Congress Passes Internet Gambling Act
As has been widely reported in the press, both houses of Congress have approved legislation that will at least make Internet gambling more difficult in the United States, if not abolish it entirely as intended by its sponsors. The bill, which was included as Sections 801-03 of the SAFE Port Act of 2006, H.R. 4954, bans the use of credit cards, checks or any other form of payment involving a U.S. financial institution as an intermediary to effectuate “unlawful Internet gambling” transactions. Unlawful Internet gambling is defined to include betting on the outcome of a “contest of others,” sporting event or “game subject to chance,” as well as any lottery or other opportunity to win a prize that is “predominantly” subject to chance. The bill takes the approach of focusing on the financial transactions incident to Internet gambling, rather than on the gambling activity itself, in recognition of the practical impossibility of preventing otherwise unlawful gambling via the Internet.
The bill has a number of exemptions, including any free game or contest in which participants are not required to provide consideration other than their own efforts and Internet access. Lawful activities under existing statutes such as the Interstate Horse Racing Act, Indian Gaming Regulatory Act and securities laws, as well as any lawful intrastate gambling, also are exempt.
Perhaps the most notable carve-out, however, is the specific exemption for fantasy sports leagues requiring entrance fees (since free games are exempt). In order to come within the fantasy league exemption, all of the following conditions must be met:
- All prizes must be established and made known to participants in advance, and the value of such prizes cannot be determined by the number of participants or amount of fees paid by participants;
- All winning outcomes must reflect the relative knowledge and skill of participants and be determined “predominantly” by accumulated statistical results of individual performances in multiple events;
- No winning outcome may be based on the score, point spread or performance of any single real-world team or teams; and
- No winning outcome may be based on the single performance of an individual athlete in any single real-world sporting or other event.
Arizona Senator John Kyl, the sponsor of this bill, had unsuccessfully introduced similar legislation repeatedly over the past ten years. It appears that his goal has finally been achieved by inclusion of this bill in the SAFE Port Act, which is expected to be signed by the president.
Although the bill is likely to substantially curtail Internet gambling, which generates an estimated $12 billion per year, there is speculation that any curtailment may be short-lived. As currently written, the bill prohibits financial transactions with those who are “engaged in the business of betting or wagering” and orders the Federal Reserve to establish policies allowing financial institutions to block restricted transactions. The legislation does not specifically prohibit transactions with third parties who are neither “engaged in the business of betting or wagering” nor financial institutions.
There already are several nongambling websites that act as clearinghouses for funds that are then forwarded to online gambling sites. These and similar sites may well flourish in view of this legislation. Additionally, Internet service providers may be required to disable access to online gambling sites following certain procedures, but it remains to be seen how effective this remedy will be since URLs can be easily changed.
Note to media clients: To the extent the Wire Act provided questionable authority for the Department of Justice to seek disgorgement of profits obtained from the advertising of Internet gambling sites, this legislation gives DOJ unquestioned authority to continue that mission on the theory that acceptance of such advertising is aiding and abetting a criminal enterprise.
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