Ben Hills 

Today there are fewer than 10,000 of them, clinging to a 5,000-hectare foothold of forest and farm and suburbia along the south bank of the mighty St Lawrence River, a 15-minute drive from downtown Montreal. They have a cultural centre, a marina and golf courses which attract a steady stream of tourists from both sides of the border that now divides their hunting grounds.

These People of the First Nation, as they style themselves, claim sovereignty over the land under the so-called Two Row Wampum Treaty, negotiated in the early 17th century over a ceremonial pipe of tobacco and named after a traditional belt embroidered with white and purple whelk shells, symbolising the desire of the invaders, and the invaded, to coexist.

The Kahnawake have their own language, they manage their domestic affairs, they pay no tax and they claim the right to make their own laws, irrespective of what might be decided in Ottawa. Which explains how a sexy high-tech building came to be fitted out two years ago beside Route 138 on the Kahnawake’s traditional lands.

Tradition is one thing, and the Kahnawake are very proud of theirs. Making a living in the modern world, without much in the way of resources, is another, and the Kahnawake believe they are on a winner here. The building houses Mohawk Internet Technologies, which its traditional owners are shrewdly and successfully promoting as “the trading post of the new New World of the Internet.”

While the national and provincial governments in Canada and much of the rest of the world still wrestle with the moral and economic dilemmas of whether (and, if so, how) to regulate the Internet gambling boom, the Kahnawake have bravely gone where very few have gone before.

They have invested more than $20 million in a high-tech, high-security “Internet server farm” strategically located over a fibre-optic trunk cable, installed a roomful of supercomputers and begun selling licences for cyber-casinos to the world. For an annual fee of about $20,000 and office rental of $35,000 a month, an operator who passes the Kahnawake Gaming Commission’s “probity check” can put casino gambling into the home of anyone from Toronto to Tashkent or Tasmania who owns a computer, a phone, a modem and a credit card.

In less than two years, in spite of the Quebec Government declaring the whole thing illegal, the Kahnawake have issued 20 licences for casinos which are up and running, and are beating off new applicants with sticks. Most are operated by companies driven into exile from jurisdictions, principally the United States, where Internet gaming is outlawed although you would never guess it from their names.

Roll the dice at Royal Vegas Casino, draw to your five-card stud at the Grand Opry, faites vos jeux (place your bets) at the Grand Casino Venice and, unbeknown to you, a little bit of your losses go to subsidise the enterprising Kahnawake of Montreal, Canada. And before long some Australian-owned cyber-casinos will be forced to join them more about that later.

The Kahnawake have been among the most successful in cashing in on what has become the world’s fastest-growing and most profitable industry although they face fierce competition from some 50 other places that have already legalised Internet betting, particularly off-the-map spots such as Vanuatu in the Pacific, the island of Antigua in the Caribbean and the landlocked monarchy of Swaziland in southern Africa.

Since the first Internet casino opened in 1995, gambling has grown second only to pornography in dominating the brave new world of e-commerce, and everyone wants a piece of the action.

In a virtual world where time is measured in dog lives, it is impossible to get an accurate fix on the billions of dollars swirling through cyber-casinos. An Internet search suggests that there are already about 1,600 sites operating, with two new ones opening every day. The New York analysts Christiansen/Cummings estimated 20 months ago that 43 million gamblers were betting online, losing $14 billion a year but that figure could well have doubled since.

For the operators, there are the sorts of margins and profits only seen elsewhere in organised crime indeed, one Australian online betting operator says bluntly that “Internet bettors are sometimes dealing with”. The Internet Gaming Council has an online blacklist of 340 sites it says are illegal, have operating problems or fail to pay up and the FBI has warned of massive money-laundering, claiming that one cyber-casino alone, based in Antigua, had a turnover of $1.5 billion in a single year.

Not that it’s risk-free for the operators, either. Just last month, owned by the Australian public company Mycasino Ltd but operating out of Vanuatu, shut down after its principals decided to “pursue other interests”. According to Geoff Sheehan, Vanuatu’s online casino regulator, the story behind this was that the casino was hit with $4.4 million of US credit card fraud last year, and then lost $560,000 in two and a half hours after a software glitch caused the same losing baccarat hand to be dealt every fourth game.

The costs of establishing a cyber-casino particularly in the low- or no-tax regimes such as the Kahnawake lands, where most are physically based are minuscule, however. Internet Casinos Inc, one of the first online casinos, cost only about $3 million to establish and employs 17 people; a real casino such as Melbourne’s Crown cost well over $1 billion and has a payroll of 6,500.

Hence the gold rush.

Australia, being one of the world’s most enthusiastic gambling nations, was in the forefront. The first Internet gambling licences were issued in the ACT and the Northern Territory in 1996 by cash-strapped governments with their eyes on the tax revenue. A strict protocol, incorporating both probity checks on the operators and consumer protection measures such as a ban on credit-card betting, was developed by the States and Territories.

Twenty-three licences have now been issued, most to traditional sports betting operators such as the State TABs, but a number to rich and powerful business interests which are seeking to make Australia a world hub for Internet casino gaming. All bar one of these casino licences have been in deep freeze for a year.

The most prominent is Kerry Packer’s Publishing and Broadcasting Ltd, which has spent several million dollars developing cyber-casino technology since it was granted a licence in Tasmania last May. Other influential would-be players who have been kicking their heels include a syndicate including Macquarie Bank, Channel 7 and Trevor Kennedy backing a unique betting site to be called EventsMarket; Richard Farmer’s ACT-based Canbet; the Gold Coast’s Jupiter’s Casino group; and a group associated with Alan Tripp’s former Vanuatu phone-betting business, The Number One Betting Shop Ltd.

It is difficult to gauge exactly how much is at stake, but Tasmania’s Deputy Premier and Gaming Minister, Paul Lennon, estimates that Tasmania alone which has issued four betting licences and approved a fifth will lose $200 million in investment and “hundreds” of jobs if the Federal Government freeze on Internet betting becomes a permanent ban.

In May last year, ignoring the recommendations of both an exhaustive Productivity Commission report and a parliamentary inquiry into the implications of Internet betting which received nearly 300 submissions, the Communications Minister, Senator Richard Alston, announced a 12-month moratorium on Internet betting, using the Commonwealth’s telecommunications powers to override the States. Enabling legislation was defeated once in the Senate, and was finally approved only last December by a couple of votes after sports betting was exempted.

The ban had an immediate and drastic effect, wiping out $100 million worth of investment and scores of jobs almost overnight, according to Chris Downy, a former NSW Sports Minister, who is executive director of the Australian Casinos’ Association, representing the country’s 13 casinos.

In Queensland, Gocorp Ltd which had raised $20 million from the public in a float only months before missed out by just a day or two in getting its online casino up and running, its share price collapsed and it was taken over. Tattersalls lottery had to shut its Melbourne online operation in November, firing 20 staff and writing off several million dollars.

Worst hit was Federal Hotels, owner of Australia’s first bricks-and-mortar casino, at Wrest Point in Hobart, which had spent $20 million and trained 40 staff after being granted an online licence in 1998. “It was legal one day and illegal the next,” says the general manager, Greg Farrell “That was reprehensible, in my view.”

At the end of the day, only one pre-existing online casino, operated by Lasseter’s real-life casino in Alice Springs, was left standing. And it is booming. Within months of opening, it was making more money online than from its real gaming tables. Its 125,000 registered players almost all live overseas in fact, only 16 are Australian and they are putting through about $20 million a month, of which the casino gets to keep a relatively modest $1.5 million or so.

Alston’s action was in response to a growing community backlash against social problems associated with a trebling in recent years in the amount of money Australians lose gambling. Last year we spent more on gambling than we did on clothes and shoes $13.3 billion, or $931 a head, more than half of it poured down the throats of rapidly proliferating poker machines.

Although only $5.3 million of this, or three cents a head, was lost online, it is growing rapidly. The Productivity Commission guessed that Internet losses could reach $230 million within a few years (still less than 2 per cent of projected total gambling losses) and suggested a campaign warning “careless moments with a mouse can cost you your house”. It eventually came down, however, in favour of regulation rather than a ban, warning that outlawing cyber-casinos could cost Australia as much as $85 million a year.

The Government, however, is insisting on what amounts to a total ban, with Alston raising the spectre of the Internet bringing a poker machine into every lounge room and enraging the online community by comparing the technology with “child pornography and the use of hard drugs”.

According to Downy, this is a cynical piece of election-year populism. A poll much cited in Government circles appears to show that, although 82 per cent of Australians gamble, half of them at least once a week, 70 per cent say it does more harm than good, including a majority even of gamblers.

The Government is now committed to a peculiar hybrid legislation never tried anywhere in the world, which will be debated in the Senate next month. As drafted, it will ban Australian cyber-sites offering any kind of online betting to Australian residents, with a $1.1 million-a-day criminal penalty but it will allow them to take bets from anyone overseas. Australians, as a result, will be able to bet only with overseas sites, such as those in Kahnawake land.

This, says Peter Coroneos, the executive director of the Internet Industry Association of Australia, is “complete lunacy”. He says the AUS regulatory model developed by the States offers “the highest level of consumer protection anywhere … it is crazy to legislate so that overseas gamblers will have this protection, while our own consumers are forced to use offshore sites which may have little or no regulation.”

In fact, Australia’s reputation is so widely respected that overseas operators such as Casinoaustralia (which is actually owned in the US, licensed in the Netherlands Antilles and uses servers in Canada) drape themselves in koalas and pictures of the Harbour Bridge. Bizarrely, Vanuatu has adopted regulations developed in Queensland, provided, says Geoff Sheehan, under an Australian foreign aid scheme.

Of even more concern to some operators is the fact that the legislation is so broadly and ambiguously drafted that it will not only slam Internet casinos but may also put “every TAB, every sports betting business, and hence every racecourse in the country out of business,” according to a barrister briefed to analyse the draft bill.

With Labor committed to opposing the legislation as it stands, the crucial vote in the Senate, where crossbenchers hold the balance of power, is too close to call. The Democrats are split. The Tasmanian Green and Independent senators want to exempt Internet sports betting. There is pressure on the Northern Territory National Party senator, Grant Tambling, to cross the floor.

The lobbying is intense, as you would expect with hundreds of millions of dollars, and perhaps crucial votes in the coming election, at stake. The bars and bistros and corridors and committee rooms of Canberra have been crawling for weeks with high-powered lobbyists representing the various vested interests: the Internet providers, the casinos, the State lotteries, ARBAC (the bookmakers’ union), the TABs and Tattersalls.

Opponents of online gambling, principally the social welfare lobby and the churches, have also made their opinions forcefully known. Says the Rev Tim Costello, Baptist brother of the Treasurer, Peter Costello, and spokesman for the Interchurch Gambling Taskforce: “The convergence of entertainment, sport and gambling on any event means we will be completely cocooned in a gambling culture … all the key media operators in Australia are obsessed by the windfalls promised by onling gambling.”

The shortest odds are on the legislation passing, but with online sports betting excluded, though no-one would be surprised if it is thrown out completely.

Said one old lobby hand: “I had lunch the other day with a very senior adviser to the Prime Minister. After the second bottle of red, he said, `We don’t give a f— which way it goes because we will still get the kudos of having tried to address the issue of problem gambling.’ They are not stupid; they know that even if it’s passed the legislation will do f— all because the real problem is not the Internet; it is poker machines.” SO WHERE does this leave Australia’s would-be Internet gambling moguls? The short answer is: out of here. “Even if [the legislation] gets defeated,” says Kevin Jacobsen, the Sydney showbiz entrepreneur, “we would have no guarantee it wouldn’t be reintroduced. There’s too much uncertainty.”

Jacobsen is chairman of EventsMarket Pty Ltd, an enterprising start-up company which has raised $15 million and spent several years developing software for what it describes as “the first new form of gambling to be developed in Australia for 40 years”. Its backers included Channel 7’s Internet subsidiary, Macquarie Bank and an investment company controlled by Trevor Kennedy, he said.

Using interactive TV, the company plans to act as an online broker between gamblers anywhere in the world, betting against each other on virtually anything the odds on a soccer player kicking a penalty goal, on Hillary Clinton becoming the first female president of the United States, on the weather in Moscow next Thursday.

“We had been hoping this Australian technology would remain here for the benefit of the country,” says Jacobsen. “Unfortunately, this stupid, illogical idea the Government has got into its head means we will have to go overseas. I feel bad about it as a patriotic Aussie, but it’s all got too hard.”

And where are they off to? Why, Kahnawake land, of course. Last year the Kahnawake sent “a very smart lawyer to give a very professional presentation” at an Internet gaming conference in Melbourne, and the EventsMarket people decided this was the way to go. As well as a licence, they will get all their Internet infrastructure laid on, and as a jackpot there is no turnover tax.

Within a few months, the site will be up and running a small team of six to 10 Australian Webmasters will be sent to Canada to operate it and able to, quite legally, take bets from Australians or anyone else.

And EventsMarket are not the only people planning to take their investment millions, their jobs, and their taxes, overseas to a more hospitable clime.

Jupiters, which owns the Centrebet sports-betting site in Alice Springs, has warned in a submission to a parliamentary committee that it is giving “serious consideration to relocating in another jurisdiction”. It already has a licence issued by the Norfolk Island Government and is applying for one in Nevada, which is expected to become the first American State to legalise Internet gaming by next year.

If Jupiters does move its Internet operation offshore, it would be a huge blow for the small town, since its 60 employees are the largest non-government payroll in the Alice, and the company pays tax on a turnover in excess of $100 million a year. The Territory’s Country/Liberal Party Government is deeply concerned hence the pressure on Grant Tambling.

Kerry Packer’s PBL, the biggest and best-backed of the Australian cyber-casino players, is believed to have already applied for a licence in Vanuatu, from where the company plans to target the vast potential market in Asia. Interests associated with The Number One Betting Shop Ltd of Vanuatu still chaired by Alan Tripp, though recently sold for $35 million to of Britain has abandoned plans to base a racing cyber-book in Australia and has also applied for a Kahnawake licence.

And Richard Farmer, the chairman of Canberra-based Canbet believed to be Australia’s largest online sports-betting operation, turning over almost $1 million a day and paying the ACT Government $800,000 a year in tax was in Britain last week, investigating moving his entire operation there. Britain, like Nevada, has decided to legalise cyber-betting, largely to lure back huge operators such as Ladbrokes which had fled offshore to Gibraltar.

In a scathing submission, Farmer said that “responsible company directors and officers cannot work under this sword of Damocles” and ridiculed the idea that the legislation would help compulsive gamblers. “In relation to problem gaming, to paraphrase President Clinton it’s the poker machines, stupid,” he wrote.

Across the world in Kahnawake land they must be nodding in agreement as the money rolls in. Mike Delisle, a chief of the Kahnawake and director of Mohawk Internet Technologies, says that already the cyber-casinos have brought 200 jobs to the area and are contributing $500,000 a year to community projects such as a school to revive the language.

And the greatest irony is that it is all thanks to Australia even the regulations that govern their Internet licensees were developed here.

Publishing Info

Pub: Sydney Morning Herald
Pu bdate: Saturday 12 May 2001
Edition: Late
Section: News And Features
Sub section: News Review
Page: 27
Word count: 3272
Classification: Sport/Gambling/Casinos Technology/Computers/Networks/Internet
Population Groups/Ethnic Groups Nationalities/Indigenous Persons
Geographic area: Canada Australia
Caption: Money matters … gambling on the Internet
1. A traditional dancer from the Kahnawake tribe, which is cashing in on the cyber-casinos
2. Making money, not war … Mohawk Internet Technologies, headquarters of the cyber-casino licensing business
3. The Federal Government’s ban has hit Kerry Packer and Kerry Stokes.