Federal Law Online Gambling

  

Online gambling is enjoyed responsibly by millions of players around the world, taking advantage of international regulatory frameworks that permit remote gambling. Right across Europe, South America, Asia and elsewhere, players are free to gamble as they choose in the vast majority of locations worldwide.

One of the most notable exceptions to the rule is the United States, which remains unusually conservative towards gambling. In particular, online gambling continues to receive short shrift from US regulators and lawmakers, who instead have created a de facto ban on elements of the online gambling industry operating within US territory, or accepting US players.

The Federal Wire Act is one of the main statutes dealing with online gambling in the US, and one of the main sources of contention as far as regulation within the US is concerned. But what is the act all about, and what is its impact on the would-be online gambling sector in the US?

The Federal Wire Act – What’s It For?

The Federal Wire Act is actually a nickname for the Interstate Wire Act, a legal instrument passed back in 1961 that still has effect today. When it was enacted, few could have predicted or foreseen the rise in online gambling, or the impact this law would have on that potentially massive industry. Yet for all intents and purposes, it is one of the key instruments setting the legal approach to remote gambling in the US.

The act sets out to make it an offense, liable to fines and/or imprisonment, to communicate betting information or transactions, either interstate or across borders, for the purposes of placing bets and wagers. To quote the preamble:

“Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication 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, shall be fined under this title or imprisoned not more than two years, or both.”


This is quite a far reaching restriction on the face of it, and one that has been clarified in US courts subsequent to the act being released. For practical purposes, today, this only applies to betting on sporting events – non-sporting betting is exempted from the scope of this law.

The Supreme Court has yet to given any formal ruling on whether the law applies to non-sports based online gambling like online casinos etc., although there are some other limitations in place that already related to online casino gambling more specifically. The net effect is to make gambling in the US something of a legal grey area, which is problematic for both players and operators.

Federal Wire Act & The Legal Context In The US

To understand the true effects of the Federal Wire Act, it’s important to look at the wider context of US laws in this area. Basically, no one knows whether the Federal Wire Act applies to traditional online gambling – although we know with certainty it applies to sports betting online. This means that at a general level, there is a fundamental uncertainty around gambling laws in the US.

This has caused Google and Yahoo to be reluctant to run gambling ads in the US, for fear of committing a crime directly, or being party to a crime being committed. Even review websites, like this site, that compare various providers have found themselves in a grey area in terms of how they can present information pertaining to gaming.

Similarly, there have been some high profile arrests in the US, with executives from BetonSports being detained on arrival in the United States – despite operating a perfectly legal and legitimately.

This creates a tricky situation for operators, and indeed for players from the US. While players from the US are technically not prohibited from gambling as a rule, they in practice find it extremely difficult to do so. Unlike legitimate UK operators who accept UK based players, The Federal Wire Act remains one of the main barriers to free and fair gambling in the US, and one of the main reasons players, and operators, have to deal with these problems.

Clarifying The Law

At the heart of the issue is a glaring disconnect between lawmakers, academics, government agencies and law enforcement. Depending on who you ask, the Federal Wire Act does or does not apply to online gambling, and some departments behave on assumptions of certainty that aren’t shared by others.

Aside from new regulation superseding the Federal Wire Act, the best bet for clarification now rests with the Supreme Court. If they were to find themselves in a position to rule on this, the clarification would no doubt help firm up the understanding of the law as it relates to online gambling in the US.

Various other federal laws may apply to certain online gambling activities, such as the Illegal Gambling Business Act, the Wagering Paraphernalia Act, and the Travel Act, however, their applicability depends substantially on the type of gaming activity, as well as the state law where the activity is occurring. Federal Gambling Laws Below you’ll find links to various U.S. Federal Gambling Laws. Unlawful Internet Gambling Enforcement Act. This law applies to online gambling operators accepting financial instruments to fund accounts for players. Including online casinos. The formal statement of the NCSL begins: “The National Conference of State Legislatures (NCSL) believes the federal government must respect the sovereignty of states to allow or to prohibit.

On Jan. 14, 2019, the news broke that the Department of Justice’s Office of Legal Counsel (OLC) had issued a new legal opinion on the Wire Act. The Wire Act of 1961 did not just apply to sports betting.

But in 2011, the DOJ issued an opinion that the act was limited to sports betting.

Federal Law Online Gambling

The 2011 opinion led directly to the introduction of state-regulated online lotteries, online poker and online casino games. The revised opinion appeared to throw the legality of state-regulated online gambling into doubt.

The issue remains unresolved and has already led to Pennsylvania’s licensed casinos delaying their launch of online gambling until — at the earliest — July.

The Wire Act of 1961

The text of the Federal Wire Act begins:

“Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication 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, shall be fined under this title or imprisoned not more than two years, or both.”

The issue at hand is the DOJ’s interpretation that the text applies not just to sports betting but all betting.

The big shutdown of online poker on April 15, 2011, was based on this interpretation. The day, deemed as “Black Friday,” saw PokerStarsand Full Tilt domains seized by the DOJ, although the actual charges were based on breaches of the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006.

On July 31, 2012, the government dismissed “with prejudice” all civil complaints against all PokerStars and Full Tilt poker companies.

The dismissal was part of a settlement in which PokerStars agreed to buy Full Tilt. PokerStars and Full Tilt admitted no wrongdoing as part of the settlement. As a result, no court has tested the applicability of the Wire Act to internet gambling.

The DOJ opinion of 2011 and the lottery

In September 2011, the DOJ released an opinion on the Wire Act that stated;

“interstate transmissions of wire communications that do not relate to a ‘sporting event or contest’ fall outside the reach of the Wire Act.”

The opinion came in response to requests from Illinoisand New York for guidance on whether the Wire Act prohibited sales of lottery tickets online.

The DOJ concluded:

“Because the proposed New York and Illinois lottery proposals do not involve wagering on sporting events or contests the Wire Act does not, in our view, prohibit them.”

The new opinion had far-reaching consequences. It meant that the Wire Act also did not apply to online casino or online poker games.

On April 30, 2013, online poker launched in Nevada. Shortly after, online poker and casino launched in Delawareand New Jersey. Pennsylvania became the fourth state to legalize both activities in 2017, although no online sites have yet launched.

The DOJ replacement opinion of 2018

In a document dated Nov. 2, 2018 — but was not released until January — stated that the DOJ issued a replacement opinion on the Wire Act that largely reversed its position:

“Having been asked to reconsider, we now conclude that the statutory prohibitions are not uniformly limited to gambling on sporting events or contests. Only the second prohibition of the first clause of section 1084(a), which criminalizes transmitting “information assisting in the placing of bets or wagers on any sporting event or contest,” is so limited. The other prohibitions apply to non-sports related betting or wagering that satisfy the other elements of section 1084(a).”

The DOJ opinion was in response to a request from the Criminal Division. The DOJ bases its revised opinion on a plain text reading of the law:

“While the Wire Act is not a model of artful drafting, we conclude that the words of the statute are sufficiently clear and that all but one of its prohibitions sweep beyond sports gambling.”

The opinion itself is not law. However, it is the DOJ’s interpretation of the law that determines whether or not it will initiate prosecutions.

Potential consequences of the new Wire Act reversal

Four main risks are arising from the new DOJ opinion:

  • Any internet gambling that crosses state boundaries may be illegal. This applies to major lottery promotions, such as the Powerball, and interstate poker games authorized under interstate compacts.
  • In-state online gambling could be illegal if any of the internet data used crosses state boundaries.
  • Operators and regulators could take a cautious approach to the interpretation. This might result in delaying the implementation of existing laws, or postponing or canceling planned legislation. Any successful prosecution by the DOJ on the basis of its new opinion could exacerbate this possibility.
  • Online payment processing for online gambling transactions could be illegal if internet data crosses state boundaries.

In a statement issued immediately after the new opinion became public, the American Gaming Association (AGA) minimized the potential impact:

“It is unfortunate that the Department of Justice departed from well-established practice in reversing its previous opinion without a compelling reason to do so. However, the 2018 OLC opinion does not impact the ability for states and tribes to legalize and regulate gaming on a state-by-state and tribal basis, or for companies to provide the exciting products and entertainment experiences our customers want.”

The current situation remains one of legal uncertainty. US Deputy Attorney General Rod Rosensteinissued a memo explaining that the DOJ was giving operators 90 days to change what they needed to comply with the new opinion.

At the end of February, the news broke that the DOJ was extending that window by another 60 days.

An opinion politically motivated by Sheldon Adelson?

Revising an opinion is not usual practice for the DOJ. The government department prides itself on providing business with certainty and stability in its approach to enforcing federal law.

This unusual reversal gave rise to suspicions that the new opinion was actually the result of political lobbying by casino mogul Sheldon Adelson, a long-time opponent of online gambling.

In testimony to the House Judiciary Committee, Acting US Attorney General Matthew Whitaker testified that he had no involvement in the revised opinion. When pressed on whether Adelson was involved, Whitaker said that he had personally never met him, adding:

“So, I think it is very consistent, and your inferences on how that process was corrupted or corrupt is absolutely wrong. And the premise of your question I reject.”

Legal opinions on the new Wire Act opinion

There are already court rulings on the meaning of the language in the Wire Act. Several lower courts have relevant rulings, but the most important in terms of judicial precedent is from the 5th Circuit.

Contrary to the DOJ’s new opinion, the 5th Circuit ruled in 2002 in “In re: Mastercard” that:

“the Wire Act does not prohibit non-sports internet gambling.”

Legal opinions on the DOJ’s opinion have come from far and wide:

Ifrah Law says the new opinion will have a chilling effect

Jessica Feil of Ifrah Law PLLCsaid the opinion could have “far-reaching impacts,” and that its full reach remains to be seen:

“This opinion may have a chilling effect on state lawmakers that were otherwise looking to follow in the footsteps of New Jersey and Pennsylvania by legalizing online gaming. Further, many lotteries have been incorporating online and mobile products and now those plans may be cast into doubt. However, as we have seen with online sports betting — which has always been subject to the Wire Act — there are viable, fully intrastate solutions for online gaming.”

Absurd language

Law

Scott Balber, the managing partner of Herbert Smith Freehills‘ New York office and the US head of investigations and financial services litigation, pointed out that the DOJ opinion appears to contradict Supreme Court rulings on plain language.

“The 2018 opinion goes on to cite Supreme Court precedent to support the proposition that where statutory language is clear, only an absurdity that no reasonable person could intend should negate its plain interpretation (the “Absurdity Standard”).

However, the Absurdity Standard is only applicable “where (absurdity is) the result of applying the plain language” of the statute. Public Citizen v. United States Dept of Justice, 491 U.S. 440 (1989).”

Internet data accidentally crossing state borders

Anthony Cabot, a distinguished fellow in gaming law at UNLV, gave his take on the subject to Online Poker Report:

“The 2018 DOJ opinion insinuated that the federal Wire Act prevents all state-authorized and regulated online gambling by interpreting that transmitting sports wagers in interstate commerce also bans bets where both the bettor and the sports book operator are in the same state.

A theory exists that any communication over modern telecommunication including digital telephone systems and the internet is considered interstate even where the sender and receiver are in the same state if the transmission was incidentally routed across state lines.

To avoid prosecution, the sportsbook operator would have to prove that not only were the sender and receiver in the same state but that the transmission could not have been incidentally routed across state lines. This could be very problematic.”

Cabot argued that this interpretation was fundamentally wrong:

“The term “interstate commerce,” is a defined term in the federal code that contains the Wire Act and “includes commerce between one State, Territory, Possession, or the District of Columbia and another State, Territory, Possession, or the District of Columbia.” I do not believe that if the sender and receiver of a wager are in the same state that the commerce is between states.”

Cabot also thought that the DOJ would lose when the issue comes to court.

“The new DOJ opinion strains logic to reinterpret the meaning of “bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest” to apply to wagers other than sports.”

Inconsistent legal analysis

John Holden, J.D., Ph.D., said that the analysis presented in the new opinion was inconsistent. He argued that DOJ analyzed the different parts of the opinion on different legal bases.

“One intriguing feature of the opinion: It appears as though the author knows a fact and could easily resort to the legislative history contained in associated hearings or congressional reports, but chooses not to do so.”

He sees the analysis of the language as:

“tormented efforts to find a means of interpreting the statute that renders a meaning distinct from the plain text of the statute.”

This one will go all the way

Daniel Wallach, of Wallach Legal LLC and co-founding director of the University of New Hampshire School of Law’s Sports Wagering and Integrity Program, said that he could see the case going all the way:

“The opinion acknowledges that the decision will likely be tested judicially. I think we could be headed toward the next big gambling case that reaches the Supreme Court, or at the very minimum, the U.S. Court of Appeals.”

Payment processing is at risk

Tommy Shepherd, an attorney with Jones Walker in Jackson, Mississippi, said the DOJ opinion could extend to payment compliance.

“There are many concerns with the reversal of the years-old DOJ position. A significant concern for the states and their gaming revenue is payment processing… . Will the banks, and other payment processors, be leery of providing the means to facilitate the movement of money through website wagering and mobile app betting?”

Daily fantasy sports unaffected

Joe Brennan Jr. spoke about the new opinion to USBets. He was the director of the Interactive Media Entertainment & Gaming Association (iMEGA) and is the co-founder of SportAD. He pointed out that daily fantasy sports (DFS) should be completely unaffected:

“DFS is unaffected, because it’s granted a specific exemption under the UIGEA law, where Congress has drawn a line between what is defined as sports betting and what is defined as fantasy sports. DFS is actually the least affected by this. So, the only thing that really seems to have been immediately affected, at least from a legal sense, is poker. What it will affect on a more informal basis, how it will affect other stakeholders, that’s what remains to be seen.”

Federal law online gambling

Pennsylvania’s immediate reaction to the new opinion

The Pennsylvania Gaming Control Board (PGCB) almost immediately sent a letter to all its licensed casinos setting out its position on the new opinion. The letter said that all would go on as planned with the rollout of sports betting and online gaming. There will need to be some amendments to accommodate the new opinion.

In particular, the PGCB directed licensees to submit a plan of how they would personally comply with the new opinion. This was especially with respect to keeping data inside the state:

“The opinion does not, however, negate the premise that “intrastate” activity as provided for by state law is permitted. Thus, with any forms of internet or mobile gambling, it appears that diligence in assuring that the transmission of bets and wagers, payments and credits as a result of bets or wagers, as well as the information assisting in placing those bets and wagers (subject to § 1084(b)), does not cross state lines is paramount.”

The impact was immediate. Operators planning to establish game servers outside the state have changed plans to locate them within Pennsylvania. The result is that online gaming will not now begin until July 1 at the earliest.

New Jersey’s reaction to the Wire Act reversal

New Jersey Senate President Stephen Sweeney almost immediately asked the DOJ to rescind its new opinion. He said that if the DOJ did not walk back the opinion, New Jersey would take the DOJ to court.

In a letter to Deputy Attorney General Rosenstein, Sweeney explained why the opinion was incorrect:

“The 2019 opinion, which took 26 pages of tortured analysis of sentence structure and comma placements to determine that the clear language of the Wire Act applied to all forms of gambling, was contrary to the much better reasoned opinion of the 5th Circuit and the “thorough review” of the Department of Justice in 2011.”

He ended:

“If the OLC 2019 Wire Act opinion is not rescinded, I have authorized former Sen. Raymond Lesniak to file suit in US District Court on behalf of the New Jersey Senate for a declaratory judgment that the 2019 OLC Opinion is arbitrary and capricious and that the statutory prohibitions of the Wire Act are uniformly limited to gambling on sporting events or contests.”

Attorney generals of NJ, PA issue letter to DOJ

On Feb. 5, Attorneys General Gurbir Grewal (NJ) and Josh Shapiro (PA) reinforced Sweeney’s view. They wrote to the DOJ stating:

“DOJ’s latest reversal is wrong, and it undermines the values of federalism and reliance that our states count on. We request that you withdraw the OLC opinion or, in the alternative, guarantee that DOJ will not bring enforcement actions against companies in our states that are acting lawfully under state statutes.”

Nevada’s reaction

America’s great gaming state of Nevada threw its weight into the debate. Nevada Congresswoman Dina Titusissued a statement as soon as the new opinion was published:

“Though the full impact of this reckless DOJ reversal remains to be seen, we can be certain that it will inject uncertainty into a well-regulated market and push consumers back into the black market. Unfortunately, the Trump Administration only supports states’ rights when it is politically convenient. Despite this setback, I will continue to lead the fight in Congress to ensure states like Nevada can decide what is best for them on the question of online gaming.”

New Hampshire reacts

Charles McIntyre, the executive director of the New Hampshire lottery, suggested that the state could lose millions of dollars as the result of the new opinion:

“Certainly at the very narrowest interpretation we are looking at $4 million to $6 million this year and $6 million to $8 million next year, as this represents what we are selling now through the internet online channel.”

Massachusetts reacts

MassachusettsTreasurer Deborah Goldberg decided to spend time with the congressional delegation to discuss the impact of the new Wire Act opinion. She is pushing for a Massachusetts online lottery and sees millions of dollars at risk.

“This issue will be part of our discussions with the legislature as they tackle sports betting and online lottery this session. We are taking a proactive approach and working with the attorney general’s office and meeting with congressional members during the NAST Legislative Conference to address the implications of this opinion.”

Lotteries react

The North American Association of State and Provincial Lotteries (NASPL) issued a statement on Feb. 4 reinforcing the gaming state opinions:

“DOJ’s reinterpretation of the Wire Act creates substantial uncertainty concerning the legal status of lottery transactions, including these critical enhancements and improvements, many of which were made in reliance on the 2011 opinion, and the related contractual obligations and the industry’s ability to provide critically needed funding for important public interests.”

The cross-state competitions such as the Powerball are massive money earners for the state lotteries that participate. The losses to state income from lotteries are massively greater than those from restricted interstate online poker.

Gambling opponents react

On behalf of the Coalition to Stop Internet Gambling (CSIG) the former senator of Arkansas, Blanche Lincoln,applauded the new opinion:

“Today’s decision seamlessly aligns with the department’s longstanding position that federal law prohibits all forms of internet gambling, as well as with Congress’s intent when it gave law enforcement additional tools to shut down the activity through the overwhelmingly-passed Unlawful Internet Gambling Enforcement Act in 2006.”

The legal challenges begin with New Hampshire

Federal Law Online Sports Betting

Only a few days after Sweeney threatened legal action, New Hampshirefiled its own legal challenge.

In “the New Hampshire Lottery Commission v William Barr,” the lottery demanded an injunction against the DOJ. It wants the judge toorder the DOJ not to enforce its own opinion.

The NH Lottery’s technology supplier NeoPollard has filed an almost identical case, which states:

“As a result of the OLC’s erroneous change in position, gaming activities long thought to be lawful are now under threat of imminent criminal and civil prosecution. This includes not only making lottery products available to consumers for purchase via personal computers and mobile devices, but also traditional lottery sales via brick-and-mortar retail sales agents.”

Gov. Chris Sununu completely supports the challenge. In a statement he said:

“Today, New Hampshire is taking action to protect public education in New Hampshire. The opinion issued by DOJ puts millions of dollars of funding at risk, and we have a responsibility to stand up for our students.”

New Hampshire is part of the 1st Circuit’s jurisdiction. Usefully, the 1st circuit has already ruled that the Wire Act does not extend outside sports betting.

In the case US v Lyons, the 1st Circuit explained:

“In this manner, the Wire Act prohibits interstate gambling without criminalizing lawful intrastate gambling or prohibiting the transmission of data needed to enable intrastate gambling on events held in other states if gambling in both states on such events is lawful.”

The industry trade group iDEAGrowth has now joined the two lottery business lawsuits. Attorney Jeff Ifrah commented:

“We trust that the New Hampshire Court will give appropriate weight to judicial precedent over political factors in making its decision, a decision sure to have a major impact on a fast-growing industry poised to offer significant economic benefits to states across the country.”

New Jersey, Michigan and Pennsylvania add support with amicus briefs

On March 8, New Jersey, Michiganand Pennsylvania joined the legal challenge launched by the New Hampshire Lottery. Both New Jersey and Michigan filed amicus briefs supporting the NH Lottery.

An amicus brief is a brief filed by a “friend” of the court — amicus is the Latin word for friend. Almost anyone can file one.

Federal Law Regarding Online Gambling

It is superficially at least, an honest effort to help the court come to a judgment. Amicus briefs highlight issues the sender thinks the court should take into consideration.

New Jersey wants the new opinion ‘null and void’

The New Jersey brief asks for a complete reversal of the DOJ’s new opinion:

“Furthermore, this court can and should grant relief that reaches beyond the parties and the District of New Hampshire, and that protects the interests of third-parties like New Jersey nationwide. Under the Declaratory Judgment Act, the Court should declare that the Wire Act does not cover non-sports-related gambling in any jurisdiction, and under the Administrative Procedure Act, the Court should vacate the DOJ’s 2018 reinterpretation of the Wire Act as null and void.”

Other lottery states sign Michigan’s brief

The Michigan amicus brief comes directly from the Michigan state lottery. But many other state lotteries have also signed the brief:

  • Kentucky Lottery Corporation
  • Tennessee Education Lottery Corporation
  • Virginia Lottery
  • Rhode Island Lottery
  • Colorado State Lottery Division
  • North Carolina Education Lottery
  • Delaware

The Michigan brief argues that the DOJ’s opinion is just plain wrong

“The proposed amicus brief is useful and relevant to the Court’s review for two primary reasons: it emphasizes the erroneous nature of the 2018 opinion’s legal conclusions and it demonstrates the need for nationwide equitable relief to combat the 2018 opinion’s nationwide consequences.

The brief will explain that the DOJ’s 2018 opinion is inconsistent with the statute’s language and legislative history and contradicts decisions by the 1st and 5th Circuit Courts of Appeals interpreting the Wire Act to apply only to sports gambling.”

Pennsylvania says the opinion is ‘contrary to the plain meaning of the Wire Act’

Pennsylvania’s motion came as an “intervenor” in the form of an emergency motion from the state Department of Revenue. It argued similarly to the others that the DOJ has got its opinion legally wrong.

“The Pennsylvania Lottery agrees with plaintiffs that the OLC’s reversal of its 2011 opinion regarding the scope of the Wire Act, 18 U.S.C. § 1084, is arbitrary, contrary to the plain meaning of the Wire Act, and inconsistent with directly applicable precedent.”

However, on Monday, March 11, Judge Paul Barbadoro ruled the intervention invalid. According to the judge, the case did not involve Pennsylvania law. Pennsylvania will follow up with its own Amicus brief in the next few days.

There is one bright light from the legal challenge. The court at least recognized the urgency of the case and set it on an expedited schedule. This means that appeals and the long process of getting a final ruling can begin soon.

Federal Law Online Gambling

New Hampshire rules against the DOJ

Later, on June 3, Judge Barbadoro issued his ruling, and it was not good news for the DOJ.

“I hereby declare that § 1084(a) of the Wire Act, 18 U.S.C. § 1084(a), applies only to transmissions related to bets or wagers on a sporting event or contest. The 2018 OLC Opinion is set aside.”

Before dancing a victory celebration, the judge restricted his ruling to the plaintiffs in the case. This means that the New Hampshire and Michigan lottery provider Neopollard can continue online lottery. But it also means that the case isn’t decided legally for the rest of the country.

The DOJ can also appeal the decision.

Online Gambling Federal Law

What is worrying is that the judge was unable to determine the plain text meaning of the law.

“While the syntax employed by the Wire Act’s drafters does not suffice to answer whether § 1084(a) is limited to sports gambling, a careful contextual reading of the Wire Act as a whole reveals that the narrower construction proposed by the 2011 OLC Opinion represents the better reading.”

Federal Law Against Online Gambling

This looks very much like the judge has used his discretion to make a ruling based on contextual factors. Such a ruling is very open to challenge. It’s a ruling that may not be replicated in other circuit courts around the US.

The first battle is a triumph for the gaming states. As to whether the final victors will be the DOJ or the states, that question remains open.