As I expected, Ed comments on the Washington online poker law that I posted on yesterday, and raises an interesting point:
[H]ow are they going to know who's gambling without tracking all of their activity online? Money transfers to the gambling sites are all handled by offshore operations like Firepay and Neteller and those transactions are not traceable by the government (they can track your money going to the pay service, but not where it goes from there, and those services can also be used for lots of perfectly legal money transfers). The only way they can know is to violate our privacy by tracking everything we do online.
As Ed notes, Washington authorities warned online gamblers (via house visits) last year. So, it looks like someone somewhere is monitoring internet usage.
Welcome to "democracy".
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I don't think ISPs are monitoring customer usage of online gambling sites. I also strongly suspect the NSA/AT&T monitoring of Internet peering traffic is exaggerated--that they're doing on-demand signature-based collection of flows matching particular criteria, not collecting everything and doing data mining. (And I'm sure most of that doesn't get shared with law enforcement, and virtually none with non-federal law enforcement.)