Online Casino Gambling

The Canadian-based Optimal Group Inc. recently brokered a non-prosecution agreement with the United States Department of Justice to forfeit $19.2 million in funds. The case was tied to Optimal’s involvement as an e-wallet provider to process billions of dollars related to online gambling operations.

US government pursuing online gambling operations

The United States has been actively seeking out any e-wallet providers that have been involved with any online gambling sites. The US has used a variety of laws to make their case. Among these laws are the Wire Act, the Unlawful Internet Gambling Enforcement Act and the Illegal Gambling Business Act.

From 2004 to 2006, Optimal’s e-wallet company Firepay was operating in the United States. “Optimal, operating an electronic wallet called Firepay, processed more than $2 billion worth of illegal gambling transactions for United States customers,” the  U.S. Attorney’s office said. When the United States enacted their Unlawful Internet Gambling Enforcement Act in October of 2006, Optimal no longer accepted payments from customers within the US. Prior to the legislation, about 80% of their payments were from customers in the United States.

Under the deal, Firepay acknowledged a violation of federal law by providing wagering in the United States. The Optimal Group agreed to forfeit $19,182,418 as part of their non-prosecution arrangement with the US. Optimal stated that the amount was a “disgorgement of property involved in and proceeds received from the payment processing services that were provided by the company’s subsidiaries to Internet gambling merchants in relation to U.S. customers of such merchants.”

Firepay is no longer in operation. The Optimal Group has focused their business interests into some different areas. The Group’s WowWee business is a leading designer, developer, marketer and distributor of innovative hi-tech consumer robotic and entertainment products. The operation is also involved in the development of toys.

Electracash also a target

The US is also looking into the operations of many other foreign and domestic e-wallet providers. The California based online cash processor Electracash Inc. has been a target of the government in recent months. In July, US federal authorities seized bank accounts of the company. The accounts were allegedly used to process payments from online gambling operators. Now, the government is seeking to gain access of Electracash e-mails to find further evidence of illegal activity.

UIGEA related seizures could be winding down

While the government has been able to seize some funds from several e-wallet providers tied to the Unlawful Internet Gambling Enforcement Act, the seizures could soon be a thing of the past. With Massachusetts congressman Barney Frank’s reform legislation to end the UIGEA gaining momentum, the government could focus on taxing online gambling operators instead of the far more difficult process of trying to enforce laws that are vague in nature. The current policies of the United States have done nothing to stop the continued growth of the online gambling industry. The impending UIGEA reforms would enable federal authorities to direct their energies towards more substantive issues and concerns.

Supporters of online gambling suffered a crucial blow in the ongoing fight for regulation.  This past Tuesday, a U.S. appeals court in Philadelphia ruled in favor of the Unlawful Internet Gambling Enforcement Act against the iMEGA (Interactive Media Entertainment & Gaming Association) in a 3-0 decision.  According to a few legal experts following the case, the court ruling should come as no surprise.

Joe Kelley, a Buffalo State law professor, explained that whenever you contest an act of Congress, you have an uphill battle on your hands and an incredibly long shot at winning.

Of all the arguments made, the iMEGA emphasized that the UIGEA was a violation of privacy rights outlined in the Constitution.  The online gaming trade body sited two cases in which the UIGEA infringed on privacy, using Lawrence vs. Texas and Reliable Consultants Inc. vs. Earle as its examples.

However, Judge Dolores Sloviter, who had the final say on the matter, didn’t leave any assumptions in regard to the decision to dismiss the iMEGA’s claims.  She firmly stated that the organization’s dependence on the aforementioned cases were misplaced and ultimately, irrelevant.  According to Sloviter, both the Lawrence and Earle cases specifically involved state laws barring certain forms of consensual sex between adults in the privacy of the home.  In regards to the UIGEA, she noted that even in the confinements of the home, gambling does not have the same constitutional magnitude of those individual cases.

While the court rejected all attempts and arguments by iMEGA’s high powered attorneys, there is one glaring loophole in the ruling that could give online gamblers and operators a small ray of hope.  In justifying the legality of the UIGEA, the appeals court did not find anything in the legislation that makes any form of gambling in the United States illegal.  Instead, the ruling verifies that similar to the Illegal Gambling Act, the UIGEA is only in place to enforce existing gambling laws.  Because there are currently no federal laws prohibiting online gambling, it can be concluded that the act only applies to online gamblers who reside in states that have laws in place against wagering over the internet.

The court applied the “reasonable man” test, a commonly used legal method asserting that the legislation could be perfectly comprehended by an individual of normal intelligence.  It then went on to specifically apply the UIGEA to existing state legislation, in affirmation that the court’s interpretation of the act only holds prevalence in jurisdictions where online gambling has been deemed illegal by other laws.  This essentially means that other than wagering on sports events over the internet, which is prohibited on a federal level, online gambling is legal and financial transactions should be allowed to those players in states without legislation against it.

Following announcement of the ruling, Joe Brennan Jr., iMEGA chairman, voiced that the court made it clear that online gambling is unlawful in states with existing laws in place.  He also noted that there is currently only six states that have laws against online gambling, which leaves a total 44 states where it is potentially legally.  Brennan declared that this isn’t a win of any sort, but a good start.

Along with ushering in healthcare reforms and economic stimulus, President Barack Obama may change the face of internet gambling in the United States.  In fact, upon Obama’s president win, a Merrill Lynch representative stated, “We think it could ultimately pave the way for online gaming regulation rather than prohibition.”

UIGEA Violates US-European Union Trade Agreements

The point of contention between America and the European Union is the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA).  UIGEA was originally created in order to prevent any American financial institution from transferring monies into online casinos, with the exception of horse racing and lottery websites.

Currently, the European Commission argues that the United States’ UIGEA legislation is violating EU trade agreements.  While the Bush administration simply ignored working jointly with international organizations, Obama’s approach is much different.  In fact, the Obama administration is currently working to resolve the conflict with the European Commission. A resolution should come forth before the expiration of the “grace period,” or else the issue will be turned over to the World Trade Organization for further investigations.

While Obama has not declared his stance on internet gambling, his desire to work with the European Commission and United Nations to resolve conflicts may signal legalized online gambling.

The Future of Legalized Online Gambling

What does the future hold for legalized online gambling?  Last year, Congressman Barney Frank proposed a bill that would overturn UIGEA, but upon voting, the bill tied at 32-32.  In order to pass through the committee floor, the bill simply needed one more vote.

However, Frank continues to work to overturn UIGEA, and he believes that his bill will pass in 2009 with the help of both a Democratic president and Democrat majority in Congress.  Frank has 48 cosponsors for his act to revoke UIGEA, and if the bill is passed to legalize and regulate online gambling, then the American government stands to gain significant tax revenue – which is sorely needed to begin to replenish the severe budget deficit.

Along with legislative assistance, President Obama’s stance on conciliatory foreign relations may bode well for legalized online gambling in the United States.  Stay tuned for the latest news at Online Casino Spotlight!

Traditionally, U.S. gambling regulations have been reserved for state governments as opposed to ruling at the federal level.  A prime example would be the Wire Act.  As we all know however, federal law often finds a way to overthrow state legislation.  The DOJ (Department of Justice) has expressed on a number of occasions that the act prohibits all variations of internet gambling in the United States.

Enter the Wire Act

Enacted in 1961, the Wire Act was passed to prevent bookmakers from taking sports wagers via telephone.  At one time, accusations of violations were typically accompanied by a range of other charges such as conspiracy, money laundering and violations of the Illegal Gambling Business Act.  The one key point stressed by gambling proponents is that the Wire Act is enforced towards the gambling operator.  There is no language within the law that says it is illegal for the consumer to place a wager.

Because there was simply no way to have predicted online gaming in the early 1960s, from a practical aspect, there is no way the Wire Act could apply to casino gaming over the internet.  In recent times, the DOJ has been quite busy tangled up in legal disputes in pursuit of conviction for gambling operators, years before Congress even got involved.  In 2000, the DOJ garnered a successful conviction of Jay Cohen, World Sports Exchange president, for violating the Wire Act.

The So-Called Internet Gambling Ban

The UIGEA (Unlawful Internet Gambling Enforcement Act) was enacted in the fall of 2006, a law which states that it is illegal for any financial institution to facilitate monetary transactions between offshore gambling operators and U.S. consumers.  However, this legislation has been controversial from the start as it does not state that it is illegal for those consumers to gamble on internet sites.  The introduction of the UIGEA has led the online gambling industry’s biggest players away from the U.S. market, even though many private entities continue to service it.  These companies are banking that the UIGEA will not be able to block payments, giving them the ammunition to continue operating in jurisdictions in which U.S. authorities have no power.

No-Online Gambling States

Several states, including Illinois, Indiana, Louisiana, Michigan, Nevada, Oregon, South Dakota and Washington have passed laws that prohibit all unauthorized forms of online gambling.  Both Hawaii and Utah have also passed similar legislation.  Lawmakers in Nevada passed a law that permits intrastate internet gambling but have taken very few steps to introduce a viable system.  The argument has always been that implementing such a system would require advanced technologies that have the ability to accurately verify a player’s age and location, a system the DOJ claims would violate federal legislation.

In April of 2008, federal regulators and representatives from the financial industry went before Congress and testified that attempts to enforce the UIGEA would lead to substantial regulatory problems.  Resulting from this testimony was a new legislation introduced by representatives Barney Frank and Ron Paul, supporters of the legalization and regulation of online gambling.  This proposed legislation would prohibit the DOJ, Federal Treasury and Reserve from enforcing any regulations associated with the UIGEA.  To the current day, no official regulations for UIGEA enforcement have been adopted, leaving many still to wonder: what does this law really mean?