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Mark Grossman

Internet Gambling and the Law

4 October 2001

Ads for Internet gambling are everywhere you look. I've seen them on billboards and in magazines, and I hear them on syndicated radio programs all the time. The strange twist to this is that lots of people (mostly working for the government) claim that Internet gambling is illegal.

If Internet gambling is illegal, how come ads for Internet gambling are popping up more than ever?

The answer depends on which court you ask.

Whenever pundits talk about Internet gambling, the first thing they do is quote from a federal law called the Wire Act. In pertinent part, the Wire Act says that you can't use a "wire communication facility" to transmit "a bet or wager or information assisting in the placing of bets or wagers on any sporting event or contest."

Some states have interpreted this to mean that the federal law prohibits Internet gambling. Others disagree.

One of the earliest decisions to address the Wire Act's influence over Internet gambling came in 1999, when the Attorney General of New York sued Golden Chips Casino, an Antiguan company, to stop the company from offering Internet gambling to New Yorkers.

In its defense, Golden Chips argued that New York had no right to stop Netizens who simply wanted to bet a few bucks online over a game of virtual poker or blackjack.

Before the lawsuit, gamblers downloaded gaming software from Golden Chips Casino, which allowed them to play casino games on their home computers. The results were transmitted back to Antigua, where bets were tabulated.

All betting, it was alleged, occurred offshore, and not in New York. Since none of the bets were actually made in New York, it was snake eyes for New York, right? Wrong.

The court held that the transmission of virtual bets over the Internet violated New York law. Notably, even though the lawsuit only charged Golden Chips with violating state law, the court went out of its way to say that Golden Chips violated federal laws, including the Wire Act, as well.

Although opponents of Internet gambling hailed the court's ruling as a victory, not everyone agreed with the New York court. Enter Louisiana.

Back in the 1870's, Louisiana's state-funded lottery screeched to a halt amid allegations that officials running the lottery were being bribed. Even though lotteries were the most prevalent form of gambling at that time, the allegations had a domino effect, and within a relatively short time, all states terminated their lotteries.

In February 2001, a Louisiana federal court handed down its decision in a case in which credit-card companies, including MasterCard and VISA, were sued for their alleged participation in Internet gambling. Among other things, the lawsuit alleged that the companies illegally allowed Internet casino gamblers to use their credit cards at virtual casinos.

However, unlike the decision in New York, the federal court in Louisiana held that casino gambling was neither a "sporting event" nor a "contest," and wasn't prohibited by the Wire Act. In an act which many say legitimized Internet gambling, the court dismissed the case against the credit-card companies.

Still, don't go placing your bets just yet. With the exception of Nevada, which this summer passed a law legalizing certain forms of Internet gambling, state statutes don't specifically address Internet gambling. In fact, most states still maintain that Internet gambling is illegal under their existing anti-gambling laws.

So, you may ask, if virtual gambling is outlawed in almost every state, how come Internet gambling ads are everywhere? The answer: Reality. State laws that ban Internet gambling are like Holland's laws on marijuana use: They prohibit it, but enforcement is virtually nonexistent.

Several bills have been introduced in Congress to ban virtual gambling, but all have been defeated. Internet gambling sits in a sort of legal purgatory, but there are a few factors weighing in its favor. First, since Internet gambling is a multibillion dollar industry, there are probably more than just a few lobbyists who want to keep the law ambiguous. Also, it's still politically incorrect to try to tame the Internet with legislation. Given this, you can bet your bottom dollar that Internet gambling isn't going away anytime soon.

Internet Gambling and the Law is republished from
Mark Grossman
Mark Grossman