The DOJ’s Opinons on the Wire Act and Online Gambling
The Federal Wire Act was a law meant to address illegal gambling operated by organized crime syndicates. It got passed in 1961, and the world has changed quite a bit since then.
Online gamblers have questioned whether internet-based gambling falls under the definitions of gambling presented in the Wire Act.
The internet was not available when the Wire Act passed, yet it causes problems for online gambling companies and state governments.
The Department of Justice has issued several opinions that have allowed state governments to legalize certain forms of gambling. Then the DOJ reversed its earlier opinion and sent those state governments into a panic.
It can be challenging to keep up with all of the DOJ statements and how those affect online gamblers. We will explain everything you need to know about the Wire Act and the DOJ opinions that have impacted gamblers.
But first, you need to know what the Wire Act was.
What is the Federal Wire Act?
One of the controversies that continuously plague the legal system is the difference between the letter of the law and the spirit of the law.
To truly understand the Wire Act, you need to understand why it was initially implemented.
Going After the Mob
Nevada was the only state with legal gambling between 1931 and 1976. At that time, Las Vegas was heavily influenced by the mob. Organized crime syndicates in Chicago, New York, and Kansas City all had representatives in Las Vegas.
The mob leaders offered sports betting by wire. Bettors around the country could call mob leaders in Las Vegas who would accept their wagers over the phone.
Then, they would use wire transfers to send the money to cover their bets. In some cases, the organized crime leaders would fix the game’s outcome, or they would place bets after the outcome had been determined before it was public knowledge.
Attorney General Robert F. Kennedy made it his mission to fight organized crime. So, he influenced some of his contacts in Congress to pass a bill that would make betting by wire illegal.
The result was the Interstate Wire Act, or the Federal Wire Act of 1961.
The Wire Act cut into the mob’s profits, but it did not address the larger issues of organized crime. In 1970, Congress passed the Racketeer Influenced Corrupt Organizations Act (RICO).
That law was far more effective for addressing organized crime issues, so the Wire Act essentially became obsolete.
While the law’s purpose was to take revenue away from organized crime syndicates, its language was vague.
It did not explicitly focus on gambling operators but instead includes anyone “engaged in the business of betting or wagering.”
That language has made many online gamblers worry that they could face criminal charges for participating in online gambling.
The FBI has continued to focus its enforcement efforts on companies and the owners of online gambling sites. The FBI are not interested in pursuing criminal charges against individual gamblers.
More importantly, the Wire Act did not define the types of betting that were included.
There is one clause that explicitly mentions “wagers on any sporting event or contest.” Other than that, it just refers to betting and wagering in general.
That lack of clarity on which types of gambling are included has led to significant issues for modern gambling operators. Lotteries that want to sell tickets online could be violating the Wire Act, and online poker sites are also concerned.
There is one thing that the Wire Act does define well. It defines a “wire communication facility,” with a broad definition that includes any instruments, personnel, or services used to communicate over wires, cables, and other connections.
The internet undoubtedly falls under this definition of a wire communication facility, even though that was not necessarily the intent when the Act was written.
At that point in time, the internet did not exist in its current form. A prototype of the internet was created at the end of the 1960s, several years after the Wire Act got passed. But that prototype was only for government use.
The lack of clear definitions has created issues for gamblers since the late 1990s. There have been questions about whether or not online gambling falls under the Wire Act since then.
Some legislators attempted to use the Wire Act to create new anti-gambling legislation, but none of those efforts have ever come to fruition.
Other leaders have claimed that the Wire Act only applies to sports betting, so online poker and online lottery sales should be allowed.
The Department of Justice has attempted to provide some clarity by issuing statements about the Wire Act. Here are the most significant DOJ Wire Act opinions.
Applying the Wire Act to Online Gambling
A few politicians had discussed the possibility of using the Wire Act to prevent online gambling, but there were no official actions until 2002.
Larry Thompson and Lawrence Bradley had both participated in online gambling. Thompson had used his credit card to deposit $1,510 onto his two online casino accounts. Bradley had used $16,445 on seven different online casino accounts.
Neither of the men could pay their credit card bills. They decide to sue someone instead of paying.
Unfortunately, they could not sue the online casinos because they agreed to specific terms and conditions when creating their accounts.
So, they decided to sue the credit card companies instead. Because they were suing Mastercard and Visa, the case became known as Mastercard International Internet Gambling Litigation.
Thompson and Bradley argued that by processing their transactions, the credit card companies were facilitating gambling business.
The lawsuit that the credit card companies were violating both RICO and the Federal Wire Act.
This case is surprising because both plaintiffs admitted to online gambling, which could have been considered a violation of the Wire Act.
They could have easily been charged with illegal online gambling themselves, and they would have no defense since they had already admitted to it. Fortunately, the government has not shown interest in charging individual gamblers.
The Court of Appeals Fifth Circuit ruled against Thompson and Bradley.
That court precedent was significant for online gamblers.
If any law enforcement agency attempted to press criminal charges against someone for violating the Wire Act by participating in online gambling, this case could be used as a precedent in a defense.
DOJ’s Wire Act Opinion in 2011
Almost a decade later, further clarification on the Wire Act was needed.
The Court of Appeals ruling set a legal precedent that could be used in particular criminal cases, but it did not clarify the law for various situations, including new gambling legislation.
Online Lottery Sales?
Illinois and New York were in the process of authorizing their state lotteries to sell tickets online. Before they could pass their legislation, they needed to know if online lottery sales would violate the Wire Act.
Each state has the right to manage its own gambling laws, including lottery sales. As long as the lottery tickets were only available to customers within the state, they should be allowed to sell tickets online.
However, the issue is that online transactions often involve payment processors that may or may not be in the same state.
Illinois and New York needed to know if they could legally use out-of-state payment processors for in-state online lottery transactions.
Both states submitted a request to the Attorney General’s office for clarification in December 2009. They claimed that the Wire Act conflicted with the UIGEA because the UIGEA permits out-of-state processing of data for legal lottery transactions.
The Analysis and Official Statement
The Attorney General’s office analyzed the Wire Act to the fullest extent. Their analysis included comparing it to other laws that had been passed around the same time as the Wire Act.
For example, the Interstate Transportation of Wagering Paraphernalia Act was passed in 1953, but it was also revised in 1961. That law refers to lotteries using entirely different language than what is found in the Wire Act.
They also reviewed court cases that involved interpretations of the Wire Act.
One of those cases was the 2002 Mastercard International Internet Gambling Litigation case that we referred to earlier. The DOJ used this case to support their opinion that the Wire Act only applied to sports betting.
This analysis even took it as far as considering whether commas placed in the sentences would change the law’s meaning.
In the end, the Justice Department concluded that the phrase “on any sporting event or contest” applied to the entire sentence.
Assistant Attorney General Virginia A. Seitz issued the DOJ’s official opinion on the Wire Act on September 20th, 2011.
New York and Illinois, and eventually other states, were free to sell lottery tickets online.
What About the UIGEA?
This statement came just five months after the events of Black Friday.
Online poker players had lost millions of dollars when the DOJ seized the top three poker sites’ domains. The owners of the companies that operated these sites were all indicted for money laundering and violating the UIGEA.
The DOJ had to be careful with how they addressed gambling laws because they were actively pursuing criminal charges based on the UIGEA.
Instead of addressing the contradiction between the UIGEA and the Wire Act, the 2011 DOJ opinion simply ignored the questions about the UIGEA.
They claimed that the Wire Act didn’t apply in this situation, so they didn’t need to consider the UIGEA.
The Justice Department could have used the 2011 statement to clarify obscurity in both the UIGEA and the Wire Act.
But, they could not risk undermining their own indictments for Black Friday by interpreting the UIGEA differently, so they simply ignored it.
The Aftermath of the 2011 DOJ Opinion
When the Department of Justice issued the 2011 opinion, they opened the door for multiple forms of online gambling. Illinois became the first state to sell lottery tickets online, beginning on March 25th, 2012. New York began selling lottery subscriptions online shortly after that.
This 2011 DOJ opinion cleared one hurdle for many online gambling businesses. As long as they did not offer online sports betting, they did not have to worry about violating the Federal Wire Act.
If gambling operators could find a way to process payments without violating the UIGEA, online gambling businesses could operate in the United States.
UIGEA includes an intrastate clause that states that online gambling is not illegal as long as it starts and ends in a single state. So, a few states worked to legalize online gambling, and they used the 2011 DOJ opinion to justify their new laws.
Delaware became the first state to legalize online gambling in 2012. Nevada and New Jersey followed shortly after, and Pennsylvania and Michigan legalized online gambling a few years later. These states also found legal ways to create interstate poker matches.
For several years, it looked like the best way for online gambling businesses to operate in the U.S. was to operate in a regulated environment after passing gambling legislation.
However, the issue of online gambling was rechallenged in 2018.
Updated DOJ Wire Act Interpretation From 2019
When the Justice Department completed its initial analysis, it considered several court cases that involved the Wire Act. They explicitly quoted the Mastercard International Case from 2002.
However, they also mentioned several other cases where the Wire Act was used to prosecute gambling operators that offered several different types of gambling. Those cases led the DOJ’s Criminal Division to seek reconsideration of the 2011 Wire Act opinion.
The Criminal Division sent the request back to the Attorney General’s office, but it is worth noting that they waited until the Trump administration took over to seek the reconsideration.
On November 2nd, 2018, Assistant Attorney General Steven A. Engel issued a “slip opinion” that reversed the 2011 DOJ opinion. While the memo was drafted in November 2018, the DOJ did not make it available to the public until January 2019.
Assistant Attorney General Engel claimed that the Wire Act has four prohibitions, set up in two clauses.
- “bets or wagers” or
- “information assisting in the placing of bets or wagers on any sporting event or contest,” or
- “a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers,” or
- “information assisting in the placing of bets or wagers.”
Engel’s memo goes to great lengths to explain the grammar behind the two clauses. He concludes that the sports betting modifier only applies to the second prohibition of the first clause.
The 2011 opinion suggested that the sports betting modifier applied to all four prohibitions.
The UIGEA Question
You will recall that the 2011 DOJ opinion simply ignored the question about whether or not the UIGEA contradicted the Wire Act. The 2019 opinion addresses that question, but it is surprisingly unsatisfactory.
Instead of addressing the actual issue of contradiction, Engel just pointed to a clause within the UIGEA. It contains a reservation clause that states the following.
According to Engel’s interpretation, the UIGEA does not contradict the Wire Act because that reservation clause defers to any previously established laws.
The Wire Act takes precedence simply because it was enacted before the UIGEA.
New Hampshire Fights Back
Many states used the 2011 opinion to justify the creation of their online lottery programs. The states that legalized online poker also used it to justify interstate gambling agreements that allow poker players to compete with players in other states.
Between 2011 and 2019, these state-regulated online gambling and online lottery programs have flourished. They have successfully shown that regulated online gambling creates jobs and provides the state with significant tax revenue.
All of those states have been in turmoil since the 2019 opinion got released. They had until June 14th, 2019, to update their online gambling and online lottery programs to align with the new DOJ opinion.
In most cases, that would require them to shut down their programs indefinitely.
New Hampshire was one of the states that started selling online lottery tickets after the 2011 DOJ opinion. They decided to fight back by suing the Department of Justice in the U.S. District Court.
The New Hampshire Lottery Commission and NeoPollard Interactive LLC were the plaintiffs in the case. NeoPollard is the service provider that handles the New Hampshire lottery services and online ticket program.
Assistant Attorney General Engel gave states an extension because of the New Hampshire case.
They did not have to meet the new opinion’s rules until the New Hampshire case has been finalized. The deadline was extended several times, with the latest extension allowing business as usual until June 30th, 2020, or until the NHLC case was resolved.
Judge Paul Barbadoro ruled in favor of New Hampshire, claiming that the 2018 opinion contradicts the Wire Act’s text and legislative history. If his ruling stands, it will prevent the DOJ from using the Wire Act to press criminal charges beyond sports betting.
NH Wins, But DOJ Appeals
Unfortunately, Judge Barbadoro’s ruling is not as final as online gamblers would have hoped. On December 20th, 2019, the DOJ filed an appeal with the First Circuit Court of Appeals.
That case is still being argued at the time of this writing. However, looking at the DOJ appeal brief, it is clear that New Hampshire’s Lottery Commission has a much better chance of winning the case.
Judge Barbadoro’s ruling included a 63-page document refuting every claim that the DOJ made about why the Wire Act should apply to multiple forms of betting.
On the other hand, the appeal brief from the DOJ focuses more on legal technicalities. For example, the DOJ claims that NHLC has no right to sue because it has not been harmed by the 2019 DOJ opinion.
The only reason that NHLC has not been harmed by that opinion yet is that the DOJ has not started enforcing its opinion.
Hopefully, the Court of Appeals will uphold Judge Barbadoro’s ruling. If not, the case will continue to the Supreme Court. However, the incoming Biden Administration will make several changes to the DOJ, which could impact the case.
Fortunately, the state-regulated online gambling programs will not change until the NHLC vs. DOJ appeal case has been officially decided. Online gamblers can continue buying lottery tickets online and using their favorite interstate poker sites.
If the Court of Appeals rules in favor of the DOJ, the online poker sites and online lottery programs will have plenty of warning.
They should be able to process customer withdrawals before the DOJ does anything that could potentially impact the player’s funds. Hopefully, that warning will help these sites avoid a repeat of the Black Friday fiasco.
Where Do We Go From Here?
The Wire Act has caused continuous confusion for online gamblers for the past two decades. Unfortunately, the law’s language is too vague, so it does not address the fact that the law’s original purpose was to crackdown on organized crime.
There have been many changes in our world since the Wire Act got passed, so we expect there to be more confusion and challenges for states. Here’s what else could happen.
- The First Circuit Court of Appeals could uphold Judge Barbadoro’s ruling. If that happens, the DOJ will have to revert to its 2011 opinion on the Wire Act, and states will continue with the state-regulated online gambling programs that they currently have available.
- If the Court of Appeals reverses Judge Barbadoro’s ruling, New Hampshire will petition to take the case to the Supreme Court. The Supreme Court will first have to decide if they will take the case, and then they will have to make a final ruling on the Wire Act. A best-case scenario would be to repeal the Wire Act, the same way they repealed PASPA. However, that is not guaranteed.
- An unlikely option would be that Congress would decide to amend or revise the Wire Act. There are no signs that anyone in Congress is currently working toward that, but it would be an alternative solution.
Until these court cases get decided, transactions will continue as usual for online gamblers. The DOJ could eventually seize the domains on online lottery sites and interstate online poker sites, but that will not happen until the New Hampshire case is finally decided.
It is also essential to recognize that the Wire Act only applies to companies that operate within the United States. Out of area casinos that operate in different countries do not have to answer to US laws.
So, you can continue using out of area casinos without worrying about the Wire Act.
Hopefully, the court system will finally address these persistent issues with the Wire Act in the next few years. That would allow for an expanded state-regulated market.
No matter what happens in the courts, you can continue enjoying online gambling in the United States because the DOJ does not seem interested in pursuing individual gamblers.