Gaming and gambling in the United States have undergone a great boom in recent years. During the past decade, most states have expanded legalized gaming, including regulated casino-style games, sports betting, and lotteries. There has also been an explosion in opening Native American casinos, and the popularity of online gambling in the US has increased exponentially.

Decades ago, gambling used to be illegal almost in every part of the continental US, except for Nevada and New Jersey. However, as time flew by, more and more states have made various types of gambling legal, ranging from Indian casinos, bingo and poker rooms, off-track horse race betting, and more. While some states have approved certain types of gambling, other types have remained “illegal”, so to speak, like online gambling.  Almost all states have laws that ban at least some form of gambling.

Understanding US gambling laws is not only important for those involved in the industry, but also for average gamblers who want to know whether he or she can start a fantasy football league, a home poker game, or an NCAA tournament betting pool at the workplace.

As of this writing, a lot of things have changed in the US gambling laws. What was once considered illegal on a federal level is now being made legal by the individual US States, provided that casino operators, and in some cases online gambling operators, apply for the necessary permits and licenses within the jurisdiction in which they wish to operate. If gambling was only allowed in Vegas and Atlantic City before, now states like Colorado, West Virginia, Indiana, Iowa, and Pennsylvania are also coming around, with more and more US states following suit.

Federal Gambling Laws

Below you’ll find links to various U.S. Federal Gambling Laws.

Federal Actions Regarding Online Gambling

The segment of the United States government tasked with enforcing federal laws and administering justice associated therein is known as the Department of Justice (DOJ). Also referred to as the Justice Department, this sprawling wing of the federal bureaucracy is headed by the U.S. Attorney General – a position currently served by Loretta Lynch.

With an annual budget in excess of $27 billion, the DOJ oversees federal law enforcement agencies such as the Federal Bureau of Investigation (FBI), the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF), the Drug Enforcement Agency (DEA), and the Office of the Inspector General (OIG). In addition, the DOJ operates several dozen offices and programs within the federal government’s scope, including United States Attorney’s offices in each state, and the Office of Privacy and Civil Liberties (OPCL).

The DOJ, and specifically Manhattan U.S. Attorney Preet Bharara became household names for poker players and fans around the country on April 15th, 2011 – a day which has been dubbed “Black Friday” ever since. On that day Bharara, acting on behalf of the DOJ, unsealed an indictment charging founders and key figures within the online poker industry’s three primary operators – PokerStars, Full Tilt Poker, and Absolute Poker.

The indictments contained within the case of United States v. Scheinberg, 10 Cr. 336 (2011), named 11 defendants in total: Isai Scheinberg, Raymond Bitar, Scott Tom, Brent Beckley, Nelson Burtnick, Paul Tate, Ryan Lang, Bradley Franzen, Ira Rubin, Chad Elie, and John Campos. The indictment linked Scheinberg and Tate to PokerStars, Bitar, and Burtnick to Full Tilt Poker, and Tom and Beckley to Absolute Poker, while Lang, Rubin, Franzen, and Elie are named as processors of illegal payments and financial transactions.

According to the DOJ’s sprawling indictment, the three online poker titans were in violation of two crucial components of federal gaming law: The Illegal Gambling Business Act of 1955 and the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006.

The language contained within the UIGEA was interpreted as outlawing online poker and other gambling, or more accurately, the specific deposit and payout transactions utilized by operators to allow for real-money gaming online. As stated within the act’s language, the UIGEA:

“Prohibits gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law.”

During the almost five-year period between the passage of the UIGEA and the DOJ’s decision to indict, PokerStars, Full Tilt Poker, and Absolute Poker (in addition to several other smaller operators) willfully continued to provide online gaming services to American customers. In doing so, as the DOJ alleged in their indictment, the “big three” necessarily made use of unlawful payment processing to facilitate their site’s operations and growth. As stated by Bharara in a press release at the time:

“As charged, these defendants concocted an elaborate criminal fraud scheme, alternately tricking some U.S. banks and effectively bribing others to assure the continued flow of billions in illegal gambling profits. Moreover, as we allege, in their zeal to circumvent the gambling laws, the defendants also engaged in massive money laundering and bank fraud. Foreign firms that choose to operate in the United States are not free to flout the laws they don’t like simply because they can’t bear to be parted from their profits.”

When the day of Black Friday dawned American poker players suddenly found themselves in a state of limbo, as the domain names for PokerStars, Full Tilt Poker, and Absolute Poker had all been seized by the DOJ. Rather than the usual log-in screen and lobby, players were greeted with an ominous white screen informing them that their favorite online poker room was effectively closed for business when it came to American customers.

Within days all three sites decided to disallow American players from making deposits or placing real money wagers, and soon the rush to deposit funds held on the sites began in earnest. PokerStars immediately began the process of redistributing player funds, while Full Tilt Poker found itself sinking into a much deeper quagmire due to that company’s internal controls over the use of player funds.

As news of Full Tilt Poker’s financial fiasco came to light – including DOJ allegations that the site owed approximately $150 million to U.S. customers on March 21st, 2011, while holding only $60 million in company accounts at the time – the DOJ amended their original indictment to cover the site’s alleged fraud. According to the amended complaint issued by the DOJ, which specifically named former poker superstars and Full Tilt Poker founders and owners Howard Lederer, Chris “Jesus” Ferguson, and Rafe Furst:

“Full Tilt was not a legitimate poker company, but a global Ponzi scheme. Full Tilt insiders lined their own pockets with funds picked from the pockets of their most loyal customers while blithely lying to both players and the public alike about the safety and security of the money deposited.”

While the DOJ indictment cited the UIGEA of 2011 and the Illegal Gambling Business Act of 1955, it curiously lacked any mention of another crucial federal statute used to regulate gambling within the U.S. The DOJ had long maintained that internet gambling activities, including but not limited to online poker, violated the federal Wire Act of 1961. In 2007, then U.S. Attorney Catherine Hanaway testified in front of Congress that the Wire Act should be applicable to all forms of internet-based gambling. According to Hanaway’s testimony:

“The Department of Justice’s view is and has been for some time that all forms of Internet gambling, including sports wagering, casino games, and card games, are illegal under federal law. While many of the federal statutes do not use the term ‘Internet gambling,’ we believe that the statutory language is sufficient to cover it. As we have stated on previous occasions, the department interprets existing federal statues, including 18 U.S.C. Sections 1084, 1952, and 1955, as pertaining to and prohibiting Internet gambling.”

However, perhaps in recognition of the relatively weak statutory evidence pertaining to the Wire Act’s applicability to online gambling, the DOJ declined to cite the Wire Act in their Black Friday indictment. Months after the indictment was first released, U.S. Deputy Attorney James Cole articulated the DOJ’s new stance on the Wire Act’s relation to online gambling thusly:

“The Department’s Office of Legal Counsel (“OLC”) has analyzed the scope of the Wire Act, 18 U.S.c § 1084, and concluded that it is limited only to sports betting.”

This about-face by the DOJ helped pave the way for online poker to begin re-entering the U.S. marketplace as a lawful, fully regulated activity. Today, three states (Nevada, New Jersey, and Delaware) have legalized online poker within their jurisdictions, while several others are currently mulling similar legislation. Despite this progress, however, the online poker industry remains relatively decimated on the domestic level as a result of the DOJ’s decisive action to indict.

In July of 2012, the U.S. government reached a settlement agreement with PokerStars, one which included a provision in which PokerStars would purchase fallen rival Full Tilt Poker in an effort to ensure player repayments were fully rendered. As a result of this settlement, in which both online poker operators admitted no wrongdoing, all civil complaints related to the Black Friday indictment were dismissed with prejudice. Nonetheless, several key figures within the industry, working either for online poker entities or payment processors, were arrested and charged with crimes stemming from the original indictment.

Additional Federal Statutes

Transportation of Gambling Devices Act of 1951.

In 1951, Congress enacted the Transportation of Gambling Devices Act. [236] The Act, more commonly known as the Johnson Act, [237] which has been amended several times during the intervening years, makes it unlawful to knowingly transport a gambling device to a state where such a device is prohibited by law. [238] The manufacturers and distributors of gaming devices for interstate commerce must register each year with the United States Department of Justice, and the devices must be appropriately marked for shipment. [239]

(a) The term “gambling device” means–

(1) any so-called “slot machine” or any other machine or mechanical device an essential part of which is a drum or reel with insignia thereon, and

(A) which when operated may deliver, as the result of the application of an element of chance, any money or property, or

(B) by the operation of which a person may become entitled to receive, as the result of the application of an element of chance, any money or property; or

(2) any other machine or mechanical device (including, but not limited to, roulette wheels and similar devices) designed and manufactured primarily for use in connection with gambling, and

(A) which when operated may deliver, as the result of the application of an element of chance, any money or property, or

(B) by the operation of which a person may become entitled to receive, as the result of the application of an element of chance, any money or property; or

(3) any subassembly or essential part intended to be used in connection with any such machine or mechanical device, but which is not attached to any such machine or mechanical device as a constituent part. [240]

The interstate shipment of hardware or software for use in connection with an Internet or Interactive gaming system may trigger the Johnson Act, as well as the Interstate Transportation of Wagering Paraphernalia Act discussed above. [241]

Bank Records and Foreign Transaction Act of 1970.

In 1970, Congress passed the Bank Records and Foreign Transaction Act, [242] which is better known as the Bank Secrecy Act (BSA). [243]  The BSA required “financial institutions” to report all currency transactions greater than $10,000 in effort to fight money laundering. This obligation was first limited to just banks. In 1985, the United States Treasury Department extended the requirement to casinos through the adoption of regulations. [244]  Nevada casinos enjoy an exemption from the CTR reporting requirements of the BSA. [245]

Internet or interactive casinos will certainly be subject to some form of currency reporting requirement whether it is the BSA or Nevada Gaming Commission Regulation 6A, or both.

Money Laundering Control Act of 1986.

In 1986, Congress enacted the Money Laundering Control Act, [246] codified at 18 U.S.C. §§ 1956, 1957. Section 1956 applies to the knowing and intentional laundering of monetary instruments. [247]  Section 1957 pertains to monetary transactions involving property that is “derived from specified unlawful activity,” which includes “racketeering activity” under RICO. [248]

Electronic Communications Privacy Act of 1986.

In 1986, Congress enacted the Electronic Communications Privacy Act (ECPA), [249] codified at 18 U.S.C. § 2510 et seq. The legislation amended Title 18 of the United States Code to extend the prohibition against the unauthorized interception of communications from wire and oral communications to “electronic communications,” which are defined as:

“electronic communication” means any transfer of signs, signals, writing, images, sounds, data, or intelligence of any nature transmitted in whole or in part by a wire, radio, electromagnetic, photoelectronic or photooptical system that affects interstate or foreign commerce, but does not include–

(A) any wire or oral communication;

(B) any communication made through a tone only paging device;

(C) any communication from a tracking device (as defined in section 3117 of this title); or

(D) electronic funds transfer information stored by a financial institution in a communications system used for the electronic storage and transfer of funds. [250]

The term “intercept” means “the aural or other acquisition of the contents of any wire, electronic, or oral communication through the use of any electronic, mechanical, or other device.” [251]

ECPA provides exceptions for the law enforcement to intercept communications where either (1) law enforcement is a party to the communication, or (2) where one of the parties to the communication has given prior consent to such interception. [252]  The Nevada Gaming Control Board and Nevada Gaming Commission could take advantage of this exemption and be excluded from the reach of ECPA either through the promulgation of a regulatory provision (i.e., that licensees will permit the Board and Commission to monitor all electronic communications with patrons) or by imposing conditions on the licenses of operators of Interactive gaming.


References

Federal

Federal Judicial Decisions

Other References

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