Online Gambling Laws

online gamblingWhen the World Wide Web hit the scene, few laws regulated the “Information Superhighway.” As a result, early adopters and forward thinking entrepreneurs figured out ways to exploit the digital playground for mega profits – online gambling was one such thing. Everywhere you looked ads for online casinos and poker games sparkled, pulsated and beeped. In Flash Gordon-speed, Internet gambling ballooned into a multi-billion dollar industry.

And that’s when politicians started crowing about regulations.

The Internet Gambling Protection Act

The first attempt at a federal online gambling law was the Internet Gambling Protection Act of 1999. A favorite of conservative Christian groups like Focus on the Family, Moral Majority and the Christian Coalition, the IGPA aimed to ban Internet gambling. The act, however, never passed – and many credit notorious lobbyist, Jack Abramoff, for killing the bill.

A sorted government tale – replete with accusations of forgery and bribery – the Internet Gambling Protection Act was one of those bills that some people wanted badly and others wanted dead. Social conservatives saw the law as a way to codify their morals; but businesses like knew that a homologated IGPA would most likely mean disaster for their bottom line.

Suffice it to say, the IGPA battle was hard fought – and full of shenanigans. Suspicious checks passed through arguably questionable hands; according to reports, anti-IGPA recruited “10 struggling reporters” to act as sock puppets; an anti-IPGA memo signed by Jeb Bush circulated – but it turned out to be a forgery.  Ultimately, Abramoff decided reverse psychology would be the best option for defeating the bill and he crafted a “soft on gambling” campaign. Abramoff also got Tom Delay on his side, the ultra-conservative who convinced a lot of his brethren to back away from the bill.

The IGPA created a paperwork storm inside the beltway. And in the end, lobbyists convinced conservative leadership they would lose 4 caucus seats if it passed. As such, officials killed the bill to save the seats, and the IPGA was never put to a vote in Congress.

Unlawful Internet Gambling Enforcement Act of 2006

In September 2006, federal officials passed the Safe Port Act. Tucked in the bowls of the bill (Title VIII, to be exact) was the Unlawful Internet Gambling Enforcement Act (UIGEA). In brief, the UIGEA (31 USC, Sections 5361 – 5367) “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 or state law.” The act specifically excludes fantasy sports that meet certain standards, in addition to interstate and inter-tribal gambling. Neither does the bill mention state lotteries. It is also vague about inter-state horse wagering.

The passing of UIGEA wasn’t popular. For as Sen. Frank Lautenberg explained, hardly any representatives saw the final language of the bill before it passed, which was the day before Congress broke for elections. And on January 19, 2009 – the day before President Obama took office – the UIGEA became law, though compliance was postponed till December 1, 2009.

Why Is The UIGEA Controversial?

Like all bills, The Unlawful Internet Gambling Enforcement Act was not – and is not – loved by all. Most obviously, the gaming industry abhors the UIGEA. And of course, U.S. gambling enthusiasts aren’t wild about the bill either. But perhaps the most controversial thing about the UIGEA is not what it outlaws, but what it doesn’t. In fact, for a law that is supposed to “protect” citizens from the “dangers of online gambling,” the UIGEA stops short at actually making online gambling illegal. Instead of using clear language to forbid Internet betting, the bill outlaws various payment channels most often used for settling online gambling debts.

Another commonly called-out UIGEA issue is the bill’s vague definitions. For example, “bet or wage” is described as “risking something of value on the outcome of a contest, sports event, or a game subject to chance.” Interesting choice of words, don’t you think? If the word salad seems unnecessary to you, you’re not alone. The reason for the circumlocution is that the drafters wanted to outlaw online poker without affecting other types of Internet betting and gambling – like online securities, futures and commodities trading. Other definition oddities in the UGIEA include the explanation of “skill” and the use of the word “opportunity” to describe buying a lottery ticket.

Perhaps the most divisive aspect of the UGIEA is the study on which the bill is premised – the “National Gambling Impact Study Commission.” A tendentious study commissioned by X, the National Gambling Impact Study concluded that Internet gambling is a growing problem for banks and credit card companies. Many people in the industry, however, contend that online gambling in no way causes stress on international financial institutions.

The UIGEA cannot be used as a defense for another crime, nor can it be used to devalue or change extent gambling laws or tribal compacts. Moreover, the Unlawful Internet Gambling Enforcement Act cannot be used to expand existing gambling operations. UIGEA expressly prohibits lotteries based on sports events.

Under the UIGEA, the federal government is given a whole lot of power when it comes to deciding what “payment systems” are engaging in illegal gambling activity and which are not. For all intent and purpose, officials can basically pick and choose who is legal and whose not.

The UIGEA doesn’t outlaw individuals from gambling online, instead, it places the onus on payment processors. “No person engaged in the business of betting or wagering may knowingly accept” any money transfers in any way from a person participating in unlawful Internet gambling.

If the true goal of the UIGEA was to prevent online gambling in the United States to protect U.S. citizens, the drafters certainly overlooked a glaring loophole. Since the United States has little to no control over overseas payment processors, in this Internet age, the UGIEA is somewhat ineffective. After all, if a serious gambler wanted to game online, all they have to do is sign up with an overseas payment processor. And yes, more have popped up since the UGIEA passed. Think of it this way, setting up an account with an overseas payment processor who caters to online gamblers in the United States is as easy as navigating your way to the Daily Mail’s website. As gaming consultant Michael Shackle-Ford points out: “there are ways of funding accounts without using US banks and millions of players know that.”

The UGIEA doesn’t require ISPs to monitor for Internet gambling traffic, but the bill does stipulate that ISPs can be hauled into court and forced to severe ties and links with violators. That said, Section 5367 makes ISPs and financial institutions liable if they operate an illegal gambling site themselves.

The UIGEA includes provisions for criminal penalties (section 5366). The act stipulates that perpetrators can be sentenced to no more than 5 years in prison for each offense.

Criticisms of UIGEA

Considering the indirect way in which the UGIEA goes about outlawing Internet gambling, and since many elected officials didn’t have time to read the bill before it passed, it’s not surprising that the bill has a lot of detractors.

Some have compared the UGIEA to the 20s-era prohibition of alcohol. Many more have major issues with the fact that the act was hastily amended to a completely unrelated bill.

Antigua Controversy

Online gambling is a huge point of contention between the United States and Antigua. Back in 2007, the World Trade Organization ruled in favor of the island nation, saying the U.S. violated a commerce treaty between the two countries by not granting full access to island-based online gambling companies.

In public, Antigua filed a $3.4 billion trade sanction claim against the U.S. The island nation also requested exemption from certain U.S. intellectual property laws. In private, the Bush administration agreed to secret sanctions with Antigua; at the time of the agreement, concessions were made confidential. In 2008, in a political chess move, Reps. Ron Paul and Barney Frank called for the concessions to be made public. The bipartisan pair believed the Antigua agreement was an example of how Feds abuse power under the guise of “national security.”

Internet Gambling Regulation Consumer Protection and Enforcement Act

After partnering with Paul, in 2009, Barney Frank unveiled his online gambling bill in the Senate. Entitled the Internet Gambling Regulation Consumer Protection Enforcement Act, Franks proposal aimed to redo the UGIEA.

The logic behind the Internet Gambling Regulation Consumer Protection Enforcement Act was simple – though arguably uninspired. Frank and the bill’s supporters argued:

  1. A lot of U.S. citizens gamble online and each state allow for some type of gambling.
  2. A lack of a “regulatory regime” means U.S. citizens are in danger of being cheated by overseas online gambling entities.
  3. As such, Internet gambling should be legal in the United States, but it should be heavily regulated and monitored.

Ultimately, the Internet Gambling Regulation Consumer Protection and Enforcement Act didn’t catch fire on Capitol hill and was held in the house financial services committee – never making it to a vote.

Famous Online Gambling Lawsuits

Perhaps the two biggest online gambling lawsuits are United States v. Scheninberg and United States v. PokerStars, et al. The first is a federal case, the latter a civil one.

Federal Criminal Case

Officials charged the Scheninberg defendants with violating the Unlawful Internet Gambling Enforcement Act and the Illegal Gambling Business Act of 1955. In response, the defendants argued the UGIEA wording, technically, did not outlaw online poker.

U.S. Attorney General for the Southern District of New York, Preet Bharara, used controversial reasoning to secure his case. Bharara argued that in New York State, running a game of chance where bets are placed is a Class A misdemeanor punishable by up to one year in prison. The reason the New York-based reasoning didn’t jive with people is because none of the sites listed in the suit were based in New York. In fact, all of the online gambling companies associated with the case are headquartered overseas. PokerStars is out of the Isle of Man, FultTilt calls Ireland home, and Costa Rica is the nation state of Absolute Poker.

Nevertheless, officials green lit the case. Several executives from PokerStars, FullTilt and Absolute Poker were charged with violating the UIGEA, in addition to several people associated with participating payment processors and a bank executive. Federal lawyers also brought forth a companion civil suit, seeking $3 billion in assets.

Federal Civil Case

The government ostensibly brought the civil lawsuit in an attempt to siphon money from the involved online gambling outlets. The awards ask was about $3 billion.

But on July 31, 2012, Feds dismissed the civil case against Absolute Poker, PokerStaes and FullTilt “with prejudice.” It just so happened that PokerStars also bought FullTilt. At the time of the dismissal, up through the writing of this article, neither company has admitted wrong doing as part of the settlement.

Despite the agreement, officials are still pursing the criminal case against various online gambling entities. Also at the time of this writing, the U.S. attorney’s office is still in control of several online poker sites that operated in the United States.

Do you run an online gaming operation? Do you need a lawyer? If you answered yes to both those questions, get in touch with Kelly Warner Law today. We focus on all things Internet law-related and can help with any questions or issues you may have about online gambling law.