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Federal Laws

 

   Note: The information on this website is for educational purposes only and should not be construed as legal advice. Some of the content on this page comes from I. Nelson Rose's excellent writing at Gambling and the Law Website. For the rest, we have made references where appropriate; see "FAIR USE" laws if you have any questions.

   'Just like child pornography has to be dealt with on the Internet, so does unregulated, out-of-control, illegal gambling.' -- REP. ROBERT GOODLATTE, R-VA.

   As we discussed, the legality of online poker is ambiguous in most states and it is so at the federal level as well. Most cardrooms are operated from the Caribbean, Central America or the Mohawk Territory of Kahnawake in Canada. In some countries such as the England, the government has been moving towards legalization and regulation. In the U.S. existing gambling laws usually target illegal gambling operators rather than the players but since those online operations are out of legally reach there is political pressure to change this. Several federal bills have been proposed that regulate or forbid online gambling. One recent tactic was an attempt to outlaw financial transactions that are related to online gambling. There was also the net gambling ban attempt which would have would have banned online wagers on sporting events and casino games, and would also have prohibited the sale of lottery tickets online.

   Federal and state laws are unclear, confusing and contradictory in what they have to say about online gambling and the legal situation for online poker even more so. This is because unlike an online casino the poker site operator does not bet against the customers. Most of the existing laws, such as the 1962 Wire Act, are aimed at the operators of the gambling business, not the customers. The section and articles below give a good summary of the current legal thinking in the US.



Internet Gambling and the Wire Act


Busted For Betting Online? by Nelson Rose
Internet Gambling Ads Guidelines by Nelson Rose
Understanding the Law of Internet Gambling by Nelson Rose
Is it a Crime to Play Poker Online? by Nelson Rose

   In the United States, poker and poker alone has been ruled by several courts to be a true game of skill. This differs from games of chance or other different skillfull games such as blackjack; this has yet to be examined by any federal courts. Typically used are miscellaneous statutes and rulings meant for other forms of gaming that do not apply to online poker. Poker may or may not eventually be treated in the same way but as of this writing no one has been convicted, brought to trial, or charged with a crime for playing online poker. This is no guarantee that it will not happen in the future.

   The Wire Act was initially aimed at sports betting. Attempts to claim that it covers this seems to have been answered by the US Supreme Court's when it refused to review the conviction of Jay Cohen. Are online casinos and online poker cardrooms are covered by the Wire Act? In February 2001, Judge Stanwood Duval of the US District Court in New Orleans ruled (also here) that it does not: "'in plain language' [the Wire Act] does not prohibit Internet gambling 'on a game of chance.'"

   Later, the US Fifth Circuit Federal Appeals Court upheld Duval's ruling, stating: "The district court concluded that the Wire Act concerns gambling on sporting events or contests... We agree with the district court's statutory interpretation, its reading of the relevant case law, its summary of the relevant legislative history, and its conclusion." (Full text of Appeals Court ruling.) The Appeals Court further states: "Because we find neither the Wire Act nor the mail and wire fraud statutes may serve as predicates here, we need not consider the other federal statutes identified by the Plaintiffs... As the district court correctly explained, these sections may not serve as predicates here because the Defendants did not violate any applicable federal or state law." The Appeals Court specifically cites Duval's statement: "[A] plain reading of the statutory language [of the Wire Act] clearly requires that the object of the gambling be a sporting event or contest." This is very explicit language. You would have to jump through a lot of mental hoops to consider the playing of online poker to be "a sporting event".

   More recently, the US Justice Department stated that the Wire Act covers casino games in addition to sports wagering HOWEVER the Federal Appeals Court has directly ruled that this interpretation is not correct. This direct contradiction could be what causes the creation of new legislation that actually deals with these issues. Several bills have been introduced to Congress, that aim to inhibit the ability of citizens to gamble online. As of this time, none of them have passed and even if they had, they do nothing to criminalize actual gambling online. But other bills may be introduced in the future with that goal. Gambling regulation traditionally has been the responsibility of individual states. For instance, the New York State's Attorney General reached a settlement with Citibank and PayPal regarding their involvement with online gaming. Some individual states have laws prohibiting any form of gambling online. That is a different issue from whether it is legal on a Federal level.

   There is a key distinction that must be made between bettors and those operators whose business it is to benefit from the actual making of wagers: "engaged in the business of betting or wagering... 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..." As long as players stay in the "players" category and not in the in the business of wagering, owners/bookies/runners/agents categories, they seem to be safe.

   Only under the broadest interpretation could playing online poker be deemed illegal in terms of the Wire Act. In does not seem to be illegal for US citizens, in regards to Federal Law unless it is a crime in an individual state, in which case the Federal Organized Crime Control Act of 1970 may apply. The Act makes it a federal crime for five or more persons to engage in a gambling business illegal under state law. Gambling online is definitely illegal in some states, but the Crime Control Act of 1970 does not apply to players. In addition, since the Crime Control Act does not refer to foreign commerce, it is hard to see how a case could be made that it applies to Internet gaming across multiple international borders.

   More recent wire act happeninings - After the recently attempted internet gambling ban, officials of the Justice Department criticized then urged Congress to update the Wire Act instead of passing new legislation. They suggested updating the Wire Act's verbage that interstate gambling on sports by telephone or wire, to be “technology neutral” rather than pass a new law dealing specifically with Internet gambling. The Justice Department and others also contended that it would be extremely difficult to enforce a ban, since nearly all Internet gambling operators are based offshore. They are out of the reach of authorities in the United States and the J.D. noted that the operators of internet gambling sites can quickly change their Internet address to stop attempts to block access to their sites.

   The Interactive Gaming Council, which represents Internet gambling operations and their suppliers has maintained that the internet gambling should be regulated or even taxed. It also argues that prohibition is unworkable given the Internet's global reach.

For more information, see below.

The First Amendment and Commercial Speech - A Ray of Hope for Advertising Online Gambling in the United States
The Future Legal Landscape for Internet Gambling by Nelson Rose
Gambling Law US United States gambling laws
Internet Gambling in Nevada by Jeffrey Rodefer of the Nevada Attorney General's office
Justice Department's Position on Online Gambling - June 24, 1998 (a little old but some good background)


Gambling Laws - Then and Now


1979

Farrell, T., "Gambling and Interstate Commerce," Federal Business Journal , Vol. 38, 1979: 69.

Blakey and Kurland , "The Development of the Federal Law of Gambling," Cornell Law Review , Vol. 63, 1979: 923.

1985

George, Lloyd D., "Bankruptcy and Gaming Laws," Inter-Alia , Vol. 50, March/April 1985: F5-F7.

1986

Rose, I. Nelson, "Bringing in the High Rollers: The Impact of the New Cash Regulations," Nevada Public Affairs Review , Vol. 2, 1986: 21.

1987

Levin, Harry Jay, "Balancing Federal Law and State Regulatory Policy in the Casino Industry," The Gaming Lawyer , Fall 1987.

1990

Jones, Gareth, "The Gambling Fiduciary, The Casino and The Bank ( Great Britain )," Cambridge Law Journal , Vol. 49, March 1990: 17.

1991

Postol, Lawrence P. & Kadue, David D., "An Employer's Guide to the Americans With Disabilities Act From Job Qualifications to Reasonable Accommodations," John Marshall Law Review , Vol. 24, Summer 1991: 693.

1995

Adams, Kristen, "Interstate Gambling--Can States Run For The Border?" Emory Law Journal , Vol. 44, 1995: 1025.

American Gaming Association, Summary Of Federal Laws And Regulations Affecting The Use Of The Internet For Gaming , September 1995.

Crigler, John, "Why Sparky Can't Bark--A Study of the Ban on Broadcast Advertisements for Lotteries," Journal of Communications Law and Policy , 1995.

1996

Robbins, Nicholas, "Baby Needs a New Pair of Cyber Shoes: The Legality of Casino Gambling on the Internet," B. V. J. Sci 2 Tech. L., Vol. 2, 1996: 7.

United States Department of Transportation, Video Gambling In Foreign Air Transportation, Safety Effects, Competitive Consequences, Bilateral Issues & Legal Framework , Washington, D.C.: United States Department of Transportation, March 1996.

1997

Irwin, Steven J., "State And Federal Statutes Utilized To Prosecute Video Poker Violations Of Title 18, U.S.C. at 1955, Conducting Illegal Gambling Businesses," Gaming Enforcement , American Bar Association Center For Continuing Legal Education And The Criminal Justice Section, 1997: C-1.

Gentile, Dominic P., "Is Your Compliance Program Prepared For Success?" Gaming Law Review , Vol. 1, No. 2, Summer 1997: 155.

Gentile, Dominic P., "Is Your Compliance Program Prepared For Success?" Gaming Enforcement , American Bar Association Center For Continuing Legal Education And The Criminal Justice Section, 1997: C-23.

Maloy, Bruce, "Extraterritorial Application Of United States Criminal Statutes To The Gaming Industry," Gaming Law Review , Vol.1, 1997: 491.

Romanow, Joshua I., "Who's Watching The Skies? A Discussion Of U.S. Department Of Transportation Casino Junket Fight Regulations," Gaming Law Review , Vol.1, 1997: 527.

* Minnesota v. Granite Gate Resorts, Inc.
State of Minn. Dist. Crt., Ramsey County, Court File No. c6-95-7227, 568 N.W. 2d 715 (Dec. 11, 1996) aff'd No. C6-97-89, 576 N.W. 2d 747 (Minn. Ct. App. Sept. 5, 1997)
(Placing an advertisement on a web site accessible to Minnesota citizens was sufficient contact with Minnesota to subject a non-resident web master to jurisdiction in Minnesota)

* State of Missouri v. Interactive Gaming & Communications Corp.
CV97-7808 (Cir. Court, Jackson Co. Missouri, May 22, 1997)
(Pennsylvania-based company which, via web site, advertised Internet gaming activities of wholly-owned subsidiary found to be its alter ego and received on behalf of this subsidiary "account applications" and funds from Missouri residents to participate in gaming activities run by its subsidiary, held to be conducting illegal gambling activities in Missouri)

1998

Frey, James H., "Federal Involvement in U.S. Gaming Regulation," The Annals of the American Academy of Political and Social Science , Vol. 556, March 1998.

1999

Lemann, Jonathan, Big Brother The Gambling Company: The Federal Regulation Of Louisiana's Gaming Industry Under The Mail Fraud Statute, 44 Loy L. Rev. 785 (Winter 1999).

* Ari Jubelirer v. Mastercard International, Inc., et al.
Case No. 99-C-256-S, 1999 U.S. Dist. Lexis 15227 (W.D. Wis., September 17, 1999)
In this action, defendants and their financial brethren dodged a significant bullet with the dismissal of plaintiff's action which sought, inter alia, a declaration that credit card debts arising out of online gambling losses are unforceable. According to the court, defendants entered into a contract with the online Casino 21 to process for a fee charges incurred by Casino 21's online gamblers. Plaintiff, using his Mastercard to fund gambling at Casino 21, incurred a loss of $20 (and a $4.95 processing fee). Plaintiff thereafter brought suit, alleging that defendants' actions constituted, or aided and abetted, a violation of 18 U.S.C. at1962(c), known as the "RICO" statute. Plaintiff also sought a declaratory judgment that his $24.95 debt to defendants, which arose out of his online gambling loss, was not enforceable. On defendants' motion, the court dismissed plaintiff's claims. However, the court did not reach the merits of plaintiff's main contention -- the unenforceability of his debt to defendants. While dismissing plaintiff's RICO claims on the merits, the court dismissed plaintiff's claim for declaratory relief on procedural grounds. Left for another day is the enforceability of credit card debts, such as plaintiff's, which arise from online http://www.delerium.co.uk/archive/us6070s/us60stop.htmlgambling activities.

* People v. World Interactive Gaming Corp., et al.
QDS:22310325, 1999 N.Y. Misc. Lexis 425 (Sup. Ct. N.Y.Co., July 24, 1999)
Court holds that permitting New Yorkers, from their home computers, to access and use Antiguan-based computers to engage in gambling activities, violates New York State's prohibitions on gambling within New York, as well as the Federal Wire Act (18 U.S.C. section 1084(a)), the Travel Act (18 U.S.C. section 1952) and Interstate Transportation of Wagering Paraphernalia Act. Respondent Golden Chips Casino Inc. ("GCC") is an Antiguan corporation licensed to operate a land-based casino in Antigua. GCC is also a wholly-owned subsidiary of respondent World Interactive Gaming Corporation ("WIGC"). GCC promotes a service which permits individuals, via their home computers, to access and use computers located in Antigua to gamble. Before a user can begin gambling, he must first wire funds to GCC in Antigua (which funds are credited to an account in his name) and download software from respondent GCC's website. He is then asked to supply GCC with his "permanent address." Provided the user provides respondent with an address from a state in which land-based gambling is legal, he is permitted to start gambling. It does not matter whether this is in fact the user's true address or not, as respondent takes no steps to verify the accuracy of the information supplied by the user. Once approved, the user can engage in gambling activities from his home. GCC promoted the availability of this gaming service at its web site, on the Internet, and in a "national gambling magazine." GCC was aided in these activities by its corporate parent, WIGC, which , according to the court, is GCC's "alter ego." WIGC is a Delaware corporation with its corporate headquarters in New York, from which location it "operated its entire business." Many of these New York activities aided the parties' gambling enterprise, including editing versions of the gambling software at issue, contacting a third party for the purpose of obtaining graphics for that software, and purchasing both the servers and software used to run respondent's activities. According to the court, "the evidence also indicates that the individuals who gave the [Antigua] computer commands operated from WIGC's New York Office." To make matters worse, respondent WIGC engaged in the unlicensed solicitation, primarily via "cold call", of investors for its activities from its New York headquarters. Based on these activities, the court determined that respondents were "doing business in New York for purposes of acquiring personal jurisdiction" and that "even without physical presence in New York, WIGC's activities are sufficient to meet the minimum contact requirement of International Shoe Co.". Finding respondents subject to the court's jurisdiction, the court went on to hold that their activities ran afoul of various New York State statutes designed to prohibit gambling in New York. In so doing, the court rejected respondents' argument that the gambling at issue took place in Antigua, where it was legal. The act of entering the bet and transmitting the information from New York via the internet is adequate to constitute gambling activity within New York State. This determination was consistent with New York Penal Law 225.00(2) which provides that "if the person engaged in gambling is located in New York, then New York is the location where the gambling occurred." The court held that respondents' acts violated the prohibitions on gambling contained in New York Penal Law 225.05. The court further held that "by hosting this casino and exchanging betting information with the user, an illegal communication in violation of the Wire Act [18 U.S.C. section 1084(a)] and the Travel Act [18 U.S.C. section 1952] has occurred. ... Gambling conducted via the Internet from New York to Antigua is indistinguishable from any other form of gambling since both the Wire Act and the Travel Act apply to the transmission of information into a foreign country." Thus, the court held that "the Wire Act bars citizens from engaging 'in the business of betting or wagering knowingly using a wire communication for the transmission of interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers.'" The court determined that as a result of the violations of these and other laws, the State was entitled to injunctive relief, as well as restitution, penalties and costs.

2001

* In re MasterCard International Inc., Internet Gambling Litigation and Visa International Service Association, Internet Gambling Litigation
Civ. Act. MDL Nos. 1321 and 1322 (E.D. La., February 23, 2001)
Court dismisses without leave to amend RICO actions brought by putative class plaintiffs seeking to represent a class of individuals who utilized credit obtained from credit cards issued by the defendants to gamble online at Internet casinos. The court, among other things, held that plaintiffs failed to allege that defendants committed the pattern of racketeering activity required to establish a RICO violation, given that they had alleged neither a violation of a state statute punishable by imprisonment of more than one year, or a violation of one of the federal statutes that can serve as the basis of a RICO claim. In reaching this conclusion, the Court held that plaintiffs had not alleged a violation of the Wire Act, 18 U.S.C. Section 1084, because such statute only prohibits wagers on sporting events or contests, and not gambling in an Internet Casino. The court also held that plaintiffs had failed to allege a violation of the Federal Mail or Wire Fraud acts because the debt they sought to collect was not illegal. The court further held that plaintiffs had failed to state a viable RICO claim because they had failed to allege the existence of an appropriate RICO enterprise with the requisite ongoing organization and hierarchical or consensual decision making. Nor did the plaintiffs establish that defendants conducted or participated in the conduct of a RICO enterprise's affairs through a pattern of racketeering activity required to state a claim under 18 U.S.C. section 1962(c), because they had alleged no more than the existence of a business relationship between the defendants and the Internet casinos pursuant to which the defendants supplied services to those entities. Lastly, the court held that plaintiffs' claims failed because they did not have the requisite standing to assert a RICO violation under 18 U.S.C. section 1964(e). Plaintiffs lacked such standing because their injury was not proximately caused by defendants making credit available for use in gambling activities, but rather by plaintiffs' own decision to engage in gambling activities.

* United States of America v. Jay Cohen
Docket No. 00-1574, 260 F.3d 68 (2d Cir., July 31, 2001)
The Second Circuit affirmed the conviction of defendant Jay Cohen of conspiracy to, and substantive violations of, 18 U.S.C. at1084, which, inter alia, prohibits the use of wire communication facilities to transmit wagers in interstate or foreign commerce. The Second Circuit held that defendant violated this statute by using both the Internet and telephones to transmit calls from bettors in New York, where gambling is illegal, to World Sports Exchange in Antigua, where gambling is legal, during which transmissions bets were placed. Defendant was sentenced to a term of 21 months in prison.

2002

* United States v. $734,578.82 in U.S. Currency
(3rd Cir., April 15, 2002)
The Third Circuit, affirming the decision of the district court, upholds the forfeiture to the United States of funds seized from bank accounts, which funds were used in connection with an overseas gambling operation. The gambling operation was run out of England, where such gambling was legal. The court held, however, that a New Jersey corporation, which had placed the funds in the bank accounts, and transmitted them to foreign entities that in turn handled the gambling activities, had violated 18 U.S.C. Section 1955(a), which makes it a crime to "conduct[], finance[], manage[], supervise[], direct[], or own[] all or part of an illegal gambling business". The statute defines "illegal gambling business" as a gambling business which "is a violation of the law of a state or political subdivision in which it is conducted." The New Jersey concern in question was operating an illegal gambling business because it was violating applicable New Jersey law, which makes it a crime to "promote gambling" which includes "engag[ing] in conduct which materially aids any form of gambling activity." N.J.S.A. 2C:37-2. Because it had transmitted funds it received from bettors to establish betting accounts to the foreign concerns, the New Jersey corporation had "promoted gambling" within the meaning of the statute. As such, the funds in question were subject to forfeit, even though in bank accounts in the name and/or for the benefit of third parties, under 18 U.S.C. Section 1955(d), which provides that "any property, including money, used in violation of the provisions of [section 1955] may be seized and forfeited to the United States."

 


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