The current state regulatory landscape for online gambling is inconsistent

18th February 2013 by

One of the problems arising out of this patchwork is that the legislation will vary from state to state on the products that can be offered and who can apply for licences, as well as the relationships with other states and countries where online gambling is legal.

Ideally, a harmonised and consistent state approach should be taken for online gambling such as the Uniform Commercial Code for sale of goods. A new federal law is also needed to repeal the Unlawful Internet Gambling Enforcement Act (UIGEA) and The Interstate Wire Act of 1961 (Wire Act).

Federal laws

There are a few key federal laws that affect online gaming and have been used in prosecutions by the Department of Justice (DoJ). Note that UIGEA does not define what is unlawful internet gambling.

That depends on whether the activity is illegal in the state where it is conducted. So in Nevada, it would not apply to operators licensed to provide intrastate online poker services or in any other state where an operator is licensed by the state to provide online gaming.

The Wire Act, enacted long before the internet, has been the main law relied upon by the DoJ to prohibit online gambling and prosecute providers of online gambling services. Following the DoJ advisory opinion in December 2011, only sports betting is caught, and other forms of internet gambling are not prohibited by the Wire Act.

The Racketeer Influenced and Corrupt Organisations Act (RICO) specifically prohibits interstate or foreign travel or transportation in aid of racketeering. David Carruthers, the former CEO of Betonsport, was charged with racketeering charges arising from his travel to New York for meetings with a PR agency to promote Betonsports’ business. The Patriot Act of 2001, enacted following the 9/11 terrorist attack, was designed to prevent international transfer of funds for terrorist purposes. It is broadly worded to prohibit the transmission of funds that are known to have been derived from a criminal offence. It was applied by the DoJ in a threatened prosecution against Paypal in July 2003.

Recent proposals

Several states have legislation that specifi cally prohibits internet gambling. These are Illinois, Indiana, Louisiana, Montana, Oregon, South Dakota, Washington and Utah. In other states, in which there is an absence of specifi c legislation, general bans are applied to online gambling.

The date of rollout of the off erings by the Delaware lottery, which is authorised to off er internet ticket sales as well as table and video lottery games operated and promoted by the state’s three racetrack casinos, originally scheduled for early this year, has been delayed. Nevada regulations only permit intrastate internet poker but provide for expansion into interstate should federal law be clarifi ed that it is permitted. Both bills pending in New Jersey, meanwhile, would allow for licensing of internet poker, internet casino and bingo, but restrict applicants for licences only to operators with existing land-based licences in New Jersey.

Both would also allow for relationships with other states and foreign jurisdictions where online gaming is legal. Current laws are unlikely to improve over the next several years until harmonised state and federal legislation repealing prohibition is enacted.

There is little political will to champion the cause, and there remains strong opposition. Nonetheless, there is hope. Who would have thought 20 years ago that 21 US states would have some form of legalised land-based gambling? Most countries in Europe have already regulated. With ever growing consumer demand for this type of interactive entertainment, it is just a matter of time that the US catches up with Europe and the law changes to regulate rather than prohibit online gaming.