U.S. Online Gambling Prohibition: The Renewed Importance of States'Rights
By Frank Catania

I have always been an advocate for states' rights: If you want to get something done right without a lot of "pork," leave it to the states and not to the federal government. The 10th Amendment of the United States Constitution is clear: "The powers not delegated to the United States by the Constitution nor prohibited by it to the states are reserved to the states respectfully or to the people."

The Constitution does not delegate the power over gambling to the United States, and it has long been acknowledged that gambling is a right left for the states to regulate or to prohibit. The only area the federal government is involved with gambling is Native American gaming, and arguably they should not be involved-theoretically tribes are sovereign.

The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), which never would have been passed as a standalone bill, was attached to an unrelated, however important piece of legislation: the Security and Accountability for Every Port Act of 2006 (the SAFE Port Act) by an unscrupulous Republican leadership attempting to gain favor with the right wing Christian conservative faction of their party (and some suggest to support the Senate majority leader's then-aspiration to become the Republican candidate for president in 2008).

The UIGEA does not broaden the definition of prohibited online gambling. While the broad language defining a bet or wager would seem to prohibit all Internet wagering except for the exemptions specified later in §5362, such as free games, fantasy sports, intrastate transactions, intratribal transactions, and interstate horseracing, § 5362 contains the following provision:

(A) "In General-The term 'unlawful Internet gambling' means to place, receive, or otherwise knowingly transmit a bet or wager by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable federal or state law in the state or tribal lands in which the bet or wager is initiated, received, or otherwise made." (Emphasis added).

The wording above combined with Rep. Bob Goodlatte's public statements that it is still his intention to seek the adoption of a bill amending the Wire Act (18 U.S.C. § 1084), UIGEA arguably does not prohibit any form of gambling that was not prohibited prior to its enactment.

This would bring us back to the legal status prior to the passage of the UIGEA, when the consensus of most legal scholars and case law was that online sports betting was prohibited by the Wire Act, while online casino-style games- including poker-were not. The United States Department of Justice (DOJ), however, has always insisted that all forms of Internet gambling are illegal.

The uncertainty of whether this bill expands the definition of illegal gambling is further exacerbated by a statement in the Congressional Findings and Purpose (§5361):

(b) "Rules of Construction- No provision of this subchapter shall be construed as altering, limiting, or extending any federal or state law or Tribal-State compact prohibiting, permitting, or regulating gambling within the United States."

DOJ's Position:
All Online Gambling is Illegal
The UIGEA sought to prevent funding for Internet gambling, but did nothing to amend the Wire Act (18 U.S.C. § 1084) upon which the DOJ relies in support of its opinion that all online gambling is illegal. Thus, it could be argued that the sole purpose of this bill is to penalize gaming operators who accept credit cards and electronic cash for prohibited gambling, i.e., sports betting and only sports betting.

This issue is complicated by the fact that there is a distinct divergence of opinion between legal commentators and non-authoritative judicial determinations on one side, and the United States DOJ on the other. The consistent opinion of the DOJ has been that all interactive gambling-including interactive, state-licensed horseracing-is illegal. Furthermore, advertisers and suppliers may be in violation of United States law for aiding and abetting online gaming operators.

The DOJ warned the United States Virgin Islands and the state of North Dakota that interactive gambling authorization and regulation would violate federal law. The DOJ has even asserted, in a letter dated July 14, 2003, to Rep. Conyers, that the December 2000 amendment to the Interstate Horseracing Act did not legalize inter- state horse race wagering between states that have licensed entities such as Youbet. Thus, according to the DOJ, Youbet and other companies accepting interactive horse race betting from different states are in violation of federal law. In support of its opinion, the DOJ relies primarily on three federal statutes that were passed long before the development of interactive gaming: the Wire Act (18 U.S.C. § 1084), the Travel Act (18 U.S.C. § 1952), and the Anti- Gambling Act (18 U.S.C. § 1955).

The Wire Act
An Internet electronic commerce provider might be liable under the Wire Act if it participates in offshore sports betting, e.g., U.S. v. Cohen, 260 F.3d 68 (2 Cir. 2001), cert. denied, 536 U.S. 922 (2002), but probably would not be liable if it engaged in a contract concerning a bettor that involved offshore casinos, poker, or lotteries.

While the DOJ may insist that the Wire Act prohibits all Internet gambling, the Wire Act was specifically found by the Fifth Circuit Court of Appeals to apply only to sports betting. In In Re MasterCard International Inc., 132 F. Supp. 2d 468 (E.D. La. 2001), aff'd, 313 F.3d 257 (5 Cir. 2002), a District Court had to determine whether numerous plaintiffs who lost wagers at offshore casinos could recover losses from their credit card companies.

Plaintiffs had hoped to obtain class status to pursue a civil Racketeer Influenced and Corrupt Organizations Act (RICO) claim against credit card companies such as MasterCard. In order to assert a RICO claim, plaintiffs would have to show, inter alia, "that Internet gambling violates the several federal and state statutes as alleged in the complaint" (In Re MasterCard at 478).

The District Court concluded that the Wire Act (18 U.S.C. §1084) was applicable only to sports wagering and the United States Court of Appeals affirmed the District Court's analysis of the inapplicability of the Wire Act to anything other than sports wagering.

Although significant, this case cannot be deemed authoritative as yet because neither the DOJ nor any other governmental agency was a party to it, and its holding has neither been approved nor disapproved by the United States Supreme Court.

Travel Act and Anti-Gambling Act
The DOJ also relies on the Travel Act and Anti-Gambling Act. Both acts require either a violation of state law; or alternatively, the Travel Act requires a violation of some other federal law or some state law. In other words, the activity must already be illegal prior to prosecution under either statute.

An interesting case was Casino City v. Justice Department, in which the advertising entity sought a declaratory judgment that its First Amendment rights were in jeopardy because it might be found to be aiding and abetting a criminal activity. One commentator, in discussing this case, stated: "Due to this inherent limitation, the DOJ has not relied heavily on these statutes [Travel Act and Anti-Gambling Act]. In its motion to dismiss Casino City's complaint, the DOJ did not offer any justification as to why it believed Internet gambling was illegal under the Travel Act or the Illegal Gambling Business Act" (Megan E. Frese, "NOTE: Rolling the Dice: Are Online Gambling Advertisers 'Aiding and Abetting' Criminal Activity or Exercising First Amendment-Protected Commercial Speech?" 15 Fordham Intell. Prop. Media & Ent. L.J., 547,552).

The Question of Legality and Importance of State Gambling Laws
It can be said with some authority, but not certainty, that if the UIGEA does not expand the prohibition of online gambling, interactive gambling on casino-style games, including poker, are not illegal under existing federal law.

Wholly apart from the legality of online casino and poker under federal law, the legal status of these forms of online gambling under state law is significant for two reasons. First, because the United States contains dual prosecuting authorities (i.e. federal and state), an online poker or casino site must also be concerned with the issue of state prosecution.

Second, the very definition of "unlawful Internet gambling" in the UIGEA incorporates activity which is "unlawful under any applicable...state law."

What this means essentially is that a violation of state law could trigger not only a state prosecution, but a federal prosecution as well.

At present, only eight states have adopted specific legislation criminalizing the conduct of Internet gambling of all kinds. Only two have criminalized the act of placing a bet. Most states, however, have general prohibitions on all forms of gambling not expressly authorized by law. In this regard, states such as New York and New Jersey are representative.

In United States v. Cohen, supra, Jay Cohen argued that, for purposes of the Wire Act, betting was "legal" in New York because the placing of bets had not been made criminal. The court rejected this argument completely, relying on the more general gambling prohibitions contained in the New York Constitution, statutes, and judicial decisions. (Cohen at 73-74.)

Informal Opinion No. 85-12 of the Attorney General of New York (1985) confirms that "[T]he [New York] Constitution bans all forms of gambling not expressly authorized in the Constitution itself." Unauthorized gambling is also made criminal in New York by Penal Law 225.00 and other statutes.

The question then becomes whether poker-regardless of how or where it is played-constitutes gambling in such states as New York. In my view, it clearly does.

New York's anti-gambling law requires a "contest of chance," i.e., one in which the outcome depends in a material degree upon an element of chance, notwithstanding that skill of the contestants may also be a factor therein.

Like New York, New Jersey has constitutional and statutory provisions which prohibit and criminalize the business of gambling except as specifically authorized. (See In Re Petition of Casino Licensees, 268 N.J. Super. 469 (1993)).

New Jersey also requires an element of chance to constitute illegal gambling. Although a pure game of skill-even one conducted on the Internet-would not constitute gambling, it is unlikely that courts or prosecutors would consider any gambling in which chance plays a part to be exempt, even if the element of skill predominates.

For example, in Boardwalk Regency Corp. v. Attorney General, 188 N.J. Super. 372 (Law Div. 1982), the court held a backgammon tournament to constitute illegal gambling even though the game requires intricate strategies, due to the fact that the strategies are ultimately based on the roll of dice.

By analogy, even though poker requires skillful strategies, one can only play the cards one is dealt by chance. It is, therefore, unlikely that New Jersey would consider poker to constitute a pure game of skill so as to be exempt from its gambling laws.

More of the Same.
Since the UIGEA did not amend the Wire Act, the most significant federal anti-gambling statute, the opinions with regard to the federal legality of Internet gaming prior to the passage of the UIGEA are basically the same.

The decision in In Re MasterCard, stating that casino style gaming is not covered by the Wire Act while sports betting would be illegal, is still valid since the Wire Act has not been amended, although the DOJ may disagree.

While the UIGEA makes reference to the fact that it does not change any existing laws, we must take into account the eight states that have specifically passed some form of Internet gambling prohibition, since violating any of those state laws could trigger prosecution under the UIGEA. The general criminal laws of other states, including New York and New Jersey, may be held to prohibit Internet gambling as well.