Regulators To Pennsylvania Online Gambling Operators: ‘Comply With Wire Act’

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The Pennsylvania Gaming Control Board (PGCB) is instructing prospective online gambling operators to comply with a new opinion from the US Department of Justice.

On Friday, Director Kevin O’Toole issued a letter to PA casino managers and their counsel. In it, he warns that all gambling transactions going forward must be conducted entirely within the borders of the Commonwealth.

“While we fully recognize that this change may alter the plans of licensees in implementing expanded gaming offerings, it is a change not of the Board’s making but one commanded by the changing interpretation by federal law enforcement authorities. It is your obligation to comply with the federal law in all respects in establishing your gaming operations which must now be entirely ‘intrastate.'”

Pennsylvania, in 2017, became the fourth US state to legalize interactive gaming. Retail sportsbooks began opening late in 2018, and the first PA online sportsbooks, poker sites and casinos are expected to enter the market early this year.

A reinterpretation of the Wire Act this week, however, has put those plans in jeopardy.

In his letter, O’Toole instructs operators to examine their submissions and “provide an updated narrative” on their plans to move into compliance.

PGCB memo to PA casinos

Here is the Jan. 18 memo from O’Toole in full:

KFO Ltr to Casino GMs re DOJ Wire Act Opinion-REDACTED 1-18-19

Wire Act update

The opinion from the DOJ’s Office of Legal Counsel (OLC) broadens the scope of the 1961 federal law to include interstate transmissions involving all forms of gambling. The previous, 2011 interpretation had restricted the language to sports betting — a view judicially upheld in more than one court.

Read much more about the new opinion here.

A lot of questions remain, and the full impact won’t be clear until the office publishes enforcement guidelines. Assuming those guidelines include any sweeping restrictions, legal challenges from stakeholders in states like PA and New Jersey are likely to follow.

Deputy Attorney General Rod Rosenstein subsequently issued a memo indicating that the OLC should refrain from enforcement for 90 days. Under that directive, operators would have until April 15 to bring their systems into compliance.

The memo also noted that there is no “safe harbor” from Wire Act violations committed before or during the window.

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Impacts on PA online gambling

Most immediately, this decision seems to impact the early adopters of PA sports betting — Hollywood, Rivers, SugarHouse and Parx. Although the law dictates that wagering must be conducted entirely within the state’s borders, the data and financial transactions that power the industry are mostly located elsewhere.

As of this week, a PA regulation allowing gaming servers to be located remotely is no longer valid. Here’s another excerpt from O’Toole:

As a result of the Opinion and at this time, we no longer believe it is consistent with law as articulated in the Opinion to locate the interactive gaming devices and associated equipment in any jurisdiction other than Pennsylvania.

In cases where the operator (or supplier) is active in multiple states, this restriction could affect both online and retail sports betting. Operators may need to move all transactional data entirely in-state, which would involve significant restructuring.

There is also the issue of moving money between gambling sites and interstate (or international) banks. If the financial industry cuts ties, payment processing could be the first domino to fall in the wake of the OLC reversal. There are ramifications for online poker, too, including the stifling of the multistate poker compact so critical to the success of the industry.

Even the PA lottery may be affected by the new opinion, as products like Powerball and Mega Millions rely on interstate systems.

Moreover, educated readings have led some to the conclusion that the opinion would prohibit all online gambling — including intrastate wagering.

- Eric is a reporter and writer covering regulated US gambling, sports betting, and DFS. He comes from a poker background, formerly on staff at PokerNews and the World Poker Tour.
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