Federal Wire Wager Act

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Extracted from: Internet Gambling in Nevada: Overview of Federal Law Affecting Assembly Bill 466,
Courtesy of Liebert Publishing, Gambling Law Review

In 1961, Congress enacted the Wire Act [57]as a part of a series of antiracketeering laws. The Wire Act complements other federal bookmaking statutes, such as the Travel Act (interstate travel in aid of racketeering enterprises, including gambling), the Interstate Transportation of Wagering Paraphernalia Act, and the Illegal Gambling Business Act (requires a predicate state law violation).

The Wire Act was intended to assist the states, territories, and possessions of the United States, as well as the District of Columbia, in enforcing their respective laws on gambling and bookmaking and to suppress organized gambling activities.[58] Subsection (a) of the Wire Act, a criminal provision, provides:

Whoever being engaged in the business 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 for 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.[59]

In order to prove a prima facie case, the government must establish that:

  1. The person was “engaged in the business of betting or wagering”
  2. (compared with a casual bettor);
  3. The person transmitted in interstate or foreign commerce:
    1. bets or wagers,
    2. information assisting in the placement of bets or wagers, or
    3. a communication that entitled the recipient to receive money or credit as a result of a bet or wager;
  4. The person used a ” wire communication facility;” and
  5. The person knowingly used a wire communication facility to engage in one of the three prohibited forms of transmissions.

In analyzing the first element, the legislative history[60] of the Wire Act seems to support the position that casual bettors would fall outside of the prosecutorial reach of the statute. During the House of Representatives debate on the bill, Congressman Emanuel Celler, Chairman of the House Judiciary Committee stated “[t]his bill only gets after the bookmaker, the gambler who makes it his business to take bets or to lay off bets. . . It does not go after the causal gambler who bets $2 on a race. That type of transaction is not within the purvue of the statute.”[61]  In Baborian, the federal district court concluded that Congress did not intend to include social bettors within the umbrella of the statute, even those bettors that bet large sums of money and show a certain degree of sophistication.[62]

Some courts have construed the second element concerning transmission to mean just the “sending” of information and not the receipt thereof.[63]  Other courts have interpreted the term “transmission” more broadly to include both parties using a wire communication facility. [64]

The term “wire communication facility” is defined, for purposes of transmitting as set forth in the third element above, as:

[A]ny and all instrumentalities, personnel, and services (among other things, the receipt, forwarding, or delivery of communications) used or useful in the transmission of writings, signs, pictures, and sounds of all kinds by aid of wire, cable, or other like connection between the points of origin and reception of such transmission.[65]

The fourth element is that the person acted “knowingly.” This does not mean that he or she knew they were violating the statute, but rather, the individual knowingly used an interstate wire communication facility to engage in one of the three forms of prohibited transmissions listed above.[66]

Subsection (b) of the Wire Act sets forth exceptions, also known as a “safe harbor” clause and provides:

Nothing in this section shall be construed to prevent the transmission in interstate or foreign commerce of information [(1)] for the use in news reporting of sporting events or contests, or [(2)] for the transmission of information assisting in the placing of bets or wagers on a sporting event or contest from a State or foreign country where betting on the sporting event or contest is legal into a State or foreign country in which such betting is legal.[67] “

The first exemption was designed to permit ‘bona fide news reporting of sporting events or contests.'”[68] The second exemption “was created for the discrete purpose of permitting the transmission of information relating to betting on particular sports where such betting was legal in both the state from which the information was sent and the state in which it was received.”[69]

Subsection (c) simply provides that nothing contained in the provisions of the Wire Act shall create immunity from criminal prosecution under any state laws.[70]  Finally, subsection (d) dictates when a telephone company or other common carrier, subject to the jurisdiction of the Federal Communications Commission, must terminate service when that service is being used to transmit or receive gambling information in violation of law.[71]

The language of the Wire Act clearly prohibits the use of the Internet for transmission of sports bets or wagers or information assisting in the placement of such bets or wagers,[72] unless transmission falls within one of the two exceptions noted above. The statute, however, does not expressly discuss its possible application to other forms of gambling. As a result, differing interpretations have arisen over the construction of the phrase “any sporting event or contest,” and over whether the 40-year old Wire Act prohibits Internet gambling.

The interpretation of this language turns upon the determination of whether “sporting” is an adjective intended to modify both “event” and “contest.” [73]  Neither section 1084 nor the definitional section 1081 defines the term “sporting event or contest.” A narrow construction would seem to suggest that the phrase is limited to sports-related activities. [74]  There is support for this argument in the language of the statute, in the legislative history and in case law.

Statutory language: Section 1081 defines a “gambling establishment” as “any common gaming or gambling establishment operated for the purpose of gaming or gambling, including accepting, recording, or registering bets, or carrying on a policy game or any other lottery, or playing a game of chance, for money or other thing of value.” [75]  However, the term “gambling establishment” does not appear in section 1084.

A narrow construction approach is further bolstered by looking at the Interstate Transportation of Wagering Paraphernalia Act, [76]  which was enacted as part of the same anti-organized crime legislation as the Wire Act. Section 1953 separately references bookmaking, wagering pools with respect to a sporting event, numbers, policy, bolita or similar games. [77]  By contrast, section 1084 only references bets or wagers on “sporting events or contests.” Similarly, the Illegal Gambling Business Act, [78] defines “gambling” to include “but is not limited to poolselling, bookmaking, maintaining slot machines, roulette wheels or dice tables, and conducting lotteries, policy, bolita or numbers games, or selling chances therein.”[79]

Legislative history: The legislative history of the Wire Act seems to provide support for a narrow construction. The title of the legislation is “Sporting Events- Transmission of Bets, Wagers, and Related Information.” [80] The House of Representatives Report on Senate Bill 1656, dated August 17, 1961, states that the bill is in response “modern bookmaking.” [81] In the “Sectional Analysis” of the report, the terms “sporting event or contest” and “sporting event” seemed to be interchangeable. [82] Included in the report is a letter from Attorney General Robert F. Kennedy to the Speaker of the House of Representatives, dated April 6, 1961, which only refers to wagering on sporting events. [83]  Moreover, the Congressional debates on this legislation concerned the bill’s impact on “horse racing and other sporting events.”[84]

Congress’ use of these different terms reflect its knowledge of the various forms of gambling, including traditional casino games or games of chance and specifically limited the Wire Act’s application to sporting events or related contests.[85]  This is evident from the statement of United States Senator Jon Kyl of Arizona as he introduced the Internet Gambling Prohibition Act of 1997. [86]  Specifically, Senator Kyl stated that the bill was necessary, because “[i]t dispels any ambiguity by making it clear that all betting, including sports betting, is illegal.

Currently, nonsports betting is interpreted as legal” [87] under the Wire Act. [88]

Case law: most notably the recent decision by the United States District Court for the Eastern District of Louisiana, clearly supports this conclusion. In In re MasterCard Int’l, et al., a class action against several banks and credit card companies alleged unlawful interaction with Internet casinos in violation of RICO. [89]  The various defendants moved to dismiss the action under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief may be granted. [90]  The court held that the plain language of the Wire Act was limited to gambling on a sporting event or related contest. [91] The court reasoned that:

[T]he recent legislative history of internet gambling legislation reinforces the Court’s determination that internet gambling on a game of chance is not prohibited conduct under 18 U.S.C. § 1084. Recent legislative attempts have sought to amend the Wire Act to encompass “contest[s] of chance. . .” the “Internet Gambling Prohibition Act of 1999” . . . sought to amend Title 18 to prohibit the use of the internet to place a bet or wager upon a “contest of others, a sporting event, or a game of chance. . . .”[92]

The case is currently on appeal to the Fifth Circuit.

If on the other hand the term “contest” is to be viewed more broadly to encompass traditional casino games or games of chance, then on-line gaming, as some have argued, [93] will be prohibited by the Wire Act.

Finally, there is a secondary debate ongoing about whether the definition of “wire communication facility” in section 1081 applies to the Internet. [94]  Some have pointed to section 1084(d) and its reference to “common carriers” within the jurisdiction of the Federal Communications Commission to support the argument that “wire communication facility” is limited to telephone companies. [95]  “Thus, absent a determination that it violates federal, state, or local law, use of the Internet for gambling would not appear to implicate directly any of the FCC’s common carrier rules.” [96] 96 Others simply argue that Congress chose to broadly define “wire communication facility” to cover a wide range of wire communication modes that were known and unknown in 1961, like the Internet. [97]

“Despite the divergent views . . ., the official position as expressed by the Justice Department [during the Clinton Administration] and several state attorneys general is to treat the Wire Act as applying broadly and covering all forms of Internet gaming.” [98]

Wire Act: Internet vs. Phone Analysis

In United States v. Cohen, 260 F.3d 68, 76 (2nd Cir. 2001) an operator of an offshore sports betting website was charged and convicted of violations of the federal Wire Wager Act, 18 U.S.C. 1084. The operator, located in Antigua, accepted bets from U.S. citizens over the telephone as well as from bettors on the Internet.  There is a fairly widespread, but wrong, belief that the decision upholding  Jay Cohen’s conviction, fine and 20 month prison sentence for violating the Wire Act turned on the use of the telephone as opposed to the Internet.

I have read the Cohen case critically to see if there is support for that view.  I can’t agree that there is.  Here are relevant excerpts from the 2nd Circuit’s decision, omitting page citations and footnotes and adding emphasis in a few places.  I have put a few observations in [ ], as well.  Interested readers who think I have missed something in coming to this conclusion are urged to contact me via e-mail with their views.

[B]y 1996 the Internet revolution was in the speed lane. Inspired by the new technology and its potential, Cohen decided to pursue the dream of owning his own e-business. By year’s end he had left his job…, moved to the Caribbean island of Antigua, and had become a bookmaker. Cohen, as President, and his partners, all American citizens, dubbed their new venture the World Sports Exchange (“WSE”). WSE’s sole business involved bookmaking on American sports events, and was purportedly patterned after New York’s Off-Track Betting Corporation. WSE targeted customers in the United States, advertising its business throughout America by radio, newspaper, and television. Its advertisements invited customers to bet with WSE either by toll-free telephone or by internet.

A customer seeking to bet would then contact WSE either by telephone or internet to request a particular bet.

Cohen boasted that in its first year of operation, WSE had already attracted nearly 1,600 customers. By November 1998, WSE had received 60,000 phone calls from customers in the United States, including over 6,100 from New York.

In the course of an FBI investigation of offshore bookmakers, FBI agents in New York contacted WSE by telephone and internet numerous times between October 1997 and March 1998 to open accounts and place bets.

Judge Griesa repeatedly charged the jury as follows:

If there was a telephone call or an internet transmission between New York and [WSE] in Antigua, and if a person in New York said or signaled that he or she wanted to place a specified bet, and if a person on an internet device or a telephone said or signaled that the bet was accepted, this was the transmission of a bet within the meaning of Section 1084. Congress clearly did not intend to have this statute be made inapplicable because the party in a foreign gambling business deemed or construed the transmission as only starting with an employee in an internet mechanism located on the premises in the foreign country.

Jury instructions are not improper simply because they resemble the conduct alleged to have occurred in a given case; nor were they improper in this case. It was the Government’s burden in this case to prove that someone in New York signaled an offer to place a particular bet and that someone at WSE signaled an acceptance of that offer. The jury concluded that the Government had carried that burden.

[The 2nd Circuit then sets forth the text of a telephone conversation between an FBI agent and a WSE employee in which an oral offer to make a bet was accepted by WSE.]

WSE could only book the bets that its customers requested and authorized it to book. By making those requests and having them accepted, WSE’s customers were placing bets. So long as the customers’ accounts were in good standing, WSE accepted those bets as a matter of course.

[It is to be noted that this passage by the Court does not make any distinction between a bet placed over a telephone line and one made over the Internet.]

We need not guess whether the provisions of §1084 apply to Cohen’s conduct because it is clear that they do. First, account-wagering is wagering nonetheless; a customer requests a particular bet with WSE by telephone or internet and WSE accepts that bet. WSE’s requirement that its customers maintain fully-funded accounts does not obscure that fact.

[In response to Cohens’s argument as to “whether ‘transmission’ includes the receiving of information as well as the sending of it” the Court stated:]

Second, Cohen established two forms of wire facilities, internet and telephone, which he marketed to the public for the express purpose of transmitting bets and betting information. Cohen subsequently received such transmissions from customers, and, in turn, sent such transmissions back to those customers in various forms, including in the form of acceptances and confirmations. No matter what spin he puts on “transmission,” his conduct violated the statute

[Here there was no legal difference whether the Internet or a telephone line was involved.  The argument made by Cohen was that the law was unclear as to whether “transmission” included receiving as well as sending.  Here the Court specifically found that betters sent wagers over both the Internet as well as phone lines, so the “transmission” argument made by Cohen did not amount to a valid point.]

End notes:

[57]    See Sporting Events – Transmission of Bets, Wagers, and Related Information Act,Pub. L. No. 87-216, § 2, 75 Stat. 491, 552-553 (1961)

[58]    See United States v. McDonough, 835 F.2d 1103, 1105 n. 7 (5th Cir. 1988); see also Martin v. United States, 389 F.2d 895, 898 n. 6 (5th Cir. 1968), cert. denied, 391 U.S. 919 (1968) (quoting 2 U.S. Code & Cong. News, 87th Cong., 1st Sess., 2631, 2633 (letter from Attorney General Robert F. Kennedy to Speaker of the House of Representatives, dated April 6, 1961)).

[59]    18 U.S.C. § 1084(a).

[60]    See S. 1656, 87th Cong., 1st Sess. (1961); see also H.R. 7039, 87th Cong., 1st Sess.(1961)

[61]    United States v. Baborian, 528 F. Supp. 324, 328 (D.R.I. 1981) (quoting 107 Cong.Rec. 16,534 (1961)).

[62]    See id.

[63]    See Telephone News Sys., Inc. v. Illinois Bell Telephone Co., 220 F. Supp. 621, 638 (N.D. Ill. 1963), aff’d, 376 U.S. 782 (1964).

[64]    See Sagansky v. United States, 358 F.2d 195, 200 (1st Cir. 1966), cert. denied, 385 U.S. 816 (1966) (focusing on the phrase “uses a wire communication facility for the transmission”  the court held that an individual who holds himself out as being willing to and does, in fact, accept offers of bets or wagers over an interstate telephone line has used a wire communication facility); see also United States v. Pezzino, 535 F.2d 483, 484 (9th Cir. 1976); United States v. Tomeo, 459 F.2d 445, 447 (10th Cir. 1972).

[65]    18 U.S.C. § 1081.

[66]    See United States v. Southard, 700 F.2d 1, 24-25 (1st Cir. 1983), cert. denied, 464 U.S. 823 (1983); United States v. Cohen, 260 F.3d 68, 76 (2nd Cir. 2001) (“it mattered only that Cohen knowingly committed the deeds forbidden by § 1084, not that he intended to violate the statute”).

[67]    18 U.S.C. § 1084(b).

[68]    Joseph V. DeMarco, Assistant United States Attorney, Southern District of New York, Gambling Against Enforcement – Internet Sports Books and the Wire Act, supra, n. 27, at 35.

[69]    Id.

[70]    See 18 U.S.C. § 1084(c).

[71]    See 18 U.S.C. § 1084(d).

[72]    See e.g., Cohen, 260 F.3d at 68 (the conviction of Antigua bookmaker who accepted wagers from New York was upheld as a violation of 18 U.S.C. 1804(a)).

[73]    See Anthony N. Cabot, Internet Gambling Report IV, at 247-248 (2001).

[74]    See United States v. Bergland, 209 F. Supp. 547, 549-550 (E.D. Wis. 1962), cert. denied, 375 U.S. 861 (1963) (a criminal statute, such as the Wire Act should be strictly construed)

[75]    18 U.S.C. § 1081 (emphasis added).

[76]    See Wagering Paraphernalia – Transportation Act, Pub. L. No. 87-218, § 1, 75 Stat. 492, 553-554 (1961).

[77]    See 18 U.S.C. § 1953(a).

[78]    See Organized Crime Control Act, Pub. L. No. 91-452, § 803, 84 Stat. 922, 1091-1092 (1970).

[79]    18 U.S.C. § 1955(b)(2).

[80]    See supra, n. 57.

[81]    See U.S. Code & Cong. News, 87th Cong. 1st Sess., 2631.

[82]    See id. at 2632-2633.

[83]    See id. at 2633-2634.

[84]    Baborian, 548 F. Supp. at 328.

[85]    “[U]ntil the legislature manifests its intent to include on-line gambling within the purview of present gambling laws, courts should not apply Section 1084 to Internet gambling activities.” Harley J. Goldstein, On-Line Gambling: Down to the Wire?, supra, n. 1, at 8; see also Scott Olson, Betting No End to Internet Gambling, supra, n. 17.

[86]    See S. 474, 105th Cong., 1st Sess. (1997).

[87]    Id.

[88]    See e.g., Tom Lundin, Jr., The Internet Gambling Prohibition Act of 1999: Congress Stacks the Deck Against Online Wagering But Deals in Traditional Gaming Industry High Rollers, 16 Ga. St. U. L. Rev. 845, 863 (Summer 2000).

[89]    See In re MasterCard Int’l, et al., 132 F. Supp. 2d 468, 472 (E.D. La. 2001).

[90]    See id

[91]    See id. at 480.

[92]    Id.

[93]    See Seth Gorman and Anthony Loo, Blackjack or Bust: Can U.S. Law Stop Internet Gambling?, 16 Loy. L.A. Ent. L.J. 667, 671 (1996); see also Mark G. Tratos, Gaming on the Internet, 3 Stan. J.L. Bus. & Fin. 101, 105 (Winter 1997).

[94]    See Cynthia R. Janower, Harvard Law School, Gambling on the Internet, 2. J. Computer – Mediated Com. 2, (September 1996) (http://jcmc.huji.ac.il/vol2/issue2/janower.html).

[95]    See id.

[96]    See American Gaming Association, Federal Laws and Regulations Affecting the Use of the Internet for Gambling, at 1 (September 19, 1995).

[97]    See supra, n. 94; see also Nicholas Robbins, Baby Needs a New Pair of Cybershoes: The Legality of Casino Gambling on the Internet, 2 B.U. J. Sci. & Tech. L. 7 (1996).

[98]    See Adrian Goss, Jay Cohen’s Brave New World: The Liability of Offshore Operators of Licensed Internet Casinos for Breach of United States Anti-Gambling Laws , 7 Rich. J.L. & Tech. 32 (Spring 2001).

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