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Legal Perspective on US Online Gambling

By: Joe Valentino, Tuesday August 16th 2011
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In an article written for The New York Times, Matt Richtel has put in perspective the recent legalization initiatives to bring establish a regulated framework of online gambling at state level in the United States. Attempts to legalize online gambling at the federal level have failed in last two years. Though there are bills pending in the Senate and the House of Representatives nothing is expected in the foreseeable future. Meanwhile the states are strapped for cash and see tax revenues from online gambling as a means to balance the budget. There are protests from the usual social interest groups, but these can be handled because of the belief that adequate measures to control problem gambling and underage gambling are available. The real problem is the uncertainty of the stand of the federal law in this matter. The billion dollar question seems to be "Will the legalization of online gambling by the states violate federal law?" and there are no clear cut answers.

In a sense the problem lies in the ambiguity of the UIGEA, which was passed in 2006. The act prohibits processing of financial transactions connected with illegal online gambling. Legal experts interpret this clause both ways. Arthur Terzakis, staff director of the Committee on Governmental Organization, a legislative policy committee in the California State Senate, is of the view that if online gambling is legal, then the provisions of the UIGEA do not apply. And this means that the states have a right to legalize online gambling. Mark Hichar, a lawyer who specializes in gambling law at Edwards, Angell, Palmer & Dodge in Boston, says that the bill's legislative history says that it is not meant to amend existing law on the subject. Therefore the federal Wire Act prohibitions still apply.

The problem has been compounded with the Department of Justice (DoJ) resuming action against online gambling operators. In the aftermath of the UIGEA similar action was initiated under the Wire Act. This time around the legal provision invoked is illegal financial transactions processing. This has made the states that have moved ahead with online gambling regulation to sit back and think. There is a thinking that since the Wire Act prohibits wagering over telecommunications systems that cross state or national borders strictly enforced intrastate online gambling will bypass this law. In response to this two prominent United States senators have asked the DoJ to legally quash the efforts of the states to introduce regulated online gambling. The official DoJ response is that the letter is under consideration.

One major factor favoring state regulated online gambling is that several states sell lottery tickets online, which is as much gambling as playing casino games or poker. But the issue is not clear cut. Illinois had passed a law allowing for online lottery ticket sales two years ago. As a matter of abundant precaution it sought clearance from the DoJ. The DoJ has not replied. Hichar says that just because the DoJ has not yet acted against online lotteries does not imply that the lotteries are legal.

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