LII Backgrounder on Gambling
LII Backgrounder on Gambling |
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I. Introduction The popularity explosion and information revolution fueling the Internet and World Wide Web in the mid-1990's created both brand-new industries and reinvented old ones. Secure transmission technologies and the credit card combined to fashion a powerful lure for the online consumer. Internet transactions for goods and services, once considered risky propositions, are now commonplace, as seen in the success of Amazon.com and eBay. The very same factors that have led to growth in online consumer transactions, combined with the unregulated nature of the Internet, have attracted commercial online gambling. Gambling, though widespread in the United States, is subject to legislation at both the state and federal level that bans it from certain areas, limits the means and types of gambling, and regulates the activity in countless other ways. A standard strategy for avoiding laws that prohibit, constrain, or aggressively tax gambling is to locate the activity just outside the jurisdiction that enforces them in a more "gambling friendly" legal environment. Gambling establishments are often found near state borders and on ships that cruise outside territorial waters. They have exploded, in recent years, in Indian territory. Internet-based gambling takes this strategy and extends it to a totally new level of penetration, for it threatens to bring gambling directly into homes and businesses in localities where the same activity could not be conducted by a physical gambling establishment. Online gambling appears to represent a complete end-run around both government control and prohibition. A site operator need only establish itself in a friendly offshore jurisdiction, such as the Bahamas, and begin taking bets. Anyone with access to a web browser can find the site and place wagers by credit card. Confronted with this blatant challenge to local policies, regulators and lawmakers have begun to explore the applicability of current law and the desirability of new regulation to online gambling. The issues include whether a person, located in a state that prohibits commercial gambling and accessing an offshore Internet site from a home-computer, violates either state or Federal law and further whether the site operator is as well? II. Federal Law of Interstate Gambling--18 U.S.C. §1084 Since current Federal gambling law focuses on wire transmissions, its application to the Internet is far from explicit. Legislation has been proposed to address the problem, but it hasn't yet passed. Until it does, a uncertain mix of Federal and state law must cope with these issues' complexities. A. "The Business of Betting and Wagering" According to §1084(a), anyone in the "business of betting or wagering" is at risk of fine and imprisonment under this statute. Enacted under Congress's power to regulate interstate commerce, the statute prohibits knowingly using a wire communications facility to transmit interstate or foreign bets and wagers. Transmitting information assisting in betting and wagering as well as transmitting the proceeds of bets and wagers to the winners also falls within the statute's ban. The key term "wire communications facility" is cross-referenced in §1081. "The term 'wire communication facility' means any 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." This definition appears to embrace the nation's entire telecommunication's infrastructure, and therefore, render online gambling illegal under 18 U.S.C. §1084 so long as the transmission travels interstate. §1084(a) requires proof of the content of the transmission which may present problems in the case of transactions conducted using encrypted transmissions. In any case, legislation has been offered to correct any deficiencies in the Federal law. The proposed Internet Gambling Prohibition Act of 1997 would add a "§1085 Internet Gambling" to Title 18, and criminalize any betting or wagering in any State via the Internet. The Senate voted to support the Act in 1998, and the House is expected to address the bill in 1999. Once enacted however, an important jurisdictional issue will remain -- the extent to which U.S. law can reach offshore providers, as distinguished from the U.S. Internet users taking advantage of their gambling services? B. Where Does this Leave the States? §1084(b) states that "Nothing in this section shall be construed to prevent 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 that sporting event or contest is legal into a State or foreign country in which such betting is legal." Congress has given the individual States the power to regulate gambling within their own borders. Since the Federal statute focuses on interstate commerce, gambling is permitted as long as the activity remains within the state. Congress emphasizes the State's power in §1084(c)--"Nothing contained in this section shall create immunity from criminal prosecution under any laws of any State." Since States are free to regulate within their borders, they are free to regulate online gambling. For instance, the State of New York investigates and prosecutes online gambling companies for promotion of gambling activities under Article 225. Currently, such prosecutions are limited to companies physically located within the state's borders. State prosecution of online gambling providers located out of the state, but accessed by state residents may be possible, given Missouri's efforts to prosecute the Coeur D'Alene Tribe of Idaho. Recently, Missouri's case was remanded to the lower courts for further litigation of the jurisdictional issues. The Coeur D'Alene operated an Internet lottery service accessible from Missouri residents' home computers. The Indian Gaming Regulatory Act governs gambling activity on Indian reservations, but the extent to which it preempts state action in the Internet arena is uncertain. III. The Future? This site will be updated periodically to cover new developments at both the state and Federal levels. Since the jurisdictional issues posed by gambling are not unique its coverage of them will very likely expand into other areas. IV. Suggestions or Comments? This collection of material on the issue of gambling is a work in progress. If you have suggestions of additional material or sources, comments, or feedback of any kind, please email the webmaster! Prepared by Brian J. Henchey for the Legal Information Institute |
 Updated January 28, 1999
References and Suggested Readings
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