Professor I. Nelson Rose

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Internet Poker Folds A Winning Hand

March 3, 2007

The fallout from the new Unlawful Internet Gambling Enforcement Act of 2006 has been nothing short of amazing.

Every publicly traded gaming company is running for cover, and many of the private ones as well. Operators as big as PartyPoker and the payment processor FirePay stopped taking bets from the U.S. when President Bush signed the bill into law on Friday, October 13th. Other companies have said they will cut off U.S. players once regulations are in place.

The main question is: Why?

The new Act should add little to an online operator's worries. Legally, it creates a new crime, accepting money for unlawful Internet gambling transactions, that only applies if the gambling is unlawful under some other federal or state law. Practically, this was not a drive by the federal Department of Justice or any state prosecutors. It was merely an underhanded ploy by a hypocritical politician, Bill Frist (R.-TN), to score some points for his presidential ambitions with the religious far right.

Some legal commentators have said that the new Act is something new, because it makes an operator guilty of this new crime in every state, since every state makes non-licensed gambling illegal.

But, half the states do not have laws on the books against bettors. In those states, betting even with an illegal bookie is not a crime.

The other states do make betting under some circumstances a crime. Of course, in the history of the United States, only one person, a sports bettor in North Dakota, was ever charged under these archaic statutes.

I have heard it argued that up until now, the only potential criminal liability was on the bettors in those states, not the foreign operators.

Imagine what such a law would say: It a crime in this state to make a bet, but it is not a crime to be in a gambling business that accepts the bet.

There never has been a law that penalizes only the players and not the operators.

More importantly, these laws were on the books long before this new Act was passed; so were the many state statutes outlawing unlicenced gambling businesses. If an Internet poker operator was violating any of these state laws it was already in trouble.

Years ago, Congress made it a federal felony to be involved in any way in a "gambling business," defined as five or more people violating state gambling laws for 30 days or with gross revenues of $2,000 in any single day. Worse, if those were state felonies, the operators were already guilty of the federal crime of racketeering, which has far worse penalties than this new Act.

Internet poker operators had looked at the state and federal anti-gambling statutes and concluded that they probably did not apply. The federal Wire Act, for example, was held to be limited to sports bets, while the state statutes are flawed because they do not expressly apply to out-of-state operators.

This new Act does not extend the reach of the Wire Act or any other federal or state anti-gambling law.

There may be good reasons for folding a business that is making millions of dollars a day, including the risk of prosecution. But this new Act did not change those odds.

© Copyright 2006. Professor I Nelson Rose is recognized as one of the world's leading experts on gambling law. His latest books, GAMING LAW: CASES AND MATERIALS and INTERNET GAMING LAW, are available through his website, www.GAMBLINGANDTHELAW.com.