US Justice Department changes stance on online gambling

The Friday before Christmas was an historic day for internet gambling – hot on the heels of Nevada regulators approving internet poker regulations, the US Department of Justice radically changed its long-held and damaging opinion that online gambling in general falls under the provisions of the dated Wire Act 1961.

That stubbornly held opinion formed the basis for a number of dubious but effective DoJ intimidatory threats and actions over the past decade.

In a legal opinion posted Friday, the Justice Department did an about-turn on its long-held view, saying in a statement that online betting unrelated to sporting events falls outside the reach of federal law.

The changed view could have far-reaching implications for the industry in the United States and the application of the Unlawful Internet Gambling Enforcement Act 2006.

“The Department’s Office of Legal Counsel has analyzed the scope of the Wire Act, 18 U.S.c § 1084, and concluded that it is limited only to sports betting,” U.S. Deputy Attorney General James Cole wrote Friday.

The Justice Department indicated many forms of online gambling could become legal under federal law in the sweeping opinion, which could open up important new business opportunities for companies seeking to profit from Internet wagering.

The department’s Office of Legal Counsel said it has determined that the Federal Wire Act—the 1961 law that has so frequently been interpreted by officials to outlaw all forms of gambling across state lines – applies only to “a sporting event or contest.”

The changed view more closely aligns DoJ thinking wih several court decisions, and has been interpreted by some observers as an acceptance that the political advent of legalised poker and possibly gambling in general might be in sight.

The statement attracted immediate and widespread mainstream media coverage in the US, with Forbes making an assessment that the DoJ back-off is a huge victory for state lotteries that hope to use the Internet to sell lottery tickets to adults in their states.

New York’s lottery division and the Illinois governor’s office had asked in 2009 for the Justice Department’s view regarding their plans to use the Internet.

In a 13-page legal opinion written by Assistant Attorney General Virginia Seitz and dated September 20, the Justice Department says “nothing in the materials supplied by the Criminal Division suggests that the New York or Illinois lottery plans involve sports wagering, rather than garden-variety lotteries. Accordingly, we conclude that the proposed lotteries are not within the prohibitions of the Wire Act.”

Used as an enforcement bludgeon by officials, the previous DoJ policy on the Wire Act helped agents to go after offshore online gambling operators, going way beyond the sports betting controls originally envisaged by the Act.

As recently as 2007, then U.S. Attorney Catherine Hanaway said in congressional testimony that the Wire Act applied to all Internet gambling, and the Forbes assessment quotes her words on that occasion:

“The Department of Justice’s view is and has been for some time that all forms of Internet gambling, including sports wagering, casino games and card games, are illegal under federal law. While many of the federal statutes do not use the term ‘Internet gambling,’ we believe that the statutory language is sufficient to cover it,” Hanaway said.

“As we have stated on previous occasions, the department interprets existing federal statues, including 18 U.S.C. Sections 1084, 1952, and 1955, as pertaining to and prohibiting Internet gambling.”

The change will be little consolation for a number of industry personalities who have felt the lash of US enforcement, including the long-detained and restricted David Carruthers, Peter Dicks, and Anurag Dikshit of Party Gaming, who parted with hundreds of millions of dollars to clean his slate with the Department.

Likekwise, Sportingbet and Party Gaming paid large pecuniary penances for clearance on pre-UIGEA activities.

In more recent prosecutions, such as those surrounding Black Friday, the DoJ has taken action not under the Wire Act but under more conventional laws and the UIGEA itself, perhaps a recognition of declining official confidence in the potency of the Wire Act in the more general interpretation of illegal online gambling.

In the new interpretation, the Department’s legal eagles note: “We conclude that the Criminal Division’s premise is incorrect and that the Wire Act prohibits only the transmission of communications related to bets or wagers on sporting events or contests.

“The Wire Act’s legislative history reveals that Congress’s overriding goal in the Act was to stop the use of wire communications for sports gambling in particular. Our conclusion that subsection 1084(a) is limited to sports betting finds additional support in the fact that, on the same day Congress enacted the Wire Act, it also passed another statute in which it expressly addressed types of gambling other than sports.”

In related news, the Boston Herald has reported that Massachusetts State Treasurer Steven Grossman is eyeing online Lottery games and credit card payments following the change of opinion at the U.S. Justice Department.

“In one fell swoop, this issue has been dealt with by the attorney general,” Grossman said yesterday in an exclusive interview.

“New York, Illinois and presumably any other state have had the doubt removed, the ambiguity eliminated about using the Internet to sell lottery products to in-state adults.

“This is a major, major decision.”

Grossman will convene an online gaming task force, made up of 15 to 20 representatives from the Lottery, the Treasury, the Legislature, the governor’s office and private business next month, he revealed.

He said the group will explore options to protect and expand Lottery revenue, including online lottery games, credit card sales and possibly even online poker, not yet allowed by state or federal law.

“We’ll study it closely, and look at what New York and Illinois are doing, and decide if it’s right for the commonwealth,” Grossman said. “Do we want to do this? If so, how do we want to do it?”

Ed McGuinn, CEO of eLottery in Stamford, Conn., a company that makes e-commerce software for state lotteries, said the state could boost lottery revenue by 15 percent over three-to-five years by going online, partly by appealing to younger players.

McGuinn said the system would likely require proof of residency, location and age to gamble. “You’d also want to be integrated with problem gambling lists,” he said.

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