From the Legal Pad – Online Gambling Law

Computer gambling has come a long way in the past 30 years, from handheld videogames to today’s full-fledged online casinos. Along the way, though, the law has also been changing, opening up some types of play and totally shutting down others. With constant amendments, addendums and clarifications, American players have been the hardest hit by these new restrictions; the United States is, by far, the most restrictive country in the industrialized world when it comes to online gambling.

And, while you can just as easily go to your local library —or even use Google™—to find the letter of the law, the mess of legal jargon would, no doubt, leave even the canniest card connoisseur’s head spinning.

That’s why we here at GP have decided to wade through the mounds of moldy legalese ourselves and translate it into something intelligible. Yes, it was a blooming headache getting it all straight. But we figured: if the law says there’s no excuse for ignorance, our readers are going to be the last folks left in the dark.

The UIGEA and Other Bad Acronyms

On October 13, 2006, good ‘ole Dubya signed the SAFE Port Act into law. At the time, it seemed like a pretty good bill because it added safeguards to America’s maritime trading centers. In the commotion of the Democrats’ congressional takeover, though, most of the public overlooked the little things that had hitched a ride on the bill, including the Unlawful Internet Gambling Enforcement Act, which hobbled Internet gambling in the U.S.

You can go here and read the whole UIGEA for yourself, but basically, here’s what it did:

Section 5361:

Section 5361 is the preamble for the UIGEA. Here, the bill’s writers explain the findings of the National Gambling Impact Study Commission, which was headed by conservative bulldog Kay Coles James. The NGISC is now considered discredited as a completely partisan and morally biased organization, but it’s important to note that James was appointed to the post in May 1997 under President Clinton’s watch.

At any rate, the real meat of the argument is that the Department of Justice believes Internet gambling is on par with wire betting as defined in the Wire Act. This law, passed in 1961, stated that it was illegal for anyone to use a telephone or wire to transmit betting-related information across state or territorial lines. This, of course, excluded information that wasn’t particularly tied to betting, including sports-news broadcasts, business phone calls between casinos and communication between two states or regions where betting was already legal.

Historically, the Wire Act was part of Bobby Kennedy’s crusade against organized crime, allowing the Feds to break up bookies who used the telephones and Western Union-type money wires to net bettors in areas where gambling was off-limits. Forty-six years later, however, the Department of Justice would argue that the law’s language also included the Internet under the definition of “wire” strengthening their case against the offshore bookies in Antigua before the World Trade Organization.

Finally, while the Interstate Horseracing Act of 1978 would seem to allow wire, telephone and, therefore, Internet transmissions and transactions between states where gambling is legal, the DOJ used the tail end of this section to argue that its language does not include the Internet in its allowance for pari-mutuel wagers.

Section 5362:

This section provides the legal definitions for the act:

Bet or Wager—A transaction in which a person risks something of monetary value on the outcome of a contest, sports event or game of chance—the final bit here about “chance” is aimed specifically at online casinos’ card and table games. (Strangely enough, under this definition a person could still, hypothetically, make an online bet concerning something he himself might or might not do).

This definition was pretty standard for previous laws on gambling, but the UIGEA tweaked them even further by tossing a few sub-definitions into the mix. Among them was a statement that betting can also be the purchase of an “opportunity to win” (therefore cutting out football pools and ticket lotteries) and that it included any instructions or information relayed from a book to the bettor concerning a bet. This second bit closed a loophole the offshore houses were using to argue that they were not doing anything wrong because, at least in the case of pari-mutuel wagers, the bettors were all betting against each other and the bookies were only charging for their coordination of these bets.

This was a pretty far-reaching definition. But, as you would expect, it didn’t include many of the bets congressmen were likely to make themselves. For one thing, it excluded security and commodity transactions—including futures and all that nasty housing business our betters have gotten us into—and insurance transactions.

Lastly, the definition allowed for free games as long as the points accumulated for them couldn’t be redeemed for cash prizes, and it allowed for fantasy-football bets as long as the game wasn’t based on real players and the prizes were announced before the pool started.

Designated Payment System—Money transfer that law enforcement thinks is being used in the service of online gambling.

Financial Transaction Provider—Any company or organization that provides a “Designated Payment System” for online gambling.

Interactive Computer Service—An Internet service provider (whoever you pay so you can get online).

Restricted Transaction—Moving money around for illegal online gambling.

Unlawful Internet Gambling—Gambling that goes on in the U.S. that is illegal in the U.S.; the online books and casinos are held accountable, not the servers or any other computers the information travels through getting from them to the bettor and back.

Notes—Most types of betting aren’t expressly mentioned, but that doesn’t mean they’re not illegal. The Wire Act expressly mentions sports betting, and the Horseracing Act made horseracing bets legal. The UIGEA makes anything not mentioned in those laws illegal, including online poker, craps, roulette or any other table game when money is bet on it.

What’s more, this section allows for online gambling of any kind as long as it takes place within the confines of two jurisdictions where it’s legal. So if a company wants to open up online poker in Vegas, it’s kosher as long as that online gambling stays in Vegas (or the rest of Nevada for that matter). Likewise, if two Indian tribes want to start an online casino, they can do that too as long as the folks playing only do so on one of the two reservations.

Section 5363:

This section basically says that it’s illegal for an online gambling establishment to accept any kind of electronic money transfer in connection with online gambling.

Section 5364:

Just a provision saying that Internet gambling sites had 270 days to tear down their systems. It went into effect July 2007. It also ordered all credit card companies and banks to block payments to online gambling sites from American cards, except where it’s impossible to tell who the person being paid is (as it is with personal checks).

Section 5365:

There’s a kind of white flag in this section stating that if the violating companies (money transfer services and the gambling sites themselves) are overseas, the DOJ can attempt to take legal action against them, except that there’s no reason the country that the company exists in will pay them any mind.

The main thing, however, is that Internet service providers, search engines and non-betting sites that provide links to betting sites can be ordered to remove the links or be prosecuted if they’re in the U.S.

Section 5366:

The punishment for breaking this law: Five years in the clink, a fine and a lifetime of having your gambling privileges taken away.

Section 5367:

This section clarifies that any American company, organization, individual, yadayadayada… that’s involved with online gambling or is in any way tied to the operation of the site is committing a crime.

Also, it asks the prez to try and get other countries onboard with the bill through international treaty—though, thus far, there hasn’t been much of a “coalition of the willing.”

A Rash of Worse Reactions

Since the UIGEA was rushed through congress two years ago, it hasn’t had many fans. First off, it cost the online-gambling sites themselves about $1 billion, and as you can imagine, they were none too happy about it.

All the betting sites listed on the London Stock Exchange dropped their American clients immediately. Meanwhile, Antigua, home to many online gambling houses, filed suit with the World Trade Organizations against the U.S. for violating GATS (an international trade agreement). The WTO ruled in favor of Antigua and its fellow plaintiff, the European Union, and the U.S. was forced to pay $100 billion to the EU and a mere $21 million to Antigua.

The Bush administration tried to keep the news of the concession on the down-low. They cited “national security” as their reason for denying journalist Ed Brayton’s Freedom of Information Act request, but ultimately they were the ones befuddled when congressmen Barney Frank, D-Mass, and Ron Paul, R-Texas, demanded the information be made public.

Frank and Paul also teamed up to propose a long string of legislation aimed at overturning the bill. Two of these were the Internet Gambling Regulation Bill and the Payments System Protection Act. The IGRB is still on the table, but the PSPA was shot down. In response to the latter, Frank and Paul co-authored a second PSPA that would order the Department of the Treasury, the Attorney General and the Federal Reserve System to define exactly what they mean when they say “unlawful internet gambling” (i.e., it still hasn’t been defined).

At the same time, a group calling itself the Interactive Media Entertainment and Gaming Association filed suit in New Jersey to have the UIGEA overturned, citing both the WTO case and civil liberties infringement. The group—mostly made up of online-gambling affiliate companies—filed the case in June 2007, and now the DOJ is finally returning fire, armed with top-gun attorney Stephen A Saltzburg. Salzburg, who is currently a professor of law at George Washington University, is expected to wipe the floor with iMEGA because he was also once the deputy assistant attorney general in the Criminal Division of the U.S. Department of Justice, and chairman of the ABA Criminal Justice Section from 2007 to 2008.

All in all, then, tons of folks are fighting to get UIGEA repealed, but the process has become mired in messy infighting. The DOJ is just doing its job trying to uphold the law that was passed, while it seems the real culprits—Bush and company—are getting off scot-free. Eventually, of course, most Americans can probably expect to see their right to spend their money however they darn well please restored. But, for now, the only thing you can do if you’re an American gambler is play in no-risk online rooms or go to a brick-and-mortar casino. Anything more than that is simply against the law.