Gambling: legal issues

Gambling: legal issues in the United States

The history of gambling legal regulation in the United States shows that it has evolved in waves, with public sentiment shifting back and forth from embracing gambling to prohibiting it.Gambling was largely practiced in the early U.S., primarily in the form of lotteries, until it was completely banned in the 1890’s.However, gambling started making a comeback in the 1920’s and was fully legalized in Nevada in 1931, providing American gamblers with an outlet through which to place their bets. Las Vegas remained the primary location for legal gambling until the 1970’s, when more forms of casinos began to be legalized, including riverboat and Indian reservation casinos. In fact, gambling has now evolved to the point that at least some form of gambling is legal in all but two states and revenues from gambling eclipse the revenues from theme parks, video games, movie tickets, and music recordings combined. In contrast with other countries, in all of the United States proposed legislation over the years, there has never been a proposal to simply regulate internet gambling instead of prohibiting it outright.

After credit card companies banned online gambling credit, gamblers began to use online payment providers such as Paypal with increasing frequency. However, Attorney General Spitzer then went after Paypal with a prosecution similar to the one threatened against Citibank. Though Paypal claimed that it already had a policy against allowing payments to online gambling sites the business was still forced to disgorge profits of $200,000 in a settlement with New York.

Since 1997 a variety of bills were unsuccessfully introduced that would have either completely criminalized, or severely limited, internet gambling.

Internet Gambling Prohibition Act of 1998

The first major Congressional effort to criminalize internet gambling occurred in 1997 when Senator John Kyl introduced the Internet Gambling Prohibition Act (“IGPA”). Though there have been several proposed versions of the IGPA since, the thrust of each version has been to amend the Wire Act to ensure its applicability to online gambling by modifying the Act’s definition section and tacking an extra section (section 1085) onto the end of the Wire Act.

Despite the various enforcement problems that such a bill would present if passed, the benefit of the IGPA of 1998 is that it would finally update the Wire Act to make it clearly applicable to internet gambling. Thus, if prosecutors were able to overcome the practical difficulties of enforcement, they would have a much more effective tool with which to pursue gamblers and operators. Additionally, and perhaps more important from a political standpoint, the federal government would position itself with one voice against the perceived problems of internet gambling, such as gambling by minors and addicts, by prohibiting all unauthorized internet gambling within the United States.

Various groups contested certain provisions of the IGPA, most notably ISP representatives and the Department of Justice (“DOJ”).

The IGPA of 1998 garnered a great deal of support ranging from Christian conservative groups to the FBI to every major United States professional sports association. Carried by this wave of support the bill flew through the Senate by a vote of 90-10. Meanwhile, a similar bill to the IGPA was proposed in the House of Representatives and was initially passed by the Judiciary Crime Committee.

Internet Gambling Prohibition Act of 1999

Senator Kyl once again introduced a version of the IGPA, named the Internet Gambling Prohibition Act (IGPA) of 1999. Though this version was almost identical to the IGPA of 1998, there were some notable differences that addressed the concerns about the previous bill. Under the reworked bill, only internet gambling operators could be prosecuted, not individual gamblers. But some members of the House felt that the bill had far too many exceptions, with some representatives calling for punishments against individual bettors and others taking issue with the exception for fantasy sports leagues. Thus, the IGPA once again stalled in the House and the 106th Congress ended without it being approved by the full Judiciary Committee.

A new version, the IGPA of 2006, was introduced in the House by Representative Goodlatte in February of 2006. This new version seeks to make it a crime for internet gambling operators to take bets from bettors in the U.S. and to additionally prohibit financial institutions from conducting business with gambling operators.

Internet Gambling Enforcement Act

After the failure of the IGPA, Representative Jim Leach introduced a new proposal for regulating internet gambling in 2002 named the Internet Gambling Enforcement Act, though it was popularly known as the Leach Act. This bill attempted a new approach at stopping internet gambling: instead of prohibiting internet gambling itself, the bill sought to prevent U.S. citizens from making online wagers by preventing their financial access to online gaming sites.

Relevant Components of the IGEA included:

  • Operators: the IGEA prohibits operators of internet gambling websites from accepting credit, electronic funds transfers, checks, drafts, or similar forms of payment from U.S. citizens.
  • Circumventors: the bill additionally states that credit card companies or other financial institutions that knowingly facilitate internet gambling transactions will be liable.
  • Criminal Penalties: violators of the bill may be fined in accordance with Title 18 (amount unspecified) and imprisoned for up to five years.
  • Civil Enforcement: courts may enjoin internet gambling operators from accepting payments that are in violation of the bill.

The IGEA was still an actively proposed bill, though its name changed to the Unlawful Internet Gambling Enforcement Act of 2005.

Federal Law attempts to regulate Gambling

Due to the absence of federal legislation specifically aimed at internet gambling federal prosecutors wishing to pursue prosecutions were forced to rely on outdated laws, most notably the Interstate Wire Wager Act (“Wire Act”). The Wire Act was passed in 1961 to assist prosecutors in taking down gambling rings, and provides in pertinent part:

“Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission…of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest…shall be fined under this title or imprisoned not more than two years, or both.”

In a letter to the Nevada Gaming Control Board in 2002, the Department of Justice (DOJ) famously contended that the Wire Act in its current form bans all internet gambling.

There are several other federal statutes that the DOJ contended prohibit online gambling, including the Interstate and Foreign Travel Act (“Travel Act”), the Interstate Transportation of Wagering Paraphernalia Act (“Paraphernalia Act”), and the Illegal Gambling Business Act.

State laws on Gambling

Laws regarding internet gambling vary considerably from state to state: while some states have attempted to crack down on internet gambling using general anti-gambling legislation, others have passed legislation specifically directed at online gambling. Some examples of differing schemes are set out below.

  • Complete Prohibition: Utah and Hawaii both completely prohibit all forms of gambling within their states, and this prohibition extends to both gambling operations and individual bettors. In fact, Hawaii’s legislature has urged Congress to pass federal regulation similarly banning online gambling.
  • Internet Gambling Legislation: at least five states have legislation that specifically addresses internet gambling: Illinois, Louisiana, Michigan, Oregon and South Dakota. Illinois and Louisiana criminalize both the online bettor and the online casino operator.
  • Regulation: In 2001 Nevada began taking steps to legalize online gambling sites within its borders while maintaining licensing and regulation measures over the sites. However, before the regulations could be implemented the legislature required acknowledgment that the law would comport with federal law. An inquiry with the Department of Justice (DOJ) resulted in a letter from the DOJ stating that it considered online gambling to be in violation of federal law, ending the hopes of regulating the industry in Nevada.
  • General Anti-Gambling Legislation: many states do not have specific laws explicitly governing online gambling, but some of the states that have addressed the issue have chosen to enforce general laws governing gambling against online operators. Missouri, Minnesota, and New York have each brought successful actions against out-of-state internet gambling websites under general anti-gambling state laws. Florida, on the other hand, reached an agreement with Western Union that required it to refuse to process fund transfers to internet gambling operators.

References and Further Reading

  • Gregory Manter, The Pending Determination of the Legality of Internet Gambling in the United States, 2003 Duke L. & Tech. Rev. 0016, at http://www.law.duke.edu/journals/dltr/articles/2003dltr0016.html
  • For full text of the IGPA of 1998, see Internet-Related Amendments to Commerce, State and Justice Appropriations Bill (S. 2260), at http://www.epic.org/free_speech/censorship/sen_amend_7_98.html (text is under Kyl (and Bryan) Amendment No. 3266 (Senate – July 22, 1998)
  • Heather Brechbill, Internet Gambling: Will Technological and Jurisdictional Concerns Prevent Government Prohibition of Online Gambling?, at http://www.daviddfriedman.com/Academic/Course_Pages/21st_century_issues/legal_issues/legal_issues_21_2000_pprs_web/21st_c_papers_2001/brechbill_internet_gambling.htm
  • See Statement by U.S. Senator Jon Kyl (R-AZ), Re: Hearing on the Internet Gambling Prohibition Act, at http://www.techlawjournal.com/cong106/gambling/19990323kyl.htm
  • Timothy Casey, ISP Liability Survival Guide, 147-151, at http://media.wiley.com/product_data/excerpt/81/04713774/0471377481.pdf
  • D. Dowd Muska, www.prohibition.gov, Nevada Journal, at http://nj.npri.org/nj99/06/cover_story.htm
  • For full text of the IGPA of 1999, see S. 692, at http://www.govrecords.org/s-692-is-to-prohibit-internet-gambling-and-for-bother.html
  • For full text of the IGEA, see H. R. 4411, at http://www.govtrack.us/data/us/bills.text/109/h4411.pdf (note that while this is the text of the Unlawful Internet Gambling Enforcement Act of 2005, the language is substantially similar to the IGEA proposed in 2002).

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