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Online Gaming Regulation in the United States - What on Earth is Going On? Prepared By : Lawrence G. Walters, Esq. Weston, Garrou & DeWitt & Walters

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Presentation on theme: "Online Gaming Regulation in the United States - What on Earth is Going On? Prepared By : Lawrence G. Walters, Esq. Weston, Garrou & DeWitt & Walters"— Presentation transcript:

1 Online Gaming Regulation in the United States - What on Earth is Going On? Prepared By : Lawrence G. Walters, Esq. Weston, Garrou & DeWitt & Walters Prepared For : Canadian Gaming Summit

2 Introduction Department of Justice contends all online gambling & advertising is illegal. Current U.S. law appears to only prohibit Online Sports Betting; not other forms. Legislation is pending to close the loopholes. Gambling advertising enjoys First Amendment protection in U.S. No U.S. law prohibits online gambling advertising, but issues remain unsettled.

3 Legality of Online Gambling Part I – Federal Law The Wire Act, 18 U.S.C. § 1084  Prohibits the business of betting on sporting events (or other contests) using the ‘wires.’ Internet included. The Travel Act, 18 U.S.C. § 1952  Prohibits domestic or foreign travel, or use of the mail, to promote unlawful activity (including ‘gambling’) or distribute proceeds thereof. Precise nature of prohibited gambling activity undefined. The Wagering Paraphernalia Act 18 U.S.C. § 1953(a).  Prohibits the carrying of records, items or devices relating to certain types of gambling, in domestic or foreign commerce. Applies to sports books, wagering pools, bolita, numbers and other ‘similar’ games.

4 Federal Law; continued… The Organized Crime Control Act, 18 U.S.C. §1955 a/k/a “Illegal Gambling Act”  Prohibits gambling businesses which meet certain thresholds, in violation of state law. Racketeering Influenced Corrupted Organizations Act (“RICO”) 18 U.S.C. § 1961  Prohibits operation of a business enterprise through a pattern of gambling offenses under state or federal law. Massive penalties including incarceration, forfeiture and fines.

5 Legality Of Online Gambling Part II – State Law Approx. 6 states have prohibited online gambling: IL, LA, NE,OR, SD, WI, IN. Other states considering bills. NJ Judge found defendant guilty of online gambling despite absence of state law. Some existing state law may already prohibit use of a computer to facilitate gambling. All state online gambling laws are potentially unconstitutional under the Commerce Clause.

6 The Dynamic Duo Rep. Goodlatte Rep. Leach

7 The Rhetoric Online gambling is “sucking billions of dollars out of the United States.” Rep. Robert Goodlatte, Richmond Times Dispatch (April 6, 2006). Online gambling is “the ‘crack cocaine’ of gambling.” Sen. Jon Kyl,, (April 10, 2001). “The potential threat of identity theft and fraud is high for the individual bettor just as the risk posed to our national security from terror and criminal organizations that control such sites.” Rep. Jim Leach, Wall Street Journal (April 4, 2006). "The Internet gambling and online capabilities have become a haven for money laundering activities.” Id. “If we wanted to be effective in prosecuting illegal gambling over the Internet, we would prosecute individual gamblers.” Rep. Robert Scott, Richmond Times Dispatch (April 6, 2006).

8 The Polls Should Online Gambling be Banned? Zogby International;  87% believe online gambling is a personal choice which should not be banned. Wall Street Journal;  85% oppose government prohibition of online gambling

9 Pending Federal Legislation The Goodlatte - Bill HR 4777  Expands Wire Act to cover Casino/Poker  Criminalizes gambling-related EFT’s  Requires Hosts to block gambling sites  No effect on individual player The Leach - Bill HR 4411  Unlawful Internet Gambling Enforcement Act  Focuses primarily on EFT’s  Encourages voluntary compliance by foreign governments  Companion Bill Pending in the Senate (Sen. Kyl)

10 Legislative Outlook Industry facing greatest potential for U.S. online gambling legislation this term Goodlatte playing the ‘Abramoff Card’ Congress anxious to distance itself from perceived past influence peddling Some ‘carve-outs’ likely, but status undecided Republicans desire to change the political conversation from Iraq War to…anything else Gambling, porn and other vices provide the ideal scapegoats Opposition coming from banks and some ‘family values’ groups

11 Life After Prohibition? Hosting may become more difficult as industry shakeout plays out. Billing processing industry will change – new opportunities for offshore processors. Impact will depend on response by offshore banks and ecommerce companies. Personal jurisdiction issues may prevent any substantive prosecution. Importantly: No impact on player activity.

12 Legality of Gambling Advertising Commercial speech entitled to constitutional protection. Gambling Advertising is commercial speech. Power to ban gambling ≠ Power to ban speech about gambling. Restrictions on gambling ads must meet the Central Hudson Test. Does the means chosen to regulate commercial speech “fit” the legitimate governmental interest to be addressed?

13 Legal Status of Gambling Advertising - continued Federal broadcast ban declared unconstitutional by USSC in Greater Orleans Broadcasting Assoc. v. United States. Logical extension of holding:  Gambling Advertising is legal even if received in a jurisdiction where gambling is illegal.  Legal Status of gambling activity evaluated in jurisdiction of origin.

14 U.S. Justice Department Position “All online gambling is illegal.” Multiple federal statutes cited as basis. Department of Justice disagrees with In re Mastercard Int’l case. Advertising online gambling = “aiding & abetting” illegal gambling. No federal law specifically prohibits online gambling advertising. No prosecutions or convictions have resulted from advertising.

15 The Jury In Missouri April, 2002: Department of Justice issues warning letter. September, 2002: Grand Jury issues round of Investigative Subpoenas to Media Outlets. May 2004: US Attorney Raymond Gruender appointed to 8th Cir. Ct. Appeal. April, 2005: Esquire Magazine received subpoena re: BoDog Poker Advertising. No indictments yet. At least one significant settlement: [The Sporting News; $7.2 Million USD]

16 Statutory Prohibitions Aiding & abetting [requires underlying crime] Conspiracy [requires underlying crime] Racketeering [requires multiple predicate offenses] FTC legislation [relates to deceptive ads] Broadcast ban: 18 USC §1304 [validity in question] U.S. Mail restrictions. FCC regulatory prohibitions.

17 Casino City Case Challenged the use of aiding & abetting laws to criminalize online gambling advertising. Trial court dismissed case based on standing. Court included gratuitous dicta indicating online gambling advertising is illegal. Casino City appealed to 5 th Circuit, but later dismissed the appeal – no decision. Similar challenge could be brought by different plaintiff – with standing to sue.

18 Problems with Aiding & Abetting Theory Occurs when one substantially assists another in the commission of a crime. DOJ’s “Theory of Choice” Requires the completion, or attempted completion, of a separate, independent criminal act. Legal operation of offshore, licensed gambling entity complicates liability theory. Personal jurisdiction issues unsettled.

19 Rise of the.Net Ad Reaction to the threatened federal crackdown against online gambling advertising. Informational sites = Pure Speech. Way to reassure media outlets regarding legality of advertising. Foot in the door to buy time. Confidence builds as advertising proliferates. Slowly drifting back advertising.

20 Overview of Personal Jurisdiction Foreign citizens subject to U.S. prosecution if “minimum contacts” exist. Foreign jurisdiction limited by due process notions of fundamental fairness. Assertion of personal jurisdiction must be “reasonable.” Decisions made on a ‘case by case’ basis. Intent to cause effects in U.S. considered. Legislative intent also considered.

21 Which Laws Apply Outside US? Wire Act – yes; Travel act – yes; Paraphernalia – yes; Illegal Gambling Business Act – arguably, no; Racketeering – yes; Aiding & Abetting – depends; Conspiracy – depends.

22 Extradition Governed by international treaties (E.g.; the “Mutual Legal Assistance Treaty”; US/CA) Generally requires “dual criminality.” Often impacted by political considerations. History of extradition from Canada in vice cases.  Tobacco paraphernalia websites.  Internet obscenity.

23 Conclusions DOJ’s bark may be worse than its bite. Current federal law may only apply to sports betting. The legal landscape is changing, at both the state, and (possibly) the federal level. New federal legislation will not stop the industry. Advertising law unclear, but some risk involved. Online gambling becoming ingrained in the culture, thus legislation unlikely to have any major impact. Profitability pushing increased risk taking.

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