Is Internet Gambling Running Out of Luck?

(Editor's Note: As we were heading to press, reports arrived that the Senate version of the House bill on Internet gambling passed last month, will not be put to a vote before the legislature's August recess.)

Late one night, manned with a beverage and your mouse, humming 'Luck Be a Lady Tonight,' you're primed to win big at your favorite online poker site. But hold it, the government wants to end your night!

Feds Have Options

Internet gambling is illegal when the activity occurs in a state that outlaws gambling. Today, federal prosecutors rely upon various statutes enacted before the widespread use of the Internet. The primary federal statutes that regulate interstate and foreign Internet gambling include the: Wire Act of 1961 (18 U.S.C. '1084), Travel Act (18U.S.C. '1952), Illegal Gambling Business Act (18 U.S.C. '1955), and Interstate Transportation of Wagering Paraphernalia Act (18 U.S.C. '1953).

The Wire Act prohibits the knowing use of any 'wire communication facility' to transmit bets or wagers, use of information assisting betting or wagering on a sports event or contest, or any communication which entitles the recipient to receive money or credit resulting from betting or wagering.

Judicial decisions concerning Wire Act violations have not addressed Internet poker or online card games, but instead focus on sports wagering or betting. However, the Wire Act refers to 'contest,' which a court could construe to apply to traditional casino games. Thus, a court could find that online poker as a 'contest' violates the Wire Act, so long as the above requirements are proven.

The Travel Act regulates Interstate and foreign commerce related to any unlawful activity, including illegal gambling in a state prohibiting the activity. When online gambling crosses state lines via the Internet with the intent to participate in illegal gambling, then the Travel Act is violated. The Travel Act prohibits the use of mail or other methods, including the Internet, to send illegal gambling materials, such as winnings from an illegal betting operation, or using a credit card over the phone or Internet to make an illegal bet.

The Illegal Gambling Business Act prohibits the operation of gambling enterprises that violate the law of a state in which the business is conducted. 'Illegal gambling business' is defined as activity prohibited in the state where the activity occurs, with five or more persons who conduct, finance, manage, supervise, direct or own all or part of such business, and is in continuous operation for more than 30 days or gross revenues of $2000 in any single day.

Lastly, the Interstate Transportation of Wagering Paraphernalia Act prohibits an individual from knowingly carrying or sending, in interstate or foreign commerce, 'any record, paraphernalia, ticket, certificate, bills slip, token, paper, writing or other device under, or to be used, or adapted, devised, designed for use in (a) bookmaking; or (b) wagering pools with respect to a sporting event or (c) in a numbers, policy, bolita or similar game shall be fined not more than $10,000 and imprisoned for not more than five years, or both.' The statute's broad language could encompass not only transmissions between the gambler and offshore operation, but also downloaded software for use in any of the above three prohibited activities.

Aside from the above statutes, federal prosecutors may also rely upon other statutes where applicable, including, but not limited to: conspiracy (18 U.S.C. '371), aiding and abetting (18 U.S.C. '2), money laundering (18 U.S.C. '1956) and Racketeer Influenced and Corrupt Organizations (RICO) (18 U.S.C. '1961-1968).

Regarding conspiracy, in United States v. Herrera, 584 F.2d 1137, 1150 (2d Cir. 1978), the defendant harbored illegal aliens whom the defendant employed as prostitutes across state lines. To prove conspiracy to violate the Travel Act, the Second Circuit held that the government must prove the same intent requisite to support a conviction of the underlying substantive violation. The government did not need to prove that a defendant had actual knowledge of the jurisdictional element and that the defendant agreed and intended to use interstate facilities to commit a crime. In United States v. Masson, 582 F.2d 961 (5th Cir. 1978), the defendant was charged with conspiracy to violate the Illegal Gambling Business Act as well as aiding and abetting violations of the Illegal Gambling Business Act. The 5th Circuit upheld the district court's conviction of the defendant for aiding and abetting.

Conspiracy to violate the Illegal Gambling Business Act will only require the government to prove beyond a reasonable doubt that a defendant entered into an agreement with one or more others to conduct the illegal gambling business, which reasonably anticipated five or more persons would be involved. United States v. Pepe, 512 F.2d 1129, 1131-32 (3d Cir. 1975) In United States v. Iannelli, 477 F.2d 999 (3d Cir. 1973), cert. granted, 417 U.S. 907 (1974), the 3rd Circuit held that where the government proves the three jurisdictional elements of the Illegal Gambling Business Act, then the defendant violated not only the substantive statute, but also conspiracy to violate the Illegal Gambling Business Act.

In the States

State laws on gambling range from complete prohibition to tolerance of gambling. States define and regulate unlawful gambling, commercial gambling (which is most often defined as the promotion or advancement of gambling for profit), and communication or transmission of gambling information very differently. The few states that specifically address Internet gambling only do so to ban the activity; including Illinois, Indiana, Louisiana, Nevada, New Jersey, Oregon, South Dakota and Wisconsin.

The question of where unlawful gambling occurs is critical for deciding which state's anti-gambling statutes apply, and whether the Travel Act and Illegal Gambling Business Act were violated. In essence, the place where the bet is placed is also where gambling occurs. In AT&T Corp. v. Coeur d'Alene Tribe, 45 F. Supp. 2d 995 (D. Idaho 1998), an Indian tribe in Idaho operated a lottery where patrons buy chances by telephone. Under the Indian Gaming Regulatory Act, 25 U.S.C. ”2701-2721, the lottery was approved by the National Indian Gaming Commission. The tribe requested a toll-free number from AT&T for prospective patrons from several states that permitted lotteries. Several Attorneys General notified AT&T that providing such service would violate 18 U.S.C. '1084(d), so AT&T declined the tribe's request. The court held that the location of the gaming occurred off reservation lands. Even though a federal statute regulated the gaming activities on 'Indian lands,' the out-of-state patron who telephoned to buy a chance engaged in activity off Indian lands and subject to state regulation. While the Ninth Circuit reversed and remanded the district court's decision for lack of jurisdiction, it did not disagree with the lower court's interpretation that gambling occurred where the gambler placed a bet. 295 F.3d 899 (9th Cir. 2002).

In addition, in United States v. Cohen, 260 F.3d 68 (2nd Cir. 2001), cert. denied, 536 U.S. 922 (2002), the president of World Sports Exchange (WSE), an offshore bookmaking business located in Antigua, was convicted of violating the Wire Act for an 'account-wagering' system. A new customer would open an account and wire $300 to the Antigua account, then request a bet by telephone or Internet. WSE accepted, confirmed and maintained the bet from the customer's account. Cohen was charged and convicted on eight counts charging him with conspiracy and substantive offenses in violation of the Wire Act. The judge instructed the jury that the government carried the burden to prove: a) a person via the Internet offered or signaled a bet, and b) there was an acceptance of that bet. The Second Circuit upheld the instructions, confirming that under the Wire Act, gambling activity will be interpreted as occurring in the gambler's state.

Wheels Are Turning

To seal the lid on the coffin of online gambling, the proposed Internet Gambling Prohibition Act, H.R. 4777, 109th Cong, was reintroduced in the House of Representatives on Feb. 16, 2006. The proposed law would:

• Update the Wire Act to currently address all forms of interstate gambling;
• Continue to permit states to regulate gambling within their borders, without extending a state's control into other states or to minors;
• Prohibit a gambling business from accepting certain forms of payment, such as credit cards, checks, wire and Internet transfers, in illegal gambling transactions; and
• Increase the maximum prison term from 2 to 5 years.

H.R. 4777 is making its way through the legislative process. It was referred to the House Subcommittee on Crime, Terrorism, and Homeland Security and hearings were held on April 5, 2006. On May 3, 2006, the House Subcommittee forwarded the bill to the Full Committee by voice vote. At the May 25, 2006, mark-up session held by the full committee, the bill was ordered to be reported (amended) by a vote of 25-11. The House passed the related bill, H.R. 4411 on July 11, which would prohibit the use of credit cards to pay for Internet gambling. The Senate version, however, hit some snags and will not be out to a vote before the legislature's August recess. (Editor's Note: For more on the House bill and the delay in the Senate, see, 'Congress Passes Bill Limiting Online Wagering' in Net News.)

Before you know it, the virtual royal flush in your hand could disappear if the government aggressively prosecutes Internet gambling operations, based on the above statutes and more importantly, if Congress passes the Internet Gambling Prohibition Act.

(Editor's Note: As we were heading to press, reports arrived that the Senate version of the House bill on Internet gambling passed last month, will not be put to a vote before the legislature's August recess.)

Late one night, manned with a beverage and your mouse, humming 'Luck Be a Lady Tonight,' you're primed to win big at your favorite online poker site. But hold it, the government wants to end your night!

Feds Have Options

Internet gambling is illegal when the activity occurs in a state that outlaws gambling. Today, federal prosecutors rely upon various statutes enacted before the widespread use of the Internet. The primary federal statutes that regulate interstate and foreign Internet gambling include the: Wire Act of 1961 (18 U.S.C. '1084), Travel Act (18U.S.C. '1952), Illegal Gambling Business Act (18 U.S.C. '1955), and Interstate Transportation of Wagering Paraphernalia Act (18 U.S.C. '1953).

The Wire Act prohibits the knowing use of any 'wire communication facility' to transmit bets or wagers, use of information assisting betting or wagering on a sports event or contest, or any communication which entitles the recipient to receive money or credit resulting from betting or wagering.

Judicial decisions concerning Wire Act violations have not addressed Internet poker or online card games, but instead focus on sports wagering or betting. However, the Wire Act refers to 'contest,' which a court could construe to apply to traditional casino games. Thus, a court could find that online poker as a 'contest' violates the Wire Act, so long as the above requirements are proven.

The Travel Act regulates Interstate and foreign commerce related to any unlawful activity, including illegal gambling in a state prohibiting the activity. When online gambling crosses state lines via the Internet with the intent to participate in illegal gambling, then the Travel Act is violated. The Travel Act prohibits the use of mail or other methods, including the Internet, to send illegal gambling materials, such as winnings from an illegal betting operation, or using a credit card over the phone or Internet to make an illegal bet.

The Illegal Gambling Business Act prohibits the operation of gambling enterprises that violate the law of a state in which the business is conducted. 'Illegal gambling business' is defined as activity prohibited in the state where the activity occurs, with five or more persons who conduct, finance, manage, supervise, direct or own all or part of such business, and is in continuous operation for more than 30 days or gross revenues of $2000 in any single day.

Lastly, the Interstate Transportation of Wagering Paraphernalia Act prohibits an individual from knowingly carrying or sending, in interstate or foreign commerce, 'any record, paraphernalia, ticket, certificate, bills slip, token, paper, writing or other device under, or to be used, or adapted, devised, designed for use in (a) bookmaking; or (b) wagering pools with respect to a sporting event or (c) in a numbers, policy, bolita or similar game shall be fined not more than $10,000 and imprisoned for not more than five years, or both.' The statute's broad language could encompass not only transmissions between the gambler and offshore operation, but also downloaded software for use in any of the above three prohibited activities.

Aside from the above statutes, federal prosecutors may also rely upon other statutes where applicable, including, but not limited to: conspiracy (18 U.S.C. '371), aiding and abetting (18 U.S.C. '2), money laundering (18 U.S.C. '1956) and Racketeer Influenced and Corrupt Organizations (RICO) (18 U.S.C. '1961-1968).

Regarding conspiracy, in United States v. Herrera , 584 F.2d 1137, 1150 (2d Cir. 1978), the defendant harbored illegal aliens whom the defendant employed as prostitutes across state lines. To prove conspiracy to violate the Travel Act, the Second Circuit held that the government must prove the same intent requisite to support a conviction of the underlying substantive violation. The government did not need to prove that a defendant had actual knowledge of the jurisdictional element and that the defendant agreed and intended to use interstate facilities to commit a crime. In United States v. Masson , 582 F.2d 961 (5th Cir. 1978), the defendant was charged with conspiracy to violate the Illegal Gambling Business Act as well as aiding and abetting violations of the Illegal Gambling Business Act. The 5th Circuit upheld the district court's conviction of the defendant for aiding and abetting.

Conspiracy to violate the Illegal Gambling Business Act will only require the government to prove beyond a reasonable doubt that a defendant entered into an agreement with one or more others to conduct the illegal gambling business, which reasonably anticipated five or more persons would be involved. United States v. Pepe, 512 F.2d 1129, 1131-32 (3d Cir. 1975) In United States v. Iannelli , 477 F.2d 999 (3d Cir. 1973), cert. granted, 417 U.S. 907 (1974), the 3rd Circuit held that where the government proves the three jurisdictional elements of the Illegal Gambling Business Act, then the defendant violated not only the substantive statute, but also conspiracy to violate the Illegal Gambling Business Act.

In the States

State laws on gambling range from complete prohibition to tolerance of gambling. States define and regulate unlawful gambling, commercial gambling (which is most often defined as the promotion or advancement of gambling for profit), and communication or transmission of gambling information very differently. The few states that specifically address Internet gambling only do so to ban the activity; including Illinois, Indiana, Louisiana, Nevada, New Jersey, Oregon, South Dakota and Wisconsin.

The question of where unlawful gambling occurs is critical for deciding which state's anti-gambling statutes apply, and whether the Travel Act and Illegal Gambling Business Act were violated. In essence, the place where the bet is placed is also where gambling occurs. In AT&T Corp. v. Coeur d'Alene Tribe , 45 F. Supp. 2d 995 (D. Idaho 1998), an Indian tribe in Idaho operated a lottery where patrons buy chances by telephone. Under the Indian Gaming Regulatory Act, 25 U.S.C. ”2701-2721, the lottery was approved by the National Indian Gaming Commission. The tribe requested a toll-free number from AT&T for prospective patrons from several states that permitted lotteries. Several Attorneys General notified AT&T that providing such service would violate 18 U.S.C. '1084(d), so AT&T declined the tribe's request. The court held that the location of the gaming occurred off reservation lands. Even though a federal statute regulated the gaming activities on 'Indian lands,' the out-of-state patron who telephoned to buy a chance engaged in activity off Indian lands and subject to state regulation. While the Ninth Circuit reversed and remanded the district court's decision for lack of jurisdiction, it did not disagree with the lower court's interpretation that gambling occurred where the gambler placed a bet. 295 F.3d 899 (9th Cir. 2002).

In addition, in United States v. Cohen , 260 F.3d 68 (2nd Cir. 2001), cert. denied, 536 U.S. 922 (2002), the president of World Sports Exchange (WSE), an offshore bookmaking business located in Antigua, was convicted of violating the Wire Act for an 'account-wagering' system. A new customer would open an account and wire $300 to the Antigua account, then request a bet by telephone or Internet. WSE accepted, confirmed and maintained the bet from the customer's account. Cohen was charged and convicted on eight counts charging him with conspiracy and substantive offenses in violation of the Wire Act. The judge instructed the jury that the government carried the burden to prove: a) a person via the Internet offered or signaled a bet, and b) there was an acceptance of that bet. The Second Circuit upheld the instructions, confirming that under the Wire Act, gambling activity will be interpreted as occurring in the gambler's state.

Wheels Are Turning

To seal the lid on the coffin of online gambling, the proposed Internet Gambling Prohibition Act, H.R. 4777, 109th Cong, was reintroduced in the House of Representatives on Feb. 16, 2006. The proposed law would:

• Update the Wire Act to currently address all forms of interstate gambling;
• Continue to permit states to regulate gambling within their borders, without extending a state's control into other states or to minors;
• Prohibit a gambling business from accepting certain forms of payment, such as credit cards, checks, wire and Internet transfers, in illegal gambling transactions; and
• Increase the maximum prison term from 2 to 5 years.

H.R. 4777 is making its way through the legislative process. It was referred to the House Subcommittee on Crime, Terrorism, and Homeland Security and hearings were held on April 5, 2006. On May 3, 2006, the House Subcommittee forwarded the bill to the Full Committee by voice vote. At the May 25, 2006, mark-up session held by the full committee, the bill was ordered to be reported (amended) by a vote of 25-11. The House passed the related bill, H.R. 4411 on July 11, which would prohibit the use of credit cards to pay for Internet gambling. The Senate version, however, hit some snags and will not be out to a vote before the legislature's August recess. (Editor's Note: For more on the House bill and the delay in the Senate, see, 'Congress Passes Bill Limiting Online Wagering' in Net News.)

Before you know it, the virtual royal flush in your hand could disappear if the government aggressively prosecutes Internet gambling operations, based on the above statutes and more importantly, if Congress passes the Internet Gambling Prohibition Act.