Federal Anti-Gambling Laws and Cardrooms

The author then says, “The U.S. attorney general’s office has begun to turn up the heat in an effort to slow down the rapid growth of online gambling. Recently, a letter from Assistant Attorney General John G. Malcolm was sent to the National Association of Broadcasters, ‘encouraging’ them not to accept advertising from online gambling sites.”

Here are three relevant online links:
John Malcolm letter to NAB.
John Malcolm testimony before the Senate Banking Committee
Lawrence Walters writes about
US Court Subpoenas Gambling Portals

Do we need a background history of the author in order to understand the article? 

The author also says: “‘In Re MasterCard International’, decided Feb. 23, 2001, the Honorable Judge Stanwood R. Duval, Jr. made a specific finding that the Wire Act did not prohibit online poker playing....”  (Emphasis supplied.)

The author continues: “The judiciary has spoken and courts are bound by that determination unless and until the Supreme Court or other District Courts of Appeal  (sic.) hold otherwise. This is what is meant by the legal concept of ‘stare decisis,’ which means ‘a thing decided.’

The author concludes: “It is disingenuous for the attorney general’s office to continue to take the position that the Wire Act prohibits online poker playing when the judiciary has already spoken on the issue.”

In the MasterCard cases [In re MasterCard Int'l, et al., 132 F. Supp. 2d 468, (E.D. La. 2001) and on appeal in the Fifth Circuit, at 2002 C05 518 (USCA5, 2002)] it was ultimately held that credit card debts could not be avoided by online gamblers under assertions of violations by the credit card companies of the Racketeering Influenced Corrupt Organizations Act, when the credit card users incurred charges to purchase ‘chips’ with which they gambled at on-line casinos in activities not involving sports betting.

For the RICO statute to apply the defendant credit card companies must be found to have committed two “predicate offenses”—that is to have two or more violations of one or more of the numerous criminal laws that the RICO statute singles out as triggers before the draconian provisions of this law can come into play.

Violations of the Wire Act would constitute a predicate offense.  However, the District Court, after analyzing the legislative history of that law, held the Wire Act only applied to sports betting and did not apply to other forms of online gambling.  The Fifth Circuit affirmed that holding.

Online “poker playing” was not specifically mentioned in the decisions.  Online gambling (which, out of fairness, does subsume online poker playing for money) was mentioned.  The District Court held, and the Fifth Circuit affirmed, the view that the Wire Act covered sports betting only.  Other online gambling activities are not, in the view of these courts, covered by the Wire Wager Act.

In affirming the District Court, the Fifth Circuit said: “Finally, we reiterate the district court's statement that ‘RICO, no matter how liberally construed, is not intended to provide a remedy to this class of plaintiff.’  [Plaintiffs] simply are not victims under the facts of these cases. Rather, as the district court wrote, ‘they are independent actors who made a knowing and voluntary choice to engage in a course of conduct.’  In engaging in this conduct, they got exactly what they bargained for--gambling ‘chips’ with which they could place wagers. They cannot use RICO to avoid meeting obligations they voluntarily took on.” 2002 C05 518 at [28]

Only the 5^th Circuit has spoken.  The Federal District Courts within the geographic boundaries of the 5^th Circuit are bound by the 5^th Circuit’s holding.  No other Federal District Court is so bound.  There are 11 U.S. Circuit Courts of Appeal, with about 15% of the U. S. District Courts being in the geographic region of the 5^th Circuit.

It is within the prerogative of the U. S. Attorney General’s office to maintain its position until there is a final, binding nationwide decision on this point by the U.S. Supreme Court.  That Court is the arbiter of any conflicting decisions among the eleven different U.S. Circuit Courts of Appeal.  Each of the other Circuits is free to come to a conclusion that differs from the one reached by the Fifth Circuit.  Any other Circuit Court considering the scope of the Wire Wager Act will certainly review the reasoning of the Fifth Circuit on this point, but there is no binding legal requirement that any other court outside the geographical boundaries of the Fifth Circuit need treat the holding of the Fifth Circuit as binding law on this point.  Any other Circuit Court is also free to consider the position and reasoning advanced by the U.S. Department of Justice, including the views expressed by John Malcolm.

The author continues:  "Unlawful activity is defined … as any business enterprise involving gambling offenses in violation of the laws of the state in which they are committed.

See:  Federal Travel Act Scope and Predicates for an analysis of this statute.

See also, Advertisements as the Basis for Travel Act Violations

More specifically “unlawful activity” is defined in the Travel Act to include a number of criminal violations, of which gambling that is illegal under a state law is one.

A misunderstanding?  How does this differ from the author’s apparent misunderstanding that the offering and conduct of online gambling activities probably violates the criminal laws of every state in the United States, even if she thinks it does not violate applicable federal laws? 

"One of the many reasons is that the offshore sites are legal in the jurisdictions from which they operate."






"Every offshore gambling site offers a play-money area with a caveat that players are not to play where it is illegal to do so."








The author then attempts to wield the Commerce Clause of the U. S. Constitution to wield as a sword against an attempt by Congress to “interfere with the legitimate right to conduct business. Where an online site offers a service such as free poker playing, Congress may not be able to interfere with that legitimate business operation….”

The asserted “legality” of the offshore cardrooms operating online is open to question.  Legal under whose laws?  Where do the online sites operate?  In the place where they have gotten a license for a very small amount of money (say $1,000) or in the place(s) where they target business.  (Over 60% of the revenues of online gambling websites come from people playing in the United States.)

I think the correct test is whether the gambling offered by the online casino would be legal if it were conducted in person in the place where the bettor is located.

A pro forma disclaimer will not avail against a criminal prosecution.  The offering of a come on to lure players into the “real money” side of the online cardroom is a mere distraction from reality, and a transparent one at that.  IIt is akin to offering free piano lessons in a whorehouse in order to attract customers to the location. 

The question is not whether the player is violating the law, but rather whether the operation of the online cardroom violates applicable state laws that criminalize the operation of professional gambling facilities that have not been licensed by the jurisdiction in which the bettor lives, if any license is available at all.

Why not?  If Congress has outlawed, or finds a reason to outlaw, the business, it can certainly legislate against it.  Furthermore, it is sophomoric to argue that if a website offers a legitimate, legal interactive activity that is a miniscule part of its illegitimate, illegal business, then the whole website is transformed into legality.

"Nothing is more fatal than a dodge," young Winston Churchill told Commons in 1906. "Wrongs will be forgiven, sufferings and losses will be forgiven or forgotten…but anything like a trick will always rankle."

“1. The gambling violates a state law.

“2. There are five or more people involved in running the whole operation.

“3. The company is in continuous operation for a period in excess of 30 days or has a gross revenue of $2,000 in any single day.”

In particular, that statute provides: “Whoever conducts, finances, manages, supervises, directs, or owns all or part of an illegal gambling business shall be fined under this title or imprisoned not more than five years, or both.”

I am not sure where the author gets the information that the miscreant goes to “state prison”.  It sounds like this miscreant goes to federal prison.  (Maybe even one of those real nice country-club-ones like Lompoc.)

Former Assistant Nevada Attorney General James Rodefer says in his article cited above: “Given the minimal proof required to demonstrate a violation of the Illegal Gambling Business Act, some have argued that computer operators and maintenance crews, accountants and owners may all be included within the ambit of the statute even though their participation may not relate to Internet gaming.”

What is correct is that prosecutors may not wish to go after an offshore defendant since it is difficult to enforce any judgment or verdict that might be entered against the website and its absentee owners.  The case is certainly different, however, for U.S. residents who aid and abet the offshore Websites.

“If no specific Internet gambling legislation is adopted, the off-line rules remain applicable to the virtual world.  Gambling Web sites are subject to the same regulatory and licensing requirements as the off-line world.  What is illegal off-line remains illegal online; it is illegal to offer (Internet) gambling services to consumers resident in a country where a license has not been granted by the appropriate authorities.”

What’s wrong with going fishing?  Prosecutors think it is especially good when you catch some fish.

Discussions of the remaining prongs of the test are irrelevant if the first part is not met.

The author’s discussion focuses on the remaining prongs and thus is irrelevant for purposes of advancing the intended point, which apparently is that those taking advertising are within their First Amendment rights.

The offering of “play money” gambling tables does not change the basic thrust of the for-profit online gambling Websites.  They exist to make money from their “real money” activities.  If that activity violates local law, then the come-on advertising for the website is not protected by First Amendment guarantees.  A recent article in the New York Times discusses the creativity of online gambling sites in advertising play-money "dot net" versions of their "dot com" websites which offer both play-money and real-money gambling games.