Page updated Jan. 29, 2012
Roles of the federal and state governments
The 50 state legislatures have the power to make and enforce laws for the health, safety, and welfare of people located within their territory, which covers activity such as gambling. State gambling laws generally prohibit all gambling except that which is provided by a licensed operator, but a state is unable to enforce its laws against internet operators who have no physical presence in the state. To enforce the laws when interstate and foreign commerce is involved, federal assistance in necessary.
Federal law is currently inadequate to stifle black market operators in foreign jurisdictions. The most effective statute for defining illegal gambling activity is 1961′s Wire Act, a relic of an older technology era, enacted to prohibit the interstate communication of sports betting information via communication wires. A more contemporary Congressional effort is the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006, which requires US financial transaction providers to follow procedures designed to identify and block “unlawful internet gambling.” However, UIGEA does not internally define “unlawful internet gambling,” but instead refers externally to the same outdated laws and regulations to determine the lawfulness of gambling on the internet.
Today state legislatures are warming to the prospect of regulated intrastate internet gambling. Federal action is not necessary before a state may legally proceed with a regulatory system that is kept within its borders, but it would be a tremendous benefit to all states to have certain federal guidelines to coordinate enforcement action across the nation. An immediate federal imperative is improving UIGEA’s procedures for blocking customer transactions with foreign gambling operators. It will also be important that the federal government provide certain common regulatory standards so that states which wish to combine their regulated markets will be able to do so.
Federal law presently
Unlawful Internet Gambling Enforcement Act of 2006 (31 U.S.C. §§ 5361- 5367)
- UIGEA does not internally define “unlawful internet gambling.” Instead it refers to external statutes and regulations to make the determination. (Sec. 5362(10)(A))
- UIGEA does not prevent states from legalizing internet gambling if they can contain it within their territory. (Sec. 5362(10)(B)).
Wire Act of 1961 (18 U.S.C. § 1084)
- It is illegal to use a “wire communication facility” to further a gambling business. (Sec. 1084(a)). A potential legal issue is whether the phrase plainly covers modern wireless broadband and satellite systems.
- Bets or wagers “on any sporting event or contest” are prohibited. (Sec. 1084(a)). A potential legal question is whether the phrase unambiguously covers poker and casino games (I.e., did Congress intend the phrase to mean ‘any sporting event or any sporting contest,’ or did Congress intend the phrase to mean ‘any sporting event or any contest generally, even if it is not a sporting contest?”).
Legislative proposals in the 112th Congress (2011-2012)
Two different proposals to license and regulate gambling on the internet are pending in the 112th U.S. Congress. Both bills were introduced in the House of Representatives, and both would enable a state or tribe to opt-out if it prefers that the activity remain prohibited within its territory. No bill has been introduced in the Senate.
One bill, H.R. 1174 -The Internet Gambling Regulation, Consumer Protection, and Enforcement Act, would legalize casino games as well as poker on the internet. Compared to the other bill, H.R. 1174 gives broader power to the federal government by granting full power over licensing and regulation to the U.S. Treasury Department. H.R. 1174 is sponsored by Reps. Barney Frank and John Campbell, who in the last Congress advanced the bill through the Financial Services Committee but were unable to obtain a vote on the floor of the House. The plan Reps. Frank and Campbell offer in this Congress is very similar to the one they floated in the last Congress.
The other bill, H.R. 2366 - The Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2011, is sponsored Rep. Joe Barton, who says the plan builds on the work Reps. Frank and Campbell have already accomplished. Aside from legalizing only poker, H.R. 2366 differs from the other bill in that it delegates more regulatory responsibility and discretion to state regulatory agencies rather than the U.S. Treasury Department.
As a matter of procedure, internet gambling legislation has a long way to go. In the House, three separate committees have claimed jurisdiction over internet gambling, and all three committees have pushed the two bills down to the subcommittee level. So far only the Energy and Commerce Committee’s Subcommittee on Commerce, Manufacturing, and Trade has taken opportunity to consider the issues. The subcommittee has held two informational hearings which have focused on the threshold question of whether the federal government should regulate internet gambling. The comparative strengths and weaknesses of H.R. 1174 and H.R. 2366 have been given little consideration so far, but it is becoming increasingly apparent that H.R. 2366, under Rep. Barton’s influence, is the only bill that will be marked up by the subcommittee.
Justice Department’s Memorandum Opinion of September 20, 2011
Recently the US Justice Department circulated a Memorandum Opinion indicating it would like to get out of the way of state legislatures who wish to license and regulate internet gambling.
The Memorandum Opinion concludes that the Wire Act of 1961 applies only to interstate sports wagers. This conclusion is a stark contrast to the Justice Department’s former position that the Wire Act prohibits all forms of gambling on the internet.
See: Memorandum Opinion of the Attorney General’s Office of Legal Counsel: 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 Violate the Wire Act
Letter from Senators Harry Reid and Jon Kyl to U.S. Attorney General Eric Holder (July 14, 2011), implying that the U.S. Justice Department does not “pursue aggressively and consistently those offering illegal internet gambling in the United States.” The letter also requests that the Justice Department either “…reiterate the Department’s longstanding position that federal law prohibits gambling on the Internet, including intra-state gambling (e.g. lotteries)” or “…consult with Congress before finalizing a new position that would open the floodgates to Internet gambling.”
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