Internet gaming: Bill Offering Protection for Internet Gambling Delayed, but Not Necessarily Dead

internet-gaming-rules-lives-660A bill (H.R. 2267) introduced by U.S. House Financial Services Committee Chairman Barney Frank to remove Federal obstacles to Internet gambling may be delayed, but don’t consider it beyond hope. This bill, which was introduced in May 2009, has already garnered significant House support. While reports indicate that consideration of the bill has been delayed, given the current fiscal crisis, it would only seem logical for Congress to look to Internet gaming as a source of much-needed revenues.

There has long been a debate as to whether Federal laws prohibit many forms of Internet gaming, such as on-line poker. The DOJ has historically taken the position, which has been accepted by some courts, that the Wire Act (18 U.S.C. § 1084) prohibits transmission of wagers over interstate wire communications facilities for all forms of on-line gaming. See e.g, People, ex rel. Vacco v. World Interactive Gaming Corp., 185 Misc.2d 852, 860 (N.Y. Sup. Ct., 1999).

On the other hand, the 5th Circuit and District Courts in other Circuits have held that the Wire Act only prohibits wire transmissions for sporting events, but not on-line gaming, such as poker. In re MasterCard. Intern. Inc, Internet Gaming Litigation, 132 F.Supp.2d 468 (E.D. La. 2001), aff’d 313 F.3d 257 (5th Cir. 2002); United States v. BetOnSports PLC, U.S.D.C., Eastern District of Missouri, Case No. 4:06CV01064 (Nov. 9, 2006).

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Of course, all States have laws regulating gaming, and some outlaw virtually all games of chance, including poker. So, in 2006, Congress enacted the Unlawful Internet Gambling Enforcement Act (UIGEA). See 31 U.S.C. § 5361 et seq. The UIGEA did not directly outlaw Internet gaming, but prohibited any person “engaged in the business of betting or wagering” from “knowingly accept[ing] in connection with the participation of another person in unlawful Internet gambling” . . . credit, electronic funds transfers, checks and the proceeds of other financial transactions. Id. at § 5363.

Transactions constitute “unlawful Internet gambling,” only if prohibited by other Federal, State or Tribal law. However, the UIGEA prohibits online gambling transactions if an Internet bet is placed or received in a place where a State, Federal or Tribal law make such a transaction illegal. Id. at 5362(1). Given this breadth of scope, the UIGEA creates real risks for financial institutions who attempt to cooperate in on-line gambling anywhere in the U.S.

online-gamingCongressman Barney Frank has been opposed to the UIGEA for some time, and first introduced legislation to curtail some of its effects in 2007. In May 2009, Rep. Frank introduced H.R. 2267 in a further attempt to help legalize online gambling in the U.S. The Bill would give the U.S. Treasury Secretary regulatory powers over Internet gambling, and would permit the Secretary to issue licenses to Internet gambling facilities. Licensees would be permitted to accept bets from persons in the U.S., so long as they were physically located in a jurisdiction that permits Internet gambling at the time the bet was placed. The Bill would also provide immunity for any financial institution that processed transactions on behalf of licensees, for activities conducted under the Bill’s provisions.

0022190fd2dc1242046f0fThe effect of the Bill would be to permit on-line gambling companies to set up shop anywhere in the U.S. However, they would only be permitted to take bets in States and Tribal lands that specifically permitted Internet gambling. As such, under the bill, the legality of Internet gambling would ultimately depend on the law prevailing in the State or Tribal land where the bet was placed. But at least all Federal bars to on-line gaming would be eliminated.

This time around, Rep. Frank has been able to garner over 50, mostly Democratic, co-sponsors to his bill. Recent reportsindicate that H.R. 2267 is unlikely to be considered by Congress in 2009. However, legalization of Internet gaming, which is going on anyway despite current laws, has the potential to create serious revenues for State and Federal governments. A report from 2006 indicated that Internet gaming at that time amounted to $6 billion. Given the current fiscal crises, the potential windfall to State and Federal treasuries from taxing this activity may prove too tempting to pass up.