Gaming Industry Update January 2012 No. 1 www.BlankRome.com US Department of Justice’s New Position on Internet Gambling – What Has Changed and What Has Not By: Dennis M. P. Ehling, Stephen D. Schrier, Eric G. Fikry On Friday, December 23, 2011, the Office of Legal tickets by the States of New York and Illinois, to residents Counsel within the U.S. Department of Justice issued a within their own individual borders, violated the Wire Act’s surprise Memorandum Opinion addressing the application prohibitions. The implications of the analysis adopted by the of the Wire Act (18 U.S.C. § 1084) to wagering that does Office of Legal Counsel, however, are far broader than just not relate to a “sporting event or contest.” In the Memoran- the potential sale by individual States of lottery tickets over dum Opinion, the Office of Legal Counsel (which is primarily the Internet to their own residents. In light of the Memoran- responsible for providing senior legal advice to the Attorney dum Opinion’s conclusion that the Wire Act’s prohibitions are General himself, as well as to the President and his adminis- limited to wire transmissions associated with bets or wagers tration) concluded that the Wire Act’s prohibition on the use relating to “sporting events or contests,” all manner of online of Interstate transmissions of wire communications involved gaming activities unrelated to sporting events or contests in betting or wagering applied only to betting or wagering (e.g. lotteries, poker, bingo, or even casino games) could related to a “sporting event or contest.” The Memorandum potentially become legal in the United States. But before Opinion was surprising because, for nearly two decades, the concluding that a new age of legal Internet gaming in the Criminal Division of the Department of Justice has taken the United States is imminent, it is important to look at precisely consistent position that the Wire Act’s prohibitions apply to all what has changed and what has not changed in light of the betting or wagering over the Internet, not just to wagering on Memorandum Opinion: sporting events or contests. While this Opinion is significant in many respects, however, the landscape for legal Internet wagering in the United States is still uncertain and there will be much more to be decided, including modification to the laws of individual States, before wide spread legal Internet wagering can become a reality in the United States. The specific question which the Memorandum Opinion sought to address was whether the online sales of lottery What Has Changed? •• It appears that the Department of Justice will no longer take the position that all forms of gambling over the Internet are per se illegal simply because they involve the use of telephones or the Internet. The Wire Act is the only clear federal prohibition on specifically Internet gaming which is not dependent on an underlying State © 2011, Blank Rome LLP. Notice: The purpose of this newsletter is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. The Update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel. 1925 Century Park East • Suite 1900 • Los Angeles, CA 90067 One Logan Square • Philadelphia, Pennsylvania 19103-6998 301 Carnegie Center • 3rd Floor • Princeton, NJ 08540 GAMING INDUSTRY UPDATE law prohibition of such gaming. From here forward, it prosecutorial activity from the Department of Justice. appears that the Department of Justice will take the Experienced legal counsel can help to navigate the position that the Wire Act only prohibits Internet wager- myriad of State laws which currently exist, or are being ing relating to sporting events or contests. or will be considered in the coming months and years. •• It appears that the Department of Justice will no lon- •• As a practical matter, in light of the policies and pro- ger attempt to dissuade individual States from selling cedures implemented by the credit card associations lottery tickets online. In fact, if appropriate bi-lateral or and other payment systems in light of the enactment multi-lateral compacts are put in place, it is conceivable of the Unlawful Internet Gambling Enforcement Act that multi-state sales of lottery tickets over the Internet (“UIGEA”), 31 U.S.C. §§ 5361-5367, it will still be could now be permissible. necessary to overcome the practical difficulties of com- •• Likewise, it appears that the Department of Justice will pleting online financial transactions associated with no longer attempt to dissuade individual States from legal Internet gaming before any widespread Internet pursuing legalizing within their own state borders oth- gaming operations, even those conducted entirely in er online wagering businesses unrelated to sporting an intra-state basis, can be successful. events or contests. It is still possible that, given the new position in the Memorandum Opinion, Congress will feel compelled to step in What Has Not Changed? •• Although the Department of Justice will apparently no longer take the position that the Wire Act applies to all forms of wagering over telephones or the Internet (i.e. to non-sports wagering), there is no indication that this new policy will affect any other federal prosecutions of Internet-based wagering arising under other federal laws. Thus, for example, the Department of Justice could still initiate prosecutions under the Illegal Gambling Business Act (“IGBA”), 18 U.S.C. § 1955, which, if its conditions are met, makes it a federal crime to operate a gambling business which violates the law of the State or political subdivision in which it is conducted. •• Under the laws of most States, the legality of most types of online gambling is at least uncertain, and in many instances clearly prohibited under current State law. Until individual States act to affirmatively legalize one or more forms of Internet gambling, there can be no certainty that any individual form of online wagering business will not draw further scrutiny or potentially even and proscribe at least some consistent standards for legal Internet gambling across the several States. One option might, of course, be for Congress to define a uniform system of laws legalizing and regulating online gambling in all 50 States. The various bills relating to Internet gambling which have been introduced in Congress in recent years, however, and the general history of State-level gambling laws in the United States would probably suggest that any move which Congress is likely to make would still leave to the States quite a number of questions relating to the types and extent of online gambling to permit within their individual State borders. The new Memorandum Opinion by the Office of Legal Counsel within the Department of Justice could portend a new era of development in legal online betting and wagering in the United States. But, absent Congress stepping into the fray to define a uniform system of laws for Internet gambling in every State, the dawning of that era will depend upon, and be largely shaped by, developments in the States regarding the legality of individual forms of Internet gambling within each State’s borders. For more information, please contact Dennis M.P. Ehling 424.239.3423 [email protected] Stephen D. Schrier 215.569.5651 • 609.750.2654 [email protected] BLANK ROME LLP 2 Eric G. Fikry 215.569.5495 • 609.750.2645 [email protected]
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