What It Means for Internet Gaming

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What It Means for Internet Gaming

On Friday, December 23, 2011, the Department of Justice (DOJ) released for the very first time that a memorandum signed by Virginia A. Seitz, the Assistant Attorney General for the Criminal Division, dated September 20, 2011, responding to two different questions — one from 2 state lotteries and one from 2 U.S. Senators — about the applicability of the Wire Act (18 U.S.C. ?? 1084) to intrastate sales of lottery tickets online. At a 180-degree change, the DOJ Court takes the position that the Wire Act doesn’t apply to non-sports betting. This shift in place has wideranging implications for the Internet gaming landscape in the U.S. Of particular interest, it means that DOJ will no more contend that nations can’t license intrastate Internet gambling, provide lottery matches over the web or compact with each other to provide online gaming.

Much of the gaming industry had heard rumors that such a memo was in procedure, and few were surprised that DOJ chose to delay launch of the memo before the Friday before Christmas to minimize press coverage.

The Wire Act
The Wire Act was passed in 1961 as part of a Kennedy-era push against organized crime. It reads in relevant part:

“Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or to the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both.”

The Justice Department had long maintained that, regardless of the reference to”sporting event or competition,” the Act effectively prohibits any telecommunicated bet placed or obtained by a person located in the United States.1 DOJ had maintained that Internet wagers positioned and approved within precisely the same condition violated the Wire Act, arguing that the publicly-switched telephone network and the Internet are inherently global media.

By 1996-2006, Congress tried on many occasions to update and explain the Wire Act regarding what it did and did not prohibit; each of these efforts failed primarily due to internecine conflicts between different gaming businesses — i.e., industrial vs. tribal, horse vs. dog racing, lotteries vs. convenience stores. In 2006, Congress abandoned attempts to update the Wire Act, and instead passed the Unlawful Internet Gambling Enforcement Act (UIGEA, 31 U.S.C ?? 5361-67), which prohibited the acceptance or processing of a financial instrument for the purpose of”unlawful online gambling” but failed to directly define that term, rather relying on other federal and state laws as to what wagers were prohibited. UIGEA did comprise certain exceptions from its own enforcement mechanism, such as wagers accepted with a state-licensed entity from individuals in the state where it had been authorized, but UIGEA made clear it did not plan to legalize those wagers.2

Back in 2002, the Fifth Circuit Court of Appeals upheld a lower court ruling in a civil case that found that the words”sporting event or competition” made evident that the Wire Act only applied to sports gambling.3 No other Circuit has ruled directly on the point. DOJ nonetheless had made clear that they did not agree with the Fifth Circuit’s findings.

Late in 2010, the District of Columbia enacted a law allowing its lottery to supply both lottery tickets and casino-type games to individuals in D.C., and the D.C. lottery is currently preparing to start its Internet solutions. It was in reaction to this that Senators Harry Reid (D-NV) and Jon Kyl wrote to Attorney General Holder asking him to clarify DOJ’s position as to whether the Wire Act would prohibit this. In addition, two state lotteries had asked DOJ to clarify its position regarding Internet sale of lottery tickets. From the memo released on December 23, DOJ embraced a lot of this Fifth Circuit’s reasoning in saying that, since the Wire Act only prohibits sports betting, there is no federal impediment to states in selling lottery tickets on the Internet.

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