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Internet Gambling Goes to Court

By Michael Mahoney
Jul 3, 2001 5:28 PM PT

There's a case brewing in Louisiana that may blow the lid off virtual casinos everywhere.

Internet Gambling Goes to Court

The U.S. Department of Justice maintains that online gambling of all types is illegal in the United States under the 1961 Wire Act -- and has been successful in prosecuting Internet gamblers and bookies under that law.

However, a U.S. appeals court faces the question of whether a trial court in Louisiana was correct when it ruled in February that the Wire Act does not apply to all forms of Internet gambling, but only sports wagering.

In the consolidated cases, several gamblers sued Visa and MasterCard, seeking to avoid paying their gambling debts. Judge Stanwood Duval of the U.S. District Court for the Eastern District of Louisiana dismissed the case, which means that the gamblers will have to pay up.

However, in doing so, Duval made his broad statement about the application of the Wire Act. With the case now under appeal, many advocates of online gambling are no doubt betting on the federal appellate court to give them the hook they need to open the floodgates for Internet casinos.

The Bookie Loses

Despite what Duval wrote in his opinion, courts in other jurisdictions have sided with the Justice Department and ruled that all forms of Internet gambling are unlawful under the Wire Act.

For example, the Wire Act was used to convict a telephone and Internet bookmaker last year. In that case, U.S. District Judge Thomas Griesa, sitting in New York, sentenced Jay Cohen, co-owner of Antigua-based World Sports Exchange, to 21 months in prison, followed by two years of supervised release, in addition to nearly US$6,000 in fines and assessments.

"People who operate businesses from foreign shores that take sports bets from Americans should understand that they cannot escape the consequences of their actions by locating their sportsbooks outside the United States," said U.S. Attorney Mary Jo White at the time.

According to White, "an Internet communication is no different [from] a telephone call for purposes of liability under the Wire Wager Act." Indeed, legal experts note that the Wire Act was drafted specifically to combat the growing use of a service in the 1950s known as "The Line," which gave up-to-date gambling information to bookies so they could take and place bets in real-time.

Play, Don't Pay

Which bring us back to the MasterCard/Visa case. The plaintiffs in that case argued that by sending out monthly statements to customers who had used the cards to gamble online, MasterCard and Visa committed fraud in trying to collect "illegal" debts.

Judge Duval, however, threw the MasterCard/Visa suits out before they ever made it to trial.

"Plaintiffs in these cases are not victims, they are independent actors who made a knowing and voluntary choice to engage in a course of conduct," Duval said in the ruling. "At this point in time, Internet casino gambling is not a violation of federal law."

Duval also drew the legal conclusion that the 1960 Wire Act only prohibits sports betting online.

Side Comments

Under the legal doctrine of "obiter dicta," or "worldly discussion," it could be argued that the judge went too far and made some sweeping statements about the Wire Act that were not necessary to his opinion, and so not binding on other courts.

However, if the appellate court decides to review and approve of the judge's broad conclusions about the Wire Act, it is possible that an appellate opinion will be floating around that would prohibit new prosecutions of online gambling operations under the Wire Act.

Only In Vegas

Since Duval's ruling in February, there have been several other major developments that will help decide the fate of online gambling.

Notably, in mid-June, Nevada passed a bill allowing large casinos to set up in cyberspace, becoming the first state to allow Internet gambling. Although the law does not legalize online gambling in Nevada, it does permit state regulators to prepare rules to govern Internet-based betting.

Nevada also plans to build a coalition of states to challenge the Wire Act. However, Whittier Law School professor Nelson Rose downplayed the likelihood of its success.

"Although a lot of states have lotteries and casino gambling, none outside of Nevada appear anxious to take bets from other states and nations," Rose said.

Gearing Up

Rose said that the big question is whether the proposed Internet Gambling Prohibition Act will be reintroduced into Congress and whether federal lawmakers will pass a ban on Internet gambling e-cash.

Reportedly, the Act, which failed to pass last year, is being reworked by its original author, U.S. Representative Robert Goodlatte (R-Virginia).

The revamped bill, instead of focusing on the Wire Act, will attempt to declare credit card debts incurred from Internet gambling uncollectable. It will also reportedly let state lotteries sell tickets online, a major item not included in the first bill.

Cards on the Table

The U.S. appeals court might avoid a review of Judge Duval's conclusion that the Wire Act does not apply to Internet casino gambling and determine the outcome of the MasterCard/Visa cases on other grounds.

However, even if the appellate court avoids the ultimate issue now, another federal appellate court or two could take up the question of whether the Wire Act applies to Internet casino gambling. Eventually, the myriad factions in the Web gambling sector could bring the issue to the U.S. Supreme Court.

Rose sees a mixed outlook for online gambling.

"In the near future, we will see more states outlawing Internet gambling, although they will exempt their own legal forms of gambling," Rose predicted. "Congress [will be] unable to reach a consensus, and legal online betting expand throughout the rest of world."

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