In late December, the United States Department of Justice made public a decision, written in September, that found the 1961 Wire Act didn’t apply to state lotteries and online poker. The Department of Justice (DOJ) authorities determined that the Act’s prohibition of wagers via telecommunications crossing state lines or international borders refers only to bets on a “sporting event or contest.” The public airing of this opinion letter stirred hopes amongst the poker community of improved legality for online poker and possible accelerated legislation to finally regulate online poker in the United States.
The latest legal opinion is curious in that the DOJ has aggressively enforced the ban on online poker in the wake of 2006’s UIGEA. Initially applying pressure through financial transactions conducted moving money off and onto the poker sites, the DOJ took bold moves in April 2011, seizing URL’s and shutting down the three largest U.S.-facing poker rooms. The three, PokerStars, Full Tilt Poker, and Absolute were charged with bank and fraud allegations for serving U.S. residents.
The legal opinion was proffered by the DOJ in response to recent New York and Illinois state proposals to facilitate Internet interstate lottery ticket transactions. Additionally, in July of 2011 Nev. Democratic Senator Harry Reid and Ariz. Republican Senator Jon Kyl asked the Justice Department to clarify its position on Internet gambling; seeking either to affirm that federal law prohibits gambling over the Internet or to make sure that Congress has a role in drafting any expansion of online betting.The DOJ opinion letter more narrowly defines the wire act and essentially sides with the states by clarifying their sports event or content only position after allowing a more expansive but murky legal environment for decades.
The reality, though, is the decisions from the DOJ is non-binding and doesn’t represent an act of law or the courts. Previously, a U.S. Court of Appeals in New Orleans also ruled that the Wire Act applied only to sports wagering, but a Utah federal judge ruled against it. With the Wire Act still clouded by uncertainty in courts of law, Congress may feel a certain pressure to tackle the issue with some finality but not in an election year where the controversial subject matter could roil their constituencies.
The DOJ could reverse its opinion or the judicial system could hear a case and reverse the opinion, so it behooves supporters and detractors from acting too rashly. Only new Federal or State law can finally resolve the situation.
Poker legal analysts have been wrestling with the tension between the Wire Act and Unlawful Internet Gambling Enforcement Act (UIGEA). Previously, the DOJ had lumped in sports betting with other forms of gambling. With the stated federal separation, state lotteries and state online poker proponents can potentially move to legislate state by state ahead of any federal action.
Online poker legislation opponents were quick to point out that in the opinion Assistant Attorney General Virginia A. Seitz states, “We express no view about the proper interpretation or scope of the UIGEA.” Leaving unresolved the ambiguous 2006 law that was ultimately used to charge the major online poker rooms on April’s Black Friday and effectively minimizing the U.S. online poker market. It would seem that individual state laws would predominate, but the UIGEA enforces the notion that it is illegal for online wagers to be processed by any financial institution.
Online poker legislation proponents like the Poker Players Alliance Executive Director John Pappa were quick to laud the decision “This is a much needed clarification of an antiquated and often confusing law. Today’s announcement validates the fact that Internet poker does not violate this law. The PPA commends Assistant Attorney General Seitz for recognizing this. However, this ruling makes it even more important that Congress act now to clarify federal law, and to create a licensing and regulation regime for Internet poker, coupled with clear laws and strong enforcement against other forms of gambling deemed to be illegal.”
The PPA is urging prioritization of Federal legislation over confusing and cumbersome state by state legislation. PPA Chairman Ex-Senator Alfonse D’Amato insisted that “State by state licensing and regulation could result in a balkanized online poker world where players across the nation would be limited in their choices of where and against whom they could play. This could potentially reduce the number of total players, reducing revenues state lawmakers project from this activity. At the same time, it would deter entrepreneurs from entering the online poker market, as there would essentially be 50 different sets of laws and rules to which they would have to adhere.”
The positive news is that the DOJ opinion declares that almost every form of intra-state Internet gambling is legal under federal law, and so may be games played interstate and even internationally. The states have apparently been given the okay to proceed with online gaming initiatives and lottery schemes. States like New York, Connecticut, Nevada and New Jersey are already pushing ahead with state-based legislation for a variety of online gaming options.
What is left uncertain is when the U.S. Federal government will remove all final uncertainty or rely on states to handle on an individual and possibly inconsistent basis. Hearings were held in three sub-committees in late 2011 to consider online gaming legislation. Joe Barton had introduced a Online Poker Bill in June of 2011 titled the Internet Gambling Prohibition, Poker Consumer Protection – H.R.2366. That bill hasn’t come to a vote yet. It is lingering much like the Harry Reid Poker Bill of late 2010 that was never formally introduced and voted on.
In the end analysis, the Justice Department public airing of their opinion letter removes one of the long established big legal hurdles for states wanting to sanction online gambling. Cautious optimism can be exuded by legalizing online poker proponents. Having the DOJ state that “Interstate transmissions of wire communications that do not relate to a sporting event or contest falls out of the reach of the Wire Act.” is a significant and positive step.
In the budget constrained era, that will push online gambling to the forefront as states seek new revenue sources. Estimates vary widely on the size of the online gambling industry, from as low as $6 billion to has high as $100 billion according to Steven Grossman, the Massachusetts state treasurer. For states, the clarified position gives the guidance that if you keep the gambling activity in your state it is legal.
The next likely step that states may explore is to enter into compacts with each other to share their interstate Internet wagering. This is done presently on a limited scale for the exception of horse racing.
For the three major poker sites charged on Black Friday, their attempts to fight DOJ charges won’t be changed by the new ruling. The Justice Department didn’t cite the 1961 Wire act in its charges as its legal basis, rather relying on the 2006 Unlawful Internet Gambling Enforcement Act and existing banking and fraud legislation.
Gambling industry lobbyists, The American Gambling Association, summed up their position regarding a state by state versus a Federal final solution by saying “Federal legislation that protects states’ rights can establish uniform safeguards to protect US consumers, keep children from gambling on the Internet, and provide the tools law enforcement needs to shut down illegal Internet gambling operators. Federal guidelines also would prevent fraud and money laundering, address problem gambling and ensure players aren’t being cheated.”