Global Gaming Business
Frank J. Fahrenkopf, Jr.
President and CEO, American Gaming Association
The U.S. Department of Justice (DOJ) recently issued a highly anticipated opinion regarding the scope of the Federal Wire Act and how it pertains to online gambling. While undoubtedly an important and significant step, the reality is the DOJ’s opinion creates more questions than it does answers. In doing so, the opinion further illustrates the urgent need for federal legislation to prevent a patchwork quilt of rules and regulations governing domestic online gambling and the continued proliferation of unlicensed and unregulated foreign gambling websites targeting the millions of Americans playing online poker.
Last May the American Gaming Association called on Congress to enact federal legislation that would allow states to license and regulate online poker so Americans who play can do so safely using responsible, law-abiding operators. We believe passing federal guidelines would keep minors from gaming online, prevent fraud and money laundering, address problem gambling and ensure players aren’t being cheated. And with this new opinion from DOJ, it is now more important than ever for Congress to act in order to protect American online poker players.
The DOJ decision makes it clear that the Federal Wire Act only prohibits the transmission of communications relative to bets or wagers on sporting events or contests. It also clarifies that intrastate lottery tickets sold online are legal, so long as the lottery games do not involve sport wagering, even if the transmission crosses state lines.
While it is clear how the decision affects these facets of online gambling, it is remarkably unclear how it affects many others. For example, it does not specify if lotteries and states can authorize intrastate online poker, slots and other casino games. At first glance, it appears that a specific state law would have to be passed in order to authorize such play, especially since all states have broad bans on gaming except where there is a specific authorization.
The DOJ also does not address whether different states that have legalized online gambling activity can link their lottery and/or other state-approved online gambling in an effort to increase liquidity. The Constitution makes it legal for states to negotiate interstate compacts, though Congress does have the power to disapprove and overturn them. In 1994, Congress adopted amendments to the federal anti-lottery statute that expressly authorize the Powerball lottery interstate compacts, making it legal for interstate play. But it remains to be seen whether this type of “pooling” would be allowable for various types of online gambling. The DOJ opinion also does not address whether states can enter into a compact with an offshore jurisdiction for the purpose of such pooling.
There are several other questions related to how different sectors of the gaming industry could be affected in light of the DOJ’s decision. For instance, the DOJ has long asserted that the interstate Horse Racing Act, which regulates off-track betting, does not exempt the horse racing industry from the Federal Wire Act, yet the recent decision does not address how the opinion affects that sector.
Additionally, the Indian Gaming Regulatory Act, which established the jurisdictional framework that governs tribal casinos, is not at all addressed in the decision. In fact, it’s unclear if IGRA even applies here or if existing tribal-state compacts must be renegotiated in order for tribes to offer online gambling. Also in question is whether tribes would be forced to establish commercial operations and pay taxes if they wish to set up an online gambling operation in a particular state. And would tribal casinos be limited to taking online bets from individuals located within reservation borders?
How to deal with offshore operators also is unclear. It is clear that the Unlawful Internet Gambling Enforcement Act (UIGEA) would still apply if offshore operators attempted to provide online sports betting or if the operator was not licensed in the state. However, if state authorities are silent and an offshore company obtains a license, then UIGEA likely would not apply.
The DOJ also has not clarified what effect, if any, its decision will have on individuals who have been previously convicted under the Federal Wire Act. Will there be any recourse for those who have served time or paid civil penalties?
Finally, it is important to remember what the DOJ decision really is. It is an opinion of the current Justice Department, not the law of the land as determined by a Supreme Court – or any other court – decision. The opinion is counter to that of the prior four Administrations that considered this matter, and when President Obama ultimately leaves office, the DOJ that serves under the next president could reverse this opinion.
Near the end of last year, I had the opportunity to testify on behalf of the commercial gaming industry before the U. S. House Committee on Energy and Commerce Subcommittee on Commerce, Manufacturing and Trade. I told Congress that without a federal framework for online gambling, there will be a patchwork quilt of rules and regulations that, while aimed at protecting consumers, could have the opposite effect by confusing customers and making it difficult for law enforcement to manage. I believe this still, and the DOJ’s opinion and its implications reinforce my concerns.
The current environment puts American online players at risk by forcing them to play in an unregulated market. The current conditions also put children at risk. Many of the offshore companies that operate without regulation do not have the technology that we do to safeguard underage players.
Consumers could be protected from this risk if Congress enacts federal legislation to modernize and strengthen the Federal Wire Act with conforming amendments to the UIGEA to unambiguously eliminate illegal Internet gambling. Such legislation should allow states that want to license and regulate online poker to do so, following federal guidelines. It should also create a level playing field so that all segments of the gaming industry have a fair opportunity to participate.
Federal legislation that protects states’ rights can establish uniform safeguards to protect U.S. consumers, keep children from gaming on the Internet, and provide the tools law enforcement needs to shut down illegal Internet gaming operators. It would also prevent fraud, money laundering and address issues of problem gambling. In addition to passing overarching federal legislation, the UIGEA must be further strengthened and clarified in order to assist law enforcement in shutting down unlicensed operators.
Simply put, federal legislation regulating online gambling is necessary to safeguard Americans. The DOJ opinion starts the conversation. Now we need to finish it.