US regulation: What was once a possibility is now assured

In 2002 the United States Virgin Islands (USVI) took the unprecedented step of adopting comprehensive regulations for the operation of Internet gambling. The regulations were proactive and addressed the best practices at the time. Had these practices been applied to all poker sites, players’ deposits, for example, would have been protected by reserve requirements. The small island government could have made a significant difference in its local economy by welcoming companies that wanted a safe and secure method of offering their services to patrons across the globe.

Instead, government leaders received the black letter of death from the Department of Justice (DoJ) saying, “”¦the Wire Act prohibits one in the business of betting Or wagering from knowingly using a wire communications facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bats or wagers. Further, the Department of Justice does not agree with the decision in the In re MasterCard”¦, that Section 1084 is not applicable to casino style wagering.”

A similar letter shut down efforts in North Dakota to legalise internet poker in 2005. Some attributed this action to ultra-conservative John Ashcroft being the Attorney General at the time; after all, Ashcroft was in charge when the DoJ spent US$8,000 to cover the partially nude female statue of the Spirit of Justice that is in the Great Hall of the Justice Department. ‘Activist’ interpretations of laws can come from any political persuasion. Nevertheless, the DoJ publicly continued this position even after Ashcroft left the office.

More recently, lotteries from large states, including New York and the President’s home state of Illinois, expressed an interest in going online with lottery products. This would start out as an intrastate offering, but as with Powerball, it could expand to other states through cooperative agreements. In response, the DoJ has reversed course and come out with a letter that the Wire Act only applies to sports betting. While this opinion is technically correct, it is surprising. While it is great to be Illinois and New York, any advantage that the visionaries in the USVI and North Dakota saw in 2002 and 2005 is long gone.

More immediately, the public disclosure of the new DoJ position fundamentally should change the sense of urgency in Washington. No longer is it possible that the States will legalise internet poker and chance games, it is assured. Moreover, just as the efforts in USVI and North Dakota were derailed, state lotteries had been hesitant to move forward with online gambling in light of the DoJ position. This hesitation is now gone. Left unchecked, internet gambling will quickly spread across the United States.

This cannot sit well with either Senator Harry Reid or Senator Jon Kyl, but for different reasons. Reid and most of his casino constituency desperately want a legal Federal poker scheme. Once states begin to legalise it, the chances for a Federal scheme dissipate.

So, the time is now for Federal poker legislation. On the other hand, Senator Kyl is not a fan of internet gambling. If he wants to stem the pending proliferation, he needs to move quickly to stop the bleeding from the DoJ decision. He has precedent. The Professional and Amateur Sports Protection Act, which prohibits sports wagering in all but a few states, was passed because of the fears that state lotteries were about to permit and promote sports lotteries. To get that done, Senator Kyl, who views poker differently from games of chance, will have to bend. His solution, which is likely acceptable to Senator Reid, is to create a Federal regulatory regime for poker only and then tie down the perceived loopholes created by the new DoJ interpretation (with appropriate exceptions for New York and Illinois, of course).

We will see if they have the collective horse power to get it done.

Anthony N. Cabot is the gaming law practice group leader at Lewis and Roca, a full-service law firm with offices in Nevada and throughout the Southwest. He can be reached at acabot@LRLaw.com