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U.S. Laws On Remote Gambling

By Michael B. Nelson, Esq. - Email Editor

Date : October 8, 2009

Frequently, I am asked whether a legal opinion is required by person(s) or entities who are located in E.U. countries as they approach the decision of participating within the large U.S. market via the internet within the meaning of a type of gambling. There is a vast U.S. market for the E.U. to capture within their legal E.U. gaming industry, and there are potential solutions to this dilemma of infringing on U.S. laws. However, at this time, even an uninformed effort made in this direction may be dangerous even if the person(s) or entity stops its activities immediately after being notified by the U.S. law enforcement agencies.

The Wire Wager Act prohibiting the use of a wire communications facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers; punishable by fines and imprisonment of up to two years.

The Travel Act provides, in relevant part that whoever travels in interstate or foreign commerce or uses the mail or any facility in interstate or foreign commerce with the intent to distribute proceeds of any unlawful activity or promote, manage, establish, carry on or facilitate the promotion, management, establishment, or carrying on of an unlawful activity shall be subject to criminal penalties that include imprisonment of up to 20 years and fines of the greater of $250,000 for individuals ($500,000 for companies) or twice the gross gain derived from the offense.

The Wagering Paraphernalia Act provides that whoever knowingly carries or sends in interstate or foreign commerce any record, paraphernalia, ticket, certificate, bills slip, token, paper, writing or other device, or to be used, or adapted, devised, designed for use in (a) book making; or (b) wagering pools with respect to a sporting event; or (c) in a numbers, policy, bolita, or similar game shall be fined not more than $10,000 or imprisoned for not more than five years, or both.

There are the Organized Crime Control Act, Racketeering Influenced Corrupted Organizations Act (“RICO”) and most recently several paramount legislative Acts that are more severe and still open to interpretation will possibly apply to your client. You should also keep in mind your client options; such as Treaty Extraditions which many countries are re-negotiating with the United States.

U.S. prosecutors and regulators have taken a variety of steps in recent years to deter Internet gambling operators and payment systems from processing U.S. bets, including seeking the forfeiture of billions of U.S. Dollars in proceeds and even Internet domain names. At the same time, the European Union is seeking to eliminate barriers in the internal and external markets to the provision of Internet gambling services, with some member states opting to regulate and tax Internet gambling services instead of prohibiting or restricting them. Recently, under this conflict of laws situation, the E.U. was approached by the London based Remote Gambling Association. On the 26th of March 2009, the E.U. announced its findings that U.S. laws on remote gambling and their enforcement against E.U. companies constitutes a barrier to market access and adverse effects on the E.U. economy. The Report also addresses this situation as against WTO and GATS; specifically commitments on services and international market access.

This Report fell short by not making any recommendation for WTO action and merely noting that the U.S. Administration should visit this matter. The Report did address a real dilemma with the U.S. continuing to impose its laws on past acts of E.U. person(s) or entities. If U.S. laws were to change in favor of E.U. remote gaming, the U.S. is not willing to retroactively apply new legislation to past remote gaming acts. This does, however, allow the E.U. to use this discrimination to present its case to the WTO. Whether the WTO will consider such a case and, if so, will the U.S. make immediate remedies to the Conflict-Of-Laws situation is a very salient concern.

The following factors are presented by the author for your information as you decide on the U.S. as a potential market and sales market, but encourages the use of legal guidance as you begin any efforts to market and sell to the U.S. customer:

1. All online gambling is illegal in the U.S.
2. The Department of Justice disagrees with the case holding In Re Mastercard Int’l.
3. Advertising online gambling is equivalent to aiding and abetting illegal gambling.
4. No Federal law specifically prohibits online gambling advertising.
5. Marketing entities are included in conspiracy indictments.
6. No convictions have occurred from “pure” advertising.
7. Foreign citizens are subject to U.S. prosecution if “minimum contacts” exist.
   a. U.S. v. Carruthers, this is a RICO action where a U.K. citizen has presence in Texas (case pending) ;
   b. Louisiana v. Peter Dicks, a case involving online gambling with asserted jurisdiction and extradition raised, the case was subsequently dismissed;
   c. U.S. v. NeTeller, as case of money laundering and violation of the Wire Act with jurisdiction based on presence in the U.S., a plea of guilty was entered;
   d. U.S. v. eGold, government asserted money laundering and unlicensed banking relating to a U.S. citizen and a foreign corporation based on U.S. jurisdiction, a plea of guilty was entered; and
   e. U.S. v. Cohen, was a Wire Act violation charged against a U.S. citizen and a foreign corporation based on U.S. jurisdiction, case resulted in a conviction.

8. Laws that apply to person(s) or entities outside of the U.S. are:
a. Wire Act
b. Travel Act
c. Paraphernalia Act
d. Illegal Gambling Business Act
e. Racketeering
f. Aiding and Abetting
g. Conspiracy
9. U.S. Government’s efforts to Pierce Offshore Entities:
   a. Foreign Entities owned by U.S. Shareholders
      i. “Shell” entities will be disregarded by the Courts
         1. There are exceptions to disregarding by the Courts.
10. Collateral Prosecutions by the U.S. Authorities:
   a. Advertising Outlets
      i. Google, Yahoo and MSN fined US$31,500,000.
   b. Software Developers/Consultants
      i. New York v. Fuchs, et al:
         1. All defendants charged with Conspiracy.
            a. Web Designer charged.
            b. Telephone Service Provider charged
            c. Internet Connection charged
            d. Internet Security charged
            e. Accounting Firm charged.
ALL DEFENDANTS PLED GUILTY AND ARE AWAITING SENTENCING
   c. Financial Transaction Providers
      i. Paypal.com with drew from the gambling industry and paid a US$200,000 fine to the State of New York
   d. Affiliated Entities/Individuals
      i. Agents
      ii. Runners
      iii. “Landlords”
      iv. Management Companies
      v. Attorneys
         1. David Tedder, Esq. (Gold Medal Sports case)
         2. Bruce Meagher, Esq. (Gold Medal Sports case)
      vi. Spouses
      vii. Shareholders
         1. David Howard (Gold Medal)
         2. Randy Moreau (Gold Medal)
      e. Monetary Assets
         i. Correspondent Accounts needed to conduct international wire transfers can be frozen to encourage cooperation.
   f. Domain Names.
      i. 1st Technology v. BoDog
      1. Default judgment US$48,000,000.

Conclusion:

The U.S., State and local authorities will continue to find new approaches to significantly reduce the amount of online gambling activities; knowing that the most vulnerable element is the required industry flow of money. As more and more of the world business in based on the internet, there will be an equal effort by internet gambling industry members to rely on international relationships such as banking, hosting and billing industries. However, with the global economic downturn affecting business and governments worldwide, there may be an easing of legalization and enforcement by the U.S. It is critical that any efforts made at this time to capture a part of the U.S. market be made by an informed decision with a solid legal analysis or opinion as a pivotal part of your strategy.

If you have questions, please email us at info@trustmakers.com.

By Michael B. Nelson
TrustMakers.com

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