U.S. Department of Justice Reverses Itself on Wire Act; States Look to Legalise Online Gaming

On June 24, 2011, Congressman Joe Barton (R. Texas) introduced into the 112th Congress HR 2366, the Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2011. Informed sources claim it is basically the same bill that Senator Harry Reid had attempted unsuccessfully to have passed in December 2010 by attaching it to an unrelated budget bill during the lame duck session of the 111th Congress.

 

The Barton bill would legalize only online poker games in which the players play against each other. But Congress has shown little interest in the Barton bill. When the Barton bill failed to advance, Barton responded: “This is an issue that is not on everybody’s list. It’s not a high visibility issue.”

 

In the U.S., certain states and territories in 2011 had enacted intrastate online gambling bills. By December 2011, Nevada had not only legalized intrastate Internet poker but had approved Internet poker regulations which should allow intrastate poker operations by September 2012. Washington, D.C. had also approved Internet gambling, but in February 2012, the D.C. city council repealed its online gambling law. Illinois, which now has an online lottery, had written the Justice Department of its intention to allow an intrastate online lottery unless it was opposed by the Justice Department. Senator Jeff Danielson of Iowa also recently introduced state legislation to authorize online gaming.

 

In 2011, California, which comprised about 60% of U.S. online poker, had two pending bills which would have legalised certain online gambling. SB 40 would have legalised Texas Hold’em poker and SB 45 would have legalized more online gambling, but the bills got nowhere because of disagreements as to who should be licensed operators and concerns of some Native-Americans. By 2012, there was talk of a compromise measure.

 

In New Jersey, state Senator Ray Lesniak reintroduced an Internet gaming proposal, and said he expects to be able to get it through the Legislature and signed by the Governor. The Governor vetoed a similar law that was approved in the last legislative session. A New Jersey Senate committee scheduled a hearing in April to hear testimony with regard to allowing online wagering on casino games. However, the state constitution may require the question of expanded gambling to be put to voters, which would slow the process down.

 

Luckily, New Jersey residents approved sports betting in the state after a referendum in late 2011, and there is no indication that they would not also approve introducing Internet gaming in the state, if it comes down to a vote.

 

U.S. DoJ’s Letter and New Position with Regard to the Wire Act

 

Suddenly, on December 23, 2011, the U.S. Justice Department released a letter that might become the Magna Carta for state Internet gambling.

 

Since the days of the Clinton administration, the Justice Department had asserted that the federal Wire Act prohibited gambling over the Internet across state lines. But in December, the Department made public a letter issued to Illinois and New York about whether they could sell lottery tickets to out-of-state residents over the Internet and stated that the Wire Act applied “solely to sport-related gambling activities in interstate and foreign commerce.”

 

“I think this is an important big step,” said Mark Lipparelli, chairman of the Nevada Gaming Control Board. “This establishes a U.S. foundation for online gaming regulation.”

 

However, many of the largest casino companies, such as Caesars Entertainment Corp. and MGM Resorts International, are still putting their money on a federal law. They are concerned that a single state’s population – 2.6 million people, in the case of Nevada – may not be big enough to support a viable online poker sector.

 

The American Gaming Association also renewed its call for federal legislation. In an announcement, they said the decision “validates the urgent need for federal legislation to curb what will now be a proliferation of domestic and foreign, unlicensed and unregulated gaming websites without consistent regulatory standards and safeguards against fraud, underage gambling and money laundering.”

 

However, right now most casinos in Nevada seem to be in the same boat as Michael Gaughan, owner of the South Point Hotel Casino. Gaughan has already hired a team to build a poker website.

 

“I’ve always been somewhat against this but if it’s going to come I don’t want to be left at the station,” he told the Wall Street Journal.

 

Frank Catania
President of Catania Gaming Consultants, Inc. (CGC)

CGC is a full service international gaming law consultancy involved in all aspects of land-based and Internet gaming. CGC provides a variety of services to all sectors of the gaming industry, including governments, casino operators, game manufacturers, software providers, lotteries, payment processors and the horseracing industry
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