While the U.S. Department of Justice has, until quite recently, steadfastly maintained that the Federal Wire Act of 1961 has made online gambling illegal in the United States, the limited applicability of this law was never really lost on the government.
Relying on misinformation and propaganda as the primary driver of its efforts to combat online gambling did serve the government’s purpose quite well, but after the coming of internet gambling they did look for a law with more teeth, and one more pertinent to the dynamics of online gambling, versus one that was specifically designed to combat the land based sports betting operations of organized crime.
As far as using the Wire Act for practical purposes, in courts of law as opposed to just in the media, while courts have certainly been lax in applying the current laws to online gambling cases, even the most sympathetic courts are limited to how far they can go, as a minimum amount of rationality is required.
There have been some concerns as to whether or not the Wire Act even applies to internet communications, although there doesn’t seem to be any good reason why it would not. In the landmark case United States v. Cohen, where World Sports Exchange co-founder Jay Cohen was charged under the act, prosecutors chose to charge him with accepting bets over the telephone even though much of the company’s bets from Americans were taken online.
Cohen, an American who set up the business in Antigua, was successfully convicted under the Wire Act and this case did show that this act does have practical legal force, at least towards Americans running sports betting operations.
The trial judge didn’t appear to have any problem entertaining the idea that internet communications fell under the definition of “wire communication facility” as specified in the Wire Act, even though the internet didn’t exist nor was even contemplated back in 1961.
The court also determined that the fact that the facility taking the bets was located outside the United States, in this case in Antigua, did not absolve the defendant of legal liability. This seems correct, but it does wholly require those charged to be subject to the Wire Act and U.S. law generally, which means that the alleged crimes must be committed by those who are residing in the United States.
The government did not want to just be limited to this, as the overwhelming majority of online gambling in the United States is run by non-Americans, and a lot of it involves forms of gambling other than sports betting, casino and poker primarily, so they sought a law that explicitly prohibited online gambling in the United States, all forms of it.
The Internet Gambling Prohibition Act
In 1999, with the new online gambling craze starting to really take off, U.S. legislators sought to pass a bill specifically prohibiting online gambling. This bill sought to do much more than the Wire Act did, as it wasn’t just limited to sports betting, nor was it just limited to charging gambling operators, those in the business of gambling that the Wire Act is directed towards.
So the Internet Gambling Prohibition Act of 1999 was tabled in the U.S. Senate, which made illegal any use of the internet to place bets or wagers, or to use the internet to assist in the placing of wagers.
This certainly was comprehensive and specific enough, although how this would be enforced was another matter. Legislators don’t tend to worry about such things though, for instance the State of Washington has passed a similar law against online gambling, making it a felony for a Washington resident to place a bet online, and although no one has ever been charged and it’s not really imaginable that anyone could be, the law still has a considerable effect in dissuading both players and operators.
With federal law such as the Internet Gambling Prohibition act, the scope is broader and such a law could be used to go after American based operators, or even foreigners who happen to be arrested while visiting the country.
This bill did draw the ire of an online lottery company, who hired lobbyist Jack Abramoff to oppose the bill. They even managed to get prominent congressman Tom DeLay, who has shown a strong tendency to oppose online gambling, to oppose this bill.
In the end, a number of checks were written, and the bill was defeated.
The U.S. Government Seeks Relief Under the WTO
Even if this bill was passed, it would be of little use in stopping online gambling, and the real action was offshore, in countries like Antigua and Barbuda, which in the early days of online gambling played a big role on the scene.
So in 2003, the Americans took the battle to the World Trade Organization (WTO), claiming that the country allowing their companies to offer online gambling to US residents was a violation of trade treaties.
While Antigua was the first jurisdiction to license online gambling, at the time it was only one of several jurisdictions doing so, and if successful in the case, the operators would probably just have moved elsewhere.
The U.S. government claimed that this online gambling was in violation of U.S. law, and they didn’t bother making the distinction between sports betting and other forms of gambling, in spite of the text of the applicable law, the Wire Act, and in spite of their own courts recent ruling, which they chose to ignore for many years.
In 2004, the WTO ruled in favor of Antigua, and moreover, determined that it was the U.S. that was violating the treaty by seeking to restrain trade. Offering online gambling was legal in Antigua and that was more than enough for it to be permissible.
U.S. authorities then appealed the ruling, and the appeal was disallowed. The WTO ruled that in signing the General Agreement on Trade and Services, the US government was under a legal obligation not to interfere with Antigua or other countries legally offering online gambling to its residents.
On top of all this, the WTO instructed the U.S. to correct their laws, within a reasonable time frame, although they have refused to do so. The U.S. certainly didn’t achieve any of its objectives with this though, and in fact, online gambling worldwide ended up being bolstered by this ruling, in light of the WTO recognizing that countries have the right to legally offer online gambling to other countries in spite of what the laws of the other countries happen to be.