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Fallout from DOJ Revised Wire Act Opinion Continues

Posted on by John Lathram

Wire ActConcerns continue to be raised about how the DOJ´s revised Wire Act opinion will effect jurisdictions that have regulated online gambling in the United States.

Last week, the Department of Justice´s Office of Legal Counsel revised its opinion that the 1961 Wire Act only applies to interstate sports betting, and instead applies to all gambling activities. The revised opinion is a complete reversal of an opinion issued in 2011 that paved the way for interstate lotteries, online poker compacts, multistate Daily Fantasy Sports games, and networked online casino jackpots.

The revised opinion not only has implications for multistate gambling activities, but also for intrastate online gambling due to the potential for web-based transactions to be routed out of state. Although this factor may be overlooked by some regulators to prevent online gambling becoming “illegal” in their jurisdictions, it will likely affect how payment processors manage online deposits and withdrawals.

But It´s Just an Opinion Isn´t It?

Yes and no. Prior to 2011, some state courts had already interpreted the Wire Act as applying exclusively to sports betting and, strictly speaking, the DOJ´s revised Wire Act opinion is not legally binding on the courts. However, the DOJ´s Criminal Division could take enforcement action based on the revised opinion against operators and payment processors that facilitate violations of the Act.

What any enforcement action might consist of – or what specific gambling activities it may apply to – is unclear. When the DOJ revised Wire Act opinion was announced, Rod Rosenstein – the U.S. Deputy Attorney General – said the DOJ´s Justice Manual would be reviewed by the Criminal Division´s Organized Crime and Gang Section to approve processes for prosecutions pursuant to the Wire Act.

The review could take some time to organize and complete, which is possibly why Rosenstein has announced a 90-day window of “prosecutorial discretion” to give businesses who have based their operations on the 2011 Wire Act opinion time to comply with the DOJ´s revised Wire Act opinion. Some observers believe the window also gives states time to launch a legal action against the opinion.

Unclear How States Might React

It is not only the states that have regulated online poker and online casinos that may be affected by the DOJ revised Wire Act opinion. Fourteen states have passed legislation to regulate Daily Fantasy Sports (plus many more allow the activity without regulation), six states have online lottery operations, and several more are considering the regulation of online sports betting to attract tax revenues.

One of the biggest concerns is that state regulators may enforce restrictions that make the provision of online gambling untenable. For example, in Nevada, the use of recreational marijuana is banned in licensed casinos – even though it is legal to use throughout the state – because of federal laws prohibiting its use. Nevada gaming regulators take the view that if the Justice Department says an activity is illegal, casinos shouldn´t do it or they may risk putting their gaming licenses in jeopardy.

Should Nevada´s regulators apply the same principle to online poker, it will seriously impact the existing tri-state compact between Nevada, Delaware, and New Jersey because New Jersey´s online gambling regulations stipulate that gaming servers must be located in Atlantic City. A strict application of the opinion would not only jeopardize the compact (which was due to be extended with the addition of Pennsylvania), but also affect the ability of the World Series of Poker to offer online events.

Wait to See How Far Fallout Goes

At the moment, the fallout from the DOJ revised Wire Act opinion is mostly speculative. Pennsylvania´s Gambling Control Board has sent a memo to the state´s recently-licensed operators requesting details of the changes they will be making to comply with the revised opinion, but without knowing what will be in the revised DOJ Justice Manual, it is impossible for them to respond within the 30 days allowed.

It has also been speculated that New Jersey and Georgia will launch legal challenges to the opinion, and that other states that have recently introduced online gambling legislation will put their plans on hold until the outcome of the legal challenges is known. All we do know for sure is that the next 90 days could be a do or die period for regulated online poker in the U.S., and the likely outcome will be a messier and more fragmented gambling environment than exists at present.

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