Traditionally, gambling regulation in the US has been reserved for the state governments. As is the case with the Wire Act, however, sometimes federal law supersedes state law. The Department of Justice (DOJ) has on many occasions expressed its belief that the Wire Act prohibits all forms of online gambling in all the US states. Federal gambling law does not address games of skill or state lotteries that wish to offer subscription services on the Internet.
The Wire Act was enacted in 1961 to prevent bookmakers from accepting sports bets over the telephone. Accusations of Wire Act violations are usually accompanied by other charges, including conspiracy, money laundering, and violations of the RICO Act, Travel Act, and Illegal Gambling Business Act. Enforcement of the Wire Act is directed at the gambling operator, and there is no language that makes it illegal for a consumer to place a wager.
Because the Act was written in 1961 its language is limited to communication systems that use "wires," and the types of betting it describes are limited to fixed-odds propositions such as are offered on sporting and other events. It simply was not possible to have foreseen remote casino and poker games as far back as 1961, so taken literally, the language of the Wire Act is not adequate to apply to casino gaming and poker over the Internet. In a case involving online gamblers who tried to get their credit card debts ruled unenforceable because their online casino gambling had been illegal, the US Court of Appeals for the Fifth Circuit (Louisiana) declared in 2002 that the gambling losses were indeed enforceable because "the Wire Act does not prohibit non-sports Internet gambling."
The DOJ disagrees with the Fifth Circuit Court of Appeals decision, and the Wire Act still serves as the foundation for all of the DOJ’s arguments against the legality of Internet gambling for both sports wagering and non-sports wagering. DOJ officials have asserted this belief several times before Congress since 2002. The DOJ has also asserted this belief when advising the US Virgin Islands and the states of Nevada and North Dakota against regulating online gaming and when threatening media companies who advertised for online gambling companies with prosecution for aiding and abetting an illegal activity in 2003.
The DOJ was successful in convicting Jay Cohen, president of World Sports Exchange, for Wire Act violations in 2000.
Internet gambling on horse racing is permitted by the Interstate Horse Racing Act in states that have chosen to regulate such wagering. Although the DOJ insists that the Act is not consistent with the Wire Act it has never filed charges against any of the many domestic remote horse race wagering operators.
Nevada legislators have passed a law permitting intrastate Internet wagering but have taken few steps to introduce a system. Such a system would require technology that can sufficiently verify a player’s age and location. The DOJ has also said that such a system would violate federal law.
In fall of 2006, the United States enacted the Unlawful Internet Gambling Enforcement Act (UIGEA), which makes it illegal for financial institutions to facilitate payment transactions between offshore gambling operations and American customers. The law says nothing about it being illegal for a person located in the US to gamble on an Internet site. The Federal Reserve and the US Treasury are now in the midst of drafting the regulations under which this new law will be enforced.
In October 2007, officials from the US Treasury and the Department of Justice published 52 pages of proposed regulations that they hope will enforce the UIGEA. The UIGEA has resulted in the online gambling industry’s publicly listed companies withdrawing from the American market, while most of the private companies continue to serve it.
Under the proposed rule, financial firms that participate in designated payment systems must implement policies and procedures that are designed to halt payments being made to gambling businesses in connection with unlawful Internet gambling.
Certain participants in designated payment systems would be exempt from the proposed rule because the government questions the practicality of these participants attempting to identify and block unlawful Internet gambling transactions. For example, participants in automated clearing houses, check collection, and wire transfer systems would be exempt, barring a beneficiary’s bank or a bank that is directly involved with an illegal gambling business. The proposed rule also outlines the types of policies and procedures that non-exempt participants in designated payment systems may adopt in order to prevent transactions that are restricted by the UIGEA.
The Federal Reserve and Treasury and the DOJ requested that comments about the proposed rule be submitted by 12 December 2007.
The states of Illinois, Michigan, Indiana, Nevada, Oregon, South Dakota, Washington, and Louisiana have all passed legislation that specifically prohibits unauthorized forms of Internet gambling. All forms of gambling are illegal in Hawaii and Utah.
In April 2008, federal regulators and representatives of the financial services community testified before Congress that any attempts to enforce the UIGEA would result in serious regulatory burdens. A result of the testimony was new legislation introduced by Reps. Barney Frank and Ron Paul, proponents of legalizing and regulating online gaming, that would prohibit the Department of the Treasury and Federal Reserve System from implementing any regulations related to the UIGEA.
In October 2008, the state of Kentucky was granted permission by Franklin County Circuit Judge Thomas Wingate to begin the seizure of gambling websites. In January 2009, the Kentucky Court of Appeals overturned the ruling in a 2-1 decision because domain names are not gambling devices under Kentucky law. Kentucky state officials are appealing the decision to the State Supreme Court. As of June 1, 2010, the UIGEA regulations have been in full effect, though backers of the UIGEA admit that it would be nearly impossible to stop gambling sites that operate in the United States.
In April 2011, Washington, DC, passed a law allowing the DC Lottery and Charitable Games Control Board authority to run skill games and games of chance as well as offer games on the Internet. The city hoped to have its online poker site up and running by the end of the year.
Since May 2011, there has been a seismic shift in the way the United States approaches online gaming. The shift actually started in April 2011, when the Department of Justice (DOJ) indicted the founders of PokerStars, Full Tilt Poker, and Absolute Poker/UB. The charges, most of which have been settled, resulted in the forfeitures of hundreds of millions dollars in cash and assets, the sale of Full Tilt to PokerStars, the closing of Absolute and UB, and the withdrawal of PokerStars and Full Tilt from the US market. In addition to shutting down the US operations of the most popular online poker sites, the DOJ indictments convinced many operators that had been serving the American market to shut down their US-facing operations, leaving the American online gambler with a limited marketplace.
Seeing a void in the marketplace, large American casino companies renewed their lobbying push to bring licensed and regulated online gaming to the US market.
In June 2011, Gov. Brian Sandoval signed legislation that authorized the Nevada Gaming Control Board to write and implement online poker regulations – regulations that would only be put into place if and when the federal government gave its blessing. On December 22, 2011, the Nevada Gaming Control Board adopted rules and regulations that would allow companies to obtain licenses to offer online poker in Nevada.
One day later, the federal government cleared the way for intrastate online gaming when the DOJ reversed its long-held position that all forms of online gambling were illegal because they violated the Wire Act. In a letter released on December 23, 2011, the DOJ said the law applied only to sports betting, and intrastate gaming outside of sports betting did not violate the law. Gambling across state borders, say between poker players in California and Nevada, remained illegal according to the DOJ.
The ruling cleared the way for states to regulate and license intrastate online gaming. Nevada began issuing licenses to operators and software providers in 2012. On April 30, 2013, the first legal Nevada licensed online poker room opened for business, www.ultimatepoker.com. Ultimate Poker is a subsidiary of Station Casinos LLC of Las Vegas. Participants must be 18 years old and physically located in the state of Nevada. The 30-day trial license will be extended to a long-term license if operations of the site are successful. The state also adopted legislation in 2013 that allows it to sign compacts with other states to build player liquidity. Essentially, if Nevada signs a compact with a state, players on Nevada online poker networks will have access to players on poker networks in the other state and vice versa.
Two states have joined Nevada in offering online gaming. In June 2012, Delaware authorized online gambling in response to expanded brick-and-mortar casino gambling in Maryland and Pennsylvania. And in February 2013, New Jersey signed into law online gambling legislation in an effort to help Atlantic City and Atlantic City casinos. Unlike Nevada, New Jersey and Delaware are licensing and regulating the full suite of casino games, including table games such as blackjack, roulette, and craps.
Delaware's online casino will be operated by the Delaware Lottery. New Jersey's online casinos will be operated by casinos running brick-and-mortar operations in Atlantic City. Both Delaware and New Jersey hope to have online casinos up and running by the end of 2013.
Efforts to pass federal legislation that would allow interstate online poker, but ban other forms of online gaming, have stalled in Congress. No federal legislation is expected to pass in 2013.
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