I’ve been doing a bit of research, spurred by this article by Allyn Jaffrey Shulman, on the legal status of online poker. And I’ve found that most of what Shulman says is spot on. She points to a Federal court ruling in the case of In re Mastercard International, the full text of which can be found here. But first, let’s look at what the new Unlawful Internet Gambling Enforcement Act actually says. It says that banks and financial transaction companies can no longer accept electronic transfers, credit cards, etc. that are involved in “unlawful Internet gambling.” And how does it define “unlawful internet gambling”:
The term “unlawful internet gambling” means to place, receive or otherwise transmit a bet or wager by any means which involves the use, at least in part, of the internet where such bet or wager is unlawful under any applicable Federal or State law in the State or Tribal lands in which the bet is initiated, received or otherwise made.
More importantly, the law also specifically states that it is not expanding the definition of unlawful internet gambling, only requiring a specific form of enforcement of existing laws. It specifically states that the law is not to be read as “altering, limiting, or expanding any Federal or State law…prohibiting, permitting or regulating gambling within the US.” Thus, what is to be enforced is only what was already illegal before the act took place. And by that standard, is online poker illegal? Absolutely not.
The Department of Justice has publicly maintained that the 1961 Wire Act prohibits online gambling, including online poker. But they are wrong, and the courts have explicitly ruled against this position several times. In the case I link to above, the court ruled explicitly that the Wire Act only forbids betting on sporting contests. In regards to the Wire Act, the ruling was crystal clear:
The Wire Act, found at 18 U.S.C. §1084 provides in pertinent part as follows,
(a) Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under his title or imprisoned…
18 U.S.C. §1084(a) (emphasis added). Section Co) of the statute carves out an exception to the rule, instructing that the Wire Act shall not “be construed to prevent the transmission in interstate or foreign commerce of information for use in news reporting of sporting evens or contests” from a state or country where betting on the sporting event or contest is legal to another state or country where such betting is legal.” 18 U.S.C. §1084Co) (emphasis added).
The defendants argue that plaintiffs’ failure to allege sports gambling is a fatal defect with respect to their Wire Act claims, while plaintiffs strenuously argue that the Wire Act does not require sporting events or contests to be the object of gambling. However, a plain reading of the statutory language clearly requires that the object of the gambling be a sporting event or contest. Both the role and the exception to the role expressly qualify the nature of the gambling activity as that related to a “sporting event or contest.” See. 18 U.S.C. §§1084 (a) & (b). A reading of the caselaw leads to the same conclusion. See United States v. Kaczowski, 114 F.Supp. 2d 143, 153 (W.D.N.Y. 2000) (Wire Act “prohibits use of a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest”); United States v. Sellers, 483 F.2d 37, 45 (5th Cir. 1973)(overruled on other grounds in United States v. McKeever, 905 F.2d 829 (5th Cir. 1990)) (“the statute deals with bookmakers)”; U.S. v. Marder, 474 F.2d 1192,1194 (5th Cir. 1973 ) (first element of statute satisfied when government proves wagering information “relative to sporting events”).
As the plain language of the statute and case law interpreting the statute are clear, there is no need to look to the legislative history of the Act as argued by plaintiffs. See In re Abbott Laboratories, 51 F.3d 524, 528 (5th Cir. 1995). However, even a summary glance at the recent legislative history of internet gambling legislation reinforces the Court’s determination that internet gambling on a game of chance is not prohibited conduct under 18 U.S.C. §1084. Recent legislative attempts have sought to amend the Wire Act to encompass “contest[s] of chance or a future contingent event not under the control or influence of [the bettor]” while exempting from the reach of the statute data transmitted “for use in the new reporting of any activity, event or contest upon which bets or wagers are based.'” See S.474, 105th Congress (1997). Similar legislation was introduced the 106th Congress in the form of the “Internet Gambling Prohibition Act of 1999.” See, S. 692, 106th Congress (1999). That act sought to amend Title 18 to prohibit the use of the internet to place a bet or wager upon “a contest of others, a sporting event, or a game of chance…”Id. .”Id. As to the legislative intent at the time the Wire Act was enacted, the House Judiciary Committed Chairman explained that “‘this particular bill involves the transmission of wagers or bets and layoffs on horse racing and other sporting events.” See 107 Cong. Rec. 16533 (Aug. 21, 1961). Comparing the face of the Wire Act and the history surrounding its enactment with the recently proposed legislation, it becomes more certain that the Wire Act’s prohibition of gambling activities is restricted to the types of events enumerated in the statute, sporting events or contests. Plaintiffs’ argument flies in the face of the clear wording of the Wire Act and is more appropriately directed to the legislative branch than this Court.
Thus, the court ruled that both the facial meaning of the statute and the legislative history of the Wire Act conclusively show that it does not prohibit online gambling except for betting on sports contests. That ruling was upheld by the 5th circuit court of appeals and they specifically agreed with the lower court in this regard:
Thompson and Bradley both identify three substantive federal crimes as predicates–violation of the Wire Act, mail fraud, and wire fraud. The district court concluded that the Wire Act concerns gambling on sporting events or contests and that the Plaintiffs had failed to allege that they had engaged in internet sports gambling. We agree with the district court’s statutory interpretation, its reading of the relevant case law, its summary of the relevant legislative history, and its conclusion. The Plaintiffs may not rely on the Wire Act as a predicate offense here.
Now here’s a key point: this case was actually 33 separate cases from all over the nation. A whole bunch of folks had filed class action suits around the country, trying to get out of paying credit card debts racked up because of their online gambling. After using their credit cards to gamble online and losing badly, they then filed suits claiming that the credit card companies have no recourse to make them pay those bills because online gambling is illegal and they should have blocked them from using the cards for that purpose.
Since there were so many cases all alleging the same thing, all around the country, the courts collapsed them all into this one case for a single ruling. The court ruled against them, the appeals court upheld that ruling, and thus the scope of this ruling goes beyond one judicial district. It effectively rules on the matter in all 33 cases in all judicial districts, and because it was not overturned by the Supreme Court, it remains binding law in every judicial district as a result. This is the equivalent of a Supreme Court ruling in scope, it is binding precedent in every judicial district. And it quite plainly means that only betting on sports over the internet is currently illegal under Federal law.
Now, one would think that this settles the matter and online poker and online casinos other than sportsbooks should be able to go their merry way regardless of this new law, right? Well, not quite, for several reasons. First, because the DOJ can still bring cases against financial companies and banks for facilitating transactions to online poker sites, arguing on the basis of their false interpretation of the Wire Act. Will they win? No. But many banks and companies will still find it not worth taking that risk or expense of fighting them in court.
Remember, the credit card companies all stopped allowing direct transactions to online gaming sites in the wake of the court cases discussed above, even though they won the cases. That’s why Paypal started up, as an intermediary; people could use their Visa or Mastercard to fund an account with Paypal, then transfer the money tot he online gaming sites. Then Paypal was bought up by Ebay and they decided to stop doing business with the gaming sites as well. They were then replaced by Firepay and Neteller.
But now Firepay has decided that it will no longer accept any transfers to or from American banks or credit card companies after Bush signed the new bill. Overreaction? It certainly seems to be. But they’re being cautious. Neteller has said that they’ll continue to operate as before. But the question then is whether American banks will accept transfers from them, and that’s still an open question. Everything depends on the administrative rules the Treasury Department comes up with to implement the new law, and on what the banks and financial services companies (Western Union, Visa, etc) do to comply with those rules.
Like Firepay, American banks and financial services firms may simply decide that it’s not worth the risk at all and set the policy of refusing to accept any transactions from any online gambling site, regardless of whether it’s technically illegal or not. They may even decide that they won’t accept any transfers to or from Neteller, even though Neteller technically has more services that they do transactions for than online gaming sites. Just as the credit card companies voluntarily chose to prohibit such transactions 5 years ago even though they didn’t have to, the banks could decide the same thing here: better safe than sorry, basically. And the banks can do that voluntarily, just as the credit card companies do now, with no legal recourse to force them to do so.
If the banks decide to voluntarily do away with such transactions, then how do American players cash out their funds? Good question. Opening foreign bank accounts is one answer, but the average American doesn’t have access to that sort of thing. For the big online players, it’s worth doing. for a guy who has a couple hundred bucks at a poker site? For them, it’s probably not worth doing. But I also suspect that foreign banks will step in to the void here, seeing an opportunity for profit, and provide a way to open offshore accounts without actually being there in person. And for those seriously intent on still gambling online, that will allow them to continue. For the average player, though, I suspect most will just cash out now and be done with it.
The other fairly obvious way is for the online gaming companies to just run a myriad of different accounts under different names, and keep changing them. It will be difficult for the banks to keep shutting out transactions from different companies drawing off foreign banks when they send a check to an American customer. Rather than drawing off an account registered to “Party Gaming”, they can spin it off to a management company with an innocuous sounding name, and keep changing them as the banks catch up.
And the most obvious way is that, since such transactions are not actually illegal, some American bank is going to allow such transactions in order to profit from the market being refused by other banks. The Federal Reserve could force banks to do what they want by refusing to allow such transactions to go through their system. But if they do that, then that’s a policy that can be challenged in court. The Fed is a government agency and refusing to allow legal transactions to go through the system is illegal restraint of trade. It’s like declaring that US currency can’t be used to pay for dinner at Chinese restaurants – if having dinner at a Chinese restaurant is legal, then US currency covers that debt, period. The government would lose in court.
All of this, of course, means that a great deal depends on the Treasury Department’s rules and how the banks attempt to comply with them. If the rules are draconian and threatening, the banks may decide to just do away with all suspicious transactions, including from third party groups like Neteller, altogether. That will mean players will have to go to offshore banks, which some will do but most will not. The next few months will determine just how far this goes.
But this also means that the online poker sites have very strong grounds for filing suit against the government to prevent enforcement over their transactions (as long as they don’t have sportsbooks attached to them, which most do not). Party Poker does have a sports book, I believe, so that may be why they chose to pull out immediately. But Poker Stars, Full Tilt Poker, Ultimate Bet and other large poker sites don’t have that problem. This bill shouldn’t have any effect on them at all; whether it will or not will be determined in the next few weeks and months. And the bottom line is that it’s too soon to panic and start pulling out money you might have at such sites. Your money is safe and should remain safe.