(Ambling in America Commission on the Review of the National Policy Toward Gambling DATE DUE fi?nn? NOV3( ZOO? Demco, Inc. 38-293 yj. GAMBLING IN AMERICA STATE LIBRARY T 1*197? Hmofe FINAL REPORT of the COMMISSION ON THE REVIEW OF THE NATIONAL POLICY TOWARD GAMBLING 3 1129 00311 4592 Washington: 1976 For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C. 20402 Price $2.75 Stock Number 052-003-00243-4 COMMISSION ON THE REVIEW OF THE NATIONAL POLICY TOWARD GAMBLING 2000 M STREET, N.W. WASHINGTON, DC 20036 15 October 1976 Honorable Gerald R. Ford President of the United States Washington, D.C. Honorable Nelson A. Rockefeller President of the Senate Washington, D.C. Honorable Carl Albert Speaker of the House of Representatives Washington, D.C. GENTLEMEN: In accordance with the provisions of sections 804-808 of Public Law No. 452, Ninety-first Congress, the Commission on the Review of the National Policy Toward Gambling has the honor to submit its final report of findings and recommendations. Respectfully yours, Charles H. Morin Chairman iii COMMISSION MEMBERSHIP Charles H. Morin, Chairman Attorney, Washington, D.C. Ethel D. Allen, D.O. City Councilwoman-at-Large, Philadelphia Philip Cohen Executive Director National Legal Data Center James M. Coleman, Jr. Prosecutor, Monmouth County, N.J. Joseph A. Gimma Investment Banker, New York Robert List Attorney General, State of Nevada Charles F.Phillips, Jr. Professor of Economics Washington and Lee University Senator John L. McClellan Democrat, Arkansas Senator Howard W. Cannon Democrat, Nevada Senator Hugh Scott Republican, Pennsylvania Senator Robert Taf t, J r. Republican, Ohio Representative James M. Hanley Democrat, New York Representative Charles E. Wiggins Republican, California Representative Sam Steiger Republican, Arizona Representative Gladys Noon Spellman Democrat, Maryland James E. Ritchie Executive Director Marilu Marshall Deputy Director Former members: Representative Charles ). Carney (D-Ohio); former Senators Edward J. Curney (R-Fla.) and Marlow W. Cook (R-Ky.); former Representatives John E. Hunt (R-N.J.) and Lawrence ). Hogan (R-Md.); and Judge David D. Dowd, Jr., former prosecuting attorney, Stark County, Ohio. COMMISSION STAFF Officials James E. Ritchie: Executive Director Marilu Marshall: Deputy Director Stephen B. Bull: Director, Communications and Research Thomas Farrell : Associate Counsel David Drelich: Assistant Counsel Rita Hallaren: Administrative Officer Staff Student Assistants Bruce A. Butcher Carol D. Cragg Robert E. Creeden Robinette L. Davis Norma D. Dosky Carol H. Duncan AnneM. Fleming Stephen C. Fogleman Kathleen J. Foley KatherineM. Francone Nancy S. Hendee Kathleen M.Joyce Lael L. Kenyon Roger L. Kreuzer Patricia A. Owens Leslie M. Pittler Peter H. Reuter Jacqueline A. Sheppard Joseph D. Van Cleve, III Betty J. White Dianne Blocker Sharon L. Cohen Thomas J. Daley Margaret R. Dinneen Karen S. Erickson William R. Geyer Ann D. Gray Michael E.Joseph Harold A. Kurland Roger H. Marks Howard J. Marx David Moore James Muskett Robert S. Pasley Layn R. Phillips LisaK. Powell Michael H.Tonry Deborah L. Tyler Peter W.Waldmeir Editorial Staff Nina Graybill: Editor DuPre Jones: Editor Patricia Helsing: Writer VI PRINCIPAL CONSULTANTS *G. Robert Blakey Director, Cornell Institute on Organized Crime Ithaca, N.Y * Richard C. Crane Attorney Los Angeles, California *Edward F. Harrington Attorney Boston, Massachusetts James Jay Hogan Attorney Miami, Florida Laurence!. Hoyle, Jr. Attorney Philadelphia, Pennsylvania CarlM. Loebjr. Former Vice President, Amax, Inc. Greenwich, Connecticut Naurbon L. Perry Retired Special Agent IRS Intelligence Los Angeles, California * Clyde B.Pritchard Attorney Southfield, Michigan * Stephen H.Scott Attorney Phoenix, Arizona "John Bern Simon Attorney Chicago, Illinois Former attorneys with the U.S. Department of Justice. vii CONSULTANTS Raymond Bell Former Clergyman Presbyterian Church Ordway P. Burden William A. M. Burden & Co. New York, New York Joel David Chananie Assistant Professor University of Southern California Los Angeles, California John H.Ciccolo, Jr. Assistant Professor Boston College Boston, Massachusetts H. Sheldon Detrick Realtor Tulsa, Oklahoma Melvin Finerman Chairman of the Board Mel Finerman Co., Inc. Encino, California Floyd J. Fowler, Jr. Director Survey Research Program Boston, Massachusetts J. Bruce Johnson Manchester, Maine James Michael Kretz Research Associate Bureau of Social Science Research, Inc. Washington, D.C. JackT. La Reese Businessman Oklahoma City, Oklahoma William T.Mcllwain Senior Vice President First Bancshares of Florida, Inc. Boca Raton, Florida Mark H. Moore Assistant Professor Harvard University Cambridge, Massachusetts Charles N. Nuber Lecturer University of Arizona Tucson, Arizona John Olszewski Retired Director of Intelligence, IRS Severna Park, Maryland Fred H. Ryan Retired President, Los Angeles Turf Club Arcadia, California Ralph C.Thomas Professor of Law University of Tulsa Tulsa, Oklahoma viii FOREWORD With this Report, the Commission on the Review of the National Policy Toward Gambling concludes its 3 years of research and hearings into the controversial and divisive subject of gambling. Our work is completed; the American people must now judge its accuracy and usefulness. What the Commission has tried to do is to set out what is known about each form of gambling and the possible consequences of its legalization. Based upon the facts contained in this Report, it is now the task of the Congress, and the States as well, to take the next step in developing for the first time a fair and reasonable national policy toward the existence of gambling. This Report and its recommendations will surprise most Americans and may startle some. But those who are surprised or startled should carefully reflect on the significance of the fact that a pastime indulged in by two-thirds of the American people, and approved of by perhaps 80 percent of the population, contributes more than any other single enterprise to police corruption in their cities and towns and to the well-being of the Nation's criminals. If I were asked to describe simply the Gambling Commission's task, I could say it was to find out "why?" Most Americans gamble because they like to, and they see nothing "wrong" with it. This being so, they see no real distinction between going to the track to place a bet and backing their favorite horse with the local bookmaker. And this truly free-wheeling logic so consistent with the free enterprise philosophy of most Americans permeates the country's judicial system : police, prosecutors, and courts. The Report of the Commission contains a hard statement: "Contradictory gambling policies and lack of resources combine to make effective gambling law enforcement an impossible task under present conditions." Not "difficult" not "frustrating" not even "almost impossible" but impossible. And why not? How can any law which prohibits what 80 percent of the people approve of be enforced? "What should we do about this?" the Congress has asked this Commission. With a small, able, and very dedicated professional staff under the direction of a truly outstanding talent, seven citizens and eight experienced legislators have concluded that a joint venture is necessary between each of the 50 States and the national government, with some significant changes in the pattern of Federal laws. Each of the Commission's recommendations has been warmly debated and carefully thought out, and it would not be considerate to discard any of them lightly. At its first meeting back in January 1974, the Commission made the decision to pursue its tasks with a small permanent staff and to perform its research function through contractual arrangements with established research firms. The wisdom of this approach was proven early and resulted in very substantial economies in the Commission's budget. But it is the staff itself which must be given the lion's share of the credit for meeting every deadline imposed upon it and for adhering strictly to the budgetary limitations of Congress. James E. Ritchie, the Executive Director, and his Deputy, Marilu Marshall, have truly earned the gratitude of everyone concerned with the national phenomenon of gambling. This Report would never have been possible within the allotted time were it not for these two extremely talented, knowledgeable, and aggressive prosecuting attorneys. It is my pleasure to take this opportunity personally to thank them for all they have done, and I know I speak for every member of the Commission. II. Charles H. Morin Chairman ix PREFACE As Director of this Commission, and as a former Federal prosecutor involved in enforcement efforts against organized crime, I have had a unique opportunity to examine the subject of gambling in its entirety. Until the Commission began conducting its investigations and research 3 years ago, no such examination had been possible. Despite the work of previous study groups and individual scholars, information about gambling law, practice, attitudes, and behavior had been fragmented, inchoate, and often contradictory. Seeing gambling in such comprehensive detail has considerably broadened my perspective toward it and led me to the inescapable conclusion that we can no longer afford to be ill-informed and complacent about a matter of such manifest national concern. Existing policies that accomplish little for the minority of the people, and frustrate the will of the majority, should not be perpetuated. Inevitably, in the study of a subject so complex, certain questions remain unanswered and certain issues unresolved. In matters regarding gambling, particularly, many issues can only be decided ultimately by each individual according to his conscience. This is as it should be. Neither this Commission nor any other governmental body should attempt to impose its will on the public or any segment of it. To that extent, this Report is complete, offering its conclusions and recommendations for the judgment of the American people and their elected representatives, who will best determine the wisdom and value of the Commission's work. The Commission on the Review of the National Policy Toward Gambling was created by Congress in the Organized Crime Control Act of 1970 (P.L. 91-452). Its mission was to study gambling as it exists in America and to develop recommendations for the States to follow in formulating their own gambling policies. In its 3 years of operation, the Commission staff collected, reviewed, and summarized all available material on gambling. Staff members and consultants prepared more than 30 research papers and surveys on every aspect of gambling. In addition, the Commission held 43 days of hearings across the country, taking testimony from more than 275 Federal and State law enforcement officials and policy-makers, persons involved in every phase of legal and illegal- gambling, and ordinary citizens who reflect the way their communities feel about gambling. I personally would like to thank the members of this Commission, who so generously took time out from their busy schedules to debate the many complex issues before them. And to Charles Morin, our chairman, goes the deep appreciation of everyone connected with the Commission, for his concern, his leadership abilities, his continual encouragement, and his unfailing sense of perspective, which helped balance the diverse views brought to this undertaking. The Commission is especially grateful to the many people in the industry including those involved in racing, off-track betting, lotteries, casinos, and bingo who were so generous with their time and thoughts. And a special thanks must go to the dedicated staff of this Commission, whose diligence and commitment to the project were exemplary. Without all of these people, this Report would not be possible. The Report that grew out of their contributions represents the Commission's best efforts to develop rational policies toward gambling. This, in fact, is the first time that a national commission has sought to provide methodologically sound research and recommendations on this subject to each State and individual. While some differences of opinion understandably exist regarding the specifics of certain recommendations, this Report as a whole represents the aggregate judgment of all the commissioners. Ultimately, however, it will be the aggregate judgment of other groups of people the citizens of the various States who will determine their State's policy toward gambling; if enough of them disagree with a finding of the Commission, they will openly challenge that finding; this is appropriate and a function of democracy. James E. Ritchie Executive Director TABLE OF CONTENTS Page FOREWORD ix PREFACE x INTRODUCTION 1 Highlights of Conclusions and Recommendations . 2 Chapter 1. National Gambling Policy 2 Chapter 2. Federal Gambling Statutes 2 Chapter 3. State and Local Law Enforcement 3 Chapter 4. Survey of American Gambling Behavior 3 Chapter 5. Legal Gambling Industries 3 Chapter 6. Illegal Gambling Industries .... 4 CHAPTER 1. THE NATIONAL POLICY TOWARD GAMBLING 5 The Need for Federal Restraint 5 Taxation 6 Commerce Clause 7 Federal Legislative Recommendation 7 Footnotes 9 CHAPTER 2. FEDERAL GAMBLING STATUTES 11 Criminal Statutes 11 Statutes Prohibiting Interstate Gambling Activity 11 Statutes Prohibiting Intrastate Gambling Activity and Related Bribery 12 Tax Statutes 14 Income Taxation (26 U.S.C. 61) 14 Wagering Excise Tax (26 U.S.C. 4401) and Wagering Occupational Stamp Tax (26 U.S.C. 4411) 17 Occupational Tax on Coin-Operated Gaming Devices (26 U.S.C. 4411) 18 Lottery Statutes 18 Statutes Restricting Use of Postal, Broadcasting, and Interstate Commerce Facilities by Lotteries (18 U.S.C. 1301-1304, 1307, and 1953 [(b)(4)]; 39 U.S.C. 3005) ... 18 Statutes Governing Financial Institutions (12 U.S.C. 25[a], 339, 1829[a], and 1730[c]) 19 Civil Remedies 20 Federal Enclaves 21 Indian Reservations 21 Military Installations 22 Territories and Possessions 22 Miscellaneous Gambling Statutes 23 8 U.S.C. 1101, 1182 23 Page 7 U.S.C. 2044 23 FCC Proscriptions 24 Department of Defense Practices 24 Sports Bribery 24 Enforcement Policies 25 Criminal Enforcement 25 Tax Enforcement 26 Civil Enforcement 26 Footnotes 27 CHAPTERS. STATE AND LOCAL GAMBLING ENFORCEMENT 35 Introduction 35 Arrest Trends 35 Objectives 38 Constraints 39 The Difficulties of Gambling Enforcement . . 39 The Priority of Gambling Enforcement 39 Corruption 40 The Organization of Gambling Enforcement .... 42 Local 42 State 43 Federal 44 Interagency Cooperation 44 Gambling Enforcement Tools and Techniques ... 44 Disposition and Sentencing of Gambling Offenders 46 Citizen Attitudes Toward Gambling Enforcement 48 Citizen Support 48 Citizen Assistance 48 Citizen Satisfaction 49 Conclusions and Recommendations 49 Gambling Policy Decisions 49 Police 50 Prosecutors 51 Electronic Surveillance 52 Sentencing 52 Footnotes 54 CHAPTER 4. SURVEY OF AMERICAN GAMBLING ATTITUDES AND BEHAVIOR 57 Survey Methodology 57 Survey Results 58 Gambling Participation 58 Wagering Estimates 63 Economic Aspects of Gambling 65 Gambling Beliefs and Behavior 66 Excitement 67 XI Page Legalization Attitudes and Gambling Behavior 69 Compulsive Gambling 72 Kinds of Betting 74 CHAPTER 5. LEGAL GAMBLING INDUSTRIES 77 Introduction 77 Legal Gambling Considerations 77 CASINOS 78 Historical Perspective 78 The Industry Today 80 External Control 83 Gaming Control Act 83 State Regulation 83 Local Law Enforcement 86 Federal Involvement 87 Inside the Casinos 88 What the Casinos Offer 89 Casino Profitability 91 How the Casinos Operate 91 The Golden Grotto Casino 92 Casino Auditability 95 Gambling Survey Results 96 The Impact of Legalized Gambling in Nevada 97 Casino Gambling in Puerto Rico 99 Casino Gambling in Great Britain 100 Casino Gambling in the Bahamas 101 Conclusions and Recommendations 101 PARIMUTUEL WAGERING 105 History 105 The Parimutuel System 107 The Takeout 107 Parimutuel Revenue 108 Public Attitudes and Practices 108 State Racing Commissions 113 Regulatory Authority 113 Racing Industry Organizations 115 Industry Problems Horseracing 117 The State 117 The Tracks 117 The Horsemen 118 Law Enforcement 120 Industry Problems Dogracing 121 Competition 122 Conclusions and Recommendations 122 OFF-TRACK BETTING 128 History and Development 128 Expansion of OTB 128 Other OTB Operations 130 Foreign OTB 130 Page OTB and Sports Betting in Nevada 130 Structure of OTB in New York 131 Mechanics of OTB 131 OTB Revenue 132 The OTB Controversy 134 Interstate OTB 137 OTB and Illegal Bookmaking 138 Gambling Survey Results 138 Conclusions and Recommendations 140 Interstate OTB 140 Intrastate OTB 141 LOTTERIES 143 Introduction 143 History and Development 143 The Industry Today 147 Organizational Structure 147 Lottery Revenue and Distribution 147 Promotion and the Product 151 Security and Drawings 154 Gambling Survey Results 155 Conclusions and Recommendations 158 BINGO 160 Background 160 Mechanics 160 Volume of Business 160 Bingo Regulation 161 Gambling Survey Results 162 Bingo and the Law 164 Consequences of Legalization 165 Conclusions and Recommendations 165 Footnotes 167 CHAPTER 6. ILLEGAL GAMBLING INDUSTRIES ....169 Historical View of Illegal Gambling 169 The Prohibition Era and Afterwards 170 Organized Crime 170 The Games: Numbers 171 Early Development 171 Numbers Gambling Today 172 The Games: Bookmaking 173 Development of Bookmaking 173 The Games: Illegal Casinos 176 Conclusions and Recommendations 176 The Sports Betting Controversy 176 Footnotes 179 SEPARATE VIEWS 181 Statement of Senator John L. McClellan 181 Statement of Representatives Sam Steiger and Charles E. Wiggins 182 XII TABLES AND CHARTS Page CHAPTER 3. STATE AND LOCAL GAMBLING ENFORCEMENT Table 3-1. U.S. Gambling Arrests by Type of Game, 1972-1974 36 Table 3-2. Major City Gambling Arrest Rates, 1973 36 Table 3-3. U.S. Gambling Arrests by Population Group, 1969 and 1974 37 Table 3-4. Age Distribution of Persons Arrested in the United States in 1974, Gambling Offenses and All Offenses 37 Table 3-5. Arrest of Females in the United States for Gambling and for All Offenses, 1960 and 1974 37 Table 3-6. Race of Persons Arrested for Gambling and for All Offenses in the United States, 1974 38 Table 3-7. Misconduct Related to Gambling Enforcement in City Police Departments, 1972-1976 42 Table 3-8. State Organized Crime Prevention/ Control Groups, 1975 43 Table 3-9. States With Statutes Authorizing Electronic Surveillance in Gambling Cases, Effective During 1975 45 Table 3-10. State Electronic Surveillance Orders, 1969-1973 45 Table 3-11. States Authorizing the Use of Immunity in Gambling Cases, January 1974 46 Table 3-12. Enforcement Priority 48 CHAPTER 4. SURVEY OF AMERICAN GAMBLING AND BEHAVIOR Table 4-1. Reported Betting Participation by Demographic Characteristics 59 Table 4-2. 1974 Gambling Behavior of United States as a Whole Compared to Nevada Residents 60 Table 4-3. Comparison of Reported Betting Participation by Demographic Characteristics, Nevada and CASINOS National Sample 61 Table 5-1. Table 4-4. Regressivity or Progressivity by Types of Gambling, United States Table 5-2. and Nevada Only 61 Page Table 4-5. Gambling and Family Income, by Type of Game 62 Table 4-6. Lifetime and 1974 Distributions of Bettors Among Betting Channels by Age 63 Table 4-7. Takeout and Handle for U.S. Commercial Gambling, 1974 .... 64 Table 4-8. Regressivity by Type of Game .... 66 Table 4-9. Revenue Potential of Legalized Gambling 67 Table 4-10. Major Reasons Why Nongamblers Report They Don't Gamble 68 Table 4-11. Leisure Time Activities 68 Table 4-11a. Average Number of Days Gambled on Selected Events 68 Table 4-12. Excitement Ratings for 13 Gambling Activities 69 Table 4-13. Perceptions of Fixing 70 Table 4-14. Perception of Fixing After Legalization 70 Table 4-15. Components of Positive Attitudes Toward Legalization 70 Table 4-16. Gambling Favorability and Gambling Facilities 71 Table 4-17. Gambling Participation by Number of Legal Facilities in State 72 Table 4-18. Percent of Respondents in Agreement With Eight Possible Consequences of Legalizing Each of Five Different Games 72 Table 4-19. Beliefs About the Effects of Legalization on Corruption .... 73 Table 4-20. Operation and Regulation of Games If They Become Legal 73 Table 4-21. Classification as Compulsive Gamblers and Potential Compulsive Gamblers by Sex ... 74 Table 4-22. Demographic Breakdown of Gambling Participants 74 CHAPTER 5. LEGAL GAMBLING INDUSTRIES Legal Gambling Considerations 77 Gross Taxable Gaming Revenue, State of Nevada 80 Direct Levies Paid by the Gaming Industry, Fiscal Years 1964-1975 . 81 xiii Table 5-3. Table 5-4. Table 5-5. Chart 5-1. Table 5-6. Table 5-7. Table 5-8. Table 5-9. Chart 5-2. Table 5-10. Table 5-11. Table 5-12. Table 5-13. Table 5-14. Table 5-15. Table 5-16. Table 5-17. Table 5-18. Table 5-19. PARIMUTUEL Table 5-20. Table 5-21. Table 5-22. Table 5-23. Table 5-24. Table 5-25. Page Nevada Gaming License and Tax Fees Collected, 1970-1975 82 Gross Taxable Gaming Revenue, Clark, Washoe, and Douglas Counties, 1970-1975 82 Resort Trade Revenue, Clark County, Nevada 83 Organization and Functions, Nevada OFF-TRACK BETTING Gaming Regulatory Agencies ... 85 Resort Area Crime Rates, 1974 87 Percent of Revenue Produced by Games and Devices, Fiscal Year 1975 89 Income Versus Expenses, Fiscal Year 1975 90 Return on Equity Capital, Group I Casinos, Fiscal Years 1967-1975 .. 91 Casino Department Organization and Staffing 93 Casino Inventory Formula, Roulette Table R-1 94 Demographic Characteristics and Casino Betting 96 Reasons for Betting or Not Betting at Casinos 97 Bettors' Attitudes Toward Casinos . . 97 Bettors' Perceptions of Law Enforcement Consequences of Casino Gambling 97 Attitudes Toward Legalization of Casinos and Slot Machines 97 Comparison of Demographic Characteristics of Bettors, Nevada Residents and National Sample . . 98 Regressivity or Progressivity by Type of Gambling, Nevada Residents and National Sample 98 Comparison of Compulsive Gambling, Nevada Residents and National Sample 99 Comparison of Gambling Behavior, Nevada Residents and National Sample, 1974 99 WAGERING Comparison of Thoroughbred, Table 5-45. Harness, and Quarter Horse Industries, 1975 106 Table 5-46. Parimutuel Revenue to States (Excluding OTB) 1970 to 1975 . . .109 Table 5-47. Parimutuel Handle, Horseracing and Dogracing, 1965-1975 110 LOTTERIES Total and Average Daily Attendance, Table 5-48. Horseracing and Dogracing, Table 5-49. 1965-1975 110 Per Capita Betting, Horseracing and Table 5-50. Dogracing, 1965-1975 110 Demographic Characteristics of Table 5-51. On-Track Betting, 1974 111 Page Table 5-26. Family Income and Horserace Betting 111 Table 5-27. Perceptions of Luck Versus Skill in Betting on Horses 111 Table 5-28. Perceptions of Race Fixing, 1974 . .111 Table 5-29. Reasons for Betting and Not Betting on the Horses 112 Table 5-30. Demographic Characteristics and Attitudes Toward Legalization of Horserace Tracks 112 Table 5-31. State Racing Commissions- Jurisdiction, Composition & Prohibited Activities 114 Table 5-32. Horsemen's Purses, 1965-1975 119 Table 5-33. Thoroughbred Purses, 1965-1975 . .119 Chart 5-3. Table 5-34. Table 5-35. Table 5-36. Table 5-37. Table 5-38. Table 5-39. Table 5-40. Table 5-41. Table 5-42. Table Table 5-43. 5-44. Foreign Off-Track Betting Operations 129 Nevada Sports and Race Books, 1974-1975 130 Advertising Budgets of OTB Corporations, 1975 132 Distribution of On-Track and Off-Track Takeout in 1975, New York State 133 Distribution of OTB Takeout, 1975 133 Distribution of New York City OTB Revenue, 1971-1975 134 Net Additional Revenues to Government as a Result of New York City OTB, 1975 Compared to 1970 135 Track Net Losses From All Causes, 1975 Compared With 1970 136 Net Gain in Horsemen's Purses, 1975 Compared with 1970 136 Payments by New York City Off-Track Betting to New York and Out-of-State Tracks from Interstate Wagering Pools, 1972-1975 137 OTB and Family Income 139 Attitudes Toward Legalization of OTB 139 Operation and Regulation of OTB If It Becomes Legal 139 Features Necessary and Desirable in a Legal OTB System 139 Knowledge of OTB Surtax 140 Authorized Lotteries and Raffles . . .144 State Lottery Revenues and Distribution 148 State Lottery Games, Allocation of Revenue 149 Major European Lotteries, Allocation of Revenues 150 XIV Page Table 5-52. State Lotteries As a Source of Table 5-60. Revenue 151 Table 5-53. Instant Lottery Sales 153 Table 5-54. Daily Numbers Games 154 BINGO Table 5-55. Demographic Characteristics of Table 5-61. Lottery Players 156 Table 5-62. Table 5-56. Lottery Participation and Family Income 156 Table 5-63. Table 5-57. Lottery Participation and Other Table 5-64. Forms of Gambling 157 Table 5-58. Reasons for Buying or Not Buying Table 5-65. Lottery Tickets 157 Table 5-59. Attitudes Toward Legalization of Lotteries., ..157 Page Attitudes Toward National and Local Lotteries . . .157 States Permitting Bingo 161 Demographic Characteristics of Bingo Players 162 Family Income and Bingo Playing . .163 Reasons for Playing and Not Playing Bingo 163 Differences in Behavior and Attitudes of States With Legal Bingo Versus States With No Legal Bingo 164 xv INTRODUCTION Gambling is inevitable. No matter what is said or done by advocates or opponents of gambling in all its various forms, it is an activity that is practiced, or tacitly endorsed, by a substantial majority of Americans. That is the simple, overriding premise behind all the work of this Commission. Given this fact of life, the Commission has sought to determine the most productive and equitable treatment of this complex social phenomenon. Because it is a social issue, the Commission has determined that gambling policy is the proper responsibility of the government entity closest to the lives of citizens the State. This does not mean that gambling is a simple problem which lends itself to simple solutions. Far from it. Gambling is an issue so fraught with ingrained moral and philosophical dichotomies and unresolved social questions that no disposition of the subject can ever come close to being universally accepted. Attitudes toward gambling encompass the most sincere and high-minded ethical beliefs as well as the basest kinds of acquisitive instincts and exploitation. In developing this Report, the Commission has adhered to an objective, pragmatic approach to its task: If gambling is inevitable, as we are certain it is, then who should regulate it, and how? That is the subject of the chapters which follow. This does not mean, however, that the Commission is insensitive to the invidious and emotional aspects of its subject. It has not addressed these social ramifications of gambling policy directly because, first, they are largely unsusceptible to objective analysis, and, second, because they involve ethical considerations that are beyond the legitimate purview of an investigating body of this kind. It is important to raise these issues involving the social consequences of gambling to communities, however, because they must be debated by each State as it determines the gambling policies best suited to its citizens. Whatever a State determines its gambling policy to be, these issues will substantially affect its judgment. MORAL AND ETHICAL CONSIDERATIONS. A significant number of Americans believe that gambling in any form is absolutely wrong, on both religious and secular moral grounds. By sanctioning gambling, States may be intruding into areas of sincerely held theological and ethical convictions. One approach to gambling may be to decriminalize it so that the variety of religious beliefs would determine whether an individual gambles or not or whether a community will have legal gambling, rather than letting government engage in something which a substantial minority believes not simply to be bad policy, but to be religiously wrong. It may be that legalization or decriminalization makes allegiance to government extremely difficult for people with deep moral convictions who are forced more and more to dissent from the actions of their government. It must be asked if the gain for the majority is worth the price of the alienation of the minority. GAMBLING AND THE WORK ETHIC. There is no reliable way to calculate the effect on the work ethic of legalizing or decriminalizing gambling that was previously prohibited. If, through legal gambling, citizens are allowed or encouraged to make a profit or gain through chance rather than through work, the government may be undermining a basic social tenet of our culture. GOVERNMENT AS GAMBLING ENTREPRENEUR. When a large segment of its population finds an activity objectionable, a State must decide whether it should allow and, in effect, promote that activity. Also, many people believe fervently that it is improper for government especially democratic government in a capitalistic society to compete in the marketplace with private enterprise and that State-sponsored gambling clearly violates that principle. REVENUE VERSUS CRIME CONTROL It is axiomatic that the two principal goals of legalized gambling revenue raising and crime control are incompatible. The taxation and other tribute necessary to generate significant profits for government may place the legal entrepreneur at an impossible competitive disadvantage with his illegal counterpart, who is not so burdened. If government is seriously to challenge the role of illegal gambling particularly that part of it controlled by organized crime- then the legal entity may have to offer competitive odds and payoffs. It may also have to eliminate taxes on the bettor and the operator which would, of necessity, eliminate the likelihood of substantial government revenue. States must determine which goal they should pursue in the formulation of their gambling policies. GAMBLING AND REVENUE. Legislators have sometimes seen legalized gambling with its attendant revenue to State treasuries as a painless, voluntary form of taxation that takes the place of increases in income taxes or sales taxes. In fact, legal gambling is a regressive form of taxation that is, the poor pay out a greater proportion of their income for it than the rich while income taxes, at least, are progressive. It is also true that it is cheaper to collect income and sales taxes than it is to collect income from legal gambling games. States might consider lowering the regressivity of legal gambling by having a maximum payout to players with a minimum profit to the State in other words, redistributing gambling money in the community that pays it out. PRACTICABILITY OF REGULATION. In many discussions of public policy, much has been made of the potentiality that the regulated will dominate the regulators. There is a danger that a gambling industry's growth can overtake a State's ability to regulate or control that industry. This is especially true for small States where the regulators are few in number and the State is dependent in large part on the income that industry generates. This danger exists, of course, when any industry dominates a State's economy, but States should be especially careful to monitor and control the special interests involved in gambling. CREATION OF NEW GAMBLERS. The Commission's research has shown that the availability of legal gambling creates new gamblers. A government that wishes merely to legitimize existing illegal wagering must recognize the clear danger that legalization may lead to unexpected and ungovernable increases in the size of the gambling clientele. This list of social consequences of gambling is by no means exhaustive; gambling policy no doubt involves ramifications that are not yet known or that cannot be resolved until various forms of legal gambling are attempted. The issues enumerated above, however, must be weighed carefully by any State that endeavors to formulate a gambling policy that best satisfies the needs and wishes of its citizens. Indeed, they might well serve as criteria against which States can measure and perhaps formulate their own goals and desires regarding the regulation and control of gambling. The issues also represent the first step in a complex social analysis that should continue long after the expiration of this Commission. HIGHLIGHTS OF CONCLUSIONS AND RECOMMENDATIONS Following are highlights of the Commission's major conclusions and recommendations, which are directed toward Federal, State, and local governments, law enforcement agencies, and privately operated gambling industries. Chapter 1. National Gambling Policy The Commission has concluded that States should have the primary responsibility for determining what forms of gambling may legally take place within their borders. It believes that the only role of the Federal Government should be to prevent interference by one State with the gambling policies of another and to protect identifiable national interests with regard to gambling issues. In line with these conclusions, the Commission recommends: That Congress consider enacting a statute that would insure the State's continued power to regulate gambling. That the Federal Government, in the exercise of its regulatory and tax powers, take care not to hinder State efforts to compete with illegal gambling operations. Chapter 2. Federal Gambling Statutes In its extensive study of Federal gambling statutes both civil and criminal the Commission has concluded that a continued Federal effort against certain gambling operations is both necessary and desirable. This finding notwithstanding, the Commission has determined that some of the Federal statutes should be amended and that the Government's enforcement policies in some areas should be reevaluated. Specifically, the Commission has found that the Federal income tax on gambling winnings is the single greatest obstacle to effective competition with illegal gambling operations; it believes that States which are attempting to compete with illegal gambling should not have their efforts in this direction thwarted by the Federal Government. Also along these lines, the Commission has determined that the Federal wagering excise and occupational stamp taxes interfere with the ability of a legal gambling industry to compete with its illegal counterpart, and that such taxes, if they are to exist at all, are more appropriately levied by State governments. Finally, the Commission has determined that civil remedies against gambling violators ultimately will prove more successful than current criminal statutes in suppressing illegal gambling. In light of these conclusions, the Commission recommends: That winnings from legal gambling entities be excluded from gross income for Federal income tax purposes. That the provisions of Federal criminal statutes dealing with the interstate aspects of gambling violations be retained and incorporated into a single gambling statute designed to eliminate the overlap and duplication that the current statutes contain. That the Federal intrastate gambling statute (18 U.S.C. 1955) be amended in such a manner as to insure that the statute is employed only against the higher level gambling operations of organized crime. That the Federal wagering excise and occupational stamp taxes be repealed. That the Federal Government make greater use of civil remedies against gambling offenders. Chapters. State and Local Gambling Enforcement Through its research of gambling law enforcement practices by State and local law enforcement agencies, the Commission has determined that, for a variety of reasons, most local police departments cannot deal effectively with large gambling operations, and that, too often, enforcement efforts are directed against low-level gambling violators while high-level operators remain untouched. Lack of resources, inadequate legal tools, noncooperation by the courts, interjurisdictional problems, and corruption are the principal roadblocks to effective gambling law enforcement by local authorities. To remedy these inadequacies, the Commission recommends: That less emphasis be placed on enforcement against low-level gambling offenders and that State and county law enforcement agencies, in conjunction with prosecutors, direct their efforts against high-level gambling offenses, particularly bookmaking and numbers operations. That specialized gambling units be created in State and large urban police departments. That States consider removing statutory prohibitions against public social gambling. That States having a substantial amount of illegal gambling authorize the use of electronic surveillance in gambling cases where such authorization does not presently exist. That prison terms and substantial fines be imposed for major gambling offenders, particularly persons known to be associated with organized crime. Chapter 4. Survey of American Gambling Behavior The Commission has examined the results of its comprehensive gambling survey and concluded that the great majority of the survey's findings are accurate and reliable. However, the Commission takes issue with the survey's findings in one area the volume of illegal gambling that takes place each year. The Commission has determined that the survey's estimate of $5 billion for the volume of illegal gambling is too low, and it has concluded that as long as certain extremely popular forms of gambling remain illegal, an accurate determination of the amount of such gambling that occurs is impossible to achieve by any method. Following are highlights of the survey's findings regarding the gambling habits and attitudes of Americans: Sixty-one percent of the adult population about 88 million people participated in some form of gambling in 1974. Of these, some 19 million wagered only with friends in a social setting, and about 69 million people 48 percent of the adult population- patronized some form of legal or illegal commercial gambling. Information compiled on gambling activity in Nevada reveals that more Nevadans gamble, gamble more frequently, and spend more on gambling than the Nation's population as a whole. This indicates that the widespread availability of legal gambling increases the gambling population and rate of participation. Almost 80 percent of respondents nationwide said they favored legalization of some form of gambling, but no single form received majority support for legalization in a State where it was not already legal. Opposition to legalization was strongest against numbers and sports betting particularly on high school and college events. Participation in illegal gambling is greater in States where limited legal gambling is available than in States where no form of gambling is legal. Chapter 5. Legal Gambling Industries The Commission studied the five principal forms of legal gambling casinos in Nevada, parimutuel horseracing and dogracing, off-track betting, lotteries, and bingo. With respect to casinos, the Commission has concluded that Nevada State gambling regulations are on the whole sufficiently stringent and that enforcement of the regulations is sound. It has also found that the influence of organized crime in Nevada casinos has been significantly reduced during the past 10 years. Nevertheless, it has determined that some aspects of Nevada casino gambling should not be reproduced elsewhere. In the area of parimutuel racing, the Commission found that, in most States, the takeout money not returned to bettors is too high. It also found that a serious potential for conflict of interest exists when racing commissioners are permitted to hold financial interests in racetracks they regulate. On the issue of off-track betting, the Commission has concluded that the passage of a Federal law banning all interstate off-track betting would interfere with each State's ability to determine its own gambling policies and that such interference undermines the national policy toward gambling recommended by the Commission. Regarding lotteries (and off-track betting), the Commission has found that the active publicity given these forms of gambling by the States induces citizen participation contrary to the public's best interest. Finally, the Commission has found that commercial bingo operators running games for the benefit of charitable groups often retain most of the profits for themselves. In accordance with these findings, the Commission recommends: That States contemplating the legalization of casinos (1) incorporate a series of player protection provisions into State regulations; (2) establish casinos that are operated by private industry rather than government; and (3) refrain from building casinos in urban areas where lower income people reside. That the on-track takeout in parimutuel racing be reduced in order to increase revenues to the racing industry, the bettors, and, ultimately, to the State, which will benefit from a more prosperous industry. That racing commissioners be prohibited from holding any financial interests in racetracks within their jurisdiction and that States enact legislation requiring full disclosure of all financial interests in the operation of racing meetings. That Congress not pass a pending bill that would abolish all interstate wagering, and that, instead, States desiring to insure that no interstate wagers be taken on races within their borders pass prohibitory legislation to this effect. That States fully inform the public of the odds of winning in all types of lotteries and limit their lottery promotions to advertisements informing the public of the existence and nature of the game offered, and that the same advertising restrictions apply to government-operated off-track betting systems. That State regulators require bingo operators to provide full public disclosure of the percentage of total wagers received by the operator, the players, and, where applicable, the charity sponsoring the games. Chapter 6. Illegal Gambling Industries The Commission has found that the three principal forms of illegal gambling today are numbers, horse bookmaking, and sports betting. It has determined that while large illegal gambling casinos once could be found in every city in the country, such establishments have been virtually eliminated as a result of Federal legislation enacted during the 1960's. However, the Commission did find some evidence that small illegal casinos, generally offering only one or two games, still exist in some areas. Through hearings around the country, and from testimony by law enforcement officials, defense attorneys, and persons involved in illegal gambling, the Commission has determined that there is no uniformity of organized crime control of gambling throughout the country; in some cities such control exists; in others, not. The Commission rejects the notion that organized crime controls all illegal gambling or that all illegal gambling provides revenues for other illegal activities. Accordingly, the Commission has concluded that independent operators of illegal gambling pose a less serious threat to society than operators who are part of a syndicate or members of organized crime, and that such independent illegal gambling businesses generally should not be the target of Federal law enforcement investigations. The Commission has examined all of the arguments presented to it in support of and in opposition to the legalization of sports-by-event wagering. It has concluded that a legal single-event sports wagering system would provide relatively little revenue for the State, and it has determined that existing Federal tax policies make effective competition with illegal bookmakers impossible. The Commission believes that a sports betting operation that is unable to compete with the illegal operators is in grave danger of creating many more customers for the illegal bookmakers. Consistent with these findings, the Commission recommends: That States refrain from legalizing single-event sports wagering under the present structure of Federal taxation. That in the event Federal tax policies are amended, as recommended by this Commission, States considering legalization provide for extensive public debate on the issue to take place. That States which decide to legalize single-event sports wagering incorporate into their enabling legislation a prohibition against wagering on amateur sporting events. That States choosing to legalize sports card wagering not do so under existing lottery statutes but, rather, offer a specific voter referendum on the issue. The foregoing comprises only a partial listing of the Commission's recommendations. The chapters that follow include many additional recommendations along with more detailed explanations of the reasoning behind the Commission's conclusions. The reader also will find substantial historical gambling information in the ensuing pages along with in-depth descriptions of the many games that constitute the American gambling phenomenon. CHAPTER 1. THE NATIONAL POLICY TOWARD GAMBLING THE NATIONAL POLICY TOWARD GAMBLING: The Commission believes that the States should have the primary responsibility for determining what forms of gambling may legally take place within their borders. The Federal Government should prevent interference by one State with the gambling policies of another, and should act to protect identifiable national interests. The Commission recommends that Congress consider enacting a statute to insure the States' continued power to regulate gambling. One of the foremost concerns of the authors of the United States Constitution was how to divide authority between the National Government and the States. While numerous powers were explicitly delegated to the Federal Government, many others were reserved as matters for State control. The precise definition and scope of those powers have been the subject of long-standing debate. Throughout American history, the prohibition and regulation of gambling activity has largely been a function of the States. Federal involvement with gambling did not begin until the late 19th century, when Congress put an end to the operation of corrupt lotteries by denying them the use of the mails and the ability to transact business across State lines. The States had been deemed incapable of dealing with this problem themselves, since only the Federal Government had jurisdiction over the interstate aspects of lottery operations. The next significant Federal action dealing with gambling did not occur until 1949, when Congress enacted legislation to eliminate the gambling ships which had been operating off the coast of California. In the years that followed, the determination that organized crime had become a national problem resulted in a strengthening of the Federal antigambling effort, since gambling was believed to be a major source of revenue to the criminal syndicates. The Johnson Act, passed in 1951, limited the interstate transportation of gambling devices. Statutes enacted in 1961 prohibited the interstate transmission of wagering information, the interstate transportation of gambling paraphernalia, and the use of interstate commerce facilities to aid an illegal gambling enterprise. The Organized Crime Control Act of 1970 further extended Federal jurisdiction over gambling, making it a Federal offense to operate certain illegal gambling businesses, without requiring proof of any specific interstate element, and subjecting gambling-related bribery of State and local officials to Federal prosecution. In each case, Federal action was seen to be necessary because of the inability of the States to solve a problem by themselves. Federal legislation in the gambling area has also been predicated on the need to prevent the facilities of interstate commerce from being used so that the gambling policies of some States interfere with the gambling policies of other States. In addition, Congress has affected gambling activities through the exercise of its taxing powers, by levying excise and occupational taxes on gambling operations and a stamp tax on gambling devices, and by subjecting gambling winnings to the Federal income tax. With those exceptions, the determination of the legal status of gambling-related activities has been left to the States, although the Federal Government may retain exclusive jurisdiction over gambling that occurs on Federal enclaves, such as Indian reservations and military posts. 1 Congress has enacted legislation from time to time to control gambling in those locales. There is great diversity among the States concerning legalization of the various forms of gambling. Thirty-one States permit parimutuel wagering on horseracing, 13 States conduct lotteries, 1 State sanctions casino gambling and sports bookmaking, and varying treatments exist for dogracing, bingo, card playing, and off-track betting. To a considerable extent, these different State policies have resulted from the holding of referendums, in which the people themselves have directly determined the policies of the States. Further, States differ in their criminal prohibitions of gambling for example, some States, like Indiana, make it a crime to place a bet, while in others only the operator of the game is punishable. THE NEED FOR FEDERAL RESTRAINT This diversity of treatment reflects the fact that the populations of the States differ in their views on gambling. The Commission does not believe that the Federal Government, which represents the Nation as a whole, should substitute its judgment for that of the individual States in this area. Gambling has customarily been controlled by State agencies, which can be flexible and responsive to local demands; the Commission finds no public interest in preempting this authority by the imposition of binding national standards. While we express no predisposition on the appropriate roles of State and Federal Governments in the regulation and control of other activities, we do believe that where gambling is concerned there should be a considered reluctance on the part of the Federal Government to interfere with State policies. To the States should be left the determination of what forms of gambling, if any, are to be permitted; how to operate or regulate those forms of gambling that are authorized; and what the objectives of any changes in present laws are to be, based upon such criteria as those analyzed by the Commission later in this Report. From a purely pragmatic standpoint, this should result in the evolution of more efficient and representative gambling policies in the United States, as different States experiment with different approaches, discarding those that are unsuccessful and emulating those that have been effective in other States. The Federal Government, in the exercise of its regulatory and tax powers, should not unnecessarily impair State efforts to compete with illegal gambling operations. And States that choose not to give legal sanction to gambling in some or all of its forms should not have it imposed upon them by either their sister States or the Federal Government. We recognize that some would urge a stronger role for the Federal Government, and would have Congress exercise every opportunity to control gambling, such as by denying even legal State gambling operations the access to interstate facilities. We believe, however, that the States are capable of making such judgments, and that the Federal Government should not subject them to arbitrary restraints. There are, however, instances where positive action by the Federal Government may be necessary to the protection of identifiable national interests. Where gambling is connected to organized criminal syndicates of interstate dimensions, Congress should act to suppress it. Where gambling is the cause, or the result, of a systematic corruption of State or local law enforcement officials, Congress should impose a remedial Federal presence. Where gambling operations are too widespread and complex for State agencies to handle, Congress should step in to assist them. Federal law enforcement projects may also be designed to demonstrate how effective gambling prosecutions can be carried out at the State level. The proposition that the States should determine their own gambling policies is consistent with the historical role played by the Federal Government. Congress has generally protected the autonomy of the States, exempting gambling which is legal in the State where it occurs from the application of the Federal criminal laws. Indeed, Congress has justified its actions as designed to assist the States in the enforcement of their gambling laws. Accordingly, a national policy which assigns to the States the determination of what forms of gambling are to take place is merely a reaffirmation of the present position of the Federal Government. To the extent that the Federal gambling statutes interfere with the ability of the States to set their own gambling policies without the presence of an overriding national concern, these statutes should be revised. And to the extent that the practices of the Federal agencies vary from this standard, they should be changed. Therefore, the enforcement history of each Federal gambling statute has been analyzed by the Commission to determine if the effect of the law is compatible with the national policy. In addition to reviewing the utilization of particular Federal gambling statutes, it is necessary to determine if the body of Federal gambling law taken as a whole interferes with the ability of the States to determine their own gambling policies. TAXATION In many States, gambling has been deemed an appropriate method of raising revenue to support the costs of government, either through direct State operation or a system of licensing fees and taxes. The authority of the Federal Government to tax these State gambling operations cannot be questioned. 2 The Constitution contains no express limitations on the power of Congress to tax the instrumentalities of State government, and the Supreme Court has rejected the argument that activities unessential to the preservation of State government should be immune from Federal taxation, even if the Federal tax is collected from a State treasury. 3 Moreover, "a federal excise tax does not cease to be valid merely because it discourages or deters the activities taxed. Nor is the tax invalid because the revenue obtained is negligible." Even the intent of Congress "to curtail and hinder" the activity subject to the tax does not necessarily invalidate the legislation, so long as the intent to tax is also present. 4 Accordingly, the Supreme Court has upheld the Federal excise and occupational tax on wagering, 5 which applies to certain types of gambling regardless of whether State law permits such activity. Nevertheless, the Commission believes that Congress should take great care in the exercise of its taxing powers so as not arbitrarily to discourage State policies. Not only might the Federal Government stifle State initiatives in raising revenues to meet the expenses of State and local government, but Federal taxes on State gambling operations may render State governments incapable of competing with those illegal games they seek as a matter of State policy to eliminate through the provision of a legal alternative. The Federal Government should cooperate fully with the States, so that inflexible taxation policies do not bring about unintended results. As Alexander Hamilton, who became the Nation's first Secretary of the Treasury, cautioned in the Federalist Papers, As far as an improper accumulation of taxes, on the same object, might tend to render the collection difficult or precarious, this would be a mutual inconvenience, not arising from a superiority or defect of power on either side, but from an injudicious exercise of power by one side or the other, in a manner equally disadvantageous to both. It is to be hoped and presumed, however, that mutual interests would dictate a concert in this respect, which would avoid any material inconvenience.* We believe that the admonition of Hamilton is stil appropriate. COMMERCE CLAUSE Gambling-related activities have traditionally been considered within the States' general police power to regulate, and Federal law enforcement jurisdiction over gambling-related activities has been limited to the power of Congress to regulate interstate commerce. 7 Over the years, the scope of Federal powers under the Commerce Clause has greatly expanded, with Congress reaching activities previously thought to be beyond its authority.* The Organized Crime Control Act of 1970 for the first time 9 made certain violations of State gambling laws Federal offenses "whether or not an interstate connection or effect is established for the particular crime." 10 Deferring to the findings of Congress that illegal gambling businesses of a given size per se have an effect upon interstate commerce," the courts upheld the statute under the theory that "where Congress has the power to regulate a clearly defined class of activities, it is not necessary to show an interstate connection in any particular case." 12 Thus, even purely local gambling activity can now be the subject of Federal legislation. The power of Congress to regulate under the Commerce Clause "is complete in itself, may be exercised to its utmost extent, and acknowledges no limitations, other than are prescribed in the Constitution." " And if a State law "comes into contact" with a Federal regulation, the Constitution provides that the Federal law is supreme and must prevail. 14 Consequently, given the determination underlying the 1970 act that a sufficiently large gambling operation by its very nature affects interstate commerce, Congress might well adopt a comprehensive Federal scheme of gambling regulations, which could have the effect of preempting the field. 15 Congress has never expressed this intention; indeed, three of the Federal gambling statutes contain explicit antipreemption provisions, 1 * indicating the intent of Congress that its impact be strictly circumscribed. Traditionally, State regulations of such conduct have been permissible so long as they do not unduly burden or discriminate against an activity of interstate commerce. 17 Although these State laws carry a high presumption of validity, the restriction imposed by the Commerce Clause is important, since it places a potential limitation on the ability of the States to permit or prohibit gambling activities within their borders. 11 It is noteworthy that there has never been a successful judicial challenge of a State gambling statute on the grounds that it interfered with interstate commerce. Indeed, this is most unlikely to occur. Nevertheless, the historical development of the Commerce Clause suggests that the expansion of Federal jurisdiction may occur in ways not presently foreseen. 19 Moreover, statutes once enacted by Congress may be interpreted by the enforcement agencies and the courts to have a more extensive scope than their legislative sponsors had anticipated. 20 Because the Commission is charged with recommending gambling policies for the future, any potential problems in the jurisdictional framework upon which our recommendations are based should be anticipated and, where necessary, corrected by remedial legislation. The Commission thus believes that Congress should consider taking action to protect the States' continued authority to determine their own gambling policies. FEDERAL LEGISLATIVE RECOMMENDATION An appropriate method of achieving this objective would be the enactment of a Federal statute specifically empowering the States to regulate gambling within their borders. 21 It was by similar means that Congress protected State regulation and taxation of insurance in 1945, 22 after the Supreme Court had held insurance to be an activity of interstate commerce. 23 Congress responded to the Court's ruling by passing a statute consenting to the regulation of the insurance business by the States. The Supreme Court upheld this approach, emphasizing that the statute had put the full weight of Congress behind the State legislation to protect it from attack on jurisdictional grounds. 24 Congress thus established the validity of State insurance regulations, which otherwise might have been challenged as unreasonable burdens on interstate commerce. This approach has been taken by Congress and upheld by the Supreme Court in several other areas as well, 25 and it would be equally appropriate if applied to State regulation of gambling. At a stroke, Congress would protect legitimate State gambling statutes whether civil or criminal from judicial challenge on the ground that they improperly interfered with interstate commerce, thereby insuring that State autonomy in the regulation of gambling would be reconciled with the authority of Congress to legislate in the national interest. More important, such a statute could provide that Federal agencies would be unable to interfere with State gambling policies without explicit congressional authorization. 26 This elevation to de jure status of the current de facto policy of the Federal Government to leave the regulation of gambling to the States would, by removing doubt about the scope of State jurisdiction, serve to provide a solid foundation for the future development of sound gambling policies. The Commission emphasizes that such a statute would not foreclose the authority of Congress to legislate with respect to gambling where a Federal presence became necessary. Congress could selectively enact statutes concerning those areas which it deemed to involve the national interest, and could act to prevent the channels of interstate commerce from being used by some States to interfere with the gambling policies of other States. We submit that such a protection of State and national interests would conform with the sound principles of federalism upon which this country was established. FOOTNOTES ' See Appendix, "Gambling in Federal Enclaves," by Peter W. Waldmeir, Legal Researcher, National Gambling Commission. 1 "Enactments levying taxes made in pursuance of the Constitution are, as other laws are, The Supreme Law of the Land, Article VI . . . the first of the powers conferred upon Congress is the power 'To Levy and collect Taxes, Duties,- Imports and Excises,' Article I, Section 8 ... barring only exports (from any State) Article I, Section 9, the Power of Congress to tax reaches every subject." New York et al v. United States, 326 U.S. 572, 575 (1945). 3 He/vering v. Cebhardt, 304 U.S. 405, 411, 419 (1973). 4 United Stales v. Kahringer, 345 U.S. 22, 27-28 (1953), overruled on other ground. 1 Ibid., 26 U.S.C. 4401, 4411. The unlawfulness of an activity does not prevent its taxation, (./cense Tax Cases, 5 Wall, 462. The federalist. No. 33. 7 "The Congress shall have Power ... To regulate Commerce with foreign Nations, and among the several states, and with the Indian Tribes," U.S. Constitution, Article I, Section 8, cl. 3. * Congress has used this clause to establish Federal jurisdiction in such areas as child labor and civil rights. * Prior to 1970, Federal jurisdiction was based on the "authority of Congress to keep the channels of interstate commerce free from immoral and injurious uses." Caminetti v. United States, 242 U.S. 470, 491 (1971); Senate Report No. 91-617. ' Stern, "The Commerce Clause Revisited The Federalization of Interstate Crime," 15 ARIZ LAW REV 273. 11 Senate Report No. 91-617. 11 Resch, "The Scope of Federal Criminal Jurisdiction Under the Commerce Clause," 1972; 4 UNIV ILL LAW FOR 815. The holding in Perez v. United States, 402 U.S. 146 (1971), establishing Federal jurisdiction over loansharking, has been applied by the Federal courts to syndicated gambling. See United States v. Ceraso, 467 F2d 653, 657 (3d Circuit, 1972). " Gibbons v. Ogden, 2 U.S. (9 Wheat.) 1, 1% (1824). 14 Wilkerson v. Rahrer, 140 U.S. 545, 556 (1891), Article VI, U.S. Constitution (the supremacy clause). 15 By way of illustration, State prohibitions in the 19th century of the sale of alcohol were invalidated to the extent that they barred the sale of liquor which had traveled in interstate commerce, since "a subject matter which has been confined exclusively to Congress is not within the police power of the state." Leisy v. Hardin, 135 U.S. 100, 108 (1890). There the intent of Congress to maintain free traffic in alcohol was inferred from its silence; in the case of gambling a court might rule that Congress had "occupied the field" to the exclusion of the States. See Rice v. Santa F e Elevator Corp., 331 U.S. 218 (1946). 14 18 U.S.C. 1084, 18 U.S.C. 1953, Section 811 of the Organized Crime Control Act of 1970. " See Southern Pacific v. Arizona, 325 U.S. 761 (1945). Courts, when considering State statutes that allegedly unduly burden interstate commerce, traditionally "weigh" the State interest involved against the burden that the State law places on interstate commerce. Thus, the higher the State interest, the greater the burden on interstate commerce that will be needed to invalidate the State statute. For authority that the States may tax and regulate interstate commerce if they do not unduly burden it, see the cases of South Carolina State Highway Dept. v. Barnwell Bros., 303 U.S. 177 (1938); General Trading Co. v. State Tax Commission, 322 U.S. 335; Parker v. Brown, 317 U.S. 341; Huron Portland Cement Co. v. Detroit, 352 U.S. 440 (1960); Mmtz v. Baldwin, 289 U.S. 346 (1933); Bibb v. Navaho Freight Lines, Inc., 359 U.S. 520 (1959). " Chief Justice Melville W. Fuller, writing for the minority in the case which first extended Federal Commerce Clause jurisdiction to gambling activities in 1903, observed that "if lottery tickets had been deemed articles of commerce" in a case recently decided, the State statute "would have been invalid as a regulation of commerce.' He went on to ponder whether, "if a State should . . . engage in the business of lotteries could it enter another Slate, which prohibited lotteries, on the ground that lottery tickets were the subjects of commerce? On the other hand, could Congress compel a State to admit lottery matter within it, contrary to its own laws?" Champion v. Ames, 188 U.S. 321, 370 (1903). " See Hirsch, "Federal Regulation of Local Activity: The Demise of the Rational Basis Test," 1972 LAW & SOC. ORDER 683. 20 For a discussion of agency enforcement policies regarding gambling devices, see op. cit. Resch, 810. 21 See Appendix, Model Federal Statute, Section 4. 22 The McCarran Act, 59 Slat. 34 (1945). 15 U.S.C. 1011-1015. 23 United States v. South-Eastern Underwriters Association, 322 U.S. 533 (1944). 14 Prudential Insurance Co. v. Benjamin, 328 U.S. 408 (1946). The Court, at 429-430, observed that the purpose of Congress was to "give support to the existing and future state systems for regulating and taxing the business of insurance . . . (by) removing obstructions which might be thought to flow from its own power, whether dormant or exercised, except as otherwise expressly provided . . . (and by) declaring expressly and affirmatively that continued State regulation and taxation of this business is in the public interest and that the business and all who engage in it shall be subject to the laws of the several States in these respects." 25 This was the method used to "remove the impediment" to the enforcement of State prohibitions of alcohol in the 19th century. Op. cit. Rahrer, 564. Congress enacted legislation which gave effect to State prohibitions by forbidding the sale of liquor in a State, even though it had been brought in through interstate commerce, when State law forbade the sale of alcohol. This policy was effectuated in a two-step process. The Wilson Act, 26 Slat. 313 (1890) was upheld in Rahrer, ibid., and The Webb-Kenyon Act, 37 Stat. 699 (1913), was upheld in Clark Distilling Co. v. Western Maryland RR, 242 U.S. 311 (1917). The ultimate effect was to subject to the police power of the States something that had previously been excluded from their control by reason of its being a subject of interstate commerce The Supreme Court, in upholding this approach, observed that "Congress has not attempted to delegate the power to regulate commerce ... it has taken its own course, and made its own regulation, applying to those subjects of interstate commerce one common rule." Op. cit. Rahrer, 562. The fact that the effect was to permit different States to treat alcohol in different fashions did not invalidate the legislation, since Congress had decided that the determination by the Stales of whether alcohol was to be permitted within their borders was a proper way for this aspect of commerce to be regulated. Other examples of consent statutes include the Lacey Act, 31 Stat. 188 (1900), concerning migratory game birds; the Hawes-Cooper Act, 45 Stat. 1084 (1929), concerning convict-made goods; and the Renovated Butter Acts, 32 Stat 193 (1902), concerning oleomargarine. See Note, "Congressional Consent to Discriminatory State Legislation," 45 COLLREV927, 932 (1945). The staff is grateful for the assistance of Professor Jesse Choper of Boalt Hall. 14 See Appendix, Model Federal Statute, Section 4. CHAPTER 2. FEDERAL GAMBLING STATUTES This chapter constitutes the Commission's final review of existing Federal statutes concerning the prohibition, regulation, and taxation of gambling activities. The review includes a discussion of criminal, tax, lottery, and miscellaneous statutes relating to gambling; a study of the congressional intent upon which each statute is based; an analysis of the utilization of each statute, using data provided by the Federal agencies having enforcement powers in the respective areas, as well as other data gathered through the Commission's independent research and surveys; and a discussion of whether or not each statute is consistent with the national policy toward gambling. The Commission has recommended changes in law or policy wherever it believed the statutes to be contradictory to the national policy or inefficient in the implementation of that policy. CRIMINAL STATUTES Statutes Prohibiting Interstate Gambling Activity 18 U.S.C. 1081-1083. Modern Federal legislation outlawing certain gambling activities began in 1948 with the passage of 18 U.S.C 1081-1083, prohibiting the operation of gambling ships off the coasts of the United States. 1 The gambling ship statute accomplished its purpose soon after its enactment and casino ships which had become a common feature of the California coast in the 1940's disappeared. 2 15 U.S.C. 1171-1177. The Special Senate Committee to Investigate Organized Crime in Interstate Commerce, headed by Senator Estes Kefauver, was established in 1950. It produced a group of statutes, 15 U.S.C. 1171-1177, known as the Johnson Act, which prohibits the interstate transportation of gambling devices. The act was aimed at "nation-wide crime syndicates" 3 inasmuch as the major distributors of such devices during the 1940's were determined to be financed by organized crime. According to the legislative history, its main purpose is to support State policies outlawing such devices as slot machines. However, it also provides an exemption for such transportation into a State where the devices in question are legal. 4 Throughout the 1950's, the main Federal efforts in the gambling field were those of the Internal Revenue Service under the wagering excise and occupational stamp tax statutes, 26 U.S.C. 4401 and 4411. Until the next decade, the Federal Government's only substantive jurisdiction in the field was the Johnson Act. The total number of cases brought under this statute during the 1 950's is not available. There is general agreement, however, that the Johnson Act was successful in eliminating interstate transportation of coin-operated gaming devices. The Kefauver Committee found that slot machines were readily available throughout the various States; the Commission, through its own research and by reviewing other reports on illegal gambling, has found little evidence that this is still true. 5 (15 U.S.C. 1175, which deals with regulation of gambling in Federal enclaves such as U.S. territories and military installations, is discussed more fully later in this chapter.) 18 U.S.C. 1084; 18 U.S.C 1952-1953. The Justice Department became an active participant in antigambling enforcement during the 1960's. The Kennedy administration believed illegal gambling was an extremely important target for Federal legislation. Various legislative and executive studies showing that illegal gambling provided a substantial source of revenue for organized crime helped insure the passage of three statutes prohibiting gambling activity.* These statutes were enacted for the purpose of attacking large gambling syndicates that use interstate facilities. 7 This legislation, when combined with investigative methods available only recently to Federal authorities, enabled the Federal Government to deal with large-scale interstate gambling operations which the States and local governments, because of jurisdictional limitations, were unable to do. 18 U.S.C. 1084 prohibits the use of communications facilities to transmit wagering information or bets in interstate commerce.' The act was not intended to be applied to the placing of social wagers over the telephone; its offical purpose was to: . . . assist the various states ... in the enforcement of their [gambling] laws . . . and to aid in the suppression of organized gambling activities by prohibiting the use of wire communication facilities ... for the transmission of bets or wagers and gambling information in interstate and foreign commerce.' [Emphasis added.] An exception to this prohibition permits interstate 11 transmission of the proscribed information for purposes of news reporting or for wagering purposes between two States where such wagering is legal. 10 18 U.S.C. 1953 extended existing prohibitions against interstate transportation of wagering paraphernalia. 11 (In the late 19th century, statutes banning the interstate transportation of lottery equipment had been enacted in response to the nefarious practices surrounding lotteries at that time.) 12 The broadest antigambling provisions are contained in 18 U.S.C. 1952. This statute prohibits interstate travel or the use of interstate facilities to promote a gambling enterprise which is in violation of State or Federal law.' 3 It contains no specific exemptions, but all legal gambling operations are excluded from its application. In actual application, most of the indictments issued under 18 U.S.C. 1084, 1952, and 1953 involve the use of communications facilities on an interstate basis. The statutes have been used extensively against bookmaking operations doing an interstate layoff business. They were also used successfully to shut down the lavish, large-scale illegal casinos that were common in some cities during the 1940'sand1950's. 14 Testimony received by the Commission from Federal law enforcement personnel indicates that these statutes have been successful in eliminating many operations controlled by organized crime and specializing in interstate layoff bookmaking. However, other testimony from these same officials indicates that efforts utilizing these statutes have not eliminated or even reduced the scope of illegal gambling: Bookmakers may have had to revamp their operations, but illegal bookmaking continues unabated, primarily on an intrastate basis. 15 With respect to illegal casinos, the Commission has found no evidence that the situation revealed by the Kefauver Committee still exists. To a large extent, the fixed-site casinos that operated in open violation of the law in many cities have been eliminated. 16 Every city, however, is thought to harbor casinolike operations which differ from their defunct predecessors in that they operate covertly and utilize much less elaborate equipment. Where the earlier casinos operated such mechanized games as roulette, these new gambling dens offer card and dice games. Both types of operations have been characterized by operators' efforts to rig the outcome of the games. Before the interstate gambling statutes were passed, when large interstate layoff bookmaking operations existed throughout the country, a single layoff operation would often service bookmaking establishments in a number of States. Similarly, some illegal casinos transacted their business across State lines. These operations were known to be under the control of organized crime. 17 The Commission agrees with Congress that organized crime represents a threat to the Nation and thus is properly the target of Federal legislation. The effectiveness of Federal law enforcement agencies in combating interstate gambling syndicates has clearly exceeded that of State or local efforts aimed at the same operations. The statutes under discussion primarily 18 U.S.C. 1952 were appropriately used in eliminating the regional layoff centers that were an important source of organized crime's control over bookmaking in the 1950's. The resources available to the Federal Government such as the wiretap provisions of Title III of the Omnibus Crime Control and Safe Streets Act of 1968, immunity capability, and special grand juries "have made Federal investigative efforts more effective than the States' in gambling cases, particularly when coupled with the organizational and jurisdictional capabilities needed for interstate surveillances. These statutes have worked most successfully against the open types of gambling, which utilized highly visible equipment or stationary locations. Gambling ships and opulent casinos, once eliminated, were too costly to be duplicated. Similarly, the demise of the wirerooms can be attributed to the efforts of Federal law enforcement authorities through the utilization of the interstate statutes." The major effect of this enforcement effort has been to substantially eliminate all but the two most prevalent forms of illegal gambling numbers and bookmaking. 20 The prohibitions contained in these statutes are also useful in preventing a State that permits legal gambling from interfering with the gambling policies of another State which does not. Thus, a legal bookmaker in Nevada is prohibited from laying off his bets to bookmakers in California, where this type of gambling is illegal. The Commission finds this to be consistent with the national policy on gambling, and believes that States that choose to prohibit gambling within their boundaries are well served by these Federal statutes. Because it is a matter of unqualified national concern that a State permitting gambling not impose its standards upon a sister State with differing standards, the Commission recommends that legislation prohibiting interstate gambling or gambling-related activities be retained. However, the Commission feels that there is duplication in the existing statutes that could best be eliminated by drafting a new statute covering the necessary elements of interstate prohibition. This statute would not in any way erode Federal authority over interstate gambling offenses, but would eliminate the overlap that presently exists. 21 Statutes Prohibiting Intrastate Gambling Activity and Related Bribery 18 U.S.C. 1955. Federal jurisdiction over gambling via the commerce clause was significantly expanded with the passage of the Organized Crime Control Act of 1970. 22 Federal involvement had previously been predicated on a specific showing that interstate commerce was being used by the illegal gambling business; under 18 U.S.C. 1955, a part of the act, Federal jurisdiction was predicated on a congressional finding that illegal gambling businesses of a certain size have a deleterious effect on interstate commerce. 23 (For purposes of Section 1955, an illegal gambling business is defined as one which involves five or more persons in the conduct, financing, directing, 12 managing, or ownership of a gambling business doing a gross volume of $2,000 per day or which operates continually over a 30-day period, and which is in violation of the law of the State where it occurs.) M The chief justification for Federal jurisdiction was the additional congressional finding that syndicated gambling forms the largest single source of revenue for organized crime and helps to finance its other activities. 25 This statute, aggressively employed since its passage, has spearheaded recent Federal efforts against illegal gambling. As of June 30, 1975, 3,977 defendants had been indicted under the law. This compares with a total of approximately 2,000 defendants indicted under all other Federal gambling statutes during the same period. 24 Utilization of the statute reached its peak in 1972, when 1,532 defendants were indicted under 18 U.S.C. 1955, compared with 366 defendants indicted for other Federal gambling offenses. While the number of Federal gambling defendants as a whole has declined substantially in the past 2 years (673 defendants in fiscal year 1975), 18 U.S.C. 1955 still accounted for more than 70 percent of the total. 27 The Justice Department has testified that it feels that sentencing under 18 U.S.C. 1955 has frequently been too lenient, particularly in cases with large numbers of defendants. 2 * Figures provided to the Commission by the Administrative Office of the Courts indicate that sentencing under this statute has been significantly lighter than under the other major antigambling statutes: Only 20 percent of those convicted under 18 U.S.C. 1955 between 1970 and 1974 received prison sentences, compared with at least 29 percent under each of the others. The average length of incarceration has also been somewhat lower. 29 It should be noted, however, that sentencing under 18 U.S.C. 1955 appears to be harsher than that received by persons convicted under the wagering excise tax and wagering occupational stamp statutes before the Marchetti-Grosso decisions were handed down in 1968. Using a sample of cases provided by the Internal Revenue Service, the Commission found a lower percentage of prison sentences and a lower average length of incarceration under statutes 26 U.S.C. 4401 and4411. 30 The Justice Department testified that it proposed a statute similar to 18 U.S.C. 1955 immediately following the Marchett/-Crosso decisions in order to maintain the Federal presence against major illegal gambling operations, regardless of whether such operations were involved in interstate transactions. 51 It is often difficult to apply Section 1955 to bookmaking operations, which may involve only two or three people, because of the statutory requirement that five or more persons be involved in the operation of the business. Numbers operations more readily meet this requirement, but may not take in enough revenue for the statute to apply. As stated previously, the Commission favors Federal legislation aimed at organized crime. Inasmuch as organized crime tends to benefit from large illegal intrastate gambling businesses, a Federal statute prohibiting such business is appropriate. However, some witnesses before the Commission have expressed concern that prosecutions brought under 18 U.S.C. 1955, although meeting its statutory requirements, do not reflect Congress' specific desire to confront organized crime through the statute. 32 A number of Section 1955 indictments clearly have been directed against gambling businesses that are not, in fact, organized-crime-controlled operations. 13 The Commission does not question that some gambling operations that meet the statutory requirements of Section 1955 are either directly controlled by organized crime or provide revenue to it, but it finds that there are illegal operations not so connected that are still subject to prosecution under the statute. It is therefore necessary that the Department of Justice be selective in choosing cases to be prosecuted under this statute. This Commission believes that modification of certain elements of this statute would serve to insure selective application. For example, an increase in the minimum required volume of business from $2,000 to $10,000 a day is more likely to result in application of the statute to operations thought to be connected with organized crime. Another element subject to modification is the requirement of five or more persons, which, as discussed earlier, is unduly restrictive when dealing with bookmaking operations. Relaxation of this requirement to three or more persons would permit prosecution of high-volume book- making operations that are currently immune from prosecution. A further modification might well be the inclusion of a definition of the verb "conduct" to preclude conclusively from indictment a person whose role in the illegal gambling business is merely that of a player. The Commission seriously considered advocating repeal of this statute on grounds that it constituted Federal involvement in an area of local jurisdiction. However, the situation that prompted the statute originally that is, the inability of State and local authorities to contain the illegal gambling problem because of lack of jurisdiction, resources, and manpower has not changed. Therefore, the Commission has reluctantly concluded that the Federal Government should retain its enforcement jurisdiction over specified areas of intrastate gambling. However, the Commission recommends that the elements of the offense be modified pursuant to the above discussion. 34 fb U.S.C. 1511. 18 U.S.C. 1511, also a part of the Organized Crime Control Act, prohibits conspiracy to obstruct law enforcement in order to facilitate an illegal gambling business if one of the coconspirators is an elected or appointed official of a political subdivision. 35 In the Senate Judiciary Committee report on the passage of 18 U.S.C. 1511, great emphasis was placed on the theory that gambling enterprises of the type defined in section 1955 could not continue to function without the assistance of corrupt law enforcement officials. The pervasiveness of that corruption was deemed to be a matter of national concern. 3 * The Commission did not receive enough information to conduct an analysis of the uti lization of this statute. Section 1511 has seldom been employed, but there is no reason at present to doubt its usefulness as a possible deterrent to illegal gambling. In this instance, the Commission believes that Federal legislation aimed at eliminating corruption 13 fostered by illegal gambling activities is appropriate. Historically, there have been instances of entire political systems being corrupted by organized crime, making State and local law enforcement agencies incapable of effective prosecution. 37 However, corruption of public officials is an important part of organized crime's method of operation in other areas of illegal activity too. The Commission is aware that, in a number of investigations developed under this statute, no prosecutions were obtained because of the statutory requirement that two or more persons must be involved in the bribery attempt. In these situations, the public official who was offered the bribe feigned cooperation with the briber, but no violation of Federal law could exist because, in effect, only one person was involved in the bribe. The Commission recommends that this statute be expanded to cover bribery relating to other illegal activities in the same manner as presently applies to the offense of gambling. The Commission further recommends that appropriate language be added to the statute to allow for prosecutions in cases involving an attempt to bribe a public official to obstruct State or local law enforcement. 38 TAX STATUTES Although Federal taxation of gambling activities takes various forms (e.g., income tax on gambling winnings, individual and corporate income taxes on gambling business income, excise tax on gross wagers received by an individual in the business of accepting wagers, occupational stamp tax applicable to each person employed in the business of accepting wagers), all existing tax laws were passed primarily for the purpose of raising revenue and only secondarily to attack illegal gambling. Ironically, they have been ineffective as revenue-producing measures, and have contributed substantially to the success of illegal gambling operations. Congress must view this situation realistically from the standpoint of the national policy of assisting the States in their revenue- raising and law enforcement procedures. Income Taxation (26 U.S.C. 61) Section 61 of the Internal Revenue Code provides the basis for the taxation of all income from any source. 39 Judicial interpretations of this section have consistently ruled as taxable "any accretion to wealth . . . unless specifically exempt," 40 thereby encompassing gambling winnings. Section 165(d) of the Internal Revenue Code allows a specific deduction for gambling losses (from both legal and illegal sources) up to but not exceeding the extent of gambling winnings. 41 Since most persons wager for entertainment and as a hobby, the added burden of income taxes on such chance or windfall gains tends to encourage those few bettors who do win to evade taxes on these gains. It is generally accepted that few bettors are net winners during a given year or, for that matter, during their gambling careers; most bettors sustain a net loss. Those who have a winning year, and properly declare their winnings, are not permitted to carry back or carry forward losses from previous or subsequent years as a deduction from other income. This encourages patronage of illegal games; the winner in an illegal game can ignore the doctrine of voluntary compliance because he knows that the illegal operator will not report the win to the IRS. There appears to be almost no voluntary compliance with the reporting and payment requirements relating to the taxation of gambling winnings. 42 Under current regulations, offices accepting legal parimutuel wagers must file information returns for wins of more than $600 involving bets and winnings with odds higher than 299 to 1 .** Apart from the income reported under this provision a very small fraction of total parimutuel winnings the Internal Revenue Service is unable to distinguish reporting of gambling winnings on personal income tax returns because these winnings are reported as "Other Income," and no distinction for gambling winnings is required under this category. The Internal Revenue Service reports having no resources specifically devoted to enforcing this provision of the Internal Revenue Code. In materials provided to the Commission, the IRS stated that the present tax laws affecting gambling winnings are operating in "a highly unsatisfactory manner." 44 In 1960, the IRS did direct special monitoring procedures toward filing of information returns by racetracks and the reporting of gambling income by racetrack patrons. These procedures were terminated two years later, after the IRS concluded that compliance by both racetracks and bettors was satisfactory. However, despite the adequacy of these reporting procedures for extraordinary wins at unusual odds, average gambling winnings from legal sources apparently go unreported, as do winnings from illegal bookmakers. 45 And although the reporting requirements for very large winnings may be adequate, the IRS has found methods prevalent through which actual payment of the tax can be avoided. Since losses can be used to offset winnings, winners can circumvent the law by picking up losing tickets or falsifying the recipient's true identity through a so-called "ten-percenter." 46 It is apparent that the law requiring payment of taxes on gambling winnings will always suffer from a lack of voluntary compliance. The requirement that a player be able to prove both his winnings and his losses is not one that can be realistically met by the gambler, particularly with respect to casino gambling. Even in the case of racetracks, where each transaction produces a record, a requirement that each bet be assigned a unique bettor's number (which would potentially prevent a winner from simply picking up enough losing slips to cover his 14 winnings) is not one that can be reasonably imposed. As previously discussed, the current reporting requirement arbitrarily selects a group for special treatment. While the Federal income tax provisions relating to gambling do not serve to protect the interests of one State from the gambling policy decisions of another, they do nevertheless involve other substantial State, as well as national, interests: It is apparent that taxes on legal gambling winnings serve to deter large bettors from using legal betting facilities when faced with a choice between legal and illegal games. Testimony before this Commission has made it clear that existing Federal tax policies make any meaningful competition between legal and similar illegal games impossible. 47 A State that sees legal gambling as a technique for depriving illegal operators of their market may choose to exempt legal winnings from their State income tax; however, that approach would be defeated by retention of the existing Federal tax provisions. The current tax policy is tantamount to an inducement to the regular or heavy bettor to participate in illegal games. The Commission believes that by giving a competitive edge to illegal facilities (which may in turn contribute their revenue to organized crime or other criminal cartels) the current tax policy on gambling winnings condemns to failure the efforts of a State to construct a legal alternative. It might therefore be concluded that the tax policy contributes to the success of gambling operations run by criminal elements. Certainly this was not the intent of Congress. The Commission is aware that its recommendation on Federal taxation of gambling participants is the most central and, consequently, the most controversial one it has been called upon to make. For this reason, its decision has not been reached easily or without great care. It is the sense of the Commission that Congress should do all within its power, consistent with the national policy, to insure freedom of competition between burgeoning legal gaming industries and existing illegal gambling operations. If this is to be done, a different and consistent treatment of Federal tax policy is essential. Taxation of legal gambling winnings is the most critical issue affecting the right of each State to compete in the gambling arena, and it is clear to the members of this Commission that the present policy has a totally negative effect. The attention of the States must be drawn to the deterrent effect of this tax policy, whether the policy is motivated by revenue raising or law enforcement considerations. It is, obviously, also appropriate for the States to review their present policies to determine whether the advantages that are derived from legal gambling operations may be offset by the advantage given to the illegal gambling community by Federal tax policies. It is true that, in this country, gambling has traditionally been viewed as an activity that has a negative impact upon society and one that should therefore be taxed. 41 Yet in many States it is now a subject of State entrepreneurship, run by the State, controlled by the State, and providing revenue to the State. In such instances, exclusion of winnings from Federal income taxation should not be considered a promotion of gambling, but, rather, an acceptance and encouragement of State policy predicated upon a mandate of the people of that State; as well as an anticrime measure of assistance to law enforcement. It is quite possible that Congress might want to distinguish, for tax purposes, between gambling businesses conducted by a State and those legalized by a State and operated by private enterprise. While this would not go far enough in terms of allowing free competition between legal and illegal gambling industries, it is certainly a position far preferable to that presently in effect. The overriding concern of the Commission in this area is the prevention of Federal interference in the domain of State production of revenue. To the extent that the legal gambling industries provide revenue to the States, the existing Federal tax policy is in contravention of the national policy which is being recommended by this Commission. The recommended policy is to leave to the States the determinative jurisdiction over the legalization of gambling. To this end, the Commission recommends that winnings derived from legal gambling entities be excluded from gross income, with the affirmative burden being placed upon the taxpayer to declare the income and prove the legality of the source. (It is part of the Commission's recommendation that, in order to receive the benefit of the exclusion, an individual would be required to make on his or her income tax return an affirmative representation of having received winnings from a legal, identified source. The IRS would formulate the appropriate reporting requirements and design a suitable form which would set forth verifiable information establishing the validity of the representation.) This recommendation is not to be construed as applying to the professional gambler: If a person's trade or business or his primary source of income is gambling, a statutory distinction must be provided to deny the exclusion. This distinction would also apply to operators of private gambling enterprises, whether they are individual or corporate entrepreneurs. This recommendation should not be viewed as in any way favorable to those who engage in illegal gambling. The affirmative burden of proof as to the legality of the source is meant as a safeguard against this possibility; the applicable provisions of fraud and falsification of returns would be available against those who provide improper documentation, 49 and these violations are more readily proved than is an understatement of income by an indirect method of proof. The Commission recognizes the potential legal and practical difficulties that could arise from the immediate application of this tax policy to all legal games. Consequently, the Commission recommends that implementation of this policy begin with its application to State operated gambling enterprises; should this experience show justification for continuation of the policy, it could then be made applicable to other legal gambling industries. An issue related to taxation of winnings is the withholding of income in anticipation of potential taxes. Such measures are contained in 26 U.S.C. 1441 (a), requiring 15 the withholding of 30 percent of all income earned by nonresident aliens, 50 including gambling winnings. 51 That the IRS favored expansion of this concept to other categories of gambling winnings, applicable to U.S. citizens, is evidenced by its support of the withholding provisions of the Tax Reform Act of 1976. H This new act H.R. 10612 provides for withholding of 20 percent of all "proceeds of more than $1,000 from a wagering transaction, if the amount of such proceeds is at least 300 times the amount wagered." The bill raises the withholding limit to $5,000 or more won in a State lottery, removes the 300-to-1 odds requirement from "sweepstakes, wagering pools, and other lotteries," and excludes bingo, keno, and slot machines from its provisions. Casino games, by omission, are exempt as well. Congressional interest in this withholding measure is understandable, since, in testimony before the Senate Finance Committee, officials of IRS estimated initially that such a measure would generate $500 million in revenue to the Government; the following day that figure was reduced to $160 million. There is no evidence to support either estimate. The Commission believes that the expansion of the withholding concept as it applies to parimutuel wagering will not raise additional revenues to the Government. The requirement that information returns be filed applies only to parimutuel wagers for which the odds against winning exceeded 300 to 1 . The new withholding provision makes no such distinction and appears to require withholding of 20 percent of all winning parimutuel wagers of $1 ,000 or more. The administrative burden to the operator of the legal industry to collect these funds is only one immediate concern, however; the likely impact of the requirement driving previous legal participants to illegal games is of greater concern, unless, of course, one is prepared to suggest that Congress specifically intended to increase the competitive advantage the illegal games presently maintain over their legal counterpart. Indeed, no factual basis has been provided to establish the validity of the estimate from IRS that $110 million will be realized by withholding 20 percent of all winning wagers exceeding $1,000 from parimutuel betting. Without such a factual justification, it would only temporarily be in the Government's possession, since losses in any given year will undoubtedly exceed winnings, entitling the return of these proceeds to a taxpayer. The application of the withholding provision to State lottery prizes over $5,000 is even more questionable. A study conducted by IRS clearly established that all State lotteries properly filed information returns reporting winners of over $600 and that 85 percent of winners voluntarily reported and paid their taxes on such winnings. If these data from IRS are accepted, it is hard to envision any need for additional measures of collection, and it engenders skepticism about the claim of $500 million in additional revenues that are supposed to accrue from such a measure. The Commission has reviewed this legislation and its likely impact on both legal gambling industries and individual participants in games of chance. It has examined the possibility that substantial administrative burdens might be imposed upon legal gambling businesses, and that illegal forms of gambling might become more attractive to the players, thereby reducing revenues to the States and increasing illegal gambling. It has questioned whether there is a real correlation between winnings on a given day and the overall tax liability of the participant, since gambling losses are deductible from winnings over the course of a year and most players lose on balance. It has sought to determine the amount of revenues that would ultimately be raised by such a measure, and whether such revenues would warrant the administrative expenses and social and economic consequences involved. Using these criteria, the Commission seriously questions whether the new withholding measure would serve to further any identifiable national interest; indeed, it would appear that such withholding interferes with the policies of numerous State governments. Additionally, the exclusion of games such as keno, bingo, slot machines, and all casino gambling from any withholding requirement is, at best, arbitrary. At worst, it appears that Congress has once again formulated a clearly discriminatory practice against selected gambling industries based on what is apparently a very inexact estimate of the anticipated revenue. In an even more bizarre occurrence, Congress has inadvertently required withholding on any parimutuel winnings in excess of $1,000. The Commission can only hope that Congress will correct this mistake in its next session. Clearly, if the existing policy of taxing gambling winnings from a legal State entity is questionable, then the extension of that policy by withholding on other selected legal wagering entities is insupportable. Consequently, the Commission concludes that the withholding measure will increase the advantage to illegal operators, generate minimal revenues to the Government, and unnecessarily increase the administrative burden to the legal gambling businesses. The Commission recommends that Congress reexamine the probable impact of section 1207(d) of the Tax Reform Act of 1976. If, upon reexamination, Congress finds the proposed withholding tax to be destructive of existing legal gambling industries, the Commission recommends that these withholding provisions be repealed. A review of the Canadian approach to windfall gambling winnings was conducted at the Commission's request. 53 Canadian tax officials at the national and field levels were interviewed to obtain their views and experiences. Canadian law enforcement officials were also consulted to determine what effect, if any, Canadian tax policies on gambling winnings have on law enforcement efforts as they relate to illegal gambling. The Canadian officials were unanimous in support of the exclusion of windfall or chance gains from taxation. They stated that this exclusion from income has not caused any adverse impact on tax revenues and, further, that it has not proven to be a problem in tax fraud cases in which the net worth method of proof was employed. The Commission recognizes that the present use of form 1099 at racetracks to report large prizes is subject to 16 circumvention by unscrupulous players; however, should the regulation requiring form 1099 at racetracks not be repealed, the Commission believes that a simple modification making it a criminal violation to wrongfully receive funds reported on such forms would eradicate the problem of false reporting, and would be preferable to the imposition of withholding on winnings. In the past, Congress has consistently encouraged State revenue-raising endeavors by providing them with favorable tax treatment. For example, a person who, in effect, lends money to a State through the purchase of a bond has the benefit of receiving tax-free interest. 54 Likewise, the imposition of certain State taxes such as income, sales, and gasoline taxes is partially offset by the allowance of deduction of these payments on Federal income tax returns. 55 The Commission recommends that Congress to be consistent should provide equal tax treatment for legal gambling entities that are operated by a State. This could be done by allowing bettors to deduct from their Federal income tax return that portion of the wager which reverts directly to the State for use in educational systems, aid to the elderly, or in the general fund for State services. For example, if 45 cents of a $1.00 lottery ticket purchase is allocated to the State, then that 45-cent portion could be taken as a deduction, using the total amount wagered ($1 .00) only for purposes of the amount wagered in computation of net gambling income. This would provide a nondiscriminatory application of these incentive policies and would assist the States in becoming competitive with the illegal games. Congress might wish to begin by allowing this deduction for wagers placed with gambling industries operated by a State. Then, if experience dictates its feasibility, the policy could be extended to include legal gambling operations subject to State licensing or State regulatory procedures. Wagering Excise Tax (26 U.S.C. 4401) 56 and Wagering Occupational Stamp Tax(26U.S.C.4411) 57 These taxes were originally promoted in 1951 as revenue-producing measures representing an estimated annual gain of $400 million. 58 An additional goal advocated by proponents of the tax bills was the curbing of illegal wagering. At that time, the Kefauver Senate hearings were calling public attention to illegal gambling and stimulating interest in legislation aimed at combating racketeering through an attack on illegal gambling profits. 59 The excise tax was originally set at 10 percent of gross wagers received by an individual in the business of accepting wagers; the occupational stamp was set at $50, applicable to each person employed in the business of accepting wagers. 60 On December 1, 1974, these were changed to 2 percent and $500, respectively, in an effort to enable legal bookmakers who pay the taxes to compete more effectively with their illegal counterparts.*' This change also indicated a recognition that legal gambling industries, which have been on the increase in recent years, should not be subject to discriminatory tax treatment: The wagering taxes do not apply to parimutuel wagering, coin-operated devices, State lotteries that base winnings on horserace results, or casino games; they apply only 10 sports and horse book:Tiaking and numbers games. The Internal Revenue Service opposed passage of these laws originally on the grounds that t\ tax<- vere unenforceable and nonproductive anu, . ;r, that the IRS' failure to enforce them would in tun breed contempt for other provisions of the tax laws. 42 Because the IRS was not granted additional appropriations for manpower expenditures, its apprehensions about the leg Cation became a reality: The revenue derived averaged only $7 million per year, and voluntary compliance was at best minimal. Nevertheless, the statutes provided the Internal Re- Service with the authority by which to attack illegal gambling and organized crime. Throughout the 1950's and early 1960's, these statutes were the only means by which the Federal Government could obtain jurisdiction in gambling cases, and the presence of the IRS often provided intelligence information used in other cases. Following the passage in 1961 of statutes prohibiting interstate gambling activity (18 U.S.C. 1084, 1952, and 1953), the wagering tax statutes continued to provide Federal law enforcement agencies with their sole source ol jurisdiction over gambling operations of an intrastate or local nature. Then, on January 29, 1968, the U.S. Supreme Court handed down its decisions in United States v. Marchetti and United States v. Grosso. 63 These decisions held that the fifth amendment provided a complete defense for failure to comply with the wagering tax laws. Predictably, they led to an almost complete discontinuation of criminal investigations under the wagering tax statutes, except in cases involving legal wagering operations and persons who filed false statements. When a criminal case is made, records seized in the raid can be utilized as the basis for a civil assessment, which is then levied against any monies or valuable property seized. Although the total amount of the assessment is rarely, if ever, collected by the IRS, the impact of civil actions on the illegal wagering operations has some merit. In 1974, legislative changes in the wagering tax schedules added restrictions on the potential use of information required by the tax provisions, as well as an immunity provision. 64 The legislation provided criminal sanctions for disclosure of documents to any person except in connection with the actual administration or enforcement of the tax laws. It was the intent of Congress thereby to override any existing ambiguities resulting from judicial interpretations, and to correct the problem inherent in pre-Marchett/ legislation by eliminating the self-incriminatory aspects of the statute. 45 Enforcement of these statutes was delegated by the Department of the Treasury to its Bureau of Alcohol, Tobacco and Firearms (ATF), rather than to the Internal Revenue Service. No additional appropriation has been provided to ATF for this new enforcement responsibility. 64 It is clear that the wagering taxes have not diminished 17 the volume of illegal gambling. Congress has not given enforcement agencies the additional manpower needed to enforce these statutes, thus weakening their effect. Further, it would appear that State-sanctioned forms of gambling are the most adversely affected. Imposition of the 2-per- cent excise tax, for example, impairs the ability of legal bookmakers in Nevada to offer the same odds as illegal bookmakers. If a legal bookmaker passes the tax on to his customer, he will most likely drive the customer to an illegal operation; yet if he absorbs the tax himself, he may very well drive himself out of business. The Commission believes that these taxes will prove seriously detrimental to States that legalize additional forms of gambling. The Commission, in keeping with its national policy, believes that the States should be permitted individually to levy whatever taxes they consider proper on legal gambling concerns. If the States demonstrate the ability to do this, it should preclude the imposition of Federal taxation. The Commission therefore recommends repeal of both the wagering excise and occupational stamp taxes. An alternative recommendation is the retention of the taxes, with an exemption provided for gambling industries operated by a State. As stated in the preceding section on income taxation of gambling winnings, the Commission is opposed to Federal interference with State revenue-raising programs; exemption of State-operated gambling businesses from these wagering taxes is thus deemed critical to their continued success. If this recommendation rather than total repeal is adopted, then two further recommendations become necessary. The first is that additional enforcement appropriations should be provided to ATF so that it will have the necessary manpower and other resources available to investigate alleged violations adequately. The second concerns the occupational stamp tax. In the present law, the stamp is issued to each employee for a particular job; if he leaves one wagering job and goes to another with a different establishment, he must acquire another stamp. This places an unreasonable burden on the employee and, in many instances, on establishments that pay for the stamps for their employees. The recommendation, therefore, is that if there is to be a continuation of the occupational stamp, it should be issued to the establishment, under strict reporting requirements as to their individual employees, thereby eliminating the necessity of transferability with each employment change. Occupational Tax on Coin-Operated Gaming Devices (26 U.S.C. 4411) 67 This statute was passed in 1941 for the primary purpose of raising revenues. The statute imposes a $250 tax per machine on anyone who maintains a coin-operated gambling device for use on his premises. By definition, devices qualifying for this tax are those which deliver cash or merchandise at a retail value of more than 5 cents, with such delivery predicated upon the element of chance. This tax has produced more than $307 million since 1955; prosecutions for failure to pay have resulted in 92 arrests and the seizure of more than $1 million in property and currency. 68 The revenues to the Federal Government realized from this tax, however, have dropped substantially since 1971, when Congress enacted legislation providing a credit against Federal taxation of up to 80 percent for similar taxes paid to the State, if the gambling devices are legal." This statute does nothing to protect one State from the gambling policies of another. Nor is any national interest served by this tax. There is Federal criminal enforcement authority over gambling devices via the Johnson Act (15 U.S.C. 1171-1177), thereby negating any need for Federal regulations through taxation, particularly when the bulk of the taxes collected are returned to the State. Repeal of this tax entirely would leave the question up to those States permitting that type of activity and satisfies the requirements of the national policy of gambling. Therefore, the Commission recommends repeal of the occupational tax on coin-operated gaming devices. LOTTERY STATUTES Statutes Restricting Use of Postal, Broadcasting, and Interstate Commerce Facilities by Lotteries (18 U.S.C. 1301- 1304, 1307, and 1953 [(b)(4)]; 39 U.S.C. 3005) 70 Federal statutes restricting the ability of lotteries to use postal, broadcasting, and interstate commerce facilities had their beginnings in the 19th century, when lotteries were prohibited by all the States. The intent of Congress clearly was to protect the public by denying lotteries which were deemed corrupt, fraudulent, and degenerative the facilities of interstate commerce. The mailing, broadcasting, and interstate transportation of lottery-related materials were prohibited by the Federal Government until 1975. At that time, Congress acted to exempt legal State lotteries from these restrictions after 12 State-run lotteries had been put into operation. It was the desire of Congress to eliminate any Federal interference with this form of revenue-raising by the States, while at the same time protecting the interests of States that prohibited lotteries. Accordingly, State games were limited to intrastate mailings, and lottery broadcasts were restricted to licensees within the lottery State, or in adjacent States that also permitted lotteries. 71 After the passage in 1890 of the final segment of the original antilottery legislation, the Postal Inspection Service enforced the statutes vigorously, and the Postmaster 18 General was able to report in 1892 that the use of the mails by lotteries had practically ceased. In more recent years, there has been a gradual decrease in the number of postal investigations of illegal lotteries, amounting to less than 2 percent of the total conducted by the Postal Inspection Service. 72 Similarly, 18 U.S.C 1304 has been used by the FCC to bring a small number of administrative actions against licensees who broadcast information about commercial lotteries. 73 Since the enactment of 18 U.S.C. 1307 in 1974, State lotteries have been able to make use of radio and television for advertisements and broadcasts of drawings. The mails have been used by all the lottery States; while some have restricted their mailings to addresses within their borders, however, others have mailed information and prizes across State lines in response to unsolicited requests to participate. New Hampshire, for example, accepts requests to participate in its sweepstakes from every State in the Union, in defiance of the Justice Department, which has brought a civil action to enjoin this practice. 74 The facilities of interstate commerce remain closed to lotteries which are not operated by State governments. Further, the Postal Service has construed 18 U.S.C. 1302 to apply to nonlottery activities such as the mailing of gambling-related brochures by legal Nevada casinos. 75 Congress has chosen to permit State lotteries to utilize broadcasting and postal facilities to prevent Federal interference with a form of revenue raising duly authorized by 13 States. At the same time, the intent of Congress to protect the interests of States that wish to prohibit lotteries has been clearly expressed 76 and is in accordance with the philosophy of this Commission. However, by limiting lottery-related mailings to addresses within the borders of a State authorizing the game, the Federal Government prevents the distribution of lottery materials to States in which their use may be legal. Lottery tickets and advertisements should not be barred from the facilities of interstate commerce when they are legal both in the State of origin and in the State of destination. Broadcasts of information about legal lotteries should be permitted by licensees in any State where the purchase of the tickets that are the subject of the broadcast is authorized by law. This can be accomplished without sacrificing the interests of the nonlottery States. Under such a plan, if a State had a statute prohibiting the sale of lottery tickets, the full weight of the Federal regulatory and law enforcement machinery could be utilized in violations involving interstate commerce. As a practical matter, this policy would effect no change in the present practices of the 37 nonlottery States, since their statutory and constitutional prohibitions against lotteries would be sufficient to invoke a Federal presence where interstate traffic is involved. The Commission does not believe that the policy described above should be limited to lotteries operated by State governments only. If lotteries that are run for commercial, recreational, or charitable purposes are permitted within a State, there is no reason for the Federal Government to treat them differently from lotteries operated by a State. As long as the interests of abstaining States are protected, there is no justification for Federal restriction of such activities when they are condoned in the State where they occur. In addition, the Commission does not believe that lotteries that base their results on sporting events should be treated differently by the Federal Government from lotteries that rely on other means of determining the outcome. As long as the method of choosing winners is authorized by the State in which the game occurs, the Federal Government should treat all games alike. Indeed, the Commission believes that Federal policy should be uniformly applied to all types of gambling construed to be covered by 18 U.S.C. 1302, not merely to lotteries. For example, since the Postal Service has construed 18 U.S.C. 1302 to apply to casinos, casinos should be included within the scope of its exemptions in section 1307 as well. In addition, the Commission believes that Federal law should not prohibit the mailing, interstate carriage, or broadcasting of advertisements concerning gambling activity that takes place within the confines of a State where it is legal. The operators of gambling businesses should be able to publish information about participation in their games, provided that it is legal to participate in those games while the player is physically present in the State; the Federal Government has no proper role in preventing the dissemination of such information. An exception to this policy would arise when a State had acted to regulate or prohibit such advertisements; then the Federal Government should not permit the facilities of interstate commerce to be used to frustrate such a policy. 18 U.S.C. 1953(b)(4), which permits the transportation into a State of materials used in the operation of a legal State lottery, can be read as permitting lottery tickets to be sent out of a lottery State, as long as they were first "used or designed for use" in that State's lottery. 77 The Commission wishes to prevent this unintended consequence, while insuring that individuals who carry lottery tickets across State lines solely for their private use are not subjected to Federal prosecution. The statute should be made applicable to private lotteries as well. Statutes Governing Financial Institutions (12 U.S.C. 25[a], 339,1829(3], and 1730[c];r These statutes were enacted in 1967 to prohibit all federally controlled or federally insured financial institutions from participating in lottery-related activities, so as to preserve their reputation for safety and solvency. Although banks and lending institutions may not engage in the sale, redemption, or advertising of lottery tickets, they are permitted to perform "lawful banking services" for State-operated lotteries. This has been interpreted by the supervising agencies to include the storage and distribution of lottery tickets and receipts. 79 The Commission does not challenge the practices of the supervising agencies pursuant to the banking statutes. Nor does it question the decision of Congress that the 19 institutions specified in these statutes should be free from active participation in gambling operations. The regulation of federally insured and controlled financial institutions is clearly within the power of Congress. The Commission has been presented with no evidence that this Federal policy has substantially interfered with the ability of the States to operate their lotteries. The Commission recommends no change in these statutes. CIVIL REMEDIES There are several statutes-18 U.S.C 1961-1968- providing for civil remedies to be used against gambling offenders. These provisions, enacted as part of the Organized Crime Control Act of 1970, are directed against racketeer-influenced and corrupt organizations. 80 These sections are collectively referred to as the RICO statutes. 18 U.S.C. 1961 defines terms and 18 U.S.C. 1962 provides criminal sanctions for certain activities. 81 The RICO statutes allow the Government to seek criminal penalties 82 and/or civil remedies 83 against persons who commit two separate acts of "racketeering activity." (Racketeering activity encompasses many disparate unlawful acts in addition to gambling.) To date, prosecutions have generally involved charges of two or more types of crime, but could conceivably cover two separate types of gambling offenses. 84 Among the offenses chargeable under State law and punishable by imprisonment for more than 1 year are transmission of gambling information, 85 interstate transportation of wagering paraphernalia, 86 and prohibition of illegal gambling businesses. 87 Although utilized on a very limited basis so far by the Department of Justice, the civil remedy provision 18 U.S.C. 1964 has been tested and found to be a strong weapon against racketeer-influenced gambling activities. 88 18 U.S.C. 1964 gives U.S. District Courts jurisdiction to restrain violations of 18 U.S.C. 1962. Without limiting any other remedy, the section allows the courts to order individuals to divest themselves of their interest in enterprises involved in violation of RICO statutes; to impose reasonable restrictions on the future activities and investments of such individuals (including engaging in the same activity); and to order the dissolution or reorganization of any enterprises involved in racketeering activity. 89 These far-reaching remedies, while not punitive, sometimes constitute more pragmatic protection to the public from gambling racketeers than would criminal punishment. The civil remedy allowed in 18 U.S.C. 1964 does not allow a penalty of incarceration, forfeiture, or fine, but does permit the Government to obtain from the court an injunction which prohibits the gambler from engaging further in any illegal gambling business. 90 It is not the present crime but the future violation of the court's order that serves as a deterrent: Following entry of such an injunction, the defendant is under the power of the court for a substantial period of time. On a subsequent showing by the Government that he has engaged in an illegal gambling enterprise, the defendant may be held in contempt and fined and/or incarcerated. No new charges need be filed. After giving the defendant notice by issuing an order to show cause why the defendant should not be held in contempt, the Government is obliged to show the court only that its order has been violated. This streamlined procedure allows rapid response to contemptuous violation of the court's order. Apart from using the injunction as a strong deterrent device, the civil remedy provides other advantages. Unlike criminal cases, which are initiated by the filing of an indictment after presentation of evidence and the voting of a true bill by the grand jury, a civil case is instituted by filing a complaint 91 and issuing a summons. 92 The complaint alleges the jurisdiction of the court, the identity of the parties, and the facts upon which relief can be granted. 93 Unlike an indictment, a complaint can be easily amended at any time, even after the trial has concluded. 94 The word "racketeer," with its attendant connotations, can be used in the allegations. The parties in a civil case, unlike those in a criminal case, can engage in extensive discovery by submitting written interrogatories, requiring documents to be produced, and taking depositions of the parties and other witnesses. 95 Such discovery is extremely beneficial in learning the nature of the illegal gambling business, the means by which it was operated, and the identity of those who participated in its operation. A defendant in a civil case, unlike criminal defendants, can be forced to testify and give information concerning conduct which may be illegal; however, a grant of immunity may have to be given to avoid infringement of the defendant's privilege against self-incrimination. 94 Failure of a defendant to provide discovery when ordered to do so by the court can result in the imposition of sanctions by the court, including a fine and/or imprisonment. 97 Unlike contempt for failure to testify before a grand jury following the grant of immunity (which permits the defendant to be incarcerated for the life of the grand jury, usually 18 months), the recalcitrant defendant in a civil case can be incarcerated for an unlimited period of time since he can purge himself from contempt by testifying when he so chooses. Use of discovery carries significance beyond the fashioning of relief against the defendant himself. Because illegal gambling businesses must lay off money to others, employ runners, utilize oddsmakers, and perform other activities with persons outside of the core group in which they operate, use of discovery makes it possible to reveal other gambling groups. Once again, the liberality in pleadings in civil cases permits the filing of a new case or the amendment of the old case to include new parties and obtain relief against them. Of utmost significance here is the lowering of the burden of proof that the Government must meet in order to obtain relief. In a criminal case, the Government must prove the defendant guilty beyond a reasonable doubt. In 20 a civil case, the Government need only prove by a preponderance of the evidence that the defendant is likely in the future to engage in conduct that violates the law in this case the RICO statutes. While past illegal conduct by the defendant would most commonly be used to demonstrate the likelihood of future violations, such evidence is not absolutely necessary. It is possible to grant immunity from criminal prosecution to one witness and, by using discovery techniques, develop information against other defendants which is sufficient to obtain civil relief against all of them. Finally, the injunctive relief restraining the defendants from participating in future gambling activities need not apply only to illegal conduct. The injunction can prohibit the performance of an otherwise lawful act.** For example, an individual who is restrained from accepting horse wagers can be prohibited from visiting a racetrack in a State where parimutuel gambling is legal. Also, a defendant can be forced to divest himself of property that he utilizes to carry out his illegal gambling business for example, a legitimate business used as a cover for the illegal operation. It may also be possible to require defendants to submit reports disclosing their employment and source of income to make it more difficult for them secretly to reenter an illegal gambling operation. Because the relief sought is of an equitable nature, the court can fashion any relief that is appropriate to carry out its order, thereby providing great flexibility in controlling the defendant's participation in illegal gambling operations in the future. The Commission finds the civil remedies provided in 18 U.S.C. 1964 to be cost-effective, thorough, and capable of great success in stemming illegal gambling in the United States. The Commission recommends retention of these statutes, selective utilization of this remedy by the Federal Government against major gambling businesses connected with organized crime, and the adoption by the various State governments of civil relief statutes similar to 18 U.S.C. 1964." FEDERAL ENCLAVES Through constitutional grants of power, the Federal Government is given jurisdiction over certain tracts of land that include Indian reservations, military installations, and territories and possessions. To the extent that these areas differ from States in the application of Federal laws relating to gambling, they warrant separate treatment. 100 Indian Reservations The Indian tribes once were separate and sovereign nations within what is now the United States, but through conquests and subsequent treaties, tribal units were placed under Federal protection, within specified grants of land. These grants in land, or reservations, were deemed to be "distinct political communities" subjected, by the Constitution, to exclusive Federal jurisdiction. States were therefore preempted from enforcing their laws within the reservation's territorial boundaries. 101 The Consiitution delegates to the Federal Government the "power to regulate Commerce . . . with the Indian tribes." 102 The commerce clause, however, has not been found to be the sole basis for Federal police power over Indian reservations, as it is in the regulation of such offenses as gambling. 103 Additional police power in this instance stems from the Federal authority to regulate the territories, a power which is not dependent upon specific constitutional grant. 104 This Federal power supersedes any tribal ordinances that may be in conflict with it, thereby nullifying such ordinances. 105 Federal prohibitions do not, however, constitute the total regulatory body of laws by which Indian reservations are governed: The Assimilative Crimes Act permits the use of State statutes to cover offenses not covered by the Federal criminal code, 10 * and tribal governments are permitted to regulate offenses committed among Indians on the reservation. While the Federal Government has retained a guardianship role vis-a-vis the Indian population, it is under no obligation to continue this role. Congress is the sole arbiter of when and how the present Federal role is to be changed or terminated; 107 the Indians themselves are powerless to alter or suspend the existing relationship. In withdrawing Federal control, Congress can cause jurisdiction over the reservations to be delegated to the States, and, in fact, has taken steps in that direction by passage of Public Law 83-280. 108 This statute granted civil and criminal jurisdiction over reservations to the States; subsequent amendments included the requirement that tribal consent to a State's assumption of jurisdiction be given before such jurisdiction could apply. The statute contains specific language reiterating the principle that the respective State's criminal code would have the same weight on Indian territory as it has throughout the rest of the State. While this statute was passed with an eye toward eventual termination of Federal supervision in this area, it also made clear that such termination was to be effected gradually. 109 Perhaps the most controversial issue arising from Public Law 83-280 concerns taxation. The statute itself contains explicit language prohibiting State taxation of Indian concerns. 110 Nevertheless, States have shown an understandable interest in taxing the Indians' economic activities in view of their increasing stature in the political and economic life of the State. State attempts to levy any such taxes have, to date, failed. 111 Of the myriad of Federal statutes dealing with prohibition of gambling activities, only one specifically prohibits a single gambling activity on an Indian reservation; the legalization of all other games is dependent upon State law. This statute, part of the Johnson Act, states: 21 It will be unlawful to manufacture, recondition, repair, sell, transport, possess, or use any gambling device in the District of Columbia, in any possession of the United States, within Indian country as defined in section 1151 of Title 18 or within the special maritime and territorial jurisdiction of the United States as defined in section 7 of Title 18. 112 The Commission fails to see any reason why, as to this particular activity, Indian reservations should not receive treatment consistent with State law. It does not consider the nature of the offense to be such as to warrant its continuing to be singled out as an area of Federal jurisdiction while other types of gambling activity on the reservation are subject to applicable provisions of State law. The continuation of this policy is neither in the national interest, nor is it protective of one State's rights from infringement by a sister State. Consequently, the Commission recommends repeal of 15 U.S.C. 1175. To do so would then place all gambling activities under the control of applicable State law. The Commission further recommends that legal gambling activity of any kind conducted on an Indian reservation pursuant to State law should be subject to the same rate of taxation as that same activity conducted elsewhere in the State. That activity would presumably be subject to the same licensing and regulatory requirements whether conducted on or off a reservation. Therefore, the licensing privilege should be accompanied by the correlative duty of equal taxation. Military Installations This subsection examines the application of gambling laws to military installations, which are broadly defined as any land area controlled or used in the pursuance of military activities. Because of the status of the specific land area, Congress has the authority to enact general municipal legislation applicable within that land area. 113 The method by which each tract of land within an installation is acquired, as well as the time of its acquisition, may affect the type of legislative authority available to the Federal Government. 114 Therefore, each tract must be treated individually; more often than not, military installations have been built up over a period of years in a series of increments acquired through different methods, thereby creating a complex jurisdictional pattern. However, there are three basic types of jurisdiction over military installations which may inure to the Federal Government: 115 1. Exclusive Legislative Jurisdiction. Under this situation, the Federal Government has received all authority to legislate, with none left to the individual State. 2. Concurrent Legislative Jurisdiction. This limits Federal authority by virtue of the State's having reserved to itself the right to exercise, concurrently with the Federal Government, all or some of the same authority, insofar as such State authority is not inconsistent with Federal authority. 3. Proprietarial Interest. Under this situation, the Federal Government has acquired some degree of ownership in the land, but has not derived any legislative authority. The fact that the Federal Government has legislative authority, either exclusive or concurrent, over a particular area, does not establish that it has actually passed applicable legislation, only that it has the authority to do so. As to the Federal statutes dealing with gambling, only 15 U.S.C. 1175, dealing with gambling devices, makes specific reference to military installations under exclusive and concurrent Federal jurisdiction. 116 In general, Title 18, which codifies Federal crimes, applies to military installations; the Assimilative Crimes Act, discussed supra, is utilized to provide jurisdiction over offenses not covered by Title 18. This act operates only when there is no applicable Federal statute, and cannot be utilized to enlarge upon or narrow the scope of the Federal offense. 117 Any State laws which contravene the Federal provisions are not applicable under the Assimilative Crimes Act. Therefore, with respect to gambling offenses, those games not expressly proscribed by Federal statute are governed by State law through an application of the Assimilative Crimes Act. 118 In addition, the operations of any games on a military installation that are legal within the particular State are subject to the rules and regulations promulgated by the particular branch of the service having jurisdiction; these rules also differ among the branches. 119 As discussed in the section of this chapter dealing with Indian reservations, the Commission is of the opinion that specialized treatment of a Federal enclave with respect to gambling devices is not in keeping with the stated national policy toward gambling; therefore, the Commission recommends that 15 U.S.C. 1175 be repealed. The applicable State statutes should be the governing force, and those rules of a particular branch of service which conflict with the State statutes should also be repealed. Territories and Possessions The Constitution establishes Congress' discretionary authority to impose Federal regulation on territories and other property belonging to the United States. 120 ki this regard, Congress has made Federal gambling legislation applicable to Guam, the Virgin Islands, and American Samoa in the same manner that such legislation is applicable to the several States. 121 In two instances, however, Congress has delineated a special treatment in the area of gambling regulation: The provisions of the Johnson Act, discussed herein, while defining the Virgin Islands and Guam as "States" for purposes of the act, retain the specific proscription as to gambling devices as applying only to American Samoa, 122 and 18 U.S.C. 1301 specifies its prohibition against the transportation of lottery tickets to apply to the Canal Zone. 123 The Commission does not feel that these isolated instances of specialized treatment are in keeping with the stated national policy of permitting individual States to determine their own policy as to gambling legislation. The Commission does not feel that certain territories and possessions of the United States should be accorded unique treatment in the area of gambling legislation; there does not appear to be any 22 rationale for restricting the governments of Samoa and the Canal Zone, while permitting the local governments of other U.S. possessions and territories to conduct the same activity. As stated earlier, the Commission recommends repeal of 15 U.S.C. 1175. It further recommends removal of the Canal Zone from the express provisions of 18 U.S.C. 1301. The Commonwealth of Puerto Rico retains a singular status by virtue of a contract arrangement which voluntarily associates the Commonwealth with the United States. 124 This contract provides that the Federal laws of the United States are applicable to Puerto Rico with two exceptions: The first provides that Federal legislation would not apply in instances where local conditions would make such application undesirable. 125 This, in part, explains the exclusion of Puerto Rico from the application of the Johnson Act, since the Commonwealth has an interest in revenues derived from the operation of its casinos and the attendant attraction of tourism. The second exception provides an exemption for Puerto Rico from the internal revenue laws of the United States. 124 The result of this exemption is the freedom from Federal taxation of any profits realized from gambling activities in the Commonwealth of Puerto Rico. It must be emphasized that these provisions are applicable only through the contractual arrangement between the Commonwealth and the U.S. Government; possessions do not per se have the status of being recognized as individual entities for the purposes of taxation, and are therefore subject to the full panoply of Federal tax policies, as well as any local taxes that may apply. 127 The Commission recommends the continuation of these policies with respect to gambling taxation, with the further recommendation that any possession which acquires the status of a Commonwealth in the future should be accorded treatment equal to that of the Commonwealth of Puerto Rico. MISCELLANEOUS GAMBLING STATUTES Historically, there have been other areas in which it was felt that antigambling proscriptions would be helpful, although these statutes have been utilized little, if at all, since their passage. 8 U.S.C. 1101, 1182 128 These provisions of the immigration and naturalization laws indicate the intent to exclude from naturalization persons with a history of illegal gambling violations. As originally written, 8 U.S.C. 1182 was intended to exclude from entry into the United States aliens coming in to engage in "unlawful commercialized vice." Although the original bills contained no specific reference to gambling, a later attempt to clarify 8 U.S.C. 1182 led to addition of the specific language of 8 U.S.C. 1101 . The definition of "good moral character" necessary for naturalization or relief from deportation contained particular language designed to exclude persons with a background of illegal gambling activity. The Immigration and Naturalization Service (INS) does not maintain statistics on the number of applications for naturalization or for relief from deportation that have been denied because of provisions of 8 U.S.C. 1101 and 1182. The Commission is advised, however, that these statutes are in fact utilized.' 29 In these instances, the INS relies upon investigative efforts of other agencies rather than conducting investigations of its own into illegal gambling activities. Although the Commission has been unable to determine the manpower or cost factors attributable to administration of these statues, it is nevertheless of the opinion that they should be retained. Immigration continues to be a matter of national concern, and exclusion of undesirable persons is unquestionably in the best interests of the country. So long as the exclusion covers a specified list of illegal activities, the Commission recommends retention of gambling activities within that list. 7U.S.C.2044 130 This statute, part of the Farm Labor Contractor Registra- tion Act, permits suspension or refusal of a certificate of registration to a migrant farmworker crew leader convicted of a State or Federal law relating to gambling. The intent of the entire Registration Act was to protect migrant workers from exploitation by irresponsible crew leaders. The provision relating to gambling convictions was predicated upon a finding that gambling was one of the several schemes through which unscrupulous crew leaders were able to take advantage of their workers.' 31 The Commission has been advised by the Department of Labor that applicants for certificates of registration are routinely fingerprinted and that the prints are forwarded to the FBI for criminal record checks. If the applicant has a criminal record, it is forwarded to the Department of Labor; if the record reflects a gambling conviction, the Department can then request further information about the conviction. If the gambling violation was committed in connection with or incident to the applicant's activities as a farm labor contractor, the violation falls within the purview of 7 U.S.C. 2044 as grounds for denial of a certificate. 132 The Department of Labor reported no instances where followup requests for information were made; the Commission therefore assumes that in no instance did the Department of Labor receive a criminal record indicating a gambling conviction. 133 The Commission believes the continuation of this pro- tective measure to be in the national interest; apparently, 23 Congress was of the same belief when, in 1974, it passed amendments to the Farm Labor Contractor Registration Act that broadened the prohibited activities to include prostitution or peonage. 134 Consequently, the Commission recommends that this statute be retained in its present form. FCC Proscriptions The Federal Communications Commission proscribes the broadcasting of certain horseracing information believed to provide assistance to illegal gambling operations. Licensees must normally wait until 30 minutes after a race has been run before broadcasting information concerning the outcome. This proscription struck at the practice of illegal horse bettors' using the winnings of previous bets as the basis for subsequent wagers. If a bettor could not obtain the result of his wager on the first race until after the second race was run, it was believed that he was less likely to place a bet on that second race. The policy was established pursuant to the Communications Act of 1934, which requires the FCC to serve the "public convenience, interest, and necessity," since in this case the "public interest" was found to dictate a suppression of gambling related to organized crime. 135 No administrative sanctions have ever been issued under this policy, 136 and it has never been extended to the broadcasting of information about other sporting events on which wagering, legal or illegal, takes place. That this proscription has had an effect on illegal horserace wagering is evidenced by the complicated methods devised by illegal bookmakers to acquire race results and prices promptly, and by the elimination of illegal "wirerooms" around the country. However, in an era when wagering on sporting events as opposed to wagering on horseracing has become the major form of illegal gambling, the FCC policy may be overly selective. There is abundant evidence that sports betting is greatly affected by the broadcasting of the results or of the events themselves. Moreover, the same kind of sequential betting which characterizes horse betting also characterizes some sports betting; a bettor may place bets for evening games only after he has received the results of games played earlier in the day. The Commission believes that the FCC proscription of horseracing broadcasts should be modified to treat consistently all information needed in illegal wagering operations. The FCC should reevaluate whether its proscription should be broadened to include sporting events, or narrowed to cover only the immediate broadcast of the prices paid on a winning racehorse, thus permitting the broadcast of the race results themselves. In revising its policy, the FCC must consider the practical differences between horse betting and sports betting, and whether the broadcasting of information e.g., point spreads- projecting the outcome of sporting events should not be curtailed. Department of Defense Practices As a general rule, United States military personnel are not permitted to gamble while on Government property or while on duty. There are exceptions, however; for example, the Air Force allows limited card games or nominal games of chance to take place in open mess facilities where these activities do not violate local law or custom. All three branches of the armed services permit controlled bingo games on Government installations. While the Army and the Air Force prohibit the operation of gaming devices, the Navy authorizes their use at overseas Navy and Marine Corps club facilities outside United States territory, where United States and foreign laws permit. The devices are carefully controlled, and detailed regulations specify the rate of payback, auditing procedures, and related matters. Revenues from the devices benefit the clubs and messes. Other forms of gambling are prohibited at Navy clubs, with the exception of dice cups at the bar. The military codes of conduct also cover gambling- related activities by restricting behavior which is not in the best interest of the services; for example, Air Force officers are not permitted to gamble with enlisted men. The Army, Navy, and Air Force all require off-duty personnel to conform with the criminal gambling statutes of the jurisdictions within which they are located. 137 The Commission believes that no changes in the policies are necessary. Sports Bribery Prior to 1964, 18 U.S.C. 1952 was the sole tool afforded the Federal Government in its attempt to prosecute sports bribery violations involving interstate commerce. 138 This statute was of limited scope, however, because its application was contingent upon the violation having occurred in a State which had enacted laws proscribing sports bribery. Before 1964, 12 States had enacted no such statutes, even though they had considerable interest in the conduct of sporting events. 139 Furthermore, in those States which had enacted sports bribery statutes, State and local law enforcement had become increasingly more difficult because of the significant interstate nature of the criminal activity involved and the inadequacies of those statutes relied upon to control it. State law enforcement agencies were thus handicapped either by an absence of adequate laws in this area of concern or by jurisdictional limitations. The Federal Government was similarly handicapped by a lack of comprehensive statutory authority to assert its full police powers. This lack of Federal authority was remedied in part by the enactment of Public Laws 87-216, 87-218, and 87-228 during the first session of the 87th Congress, but such authority was still narrowly confined and restrained. It was in response to this circumscription of Federal involvement and the rise of organized criminal activities in this area that section 1952 was supplanted in 1 964 by 18 U.S.C. 224. 140 24 The purpose of this statute is to make it a Federal criminal offense to influence, by bribery, any sporting contest through the use of interstate commerce of any facility for transportation or communication. Unlike section 1952, this legislation is not limited by any consideration of whether the violation must occur in a State having laws proscribing such activity before the statute becomes effective. Furthermore, this statute is not intended to relieve or abrogate the responsibility of colleges or professional sporting associations to enforce their obligations or regulations respecting sports bribery, or to affect or interfere with the efforts of local law enforcement agencies against local violations. 141 This legislation merely affords Federal authorities the capacity to control interstate conspiracies beyond the capacity of the local authorities and to close the jurisdictional gaps previously encountered. As described by Senator Kenneth Keating in Senate Report No. 593 (October 22, 1963) : This bill would provide the authority our law enforcement agencies need to prevent gamblers from corrupting college and professional sports. It would halt the contamination of sports by organized gambling syndicates by punishing any players or officials as well as gamblers who attempt to corrupt these games for personal gain. It would cover schemes to affect the point spread in a contest as well as to throw the game entirely and would apply to every case in which interstate facilities- such as the telephone or the mails have been used to carry out the conspiracy. 142 Beyond relieving jurisdictional encumbrances, the second major premise upon which this statute is based was the notion that sports betting had become a favorite outlet of organized crime and that the profits made from the bribery of athletic contestants are central to the nourishment of other illegal activities. As characterized by the Department of Justice in its review of this legislation, section 224 constitutes "a further step toward strengthening the supporting role of the Federal Government in the assault on organized crime." 14J The leaders of many associations responsible for regulating sporting events also espoused the assertion that a pervasive criminal conspiracy had invaded college campuses and sports arenas and that Federal involvement was necessary to preserve public confidence in the conduct of those events. Thus, as in the majority of the gambling statutes enacted during this period, the impetus of organized crime control was a significant catalyst in the enactment of section 224. The most recent data from the FBI show that, since 1970, seven convictions have been realized under this statute. 144 Although specific details about the nature of these offenses have not been provided to the Commission, it has been found that four convictions involved superfecta harness- racing violations, 145 two involved bribery of football players, 14 * and one involved off-track betting. 147 None of these convictions involved organized crime figures and none of the courts' findings addressed the issue of such involvement. Nevertheless, the Commission believes the statute to be an effective deterrent to corruption of sports events, and recommends its retention on those grounds. If there is a move toward legalization of sports betting (see chapter 6), this statute would increase in importance; it would then be appropriate for the Federal Government to have jurisdiction over instances of bribery affecting a State's revenue-raising potential. ENFORCEMENT POLICIES Criminal Enforcement Primary responsibility for enforcement of gambling laws was vested in State and local agencies until the early 1960's. Although the Federal Government has had limited criminal jurisdiction over certain types of illegal gambling since 1948, it had no vigorous enforcement tools at its disposal until 1961, when Congress passed three antiracketeering statutes designed primarily to attack illegal interstate gambling (18 U.S.C. 1054, 1952-1953). Congress felt these statutes were necessary because, given the interstate nature of large gambling operations, no effective attack upon organized illegal gambling was being waged at the local level. In 1970, Federal jurisdiction was extended to cover intrastate gambling operations of a specified size, because these businesses were thought to have a deleterious effect on interstate commerce. Enforcement of Federal statutes prohibiting gambling is vested in the FBI and in the Department of justice, which has delegated this responsibility to its Organized Crime and Racketeering Section (OCR). Officials of both agencies have testified extensively before this Commission. 141 The agencies agree that the most valuable tool available to law enforcement agencies in their fight against illegal gambling is the use of court-authorized electronic surveillance, or "wiretaps." Wiretaps have been widely used in gambling cases since 1968, when they were legalized under the provisions of Title III of the Omnibus Crime Control and Safe Streets Act. In fact, 72 percent of all Federal wiretaps were used in connection with gambling investigations. 14 ' Although Federal officials have testified before this Commission that they believe existing statutes and enforcement procedures are adequate to combat illegal gambling, they concede that there has been no decrease in either the level of interest in, or the availability of, illegal numbers and sports bookmaking. This is not to say, however, that Federal criminal enforcement of gambling statutes has had no effect. On the contrary, the Commission notes that its effectiveness against certain types of illegal games has been demonstrable: Illegal casinos in such cities as Covington, Ky., and Hot Springs, Ark., no longer exist; illegal slot machines, once prevalent in many small communities, are now a rarity; illegal horserace wirerooms and many of the major interstate 25 layoff operations have ceased operations; and organized criminal control of legalized casino gaming in Nevada appears to be at a minimum. This is attributable to a very positive impact of interstate gambling statutes as applied by Federal enforcement agencies. However, the same cannot be said of Federal efforts directed toward intrastate gambling businesses such as numbers games or sports bookmakers operating within the confines of a State. In general, Federal officials say judicial and public apathy are the cause of this situation: Only 23 percent of those convicted on gambling charges receive prison sentences, thus severely minimizing the deterrent effect of prosecution. This would seem to be borne out by the correlative statistic showing that approximately 80 percent of those convicted of gambling offenses are recidivists. The reaction of investigative and prosecutorial agencies toward this public and judicial apathy has apparently been a restructuring of gambling enforcement priorities: In 1971-1972, a program of intensified efforts toward gambling cases was undertaken by the FBI and Justice Department. This program required that top priority be given to gambling investigations and prosecutions over a specified period. These agencies subsequently determined, however, that even this extensive application of manpower and resources made little dent in the level of illegal gambling. They have now shifted toward a policy of "quality vs. quantity"; that is, only "significant" gambling cases are being investigated and prosecuted at the Federal level. The Commission finds that the efforts of the FBI and the Department of Justice with respect to illegal gambling enterprises operating interstate have been successful. Certain types of illegal gambling have, due to these efforts, been largely eliminated, and to this extent, the Commission finds that Federal enforcement efforts have been successful. However, illegal gambling as a whole has not been checked; indeed, the dollar volume of illegal gambling is on the rise. The total resources available for an all-out war against illegal wagering are clearly insufficient. Sufficient results cannot occur, given the manpower available. Today's society demands that this manpower, and these law enforcement resources, be diverted from the fight against gambling to the fight against other types of crime, particularly those involving violence. This demand has apparently been met; gambling cases are not considered items of "top priority." Indeed, the Commission does not feel that they should be, and suggests that the limited Federal manpower available to combat gambling violators might best be utilized against those conducting an interstate business. The Commission has repeatedly attempted to obtain records from these agencies that would permit a cost- benefit analysis of their efforts. In essence, their response has been that such records are not maintained, inasmuch as the actual success of law enforcement cannot be measured by comparing cost to statistical accomplishments. The Commission disagrees; it recommends that records hereinafter be maintained that would permit measurement of the cost expended on gambling law enforcement against what such enforcement effort has accomplished. Thus, Congress may then determine the effectiveness of the statutes in question and the ability of government agencies to carry out responsibilities given them. Tax Enforcement The efforts of the Internal Revenue Service have been singularly unsuccessful in curbing illegal gambling. Significant revenues have not been produced through the income tax, since illegal players generally underestimate or fail to report their gambling winnings. However, there is one area in which Federal tax enforcement has met with success: Tax evasion cases against notorious organized crime figures have often resulted in convictions and incarceration of persons against whom no other violations had been proven. The excise and occupational stamp taxes on certain gambling enterprises have also produced little revenue when compared to the amount of gambling the IRS believes takes place. The IRS opposed the imposition of these taxes on the grounds that they would be unenforceable, unproductive, and would breed contempt for other tax provisions. Since 1968, there has been virtually no enforcement action directed against failure to pay these taxes, and the Bureau of Alcohol, Tobacco and Firearms, which has been given the responsibility for criminal enforcement of these laws but no funds to support that mandate, has relegated gambling offenses to a low standing in its order of priorities. In sum, the income tax statutes relating to gambling have proven ineffective as a revenue-producing measure, as a deterrent to illegal gambling, and as a weapon against organized crime. Indeed, the present Commissioner of Internal Revenue has appealed for the elimination of the Service's law enforcement responsibilities. The function of the IRS should be primarily to raise revenues, and in the case of gambling it has been notably unsuccessful. Civil Enforcement A relatively recent tool brought to bear upon illegal gambling violators is the civil injunctive procedure provided by 18 U.S.C. 1961, et seq. The Commission finds that the ineffectiveness of the criminal justice system demands alternatives. Although used sparingly to date, civil injunctions imposed upon illegal gamblers may meet with more success, both from the standpoint of judicial enforcement and potential deterrence. The Commission recommends increased utilization of these techniques combined with modification of existing criminal statutes. 26 FOOTNOTES 1 Section 1083. Transportation between shore and ship; penalties (a) It shall be unlawful to operate or use, or to permit the operation or use of, a vessel for the carriage or transportation, or for any part of the carriage or transportation, either directly or indirectly, of any passengers, for hire or otherwise, between a point or place within the United Slates and a gambling ship which is not within the jurisdiction of any State. This section does not apply to any carriage or transportation to or from a vessel in case of emergency involving the safety or protection of life or property. (b) The Secretary of the Treasury shall prescribe necessary and reasonable rules and regulations to enforce this section and to prevent violations of its provisions. For the operation or use of any vessel in violation of this section or of any rule or regulation issued hereunder, the owner or charterer of such vessel shall be subject to a civil penalty of $200 for each passenger carried or transported in violation of such provisions, and the master or other person in charge of such vessel shall be subject to a civil penalty of $300. Such penalty shall constitute a lien on such vessel, and proceedings to enforce such lien may be brought summarily by way of libel in any court of the United States having jurisdiction thereof. The Secretary of the Treasury may mitigate or remit any of the penalties provided by this section on such terms as he deems proper. 2 Letter from Richard L. Thornburgh, Assistant Attorney General, Criminal Division, U.S. Department of Justice, to James E. Ritchie, September 8, 1976. 3 H.R. Rep. No. 2769, 81st Congress, 2d Sess. 4 (1950); 1950 U.S. Code Cong, and Ad. News 4243 (1950). 4 Section 1172. Transportation of gambling devices as unlawful; exceptions; authority of Federal Trade Commission. It shall be unlawful knowingly to transport any gambling device to any place in a State, the District of Columbia, or a possesion of the United States from any place outside of such State, the District of Columbia, or possession: Provided, That this section shall not apply to transportation of any gambling device to a place in any State which has enacted a law providing for the exemption of such State from the provisions of this section, or to a place in any subdivision of a State if the State in which such subdivision is located has enacted a law providing for the exemption of such subdivision from the provisions of this section, nor shall this section apply to any gambling device used or designed for use at and transported to licensed gambling establishments where betting is legal under applicable State laws: Provided further. That it shall not be unlawful to transport in interstate or foreign commerce any gambling device into any State in which the transported gambling device is specifically enumerated as lawful in a statute of that State. Nothing in this chapter shall be construed to interfere with or reduce the authority, or the existing interpretations of the authority, of the Federal Trade Commission under the Federal Trade Commission Act. 5 Supra note 2. * Report of the Special Committee to Investigate Organized Crime in Interstate Commerce, 1951, and Report of the President's Commission on Law Enforcement and Administration of Justice, 1967. 7 1961 U.S. Code Cong. & Ad. News 2631 (1961). 1 Section 1084. Transmission of wagering information; penalties (a) Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined not more than $10,000 or imprisoned not more than two years, or both. (b) Nothing in this section shall be construed to prevent the transmission in interstate or foreign commerce of information for use in news reporting of sporting events or contests, or for the transmission of information assisting in the placing of bets or wagers on a sporting event or contest from a State where belling on that sporting event or contest is legal into a State in which such belting is legal. (c) Nothing contained in Ihis section shall create immunity from criminal prosecution under any laws of any Slate, Commonwealth of Puerto Rico, territory, possession, or the District of Columbia. (d) When any common carrier, subject to the jurisdiction of the Federal Communications Commission, is notified in writing by a Federal, State, or local law enforcement agency, acting within its jurisdiction, that any facility furnished by it is being used or will be used for the purpose of transmitting or receiving gambling information in interstate or foreign commerce in violation of Federal, Slate or local law, it shall discontinue or refuse, the leasing, furnishing, or maintaining of such facility, after reasonable notice to the subscriber, but no damages, penalty or forfeiture, civil or criminal, shall be found against any common carrier for any act done in compliance with any nolice received from a law enforcement agency. Nothing in Ihis section shall be deemed to prejudice the right of any person affected thereby to secure an appropriate determination, as otherwise provided by law, in a Federal court or in i State or local tribunal or agency, that such facility should not be discontinued or removed .or should be restored. 'H.R. Rep. No. 967, 87th Cong. 1st Sess. 1;1%1 U.S. Code Cong, and Ad. News 2631 (1961). " Supra, note 8. " Section 1953. Interstate transportation of wagering paraphernalia (a) Whoever, except a common carrier in the usual course of its business, knowingly carries or sends in interstate or foreign commerce any record, paraphernalia, ticket, certificate, bills, slip, token, paper, writing, or other device used, or to be used, or adapted, devised, or designed for use in (a) bookmaking; or (b) wagering pools with respect to a sporting event; or (c) in a numbers, policy, bolita, or similar game shall be fined not more than $10,000 or imprisoned for not more than five years or both. (b) This section shall not apply to (1) parimutuel betting equipment, pari- mutuel tickets where legally acquired, or parimutuel materials used or designed lor use at racetracks or other sporting events in connection with which betting is legal under applicable Slate law, or (2) the transportation of betting materials to be used in the placing of bets or wagers on a sporting event into a State in which such betting is legal under the statutes of that Slate, or (3) the carriage or transportation in interstate or foreign commerce of any newspaper or similai publication, or (4) equipment, tickets, or materials used or designed for use within a State in a lottery conducted by that State acting under authority of State law. (c) Nothing contained in this section shall create immunity from criminal prosecution under any laws of any Stale, Commonwealth of Puerto Rico, territory, possession, or the District of Columbia. 11 Cornell Law School Gambling Project, The Development of the law of Gambling: Federal, p. 25, Ithaca, New York, 1975. 11 Section 1952. Interstate and foreign travel or transportation in aid of racketeering enterprises (a) Whoever travels in interstate or foreign commerce or uses any facility in interstate or foreign commerce, including the mail, with intent to- ll) distribute the proceeds of any unlawful activity; or (2) commit any crime of violence to further any unlawful activity; or (3) otherwise promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on, of any unlawful activity, and thereafter performs or attempts to perform any of the acts specified in subparagraphs (1), (2), and (3), shall be fined not more than $10,000 or imprisoned for not more than five years, or both. (b) As used in this section "unlawful activity" means (1) any business enterprise involving gambling, liquor on which the Federal excise tax has not been paid, narcotics or controlled substances (as defined in section 102(6) of the Controlled Substances Act), or prostitution offenses in violation of the laws of the State in which they are committed or of the United States, or (2) extortion, bribery, or arson in violation of the laws of the State in which committed or of the United States. (c) Investigations of violations under this section involving liquor shall be conducted under the supervision of the Secretary of the Treasury. 14 Testimony of Edward Joyce, Deputy Chief, Organized Crime and Racketeering Section, U.S. Department of Justice, before the Commission on the Review of the National Policy Toward Gambling, pp. 17-18, Washington, D.C., May 15, 1974. 15 Ibid., p. 33. "Supra note 14. 17 Ibid., pp. 18-19. Also, for a more complete discussion of organized crime, see chapter 6, infra. 11 Pub. L. No. 90-351, 82 Stat. 216, June 19, 1968. "Supra note 14. 20 See chapter 6 for a discussion of illegal gambling industries. 21 See the appendix to this Report for the text of the Commission's proposed Federal gambling statute. 22 Pub. L. No. 91-452, 84 Stat. 922, Oct. 15, 1970. 23 Supra at 936. 24 Section 1955. Prohibition of illegal gambling businesses (a) Whoever conducts, finances, manages, supervises, directs, or owns all or part of an illegal gambling business shall be fined not more than $20,000 or imprisoned not more than five years, or both. (b) As used in this section- ID "illegal gambling business" means a gambling business which (i) is a violation of the law of a State or political subdivision in which it is conducted; (ii) involves five or more persons who conduct, finance, manage, supervise, direct, or own all or part of such business, and (iii) has been or remains in substantially continuous operation for a period in excess of thirty days or has a gross revenue of $2,000 in any single day. (2) "gambling" includes but is not limited to pool-selling, bookmaking, maintaining slot machines, roulette wheels or dice tables and conducting lotteries, policy, bolita or numbers games, or selling chances therein. (3) "State" means any State of the United Stales, the District of Columbia, the Commonwealth of Puerto Rico, and any territory or possession of the United Stales. (c) If five or more persons conduct, finance, manage, supervise, direct, or own all or pan of a gambling business and such business operates for two or more successive days, then, for the purpose of obtaining warrants for arrest, interceptions, and other searches and seizures, probable cause that the business receives gross revenue in excess of $2,000 in any single day shall be deemed to have been established. 27 (d) Any property, including money, used in violation of the provisions of this section may be seized and forfeited to the United States. All provisions of law relating to the seizure, summary, and judicial forfeiture procedures, and condemnation of vessels, vehicles, merchandise, and baggage for violation of the customs laws; the disposition of such vessels, vehicles, merchandise, and baggage or the proceeds from such sale; the remission or mitigation of such forfeitures; and the compromise of claims and the award of compensation to informers in respect of such forfeitures shall apply to seizures and forfeitures incurred or alleged to have been incurred under the provisions of this section, insofar as applicable and not inconsistent with such provisions. Such duties as are imposed upon the collector of customs or any other person in respect to the seizure and forfeiture of vessels, vehicles, merchandise, and baggage under the customs laws shall be performed with respect to seizures and forfeitures of property used or intended for use in violation of this section by such officers, agents, or other persons as may be designated for that purpose by the Attorney General. (e) This section shall not apply to any bingo game, lottery, or similar game of chance conducted by an organization exempt from tax under paragraph (3) of subsection (c) of section 501 of the Internal Revenue Code of 1954, as amended, if no part of the gross receipts derived from such activity inures to the benefit of any private shareholder, member, or employee of such organization except as compensation for actual expenses incurred by him in the conduct of such activity. 25 1970 U.S. Code Cong. & Ad. News 4007 (1970). 26 Letter from Assistant Attorney General Richard L. Thornburgh, Criminal Division, U.S. Department of Justice, to James E. Ritchie, January 16, 1976. 27 Ibid. 28 Testimony of Jay C. Waldman, Deputy Assistant Attorney General, Criminal Division, U.S. Department of Justice, before the Commission on the Review of the National Policy Toward Gambling, May 11, 1976, Washington, D.C. 29 See "Sentencing the Federal Gambling Offender," by Bruce Butcher, in the appendix to this Report. 30 See "Federal Gambling Taxation," by Carol Duncan, in the appendix to this Report. 31 Supra note 14, p. 19. 32 See Testimony of the Federal Defender Office, Detroit, Michigan, to the Commission on the Review of the National Policy Toward Gambling, June 24, 1975, Detroit, Michigan. 33 Ibid. 34 Supra note 21. 35 Section 1511. Obstruction of State or local law enforcement (a) It shall be unlawful for two or more persons to conspire to obstruct the enforcement of the criminal laws of a State or political subdivision thereof, with the intent to facilitate an illegal gambling business if (1) one or more of such persons does any act to effect the object of such a conspiracy; (2) one or more of such persons is an official or employee, elected, appointed, or otherwise, of such State or political subdivision; and (3) one or more of such persons conducts, finances, manages, supervises, directs, or owns all or part of an illegal gambling business. (b) As used in this section (1) "illegal gambling business" means a gambling business which (i) is a violation of the law of a State or political subdivision in which it is conducted; (ii) involves five or more persons who conduct, finance, manage, supervise, direct, or own all or part of such business; and (iii) has been or remains in substantially continuous operation for a period in excess of thirty days or has a gross revenue of $2,000 in any single day. (2) "gambling" includes but is not limited to pool-selling, bookmaking, maintaining slot machines, roulette wheels, or dice tables, and conducting lotteries, policy, bolita or numbers games, or selling chances therein. (3) "State" means any State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, and any territory or possession of the United States. (c) This section shall not apply to any bingo game, lottery, or similar game of chance conducted by an organization exempt from tax under paragraph (3) of subsection (c) of section 501 of the Internal Revenue Code of 1954, as amended, if no part of the gross receipts derived from such activity inures to the benefit of any private shareholder, member, or employee of such organization, except as compensation for actual expenses incurred by him in the conduct of such activity. (d) Whoevei violates this section shall be punished by a fine of not more than $20,000 or imprisonment for not more than five years, or both. 36 Supra note 22. 37 See Jonathan Rubinstein, "Gambling Enforcement and Police Corruption"; Carol H. Duncan, "Gambling-Related Corruption," in the appendix to this Report; also see, Annual Reports, Pennsylvania Crime Commission, St. Davids, Pennsylvania; John Gardiner, The Politics of Corruption: Organized Crime in an American City (New York: Russell Sage Foundation, 1970). 38 Supra note 21. 39 1954 U.S. Code Cong, and Ad. News 4155, 4802, 5280 (1954). 40 United States v. Johnson, 319 U.S. 503 (1943). 41 Section 165. Losses ". . . (d) Wagering losses. Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions." 42 Exhibit No. 27, dated May 1, 1974, submitted by Internal Revenue Service to Commission, p. 10. Id., p. 2. 44 Id., p.1. Id., p. 3. 44 Id., p. 5. 47 Testimony of State lottery officials, April 3, 1974; testimony of Off-Track Betting Officials, May 6-7, 1975. 48 For a contrary position, see appendix materials regarding the experiences of Great Britain in this area. 49 Section 7206. Fraud and false statements Any person who (1) Declaration under penalties of perjury. Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; or (2) Aid or assistance. Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document; or (3) Fraudulent bonds, permits, and entries. Simulates or falsely or fraudulently executes or signs any bond, permit, entry, or other document required by the provisions of the internal revenue laws, or by any regulation made in pursuance thereof, or procures the same to be falsely or fraudulently executed, or advises, aids in, or connives at such execution thereof; or (4) Removal or concealment with intent to defraud. Removes, deposits, or conceals, or is concerned in removing, depositing, or concealing, any goods or commodities for or in respect whereof any tax is or shall be imposed, or any property upon which levy is authorized by section 6331, with intent to evade or defeat the assessment or collection of any tax imposed by this title; or (5) Compromises and closing agreements. In connection with any compromise under section 7122, or offer of such compromise, or in connection with any closing agreement under section 7121, or offer to enter into any such agreement, willfully (a) Concealment of property. Conceals from any officer or employee of the United States any property belonging to the estate of a taxpayer or other person liable in respect of the tax, or (b) Withholding, falsifying, and destroying records. Receives, withholds, destroys, mutilates, or falsifies any book, document, or record, or makes any false statement, relating to the estate or financial condition of the taxpayer or other person liable in respect of the tax; shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $5,000, or imprisoned not more than three years, or both, together with the costs of prosecution. 50 Section 1441. Withholding of tax on nonresident aliens (a) General rule Except as otherwise provided in subsection {c), all persons, in whatever capacity acting (including lessees or mortgagors of real or personal property, fiduciaries, employers, and all officers and employees of the United States) having the control, receipt, custody, disposal, or payment of any of the items of income specified in subsection (b) (to the extent that any of such items constitutes gross income from sources within the United States), of any nonresident alien individual or of any foreign partnership shall . . . deduct and withhold from such items a tax equal to 30 percent thereof, except that in the case of any item of income specified in the second sentence of subsection (b), the tax shall be equal to 14 percent of such item. 51 See Rev. Ruling 58-479, 70-543, and 1970-2 C.B.173. 52 Letter from Donald Alexander, Commissioner of Internal Revenue Service, to James E. Ritchie, Executive Director, dated September 8, 1976. 55 See the appendix to this Report for "Feasibility Study, Tax Exemption for Gambling Winnings," by John Olszewski. 54 26 U.S.C. 103 reads in pertinent part: Section 103. Interest on certain governmental obligations (a) General Rule. Gross income does not include interest on (1) the obligations of a State, a territory, or a possession of the United States, or any political subdivision of any of the foregoing, or of the District of Columbia. . . . 55 26 U.S.C. 164 reads in pertinent part: Section 164. Taxes (a) General Rule. Except as otherwise provided in this section, the following taxes shall be allowed as a deduction for the taxable year within which paid or accrued: (3) State and local, and foreign, income, war profits, and excess profits taxes. (4) State and local general sales taxes. (5) State and local taxes on the sale of gasoline, diesel fuel, and other motor fuels. . . . ** Section 4401. Imposition of tax (a) Wagers. There shall be imposed on wagers, as defined in section 4421, an excise tax equal to 2 percent of the amount thereof. . . . (c) Persons liable for tax. Each person who is engaged in the business of accepting wagers shall be liable for and shall pay the tax under this subchapter on all wagers placed with him. Each person who conducts any wagering pool or lottery shall be liable for and shall pay the tax under this subchapter on all wagers placed in such pool or lottery. . . . 28 57 Section 4411. Imposition of tax There shall be imposed a special tax of $500 per year to be paid by each person who is liable for tax under section 4401 or who is engaged in receiving wagers for or on behalf of any person so liable. 1954 U.S. Code Cong, and Ad. News 4468, 5127 (1954). * The Kefauver Committee Report, Organized Crime, (Didier, ed. 1951). ** Supra note 58. ' Pub. L. No. 93-499, Oct. 29, 1974, 88 Stat. 1550. Supra note 30. Marchetti v. United States, 390 U.S. 39 (1968); Crosso v. United States, 390 U.S. 62 (1968). 44 26 U.S.C. 4424: Sec. 4424. Disclosure of wagering tax information (a) Genera/ Rule. Except as otherwise provided in this section, neither the Secretary or his delegate nor any other officer or employee of the Treasury Department may divulge or make known in any manner whatsoever to any person (1) any original, copy, or abstract of any return, payment, or registration made pursuant to this chapter, (2) any record required for making any such return, payment, or registration, which the Secretary or his delegates is permitted by the taxpayer to examine or which is produced pursuant to section 7602, or (3) any information come at by the exploitation of any such return, payment, registration, or record. (b) Permissible Disclosure. A disclosure otherwise prohibited by section (a) may be made in connection with the administration or civil or criminal enforcement of any tax imposed by this title. However, any document or information so disclosed may not be (1) divulged or made known in any manner whatsoever by any officer or employee of the United States to any person except in connection with the administration or civil or criminal enforcement of this title, nor (2) used, directly or indirectly, in any criminal prosecution for any offense occurring before the date of enactment of this section. (c) Use of Documents Possessed by Taxpayer. Except in connection with the administration or civil or criminal enforcement of any tax imposed by this title- ID any stamp denoting payment of the special tax under this chapter, (2) any original, copy, or abstract possessed by a taxpayer of any return, payment or registration made by such taxpayer pursuant to this chapter, and (3) any information come at by the exploitation of any such document, shall not be (usedl against such taxpayer in any criminal proceeding. (d) Inspection by Committee ol Congress. Section 6103 (d) shall reply with respect to any return, payment, or registration made pursuant to this chapter. " Conference Report No. 93-1401, p. 5. ** Statement of John Corbin, Assistant Director of the Office of Criminal Enforcement of the Bureau of Alcohol, Tobacco and Firearms, U.S. Department of the Treasury, to the Commission on the Review of the National Policy Toward Gambling, May 10, 1976, Washington, D.C., p. 60. Supra note 57. * Supra note 30. * Ibid. " Section 1301. Importing or transporting lottery tickets Whoever brings into the United States for the purpose of disposing of the the same, or knowingly deposits with any express company or other common carrier for carriage, or carries in interstate or foreign commerce any paper, certificate, or instrument purporting to be or to represent a ticket, chance, share, or interest in or dependent upon the event of a lottery, gift enterprise, or similar scheme, offering prizes dependent in whole or in part upon lot or chance, or any advertisement of, or list of the prizes drawn or awarded by means of, any such lottery, gift enterprise, or similar scheme; or knowingly takes or receives any such paper, certificate, instrument, advertisement, or list so brought, deposited, or transported, shall be fined not more than $1,000 or imprisoned not more than two years, or both. Section 1302. Mailing lottery tickets or related matter Whoever knowingly deposits in the mail, or sends or delivers by mail: Any letter, package, postal card, or circular concerning any lottery, gift enterprise, or similar scheme offering prizes dependent in whole or in part upon lot or chance; Any lottery ticket or part thereof, or paper, certificate, or instrument purporting to be or to represent a ticket, chance, share, or interest in or dependent upon the event of a lottery, gift enterprise, or similar scheme offering prizes dependent in whole or in part upon lot or chance; Any check, draft, bill, money, postal note, or money order, for the purchase of any ticket or part thereof, or of any share or chance in any such lottery, gift enterprise, or scheme; Any newspaper, circular, pamphlet, or publication of any kind containing any advertisement of any lottery, gift enterprise, or scheme of any kind offering prizes dependent in whole or in part upon lot or chance, or containing any list of the prizes drawn or awarded by means of any such lottery, gift enterprise, or scheme, whether said list contains any part or all of such prizes; Any article described in section 1953 of this title- Shall be fined not more than $1,000 or imprisoned not more than two years, or both; and for any subsequent offense shall be imprisoned not more than five years. Section 1303. Postmaster or employee as lottery agent Whoever, being a postmaster or other person employed in the Postal Service, acts as agent for any lottery office, or under color of purchase or otherwise, vends lottery tickets, or knowingly sends by mail or delivers any letter, package, postal card, circular, or pamphlet advertising any lottery, gift enterprise, or similar scheme, offering prizes dependent in whole or in part upon lot or chance, or any ticket, certificate, or instrument representing any chance, share, or interest in or dependent upon the event of any lottery, gift enterprise, or similar scheme offering prizes dependent in whole or in part upon lot or chance, or any list of the prizes awarded by means of any such scheme, shall be fined not more than $100 or imprisoned not more than one year, or both. Section 1304. Broadcasting lottery information Whoever broadcasts by means of any radio station for which a license Is required by any law of the United States, or whoever, operating any such station, knowingly permits the broadcasting of, any advertisement of or information concerning any lottery, gift enterprise, or similar scheme, offering prizes dependent in whole or in part upon lot or chance, or any list of the prizes drawn or awarded by means of any such lottery, gift enterprise, or scheme, whether said list contains any part or all of such prizes, shall be fined not more than $1,000 or imprisoned not more than one year, or both. Each day's broadcasting shall constitute a separate offense. Section 1307. State-conducted lotteries (a) The provisions of sections 1301, 1302, 1303, and 1304 shall not apply to an advertisement, list of prizes, or information concerning a lottery conducted by a Slate acting under the authority of State law- ID contained in a newspaper published in that State, or (2) broadcast by a radio or television station licensed to a location in that State or an adjacent State which conducts such a lottery. (b) The provisions of sections 1301, 1302, and 1303 shall not apply to the transportation or mailing to addresses within a State of tickets and other material concerning a lottery conducted by that State acting under authority of State law. (c) For the purposes of this section, "State" means a State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, or any territory or possession of the United States. (d) For the purposes of this section "lottery" means the pooling of proceeds derived from the sale of tickets or chances and allotting those proceeds or parts thereof by chance to one or more chance takers or ticket purchasers. "Lottery" does not include the placing or accepting of bets or wagers on sporting events or contests. Section 3005. False representations; lotteries (a) Upon evidence satisfactory to the Postal Service that any person is engaged in conducting a scheme or device for obtaining money or property through the mail by means of false representations, or is engaged in conducting a lottery, gift enterprise, or scheme for the distribution of money or of real or personal property, by lottery, chance, or drawing of any kind, the Postal Service may issue an order which (1) directs the postmaster of the post office at which mail arrives, addressed to such a person or to his representative, to return such mail to the sender appropriately marked as in violation of this section, if the person, or his representative, is first notified and given reasonable opportunity to be present at the receiving post office to survey the mail before the postmaster returns the mail to the sender; and (2) forbids the payment by a postmaster to the person or his representative of any money order or postal note drawn to the order of either and provides for the return to the remitter of the sum named in the money order or postal note. (b) The public advertisement by a person engaged in activities covered by subsection (a) of this section, that remittances may be made by mail to a person named in the advertisement, is prima facie evidence that the latter is the agent or representative of the advertiser for the receipt of remittances on behalf of the advertiser. The Postal Service may ascertain the existence of the agency in any other legal way satisfactory to it. (c) As used in this section and section 3006 of this title, the term "representative" includes an agent or representative acting as an individual or as a firm, bank, corporation, or association of any kind. (d) Nothing in this section shall prohibit the mailing of (1) a newspaper of general circulation published in a State containing advertisements, lists of prizes, or information concerning a lottery conducted by that State, acting under authority of State law, or (2) tickets or other materials concerning such a lottery within that State to addresses within that State. For the purposes of this subsection, "State" means a State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, and any territory or possession of the United States. [For text of 18 U.S.C. 1953 (b) (4) see note 11, supra.) 71 18 U.S.C. 1307. 72 Testimony of John D. Tarpey, Assistant Chief Inspector, U.S. Postal Service, before the Commission on the Review of the National Policy Toward Gambling, Washington, D.C., June 26, 1974. 75 Letter from Ashton R. Hardy, General Counsel, FCC, to James E. Ritchie, Executive Director, undated. 74 United States v. New Hampshire Sweepstakes Commission, CIV 76-60 SO, Portland, Maine. 75 Letter from George C. Davis, Assistant General Counsel, U.S. Postal Service, to Postmaster, Miami, Florida, February 8, 1972. '* H.R. Rep. No. 93-1517; Senate Report No. 93-1404. 77 Memorandum from G. Robert Blakey, Professor pf Law, Cornell University, to James E. Ritchie, Executive Director, August 15, 1975. 71 Section 25a. Participation by national banks in lotteries and related activities-Prohibited activities (a) A national bank may not (1) deal in lottery tickets; (2) deal in bets used as a means or substitute for participation in a lottery; (3) announce, advertise, or publicize the existence of any lottery; 29 (4) announce, advertise, or publicize the existence or identity of any participant or winner, as such, in a lottery. Use ol banking premises prohibited (b) A national bank may not permit (1) the use of any part of any of its banking offices by any person for any purpose forbidden to the bank under subsection (a) of this section, or (2) direct access by the public from any of its banking offices to any premises used by any person for any purpose forbidden to the bank under subsection (a) of this section. Definitions (c) As used in this section- ID The term "deal in" includes making, taking, buying, selling, redeeming, or collecting. (2) The term "lottery" includes any arrangement whereby three or more persons (the "participants") advance money or credit to another in exchange for the possibility or expectation that one or more but not all of the participants (the "winners") will receive by reason of their advances more than the amounts they have advanced, the identity of the winners being determined by any means which includes (A) a random selection; (B) a game, race, or contest; or (C) any record or tabulation of the result of one or more events in which any participant has no interest except for its bearing upon the possibility that he may become a winner. (3) The term "lottery ticket" includes any right, privilege, or possibility (and any ticket, receipt, record, or other evidence of any such right, privilege, or possibility) of becoming a winner in a lottery. Lawful banking services connected with operation of lotteries (d) Nothing contained in this section prohibits a national bank from accepting deposits or cashing or otherwise handling checks or other negotiable instruments, or performing other lawful banking services for a State operating a lottery, or for an officer or employee of that State who is charged with the administration of the lottery. Regulations; enforcement (e) The Comptroller of the Currency shall issue such regulations as may be necessary to the strict enforcement of this section and the prevention of evasions thereof. Section 339. Participation by State member banks in lotteries and related activities Prohibited activities (a) A State member bank may not (1) deal in lottery tickets; (2) deal in bets used as a means or substitute for participation in a lottery; (3) announce, advertise, or publicize the existence of any lottery; (4) announce, advertise, or publicize the existence or identity of any participant or winner, as such, in a lottery. Use of banking premises prohibited (b) A State member bank may not permit (1) the use of any part of any of its banking offices by any person for any purpose forbidden to the bank under subsection (a) of this section, or (2) direct access by the public from any of its banking offices to any premises used by any person for any purpose forbidden to the bank under subsection (a) of this section. Definitions (c) As used in this section- CD The term "deal in" includes making, taking, buying, selling, redeeming, or collecting. (2) The term "lottery" includes any arrangement whereby three or more persons (the "participants") advance money or credit to another in exchange for the possibility or expectation that one or more but not all of the participants (the "winners") will receive by reason of their advances more than the amounts they have advanced, the identity of the winners being determined by any means which includes: (A) a random selection; IB) a game, race, or contest; or (C) any record or tabulation of the result of one or more events in which any participant has no interest except for its bearing upon the possibility that he may become a winner. (3) The term "lottery ticket" includes any right, privilege, or possibility (and any ticket, receipt, record, or other evidence of any such right, privilege, or possibility) of becoming a winner in a lottery. Lawful banking services connected with operation of lottery (d) Nothing contained in this section prohibits a State member bank from accepting deposits or cashing or otherwise handling checks or other negotiable instruments, or performing other lawful banking services for a State operating a lottery, or for an officer or employee of that State who is charged with the administration of a lottery. Regulations; enforcement (e) The Board of Governors of the Federal Reserve System shall issue such regulations as may be necessary to the strict enforcement of this section and the prevention of evasions thereof. Section 1829a. Participation by State nonmember insured banks in lotteries and related activities Prohibited activities (a) A State nonmember insured bank may not- Ill deal in lottery tickets; (2) deal in bets used as a means or substitute for participation in a lottery; (3) announce, advertise, or publicize the existence of any lottery; (4) announce, advertise, or publicize the existence or identity of any participant or winner, as such, in a lottery. Use of banking premises prohibited (b) A State nonmember insured bank may not permit- CD The use of any part of any of its banking offices by any person for any purpose forbidden to the bank under subsection (a) of this section, or (2) direct access by the public from any of its banking offices to any premises used by any person for any purpose forbidden to the bank under subsection (a) of this section. Definitions (c) As used in this section- ID The term "deal in" includes making, taking, buying, selling, redeeming, or collecting. (2) The term "lottery" includes any arrangement whereby three or more persons (the "participants") advance money or credit to another in exchange for the possibility or expectation that one or more but not all of the participants (the "winners") will receive by reason of their advances more than the amounts they have advanced, the identity of the winners being determined by any means which includes (A) a random selection; (B) a game, race, or contest; or (C) any record or tabulation of the result of one or more events in which any participant has no interest except for its bearing upon the possibility that he may become a winner. (3) The term "lottery ticket" includes any right, privilege, or possibility (and any ticket, receipt, record, or other evidence of any such right, privilege, or possibility) of becoming a winner in a lottery. Lawful banking services connected with operation of lottery (d) Nothing contained in this section prohibits a State non-member insured bank from accepting deposits or cashing or otherwise handling checks or other negotiable instruments, or performing other lawful banking services for a State operating a lottery, or for an officer or employee of that State who is charged with the administration of the lottery. Regulations; enforcement (e) The Board of Directors shall prescribe such regulations as may be necessary to the strict enforcement of this section and the prevention of evasions thereof. Section 1730c. Participation by insured institutions in lotteries and related activities Prohibited activities (a) An insured institution may not (D deal in lottery tickets, (2) deal in bets used as a means or substitute for participation in a lottery; (3) announce, advertise, or publicize the existence of any lottery; (4) announce, advertise, or publicize the existence or identity of any participant or winner, as such, in a lottery. Use of banking premises prohibited (b) An insured institution may not permit- ID the use of any part of any of its own offices by any person for any purpose forbidden to the institution under subsection (a) of this section, or (2) direct access by the public from any of its own offices to any premises used by any person for any purpose forbidden to the institution under subsection (a) of this section. Definitions (c) As used in this section- ID The term "deal in" includes making, taking, buying, selling, redeeming, or collecting. (2) The term "lottery" includes any arrangement whereby three or more persons (the "participants") advance money or credit to another in exchange for the possibility or expectation that one or more but not all of the participants (the "winners") will receive by reason of their advances more than the amounts they have advanced, the identity of the winners being determined by any means which includes- (A) a random selection; (B) a game, race, or contest; or (C) any record or tabulation of the result of one or more events in which any participant has no interest except for its bearing upon the possibility that he may become a winner. (3) The term "lottery ticket" includes any right, privilege, or possibility (and any ticket, receipt, record, or other evidence of any such right, privilege, or possibility) of becoming a winner in a lottery. Lawful services connected with operation ol lottery (d) Nothing contained in this section prohibits an insured institution from accepting funds from, or performing any lawful services for, a State operating a lottery, or an officer or employee of that State who is charged with the administration of the lottery. Regulations; enforcement (e) The Federal Home Loan Bank Board shall prescribe such regulations as may be necessary to the strict enforcement of this section and the prevention of evasions thereof. " Letters: Chester B. Feldberg, Secretary to the Board of Governors of the Federal Reserve System, to James E. Ritchie, Executive Director, July 29, 1974; Roger A. Hood, Assistant General Counsel, FDIC, to Charles H. Morin, Commission Chairman, July 15, 1974; William T. Nachbaur, Assistant General Counsel, FHLBB, to James E. Ritchie, Jan. 7, 1975. " P.L. No. 91-452, Oct. 15, 1970, 84 Stat. 922, provides in part: "It is the purpose of this Act ... to seek the eradication of organized crime in the United States by strengthening the legal tools in the evidence-gathering process, by establishing new penal prohibitions, and by providing enhanced sanctions and new remedies to deal with the unlawful activities of those engaged in organized crime." 11 Section 1961. Definitions As used in this chapter- ID "Racketeering activity" means (A) any act or threat involving murder, kidnaping, gambling, arson, robbery, bribery, extortion, or dealing in narcotic or other dangerous drugs, which is chargeable under State law and punishable by imprisonment for more than one year; (B) any act which 30 is indictable under any of the following provisions of title 18, United States Code: section 201 (relating to bribery), section 224 (relating to sports bribery), sections 471, 472, and 473 (relating to counterfeiting), section 659 (relating to theft from interstate shipment) if the act indictable under section 659 is felonious, section 664 (relating to embezzlement from pension and welfare funds), sections 891-894 (relating to extortionate credit transactions), section 1084 (relating to the transmission of gambling information), section 1341 (relating to mail fraud), section 1343 (relating to wire fraud), section 1503 (relating to obstruction of justice), section 1510 (relating to obstruction of criminal investigations), section 1511 (relating to the obstruction of State or local law enforcement), section 1951 (relating to interference with commerce, robbery, or extortion), section 1952 (relating to racketeering), section 1953 (relating to interstate transportation of wagering paraphernalia), section 1954 (relating to unlawful welfare fund payments), section 1955 (relating to the prohibition of illegal gambling businesses), sections 2314 and 2315 (relating to interstate transportation of stolen property), sections 2421-24 (relating to white slave traffic); (C) any act which is indictable under title 29, United Slates Code, section 186 (dealing with restrictions on payments and loans to labor organizations) or section 501 (c) (relating to embezzlement fraud in the sale of securities, or the felonious manufacture, importation, receiving, concealment, buying, selling, or otherwise dealing in narcotic or other dangerous drugs, punishable under any law of the United States; (2) "State" means any State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States, any political subdivision, or any department, agency, or instrumentality thereof; (3) "person" includes any individual or entity capable of holding a legal or beneficial interest in property; (4) "enterprise" includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity; (5) "pattern of racketeering activity" requires at least two acts of racketeering activity, one of which occurred after the effective date of this chapter and the last of which occurred within ten years (excluding any period of imprisonment) after the commission of a prior act of racketeering activity; (6) "unlawful debt" means a debt (A) incurred or contracted in gambling activity which was in violation of the law of the United States, a State or political subdivision thereof, or which is unenforceable under State or Federal law in whole or in part as to principal or interest because of the laws relating to usury, and (B) which was incurred in connection with the business of gambling in violation of the law of the United States, a State or political subdivision thereof, or the business of lending money or a thing of value at a rate usurious under State or Federal law, where the usurious rate is at least twice the enforceable rate; (7) "racketeering investigator" means any attorney or investigator so designated by the Attorney General and charged with the duty of enforcing or carrying into effect this chapter; (8) "racketeering investigation" means any inquiry conducted by any racketeering investigator for the purpose of ascertaining whether any person has been involved in any violation of this chapter or of any final order, judgment, or decree of any court of the United States, duly entered in any case or proceeding arising under this chapter; (9) "documentary material" includes any book, paper, document, record, recording, or other material; and (10) "Attorney General" includes the Attorney General of the United States, the Deputy Attorney General of the United States, any Assistant Attorney General of the United States, or any employee of the Department of justice or any employee of any department or agency of the United States so designated by the Attorney General to carry out the powers conferred on the Attorney General by this chapter. Any department or agency so designated may use in investigations authorized by this chapter either the investigative provisions of this chapter or the investigative power of such department or agency otherwise conferred by law. Section 1962. Prohibited activities (a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in or the activities of which affect, interstate or foreign commerce. A purchase of securities on the open market for purposes of investment, and without the intention of controlling or participating in the control of the issuer, or of assisting another to do so, shall not be unlawful under this subsection if the securities of the issuer held by the purchaser, the members of his immediate family, and his or their accomplices in any pattern or racketeering activity of the collection of an unlawful debt after such purchase do not amount in the aggregate to one percent of the outstanding securities of any one class, and do not confer, either in law or in fact, the power to elect one or more directors of the issuer. (b) It shall be unlawful for any person through a pattern of racketeering activity or through collection of an unlawful debt to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce. (c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt. (d) It shall be unlawful for any person to conspire to violate any of the provisions of subsections (a), (b), or (c) of this section. "Section 1963. Criminal penalties (a) Whoever violates any provision of section 1962 of this chapter shall be fined not more than $25,000 or Imprisoned not more than twenty years, or both, and shall forfeit to the United Stales (1) any interest he has acquired or maintained in violation of section 1962, and (2) any interest in, security of, claim against, or property or contractual right of any kind affording a source of influence over, any enterprise which he has established, operated, controlled, conducted, or participated in the conduct of, in violation of section 1962. (b) In any action brought by the United Stales under this section the district courts of the United States shall have jurisdiction to enter such restraining orders or prohibitions, or to take such other actions including, but not limited to, the acceptance of satisfactory performance bonds, in connection with any property or other interest subject to forfeiture under this section, as it shall deem proper. (c) Upon conviction of a person under this section, the court shall authorize the Attorney General to seize all property or other interest declared forfeited under this section upon such terms and conditions as the court shall deem proper. If a properly right or other interest is not exercisable or transferable for value by the United States, it shall expire, and shall not revert to the convicted person. All provisions of law relating to the disposition of property, or the proceeds from the sale thereof, or the remission or mitigation of forfeiture for violation of the customs laws, and the compromise of claims and the award of compensation to informers in respect of such forfeitures shall apply to forfeitures incurred, or alleged to have been incurred under the provisions of this section, insofar as applicable and not in the collector of customs or any other person with respect to the disposition of property under the customs laws shall be performed under this chapter by the Attorney General. The United States shall dispose of all such property as soon as commercially feasible, making due provision for the rights of innocent persons. n Section 1964. Civil remedies (a) The district courts of the United States shall have jurisdiction to prevent and restrain violations of section 1962 of this chapter by issuing appropriate orders, including, but not limited to: ordering any person to divest himself of any interest, direct or indirect, in any enterprise; imposing reasonable restrictions on the future activities or investments of any person, including, but not limited to, prohibiting any person from engaging in the same type of endeavor as the enterprise engaged in, the activities of which affect interstate or foreign commerce; or ordering dissolution or reorganization of any enterprise, making due provision for the rights of innocent persons. (b) The Attorney General may institute proceedings under this section. In any action brought by the United States under this section, the court shall proceed as soon as practicable to the hearing and determination thereof. Pending final determination thereof, the court may at any time enter such restraining orders or prohibitions, or take such other actions, including the acceptance of satisfactory performance bonds, as it shall deem proper. (c) Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee. (d) A final judgment or decree rendered in favor of the United States in any criminal proceeding brought by the United States under this chapter shall estop the defendant from denying the essential allegations of the criminal offense in any subsequent civil proceeding brought by the United States. 4 See United States v. Cappetto, 502 F.2d 1351 (7th Cir. 1974). "18U.S.C. 1084. "18U.S.C. 1953. "18 U.S.C. 1955. * See Cappetto, supra, note 84. ** See supra note 83. * See Cappetto, supra, note 84. ' Fed. R. Civ. Proc. Rule 3. "Id., Rule 4. "Id., Rule8. M Id., Rule 15. 5 Id., Rule 26. See Kastiger v. United States, 406 U.S. 441 (1972). " Fed. R. Civ. Pro., Rule 37. * Supra notes 83 and 88. " See the appendix to this Report for the Commission's proposed statutes for the States and the Federal Government, which include extensive civil remedy provisions. 100 See the appendix to the Report for "Federal Enclaves," by Peter Waldmeir. '' Worcester v. Georgia, 31 U.S. 515 (1831). 101 United States Constitution, Art. I, Section 8, cl. 3. Kake Village v. fgan, 369 U.S. 60 (1962). '* United States v. Blackleet Tribe, 364 F. Supp. 192 (USDC-D Mon. 1973). "'Id. m Section 13. Laws of States adopted for areas within Federal jurisdiction. Whoever within or upon any of the places now existing or hereafter reserved or acquired as provided in section 7 of this title, is guilty of any 31 act or omission which, although not made punishable by any enactment of Congress, would be punishable if committed or omitted within the jurisdiction of the State, territory, possession, or district in which such place is situated, by the laws thereof in force at the time of such act or omission, shall be guilty of a like offense and subject to a like punishment. 107 Cramer v. United States, 261 U.S. 219 (1923). !* Pub. L. No. 280-984, 82 Stat. 73 (1968). 1(9 Santa Rosa Band of Indians v. Kings County, 532 F. 2d 655, 659 (9th Cir. 1975). " Supra note 108, at Section 402(b). 111 McC/anahan v. Arizona State Tax Commission, 411 U.S. 164 (1973). '"15 U.S.C. 1175 (1951). 113 See United States Constitution, Art. I, Section 8, cl. 317. 114 See Paul v. United States, 371 U.S. 245 (1963). " 5 This classification is taken from Department o! the Army Pamphlet, No. 27-21 (Oct. 1973). "'Supra note 112. 117 Supra note 106. 111 W////ams v. United States, 327 U.S. 711 (1946). 119 See, Department of the Army Pamphlet, No. 27-21, 6-135 (15 Oct. 1973); See, General Counsel, DOD Memo (9 Feb. 1976); See, General Counsel, DOD Memo (2 February 1976). " United States Constitution, Art. IV, Section 3. 121 Id. 122 15 U.S.C. 1171 (b). 123 Supra note 70. 124 61 Stat. 319 (1950); 48 U.S.C. 731 et seq. (1952); See, 64 Stat. 319 (1950). 125 48 U.S.C. 734; See also, 15 U.S.C. 1171 (b). 124 Id. 127 Leibowitz, The Applicability of Federal Law to the Commonwealth of Puerto Rico, 56 Georgetown L.J. 219 (1967). 128 8 U.S.C. 1101 provides in pertinent part: Section 1101. Definitions (f) For the purposes of this chapter- No person shall be regarded as, or found to be, a person of good moral character who, during the period for which good moral character is required to be established, is, or was (4) one whose income is derived principally from illegal gambling activities; (5) one who has been convicted of two or more gambling offenses committed during such period; .... 8 U.S.C. 1182 provides in pertinent part: Section 1182. Excludable aliens General classes (a) Except as otherwise provided in this chapter, the following classes of aliens shall be ineligible to receive visas and shall be excluded from admission into the United States: (9) Aliens who have been convicted of a crime involving moral turpitude (other than a purely political offense), or aliens who admit having committed such a crime, or aliens who admit committing acts which constitute the essential elements of such a crime; except that aliens who have committed only one such crime while under the age of eighteen years may be granted a visa and admitted if the crime was committed more than five years prior to the date of the application for a visa or other documentation, and more than five years prior to date of application for admission to the United States, unless the crime resulted in confinement in a prison or correctional institution, in which case such alien must have been released from such confinement more than five years prior to the date of the application for a visa or other documentation, and for admission, to the United States. Any alien who would be excludable because of the conviction of a misdemeanor classifiable as a petty offense under the provisions of section 1(3) of Title 18, by reason of the punishment actually imposed, or who would be excludable as one who admits the commission of an offense that is classifiable as a misdemeanor under the provisions of section 1(2) of Title 18, by reason of the punishment which might have been imposed upon him, may be granted a visa and admitted to the United States if otherwise admissible: Provided, That the alien has committed only one such offense, or admits the commission of acts which constitute the essential elements of only one such offense. (10) Aliens who have been convicted of two or more offenses (other than purely political offenses), regardless of whether the conviction was in a single trial or whether the offenses arose from a single scheme of misconduct and regardless of whether the offenses involved moral turpitude, for which the aggregate sentences to confinement actually imposed were five years or more; .... 129 Letter from Sam Bernsen, Acting General Counsel, INS, U.S. Department of Justice, to Charles H. Morin, Chairman, July 9, 1974. 130 7 U.S.C. 2044 reads in pertinent part: Section 2044. Issuance of certificate of registration persons qualified (b) Upon notice and hearing in accordance with regulations prescribed by him, the Secretary may refuse to issue, and may suspend, revoke, or refuse to renew a certificate of registration to any farm labor contractor if he finds that such contractor (6) has recruited, employed, or utilized the services of a person with knowledge that such person is violating the provisions of the immigration and nationality laws of the United States; (7) has been convicted of any crime under State or Federal law relating to gambling. . . . 131 Letter from Harold C. Nystrom, Associate Solicitor, Division of General Legal Services, Department of Labor, to Charles H. Morin, Chairman, August 5, 1974. 132 Id.; a/so see letter from M. H. Moskow, Acting Secretary of Labor, to James E. Ritchie, Executive Director, September 2, 1976. 133 Supra note 131. 134 Letter from M. H. Moskow, supra note 132. 135 Section 303. Powers and duties of Commission Except as otherwise provided in this chapter, the Commission from time to time, as public convenience, interest, or necessity requires, shall (a) Classify radio stations; (b) Prescribe the nature of the service to be rendered by each class of licensed stations and each station within any class; (c) Assign bands of frequencies to the various classes of stations, and assign frequencies for each individual station and determine the power which each station shall use and the time during which it may operate; (d) Determine the location of classes of stations or individual stations; (e) Regulate the kind of apparatus to be used with respect to its external effects and the purity and sharpness of the emissions from each station and from the apparatus therein; (f) Make such regulations not inconsistent with law as it may deem necessary to prevent interference between stations and to carry out the provisions of this chapter: Provided, however. That changes in the frequencies, authorized power, or in the times of operation of any station, shall not be made without the consent of the station licensee unless, after a public hearing, the Commission shall determine that such changes will promote public convenience or interest or will serve public necessity, or the provisions of this chapter will be more fully complied with; (g) Study new uses for radio, provide for experimental uses of frequencies, and generally encourage the larger and more effective use of radio in the public interest; (h) Have authority to establish areas or zones to be served by any station; (i) Have authority to make special regulations applicable to radio stations engaged in chain broadcasting; (j) Have authority to make general rules and regulations requiring stations to keep such records of programs, transmissions of energy, communications, or signals as it may deem desirable; (k) Have authority to exclude from the requirements of any regulations in whole or in part any radio station upon railroad rolling stock, or to modify such regulations in its discretion; (I) Have authority to prescribe the qualifications of station operators, to classify them according to the duties to be performed, to fix the forms of such licenses, and to issue them to such citizens or nationals of the United States as the Commission finds qualified, except that in issuing licenses for the operation of radio stations on aircraft the Commission may, if it finds that the public interest will be served thereby, waive the requirement of citizenship in the case of persons holding United States pilot certificates or in the case of persons holding foreign aircraft pilot certificates which are valid in the United States on the basis of reciprocal agreements entered into with foreign governments; (m) (1) Have authority to suspend the license of any operator upon proof sufficient to satisfy the Commission that the licensee (A) Has violated any provision of any Act, treaty, or convention binding on the United States, which the Commission is authorized to administer, or any regulation made by the Commission under any such Act, treaty, or convention; or (B) has failed to carry out a lawful order of the master or person lawfully in charge of the ship or aircraft on which he is employed; or (C) has willfully damaged or permitted radio apparatus or installations to be damaged; or (D) has transmitted superfluous radio communications or signals or communications containing profane or obscene words, language, or meaning, or has knowingly transmitted (1) false or deceptive signals or communications, or (2) a call signal or letter which has not been assigned by proper authority to the station he is operating; or (E) has willfully or maliciously interfered with any other radio communications or signals; or (F) has obtained or attempted to obtain, or has assisted another to obtain or attempt to obtain, an operator's license by fraudulent means. (m) (2) No order of suspension of any operator's license shall take effect until fifteen days' notice in writing thereof, stating the cause for the proposed suspension, has been given to the operator licensee who may make written application to the Commission at any time within said fifteen days for a hearing upon such order. The notice to the. operator licensee shall not be effective until actually received by him, and from that time he shall have fifteen days in which to mail the said application. In the event that physical conditions prevent mailing of the application at the expiration of the fifteen-day period, the application shall then be mailed as soon as possible thereafter, accompanied by a satisfactory explanation of the delay. Upon receipt by the Commission of such application for hearing, said order of suspension shall be held in abeyance until the conclusion of the hearing which shall be conducted under such rules as the Commission may prescribe. Upon the conclusion of said hearing the Commission may affirm, modify, or revoke said order of suspension. 32 (n) Have authority to inspect all radio installations associated with stations required to be licensed by any Act or which are subject to the provisions of any Act, treaty, or convention binding on the United States, to ascertain whether in construction, installation, and operation they conform to the requirements of the rules and regulations of the Commission, the provisions of any Act, the terms of any treaty or convention binding on the United States, and the conditions of the license or other instrument of authorization under which they are constructed, installed, or operated. (o) Have authority to designate call letters of all stations; (p) Have authority to cause to be published such call letters and such other announcements and data as in the judgment of the Commission may be required for the efficient operation of radio stations subject to the jurisdiction of the United States and for the proper enforcement of this chapter; (q) Have authority to require the painting and/or illumination of radio towers if and when in its judgment such towers constitute, or there is a reasonable possibility that they may constitute, a menace to air navigation. (r) Make such rules and regulations and prescribe such restrictions and conditions, not inconsistent with law, as may be necessary to carry out the provisions of this chapter, or any international radio or wire communications treaty or convention, or regulations annexed thereto, including any treaty or convention insofar as it relates to the use of radio, to which the United States is or may hereafter become a party. (s) Have authority to require that apparatus designed to receive television pictures broadcast simultaneously with sound be capable of adequately receiving all frequencies allocated by the Commission to television broadcasting when such apparatus is shipped in interstate commerce, or is imported from any foreign country into the United States, for sale or resale to the public. 134 Letter from Ashton R. Hardy, supra note 73. 1W Letter and enclosures from Richard A. Wiley, General Counsel, Department of Defense, to James E. Ritchie, Executive Director, March 3, 1976. See also that part of this chapter entitled "Federal Enclaves." 1M 1964 U.S. Code Cong, and Ad. News 2250 (1964). '" House Report No. 1053, Dec. 17, 1963. 140 Senate Report No. 593, Oct. 22, 1963. "' Id. '" Id., p. 2. 141 Id., p. 3. 144 Telephone interview with FBI Special Agent Walter Mangiacotti, Washington, D.C., June, 1976. 145 United States v. Gerry, 515 F.2d 130 (2d Cir. 1975). 144 United States v. Nolan, 420 F.2d 552 (5th Cir. 1969). 147 United States v. Pinto, 503 F.2d 718 (2d Cir. 1974). 148 See generally Hearings of the Commission on the Review of the National Policy Toward Gambling, May 15, 1974; June 26, 1974; May 10-11, 1976; Washington, D.C. 149 Report of the National Wiretap Commission, Electronic Surveillance, Washington, D.C., p. 267. 33 CHAPTER 3. STATE AND LOCAL GAMBLING ENFORCEMENT INTRODUCTION Most of the responsibility for enforcing antigambling law rests with local police departments. It has been, and remains, an onerous responsibility. Enforcement efforts have never had more than a minimal impact on illegal bookmaking and numbers. Most local enforcement efforts result in the arrest of low-level gambling offenders. Repeatedly, investigations of police departments have found gambling particularly numbers and bookmaking to be a prime source of systemic corruption. Even where gambling enforcement is not frustrated by widespread corruption, the difficulties inherent in this area of law enforcement have generated morale problems among lawmen. Contradictory gambling policies and lack of resources combine to make effective gambling law enforcement an impossible task under present conditions. Reasons for the failure of gambling enforcement are not hard to find. One is that police believe citizens to have little interest in the vigorous enforcement of antigambling laws. This view is only partially correct, however. The Commission's national survey established that although most people even those who do not favor legalization ordecriminalization regard gambling as having very low priority for police activity, there is more public support for gambling enforcement than is generally recognized. Nearly half the citizens surveyed thought it "very important" to enforce gambling laws, and over half thought that bookmakers should be arrested and jailed. Another reason is the leniency of the courts in gambling cases, and its effect on law enforcement personnel. The almost uniformly light sentences given to persons convicted of gambling offenses bear out the police view that judges do not regard gambling offenders as serious threats to the community. Similarly, prosecutors appear to reduce charges or decline prosecution in a substantial number of gambling cases presented by police. Finally, the people who run illegal gambling operations have often been connected with political machines, so that corruptive influences may reach beyond the police department and make honest enforcement even more difficult The trend in gambling enforcement in recent years, perhaps in response to these problems, has been toward less activity by city police departments, together with an increasing role for State and Federal authorities. Central to any discussion of illegal gambling is the fact that "gambling" refers not to a single entity, but to a number of diverse activities that have differing implications for law enforcement. Illegal games vary in their structure from highly organized operations for instance, the intricate network of locations and employees involved in a large numbers operation to the spontaneity of street-corner cardplaying among friends. A numbers operator who pays protection to police and channels profits into narcotics poses a substantially different threat to the community than does a social club sponsoring bingo or card games for its members. Public social gambling and the lower levels of numbers operations are subject to enforcement without use of the sophisticated tools and procedures required to reach bookmakers, numbers bosses, and organized card or dice games. Finally, the nature and size of illegal gaming operations vary by geographical region and by city size. Thus the task of gambling enforcement is not exactly the same for all police departments, nor is it the same within a single department for all types of illegal gambling. ARREST TRENDS In 1974, the most recent year for which nationwide figures are available, an estimated 61,900 persons were arrested for gambling in the United States. 1 Gambling arrests accounted for 0.7 percent of the estimated 9 million arrests made for all offenses that year. There are several characteristics of, and trends in, gambling arrests that are important to the study of this area of law enforcement. For the past decade and a half, there has been a steady and substantial decline in gambling arrests. Between 1973 and 1974, arrests for gambling violations dropped 11 percent. During the 14 years from 1960 to 1974, gambling arrests declined 67.7 percent, while during the same period arrests for all offenses rose 33 percent. 2 35 Since 1972, the FBI's Uniform Crime Reports have In addition to the prohibitions aimed at the operators included separate figures for three categories of gambling and employees of gambling enterprises, the statutes of arrests: bookmaking, numbers/lottery, and all other some jurisdictions prohibit betting as well. Although it gambling. 3 The latter category consists primarily of card appears that there are wide variations in efforts to enforce and dice arrests which are usually low-level street arrests. betting prohibitions, 5 available data are insufficient to Included in this category in such enforcement activity is support even a general statement of the extent to which the arrest or citing of participants in a streetcorner crap these laws are enforced. game. 4 In 1974, 79 percent of gambling arrests were for Most gambling arrests are made by police departments "all other gambling." In the 3 years since 1972, "all other in large urban areas. In 1974, 66 percent of gambling gambling" arrests have increased in relation to arrests for arrests were made in cities with populations of over bookmaking and numbers/lottery (table 3-1). 250,000, while only 10 percent were made in cities with populations of between 100,000 and 250,000. Fourteen percent of gambling arrests in 1974 were in suburban and TABLE 3-1.-U.S. GAMBLING ARRESTS BY TYPE OF GAME, rural jurisdictions. 6 The rate of gambling arrests per 100,000 1972-1974 persons for the various population groups also highlights the fact that most gambling arrests are made in large cities. 1972 1973 1974 The 1 974 rate for cities over 250,000 (86.8 arrests per Bookmaking 10% 9% 8% 100,000) is slightly more than twice that of cities between Numbers/Lottery 20% 17% 13% 100,000 and 250,000, which have the next highest rate, All Other Gambling 70% 74% 79% 40.9 per 100,000. TOTAL NUMBER OF There is substantial variation in the rate of gambling GAMBLING ARRESTS 78,600 68,300 61,900 arrests in major cities. In 1973, there were six cities with populations over 250,000 which had a gambling arrest rate TABLE 3-2.-MAJOR CITY GAMBLING ARREST RATES, 1973 Estimated Gambling Estimated Gambling 1973 1973 arrest rate 1973 1973 arrest rate Gambling population per 100,000 Gambling population per 100,000 arrests (1,000's) population arrests (1,000's) population Newark 1,356 368 368.5 Oklahoma City* 223 374 59.6 Cleveland 2,432 679 358.2 Toledo 187 377 49.6 Kansas City, Mo. 1,612 488 330.3 Austin 127 291 43.6 St. Louis 1,804 558 323.3 New York* 3,291 7,647 43.0 Memphis 2,053 659 311.5 Miami 150 354 42.3 Honolulu 1,012 325 311.4 Oakland 144 346 41.6 Dallas* 2,295 816 281.3 Omaha 157 377 41.6 Chicago 7,082 3,173 223.2 Buffalo 150 425 35.3 Fort Worth 800 360 222.2 Columbus, Ohio 166 541 30.7 Norfolk 578 283 204.2 Detroit 345 1,387 24.9 Houston 2,664 1,320 201.8 Seattle 123 503 24.5 Indianapolis 1,400 728 192.3 Wichita 59 261 22.6 Los Angeles 5,004 2,747 182.2 Akron 44 262 16.8 Washington, D.C. 1,304 734 177.7 El Paso 55 353 15.6 Philadelphia 3,225 1,862 173.2 Birmingham 42 296 14.2 Cincinnati 622 426 146.0 Charlotte* 33 285 11.6 Louisville* 478 336 142.3 Long Beach 35 347 10.1 Atlanta 626 451 138.8 Phoenix 56 637 8.8 San Antonio 1,047 756 138.5 San Diego 59 757 7.8 Tulsa 454 335 135.5 Portland, Oregon 27 378 7.1 Baltimore 1,174 878 133.7 Sacramento* 17 267 6.4 Rochester 329 277 118.8 San Jose 28 523 5.4 Jacksonville* 403 522 77.2 Denver 24 516 4.7 Jersey City 182 255 71.4 St. Paul 5 287 1.7 San Francisco 480 687 69.9 Minneapolis- 6 382 1.5 Boston 414 618 67.0 Albuquerque 4 274 1.5 New Orleans 356 573 62.1 Milwaukee 6 691 0.9 Tampa 165 276 59.8 Tucson 308 Based on 1972 arrests. 36 in excess of 300 per 100,00 population. Eleven other cities of comparable size reported gambling arrests at a rate less than 10 per 100,000. In table 3-2, 56 major cities are ranked according to their gambling arrest rate for 1973. Although large-city gambling arrests account for the majority of all gambling arrests, such arrests are declining at a faster rate than in other population groups. Most of the overall decline in gambling arrests during the past 5 years is due to the sharp decrease in gambling arrests in cities with more than 250,000 people. During the same period, suburban gambling arrests rose slightly, while the rate of gambling arrests in cities between 10,000 and 250,000 remained relatively stable. Gambling arrests in cities under 10,000 increased somewhat. There has been a slight decline in rural gambling arrests 7 (table 3-3). 1 TABLE 3-3.-U.S. GAMBLING ARRESTS BY POPULATION GROUP, 1969 AND 1974 CITY GAMBLING ARRESTS Over 250,000 100,000-250,000 50,000-100,000 25,000-50,000 10,000-25,000 Under 10,000 Percent of all gambling arrests 1969 1974 94 78 7 4 2 2 1 Rate per 100,000 population 1969 1974 93 67.3 41.1 66 148.9 86.8 10 39.5 40.9 6 19.1 19.2 4 13.6 13.8 3 9.2 9.4 3 6.2 12.7 SUBURBAN GAMBLING ARRESTS 5 12 10.6 11.7 RURAL GAMBLING ARRESTS 1 2 14.4 6.3 TOTAL GAMBLING ARRESTS 54.3 34.2 Source: Uniform Crime Reports. Persons arrested for gambling tend to be older than those arrested for other offenses. In 1974, the average age of persons arrested for gambling was 38.5; for persons arrested for all offenses, it was 26.8. (See table 3-4 for age distribution.) The 1969 age distribution approximates that of 1974; however, the ages of all persons arrested in 1974, including gambling arrests, tended to be slightly higher than in 1969. Women are arrested at a lower rate for gambling offenses than for all offenses. In 1974, 16.9 percent of those arrested for all offenses were women; however, women accounted for only 8.5 percent of those arrested for gambling offenses. During the years 1960 to 1974, the arrest rate for women, as a percentage of total arrests, has increased more sharply for all offenses than for gambling (table 3-5). TABLE 3-4.-AGE DISTRIBUTION OF PERSONS ARRESTED IN THE UNITED STATES IN 1974, GAMBLING OFFENSES AND ALL OFFENSES ACE 19 <" 65 or PERCENT under 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 over 38.4 13- 12. 11. 10. 9. 8- 7. \2.2 1.2 - Persons arrested for all offenses. - Persons arrested for gambling. TABLE 3-5.-ARREST OF FEMALES IN THE UNITED STATES FOR GAMBLING AND FOR ALL OFFENSES, 1960 AND 1974 % Female, Arrests for Gambling % Female, Arrests for All Offenses 1960 7.9 10.7 1974 8.5 16.9 Gambling arrests by race, as reported by the Uniform Crime Reports, reveal that blacks are arrested for gambling at a substantially higher rate than are whites or other races. Although blacks account for only about 11 percent of the total population of the United States, they accounted for 72.8 percent of gambling arrests in 1974 (table 3-6). Blacks account for a greater percentage of city gambling arrests (75.7 percent) than for suburban (47.2 percent) or rural (31. 7 percent) gambling arrests. During the 5-year period 1969 to 1974, arrests of white persons, as a percentage of all gambling arrests, declined 7 percent; at the same time, the percentage for black persons rose 6.3 percent. Although a disproportionate number of blacks are arrested for gambling, gambling laws or their enforcement cannot be said to be discriminatory in the usual sense. Visibility, rather than race, is the basis for these arrests. Black participation in public social gambling (i.e., card or dice games) and numbers writing is high compared to 37 TABLE 3-6.-RACE OF PERSONS ARRESTED FOR GAMBLING AND FOR ALL OFFENSES IN THE UNITED STATES, 1974 % % % % % % In- Chi- Japa- All White Black dian nese nese others Total arrests, all offenses 70.3 26.7 1.5 .1 .1 1.4 TOTAL GAMBLING ARRESTS 22.2 72.8 .1 .2 .5 4.3 % change since 1969 -7.0 +6.3 City arrests, all offenses 67.5 29.4 1.5 .1 .1 1.5 CITY GAMBLING ARRESTS 20.1 75.7 .1 .2 .5 3.5 % change since 1969 -5.6 +5.9 Suburban arrests, all offenses 83.9 14.7 .4 -* .1 .9 SUBURBAN GAMBLING ARRESTS 46.6 47.2 -* -* -* 6.1 % change since 1969 -28.9 +22.7 Rural arrests, all offenses 84.0 11.7 3.0 -* .1 1.2 RURAL GAMBLING ARRESTS 47.4 31.7 .1 .5 1.7 18.6 % change since 1969 -38.8 +19.3 *(-) less than one-tenth of 1 percent. Source: Uniform Crime Reports. the participation of whites. Because these offenses are highly visible to police and have straightforward evidentiary requirements, they account for a substantial majority of gambling arrests. On the other hand, bookmaking, private social gambling, and higher levels of numbers operations in which white participation is greater are activities that remain largely hidden from police view and are therefore subject to fewer arrests. Available data suggest that a substantial proportion of persons arrested for gambling have prior arrest records. Forty-seven percent of the gambling defendants to come before the Superior Court of the District of Columbia in 1974 had previously been arrested.' More than half of those responding to a Commission-sponsored survey of city police departments said that their departments experience a high recidivism rate for gambling violations. Twenty-five percent said that persons arrested for gambling in their jurisdiction often have a criminal record of nongambling offenses; however, a majority (57 percent), said that gambling arrestees rarely or never have such a record. 10 Of a sample of gambling offenders arrested in New Jersey between 1969 and 1976, 58 percent had prior records, averaging 3.8 earlier arrests each. Gambling offenses accounted for over half the crimes for which these offenders were previously arrested; violent and property crimes accounted for less than 20 percent. 11 In an Allegheny County (Pittsburgh), Pa., sample of gambling defendants arrested between 1972 and 1974, 11 percent had four or more previous gambling convictions. 12 OBJECTIVES Police objectives concerning gambling regulations are broader than mere enforcement of the prohibition against various gambling activities: They also include fighting organized crime, maintaining a favorable public image of the police department, keeping undesirable activities or persons out of the city, and maintaining public order. The objective of organized-crime control is reflected both in the intent of some gambling statutes and in the view of some police that illegal gambling is related to organized crime. The objectives of preserving the department's public image and of maintaining public order are somewhat related in that, where open gambling such as street card and dice games is permitted to continue, citizens are likely to conclude that police are either corrupt or derelict in their duty. While full enforcement of gambling prohibitions is often the ostensible goal of police departments, the actual goal generally is to achieve some degree of control over illegal gambling that is, to maintain an enforcement effort sufficient to discourage open, flagrant disobedience of gambling laws and to avoid charges that the police are not doing anything about gambling. Some police administrators are understandably reluctant to admit that their discretion or authority is broad enough to permit the establishing of policies aimed at achieving goals other than that presumed to be intended by statute total prohibition. The fact remains, however, that police administrators do have discretion in deciding how much effort is to be made to enforce antigambling laws. And, in the field, police officers have discretion in deciding which, and to a lesser degree how many, gambling offenders to arrest. Most gambling enforcement officers and chiefs of police 38 responding to a survey by the International Association of Chiefs of Police (IACP) rated "fighting organized crime" as the most important reason for enforcing gambling laws. At the same time, a majority said that organized crime had little or no connection with illegal gambling in their jurisdictions, although officers from larger cities tended to see more of a connection than those from smaller cities. 13 However, respondents rated the "number of organized crime figures arrested on gambling charges" as the fourth most important measure of gambling enforcement effectiveness, behind "a good record of responding to and following up citizen complaints," "reduced availability of gambling," and "disruption of gambling operations." In testimony before the National Gambling Commission, Boston's police commissioner stated that the Boston Police Department's policy in bookmaking enforcement is one of "containment rather than eradication." M Representatives of the Chicago Police Department noted that "enforcement activity is not geared toward elimination of gambling, as this is an unreal objective; however, enforcement activity is directed toward ameliorating gambling activity to levels of low incidence and high risk."" CONSTRAINTS The Difficulties of Gambling Enforcement The failure of full enforcement as a realistic goal has resulted from several constraints on gambling enforcement, involving the difficulties of enforcement, public attitudes, and the actions and attitudes of police and other criminal justice personnel. The failure of citizens to report illegal gambling makes it necessary for police to seek out violations. However, most gamblers restrict their activities to places well hidden from public and police view. Although numbers writing is usually conducted relatively openly, making it susceptible to police observation, numbers offices and banks, bookmakers, and operators of high-stakes card and dice games take elaborate precautions to avoid police detection. Bookmakers often use an answering service or an electronic device such as a "cheese box" to prevent discovery of their location. Numbers writers and others in the lower strata of gambling organizations frequently are not apprised of the identity of superiors or locations beyond those needed to carry out their functions. Other security such as lookouts circulating near gambling operations, automatic cameras, surveillance of entryways, and doors requiring considerable effort to break down- provide warnings of police raids or other actions and the opportunity to dispose of such evidence as bets recorded on rice paper or the money in a card or dice game. The interjurisdictional nature of many gambling operations has also increased the difficulty of gambling enforcement. Even if police could successfully disrupt gambling operations within their jurisdiction, other locations of the same organization might exist in neighboring jurisdictions. If police there are unwilling to cooperate, there is little that police in the first jurisdiction can do about it. Even where different police agencies have worked together, their cooperation has often been strained, with each agency somewhat unsure of the other's integrity, or with one agency taking premature action that nullifies the other's efforts. Prior to 1961 there was, in many States, little to deter police from conducting illegal searches and seizures. In many instances persons suspected of gambling activities were stopped and searched, and raids conducted without probable cause. The U.S. Supreme Court's 1961 Mapp v. Ohio decision, however, held that evidence obtained in violation of the fourth amendment may not be used in court. When Mapp v. Ohio made the exclusionary rule mandatory in all States, the difficulty of gambling enforcement was increased for police in States which had not previously adopted an exclusionary rule. A majority of respondents to the IACP survey thought it "very difficult" to obtain sufficient evidence to make a good case against persons suspected of bookmaking or numbers operations; one-third thought it "very difficult" to obtain evidence against card or dice game operations. Evidence against numbers and bookmaking operations was seen as somewhat more difficult to obtain than evidence in cases involving the sale or distribution of narcotics, and substantially more difficult than in cases involving after-hours liquor sales or possession of marihuana. Similarly, in a survey of Washington, D.C., police officers, respondents evaluated numbers-running and running a poker game as crimes for which it is difficult to make a case stick. 16 Respondents to the Commission's survey of Fraternal Order of Police (FOP) members rated bookmaking, running a numbers operation, and, to a lesser degree, running card or dice games as offenses for which is difficult to make quality arrests. 17 The Priority of Gambling Enforcement Public apathy exerts a constraining influence on gambling enforcement. A nationwide survey of citizens conducted for the Commission found that there is widespread community feeling that enforcement of gambling laws is less important than enforcement of laws against crimes of violence and property crimes. Only a fifth of the citizens surveyed think gambling enforcement is more important than enforcement against other vice offenses. Less than one-third of respondents indicated that they would report a person taking illegal sports bets, compared to more than twice that many who said they would report other crimes such as robbery and the sale of 39 marihuana. The survey found that a majority of citizens nonetheless believe that gambling offenders should be arrested. 1 ' Police think public apathy toward gambling enforcement is even greater than do citizens who were surveyed. Eighty percent of the respondents to the Commission's FOP survey agreed that the public does not care if gambling laws are enforced. Three-fourths of the respondents to the IACP survey rated citizen support of police in gambling investigations and arrests as "poor"; fewer than 10 percent rated citizen support as "very good" or "excellent." The priority that police departments give to gambling enforcement varies with the type of gambling activity. The IACP survey asked police about the level of the enforcement effort against various gambling offenses relative to the effort against other plaintiffless crimes. Enforcement against bookmaking operations was found to be slightly more "active and aggressive" than that directed against after-hours liquor sales and possession of marihuana. Enforcement against those crimes was in turn found to be somewhat more "active and aggressive" than enforcement against numbers and card or dice game operations. Enforcement of laws against the sale or distribution of narcotics was found to be substantially more active than that against any of the above offenses. Participatory gambling offenses as a whole were found to be subject to less active enforcement than operating offenses except for betting with a bookmaker, which was subject to approximately the same enforcement effort as numbers operations. Police officers appear to be aware, at least indirectly, of the relatively low priority that enforcement against some types of gambling has for their departments. FOP survey respondents believe that laws against bookmaking, numbers, and card or dice game operations are less actively enforced by their departments than laws against such activities as petty larceny, receiving stolen property, and the possession of small amounts of marihuana. Perhaps the clearest reflection of some police departments' lack of serious commitment to gambling enforcement is the use of arrest quotas. "Meeting the quota" has become often more important than the quality of the gambling enforcement effort, both to administrators and subsequently to officers within a department. When this occurs, the attitudes of officers toward gambling enforcement combine with their perception a correct one of the department's view of gambling enforcement as a low-priority effort designed only to produce a series of what might be called "symbolic" gambling arrests that is, gambling arrests that meet the quota, thereby fulfilling the department's requirements of continuing enforcement activity even though police officers and administrators are well aware that these arrests will result neither in meaningful sentences nor in any significant impact on illegal gambling. Thirty-two percent of the departments responding to the IACP questionnaire use gambling arrest quotas. (The existence of gambling arrest quotas did not vary significantly with city size, although quotas were found slightly less often in cities over 250,000.) Police are keenly aware that very little punitive action is likely to be taken against gambling offenders after their arrest. More than 70 percent of FOP respondents agreed that prosecutors would rather not be bothered with gambling cases. Approximately 64 percent believe that gambling defendants are usually found not guilty, and about 85 percent feel that local judges usually give light fines or suspended sentences in gambling cases. A majority of IACP respondents anticipate little or no likelihood of a jail sentence for a felony gambling conviction, and expect that small fines and/or probation are most likely to be given for bookmaking and numbers convictions. Available statistics indicate that a substantial proportion of persons arrested for gambling either are not prosecuted, are prosecuted on reduced charges, are not convicted, or, if convicted, receive sentences that do not reflect the statutory provisions for gambling offenses. 19 This problem exists, particularly in urban areas, for all classes of offenses. None of the practices and attitudes discussed here is unique to gambling enforcement; yet few other offenses are subject to this same combination of constraints. Given these constraints, it is not surprising that police do not attempt full enforcement of gambling laws or that their attempts to control gambling are often frustrated. Corruption Corruption is yet another constraint on effective gambling enforcement. A number of police departments, both large and small, have experienced corruption related to gambling enforcement. 20 The most recent large-city examples are Philadelphia and New York, where investigative commissions reported widespread and systematic payoffs to both plainclothes and uniform police officers by gambling operators. 21 The Knapp Commission found corruption in the New York City Police Department to be "at its most sophisticated among plainclothesmen assigned to enforce gambling laws." Participation in organized payoffs a "pad" netted individual New York plainclothes officers monthly amounts ranging from $300 to $1,500. In return for protection from enforcement (except for occasional token arrests) gambling establishments paid as much as $3,500 a month. In March 1972, 5 months before the Knapp Commission report was published, the Pennsylvania Crime Commission initiated a 2-year investigation of corruption in the Philadelphia Police Department. That commission concluded that the "open and flagrant gambling in every area of the City" which operated "with no apparent interference from the Police Department" was due to the fact that "police throughout the City accept protection money from gamblers." ** Gambling corruption on a lesser scale has been found in such smaller cities as Carbondale and Reading, Pennsylvania; Syracuse and Schenectady, New York; and New Haven, Connecticut. 23 Police corruption exists not only in gambling 40 enforcement, but in other areas as well. Investigations in a number of jurisdictions have also uncovered misconduct related to enforcement of narcotics, prostitution, liquor establishments, construction site regulations, and traffic. These forms of police corruption, like those found in gambling enforcement, are largely an urban problem. Where it exists, gambling corruption has an impact not only on the quality of gambling enforcement, but in other areas as well. Involvement in gambling payoffs often leads to corruption involving other offenses. The same people who pay for gambling protection may offer money for protection involving narcotics, burglary, or other crimes. Taking gambling payoffs can be merely an intermediate step in a process of progressive corruption. 24 Obviously, widespread corruption in a police department damages the department's capability to perform its function. The control of administrators over personnel is weakened, and officers may neglect their duties in an effort to maintain or increase their income from payoffs. 25 The most serious consequence of gambling corruption is the loss of public confidence in police integrity. As citizens become aware of police misconduct, they tend to become cynical about law enforcement generally. 26 Gambling corruption is by no means limited to police. Other parts of the criminal justice system and elected officials have also been affected. 27 Police nevertheless remain the most likely targets for corrupting influences. The fact that police operate at the entry point of the criminal justice system makes them both available and desirable as recipients of payoffs and bribes. Even though generally there is little for gamblers to fear at the hands of prosecutors and courts, it is still advisable to avoid arrest. Often more important than avoiding the arrest itself is avoiding the accompanying seizure of gambling records, which can be highly disruptive to the operation. 28 Several factors contributing to police gambling corrup- tion lie outside of the direct control of police. Public demand for police services centers around crimes of violence and property crimes, rather than around gambling and other vice offenses. 29 The demand for gambling enforcement is further weakened by the fact that while some forms of gambling are illegal, other, similar forms are legal. The view of gambling as "nonserious" is reinforced when prosecutors reduce charges or decline to prosecute, and when judges give minimal sentences for gambling convictions. 30 The lack of demand for gambling enforcement increases the temptation for police to accept payoffs for nonenforcement. Corrupt practices in other segments of the community- business, politics, the professions help create an atmosphere in which corruption becomes acceptable. Police do, however, have control over departmental policies relating to gambling enforcement and corruption. Unfortunately, this control has not generally been used effectively to control gambling corruption. The traditional public response of police administrators to corruption has been to deny its existence except when scandal has rendered this position untenable. The second-line defense has been the "rotten apple" theory by which police corruption is said to be caused by a few bad cops in an otherwise clean department. 31 Many police officials have maintained this position even in the face of pervasive, organized gambling corruption and the findings of outside investigative bodies to the contrary. Police efforts to prevent recurring corruption have generally taken the form if new procedures in gambling enforcement and new prohibitions on the activities of gambling enforcement officers. The ineffectiveness of most anticorruption activities "suggest(s) either intentional efforts to deceive the public into believing something is being done or incredible naivete about the effectiveness of administrative procedures." 32 For some police administrators, the basic task has been largely that of achieving a balance between efficiency and integrity in gambling enforcement. The level of success has not generally been high for either objective. Departments have periodically transferred and/or reorganized gambling enforcement personnel in an effort to combat corruption by disrupting patterns of loyalty among officers who work together for a long period of time and by establishing new lines of command. Underlying the use of arrest quotas is the notion that officers will not accept payoffs from the persons they arrest. Plainclothes officers in the New York City Police Department were once required to keep daily records of all investigative activity, the theory being that the recorded activities could later be verified if misconduct were suspected. Applications for search and arrest warrants necessitated lengthy written justification. In addition to investigative forms and administrative reports generated by individual arrests of gamblers, daily, monthly, and annual reports of gambling enforcement activity were mandatory. 33 Such administrative controls did not have the desired results. Organized, systemic corruption in gambling enforcement has, in several large departments, survived repeated transfers, reorganizations, and other control efforts. It is a simple matter for officers to collect gambling payoffs on off-duty hours and submit a truthful record of their on-duty activity. Voluminous paperwork requirements are a disincentive to making gambling arrests. The notion of a tradeoff between integrity and efficiency is also reflected in the practice of limiting the length of time officers may be assigned to gambling enforcement. Although the certainty of transfer reduces the likelihood of corruption, it also reduces the level of expertise and, therefore, of efficency. Twenty-three percent of the city police departments responding to the IACP survey currently place a limit on gambling assignments. Gambling corruption is largely, though not exclusively, a problem of large-city police departments. Of the 298 departments surveyed by IACP, 17 percent have, within the past 5 years, investigated officers for alleged misconduct in connection with gambling enforcement. Eleven percent of the departments found officers guilty of such misconduct. Both investigations and findings of misconduct were more frequent in larger cities than in smaller ones (table 3-7). 41 TABLE 3-7.-MISCONDUCT RELATED TO GAMBLING ENFORCEMENT IN CITY POLICE DEPARTMENTS, 1972-1976 Percent Percent reporting reporting department finding Cities investigations of guilty 250,000 and over (n-36) 30 25 100,000 to 250,000 (n-71) 27 15 50,000 to 100,000 (n-65) 17 12 25,000 to 50,000 (n-119) 9 4 (Based on International Association of Chiefs of Police survey of city police departments, conducted for the National Gambling Commission.) During the past decade, the attempts of police administrators to combat gambling corruption have become less reactive and more preventive. Perhaps most important has been an increased willingness on the part of police officials to face the fact and extent of police corruption squarely. 34 Instead of denying the magnitude of the problem and attempting to divert attention to corruption in other quarters, many police administrators are making a stronger commitment to corruption control than has been the case in the past. Many departments have created internal affairs units with responsibility for investigating alleged misconduct and, more recently, for identifying areas with corruption potential and developing means for reducing that potential. An additional development has been the increasing emphasis on education and professionalism in law enforcement, which might be expected ultimately to have an impact on corruption. I n the early 1 970's, the New York City Police Department's efforts to control gambling corruption took a new direction. Uniformed officers were directed to make gambling arrests only in the presence of a superior officer. Similarly, supervisors of plainclothes gambling investigators were required to approve and to be present at gambling arrests and the execution of search warrants. In effect, enforcement was restricted to high-level figures in gambling operations, with an emphasis on the quality rather than the quantity of arrests. Low-level arrests were to be made only in response to complaints. At the same time, the internal affairs emphasis on investigating and punishing wrongdoing was broadened to include intensified efforts to detect and deter corruption. These efforts included surveillance of plainclothes investigators, legal wiretapping of officers thought to be engaged in misconduct, infiltration of gambling operations, and the establishment of phony gambling businesses by police. The most controversial techniques were the Field Associates Program, in which newly assigned plainclothes investigators were recruited to report any misconduct they observed, and "turnarounds," whereby officers found to be involved in misconduct were persuaded to report on colleagues who were also involved. 35 In 1973 and again in 1974, integrity assessments conducted by the NYPD concluded that "organized systematic corruption (in gambling enforcement) had been virtually eliminated." Although the question of long-term effectiveness will remain unanswered for some years, it is reasonable to anticipate that a sustained effort that targets discretion in gambling enforcement has more likelihood of success than past efforts. THE ORGANIZATION OF GAMBLING ENFORCEMENT Local The primary responsibility for enforcement rests with local police departments and, in a few jurisdictions, sheriffs' offices. 3 * Various departments approach the task of gambling enforcement in different ways. These variations are most apparent in the organization of gambling enforcement personnel. In some departments there is a specialized, gambling-only unit; in others, a vice unit in which resources are also devoted to nongambling offenses; in still others, usually smaller departments, some officers are assigned to enforce gambling laws, but no separate unit exists. Gambling enforcement is most often concentrated at department headquarters, but in some instances, districts or precincts share the responsibility. 37 Some jurisdictions have formed multiagency task forces to deal with the problem of gambling and other types of organized criminal activity. 38 The gambling enforcement efforts of large departments are more highly structured than those of smaller departments. Of large-city police departments (in cities with a population of 100,000 or more) responding to the IACP survey, 32 percent have units devoted exclusively to gambling enforcement; of departments in cities under 100,000, 15 percent have such units. Similarly, half the larger departments reported having a separate intelligence unit, while 26 percent of the smaller departments have intelligence units. The commitment of manpower varies with department size. Seventy-two percent of police departments in cities with more than 250,000 residents have officers assigned full-time to gambling enforcement; in cities between 25,000 and 50,000, 2 percent of the departments have full-time gambling enforcement personnel. Most gambling arrests are made by plainclothes officers. 39 In the IACP survey, half the departments reported no gambling arrests by uniformed officers; another 17 percent reported that fewer than one-tenth of their gambling arrests were made by uniformed officers. 42 Departments in cities with a population of at least 25,000 and less than 100,000 were less likely than those in larger cities to have gambling arrests made by uniformed officers. Arrests by police officers in uniform were proportionately highest in departments located in cities with a population of less than 100,000. Of course, uniformed officers often played an indirect role in gambling enforcement by providing information about illegal gambling activity to officers assigned to gambling enforcement. 40 There is wide variation in the gambling enforcement training given to police officers. 41 For instance, the only formal training by the Philadelphia Police Department, as of March 1974, was that provided to recruits including approximately 10 hours of vice enforcement instruction. In Washington, D.C., the Metropolitan Police Department academy provides only minimal gambling enforcement training, based primarily on the department's General Orders. Officers assigned to gambling enforcement, however, receive 2 weeks of special training. Prosecutor assistance to police in gambling investigations varies. Forty-eight percent of police departments responding to the IACP survey said prosecutors never advise or assist during the investigative phase of gambling cases. Twenty-five percent said prosecutors become involved in half or more of their gambling investigations; of those, 11 percent said prosecutors assist or advise in all their gambling investigations. State Local police departments have primary responsibility for gambling enforcement, but the role of State-level agencies is growing. This growth has occurred mainly as part of increased State-level efforts against organized crime resulting from the work of legislative and other study commissions, crime investigating commissions, organized-crime prevention councils, 42 and organized- crime control units. Most of these bodies came into being during the late 1960's and early 1970's, 43 many with the assistance of Federal funding. 44 While the focus of study and investigative commissions has generally been broad, federally assisted organized- crime prevention councils are concerned solely with the organized crime problem and function to define it, to set priorities, and to develop, coordinate, and encourage programs. 45 In 1975, there were organized-crime prevention councils in 14 States (table 3-8). Intelligence units vary somewhat in function. Some the New Jersey State Police Intelligence Unit, for instance- work closely with the State investigative-prosecutorial unit. Others, such as the Organized Crime Intelligence Unit of the Maryland State Police, investigate and make arrests. In 1975, there were 20 State-organized crime intelligence units (table 3-8). By that year, 23 States had combined investigative-prosecutorial units modeled after the U.S. Department of Justice's Strike Forces. Most of these units are in the offices of State attorneys general. TABLE 3-8.-STATE ORGANIZED CRIME PREVENTION/CONTROL GROUPS, 1975 Investigative- Prevention Intelligence Prosecutive State council unit unit Alabama X Arizona X California X Colorado X X Connecticut X X Delaware X Florida X X Georgia X X Hawaii X Idaho X Illinois X Indiana X X Iowa X Kansas X Kentucky X Louisiana X Maryland X X Massachusetts X X Michigan X X X Minnesota X X Mississippi X New Hampshire X New Jersey X X New Mexico X New York X North Carolina X X Ohio X X X Oklahoma X X Oregon X X Rhode Island X X Tennessee X Texas X X X Utah X Virginia X Washington X West Virginia X Wisconsin X Wyoming X Source: Organized Crime Control Units, June 1975, Committee on the Office of Attorney General, The National Association of Attorneys General. Both the intelligence and investigative-prosecutorial units vary in levels of activity and in areas of emphasis. Several have been quite active in gambling enforcement. The combined efforts of the Attorney General's Organized Crime Unit and the State Police Intelligence Unit in Rhode Island during the past few years have resulted in gambling arrests that account for a substantial proportion of that State's total gambling arrests. 44 Eighty percent of the indictments obtained by New York's Organized Crime Task Force during a 15-month period that began in December 1970 were for gambling. In New Jersey, between 1969 and 43 1974, gambling charges accounted for 27 percent of the indictments obtained by the Attorney General's Special Prosecutions Section. The Special Services department of the Massachusetts State police made approximately 25 percent of all gambling arrests in the State between 1970 and 1973. A total of 38 States have at least one organized-crime prevention or control group (table 3-8). 47 The upward trend in State-level involvement in gambling enforcement has not reversed the overall downward trend in gambling arrests. State agencies, less restrained by limitations of resources and by the problems of interjurisdictional cooperation that affect the efforts of many local agencies, can often mount a relatively sophisticated and sustained attack against gambling organizations. The eventual impact of the State-level effort may therefore be on the quality rather than on the quantity of gambling arrests. Federal The role of Federal agencies in gambling enforcement is discussed in chapter 2. Coordination of Federal and State gambling enforcement efforts with those of local police departments is discussed in the section that follows. Interagency Cooperation Police departments surveyed by IACP were asked about the cooperation of Federal, State, and other local agencies in gambling enforcement. 48 Departments in larger cities tended to report a more formal, regular relationship with the Federal Bureau of Investigation and the Internal Revenue Service than those in smaller cities. 49 Eleven percent of the departments in cities having a population of between 25,000 and 49,000 reported no contact with the FBI or IRS. The role of the FBI in gambling enforcement was seen as more important by respondents in cities with a population of 250,000 or more than by those in smaller cities, while respondents in cities with a population of less than 250,000 thought that the role of neighboring police departments, sheriff's offices, and State police was more important. The IACP survey also asked respondents how important they thought various changes would be in improving the gambling enforcement effort in their jurisdictions. Improved coordination among local law enforcement agencies, and increased State or Federal responsibility, were thought to be less important than increased public support, additional enforcement tools, and more serious treatment by other components of the criminal justice system. GAMBLING ENFORCEMENT TOOLS AND TECHNIQUES Illegal gambling, in common with a number of other offenses, 50 has two characteristics which affect the manner in which gambling laws are enforced. First, gambling is a plaintiffless crime that is, the players are willing participants who, as a rule, do not complain to the police that a crime has been committed. Enforcement activity, therefore, must be initiated by the police, who then act as the complainant on behalf of the community. In contrast, enforcement activity aimed at such crimes as burglaries or muggings usually occurs in response to citizen complaints. 51 A second factor is that gambling unlike rapes, robberies, etc., which may be viewed as separate criminal incidents having specific perpetrators is an organized, ongoing activity that often involves a hierarchical structure. 52 Where there is an identifiable criminal incident, police may be said to have "solved the crime" when they have apprehended the person who committed it: The objective in those cases is clear, and the number of arrests is a partial indicator of police effectiveness. In gambling cases, however, neither criminal incident nor perpetrator is clearly defined. 53 Thus, the number of arrests is less useful as a goal or as a measure of effectiveness. Even a large number of arrests may have no effect on the continuing illegal activity and may leave the principal violators untouched. Gambling enforcement, therefore, involves the use of techniques that enable officers to detect violations that remain largely unreported and to identify and gather evidence against violators who may be insulated by several layers of employees. For uniformed police officers, the most frequent source of gambling arrests is the direct observation of illegal gambling activity. Such arrests are primarily "nonserious," reaching only individual street players or low-level employees of gambling organizations. Arrests at higher levels i.e., large bookmakers or numbers offices and banks can rarely, if ever, be made in this manner. They require investigation leading to probable cause for search in arrest warrants. These investigations are the province of plainclothes officers who have traditionally used such techniques as physical surveillance, informant information, and undercover operations. Surveillance may target individuals or premises. Observing known gamblers visiting a house or club may contribute to probable cause for obtaining a search warrant for those premises. Conversely, surveillance of an individual may lead to the identification of locations that were not previously known to be involved in a gambling operation. Surveillance is one of the most widely used techniques, with only 6 percent of the IACP respondents saying that their department never has physical surveillance in gambling enforcement. The use of informers is also widespread; 95 percent of the departments responding to the IACP survey reported that they rely on that technique. Informers provide gambling information to police for a variety of reasons. 44 In some instances they are paid for their information; in others, the consideration may be the reduction or dropping of pending charges. Some persons engaged in illegal gambling seek to improve their own position by informing on their competition. Some informers cooperate with police for reasons that are not always apparent: It may be to get or remain on the good side of a police officer, or to satisfy a personal grudge. Another source of information is citizen complaints. As noted, these are not made by persons who consider themselves to be victims of a crime in the usual sense. Rather, they may be disgruntled bettors who perhaps have not been paid their winnings; relatives who are concerned for a bettor's well-being; or citizens who complain of a disturbance where persons have gathered to gamble. Undercover investigators often can accumulate evidence against individuals and an operation by placing bets. With a greater investment of time, undercover operators can often infiltrate an operation and obtain evidence against mid- and upper-level personnel. Eighty-six percent of the IACP respondents reported some use of gambling undercover operations, with large-city departments reporting more frequent use than small-city departments. In recent years, additional tools have become more widely available for use in State and local gambling enforcement. The most important of these is electronic surveillance, authorized by Congress in 1968 under Title III of the Omnibus Crime Control and Safe Streets Act. 54 Electronic surveillance is particularly well suited for use in gambling investigations because of the dependence of gambling operations on telephones. 55 During 1968, only four States (Arizona, Georgia, Massachusetts, and New York) reported electronic surveillance orders. By the end of 1975, electronic surveillance in gambling cases was authorized in 21 States and the District of Columbia (table 3-9). From 1969 (the first full year for which figures are available) to 1975, the number of gambling electronic surveillance orders increased from 79 to 339. During that same 7-year period, gambling accounted for approximately 50 percent of all electronic surveillance orders. 5 * (See table 3-10.) Also used in gambling investigations is the pen register a device which records phone numbers dialed from a particular telephone. By attaching a pen register to the telephone line of a gambling location, police can often identify additional locations and persons involved in an illegal gambling operation. Current law regarding the use of pen registers is not clear, nor is information available about the extent to which they are used. 57 In recent years, there has been a growing amount of State legislation aimed at syndicated or commercial gambling. As of January 1975, syndicated gambling statutes had been enacted in 20 States. Fifteen of these laws were enacted between 1968 and 1974. 51 While statutory definitions vary, the general intent of these laws is to differentiate between casual social gambling among individuals, and syndicated gambling operations, and to provide severe penalties M for persons involved in the latter. TABLE 3-9.-STATES WITH STATUTES AUTHORIZING ELECTRONIC SURVEILLANCE IN GAMBLING CASES, EFFECTIVE DURING 1975 Arizona Colorado* Connecticut Delaware District of Columbia Florida' Georgia Kansas* Maryland Massachusetts" Minnesota Nebraska Nevada* New Hampshire New Jersey New Mexico New York Oregon** Rhode Island South Dakota Washington** Wisconsin" No wiretaps reported in 1975. "Organized gambling only. ''Only if human life is endangered. 'Commercial gambling only. Source: Administrative Office of the United States Courts, Report on Applications lor Orders Authorizing or Approving the Inter- ception of Wire or Oral Communications, 1975, p.ll. TABLE 3-10.-STATE ELECTRONIC SURVEILLANCE ORDERS, 1969-1973 Percent Year All orders Gambling orders gambling orders 1969 269 79 29.4 1970 414 205 49.5 1971 531 319 60.1 1972 649 351 54.1 1973 734 365 49.7 1974 607 313 51.6 1975 593 339 57.2 TOTAL 3,797 1,971 51.9 Source: Administrative Office of the United States Courts, Report on Applications for Orders Authorizing or Approving the Inter- ception of Wire or Oral Communications. Since 1968, five States have established statewide grand juries * which, with jurisdiction unrestricted by local boundaries and with the authority to subpena witnesses and grant immunity,* 1 can be an important investigative tool in gambling enforcement. Several other States M permit the Attorney General broad powers in using grand juries for the purpose of investigation, but do not permit the convening of a statewide grand jury. To date, only New Jersey's statewide grand juries have become significantly involved in gambling. Of the 841 indictments returned from 1969 through 1973, 122 (14.5 percent) were for gambling violations. This is nearly twice as many indictments as for any other single type of offense. Immunity statutes provide another tool that can be useful in gambling enforcement. An immunized witness who refuses to testify can be cited for civil contempt and jailed. Statutes in 39 States authorize the use of immunity in gambling cases M (see table 3-11). Twenty-seven of 45 these States have general immunity statutes, M another 10 States specify gambling as one of the offenses for which immunity can be granted, and 2 States authorize the use of immunity in cases involving organized crime. 65 Although the remaining 11 States have immunity statutes, gambling is not among the offenses for which its use is authorized. It is not known to what extent immunity is in fact used in gambling cases. However, witnesses have traditionally been immunized and compelled to testify in cases in which it is difficult to obtain evidence from sources other than a participant in that offense. 66 All the techniques and tools discussed above are, or have the potential to be, useful in gambling enforcement; there are some shortcomings, however. Plainclothes gambling enforcement is, by its nature, an activity that cannot be easily supervised. Where a lack of supervision results in an unsystematic, uncoordinated gambling enforcement effort, it is clear that the quality of that effort will suffer. Many departments have used arrest quotas to simplify the task of supervision, rating the performance of units and individual officers according to the number of gambling arrests they make. Where quotas are instituted in an attempt to maintain productivity, the result will almost certainly be an emphasis on the number of arrests "meeting the quota" rather than on the quality of the cases. 67 As noted, search and arrest warrants are crucial to enforcement aimed at mid- and high-level gambling operators. This fact, combined with the difficulty of establishing probable cause for warrants, can result in the falsification of warrant affidavits. 68 Electronic surveillance and undercover operations both require a relatively substantial commitment of resources, primarily in manpower costs. 69 However, this requirement an important one in light of the perennial problem of limited resources must be balanced with the fact that these techniques can be very effective in reaching the high-level gambling offenders who are often immune to other techniques. 70 Despite the more severe sentencing provisions of syndicated or commercial gambling statutes, judges continue to give minimal sentences in gambling cases. 71 Thus, the anticipated effectiveness of severe sentences has not materialized. Where witness immunity cannot be used in gambling cases, there is little incentive for a witness to cooperate. This is particularly true of low-level operators or employees who may reasonably expect to be sentenced only to a small fine and/or probation. The sentences provided by syndicated gambling statutes might be expected to help convince higher level persons to testify against their colleagues; however, since the higher maximums appear to have little effect on sentencing practices, this incentive exists in theory only. TABLE 3-11.-STATES AUTHORIZING THE USE OF IMMUNITY IN GAMBLING CASES, JANUARY 1974 General statute Specific statute Arizona Indiana New York Connecticut California Kansas North Dakota Kentucky Colorado Maine Oklahoma Maryland Delaware Massachusetts Oregon Mississippi Florida Michigan Rhode Island Montana Hawaii Minnesota South Dakota Nebraska Idaho Nevada Utah New Mexico Iowa New Hampshire West Virginia North Carolina Illinois New Jersey Wisconsin Ohio Pennsylvania Virginia Washington Source: National Association of Attorneys General, Organized Crime Control Legislation, January 1975, Ch. 9. DISPOSITION AND SENTENCING OF GAMBLING OFFENDERS Of the tens of thousands of persons arrested each year in the United States for gambling offenses, a relatively small proportion are convicted; of those convicted, a very small percentage receive jail or prison sentences or substantial fines. 72 Although comprehensive data do not exist, 73 available examples provide documentation of this pattern in gambling dispositions and sentences. Records of the Superior Court of the District of Columbia indicate that of cases involving defendants against whom gambling charges were filed in 1973,48 percent were nolle prossed, no-papered, or dismissed; 43 percent of the defendants in 1973 were convicted. During 1969, there were 2,096 arrests for felonious gambling in the State of New York, resulting in 281 46 indictments and 15 convictions. Of 4,720 persons charged with gambling offenses in Philadelphia during 1970, 517 were convicted. 74 During the 6-year period 1969 to 1974, patrol district officers in the Chicago Police Department arrested 36,207 persons for gambling; 6 percent of those arrested were convicted. During the same period, 12 percent of the 12,976 persons arrested by the department's headquarters Gambling Section were convicted. 75 The Chicago Crime Commission studied a cohort of 122 gambling cases that included all cases transmitted by the Chicago Police Department to the municipal courts during a 2-week period in 1974. In 55 percent of the cases the charges were dismissed; in another 20 percent, the court denied leave to file charges. 76 There are exceptions to the generally low conviction rates for gambling. Approximately 70 percent of persons appearing in Connecticut Circuit Courts on gambling charges between 1970 and 1974 were convicted. New Jersey, in contrast to most other jurisdictions, treats gambling as a serious offense. This is reflected in dispositions as well as sentences. In a Commission- sponsored study, 77 a sample of persons arrested primarily for common gambling by the Newark Police Department was compared to a sample of persons arrested for gambling by the Philadelphia Police Department. Seventy-three percent of the Philadelphia cases were dismissed or discharged, while this occurred in only 4 percent of the Newark cases. Seventy-one percent of the Newark arrests and 6 percent of the Philadelphia arrests resulted in convictions. In the same study a similar pattern of dismissals and convictions was found when samples of more serious gambling cases primarily involving lotteries from Newark and Washington, D.C., were compared. 7 * Twenty-nine percent of the Newark cases went to trial, compared to 7 percent of the Washington cases. Differences were also found in bail practices and case- processing time. Fifty-six percent of the Washington arrestees and none of the Newark arrestees were released on personal recognizance, and bail amounts were significantly higher in Newark. The average case- processing time from offense to final disposition was four times longer in Newark (294 days) than in Washington (67 days). As noted, jail terms for gambling offenses are rare, and fines are usually nominal. The single exception to this pattern is found in New Jersey, where a substantial number of convicted gambling offenders are sentenced to jail or prison terms. 79 From 1969 through 1974, an average of 184 persons per year were sentenced to State prison terms for gambling offenses. In 1973, 11 percent of persons convicted for gambling in New Jersey were sentenced to prison, and 42 percent were sentenced to jail. In the same year, 9 percent of persons convicted of all offenses in New Jersey were sentenced to prison, and 13 percent were sentenced to jail. In the Commission-sponsored Newark study, 88 percent of convicted gamblers in the sample of cases from the county prosecutor's office were sentenced to jail or prison terms. In other jurisdictions, suspended sentences, probation, or small fines are the usual sentence for gambling convictions. In California in 1973, of the 333 persons convicted of bookmaking a felony in California none were sentenced to prison, 10.2 percent were sentenced to jail, and 78.9 percent were placed on probation. Of those convicted of all felonies in California in 1973, 59 percent were given jail or prison sentences. Fewer than 3 percent of the persons convicted of gambling in Washington, D.C., in 1973 were given jail terms; another 11 percent were sentenced to jail or a fine; and 55 percent were either given a suspended sentence or placed on probation. 10 Of 517 persons convicted of gambling in Philadelphia in 1970, 5 were sentenced to jail. In Detroit in 1974, 262 persons were convicted of gambling conspiracy; none were jailed. In the gambling cases studied by the Chicago Crime Commission, fines were usually $100 or less. There are several reasons for judges' apparent reluctance to give more severe sentences to gambling offenders. Jail sentences or substantial fines might be expected where a gambling operation is shown to be associated with organized crime. It appears that such a connection is rarely established for gambling offenders. Two Detroit judges testifying before the National Gambling Commission discussed this issue." Judge Robert Columbo said that the defendants who appeared before him were not known gamblers and were not involved in organized crime. Judge Vincent Brennan questioned whether small-time, non- mob-controlled bookmakers should be jailed. Several Allegheny County (Pittsburgh) judges interviewed by the Pennsylvania Crime Commission agreed that a sentence must primarily reflect the characteristics pertinent to the individual and to the circumstances surrounding the offense, and cannot be made on the basis of a general societal goal of cutting off the flow of revenue to organized crime.* 2 Characteristics of gambling offenders, apart from organized crime considerations, affect the sentences they receive. The Allegheny County Court judges stated that gambling offenders in that court were often housewives, unemployed war veterans, senior citizens, or handicapped or disabled persons. Almost all were from the lower economic strata, and many were living on Social Security or pensions. Most of the gambling cases that come before judges are of a relatively nonserious nature. Judges in Allegheny County cited a lack of concerted and systematic efforts by police and prosecutors to reach upper level personnel in gambling operations as a chief reason for the light sentences imposed on a majority of offenders. And, like police and prosecutors, judges are affected by the fact that gambling is less serious than some other offenses that must be dealt with daily. Where this combines with a tolerant community attitude toward gambling, judges may find it difficult to justify harsh sentences. Finally, the existence of legal games affects sentencing decisions in gambling cases. Judge Edward Bell testified that the "State should not run a legal lottery" and at the same time impose "criminal sanctions against illegal 47 numbers." 83 Judge Brennan and several Allegheny County judges questioned the fairness of punishing one person for actions very much like those connected with legal gambling operations. CITIZEN ATTITUDES TOWARD GAMBLING ENFORCEMENT It is commonly thought by police and other criminal justice personnel that little public support exists for enforcement of antigambling laws. Inasmuch as police effectiveness depends in part on citizen support, this belief has consequences for gambling enforcement. In formulating gambling enforcement policies it is therefore important to determine the extent to which citizens are willing to assist police gambling enforcement efforts. A related policy question is whether or not citizens are satisfied with existing gambling enforcement efforts. To answer these and other questions, the Commission's national survey asked citizens about their views toward gambling enforcement. 84 Citizen Support To determine the level of citizen support for gambling enforcement, three questions were asked: (1) How important to you is it that gambling laws are strictly enforced? (2) Should people who are known to take illegal bets be arrested? (3) If they are arrested do you think they should go to jail? From the responses to these questions, it is apparent that there is significant citizen support for gambling enforcement. Forty-two percent said it is "very important" to enforce gambling laws; 74 percent said that persons who take illegal bets should be arrested; and 55 percent said that persons convicted of taking illegal bets should go to jail. 85 Thirty percent of the citizens surveyed agreed with all three; enforcement is very important, persons taking bets should be arrested, and they should be jailed. This group was designated as having a "high" level of support for gambling enforcement. Of the remaining respondents, 33 percent had "medium" support and 37 percent had "low" support for gambling enforcement. The highest support for gambling enforcement was found among those citizens who believe there should be laws against plaintiffless crimes and who had not gambled in the past year. More support for enforcement was found among citizens living in States with no legal gambling (31 percent) than among those living in States where off-track betting is legal (21 percent). Support among rural residents was slightly higher than that among central city or suburban residents. Citizens were asked questions regarding the extent of organized crime involvement in illegal gambling. Eighty-seven percent thought that profits from illegal gambling are used for drugs and loan-sharking operations while only 26 percent agreed that very few illegal gambling operations are run by organized crime. However, perceptions of organized crime involvement were not found to influence the level of support for gambling enforcement. 84 While 76 percent of the survey respondents said gambling enforcement was either "fairly important" or "very important," the priority of gambling enforcement was low relative to nine other offenses (table 3-12). The low enforcement priority of gambling compared to such offenses as selling heroin, burglary, or car theft is not unexpected. It is somewhat surprising, however, that only one-fifth of the citizens interviewed thought gambling enforcement was more important than enforcement against public drunkenness, prostitution, and pornography. 87 Citizen Assistance Citizens were asked about their willingness to report a gambling violation: If you were certain that you knew of someone who was in the business of taking illegal sports bets, do you think you would probably report it to the police or not? Thirty percent answered "yes." When asked whether they would report other types of offenses, a majority of citizens ranging from a low of 63.8 percent for selling marihuana to a high of 97.3 percent for robbery said they would. TABLE 3-12.-ENFORCEMENT PRIORITY "Which laws are more important to enforce than laws against gambling?" Offense Percent answering "More "Equally "Less important" important" important" Selling heroin 90.1 9.1 0.7 Drunk driving 87.1 11.6 1.3 Burglary 83.2 15.1 1.8 Car theft 80.5 16.8 2.6 Buying stolen property 74.6 20.1 5.3 Sale of marihuana 71.0 16.8 12.2 Public drunkenness 56.2 24.5 19.3 Prostitution 55.0 26.3 18.8 Pornography 51.2 27.9 21.0 The factors that are most closely associated with a willingness to report sports bookmaking to police were a high level of support for gambling enforcement and a belief that police will act on a citizen complaint. Sixty-four percent of citizens with high support for gambling enforcement said they would report; and 94 percent of those who thought police would act said they would report. 48 Citizen Satisfaction Citizens were asked whether they thought police should do more than, less than, or the same as they are doing now to enforce laws against illegal gambling. Thirty-nine percent said they wanted more enforcement, 6 percent said they wanted less, and 55 percent said they wanted the same. For the purpose of analysis the respondents were categorized as "satisfied" (persons who wanted the same or less) or "dissatisfied" (persons who wanted more) with current gambling enforcement efforts. Citizens with high support for gambling enforcement tended to be dissatisfied with current efforts. Citizens' perceptions of the amount of numbers and of police corruption also influenced their satisfaction with enforcement, with the perception of greater amounts of numbers and of police corruption resulting in a greater tendency toward dissatisfaction. Citizens' satisfaction or dissatisfaction with gambling enforcement had some influence on how they rated overall police performance. Citizens who were satisfied with gambling enforcement were more likely to rate the job police do as "good," "very good," or "excellent" (78 percent) than were citizens who were dissatisfied (60 percent). 88 CONCLUSIONS AND RECOMMENDATIONS Current efforts by the criminal justice system to enforce gambling prohibitions are too often characterized by inconsistencies, inefficiency, and ineffectiveness. Solutions are elusive because it is not possible to isolate a single cause of the problems. The Commission believes, however, that significant improvement is possible and that such improvement will require the efforts of both State legislatures and the various agencies of the criminal justice system. Different jurisdictions experience different kinds of problems in gambling enforcement. Numbers and sports betting are the predominant forms of illegal betting in most major Eastern cities; in large Western cities there is considerable illegal bookmaking but little or no numbers play. Illegal gambling in any form has traditionally been less of a problem in most smaller cities. Citizen support for gambling enforcement varies by size of jurisdiction. Many of the Commission's recommendations, therefore, vary in their applicability. It is the responsibility of the officials and citizens of each State and local jurisdiction to assess the quality of gambling enforcement and, where it is found lacking, to implement appropriate changes. Many of the Commission's recommendations are relevant to areas beyond gambling. This is particularly true of enforcement against organized crime. The Commission's mandate, however, is limited to gambling; therefore, discussion of the broader applications is left to State and local jurisdictions. Gambling Policy Decisions Current gambling policy at the State level accurately reflects the ambivalence and contradiction that have traditionally characterized this Nation's approach to the problem of gambling. The States often have found it difficult to formulate reasonable and consistent gambling policy and law. Over the years, two strong, conflicting sentiments have surfaced : that gambling is a morally and socially destructive activity that must be suppressed, and that the enormous popularity of gambling makes it a suitable activity for governments to channel into useful and productive ends through licensing and taxation. The history of gambling policy in the United States has been a constant tug of war between these two philosophies, in which each side appears to gain the advantage for a certain period and then begins to lose ground. Also underlying the passage of antigambling laws has been the desire to fight organized crime, to maintain public order, or to preserve the work ethic. In the current era of economic distress combined with increasing tolerance of once-proscribed activities, the lure of legal gambling revenues has prompted a number of States to reexamine their gambling policies with a view toward legalization. Several States have for many years permitted betting at racetracks; more recently, off-track betting has become legal in some jurisdictions. Yet taking bets on horses anywhere except at a track or at an official off-track location is subject to criminal prosecution. Charitable organizations are widely exempted from gambling prohibitions in order that they may sponsor raffles or bingo; similar endeavors of a commercial nature are prohibited. State-run lotteries and numbers games have been instituted, but these same forms of gambling are prohibited if privately run. Many States are presently attempting to promote and suppress gambling at the same time. While there is nothing inherently wrong with this type of dualistic approach, since gambling is not one but many different activities, there is evidence that neither the legal gambling operations nor the attempts at suppression are achieving their stated objectives. (For a discussion of the objectives and policy decisions regarding legal gambling, see chapter 4 of this Report.) There is some evidence that the existence of gambling sanctioned, licensed, or run by the various States and the attendant publicity tends to increase citizen participation in illegal as well as legal gambling. While State legislators have been quick to prohibit certain forms of gambling, they have generally been less willing to provide the tools necessary to enforce such prohibitions. As a result, law enforcement agencies are faced with an impossible task. In many jurisdictions, the deterrent effect of antigambling laws is weakened by the 49 fact that the illegality of gambling is restricted to persons who take bets, while those who make bets are not violating the law in doing so. A majority of States have failed tt> authorize electronic surveillance a tool widely accepted as necessary to enforce gambling laws effectively. Similarly, only a few States have instituted investigative grand juries with either statewide or local jurisdiction. The lack of commitment to enforcement of gambling prohibitions is also reflected in the level of resources devoted to that purpose. Legislative bodies are increasingly reluctant to expand criminal justice appropriations in general; but even in past years when budget increases were more available to criminal justice agencies, little if any effort was made to provide the resources required for a serious gambling enforcement effort. Legislators appear to have considered their task complete upon enactment of antigambling laws, without considering that successful enforcement would likely require additional police, prosecutors, and judges. A number of States have provided for increased penalties for convicted gambling offenders. However, this appears to have been done without consideration of relevant questions: If judges have rarely made use of the lower maximum sentences previously available to them, are they likely to sentence gambling offenders more severely now? If so, will this result in a greater number of trials, necessitating additional prosecutors, judges, and courtrooms? If sentences do increase in severity, can any significant number of gambling offenders be housed in existing jails, or will new ones be needed? States also have not established priorities among the sometimes contradictory goals of gambling prohibition: organized crime control, minimization of corruption, preservation of a public image of integrity for police departments, maintenance of public order, and proper use of resources. Most of the recent official attention given to gambling has centered around the question of whether or not to legalize various games. It is clear that equal attention must be given to the role of gambling prohibitions. A continuation of the current "patchwork" policies can only mean a continuation of contradictory goals and of problems in enforcing gambling prohibitions. Clearly, States must debate and decide the goals of gambling prohibitions and must consider the available and necessary strategies for achieving those goals. While State legislators bear most of the responsibility for the current lack of consistent gambling policies, criminal justice agencies must assume their share of the blame. Police, prosecutors, and judges alike have been ostrichlike in their failure to communicate with each other or with State legislatures concerning the problems of enforcing gambling prohibitions. The prevailing attitude seems to be that each criminal justice agency can perform its function while remaining oblivious to what occurs in the rest of the system, and that it is inappropriate to "interfere" in the legislative process. The Commission believes the contrary to be true. The policy decisions of criminal justice agencies that affect gambling enforcement must be made cooperatively. Further, criminal justice officials have a responsibility to make their views known to legislative bodies, and this responsibility must be met in the area of gambling policy. The view that the criminal justice system ought to work cooperatively is not a new one. However, practices reflecting this view remain the exception rather than the rule. In addition to, or in the absence of, legislative policy changes, the Commission believes that changes some legislative, some directed at agency policies and procedures can be made that will substantially lessen the current problems of gambling enforcement. Police The Commission recommends that concurrent State-county-local jurisdiction in the investigation and prosecution of gambling be instituted so that State and/or county responsibility in the enforcement effort against high-level gambling offenders particularly bookmakers and numbers operators may be increased. Where serious and large-scale illegal gambling exists, the effort to combat it must be centralized and specialized in order to be effective. The mounting of such an effort in each local police department within a State or metropolitan area is an inefficient use of resources. Although police in smaller jurisdictions generally have a less serious gambling problem, they also have fewer resources available for gambling enforcement. Thus, an increased effort at the county or State level can be of particular use to small police departments. And although large-city departments have greater resources available, the fact that most illegal gambling, as well as violent and property crimes, are concentrated in urban areas places a strain on those resources. An increased Federal role in gambling enforcement has benefited the efforts against interstate gambling operations. However, the fact that many, if not most, illegal gambling operations also cross intrastate jurisdictional lines has often been a hindrance to local police. The Commission believes this problem can be alleviated by an increased gambling enforcement role for State and county authorities. Within local police departments, specialization in gambling enforcement is desirable. Responsibility spread among all patrol officers or all vice squad members weakens the gambling enforcement effort. Patrol officers, because of their uniforms and their regular duties, can make only low-level gambling arrests. Assigning vice officers multiple responsibilities decreases the likelihood that the necessary expertise and sophistication in gambling enforcement will be developed. Therefore, for those police departments of sufficient size to support structural specialization, and where the amount and nature of illegal gambling warrants it, the Commission recommends the establishment of specialized gambling enforcement units. In departments where such a unit is not feasible, the Commission recommends that one or more officers be given the assignment of directing the gambling 50 enforcement effort. The Commission recognizes that where there are specialized gambling units, there is a potential for corruption. This potential, however, is not limited to specialized units, but exists in any kind of gambling enforcement structure. In any event, police departments have a continuing responsibility to institute and maintain measures to prevent and control corruption. Regardless of the enforcement role of State or county agencies, enforcement against nonserious gambling violators should remain the responsibility of local police. The status of enforcement aimed at low-level offenders is of particular concern to the Commission. Arrests of nonserious gambling violators have too long constituted the major portion of the gambling enforcement effort, despite the fact that such arrests cannot make any significant contribution to organized crime control. The proper and achievable objectives of enforcement against low-level gambling violators are minimization of corruption, preservation of a public image of integrity for police departments, maintenance of public order, and the proper use of criminal justice resources. The Commission recommends that the major enforcement effort be directed at large-scale organized gambling, and that enforcement against less serious gambling offenses- such as social gambling in public and public activity by low-level employees of gambling organizations be aimed at accomplishing the above objectives. Enforcement directed at low-level gambling employees and persons engaging in social gambling in public places must be sufficient to meet the public's expectation that obvious violations of the law will be dealt with and to discourage illegal gambling operations from open promotion. Police department policies that result in the wholesale arrest of such offenders should be avoided; inundating prosecutors and courts with these cases is a misuse of resources and has no impact on illegal gambling. Gambling arrest quotas, official or informal, should not be established; at the same time, policies such as requiring elaborate paperwork that discourage officers from making gambling arrests should not be established. The Commission has considered recommending the issuance of low-collateral citations for public social gambling, thereby eliminating the waste of resources entailed in the current formal processing of these offenders without changing the nature of the penalty ultimately assessed. Use of citations for crimes that do not have plaintiffs is not a new concept; a number of States have instituted such a system for marihuana consumption offenses. Ultimately the Commission has had to reject this approach, having been persuaded that voluntary compliance with this scheme would be extremely low, both promoting disrespect for the law and requiring substantial followup effort to enforce payment. The major reason for continuing the criminal status of social gambling in public settings is the belief that such gambling is likely to lead to disturbances of the public order. However, the laws prohibiting public social gambling account for a major proportion of gambling arrests of blacks, making it apparent that such laws are discriminatory in effect, though not in intent. The Commission believes that serious consideration should be given to removing statutory prohibitions against public social gambling. Numbers writing or other activity by low-level employees of gambling organizations occurring in public places is a somewhat different matter. Although the Commission has recommended that the major investigative responsibility be vested in a particular agency or unit, the patrolling police officer still has the responsibility to take action where he observes an open gambling violation. Such offenses should be processed as minor criminal offenses. Although corruption related to gambling enforcement is a problem that has manifested itself primarily in large Eastern police departments, no department should consider itself immune. Implementation of the Commission's recommendations concerning specialization and emphasis on enforcement against high-level offenders should contribute to the prevention of corruption in gambling enforcement. The Commission believes, however, that administrators, through their attitudes and statements, play a most important role in the prevention and control of corruption. It must therefore be made clear by police chiefs and other administrators that misconduct will not be tolerated. And the tradition of "reacting" to corruption must continue to be replaced by preventive measures. Prosecutors The role of prosecutors in gambling enforcement is an important one. The apparent reluctance of prosecutors' offices to take gambling cases seriously has been a source of discouragement to police and a factor in the ineffectiveness of gambling enforcement. The basis for prosecutorial attitudes is not hard to find. Gambling cases can be long and technical; in many offices, the expertise to try these cases competently is lacking. A continual flow of low-level gambling cases from police has tended to overshadow cases involving serious gambling offenders. In addition, the prosecutor, like the police officer, must be discouraged by the very light sentences given to convicted gambling offenders. The Commission's recommendations to police agencies should insure that prosecutors receive a greater proportion of serious gambling cases and a lesser number of low-level ones. While this alone will provide some incentive to prosecutors to treat major gambling cases seriously, greater expertise and more direct involvement by prosecutorial agencies are needed as well. Gambling, particularly at the higher levels, is a sophisticated business. To prosecute major gambling figures successfully, prosecutors must have more than courtroom know-how; they must understand how bookmaking and numbers operations work, and they must be knowledgeable about the use of electronic surveillance, grand juries, immunity, and contempt citations as tools against gamblers. The seminar or conference model is of 51 limited usefulness in raising prosecutorial expertise in gambling cases to the level needed. The Commission therefore, recommends that law schools and professional associations (e.g., National Association of Attorneys General and the National Association of District Attorneys) provide comprehensive postgraduate training in the prosecution of gambling cases. Rigid separation of the prosecutorial and investigative functions is a hindrance to successful gambling enforcement. The likelihood of success in gambling prosecutions will be increased where prosecutors specify to police agencies the elements required for a gambling case to receive a serious prosecutorial effort, consult with and advise police during the investigative phase of major gambling cases, and assign an appropriate number of assistant prosecutors to handle gambling cases. The Commission endorses the strike force concept, whereby police and prosecutors work cooperatively throughout the investigation and prosecution of gambling cases. In some jurisdictions the appropriate vehicle for such cooperation will be the establishment of a strike force or a joint investigative-prosecutive unit. Other jurisdictions may wish to implement mutual police-prosecutor involvement without creating a formal structure. Electronic Surveillance The basis of enforcement against major gambling operations, particularly bookmaking, must be electronic surveillance. Without this tool, it appears that law enforcement efforts will never reach beyond the lower levels of operation such as the numbers writer and the bookie's telephone clerk. This is apparent for three reasons: the heavy and unavoidable reliance of the bookmaking profession on telephones for routine transactions; the lack of witnesses who might provide independent evidence; and the fact that wiretap authority becomes essential when, because the lower level arrestees see themselves running small risk of incarceration, they will provide little information to aid in the conviction of major operatives. Gambling wiretaps have seldom been used in States outside of New Jersey and New York; thus it is difficult to provide a detailed evaluation of State use of this tool. In some instances, gambling wiretaps have resulted in the prosecution and conviction of high-level gambling figures associated with organized crime. At the same time, there is evidence that electronic surveillance has also been used to investigate low-level gambling activity." Nevertheless, over half the people convicted in State gambling cases in which wiretapping is used are sentenced to incarceration. 90 It is the Commission's view that wiretapping in gambling cases, when properly used, can provide local law enforcement agencies with a highly productive means of obtaining convictions and jail terms for high-level members of gambling operations. It is unlikely that this can be accomplished without electronic surveillance. The Commission therefore recommends the continued use of electronic surveillance in major gambling cases. In those States having a substantial amount of illegal gambling and where electronic surveillance is not now authorized, the Commission recommends the passage of legislation authorizing the use of electronic surveillance in gambling cases. It is of the utmost importance that where electronic surveillance is used, the rights and privacy of citizens be safeguarded. 91 The Commission's recommendation that police and prosecutors work cooperatively on gambling cases has special application in electronic surveillance cases inasmuch as prosecutors' monitoring of wiretaps is central to insuring that they are properly conducted. Sentencing In almost every State in the Nation, convicted gambling offenders are subject to either moderate fines or sentences of probation. Only in New Jersey does the convicted gambler face a serious threat of significant periods of incarceration. The result is that, outside of New Jersey, the police lose one of their major tools for enforcement the threat of a substantial penalty. The Commission is aware that there is widespread disagreement as to the seriousness of gambling violations per se. In a system where convicted muggers often receive sentences averaging no more than a few months in jail, it is difficult to exhort judges to subject all convicted gambling operators to lengthy sentences indiscriminately. Nonetheless, it should be noted that a strong majority of the citizens surveyed by the Commission agreed that gambling violators should be jailed. In many cities, there is widespread support for the notion that organized crime poses a serious threat and that illegal gambling is an important part of its activity. Judges who decide to impose substantial sentences on major gambling violators will find strong support for their actions. It is clear that many judges fear that imposition of heavy sentences in routine gambling cases exposes them to the risk of many protracted trials. In New Jersey, however, where judges have followed such a sentencing policy for the past decade, excessive crowding of the court calendar does not appear to be a problem. Moreover, what the Commission is recommending to police and prosecutors is likely to lead to the presentation of fewer and more serious gambling cases in court. It appears that the information available to judges in the sentencing of gambling offenders is often inadequate. Presentence reports are not routinely requested and prosecutors often fail to present information concerning a defendant's organized crime connections. If major gambling offenders are to receive serious sentences, courts must have sufficient information at the time of sentencing 52 to determine the appropriate penalty. The Commission organized crime activities. Where it can be shown that therefore recommends an increased use of presentence the offender is a major gambling figure and is involved in reports in gambling cases. The sentence should take into organized crime, a significant jail term together with a account both the prior record of the offender and any substantial fine should be given. For lesser offenders, a evidence presented at the sentencing hearing that concerns substantial fine alone is appropriate. 53 FOOTNOTES ' Crime in the United States, 1974, Uniform Crime Reporting Section, Federal Bureau of Investigation, U.S. Department of Justice, table 29, page 181. The total of 61,900 gambling arrests is projected from 45,900 actual arrests reported by law enforcement agencies covering approximately 75 percent of the U.S. population. 1 During the same 14-year period, the only areas in which arrests declined are: sex offenses, 14.2 percent; offenses against family and children, 45.1 percent; drunkenness, 43.4 percent; vagrancy, 77.7 percent; and suspicion of a crime, 76.2 percent. Much of the decline in drunkenness arrests is due to decriminalization of public drunkenness. Much of the decline in arrests for vagrancy and suspicion has resulted from court decisions declaring unconstitutional the statutes under which many of these arrests were made. 1 It is probable that jurisdictional variations in gambling laws result in some inconsistencies in the classification of gambling arrests by game. 4 Of course, not all bookmaking and numbers/lottery arrests are of a serious nature, but generally "all other gambling" arrests tend to less serious than those in the other two categories. 5 Prior to revision of the gambling statutes in 1973, persons in Connecticut were arrested and charged with such offenses as "betting on a horserace" and "policy playing." The latter, in fact, accounted for approximately 20 percent of gambling arrests between 1969 and 1971. In contrast, no arrests have ever been made under the District of Columbia statute that prohibits betting in a gambling pool or with a bookmaker. Interpretation of these and other statistics regarding arrests by population group are rendered difficult by several characteristics of Uniform Crime Reports. Arrests classified as "suburban" include those made by suburban, city, and county police agencies within metropolitan areas. Suburban arrests are also counted in city arrest totals. County arrests are those which occur in the county and outside of city limits. UCR population group definitions are different from those used by the U.S. Census Bureau, making it difficult to determine whether or not that portion of the population covered by UCR accurately reflects total U.S. population groups. 7 This is difficult to measure precisely because the rate per 100,000 declined by just over 50 percent, while the percentage of all gambling arrests rose from 1 percent to 2 percent between 1969 and 1974 (table 3-3). I In this table, it should be noted that the percent of all gambling arrests is a less reliable indicator of changes than the arrest rate, since changes in proportion may reflect the movement of the popu- lation rather than actual changes in gambling arrests. (Note: Percentages do not add up to 100 percent because of overlapping population group definitions.) Source: Prosecutor's Management Information System (PROMIS), Institute for Law and Social Research, Washington, D.C. 14 Hereinafter cited as the IACP survey. Police departments in cities with a population of 25,000 or more were surveyed for the National Gambling Commission by the International Association of Chiefs of Police (IACP). The original sample included 587 city police departments and State law enforcement agencies. (Responses of State agencies are not used in this chapter because of the small number responding.) Of the city police departments, 298 responded, for an overall response rate of 55 percent. The number of departments participating in the survey by city size was: 250,000 and over 40; 100,000 to 250,000-73; 50,000 to 100,000-65; and 25,000 to 50,000-120. Respondents, who included both chiefs of police and officers experienced in gambling enforcement, were asked about the gambling enforcement policies and practices of their departments and about their own attitudes toward gambling enforcement. The survey data were analyzed by the Survey Research Program, University of Massachusetts (Pratter, et al.). For their report, see the appendix to this Report. " See "An Analysis of the Characteristics of Arrested Gamblers in the State of New Jersey" and "The Effect of Increased Enforcement of Gambling Laws" (Riedel and Thornberry) in the appendix to this Report. II Pennsylvania Crime Commission, Patterns of Sentencing in Allegheny County Gambling Cases (Harrisburg: Commission), 1974, pp. 27 and 41. 11 For the purpose of the IACP questionnaire, organized crime was defined as "the unlawful activities of the members of a highly organized, disciplined association engaged in supplying illegal goods and services, including but not limited to gambling, prostitution, loansharking, narcotics, labor racketeering, and other unlawful activities of members of such organizations." 14 Testimony of Robert J. diGrazia before the National Gambling Commission, Boston, Massachusetts, April 10, 1975. 15 Testimony of Lieutenant Edward Berry, Commanding Officer, Gambling Section, and Commander Michael J. O'Donnell, Vice Control Division, Chicago Police Department, before the National Gambling Commission, Chicago, Illinois, September 24, 1975. ' Kretz, James. Po//ce Perception of Plaintiffless Crime: Preliminary Report of a Survey of the District of Columbia Metropolitan Police Department, Washington, D.C.: Bureau of Social Science Research, Inc., July 1973. 17 Hereinafter cited as the FOP survey. In August 1975, the National Gambling Commission surveyed delegates to the national conference of the Fraternal Order of Police (FOP). The delegates, 1 for every 50 FOP members, were selected locally by popular vote and numbered 1,803. Fifty-seven percent (1,021) of the delegates participated in the survey. " Hereinafter cited as the Commission's citizen survey or the national survey. See chapter 4 of this Report for a description of the survey's methodology. The survey included a series of questions about citizen attitudes toward gambling enforcement. The results of that section were analyzed by the Survey Research Program, University of Massachusetts (Mangione, et al.). For their report, see the appendix. See also the section of this chapter entitled Citizen Attitudes Toward Gambling Enforcement. " See the section of this chapter entitled "Disposition and Sen- tencing of Gambling Offenders." See also State and Local Gambling Enforcement Statistics (Duncan), appendix to Report. 20 See Jonathan Rubinstein, Gambling Enforcement and Police Corruption; Carol H. Duncan, Gambling-Related Corruption; appendixes to Report. 21 New York Commission to Investigate Allegations of Police Corruption and the City's Anticorruption Procedures (Knapp Commission) Commission Report (New York: Commission, 1972); Pennsylvania Crime Commission Report on Police Corruption and the Quality of Law Enforcement in Philadelphia (St. Davids: Crime Commission, 1974). a Pennsylvania Crime Commission, Report on Police Corruption, p. 168. The Crime Commission states that "evidence of payments was obtained through sworn testimony of gamblers and police officers, tape recorded conversations with gamblers and police officers, and direct observations of payoffs." Walter M. Phillips, Jr., State Special Prosecutor for Philadelphia, testifying before the National Gambling Commission on May 28, 1975, said thtt investi- gations conducted by his office during the year following the Crime Commission report had led him and his staff to agree with that commission's findings regarding gambling corruption. Police Com- missioner Joseph F. O'Neill, however, strongly disagrees with the conclusions of the Crime Commission and Mr. Phillips. In response to the allegation that gambling is "open and widespread," Com- missioner O'Neill said, "I defy anybody in this room to go out as a stranger and find a bookmaker that will take their bet or find a numbers writer that will take a number for you." (Testimony before the National Gambling Commission, Philadelphia, May 29, 1976.) In correspondence with the National Gambling Commission, Com- missioner O'Neill called the characterization of gambling corruption as widespread and systematic "patently false and not supported by fact," and noted that the investigative efforts of outside agencies during the past 5 years have resulted in the conviction of only one police officer for gambling-related corruption. (Letter to James E. Ritchie, August 4, 1976.) 23 See Annual Reports of Pennsylvania Crime Commission and New York State Commission of Investigation; James F. Ahern, Police in Trouble (New York: Hawthorne Books, Inc., 1972). New York and Pennsylvania have very active State-level investigative commissions, thus examples of gambling corruption in those States are well- documented. Police corruption generally also appears to affect small law enforcement agencies. Newspaper clippings collected from 30 States for a 2-month period in 1973 by the Police Foundation alleged corruption in small cities, sheriffs' offices, State police forces, and suburban police departments. See Herman Goldstein, Police Corrup- tion (Washington, D.C.: Police Foundation, 1975). 24 Many writers have characterized gambling corruption as one step in progressively more serious police corruption. See, for example, James F. Ahern, Police in Trouble; Thomas Barker and Julian 54 Roebuck, An Empirical Typology of Police Corruption (Springfield: Charles C. Thomas, Publisher, 1973); Robert H. Williams, Vice Squad (New York: Thomas Y. Crowell Co., 1973). 15 Goldstein, Police Corruption, p. 10. 24 See, for example, John Gardiner, The Politics of Corruption: Organized Crime in an American City (New York: Russell Sage Foundation, 1970). 27 See Duncan, Gambling-Related Corruption, appendix to Report. " In fact, one police method of extracting payments from gamblers is to seize records and then sell them back to the gamblers. 29 A sample of Fraternal Order of Police members was surveyed by the National Gambling Commission in 1975. (See footnote 17.) More than 80 percent agreed with the statement "the general public does not care if the law against various forms of gambling is enforced." Although the Commission's national survey found significant citizen support for gambling enforcement, the priority of such enforcement was low relative to other offenses. 30 In the FOP survey (footnote 17), a substantial majority of respondents agreed that prosecutors would rather not be bothered with gambling cases, and that judges usually give light fines and/or suspended sentences in gambling cases. A substantial majority disagreed with the statement that defendants in gambling cases are usually found guilty. 31 The Knapp Commission (p. 7) called the "rotten apple" theory a "basic obstacle to meaningful reform." 32 Goldstein, Police Corruption, p. 11. 33 For a detailed description of New York's past and present corrup- tion control measures, see Allan N. Kornblum, The Moral Hazards (Lexington: D. C. Heath and Company, 1976). 34 In 1975, the American Academy for Professional Law Enforcement sponsored a corruption conference which was attended by chiefs of police and internal affairs officers as well as academicians. A similar conference, sponsored by John Jay College of Criminal Justice, was held in 1976. Gatherings of this nature have only recently begun to be held. 35 The Field Associates Program and "turnarounds" have caused resentment among New York police officers. Kornblum (The Moral Hazards) criticizes these techniques on the grounds that they work by creating fear, changing behavior and not attitudes, and therefore are not appropriate for long-term use. 34 In Miami, Fla., for instance, most gambling arrests are made by the Dade County Sheriff's Office. 37 Washington, D.C.'s Metropolitan Police Department maintains gambling-only units at both the headquarters and patrol district levels. The Boston Police Department's central vice squad devotes about half of its resources to gambling enforcement, both initiating investigations and responding to patrol district requests for specialized assistance. " One such organization is the City-County Strike Force operated by the Essex County, N. )., Prosecutor's Office and staffed by police officers from Newark, East Orange and other Essex County juris- dictions. In the Detroit area, personnel from the Detroit Police Department, the Wayne County Sheriff's Office, the Wayne County Prosecutor's Office, the Criminal Justice Institute, and the Michigan State Police staff the Wayne County Organized Crime Task Force. w Where uniformed patrol officers play a significant role in gambling enforcement, a large proportion of relatively nonserious, on-view arrests may be expected. The uniform prevents detection of all but the most obvious illegal gambling activity (e.g., crap games in an alley or doorway or a numbers writer calling in work from a public phone booth) and patrol officers cannot neglect their regular duties to pursue a gambling investigation. 40 For instance, regulations of the New York City Police Department require that patrol officers report suspected illegal gambling activity for followup by plainclothes officers. 41 The appendix to this Report contains gambling enforcement training data for departments responding to the IACP survey. 42 Organized crime has been only one of several areas under study by most such commissions for instance, the Joint Legislative Com- mittee to Study Crime and the System of Criminal Justice in New Jersey. Legislative recommendations made by these groups, as well as by organized crime prevention councils, and subsequent legis- lative changes are indicative of increasing State interest in gambling and other organized crime activity. See the Gambling Enforcement Techniques and Tools section of this chapter. 43 Much of the impetus for increasing State interest in organized crime during this period came from the 1968 Report of the Task Force on Organized Crime of the President's Commission on Law Enforce- ment and Administration of Justice, and from broadened Federal powers in organized crime prosecution granted by Title III of the Omnibus Crime Control Act of 1968 and by the Organized Crime Control Act of 1970. 44 Funding by the Law Enforcement Assistance Administration to States for the prevention and control of organized crime increased from $1.4 million in fiscal year 1969 to more than $20 million in fiscal year 1971. 45 Organized Crime Programs Division, Office of Law Enforcement Programs, Law Enforcement Assistance Administration, U.S. Depart- ment of Justice, The Role of State Organized Crime Prevention Councils. 44 In 1971, for example, 174 of Rhode Island's more than 300 gambling arrests resulted from the activity of these units. 47 As of June 1975. Some new groups may have been created since that time. See Organized Crime Control Units (referenced in table 3-8) for the formal names of the State organized-crime control units. m The agencies included the FBI, IRS, Bureau of Alcohol, Tobacco and Firearms (ATF), neighboring police departments, county sheriff's offices, and State police. 4 * Respondents were asked to indicate the nature of their depart- ment's relationship with various other agencies on a 5-point scale, in which 1 = "no regular contracts, joint operations only as needed," and 5 = "formal, regular contracts for coordinating intelligence and investigative effort." When asked about the FBI, the average response for departments in cities with a population of 250,000 or more was 3.5 (the highest average score for any agency); for departments in cities with a population of between 25,000 and 100,000, the average response for the FBI query was 2.1. 50 For example: prostitution, narcotics, consensual homosexual activity, and pornography. 51 Exceptions to this occur when police observe such crimes in progress and take action, or when crimes take place but are not reported. It is clear, however, that incidents which cause a person to view himself as a "victim" are much more likely to be reported than those which do not. With the latter, police have the added task of finding violations. 52 This is particularly true of numbers operations. (See chapter 6.) 53 Theoretically, the number of bets taken or the number of persons engaged in illegal gambling could be counted. The point here, however, is that gambling is a continuing "service" rather than a series of separate violations. 54 Prior to the 1968 legislation placing electronic surveillance under Federal regulation, wiretapping was authorized and used in several States. 55 This is particularly true of bookmaking operations. Numbers operations are less dependent on telephones; however, both wire- tapping and bugging can effectively be used to reach upper echelon numbers figures who cannot be reached through other investigative procedures. 54 Of the 1,971 electronic surveillance orders approved for use in gambling investigations from 1969-1975, 77.1 percent were in New York (37.2 percent) and New Jersey (39.9 percent). 57 Records such as those required by Title III are not maintained for pen registers. The Report of the National Commission for the Review of Federal and State Laws Relating to Wiretapping and Electronic Surveillance (pp. 17 and 18) discusses pen registers and recommends that the law regarding their use be clarified. Due to the legal uncertainty surrounding the use of pen registers, phone companies deny police the use of leased lines when these devices are installed. Thus pen registers must be monitored in the field rather than from a central police location. M The genesis of some syndicated gambling legislation was the reporting of the link between such gambling and organized crime by the Kefauver Committee in the early 1950's. Following the Kefauver hearings, the American Bar Association drafted a model antigambling statute on which some of the State statutes are based. The Report of the President's Commission on Law Enforcement and Adminis- tration of Justice in 1967 and various State commission reports provided the impetus for much of the more recent legislation. For a detailed discussion of syndicated gambling statutes, see Organized Crime Control Legislation, The National Association of Attorneys General, January 1975. * For example, the maximum penalty in Massachusetts is 15 years imprisonment and a $10,000 fine; in Illinois and Indiana, the maxi- mum is 5 years and $5,000. 40 New Jersey (1968), Colorado (1971), Florida (1973), Wyoming (1973), and Rhode Island (1974). 41 One of the five States, Wyoming, does not permit the use of immunity in gambling cases. California, Kansas, Michigan, Nevada, Ohio, Washington, and Wisconsin. 43 Immunity is also used in Texas, but Is based on case law rather than statute. 44 Immunity can be granted, in effect, in any criminal proceeding 55 subject to certain procedural requirements. In contrast, some other States limit the use of immunity to specific offenses. 65 Only three of the States-New Jersey, Ohio, and Pennsylvania- authorize use immunity; other States authorize only transactional immunity. Where transactional immunity is granted, a witness cannot be prosecuted for any offense about which he is compelled to testify. With use immunity, however, the witness is immunized only for actual testimony and can be prosecuted on the basis of evidence from other sources. 44 Specific immunity statutes have frequently included such offenses as bribery, conspiracy, gambling, and white collar crimes. 47 Jonathan Rubinstein, Gambling Enforcement and Police Corrup- tion, Washington, D.C.: Commission on the Review of the National Policy Toward Gambling, 1974. * See Jonathan Rubinstein, City Police, New York: Ballantine Books, 1973, pp. 386-393. Although it is not known how widespread this practice is, there is no reason to believe that the Philadelphia Police Department is an isolated example. ** Each gambling surveillance (both State and Federal) for the period 1968-1973 cost an average of $7,792. It should be noted that this was the next-to-lowest average cost among a group of offenses which include narcotics, bribery, theft, counterfeiting, and extortion. Only surveillances in extortion cases were made less costly. (See Report of the National Commission for the Review of Federal and State Laws Relating to Wiretapping and Electronic Surveillance, Washington, D.C.: Government Printing Office, 1976, p. 260.) Infiltration of the higher levels of gambling organizations requires undercover operations of considerable duration. Unlike narcotics undercover operations, undercover gambling operations are not very productive. 70 The degree of effectiveness of gambling wiretaps is discussed in the Report of the National Commission for the Review of Federal and State Laws Relating to Wiretapping and Electronic Surveillance, p. 142 ff. 71 National Association of Attorneys General, Organized Crime Control Legislation, January 1975, p. 106. 72 The fact that this is true of many other offenses does not diminish its importance in gambling enforcement. The concern of law enforcement personnel about the lack of serious sentencing in gambling cases has been brought to the attention of this Commission in public testimony, interviews, informal conversations, and survey responses. 73 Several factors contribute to the limited availability of disposition and sentencing statistics for gambling. Although arrest figures are maintained by police departments, disposition data are based on the Uniform Crime Report convention, by which annual dispositions are recorded only for persons whose cases are disposed of during the same year in which they were arrested. Summary sentencing statistics are rarely maintained by police departments. Prosecutorial data, where available, consist primarily of conviction rates without complete information on the number of cases dismissed or nolle pressed; generally contain no information reflecting the reasons that cases have been dismissed or nolle pressed; often appear to use a data base other than arrests or cases referred for prosecution; and almost never contain summary sentencing statistics. Summary court data are often maintained for management purposes only, and thus contain no offense-specific information. Sentencing data, while maintained by courts on a case-by-case basis, are seldom maintained in summary form. The fact that, with rare exceptions, criminal justice statistics are not maintained on a systemwide basis results in incon- sistent data sets. For example, 1973 statistics on gambling offenders in the District of Columbia are available from three separate sources, each of which contains a different number of offenders. The Metro- politan Police Department records approximately 1,300 persons arrested for gambling in 1973 while the Prosecutor's Management Information System records approximately 400. The Superior Court of the District of Columbia lists about 450 gambling defendants whose cases were filed in 1973 and disposed of in 1973 or 1974. Differences in counting conventions and the fact that not all persons arrested appear in Superior Court explain some, but not all, of the discrepancies. 74 Jonathan Rubinstein, City Police, New York: Ballantine Books, 1973, p. 379. 75 See footnote 14. 74 Testimony of Stephen A. Schiller, Executive Director, Chicago Crime Commission, before the National Gambling Commission, September 23, 1975. 77 See The Effect of Increased Enforcement of Gambling Laws (Riedel and Thornberry), Appendix to this Report. 78 Fifty-one percent of the Washington cases were dismissed compared to 27 percent of the Newark cases. The conviction rate was 64 percent for the Newark cases and 46 percent for the Washing- ton cases. n A policy of severe sentences in gambling cases was approved by the New Jersey Supreme Court in State v. Ivan in 1960. In upholding a sentence of 1 to 2 years' imprisonment and a $5,000 fine for book- making, the court said: If the crime is a calculated one and part of a widespread criminal skein, the needs of a society may dictate that the punishment more nearly fit the offense than the offender. There the sentencing judge may conclude he should give priority to punishment as a deterrence to others and as an aid to law enforcement. (162 A.2d at 853) In 1967, the State's Chief Justice issued an administrative order aimed at achieving uniformity in gambling sentences by requiring that a single judge in each county sentence all gambling offenders. The Supreme Court is of the view that it is essential for the fair and effective administration of criminal justice that judges in imposing sentences adhere to the same general policy in cases which may involve syndicated crime. Unfortunately, in gambling cases efforts to achieve such uniformity, even within the same county, have not been successful when sentences have been imposed by whatever judge happens to be sitting at the time. Accordingly, the Supreme Court considers it necessary to require that the Assignment Judge in each county either personally handle all sentencing in gambling cases or designate a particular judge to impose sentence in all such cases, even though the case may have been tried or the plea taken before another judge. 80 See Gambling Enforcement in the District of Columbia (Duncan), Appendix to this Report. 81 Testimony of Judge Robert J. Columbo, Detroit Recorder's Court, June 25, 1975, and of Judge Vincent Brennan, Michigan Court of Appeals, June 24, 1975, before the National Gambling Commission, Detroit, Michigan. 82 Pennsylvania Crime Commission. Patterns of Sentencing in Allegheny County Gambling Cases. Harrisburg, Pennsylvania, 1974. 83 Testimony of former Judge Edward F. Bell, Wayne County Circuit Court, before the National Gambling Commission, Detroit, Michigan, June 24, 1975. 84 See Citizen Views of Gambling Enforcement (Mangione, et al.). Appendix to this Report. 85 Only 30 percent thought gambling violators were usually arrested, and only 32 percent thought they were likely to go to jail. 84 The lack of association between perceptions of organized crime involvement and level of support for gambling enforcement is un- expected, and may reflect inadequate measurement of these concepts. 87 Twice as many respondents (42 percent) said it is "very impor- tant" to enforce gambling laws. More sophisticated measures are needed to explain this inconsistency. One possibility is that public drunkenness, prostitution, and pornography impinge more on citizens' lives, making enforcement against these offenses more important than that against gambling, which may be less intrusive. 88 Also associated with a high rating of police were a perception of police as noncorrupt and a belief that police would act on citizens' complaints about stolen goods or sports bookmaking. 89 See Report of the National Commission for the Review of Federal and State Laws Relating to Wiretapping and Electronic Surveillance, pp. 4 and 6. 90 Op. cit., p. 271. " Safeguards on the use of electronic surveillance are discussed throughout the Report of the Wiretap Commission. 56 CHAPTER 4. SURVEY OF AMERICAN GAMBLING ATTITUDES AND BEHAVIOR As part of its statutory mandate to undertake a comprehensive legal and factual study of gambling in the United States, the National Gambling Commission in February 1975 asked the University of Michigan Survey Research Center to conduct a detailed survey of American gambling practices and attitudes. The survey contains a wide range of information about people who gamble the games they prefer, their exposure to and experience with various types of gambling, their attitudes toward legalization. It also includes data on the amount of gambling that occurs both legally and illegally, and on the revenue potential of legal gambling. The Commission has evaluated the survey findings and concluded that the survey procedure was sound and that the vast majority of the survey findings are reliable. However, as a result of a public hearing and consultation with various law enforcement and research experts, the Commission has determined that the survey results with respect to the amount of money that is wagered illegally each year cannot be considered definitive. (See "Wagering Estimates," below.) The debate on gambling policies covers many issues, from the revenue potential of legalized gambling to the possible corrupting effect of casinos. The National Gambling Commission, having been unable to come to definite conclusions about many of these issues because of lack of reliable information, designed its survey to provide that missing information. Among the questions which the project attempted to resolve were the following: Does legalization encourage or discourage illegal gambling? On the one hand, legal gambling might provide a convenient substitute for illegal gambling forms. On the other hand, it may be impossible, because of tax policies, to attract the illegal bettor away from illegal games. Legalization may make current nonbettors feel that betting is morally less reprehensible than they feel at present, thus adding to the illegal market. Does legalized gambling offer a major new source of government funding? There has been a tendency to overestimate the revenue potential of new forms of legal gambling. The initial estimates of government revenue to be derived from the first State lotteries and from the introduction of off-track betting in New York City proved to be far too high. Is taxation of gambling particularly regressive? It is commonly asserted that the poor tend to spend a larger percentage of their income on gambling than do the upper income groups. If this is true, taxation of legal gambling may be particularly unfair, since it penalizes those who can least afford to pay the taxes. Would legalization of gambling lead to a substantial increase in the number of compulsive gamblers- persons who gamble so heavily that it threatens their family and work relationships? It is often assumed that there are many people who currently do not gamble heavily, but who would become uncontrolled players if gambling were legal, easily accessible, and heavily promoted. On the other hand, it is also often argued that illegal gambling is now so prevalent and accessible that legalization would have little impact on a person with a strong interest in gambling. Is there strong sentiment in this country in favor of relaxing the current prohibitions against gambling? Does the sentiment toward legalization vary among the regions of the Nation and between the major cities and the rest of the country? In the past, few people favored the legalization of most forms of gambling. However, attitudes toward government regulation of essentially individual and elective behavior have changed. Whether this has led to a change in favor of legalization of specific forms of gambling must be determined. SURVEY METHODOLOGY The information and figures discussed in this Report were generated by personal interviews conducted by the Survey Research Center of the University of Michigan in the summer of 1975. The interviewers are permanent employees of the Survey Research Center; they work part- time as interviewers and are supervised by a full-time staff. The interviews were all conducted at the residences of the respondents. Participants in the sample were selected at random from the population of the Nation as a whole, excluding 57 members of the armed services and residents of institutions (e.g., prisons and hospitals). Since all prior evidence suggests that gambling is particularly prevalent among urban populations and males, the sample was designed so that there was a higher percentage of males and major city residents than other groups, thus insuring that as many data as possible were collected on bettors. In the calculations that follow, the fact that males and city dwellers had a higher probability of appearing in the sample was taken into account by giving those persons lower "weights" in making projections of the total volume of gambling. A total of 1,736 interviews were completed for the national sample, and the response rate was 75.5 percent. This means that nearly a fourth of the attempted interviews were not completed. The percentage of completed interviews was slightly higher than is usually obtained in national surveys;fewer than 12 percent of those approached refused to participate a figure slightly smaller than usual, suggesting that gambling is no longer regarded as a particularly sensitive subject for discussion by most of the population. In addition to the national sample, a special sample of 300 respondents was drawn from the three major urban areas of Nevada. These areas are Clark County (including Las Vegas), Washoe County (including Reno), and Carson City; together, they contain more than 80 percent of Nevada's population. The response rate was 70 percent for the Nevada sample. Of the nonrespondents, slightly more than half were persons who refused to cooperate, and this accounted for most of the difference between the response rates for the national and the Nevada samples. Before obtaining the interview in Nevada, the interviewer ascertained whether the respondent had lived in Nevada for less than 18 months or had moved to Nevada primarily because of the availability of legal gambling. If either of these conditions applied, the individual was not interviewed. This was done to help make the Nevada sample one that represents the effect of reasonably long exposure to legal gambling in many forms and to account for the fact that Nevada, because it has much more legal gaming than any other State, tends to attract persons with particularly strong gambling interests. Some data were collected on almost every form of gambling that prior research had found to exist in the country. However, detailed data covering expenditure, frequency, and attitudes were collected only on a very limited number of betting types, those that were thought to be most important in formulating policy. The games covered in detail were horse betting, lotteries, casinos, bingo, sports betting, and numbers. Few data were collected on betting with friends or on greyhound racing. Since the interview was already a very long one, averaging nearly an hour and a half each, it was necessary to curtail certain areas of inquiry. SURVEY RESULTS Gambling Participation It is important to look first at gambling participation patterns, not taking into account the amount bet but simply the percentage of particular groups that participated to any extent in various forms of gambling. These figures are given in table 4-1. The first striking result is the breadth of participation. Some 61 percent participated in some form of gambling during 1974, and 68 percent reported having participated in some form during their lifetime. Since the nongamblers are heavily concentrated among those over 65, it is possible that the true figure for lifetime participation is higher because an elderly respondent may have forgotten his youthful gambling experiences. While 61 percent participated in some form of gambling, about 1 3 percent only placed social bets with friends, leaving 48 percent who participated in a form of legal or illegal commercial gambling; however, that might mean only the purchase of a lottery ticket or participation in a bingo game at a local church. Eleven percent of the population (15.5 million adults) participated in some form of illegal gambling. Those who bet illegally also bet legally; scarcely 1 percent of the illegal bettors failed to bet legally as well. On the other hand, there is a good deal of exclusivity for the various legal games. For the five major forms of legal gambling, nearly half placed a bet on only one form. Similarly, for the four illegal games, 44 percent bet only on one form. Although betting participation is widespread, it is by no means uniform. There is a much higher participation in the Northeast (80 percent) than in the South (40 percent). More males bet than females (68 percent vs. 55 percent) and more whites than nonwhites (62 percent vs. 52 percent). Low income groups show lower participation rates than higher income groups (24 percent for those with household income of less than $5,000, compared to 74 percent for those over $15,000). Similarly, participation rises uniformly with education, from 41 percent for those with less than a high school education to 79 percent for those who have completed college. Looking at illegal bettors only, the profile changes sharply. The male-female differential becomes far sharper, while the white-nonwhite difference reverses itself. Regional differences become more pronounced among illegal bettors: The Northeast's participation rate is three times that of the South. The difference between rural and city or suburban participation also increases. NEVADA RESIDENT GAMBLING. Nevada residents, with easy access to many more forms of legal gambling than residents of other States, have a markedly different pattern of gambling participation. A higher percentage participate in commercial gambling, participate more often, and bet more money per annum. It is also significant that the regressivity of Nevada resident gambling is far greater than 58 in the rest of the Nation. Participation rates and volume of wagering are contained in tables 4-2 and 4-3, and regressivity measures are in table 4-4. The differences between the national and the Nevada gambling figures show up not only in the overall intensity of gambling involvement but in the differences between various social and economic groups who bet. Whereas for the national sample participation declines uniformly with age, in Nevada the age group 25-44 participates more than the 18-24 group. Similarly, gambling participation rises uniformly with education in the national sample; in Nevada, it peaks with completion of high school and declines slightly with further education. TABLE 4-1 .-REPORTED BETTING PARTICIPATION BY DEMOGRAPHIC CHARACTERISTICS Current Legal Current bettors (1974) Only legal Total Never non- com- com- Only Heavy sample bet bettor Any mercial mercial Friends friends Illegal illegal* Total Sample / o 100 32 39 61 44 7 50 13 11 3 Male / o 46 25 32 68 47 5 60 16 17 5 Female / o 54 39 45 55 42 9 42 10 5 1 White / o 85 31 38 62 45 7 52 13 10 2 Nonwhite / !, 13 39 48 52 38 8 38 8 17 5 18-24 years / o 14 25 27 73 48 6 65 20 15 3.1 25-44 years / o 43 26 31 69 52 6 59 13 14 3.1 45-64 years / ' 31 33 40 60 42 10 44 12 8 2.8 65+ years / o 12 65 77 23 17 5 15 5 2 * Employed / o 60 23 29 71 50 7 61 16 15 4 Unemployed / a 4 25 31 69 54 2 61 8 15 4 Under $5,000 / o 13 66 76 24 17 3 18 4 3 * $5,000-$1 0,000 / o 18 42 49 51 39 6 43 10 8 2.4 $10,000-$1 5,000 / ' 22 24 31 69 46 10 51 19 10 2.6 $15,000+ / o 41 21 26 74 54 7 63 15 15 3.3 Married / 75 31 38 62 44 7 51 14 11 2.5 Divorced/Separated / i> 7 23 29 71 57 5 . 55 7 16 6.6 Widowed / D 7 72 82 18 16 6 11 2 2 * Never Married / 12 27 30 70 53 9 59 14 15 2.6 Did not graduate H.S. / o 32 49 59 41 30 7 30 7 8 2 High school graduate / o 31 29 34 66 48 9 53 14 12 3.5 Some college / 'a 21 22 28 72 52 4 64 16 13 3.7 College graduate / 16 18 21 79 56 8 67 18 11 1.3 Catholic / o 27 17 20 80 65 11 63 14 16 4 Protestant / D 66 38 46 54 36 5 45 11 9 2.4 Presbyterian, Lutheran, Congregational, Episcopal / o 16 20 26 74 51 7 64 21 10 2.7 Bible-oriented sects / 11 57 67 33 19 6 25 9 8 2.2 Methodist / ' 13 30 37 63 41 3 53 15 11 2.2 Baptist / i 19 47 55 45 30 4 37 11 10 2.8 Jewish / o 2 23 23 77 66 7 66 8 19 2.1 Atheist, no preference / 4 44 60 40 33 3 36 5 5 .2 West European / o 40 23 30 70 49 7 59 17 11 2.4 East European / o 9 18 19 81 65 9 68 13 14 2.0 British / o 30 29 38 62 44 7 52 14 8 .6 Irish / o 22 26 35 65 47 7 56 14 10 2.4 Spanish-speaking / o 4 33 39 61 51 6 47 3 19 5.6 African / o 5 37 46 54 42 6 41 9 13 5.0 Italian / o 6 20 23 77 64 15 61 7 18 7.8 All others / o 21 51 59 41 29 7 31 8 9 2.3 59 TABLE 4-1.-REPORTED BETTING PARTICIPATION BY DEMOGRAPHIC CHARACTERISTICS continued Current Legal Current bettors (1974) Only legal Total Never non- com- com- Only Heavy sample bet bettor Any mercial mercial Friends friends Illegal illegal* Northeast % 23 17 20 80 67 8 67 8 19 6 North Central % 28 28 34 66 48 9 48 15 12 3 South % 31 52 60 40 23 5 31 12 6 1 West % 18 24 35 65 47 7 56 17 7 * City 100,000 or more O/ 07 /O ./ 28 34 66 46 7 54 14 15 5 Suburb of city over 500,000 % 23 23 28 72 56 7 59 12 14 3 Small cities, rural O/ C-1 /O J 1 39 47 53 38 7 43 12 7 1 25 or less miles from 25 largest cities % 33 28 33 67 49 8 53 12 15 4 26-49 miles from 25 largest cities % 12 20 24 76 57 2 69 16 15 4 50 miles or more from 25 largest cities /o 55 38 46 54 39 7 44 12 8 2 "Less than one-half of 1 percent. 'Respondents wagering more than $200 a year on illegal gambling. NOTE: Percentages read across the table. TABLE 4-2.-1974 GAMBLING BEHAVIOR OF UNITED STATES AS A WHOLE COMPARED TO NEVADA RESIDENTS* United States Nevada Average Average Participation annual wager Participation annual wager Game (% of adult pop.) per bettor (% of adult pop.) per bettor Legal Horses at track 13.9 $ 448 3.2 $103 Off-track betting parlors 13.5' 1,118 6.0 179 Slot machines ] 72.1 377 Keno [ 9.4 448 54.2 N/A Casino games J 27.3 846 Bingo 18.7 74 24.1 104 Lottery 47.8" 25 Sports betting parlors 8.0 158 Total legal commercial 44.0 C 273 76.0" 665* Illegal Sports books 1.9 623 2.9 275 Horse books 2.4 416 1.9 131 Numbers 3.0 273 0.0 Sports cards 3.0 44 3.0' 36' Total illegal 11.2 318 4.3 257 'All estimates are subject to sampling variation. New York only. ''States with legal lotteries only. 'Includes dograces, jai Jrlal, and other legal forms of gambling not shown above. 'Includes sports cards. Sports cards are legal in Nevada. 60 TABLE 4-3.-COMPARISON OF REPORTED BETTING PARTICIPATION BY DEMOGRAPHIC CHARACTERISTICS, NEVADA AND NATIONAL SAMPLE Current Bettors Nevada National Total Sample ' % 78 61 Male ' % 87 68 Female ' >/o 70 55 White >/o 79 62 Nonwhite ' '/o 66 52 18-24 years ' >/o 75 73 25-44 years ' >/o 86 69 45-64 years ' '/o 80 60 65+ years ' '/o 41 23 Employed ' y 87 71 Unemployed ' Xo 76 69 Under $5,000 ' >/ 63 24 $5,000-$10,000 ' >/ 74 51 $10,000-$1 5,000 >/o 78 69 $15,000+ < Yo 85 74 Married ' >/ 80 62 Divorced/separated ' y 78 71 Widowed ' Yo 54 18 Never married y 78 70 Did not graduate high school ' y 71 41 High school graduate ' Yo 82 66 Some college Yo 80 72 College graduate ' '/o 78 79 Catholic ' Yo 83 80 Protestant c '/o 77 54 Presbyterian, Lutheran, Congregational, Episcopal ", ' 92 74 Bible-oriented sects ' /o 82 33 Methodist ' '/o 72 63 Baptist fo 77 45 Jewish ' '/o 70 77 Atheist, no preference /o 55 40 West European /o 79 70 East European /o 67 81 British '/o 79 62 Irish '/o 79 65 Spanish-speaking /o 72 61 African 1 / 46 54 Italian fo 92 77 All others 1 /o 80 41 As might be expected, the most marked differences occurred in casino gaming. More than 72 percent of Nevada residents played the slot machines in 1974; no comparable participation figure is available for the national sample, since most non-Nevada residents play slot machines only while at a casino, where they also play other games. For the Nevada resident, slot machines are readily available in many stores and public places outside of casinos. Twenty-seven percent went to a casino; this compares with 9.4 percent for the national sample. More striking are the figures on the amount wagered on these two forms of gambling by Nevadans: $377 per player on slot machines inside and outside of casinos and $846 for casino and table games. For the national sample, the average bet for both slot machines and casinos and table games totaled only $448 per player (see table 4-5). Two other games attracted substantial participation: keno and bingo. Both are offered at Nevada casinos. It is interesting to note that bingo retains its appeal even with other casino games available. The Nevada participation rate of 24 percent for bingo is higher than the 21 percent for other States where it is legal and where it is often the only legal form of gambling available. Keno is not played outside Nevada. Two other forms of gambling are legally available only in Nevada horse betting parlors and sports betting parlors. Sports betting parlors attract a higher participation rate than does illegal bookie betting on sports in the rest of the Nation, but the per-bettor handle is a great deal lower, $158 compared to $623. This suggests that the legal parlors may attract new, low-volume bettors. The same holds for off-track betting parlors, but it should also be noted that there are no significant horseracing or dogracing operations in Nevada. Illegal betting in Nevada is less common and less intense than in the rest of the Nation. Only 4.3 percent participated in any illegal form, compared to 11 percent outside of Nevada, and the average amount wagered per illegal bettor in Nevada was substantially lower for both horse and sports-book betting. It is understandable that TABLE 4-4.-REGRESSIVITY OR PROGRESSIVE BY TYPES OF GAMBLING, UNITED STATES AND NEVADA ONLY Came Index of progressivity (P) or regressivity (R) U.S. as a whole Nevada residents only Numbers .44 (R) Sports cards .40 (R) / Lottery .31 (R) Bingo .30 (R) .58 (R) Horse books .27 (R) / Horse tracks .17(R) / Off-track horse betting parlors .07 (R)' .56 (R) Slot machines I .41 (R) Keno k26 (P) N/A Casino tables I .46 (R) Legal sports betting parlors .36 (R) Illegal sports books .29 (P) / All types combined .17 (R) .42 (R) For comparison: all sales and excise taxes .15 (R) N/A Federal income tax .15 (P) N/A New York OTB only. ''Sample too small to permit reliable estimate. 61 numbers was not played at all in the State in 1974, given Nevada's relatively homogeneous population and lack of large urban areas. All forms of gambling are more regressive in Nevada than elsewhere (table 4-4). In fact, bingo in Nevada is slightly more regressive than any other form of gambling, either in Nevada or in the rest of the Nation. Only numbers and sports-card betting, outside of Nevada, are more regressive than the least regressive of Nevada's games: legal sports betting parlors. Only 2 percent of Nevadans bet only with friends during 1974, compared with 19 percent outside of Nevada. It appears that widespread legal gambling facilities substitute not only for illegal gambling but also for social gambling. Further evidence of this can be drawn from figures on lifetime participation in illegal gambling. In the national sample this percentage rises from 16 percent in the youngest group to 29 percent in the oldest group. In Nevada, the figure for the 18-24 age group is 2 percent but for those over 65, it is 24 percent. This suggests that there are many people in Nevada who used to bet illegally but now, given the availability of legal games, do not (table 4-6). TABLE 4-5.-CAMBLING AND FAMILY INCOME, BY TYPE OF GAME Horses-track (States with legal tracks only) Percent who bet Average annual bet per bettor Average annual bet per capita Average annual takeout per capita (takeout rate, 16.6%) Horses-OTB (New York only) Under $5,000 8.7 $185.5 15.85 2.63 $5,000 10,000 15.5 $293.51 45.49 7.55 Family income Total $10,000 $15,000 $20,000 $30,000 respon- 15,000 20,000 30,000 and over dents* 11.2 17.2 20.9 20.3 15.9 $395.75 $577.48 $294.20 $435.87 $512.70 44.32 99.33 61.49 88.48 78.44 7.36 16.49 10.21 14.69 13.02 Percent who bet 9.9 14.8 21.2 27.3 13.5 Average annual bet per bettor $1,594.97 $353.75 $743.37 $1,412.07 $1,118.35 Average annual bet per capita 157.90 52.36 157.59 358.48 150.98 Average annual takeout per capita (takeout rate, 21%) 33.16 11.00 33.09 80.95 31.71 Legal casinos Percent who bet 4.12 8.06 6.21 12.33 12.31 20.62 9.45 Average annual bet per bettor $586.57 $193.17 $124.33 $336.57 $261.70 $1,293.93 $448.26 Average annual bet per capita 24.58 15.57 7.72 41.50 31.74 266.81 42.36 Average annual takeout per capita 3.69 2.34 1.16 6.23 4.76 40.02 6.35 Bingo Percent who bet 8.68 18.84 20.27 21.56 22.05 17.17 18.73 Average annual bet per bettor $141.66 $25.59 $113.91 $54.90 $64.70 $97.34 $74.11 Average annual bet per capita 12.30 4.80 23.09 11.84 14.27 16.71 12.97 Average annual takeout per capita (takeout rate, 33%) 4.06 1.58 7.62 3.91 4.71 5.51 4.28 Lotteries (States with lotteries only) Percent who bet 30.6 45.5 52.5 60.0 57.4 50.6 47.8 Average annual bet per bettor $24.43 $37.16 $32.07 $18.59 $24.79 $17.24 $25.26 Average annual bet per capita 7.48 16.91 16.84 11.15 14.23 8.72 12.71 Average annual takeout per capita (takeout rate, 55%) 4.12 9.30 9.26 6.13 7.83 4.80 6.99 Sports books Percent who bet .79 1.21 3.00 1.91 Average annual bet per bettor $127.76 $224.95 $891.89 $623.03 Average annual bet per capita 1.01 2.72 26.76 7.38 Average annual takeout per capita .05 .12 1.20 .54 (takeout rate, 4.5%) 62 i ABLE 4-5.-GAMBLING AND FAMILY INCOME, BY TYPE OF GAME continued Under $5,000 $5,000 10,000 Family income $10,000 $15,000 $20,000 15,000 20,000 30,000 Total $30,000 respon- and over dents* Horse books Percent who bet .58 1 .92 2 .72 3.11 2.24 3 .51 2.37 Average annual bet per bettor $38 .87 $932 .29 $335 .16 $159.70 $578.35 $606 .64 $416.53 Average annual bet per capita 2 .25 17.90 9 .12 4.97 12.96 21.29 9.87 Average annual takeout per capita .37 2 .97 1 .51 .83 2.15 3.53 1.64 (takeout rate, 16.6%) Numbers Percent who bet 1.20 3 .56 2 .71 3.39 2.87 4 84 3.01 Average annual bet per bettor $38.94 $393 .26 $436.11 $198.14 $171.71 $111 34 $273.19 Average annual bet per capita 47 14 .00 11 .82 6.72 4.93 5. 39 8.22 Average annual takeout per capita .25 7 .56 6 .38 3.63 2.66 2.91 4.44 (takeout rate, 54%) Sports cards Percent who bet 1.13 2 .93 4.90 5.66 4. 03 3.0 Average annual bet per bettor $48.56 $111 .56 $28.61 $10.91 $30.12 $43.70 Average annual bet per capita .55 3.27 1.40 .62 1. 21 1.32 Average annual takeout per capita .33 1.96 .84 .37 73 .83 Total Games b Average bet per capita $63. 46 $116.23 $133.99 $203.69 $167.00 $435. 35 $177.86 Average takeout per capita 15. 51 31.69 35.82 39.26 34.78 73. 39 38.03 Effective takeout rate (percent) 24. 5 27 .3 26.9 19.3 20.9 16.9 21.5 "Figures by income bracket include only individuals for whom both income and participation data are available. Figures for total respondents include individuals for whom we have participation data, regardless of whether or not income data are available. b Total games are sums of per capita items by type of game. Since figures for betting at a track are limited to residents of States with legal tracks and betting on lotteries is limited to residents of States with legal lotteries, the totals do not match corresponding observed totals for the entire United States. Wagering Estimates TABLE 4-6.-LIFETIME AND 1974 DISTRIBUTIONS OF BETTORS AMONG BETTING CHANNELS BY AGE Total Life 74 % % 18-24 Life 74 % % 24-44 Life 74 45-64 Life 74 % /n 65+ Life 74 % % Nevada Illegal 15 6 2 15 10 19 2 24 Legal commercial 85 92 98 96 85 88 80 97 79 100 Friends only 2 4 2 1 1 National Illegal 24 13 16 13 23 15 29 11 29 4 Legal commercial 71 68 71 63 73 67 68 71 66 77 Friends only 5 19 13 23 4 18 3 18 5 19 Nevada illegal* .40 67 11 National illegal* .54 .81 .65 38 .14 These figures represent bettor loyalty to illegal gambling, and describe the likelihood of an "ever bettor" doing so in 1974 for these age groups. The .81 figure for national illegal betting in the 18-24 year old bracket, means essentially that 81 percent of those who have bet illegally did so in 1974 for the Nation, but none of the Nevadans in this age bracket have bet illegally. On the basis of the reported level of legal gambling by each respondent in the sample, the survey estimated the total volume of money legally wagered on 10 legal games $17.3 billion. For each legal game, the total volume estimated by the survey was compared with available official estimates. The survey estimated the volume of illegal wagering at $5 billion, with a possible error factor of 2, which would place the upper limit of illegal expenditures at $10 billion. (The figures are shown in table 4-7.) The survey's estimated legal handle falls within 0.1 percent of the total reported officially by the operators of legal games, a statistical concurrence that would seem to validate the survey's accuracy on this score. The accuracy of the figures on the illegal handle is less certain. The U.S. Department of Justice, in May 1974, estimated the illegal handle to be between $29 billion and $39 billion. Two years later, Department officials acknowledged to the Commission that it was impossible for the Department to provide an estimate with any degree of confidence; they could only report accurately on the volume of gambling they had uncovered through actual surveillance and raids. It should be noted that during 1971 63 and 1972 the period of the Department's most intensive antigambling enforcement it had acted against illegal operations with a total handle of only $750 million. Although the FBI has not provided the Commission with a specific estimate of the total illegal handle, it has released various figures such as $750 million in payoffs by gambling operations to law enforcement officials that suggest a total volume of illegal gambling higher than the Commission's adjusted survey estimate. The Bureau of Alcohol, Tobacco and Firearms, an agency of the U.S. Treasury with responsibility for the administration of the Federal wagering excise and occupational stamp taxes, has given estimates as high as $67 billion. However, agency officials told the Commission that this figure was not original but had been extrapolated from estimates made by other agencies. In 1967, the President's Commission on Law Enforcement and Administration of Justice estimated a yearly illegal handle of $20 billion but warned that the "Commission cannot judge the accuracy of these figures." How is the apparent discrepancy between the accuracy of the estimates of legal and illegal handles to be accounted for, since the Michigan survey's polling techniques were identical in each case? Even granting a margin of error in the reporting of legal wagering by the survey's respondents or of underreporting or duplicity in declarations by legal gambling operators the estimate of legal gambling handle seems to be substantially correct, and the Commission accepts that finding. It cannot endorse the survey's illegal estimate, however, for the following reasons which are unrelated to its disparity from the other estimates cited above. Unlike a low-stakes legal bettor, the heavy illegal bettor who surfaces as a potential respondent in a survey of this nature has little incentive to tell the truth. He might very well question whether the interrogator is truly a representative of a survey organization or might be an undercover agent of the IRS or FBI. To him, candor may be deemed inadvisable. While the overall national response rate to the survey was approximately 75 percent, in downtown urban areas the response rate was only 51 percent. People who live in the Nation's deteriorating inner cities may be more fearful and distrustful of strangers than the population as a whole, and less willing to talk about an activity that they know or suspect to be illegal. Bettors, like people engaged in high-volume stock market trading, keep track of the amount they won or lost, not the total transactions. For example, a heavy bettor who has wagered $1 ,000 on each of five football games on a given weekend will focus on the net outcome i.e., that he has won (or lost) $1,000 or $2,000 rather than on his aggregate transactions for the weekend, $5,000. In its research, interviews, and testimony some of it admittedly hearsay the Commission has been told about so many bettors in the $100,000-and-over annual bracket that it is convinced that the volume generated by these people is not reflected in the survey estimates. (The heaviest bettor in the survey admitted to an annual wager of only $30,000.) The reason, the Commission feels, lies not with the survey techniques, but in the understandable reticence of some of the respondents, as previously discussed. The Commission believes that neither this nor any other survey is able to measure accurately the specific dollar level of an illegal activity, and it cannot emphasize too strongly that the survey's estimates of the dollar volume of illegal gambling, including the estimates for individual games, should not be considered as viable data, especially for purposes of formulating gambling policy. They are a point of reference only, one of many measuring devices that are useful in discussing a complex question. Too often, TABLE 4-7.-TAKEOUT AND HANDLE FOR U.S. COMMERCIAL GAMBLING, 1974 Takeout rate Total Estimate derived from: Survey % % takeout' Sample Published data over/under Legal Horses at track 16.0 $1,247,000,000 $ 7,930,000,000 $ 7,512,000,000 +5.6 OTB, New York 21.0 171,000,000 967,000,000 786,000,000 +22.9 Legal Casinos 15.0 1,004,000,000 6,076,000,000 6,693,000,000 -9.2 Bingo 33.0 551,000,000 1,735,000,000 1,672,000,000 +3.8 Lotteries 55.0 374,000,000 639,000,000 681,000,000 -6.2 Total Legal 19.3 $3,347,000,000 $17,347,000,000 $17,345,000,000 -0.0 Illegal Sports Books 4.5 105,000,000 2,341,000,000 Horse Books 16.6 227,000,000 1,368,000,000 Numbers 54.0 575,000,000 1,064,000,000 Sports Cards 60.0 115,000,000 191,000,000 Casino Games 15.0 19,000,000 110,000,000 Total Illegal 20.5 $1,039,000,000 $ 5,074,000,000 Total Legal and Illegal 19.6 $4,385,000,000 $22,421,000,000 "Based on handle derived from the survey. 64 such estimates come-to be taken for fact merely through repetition. If the survey's estimates of a $5 billion illegal handle are taken at face value, and the Justice Department's estimates of $29 billion-$39 billion are refuted, it might be construed that the incidence of illegal gambling in the United States is only one-sixth to one- eighth of what it is commonly thought to be, and a significant reduction in enforcement activity would follow. Nothing could be further from the Commission's intent. In every other respect, however, the Commission has full confidence in the findings of the University of Michigan survey. These include the findings on gambling participation generally as well as specific activities and games, attitudes toward legalization and prohibition, patterns of behavior, sociological profiles, and demographic analyses. Accordingly, in subsequent discussion throughout this Report, all survey-generated information with the exception of dollar estimates of illegal activity will be treated as accurate and factual. Economic Aspects of Gambling The figures referred to so far are estimates of the handle and not of the "expenditure" on each game. Most of the money wagered is returned to the players. The percentage retained by the operators, either to cover expenses or to pay taxes, is referred to as the takeout rate. In order to calculate the expenditure on each game it is necessary to multiply the total handle by the takeout rate. Of $7.5 billion bet at the track, nearly 83 percent was returned to the players, so that the actual expenditure on betting at the track was only $1 .25 billion. Obviously, not every player at the track gets back an equivalent amount of his or her wagers, but on the average, over a long period of betting, the player can be reasonably assured of getting approximately 83 percent back. This assumption was used in calculating the expenditures for each game for each income group (table 4-8). One of the major findings of the survey was that expenditures on gambling were regressive i.e., that lower income groups spent a greater percentage of their income on gambling than did upper income groups. This was true for gambling expenditures taken as a whole as well as for most individual games. The result of this is that taxes on legal gambling appear to be quite regressive about as regressive, in fact, as sales taxes generally (see table 4-4). Among all income classes, the average annual amount bet on gambling rises steadily from $63.46 for the lowest income group (household income under $5,000) to $435.35 for the highest income group (household income over $30,000). However, the effective takeout rate tends to decline across income groups, and the amount spent on gambling declines as a percentage of income from 0.62 percent for those under $5,000 to 0.18 percent for those over $30,000 (tables 4-5 and 4-8). The decline in the average takeout rate for upper income group gambling reflects the fact that they bet more of their total gambling dollars on casino and sports betting, which have lower takeout rates, than on numbers and lotteries, on which the lower income groups bet more heavily. ESTIMATES OF POTENTIAL REVENUE. The revenue available from legalized gambling depends on three related factors: potential volume of play, operating costs, and tax rates. The relationship between the three is based on the effect of increasing the takeout rate (the sum of operating costs and the tax rate) for a given game. The higher the takeout rate, the lower the demand for the game. In the following calculations an effort was made only to estimate the maximum conceivable revenue to be obtained from legalization of individual games. The final total, $9 billion, is obtained by adding the maximums for each of the games. (Only $1.2 billion is currently being realized.) In interpreting these figures for policy purposes, two factors should be noted: (1) These calculations ignore the interaction between the demand for different legal games. For example, the addition of a legal numbers game will almost certainly diminish the volume of lottery play. (2) On the other hand, legalization of one game tends to increase the volume of all forms of gambling generally. It seems likely that the first effect is the more important of the two, so that the $9 billion total survey estimate may be somewhat high. Because proponents of legalization often tend to provide very high overestimates in the policy debates, the Commission's figures are more realistic than theirs, even given the caveat noted in (1) above. Table 4-9 provides for each game the estimated potential volume of play if it were legalized in every State, the tax rate that would yield the highest net revenue to the governments, and an estimate of that revenue. In some cases the optimal tax rate was estimated on the basis of available evidence concerning the sensitivity of demand to variations in takeout rate, given the costs of operation. That was the case for betting at the track, off-track betting, and sports parlors. For the other games, it was either assumed that governments would continue to tax them at the same rate as currently (lotteries) or that the legal game would have to pay out the same percentage as the illegal game (numbers). In these latter two groups of games it was not possible to find data that would permit calculation of the optimal tax rate. Although table 4-9 indicates that while casino gaming, excluding slot machines, might generate the second highest handle of all games, it is not seen as a large source of government revenue. This reflects the assumption that other States would follow Nevada and place only a light tax, 5 percent, on the gross winnings of the casino. In most debates concerning the revenue potential of casino gaming, proponents stress the indirect tax benefits that arise from greater tourist traffic such as higher occupancy rates in hotels and expenditures on other leisure-time activities such as restaurants and nightclubs. The calculations concerning slot machines also show this 65 pattern: very high handle projections over $40 billion but low net revenues to government. At the other extreme is the estimate for numbers, where relatively modest volume yields high revenue. Numbers players, like lottery participants, are accustomed to high takeout rates. The illegal game tends to require a lot of manpower and hence is costly to operate. A legal game, as has been shown in New Jersey, Rhode Island, and Massachusetts, can, through use of machines, operate a great deal more cheaply. Gambling Beliefs and Behavior Gamblers are more aware of the existence of gambling facilities than are nongamblers; they are also more knowledgeable about gambling laws, have more positive views on the desirability of legal gambling, and hold less negative views on the consequences of legalization. Furthermore, gamblers think of gambling as more exciting than nongamblers do, have greater faith in the integrity TABLE 4-8.-REGRESSIVITY BY TYPE OF GAME Under $5,000- $10,000- $15,000- $20,000- $30,000 $5,000 10,000 15,000 20,000 30,000 and over Total Horses-track Percent of income: Bet 0.63 0.61 0.35 0.57 0.25 0.22 0.50 Taken-out 0.105 0.101 0.059 0.094 0.041 0.037 0.083 Horses-OTB Percent of income: Bet 3.03 0.41 0.87 1.15 1.15 Taken-out 0.636 0.085 0.182 0.241 0.241 Legal casinos Percent of income: Bet 0.98 0.20 0.06 0.24 0.13 0.67 0.27 Taken-out 0.148 0.031 0.012 0.036 0.019 0.100 0.040 Bingo Percent of income: Bet 0.49 0.64 0.18 0.07 0.06 0.04 0.08 Taken-out 0.162 0.002 0.061 0.022 0.019 0.014 0.027 Lotteries Percent of income: Bet 0.30 0.23 0.13 0.06 0.06 0.02 0.08 Taken-out 0.16 0.12 0.07 0.04 0.03 0.01 0.05 Sports books Percent of income: Bet 0.02 0.02 0.11 0.08 Taken-out 0.001 0.001 0.005 0.003 Horse books Percent of income: Bet 0.09 0.24 0.07 0.03 0.05 0.05 0.06 Taken-out 0.015 0.040 0.012 0.005 0.009 0.008 0.010 Numbers Percent of income: Bet 0.02 0.19 0.09 0.04 0.02 0.01 0.05 Taken-out 0.010 0.101 0.051 0.021 0.011 0.007 0.028 Sports cards Percent of income: Bet 0.011 0.04 0.01 0.002 0.003 0.009 Taken-out 0.007 0.024 0.006 0.001 0.002 0.005 Total Percent of income: Bet 2.53 1.55 1.07 1.16 0.67 1.09 1.15 Taken-out 0.62 0.42 0.29 0.23 0.14 0.18 0.25 66 TABLE 4-9.-REVENUE POTENTIAL OF LEGALIZED GAMBLING Participation (Assumption) rate Average annual handle % Per bettor Per capita Net State revenue" per capita Potential U.S. total Handle Revenue Lottery 50.3 $ 23.73 $ 11.93 $ 5.37 $1,719,000 $774,000 Numbers 50.0 100.00 50.00 22.50 7,206,000 3,243,000 Sports Betting Parlors 8.0 170.00 13.60 0.98 1,960,000 331,000 Sports Cards 10.0 50.00 5.00 2.50 721,000 360,000 Off-track Horse Betting 13.5 417.00 56.30 5.63 8,114,000 811,000 Horse Tracks 25.8 841.00 217.00 16.28 31,276,000 2,346,000 Slot Machines 72.1 377.00 279.00 2.72 40,212,000 392,000 Table Games 27.3 846.00 231.00 1.73 33,294,000 249,000 Total, 8 Games N/A N/A 864.00 57.71 124,527,000" 8,288,000" 'Allowance has been made for operating costs of State-operated games. 'Detail does not add to total due to rounding. of gambling operations, were exposed to more gambling as children and as adults, make more realistic judgments about the amount of skill and/or luck involved in each game, grew up learning less didactic religious teachings about gambling, and currently adhere to less moralistic ideas about gambling. Differences between gamblers and nongamblers in these respects are clear. Bettors on specific games differ from gamblers in general in much the same way: They hold more positive views toward their game, were exposed to that game earlier and more often in their lives, and think it more exciting and more honestly run than other forms of gambling. The relationships between knowledge, attitudes, and behavior in gambling are interactive. Exposure to gambling facilities and early social influences affect later knowledge and attitudes as well as shaping gambling behavior. Gambling behavior in turn influences attitudes and knowledge. And levels of legalization influence and perhaps in turn are influenced by all these. The moral upbringing of nongamblers differs from that of gamblers. More than half the nongamblers were taught as children that gambling is sinful, compared to 35 percent of the gamblers. Nongamblers were not only less exposed to gambling behavior in childhood but also began life with more negative attitudes toward gambling. As adults, they continued to have fewer contacts with gambling and continued to subscribe to their early beliefs about it more than did those who grew up with the same beliefs but were exposed to gambling. For gamblers, their exposure to the activity apparently neutralized the moral teachings. Of the major American religious bodies, only one the Baptist Church teaches mat gambling is inherently sinful. The Methodist Church, while not teaching that gambling is sinful, nevertheless strongly opposes all forms of commercial gambling. Other religious bodies teach that gambling is wrong only in excess or do not take a position on gambling at all. The survey did show, however, that the belief that gambling is sinful is not confined to those reared within the Baptist community, and that some exposed to this view became gamblers despite their training. Although moral considerations operate as an important constraint on gambling behavior, they are not so significant an influence as mere disinterest in playing (see table 4-10). Although 48 percent of nongamblers said they declined to play because they thought gambling "wrong" or "sinful," even more nongambling respondents said they were just "not interested," had "other things to do," or "don't know about it." Monetary concerns were also mentioned more often than moral concerns. Nongamblers are more involved than gamblers in church activities and more of them view gambling as having negative effects on family and community life. The reasons they give for not gambling demonstrate this concern in such terms as: It is "bad for the family." Their social horizons, too, appear more limited than those of gamblers, and their life experiences less broad. Their leisure-time activities tend to be centered around the home, family, and church more than do those of gamblers (see table 4-11). Military duty, particularly service overseas, also affects gambling. One-and-a-half times more gamblers served in the armed forces than nongamblers. To what extent military service influences gambling, however, has not yet been fully determined because of variables involving the age and sex of gamblers and military personnel. Excitement Excitement plays a large role in motivating people to gamble. When people were asked why they bet on certain games, "excitement" or "to have a good time" were most frequently given as reasons. Not all games are considered equally exciting, however, and some games are viewed as not exciting at all. Respondents were asked to evaluate the excitement level of 13 different gambling activities on an 8-point scale, and 67 TABtE4-10.-MAJOR REASONS WHY NONGAMBLERS _ REPORT THEY DON'T GAMBLE _ Nongamblers Total First Probed reasons reasons reasons Specific Reasons Not interested 44 27 17 It's sinful 40 24 16 Other things to do 38 35 3 Waste of money 37 24 13 It's wrong 34 24 10 Don't know about it 31 27 4 Don't want to lose money 26 16 6 Don't think about it 26 24 2 Don't have the money 25 18 7 Odds against you 23 13 6 Don't disobey the law 21 19 2 Waste of time or effort 16 12 4 It's bad for people 9*9 Wasn't raised that way 9*9 Don't believe in it 9 1 8 Bad for family 817 Might get arrested 761 Not lucky 6 5 1 People get nasty 651 Causes corruption 5 5 It's shoddy 3 2 1 Not available 2 2 * Too risky 202 Don't trust the game 1*1 Net Reasons Activity interest 83 68 15 Money 64 54 10 Moral 48 40 8 Legal 25 22 3 Social 761 Availability 202 'Less than one-half of 1 percent. NOTE: Respondents chose 1, 2, or 3 reasons from a list of 18 reasons. the results varied by game and by the respondents' gambling behavior (table 4-12). There was general agreement on which games were the more exciting, and as with the many other dimensions of gambling discussed up to now bettors rated gambling as more exciting overall than nonbettors did, while bettors on each game saw that game as more exciting than did nonplayers of that game. The excitement attributed to any given game appears to be related more to the setting in which the activity takes place than the activity itself. So, too, does the degree of involvement each activity generates, rather than the odds or probability of winning. Social gambling and public commercial forms are considered more exciting than games involving less face-to-face interaction. By far the most exciting game for bettors and nonbettors alike is horseracing at the track. Numbers is considered the least exciting form by all groups, including numbers players. Out of a possible 8 points, horserace bettors gave on-track horse betting an average rating of 6.59, far more exciting than any other kind. Nongamblers agree. For horseracing to be exciting, it must be witnessed at the track. Off-track betting was rated as only slightly more exciting than sports cards, and less exciting than dice or lotteries. Off-track bettors rated it 4.35, similar to the rating the lottery receives from lottery players. The sharpest disagreements between players and nonplayers of specific games occur with sports cards and dogracing. Sports card bettors rate it 5.44, against the 1.96 it receives from the total sample. Dogracing receives a 5.50 score from dog track bettors, but only 2.77 from the total sample. TABLE 4-11.-LEISURE TIME ACTIVITIES (AVERAGE NUMBER OF DAYS IN 1974) Non- Illegal bettors Bettors bettors Watch television 215 213 206 Read newspapers or magazines 181 227 239 Do nothing, nap, daydream 115 100 102 Read books 92 93 80 Home improvements, gardening 92 79 70 Socialize with friends and relatives 81 85 80 Church or related activities 77 43 37 Knitting, sewing, etc. 59 38 29 Fishing, hunting, camping, etc. 18 29 32 Arts and crafts 18 24 22 Community activities 15 17 24 Active nonteam sports 13 36 34 Attend sports events 13 22 28 Active team sports 9 23 32 Movies or theater 7 17 23 Nightclubs, bars, dancing 6 26 37 Operas, lectures, museums 6 7 10 TABLE 4-11 A.-AVERAGE NUMBER OF DAYS GAMBLED ON SELECTED EVENTS Participants Bet on a number Bet in a check pool Bet on the horses with a bookie Bet on sports with a bookie Bet on OTB in New York Play cards with friends for money Play bingo Bet on sports cards Bet on miscellaneous events Go to the dog track Go to the horse track in own State Go to a casino Go to jai alai 71 29 29 28 28 25 13 10 10 10 8 7 5 68 Sports betting with friends is considered one of the more exciting kinds of wagering, while sports bookie betting is rated as one of the least exciting, lending more support to the notion that excitement is derived from the amount of interaction involved in the activity. All five forms of illegal gambling, in fact, fall at the bottom end of the scale, even among bettors. Bettors on specific games give their games at least moderately exciting scores, except for numbers and sports bookie bettors. Even among loyal bettors, those two failed to approach the midpoint on the excitement scale. GAMBLING AND CORRUPTION. Gambling and corruption are often linked in the public mind, as previous surveys have consistently demonstrated. The Commission's survey reinforced this finding. The survey included separate questions dealing with the following aspects of the subject: police corruption; political corruption; respect for law; the public's perception of the frequency of fixes in 10 activities that involve gambling; and the impact of legalization of all these aspects. High school sporting events were seen by the public to be the least corrupt of the 10 events, falling midway between "almost never fixed" and "never fixed" on the scale (table 4-1 3). Overall, sporting events and charitable and State-run gambling fall at the upper end of the scale (meaning they are rarely perceived as crooked). There is uniform agreement that high school sporting events are fixed least often and that numbers is fixed most often. This is true for nonbettors, bettors in general, illegal bettors, and bettors on specific games. All groups see college sports as slightly less crooked than State lotteries, except for illegal bettors, who view State lotteries as more honest. Five gambling activities fall below the midpoint of the scale (meaning they are thought to be fixed at least some of the time). Among nonbettors, the three levels of sporting events are judged to be more honest than any form of gambling except bingo. Bettors rate all activities as cleaner than nonbettors do, although in most instances the differences between bettors' and nonbettors' perceptions are not great. Illegal bettors and bettors on specific games are less suspicious about the honesty of each game than are respondents generally. Dograces are seen as cleaner than horseraces among all groups except nongamblers. While casinos are seen as fixed more often than horseraces by four of the groups, casino bettors see their game as cleaner than horserace bettors see theirs. Dogracing is viewed as fixed at least "sometimes" by most groups, but in this case the difference between dograce bettors and the other groups is dramatic. The former see their game as far cleaner than the other groups see it. Horseracing, dogracing, slot machines, and casinos are seen as fixed at least sometimes by most, and numbers is seen as fixed most often of all. When respondents were asked how legalization would affect this situation, some interesting patterns emerged (table 4-14). A majority of nongamblers think that legalization would change the frequency of fixes, and most of them believe that legalization would increase, rather than decrease, the number of fixes. Bettors, on the other hand, differ as to what would happen if three different games were legalized. Numbers, which has a crooked reputation even among bettors, is expected to change for the better. Legalization of sports betting, however, is expected to increase the number of fixes, which bettors currently see as infrequent. Off-track betting is not expected to change the number of horserace fixes, an opinion no doubt reflecting the evidently corruption-free operation of OTB in New York State. Legalization Attitudes and Gambling Behavior The presence of legal gambling and, particularly, the level of legalization within a State are important influences on gambling attitudes and behavior. Although 80 percent TABLE 4-12.-EXCITEMENT RATINGS FOR 13 GAMBLING ACTIVITIES Excitement level of Total sample Non- bettors Bettors Illegal bettors Bettors of specific games Horses at track 3.98 2.59 4.83 5.60 6.59 Cards with friends 3.74 2.44 4.53 5.30 N/A Gambling casinos 3.41 2.06 4.24 5.02 5.80 Slot machines 3.39 2.27 4.08 4.35 5.26 Bingo 3.19 2.55 3.58 3.65 5.08 Sports with friends 3.11 2.07 3.75 4.66 5.01 Lottery 2.80 2.05 3.26 3.52 4.11 Dog tracks 2.77 2.06 3.21 3.50 5.50 Dice 2.54 1.90 2.94 3.89 N/A Horses off-track 2.06 1.63 2.32 3.33 4.35 Sports cards 1.96 1.59 2.19 3.36 5.44 Sports with bookie 1.74 1.47 1.90 2.88 3.87 Numbers 1.63 1.47 1.74 2.18 3.52 Scale: 1 (Not at all exciting) to 8 (Very exciting). 69 TABLE 4-13.-PERCEPTIONS OF FIXING (MEANS ORDERED FROM LEAST TO MOST) Bettors on Total Non- Illegal specific sample bettors Bettors bettors games High school sports 4.43 4.30 4.49 4.46 N/A Bingo 3.88 3.58 4.01 3.92 4.24 College sports 3.87 3.73 3.94 3.89 4.00 Lottery 3.55 3.00 3.81 4.14 4.37 Professional sports 3.38 3.24 3,45 3.43 3.56 Horse races 2.89 2.69 2.99 2.96 2.94 Dog races 2.85 2.75 2.90 3.17 3.65 Slot machines 2.35 2.17 2.44 2.41 N/A Casinos 2.32 2.13 2.41 2.54 3.05 Numbers 2.02 1.92 2.07 2.34 2.64 1 = Fixed most of time. 4 = Almost never fixed. 2 = Fixed pretty often. 5 = Never fixed. 3 = Fixed sometimes. TABLE 4-14.-PERCEPTION OF FIXING AFTER LEGALIZATION Random subset of bettors OTB Numbers Sports Nonbettors gambling in general Legalization will lead to: Change More 36 64 55 45 54 61 53 68 Less 36 55 39 32 No change No answer 53 77 47 4 42 4 23 24 of the population nationwide favors the legalization of some form of gambling, no form receives majority support for legalization in States where it is not already legal (or believed not to be). Once it is legalized and functioning, however, legal gambling receives overwhelming support for its continued operation (table 4-15). Further, forms of gambling that are already legal in several States draw proportionately more support for legalization in States where they are not legal than do forms that are legal on a more restricted basis. For example, horseracing, lotteries, and bingo are favored for legalization by nearly half of those living in States in which they are not legal (47 percent, 47 percent, 48 percent respectively). Dogracing, which is legal in nine States, is favored by 36 percent of the rest of the population; and sports books legal in only one State are favored by only 20 percent. The cumulative effect of multiple legal forms of gambling on attitudes is most visible when reactions toward legalization or toward a currently legal operation are grouped: In States with no legal gambling, 40 percent want to keep things that way. In States with three forms of legal gambling, only 5 percent think no form of gambling should be legal. Further, in States with more than one form of gambling, people have positive attitudes toward more types of games and want to see more than one additional legal type (table 4-16). Between nonbettors and bettors the distinction is similarly clear: Forty-five percent of the nonbettors and 4 percent of the bettors think no form should be legal. A majority of nonbettors think no form, or at most one form, should be legal, while 48 percent of the bettors think seven or more types should be legal. Apparently, additional legalization also increases overall gambling participation, as well as increasing favorable attitudes toward more types of games (table 4-17). In States with different numbers of games, participation rates TABLE 4-15.-COMPONENTS OF POSITIVE ATTITUDES TOWARD LEGALIZATION Total Desire to Desire to positive continue make an toward an already illegal legaliza- legal activity tion facility' legal Bingo 68 82 48 Off-Track Betting (N.Y.) 67 69 Horse Tracks 62 73 47 State Lotteries 61 81 47 Picket 60 91 Dog Tracks 49 72 44 Slot Machines 40 53 40 Gambling Casinos 40 65 40 Off-Track Betting 38 65 36 Sports Cards or Sheets 32 63 32 Pro Sports Betting 31 60 30 Numbers, Bolitas, Policy 22 36 22 College Sports Betting 22 68 22 Bookie Sports Betting 20 42 20 H.S. Sports Betting 16 62 16 This is a perceived legality which is incorrect in some cases. 70 increase steadily and sharply as the number of legal types of gambling increases. Social betting more than doubles from 35 percent in States with no legal games to 72 percent in States with three legal types; the illegal gambling rate more than doubles, from 9 percent to 22 percent; and commercial gambling increases by 43 percent, from 24 percent to 67 percent. Further, the percentage of people who gamble exclusively with friends steadily decreases across these groups from 34 percent to 11 percent. Even those who demonstrated unfavorable attitudes toward gambling gamble in greater proportions in States that have higher levels of legalization, and they also gamble illegally as well as legally in greater proportions. These trends remain even after holding other relevant variables constant. These findings have relevance for State gambling policy. As more forms are legalized, States should expect overall increases in gambling behavior: They should also be prepared for possible increases in illegal gambling behavior as well. Legalization may not be a completely effective strategy in competing with illegal games, and may in fact encourage the growth of illegal markets by encouraging higher levels of gambling generally. Legalization increases public exposure to gambling and legitimizes the gambling activity; exposure to more types of gambling reduces negative attitudes toward other types of gambling. Both factors create favorable predispositions toward gambling and thereby encourage wider participation PERCEIVED CONSEQUENCES OF LEGALIZATION. Gamblers see the different forms of legal gambling as having different consequences for society. The different types of gambling are seen as having both positive and negative effects, although each type shows a different set of perceived strengths and weaknesses. Nongamblers were questioned about "gambling" and saw few positive effects. Majorities of bettors see the five major types of gambling as creating many more jobs (table 4-18). Almost no one believes that racketeers would be connected with OTB, but they believe that children would be encouraged to gamble on OTB and that people would miss work because of gambling on OTB. Lotteries are seen mainly as a revenue-raising device: Sixty-five percent stated that lotteries would yield a "lot more money to run the government." Nearly one-third, however, believe that racketeers would be connected with a lottery; but almost no one believes that lotteries would cause people to work less because they are gambling. More people believe that lotteries provide "more of a chance for the common man to get rich" than any other form of gambling. Given the wide circulation of statements by law enforcement agencies concerning organized crime involvement in illegal numbers operations, it is not surprising that people see legalized numbers as depriving organized crime of money more than any other type and generating a great deal of revenue. As with lotteries, relatively few believe people will miss work because of numbers gambling; but unlike lottery statistics, and similar to the casino findings, people think that legal numbers would entice many into gambling more than they can afford, and that it would attract racketeers. Casino gambling is viewed as potentially the most dangerous form of gambling the only one where a majority of bettors (61 percent) think that legalization would attract racketeers. Bettors feel that legal casinos would be less effective against organized crime than either legal lotteries or legal numbers. Three-quarters believe casinos would encourage people to gamble excessively, and two-thirds believe children would be influenced to gamble. On the positive side, people think casinos would generate substantial revenue. They also see casinos as creating more jobs than numbers, lotteries, or sports betting, but fewer than OTB would. Sports betting, popularly thought to be associated with "organized crime," is seen by bettors as having little impact on current organized crime revenue and is not viewed as likely to attract racketeers. They also believe that legal sports betting more than any other kind would induce people to miss work because of gambling. Nongamblers see fewer positive effects of legalizing gambling and more negative consequences than do bettors. Majorities of the nonbettors see all four negative consequences under legalization, with 81 percent believing both that people will gamble more than they can afford and that children would be encouraged to gamble. With respect to corruption, nongamblers, unlike TABLE 4-16.-GAMBLINGFAVORABILITY AND GAMBLING FACILITIES State laws Total No legal One legal Two legal Three legal sample facilities facility facilities facilities 1974 Participation Nonbettor Bettor Favorable to Legalizing: Nothing 20 40 21 10 5 45 4 One to Three Games 22 22 24 21 18 27 20 Four to Six Games 23 16 19 30 27 13 28 Seven or More Games 35 22 36 39 50 15 48 100 100 100 100 100 100 100 Based on the questions: ". . . which of these are legal in your State now?" "Any others?" and if legal, "Would you like to see continued or would you like to see it abolished?" and if not legal ". . . How do you feel about making - legal?" "Are you definitely in favor of legalizing it, do you tend to be in favor of legalizing it, do you tend to be against legalizing it, or are you definitely against legalizing it?" 71 TABLE 4-17.-GAMBLING PARTICIPATION BY NUMBER OF LEGAL FACILITIES IN STATE No One Two Three legal legal legal legal Total facili- facil- facili- facili- U.S. ties ity ties ties Any Gambling 61 41 58 71 81 Legal Commercial Gambling 44 24 36 60 67 Only 16 13 14 20 7 Combined 84 87 86 80 93 Illegal Gambling 11 9 8 12 22 Only 1 1 1 1 Combined 99 100 99 99 99 Friend Gambling 50 35 55 54 72 Only 26 34 20 19 11 Combined 74 66 80 81 89 gamblers, predict that legalization would lead to changes in the current situation: They are slightly more inclined to see "less respect for the law" as a result of legalization, although nearly as many see no change (table 4-19). Forty percent predict there will be more political corruption, and 42 percent see legalization as leading to more police corruption. In these instances, nongamblers differ from gamblers most clearly; only among nongamblers do more people predict change in these dimensions and all three predictions involve undesirable change. Among gamblers, legalization of OTB, numbers, and sports betting is expected to produce changes in the amount of corruption, although more believe there will be no change than agree on the direction of change. Strong majorities of bettors believe that the legalization of each of the five types would not change respect for the law. They see sports betting and off-track betting as producing more political corruption and police corruption than the other three types. Curiously, nearly one-fourth see lotteries as causing more political corruption, but not more police corruption; and legal numbers as leading to more political corruption while either reducing or leaving unchanged the amount of police corruption. State-level regulation is preferred to local or Federal regulation by gamblers and nongamblers alike (table 4-20). While nongamblers think that "gambling" should be run by private business rather than by government employees, gamblers think government and business should operate different forms: OTB, casinos, and, to a lesser extent, sports betting should be run by business, but numbers should be run and operated by the State government. Only in the case of OTB did more than one-third believe control should be in the hands of local government. These findings reflect the current operation of commercial gambling in the United States. Bettors believe casinos should be run as they are in Nevada, and numbers should be run as a State lottery. Just as broad-based support for continuation of local betting follows legalization, preference for a certain mode of operation follows implementation of that mode and becomes generalized. Compulsive Gambling Estimates of the number of compulsive gamblers in the United States are few and of doubtful authority. The most commonly cited one is that of Gamblers Anonymous which claims that there are between 6 million and 9 million. The organization cites no basis for this figure; but in the absence of any more credible estimate it has achieved wide currency. No estimate exists of the extent to which widespread legalization would affect this number. TABLE 4-18.-PERCENT OF RESPONDENTS IN AGREEMENT WITH EIGHT POSSIBLE CONSEQUENCES OF LEGALIZING EACH OF FIVE DIFFERENT GAMES Nonbettors Gambling in general Random subsets of bettors OTB Casinos Lotteries Numbers Sports More jobs for people 71 69 57 64 63 41 A lot more money to run the government 53 66 65 58 67 38 Less money for organized crime 33 45 47 55 27 33 More of a chance for the common man to get rich 49 18 56 30 48 14 More people working less because they are gambling 63 43 13 25 67 57 More of a chance that children will be influenced to gamble 60 66 48 61 53 82 More racketeers connected to it 13 61 31 46 22 71 More people gambling more than they can afford 55 76 42 62 59 81 72 TABLE 4-19.-BELIEFS ABOUT THE EFFECTS OF LEGALIZATION ON CORRUPTION Random subsets of bettors OTB Casinos Lotteries Numbers Sports Nonbettors Gambling in general Respect for Law More 17 17 19 18 15 13 Less 21 20 7 14 15 38 No Change 57 62 70 64 70 36 Police Corruption More 22 26 8 21 26 42 Less 21 16 15 23 23 15 No Change 49 53 71 51 50 27 Political Corruption More 36 32 24 30 37 40 Less 11 10 9 18 10 11 No Change 46 51 57 42 47 28 NOTE: Where responses do not add to 100 percent the remainder is no answer. TABLE 4-20.-OPERATION AND REGULATION OF GAMES IF THEY BECOME LEGAL OTB Casinos Numbers Sports Gamblers in general '/oof /of %of "/oof /oof %of /.of /of %>of /o of non- total sample total sample total sample total sample non- bettors sample answering sample answering sample answering sample answering bettors answering Should be operated by Government Employees 30 35 28 34 42 65 42 47 24 42 Private Businessmen 55 65 54 66 38 35 47 53 33 58 Nonresponsive answers 15 18 20 11 43 Should be regulated by* Federal Government 18 18 15 15 19 26 21 22 21 33 State Government 42 43 58 58 34 48 59 61 27 42 Local Government 37 37 17 17 19 26 16 17 15 24 Don't Care 3 2 10 10 Nonresponsive answers 38 4 37 1 Responses of lifetime participants only for nonbettor column. Among many other things, the Commission's survey was designed to produce a data-based estimate of the number of compulsive gamblers and a projection of how that number might be affected by legalization of most gambling, as is now the case in Nevada. To do so, the survey developed a personality-oriented section of the questionnaire geared to elicit responses that would indicate whether an individual in the survey was likely to become a compulsive gambler. The questions were chosen from a questionnaire distributed to a group of 274 compulsive gamblers and to 239 members of Protestant churches. From the 119 items in that questionnaire, 18 were selected. These 18 items were then used to identify which persons in the survey appeared to have the same characteristics as compulsive gamblers. A clinical analysis was conducted of the responses of those individuals, in order to sort out those whose reported betting also indicated a probable gambling problem. This analysis was based on observations recorded by the interviewer at the end of each interview, and on the betting reported by the respondent. As a result of this clinical examination, it was estimated that 0.77 percent of the national sample could be classified as "probable" compulsive gamblers, with another 2.33 percent as "potential" compulsive gamblers. A projection of these figures indicates that there are approximately 1 .1 million compulsive gamblers in the Nation. The figures are significantly higher for men than women : Among men, 1 .1 percent were classified as probable compulsive gamblers and 2.7 percent as potential compulsive gamblers; for women the comparable figures were 0.2 percent and 2 percent respectively (see table 4-21). The University of Michigan survey team believes, and the Commission concurs, that these estimates should be treated as suggestive rather than conclusive. Research on compulsive gambling is so meager that it is impossible to be sure that one has identified the personality disorder correctly. Because of limitations of time and resources on the project, the approach used in developing the estimate 73 TABLE 4-21 .-CLASSIFICATION AS COMPULSIVE GAMBLERS AND POTENTIAL COMPULSIVE GAMBLERS BY SEX (NATIONAL AND NEVADA SAMPLES)* Potential compulsive gamblers Nationally Nevada Probable compulsive gamblers Nationally Nevada Men 2.7 3.8 1.1 3.3 Women 2.0 1.1 0.5 2.0 Total 2.33 2.35 0.77 2.62 The percentages are based on small samples, and the results should be interpreted as order effects rather than in terms of absolute percentages. was the only feasible one. Nonetheless, it should be recognized that although the characteristics sought by the questionnaire are plausibly associated with the personality type usually described as a "compulsive gambler," they may not distinguish sharply enough between this disorder and others. On the other hand, the survey results do strongly suggest that there is a significant number of persons for whom heavy gambling may be a problem. The same set of criteria was used for the 296 Nevada respondents. On the basis of that sample, it was projected that 2.62 percent of the Nevada population could be classified as probable compulsive gamblers, with another 2.35 percent in the potential category. Again, the projections differed markedly between the sexes: For men, 3.3 percent were classified as probables, with another 3.8 percent classified as potentials, compared with 2 percent and 1.1 percent, respectively, for women. Not only is the incidence of compulsive gambling higher in Nevada than in the national sample, but the ratio of probables to potentials is as well. This is consistent with the hypothesis that widespread availability of gambling in a legal form leads a portion of those classified as potential compulsive gamblers to actualize their potential compulsion. This effect is more pronounced for women than for men and is also consistent with the observation that women are more easily accepted into legal gambling environments than into illegal operations, where the player frequently has to establish a credit rating; this may be a difficult matter for women who are seen as dependent on their husbands financially. The findings concerning Nevada are tentative. Because the sample is small, the difference between the national and the Nevada estimates lies within the limits of sampling error. It also may be the case that, although an effort was made to screen out those individuals who moved to Nevada specifically because gambling was more readily available there, the Nevada population includes a disproportionate number of gambling-prone persons. Kinds of Betting Table 4-22 shows a demographic breakdown of gambling participation by kind of game. Survey results pertaining to individual games are contained in chapter 5. TABLE 4-22.-DEMOGRAPHIC BREAKDOWN OF GAMBLING PARTICIPANTS Legal Illegal Horses, Sports Horse Sports track Casinos Bingo Lotteries Dogs books books Numbers cards % % % % % % % % % Region Northeast 20.1 8.7 25.4 55.3 4.9 3.0 5.6 8.1 4.7 North Central 11.7 4.9 22.3 31.7 4.1 3.1 1.7 2.2 4.4 South 9.5 1.7 11.2 6.0 3.2 1.0 1.5 1.1 1.8 West 16.1 31.1 17.4 3.0 3.9 0.1 0.8 0.9 1.7 Income Under $5,000 6.5 4.1 8.6 10.3 1.7 0.1 0.6 1.2 0.2 $ 5,000-$10,000 11.9 8.1 18.8 15.1 2.9 1.3 1.9 3.6 1.8 $10,000-$1 5,000 10.1 6.2 20.3 24.0 4.9 1.2 2.7 2.7 2.9 $15,000-$20,000 16.3 12.3 21.6 31.0 2.9 2.6 3.1 3.4 4.9 $20,000-$30,000 19.1 12.1 22.1 35.0 4.9 2.6 2.2 2.9 5.7 $30,000 and over 21.6 20.6 17.2 32.1 5.1 4.5 3.5 4.8 4.0 No answer 17.1 6.5 19.8 23.8 7.4 2.8 2.5 2.9 2.4 Education Grade school 7.7 4.1 15.3 18.0 1.6 0.9 1.8 2.6 2.0 High school 15.3 8.4 22.5 26.5 4.4 1.8 3.7 4.8 3.1 Some college 14.0 14.7 21.1 25.5 5.0 3.0 2.2 2.8 4.3 College degree 23.0 15.6 15.6 31.1 6.4 2.7 1.3 1.1 4.3 No answer 12.9 9.0 9.0 2.3 0.0 0.0 0.0 0.0 0.0 74 TABLE 4-22.-DEMOGRAPHIC BREAKDOWN OF GAMBLING PARTICIPANTS continued Horses, track Casinos Legal Bingo Lotteries Dogs Sports books Illegal Horse books Numbers Sports cards National Origin African 17.5 5.2 23.3 26.8 5.1 0.2 1.9 6.1 0.4 Spanish-speaking Italian 24.7 26.4 21.2 10.1 15.2 27.5 16.6 46.2 3.6 9.0 1.5 4.6 5.6 9.6 10.4 11.5 2.3 7.3 Other 12.8 9.2 18.1 23.1 3.6 1.9 1.9 2.1 3.1 Religion Jewish Catholic 28.1 19.6 23.0 10.1 11.4 28.8 51.6 38.5 10.0 3.9 6.4 2.7 3.0 3.8 4.2 4.7 2.8 5.2 Bible-oriented sects 7.0 4.0 9.1 5.0 0.4 1.7 1.8 1.7 1.4 Other 11.9 9.7 16.4 20.4 4.4 1.4 1.8 2.4 2.6 Age Under 25 14.4 6.2 26.6 17.1 6.0 1.9 3.2 3.9 3.9 25-44 years 45-64 years Over 65 years 17.4 12.7 3.2 11.7 10.2 3.5 21.0 16.2 8.3 30.0 24.7 9.5 5.0 2.5 1.7 2.5 1.9 0.1 2.9 2.1 0.5 3.7 2.6 0.4 4.3 2.5 0.1 Distance From 25 Largest Cities Less than 25 miles 17.3 12.0 16.3 27.7 3.7 2.0 3.2 6.7 3.8 25-50 miles 21.5 13.3 20.8 39.3 5.3 2.8 2.5 2.9 4.0 Over 50 miles 10.0 7.1 19.7 18.8 3.8 1.7 1.8 0.8 2.6 Sex Male 15.7 8.8 16.0 28.6 6.0 3.7 4.2 3.9 6.7 Female 12.0 10.2 21.1 20.3 2.1 0.3 0.8 2.2 0.1 Total Sample 14.8 9.4 18.7 24.1 3.9 1.9 2.4 3.0 3.0 75 CHAPTER 5. LEGAL GAMBLING INDUSTRIES INTRODUCTION In 1960, Americans wagered about $5 billion through egal commercial channels. By 1974, this figure had grown :o more than $17 billion, an increase of about 340 percent. Fhis phenomenal growth in legal gambling has taken two : orms: Existing legal industries have undergone substantial expansion, and new forms of legal gambling have been :reated. During this 15-year period, for example, six additional States established parimutuel horseracing and she total number of horseracing dates increased from i,000 to 12,000. Nevada's casino industry also underwent significant growth; gross taxable casino revenue increased almost 600 percent, from less than $200 million in 1960 to more than $1 billion in 1974. In 1964, New Hampshire Decame the first of 13 States so far to establish aState- aperated lottery; in 1971, New York legalized the Nation's : irst parimutuel off-track betting system; and in 1974, New lersey added still another industry to the gambling field ay establishing the first legal numbers game. Today, the growth in legal gambling shows no signs of abating and nay even be accelerating, as additional States compete in the gambling arena with an expanding array of "bigger and setter" games of chance. This chapter provides an in-depth examination of the : ive principal forms of legal gambling available today: :asinos, on-track parimutuel wagering, off-track betting, otteries (including numbers), and bingo. Each section zontains a brief history of the development of the game, ts revenue and regulatory aspects, problems that the ndustry faces, and the findings of the Commission's gambling survey. Each section concludes with the Commission's recommendations for change in the structure, organization, and operation of the games; an appendix to this volume contains model regulations for each game, as well as a general State gaming statute. Legal Gambling Considerations The following table compares the different types of gambling in terms of revenue for government, regressivity as a form of taxation, ability to compete with illegal gambling, corruption problems, impact on gambling behavior, and rate of taxation. Games in each category are rated as either low, medium, or high; ratings are based on published information where available and on the results of the Commission's gambling survey (see chapter 4). With respect to lotteries, bingo, racing, OTB, and casinos, the ratings reflect the current situation; with respect to the illegal games, an attempt was made to predict what would result if legalization were to occur. As the several question marks on the table indicate, sufficient data are not available in some cases to make definitive judgments. This is particularly true in projections regarding the three principal forms of illegal gambling- numbers, sports cards, and single-event sports betting. In all cases, the impact of a legal gambling enterprise will depend largely on how, by whom, and for what purpose it is operated. LEGAL GAMBLING CONSIDERATIONS Ability to compete Corruption problems Impact on Revenue for with illegal with legal gambling Tax government* Regressivity* gambling* form* behavior* rate* Lotteries Medium Medium Low Low Medium High lumbers High High High Low Might?) High lingo Low(?) Medium Low Medium Low Low facing (Horse and Dog) High Low Low Medium High High DTB High Low Medium Low High High "asinos Low Low(?) Low High High Low >ports Cards Low-Medium High ? ? Low High Single-Event Sports Betting Low Low(?) ? ? ? Low Relative to other forms of gambling. 77 CASINOS Within the United States, casino gambling is legal only in Nevada, an expansive arid State whose entire population would fit comfortably into a city the size of Columbus, Ohio. Nevada has had a 45-year monopoly on an industry that is variously deplored, admired, and envied by its sister States. Its colorful gambling history has been chronicled in numerous books, films, and newspaper and magazine articles. All have contributed to the industry's glamour and mystique, but few have examined it objectively. Rumor, innuendo, and exaggeration have combined to create a folklore of Nevada gambling that is based as much on conjecture and assumption as it is on historical fact and current reality. Much of the speculation has centered on the alleged ties between the casinos and members of organized crime, profit skimming by casinos to avoid taxation, the link between gambling and crime rates in Nevada, the profitability of casinos, and the effectiveness of State regulation. In recent years, a number of States have taken an increased interest in Nevada's brand of casino gambling. Some gambling proponents see casinos as the answer to their State's revenue problems. Others merely see no valid moral, social, or economic reasons why other States should not follow Nevada's example. Opponents of casino gambling point to the alleged ties to the underworld and the higher crime rates in Nevada's principal gambling cities as reason enough to prevent the spread of the casino gambling phenomenon. The National Gambling Commission has studied casino gambling in Nevada in an attempt to separate fact from rumor and to present reliable, up-to-date information that State legislators, law enforcement officials, and the general public may use in forming their own opinions on the subject. The Commission held 4 days of hearings in Nevada during which time it heard testimony from 38 witnesses including casino industry spokesmen, law enforcement and regulatory officials, elected Federal and State representatives, religious and educational leaders, and members of the press and private industry in Nevada. In addition, the Commission took testimony from officials in the Commonwealth of Puerto Rico, Great Britain, and the Bahamas on their experiences with legalized casino gambling. Through these hearings, combined with independent research, the Commission has reached a number of conclusions about casino gambling that run contrary to many of the traditional viewpoints. In brief, the Commission has found that: 1. Although organized crime once was a significant factor in some Nevada casinos, its influence has declined considerably and consistently during the past 10 years. In comparison with the situation 1 5 years ago, the presence of organized crime in Nevada today is negligible. 2. Stringent accounting regulations and sound internal control mechanisms effectively prevent most skimming of casino profits by owners. Theft by casino employees and customers occurs more frequently. 3. Nevada's gambling cannot be held solely, or even primarily, responsible for the higher-than-average crime rates in Reno and Las Vegas. Gambling is one of the many factors that affect crime rates in these cities. 4. While successful casinos provide a high rate of return on investment, many are only marginally profitable, and a few operate at a loss. 5. Although gambling taxes and fees constitute a significant percentage of Nevada's State income, both New York and California earn more from taxes on parimutuel wagering alone than Nevada collects through assessments on casinos. In terms of total State revenue fron all forms of gambling (including lotteries), Nevada ranks only sixth. 6. It has taken Nevada many years to develop and refine its system of casino regulation, a process that is still ongoing. On the whole, State regulations are sufficiently stringent and enforcement is effective. The material that follows presents an overview of Nevada's legal casino industry, including financial and economic considerations; local, State, and Federal regulation; internal operation and control; and a brief historical review of the evolution of casino gambling from a casual pastime into a billion-dollar industry. It also contains a review of legal casino gambling in the Commonwealth of Puerto Rico, the only American jurisdiction outside of Nevada where casinos are legal; in Great Britain; and in the Bahamas. HISTORICAL PERSPECTIVE 1 In 1849, the discovery, of gold in California caused the westward migration of thousands of prospectors eager to gamble on the possibility of striking it rich. Geographically, Nevada was the final obstacle between the prospector and the fulfillment of his dream. Discovery of the Comstock Lode in 1859 and gold strikes in the Tonapah and Goldfield areas in the early 1900's boosted Nevada's population considerably. In the dusty little mining towns, gambling was the principal form of recreation for male members of the community. The first official restrictions on gambling in Nevada came in 1861, when the Nevada Territory was formed. Running a gambling operation was made a felony, and betting a misdemeanor. As an added incentive to law enforcement officials, the law awarded district attorneys $100 for every gambling conviction they secured. Other legislation 78 enacted in the 1860's first decreased the penalties for illegal gambling and then legalized various gambling activities through a licensing scheme. Gambling flourished in the back rooms (it was not permitted in front rooms) of saloons and gambling halls as long as the gold and silver mines remained productive. Roulette, dice games, poker, monte, and faro were the most popular games. Gambling was considered a respectable pastime and gambling operators for the most part were regarded as respectable businessmen. Opposition to gambling was strongest in the nonmining towns. The women of Nevada uniformly excluded from all gambling activities were often at the forefront of the antigambling movement. In 1909, the State legislature passed a law making it a felony to operate a gambling game and authorizing police to break down doors, and seize and destroy any gambling equipment found on the premises. It soon became apparent, however, that the tough new antigambling law was not having the effect its sponsors had intended. The games were driven underground and the State was deprived of the license fees it had previously collected. The law attracted underworld gamblers skilled in the arts of cheating and bribing public officials. In 1913, the legislature reiterated its strong antigambling stance. Two years later, gambling on a restricted scale was once more permitted. This legislative seesawing had no effect on the illegal games, which increased in size and number each year. One historian summed up the situation as follows: This patchwork law remained in force for sixteen years, during which time it was by all accounts either ignored completely or so feebly enforced as to be worse than useless. Its fatal defect lay in the fact that the games allowed in the licensed houses had little appeal to the gambling public, which accordingly shunned them and patronized instead the numerous undercover resorts that promptly sprang up. As a result, state and local revenues from licenses fees declined year by year while the illegal houses multiplied. 2 The pendulum began to swing in the direction of legalization. Even stronger than its desire to crush the menace of illegal gambling was the State's need to raise funds during the depression. Despite persistent opposition from the clergy and various reform and women's groups, the Nevada legislature in 1931 finally passed a new "wide open gambling bill" that legalized all forms of casino gambling. Passage of the 1931 law did not signal the hurried construction of the enormous casino resorts that characterize Nevada gambling today. More than a decade passed before gangster Benjamin "Bugsy" Siegal, member of Murder, Inc., built the gaudy prototype of the modern Las Vegas Strip casino. The 1931 law enabled the operators of previously illegal gaming rooms to rent ground-level storefronts. Otherwise gambling proceeded with little change. Funds that had been used to buy protection now went to pay the modest license fees and taxes. County sheriffs were responsible for administering the law. Five-member boards three county commissioners, the district attorney, and the sheriff had license-granting authority. There was no enforcement at the State level. In 1945, the State legislature passed an amendment that required applicants to obtain licenses from the State Tax Commission as well as from the county boards. The Tax Commission then proceeded to adopt stricter licensing requirements. The 1945 law also imposed on gambling operators a State tax of 1 percent of gross earnings. Additional amendments in 1947 and 1949 further extended the Tax Commission's authority in the area of enforcement and increased the tax rate to 2 percent of gross earnings. Today, gross gambling revenue is taxed at a graduated rate ranging from 3 percent to 5.5 percent. Altogether, gambling operations are now subject to five different types of State-level taxation. It was in Reno that gambling first acquired the aura of genuine respectability. In 1937, Raymond I. Smith opened Harolds Club. Smith replaced the smoky drabness of the traditional casino environment with bright lights and colorful adornments. He lowered the stakes to attract small bettors and provided transportation home for players who went broke. William F. Harrah went even further. In 1946, he opened the club that bears his name next door to Harolds Club. He commissioned a research firm to develop a profile of his most likely customers. The results showed that the elderly and low-income people might become eager gamblers in the proper setting. Harrah gave them the opportunity by providing bus service to and from 31 cities. Harrah also installed glass walls so that anyone walking by could see the action inside, creating the impression that the establishment had nothing to hide. Later he replaced the glass window with an "air curtain" so that the tempting sounds of clinking silver dollars and shouts of "Jackpot" could filter out onto the street. The phenomenal growth of gambling in Las Vegas can be traced in large measure to the activities of Bugsy Siegal. Most Las Vegans knew Siegal as a personable, enterprising young sportsman. His nefarious background and ties to the underworld became known only after his death. It was Siegal's ambition to build a luxurious complex that would offer gambling, recreation, entertainment, and other services catering to the area's increasing tourist trade. Siegal borrowed money from his underworld colleagues to build the $5 million Flamingo Hotel along Highway 91, just outside the city limits. Long delays in construction, expensive cost overruns, and various other transgressions angered Siegal's creditors, who engineered his gangland-style execution in 1947. The news of Siegal's death and the ensuing revelations about his criminal career generated enormous publicity around the country and even appeared to attract additional business for the city's gambling halls. In the next few years, the Strip acquired several new hotel/ casinos that eclipsed the Flamingo in size, star-studded openings, and opulent decor. Las Vegas was well on its way to becoming the country's gambling mecca. 79 The financial success of the Flamingo attracted additional underworld figures from such cities as New York, Detroit, Cleveland, and from resorts like Newport-Covington, Ky. In 1950, the Kefauver Committee (Special Senate Committee to Investigate Organized Crime in Interstate Commerce) began its investigation of organized crime, and one aspect of its inquiry centered on Nevada gamblers. The committee's summary report contained this assessment of the situation in Nevada : It seems clear that too many of the men running gambling operations in Nevada are either members of existing out-of-state gambling syndicates or have histories of close association with the underworld characters who operate these syndicates. It had become evident that the Nevada Tax Commission, even with its strengthened licensing and enforcement powers, had proved unable to keep undesirables from infiltrating the gambling business. At stake was the future of legalized gambling in the State. If hoodlum control were not checked, Nevadans or the Federal Government could easily take steps to terminate the 1931 experiment. 3 Following the Kefauver report, the State of Nevada and the Federal Government intensified their efforts to uncover and eradicate hidden criminal interests in Nevada gambling operations. In 1955, a Gaming Control Board was created to act as the enforcement and investigative unit of the Tax Commission. Four years later, Governor Grant Sawyer called for a complete revamping of the gambling control machinery. A five-man Nevada Gaming Commission was created and a State Gaming Control Board was established as the Commission's audit, investigative, and enforcement arm. The new Gaming Commission was given greatly expanded investigative and regulatory powers, all designed to insure that "criminal elements, mobs, or syndicates have neither interest in nor control of existing businesses." In 1961, the Nevada legislature created the Gaming Policy Board, an advisory body established to give the Governor a greater voice in gambling matters. Although few would claim that the influence of organized crime has been completely eradicated in Nevada, most authorities agree that at least it has been significantly reduced. During the 1960's, syndicate control over casino operations began to be replaced by large corporate investments in gambling properties. In the past 10 years alone, more than half of the major casino hotels have changed ownership and many new hotels have been built, a situation the Gaming Commission believes has resulted in the gradual weeding out of undesirables. Organizations such as Del Webb Corp., Continental Connector (an eastern electronics firm), and Lum's, Inc. (a Florida-based restaurant chain) invested in some of the Strip's largest casino/hotels including the Sahara, Thunderbird, Dunes, and Caesar's Palace. Among the new hotels built were the Las Vegas Hilton and MGM's Grand Hotel. The latter, which opened in December 1973, bills itself as the "world's largest resort hotel." It has 2,100 rooms, 6 restaurants, 3 show lounges, and a casino larger than a football field. Among the largest corporate investments in Las Vegas were those made by Howard Hughes. In 1967, Hughes bought the Desert Inn, thereby initiating his collection of Las Vegas properties, which eventually included the Sands, Landmark, Frontier, Castaways, and Silver Slipper. In Reno he bought Harolds Club from its original owners, the Smith family. His nongambling acquisitions in the State included mining claims, an aviation facility for private and charter planes, and a television station. In a short time Hughes had become the State's largest employer. THE INDUSTRY TODAY With much of the country experiencing economic adversity, Nevada stands almost alone in terms of fiscal soundness. The State has felt only minimally the effects of recession and high unemployment and anticipates a fiscal year 1975 budget surplus of $23 million, or about 10 percent of its current operating budget. This phenomenon may seem even more remarkable in view of the fact that Nevada has no State income tax on either individuals or businesses. At the core of Nevada's economic success is its thriving gambling industry and related tourist enterprises. In 1975, for the second time, the gaming 4 industry's gross taxable revenue exceeded $1 billion. 5 This represented a 12.2 percent increase over 1974 and a 392 percent increase over the 12-year period from 1964 to 1975 (see table 5-1). TABLE 5-1.-GROSS TAXABLE GAMING REVENUE,* STATE OF NEVADA Year Taxable revenue Percent change 1964 $ 292, 828,078 ** ** ** 1970 575, 505,370 1971 633, 338,317 +10.2 1972 731, 170,284 +15.4 1973 875, 899,724 +19.8 1974 1,004, 361,692 +14.7 1975 1,126, 415,410 +12.2 Percent change 1964-1975 +385 'The total of all sums received as winnings less only the total of all sums paid out as losses (before operating expenses). Source: Nevada Gaming Control Board. 80 TABLE 5-2.-DIRECT LEVIES PAID BY THE GAMING INDUSTRY, FISCAL YEARS 1964-1975 (in millions) Federal' State County Other 1 %of %of /oof %of Year Total Amount total Amount total Amount total Amount total 1964 $27.2 $ 7.1 26.1 $14.5 53.3 $ 3.9 14.3 $1.7 6.3 1965 27.6 6.7 24.3 15.1 54.7 4.1 14.8 1.7 6.2 1966 33.1 7.8 23.6 18.8 3 56.8 4.7 14.2 1.8 5.4 1967 40.2 9.0 22.4 23.9 59.4 5.1 12.7 2.2 5.5 1968 45.6 9.2 20.2 29.0 63.6 5.2 11.4 2.2 4.8 1969 48.8 7.7 15.8 33.3 68.2 5.6 11.5 2.2 4.5 1970 58.5 10.1 17.3 39.3 4 67.1 6.7 11.5 2.4 4.1 1971 62.2 11.2 18.0 41.7 67.0 6.8 10.9 2.5 4.1 1972 77.5 11.8 5 15.2 54.9 6 70.8 8.0 10.3 2.8 3.6 1973 79.3 4.9 6.2 62.3 78.6 9.1 11.5 3.0 3.7 1974 92.8 5.0 5.4 74.4 80.2 10.1 10.9 3.3 3.5 1975 100.8 4.3 4.3 82.5 81.9 10.7 10.6 3.2 3.2 1 Does not include Federal income taxes paid by casinos. * Cities and other local governments. ' Includes new State casino entertainment tax at 10 percent of sales. 4 Includes new State flat fees on games and slot machines and State percentage fee rate increase based on gross revenue. * Includes annual slot machine tax of $250 for each machine operated during the fiscal year ended June 30, 1972. Effective July 1, 1972, the annual rate was reduced to $50 for each machine because of an 80 percent Federal tax credit allowed to the State (see note 4). Federal figures for fiscal 1973 reflect a substantial decrease because of the above noted rate reduction. * Includes annual slot machine tax of $200 for each machine (paid in advance of July 1, 1972) to be operated during the fiscal year ending June 30, 1973, which is based on the 80 percent Federal tax credit indicated in note 5 above. Source: Nevada Gaming Control Board. Approximately 29 percent of Nevada's 263,700 salaried employees in 1975 worked in the gaming industry and related tourist businesses. An additional 25 percent depended indirectly upon the gaming industry (e.g., construction workers, retail merchants, government workers). 6 THE STATE'S SHARE. In fiscal year 1974, Nevada's General Fund collected $148.5 million in taxes, license fees, and other revenue. Approximately 47 percent of that amount consisted of the various gaming and license fees. Table 5-2 shows gaming revenue collected by the Federal Government, the State of Nevada, and Nevada counties and municipalities from fiscal years 1964 to 1975. Although gambling revenues constitute about one-third of Nevada's total State income, as compared to only 2 to 4 percent of the income of such States as New York and New Jersey, it is important to note that Nevada ranks only sixth among the States in total gambling revenues earned. New York and California earn more from on-track parimutuel racing alone than Nevada generates through assessments on casinos. New York's combined on-track, off-track, and lottery earnings in 1975 were almost three times greater than Nevada's gaming revenues. Casino gaming in Nevada is subject to five different types of State taxes. Table 5-3 shows the amount collected in each of the five categories from 1970 to 1975. A brief description of each tax follows: 1. Quarterly percentage fees. This is a graduated tax based on net winnings before operating expenses. The fees are 3 percent of the first $150,000, plus 4 percent of the next $250,000, plus 5.5 percent of revenue in excess of $400,000. 2. Annual State license fees. This flat fee is based on a graduated scale starting at $100 for one game and increasing according to a formula based on the number of games operated by a licensee. The funds collected through this tax are distributed equally among Nevada's 1 7 counties after administrative costs have been deducted. 3. Quarterly flat license fees. This fee is also based on the number of games operated, beginning at $12.50 for 1 game and increasing to $20,000 for 36 games, plus $25 for each game in excess of 36 games. Quarterly fees are also imposed upon slot machines. Establishments with 15 or fewer slot machines and no other gaming (restricted licensees) pay a license fee of $100 per year in quarterly installments for each machine. Restricted licensees pay this fee instead of the quarterly percentage fees. All other establishments (non restricted licensees) pay $10 per quarter for each slot machine. 4. Slot machine tax. This is an annual State tax of $200 on each slot machine. This fee is payable to the State as a credit against the Federal tax of $250 on each slot machine. The Federal Government thus receives $50 on each machine. Nevada uses the funds collected through this tax to support education in the State. 5. Casino entertainment tax. This is a 10 percent tax on food, merchandise, and services in establishments having live entertainment and at least 51 slot machines or 4 gaming tables. A sixth tax, the quarterly county license fee, is collected by the sheriff of each county. The fee covers card games 81 ($25 a month for each table), other games such as 21 , craps, and roulette ($50 a month for each game), and slot machines ($10 a month for each machine). Twenty-five percent of the revenue collected through this tax goes into the State's General Fund. The remainder is divided among the counties and cities. Various other county, city, and town fees and taxes also are imposed on gaming licensees. GAMING IN CLARK COUNTY. Two population centers in Nevada account for the vast majority of all gaming revenues: Las Vegas (Clark County) and Reno (Washoe County). The LakeTahoe (Douglas County) resort area is another gambling center. Clark County generates approximately 68 percent of Nevada's total gaming revenue. Table 5-4 compares gross taxable gaming revenue in Clark, Washoe, and Douglas Counties. It is impossible to separate the growth of gaming revenue from the growth of the tourist trade as a whole. This trade can be measured in terms of tourist volume, hotel and motel room occupancy rates, and other factors, as shown in table 5-5. In 1975, there were 7,000 more jobs in Clark County than the year before. Most of the increases were in the hotel and gaming service industries. The 47,000 jobs in these industries accounted for approximately 33 percent of total jobs in Clark County in 1975. TABLE 5-3.-NEVADA GAMING LICENSE AND TAX FEES COLLECTED,* 1970-1975 Percentage fees Percent Annual license fees Percent Quarterly flat license fees Percent Slot machine taxes Percent Casino enter- tainment taxes Percent Year Amount change Amount change Amount change Amount change Amount change 1970 $28,879,200 i $1 ,133,150 i $3,780,264 i i -' $6, 320,825 i 1971 31,624,229 + 9.5 763,508 -32.6 3,616,061 - 4.3 $8,760,609 2 ' 6, 862,864 + 8.6 1972 35,898,063 +13.5 1 ,203,242 (1) 4,363,810 +20.7 8,760,609 2 ' 7,523,931 + 9.6 1973 42,150,445 +17.4 1 ,638,000 +35.1 4,989,022 +14.3 9,581,241 +9.4 8, 675,846 +15.3 1974 49,857,754 +18.3 1 ,438,550 (1) 5,169,008 + 3.6 9,847,000 +2.8 10, 710,442 +23.5 1975 57,001,514 +14.3 1,070,400 -25.6 5,059,064 - 2.1 10,331,646 +4.9 11,056,906 + 3.2 1 Percentage increase/decrease computations not meaningful. 1 Collection of this tax began in the second quarter of calendar year 1972. 'The figures include taxes on sports and race books, which, combined, account for only a tiny percentage of the total amounts collected in the applicable categories. Source: Nevada Gaming Control Board. TABLE 5-4.-GROSS TAXABLE GAMING REVENUE,* CLARK, WASHOE, AND DOUGLAS COUNTIES, 1970-1975 Year Clark Amount County Percent of State Washoe Amount County Percent of State Douglas Amount County Percent of State 1970 $369,286,977 64.3 $115,806,312 20.2 $ 71,544,128 12.5 1971 399,410,971 63.0 132,843,184 20.9 80,552,063 12.7 1972 476,126,720 65.1 138,322,042 18.9 91,252,219 12.5 1973 586,093,660 66.9 158,466,251 18.1 99,529,671 11.4 1974 684,714,502 68.2 170,409,710 17.0 112,305,672 11.2 1975 770,336,695 68.4 193,212,293 17.2 121,961,020 10.9 *The total of all sums received as winnings less only the total of all sums paid out as losses (before operating expenses). Source: Nevada Gaming Control Board. 82 TABLE 5-5.-RESORT TRADE REVENUE, CLARK COUNTY, NEVADA Percent change 1975 1974 1973 1973-1975 Estimated tourist volume 1 9,151,427 8,664,751 8,474,727 + 5.6 Number of hotel rooms 21,107 18,557 17,519 +20.4 Hotel occupancy percentage 84.2% 86.0% 88.3% - 4.1 Number of motel rooms 14,083 14,269 11,679 +20.6 Motel occupancy percentage 72.8% 68.7% 78.5% - 5.7 Average number of nights stayed 3.0 2.7 2.7 +11.1 Estimated revenue @ $50 per $1,412,228,560 $1,206,374,805 $1,185,989,509 +19.1 person per day 2 Gaming revenue $ 770,336,695 $ 684,828,388 $ 586,093,660 +31.4 Total revenue $2,182,565,255 $1,891,089,307 $1,772,083,169 +23.7 1 Includes 750,000-850,000 visitors in recreation vehicles and 950,000-1,000,000 visitors to the area who did not remain overnight. 1 Includes conventioneer spending @$60 per person per day for 4.59 nights stayed, gaming revenue excluded. EXTERNAL CONTROL Primary responsibility for regulating the Nevada gaming industry resides with the Nevada Gaming Commission and its auxiliary State agencies the State Gaming Control Board and the Gaming Policy Committee. On the Federal level, the Department of Justice, the Internal Revenue Service, and, most recently, the Securities and Exchange Commission take an active interest in gaming affairs, both to detect possible violations of Federal law by those within the industry and to protect gaming licensees from crimes perpetrated by outsiders. On the local level, law enforcement agencies in Nevada assist the State Gaming Control Board in conducting background investigations on license applicants in addition to various other gaming- related enforcement responsibilities. This combination of State, Federal, and local oversight make Nevada gaming the most closely scrutinized private industry in the country. Gaming Control Act The Nevada Gaming Control Act (Chapter 463 of the Nevada Revised Statutes) is the foundation upon which the gaming industry is built. The act has been amended and updated several times since its passage in 1931. The most significant recent amendments, passed in 1967 and 1969, concerned the issuance of gaming licenses to public corporations. The following is a synopsis of the act's major provisions. 1. State regulatory mechanism: Establishes and sets out the duties of the Gaming Policy Committee, headed by the Governor; the Nevada Gaming Commission, whose members are appointed by the Governor; and the State Gaming Control Board, the independent investigatory and enforcement arm of the Gaming Commission. 2. Gaming licenses: Provides for the licensing of those who conduct gaming, horse bookmaking, and sports bookmaking, as well as those who provide information that facilitates the placing of wagers. In addition, those who manufacture, lease, or deliver gaming equipment are subject to licensing requirements. 3. License fees: Imposes several types of State and county fees and taxes on gaming licensees. 4. Licensing of corporations: Specifies the conditions under which private and publicly traded corporations may obtain gaming licenses. State Regulation In the 45 years since gambling in Nevada was legalized, the State's role in licensed gaming has evolved from a simple tax collection scheme into a sophisticated regulatory system covering every facet of the gaming operation. Nevada had been ill prepared to deal with the rapid growth of the gaming industry following World War II. The State's overburdened license-granting authority issued gaming licenses to people with long criminal histories and overt ties to organized crime. This influence in the State gave Nevada gaming an unsavory reputation among reputable financial institutions and discouraged investment by legitimate business. The gaming control mechanism that exists today is the result of a sustained trial-by-fire effort to remove the fact as well as the appearance of wrongdoing. There is considerable evidence that this effort is succeeding. The presence of large public corporations in Nevada gaming is one measure of that success. Gradually, too, the reluctance of banks and other 83 traditionally conservative financial institutions to invest in Nevada gaming properties is being overcome. The State regulatory mechanism consists of three bodies: the Gaming Policy Committee, headed by the Governor and responsible for discussing matters of gaming policy; the Nevada Gaming Commission, consisting of five members appointed by the Governor and having final authority to require, grant, deny, or revoke gaming licenses, adopt regulations, and invoke disciplinary action; and the State Gaming Control Board consisting of three full-time members and a staff of investigators, auditors, tax specialists, researchers, and financial experts. Apart from its primary responsibilities license granting, tax collection, and auditing the Gaming Commission has authority over a wide variety of gaming-related matters. Regulation of the manner in which casino games operate is fairly limited, however, and the most conspicuous absence of regulation is in the area of game odds and payoff ratios. Slot machine payoff ratios may vary considerably among establishments. The only requirements in this regard are that the payoffs be posted on each machine and that any posted winning combination be achievable. Unlike the British system, Nevada has no prohibition against the double (00) in roulette, the inclusion of which tips the odds more heavily in favor of the house. On the other hand, gaming regulations are stringent and comprehensive in such areas as the licensing of slot machine manufacturers and distributors, the licensing of private and publicly traded corporations, parimutuel wagering, the operation of race books, sports pools and wire services, and jai alai. In the area of license granting and revocation, the Gaming Commission bases its decisions on the reports and recommendations submitted to it by the Gaming Control Board. Over the years, the board's functions have gradually been expanded. The board's duties today include the conducting of background investigations on applicants for gaming licenses; the enforcement of gaming laws and regulations, the collection of gaming taxes, and the inspection of premises where gaming is conducted or gaming devices are manufactured and sold. Chart 5-1 shows the organization and functions of the Gaming Control Board, the Gaming Commission, and the Gaming Policy Committee. The first line of defense against the infiltration of casino interests by organized crime is the licensing investigation process. The Gaming Control Board conducts thorough background investigations into the personal and professional histories of applicants to determine their suitability for licensing and to uncover any possible links to organized crime figures that may be concealed through complex financial maneuvering. Each person who makes an application to invest money or hold an equity interest in a gaming establishment must submit a full disclosure of his personal and financial history. Investigators make personal, business, law enforcement, and credit reference checks to trace the applicant's history from his 21st birthday on. If the applicant is reputed to have organized crime affiliations, investigators attempt to determine the nature and extent of these affiliations or whether in fact they exist at all. Two types of hearings are held a public hearing conducted for each applicant and a private one conducted in cases where there is doubt as to the applicant's suitability for licensing. At the public hearing, the applicant has the opportunity to rebut any information he feels is inaccurate, and he may be represented by counsel. Nevada law stipulates that the applicant must bear the entire cost of the investigation regardless of the outcome. The cost of a particularly long and involved investigation can exceed $100,000. As thorough as this investigation process may be, it is not infallible, and the possibility exists that some hidden criminal investments may escape detection. If such interests or other irregularities are eventually uncovered, the Gaming Commission has the authority to suspend or revoke the gaming license, subject to challenge by the licensee which takes the form of a judicial review of the record rather than a trial de novo hearing. Gaming Commission decisions in this regard are rarely challenged, however. There are a number of judicial restraints built into the licensing process that tend to complicate it. Some of the problems concern the handling of confidential informants, the right to counsel, self-incrimination privileges, and due process. Due process, for example, is required in gaming control as much as in other areas of governmental action. Proof of unsuitability for licensing is often difficult to obtain and document, and without such proof the license cannot be denied. However, the degree of proof sought by the Gaming Commission may be less than that required in a court of law in a criminal case. The Commission is empowered by law to set its own definition of unsuitability since the gaming license is considered a privilege rather than a legal right. Since criminal statutes do not define "organized crime" it is sometimes difficult to prove that an individual is a member of an organized criminal group. Sometimes businessmen associate with unsavory individuals, and it is necessary to make a distinction between a harmless association and one that would damage the image of Nevada or that may indicate hidden interest. Another problem for the license-granting authorities is that experienced gamblers often have backgrounds in illegal gambling when they apply for licenses. 7 Their backgrounds must be weighed against the kind of expertise and general integrity they bring to a gambling venture. The enormous sums of money changing hands daily at every casino provide an irresistible lure to clever and dextrous cheaters who believe they can beat the system. The Enforcement Division of the State Gaming Control Board is responsible for the prevention, detection, and prosecution of cheating offenses (scams) perpetrated by casino employees and by gaming customers. In order to insure the integrity of games, the division conducts extensive undercover surveillance, develops informants within the industry, and encourages the industry to develop its own security systems. In addition, enforce- ffl u (J z o o 1 i/r o u z O z z o z o rn c n jz c J-. 3l > QJ g '7. 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QJ VI {ft -c c !2 S g 2^^ g S S a E e a o | J S = 5 .E sol"^=-5;E-= ll^llililsi C^Tr- lOrerevny, i DO ujQD^ ooooD'iiD u u >C^^Cft' O r- g ~ > S H 2 1 1 5 1 ill g.!?.l3 S p-eajaoO^aoOj U J -g "re . c 1 J! _g c E 1 | g o-S-g SSa ^E-su^m"^ < T S^ yuo _ -2 -I n "8 * oJ-g re = $ .a . S l "S - "" re (/) Q^ tft C on C S" C B -g i s 'J CUO=Q. tl-zi-COC^oiC ^ ^ | u gu " *- -n ^ .SP c .2? X op ,9 g .E > > U > 2 1 SO r-C ; . : : . Q D .E a oo ment agents routinely, but on an unannounced basis, obtain cards and dice from casinos to examine them for signs of abnormality. They also examine thousands of slot machines each year. Many cheaters perform like magicians, using sleight-of- hand techniques that are extremely difficult to detect. For this reason, the Gaming Control Board must depend heavily on informants. It is difficult as well to convict cheaters in court since in most cases there is no physical evidence. 8 In addition, the gaming authorities risk being sued for libel or slander when they disseminate information to casinos about suspected cheaters. For the same reason, gaming licensees may be reluctant to inform gaming authorities about persons they suspect of cheating. It is problems such as these that preclude the total elimination of cheating and theft from Nevada gambling, and even preclude an accurate estimate of the amount of cheating that actually occurs. A different type of scam may occur on the management level within a casino. The process known as "skimming" was thought to have been fairly common when many of the casinos were controlled by organized crime. Skimming is the process whereby a portion of the casino revenues disappears from the official count. Skimmed casino money escapes taxation, and in cases where organized crime figures hold concealed interests, it can be returned to these persons as profit on their investments. The Audit Division of the Gaming Control Board attempts to prevent skimming and insure that the State is receiving its fair share of taxes from gaming revenue. Gaming regulations prescribe detailed internal control procedures that all casinos must follow. These procedures (discussed in greater detail later) cover the movement, counting, and monitoring of cash, chips, and credit markers at all points along the route between the customer's pocket and the casino's coffers. The Commission has found these controls to be generally effective and believes that the incidence of skimming has been significantly reduced during the past 10 years. The Nevada gaming control agencies share many of the problems of other regulatory bodies they must walk a fine line between too much regulation, which could harm and possibly destroy the industry, and too little regulation, which fosters the kind of abuse visited upon the State by Bugsy Siegal and those who followed him to Las Vegas. Nevada has used its 45 years of experience in the gaming field to develop a regulatory system that is sophisticated, efficient, and, on the whole, capable of maintaining the integrity of the gaming industry at an acceptable level. Local Law Enforcement The Nevada Gaming Control Act provides that, once having been licensed by the State, establishments that offer gaming must obtain licenses from the county and, if applicable, from the city or town in which they are located. Accordingly, city and county law enforcement agencies conduct background investigations on license applicants in conjunction with the State Gaming Control Board. Local authorities have the power to deny a license even though one may have already been granted by the State. Such a denial rarely occurs, however, since the State-level licensing procedure is more thorough and detailed than the local ones, and more likely to uncover wrongdoing if it exists. Local law enforcement agencies also are responsible for enforcing the various gambling-related laws, such as those against cheating and the operation of unlicensed gambling. The Clark County (Las Vegas area) District Attorney's Office handles approximately 30 adult gambling prosecutions each year, involving, for example, possession or sale of cheating games and devices, such as those designed to make a slot machine operate without coins. The State Gaming Control Board has statutory authority to maintain a list of "undesirables" generally organized crime figures who are to be barred from the premises of all casinos. Because these people traditionally have been attracted to Las Vegas, the Las Vegas Metropolitan Police Department keeps track of their interstate movements and of the movement of others who pose a potential problem for the industry, such as known cheaters. Other police departments in the State may also perform such functions but on a smaller scale. Testimony before the National Gambling Commission indicated that gambling-related problems are considered minimal and that only a small percentage of police workload consists of actual gambling cases.' A larger portion of the workload of local police departments, prosecutors' offices, and courts is devoted to cases not easily linked to legalized gambling. It is difficult to establish the exact correlation between legal gambling and crime in Nevada, but it is known that a relationship exists. Of the total number of crimes committed in Las Vegas, the State's most populous city, a few, such as cheating in the casinos, are directly attributable to gambling. Certain white collar crimes, such as the use of stolen credit cards and the passing of worthless checks, also are prevalent in and around the casinos and in businesses that cater to tourists. Only a small percentage of crimes are committed by persons who have lost all their money gambling. Although Las Vegas experiences higher-than-average murder, rape, robbery, and burglary rates compared with the country as a whole, its crime rates are roughly comparable to those of similar-sized cities and to the crime rates of other resort areas such as Daytona Beach and Ft. Lauderdale, Fla. (see table 5-6). Many criminals are attracted to resorts by the ready flow of cash and the high volume of tourism. Tourists often make easy targets for robbers, pickpockets, purse snatchers, and burglars. Twenty percent of the crime victims in Las Vegas are out-of-State visitors. 86 TABLE 5-6.-RESORT AREA CRIME RATES, 1974 Rates per 100,000 population Area (SMSA) Population Total crime* Violent crime Property crime Atlantic City, N.J. (Incl. Atlantic Co.) 178,507 6,111.2 706.6 5,680.4 Daytona Beach, Fla. (Incl. Volusia Co.) 202,977 8,993.1 641.0 8,352.2 Ft. Lauderdale, Fla. (Incl. Broward Co.) 812,221 9,251.7 643.3 8,608.4 Las Vegas, Nev. (Incl. Clark Co.) 311,153 9,317.9 891.8 8,426.1 Miami, Fla. (Incl. Dade Co.) 1,385,889 9,130.2 1,205.3 7,924.9 Reno, Nev. (Incl. Washoe Co.) 138,965 7,197.7 447.1 6,750.6 Cities 100,000-250,000 pop. 15,488,000 7,111.0 600.0 6,511.0 Cities 250,000-500,000 pop. 10,773,000 7,755.4 853.4 6,902.0 U.S.A. Total 211,392,000 4,821.4 458.8 4,362.6 Includes: (1) Violent crimes of murder and nonnegligent manslaughter, forcible rape, robbery, and aggravated assault; and (2) Property crimes of burglary, larceny over $50, and auto theft. Source: FBI Uniform Crime Reports, 1974. The round-the-clock lifestyle is another factor affecting crime rates in Las Vegas. With many of the casinos, restaurants, and bars remaining open 24 hours a day, there are many potential crime victims on the street and away from their hotel rooms at all times. Various other social and demographic characteristics are thought to contribute to crime in Las Vegas, among them, the comparative youthfulness of the population, the high rate of population growth and mobility, and the fact that many Las Vegas residents have histories of financial, marital, or criminal problems in the communities from which they came. 18 Like many tourist and convention centers, such as New York, New Orleans, and San Francisco, Las Vegas has a fairly high rate of prostitution. Although illegal in Clark County, prostitution is generally accepted as a fact of life by local law enforcement officals, who believe, first, that they are powerless to eradicate it, and second, that an attempt to do so would constitute an inefficient use of available police resources. On the other hand, prostitution is considered a serious problem when it occurs in conjunction with such other crimes as robbery, larceny, assault, and narcotics use. Of the hundreds of people frequenting hotel and casino facilities at any given time, it is extremely difficult to single out the few who are prostitutes, and even more difficult to obtain the proof needed to take legal action. In recent years, the city has begun to attract significant numbers of conventioneers mostly men and the supply of prostitutes has kept pace with the demand. Although conceding that their premises may be used by prostitutes, hotel/casino owners and managers state emphatically that they receive no profits from the activity and do not encourage it. 11 The Commission found no evidence of collusion between prostitutes and hotel owners or managers. Federal Involvement The Department of Justice, the Internal Revenue Service, and the Securities and Exchange Commission are the primary Federal agencies concerned with Nevada gambling. Three components of the Department of Justice the U.S. Attorney for the District of Nevada, the Los Angeles Organized Crime Strike Force, and the FBI are responsible for investigating and prosecuting violations of Federal gambling statutes as well as such nongambling violations as loansharking, credit fraud, stolen and counterfeit securities, counterfeit currency, and extortion. The Los Angeles Organized Crime Strike Force was formed in 1970. The Strike Force believes that its involvement in Nevada has resulted in the strengthening of State statutes and regulations pertaining to gambling and the reduction of organized crime influence in the State. The conviction of several former owners of the Flamingo Hotel for skimming, for example, has resulted in the establishment of accounting procedures that make it more difficult to duplicate the Flamingo thefts. The recent conviction of some New York racketeers, attributable to the joint efforts of Federal and State authorities, led to increased controls on and accountability of junket operations and personnel. During his appearance before National Gambling Commission hearings in Las Vegas, the director of the Los Angeles Strike Force testified that organized crime can still be a silent partner in Nevada casinos but that the great majority of the legal gambling industry is not affected by it. 12 The U.S. Attorney's Office assists the Strike Force in all of its gambling prosecutions, but due to its small staff and the existence of the Strike 87 Force, its overall involvement in gambling cases is minimal. Among the crimes investigated by the Las Vegas office of the FBI are two directly related to casino gambling- extortionate credit transactions and junketeering. The FBI reports that substantial amounts of loansharking money circulate in the Las Vegas area, and that some of this money originates from criminal groups in the East. The agency believes that its investigations have helped reduce but not eliminate the loansharking activity in Las Vegas. Junkets to Las Vegas are an important source of revenue for some of the larger casino hotels. But sometimes junkets are organized for the purpose of defrauding the casino. As an example, a junketeer may bring a group of people to Las Vegas with the understanding that all the participants will be extended a certain amount of credit. When the players have used only a small portion of the chips they have been given, they cash in the remainder and leave. In such cases, the casinos have little hope of collecting on the credit extended. The FBI has investigated several instances of junket fraud, most of which have been much more complex than the type described above. The Justice Department believes that its presence in Nevada has had a healthy effect on the gambling industry. On the whole, gambling industry spokesmen concur and emphasize their willingness to cooperate in Federal investigations, particularly since the casinos themselves are often the victims of crime. The involvement of the Internal Revenue Service in Nevada is met with less enthusiasm. There is considerable antagonism between the IRS and some of the casinos. The IRS investigates suspected cases of income tax evasion. The subjects of its investigations may be the casinos themselves or private individuals to whom the casinos have extended credit. Some of the gaming licensees believe that IRS policies with respect to gambling are based on a lack of understanding of how the industry operates and an ingrained skepticism about the industry's willingness to report its income honestly. They believe, further, that the IRS practice of seeking information about casino patrons undermines the good customer relations that the casinos work so hard to establish. In testimony before the National Gambling Commission, gambling industry spokesmen also complained that the methods employed by the IRS to subpena information were both disruptive and costly. Responding to Commission inquiries in this area, the IRS stated that the "cash flow" situation existing in the casino industry makes it extremely difficult to conduct effective audits. According to the Service, no internal control system can effectively prevent skimming unless there is a high level of integrity at all levels of management. The IRS believes that, historically, the casino industry has lacked such integrity, and it is not yet convinced that sufficient improvements have occurred. Finally, the Service stated that it is able to produce compliance with income tax laws by maintaining rigorous investigative and surveillance capability. The IRS declined to provide the Commission with specific information regarding ongoing activities designed to detect the skimming of unreported income, claiming that the release of such information would jeopardize these projects. The jurisdiction of the Securities and Exchange Commission is limited to corporations whose stock is publicly traded. The SEC's principal concerns in this regard are the adequacy of public disclosure of income and interests and the fairness of securities markets. The SEC has told the Commission that it now considers properly managed casinos to be auditable entities. INSIDE THE CASINOS The modern Nevada casino bears little resemblance to its storefront predecessor of the 1930's and early 1940's. Most of the same games are still popular 21, craps, roulette but the packaging has changed radically. Depression era gambling dens were slow to shed the trappings of illegality the discreet entranceway; the shadowy, smoky rooms; and the lingering sentiment that there was something inherently disreputable about the entire business. All that has changed. No longer doubtful of their respectability, Nevada gambling houses today present an ostentatious spectacle to the world with their neon lights, opulent decor, 2,100 gaming tables, and 40,000 slot machines. Casino management and operational procedures have also changed significantly over the years. Few businesses today operate with the sophistication, technology, and accountability found in Nevada casinos. Many of the refinements in operational procedures parallel developments in business and industry elsewhere, such as the application of management-by-objective techniques and computer technology. But some of the most significant changes in the industry's operation and regulation have been brought about by notoriety by scandalous revelations that at one time or another seemed to cast the industry back into the disrepute from which it came. Had it not been for the influx of organized crime to Nevada following World War II, and the publicity generated by such underworld characters as Bugsy Siegal, Meyer Lansky, and Tony Conero, the effective accounting and regulatory system that now exists might never have been developed. With each new expose of wrongdoing, the industry and the State have reacted by strengthening and refining the internal and external control mechanisms in an effort to prevent further transgressions of the nature uncovered. The remainder of this section examines the modern Nevada casino what it offers the public, its profitability, how it is managed and operated, its internal control mechanisms, and its auditability. 88 What the Casinos Offer To many people, Nevada is synonymous with gambling. But according to a survey undertaken by the Las Vegas Convention and Visitors Authority, gambling is only one of the attractions of that city. Approximately one-third of the 1,419 people polled stated that gambling was the main reason for their trip to Las Vegas. Thirty-six percent stated that they came for the "entertainment," or shows, and 31 percent said they came for other reasons, e.g., for business conventions, for relaxation, or to visit friends. There are approximately 120 small- and medium-sized casinos in Nevada that offer only gaming and produce approximately 3 percent of the total gaming revenue in the State. Ninety-five percent of the State's gaming revenue is produced by the 76 large casinos, each of which generates an annual gross gaming revenue in excess of $1 million. Most of the large casinos have restaurants, bars, and entertainment, and many are combined with hotels. In the last category are 20 "super casinos," those hotel/casino complexes located primarily on the Las Vegas Strip and offering many forms of recreation and entertainment in addition to huge gambling facilities. 13 All of the hotel/casinos have one or more show lounges or theaters that feature well-known entertainers. All have at least one restaurant. But apart from the basics gambling, entertainment, food, and lodging competition among the hotel/casinos has promoted the development of unique and unusual features and services. The MGM Grand Hotel's nostalgic Hollywood decor is a tourist attraction in itself. The Grand also offers jai alai frontons. Caesar's Palace hosts the Alan King Tennis Classic each year and altogether sponsors more television sports shows than any other single sponsor. The Stardust offers horse and sports betting on its premises. The Sparks Nuggett sponsors an annual Hereford bull sale in one of its showrooms. Most of the hotel/casinos also offer a variety of sports programs such as tennis, golf, and swimming, as well as such amenities as babysitting services, beauty salons, special recreational programs for children and teenagers, and convention facilities. The 20 hotel/casino complexes contain almost half of the total number of games in the State and more than one-fourth of the slot machines found in gaming establishments statewide. The primary games are 21 , craps, roulette, and baccarat. Another casino game available in Nevada is the slot machine. At the end of 1975, there were 48,757 slot machines licensed in Nevada; these machines supplied 32.8 percent of the total taxable revenue derived by the State from gambling. Most casinos have large banks of slot machines, in different denominations (1tf, 5t, 10tf, 25*, 50, $1,and $5); they are also found in public areas such TABLE 5-7.-PERCENT OF REVENUE PRODUCED BY GAMES AND DEVICES, FISCAL YEAR 1975 Downtown Las South Las Vegas Units % Vegas Strip Units % Lake Tahoe** Units % Reno/Sparks Units % Games Twenty-one 267 21.3 586 29.1 224 30.9 363 26.3 Craps 52 16.3 135 31.0 30 11.8 50 9.9 Roulette 26 2.1 51 3.6 17 2.7 24 1.9 Baccarat 11 1.4 45 11.3 8 2.7 17 1.2 Other 19 1.1 35 1.2 5 1.0 7 0.4 Totals 375 42.2 852 76.2 284 49.1 461 39.7 Devices 5t slot machine 5,491 27.4 7,161 9.5 2,688 14.4 4,875 18.6 10* slot machine 569 3.1 969 1.4 847 5.9 1,414 6.4 254 slot machine 955 9.2 1,860 4.6 989 10.5 1,358 10.7 50* slot machine 60 0.5 90 0.2 153 2.4 224 2.4 $1 slot machine 132 2.1 235 1.0 141 4.6 297 6.0 Pinball machine 59 0.4 3 0.0 Other 351 1.6 429 1.2 69 1.4 84 1.0 Totals 7,617 44.3 10,744 17.9 4,887 39.2 8,255 45.1 Other Gaming Keno 12 9.6 21 3.6 10 9.2 24 13.3 Poker 40 3.3 75 1.8 11 1.2 2 0.7 Miscellaneous* 15 0.6 17 0.5 7 1.3 28 1.2 Totals 67 13.5 113 5.9 28 11.7 54 15.2 Grand Totals 8,059 100.0 11,709 100.0 5,199 100.0 8,770 100.0 Bingo and panguingui. Includes figures for Douglas County. Source: Nevada Gaming Control Board. as drugstores, grocery stores, and the McCarran airport in Las Vegas. The proprietors of these machines may have as many machines as they want; each machine must be registered with the State Gaming Commission and that registration must include a statement of the percentage of payout. The payouts returned to the players approximate 85 percent of the volume played, with the range varying from 78 percent to 97 percent; the higher payouts are designed to increase the amount of play. The payout ratio, which is not subject to State regulations, is set by each proprietor. In contrast, the gaming board of Great Britain has placed strict limitations on the availability and location of slot machines; for example, casinos are allocated no more than two "fruit" i.e., slot machines. All clubs, including sporting and drinking clubs, are permitted to have up to two machines. Because of the popularity of this form of gambling in Great Britain, these restrictions are intended to limit play by the public. Further, it is required that the percentage of payout be posted on the machine. In the Bahamas, as in Nevada, large banks of slot machines are permitted in the casinos; however, permission must be obtained from the gaming board before the number of machines can be increased at any one place. Table 5-7 shows the number of games and slot machines and the percentage of revenue produced by each in four areas of Nevada Downtown Las Vegas, the Las Vegas Strip, South Lake Tahoe, and Reno/Sparks. Twenty-one, craps, and the 5( slot machine are the top three revenue TABLE 5-8.-INCOME VERSUS EXPENSES,* FISCAL YEAR 1975 Percentages Downtown Las Vegas South Lake Reno/ Las Vegas Strip Tahoe*** Sparks Income Casino department 70.1 58.3 64.3 67.5 Rooms department 6.5 13.6 6.3 5.1 Food department 11.8 13.9 15.7 14.1 Beverage department 8.1 10.8 11.6 10.7 Other revenue-producing departments 3.5 3.4 2.1 2.6 Total Revenues 100.0 100.0 100.0 100.0 Expenses Direct expenses 42.8 40.6 34.4 41.3 Cost of goods sold 8.1 7.3 10.1 9.3 General and administrative expenses Advertising and promotion 2.8 1.7 4.5 4.7 Complimentaries 9.0 11.4 8.1 7.9 Junket expenses 5.9 0.7 0.0 Depreciation buildings 1.1 1.4 1.3 0.7 Depreciation and amortization other 1.8 2.0 1.7 2.0 Real estate taxes 0.8 0.7 0.7 0.6 Other taxes & licenses 0.1 0.1 0.2 0.2 Music & entertainment 1.0 7.2 5.0 3.2 RentoLpremises 2.5 0.5 1.4 1.4 Payroll taxes & employee benefits 1.3 1.1 2.4 1.4 Salaries officers/owners 0.8 0.3 0.7 0.9 Salaries other employees 4.7 5.3 8.3 6.7 Miscellaneous 7.3 7.8 7.8 8.3 Total Expenses 84.1 93.3 87.3 88.6 Net Operating Income 15.9 6.7 12.7 11.4 Dollar Values Aggregate revenue $212,956,000 $992 ,711,000 $184,344,000 $234,774,000 Aggregate net operating income** $ 33,860,000 $ 66 ,511,000 $ 23,402,000 $ 26,764,000 Average gross revenue per casino** $ 14,197,000 $ 35 ,454,000 $ 30,724,000 $ 13,043,000 Average net operating income per casino** $ 2,257,000 $ 2 ,375,000 $ 3,900,000 $ 1,487,000 Number of Locations 15 28 6 18 Casinos with annual gross revenues of $1 million or more. "Before extraordinary items and Federal income taxes. "Includes Douglas County. Source: Nevada Gaming Abstract, 1975 Supplement, Nevada State Gaming Control Board. producers in these areas. In the smaller communities, such as Elko, Reno, and Tahoe, keno and bingo account for a higher percentage of the total gaming revenue than-they do on the Strip. Casino Profitability An investor looking for get-rich-quick schemes and easy money is bound to be disappointed by the realities of the casino gambling business. Although the successful casinos provide a high rate of return on their investments, the profits of the industry as a whole are less spectacular. Table 5-8 compares fiscal year 1975 income versus expenses for four areas of Nevada Downtown Las Vegas, the Las Vegas Strip, South Lake Tahoe (Douglas County), and Reno/Sparks. By law, the statistics for individual establishments must be kept confidential. The aggregate figures contained in this table thus conceal the fact that some of the casinos may actually operate at a loss, as was the case with some of the Hughes Tool Co. casino holdings from 1968 to 1971. Although gaming is the primary source of revenue in all four of the locations shown in table 5-8, the ratio of gaming to total revenue is somewhat lower on the Las Vegas Strip, where room revenues are significantly higher than at the three other locations. In the "expenses" category, the Strip casinos allocate a higher percentage of their operating budgets than the other locations to the provision of complimentary items (food, rooms, drinks), a result of the Strip casinos' efforts to attract the high rollers, many of whom come to Las Vegas on junkets. Comparing the average gross revenue per casino among the four locations indicates that the Lake Tahoe establishments slightly outearned the Strip casinos during fiscal year 1975. The most likely explanation is that competition is less keen at Lake Tahoe than on the Strip, where funds available for expansion may be nearly exhausted. Table 5-9 shows the percentage return (before Federal taxes) on equity capital investments by the casinos in the same four areas as above for fiscal years 1967 through 1975. The figures in table 5-9 were derived by dividing the net operating income of the casinos by their net (equity) capital (assets minus liabilities). For example, if the total value of a casino were estimated at $5 million after all creditors had been paid, and that casino produces a net operating income of $1 million in a given year, then the percentage return on equity capital for that year would be 20 percent before Federal taxes. If the casino were a corporation, as many are, the rate of return on investment after Federal taxes would be about half that amount, or 10 percent. On the Las Vegas Strip, the investment returns ranged from 14.2 percent to 58.5 percent, or an average of 26.3 percent before Federal taxes and 13.2 percent after taxes. This rate is comparable to that of high-seller concentration industries in the manufacturing sector. 14 There are a number of explanations for the sharp year-to- year fluctuations in the Las Vegas Strip figures. According to one economist, the depressed state of the economy has affected the Strip casinos in particular because of their heavy reliance on big spenders, many of whom have become reluctant to gamble away huge sums of money. 15 Other factors cited included the intensification of competition caused by the addition of new hotels, and the failure of management to hold down various expenses in light of the unfavorable economic conditions, particularly the expenditures for "complimentaries."'* TABLE 5-9.-RETURN ON EQUITY CAPITAL,* GROUP I CASINOS, FISCAL YEARS 1967-1975 Fiscal year Las Vegas Strip Percentages Downtown South Lake Las Vegas Tahoe** Reno/ Sparks 1967 24.1 20.2 (1) 21.1 1968 16.6 15.9 (1) 20.9 1969 58.5 42.5 29.1 23.4 1970 24.8 37.2 26.8 21.5 1971 14.2 36.4 32.7 19.8 1972 20.0 44.7 27.5 28.5 1973 31.9 44.0 32.6 35.9 1974 24.4 42.8 32.3 34.1 1975 22.1 33.5 25.9 37.5 'Before Federal income taxes and extraordinary items. "Includes all of Douglas County. (1) Computations not meaningful. Source: Nevada Gaming Abstract and 1972, 1973, and 1974 Supplements, published by the State Gaming Control Board. HOW THE CASINOS OPERATE In many respects, the casinos of Nevada operate like any other business that has a product or service to sell. What makes casinos unique is that their principal stock in trade is cash, and that dozens of transactions may take place before a single "sale" is complete. A customer may enter a casino with $500 in his pocket. Two hours later he may have only $300; after 3 hours he may have $600. The sale is complete when the customer leaves the casino with either more or less than the $500 he had intially. Complex procedures have been developed to keep an accurate account of the thousands of exchanges of cash, chips, and credit that take place daily between the casino and its customers. Many of these procedures are in the form of State regulations designed to insure that all credit transactions are properly recorded, that revenues are 91 accurately counted, and that the State receives its fair share of the proceeds. The larger casinos offer a number of services in addition to gambling namely, food, drinks, entertainment, and rooms. All of these operations are interrelated, and the quality of service offered in one division can significantly affect the volume of business in the others. Although no two casinos operate in exactly the same manner, State regulations, similarities in services offered, and standard business practices tend to minimize operational differences. The description of the internal casino organization and operation that follows is based on hearing testimony, on information supplied to the Commission at a presentation by one of the large Las Vegas Strip casinos, and on sections of the State- prescribed accounting procedures. The casino described below is not modeled after a particular hotel/casino but represents, instead, a selection of features from several of the Strip's larger gaming establishments. The Golden Grotto Casino The Golden Grotto is a fictitious hotel/casino complex with 1,100 rooms, 2 show lounges, 4 restaurants, an 18,000- square-foot casino, 25,000 square feet of convention facilities, and 2,500 employees. In 1975, its gross revenue from all sources exceeded $77 million. Approximately 60 percent of that amount consisted of gaming revenue. Its net operating income for 1975 was $6.9 million. The Golden Grotto is a corporation whose stock is publicly traded and whose assets are valued at $99 million. The Casino Department at the Golden Grotto consists of three divisions Operational, Marketing, and Financial. The Operational Division is responsible for the operation of all casino games, and the hiring and assignment of personnel to staff gaming positions. The Marketing Division's responsibilities include the granting of credit, customer relations, coordination of group activities such as junkets and conventions, identification and handling of VI P customers, supervision of complimentary provisions, and supervision of the company's branch office. The Financial Division is responsible for the casino's system of internal controls and for insuring that all revenue is properly recorded. Chart 5-2 shows the organization and staffing of the Casino Department. CREDIT. One of the most important aspects of the casino's business involves the granting of credit to casino customers. At the Golden Grotto, one-third of all gaming transactions involve some form of credit credit cards, checks, or markers (lOU's). Registered guests at the hotel and other patrons are generally permitted to cash checks in amounts not exceeding $500, provided they have the proper credit cards and personal identification. Other persons who wish to gamble on credit or to exceed the $500 amount must complete a credit application and furnish certain personal and financial information to the casino. The casino credit manager verifies the information on the application by contacting the customer's banks and through the use of a central credit bureau, a commercial enterprise that supplies the casinos with information concerning the customer's previous gambling experience throughout Nevada and in other areas of the world. On the basis of this information, the customer's request for credit will either be granted in full, in a lesser amount, or denied completely. In cases where particularly large sums of credit are requested, more extensive checks are conducted. In some cases, customers request an extension in the amount of credit they are normally allowed. Such extensions, if granted, are generally limited during a single visit to 25 percent over the customer's original limit. Daily computer printouts are issued showing all changes in credit limits, the amount of unused credit available to each customer, the frequency of visits to the casino, and the promptness of payment. When a customer first establishes credit at the casino, he is asked how he intends to settle his obligations. Many customers pay their entire debt upon their departure; some request that their markers be converted to a bank check to be deposited upon their departure. Still others request that a statement be mailed to them at their home or business. Debts not paid upon the customer's departure are handled by the casino's collection department, which employs standard collection techniques such as billing and telephoning to remind the customer of his obligations. In the case of delinquent debts, personal visits may be made or telegrams sent requesting payment. Accounts that have not been settled within 6 months are sent to a collection agency or to an attorney who will attempt to make the collection. (Nevada law stipulates that gambling debts are not legally enforceable in that State.) If these methods fail, the debts have to be written off as uncollectable. Approximately 3 percent of all credit extended by the casino results in bad debts. The casino has recently designed new computer printouts that show the State of residence of the customer, the casino employee who initially granted the credit, and various other information designed ultimately to minimize these losses. Once a customer has established his credit rating, he may, upon approval of the appropriate pit boss, receive cash or chips on credit during the course of actual play. COMPLIMENTARIES. The Golden Grotto, like most of the Strip casinos, spends a large portion of its operating budget (about 15 percent) on the provision of complimentary rooms, drinks, food, entertainment, and air transportation to its preferred customers the high rollers. The Strip casinos depend upon a steady flow of upper-middle class and wealthy customers. Without such a clientele, they could not maintain the high quality of entertainment, food, and other services for which they have become famous. The casino's complimentary policy is continually scrutinized to determine whether the costs involved are producing the desired results. Formal written policy specifies who may receive complimentaries, how much they may receive, and by whom such privileges may be granted. The activities of customers who have received complimentaries are closely monitored, and the cost of the complimentaries is measured against the value of the 92 Casino Collection Manager M O :: O _ - / OJ -: Division Vice President/ Treasurer o u . U U E E -^ o - C T Manager CJ OJ uu V < < u Financial : Ul. u ' Q.C 2 o -S D U C at r jj Control I "5 '* = (V (A O U < (J y. c_ c; O JlC _^ '. - o ' c O QJ a. O L. -c 2. c a O c 'tf> re ^ 1 c j>"5 "S -a & o re ^ c ^r X U U c C Assistant o tj HI Branch Managers ~- c Executive Vice President O 1 JTAFFING Casino Department Executive Vice Preside y. CO D Marketing D stomer lations 'u c: 0) OJ Q. > LO LU " s u u x o , c j) ra O U X CHART 5-2.-CASINO DEPARTMENT ORGANIZATION AND ' u I 1 Keno Manager - . 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