Proposed NY I-Gaming Restrictions Could Affect Service Providers

Legislation to be introduced this week in the New York State Senate aims to limit involvement in many gambling activities in the state, and language referring to Internet gambling could have serious implications on businesses providing services to I-gaming operators.

S66, sponsored by Sens. Frank Padavan, Mary Lou Rath and Dale Volker, amends subdivisions 4, 5 and 7 of section 225.00 of the penal law to include the terms "advance gambling activity" and "profit from gambling activity."

According to the bill, a person advances gambling activity when he or she engages in conduct which "materially aids any form of gambling activity." This includes, but is not limited to, organizing a gambling activity such as a contest or game that involves a prize; the solicitation or inducement of persons to participate in a contest or game and gambling over the Internet.

To that end, the bill defines Internet as "the myriad of computer and telecommunications facilities, including equipment and operating software, which comprise the interconnected worldwide network of networks that employ the transmission control protocol/internet protocol, or any predecessor or successor protocols to such protocol, to communicate information of all kinds by wire or radio."

Further, it says that anyone in control of the technology used for the purpose of gambling, such as an Internet service provider (ISP) or software provider, would be guilty of advancing gambling under the revised penal law.

The bill states, "One advances gambling activity when, having substantial proprietary or other authoritative control over premises being used with his knowledge for purposes of gambling activity, he permits such to occur or continue or makes no effort to prevent its occurrence or continuation."

S66 also says a person profits from gambling activity when, other than as a player, he or she accepts money or other property through an agreement or understanding. This includes, but is not limited to agreement to act as an ISP.

Ken Dreifach, an Internet lawyer who previously served as chief of former New York Attorney General Eliot Spitzer's Internet Bureau, said this part of the bill can be read a couple of different ways.

"Merely 'agree[ing] to act as an Internet service provider' and/or getting paid from 'proceeds' cannot establish liability, in that the federal Communications Decency Act, 47 USC Section 230, immunizes Internet services providers from state law, including state criminal law, to the extent they are merely acting as service providers," Dreifach said. "If an ISP had a specific contract that specifically made them a close and direct beneficiary of illegal gambling, that might conceivably be a different story, depending on the facts, but the ISP would have to be pretty closely involved in the activity."

He added that the bill's language is so broad that it could put marginal providers in a vulnerable position.

"If truly read literally, the language could encompass certain peripheral services that currently would have a potentially strong defense against aiding and abetting," Dreifach said. "For instance, software designers that have not made at least some baseline efforts to avoid licensing activity in the U.S. markets, under the clause, 'creation or establishment of the particular game.' On the other hand, the 'intent' or 'knowledge' element would still presumably apply--so you couldn't be convicted unless you at least 'knowingly' assisted in violations of U.S. law.

Dreifach wonders whether the bill poses a true threat.

"Practically speaking," he said, " I'm tempted to say there is little likelihood that state enforcers will ever need to reference this."

He added, however, that a recent case filed by the Queens DA against, among others, service providers, might suggest otherwise.

Dreifach said Padavan is a long-time and staunch opponent of all types of gambling, including racinos and expansion of casino/tribal gaming.

On Jan. 2, the bill on was pre-filed given a first and second reading and ordered printed. Upon its printing, it is to be committed to the Senate Committee on Codes, which, Dreifach pointed out, is often the most powerful committee in any state legislature.

The New York State Senate begins its 2007 session today.

Click here to view a copy of S66.