Industry reaction to Justice Department about turn on online gambling

The news that the US Department of Justice has reversed its view that the Wire Act 1961 applies to all internet gambling has elicited a variety of immediate reactions from industry and legal observers, mostly carried by the mainstream media.

John Pappas, executive director of the Washington-based action body Poker Players Alliance, said: “This is a much needed clarification of an antiquated and often confusing law. For years, legal scholars and even the courts have debated whether the Wire Act applies to non-sporting activity. Today’s announcement validates the fact that Internet poker does not violate this law.

“The PPA commends Assistant Attorney General Seitz for recognizing this. However, this ruling makes it even more important that Congress acts 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.”

Pappas reiterated the PPA view that legalisation should preferably be federal rather than state-by-state.

“This will provide policy makers at both the state and federal level with the legal confidence to move forward with licensing and regulation of online poker and other non-sporting activity within their respective jurisdictions,” Pappas said, qualifying this by adding: “However, it is our hope that our federal policy makers see this as an incentive to move quickly to enact federal licensing and regulation before various states produce a mix of individual state schemes that may not be the best model to serve consumers.

Former senator and chairman of the PPA, Alfonse Amato, concurred, saying: “State by state licensing and regulation could result in a balkanized online poker world where players across the nation would be limited in their choices of where and against whom they could play. This could potentially reduce the number of total players, reducing revenues state lawmakers project from this activity. At the same time, it would deter entrepreneurs from entering the online poker market, as there would essentially be 50 different sets of laws and rules to which they would have to adhere.

“We urge members of Congress to act quickly based on this announcement and pass legislation like H.R. 2366 to license and regulate online poker at the federal level.”

In New York, which has offered an online subscription service since 2005 that allows state residents to enter a string of Lotto or Mega Millions drawings, the news was well received.

The director of the New York Lottery, Gordon Medenica, said that his organisation had built a broader online gaming system for New York, but that the contractor that put the system together was wary about moving forward because it feared it could get into legal trouble.

“We’ve been waiting for a couple years,” Medenica told the New York Times. “We’re thrilled that this ruling has now come down and confirmed that our legal analysis was correct all along.”

The New York Lottery official said there were plans to add two additional jackpot games, Powerball and Sweet Million, to the current online lottery subscription service, which would allow New York residents to buy single-draw tickets online for the first time.

Michael Jones, the superintendent of the Illinois Lottery, said: “When you look at the Internet, which is what everybody uses these days to buy everything, it seemed like a very, very logical thing to use the Internet to increase the player base.”

He pointed out that states were in dire financial straits, and the ability to use the lottery to raise revenue in a non-tax way was a significant step forward.

Online sales would enable the lottery to regulate purchases, he noted, adding: “Right now we can’t guard against someone walking into a lottery retailer and buying too many tickets and behaving excessively. Now with credit card purchases, we can guard against excessive play.” Illinois could begin selling lottery tickets online in as soon as three months, he said.

Steven Grossman, the Massachusetts state treasurer and the chairman of the state’s Lottery Commission, called the opinion a “turbocharged opportunity to engage new markets,” and said: “This will put additional pressure on Congress and others to allow online poker and other Internet gambling.”

Earlier, Grossman had estimated that even at the lowest assessed size of the market of $6 billion annually, there was potential for billions in taxation over time, and that the US had lost billions of dollars offshore due to the DoJ position on internet gambling.

Several legal experts across the nation voiced similar views that the new DoJ policy reverses the Department’s longstanding position that all forms of online gambling are illegal in the United States.

However, it does not necessarily pave the way for national rules governing online gambling, they said.

The new policy does imply that states can band together to allow gambling across state borders, with the major exception that such a collaboration could not include online sports betting, which is explicitly prohibited under federal law.

The American Gaming Association, which represents top land casino operators and makers of gambling equipment, again emphasised its support for a federal legalisation of online gambling, saying:

“The Department of Justice’s interpretation regarding the scope of the federal Wire Act validates the urgent need for federal legislation to curb what will now be a proliferation of domestic and foreign, unlicensed and unregulated gaming websites without consistent regulatory standards and safeguards against fraud, underage gambling and money laundering.

“Federal legislation that protects states’ rights can establish uniform safeguards to protect U.S. consumers, keep children from gambling on the Internet, and provide the tools law enforcement needs to shut down illegal Internet gambling operators. Federal guidelines also would prevent fraud and money laundering, address problem gambling and ensure players aren’t being cheated.

“These federally-mandated protections are vital no matter the interpretation of the Wire Act, and they must be enacted in order to avoid a patchwork quilt of state and tribal rules and regulations that would prove confusing for customers and difficult for law enforcement to manage.”

“This is quite a Christmas present,” said I. Nelson Rose, a respected legal academic at Whittier Law School and an expert in online gambling law. “It says, ‘Keep it in your state and it’s legal.’ Given the continuing budget crisis, and so many states looking for ways to raise money, it’s really a major decision.”

Virginia A. Seitz, an assistant attorney general in the Justice Department’s office of legal counsel, wrote in the opinion underpinning the new DoJ policy that the prohibition in the Wire Act of using interstate communications for gambling applies only to betting on a “sporting event or contest.”

As long as the gambling operator and the customer are within the same state, the opinion says, and the betting activity does not include sporting events, a state’s own laws apply.

Another federal law, the Unlawful Internet Gambling Enforcement Act of 2006, made it illegal for financial institutions to process payments for online wagers with operators deemed to be engaged in illegal gambling, a definition that is influenced by the DoJ position on the Wire Act.

The payment restrictions do not apply to transactions within a single state, however. With the ruling that the Wire Act applies only to sports betting, the way is clear for in-state online poker and other games, some observers opined.

Others also pointed out that the Justice Department’s former position that the Wire Act prohibited any form of Internet gambling conflicted with a federal appeals court decision, and therefore the new opinion simply confirmed what was already law.

The appeals court decision, handed down in 2002 by the United States Court of Appeals for the Fifth Circuit in New Orleans, supported the view that the Wire Act was confined to online sports betting, although the precedent has been complicated by other federal and state court opinions offered conflicting directions.

The old policy enabled the Justice Department to wield the Wire Act as an effective intimidatory weapon in cracking down on Internet gambling.

Late in 2007 such tactical use of the Act was made in “advising” (often perceived as ‘threatening’) companies that facilitated advertising for offshore internet gambling sites.

Back then, Microsoft, Google and Yahoo paid a combined $31.5 million to settle federal charges that they promoted illegal gambling by serving ads for internet gambling operations .

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