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Is online gambling legal in the U.S.?
http://vegasclick.com/online/legal.html
There is no U.S. federal law against gambling online! According to federal law (or rather, the lack of a law against it), online gambling is in fact perfectly legal. U.S. Attorney Catherine Hanaway admitted in a 2007 House hearing that just placing wagers online doesn't violate federal law. No American has ever been arrested, indicted, or prosecuted by the feds for gambling online, because there's no law against it. If online gambling were illegal I wouldn't be running this website for ten years, as an American citizen, living in the U.S., using my real name. And I occasionally gamble online, too, and I admit that publicly, like I'm doing right now. In fact, I just played online a few minutes ago.
Let's start with a quick summary:
There is no federal law against gambling online.
Some states might have laws against online gambling, but even there prosecution against players is rare. I know of only two cases a player ran afoul of state laws. The first was Jeffrey Trauman of North Dakota, who in 2003 paid a $500 fine on what was probably over $100,000 in sports bet winnings. (Gambling & the Law) The other was Roland Benavides, a police officer in Oklahoma who was charged in 2011 with gambling. In Oklahoma, just about any kind of gambling is illegal, and Benavides' gambling just happened to be online. (Norman Transcript) So far as I know, the states with specific anti-online-gamling laws are Illinois, Indiana, Louisiana, Montana, Nevada, Oregon, South Dakota, and Washington.
It's against federal law for websites to take sports bets over the Internet. (It's against federal law for a site to take the bets, not for you to place them.) Federal law doesn't specifically allow or prohibit sites from taking casino or poker bets, just sports bets. For many years the Dept. of Justice interpreted the Wire Act to prohibit sites from taking casino/poker bets too, but most legal observers disagreed, and in Dec. 2011 the DoJ finally agreed that the Wire Act doesn't prohibit sites from taking casino/poker bets. (Online Poker News)
It's against federal law for banks to handle online gambling transactions (e.g., players making deposits or withdrawals into or from an online casino). Again, it's against the law for the banks to handle the transactions, not for you to try the transactions as a player.
Taking ads for online gambling isn't specifically illegal, and it would be quite a stretch to make a case under a different statute (like racketeering or conspiracy). Small publishers (like me) have never faced fed action taking ads for online gambling. The only publishers to face penalties were some huge publishers (Google, Yahoo, and Microsoft, in 2007), and a mid-size publisher in 2006 (The Sporting News). I wish they had contested the charges, since legal observers say they weren't breaking any law, but each simply paid a fine to end the matter quickly. None ever faced no criminal charges. The Sporting News' fine was equal to the money they'd collected from gambling ads. Google's penalty was only about a third of a single day's profit for them. (Point-Spreads.com) Other publishers who took ads (like Esquire, who ran Bodog's poker ads) were warned by the DoJ not to take them any more, stopped doing so, and faced no penalties.
Number Four is is what the feds have focused on mostly. Since it's hard for them to go after websites and players (neither of whom are breaking the law), they go after payment processors. That makes it difficult to impossible for players to get money in or out of an online casino. The government is just starving us out that way.
Taking bets on a server located in the U.S. (Risk Level: 5)
Taking bets (i.e., operating a casino, sportsbook, or racebook) on a website located in the U.S. is assumed to be illegal, and nobody does this in the U.S. for that reason. All Internet gaming websites are located in other countries where it's legal for them to operate. (The U.S. government maintains that it's not legal for them to serve U.S. players, but that's another story.)
Taking sports bets over U.S. phone lines. (Risk Level: 5)
Taking sporting bets over the phone lines is clearly illegal thanks to the Wire Act.
BetOnSports took bets over the phone, and were blatant about it, buying big billboards in the U.S. advertising their phone number. They were also really big potatoes, taking in $4.6 billion wagers from 2001 to 2005. In July 2006, their then-CEO, David Carruthers, was arrested while changing planes in Texas on the way to Costa Rica from the U.K. In April 2009 he pleaded guilty to federal racketeering charges, and in January 2010 was sentenced to 33 months in prison. The company's founder, Gary Kaplan, was arrested in the Puerto Rico in March 2007 and in November 2009 was sentenced to four years in prison and ordered to forfeit $44 million in revenue. (He was reportedly released in Oct. 2011, according to Gambling911.) Kaplan's brother and sister pleaded guilty in June 2009 to two felony conspiracy charges and agreed to turn over more than $6 million held in Swiss bank accounts. They were also sentenced to 10 months of house arrest. In December 2009, the company itself was fined $28.2 million. (GPWA, USA Today, Financial Times, St. Louis Post-Dispatch, The Register )
Taking sports bets on foreign server. (Risk Level: 5)
Most observers agree that the Wire Act applies to online sports betting. The feds sure think so.
Bodog (2012). In February 2012, the feds indicted Calvin Ayre, founder of bodog, along with three other Canadians, James Philip, David Ferguson and Derrick Maloney. But as I write this, the feds don't have anyone in custody, and many are wondering whether they'll actually be able to find the accused in the foreign countries they reside in. Ayre et al were charged with running an online sports gambling business, and money laundering. The former carries a possible sentence of five years, and the latter charge, years. The feds also seized the Bodog.com domain, which didn't matter much, since Bodog had been smart enough to move its business to other domains (like Bodog.eu) months before the feds' seizure. (Forbes, 2012)
Small operators (2011). In May 2011, the feds issued indictments against some small companies taking sports bets online. It also seized their domain names. (Casino City)
Sportingbet (2006). While federal law is murky, some new state laws are not. In September 2006, the chairman of London-based Sportingbet was arrested in New York by the request of Louisana authorities for violating Louisiana's ban on Internet gambling. One wonders why Peter Dicks thought it would be a good idea for a chairman of a UK-based Internet gambling operation to visit the U.S. right after the CEO of another UK-based Internet gambling operation just got arrested after visiting the U.S. (David Carruthers of BetOnSports, above). Perhaps he thought he'd be safe because unlike BetOnSports, Sportingbet wasn't pushing the envelope on phone-based bets. He also probably had no idea that an individual U.S. state would consider his company to be breaking the law and would have him arrested over it. (iGamingNews)
World Sports Exchange (2000). American Jay Cohen located his sportsbook offshore in Antigua, but when he returned to the U.S. but when he returned to the U.S. he was arrested, and in 2000 he was convicted, fined $5000, and sentenced to 21 months in prison, of which he served one year. (Winner Online, USA Today)
But not every sportsbook operator gets nabbed when they visit the U.S. As Forbes said in 2006: "[S]ome American offshore operators haven't been touched, even though they sometimes return to the States. Among them: Ruth Parasol and J. Russell DeLeon, a married couple who, along with Indian partner Anurag Dikshit, got very rich when they took PartyGaming, a Gibraltar company, public in London last June."
Facilitating the transfer of funds to online gambling operators (payment processing) whether in the U.S. or not. (Risk Level: 5)
Gamblers used to get money into online casinos with a service called Neteller, which is kind of like PayPal. But in January 2007 the founders of Neteller were arrested in the U.S. and charged with money laundering. (Creator.com) A few days later Neteller stopped serving U.S. customers. (iGamingNews, GPWA ) Neteller eventually paid a big fine and agreed to stop serving U.S. customers. (As a result, it's difficult for players to get money into or out of an online casino; here's our article that explains how to make deposits and withdrawals.)
Some processors handle only payments to players from the casinos (sending checks to the players), not helping players get money into the casino. These haven't been safe either:
In January 2011 the feds seized nearly $8 million from processors serving PokerStars, Full Tilt Poker, Ultimate Bet and Absolute Poker. (Forbes) One of those processors, Bradley Franzen pleaded guilty in May 2011. (Forbes)
Douglas Rennick who ran a Canadian-based processor was arrested in 2010, forfeited $17 million, but didn't get any jail time. (Bloomberg, Online-Casinos, Best Poker Sites)
In November 2010 feds seized money in accounts belonging to payment processor *************. The company was forced out of the U.S. market. (Casino City)
Daniel Tzvetkoff (founder) and Andrew Thornhill of the payment processor Intabill were charged with conspiracy, money laundering, and bank fraud in 2010. Thornhill pleaded guilty in June and in October was sentenced to three months in prison and fined $25,000. (Pepper Hamilton LLP)
The Feds seized $13 million from Ahmad Khawaja and Allied Wallet in 2009. (Forbes)
Some smaller actions in 2008-2011 are listed at Pepper Hamilton.
Accepting advertising for Internet gambling, in the major media (Risk Level: 5)
Google, Yahoo, Microsoft, The Sporting News (2003-2007).
In 2003 the U.S. Dept. of Justice sent a letter (PDF) to the National Association of Broadcasters and to Google, Yahoo, Microsoft, The Sporting News, warning them that accepting ads for online gambling could be illegal. So they all stopped accepting ads. In reality, it doesn't appear that taking ads for casino & poker is illegal at all, since online casino & poker themselves aren't illegal. Only the ads for online sportsbetting would have been clearly illegal. But all those warned stopped running the gambling ads anyway.
The Sporting News (TSN) took its time in stopping the ads (six months), which pissed off the government, which three years later fined them $7.2 million, in January 2006. The settlement represents TSN's profits on the ads for the three years it accepted them (2000-2003), and was paid with $4.2 million in cash, and $3 million in public service ads in its own publications explaining how online gambling is illegal. (more from the Corporate Crime Reporter, the Olympian, and Media Buyer Planner)
In December 2007 the three big Internet giants paid a fine for accepting ads for online gaming. Google's fine was only about a third of a single day's profit. (Point-Spreads.com)
The three companies had actually ceased taking online gambling ads about four years before the settlement, when they got the warning, but the feds fined them anyway -- years later.
Esquire, 2005. In April 2005 the feds subpoenaed Esquire magazine for taking ads in its March issue for online poker operator Bodog.
The Dot-Net Workaround. Many online operators found a way around ad restrictions years ago: They advertise the .net version of their website, which is a play-for-free space. Of course, they're hoping that players will click from there over to the .com version and wager for real money, or that players will just type in .com out of habit. (Wall Street Journal)
Helping people make bets on a website (Risk Level: 4)
The webmaster of the portal InternationalNetCasino.com was indicted by New Jersey authorities in Nov. 2004 for facilitating gambling. The affiliate apparently took money from would-be players directly in order to help them place bets. It seems that if he had simply advertised the gambling operations and not gotten directly involved he probably would have been okay. Even so, his sentence was light: the eight days he'd already served in jail, $1330 in fines, and 90 days of community service. (more from Gambling 911, iGamingNews)
Taking casino/poker bets online (Risk Level: 3)
Offshore companies taking bets from Americans for poker and casino games isn't against the law. In 2002 the U.S. 5th Circuit Court of Appeals ruled that the 1961 Wire Act applies only to "sporting events and contests" and not gambling in general. (BusinessWeek, Wikipedia, "the Wire Act 'in plain language' does not prohibit Internet gambling on a game of chance") But that didn't stop the feds from prosecuting offshore poker rooms anyway, through 2011. Then in Dec. 2011, the feds finally agreed that it's only sports bets that are illegal to accept online, not casino/poker bets. That's got to be cold comfort to the poker sites the feds busted earlier. But in any event, now that the feds have supposedly come around, I'm downgrading the risk of taking casino/poker bets online. Of course if there are more prosecutions then I'm moving the risk right back up.
As BusinessWeek said on July 19, 2006:
Though the U.S. Justice Dept. considers most types of online betting illegal, wagering on sports is more clearly outlawed by the 1961 Wire Act. Until the House bill or similar legislation becomes law, online casino betting is in a gray area legally.
Doyles Room (2011, poker). Feds seized the domain DoylesRoom.com. (CasinoCity)
FullTilt Poker, PokerStars, Absolute Poker (2011, poker). Feds seized the domain names of these three online poker sites on April 15, 2011, and charged 11 individuals with bank fraud, illegal gambling and laundering billions of dollars. (PokerListings) But this wasn't just about online gambling—FullTilt is alleged to have not kept players' money in segregated accounts like they were supposed to, and in fact its operators embezzled millions of dollars in player funds, and thus was unable to repay players in full when the government shut them down. Of course, this is why people such as myself are saying that online gambling should be legalized and regulated to protect the players.
Another controversial aspect of this case is that the feds seized the .com domain names of the poker rooms in question, which they clearly had no right to do, since they didn't have that kind of jurisdiction -- nobody does, since domain names are international. As attorney Nelson Rose said, "The next to step through could be an Islamic country, which outlaws alcohol, seizing the worldwide domain names of every retailer and restaurant that advertises beer or wine." (Casino City Times)
Note that the feds didn't seize the domains at the registrar level, they went straight to the .com registry, which happens to be located in the U.S. So companies who think they can shield themselves by registering their dot-coms with foreign registrars are quite mistaken.
In July 2012, Full Tilt CEO Ray Bitar was arrested for the April 2011 indictment. (GPWA) He faces the potential of life in prison.
Party Gaming (2008, poker). In December 2008 Party Gaming co-founder Anurang Dikshit pleaded guilty to violating the 1961 Wire Act with his poker site (even though the Wire Act doesn't apply to poker) forfeited $300 million, and was sentenced to one year of probation -- avoiding jail time. It's a sad world when you're forced to plead guilty to breaking a law that doesn't exist. (Forbes) In April 2009, Party Gaming itself agreed to $105 million to avoid prosecution. (GPWA)
Accepting advertising for Internet gambling, in the smaller media (Risk Level: 3)
It's only the major media players who have gotten heat from the government for accepting gambling ads, and the only penalty has been fines, not criminal charges. All of the minor media has been spared so far. Even Casino City, the largest website on the Internet which carries online gambling ads, hasn't received a cease and desist notice from the government.
Of course, just because publishers haven't faced heat yet doesn't mean they never will. Publishers run the risk of being charged wth three separate crimes.:
Aiding & Abetting. In short, advertising something that's illegal, is also illegal. Since online casinos & poker aren't illegal there should be little problem, but advertising online sports wagering could be a problem, because sports betting violates the Wire Act. That's why I don't run ads for online poker on Vegas Click.
Being in the Business of Gambling. Most small publishers act as affiliates, getting a percentage of player losses when they refer players to an online gambling site. But the argument could be made that if you share in the gambling profits directly, then you're "in the business" of gambling, and could face the same charges that the gambling operator itself faces. Here again, the gambling operation itself would have to be illegal in order for a publisher to have this liability. Casino and poker aren't specifically illegal, though sports betting definitely is. One way around the "Being in the Business" risk is to sell your adspace for a flat monthly fee, rather than as an affiliate who gets a percentage of sales. That's what I do, and what the Wizard of Odds does, for that very reason. However, very small publishers will often have a hard time getting gambling sites to pay a monthly fee rather than on an affiliate basis. I don't know how CPA (cost-per-acquisition) fits into this, where you get paid for every new player you refer, regardless of how much they win or lose, though I suspect the risk would be somewhere between revenue-share affiliate and monthly-basis sales.
Conspiracy. Conspiracy is two or more people planning a crime. So basically, any time a crime is broken and more than one party is involved, the feds can tack on a conspiracy charge. As with the others, this requires that some other law actually be broken first.
Casino City case. In August 2004 Casino City sued the DoJ to establish its right to accept ads for Internet gambling. A judge dismissed the case, saying Casino City didn't have standing because it hadn't received one of the cease & desist letters. Casino City filed an appeal, but before it could be heard, Casino City withdrew from the case in February 2006, apparently because they felt that they'd made their point: If the government ever tells Casino City that it can't accept gambling ads, Casino City will fight. (Online-Casinos.com)
State Law. Even if one doesn't run afoul of the feds, there's a chance that state government will come calling. In June 2006 the state of Washington shut down the gambling portal IntegrityCasinoGuide.com, which like so many other sites just carried reviews of online casinos along with affiliate links. However, it appears that the site owner faced no penalty, other than having his site shut down. (The Online Wire)
The Future. Again, I don't know of any small publisher who's been hit for running ads, though I can't say that will never happen. My guess is that small publishers would get a warning letter first before any criminal indictments were made. Probably the biggest risk is that the government might seize the domain name, so that even if there were no criminal charges, the publisher might be deprived of their livelihood.
Buying advertising as a casino, poker room, or affiliate (Risk Level: 2)
The only buyers of advertising who have been targeted have been offshore sportsbooks. Casino and poker operators haven't faced any action. While the DoJ waved a finger at Esquire for taking Bodog's poker ads, their attention was directed at Esquire, not the operator, Bodog. Affiliates and portals have never received attention from the government, so far as we know.
Making bets on the internet (as a player) (Risk Level: 1)
There's no federal law against playing the games themselves, as a player. Even a U.S. Attorney admitted in 2007 that placing wagers online doesn't violate federal law. As attorney Nelson Rose said, "There is no federal law against being merely a player. About half the states do have ancient laws on the books that sometimes make it a crime to make a bet. But you have a better chance of winning the World Poker Tour than of being arrested." (Casino City) So far as we know, no U.S. citizen has ever faced federal charges for gambling online.
Now, two players we know of were charged under their state laws. Jeffrey Trauman of North Dakota was charged in 2003 for making sports bets online, but he likely attracted attention since his winnings seemed to be over $100,000. And Roland Benavides in Oklahoma was charged, possibly attracting attention because he's also a police officer. (Norman Transcript) Oklahoma doesn't specifically outlaw online gambling, but their draconian statutes outlaw just about any kind of gambling whatsoever, so Benavides was charged under the general gambling statute. (Gambling & the Law)
State Laws
I don't have the resources to cover all the various State laws, but here's a little bit anyway.
Summary of State Laws. Chuck Humphrey has a summary of state gambling laws, but as I write this in May 2011, it hasn't been updated since 2007. According to the list, at that time only Illinois, Indiana, Louisiana, Montana, Nevada, Oregon, South Dakota, and Washington had express prohibitions against Internet gambling.
A Kentucky judge agreed to allow Kentucky seize 141 gambling-related domain names, since online gambling violates Kentucky law. This was plainly absurd -- by that logic any country could seize any domain anywhere in the world if the website happened to violate local law. The Kentucky Court of Appeals quickly overturned the action, but then the State appealed, and now the court is saying that the domain name owners have to come forward or else risk losing the domains. However, if they appear in court then U.S. authorities might arrest them for operating online gaming sites. (EFF 2008, KY appealed in 2009, "Must appear" ruling in 2010 )
In North Dakota, Jeffrey Trauman paid a $500 fine on what was probably over $100,000 in sports bet winnings. (Gambling & the Law, 2003)
Oklahoma doesn't specifically outlaw online gambling, but their draconian statutes outlaw just about any kind of gambling whatsoever, so when police officer Roland Benavides was caught gambling online in 2011, they charged under the general gambling statute. (Norman Transcript)
In Washington State, it's a felony to play poker online, punishable by up to five years in prison and a $10,000 fine. (GPWA 2010, PokerListings 2008)
Washington, D.C. became the first state (sort of) to legalize online gambling, in April 2011. (The New Jersey legislature passed a bill legalizing online gaming in 2010, but Governor Christie vetoed it. VegasInc) This doesn't mean that it's illegal in the other states, though. Something's illegal only if there's a law against it. Most states have no laws one way or the other. A few states have laws against. Washington D.C. is the first jurisdiction that has a law for. But players there shouldn't get all excited yet. First of all, it appears that the games are going to be run by a single company, so there will be no diversity of sites to compete for players. There's also no word yet on when the sole site will actually open for business. (Forbes 2011)
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