Dec 252011

Both the New York Times and the Wall Street Journal Law Blog are covering news from the DOJ that a 50 year old law may not actually be a barrier to online gambling as it earlier had asserted.

The legal opinion, issued by the department’s office of legal counsel in September but made public on Friday, came in response to requests by New York and Illinois to clarify whether the Wire Act of 1961, which prohibits wagering over telecommunications systems that cross state or national borders, prevented those states from using the Internet to sell lottery tickets to adults within their own borders.

Although the opinion dealt specifically with lottery tickets, it opened the door for states to allow Internet poker and other forms of online betting that do not involve sports. Many states are interested in online gambling as a way to raise tax revenue.

Just because this law may not be a barrier, however, doesn’t mean that all Internet gambling will be legal.  It merely opens the doors for states to allow their own online lotteries.  It may also allow them to join with other states to do the same and still be beyond the reach of federal regulation.  (The NY Times article notes, however, that some constituencies, such as the American Gaming Association, think there is still a need for federal regulation to establish consistent regulatory standards.)

Also the 2006 Unlawful Internet Gambling Enforcement Act of 2006, which made it illegal for financial institutions to process payments for online wagers, remains on the books.  And while many online gambling establishments are offshore, making them difficult for the federal government to reach, the DOJ recently prosecuted three such sites for fraud and money laundering.  This week a co-founder of one of them, Absolute Poker, plead guilty to charges of conspiracy.  From the Los Angeles Times:

The felony charges against Brent Beckley include bank and wire fraud and violation of Internet gambling law. Prosecutors have accused Absolute Poker, as well as fellow gambling sites Full Tilt Poker and PokerStars, of convincing financial institutions to process online gambling payments by disguising them as transactions with Internet retail merchants.

Beckley told a judge in the U.S. District Court of Manhattan that he “knew that it was illegal to deceive the banks,” according to the Associated Press. He will face sentencing April 19 after striking a plea deal that could land him in prison for a year to a year and a half.

According to the Los Angeles Times the prosecutions come as part of a larger, $3-billion civil lawsuit against the companies, wherein it described at least one of them as a “global Ponzi scheme” that was “not a legitimate poker company.”

The FBI shut down their websites in the U.S. in April on a day that many poker players now refer to as Black Friday. Prosecutors indicted the founders of the three businesses on charges of bank fraud, money laundering and gambling law violations.

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