The U.S. Department of Justice Flip-Flops Stance on the Wire Act

The US Government doesn’t change their minds often. When they do it can open A LOT of doors. It can also mean A LOT of backlash.

We got a bit of both when the Department of Justice released a memo on December 23rd, 2011 stating they changed their opinion on what the Wire Act of 1961 applies to.

(I’ll share what their original opinion was in just a second.)

For some people it was like getting an early Christmas present. For others it was like getting a stocking full of coal. But one thing is for sure – the DOJ’s reversal was the start of something HUGE in America for casino and poker players.

Let’s Start With A Brief Explanation of the Wire Act

Ok, what is the Wire Act? The Wire Act was passed during the Kennedy-era. Here’s the important part of the bill:

“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.”

Kennedy’s goal at the time was to stop organized crime. He thought their biggest money maker was sports betting. So, he “cut the wire.”

But as the internet emerged the US Government – namely the Clinton and Bush Administrations – also used the Wire Act as a blanket-ban over all forms of gambling through various means of communication.

They did that even though it was clear they knew the Wire Act only applied to sports betting. How do I know they knew that?

Because for about 10 years several members of Congress tried to pass various bills and amendments to the Wire Act to include the internet.

But that didn’t stop them from going after Anurag Dikshit of Party Poker for $300 million. Nor did it stop them from going after tech giants Microsoft, Google, and Yahoo for a combined $31.5 million settlement. Then after a couple years of collecting checks they …changed their minds.

The Department of Justice Doubles Back …50 Years Later

Funny thing – the Department of Justice changed their mind. The change of opinion (at least it being made public) was sparked by two things: the District of Columbia and New York launching or wanting to launch a state lottery, and Jon Kyl asking the DOJ if a state lottery violated the Wire Act.

They released a memo in December 2011 that said their opinion is that the Wire Act only applied to online sports betting. Everything else falls outside the reach of the act, including online poker, fantasy sports betting, and real money casino games.

The announcement was made quietly. Some think – especially those opposed to the DOJ’s newfound opinion – they were trying to bury it.

What is outrageous is how they released the opinion on the eve of Christmas Eve. They know how severe the implications are, but they have tried to bury it. – Les Bernal, Stop Predatory Gambling

Experts agree the timing was weird. Criminal defense lawyer Paul Hugel said he didn’t think the Department of Justice had to announce the change at all (they usually don’t) and that the timing was odd. But he didn’t think there was any real reason for it, good or bad.

But more than the way the DOJ announced their new opinion is what that new opinion means for online gambling in the United States. It doesn’t make it legal. It doesn’t make it illegal, either.

Their announcement paved the way for states to come to their own conclusions. Each state can decide if they want to legalize and regulate online gambling – as long as it doesn’t include sports betting (with the exception of Delaware, who had the option grandfathered in).

A handful of states have done just that. First it was Nevada. They launched their first gambling site in April 2013. They launched their second site right before Delaware launched their first in October 2013. This was followed by New Jersey whom launched 6 sites the next month.

No state has launched a site since then. But, reportedly, several states are working on it, including California, Pennsylvania, Colorado, and New York.

“DOJ, Please Reverse Your Reversal”

No surprise here – not everyone is happy with the Department of Justice’s reversal. Many state leaders, groups and organizations want them to change their minds …again.

Several groups have written the DOJ asking them to reverse their reversal. The most known example is Sheldon Adelson. He’s the owner of the Sands and Venetian, two brick and mortar casinos in Las Vegas, Nevada. He also happens to be the chief and financial backer of the Coalition to Stop Internet Gambling.

He claims his concern over internet gambling is about addiction, safety and underage gambling. But you and I both know he’s only looking out for his own well being — his own brick and mortar casinos. His group published a letter written by Texas Governor Rick Perry in March 2014, stating that:

the ability to determine whether the activity should be available to its citizens and under what conditions – and to control the activity accordingly – is left subject to the vagaries of the technological marketplace. This seriously compromises the ability of states to control gambling within their borders.

In short – he feels that the DOJ didn’t do their homework and they’re not accounting for things like internet gambling expansion or that the FBI said that internet gambling could be used for committing crimes, like fraud or money laundering.

That’s just the tip of the iceberg. A month before that Attorney Generals from 16 states sent a letter, too, asking the DOJ to reconsider:

The impact of this opinion – which in effect opens the door to the spread of Internet gambling – will have a potentially significant impact on state and local law enforcement. As such, we urge Congress to fully review, assess, understand and debate the significant policy implications entailed in the spread of Internet gambling, including concerns related to money laundering; access by minors; fraud; exploitation of individuals with a gambling addiction; and terrorist financing.

Since the 2011 opinion, Nevada, New Jersey and Delaware have already passed legislation legalizing various forms of internet gambling. The rules now vary in each of these jurisdictions, and given the inherently interstate nature of internet gambling transactions, we anticipate that it will become increasingly difficult to effectively regulate such conduct as additional jurisdictions consider legalizing internet gambling.

If they got their way all the work we’ve done up until now will have been for nothing. But, since the Department of Justice ‘went public’ with their opinion, and we’ve already seen 3 states legalize online poker (with several more to come), the chances they change their minds again are slim to none.

Sources

http://www.cozen.com/admin/files/publications/glre%202012%20Wire%20Act%20panel.pdf

http://gaming.unlv.edu/papers/cgr_op29_minton.pdf

http://stopinternetgambling.com/wp-content/uploads/2014/02/State-Attorneys-General-Letter-on-the-Wire-Act.pdf

http://stoppredatorygambling.org/wp-content/uploads/2012/12/DOJ-condemned-for-rewriting-online-gambling-rules-and-announcing-it-at-Christmas-so-no-one-notices.pdf

http://www.clayro.com/professional/paul-scott-hugel/