DOJ Online Gambling Reversal Spurs Calls for Federal Framework
The Justice Department confirmed that the federal Wire Act does not prohibit online lotteries and Internet gambling as long as they don’t involve sporting events, according to a memo released Friday by Assistant Attorney General Virginia Seitz. The historic shift modifies the Justice stance on Internet gambling at a time when states and some members of Congress are lobbying for more regulation and taxation of online poker. Gaming advocates hailed the opinion but said federal legislation is required to clarify the rules for Native American tribes and offshore gambling firms.
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Justice concluded that “interstate transmissions of wire communications that do not relate to a ’sporting event or contest,’ fall outside of the reach of the Wire Act.” The opinion is a major shift for Justice, which formerly said the Wire Act bans all forms of online gambling despite a 2002 ruling by the 5th U.S. Circuit Court of Appeals that said the Wire Act does not prohibit Internet gambling on a game of chance. Justice published the memo Friday in response to multiple requests from lottery officials in Illinois and New York asking it to clarify its position on the issue.
The opinion does not change any legal precedents set by the Unlawful Internet Gambling Enforcement Act (UIGEA), a Justice spokeswoman told us Tuesday. In April, federal prosecutors in Manhattan shut down the top three online poker sites, PokerStars, Full Tilt Poker and Absolute Poker, and charged 11 people with bank fraud, money laundering and UIGEA violations (WID April 18 p6).
The opinion gives legal certainty to states that are moving full steam ahead with their own Internet gambling programs. New York is finalizing its development of a computerized system to offer virtual lottery tickets that can be delivered over the Internet or mobile phones to state residents. Illinois is developing a similar program to offer lottery tickets to adults over the Internet as long as their location is based in the state.
The Nevada Gaming Commission approved regulations Thursday allowing companies to apply for licenses to operate poker websites in the state (WID Dec 27 p5). The regulations would allow the state’s casino companies to operate Internet poker sites limited to players within its borders. The guidelines were mandated by the Legislature’s approval of Assembly Bill 258 earlier this year.
Internet gambling is legal in the nation’s capital and the D.C. Lottery is preparing to roll out online gambling hot spots in the District by mid-2012. The provision, which was introduced and approved in the 2011 budget, permits D.C. residents and visitors to register with an online website that offers Internet poker and slots for money. D.C. gamblers will pay fees to join online poker games and the D.C. government will tax a portion of their winnings.
The administration’s reversal was “unfortunate,” said Focus on the Family, and will have “immense repercussions” for Americans already hard hit by the recession. “This is another incremental step toward the erosion of America’s moral foundation,” said Chad Hills, a gambling analyst for the non-profit religious group. “Any state that exploits its citizens through online gambling is essentially committing fiscal cannibalism because they are preying on their own citizens.” Hills said if states plan to move forward with online gambling programs they need to develop an “appropriate law structure around them” to deter underaged gambling, problem gambling and organized crime.
The announcement “validates the fact that Internet poker does not violate this law,” said John Pappas, executive director of Poker Players Alliance. “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 decision they reached is the right decision. I've been saying this for many years,” said Frank Fahrenkopf, CEO of the American Gaming Association, which represents the commercial casino entertainment industry. “But the confusion it creates makes it more imperative that a federal answer is put in place that does not violate states’ rights.” Specifically Fahrenkopf said he wanted to know what rules will be established for Native American tribes who are considered sovereign nations under federal treaties. “If New York established an online poker game can native tribes establish their own sites and does everyone have to be on the reservation to play?” Fahrenkopf also said he wanted to understand if state lotteries that host online gambling programs can forge partnerships with other states in order to increase their player base and liquidity.
Federal lawmakers were mostly silent on the issue Tuesday and did not immediately return our calls, but momentum has been building on Capitol Hill to pass legislation that regulates and taxes online gambling in the U.S. The Justice Department memo may bring more attention to HR-2366, the Online Poker Act of 2011, offered by Rep. Joe Barton, R-Texas, which has been on the back burner since its reintroduction (WID Nov 21 p1). Meanwhile House Financial Services Committee Ranking Member Barney Frank, D-Mass., who is in his last term, said he and Rep. John Campbell, R-Calif., are working to repeal UIGEA through their bill, HR-1174, the Internet Gambling Regulation, Consumer Protection, and Enforcement Act.