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Dec 29 2011

DOJ Approves Some Online Gambling

In a new development being hailed as great news by online gambling advocates, the Department of Justice has concluded that the Wire Act does not prohibit certain types of wagers over the internet. The decision is limited to state lotteries, but the logic behind it could help pave the way for online poker and other forms of gambling to be legalized — at least in individual states.

A Justice Department opinion dated September and made public on Friday reversed decades of previous policy that included civil and criminal charges against operators of some of the most popular online poker sites.

Until now, the department held that online gambling in all forms was illegal under the Wire Act of 1961, which bars wagers via telecommunications that cross state lines or international borders.

The new interpretation, by the department’s Office of Legal Counsel, said the Wire Act applies only to bets on a “sporting event or contest,” not to a state’s use of the Internet to sell lottery tickets to adults within its borders or abroad.

“The United States Department of Justice has given the online gaming community a big, big present,” said I. Nelson Rose, a gaming law expert at Whittier Law School who consults for governments and the industry.

The question at issue was whether proposals by Illinois and New York to use the Internet and out-of-state transaction processors to sell lottery tickets to in-state adults violated the Wire Act.

But the department’s conclusion would eliminate “almost every federal anti-gambling law that could apply to gaming that is legal under state laws,” Rose wrote on his blog at www.gamblingandthelaw.com.

If a state legalized intra-state games such as poker, as Nevada and the District of Columbia have done, “there is simply no federal law that could apply” against their operators, he said.

This is good news. The federal courts had already ruled that the Wire Act only prohibited sports betting, but both the Bush and Obama administrations have continued to pretend that it applied to all forms of online gambling. Technically, then, this should end the federal government’s efforts to prosecute online gambling, though it won’t end the legal trouble for Full Tilt Poker, Poker Stars and Absolute Poker (they’re accused of bank fraud, which they are almost certainly guilty of regardless of whether online poker is or isn’t illegal in the U.S.).

Nevada has already explicitly legalized online gambling. Other states, starved for revenue, are likely to follow suit. And while that may be good in general for online gambling, it isn’t the optimum solution. It will lead to a patchwork of laws, licensing and tax schemes that will be difficult to parse and comply with. Much better to have a single national policy of regulation. Doing it at the state level could push the federal government in that direction, but it could also build up opposition to national regulation by creating a revenue stream for the states that they won’t want to give up.

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