Internet Gambling Goes to Court

There’s a case brewing in Louisiana that mayblow the lid off virtual casinos everywhere.

The U.S. Department of Justicemaintains that online gambling of all types is illegal inthe United States under the 1961 Wire Act — andhas been successful in prosecuting Internetgamblers and bookies under that law.

However, a U.S. appeals courtfaces the question of whether a trialcourt in Louisiana was correct when it ruled in Februarythat the Wire Act does not apply to all forms of Internetgambling, but only sports wagering.

In the consolidated cases, several gamblers suedVisa and MasterCard, seeking to avoid paying theirgambling debts. Judge Stanwood Duval of the U.S. District Court for theEastern District of Louisiana dismissed the case, whichmeans that the gamblers will have to pay up.

However, in doing so, Duval made his broad statement aboutthe application of the Wire Act. With the case now under appeal, many advocates of online gambling are no doubt betting on the federal appellate court to give them the hook they need toopen the floodgates for Internet casinos.

The Bookie Loses

Despite what Duval wrote in his opinion, courts in other jurisdictions have sided with the Justice Department and ruled that all forms of Internet gambling are unlawful under theWire Act.

For example, the Wire Act was used toconvict atelephone and Internet bookmaker last year.In that case, U.S. District Judge Thomas Griesa, sittingin New York, sentenced Jay Cohen, co-owner of Antigua-basedWorld Sports Exchange, to 21 months in prison, followedby two years of supervised release, in addition tonearly US$6,000 in fines and assessments.

“People who operate businesses from foreign shoresthat take sports bets from Americans should understandthat they cannot escape the consequences of theiractions by locating their sportsbooks outside theUnited States,” said U.S. Attorney Mary Jo Whiteat the time.

According to White, “an Internet communication is nodifferent [from] a telephone call for purposes ofliability under the Wire Wager Act.” Indeed, legal experts note that theWire Act was drafted specifically to combatthe growing use of a service in the 1950s known as “The Line,”which gave up-to-date gambling information tobookies so they could take and place bets in real-time.

Play, Don’t Pay

Which bring us back to the MasterCard/Visa case.The plaintiffs in that case argued that bysending out monthly statements to customerswho had used the cards to gamble online,MasterCard and Visa committed fraud in trying to collect “illegal” debts.

Judge Duval, however, threw the MasterCard/Visasuits out before they ever made it to trial.

“Plaintiffs in these cases are not victims,they are independent actors whomade a knowing and voluntary choice toengage in a course of conduct,” Duvalsaid in the ruling. “At this point in time,Internet casino gambling is not a violation of federal law.”

Duval also drew the legal conclusion thatthe 1960 Wire Act only prohibitssports betting online.

Side Comments

Under the legal doctrine of “obiter dicta,” or”worldly discussion,” it could be argued thatthe judge went too far and made some sweeping statementsabout the Wire Act that were not necessary tohis opinion, and so not binding on other courts.

However, if the appellate court decidesto review and approve of the judge’s broadconclusions about the Wire Act, it is possible thatan appellate opinion will be floating around thatwould prohibit new prosecutions of online gambling operationsunder the Wire Act.

Only In Vegas

Since Duval’s ruling in February, there havebeen several other major developments thatwill help decide the fate of online gambling.

Notably, in mid-June,Nevada passed a bill allowing large casinos to set up in cyberspace, becoming thefirst state to allow Internet gambling. Although the law does notlegalize online gambling in Nevada, it does permit state regulators toprepare rules to govern Internet-based betting.

Nevada also plans to build a coalition of states tochallenge the Wire Act. However, Whittier Law School professor Nelson Rose downplayed thelikelihood of its success.

“Although a lot of states have lotteries and casino gambling, none outsideof Nevada appear anxious to take bets from other states and nations,” Rosesaid.

Gearing Up

Rose said that the big question is whether the proposedInternet Gambling Prohibition Act will bereintroduced into Congress and whetherfederal lawmakers will pass a ban on Internet gambling e-cash.

Reportedly, the Act, which failed to passlast year, is being reworked by its original author,U.S. Representative Robert Goodlatte (R-Virginia).

The revamped bill, instead of focusing onthe Wire Act, will attempt to declare credit carddebts incurred from Internet gamblinguncollectable. It will also reportedly let state lotteries sell ticketsonline, a major item not included in the first bill.

Cards on the Table

The U.S. appeals court might avoid a review of Judge Duval’s conclusion thatthe Wire Act does not apply to Internet casino gamblingand determine the outcome of the MasterCard/Visa cases on other grounds.

However, even if the appellate court avoids the ultimate issue now,another federal appellate court or two could take up the questionof whether the Wire Act applies to Internet casino gambling. Eventually,the myriad factions in the Web gambling sector could bringthe issue to the U.S. Supreme Court.

Rose sees a mixed outlook for online gambling.

“In the near future, we will see more states outlawing Internet gambling,although they will exempt their own legal forms of gambling,” Rose predicted. “Congress[will be] unable to reach a consensus, and legal onlinebetting expand throughout the rest of world.”

10 Comments

  • I’m glad to see that this topic is starting to be discussed in the mainstream media. Unfortuantely, this article mentions prosecuting online gamblers and online bookies. Please show me an online gambler who’s been prosecuted. I know of one case of a North Dakota man who had $300,000 in offshore sports betting accounts and he received a $500 fine. Other than that, there have been no prosecutions of online gamblers, although it is correct that Jay Cohen spent a couple years in prison unjustly. Jurys and judges don’t understand gambling and neither does the general public. If they did this would be allowed and regulated and more importantly to the government… taxed. If anyone has questions about online gambling, please don’t hesitate to contact me at davidm@lasvegasadvisor.com.

    • Certain States in the U.S. advertise for and profit from lotteries, scratch cards, paramutual betting, etc. Is it fair that they are able to do this and make profits, yet it is illegal for an individual or company in that state to do the same? This reeks of Big Brother and “do as I say . . . not do as I do.”

      • It seems to me that the legal issue of online wagering has ceased to be a moral dispute and has now become a question of laziness and passing off the proverbial “hot potato”…

        Historically, politicians have always been a bit hesitant to either outlaw or permit anything that has a public tint of morality attached to it, and Internet wagering is starting to take on a familiar pattern…

        In my opinion, legislating the outright ban of Internet wagering has become a case of political grandstanding and sheer hypocrisy…

        Gambling, in some form or another, has been around since the dawning of man and after us humans wither away and die, cockroaches will probably devise some ingenious scheme to wager on the amount of rainfall for the upcoming year…

        It’s time to stop debating on the ethical issues of online gambling and get to work on creating an official body that will oversee the industry and weed out all the rogue elements…And that is the job of the politicians that we select to represent us…

        • I couldn’t agree more with the Casino critic. I really think the hypocrisy is ridiculous. We have been running a very well known and respectable casino (Omni Casino) on the Internet since 1997. We were the very first online casino to become a full member of the IGC (Interactive Gaming Council) and we adhere to their strict code of conduct. We have a link to Gamblers Anonymous on every page of our site, and the list goes on… but I do realize there are some bad sites out there that are ripping people off, and that is why we would GLADLY entertain moving the business to the US, and become regulated to help weed out the bad casinos. The problem is, the majority of the states that want to ban Internet gambling are those that are sucking their constituency dry with the slogan, “All you need is a dollar and a dream” to hit their own state lotteries. Please!!! The house hold in the lottery is in the neighborhood of 40%. That means for every dollar wagered in the state lottery, the government keeps 40 cents. For the last four years, our house hold in the casino has been 2.50%. Who’s fleecing Who???

          • Its true that due to just few fraud websites some people generalize every casino site as fraud, but that’s not being wise.

          • It is quite strange the U.S govt is also banning non-gambling related websites. So basically any website which promotes the idea of online games are under scrutiny. Several recreation gaming websites are facing the brunt of U.S gambling laws.

  • Free Update. Nevada is no longer the only location in the United States where internet gambling is legal. On August 2, 2001, the United States Virgin Islands legalized internet gambling. Rules and Regs are being prepared so it is anticipated that the United States Virgin Islands will be the first jurisdiction in the U.S. to test the law.

  • Pardon me, I’m German and don’t know the US laws about online-gaming.

    By your forum my interest about this topic is wakened. So I want to ask, if anybody

    is able, to give me a kind of resume of the legal situation about e-gaming in the

    US.

  • Although I’m not a gambling man, it would seem to me that the will of the people is not the only consideration when it comes to whether Internet gambling should be legal. What most people want and what is fair for everyone is not always the same thing (tyranny of the majority). Also, just because people might want Internet gambling, are they willing to pay the costs of regulating it? Because people will probably expect the government (i.e. taxpayers) to go after the Web casinos that rip people off with tilted games and nonpayments, etc., etc.

  • Seems like this issue is getting way too complicated for the courts to sort out effectively.

    Let’s have Congress get the pulse of the people (that should be possible, right?) and write up some straightforward legislation (that should be possible too, right?) that will clearly state whether online gambling is legal or not.

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