U.S. DOJ reverses course, says intrastate online gambling is legal

The Department of Justice gave American online gamblers a Christmas present Friday when it said individual states had the authority to license and regulate non-sports related intrastate online gambling.

The legal opinion issued by the DOJ came in response to inquiries from New York and Illinois about online lottery sales and a letter written by Senate Majority Lead Harry Reid (D-Nev.) and Sen. Jon Kyl, (R-Ariz.) asking for clarification on the legality of online gaming.

For years, the DOJ had maintained the Wire Act prohibited all forms of online gambling. But in a letter written to Reid and Kyl, the DOJ announced it was adjusting its position after its Office of Legal Counsel (OLC) reviewed the law.

"The Wire Act only applies to the transmission of bets or information assisting in the placing of bets or wagers relating to sporting events or contests," wrote Assistant Attorney General Ronald Weich.

"Since state lotteries conducted by New York and Illinois do not relate to sporting events, OLC concluded that the operation of these lotteries would not violate (the law)," Weich added.

After addressing the lotteries issue, Weich turned his attention to other forms of online gaming, including online poker.

"Although the OLC conclusion differs from the Department's previous interpretation of the Wire Act, it reflects the Department's position in Congressional testimony at the time the Wire Act was passed in 1961. It also provides much needed clarity to those state governments that would like to permit wholly in-state, non-sports Internet gambling, including Internet lotteries." (emphasis added)

Weich went on to say that in places where online gaming is clearly illegal, the DOJ would prosecute violators.

"Furthermore, in states that ban various forms of gambling -- including Internet poker -- the Department will be able to investigate and prosecute those gambling businesses under the Unlawful Internet Gambling Enforcement Act and other sections of the criminal code," Weich wrote.

"Of course, if Congress wishes to give the federal government greater enforcement authority over non-sports related Internet gambling, it could do so by amending the Wire Act."

The OLC memo on the Wire Act, written by Assistant Attorney General Virginia Seitz, was dated September 20, 2011. No explanation has been offered as to why it was just released today.

Reaction from the online gaming industry poured in swiftly as the letter to Reid and Kyl and the accompanying legal opinion entered the public realm.

“This is a much needed clarification of an antiquated and often confusing law," said John Pappas, executive director of the Poker Players Alliance. "For years, legal scholars and even the courts have debated whether the Wire Act applies to non-sporting activity. Today’s announcement validates the fact that Internet poker does not violate this law.”

"This will provide policy makers at both the state and federal level with the legal confidence to move forward with licensing and regulation of online poker and other non-sporting activity within their respective jurisdictions," added Pappas. "However, it is our hope that our federal policy makers see this as an incentive to move quickly to enact federal licensing and regulation before various states produce a mix of individual state schemes that may not be the best model to serve consumers."

The American Gaming Association seconded Pappas' call for a federal solution to regulating online gaming.

"The Department of Justice’s interpretation regarding the scope of the federal Wire Act validates the urgent need for federal legislation to curb what will now be a proliferation of domestic and foreign, unlicensed and unregulated gaming websites without consistent regulatory standards and safeguards against fraud, underage gambling and money laundering," the AGA said in a statement.

Nevada is in position to become the first state to offer intrastate online gaming to its residents.

Earlier today, the Nevada Gaming Commission approved regulation for online poker. It is the first time an American state has adopted regulations that would govern online poker.

Intrastate online gambling means the gambling has to be confined within an individual state's borders. So poker players living in Nevada could only play with other poker players living in Nevada. Or people in New York can only buy New York lottery tickets online. They can't buy Illinois lottery tickets as well.