The legality of online casino gambling

Update 2013

The below discussion still serves as a relevant background to the current US online gaming law. While there have been no recent legislative changes at a federal level, developments at the state level have been numerous and significant through 2012 and 2013.

The catalyst for change came in December 2011 when the US Department of Justice issued a memorandum opining a revised stance on their interpretation of the Wire Wager Act. Until this point the DOJ position had been that the Wire Wager Act made all forms of online gambling illegal. The revised position was (and still is) that this Act now only applies to online sports betting and not casino, poker or other games of chance.

In light of this changed stance, a number of US state legislatures, most notably those in Delaware, New Jersey and Nevada, have moved quickly to pass intra-state online gambling laws. In February 2013 gambling bills were signed into law in both Nevada (poker only) and New Jersey that would allow residents of those states to play locally licensed online casino games.

The New Jersey and Delaware laws allow bricks and mortar casinos in those states to offer any of the games they provide on their casino floors in online form. New Jersey residents may soon be able to play live dealer games streamed from an Atlantic City casino from their homes.

Background

The current legal position in the US is confusing to say the least.  Prior to 2006, old Federal and State laws like the Wire Wager Act were relied on by authorities as the principle basis supporting the contention that online gambling is illegal and efforts to prosecute operators offering their services to US residents. 

Still today these laws are cited, as was the case in Minnesota in April 2009, when their Department of Public Safety relied on the Wire Wager Act as legal authority for a letter sent to 11 national and regional telephone and ISP providers demanding they block Minnesotan's access to 200 online gambling websites.  The demand has since been challenged as an incorrect interpretation of the Wire Wager Act and as having no legal basis in a lawsuit brought by iMEGA. 

Given the Wire Wager Act was drafted in 1961, its inadequacy in applying effectively to services offered over a medium that was not contemplated at the time of its drafting can be understood.

UIGEA

In 2006, the Bush Administration passed the Unlawful Internet Gambling Enforcement Act (UIGEA).  The intent of this legislation was to make it impossible for offshore online gambling operators to offer their product to US residents by rendering it illegal for US financial institutions from facilitating payments between those operators and US based players.  Its practical operation has been problematic for a number of reasons.

While the agencies charged with the enforcement of UIGEA are told to make sure that financial institutions block all 'unlawful Internet gambling', nowhere in the legislation is this term defined.  So in what's turned out to be a slightly farcical situation, those agencies have directed the relevant financial institutions to make the determination as to what is 'unlawful Internet gambling'.  Of course they are even less qualified to make this determination.

Regardless of US financial institution's ability to practically comply with the burden of blocking 'unlawful Internet gambling' transactions, another reality lawmakers are coming to understand is that there are a multitude of other deposit options offered by offshore financial institutions beyond the jurisdiction of UIGEA's operation.  And while the passing of UIGEA led to many online gambling operators (typically the larger publically listed corporations) pulling out of the American market for the time being, it has done little to dissuade many operators from continuing to serve US residents.

UIGEA's days may also me numbered with repealing legislation drafted and intended for presentation to Congress at the time of writing.  Hopefully any new legislation clears up current uncertainties.

For players

From a player's perspective it should be noted that UIGEA is aimed at financial institutions and online gambling operators and not players.  Professor I. Nelson Rose, Senior Professor at the Whittier Law School and well regard online gambling legal authority states that “no United States federal statute or regulation explicitly prohibits online gambling, either domestically or abroad,”  and that the UIGEA by its own terms it does not apply to individual gamblers.

Specific to live dealer casinos

While not included in the definition of  'unlawful Internet gambling', live casino games are clearly one of the types of gambling activities in contemplation by lawmakers when UIGEA was drafted.  Most of the casinos that offer this format are among the industry's larger (often owned by publicly traded corporations) operators who have chosen to withdraw from the US market until the legal position is clearer, and do not currently accept US players.

A useful summary of milestones relevant to this discussion is listed at Wikipedia's online gambling page.  

The UK legislature has taken a very different path to the US and passed laws designed to regulate and license online gambling activity.  The Gambling Act 2005 ('the Act'), the operative provisions of which came into effect in 2007 to apply to all forms of gambling in the UK with the exception of spread betting and the National Lottery, includes specific clauses aimed at 'remote gambling'.

The Act defines remote gambling as any form of gambling in which players participate by the use of remote communication, which in turn is defined to include the internet, telephone, television, radio, or any other kind of electronic or other technology for facilitating communication.

Provisions in the Act relating to remote gambling provide as follows:

Regulation
A new authority, the UK Gambling Commission, was formed to regulate and enforce the Act's operation including all provisions related to remote gambling.  All remote gambling licensing applications are assessed by the Gambling Commission.

Legality for players
Nothing in The Act makes it illegal or seeks to prevent United Kingdom residents accessing any remote gambling services.

Operator license requirements
Any remote service provider locating any form of remote gambling equipment (servers etc) in the UK must obtain a remote gambling license from the UK Gambling Commission in order to be able to provide remote gambling services.

Offshore operator stipulations
As long as offshore operators are complying with the licensing requirements in the jurisdiction in which their remote gambling service is located it is not illegal for them to offer their services to UK residents.

Advertising
Any remote gambling service provider licensed in either the UK, Gibraltar, an EEA member (most European countries) or any other jurisdiction designation by the UK Gambling Commission as having 'White Listing Status' may advertise through the UK via traditional mainstream media.

As a result of the UK's regulatory approach to online gambling, it has become the epicenter for the industry's largest operators.

All casinos offering live dealer games accept players from the UK, and many are licensed and regulated in either the UK or Gibraltar.

Both EU Member States ("EU members") and EEA Member States ("EEA members") are bound by the laws contained in the European Communities Treaty ("the Treaty").  The Treaty's operative provisions are enforced by the EU's executive arm, the European Commission ("the Commission") and adjudicated by the European Court of Justice ("ECJ").

EU members include:

Austria Cyprus Estonia Germany Ireland

Belgium Czech republic Finland Greece Lithuania

Bulgaria Denmark France Hungary Latvia

Slovakia Sweden Slovenia United Kingdom Spain Italy

Luxembourg Poland Malta The Netherlands Portugal Romania

EEA members include all EU members plus Norway, Iceland, Liechtenstein, Switzerland.

One of key provisions of the Treaty, relevant to the issue of online gambling, is the set out in Article 49 and relates to the freedom of EEA member service providers to offer their services to residents of all EEA member residents.  It is one of the often cited "Four Freedoms Principles" and provides that,

"Within the framework of the provisions set out below, restrictions on freedom to provide services within the Community shall be prohibited..."

This provision of the Treaty was included as a safeguard against any protectionist measures being introduced by EEA members, and to encourage free cross-border trade of services.  In the instance where an EEA member enacts a law prohibiting resident access to a service provided by a foreign service provider (ie one based in another EEA member country) and that same service is able to be provided by local service providers, a clear breach of the Treaty, and specifically Article 49 has occurred.

This situation should be contrasted with the case where an EEA member has passed laws prohibiting resident access to a service whether provided by local or foreign service providers.  Here there is no protectionist element to the law and consequently no breach of the Treaty.  Nothing in the Treaty prevents an EEA member from banning a particular service on whatever grounds, so long as the ban doesn't prejudice service providers in other EEA member states in favor of local operators.

So what's the relevance of all this to online gambling and more specifically live dealer casino services?

The Commission and the ECJ have categorically stipulated that the freedom-to-provide-services-provisions of the Treaty apply to online gambling services as they do to all others.  As a consequence, where an EEA member has legally sanctioned local online gambling services it cannot enact laws prohibiting similar online gambling services being provided to its residents from operators based in other EEA member countries.

Where an EEA member law is in breach of the Treaty it is effectively illegal, and therefore easily challenged by effected parties.  As well as being operationally ineffective, the law may become the subject of an infringement proceeding issued by the Commission.  At the time of writing, no less than 10 EEA members were the subject of infringement proceedings related to online gambling laws that breached the Treaty.

A number of EEA members are in the process of changing laws related to online gambling so that they are consistent with the Treaty. 

While the goal posts are constantly moving with new laws seemingly being proposed monthly across Europe, as at the end of 2008, regulations with respect to online gambling were summarized conveniently by a European Parliament committee study as follows:
 

Actively allow	Passively allow	Actively prohibit	Passively prohibit
Austria Belgium Denmark Finland France Italy Latvia Malta Slovakia Sweden United Kingdom	Ireland Estonia Cyprus Bulgaria Poland Luxembourg Portugal Spain Hungary	Greece Czech republic Germany Romania	Lithuania The Netherlands Slovenia

Australia's laws with respect to online gambling are set out in the Interactive Gambling Act 2001 ("the Act") which came into effect June 2001, making Australia one of the first countries to pass legislation drafted specifically to address the issue of online gambling.

The Act takes a prohibitive approach to online gambling and provides that it is illegal for an 'interactive gambling service provider ' (ie online casino, online live dealer casino etc) to provide its services to Australian residents in the absence of an interactive gambling license. 

Holders of an interactive gambling license may offer their services to Australian residents and the residents of any other country that doesn't prohibit online gambling. Restrictions on the nature of the interactive gambling services to be provided to Australian residents apply, like for example the ability to offer in-play bets.

While the intent of the Act was to limit Australian resident access to online gambling services, studies have since found that Australians are gambling online at offshore based websites in increasing numbers and limitations placed on locally licensed operator's ability to offer competing services is only hampering their competitiveness.

Like UIGEA, the Act targets operators of interactive gambling services and not players.  From a practical standpoint this means Australian residents are not breaking any laws gambling online at live dealer casinos, however they may find some casinos honor the provisions of Act despite being outside its jurisdictional operation, and refuse to accept Australian customers. 

At the time of writing, no Asian country had passed legislation specifically addressing the legality of online gambling.  As a general rule however, authorities in most Asian jurisdictions frown upon internet gambling activity and view it as illegal by virtue of general prohibitions on gambling. 

In Malaysia for example the Betting Act 1953, which renders the operation of a 'common betting house' and the act of gambling in a 'common betting house' as both illegal, is the cited authority for the government position that online gambling should also be illegal.  As the legislation has not been amended to include internet websites within the definition of what constitutes a common betting house, or any of the myriad of other issues specific to online gambling, its effective application in this area is difficult to imagine. 

Similar situation exists in Singapore, Taiwan, South Korea.  Further complicating the situation is the fact that many of these jurisdictions can no longer claim to impose general bans on casino gambling, with all countries now either close to opening new casino resorts, or legislating to allow for the development of new casinos.

A number of Asian region governments have decided that they want to help stimulate tourism and economic activity generally (and earn some tax revenue at the same time) by building casino industries to compete with Macau.  Singapore is soon to open two massive casino complexes while Taiwan just recently gave the go ahead to casino development on its outlying islands.

In Japan, there is now talk that the government is speaking to online gambling operators with a view to putting a licensing and regulatory regime in place as a means to earn some extra tax revenue.

The gambling landscape in Asia is undergoing some significant changes presently.  For a discussion of internet regulations by country, visit our regional analysis.

The legality of online gambling, from a players perspective is a complicated and confusing issue even in jurisdictions where lawmakers have attempted to enact online gambling specific legislation.  Even the so called experts charged with application of those laws are often confused as to the law's correct interpretation so what chance does the player have?

There are few jurisdictions in the world where unambiguous, definitive legal positions exist in this area.

In most instances where online gambling prohibitions do exist,  they are targeted at operators or payment facilitators and not players, but this is probably of little comfort to players in jurisdictions where this general principle does not hold true.

A useful guiding principle that will provide a level of comfort that you are not doing anything wrong is to play at a live dealer casino that is part of a large (publicly listed) organization that will have the legal resources to make the determination whether yours is a jurisdiction that they can or cannot operate in.

If, for example, a player from Australia or the United States tried to sign up at Victor Chandler they would be advised that the casino is not legally permitted to accept their custom.