So Many Laws- So Little Time

In my last article, I analyzed the 1961 Federal Wire Act and concluded that the Wire Act will most likely be found NOT to prohibit on-line poker playing. But that does not answer the bigger question of whether on-line gambling violates any other federal or state law. For those of you who are baffled trying to figure out the bigger picture, don't feel bad. Even the greatest legal minds in Nevada cannot figure it out causing Nevada Gaming Commission Chairman Brian Sandoval to seek opinions outside the state of Nevada. On June 14, 2001, Nevada Governor Kenny Guinn approved Assembly Bill 466. This legislation empowers the Nevada Gaming Commission to adopt regulations governing the licensing and operation of "interactive gaming", which means on-line gaming. This is HUGE because it would allow Nevada to capture a piece of the growing online market. However, the catch in the legislation is that the commission CANNOT adopt such regulation UNTIL the commission first determines that "interactive gaming can be operated in compliance with all applicable laws". (NRC Ch. 463 §3 (2)(a)) What this means in plain English is that the Nevada legislature is not certain whether on-line gambling violates any federal or state laws and the Nevada government needs assistance analyzing the issue. Since the terrible tragedy of September 11, Nevada's 346 bricks and mortar casinos have seen a steep decline in revenue. Casinos on the Las Vegas Strip, which account for 48.7 percent of the state's gross gaming win, reported a 7 percent decline in revenue in the fiscal year ending June 30 of this year. Since some industry experts estimate that online gaming will generate $6.3 billion worldwide by next year, one would think that Nevada would step up it's efforts to determine the legality of on-line gambling so they can share in the revenue generated by on-line gaming. In Nevada, the state Attorney General customarily serves as the Gaming Commission's legal advisor, but Sandoval is reported to have said that he and Nevada Gaming Control Board Chairman Neilander want an outside opinion. Nevertheless, Nevada's Assistant Chief Deputy Attorney General Jeff Rodefer did prepare a report for the commission analyzing applicable laws which might speak to on-line gaming. Almost a year after the legislation passed, Rodefer presented the official governmental opinion from the Nevada Attorney General's office to the Board. In sum, the report concluded that federal laws on the issue are unclear. The Las Vegas Sun recently reported that Neilander said that "Internet gambling poses too many legal, technical and public policy questions to determine how it should be regulated" and that "there are as many questions as there are answers." Rodefer's report was forwarded to the Justice Department for an advisory opinion. Although advisory opinions are not binding on any court, they make people stand up and take notice. On August 30, 2002, Assistant Attorney General Michael Chertoff sent a letter to Neilander, reiterating the opinion held by the Clinton administration: "As set forth in prior congressional testimony, the Department of Justice believes that federal law prohibits gambling over the Internet, including casino-style gambling." That is not new information as the same opinion was held by the prior administration, to no avail. However, this does mean that Nevada will lose out on billions of dollars of revenue because in the face of such an opinion, Gaming Control Board Chairman Dennis Neilander will not move forward into the online gaming market. Since the first virtual casino came upon the scene in 1995, the only thing that gaming experts seem to be willing to say is that the law is unclear. Non-lawyers may wonder just why analyzing law on the subject is so complicated? Analyzing the legality of on-line gaming is complicated by the very nature of the interplay between state and federal law. First, there are three important federal constitutional laws which must be rectified, one with another. I will discuss them below. Then there are federal statutes and their applicability to on-line gaming and last, there is the body of state law which may or may not apply. Finally, there is the interesting and complex secondary issue of which agency would prosecute, who would they choose to prosecute and how in the world would they prove anything since all foreign sites are beyond the subpoena power of the United States. These interesting issues will be the subject of future articles. Let's take a look at the The Tenth Amendment to the United States Constitution. It states that: "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people." The Tenth Amendment was intended to confirm the understanding of the people at the time the Constitution was adopted, that powers not granted to the United States were reserved to the States or to the people. (United States v. Sprague (1931) 282 U.S. 716, 733.) Historically, the states have successfully regulated gambling within their borders, as that is seen to be a power reserved to the state. Juxtapose this with the Supremacy Clause which states that the "Constitution and the laws of the United States...shall be the supreme law of the land...anything in the constitutions or laws of any State to the contrary notwithstanding." This means of course, that any federal law--even a regulation of a federal agency trumps any conflicting state law. Finally, the Commerce Clause makes Congress the guardian of interstate commerce. Article I, Section 8, Clause 3 of the US Constitution states in relevant part: "The Congress shall have power to... regulate commerce with foreign nations, and among the several states, and with the Indian tribes." Every federal law must have a constitutional basis in order to be valid, and the commerce clause has been widely used as a constitutional base for federal legislation of every type. It has been predicted that it will be the Commerce Clause that will ultimately attempt to regulate many activities on the world wide web. Those three constitutional mandates taken together basically mean that any federal law must be constitutionally based. IF there is a federal law on a subject, it preempts state law. The federal government is to regulate commerce BUT powers not granted to the federal government are "reserved to the states". And laws relating to the health and welfare of its citizens usually fall within the purview of state law. It is noteworthy to mention that almost every state has some form of legal gambling, be it a casino, lottery, video, lottery terminal, horse wagering, bingo, and other forms of gambling. So you may ask, where does the federal government fit in all this? Traditionally, the federal government has stayed out of the gambling arena and left its regulation to the states. As a matter of fact, just this month, a respected Congressional Leader, House Majority Whip Tom Delay announced his opposition to proposed legislation regarding Internet gaming for fear that the legislation would diminish state's rights. But this doesn't mean that the federal government is not taking a good hard look at online gaming. After the first online casino opened it's virtual doors, the federal government began sniffing around in an attempt to determine whether deeper involvement is necessary on a federal level. In that regard, the 104th Congress created the National Gambling Impact and Policy Commission in 1996. (Public Law 104-169) The Act Specifically says that the last time the federal government did a study regarding gambling was 1976 and that in the last 20 years gambling has increased to include Internet gambling. The stated purpose of the Federal Commission was to conduct a comprehensive study of the social and economic impacts of gambling in the United States. The study was completed in June of 1999. Among other things, the Commission concluded that because Internet Gambling crosses state lines, it is difficult for states to adequately monitor and regulate on-line gambling. The Commission recommended that Congress and the President pass legislation and develop enforcement strategies regarding Internet Service Providers, credit card providers, money transfer agencies, makers of wireless communications systems, banks and finally, "the federal government should take steps to encourage or enable foreign governments NOT to harbor Internet Gambling organizations that prey on US citizens." We have all seen that the results of the federal government's two year study have amounted to a big nothing. There is no earth-shattering federal legislation. Attempts to come up with a plan to utilize current laws have largely failed. When the federal government attempted to utilize the 1961 Wire Act in the context of on-line poker playing, the Honorable Judge Stanwood R. Duval, Jr clearly found that the Act did not apply to on-line poker playing. Another federal statute that has been discussed is the Illegal Gambling Business Act also known as The Anti-Gambling Act. (18 U.S.C. §1955) In Anthony Cabot's informative book, "Internet Gambling Report V" released in its 5th edition this year, Joseph Kelly, Cory Aronovitz and Mark Schopper state that "prosecution of Internet betting operations under the Anti-Gambling Act has bordered on being a farce." Indeed, in the arena of on-line poker playing, there does not appear to be federal law with any teeth. This is obvious by the blatant lack of prosecution in the area. Both the Clinton Administration and now the Bush Administration have taken the position that gambling on-line violates federal law. These opinions are not binding on any court and in practical terms, the government has not been successful in its efforts to prosecute those involved in online gaming. In this article, I have presented federal constitutional law that comes into play in analyzing gaming issues. After reviewing relevant federal law that is constitutionally based, the next step in our analysis is to review federal statutes. Last month, I reviewed the Wire Act. In future articles, I will review other federal statutes. Thereafter, a review of state law will be appropriate. Because most readers are concerned with their own personal liability when they gamble on-line, my next article will address "Liability of the Individual On-line Gambler"