A newly released opinion from the Department of Justice Office of Legal Counsel has created a cloud of uncertainty over the US gambling industry.
The highly controversial opinion overturns one from 2011 which limited the scope of the Wire Act to sports betting. Under the new interpretation, the 1961 federal law extends to all forms of online gambling.
According to one of the most distinguished gaming lawyers in the world, the new opinion is highly flawed, and any attempt at strict enforcement would dismantle not only the online gambling industries in several states, but possibly state lotteries and the horse racing industry.
Online Poker Report had the opportunity to speak with Anthony Cabot, Distinguished Fellow in Gaming Law at UNLV, to get his take on the newly minted Wire Act opinion.
Here is a partial transcription of the discussion with Cabot:
Yes, if the DOJ is now deciding to brush off incorrect historical interpretations of the Federal Wire Act, its historical position on the Federal Wire Act is that account wagering on horse racing is illegal despite the IHRA.
This DOJ position is, in my opinion, incorrect but more supportable than the new opinion because the Federal Wire Act was meant to apply to horse racing from day one.
If, as the 2018 opinion argues, the UIGEA does not modify or impact the Federal Wire Act, then the IHRA should not as well.
Moreover, if the evil being addressed is online wagering as opposed to wagering on premises, then casinos and racetracks should be treated equally. I say this with hesitation because horse racing is the “sport of kings,” and today those kings are usually US Senators. So the DOJ is likely to give it different treatment especially with Mitch McConnell as the Senate majority leader.
However, if the horse racing industry believes the forces that were behind the 2018 opinion would not take them on, they may miscalculate their influence, after all, both the state lotteries and the casino industry are influential in their own right.
Mobile and [OTB] horse racing have different considerations.
The Wire Act without dispute covers wagering on horse racing.
The horse racing industry has argued that the difference between its industry and the casino industry is that Congress passed a separate bill called the Interstate Horse Racing Act (IHRA).
The IHRA has two major provisions.
To this end, the IHRA covered “interstate off-track wagering,” which Congress defined as a “legal wager placed or accepted in one State concerning the outcome of a horserace taking place in another state.” The horse racing interest argued that this provision along with section 1084(b) of the Wire Act, implied that interstate off-track wagering is legal under federal law.
This would include interstate pari-mutuel pooling and account wagering by telephone or other means.
Notwithstanding the preceding, the United States Department of Justice took the position that interstate pari-mutuel off-track wagering violates the Wire Act, 18 U.S.C.§ 1084 (1961).
The horse racing industry with the assistance of Kentucky Senator Mitch McConnell in 2000 convinced Congress to amend the IHRA to clarify that pari-mutuel wagering may be placed, via telephone or other electronic media (including the Internet), and accepted by an off-track betting system where such wagers are lawful in each state involved.
In spite of the 2000 amendment, the United States Department of Justice continued to take the position that the existing prohibitions under the Federal Wire Act were not affected. In a press statement signing the IHRA amendment into law, President Bill Clinton even commented that the Department of Justice continued its position that account wagering was illegal.
Mobile wagering is a different consideration.
The 2018 DOJ opinion insinuated that the Federal Wire Act prevents all state-authorized and regulated online gambling by interpreting that transmitting sports wagers in interstate commerce also bans bets where both the bettor and the sports book operator are in the same state.
A theory exists that any communication over modern telecommunication including digital telephone systems and the Internet is considered interstate even where the sender and receiver are in the same state if the transmission was incidentally routed across state lines.
To avoid prosecution, the sportsbook operator would have to prove that not only were the sender and receiver in the same state but that the transmission could not have been incidentally routed across state lines. This could be very problematic.
Maybe. If the opinion itself was a carrot to Senator Lindsay Graham and repaying a political favor for Trump, this may be the end of it.
A senior lottery official with a significant state told me that they are going to continue to sell lottery tickets online because they are not convinced the DOJ will enforce the new opinion. He may be right.
The 2018 opinion is wrong and pursuing against a well-funded opponent will be a losing cause. Second, it seems like a bad political move to try to enforce a federal policy against intrastate state-authorized gaming as it should result in a bipartisan backlash.
I suspect that the DOJ will not bring a criminal action, but may threaten payment processors and advertising outlets with prosecution unless they treat online gambling as an outlaw industry.
They will lose in court.
The DOJ twisted the language of the Federal Wire Act in two critical ways to conclude that it prohibits all state-authorized and regulated online gambling.
The Wire Act bans operators from transmitting “bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest” using “a wire communication facility for the transmission in interstate or foreign commerce.” This makes sense.
If a bettor calls his bookie in a state where sports betting is illegal and asks “what is the point spread on the Browns game?” This is not a crime. If the bookie says, “Browns plus 8”, this is “information assisting in the placing of a sports bet and covered by the act.
The new DOJ opinion strains logic to reinterpret the meaning of “bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest” to apply to wagers other than sports.
Reflect on the words for a few moments and you are likely to come to the same conclusion as the Federal Circuit Court of Appeals have in the First and Third Circuits when concluding that a plain reading of the [Wire Act’s] statutory language requires that the “object of the gambling be a sporting event or contest.”
The incidental routing question also should be a losing argument.
The term “interstate commerce,” is a defined term in the federal code that contains the Wire Act and “includes commerce between one State, Territory, Possession, or the District of Columbia and another State, Territory, Possession, or the District of Columbia.” I do not believe that if the sender and receiver of a wager are in the same state that the commerce is between states.
Moreover, if Congress intended in 1961 that a telephone call where the bookie and the player were in the same state did not constitute commerce between states, then merely because telephone communications have gone digital should not change the status of the transaction from legal to illegal.
Finally, UIGEA’s precise definition of what is intrastate commerce is entirely consistent with the criminal code’s definition referenced above and provides uniformity in approach. A court should consider it not because it is inconsistent with the Wire Act but shows a pattern of consistent recognition by Congress of the obvious difference between intrastate and interstate commerce.
No legitimate reason exists for the 2018 opinion. Identifying the motivation for the 2018 opinion is difficult and should be the subject of congressional inquiry.
The government process for reversing the 2011 opinion was far from transparent. When the DOJ issued its 2011 opinion, the impetus was clearly stated, more specifically, New York and Illinois requested guidance on whether their state-authorized lotteries could use the Internet and out-of-state transaction processors to sell lottery tickets to in-state adults.
In this case, no reasons were stated for why the DOJ reconsidered the prior opinion and nothing in the intervening eight years provides a sensible explanation.
The proliferation of online gaming has not proven to be problematic. The assertions that internet gambling could not be adequately regulated have proven false, and several states have successfully implemented or expanded Internet gambling.
Internet gambling has been successful without a major scandal.
Moreover, states have moved forward in reliance on the 2011 opinion. This includes New Jersey which has a legitimate hope that it could be the catalyst for the revival of Atlantic City. Several other states are now embracing it as a means to collect taxes and to provide their citizens with more extensive recreational choices.
Finally, Congress has expressly rejected attempts to change the law to prohibit state-authorized internet gaming. Senator Lindsey Graham has unsuccessfully attempted repeatedly to pass legislation that would “restore” the interpretation of wire act banning all Internet gambling.
So, no apparent legitimate reasons for reversal exist, but other forces need to be explored.
Whether justified or not, some land-based casinos see Internet gaming as a threat. If, as the Wall Street Journal has speculated, the forces behind this effort are private competitive concerns close to the Trump administration, it would be an affront to the Constitutional principles if the DOJ was acting as an agent for outside financial supporters of the president or the Republication party.
In any case, the Wire Act is in need of a rewrite.
The real public risk is the off-shore sports books that do not pay taxes and are not subject to regulatory oversight to assure that they protect the player’s funds and pay winning wagers.
The Wire Act can be a useful tool for prosecutors to assist the states in enforcing their policies towards sports wagering. In the case of states that have a legal sports wagering industry, it would be to assist in prosecuting the illegal operators that evade taxes and regulatory oversight. In states that prohibit sports wagering, the federal government can close the opportunity for its residents to gamble by prosecuting the unlawful operators.
As noted, federal law should only be involved to assist the states in implementing their state policies and not to supersede them.
The federal government has a superior advantage in several areas. The first, as mentioned, is the ability to investigate and prosecute illegal operators. This is where the Wire Act could be strengthened to give federal prosecutors more tools to prevent the unlawful offshore operators from offering services to US residents.
The second is to help the states in regulating the integrity of sports wagering. For example, no one state can collect the wagering data from all legal sports book operators necessary for a comprehensive analysis to determine whether irregular betting patterns suggest that the integrity of a sporting event has compromised.
Moreover, a federal task force with their superior jurisdiction, capabilities, and resources can best handle monitoring, investigating and prosecuting match-fixing, insider trading and other related matters impacting sports integrity. This would include strengthening of the weak existing federal laws regarding sports integrity.