A New US Gambling Law has been passed! This article will be updated --- sometime, eventually!
Out of date article: Gambling is one of the most regulated industries in the United States. Traditionally regulated by state law, gambling is largely illegal in many jurisdictions. Where it is legal, it is legal only to the extent that the state says so (it is legal only when the gambling institution is properly licensed and pays certain gambling taxes to the state). Gambling is big business, bringing in huge amounts of cash and tax revenue, and employing thousands of state citizens.
How big is gambling? Gamblers legally lost $50 billion in 1998, while casinos grossed $7.5 billion. In 1999, casinos did better, grossing $22 billion. Internet gambling, which saw its birth in 1995, [Janower] reportedly grossed $651 million in 1998, doubling since the year before, with 14.5 million online gamblers. There were estimated 300 Internet gambling sites at that time. USAToday reports that the estimated profits for Internet gambling is $2.2 billion for 2000, $3.0 billion for 2001, $4.1 billion for 2002, $6.0 billion for 2003, $8.3 billion for 2004, and $10.2 billion for 2005. The same USAToday article, estimated that there were approximately 1400 gambling web sites operated by approximately 300 different companies at the time. [Electronic Frontier] [Yures] [Final Report].
[Nua]
Internet gambling has created the opportunity for anyone with a computer and a credit card to easily waste away vast sums of money, engaging the offerings of off-shore gambling companies. These cyber casinos may be unregulated. There is no assurance that the game is on the level. There are no background checks on the operators. Scams can fold up shop at a night fall. There is no money going into a state's coffers. There are no state citizens being employed. Removed from the highly social glitz and glamour of Las Vegas or Atlantic City, Internet gambling is a solitary activity between an individual and a computer screen, where compulsive gamblers can become entranced and minors can act like adults. It is a disruptive innovation to the business plans of established incumbents gambling businesses. Finally, DOJ has expressed concern that Internet gambling can provide an easy means for money laundering. [Electronic Frontier] [Final Report]
The question of the legality of Joe Gambler placing a bet at the ACME casino in the state of Nevada is normally answered by state law, in this case the law of Nevada. The gambler, the casino, and the transaction all are in Nevada. Disrupting this easy analysis, a new technology hit the scene where the gambler can be in one state, the gambling institution in another, and the gambling event in yet another state. This new technology was of course - - the telephone. [Final Report n1]
The inability of state law to adequately address interstate gambling via the telephone network became a significant concern for the US Government. Then-attorney General Robert F. Kennedy, in 1961, sought to rectify this situation by proposing the Interstate Wireline Act. This law 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 waters 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.
18 USC § 1084(a). [Electronic Frontier]
The Internet is a logical network layered on top of a physical transmission network, originally, the telephone network. The Internet is also an interstate network. Thus, in the world of dial-up Internet, to say that one is engaged in gambling over the Internet is the same as saying that one is engaged in gambling over the interstate telephone network. Even where the gambling institution and servers are offshore in some place like Antigua or Costa Rica, the gambling institution is knowingly using wire communication within the jurisdiction of the United States for the purpose of gambling. Thus, the Wire Act applies. Right? [scope]
The Department of Justice is of the opinion that it has no difficulty applying the Wire Act to the Internet. [Gregory] [Media Response to DOJ Letter to Nevada stating that online gambling is illegal]. Arguments that the Wire Act can not reach offshore institutions has been dismissed by DOJ as "nonsense." [Suarez]
Where there is some controversy surrounds the use of the word "wire." Not all of the Internet goes over wire. Some is wireless (satellite, terrestrial wireless). Where it does go over wire, some of that wire is not the telephone network. In those cases, is it possible to argue that the Wire Act does not apply? [Final Report] [Hammond] DOJ has argued "the 'wire communication facility' definition still applies, because the statutory definition includes facilities other than wire and cable that can aid in the transmission of data between 'the points of origin and reception of such transmission.' 18 U.S.C. § 1081." [Electronic Frontier]
While it is arguable the Wire Act applies to the Internet over any facility, not all of the remedies do. Pursuant to the Wire Act, DOJ can require that common carriers (aka telephone carriers) disconnect the communications facilities of violators of the Act. [18 U.S.C. § 1084(d)] DOJ has recommended that this remedy be expanded to any communications facility and not just telephone carriers. [Gregory 2000]
