The US Department of Justice (“DoJ”) have done a complete about-face on their 2011 opinion on the application of the Wire Wager Act.
In a memo released earlier this week but dated November 2 last year, the DoJ are now saying that the Act applies to all forms of gambling and not just sports betting. Their much celebrated (by online gambling proponents anyway) and widely reported opinion of 2011 said pretty much the opposite.
This latest decision casts a cloud of uncertainty over US state-based online gambling industries, notably those with aspirations to share customers interstate and accept players from overseas.
Wire Wagger Act, § 1084(a)
It seems there’s a lot of confusion over the correct interpretation of the Wire Wager Act (or Federal Wire Act…”the Act”). Guess that’s bound to happen when you try to apply a piece of legislation drafted in 1961 with the purpose of reining in underground bookmaking by organised crime groups, to e-commerce in 2019.
Not only is the Act a little outdated, it also badly drafted. As put by the man responsible for the DoJ’s latest opinion, assistant attorney general Stephen Engel, “the Wire Act is not a model of artful drafting”.
The key operative provision in the Act that has everyone confused is § 1084 (a), which states:
“Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce 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, shall be fined under this title or imprisoned not more than two years, or both.”
The words, ‘bets or wagers on any sporting event’, contained in the paragraph were enough for the DoJ’s legal eagles back in 2011 to conclude the Act targets sports betting alone. Not other forms of gambling (casino, poker, lotteries etc).
Engel got a little more creative with his interpretation, giving considerable importance on the impact of the humble comma to the say that § 1084 (a) contains 2 clauses, each with 2 prohibitions, for a total of 4 distinct prohibitions.
Clause 1 bans use of a wire for interstate or foreign,“bets or wagers” (prohibition 1), and “assisting in the placing of bets or wagers on any sporting event or contest” (prohibition 2).
Clause 2 bars use of wire communications enabling the “recipient to receive money or credit as a result of bets or wagers” (prohibition 3) or for “information assisting in the placing of bets or wagers” (prohibition 4).
According to Engel, as there is no mention of sporting events in prohibitions 1, 3 and 4, these apply to all forms of gambling. In his words, “we conclude that the words of the statute are sufficiently clear and that all but one of its prohibitions sweep beyond sports gambling”.
Political motives for the changed opinion?
The development would be welcomed by Sheldon Adelson who has been a prodigious anti-online gambling lobbyer for some time. He reportedly had at least 2 lobbying firms directing efforts at the Wire Act issue. He also donated $100 million to the Republican party mid term election efforts.
Perhaps it’s not so surprising then that the Trump administration, with a former casino owner at the helm, is so anti-online gambling.
In 2017 attorney general Jeff Sessions was considering an online gambling ban. This new opinion on the Act, written by his assistant Stephen Engel, was completed and dated just 5 days before Sessions’ resignation on November 7. Interesting timing.
Ramifications for online gambling in New Jersey, Nevada, Delaware…
Now according to the DoJ all forms of internet gambling not confined to within state boundaries will be illegal at a federal level. They’ll start enforcing this interpretation in just under 90 days.
Pooled interstate online poker operations could be challenged. States choosing to share players for interstate casino games could be challenged. States (like New Jersey) allowing locally licensed casinos to accept players outside the United States could be challenged. Live games served from casinos in Atlantic City (eg Resort Casino Hotel roulette) and accessible by players in Europe only just started launching late last year. The legality of these games becomes uncertain.
Technically, even intra-state online gambling operations can be up for question. The way information bounces around the web (eg for payment processing) no regulator can guarantee information doesn’t cross state boundaries.
So, this development certainly does cast a cloud over the online gambling ambitions of New Jersey, Delaware, Nevada and other states wanting to follow their leads.
It also introduces an element of uncertainly for operators and platforms considering investing in this industry.
The opinion is not necessarily binding on courts, and with so much already invested by so many stakeholders it will be challenged to be sure.
Engel conceded in his memo, “a contrary conclusion from our prior opinion will also make it more likely that the Executive Branch’s view of the law will be tested in the courts”.
2019 shaping up as a good year for the lawyers!