Digital Transactions Authoritative, insightful and timely information for payments professionals
A 5-year-old law that bans U.S. banks and processors from handling online-gambling transactions won’t stand in the way of a U.S. Justice Department opinion released last week that appears to put the federal government's imprimatur on intrastate online betting.
The DoJ on Dec. 23 released a 13-page memorandum giving states the authority to sell lottery tickets online within their borders. Experts have interpreted the document as a green light for intrastate online poker and other wagering games as well, and have said cash-strapped states are likely to forge multistate agreements to allow individuals to use the Web to buy tickets or place bets across state lines.
The DoJ document, which was completed in September but not released until just before the Christmas holiday, came in response to requests for a ruling from New York and Illinois, which are looking to set up online lottery sales. The states were fearful of running afoul of the Wire Act of 1961, which is widely interpreted to ban electronic forms of betting. But the DoJ’s memo reads the Wire Act to apply only to online sports betting.
“President Barack Obama’s administration has just declared, perhaps unintentionally, that almost every form of intra-state Internet gambling is legal under federal law, and so may be games played interstate and even internationally…I believe this will be a major incentive for the other states looking at legalizing intra-state poker and other games,” says I. Nelson Rose in his blog, gamblingandthelaw.com. Rose is a professor of law at Whittier Law School, Costa Mesa, Calif., and a nationally recognized expert on online gambling law.
Meanwhile, however, authorities have been relying on the Unlawful Internet Gambling Enforcement Act, which became law in 2006, to attack online gambling. The law, which prohibits the processing of transactions for online bets and was seen by its backers as a way to enforce longstanding prohibitions on Web-based gambling, was used as recently as Dec. 5 to convict an individual in a federal court in Boston. The conviction was the first secured under the UIGEA. Also, in April, the Federal Bureau of Investigation shut down three leading online-poker sites and charged 11 persons with UIGEA violations.
But the UIGEA isn’t likely to stand in the way of the DoJ’s apparent permission to states to set up online gambling sites, says Rose. “The UIGEA is an enforcement law,” he says in an e-mail message to Digital Transactions News. “It requires that there be an examination of other federal or state laws to see if the gambling is illegal. It does require that the payment processor obtain a ‘reasoned Legal Opinion’ that the gambling is legal.” With the DoJ declaring the Wire Act is limited to sports betting, states that legalize instrastate gambling could clear the way for online poker and other games of chance, despite the UIGEA. Nevada and the District of Columbia have already done so, and Iowa is likely to be next, says Rose, as recession-racked states seek out ways to generate new revenue.
At the same time, efforts have emerged in Congress to defang the UIGEA by declaring online gambling legal while having federal authorities regulate and tax it.
