No Scrutiny of High Rollers on High Seas

Gambling now legal when ships cruise to three miles off the New York City shore.

With its steam boilers rumbling and the cabin attendants waiting to take passengers to their staterooms, the Edinburgh Castle, a chalk-white 713-foot cruise liner, is getting ready to leave Manhattan's Pier 88 for its nightly "cruise to nowhere."

But this ship actually has a destination: the three-mile limit. Once in the Atlantic Ocean, but within sight of city lights, the captain will open this floating casino.

The Edinburgh Castle is part of a growing trend along America's coasts - cruise ships that are swapping their deck chairs for roulette wheels. While a source of thousands of new jobs, gambling on the high seas is virtually unregulated. And that is a concern to law-enforcement officials. In Florida, for example, people with criminal records are now operating gambling boats.

"It's bad news - it means crooks, cheating, customers taken to the cleaners," says Bill Thompson, an expert on gambling and a professor at the University of Nevada, Las Vegas.

But the industry says it makes a significant contribution to local economies, employing thousands of people and buying supplies from local companies. It says there is no reason for regulation since it operates like any other business. "It's a very good industry with over 4,000 people employed," says Jean Walder, executive director of the Florida Day Cruise Association, in West Palm Beach.

Last month, The Miami Herald reported that 26 Florida ships are making some $170 million annually. In New York, the Edinburgh Castle's owners expect revenues of $40 million per year

Antigambling forces are appalled by the sudden rise of the sea-borne gambling. "No state has voted to have casinos dock there, but in effect they do," says Bernard Horn of the National Coalition Against Legalized Gambling. "There are costs associated with gambling such as addiction, bankruptcy, and crime. Each of these costs can be multiplied by an unregulated situation."

Vessels that cater to gamblers now operate out of Florida, Georgia, and New York. Cruise ships that include gambling as part of their "entertainment" tend to operate from California and Alaska if they are heading for international destinations. In New York, the Edinburgh Castle is unusual: It offers live entertainment, movies, and gourmet dining as well as gambling. Most of the other boats leaving Gotham will simply be casino operations.

The most unregulated of the watery venues are Florida and Georgia. Unlike land-based gambling enterprises, there are no official background checks on the owners or operators, no licensing of employees, no one examines the on-board equipment, and no IRS oversight of the winnings. At least one Florida operator has been convicted of not reporting gambling receipts in Mississippi and was turned down for a gambling license on land.

But Ms. Walder says the operators must pass some scrutiny in applying for liquor licenses and may have to register their company with the US Department of Justice which asks for such information as corporate officers. Justice, however, can't deny anyone a registration as long as they provide all the information. "Law-enforcement officials are welcome to come to our meetings, welcome to sail our ships, and talk to us," she says.

In Florida, both the governor and the state attorney general are opposed to the operations. State law prohibits the possession of gambling equipment. "It's our opinion that having that equipment [on the ship when it docks] makes the cruises to nowhere illegal in the state," says John Glogau, a Florida assistant attorney general. But he adds, "It's outside our jurisdiction, we can't control it."

Any prosecution of a floating casino is the responsibility of the state's district attorneys, who are locally elected officials. So far, none has chosen to prosecute.

The Georgia attorney general's office came to the same conclusion. The Golden Isles Cruise Line, the only offshore casino operator in the state, docks in Brunswick, Ga. The city manager, Mark Mitchell, says Brunswick has not adopted any new laws to regulate the operation.

"To a large extent the market has regulated itself," he says. "The market is not big enough for more than one ship." He admits to having no information on who owns the ship. The company did not return phone calls.

The states can't interfere because federal law in this case preempts any state prohibitions. In an effort to let American-flag cruise ships compete with foreign-flag cruise ships, in 1992 Congress permitted gambling on board as long as the vessels were traveling between states or to foreign ports. It allowed cruises to nowhere as long as they are not prohibited specifically by the state.

This has prompted a considerable amount of consternation in California. It first prohibited offshore gambling in 1939 and further tightened its laws after Congress made its changes. Cruise ships, with slot machines on board, wanted to leave San Pedro, Calif., and go to Ensenada, Mexico making stops on the way. But the state decided this would constitute intrastate commerce, and gambling would be prohibited on the high seas. Congress then passed an additional law giving cruise ships a three-day window to allow gambling before they have to leave for another state or country.

"These guys have a free rein," says Thomas Gede, California's special assistant attorney general. "No one is out there regulating this field, seeing if they are defrauding or cheating people."

IN New York, five companies are preparing to follow the Edinburgh Castle offshore. The gambling rush started in New York last year after a judge ruled that gambling could take place outside the three-mile limit instead of at 12 miles. A Brooklyn-based company began cruises. Unable to stop the operation, Mayor Rudolph Giuliani has set up a gambling control commission. It charges $100,000 plus costs to process an application.

"Historically, we know that gambling has been infiltrated by organized crime and money-laundering operations so you need a strong and vigilant regulatory authority," says Jose Maldonado, the commissioner of the gambling control unit.

The commission will scrutinize the owners, operators and investors as well as the key vendors. Criminal background checks through the FBI and Interpol will also be conducted on the employees. The city will check to see if there are any judgments are liens against the owners. The city will also periodically test some of the gambling equipment.

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