Why does the Federal gov't ban online gaming?

As far as I can tell as a nonspecialist, the U.S. federal government has little to say about casino gambling, leaving it to states to decide whether to allow gaming at all, and how to regulate it. In contrast to 50 years ago, when the only legal gambling in the country was in Nevada, it’s now permitted, in one form or another, in most states.

So how and why did the federal government prohibit Americans to gamble online? Given the laissez-faire attitude towards live gaming, why the concern over internet gaming?

They did?

Well if they did is because they had the authority to do so, and meddling with gambling within the borders of a state will get the states rights advocates all up in arms.

Yes, but if people from another state gamble online, it’s a form of interstate commerce, and the Federal government can be involved.

Yeah that’s what I meant. i.e. they can ban online but not within state bounds.

I do not believe that any of the proposed federal laws to ban or regulate online gambling have ever been passed. If I’m wrong, could someone please identify the law by name or date?

I am not a lawyer, but this is a subject I have researched extensively. To my knowledge, there has not been a single federal prosecution of an internet gambler. There have been a few cases filed against the proprietors of the online websites, but those have been conducted under the auspices of long standing federal law – namely the Wire Act of 1961 (18 U.S.C. Section 1084), the Travel Act of 1961 (18 U.S.C. Section 1952), and the Illegal Gambling Business Act of 1970 (18 U.S.C.S. § 1955). Again, I’m not aware of any of those cases which have been succesfully prosecuted. If anyone could cite an instance, I’d be very interested to learn about it.

The federal government has no jurisdiction over companies that don’t do business within the borders of the United States. However, a deputy assistant Attorney General named John Malcolm has asserted that placing print and broadcast advertisements with US broadcasters meets the definition of doing business within the US. It’s a tactic that hasn’t been succesful, but it illustrates the generally inhospitable tone of the Justice department towards online gambling.

It’s definitely illegal for Americans; I heard something on NPR today about a British online gaming company that, it was speculated, could conceivably face legal action from the U.S. The reason? Because the federal government prohibits us from gambling online, yet 16% of their business comes from the U.S.

I’m curious about this because the federal government doesn’t normally seem to concern itself with this.

This is currently a hot topic locally. Apparently the country of Antigua is suing the United States because of an agreement through the World Trade Organization (WTO) for the US to allow online gambling from offshore countries, including Antigua.

The government of Antigua is in a snit because some states, including Utah, expressly prohibit onling gambling (in Utah’s case, any gambling). They are claiming, and apparently a Federal court has backed them up, that since the US agreed to allow onling gambling it must be available to all US residents. Utah and several other states are fighting this.

I haven’t seen anything to back up the OP’s contention that the feds have outlawed internet gambling.

Upon re-reading my linked post, I was mistaken that this has gone to Federal court. The rulilng in question is from the appeals panel of the WTO, which does have power to call for sanctions against the US in case of non-compliance.

As expressed, this is incorrect. As far as U.S. courts are concerned, the U.S. government has at least some power to prosecute actions on foreign soil by companies that don’t even really “do business” in the U.S. in terms of making contacts or sales here, so long as their actions have an economic impact on U.S. businesses or citizens.

The limits of this jurisdiction are not well defined, and of course it’s a bit of a conundrum trying to sentence or fine a foreign business if they have no U.S. assets to seize, but there can be jurisdiction.

–Cliffy

That’s PartyGaming Ltd., based in Gibraltar, going public on the London Stock Exchange. They run the largest online poker network (partypoker dot com). According to Business Week, they had a profit of $350 million from $602 million revenue in 2004, and expect a profit of $500 million this year. The trouble is that 87% of their revenue comes from US residents, and that the US justice department considers online gambling illegal.

With that much money at stake, no wonder Uncle Sam (and others) want a piece.

A funny tidbit about this, if you find unfortunate names funny: the largest shareholder (31.6%) is one Anurag Dikshit, a 33-year old graduate of the Indian Institute of Technology, who helped develop the software. He’s in for quite a payday.

The concern isn’t unique to Internet gaming. Congress passed earlier laws prohibiting or regulating interstate gambling by mail, by broadcast media, or by phone. The motivation has generally been recognition of the reality that states couldn’t choose which forms of gambling to allow within their own borders if their residents could gamble elsewhere via the above media.

The issue first came before Congress during the late 1800’s, when a wave of “anti-lottery reform” led one state after another to ban both private and state-run lotteries–only to see their citizens play other states’ lotteries by mail. Congress began to respond with a ban on using the federal mails for lottery “solicitation” in 1868, and gradually upped the ante until a final law of 1895 effectively banned all interstate lottery traffic of any kind (either via mail or physical carriage of tickets).

The Supreme Court validated the ban in the case of Champion v. Ames, noting that Congress had enacted the ban because “it would not permit the declared policy of the states, which sought to protect their people against the mischiefs of the lottery business, to be overthrown or disregarded by the agency of interstate commerce.”

I’m certainly willing to be proven wrong on the theoretical aspect of the law, Cliffy. Could you provide a cite, or case law, or an example of an instance where a foregin corporation faced federal criminal charges? I’m very curious about this topic and genuinely intersted in learning more.

As you suggest, however, the theory and practicality of this are two different things entirely. Even with strong statutes against online gambling, I don’t believe that the Feds can gain anything by prosecuting the offshore casinos. There are other viable legal options, such as regulating the transfer of funds to and from.

My recollection is that a few years ago there was a big controversy because DoJ was looking to sue Lloyds of London for what it considered antitrust violations. More than that, this is just my recollections of my International Law class.

–Cliffy

It’s been successful to the extent that online poker sites, which previously advertised their dot-com casinos on TV, have now all created dot-net “gambling schools” which are advertised complete with “for entertainment purposes only, this is not a gambling website” disclaimers in tiny letters. UltimateBet, for one, is so paranoid about it that on a recent televised tournament it sponsored it stuck a “for entertainment purposes only, do not rely on this statement for anything” disclaimer on a “tip of the day” from poker pro Annie Duke.

Perusing the latest issue of Card Player magazine, which is published out of Nevada, I find that the online gaming site ads have not so far started advertising their dot-net incarnations. I do note in tiny print in the indicia that “Card Player makes no representations as to whether online gaming is legal in your community.”

Speaking of Card Player, a quick Google turns up this article which discusses a 2001 ruling out of the US District Court in New Orleans in which it was ruled that the Wire Act applies only to sports betting. Also mentioned in the article is a mention of the Statute of Anne, signed in 1710, which makes gambling debts unenforceable under the common law, a 1991 Massachusetts case disallowing a credit card gambling debt to a land-based casino and a 1998 case (settled and sealed) involving $70,000 in credit card debt run up via internet gambling. Most credit card companies disallow their US customers from using their cards for internet gambling (apparently largely as a result of the 1998 case).

Yup, although seeing as the article (originally from Bloomberg News Service) is housed on a site called “lliarsoflondon . com” I don’t know how unbiased it might be.

But Lloyd’s of London does business in the US. They have offices in Illinois, Kentucky, and the US Virgin Islands, and according to their website, “The US currently accounts for over a third of Lloyd’s premium income.”

The issue with online gambling is that those companies are offshore and do not meet the statutory description for doing business in the U.S. Thus, while one might conclude that they are violating federal (or state) law, criminal prosecution isn’t possible.

That’s a view supported by this law journal article:

This article from the Cato Institute echoes that conclusion:

(I stripped the footnotes from both articles, but they’re available from the source.)

Well, jeez, if you’re going to actually do research!

I apologize for just shooting from the hip, but my recollections from International Law and Antitrust classes is that the U.S. has claimed extraterritorial jurisdiction when foreign activity have effects on U.S. soil or businesses. Five minutes of goofing around on the 'Net gives me a cite to United States v. Nippon Paper Indus, Co., 109 F.3d 1 (1st Cir. 1997), which I haven’t yet read, but seems to be an acceptance of the view that the U.S. can prosecute extraterritorial conduct that has an effect on the U.S. As long as the overseas company has U.S. customers, the U.S. can regulate that part, at least, of the business.

–Cliffy

Not about internet gaming, but since it’s about a possible federal attempt to increase regulation, link.

if the gambling companies themselves are out of bounds with no US assets, why doesn’t the US gvernment go after the credit card companies as being accessories to the “crime”? A simple threat would be enough to stop Visa etc working with Pokerstars et al.

US credit card companies have already largely stopped allowing their cards to be used for online gaming. See my link from yesterday at 7:58 AM.