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DOJ Opinion Leaves Industry Hanging: If UIGEA Exclusions Don’t Modify the Wire Act What Does That Mean for Intrastate Gambling Transactions?

The recently released Department of Justice (“DOJ”) opinion (“DOJ Opinion”) concluding that the Wire Act prohibits both sports and non-sports related Internet betting and wagering, leaves the industry with the burning question of “what about intrastate Internet gambling?”  On its face, the Wire Act prohibits using a wire communication 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 for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of such wagers, for information assisting in the placing of bets or wagers.  In its analysis, the DOJ Opinion applies the modifier of interstate or foreign commerce to all four prohibited types of transmissions.

So, what’s the problem?  Doesn’t that mean that this DOJ Opinion only prohibits interstate Internet gambling?  Maybe.  But the answer may not be so simple.

Part of the answer may lie in the DOJ’s interpretation of the Unlawful Internet Gambling Enforcement Act (“UIGEA”), which prohibits persons in the gambling business from accepting certain types of financial transactions in connection with unlawful Internet gambling and requires financial transaction providers to identify, block or otherwise prevent certain restricted transactions.  The recent DOJ Opinion concluded that the UIGEA does not modify the Wire Act.  Why does this matter?

The UIGEA excludes from its definition of “unlawful Internet gambling” certain types of Intrastate transactions, Intratribal transactions, Interstate horseracing, and intermediate routing.  Specifically, the UIGEA provides that the “intermediate routing of electronic data shall not determine the location or locations in which a bet or wager is initiated, received or otherwise made.”

Before the 2011 Memo, the DOJ took the position that the use of the Internet involves the “intermediate routing” of data across state lines violating the Wire Act’s prohibitions on wire transmissions in interstate commerce.  It was this position that was one of the factors that led the States of New York and Illinois to request what became the 2011 Memo that the DOJ Opinion reversed.  The States of Illinois and New York wanted to use the Internet and out-of-state transaction processors to sell lottery tickets to residents in each of their respective States.  The States wrote to DOJ seeking guidance on whether such transactions would violate the Wire Act and pointed out to DOJ that the UIGEA’s “intermediate routing” exclusion appeared to permit intermediate out-of-state routing of electronic data associated with intrastate sales of lottery tickets.  However, in 2011 rather than addressing the effect of the UIGEA on the Wire Act’s prohibitions, the 2011 Memo instead narrowed all four of the Wire Act’s prohibitions to sports gambling.

The recent DOJ Opinion finally considers the question asked over seven years ago.  DOJ considers whether the exclusions to unlawful Internet gambling in the UIGEA result in excluding those same activities from the prohibitions of the Wire Act.  Specifically, the DOJ examines the UIGEA’s exception for certain bets or wagers “initiated and received or otherwise made exclusively within a single State” in accordance with the laws of such State, even if the routing of those wire transmissions was done in a manner that involved interstate commerce.  DOJ concludes that such exclusions have no impact on what activities are lawful under the Wire Act and affirmatively states that the UIGEA in no way alters, limits or extends the existing prohibitions under the Wire Act.  But the DOJ Opinion leaves the industry hanging.

Will the DOJ now go back to its pre-2011 position that the use of the Internet even for purely intrastate gambling violates the Wire Act based on its prior theory that the Internet inherently involves interstate commerce?  This is one of the many questions raised but unanswered by the DOJ Opinion.

We expect that interested parties will be trying to obtain further guidance from DOJ on this issue and we won’t be surprised if such parties file litigation such as an action for declaratory judgment to get those answers. 

Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.

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About this Author

Christine L. Swanick, Finance, Bankruptcy, Attorney, Sheppard Mullin, law firm
Partner

Christine Swanick is a partner in the Finance and Bankruptcy practice group in the firm's New York office.

Ms. Swanick concentrates her practice in the area of commercial financing and other credit transactions, including commercial loans, letter of credit facilities, syndicated credit facilities and note and bond financings, especially in the area of tribal-related financing projects. Additionally, Ms. Swanick advises on restructuring of tribal debt. She also represents tribes and entities doing business with tribes in contractual...

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