Ongoing Issues and Debate with Legislation for the Legalization of online Gambling

Ongoing Issues and Debate with Legislation for

 the Legalization of Online Gambling

xxxxxx

xxxxx University

The Legal Environment of Business

Fall 201x

November 16, 201x

Ongoing Issues and Debate with Legislation for the Legalization of Online Gambling

        The debate over gambling has been going on for decades.  With the advent of the Internet, the online gaming industry essentially appeared overnight and with it came a whole new, complex area of social issues and legal interpretation. The 1961 Interstate Wire Act (“Wire Act”) was introduced by President John F. Kennedy to prevent bookkeeping on horseracing and sports gambling by organized crime syndicates.  Now 40+ years later Congress has brought the Wire Act back into the spotlight as an instrument to prosecute online gambling offenses since it broadly prohibited the operation of most betting businesses in the United States.  It is clear that legislators did not have the issue of the Internet when the Wire Act was passed.  Critics of the Act’s applicability argue that wireless technology, which clearly does not make use of wires or telegraphs, excludes the Internet from the mandates of the law.  Critics are also quick to contend that the Wire Act’s reference to sporting activities limits its oversight to gambling related to sporting events or contests (Jaffrey Shulman, 2006).

        Given the narrow scope of the original legislation, and the many disputes related to its potential application, the Department of Justice (“DOJ”) in 2011 reinterpreted the Wire Act and concluded that it did not extend beyond sports betting.  This was a critical opinion offered by the DOJ (via their Office of Legal Counsel) that paved the way for states to legalize online poker and other casino games.  Prior to 2011 the DOJ in the Clinton and Bush administrations had indicated that all forms of Internet gambling were covered by the Wire Act. Further support is found as far back as 2002 in the decision of the Fifth Circuit Court of Appeals in In re: MasterCard International Inc. (In re: MasterCard International Inc., 2002), where the court ruled that the Wire Act did not prohibit Internet gambling that was not based on sports.  This was considered a groundbreaking decision for the online gaming industry.

        As a result of these rulings, Nevada, Delaware and New Jersey have legalized forms of online gambling, and the practice is being considered for authorization in many other states.  Nevada allows betting on poker while New Jersey permits casino games and poker.  Delaware allows the biggest menu of games with betting on table games, video lottery and poker (UNLV Center for Gaming Research, 2014).  Even with some clarity provided by the DOJ and the Courts, confusion remains in most states about exactly what is legal and what is not. This is further muddled by various state codes that allow for horse race betting and state lotteries.

        This grey area is primarily related to legislation that was introduced in 2006 called the Unlawful Internet Gambling Enforcement Act (“UIGEA”).  The UIGEA did not specifically make the act of gambling online illegal but it did prohibit the processing of internet transactions related to gambling. As a result, many online gambling websites stopped accepting customers from the United States. The UIGEA was passed as part of the Security and Accountability For Every Port Act of 2006 (“SAFE Port Act”) which regulated port security and included a last minute online gambling measure. The key aspect of the UIGEA was that it “prohibits gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the internet and that is unlawful under any federal state or law.”

This was significant legislation since it became illegal for gambling sites to accept deposits from customer in the United States. It also became illegal for banks and financial institutions to process such transactions. The Act did not actually make it illegal for U.S. residents to gamble online but the law created some unrest for those who wished to engage in online betting and gambling.  Yet there still existed various methods for players to move funds into their online accounts including basic money orders or through phone bills.  Another recent alternative for payment is through the software-based online payment system known as Bitcoin (Pathe, 2014). In fact, there are now multiple gambling sites set up on offshore servers that cater exclusively to Bitcoin transactions.

Probably the most important outcome of the UIGEA was that many reputable online gambling operators discontinued service in the U.S. market.  This was further exacerbated when the U.S. government stepped up its anti-gambling efforts in 2011 arresting executives from three major international Internet poker sites (PokerStars, Full Tilt and Absolute Poker) on charges of money laundering (Titch, 2012).   All relevant companies that were publicly listed on stock exchanges ceased U.S. operations almost immediately with other non-public organizations following suit.  Some operators continued to onboard U.S. customers since there was a strong sentiment that companies running sites from physical locations where online gambling was legal were not subject to U.S. laws.

The UIGEA was a flashpoint for criticism as detractors against online gambling felt that the Act was not comprehensive and did not address potential societal and governance dangers.  As previously noted, people could still bet and gamble online, it was just now harder to make deposits and withdrawals with players needing to stay one step ahead of the Department of the Treasury.  U.S. customers now had fewer options in terms of the number of sites they could use.

Proponents of online gambling were generally against the Act being passed at all. The UIGEA simply forced out most of the reputable operators and made it more likely that U.S. residents would potentially gamble with dubious offshore gaming operators. Despite the widespread criticism and clamor to overturn it, the Act remains in place.  

So the current landscape means that consumers in states where online gambling is legalized and regulated have a choice of licensed websites from which to choose. Consumers in unregulated states still need to seek out a website / gaming operator that is licensed in an online gambling jurisdiction outside of the United States.  Consumer risk is increased once they take their business offshore.

Major casino companies like Caesars Entertainment and MGM Resorts want to see online gambling legalized and prefer a competitive, nationwide marketplace that will expand their brands and tap new streams of revenue.  However, other major players, like the Las Vegas Sands Corp., which relies heavily upon business in Macau and Singapore prefer to see it remain illegal (O’Keefe, 2014). Las Vegas Sands CEO Sheldon Anderson is a longtime opponent of online gambling and sees it as a major threat to his brick-and-mortar casino resorts (McNew, 2014).  There remains a notable industry divide and casino operators will continue to battle over the impact of online gambling as more populous states (e.g. California, Pennsylvania) look into its legalization.