Stripped of all argumentation, the history of gambling laws in the United States has been a tension between two different philosophies of government: On the one side are those who seek a prohibition of games of chance, usually on the grounds of moral principle. On the other side are those who seek regulation of games of chance on the grounds that abuses can be more easily controlled that way, criminal elements can be kept out of the sector, and people can be left free to choose whether or not to place bets. These two different attitudes about government have been in frequent conflict in many highly controversial contexts like alcoholic beverages, marijuana and abortion.

Approximately 100 years ago or more, most states adopted the prohibition approach to gambling. Later, starting in the 1930's, the federal government became involved with respect to "the business of gambling." The objective was to end the influence of organized crime. Thus, federal law by tradition does not focus on the morality (or not) of the gambler, but on the legality of the casino operator or bookie. The principal federal prohibition concerning gaming is the "Wire Act" of 1961, which prohibits the use of phone lines to place sports bets.

In modern times several states have reversed the late 19th century concept and have allowed limited and regulated gambling inside their borders. According to the Nevada Gaming Commission 49 of the 50 states now permit at least some form of games of chance. Of these, 44 operate state-sanctioned lotteries as a means of raising extra revenue.The federal government has accomplished similar results in its arrangements with Native American nations subject to its jurisdiction.

For over a decade Congress and the courts have been struggling with the legal status of online gambling. For part of this time, through the American Gaming Association (the lobbying arm of the lawful casinos) the brick and mortar casinos tried to make online gambling illegal. The argument was that "the technology did not exist" to provide safeguards against abuses. Then, when a number of the association's members, like the MGM Mirage, opened their own online casinos, the opposition against online gambling subsided. (The MGM Mirage online casino was set up on the Isle of Man. It does not accept bets from US-based IP addresses).

In the second Bush Administration, the Department of Justice has detained, and in some cases, actively prosecuted persons who operate online gambling establishments. In 2006, Congress passed a hurriedly patched together pronouncement on online gaming, called UIGEA, which has created more questions than it settled. As of 2008, many online gaming companies and their U.S. customers are waiting to see if additional legislative initiatives in Congress will finally sort out the many pending issues.

It is not really clear who else is opposed to online gambling. Many believe that religious groups object to government tolerance of gambling; however, no established denomination appears to have published a position to that effect. The basis of the opposition is not likely to be scriptural, as many religious denominations regularly run bingo operations, table games and raffles as fundraisers. Doubtlessly individual voters may object to gambling on grounds of conscience, and this may be influencing the legislators. Others may be focusing on the social costs of problem gambling. The net result is that Congress has struggled to legislate in this area, and has still not resolved the matter satisfactorily for most of the interests involved.

The Issues in the Regulation of Online Gambling

All sides of this contentious issue can point to problems that online gambling can either cause or encourage, absent any successful countermeasures. The emerging consensus on problems associated with Internet gambling includes:

The ruination suffered by gambling addicts;

The presence of at least some dishonest Internet predators that victimize their customers;

The susceptibility of Internet casinos to being deceived into accepting action from minors;

The economic power of Internet casinos to dominate Internet advertising, unduly encouraging gambling by minors and gambling addicts;

The possibility of underworld involvement; and

The possibility that terrorists and criminals will use Internet gambling as a means of moving laundered money around.

In general, the conservatives wish to resolve these issues by going back to the 19th and early 20th century approach of trying to prohibit gaming over the Internet. Prefering sharp, doctrinal distinctions of right and wrong, moral and immoral, legal and illegal, such proponents of the abolition of Internet gaming argue that law enforcement can overcome the enormous technological challenge of keeping U.S.-based gamblers from playing games over the Internet. The U.S. Department of Justice under Alberto Gonzalez explicitly took this approach.

On the other hand, more liberal elements in Congress would prefer to recognize the futility of trying to intervene between U.S. citizens and the Internet, and would place their trust instead in a modern, regulatory scheme that would protect the citizenry from potential abuses without limiting personal liberties.

Is Online Gambling Illegal?

Most entities in the online gambling industry will say that any person placing a bet online is acting perfectly legally, unless he or she is physically located in one of the few states that makes betting a crime.

For operators of gambling businesses, even the industry itself recognizes that the U.S. government and many of the several states have made it illegal to function on U.S. soil. A recent act of Congress imposes restrictions on financial institutions with respect to some, but not all, gaming transactions.

In the 85 or more jurisdictions that license online gaming (Antigua, Costa Rica, Isle of Man, Cyprus, United Kingdom, to name several of them), the financial operations and the gaming operations are completely legal, as is, of course, the placing of bets.

In the past, the U.S. Department of Justice has taken the position that all online gaming is illegal, including bets placed by American citizens, wherever they are. Many people dispute the all-inclusive reach of this position. Court decisions have clarified that U.S. law does make it illegal to place a bet at a sports book via the Internet from within the United States (citizen or not), regardless of where that sports book is located. The operators of the sports books have been prosecuted, but not those who placed the bets.

However, this is much less than "all Internet Gambling." Recognized exceptions include lawful horserace betting and state lotteries. U.S. citizens not on U.S. soil appear to be allowed to place bets (for example, while on vacation in Monte Carlo). No U.S. law specifically takes up the questions of poker, bingo or table games, and case law has not extended coverage to these activities, either. Thus, a good bit of the subject has been left untreated. For this reason, the industry believes that the Department of Justice's assertion that all Internet gambling is illegal is simply not true.

Since the October 2006 statute called UIGEA (Unlawful Internet Gambling Enforcement Act), almost everyone involved in the industry will concede that Internet gambling operations can not take place on U.S. soil. Beyond that, the law does not seem to have settled the other issues. Unless previous statutes made it illegal to bet, there are no additional prohibitions against betting via the Internet. Ever since UIGEA passed, several members of Congress have advocated new approaches to wrestle with the practical realities presented by Internet technologies. Really only two points can be made without qualification: the legality of several aspects of online gambling is still in doubt, and the situation is bound to change by virtue of legislation yet to be passed.

Judicial Decisions and the Wire Act

The Wire Wager Act of 1961, known simply as "The Wire Act," prohibits the use of phone lines for placing sports bets. For the longest time, it was the only pronouncement at the federal level in the United States on the use of communications technology in gaming. Under the U.S. Constitution, Congress has no jurisdiction over gambling unless there is at least a fig leaf of federal interest, such as "interstate commerce." Since the New Deal the commerce clause has been the portmanteau permitting federal involvement in the legislation of the vices of the citizens. In this case, phone lines, being an instrument of interstate commerce, gave Congress the power to outlaw betting on sports, but only if the phone lines were in use. The call could be from one house to a next door neighbor's house. "Phone lines" are interstate commerce, even if a message only travels ten feet. This legislation was adopted to protect the public from dishonest bookmakers and other underworld figures involved in sports betting. After the Internet came into wide use, the question arose whether the Internet was a "phone line" for purposes of a criminal statute. The text of the Wire Act is very broad, and includes just about any wired access. Courts must be literal in their interpretation of criminal laws, in that the Fifth Amendment requires (among other things) that the crime be well-defined before someone can be accused of committing it.

The Cohen Case

In a famous prosecution under the Wire Act, a federal court did hold that the Internet was covered under the definitions of the Wire Act. As such the Internet was the legal equivalent of a phone line. The court held, therefore, that sports betting by Internet was covered within the act. The Fifth Circuit Court of Appeals declined to extend the Wire Act to all gaming by Internet, as the statute itself is specifically limited to sports gambling. The language of the 1961 statute was deemed broad enough to include wireless and cable access even though they did not exist at the time the law was written.

The case in question (United States v. Cohen, 260 F.3d 68, 76 (2nd Cir. 2001)) involved Jay Cohen, the president of World Sports Exchange (WSE), an Internet sports book in Antigua. Under Antiguan law, WSE was legal and fully licensed. In all, twenty-two defendants were charged under the Wire Act. Cohen and several others disputed the charges, believing -- wrongly as it turned out -- that the U.S. could not jail them for doing something outside the U.S. that is perfectly legal in the place where they did it. Cohen received 20 months in prison and a $5,000 fine. He lost the appeal, and the Supreme Court denied certiorari. Antigua would not extradite the defendants, as the activity complained of is completely legal under local law. WSE is one of the best-known Internet sports books, with well over 30,000 customers.

Part of the "cloudiness" or "uncertainty" of the U.S. was illustrated in the Cohen case. It is clear that Cohen was considered guilty of a crime by engaging in conduct outside the U.S., which conduct was perfectly legal where he was. The question arose whether non-U.S. citizens are also criminals if they accept wagers in, say, Antigua from U.S. citizens. If the answer is "no," then an important legal question arises about how the U.S. defines criminal conduct in terms of citizenship. Would a lawful resident alien be committing a crime if he made or accepted a bet while on vacation in Antigua or some other place? Does the equivalence of Internet and "phone line" in the Wire Act mean that everyone in the world who places a bet over the Internet with an online casino has violated U.S. law and can be arrested when changing planes in Atlanta or Dallas?

The Beton Sports Case

One of these uncertainties was answered with a clear "Yes." The so-called "Beton Sports Case" resolved the issue, at least for now. Non-U.S. citizens, acting on foreign soil in a manner completely lawful under local law are indeed subject to prosecution under the Wire Act. Like Jay Cohen, executives of Beton Sports.com and other offshore sports books have been indicted and detained. In July of 2006 the FBI arrested David Carruthers, a citizen of the United Kingdom and then chairman of BetonSports.com. He was accused of racketeering and violating the Wire Act, among other statutes. Carruthers was in the Dallas-Fort Worth airport on an American Airlines connection between London and Costa Rica. In a civil settlement, BetonSports withdrew from all U.S. sports book activities in August of 2006. BetonSports founder, Gary Kaplan was arrested in March of 2007 in the Dominican Republic and extradited to St. Louis for trial. As of December, 2007, neither case has gone to trial but a civil settlement with the company appears close to a final resolution.

The Bet On Sports

Peter Dicks, chairman of Sportingbet.com and also a citizen of the United Kingdom, was arrested in New York while changing planes in September of 2006. The warrant for Dicks was issued by the State of Louisiana, which outlaws all Internet gambling. The warrants were cancelled when New York declined to extradite Mr. Dicks. A month later, Sportingbet sold its U.S. operations for $1 in advance of the passage of the UIGEA.

The NETeller Case

One week after President Bush signed the Unlawful Internet Gambling Enforcement Act into law on October 12, 2006, the online gambling industry's largest payment processor, NETeller, announced that it would continue to process payments as usual for U.S.-based customers, at least until regulations are published.

Barely three months later, Stephen Lawrence and John Lefebvre, two of NETeller's founders and citizens and residents of Canada, were arrested in U.S. Territory. Though there was no indictment and no criminal charge, the warrants stated that they had "conspired to transfer funds with the intent to promote illegal gambling." Lawrence was arrested on St. Thomas, USVI, and Lefebvre was arrested in Malibu, California. Neither man had been active in the company for several months. The company asked that trading of its shares in the United Kingdom be suspended. Bail of $5 million was posted in each case. A hearing was set for late January in which the U.S. Attorney for the Southern District of New York would present formal charges in the form of an "information" (a criminal accusation made by the prosecutor rather than by a grand jury).

As of January 18, 2007, U.S. customers of NETeller were told that the company would no longer transfer funds for them to and from poker or casino web sites. The company also stopped creating any new U.S. accounts. The U.S. market was estimated at more than 60% of the company's business.

Just before the hearing scheduled for January 26, the U.S. Attorney's office asked that it be postponed. Charged has still not been brought.

In early February, the FBI froze accounts of U.S. customers of NETeller in the United States under the purported justification of "preserving evidence." Shortly thereafter, NETeller cut over half of its staff in an attempt to stay in business through the harrowing events of the U.S. Government prosecution.

Also in February, and again in March, the U.S. Attorney postponed the court hearing for presenting charges in the two criminal matters. Meanwhile, many millions of player dollars remained frozen by the FBI for an additional 60 days while the U.S. Attorney decided whether to charge the arrested defendants or what to accuse them of doing.

When the U.S. Attorney asked for the third extension of time for the hearing, now fully two months after the arrests, U.S. customers of NETeller started banding together over the Internet to see if there was anything they could do to recover their funds. One spokesperson said that the U.S. Attorney was not certain what avenues should be taken in the case. Some observers suggested, somewhat cynically, that neither the U.S. Attorney nor the Department of Justice could find a solid legal basis for the prosecution. They were playing for time, keeping pressure on all the U.S. customers with frozen accounts, hoping to compel NETeller to cut a deal with them.

Under Attorney General Alberto Gonzalez, the Department of Justice defended the ideological position that all gambling by U.S. citizens over the Internet is illegal. This was a controversial assertion, as no support for it could be found either in the statutes or in appellate judicial opinions. Indisputably sports gambling has been held to be illegal under the Wire Act, and equally, horserace betting has been held to be legal if state law also allows it. Neither the Wire Act nor the cases decided under it have addressed poker or casino games. The UIGEA did not specify new areas of illegal gambling, but begs the question, defining "illegal gambling" as any gambling that is "illegal under U.S. law." If a court ever were to decide that the Department of Justice opinion is overly broad, then the practice of intimidating off-shore companies would have to end. For this reason, industry observers suspected that the Department of Justice never presented charges against Lawrence and Lefebvre so as to sidestep the risk that the charges might have been dismissed.

Eventually, in July of 2007, NETeller did cut a deal with the U.S. Attorney's office. The company entered into a "Deferred Prosecution Agreement" or DPA with the U.S. Attorney for the Southern District of New York. Under the agreement, NETeller would consent to the filing of criminal charges against it concerning payments processing for U.S.-based Internet gamblers and offshore casinos. Prosecution would be deferred for two years, presumably from the date of the agreement. If the company fulfills certain obligations, the charges would be dropped altogether. The obligations the forfeiture of $136 million in supposed U.S.-based revenues, including $60 million that had already been seized by the FBI. In addition, and perhaps more importantly, NETeller agreed to cooperate with the U.S. Attorney's ongoing investigations of offshore gambling companies.

After these events, no online casino or sports book that was not already in a foreign country moved there. Many who were fully legal and licensed in foreign countries gave up the U.S. market, even though it represented between 65% to 75% of the company's business. For those still accepting bets from U.S. customers, ownership has been placed in the name of a local person or firm, even if the investment money and the management effort all really derive from U.S. Citizens. Operators of online casinos now simply avoid having to change planes in the United States.

Congress Becomes Involved - The Buildup to UIGEA.

Late in 2006 a portion of the debate surrounding Internet gambling was settled, at least temporarily, by an act of Congress. Many other issues still remain. The history leading up to the 2006 passage of the Unlawful Internet Gambling Enforcement Act (or UIGEA) helps explain why doubts still persist.

By the mid-1990's some members of Congress recognized that they needed to face two questions about Internet gambling:

(a) could Internet gambling be prohibited or regulated?

(b) If so, should Internet gambling be prohibited or regulated?

In 1997 it was estimated that thirty-two online casinos were in operation, with an annual turnover of over $300 million. Senator Jon Kyl (R-Az) introduced a prohibition bill in the 105th Congress (1997-98), which passed the Senate 90-10. The House version, sponsored by Representative Bob Goodlatte (R-Va) never got out of committee. A little over five years had passed and Internet gambling had grown to over $7 billion in transactions. A decade later, in 2007, the acknowledge industry leader, Bodog, generated $3 billion in action, all by itself, and there are over 2000 other casinos in the market as well.

Even in the face of such growth, some lawmakers have not addressed the practical question whether Congress could control Internet and continue to advance the prohibition model. Others have concluded that prohibition is unrealistic, regardless of whether or not it is a good idea.

Not unexpectedly, the private financial sector resisted a prohibition of financial transfers to online casinos. Their objection was on technical grounds. Banks and credit card companies simply can not screen the source and destination of every one of the billions of daily transactions. Even if it were possible to evaluate the payee of every check written by bank customers to online casino beneficiaries, the burden placed on commerce would be unsupportable. Some credit card transactions can be selectively blocked according to a code identifying the type of merchant processing the debit. However, Australia's experience with a similar law demonstrated that such a block is unlikely to be effective.

After September 11, 2001, Congress passed the statute restricting international financial transactions, known as the "Patriot Act." Under this law it is forbidden to transfer funds derived from a criminal offense or funds that might be used to promote unlawful activities. Three years later, a U.S: Attorney in Missouri opened a case against Ebay, the owner of PayPal, alleging that it had violated the Patriot Act by processing off-shore gambling transactions. If the bets in question had been placed on sporting events, then under the Wire Act decisions they probably were "unlawful" transactions, but the "criminal offense" was not committed by the bettor or by Ebay, but rather the offshore sports book, as made clear in the Cohen case. Nevertheless, Ebay withdrew PayPal as a means of settling gambling transfers over the Internet.

The vacuum left by the banks and Paypal was filled by others, notably Neteller and Firepay, a Bermuda-based payment intermediary. A system of "electronic cash" or "e-cash" also came into use. The U.S. Treasury Department has opined that "e-cash" can be used as a money-laundering scheme; however, like so much else in this scenario, it is still unclear whether a customer of "e-cash" commits a criminal offense by making a gambling deposit overseas.

Starting in 2003, when some sort of legislation seemed likely and imminent, a few Internet payment companies and credit card issuers voluntarily declined business with on-line gambling establishments prior to any legislation's being passed. They included MBNA, Bank of America, Fleet, Chase and Citibank. Congress was aware that the voluntary ban by a few financial companies was not the ultimate solution. Any online gambler in the United States can have access to an offshore account in a jurisdiction where gambling transactions are allowed, and some of them are operated by the very companies that will not handle such transactions through their U.S. subsidiaries and affiliates. A legal provision that would prohibit American institutions from sending funds across international borders would not stop the flow; it would just force American companies out of the business.

A few legislators, notably Representative Barney Frank (D-Ma) and John Conyers (D-Mi), proposed subjecting Internet gambling to regulation, perhaps by a Federal Gaming Commission. They cited the practical advantage of being able to address problems directly, just as the SEC has done with securities. For example, the technology exists to have online casinos share information about usage by a person who may have several accounts or may play at several casinos. Monitoring usage can be a way of tracing gambling gains and losses for income tax purposes, and it can be a way of setting gaming limits for people who are identified as "problem gamblers." Casinos already share information about deadbeats and other undesirable players.

After several bills on the subject had been introduced and much debate over the relative merits of prohibition versus regulation, the Republican leadership in Congress pushed though the UIGEA, a prohibition bill, in the last days before the recess prior to the 2006 elections, in which control of the House of Representative shifted to the other party. The gambling bill came as a last-minute addendum to the Safe Port Act, with which it had nothing to do. The conference committee of the House and Senate on HR 4954, the Safe Port Act, complained that they did not even see the language of the UIGEA as it was finally inserted. It was based on two prohibition bills (sponsored by Rep. Leach (HR 4411) and Rep. Goodlatte (HR 4777)), with several changes.

Content of the UIGEA

The UIGEA says that it does not change or amend any other law, so it does not alter the Wire Act or preempt state laws. The Department of Justice continues to assert that all Internet gambling is illegal under the Wire Act, even though judicial decisions do not support the position. Most state laws do not address what happens when the casino in question is overseas. The law considers a bet or wager to be a risk of value on a sports event or outcome "subject to chance." It is thought that the "chance" language was to keep poker out of the statute, as it is thought to involve skill more than chance; however, the law does apply to poker as well. The law also says that a "bet" includes the "opportunity to win a lottery." Betting on horse races and betting in State lotteries are specifically exempted from the UIGEA, as they are already considered legitimate activities in many states.

Some online casinos in foreign countries maintained accounts for their U.S. customers, so the money itself was offshore. Thus the argument was that the betting took place in the foreign country, not in the U.S. The UIGEA responds by defining "betting" to include the instruction to place a bet. An attempt is made to distinguish betting on one hand from dealing in commodities, securities and insurance on the other. Betting also includes accumulating "points" in free games (if anything of value other than more free games is the prize). Free bingo with nominal prizes is legal. So are fantasy sports leagues, though restrictions are imposed on them to prevent betting on real teams in the guise of a fantasy team.

The core provision of UIGEA makes it illegal to engage in what it calls "Unlawful Internet gambling." But the statute seems to presume that we all of us already know what "unlawful Internet gambling" really is. It is not otherwise defined. The most that is said is that the prohibited conduct is "the betting, receiving or transmitting of a bet that is illegal under federal, state or tribal law." This begs an enormous question. Is the Department of Justice correct that all online gambling is illegal, even though the courts have not gone that far? The UIGEA is helpful in some respects, but it does not solve this basic problem. The law threatens with fines and jail time anyone in the "business of betting or wagering" over the Internet if they engage in "unlawful Internet gambling." It does not seem to threaten people who make bets for pleasure but are not in the "business of betting or wagering."

Is placing a bet over the Internet illegal under the new law? The UIGEA does not expressly make it illegal to place a bet over the Internet unless some other law already makes it illegal. Thus, the Wire Act and state statutes still apply there.

Importantly, the UIGEA also expressly says that financial institutions involved in money transfers for online gambling (known in the law as "financial transaction providers") are not in the "business of betting or wagering." Thus, they are not subject directly to the penalties of the Wire Act. However, the existing transfer laws still would apply. The Department of Justice starts with its assertion that the Wire Act makes all betting illegal, and thus all financial transfers for betting are illegal under the Patriot Act.

The UIGEA does not support this expansive view because it seeks would address itself only to "designated payment systems." These are forms of money transfer that will be defined later by the financial regulators. Thus, financial institutions will still be subject to some controls, but in their own right and not simply as aiders and abettors to gambling operators. The idea of the statute is to support subsequent regulatory decisions to prohibit "e-cash" or any other approach thought to be a means of money laundering, tax evasion or support for terrorists. The law thus seeks, at least potentially, to criminalize some activities of operators of electronic funds transfer terminals and third party providers if they engage in "restricted transactions" yet to be defined. By its terms the statute does not prohibit or even regulate all transfers of funds to offshore gambling sites.

The statute protects providers of interactive computer services (such as ISP's) from liability unless they also actively engage in the betting operations or the financial transfers. Civil remedies (like injunctions) can be sought against ISP's, including orders to remove sites and block connections to links that make unlawful transfers. But ISP's are not required to monitor for infractions or enforce the law. Under the statute, the ISP is only responsible for sites that "reside on a computer server that such service controls or operates." Almost by definition, such an ISP would be outside the jurisdiction of the United States and operating lawfully within its own legal system.

Other provisions address collaborative operations by Native American tribes, but not states. Though State lotteries are exempt from the statute, linking state lotteries across state lines is subject to regulation. States can authorize Internet gambling on horse racing, but not dog racing. To bring casinos into the financial reporting requirements of other laws, large gambling institutions are now added to the definition of "financial institution." They now are in the company of banks and stock brokerages, though it is hard to imagine which ones these are, as they are all offshore.

Thus, sports betting is subject to the Act, because it is clearly illegal under existing US law. State lotteries and horse race betting are not illegal unless engaged in where state law makes them illegal. But poker, table games and bingo are still in limbo, and there really are no other federal, state or tribal laws that clearly make an Internet bet illegal.

UIGEA Questions

Even the proponents of a prohibition of Internet gambling admit that Congress did not "get it right" when it so hurriedly passed the UIGEA. There is even one provision that makes no apparent sense, and probably was passed with one or more typographical errors. After UIGEA, many questions still hang in the air concerning the applicable rules and procedures.

Courts, regulators and attorneys are encountering difficulty in interpreting the act, for two reasons: First, as it was rammed through at the last minute (its critics say by stealth), there is no legislative history at all. Recourse might be had to the somewhat scanty legislative history of the bills on which it was based, but as they did not pass, it is hard to view them as authoritative. Moreover, their texts sometimes differ in important ways. Second, the fact that the statute did not add to the definition of what was an illegal bet makes it hard to argue that Congress intended to expand illegality over what was already in force. The problem is, of course, that opinions differ widely about what the law actually was at the time of passage.

The UIGEA does add clarity in one respect. It reiterates the authority of the several states to permit or regulate gambling inside their boundaries (a right presumably safeguarded in the Constitution anyway and explicitly part of the U.S. Code), but it does require that state regulatory systems operate to prevent gambling by wagerers who are not in the state at the time the bet is placed, or gambling by minors.

The UIGEA has left enforcement agencies wondering how anyone will be able to prevent circumvention of the law, particularly the restrictions on certain financial transactions. Many financial transaction intermediaries are not subject to U.S. regulation or jurisdiction. It would be difficult, if not impossible to prohibit institutions that are subject to U.S. regulation from completing transactions with institutions that are not.

Moreover, while some electronic transactions, like credit cards, can be blocked according to certain transaction codes, checks are not subject to the regulations, and online institutions may be able to diversify into other merchant transaction codes anyway.

A problem area under the UIGEA relates to U.S. affiliates of overseas companies, where the U.S. affiliate is subject to U.S. jurisdiction, but the overseas company is engaging in the activity made unlawful in the U.S. Presumably the activities by the foreign affiliate are legal where they occur. If the U.S. affiliate has any participation in the offshore gambling activity, such as a referral link or a share of profit, it could be prosecuted as an entity that aids or abets the commission of an unlawful act.

Another doubtful area relates to search engines. Since the law permits a court to order an ISP to remove a "hypertext link to an online site" that violates the law, it is possible that Google or some other search engine company could be ordered to remove all references to overseas Internet gambling establishments, a profound and probably ineffective interference in the technology of URL's. The U.S. would be joining only China in trying to shield its citizens from truthful content on the Internet.

Post-UIGEA Efforts

In April of 2007 Rep. Barney Frank introduced H.R. 2046, the Internet Gambling Regulation and Enforcement Act, that would essentially roll back the prohibitions of the UIGEA and establish a licensing and regulatory scheme to prevent compulsive gamblers and minors from participating and to protect the honesty and security of the financial aspects and the casino operations. The Internet Gambling Regulation and Tax Enforcement Act, sponsored by Rep. Jim McDermott (D-Wa) was introduced in June of 2007 to accompany the Frank bill. House hearings were held the next day. Neither bill passed in the first session. Nevertheless, they have a lot of sponsorship and some support from Republicans. Many anticipate that an improvement over the existing law will be enacted to regulate Internet gambling and that it will be added as part of some other "must pass" bill, just as the UIGEA passed as part of a safe ports bill.

The Violation of World Trade Norms

Wholly apart from all the legal questions surrounding the UIGEA, the Wire Act and the position of the Department of Justice, the United States has been adjudged in violation of its international trade agreements because of the enforcement of the Wire Act against offshore gambling operations.

In 2003, Antigua and Barbuda took advantage of the provisions of the charter of the World Trade Organization (which the United States virtually authored as the General Agreement on Tariffs and Trade over 60 years ago). This Caribbean nation sought consultations with the United States under the charter because of the criminalization of activities taking place in Antigua, hurting the commerce of its citizens. Loosely speaking, Antigua "sued" the U.S. for illegal trade barriers arising out of the Justice Department's position on Internet gambling. Lester Bird, the Prime Minister of Antigua, was quoted on the subject of the case against the U.S. in these terms: "America is the largest gambling country in the world, so how can they then be so unctuously self-righteous, to use their power to destroy the niches that we are having, trying to develop some kind of diversification in our economy? It is unfair and therefore we are going to take them before the WTO."

Other countries became involved in the consultations, notably Canada, the EC, Japan, Mexico and China. The essence of the complaint was that the US was preventing Antigua from conducting lawful trade with U.S. citizens. In November of 2004 the response of the U.S. government was rejected by the WTO panel as not addressing the essence of the claim. The US found itself in the somewhat awkward position of advancing arguments usually made by other nations in response to trade complaints from the United States. An appellate panel found against the United States again in April of 2005. The US refused to comply. An arbitration report in August of 2005 directed that the US practices cease or that compensation be paid to Antigua. Antigua proposed a number of sanctions against the US, which were considered and reported on by the WTO in March of 2007. In June Antigua claimed $3.4 billion in trade sanctions and requested authorization to ignore U.S. patent and copyright laws. The European Union made a demand for compensation at the same time. In December of 2007 retaliatory sanctions were authorized to Antigua in the value, so far, of $21 million. The Administration's public stance has been to remain firm in its assertion that all Internet gambling is illegal under U.S. law, and that making criminals of Antiguan businesses that accept bets from Americans over the Internet is not a non-tariff barrier to trade.

The State Law Situation

15 U.S.C. §3001 acknowledges that "states should have the primary responsibility for determining what forms of gambling may legally take place within their borders" and that the federal government "should prevent interference by one State with the gambling policies of another, and should act to protect identifiable national interests." Congress addressed interstate gambling under the Commerce Clause and the foreign affairs powers to deal with the Native American peoples and foreign nations. From that point on, each state has developed its own approach to gambling.

A few states still outlaw gambling altogether, but forty-four states operate lotteries. Casinos may be found in twenty-nine states, often on tribal lands. The lotteries, the race tracks, the casinos, all contribute to the public's bottom line. In a Newsweek column, George F. Will noted, "Gambling has been a common feature of American life forever, but for a long time it was broadly considered a sin, or a social disease. Now it is social policy: the most important and aggressive promoter of gambling in America is government."

Gambling has been forbidden at various times in almost every state. It was even illegal in Nevada for a generation in the first years of the 20th century. In spite of this history, the states are increasingly liberalizing the restrictions, often attracted by the potential for revenue.

Gambling over the Internet has not been widely addressed, mainly because of the position of the U.S. Department of Justice concerning the Wire Act. The UIGEA has authorized states to examine their options with Internet gambling, if it is otherwise "legal" and protects minors and compulsive gamblers.

Five years before UIGEA, in 2001, Nevada adopted a law permitting the Nevada Gaming Commission to license and regulate Internet gambling if it was legal under federal law. As the federal law has been vague since before 2001, Nevada did not move to license Internet casinos. "The state law requires us to make a finding that it can be done applicable to federal laws," the governor said when signing the bill. "As long as the Department of Justice takes the position that it can't be done, we won't override that." The fact that the bill passed the Nevada legislature at all was a signal that the casino industry was softening its formerly severe stance on Internet gambling. New Jersey has also begun to study the licensing of Internet gambling businesses, dependent on a clarification of the status of such enterprises under federal law.

Questions may arise under state law concerning the playing of Internet gambling games. Most states do not criminalize the placing of the bet, but rather the taking of the bet, and that will always take place outside the state, in offshore countries. Illinois, Indiana, Louisiana, Montana, Nevada, Oregon, South Dakota, Washington and Wisconsin each have explicit prohibitions against Internet gambling. Some of these laws apply only to the operating side of Internet gambling, but some actually make it criminal conduct for a citizen to place a bet over the Internet.

Other Countries

The more than 2,000 gambling sites in the world are spread over 85 countries. Of these, 550 or so are in Antigua and 475 or so are in Costa Rica. Gibraltar and the Isle of Man are also popular host countries for online gambling operations.

Britain has legalized online gambling, and approximately one million people gamble regularly online. Across Europe the estimate is 3.3 million participants, wagering around $1,500 per year each. Since the Gambling Act came into force in the UK in September of 2007, about 70 sites have been licensed, all of them sports books. The UK approach is to provide tight regulation so that the customer is protected from dishonest games, financial weakness of the site, fraud and compulsive gambler issues.

In June of 2001 Australia passed the Interactive Gambling Act 2001 to outlaw the operation of Internet gambling sites like poker or table games. It is an offense to offer such a gambling opportunity to someone physically present in Australia, but placing a bet is not illegal. Sports betting online is completely legal, including betting on horse racing and greyhound racing. Lotteries are also exempt. The prohibition of casino gambling and poker games applies to anyone -- on-shore or off.

In India there is no law either permitting or prohibiting online gambling, but the Bombay Wager Act bans the practice in the state of Maharashtra.