Update October 18, 2016: Valve have now given their response to the Washington State Gambling Commission.
In a polite but firm letter to the Washington State Gambling Commission, dated yesterday, Valve state that they are "not engaged in gambling or the promotion of gambling, and we do not 'facilitate' gambling" with respect to the online exchange of CS:GO weapon skins.
The letter characterises the Commission's position as "Valve could stop this, so it should", whereas Valve's position is that skin gambling sites take advantage of features in Steam which are, in themselves, legal.
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Valve's letter (written by their legal counsel, Liam Lavery) emphasises that "the operation of Steam and CS:GO is lawful under Washington law" and expresses surprise and disappointment that the Washington State Gambling Commission "chose to publicly accuse Valve of illegal activity and threaten our employees with criminal charges."
The letter identifies two features of Steam - namely, OpenID and online item trading - which are used by third-party gambling sites to enable their services. It explains why both services as used by Steam are legal and beneficial for customers, and points out that OpenID is an "open internet standard" which is also used by Google and Facebook. Valve say "we do not believe it is the Commission's intention, nor is it within the Commission's authority, to turn off lawful commercial and communication services that are not directed to gambling in Washington." Valve challenges the Commission on this point, saying "if there is a specific criminal statute or regulation you believe Valve is violating, please provide a citation."
The letter concludes by referencing Valve's previous efforts to clamp down on third-party websites who bet and traded CS:GO skins for money - after the scandal first broke, Valve issued cease-and-desist letters to a number of these sites ("over forty", they claim, suggesting they've continued to pursue this since we first reported it), threatening them with deletion of associated Steam accounts. Some skin gambling sites did in fact close down as a result of this.
To paraphrase, then: the services Steam provides are legal, and we're not to blame if someone else has found a way to use them in a way that appears illegal. You can't make us switch off those services, and if we did so, we'd lose a lot of what makes Steam valuable. Also, we're already doing everything we reasonably can to crack down on these scoundrels.
We'll update this story again when the Commission responds.
Original story October 5, 2016: Valve have had more pressure put on them to take a stand against illegal skin gambling, with the Washington Gambling Commission demanding they put an end to skin gambling via Steam using "whatever actions are necessary".
The demands state Valve must "immediately stop allowing the transfer of Counter-Strike: Global Offensive virtual weapons for gambling activities" through Steam.
Valve has to "explain how it is in full compliance with Washington's gambling laws or it will risk having the Gambling Commission take additional civil or criminal action," and the company has until October 14 to respond.
The announcement comes on the same day that the United States District Court for the Western District of Washington state dismissed a class-action lawsuit against Valve and skin gambling website operators for aiding and abetting skin gambling, according to eSports Betting Report.
The WSGC first contacted Valve back in February to find out more about the skin gambling issue.
Valve did take some steps to crack down, but only after there was public outcry as some popular YouTubers were found to be promoting - and showing videos of themselves winning at - skin gambling on a site they owned.
It's big business too. According to the Daily Dot, gambling site CS:GO Lounge handled more than a billion dollars worth of bets, before closing in August.
"In Washington, and everywhere else in the United States, skins betting on eSports remains a large, unregulated black market for gambling," said Commissioner Chris Stearns. "That carries great risk for the players who remain wholly unprotected in an unregulated environment. We are also required to pay attention to and investigate the risk of underage gambling which is especially heightened in the esports.
"It is our sincere hope that Valve will not only comply but also take proactive steps to work with the Commission on future measures that will benefit the public and protect consumers."