Online Gambling Serial Blog – Federal Wire Act, UIGEA, and Online Casinos/Poker (Blog Post 3 of 7)

Since online gambling in the United States has caused many legal uncertainties, including how individual states have dealt with various online gambling issues and how the advancements in internet-based technologies have created uncertainty enforcing online gambling issues, it is necessary for there to be more clear rules and regulations regarding legal issues relating to online gambling in the United States. This blog will discuss various online gambling issues in a seven-part serial blog. The third blog post deals with the Federal Wire Act, the UIGEA, and the current legal state of online casinos and online poker in the United States.

Today, there still seems to be much confusion over what is technically legal and illegal when dealing with online casinos and online poker. To gain a better understanding of the current laws today, I believe it is important to understand the legislation that deals with these issues today and how there have been various interpretations of the legislative intent for such regulations.

When dealing with online gambling and poker, the first piece of legislation to consider is the Federal Wire Act. U.S. Attorney General Robert F. Kennedy introduced the Federal Wire Act in 1961, which sought to target the mob’s most pro table racket—bookkeeping on horseracing and sports gambling by prohibiting such gambling on the nation’s communication system at the time, which included the telephone and telegraph. [1] The Federal Wire Act was originally intended and long understood as a narrow and targeted weapon to assist the states in preventing organized crime from taking bets on sports—not as a broad federal prohibition that would prevent states from legalizing online gambling within their borders. [1]

Over time, there were various legal disputes over whether the Federal Wire Act would expand to prevent not only sports betting, but online casinos and poker as well. In a 2002 case, In re MasterCard Intern. Inc., the Fifth Circuit held that the Federal Wire Act applied only to online wagers relating to sporting events or contests and concluded that both the plain language and legislative history of the Federal Wire Act made its application only to sports betting abundantly clear, agreeing with the lower court’s conclusion that even a summary glance at the recent legislative history of Internet gambling legislation reinforces the Court’s determination that Internet gambling on a game of chance is not prohibited conduct under the Federal Wire Act. [1]

On the other hand, the District Court of Utah departed from the Fifth Circuit’s interpretation of the Wire Act, in U.S. v. Lombardo, concluding that two out of three of the Federal Wire Act’s prohibitions apply to all gambling and not just sports betting. [1] Specifically, the Lombardo court concluded that while the Wire Act clearly prohibits wire communications related to the transmission of actual bets only for sporting events, because the word “sporting event” does not appear in the next two clauses, prohibiting wire communications related to receiving money or credit for bets and receiving information about bets, those two prohibitions in the Wire Act apply to all gambling and aren’t limited to sports betting. [1] The Lombardo court reasoned that reaching the Fifth Circuit’s conclusion would require them to assume Congress meant to include the “sporting” language in the two other parts of the Act but inadvertently forgot to do so. [1]

With the courts fighting to interpret the Federal Wire Act, the DOJ (Department of Justice) stepped in to clarify the meaning of the Federal Wire Act. After thorough consideration, the OLC (Office of Legal Counsel, a higher office within the DOJ) issued a memo in 2011 declaring that because online lotteries proposed by Illinois and New York did not involve sports, they fell outside the scope of the Wire Act. [1] The opinion was hailed as a game changer because, while OLC only considered the lottery schemes of New York and Illinois, it dispelled any ambiguity about the Federal Wire Act’s gambling prohibitions, clearing the way for other states to legalize and regulate other forms of non-sports intrastate gambling. [1]

Since the Federal Wire Act seemed to not prohibit online gambling or poker, there was an explosion of such sites in the United States. One piece of legislation, known as the Restoration of America’s Wire Act, would create a de facto federal prohibition on Internet gambling and thwart states’ attempts to legalize and regulate the activity. [1] While this Act has not passed yet, the UIGEA was legislation that furthered altered how online casinos and online poker rooms were regulated in the United States.

The Unregulated Internet Gambling Enforcement Act (UIGEA) was enacted in 2006. As unregulated internet gambling exploded in the years prior to the passage of UIGEA, online casinos and poker became extremely popular during this era and operated in a gray area of the law. [2] While the UIGEA’s intent was to make payment processing for these industries illegal, it was already unlawful to do so before UIGEA. [2] The UIGEA prohibits any person, including a business, engaged in the business of betting or wagering from knowingly accepting payments in connection with the participation of another person in unlawful Internet gambling. [3] Such transactions are termed “restricted transactions” and the UIGEA requires the Secretary of the Treasury and the Board of Governors of the Federal Reserve System, in consultation with the U.S. Department of Justice, to designate payment systems that could be used in connection with or to facilitate restricted transactions. [3] Such a designation makes the payment system, and financial transaction providers participating in the system, subject to the requirements of the rule.

UIGEA also requires the Agencies, in consultation with the U.S. Department of Justice, to issue a rule requiring designated payment systems and financial transaction providers participating in each designated payment system to establish policies and procedures reasonably designed to identify and block, or otherwise prevent or prohibit, restricted transactions. [3] The goal of the  UIGEA was to encourage offshore gambling sites to exit the United States market by creating a specific law to punish individuals and companies that processed payments to these entities. [2]

The UIGEA only pushed about two-thirds of the companies out of the US market. [2] It created a black market of unregulated sites that often were not legitimate businesses. [2] Many of the sites that remained in the US market turned out to be scams. [2] The UIGEA was implemented for the first time on what is now known as Black Friday for online poker. [2] On April 15, 2011, online poker players around the world woke up to a big surprise as the FBI and the U.S. Department of Justice had seized the domain names of some of the largest poker sites in the world, including Poker Stars and Full Tilt Poker. [4] They replaced the normal home page content on these poker sites with their own message, that they had taken down the sites for allegedly violating US law. [4]

As stated earlier, the U.S. Justice Department released an opinion in 2011 that acknowledged that states have the right to legalize and regulate gambling over the Internet. The memo notes that the Federal Wire Act only applies to interstate sports betting. Language in the UIGEA specifically gives states the right to legalize and regulate online gambling.

Today, Delaware, Nevada, and New Jersey regulate online gaming. [5] All three states comply with the age and location verification language of the UIGEA. [5] Online state lottery sales available in several states also follow the verification rules mandated by UIGEA. [5] For ordinary American gamblers, while online gambling remains in the murky waters of confusion and complex legislation, it is still possible to gamble online – just not, in most cases, with operators domiciled in the United States. [6]

Since online gambling is such a large industry, it will be interesting to see if more states or the federal government attempt to legalize online casinos and poker and attempt to get a percentage of revenues which can help provide funding for state or federal programs.

What advantages and disadvantages are there to states prohibiting online casinos and online poker? Does the prohibition of online casinos and poker sites outweigh the benefits of potential state and federal revenues? Should states be left to decide if online casinos and poker rooms should be legal within the state or should there be a federal statute that permits or prohibits such sites throughout the United States? With so many sites based out of the United States and the rise of cryptocurrencies that allows for anonymous payments to such sites, does the UIGEA have any real effect at all? It will be interesting to see whether legislation will catch up to emerging technologies and will change or will continue to lead to legal confusion in the United States for people who want to play on online casinos and poker rooms.

[1] http://gaming.unlv.edu/papers/cgr_op29_minton.pdf

[2] https://www.onlinegamblingsites.com/law/uigea/

[3] https://www.federalreserve.gov/bankinforeg/regggcg.htm

[4] https://www.bestuscasinos.org/legal/black-friday/

[5] https://www.uspoker.com/blog/uigea-vs-rawa-on-state-online-gambling/12774/

[6] https://casino.partycasino.com/en/blog/current-state-online-gambling-usa/

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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~ by zachg0963 on March 10, 2018.

5 Responses to “Online Gambling Serial Blog – Federal Wire Act, UIGEA, and Online Casinos/Poker (Blog Post 3 of 7)”

  1. I think whether to have and how to regulate online casinos and poker rooms should be a state issue. The states should self-regulate because there are several advantages that can come from a state using the profits of online gambling to benefit state sponsored programs. I do not have a lot of personal knowledge of how online gambling works but I am from Georgia and have personally benefited from Georgia’s Hope Scholarship, which is paid for by lottery sales throughout the state. People are going to gamble, allowing the state to regulate and profit off of that gambling and then using the money to sponsor a program that helps citizens of the state to me seems like one heck of a silver lining. However, I do think there is a need for legislation to catch up to the emerging technologies that are involved in the gambling world as you mentioned in your blog. The use of cryptocurrency and sites based outside the U.S. can create situations where a federal law regulating online gambling may be necessary.

  2. One of the biggest advantages states can have when regulating the online casinos and gambling is the tax revenue they can obtain. They can use it to better monitor the gambling and stop the growth of unregulated gambling. The problem with the Federal Wire Act and regulating online gambling is that you force the gambling underground and into the hands of cartels and gangs, it may not be glamorous but control over betting offers states a new source of revenue.
    There are certain disadvantages to states regulating gambling individually. Interstate gambling would be the biggest issue with individuals from one state being subjects to another’s for jurisdictional purposes. Although state’s are allowed to establish their own laws the different standards could create big problems with companies finding havens in particular states with more accommodating laws. The federal government should allow states to control their own gambling and only step in in situations like the one mentioned above. The federal government should not be getting involved in state gambling because the 10th amendment provides for states retaining power not given to the federal government in the constitution and intrastate gambling should be a state issue.

  3. Reading through this post, one question I had was how online gambling sites verify that the gambler is actually of age. I’m curious to know if there is an effective verification process, or whether it is simply entering your birth date (such as websites selling alcohol).

    Another question I had was how online gambling jurisdiction worked. If online gambling is legal in a certain state, do the online casinos have to be run out of that states and do the online gamblers have to be in that state as well? If this is the case and there was no interstate online gambling, I think it would be beneficial for the states to regulate online gambling for themselves. However, if there was an easy way that someone in Kentucky could be gambling in a legal online casino/poker room in Nevada, then it may be easier to have federal regulations in place. However, unless there are these extreme circumstances, states should be left to determine what regulations they want to place on online gambling.

    As stated in another comment, federal law may be necessary in situations where gambling is occurring on sites based outside of the United States. If states are deemed the proper regulators of United States based online gambling, federal law should address what occurs with gambling outside of the United States.

    • One of the interesting things I noticed when conducting gambling research for my paper is regulation of registered online sites. To gamble in Nevada you must provide, proof of residency, proof of age in the form of a photo ID, and must b e accessing the site from an IP address in Nevada. I also could not find any articles about the FBI or the state police finding illegal interstate gambling with these registered casinos. In my opinion gambling is very harmful and often predatory on the poor. That being said, Jaime made a great point by suggesting that unregulated and overseas gambling occur in absence of legal opportunities. Given the amount of money that is made offshore and illegally, providing states with additional revenue and providing gamblers with a regulated avenue certainly has its benefits. The last piece of this I found interesting was the blatant unconstitutionality of the UIGEA which carved out exceptions for Nevada, New Jersey, and Delaware. This clearly violates the equal sovereignty doctrine by favoring intrastate commerce in some states over others.

  4. The ability to gamble online is a very complex web of federal legislation. Even gambling blogs, unless they are connected to lawyers who keep up with legislation, don’t always understand what the restrictions are. Case in point, two weeks ago, some gamers tried to tell me online gambling was perfectly legal and they cited the DOJ opinion. I tried to explain to them that the Wire Act and the UIGEA were two different animals. I believe they concluded I didn’t know what I was talking about! LOL. Anyway, the federal government began regulating online gambling because of organized crime, problems of money laundering, and the overall moralistic worry about the vices. Because gambling over the internet impacts interstate commerce it is an appropriate subject for the federal government to regulate. However, the states may choose to adopt regulation and even the UIGEA, recognized a state’s right to legalize online gambling within its borders. I do think it is telling that only three states have done so. Even if your state does legalize gambling, only citizens of that state can gamble with the state regulated casinos. You can see the potential for complications on verification of state residence and legal age. Providing age and resident verification is essential, but what systems will be in place to make sure the credentials are not fraudulent? The regulatory complications could be tremendous, and that may chill a state’s willingness to jump into the online gambling bandwagon, even if there seems to be a ton of money on the wagon.

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