GPWA Times Magazine - Issue 29 - July 2014

Regulations 101: An introduction tosupplier licensing for technologycompanies By DavidD. Waddell andDustinM. Ford W ithout great fanfare, in late 2011 theU.S.Departmentof Justicepub- lished a memorandum responding to an inquiry as to whether intrastate sales of lottery tickets would be prohibited if the data for these transactionswas processed through servers located in other states. In its response, the Department stated that 18U.S.C. §1801 et seq. , commonly referred to as theWireAct, did not prohibit such activity because the law only applied to sports-related gambling andnot to lotter- ies. The 13-pagememorandumhaspaved the way for state governments to allow forms of online gambling to their citizens without theuncertaintyof the law’sappli- cation tonon-sports-relatedwagers. Since then, online gambling has been authorized in various forms in Nevada, Delaware and New Jersey and legisla- tion has been considered in numerous states across the country to allow citizens to place wagers over the Internet. The history of the federal government’s 2011 reconsideration of theWireAct has been well documented, but its effects on gam- ing industry suppliers are just starting to be seen as gaming regulators grapple with how best to implement online gam- ing regulatory structures. Because these structures are being developed for the first time (in the U.S.), it is important for those companies operating in the online gamingspace tocloselymonitorproposed regulations to remain in full compliance with oversight models across the various jurisdictions allowing online gaming, as well as to see where new opportunities will arise. The bulk of gaming laws and regulations in the United States are maintained at the state level, often through a state-op- erated regulatory body or commission. In addition to state jurisdictions, Native American tribes are authorized by the federal government to own, operate and independently regulate tribal casinos on Indian lands if theymeet certain legal re- quirements. The result is a diverse patch- work of laws, regulations, ordinances, policies and other binding requirements placed upon those individuals and com- panies operating in the online gaming industry. It is important to keep inmind that gaming licenses are consideredprivi- leges, not rights, and technology compa- nies that are new to the industry must be considerate of the various compliance requirements associated with holding a gaming license. I. The licenseprocess Companies that provide services or prod- ucts to gaming operators are often re- quired to receive a license, certificationor other authorization from a gaming regu- latory body prior to participating in each jurisdiction.Although these requirements vary greatly between jurisdictions, most gaming regulators follow similar models to review and approve suppliers seeking to do business with gaming establish- ments. The aims of these investigations are to vet companies and individuals to ensure that those involved in the gaming industry are not associatedwith criminal activity andoperatewith integrity. The process involves submitting a de- tailed application, participating in a thor- ough personal background check and periodic reporting requirements — prior to and after receiving a gaming license. Individuals and companies that have criminal histories may be automatically barred by law from participating in any gaming-related activity, and those that havehadfinancial troublesorassociations withundesirable parties are also likely to facedifficulty receivingnecessarygaming approvals. Knowing the basic licensing requirements for a jurisdiction prior to seeking a license allows individuals and companies to avoid wasting significant time and resources where licensure may be prohibited due to specific conduct or history requirements. a.Determining the appropriate level of licensure The first step in the licensing process is determining what business conduct or volume triggers the requirements for li- censure as avendor or supplier.Many ju- risdictionshavedifferent levelsof gaming licensure for suppliers and, as a general matter, the more likely that the goods or services being supplied will affect game wagers and financial activity, the more thorough the licensing requirements. Certain business activities— such as the provision of legal or accounting services, advertisingand transportation services— are often exempt from licensing require- ments due to the attenuated link with actual gaming activity. Slot andgambling gamemanufacturers, however, face com- prehensive licensing standards that are similar in scope to those for actual casino operators. For technology companies, akey factor in determining the level of licensure neces- sary to supplygoodsor services toagam- ing property will depend upon the sen- sitivity of the data handled andwhether thedata canaffect theoutcomeof a casino game. Companies that provide software 48 Regulations 101: An introduction to supplier licensing for technology companies