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What It Means for Internet Gaming

On Friday, December 23, 2011, the Department of Justice (DOJ) published for the first time that a memorandum signed by Virginia A. Seitz, the Assistant Attorney General for the Criminal Division, dated September 20, 2011, reacting to two distinct questions — one from two state lotteries and one from two U.S. Senators — regarding the applicability of the Wire Act (18 U.S.C. ?? 1084) to intrastate sales of lottery tickets on the Internet. In a 180-degree reversal, the DOJ Court takes the place that the Wire Act does not apply to non-sports betting. This shift in position has wideranging implications for the Internet gaming landscape in the U.S. Of specific interest, it usually means that DOJ will no more contend that states can’t license intrastate Internet gaming, provide lottery games over the web or compact with each other to provide interstate gambling.

A lot of the gaming sector had heard rumors that such a memo was in procedure, and several were surprised that DOJ chose to delay launch of the memo before the Friday before Christmas to minimize media coverage.

The Wire Act
The Wire Act was passed in 1961 as a part of a Kennedy-era drive against organized crime. It reads in relevant part:

“Whoever being engaged in the company 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 to 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.”

Even the Justice Department had maintained that, despite the reference to”sporting event or contest,” the Act effectively prohibits any telecommunicated bet placed or obtained by a person located in the United States.1 DOJ had maintained that even Internet wagers placed and accepted over the exact same state violated the Wire Act, asserting that the publicly-switched phone network and the Internet are inherently global media.

From 1996-2006, Congress attempted on many occasions to update and explain the Wire Act as to exactly what it did and didn’t prohibit; every one of those efforts failed primarily because of internecine conflicts between different gaming sectors — i.e., industrial vs. tribal. dog racing, lotteries vs. convenience stores. In 2006, Congress abandoned efforts to update the Wire Act, and instead passed the Unlawful Internet Gambling Enforcement Act (UIGEA, 31 U.S.C ?? 5361-67), which prohibited the acceptance or processing of a financial instrument with the goal of”unlawful online gambling” but failed to directly define that term, instead relying on other national and state laws as to what wagers were illegal. UIGEA did comprise certain exceptions from its enforcement mechanism, including wagers accepted with a state-licensed entity from individuals from the state where it had been licensed, however, UIGEA made clear it did not plan to legalize those wagers.2

Back in 2002, the Fifth Circuit Court of Appeals upheld a lower court judgment in a civil case that discovered the words”sporting event or competition” made clear that the Wire Act only applied to sports gambling.3 No other Circuit has mastered directly on the point. DOJ nonetheless had made clear that they didn’t agree with the Fifth Circuit’s findings.

Late in 2010, the District of Columbia enacted a law allowing its lottery to provide both lottery tickets and casino-type matches to people in D.C., and the D.C. lottery is preparing to start its Internet solutions. It was in response to this Senators Harry Reid (D-NV) and Jon Kyl wrote to Attorney General Holder requesting him to clarify DOJ’s position as to whether the Wire Act would prohibit this. In addition, two state lotteries had asked DOJ to clarify its position regarding Internet sale of lottery tickets. In the memo published on December 23, DOJ adopted much of this Fifth Circuit’s reasoning in stating that, since the Wire Act only prohibits sports betting, there’s absolutely no national impediment to countries in selling lottery tickets on the Internet.

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