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INSIGHT: Interstate Online Gambling Dealt Blow by DOJ Flip Flop on Wire Act

Feb. 14, 2019, 9:01 AM

Online gambling just got dealt a bad hand.

A recent Department of Justice opinion interprets the Wire Act as prohibiting virtually all interstate gambling.

The opinion also raises questions about the viability of certain intrastate gambling, where a wire communication that originates and terminates in the same state is “routed” through another state.

Attorneys focusing in this area should assess how this opinion may impact clients’ online activities. The DOJ opinion reverses its 2011 memorandum, in which it opined that the prohibitions of the Wire Act are limited to sports betting.

2011 Memo Wrong

In the DOJ opinion, the department concluded that the 2011 memo was wrong! It now opines that only one of four parts of the Wire Act apply to sports betting, while the other three parts apply to any online betting. It also concludes that the 2006 enactment of the Unlawful Internet Gambling Enforcement Act (UIGEA) did not alter the scope of the Wire Act.

The Wire Act of 1961 prohibits persons involved in the gambling business from transmitting several types of wagering-related communications over the wires. The prohibitions are found at 18 U.S.C. § 1084(a), which states:
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.

The DOJ opinion indicates that Section 1084(a) consists of two general clauses, each of which prohibits two kinds of wire transmissions, creating four prohibitions in total.

The first clause bars anyone in the gambling business from knowingly using a wire communication facility to transmit “bets or wagers” or “information assisting in the placing of bets or wagers on any sporting event or contest.”

The second clause bars any such person from transmitting wire communications that entitle the recipient to “receive money or credit” either “as a result of bets or wagers” or “for information assisting in the placing of bets or wagers.”

The DOJ opinion concludes that the “sporting event or contest” limitation only applies to knowingly using a wire communication facility to transmit “information assisting in the placing of bets or wagers on any sporting event or contest.” It does not apply to the other three prohibitions.

Significant Impact

This is a significant reversal and potentially will have significant impact on certain entities that relied on the 2011 memo.

This new opinion is not necessarily binding on courts. In fact, two appellate courts have ruled that the Wire Act is limited to sports betting. See, United States v. Lyons, 740 F.3d 702, 718 (1st Cir. 2014); and In re Mastercard Int’l Inc. Internet Gambling Litig., 313 F.3d 257, 263 (5th Cir. 2002).

However, the DOJ Criminal Division could engage in enforcements based on this interpretation, unless and until there is a successful legal challenge or Congress changes the law. Don’t hold your breath on Congress getting anything done soon, but legal challenges are likely.

However, on the heels of issuance of this opinion, the deputy attorney general issued a memo dated Jan. 15, 2019, providing a 90-day window for compliance. The deputy attorney general declared: “Department of Justice attorneys should adhere to the Office of Legal Counsel’s (OLC) interpretation, which represents the Department’s position on the meaning of the Wire Act. See 28 C.F.R. § 0.25. “

90-Day Window

However, as a matter of discretion, he further added:
“Department of Justice attorneys should refrain from applying Section 1084(a) in criminal or civil actions to persons who engaged in conduct violating the Wire Act in reliance on the 2011 OLC opinion prior to the date of this memorandum, and for 90 days thereafter. A 90-day window will give businesses that relied on the 2011 OLC opinion time to bring their operations into compliance with federal law. This is an internal exercise of prosecutorial discretion; it is not a safe harbor for violations of the Wire Act.”

This should give some comfort to some entities who relied on the 2011 memo. However, it is important to understand that this is not a complete safe harbor, but rather an exercise of prosecutorial discretion by the DOJ. Other legal issues may exist for companies that operated illegally.

Although the DOJ opinion also concludes that the 2006 enactment of the Unlawful Internet Gambling Enforcement Act (UIGEA) did not alter the scope of the Wire Act, the opposite may not be true. More specifically, UIGEA specifically states: “No provision of this subchapter shall be construed as altering, limiting, or extending any Federal or State law or Tribal-State compact prohibiting, permitting, or regulating gambling within the United States.”

Thus, it is pretty clear UIGEA does not change the scope of the earlier enacted Wire Act.

However, the scope of UIGEA may be enlarged in light of the DOJ opinion. UIGEA does not specifically define what constitutes illegal gambling, but rather proscribes certain activity that is “unlawful under any applicable Federal or State law in the State or Tribal lands in which the bet or wager is initiated, received, or otherwise made.” To the extent that the DOJ opinion expands the scope of what is illegal under the Wire, this provision could similarly expand the scope of UIGEA.

Other issues with the recent DOJ opinion remain. One of the big issues is the scope of intrastate gambling under the Wire Act. A key question, that has been debated for some time, is whether a wire communication that originates and terminates in the same state, could still be deemed a transmission in “interstate commerce” when it is “routed” through another state. The DOJ opinion does not squarely address this question.

Other Consequences

The DOJ opinion may have other consequences as well. Some of the other activities that it may impact include:

  • interstate compacts for online poker player pools such as the one between New Jersey, Delaware, and Nevada,
  • multistate lotteries, and
  • multistate fantasy sports operations (if deemed to be gambling as opposed to a game of skill).

This DOJ opinion appears to raise more questions than it answers. It comes shortly after the U.S. Supreme Court struck down the Professional and Amateur Sports Protection Act as unconstitutional and as many states have enacted or were in the process of enacting sports betting legislation.

Many experts believe this opinion will be challenged or clarifying legislation proposed. It is unlikely however, that any definitive resolution will be reached any time soon.

Author Information

James G. Gatto is a partner in the Intellectual Property Practice Group in Sheppard Mullin’s Washington, D.C., office. He is also leader of the firm’s Blockchain Technology and Digital Currency team, Social Media and Games Industry team, and the firm’s Open Source team.