The Law of Internet Gambling

written by I. Nelson Rose

2017

I. Nelson Rose

Professor of Law, Whittier Law School

Costa Mesa, CA

Internet: GamblingAndTheLaw.com

Email: rose@sprintmail.com

Gambling and the Law®

The Law of Internet Gambling

Gambling online.
1. Individuals may make wagers from any computer with a modem.
  1. Greatest concern are the use of a personal computer (“PC”) from home or office.
    1. Can the operator be trusted?
      1. Is the game honest?
      2. Is the financial transaction secure?
      3. Has the operator connections with organized crime?
    2. Gambling creates dangers for society. Can the law —
      1. Minimize lost work and school time?
      2. Protect players from themselves, especially
        
        Problem gamblers?
        
        Minors? Mark Griffiths, Adolescent Gambling (1995).
      3. The Internet itself may be addicting, as are video games. Engaging gambling games compound the problem. Mark Griffiths, Presentation to National Research Council (Sept. 1, 1998).
    3. Are criminal laws being broken by the bettor? Operator? Server? Financier? Site developer?
    4. Older, established gambling businesses, especially the slower forms, such as pari-mutuel wagering on races, have difficulty competing with technologically advanced gaming machines.
      1. States have direct financial interests — legal gaming paid $16.8 billion in state taxes in 1996.
      2. The livelihood of hundreds of thousands of workers depends upon legal gaming.
      3. Does government have a legitimate role in keeping alive obsolete businesses? The gaming market is almost never a true free market, due to artificial government barriers.
  2. Most operators have sites on the World Wide Web and are contacted by dialing a server, such as America Online, using the PC’s modem.
    1. The best list is Rolling Good Times Online, www.rgtonline.com.
    2. Restrictions range from mere written warnings to “check you local laws” and “you must be over 18” to Finland’s requiring players have a local bank account (besides being entirely in Finnish).
    3. Some computerized wagering systems, such as YouBet!’s arrangement with Pennsylvania’s tracks, avoid servers and the Web — bettors’ modems call the off-track betting operators’ computer direct.
    4. Other technology is being developed, such as stand-alone Internet terminals that accept cash. A Burger King restaurant in New York’s financial district installed 20 computers and a T1 line and is giving 20 minutes of time for a minimum purchase of $4.99 ($3.29 for breakfast). Philip Greenberg, New “Combo” Meal: Dine and Surf, N.Y. Times (July 30, 1998) (emailed, no page available).
    5. Even the PC can be eliminated: MonaCall allows cybercasino gaming from a touch-tone phone.
  3. Gambling requires consideration, so only sites that accept money wagers are included in this discussion.
    1. Internet gambling sites require players to deposit “front money,” i.e., payment in advance, by credit/debit card, wire transfer, snail-mailed check or money order, or Internet funds, like CyberCash.
    2. Credit card transactions may take days: Operators sometimes wait until payments have cleared to prevent players canceling after losing.
      1. Gambling debts are usually not legally collectable; courts leave the parties as they find them; if the transaction has cleared, players usually cannot sue to get their money back, even if the gambling was illegal.
      2. A player who lost $70,000 in 18 months online has filed a counter-claim against Visa and MasterCard, alleging the bets were illegal in California, and asking for an injunction. Providian National Bank v. Haines, Case No. V980858 (Superior Court, Marin County, California) (Cross-complaint filed July 23, 1998) Courtney Macavinta, Net Gambler Sues Credit Firms, CNET NEWS.COM, www.news.com/News/Item/ 0,4,24561,00.html (July 24, 1998, 4 a.m. PT).
  4. Some operators claim they are licensed by foreign governments.
    1. Smaller countries, often island nations in the Caribbean and South Pacific, have issued licenses, usually to Americans and other foreigners.
      1. Government background checks of these gaming operations are often spotty or non-existent.
        
        Grenada sold an exclusive license to one operator, Sports International, and allowed that operator to sell sub-licenses. It appears the government did not check license applicants’ backgrounds.
        
        However, Antigua uses the FBI, Interpol and Scotland Yard for background checks on all applicants.
      2. Government oversight of these gaming operations are also often spotty or non-existent.
        
        Players have little guarantee that the games are run honestly, they will be paid if they win, or even that they can get their front money returned.
        
        Again, there are exceptions. Antigua has set up an anti-fraud division to investigate players’ complaints, funded by its annual fees of $75,000 for sports betting and $100,000 for cybercasinos.
    2. Some operators claim that they are licensed by First World Countries, including the United Kingdom, Austria and states in Australia, to accept bets over the Internet.
      1. In most cases the laws of these jurisdictions are either silent or would seem to prohibit such bets.
      2. However, some larger jurisdictions, including the U.K., have allowed their licensed operators to accept telephone wagers from the U.S. for about 10 years.
    3. Some governments run Internet games themselves: Online lotteries are owned by the Principality of Liechtenstein, Finland and the Coeur d’Alene tribe in Idaho.
    4. The operator’s computer may be on American soil, even if it claims to be operating overseas under a foreign license.
  5. Some operators do not even claim to be licensed.
2. Types of gambling.
  1. Sports betting — May still have the greatest dollar volume, though there are now more casino sites online.
    1. Betting on professional and college sports events was the first form of Internet wagering; though, operators used their websites primarily to advertise toll-free or 900 telephone numbers. Even today, more money is bet with licensed overseas sports books by phone than by computer.
    2. Players can bet ($11 to win $10) on real games against the bookie, or participate in fantasy sports leagues.
    3. Sports betting is one of the most attractive forms of at-home gambling.
      1. Bettors trust the results more than playing against an unseen computer and the outcome of wagers can be independently verified.
      2. Most Americans live in a state with a state lottery and casino gaming is legal in 29 states and U.S. territories; but, legal sports betting is not readily available.
      3. Sports betting is already associated with at-home gambling: placing a bet by phone (although with an illegal bookie) and watching the game on T.V. Sports betting, legal and illegal, began to boom with the broadcasting of Monday Night Football.
  2. Casinos — Blackjack, video poker and virtual three-reel slot machines, craps, roulette, baccarat, keno, pai gow poker and Caribbean Stud.
    1. Software quality, especially speed, graphics and sound quality, vary widely.
      1. Many games are painfully slow, because of the time needed to download illustrations like playing cards.
      2. Most sites allow front-loading, putting images on the PC’s hard drive with a CD or by downloading before play begins. These games play as fast and are nearly as entertaining as their counterparts played in a live casino.
      3. Some sites allow chats, so players may have social interactions with other players.
      4. The best sites turn the PC screen into a virtual duplicate of a casino video slot machine.
    2. Minimum and maximum limits on wagers also vary widely. Even with low stakes, the fastest games can run through hundreds of dollars an hour.
    3. Remote live play is now possible — a patent was issued in 1998 for a casino with video cameras connected to the Internet.
  3. Casinos with “no purchase necessary” — Dozens of sites allow players to obtain small number of chips for free.
    1. Most play is with chips purchased by credit cards.
    2. But the free alternative means of entry may make the games non-gambling “sweepstakes” under some state laws and maybe under federal law. See, Fed. Communications Com’n. v. American Broadcasting Co., 347 U.S. 284 (1954).
  4. Lotteries — The largest operators are the Principality of Liechtenstein and the Coeur d’Alene Indian tribe of Idaho.
    1. Games vary from passive, once a week drawings to instant tickets, indistinguishable from slot machines.
    2. Unlike traditional lotteries, many games do not have a pooling of players’ funds to create the prize.
  5. Bingo — Often connected with an Indian bingo hall.
    1. True bingo — at-home players play their cards online with and for money against other player online, or conceivably against other players both online and in real bingo halls.
    2. Proxy play — at-home players are represented by a player or computer acting as their agent in a live game played in a bingo hall.
      1. Future play — Players buy a card, which is then played on their behalf in a live game.
      2. Past play — Players buy a card and watch a bingo game on T.V., which was actually played hours before. A tribe obtained an injunction allowing it to offer at-home proxy play of Megabingo, on the theory the game is being played on Indian land, as required by federal law, and the televised game was not relevant, because players did not have to watch or participate.
    3. Free — Like other games, bingo may be played with no purchase necessary, if the prize is put up by a sponsor, similar to a promotional sweepstakes. In January, 1999 one site reported having 2,849 players competing for a $700 jackpot. www.gamesville.com, reported at www.rgtonline.com/ gamespage/artlisting2.cfm/3069 (Feb. 18, 1999).
  6. Off-Track Betting (“OTB”) — Players may bet on horse races and dog races.
    1. OTB, in its broadest definition, is betting on a race not taking place where the bettor is. Simulcasting allows the bettor to see the distant race live.
    2. OTB was the first legal gambling by wire. It began with intrastate intertrack wagers only when both tracks had races, then betting was allowed at fairgrounds and other tracks which were not having races, then intertrack interstate and finally stand-alone OTB parlors.
    3. Live horse racing is slow, with 20 minutes between races. Allowing bettors to wager on races taking place at other tracks creates non-stop betting action.
    4. There is no reason for bettors to be physically present; although, they like to see the races on a screen.
    5. Computers have been connected with handicapping races for decades.
    6. As with sports betting, the outcome of wagers can be independently verified.
  7. Poker — Players play against each other online, either for play money, AOL has a poker room, or for real money.
3. Size of the industry.
  1. 282 sites were listed on Rolling Good Times on February 13, 1999, as accepting real-money wagers. However, this includes dozens which may appear to be independent, but may actually be operated by a single company or its affiliates. See, Bigham’s Viewpoint, “Internet Clogging Up With Casinos,” at www.wheretobet.com/ index.html (April 22, 1998). Many of these are “no purchase necessary” casinos.
  2. The figure most frequently heard is $10 billion a year in revenue for online gaming by shortly after the turn of the century.
    1. The number comes from two sources:
      1. Frank Feather, futurist, 1996 World Gaming Congress & Expo keynote speech, predicted that alternative delivery methods like the Internet could reach 20% of the industry’s $50 billion North American revenue within ten years.
      2. Jason Ader, a senior gaming analyst with Smith Barney, May 1995, quoted by the Chicago Tribune as estimating at-home wagering could become a $10 billion industry.
    2. To generate $10 billion in revenue would require that $100 billion be wagered each year.
    3. Although the rate is constantly increasing, the current volume of gambling on the Internet appears to be in the range of less than $2 billion, generating revenue of no more than $200 million. I derived this estimate from the little public information available from Internet operators.
      1. Although growing exponentially, commerce on the Internet as a whole is still not very large, compared to traditional markets.
        
        Online sales to Americans of all products and services first topped $1 billion in 1997. Newsweek (Jan. 12, 1998). The Home Shopping Network, a comparable media, passed the $1 billion mark in phone-in orders two years earlier.
        
        The Los Angeles Times reported Internet sales rose from $2.4 billion in 1997 to $8 billion in 1998. L.A. Times at C11 (Feb. 16, 1999). But, it is unclear whether this represents worldwide sales, or only the U.S.
        
        Even if the $8 billion is U.S. only, it is “less than 1% of the country’s total retail sales. Id.
      2. eLottery, Inc., f.k.a. UniStar Entertainment (being spun off from Executone Information Systems Inc.), spent millions developing the Coeur d’Alene’s US Lottery. On April 28, 1998, this Internet game had a registered customer base of about 22,000, with about 4,200 active players. Actual ticket purchases equaled approximately $600,000 during the third quarter of 1997. By comparison, the Home Shopping Network had 4.6 million active customers.
      3. In confidential conversations I had with international lottery executives in June 1997, I was told the biggest online lottery, Liechtenstein’s InterLotto, has sales of approximately $50 million per year. This is consistent with published statements.
      4. Sports International, now called Interactive Gaming & Communications Corp., is publicly traded and thus one of the few companies that has to disclose its finances. The handle for 1996, the amount wagered by all customers, totaled $58,482,731. 10-K, filed Ap. 4, 1997 with the S.E.C. Revenues from net wins totaled $2,752,252. Because its costs are so great, especially its phone bills, the company actually lost money in 1996. By comparison, $2,428,600,000 was bet with licensed sports books in Nevada in 1995.
      5. When the federal government filed its first prosecutions of Internet sports betting, the U.S. Attorneys estimated that “on-line sports betting had garnered $600 million in gross revenues last year, up from about $60 million in 1996.” “14 Are Charged With Taking Sports Bets Over the Internet,” N.Y. Times at A1 (Mar. 5, 1998). The definition of “gross revenues” is unclear.
  3. Problems — Internet gaming is relatively small and likely to stay that way for at least the next few years.
    1. Technology — The Internet does not meet the Americans’ high expectations of what modern technology is supposed to deliver, based on their experiences with telephones, televisions, radios, microwave ovens, etc.: easy to use, reliable, instantaneous, high quality sound and graphics.
    2. Accessing the Internet currently requires a player to expend large amounts of money and time on computer hardware and learning how to use the accompanying software.
    3. Playing games, especially downloading images, is a slow, almost painful, process, with constant computer crashes.
    4. Players do not trust revealing their credit card numbers on the Internet, let alone giving the numbers to some unknown gaming operator in a foreign country.
    5. Bettors do not know if operators, or they themselves are breaking the law.
    6. Players have no way of knowing if they are being cheated. Rolling Good Times Online has a “Dog Doo Awareness” section listing, at the time of this writing, four sites it has investigated, and found wanting, as well as a dozen more reported in players’ uninvestigated complaints. Claimed cheating includes:
      1. Operators not paying off when players win. Thompson v. Handa-Lopez, Inc., 998 F.Supp. 738 (W.D.Tex. 1998) (suit alleges Internet site refused to pay $193,728.40).
      2. Operators refusing to return players’ front money.
      3. Games programed with unfair in favor of the operator, that do not match regulated live casinos, slots and lotteries. A separate issue is whether the free games most sites supply have odds that favor players, raising expectations that are dashed when the same type of games is played for money.
      4. Operators disappearing with investors’ money.
4. What type of gambling is it?
  1. History — Over the centuries, governments came to realize that different forms of wagering required different controls. Until recently, the primitive state of technology made this rather easy.
    1. Casino games are the most dangerous. The games are fast and the stakes can be high. Even without the extension of easy credit, players can destroy their financial lives. So, states and countries almost always completely banned casino games; although, there were sometimes exceptions for remote spas, open only to foreigners.
    2. Wagering on sports events and horse races was not a widespread social problem when bettors had to be physically present at the event. The invention of the pari-mutuel machine, telephone & telegraph led to the creation of “pool rooms” in the hearts of cities, and the need for off-track and phone betting to be outlawed.
    3. Lotteries depend on large numbers of customers and can raise large amounts of money, so governments either licensed or ran the games. The games took weeks before enough tickets were sold to have a drawing. Bettors had to have paper tickets to know whether their numbers had been drawn.
  2. Jurisdictions are free to define gambling terms as they wish. For example, courts have defined “lottery” as:
    1. A “widespread pestilence,” meaning available throughout a society, and thus much more dangerous than casino games. Stone v. Mississippi, 101 U.S. 814 (1880) (roulette is not a lottery).
    2. A gambling game of pure chance. Harris v. Missouri Gaming Com’n., 869 S.W.2d 58 (Mo. 1994) (roulette, among other casino games lacking skill, is a lottery); Boasberg v. U.S., 60 F.2d 185 (5th Cir. 1932) (bookmaking not within federal anti-lottery statutes).
    3. A gambling game where players need not be present to win; player participation does not affect the results. Ex parte Pierotti, 42 Nev. 243, 184 P.209 (1909) (slot machines are not lotteries).
    4. A game where the prize is formed by pooling players’ bets and not banking games. Western Telcon, Inc. v. California State Lottery, 13 Cal.4th 375, 53 Cal.Rptr.2d 812, 917 P.2d. 651 (June 24, 1996) (keno is not a lottery).
    5. Schemes, which people of today would recognize as being lotteries, and not gambling games. Knight v. State ex rel. Moore, 574 So.2d 662 (Miss. 1990) (bingo is not a lottery).
    6. “Any game, scheme or plan compromising prize, chance and consideration,” meaning “lottery” is synonymous with “gambling.” Kayden Industries, Inc. v. Murphy, 34 Wis.2d 718, 150 N.W.2d 447 (1967). A federal court ruled that Indian tribes in Wisconsin could operate casinos, because the state was operating a state lottery. Lac du Flambeau Band of Lake Superior Chippewa Indians v. State, 770 F.Supp. 480, appeal dismissed for lack of jurisdiction, 975 F.2d 515 (7th 1992).
  3. Courts are having to decide, for purposes either of legalizing or prohibiting, whether statutes dealing with one form of gambling, say “lotteries,” apply to more recently invented forms, say blackjack played on a video screen. E.g., West Virginia v. Mountaineer Park, Inc., 190 W.Va. 276, 438 S.E.2d 308 (1993).
5. Analysis of Internet gambling — Technology is breaking down the distinctions among the various forms of gambling. Every jurisdiction is free to decide how it wants to handle gambling, including definitions of terms. But, major tests have arisen:
  1. Sports betting and OTB on the Internet probably meets every anti-bookmaking statute. Some operators, like Kerry Rogers (see discussion of State v. Granite Gate Resorts, Inc. under Personal Jurisdiction), assert they are not in the business of gambling, because they merely try to match bettors on opposite sides of sports events. This is a limited form of pool-selling, a type of bookmaking.
  2. True Internet lotteries, where there is a pooling of players’ wagers, are lotteries under any test.
  3. Internet instant lottery games, where players bet against the house, are lotteries under the “pure chance” and “need not be physically present” tests. However, these are also banking and percentage games, because the house participates and has a percentage advantage; in some jurisdictions banking games are casino games and not lotteries.
  4. Internet blackjack.
    1. On the surface it appears to be a casino game. It is a banking and percentage game. But there is no casino, no dealer and not even any cards.
    2. Machines are clearly involved. The Attorney General of Missouri indicted Pennsylvania residents operating a cybercasino in Granada for setting up a gambling device, the PC located in Missouri operated by an agent of the A.G. Older statutes may require that a gaming device actually take or deliver cash before it is declared a slot machine.
    3. Since a telephone line is used, linking players’ personal computers to operators’ computers in foreign countries, the wagers may fall under the anti-bookmaking statutes. Older anti-bookmaking statutes often include language about wagering on contests of speed or skill. Playing a game head-to-head with a computer may not be a “contest.”
    4. Winners are determined by the host computer’s random number generator, players do not have to be physically present to play, and players are not really playing a card game, but only choosing numbers — just like a lottery.
      1. State Lotteries are offering a similar game, only played on paper, or on Video Lottery Terminals (VLTs).
      2. The very few courts that have looked at the question have decided that playing a game on a video monitor is not a lottery. The State Lotteries that run VLTs usually are allowed to do so because specific statutory or constitutional provisions have been adopted permitting these devices. See, e.g., Poppen v. Walker, 520 N.W.2d 238 (S. Dakota, 1994).
      3. Some skill is involved, assuming the online casino’s programing is honest. So, Internet blackjack would not be a lottery in jurisdictions following the “pure chance” test.
Federal laws which might apply.
1. Criminal Statutes and Regulations.
  1. Interstate Wire Act, 18 U.S.C. §1084 — Elements & Analysis.
    1. “Business of betting or wagering” only – not common players.
    2. “Knowingly uses a wire communication facility” — designed for telephone & telegraph but covers Internet, unless direct uplink to satellite and downlink to home receiver.
    3. “Transmission in interstate or foreign commerce” —
      1. Explicitly designed to cover international activities.
        
        Does not cover purely intrastate wagering.
        
        Does not cover wagering information sent from international waters to the U.S. U.S. v. Montford, 27 F.3d 137 (5th Cir. 1994) (must have some contact with a foreign country).
      2. “Transmission” probably does cover Internet sites that passively receive instructions from players. The 7th Circuit held a ticker tape machine which could only receive, not transmit, gambling information did not fall within the prohibition on transmissions, United States v. Stonehouse, 452 F.2d 455 (1971); but the 8th Circuit held the opposite, United States v. Reeder, 614 F.2d 1179 (1980).
    4. “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” —
      1. Designed to cover both actual wagers and gambling information, such as instructions and “the line,” i.e. point spreads.
      2. Ambiguous whether “bets or wagers” and “information” stand alone or modify “sporting event or contest;” are Internet lotteries and casinos covered? All reported court decisions deal with bookies taking wagers on sports events and races (by telephone); no reported cases on any other form of gambling. In February 2001, Judge Duval of the U.S. District Court for the Eastern District of Louisiana specifically held that the Wire Act does not apply to Internet gambling, other than sports wagering. Consolidated class actions by players against Visa and MasterCard were dismissed. In re: Mastercard International Inc., Internet Gambling Litigation, and Visa International Service Association Internet Gambling Litigation, 2001 WL 197834 (E.D.La. 2001).
    5. “Shall be… imprisoned not more than two years” — a felony.
    6. Exemption for “news reporting.”
    7. Exemption “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.”
      1. Designed to allow licensed Nevada race books to receive race results from other states.
      2. Specifically not intended to allow out-of-state players to make bets across state lines. H.R. Rep. No. 967, 87th Cong., 1st Sess. 1961 (August 17, 1961), to accompany P.L. 87-216, S1656 (18 U.S.C. §1084).
      3. However, at least six states allow their off-track betting operators to accept out-of-state phone wagers, under the theory that they are completely exempt because the OTB is legal, or that this exemption allows bets from any state where betting on horse races is legal. See discussion under “State Laws which might apply” supra.
    8. Common carriers (telephone companies) required to discontinue service if told to by law enforcement agency on any level, federal, state, or local. Common carriers protected from all liability. Suit may be brought to restore service, and burden of proof is on phone companies.
    9. Off-shore sports books are probably not protected by being licensed. Courts have ruled that Congress has the power to regulate or prohibit all interstate gambling. In Martin v. United States, 389 F.2d 895 (5th 1968), convictions were upheld on a business that took bets in Texas, telephoned partners in Nevada, and placed the bets with licensed Las Vegas sports books.
  2. Conspiracy, 18 U.S.C. §371 — A conspiracy to commit a crime is a crime itself, possibly a felony, even if the conspiracy is unsuccessful.
    1. The general conspiracy statute requires an agreement, the purpose of the agreement must be to commit an unlawful act, at least one co-conspirator must do an overt act in furtherance of the conspiracy.
    2. A co-conspirator may be convicted of a conspiracy that took place both in the United States and in a foreign country, even though he performed no overt act within the United States. United States v. Inco Bank & Trust Corp., 845 F.2d 919 (11th Cir. 1988).
    3. For special conspiracy statutes, such as conspiracy to commit racketeering, no overt act is required. Salinas v. United States, 522 U.S. 52, 118 S.Ct. 469, 139 L.Ed.2d 352 (1997).
  3. Money laundering, 18 U.S.C. §1956 — The most dangerous statute for Internet gambling operations.
    1. Held to be separate crime from illegal gambling, no double jeopardy. United States v. Conley, 37 F.3d 970 (3d Cir. 1994).
    2. Crime includes conducting a financial transaction involving the proceeds of unlawful activity, defined as racketeering, including violating the Wire Act.
    3. Extreme punishments — Under the Federal Sentencing Guidelines, a Wire Act violation would likely get 12 months in prison and a $30,000 fine; a conviction for money laundering begins with a mandatory sentence of four years and can easily reach 20 years, plus a fine equal to 100% of the money that passes through the site. Paul S. Hugel, Criminal Law and the Future of Internet Gaming, 2 Gaming L.R. 143 (1998).
  4. Amateur and Professional Sports Protection Act, 28 U.S.C. §§3701-3704 — Prevents any state or tribe from authorizing sports betting.
    1. Congress grandfathered-in states with legal sports gambling.
      1. This possibly creates opportunities for Internet operators on Indian land in those states.
      2. It also may be a way to circumvent the Wire Act, which has an exemption if the bet is legal on both ends.
    2. The statute is of questionable constitutionality, because there is no rational reason for the forms of sports wagers it allows and those which it prohibits., and even which states get special treatment and benefits.
      1. It is difficult to see how the federal government is remedying the problem when it allows the largest forms of sports wagering to continue in Nevada.
      2. Other grandfathered-in sports wagering:
        
        Delaware and Oregon – Lotteries based on sports events.
        
        Montana, North Dakota and Wyoming – Calcutta pools on sports events. MT.St. §§ 23-5-221, 23-5-501 (all college and professional sports); ND.St. § 53-06.1-07.3 (in-state events only).
        
        Mississippi – “Sports pools.” MS.St. §75-76-5.
        
        New Mexico – “Keirin,” pari-mutuel wagering on bicycle racing.
        
        Washington and Montana – Low-limit sports cards. WA.St. § 9.46.0335 (no license required).
    3. The Act is concerned with limiting the power of states and tribes to authorize sports betting and does not address sports books licensed by foreign countries.
    4. It is unclear if the Act would prevent a grandfathered-in state, such as Nevada, from authorizing Internet sports books. The sports betting service must be “operating in” that state. See “Where does the bet take place,” supra.
  5. Miscellaneous anti-gaming and anti-lottery laws.
    1. “Illegal gambling business” under the Organized Crime Control Act (“OCCA”), 18 U.S.C. §1955 — Turns state gambling crimes into a federal offense. Requires five or more persons in business for more than 30 days or gross revenue of $2,000 in any single day. Federal jurisdiction is based on the presumption of an impact on interstate commerce. OCCA covers everyone involved in the financial and operational side of the gambling business, but not bettors. Present state anti-gambling statutes, with the exception of Nevada and Louisiana, were not designed to get at out-of-state Internet operators and would not be a strong foundation for a §1955 charge.
    2. The Travel Act, 18 U.S.C. §1952 — Makes it a federal crime to travel or use any facility in interstate or foreign commerce to carry on “unlawful activity,” defined as a business enterprise involving gambling “in violation of the laws of the State in which they are committed or of the United States.” The Act would seem to be limited to the transportation of physical items, but courts have held “facilities” includes telephone lines carrying gambling information. United States v. Smith, 209 F.Supp. 907 (E.D.Ill. 1962); United States v. Villano, 529 F.2d 1046, 1052 n.6 (10th Cir. 1975).
    3. Interstate Transportation of Wagering Paraphernalia (“ITWP”), 18 U.S.C. §1953 — This law is more clear than the Travel Act in being limited to physical items. However, law does cover software that can be used by illegal bookies, if shipped on discs.
    4. Lottery Statutes, 18 U.S.C. §§1301-1307 — Broad prohibitions on importing, shipping in interstate or foreign commerce, or using the U.S. mails for lottery material; but, probably limited to physical items.
      1. Section 1301 was amended in 1994 after the Pic-A-State case, to prohibit the use of agents in other states buying out-of-state lottery tickets. Pic-A-State Pa., Inc. v. Commonwealth, 1993 WL 325539 (M.D.Pa. 1993); 42 F.3d 175 (3rd Cir. 1994).
      2. Section 1304 puts restrictions on “broadcasting” “any advertisement… or information concerning any lottery…” The Federal Communications Commission construes “lottery” broadly, as including virtually every form of gambling, but, “broadcasting” narrowly: the signal must be able to be picked up by anyone from the air and without a scrambler. Internet communications are not broadcasts.
      3. But, the F.C.C. can fine a radio or T.V. station that broadcasts advertising for Internet gambling. 47 C.F.R. §§73.1211 and 76.213.
    5. Gaming devices, Johnson Act, 15 U.S.C. §§1171-1178 — Restricts gambling devices from being shipped interstate or on federal land. Requires the device be “designed and manufactured primarily for use in connection with gambling,” which would exclude all but dedicated terminals.
  6. Racketeer Influenced and Corrupt Organizations (“RICO”), 18 U.S.C. §§1961-1968 — designed to reach the upper echelon of organized crime.
    1. Draconian civil and criminal punishments, fines, forfeitures and imprisonment.
    2. Covers anyone involved with an organization that commits two predicate crimes within ten years. Makes a federal crime of state felony gambling offenses. Also includes the Wire Act, Travel Act, ITWP, OCCA, money laundering and mail fraud.
    3. If Internet gambling is illegal, the operators can be charged with RICO.
  7. The Communications Act of 1934 gives the Federal Communications Commission (“FCC”) authority to regulate all interstate and foreign wire communications, broadly defined. 47 U.S.C. §§151, 153. But, the FCC has made it clear it will have nothing to do with the Internet. Federal law enforcement is thus left to the Department of Justice (“DOJ”). Pure intrastate communications are outside the FCC’s jurisdiction and are regulated by the states.
2. Recent Developments.
  1. Proposals in Congress to amend the Interstate Wire Act.
    1. Internet Gambling Prohibition Act, author Jon Kyl (R.-Az), commonly called “the Kyl bill,” first proposed as part of the Crime Prevention Act of 1995, 141 Cong.Rec. S19110-07, S19113-4 (Dec. 21, 1995); reintroduced as SB 474 (March 19, 1997), passed by Senate when attached to appropriations bill, but deleted from final version of appropriations bill, H.R. 4276, in House. Other bills: HR 4350 (Introduced July 29, 1998), HR 2380 (introduced Sept. 3, 1997). Bills have gone through many rewrites and the Senate and House proposals differ in significant details. Major features present in some or all:
      1. Amend the Wire Act, 18 U.S.C. §§1081 and 1084;
      2. Attempt to clarify which types of gambling are illegal;
      3. For the first time, make it a federal crime (a misdemeanor, up to six months jail and a fine) to make a bet over the Internet.
      4. Increase punishment for felony of being in the business of gambling and violating §1084;
      5. Allow licensed OTB operators to take Internet bets, but only intrastate; details vary.
      6. Exempt “closed-loop subscriber-based services.”
      7. Exempt fantasy sports leagues.
    2. Problems with the Kyl and other bills:
      1. First Amendment — Language has been narrowed, but still covers advertising and other information.
      2. Treaties requiring the U.S. to consult with foreign governments before imposing criminal penalties for acts committed in those countries;
      3. Sovereignty of foreign governments may be impinged upon.
      4. Enforceability — Federal government cannot arrest:
        
        Millions of Americans using PCs in the privacy of their own homes;
        
        Foreign citizens operating under a government license in their own country;
        
        Foreign governments, like Liechtenstein, when the government itself is the operator.
    3. The state Attorneys General — the most active and vocal opponents of Internet gambling. The National Association of Attorneys General (“NAAG”) created a task force of 39 states in June, 1995, led by Hubert H. Humphrey III, Minnesota; James E. Doyle, Wisconsin; and Daniel E. Lungren, California. It found six “major deficiencies” in the Interstate Wire Act and urged amendment of §§1084 and 1081 (definitions):
      1. Current federal law only applies to gambling businesses. It is not a federal crime to make an illegal wager. “Add a penalty for ‘casual bettors.’”
      2. The law clearly prohibits wagers on sporting events, but it is unclear whether it covers other forms of gambling, such as lotteries or Internet casinos.
      3. It is a crime to send information that aids in the making of wagers, but the law is ambiguous about receiving such information. An Internet gambling operator could claim its computers are simply passively receiving bets.
      4. The law is limited to “wire” communications; an Internet operator could get around the law by using microwave transmitters and home satellite dishes.
      5. Telephone companies, let alone Internet access providers, are not criminally liable if an illegal bookie uses a telephone line.
      6. The present law does not allow “a prospective remedy” for law enforcement. NAAG wants to add a civil remedy, similar to the Red Light Abatement laws that allow closing down brothels, since obtaining a criminal conviction against an Internet operator would be so difficult.
    4. Response by U.S. Department of Justice, “Thanks, but no thanks.”
      1. A unique situation: states asking the federal government to assume more power, and the feds refusing.
      2. The DOJ does not want to be in the business of arresting gamblers. The DOJ’s Criminal Division sent NAAG a letter stating: “[T]he Department does not agree that federal law should be amended so broadly as to cover the first-time bettor who loses $5, particularly when Internet gaming is expected to mushroom and federal resources are shrinking.” “Moreover, we believe that the envisioned expansion of federal jurisdiction would not serve as a deterrent to Internet gaming since it is unlikely that federal prosecutions will be pursued against bettors.”
      3. Under pressure from NAAG and Congressional hearings, DOJ made a showy arrest of Internet operators using laws already on the books. See below.
    5. Present operators want exemptions.
      1. Legitimate Internet gambling operations want to be regulated, not outlawed.
      2. Horse racing interests —
        
        Racing industry wants to preserve the Interstate Horse Racing Act, 15 U.S.C. §§3001-3007, which set up a complicated system to allow licensed OTB operators to take bets on foreign races.
        
        Some OTB operators, presently taking interstate telephone wagers, do not want to at-home bettors explicitly excluded.
      3. Indian tribes — Only one, the Coeur d’Alene, is presently taking Internet wagers. But tribes are concerned about any infringement on their sovereignty. And many tribes have Internet linked slot machines and bingo games to protect.
  2. Criminal complaints filed by U.S. Attorney in New York City.
    1. The first federal charges for Internet gambling were filed in March, 1998 against 14 individuals connected with six companies. All defendants claim their gambling businesses were licensed by foreign countries. All were operating openly, even taking out ads in Pro Football Weekly and other magazines. There is no allegation of any connection with organized crime.
    2. Some commentators have said it is going to be hard to get convictions. But the federal prosecutors spent months gathering evidence, choosing only the most vulnerable defendants and framing their Complaints to make the strongest possible case:
      1. Only Americans were charged, avoiding the sticky question of whether this country can arrest a citizen of another country, who claims to be licensed by his own government. There is little dispute that the U.S. can charge American citizens with certain crimes, no matter where in the world they may live.
      2. The only form of gambling involved was sports betting. If the Wire Act covers anything, it is sports betting.
      3. The defendants were not charged with violating the Wire Act, but rather with conspiracy to violate the Wire Act. Prosecutors do not have to prove the defendants transmitted any bet by wire to another country, only that they agreed to do so and one of them did an “overt act” in furtherance of the conspiracy.
      4. Only operators and others involved in the business of gambling were charged. As a matter of public relations, it would have been awkward to explain arresting bettors, when the whole point of the anti-gambling laws is supposed to be to protect the public.
      5. The government only charged individuals who made the mistake of conducting part of their operations within the U.S.: Defendants sent envelopes with return addresses of Costa Rica, Curacao and the Dominican Republic, but with postmarks from Florida, Texas and Nevada and carrying U.S. stamps; 800-numbers had been given to U.S., not foreign, companies; defendants wrote checks on banks in this country; one undercover agent even received a $400 U.S. Postal Money Order with a handwritten note that it was sent from Las Vegas.
      6. Every sports book took at least one bet over the telephone, giving prosecutors a fall-back position if a court rules the Wire Act does not apply to the Internet.
    3. The immediate impact of these criminal charges was virtual panic among cyber-bettors. Foreign sportsbooks that accept bets by phone or online are barring Americans — or closing their doors completely; apparently some operators are disappearing with the loot. The Las Vegas Sporting News reported that a sportsbook located in the Dominican Republic folded, leaving at least one player unable to retrieve $10,500 from his telephone-betting account.
    4. The DOJ pulled off a great public relations coup. It showed it can put the fear of God into the entire industry — using laws already on the books; thus, that the new laws are unnecessary — at least for the easy cases.
    5. Many defendants have accepted plea bargains, but at least one has made motions to dismiss. United States v. Jay Cohen, Indictment No. 98 CR 294 (TPG) (S.D.N.Y. 1998).
State laws which might apply.
1. Statutes explicitly designed to cover Internet gaming.
  1. Nevada — SB 318 (codified at in NRS 465.091 to 465.094), signed into law on July 17, 1997 by Gov. Bob Miller, makes Nevada the first state to explicitly prohibit — and allow — gambling via the Internet.
    1. An Internet operator, anywhere in the world, who accepts a wager from a person who is physically present in Nevada commits a misdemeanor and “may be prosecuted within this state.” There is no exception for licensed out-of-state operators.
    2. Anyone who makes a bet from Nevada via the Internet is committing a misdemeanor, regardless of where the person accepting the wager may be. Even before Prohibition, there have been few attempts to go after common bettors. This is the first, and so far only, law in this country which makes it a crime to make a bet on the Internet. Sen. Kyl’s bill would make it a federal crime, as well.
    3. Servers, like America Online, are also now covered, if they are aware gambling is taking place. It is a crime to “knowingly… send, transmit or relay” a wager from within Nevada to anywhere via the Internet, or from outside the state into Nevada via the Internet.
    4. Exceptions: Because this is Nevada, it should come as no surprise that the new criminal penalties do not apply to wagers accepted in the state by:
      1. Nevada-licensed race and sports books;
      2. Nevada-licensed off-track pari-mutuel betting operators; and
      3. “Any other person or establishment that is licensed to engage in wagering” in Nevada; meaning casinos. Notice it is a crime for a Nevada resident to make an out of state bet, but perfectly legal for Nevada operators to accept wagers from anywhere in the world.
  2. Louisiana — LSA-R.S. 14:90.3, enacted July 15, 1997.
    1. Makes gambling by computer a misdemeanor. Defined as “conducting as a business of any game, contest, lottery, or contrivance whereby a person risks the loss of anything of value in order to realize a profit” over the Internet; bettors not covered.
    2. Makes it a felony, up to five years hard labor and $20,000 fine, to design, develop, provide etc. any computer services or any server providing a web site “or any other product accessing the Internet… offering to any client for the primary purpose of the conducting as a business” any gambling.
    3. Statute exempts providers of online access, web sites, etc. if done “in the normal course of their business,” unless “its primary purpose in providing such service is to conduct gambling as a business.”
    4. Statute does not explicitly give state jurisdiction over out-of-state offenders.
  3. Bills under consideration:
    1. Arizona — HB 2367 (Introduced 1997).
    2. California — SB 777 (1997) would have outlawed all Internet betting; while SB 141 (1997) would have permitted racing associations to accept out-of-state wagers by phone or any other approved communications technology.
    3. Hawaii — House Concurrent Resolution No. 150 (1997).
    4. Illinois HB 793 (2/10/99), SB 4 (1/14/99), HB 1484 (1/19/99).
    5. Indiana HB 1484 (1/19/99); HB 1134 (1/6/99).
    6. New York — SB 917 (1/1/2/99), SB 2044 (2/2/99); SB 4174 (1997) and AB 8044 (1997) would have required foreign companies to register with the Secretary of State; AB 7818 (1997) would have required posting bonds.
    7. Pennsylvania — HB 2271 (2/24/98).
2. Statutes that have been construed as covering Internet gaming.
  1. Minnesota — see discussion under Personal Jurisdiction. First attorney general to post notice on Internet — legal theory appears to be that an Internet gaming operator aids and abets the crime of making a bet in Minnesota. This will not work, because the state legislature has differentiated between individuals making a bet and those accepting a bet. If a gaming operation is guilty of aiding and abetting making a bet, then a drug buyer is guilty of aiding and abetting selling drugs.
  2. Missouri — Attorney General Jay Nixon has been one of the most active governmental officials in pursuing civil and criminal actions against Internet gambling operators.
    1. In State v. Interactive Gaming & Communications Corp., CV97-7808 (Cir.Ct. Jackson County, Mo. May 22, 1997), Nixon obtained a permanent injunction against defendant and its subsidiary, Global Casino, Ltd.
      1. Defendant was served in its headquarters in Blue Bell, PA, but refused to answer or appear.
      2. Undercover agents send a money order for $100 to defendant’s address in Pennsylvania.
      3. Defendant agreed not to accept any applications from Missouri residents for casino gambling services, but did.
      4. The court in Missouri held there was personal jurisdiction.
      5. Defendant was enjoined from marketing in Missouri, from representing that its services were legal in that state; from accepting applications from residents of Missouri and was ordered to post notices. Defendant was also fined and ordered to pay costs.
    2. Interactive Gaming Corp. and its President, Michael Simone, continued to take wagers from Missouri — pleaded guilty.
      1. Nixon obtained a criminal indictment that Simone had “traveled to” Missouri and “set up” a “gambling device” (the undercover agent’s PC), which contacted defendant’s Pennsylvania web site.
      2. Nixon obtained an extradition order from a trial court in Pennsylvania, upheld on appeal.
    3. Nixon was almost as successful against the Coeur d’Alene Indian Tribe’s US Lottery; see discussion infra.
  3. Florida — Attorney General Butterworth ordered Western Union to cease wiring players’ money to off-shore sports books. Butterworth had previously issued an Opinion that state law prohibits individuals within the state from placing a bet by wire. Fla.AGO 95-70 (Oct. 18, 1995).
  4. Indiana — In the Attorney General’s opinion, “A Hoosier gambling on the Internet by sitting at her computer, feet firmly planted on Indiana soil, with credit-card number close at hand, is ‘gambling’ unlawfully in Indiana; for that Hoosier to gamble over the Internet from her home, office, or favorite tavern is not different in practical or legal terms from gambling by telephone, even if the person or computer taking the bet is at some exotic location; consequently, the individual making a bet and the person taking the bet are both lawbreakers.” 1998 Op.Atty.Gen. 98-8. Indiana Attorney General Jeff Modisett sent emails to several dozen gambling-related websites asking administrators to inform visitors accessing the Net from Indiana that they are breaking the law. www.rgtonline.com/index.cfm?BodyLoc= /newspage/artlisting.cfm/2494.
  5. California — Attorney General Dan Lungren, held Penal Code §§330 & 337a prohibits making a bet by phone from within the state to a licensed foreign sports book. 80 Ops.Cal.Atty.Gen. 98 (April 25, 1997). These statutes do make it criminal to place as well as take wagers; however, §330 covers only casino banking and percentage games and §337a only sports contest and races. Internet lotteries and bingo would not be covered; nor would Internet casinos, if computerized craps is legally a lottery rather than a banking or percentage game.
  6. Texas AG Op. — Dan Morales opined that the federal Wire Act would apply not only to sports betting, but also to card games on the Internet. Tex.A.G.Op. No. DM-344 (1995).
  7. Kansas — Kan.Atty.Gen.Op. No. 96-31 (March 25, 1996) — Anyone placing a bet on an Internet virtual casino using a computer in the state may be prosecuted in Kansas.
  8. Wisconsin — See personal jurisdiction, supra.
3. States allowing telephone, and sometimes computer, off-track betting. New York and Nevada are the only states with statutes which expressly allow out-of-state phone wagers. In other states, legislative silence is taken as permission. Pennsylvania is the only state, at present, accepting computer wagers from bettors located in other states.
  1. Pennsylvania — The Commonwealth’s Legislature authorized telephone betting. 4 Pa. Stat. §325.218(b). Racing regulators decided this means OTBs may accept wagers by computer, under the theory that computers use telephone lines. Regulators also feel the federal Wire Act simply does not apply, so bets are accepted from anywhere in the world.
  2. New York — NY Rac.Pari-M. §1012. The New York Racing Association announced in 1997 that it would be accepting wagers by computer; New York Senate’s Committee on Gaming and Wagering held public hearings on March 12 and March 20, 1997, on the issue of whether New York’s off-track betting corporations should be prohibited from offering online wagering services.
  3. Nevada — Gaming Control Act §464.020 ¶3(b) restricted pari-mutuel wagering to places where the race or sporting event is taking place and to licensed race and sports books; while regulations have allowed intrastate telephone wagers for at least ten years. Regs. 22.140. In 1995 the Nevada Legislature passed SB 401, amending the Act to allow “wagers made by wire communication from patrons within the State of Nevada or from states in which such wagering is legal.” However, no regulations have as yet been promulgated.
  4. Oregon — In 1997 the Legislature authorized “account wagering,” in which players deposit money in advance and then bet “in person, by direct telephone call or by communication through other electronic media.” O.R.S. §462.142. Regulations have not yet been promulgated, but will probably allow out-of-state bettors.
  5. Connecticut — In 1993 the state sold its off-track betting system to Autotote, a publicly traded corporation. Regulations prohibiting out-of-state telephone wagers were deleted. In December 1995 Autotote suspended accepting bets from 28 states, fearing that it might be violating state (not federal) laws.
  6. Kentucky — Ky. Rev. Stat. §230.379. Ellis Park is accepting telephone wagers from throughout the nation. The Kentucky Racing Commission conducted tests of “in-home access:” televisions with a box for the fan to swipe his credit card before making bets.
  7. Maryland — Md Code, Bus. Reg., tit. 11 §11-805. Statute allows telephone wagers, but governor refuses to allow regulations to be promulgated.
  8. Ohio — Beulah Park had been taking interstate phone bets. The racing board abolished its enabling regulation after the Attorney General ruled telephone wagering illegal, 1995 Ohio Op. Atty. Gen. No. 95-034 (Oct. 10, 1995). Legislation is pending.
4. States have considered other forms of at-home wagering — intrastate only, so far.
  1. At least three state lotteries tried telephone games: California, Indiana and Massachusetts. Second-chance games let players with losing paper lottery tickets enter by calling 800- or 900-numbers. The games had consideration, because players could bet more, by dialing the 900-number, for the chance of winning more.
  2. The most interesting U.S. experiment never got off the ground. In 1991, the Minnesota State Lottery announced that it would conduct a market test of at-home lottery games played on Nintendo video sets. The governor warned the Lottery that if it did, he would cut its marketing budget to zero.
Problems for law enforcement and civil plaintiffs when the operator is physically within the U.S.
1. Although the Internet is not without precedent, the law is having trouble deciding upon the appropriate analogy: is it more like direct mail or television?
  1. Although the Internet is interactive, like mail or telephone, websites are passive and the user has to choose to receive the message, like television or radio, and similarly there is no way of stopping it at the border.
  2. The law is able to adapt to major technological developments. For example, a more revolutionary idea was the telegraph. For the first time Americans could be in easy and instantaneous communication with individuals in other states and countries. Pensacola Telegraph Co. v. Western Union Telegraph Co., 96 U.S. 1 (Mem), 6 Otto 1, 24 L.Ed. 708 (1877).
2. Where does the act take place?
  1. Criminal law:
    1. Substantive — Sports book licensed in Jamaica and the Dominican Republic which took telephone wagers from the U.S. held did not accept bets in Texas under state anti-bookmaking law. Title 10, Texas Penal Code, Chapter 47 defines bookmaking as “to receive and record or to forward a bet.” United States v. Truesdale, 152 F.3d 443 (5th Cir. 1998), convictions for illegal gambling in violation of the OCCA (18 U.S.C. §1955) and companion counts, conspiracy (18 U.S.C. §371) and money laundering (18 U.S.C. §1956), overturned.
    2. Jurisdiction — In Lamar v. United States, 240 U.S. 60 (1916), defendant was charged with impersonating a member of Congress with intent to defraud; held: the federal court in New York had jurisdiction because defendant’s impersonation was by phone to a person in New York, so the crime took effect there.
    3. Venue — Criminal venue statutes for interstate crimes.
  2. Contract law — A wager is a contract that is not completed until accepted.
  3. Indian law — The Indian Gaming Regulatory Act (“IGRA”) allows tribes to run lotteries, but only if gaming “takes place” on Indian land. 25 U.S.C. §§2702(3) and 2710(d); the Coeur d’Alene tribe’s “US Lottery” is testing whether gaming on the Internet is on Indian land.
    1. Under provisions of the Wire Act, 18 state attorneys general told AT&T and other telephone companies to cut off service. The Tribe sued the phone companies in its tribal court and won. On December 17, 1998, the federal district court reversed, holding the lottery was a gaming activity not on tribal lands. AT&T v. Coeur d’Alene Tribe, CIV 97-392-N-EJL (D.ID. 1998).
    2. Similarly, the Attorney General of Missouri sued the tribe, its operator and tribal officials in state court; the tribe removed. On January 6, 1999, the 8th Circuit reversed a trial court ruling that there was federal subject matter jurisdiction: If the state court decides the gaming was not on Indian land, the federal IGRA would not preempt state anti-gambling laws. State ex rel. Nixon v. Coeur D’Alene Tribe,— F.3d —, 1999 WL 2641 (8th Cir. 1999).
3. Personal Jurisdiction.
  1. 1. Plaintiff, the state itself through its Attorney General, Hubert H. (“Skip”) Humphrey, III, filed a civil, not criminal, complaint. The causes of action: deceptive trade practices, false advertising and consumer fraud, for advertising on the Internet that defendants’ sports betting web-site, WagerNet, licensed in Belize, would be legal. Defendant Kerry Rogers, a resident of Nevada, moved to dismiss for lack of personal jurisdiction.
    2. Minnesota’s long-arm statute, Minn.Stat. §543.19, goes to the limits of due process under the federal constitution.
    3. Quantity of contacts — Defendant refused to cooperate with limited discovery and, as a sanction, the trial court ruled that at least one Minnesota resident was on WagerNet’s mailing list. Minnesota computers contacted defendants’ websites hundreds of times.
    4. Quality of contacts — Defendants advertised on the Internet to develop a mailing list and had a toll-free number. The Court of Appeals used as precedents Internet cases as well as T.V. and radio broadcasters, who knew their program would enter a state, and national direct mail solicitations.
    5. Connection between cause of action and contacts — Here the claims arise directly from defendant’s contacts. Precedent: State v. Reader’s Digest Ass’n., Inc., 81 Wash.2d 259, 501 P.2d 290 (1972) (mailing sweepstakes entry information constituted illegal lottery within state).
    6. State’s interest — The claims here are consumer protection and, most important, control of gambling.
    7. Convenience of parties — The U.S. Supreme Court has never held it too inconvenient for a resident of one state to have to travel to another. Here, defendant weakened his case by reserving the right to sue customers where they live: if he can travel to Minnesota as a plaintiff, he can as a defendant.
  2. State v. Granite Gate Resorts, Inc., 1998 WL 240133 (Minn. May 14, 1998), affirming 568 N.W.2d 715 (Ct.App.Minn. Sept. 5, 1997). In a 3-to-3, one sentence order, the Minnesota Supreme Court became the first state high court to confirm personal jurisdiction over an out-of-state Internet gambling operator. But, the case is a weak precedent, in part, because it is so strong procedurally (though not substantively). International Shoe Co. v. Washington, 326 U.S. 310 (1945), requires that the defendant have “minimum contacts” so the suit “does not offend traditional notions of fair play and substantial justice.” Hanson v. Denckla, 357 U.S. 235 (1958), requires the defendant “purposely avails itself of the privilege of conducting activities within the forum state…”
  3. Thompson v. Handa-Lopez, Inc., 998 F.Supp. 738 (W.D.Tex., March 25, 1998). Much stronger case: Held California Internet gaming operator can be sued for non-payment of Texas player in Texas.
  4. Three law suits filed by Wisconsin A.G. James Doyle in September 1997: 1) UniStar Entertainment, developer games for the U.S. Lottery (pending in federal court); 2) Net Bet, Inc., and Torrey Pines Nevada, Inc., operators of Casinos of the South Pacific (pending in Dane County Circuit Court); 3) On-Line International, resolved: On-Line International ordered dissolved by United States District Judge John C. Shabaz in a consent decree that was entered upon agreement of the parties, “also barred the owners, officers, and employees of On-Line and its parent corporation, World Wide Web Casinos, Inc., headquartered in Santa Ana, California, from forming any new Wisconsin corporation for the purpose of operating an Internet gambling website.” Internet Gaming International Newsletter, vol. 1, no. 5 at p. 1, 3 (May, 1998).
4. Indian tribal sovereignty — A more difficult barrier.
  1. The U.S. Supreme Court recently ruled that tribes have greater sovereign immunity than countries, even than the United States itself. Kiowa Tribe of Oklahoma v. Manufacturing Technologies, Inc., 523 U.S. 751, 118 S.Ct. 1700, 140 L.Ed.2d 981 (U.S. 1998).
  2. Federally recognized tribes have sovereign immunity and cannot be sued without their consent; though, Ex parte Young, 209 U.S. 123 (1908), may allow injunctions against tribal officials.
  3. Tribe’s sovereign immunity does not normally extend to non-tribal, private operators; however, if impact on tribe’s sovereignty is too great, third parties may be protected.
Problems for law enforcement and civil plaintiffs when the operator is outside the U.S., besides all issues raise in IV above.
1. How foreign countries are handling Internet gambling —
  1. Government operating the games themselves.
    1. Liechtenstein — Accepting bets from anywhere in the world, with the significant exception of the two relatively powerful countries that completely surround it: Austria and Switzerland.
    2. Finland — The Lottery, Oy Veikkaus, has restrictions (instructions in Finnish, local bank account required) which effectively limit play to citizens within the country.
    3. Bill to allow federal government of Canada to run Internet lottery passed first reading in Parliament, but then killed. Major issue would be provinces’ exclusive control over all gambling; the federal government sold gambling to the provinces to fund the Calgary Olympics.
  2. Governments selling licenses to some operators and ignoring the rest, no enforcement actions against licensees, nor against non-licensed local or foreign operators. Island and Latin American nations.
  3. Governments operating true licensing systems, with background checks, and penalizing non-licensed operators. Australian states and territories are in the forefront; their thinking is that Internet gambling is unstoppable, so government has a duty to regulate it to protect consumers.
    1. Governments have issued licenses under existing laws, e.g. the Australian Capitol Territory using its Bookmakers Act of 1985.
    2. The Gaming and Racing Ministers of all Australian states and territories met on May 3, 1996, and agreed on a set of principles, leading to a draft National Regulatory Model for new forms of interactive home gambling products. Existing at-home betting, such as telephone betting with TABs and bookmakers, were excluded.
    3. The draft Model, first passed by the Queensland Parliament on March 18, 1998 as the “Queensland Interactive Gambling (Player Protection) Act” went into effect on October 1, 1998. The Australian Capitol Territory and Tasmania also adopted laws to license Internet gaming sites, though Tasmania added a prohibition against Tasmanians betting on its sites. The laws:
      1. Expressly legalize Internet gaming operations that have been licensed by a state or territory.
      2. Expressly declare all other Internet gaming products illegal and prohibited from advertising.
      3. Set uniform national standards comparable to the regulation of casinos; though each jurisdiction decides how many operators it will license.
      4. Internet gambling is taxed, with the money going to the state or territory where the player resides. For American and other non-Australian players, tax money is retained by the jurisdiction in which the service provider is located.
    4. Licensing of new operators and allowing them to take wagers from within that jurisdiction creates conflicts with existing gaming operators in a state or territory, who thought they had the exclusive right to accept bets.
  4. Governments specifically prohibiting Internet gambling, e.g. Louisiana.
2. The law of Internet gambling is based on the law of gambling, not communications law.
  1. Communications law is concerned with the free commerce of ideas and protection of individuals’ rights. See e.g. Reno v. American Civil Liberties Union, 117 S.Ct. 2329, 138 L.Ed.2d 874 (1997) (Portions of Telecommunications Act of 1996, 110 Stat. 56, designed to protect minors from “indecent” material on the Internet declared unconstitutional). The “marketplace of ideas” even gives protection to purely commercial speech: A gambling ad, but not the gambling itself is protected speech. Valley Broadcasting Co. )v. United States, 107 F.3d 1328 (9th Cir. 1997).
  2. With gambling, commerce is usually completely prohibited. When commercial gambling is allowed, it is always severely restricted by statute and highly regulated by government. With legal gambling individuals have virtually no rights. As extreme examples: In re: Soto, 565 A.2d 1088, 236 N.J.Super. 303 (App. Div. 1988) (upholding state restriction on right of key casino employee to participate in political activity) and State of Nevada v. Rosenthal, 93 Nev. 36, 559 P.2d 830 (1977) (“We view gaming as a matter reserved to the states… Within this context we find no room for federally protected constitutional rights”).
3. Regulation and prohibition of gambling is based on the state’s police power.
  1. There may be few published appellate decisions on the legality of Internet gambling. But, the question of a government’s ability, under its police power, to control the transmission of gambling information and wagers was resolved years ago. See, e.g. People v. Milano, Cal.App.3d 153, 152 Cal.Rptr. 318 (1979) and the cases cited therein. “Not only does the Legislature have the power to completely prohibit wagering on horse races, but it may also limit such wagering to persons physically present within the enclosure,” Advanced Delivery Service, Inc. v. Gates, 183 Cal.App.3d 967, 228 Cal.Rptr. 557 (1986).
  2. The law of nations holds that every state has the right, perhaps even the obligation, to protect the health, safety and welfare of its citizens.
    1. The police power is most commonly connected with governmental action taken in emergency situations, especially where public health is endangered, as in an epidemic.
    2. But gambling, licensed or illegal, even legal lotteries, has always been held to fall within a state’s police power.
  3. The police power has three interesting, and unusual, attributes:
    1. A state’s police power is virtually unlimited.
      1. When a state is faced with a threat to the health, safety and welfare of its citizens, particularly in an emergency, the police power prevails, trumping constitutional and other legal rights. At its most extreme, government can even take life without due process safeguards — the police do not conduct evidentiary hearings before shooting a madman firing a rifle.
      2. Because gambling is treated as a police power issue, governments can act in ways that would be unthinkable in other commercial and social settings. “The police power of the State to suppress gambling is practically unrestrained,” Mills v. Agnew, 286 F.Supp. 107 (Md.1968).
    2. A state’s police power is often tied to morality, and gambling is a morally suspect industry.
      1. Governments’ response to the development of the Internet is typical of strong moral views driving public policy. On July 1, 1997, President Clinton and Vice President Gore issued “A Framework For Global Electronic Commerce.” The document is a model of viewing the Internet as a problem in communications law.
        
        Under “Content” it reads, “The U.S. government supports the broadest possible free flow of information across international borders. This includes most informational material now accessible and transmitted through the Internet…”
        
        The report endorses the view that parents and private industry, through ratings systems, filtering devices and other technology, can take care of potential problems, such as children’s access to pornography.
      2. But the first concrete Internet law supported by the Administration was a ban on Internet pornography. Free speech is all right in theory, but the urge to uphold society’s moral norms is so great that the government’s first response to the new technology was to assume the role of censor.
    3. A state’s police power is a local issue. We are, after all, dealing with state police power. See, e.g., Winshare Club of Canada v. Dept. of Legal Affairs, 542 So.2d 974 (Fla. 1989) (upholding state’s power to exclude foreign lottery tickets). Larger government organizations like federations almost never become involved, unless the threat to society is beyond the control of local government.
      1. During the formative stages of modern governments the protection of citizens’ health and safety was best left to authorities on the scene. Given the technology existing then, and perhaps even today, the major threats of fire and disease were not controllable from distant national capitols.
      2. Morality also was and still is decided primarily at the local level. States tend to be small enough to appear homogeneous, or at least dominated by a single religion. In the American system states are encouraged to experiment. New Jersey’s experiment with using large land-based casinos as a tool of urban redevelopment failed, but Iowa’s refinement of the idea — putting the casinos on river boats — has been copied by half-a-dozen other states.
4. Police power as a requisite of state government cuts two ways.
  1. It is well established under international law that a state’s police power within its own borders is virtually absolute. And a state may exercise power over its owns citizens while they are abroad, so long as there is no interference with the foreign country’s sovereignty.
  2. But states, even in the same federation, are not allowed to interfere in the internal affairs of other states. Governments are not supposed to impose their morality on citizens of another government residing in their home states.
  3. The Schindler case, reaffirmed this police power for European states. Her Majesty’s Customs and Excise v. Gerhart Schindler and Joerg Schindler, Reference for a Preliminary Ruling: High Court of Justice, Queen’s Bench Division – United Kingdom, Court of Justice of the European Communities, Case C-275/92, Doc.Num. 692J0275, Reports of Cases 1994 I-1039 (Judgment Mar. 24, 1994).
    1. The Court of Justice of the European Communities had to decide whether the United Kingdom could keep out advertisements and tickets of legal German lotteries.
    2. The Court held that lotteries are “services” within the meaning of article 60 of the EEC Treaty. Article 59 prohibits a Member State from putting obstacles on cross-border services.
    3. But, in a remarkable declaration of a state’s power to control all forms of gambling within its borders, the Court declared that “given the peculiar nature of lotteries,” the U.K. could restrict or even prohibit lotteries from other EEC Member States, provided those restrictions were not discriminatory.
5. Sovereignty.
  1. Is it truly legal in the foreign licensing jurisdiction?
    1. It is difficult to know if an Internet gambling operator, who claims to be licensed by a foreign government, is actually licensed. Operators have claimed to be licensed by the following governments: Antigua and Barbuda, Aruba (part of the Kingdom of the Netherlands), Belize, Cook Islands, Costa Rica, Curacao in the Netherland Antilles (part of the Kingdom of the Netherlands), Dominica, Dominican Republic, England in the United Kingdom, Gibraltar (dependent territory of the United Kingdom), Grand Turk in the Turks and Caicos (dependent territory of the United Kingdom), Grenada, Monaco, New South Wales in Australia, Northern Territory in Australia, the Solomon Islands, St. Kitts and Nevis, St. Vincent and the Grenadines, Trinidad and Tobago, and Venezuela.
    2. If the operator is licensed, does the license allow accepting wagers over the Internet from Americans?
      1. The head of the biggest illegal telephone sports betting ring in history, Ron “The Cigar” Sacco, was arrested by police of the Dominican Republic for violating local gambling laws, because the Dominican Republic only allowed local betting, and Sacco was taking phone bets from the United States.
      2. Sacco was then deported to the U.S. as an undesirable alien.
    3. Does the governmental body that issued the licensed have the authority?
      1. For example, do Gibraltar and the Turks and Caicos, both dependent territories of the United Kingdom, have the power to authorize gambling in contravention of laws of the U.K.?
      2. The Canadian Pari-Mutuel Agency’s Executive Director, Elizabeth Massey, ruled that she lacked jurisdiction to allow a track to take bets online, because it would violate Canada’s federal Criminal Code. A federal court in Toronto upheld her decision to deny an amendment to the Ontario Jockey Club’s wagering permit. Association of Racing Commissioners International, Inc., “Canadian Court Denies Internet Application,” 64 Bulletin No.3 at p.1 (Feb. 24, 1998).
  2. Being legal in another jurisdiction is not necessarily protection.
    1. The federal government can exercise jurisdiction over foreign national acting legally in their own country, if the statute is sufficiently explicit, and the detrimental effects from defendant’s activities are felt in this country.
    2. In United States v. Moncini, 882 F.2d 401 (9th Cir. 1989), defendant was convicted in the United States District Court for the Central District of California, of mailing child pornography from Italy, where such mailing was legal. Prosecutors argued two possible bases for jurisdiction over Moncini:
      1. Jurisdiction is proper if part of the offense occurred within the United States. See Rocha v. United States, 288 F.2d 545, 547 (9th Cir.1961).
      2. Jurisdiction is proper even if no part of the offense occurred in the United States, if grounds for exercising extraterritorial jurisdiction are present. Id. at 548.
      3. Here, the 9th Circuit held under the specific statutes involved, mailing of child pornography was a continuing offense, so that part of the offense was committed in the United States as the letters traveled through the mail and were delivered to their destination. The Court specifically rejected defendant’s argument that the crime was complete at the time the letter was deposited in the mail in Italy.
    3. Congress has power under the Commerce Clause and its police power to regulate or prohibit legal gambling that crosses state or national boundaries.
      1. The United State Supreme Court upheld a conviction under the Wagering Paraphernalia Act for carrying legal New Hampshire Sweepstakes acknowledgments across the state line into New York. United States v. Fabrizio, 385 U.S. 263 (1966). The federal anti-lottery laws apply to legal as well as illegal lotteries.
      2. In Martin v. United States, 389 F.2d 895 (5th 1968), convictions were upheld on a business that took bets in Texas, telephoned partners in Nevada, and placed the bets with licensed Las Vegas sports books. The federal law here was designed to help enforce anti-gambling policies of states.
  3. Internet gambling operated by a foreign government is, in theory if not practice, also subject to U.S. federal and state laws. Liechtenstein operates an Internet lottery that solicits American customers.
    1. Foreign governments are, in general, immune under the act of state doctrine. Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C. §§1602-1611; Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398 (1964).
    2. But, “a foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case… in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.” 28 U.S.C. §§1605.
    3. “As to any claim for relief with respect to which a foreign state is not entitled to immunity under §1605… the foreign state shall be liable in the same manner and to the same extent as a private individual under like circumstances; but a foreign state except for an agency or instrumentality thereof shall not be liable for punitive damages…”
    4. “As the legislative history of the FSIA reveals, contracts for the purchase or sale of goods or services are presumptively ‘commercial activities,’” Rush-Presbyterian-St. Luke’s Medical Center v. The Hellenic Republic, a Foreign Country, 877 F.2d 574 (7th Cir. 1989).
  4. But there have to be limits. Can the government of France arrest U.S. operators for using English?
6. Treaties — Mutual Legal Assistance Treaties (“MLATs”).
  1. Comity, countries respecting the criminal law, in particular, of other countries, has been formalized in treaties.
  2. There are a number of MLATs requiring a country to exercise moderation and restraint before it attempts to unilaterally enforce its laws on foreign citizens in their home countries.
    1. Under the MLAT between the U.S. and the U.K., S. Treaty Doc. No. 104-2, 1994 WL 855115, the American government would be required to enter into consultations with the government of England before U.S. officials could subpoena the bank records of a U.K. Internet gambling operator.
    2. The MLAT calls for the offended government, in this case the U.S., to try civil means, non-criminal enforcement, before taking criminal-like action, such as seizing assets.
7. Right to due process, be present at trial and confront witnesses.
  1. Civil suits — due process, 5th and 14th Amendments; problems of personal jurisdiction.
  2. Criminal cases.
    1. The law of nations holds that governments are almost never allowed to impose their criminal laws on foreign citizens in foreign States.
    2. Even U.S. citizens may be safe, if they refuse to come voluntarily to the U.S. for trial: The U.S. does not allow true trials in absentia.
      1. Criminal defendants have the right to be present at trial.
        
        Sixth Amendment constitutional right to confront witnesses.
        
        Common law right to be present at trial, codified at F.R.Crim.P. 43.
        
        However, right may be voluntarily waived, by actions of defendant. Diaz v. United States, 223 U.S. 442, 456-58 (1912); F.R.Crim.P. 43(b) (continued presence not required).
      2. Extradition is difficult; extradition treaties may cover criminal fraud, but there are no extradition treaties for illegal gambling, especially if it is licensed by the treaty partner and “illegal” only in the view of the U.S.
      3. Government sanctioned “kidnaping” is allowed only for heinous and major crimes. It takes an extraordinary situation for a country, like the United States, to invade another country — say Panama — to arrest a citizen of that country, Manuel Noriega, for violating American drug laws. United States v. Noriega, 746 F.Supp. 1506 (S.D. Fla. 1990) (seizure upheld).

END OUTLINE

Other Sources:

American Bar Association-Center for Continuing Legal Education, Gaming Enforcement II (1998).

Anthony Cabot, The Internet Gambling Report (1997) and Internet Gambling Report II (1998).

Harley J. Goldstein, On-line Gambling: Down to the Wire?, 8 Marq. Sports L.J. 1 (Fall 1997).

Seth Gorman and Antony Loo, Blackjack or Bust: Can U.S. Law Stop Internet Gambling?, 16 Loy.L.A.Ent.L.J. 667 (1996).

John Edmund Hogan, Comment: World Wide Wager: The Feasibility of Internet Gambling Regulation, 8 Seton Hall Const. L.J. 815 (Summer 1998).

Internet Gaming International – Newsletter (A Liebert Publication: www.liebertpub.com).

Joseph Kelly, Internet Gaming: What are the odds for on-line betting sites and casinos reaching their full potential?, 148 New Law J. 455 (Mar 27, 1998).

Joseph Kelly, Internet Gaming Law, manuscript, to be published (Feb. 1999).

Claire Ann Koegler, Here Come the Cybercops 3: Betting on the Net, 22 Nova L.R. 545 (Winter, 1998).

Scott M. Montpas, Gambling On-line: For a Hundred Dollars, I Bet You Government Regulation Will Not Stop the Newest Form of Gambling, 22 U. Dayton L.R. 163 (Fall, 1996).

Nicholas Robbins, Baby Needs a New Pair of Cybershoes: The Legality of Casino Gambling on the Internet, 2 B.U.J.Sci.&Tech.L. 7 (April 8, 1996).

Symposium: “The Internet and the Sovereign State: The Role and Impact of Cyberspace on National and Global Governance,” 5 Ind.J.Global Legal Stud. 415 (1998).

Mark G. Tratos, Gaming on the Internet, 3 Stan.J.L.Bus.&Fin. 101 (Winter, 1997).

END

I. NELSON ROSE

Professor I. Nelson Rose is an internationally known public speaker, writer and scholar and is recognized as one of the world’s leading authorities on gambling law. A 1979 graduate of Harvard Law School, he is a tenured full Professor of Law at Whittier Law School in Costa Mesa, California, where he teaches one of the first law school classes on gambling law.

Professor Rose is the author of more than 200 books, articles and chapters on the subject. He is best known for his internationally syndicated column, “Gambling and the Law®,” and his landmark 1986 book by the same name. His most recent book — just released — is a collection of columns and analysis on Blackjack and the Law.

A consultant to governments and industry, Professor Rose has testified as an expert witness in administrative, civil and criminal cases and has acted as a consultant to major law firms, licensed casinos, international corporations, players, Indian tribes, and local, state and national governments, including California, Florida, New Jersey, Texas, Washington, and the federal government of Canada.

With the rising interest in gambling throughout the world, Professor Rose has been called upon to discuss gambling and the law before such diverse groups as the National Conference of State Legislatures, Congress of State Lotteries of Europe, National Academy of Sciences and the United States Conference of Mayors. He has presented scholarly papers on gambling in Nevada, New Jersey, Puerto Rico, England, Australia, Portugal, Argentina and the Czech Republic.

Join The Newsletter

Get our blog posts delivered straight to your inbox!

Contact Me

If you’d like to contact me, scan the QR code or click the link below to view my digital business card.

Add me to your contacts

← Previous Next →

I. Nelson Rose

Testifying in French

Apr 11, 2024 | Blogs

I don’t usually write about my cases. But the trial court has reached its verdict. And I want to describe my experience testifying as an expert witness in a criminal trial in Paris, France. In French. Well, the trial was conducted entirely in French. I spoke...

Shohei Ohtani leaves unanswered questions after blaming his interpreter in gambling scandal

Mar 26, 2024 | Articles, Blogs, Citations

Shohei Ohtani’s calm, deliberate delivery Monday of his version of events surrounding the payment of his longtime interpreter Ippei Mizuhara’s gambling debts leaves no doubt where he stands on the matter. He does not and never has placed bets on any sport. He was...

Shohei Ohtani gambling scandal explained: Everything we know after Dodgers star breaks silence

Mar 26, 2024 | Blogs

Shohei Ohtani's lawyers say the Dodgers superstar has allegedly been the victim of "massive theft," reportedly accusing his now-former interpreter, Ippei Mizuhara, of taking funds from Ohtani to use for illegal gambling. ESPN reports that at least $4.5 million in wire...

Comments

0 Comments

Join Our Newsletter