Online Gambling Laws Guide

Traditionally, gambling regulation in the U.S. has been reserved for state governments. Despite state sovereignty, the Wire Act supersedes state law and has been adopted on a federal level. The Department of Justice (DOJ) maintains the belief that the Wire Act prohibits all forms of online gambling in all U.S. states.

The Wire Act was enacted in 1961 to prevent bookmakers from accepting sports bets over the telephone. Accusations of Wire Act violations are usually accompanied by other charges, including conspiracy, money laundering, and violations of the RICO Act, Travel Act, and Illegal Gambling Business Act.

Enforcement of the Wire Act is directed at the gambling operator, and there is no language making it illegal for a consumer to place a wager.

The wire act was written in 1961 and its language is limited to communication systems using wires; the types of betting it describes are fixed-odds propositions such as those offered on sporting and other events. It was impossible to have foreseen the issues surrounding remote casino and poker games when the act was written in 1961, and when taken literally, the language of the Wire Act does not adequately apply to casino gaming and poker over the Internet.

In a case involving online casino gamblers who tried to get their credit card debts ruled unenforceable because their online casino gambling had been illegal, the U.S. Court of Appeals for the Fifth Circuit (Louisiana) declared in 2002 that gambling losses were indeed enforceable because “the Wire Act does not prohibit non-sports Internet gambling.” 

The DOJ disagrees with the Fifth Circuit Court of Appeals decision, and the Wire Act serves as the foundation for all of the DOJ’s arguments against the legality of Internet gambling for both sports wagering and non-sports wagering. DOJ officials have asserted this belief in advising the U.S. Virgin Islands and the states of Nevada and North Dakota against regulating online gaming and is threatening to prosecute media companies who advertised for online gambling companies with aiding and abetting an illegal activity in 2002.

The DOJ was successful in convicting Jay Cohen, president of the World Sports Exchange for Wire Act violations in 2000.

In the fall of 2006, the United States enacted the Unlawful Internet Gambling Enforcement Act (UIGEA), which makes it illegal for financial institutions to facilitate payment transactions between offshore gambling operations and American customers.

The law says nothing about it being illegal for a person located in the U.S. to gamble on an Internet site, however. The Federal Reserve and Treasury are now in the midst of drafting the regulations under which this new law will be enforced. There is speculation that the regulations may exempt banks from the use of paper checks, electronic checks, and ACH deposits because of the vast burden monitoring these payment forms would impose on them. The UIGEA resulted in the withdrawal of publicly listed companies from the American online gambling market, but most of the private companies continue to serve it. These private companies are betting that the UIGEA will prove ineffective in blocking payments, and they continue to operate in jurisdictions outside the reach of the U.S. authorities.

Federal gambling law does not address games of skill, and skill gaming sites function legally in the United States. 

Florida congressman Robert Wexler introduced the Skill Game Protection Act following the enactment of the UIGEA in an effort to exempt online poker from the ban. The Skill Game Protection Act has gathered support but has not been passed as of August 2007.

Internet gambling on horseracing is permitted by the Interstate Horse Racing Act in states that have chosen to regulate such wagering. Although the DOJ insists that the act is not consistent with the Wire Act, it has never filed charges against any of the many domestic remote horse-wagering operators. Internet horserace wagering has been specifically legalized in the states of California, Nevada, Oregon, and South Dakota.

The states of Illinois, Michigan, Indiana, Nevada, Oregon, South Dakota, Washington, and Louisiana have all passed legislation that specifically prohibits unauthorized forms of Internet gambling. All forms of gambling are illegal in Hawaii and Utah. Nevada legislators have passed a law permitting intrastate Internet wagering but have taken few steps to introduce a system. Such a system would require technology that can sufficiently verify a player’s age and location. The DOJ has also said such a system would violate federal law.

In April 2007, Rep. Barney Frank (D-MA) introduced the Internet Gambling Regulation and Enforcement Act of 2007, which would allow Americans to lawfully bet online. The Act establishes a framework to license companies to accept bets and wagers from individuals in the US, as permitted by individual states. The Financial Services Committee, chaired by Frank, held a hearing on June 2007 in which the issue was favorably received. The Congressional Subcommittee on Commerce, Trade, and Consumer Protection plan to schedule hearings on the bill when Congress resumes on September 2007.

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