Gaming Industry Update

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]