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Legal Landscape of Online Gaming Has Not Changed

Analysis From CardPlayer's Legal Counsel

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Misleading news stories abound both online and in print regarding the passage of the Unlawful Internet Gambling Enforcement Act. The completely incorrect interpretation states that the new bill essentially outlaws most forms of Internet gambling. The new bill absolutely does no such thing.

I have been analyzing legal issues for 25 years. I have gone to court thousands of times interpreting statutes and I have taught new lawyers the correct method by which a statute should be analyzed. For over 15 years I was part of a legal hotline where California attorneys would call me with a legal question. As this is my field of expertise, I am flabbergasted at the misinformation being perpetuated regarding the new bill.

The New Bill Does Not Make Online Poker Illegal

The new bill attempts to make it more difficult to get money into a site by forbidding US financial Institutions from funding the type of online gambling that the law has previously made illegal. The new bill does not make online gaming illegal where it was not illegal before. Let me say that again. The new bill does not make online gaming illegal. The bill merely speaks to the mechanism by which an online account is funded. I am going to spend some time in this article explaining the accuracy of my reasoning.

The Bill Constitutes Enforcement Legislation

First and most simplistically, the bill is called the Unlawful Internet Gambling Enforcement Act. The operative word is enforcement. It is a bill whose goal is to enforce laws that already exist.

The bill begins in section 5361 by discussing congressional findings. In that section the bill states that Internet gambling is funded by credit cards, etc. Section 5361(a)(4) states in relevant part:

"New mechanisms for enforcing gambling laws on the Internet are necessary because traditional … mechanisms are often inadequate…"

The Bill Does Not Change Existing Gaming Law

Next, section 5361(b) specifically states that nothing in this new law shall be construed as "altering, limiting, or expanding any Federal or State law… prohibiting, permitting or regulating gambling within the US." In other words, the language of the statute confirms that this new law does not change existing gaming law. It does not speak to the legality of online gaming. It only applies to the mechanism of funding any Internet gaming that has already been deemed to be illegal.

Even Senator Frist said about the bill, "Although we can't monitor every online gambler or regulate offshore gambling, we can police the financial institutions that disregard our laws."

The Definition of Unlawful Internet Gambling

Of extreme importance in a statute is the definitional section that sets forth the parameters of a bill. The term "Unlawful Internet gambling" is given a definition. Section 5362(6) defines unlawful Internet gambling to mean placing or receiving a bet "where such bet or wager is unlawful under any applicable Federal or State law." This raises the question regarding what type of online gambling is already illegal. That will be discussed below.

First, let's move on to the meat of the bill. This is the section that states just what is prohibited. Section 5363 begins by saying that "No person engaged in the business of betting or wagering may knowingly accept…" electronic transfers, credit cards, etc. where a person is engaged in "unlawful Internet gambling." This new law applies, if and only if, the gambling is already illegal under current law.

This brings us directly to the issue of what has been deemed illegal in the last 10 years since the first online casino opened its virtual doors. In a nutshell, sports betting is made illegal by the 1961 Wire Act, but poker is not.

Remember please, that the Attorney General's office has not brought one lawsuit in 10 years against a poker site, even though it takes the position that online poker is prohibited by the Wire Act.

How the Law Works

In order to explain this discrepancy, I must digress with some rudimentary background about just how the law works. You probably remember from your high school civics class that the legislature makes laws that the judiciary construes. That means that our representatives in Congress draft the laws that judges then interpret.

Legislators are not wordsmiths, which is why there is a whole body of law called statutory construction. The first rule of statutory construction says that if the words of the statute are clear, the court may rely upon the common language. But if the language is not clear, the court must construe the language using a complicated legal process.

If a law is unclear, a depuy attorney general (the prosecutor) will take one position and often a defense attorney will take an opposing position. They go to court and a judge makes a determination. So when the Attorney General makes a public statement about what a law means, he might or might not be correct. It is ultimately the decision of a court.

When the Attorney General's office takes the position that the Wire Act prohibits online poker, the court ultimately decided whether that opinion is accurate. Senator Frist incorrectly believes that all online gaming is illegal. He said: "for me as majority leader, the bottom line is simple: Internet gambling is illegal."

However, in order for Internet poker to be illegal, there must be a specific statute that forbids such activity. For years I have posed the question: What statute prohibits online poker? And if it is illegal, why has there not been one lawsuit filed by the government against an owner of an online poker site?

Online Poker Is Not Illegal

Even though the Attorney General's office has publicly taken the position that the 1961 Wire Act forbids online poker, in 10 years they have not put their money where their mouth is. Why? The judiciary (that is, the interpreting body) has already held that the 1961 Wire Act doesn't speak to poker. It only applies to sports betting.

The case in point to which I refer is "In Re Mastercard International," decided by District Court Judge Stanwood R. Duvall, Jr. in 2001. Among other issues, Judge Duval was faced with the question of whether the Wire Act applied to online gambling. The posture of the case was interesting because many deadbeat gamblers attempted to avoid online gambling debts they had incurred by alleging that the money they owed their credit card companies amounted to illegal gambling debts in violation of the Wire Act. As a matter of fact, there were so many similar suits filed by so many gamblers who did not want to pay their losses that the lower court consolidated 33 such similar charges.

Judge Duvall ruled that the Wire Act only prohibited wagering on sports events and he dismissed all 33 cases, noting that "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." In other words, online poker was not within the reach of the Wire Act's prohibition. The District Court of Appeal agreed with Duvall's ruling that the 1961 Wire Act does not apply to online poker.

I must mention one caveat. District courts are permitted to disagree with one another until the Supreme Court steps in. However, in this case Judge Duvall's reasoning is so sound that it is close to irrefutable. There is a well established body of law regarding statutory construction and Judge Duvall followed the procedure to a tee.

Even Representative Goodlatte, who authored one of the online gaming bills in the House, acknowledges the limitations of the Wire Act. "We need to modernize the Wire Act, which is 45 years old, and does not apply to all forms of gambling," says Goodlatte, adding, "It clearly applies to sports betting."

Hysteria Is Completely Unfounded

Since this new law does not change what is legal or illegal, the current hysteria is completely unfounded. This legislation attempts to make it more difficult to get money into a site. Besides a few wrinkles that will be the topic of another article, that's about it.

The statute is primarily no big deal since poker players stopped using credit cards a few years ago and found other ways to get their money into their favorite gaming sites.

I am not saying there won't be lawsuits construing the meaning of the statute, but ultimately, the statute will only be deemed to affect the method by which online sites are funded.

Correct Analysis

There are a few very insightful people out there correctly analyzing this new legislation. For example, the president of the American Gaming Association, Frank Fahrenkopf is one such person. "This bill did not make anything legal or illegal," says Fahrenkopf. "What it did was affect the mechanism by which Internet gambling takes place…and there is some question as to whether or not that will be effective."

Bloomberg correctly reports that "Congress passed legislation that curbs financial payments from banks to offshore Internet casinos that are illegal under US law."

Consumer Affairs seems to have gotten it right as they report that "The legislation does not criminalize the placing of bets by consumers. Rather than outlawing online gambling, the bill prohibits banks and credit card companies from making payments to online gaming websites… However, it's unclear just what is covered by the bill. Internet sports betting is plainly outlawed but what about online poker and other popular games?"

I urge our readers to use care in accepting the opinions that one site gets from another site where no legal opinion is being presented. Please, read the statute yourselves. Read the words carefully and think about my analysis. The statute can be found by clicking here. The Unlawful Internet Gambling Enforcement section starts on page 213.

Jurisdiction

Another area I have written about extensively is the area of jurisdiction. Libraries of books have been written on the varied and complex meaning of jurisdiction. One of the simplest meanings of "jurisdiction" is legal power.

For example, a New York court doesn't generally have jurisdiction (legal power) over a problem in Texas. A federal court doesn't have jurisdiction over a violation of most state laws. A municipal judge doesn't have jurisdiction over a felony trial.

Our government doesn't have jurisdiction to make rules for a company that resides offshore. Our rules do not apply in other countries, as they have their own sets of rules.

This bill prohibits a gaming company from accepting payment that violates US gaming law. Besides the fact that no law makes online poker illegal, all the gaming sites are offshore and not subject to US laws.

A law that tries to control an offshore company is considered a law with no teeth, because it cannot be enforced. In the US, when a law is broken, a person is arrested. The government subpoenas records and a case moves forward. What it means not to have jurisdiction is that US laws do not apply offshore, nor can the US arrest a person in another country nor does our government have subpoena power to command an offshore company to turn over records. NETeller, an online money transfer service, is also an offshore company, not subject to US laws.

The Future

First of all, nothing is going to happen for 270 days. The Secretary and the Board of Governors of the Federal Reserve System have 270 days (after the bill is signed by the president) to come up with enforcement policies and procedures. Those procedures are directed to the behavior of banks and credit card companies. The procedures will be a nightmare.

Representatives of the financial services industry worry about a heavy regulatory burden being placed on banks. "The bill sets up banks to police a social issue," said Laura Fisher, spokeswoman for the American Bankers Association. "It's not something we want to encourage."

The bill passed by Congress could allow regulators to exempt checks and money transfers because they are more difficult to track. "Analyzing 40 billion checks a year would be a largely manual process," Fisher said.

If checks are not exempt, this would break our banks as it would be too costly to enforce. If checks are exempt, players could simply send a check to an online site. If checks are not within the purview of the law, what about e-checks?

The rules won't even be figured out for nine months during which time, all the clever sites will have legally circumvented this new law by other legal procedures to fund the sites.

Some Online Sites Are Overreacting

I am surprised to see some online sites overreacting and posturing as if they will pull out of the market. Any company that just pulls out of the market deserves to lose a lot of money because it is receiving bad legal advice.

Offshore companies are not bound by US antigaming laws. But the most persuasive reason why offshore companies shouldn't pull out is because the laws of online gaming have not changed. A few years ago when the government was beginning to subpoena news networks, offshore sites didn't pull out because the movement by the government couldn't affect them. Similarly, a law that directs itself to the mechanism used to enforce current laws, does not change the legal landscape.

 
 
Tags: poker law
 
 

Comments

mdktwo
8 years ago

Thank you for all the facts, stupid people like Party Poker has already pull the plug to day Friday the 13th!! Party Poker has already stopped from receiving $$s to buy into any tourneys even if one has money in their accounts. It does not make sense why would the stop people from playing when no money has transferred into Party Poker. Party Poker even stop Americans from entering into a FREE ROLL tourney with a message saying that "your country is not allowed to register" what kind of Morons are running that place?
Thanks you

 
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Dragula
8 years ago

Great article. I'm not surprised at all by all the chicken-little hysteria. Watch any poker chat site and read all the comments concerning 'site players', 'card randomness', 'software favoratism for big depositors', and the ever popular 'that hand never happens in the real world'. The loudest players are usually the most wacko and those of us who understand that this will have minimal impact if any on our ability to enjoy online poker sit back and wonder how these paranoid goofballs procreate and drive cars.

 
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kymarienguyen
8 years ago

Could it be that there is a bigger picture out there for Party Poker? Last year my husband was signing up. They knew alot of confidental information about him. They knew who came to America from Vietnam with him. They asked (by name) where his aunt who was married to an American lived. She didn't have the same last name, nor did she ever live in our state. She's two thousand miles away!They asked "where does David **** live now?" That's his mother's cousin. Isn't it scary that these operators speaking with a middle eastern accent knew all that information about him. SCARY- is the thought of how they got this info. Who is "selling" this information to a outside country? INS? Only government know this stuff. They also let first timers do instant deposits of $500 over what you asked for. Banks don't take kindly to that. So - it is bad for bussiness to run out so quickly...but worst if you open a can of worms by an investigation.

 
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clicknhope
8 years ago

Excellent article. Thanks.

I found the following at:

http://www4.law.cornell.edu/uscode/html/uscode18/usc_sec_18_00001084----000-.html

TITLE 18 > PART I > CHAPTER 50 > 1084

1084. Transmission of wagering information; penalties

(b) Nothing in this section shall be construed to prevent the transmission in interstate or foreign commerce of information for use in news reporting of sporting events or contests, or for the transmission of information assisting in the placing of bets or wagers on a sporting event or contest from a State or foreign country where betting on that sporting event or contest is legal into a State or foreign country in which such betting is legal.

My question is: Does this mean that it is legal for a U.S. owner of a "skin" to a foreign-domiciled poker room network to operate in the U.S. Poker, tournaments in particular, is surely a contest is it not?

 
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aliqat
8 years ago

How about helping us in Washington State, where online poker is spelled out in the law that went into effect 06,06,2006 which makes online poker a class C felony. We need help to reverse this law which is far more strict and makes playing poker more risky due to loss of cival rights if proscuted. Also the head of the Washington State Gaming commusion stated they will prosucte online poker players. To ignore us is inviting other states to write simular laws which would be much worse then the new federal law.

 
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grahamsharp
8 years ago

kymarie, america is a country built on fredom and free enterprise, if you don't like it go back to vietnam. first off, i have specialized in online payment processing for almost 10 years, i have worked with hundreds of different companies, including online gaming companies and your claims of party poker collecting this type of information would be imposible by simple processing a payment, if somebody has really asked you for this type of information, which i highly dought, it was not party poker. did you every think to ask yourself why party poker would want to know where your family members live, cause the answer is they wouldn't, this information would cost a fortune to collect and would not be of any use to party poker. party poker is also a british public company, its actions and opperations are watched very closely by a number of regulatory bodies. party pokers directors and executives are christian people that fully support the efforts of the united states, aswell as the other countries that are trying to make the world a safer place for everyone, none of party pokers opperations are located in, or are outsourced to middle eastern countries or companies, your accusations are ignorant, slanderous, and poorly planned, your third world tactics to attack online gambling do not fool anyone and could be defined as corporate terrorism, to us real americans you are just as bad as the "middle eastern' people that you claim to want your personal information, plaese do us all a favor and leave our wonderfull free country, there is no room here for people like you, and bring your family with you i'm sure you'll feel alot safer in vietnam

 
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detroitjunkie
almost 8 years ago

wow graham, I didn't think kymarie made such accusations, maybe you should learn to read and pay attention. Anywho, I have had certain online companies ask for very private information, even about my mother who has been dead for several years, this is a security issue and I understand it...you just can not do enough to make sure people are who they say they are. what you do not understand is that this information is available to the public in many different forms, you just have to know where to look (from credit card companies, public records, website logs, etc...) Either way I think we need to band together for the cause, which is getting all aspects of internet gambling legalized, and stop tearing each other up, this isnt MYSPACE people, and unless you are an underaged gambler, we are also all adults here, so grow up.

 
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Studley1723
almost 8 years ago

I agree. Just send a check or MO to WPX. What's the bigee?

Studley

 
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APPRECIATE
almost 8 years ago

Excellent legal analysis

 
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MexiRican
almost 8 years ago

I think it doesn't really matter 'cause Uncle Sam is going to get all of us eventually. We're screwed. I geuss it's back to brick and mortar for me. I feel sorry for those who live in areas where there is no card rooms for hundreds of miles. It was fun while it lasted. I even started winning back the money I lost during my donkey years. I'll miss you Party Poker, 888, fulltilt, poker stars and the likes.

 
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zingbust
almost 8 years ago

Allyn what happened? Things have gotten much worse since you wrote the article, was your legal stance flawed in some way?

 
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dss3ms
over 7 years ago

I am still a little confused as to if online gambling is illegal or not. I guess the offshore gambling company can collect if you lose against a credit card but if you win how does someone in Texas collect winnings.

 
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gleneste
over 7 years ago

Allyn we need an analysis explaining why online sites are banning US players. Not the standard because of recent US legislation and the UIGEA. I want to know what their reasoning is in foregoing the millions these companies are sacrificing. What are they afraid of ...real or unfounded?

 
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Ireloadm
over 7 years ago

If Internet Poker is not illegal, then why were my funds frozen at NETeller? How can I go about getting these funds by check if they can't transfer into my bank account? If I can use NETeller at other merchants, why is 55 million dollars being held from US citizens?

Your insight is appreciatred,

 
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njezrider
over 7 years ago

GREAT ARTICLE. This is a growing concern around the poker world.
I hope all those people get their money back before it washes out with the tide.

 
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bradpitt1111
over 5 years ago

Wonderful article!!I agree with you!!All the Pofer players will get their money back!!
They are really good persons!!
All The Best for all the poker players!!
--------------
brad pitt
Trial Attorneys

 
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kamfam
over 5 years ago

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