Legal Update - March 2004

by Allyn Jaffrey Shulman

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I could begin and end this article by saying nothing is significantly new in the law of online gambling. Although true, there are hopeful forces working diligently in favor of regulating Internet gambling.

One of those forces is Congressman John Conyers, elected in 1964, and the second most senior member in the House of Representatives. He introduced legislation to study the feasibility of regulating online gambling. He has written about how ridiculous it is to try to prohibit online gambling:

" You might remember a failed experiment the U.S. government tried in the 1920s called Prohibition. Today, Congress is rushing to pass a similar ill-conceived prohibition of Internet gambling. Gaming prohibitionists believe they can stop the millions of Americans who gamble online by prohibiting the use of credit cards to gamble on the Internet. Just as outlawing alcohol did not work in the 1920s, current attempts to prohibit online gaming will not work, either.

Instead of a prohibition that will drive gambling underground and into the hands of unscrupulous merchants, Congress should examine the feasibility of strictly licensing and regulating the online gaming industry. State regulation will ensure that gaming companies play fair and drive out dishonest operators. It also provides potential tax revenue for financially strapped states ."

Another force in favor of regulating online gambling is the Interactive Gambling Council (IGC). I have long been a supporter of the IGC, a nonprofit trade association that serves as a collective voice for the interactive gaming industry. The IGC aggressively addresses legislative and regulatory challenges.

At the end of last year, an IGC representative was asked to testify before a hearing of the National Conference of Legislators of Gaming States (NCLGS) on the subject of online gaming. At that hearing, the IGC was invited to send in additional arguments in favor of strict state regulation of online gaming for further consideration by the NCLGS.

In the additional arguments, the IGC addressed the Senate bill pending since last March, when a committee of 19 members approved it in six minutes. You will recall our discussions of S. 627, the only pending legislation with which the online gambler need be concerned. It prohibits the use of credit cards and other U.S. financial institutions from putting money into an online site. Since many sites have already responded to this threat by creating alternative ways of putting money into their sites, the threat has nearly diminished.

S. 627 is yet another controversial online gambling bill, in a string of failed gambling bills since 1995. Congress just can't seem to get their arms around the online gambling issue. The IGC writes to the National Conference of Legislators that the bill has many problems, including the fact that the bill prohibits states from regulating gambling, an issue traditionally left to the states under the 10th Amendment; that the bill took out the tribal exception; and that Congress relied upon an old attorney general opinion, which is now largely indefensible:

" Given that Indian tribes have land-based casinos in 29 states - and a strong lobby in the Senate - the Senate legislation introduced by Senator Jon Kyl was amended to be friendly to Indian tribal interests by allowing for limited intertribal online gaming. However, the Senate Banking Committee members acting on a legal opinion by the U.S. Department of Justice, which stated that the Interstate Wire Act of 1960 makes illegal betting of all types across state lines, stripped the exemption allowing states to regulate online gaming as well as the tribal exception. The bill as reported by the Senate Banking Committee contains no carve-outs for anyone except horse and dog racing, and thus is opposed by the American Gaming Association and National Indian Gaming Association, and it is expected that state lotteries will be opposed. Therefore, under the proposed Senate bill, gaming, which traditionally has been an issue left to the states under the 10th Amendment of the United States Constitution, is usurped by the Federal government ."

Besides the lack of support from the American Gaming Association and the National Indian Gaming Association, even attorneys from the Department of Justice are concerned about the amendment made by the Banking Committee, fearing it may actually be interpreted as expanding online gambling opportunities.

We have a polarization on Capitol Hill that mirrors the divergence in society regarding Internet gambling. As always, I will keep you informed of any changes on Capitol Hill as they occur.

Allyn Jaffrey received her Bachelor of Arts from the University of California at Irvine in 1977, where she graduated cum laude and became a member of Phi Beta Kappa for scholastic achievement . She is a practicing criminal defense attorney, having received a Juris Doctorate with scholastic merit from Western State University where she served as Research Editor and Executive Editor of the Law Review in 1982-1983. She has lectured all over California , teaching other attorneys the fine points of criminal defense. She specializes in legal research and her areas of expertise include the filing of extraordinary Writs, Appeals and motions where a lower court judge commits legal error or where the police or prosecutors engage in misconduct. Ms. Jaffrey has been closely following the development of gaming law and the Internet ever since Jay Cohen was convicted in New York of operating a sports betting business from Antigua in violation of the Wire Act.

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