gold standard in terms of iGaming licensing. Since the early 2000s, the Malta Gaming Authority has controlled gaming and issued licenses. Operating in an EU jurisdiction, as well as favorable tax incentives, are all advantages of a Maltese gambling license (as low as 5 percent through the full imputation system), the convenience of doing business with banks and payment providers, as well as the prestige of being approved by the Malta Gaming Authority.