For decades, successful young companies looked to Wall Street when they were ready for an initial public offering of stock.  But an unintended consequence of Congress’s effort to prohibit rather than regulate the rapidly growing $12 billion Internet gambling industry may be a shift of power away from Wall Street to the financial markets of London.

Internet gambling is licensed and regulated in over 80 countries and jurisdictions. In 2005, revenues from online poker alone were estimated at $200 million per month.  Last year, one leading Internet gaming company went public on the London Stock Exchange and was immediately listed on the prestigious FTSE 100 Index. With an initial stock market value in excess of $8 billion, rising to over $12 billion within one month, this company was, and still is, one of the largest British travel and leisure giants, ranked along with British Airways and Carnival Cruises.

While London has welcomed such success stories, U.S. gambling and technology companies and Wall Street investment banks have suffered because of gray areas in the U.S. laws. The Department of Justice argues that Internet gambling violates the 1961 Wire Act, but the courts disagree. 

Meanwhile, Internet gambling companies and much of the related technology for operating such sites, including payment processors such as NETeller, and software developers, have located in places like London, the Isle of Man and Gibraltar.

The result: Innovation and the money being made has shifted to Britain and its territories. No company can afford to take the risk of gambling with the U.S. government. 

This summer, Congress tried to clarify the law by passing H.R. 4411, known as The Internet Gambling Prohibition and Enforcement Act. Unfortunately, by seeking to prohibit rather than regulate Internet gambling, Congress has taken a giant step backward. The bill threatens to shut U.S. companies out of this industry completely. Furthermore, by deputizing banks to monitor financial transactions to ensure they are not going to Internet gambling businesses, the bill sends a chilling message to Internet entrepreneurs. It also places huge regulatory burdens on the banks.

The many states that allow gambling do a fine job regulating traditional brick-and-mortar casinos. They ensure that games are fair and winnings are paid out. They help prevent underage gambling and fund programs for problem gamblers.  And they provide jobs and tax revenues. 

Regulation of Internet gambling can be just as effective and provide similar benefits. It can level the financial playing field by allowing U.S. businesses, whether they be major, regulated, bricks-and-mortar casino operators or small entrepreneurial firms, to get into the game. Regulation would also open up new lines of business for companies that could benefit from this shift in policy.  

The technology companies that provide back-end support and provide the software behind online games could find a place at the table. With IPOs underwritten in the U.S., trading could occur on Wall Street, keeping U.S. investments in the U.S. and bringing more revenue and jobs to the economy.

Regulation offers protection to the many U.S. consumers who gamble online, while a ban on Internet gambling simply sweeps policy issues under the rug. New technologies have proven effective at keeping underage participants from playing and can be used to set limits for a database of known problem gamblers.  

As Senate leaders try to push Internet gambling through without discussion on the Senate floor, it is critical that all Senators realize the issues at stake.  Regulation, not prohibition, can offer protections for Main Street and open up new opportunities for Wall Street.