Cybersecurity at issue as Gaming Policy Committee discusses Internet gambling

With the state about a month away from granting its first online gambling license, two experts told members of the Gaming Policy Committee on Monday that regulators needed to stay vigilant in their efforts to keep the online gaming environment secure.

One of them hopes to take the security of Nevada’s potential Internet gambling industry to a new level by using grant money to develop a system that not only would protect gamblers’ online transactions but detect and prevent underage players and cheaters from playing.

Online security strategist James Elste, principal for INOV8V CyberCQRT, told the advisory committee that his company was one of 27 finalists out of 186 applicants for a federal grant through the National Institute of Standards and Technology. Up to eight grants are expected to be awarded in several aspects of cybersecurity.

Elste’s company is working on behalf of the state to get $2 million a year for two years to develop the gold standard for Internet gambling security.

Committee member Mark Lipparelli, chairman of the state Gaming Control Board, said the state would demand the highest levels of security when regulators begin issuing licenses. Under regulations approved by the Nevada Gaming Commission, there’s no specific security standard in place since companies are using differing strategies to detect illegal play and participation.

However, applicants will have to prove to regulators that their systems will be able to identify players and prevent underage gamblers from playing and detect whether players are within the state’s borders.

Meeting for just the second time since being revamped by Gov. Brian Sandoval, the committee is gathering information to further strengthen Nevada’s online gaming regulatory policies. The 11-member committee is expected to meet twice more to develop recommendations to tweak the state’s gaming laws as the first licensing applicants make their way through the regulatory process.

Currently, online gaming is illegal in the United States. But several states, including Nevada, hope to gain an edge in attracting technology companies to the state by having a regulatory system in place if and when it is approved. Nevada’s online gaming legislation would allow online poker play.

Nevada officials also believe the state could allow online poker games within its borders even without federal approval.

Lipparelli couldn’t publicly identify which companies would be the first to appear before regulators for online licensing, but he said he expected the first two companies to be scheduled in June and July.

He said he knew the Control Board and the Nevada Gaming Commission needed to be on the cutting edge of Internet security to maintain confidence among players and for the integrity of the games.

Jim Ryan, co-CEO of digital entertainment, told the committee his company had experience overseeing online gaming in Europe and that it had achieved a 99.8 percent confidence level in being able to identify online players. He said with more than 1 million players a month, only 10 underage players gambled briefly before getting caught.

Ryan said his company had systems to detect players by location and by age. The system can also thwart excluded players, potential problem gamblers, individuals who have self-excluded themselves, potential money launderers and frauds and players engaged in collusion.

The company’s systems are able to flag players by comparing information presented when they register to play. The system also prohibits players in the same location or with the same Internet protocol address from participating in the same poker game to prevent collusion.

The system uses Internet “bots” — programs performing automated tasks — to track player patterns to alert the company of suspicious activity.

Ryan, a Canadian, said he experimented with his ability to deposit funds in an Internet gambling account when he arrived in Las Vegas. He said from a Strip hotel with an American Internet address, he was able to use a credit card issued in Gibraltar, communicating on a Spanish cell phone, to deposit $100 into an account.

“With all those elements in place, you’d think a red flag would go up somewhere,” Ryan said. “Some companies just don’t have the level of security in place that they should.”

Committee member Peter Bernhard, chairman of the Nevada Gaming Commission, said it was unsettling to hear how Ryan was able to deposit funds remotely.

“This shows why we need to stay in front of this,” he said. “As soon as we set up procedures, there will be individuals working to find ways around them.”

Committee members also received a report on efforts in other states to prepare for online gaming. Several states are investigating amendments to their own legislation to allow the online purchase of lottery tickets. Others are looking at allowing intrastate online poker, like Nevada.

Anna Thornley, a senior research specialist with the Control Board, said Delaware, Rhode Island and West Virginia were studying options to develop interstate poker play, but those states weren’t on track to offer play until the second quarter of 2013 at the earliest if it’s approved by the federal government.

Sandoval, who brought the Gaming Policy Committee together after it was dormant for about 28 years, is seeking other ideas to strengthen the state’s Internet gambling legislation.

Committee member Jim Murren, CEO of MGM Resorts International, said after hearing about other states working on their own online strategies that he recommends reviewing the state’s fees for being licensed. Nevada requires a $500,000 fee to be licensed and $250,000 a year to maintain it. The state has a two-year term per license, meaning any license would be reviewed after two years, that he suggested extending to five years.

In Europe, online gaming companies have looked to move to other countries that offered a smaller licensing fee.