At the end of 2003 an article, Turning Up the Heat, appeared in Card Player Online Newsletter.  The article was written by a practicing criminal lawyer.  It analyzed the application of three federal anti-gambling statutes to online cardrooms as well as some aspects of the legality of advertising the availability of those cardrooms.  The federal acts involved in the analysis were: the Wire Wager Act, the Travel Act, and the Illegal Gambling Business Act.  The advertising discussion centers around a letter sent to the National Association of Broadcasters by an official of the U.S. Department of Justice warning that its members could be aiding and abetting gambling made illegal under federal anti-gambling laws.  The following “point-counterpoint” format presents my analysis and observations about the author’s legal arguments, observations, and conclusions, most of which I believe are of questionable correctness.  The author’s points are summarized or quoted in the left-hand column.  My responses are in the right-hand column

Author’s Points

My Counter-Points

To start out, the author notes the absence of any current federal legislative action, as of November 2003 on pending bills in the House and Senate seeking to ban federally regulated agencies from honoring checks, credit cards and other financial instruments to deposit funds into accounts at online gambling casinos.The author then says, “The U.S. attorney general’s office has begun to turn up the heat in an effort to slow down the rapid growth of online gambling. Recently, a letter from Assistant Attorney General John G. Malcolm was sent to the National Association of Broadcasters, ‘encouraging’ them not to accept advertising from online gambling sites.”Those bills died when the 108th U.S. Congress ended without passing them. Most observers expect that similar legislative proposals will be reintroduced into the 109th U.S. Congress. Here are three relevant online links:
John Malcolm letter to NAB.
John Malcolm testimony before the Senate Banking Committee
Lawrence Walters writes about
US Court Subpoenas Gambling Portals
The author then says that personal history about Mr. Malcolm is needed to understand his letter.What sophistry is this?  Mr. Malcolm’s  letter speaks for itself.  It, as well as his testimony before the Senate Banking Committee, is available online.  What purposes do a personal history serve?Do we need a background history of the author in order to understand the article?
The author notes that Mr. Malcolm , is a Deputy Assistant Attorney General in the Department of Justice, where he manages the Computer Crime & Intellectual Property Section, the Child Exploitation & Obscenity Section, the Domestic Security Section, and the Office of Special Investigations.  the author gives some additional background apparently attempting to emphasize that Malcolm was a Southerner with a Republican Party affiliation before joining the Justice Department in Washington at a time when a Republican became President.
Material on Mr. Malcolm’s political affiliations are here omittedThis information, no matter how true it may be, constitutes a fallacious attack on Mr. Malcolm based on his past political affiliations, with which the author obviously has some disagreement.
The author subsequently says: “It is interesting to note that on one hand, Malcolm testifies before Congress in order to encourage the passage of anti-gambling legislation; on the other hand, he publicly states that online gambling is already illegal.”I do not understand what is so “interesting” in this.  It is perfectly proper to contend that while something is presently illegal, it would clarify the law and aid prosecutors if the illegality were better specified and the penalties made harsher by additional legislation.

Wire Wager Act

The author says: “Section 1084 is the now famous 1961 Interstate Wire Act (18 U.S.C. section 1084)”  The author then proceeds to note that in a previous article the author “first predicted that the Wire Act would be found NOT to speak to online poker playing…  Sure enough, there have been two judicial determinations that the Wire Act does not apply to online gambling….”

The author also says: “‘In Re MasterCard International’, decided Feb. 23, 2001, the Honorable Judge Stanwood R. Duval, Jr. made a specific finding that the Wire Act did not prohibit online poker playing….”  (Emphasis supplied.)

The author continues: “The judiciary has spoken and courts are bound by that determination unless and until the Supreme Court or other District Courts of Appeal  (sic.) hold otherwise. This is what is meant by the legal concept of ‘stare decisis,’ which means ‘a thing decided.’

The author concludes: “It is disingenuous for the attorney general’s office to continue to take the position that the Wire Act prohibits online poker playing when the judiciary has already spoken on the issue.”

The “now famous” Wire Wager Act was a part of the package of anti-crime legislation sponsored by the Kennedy administration in the early 1960’s.  For a thorough discussion of the background and reach of this law, see Federal Wire Wager Act

In the MasterCard cases [In re MasterCard Int’l, et al., 132 F. Supp. 2d 468, (E.D. La. 2001) and on appeal in the Fifth Circuit, at 2002 C05 518 (USCA5, 2002)] it was ultimately held that credit card debts could not be avoided by online gamblers under assertions of violations by the credit card companies of the Racketeering Influenced Corrupt Organizations Act, when the credit card users incurred charges to purchase ‘chips’ with which they gambled at on-line casinos in activities not involving sports betting.

For the RICO statute to apply the defendant credit card companies must be found to have committed two “predicate offenses”—that is to have two or more violations of one or more of the numerous criminal laws that the RICO statute singles out as triggers before the draconian provisions of this law can come into play.

Violations of the Wire Act would constitute a predicate offense.  However, the District Court, after analyzing the legislative history of that law, held the Wire Act only applied to sports betting and did not apply to other forms of online gambling.  The Fifth Circuit affirmed that holding.

Online “poker playing” was not specifically mentioned in the decisions.  Online gambling (which, out of fairness, does subsume online poker playing for money) was mentioned.  The District Court held, and the Fifth Circuit affirmed, the view that the Wire Act covered sports betting only.  Other online gambling activities are not, in the view of these courts, covered by the Wire Wager Act.

In affirming the District Court, the Fifth Circuit said: “Finally, we reiterate the district court’s statement that ‘RICO, no matter how liberally construed, is not intended to provide a remedy to this class of plaintiff.’  [Plaintiffs] simply are not victims under the facts of these cases. Rather, as the district court wrote, ‘they are independent actors who made a knowing and voluntary choice to engage in a course of conduct.’  In engaging in this conduct, they got exactly what they bargained for–gambling ‘chips’ with which they could place wagers. They cannot use RICO to avoid meeting obligations they voluntarily took on.” 2002 C05 518 at [28]

Only the 5th Circuit has spoken.  The Federal District Courts within the geographic boundaries of the 5th Circuit are bound by the 5th Circuit’s holding.  No other Federal District Court is so bound.  There are 11 U.S. Circuit Courts of Appeal, with about 15% of the U. S. District Courts being in the geographic region of the 5th Circuit.

It is within the prerogative of the U. S. Attorney General’s office to maintain its position until there is a final, binding nationwide decision on this point by the U.S. Supreme Court.  That Court is the arbiter of any conflicting decisions among the eleven different U.S. Circuit Courts of Appeal.  Each of the other Circuits is free to come to a conclusion that differs from the one reached by the Fifth Circuit.  Any other Circuit Court considering the scope of the Wire Wager Act will certainly review the reasoning of the Fifth Circuit on this point, but there is no binding legal requirement that any other court outside the geographical boundaries of the Fifth Circuit need treat the holding of the Fifth Circuit as binding law on this point.  Any other Circuit Court is also free to consider the position and reasoning advanced by the U.S. Department of Justice, including the views expressed by John Malcolm.

Travel Act

The author then turns to a discussion of violations of the federal Travel Act, which require “proof that one who is accused (1) traveled in interstate or foreign commerce or used an interstate or foreign facility, such as the mail, (2) intending thereby to promote ‘unlawful activity,’ and (3) subsequently promoted that unlawful activity.”The author continues:  “Unlawful activity is defined … as any business enterprise involving gambling offenses in violation of the laws of the state in which they are committed.See:  Federal Travel Act Scope and Predicates for an analysis of this statute.

See also, Advertisements as the Basis for Travel Act Violations

More specifically “unlawful activity” is defined in the Travel Act to include a number of criminal violations, of which gambling that is illegal under a state law is one.

The author then discusses “An interesting example of a successful prosecution utilizing the Travel Act.”  U.S. v. Morris, 532 F.2d 436 (1976).  The facts were that the defendants traveled from Texas to Nevada to cheat poker players in private games in Las Vegas by means of stacked decks.  The defense was that poker games were legal in Nevada and thus the travel was not for a purpose in violation of the laws of Nevada.  The author says: “The court held that Morris didn’t understand the distinction between legitimate legalized gambling, permitted in Nevada, and illegitimate or dishonest gambling, illegal in Nevada and every other state.”A misunderstanding?  How does this differ from the author’s apparent misunderstanding that the offering and conduct of online gambling activities probably violates the criminal laws of every state in the United States, even if she thinks it does not violate applicable federal laws?
The author opines: “It is inconceivable that the government would utilize this section to prosecute online gambling.”

“One of the many reasons is that the offshore sites are legal in the jurisdictions from which they operate.”

“Every offshore gambling site offers a play-money area with a caveat that players are not to play where it is illegal to do so.”

The author then attempts to wield the Commerce Clause of the U. S. Constitution to wield as a sword against an attempt by Congress to “interfere with the legitimate right to conduct business. Where an online site offers a service such as free poker playing, Congress may not be able to interfere with that legitimate business operation….”

I can conceive of it.  See Advertisements as the Basis for Travel Act Violations.  Advertising of illegal gambling is illegal, as noted by John Malcolm and is not protected by any First Amendment right.  The case against the publisher would be materially strengthened to extent that he sought to be “cut in” for an interest (however denominated) in the revenues of the online cardrooms.The asserted “legality” of the offshore cardrooms operating online is open to question.  Legal under whose laws?  Where do the online sites operate?  In the place where they have gotten a license for a very small amount of money (say $1,000) or in the place(s) where they target business.  (Over 60% of the revenues of online gambling websites come from people playing in the United States.)

I think the correct test is whether the gambling offered by the online casino would be legal if it were conducted in person in the place where the bettor is located.

A pro forma disclaimer will not avail against a criminal prosecution.  The offering of a come on to lure players into the “real money” side of the online cardroom is a mere distraction from reality, and a transparent one at that.  IIt is akin to offering free piano lessons in a whorehouse in order to attract customers to the location.

The question is not whether the player is violating the law, but rather whether the operation of the online cardroom violates applicable state laws that criminalize the operation of professional gambling facilities that have not been licensed by the jurisdiction in which the bettor lives, if any license is available at all.

Why not?  If Congress has outlawed, or finds a reason to outlaw, the business, it can certainly legislate against it.  Furthermore, it is sophomoric to argue that if a website offers a legitimate, legal interactive activity that is a miniscule part of its illegitimate, illegal business, then the whole website is transformed into legality.

“Nothing is more fatal than a dodge,” young Winston Churchill told Commons in 1906. “Wrongs will be forgiven, sufferings and losses will be forgiven or forgotten…but anything like a trick will always rankle.”

Illegal Gambling Businesses Act

The author says: “Federal Code section 18 U.S.C.S. (sic.) § 1955 (2003) prohibits illegal gambling where such gambling is a violation of law in the state where it is operating. The code section essentially says that anyone involved in the gambling business shall be imprisoned in state prison for no more than five years and have their assets confiscated if the state proves:“1. The gambling violates a state law.

“2. There are five or more people involved in running the whole operation.

“3. The company is in continuous operation for a period in excess of 30 days or has a gross revenue of $2,000 in any single day.”

See: Illegal Gambling Business Act of 1970 In particular, that statute provides: “Whoever conducts, finances, manages, supervises, directs, or owns all or part of an illegal gambling business shall be fined under this title or imprisoned not more than five years, or both.”

I am not sure where the author gets the information that the miscreant goes to “state prison”.  It sounds like this miscreant goes to federal prison.  (Maybe even one of those real nice country-club-ones like Lompoc.)

Former Assistant Nevada Attorney General James Rodefer says in his article cited above: “Given the minimal proof required to demonstrate a violation of the Illegal Gambling Business Act, some have argued that computer operators and maintenance crews, accountants and owners may all be included within the ambit of the statute even though their participation may not relate to Internet gaming.”

The author opines: “Obviously, the gambling business must be within the jurisdiction of the United States. Since every online gambling site appears to be offshore, the United States government has no jurisdiction to prohibit business outside the United States. The government would have jurisdiction if a gambling site conducted substantial business within the borders of the United States…  In sum, if the online operations are offshore, U.S. law cannot prohibit their operation and 1955 is therefore inapplicable.These assertions are plainly incorrect.  There is both person and substantive jurisdiction.  See my article Asserting Legal Jurisdiction Over Online Gambling SitesWhat is correct is that prosecutors may not wish to go after an offshore defendant since it is difficult to enforce any judgment or verdict that might be entered against the website and its absentee owners.  The case is certainly different, however, for U.S. residents who aid and abet the offshore Websites.
The author then makes reference, without providing a citation or link, to a story in the Interactive Gaming News about the issuance of a subpoena requiring testimony before a federal grand jury by the operator of “a portal site… to turn over all commercial and financial information from Jan. 1, 1997, to the present related to the advertisement of online casinos and sportsbooks… [including] names and all identifying and contact information… for each such gambling advertiser.”See also Extracts: Internet Gambling Report Sixth Edition for materials from a companion publication to the Interactive Gaming News.  Here is one paragraph from those extracts commenting on laws in the European union:“If no specific Internet gambling legislation is adopted, the off-line rules remain applicable to the virtual world.  Gambling Web sites are subject to the same regulatory and licensing requirements as the off-line world.  What is illegal off-line remains illegal online; it is illegal to offer (Internet) gambling services to consumers resident in a country where a license has not been granted by the appropriate authorities.”
The author say “My guess is that the government will try to prove that some Internet sites are in reality doing business within the borders of the United States, which is the only way I can see the requested documentation being relevant. The subpoena is in the guise of gathering information about illegal advertising. In reality, it is a fishing expedition, because advertisers are the least liable.”I do not know about “reality” but the gambling websites are certainly doing business “virtually” within the borders of the United States.What’s wrong with going fishing?  Prosecutors think it is especially good when you catch some fish.

The Central Hudson Test

The author says: “[I]n the United States, there is a huge difference in the law between conduct and commercial speech relating to that conduct. Most advertising constitutes commercial speech protected by the First Amendment. The government’s ability to regulate advertising for Internet gambling is not equal to its power to regulate online gambling itself. The established test used to assess the legality of gambling advertising is known as the “Central Hudson Test.”The first prong of the four-part test in Central Hudson requires that the advertising be about a legal activity in order to qualify for the First Amendment protection accorded to commercial speech.Discussions of the remaining prongs of the test are irrelevant if the first part is not met.

The author’s discussion focuses on the remaining prongs and thus is irrelevant for purposes of advancing the intended point, which apparently is that those taking advertising are within their First Amendment rights.

The author contends: “The Central Hudson Test gives rise to a fantastic knotty legal conundrum. If offshore Internet sites are properly licensed, they are certainly legal in some places. If they have play-money sections, they offer something legal to everyone. If playing online is legal in some places and not legal in other places, can the government prohibit free speech regarding that which is legal in certain areas but not others? Furthermore, if the advertisement specifically states that playing poker online is not legal in every jurisdiction and one must check local laws, the government would be hard-pressed to assert that the advertiser was advertising an illegal activity.”There is not much to discuss.  The author might wish for a difficult legal question, but it just does not exist.The offering of “play money” gambling tables does not change the basic thrust of the for-profit online gambling Websites.  They exist to make money from their “real money” activities.  If that activity violates local law, then the come-on advertising for the website is not protected by First Amendment guarantees.  A recent article in the New York Times discusses the creativity of online gambling sites in advertising play-money “dot net” versions of their “dot com” websites which offer both play-money and real-money gambling games.
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