FEDERAL WIRE ACT SHOULD ADJUST TO STATE-REGULATED SPORTS WAGERING, NOT THE OTHER WAY AROUND: A PROPOSAL FOR CHANGE
2021; Mary Ann Liebert, Inc.; Volume: 25; Issue: 3 Linguagem: Inglês
10.1089/glr2.2021.0004
ISSN2572-5327
Autores Tópico(s)Legal Issues in Education
ResumoGaming Law ReviewVol. 25, No. 3 ArticlesFree AccessFEDERAL WIRE ACT SHOULD ADJUST TO STATE-REGULATED SPORTS WAGERING, NOT THE OTHER WAY AROUND: A PROPOSAL FOR CHANGEAnthony Cabot and Greg ClowardAnthony CabotAnthony Cabot is a distinguished fellow in gaming law at the William S. Boyd School of Law at the University of Nevada, Las Vegas (UNLV), in Las Vegas, Nevada, USA.Search for more papers by this author and Greg ClowardGreg Cloward is a graduate of the Harrah College of Hospitality at UNLV and a law student at UNLV's Boyd School of Law in las Vegas, Nevada, USA.Search for more papers by this authorPublished Online:13 Apr 2021https://doi.org/10.1089/glr2.2021.0004AboutSectionsPDF/EPUB Permissions & CitationsPermissionsDownload CitationsTrack CitationsAdd to favorites Back To Publication ShareShare onFacebookTwitterLinked InRedditEmail INTRODUCTIONIn 1961, Congress enacted the Federal Wire Act (“Wire Act”),1 which criminalized the use of interstate telephone lines to operate a betting or wagering business.2 The Wire Act resulted from an effort by the federal government in 1961 to suppress local criminal activities that supported national criminal organizations.3 According to then-U.S. Attorney General Robert Kennedy, the target was organized crime.4 The Wire Act was consistent with the prevalent intent of Congress's primary goal in adopting federal gambling crimes. While the wording of the Wire Act is a grammarian's nightmare,5 it sought to assist states in protecting their legal gambling markets, a salutary objective, rather than undermining legal markets they created. The imprecision of the drafters, however, opened the door for interpretations inconsistent with the original legislative intent. The Wire Act, however, is no longer being used as the tool envisioned by Congress in 1961. Instead, some land-based casino operators and religious proponents have used it as an anticompetitive weapon to create a federal prohibition against online gaming activities. Unfortunately, for the past 20 years, the meaning of the Wire Act has been a political football in the United States Department of Justice (DOJ).6An easy solution, of course, is for Congress to clarify and modernize federal gambling laws. But, the federal government is not engaging in thoughtful policymaking designed to make federal law consistent with modern technologies, prevalent state policies, laws and attitudes toward regulated gambling, and the diminution of organized crime in regulated gaming markets. Instead, the Trump administration bowed to political considerations to try to force an interpretation of the Wire Act that in no way comports with sounded public policy.7 Thus, this strange saga of attempting to engage in rulemaking within a biased Department of Justice has forced the issue into courtrooms as opposed to the halls of Congress.The latest flare-up in the sordid history of the Wire Act came on January 14, 2019. The U.S. Department of Justice, in a rebuke of its previous position, released an opinion insinuating that the 60-year-old statute prohibited all forms of state-authorized internet and interactive wagering, including sports, state lotteries, poker, and casino games.8 This could have a significant impact on gaming revenues in the many states with a regulated sports wagering industry, in states that sell state lottery tickets online, and a host of other states with authorized online casino games. A federal district court in New Hampshire settled the waters when it set aside the DOJ opinion.9 In January 2021, the First Circuit agreed with the district court and concluded “the prohibitions of section 1084(a) apply only to the interstate transmission of wire communications related to any ‘sporting event or contest.’”10Regardless of the outcome of this latest case, the better question is to ask why doesn't the Congress undertake a review and potential repeal or revision of the Wire Act? This could return the federal government to its avowed policy of assisting the states in the enforcement of state law respectful of the individual state policies toward illegal and regulated gaming.Over a third of the states have authorized mobile and online sports wagering as the result of the United States Supreme Court case striking the Professional and Amateur Sports Protection Act (PASPA),11 which practically restricted sports wagering to Nevada. Since that decision, several states have authorized sports betting in one of the most rapid expansions of a form of gambling in U.S. history.12 Other states are considering legislation that would permit sports betting, and the number of states legalizing and regulating sports betting will inevitably increase in the coming few years.13The Federal Wire Act requires revision to meet goals to assist these states in protecting their regulated sports industries, the state's tax interest in the industry, or the integrity of the underlying games. Nor has the government used the Wire Act as a tool against illegal sports wagering businesses. The Wire Act has only been the subject of a small number of reported cases over the past decade.14 At the same time, the size of the illegal sports gambling markets is enormous.15 Instead, the Wire Act remains controversial because it offers a means for private land-based casino interests to limit competition from mobile and internet sites by influencing rulemaking at the United States Department of Justice.16This article reviews the history and policies behind the Wire Act, the recent controversies surrounding the Wire Act, and how state policies toward gambling have shifted. All of these factors lead to a proposal for amending the Federal Wire Act that restores the fundamental federal policy goal of aiding the states in more effectively enforcing their gaming protections and regulating their permitted gaming industries, protecting Americans from illegal operators, and cutting off the flow of money to illicit operators and their organized crime connections.I. AN HISTORICAL PERSEPECTIVEA. Before the Wire Act and afterFrom the time of his appointment as attorney general of the United States, Robert F. Kennedy had sought federal legislation to aid the states in furthering his goal of eliminating interstate rackets.17 Kennedy focused on bookmaking and the necessity of wire communications to facilitate organized crime's gambling operations.18 By advocating for a federal prohibition on interstate bet transmissions, the Wire Act would give law enforcement a means by which to stop out-of-state bookies from wiring information related to betting and gambling into their jurisdictions.19For Kennedy, the Wire Act was less about betting on horses or sporting events and more about targeting organized crime, the dominant purveyors of gambling.20 Throughout the legislative process, Kennedy's campaign against organized crime overshadowed any concern for the casual bettor's access to a book.21 Indeed, the Act expressly excludes the casual gambler from criminal liability by targeting only persons “engaged in the business of betting or wagering.”22 The gambling activities themselves were not the problem, except to the extent that they provided a vehicle for a crime.23The Wire Act did not include wireless communications and covered only activities that fell under the reasonability of the Federal Communications Commission.24 Kennedy assured the telecommunications lobby that companies would not be liable for providing services used for illegal gambling activities, provided they did not intentionally enable the crimes.25 Coupled with his assurances that the purpose of the Act was not to police betting “between acquaintances,”26 the legislation never intended selective implementation by law enforcement.27 “True offenders” would be targeted, leaving the rest of the $7 billion (at the time)28 gambling industry unencumbered.29On September 13, 1961, John F. Kennedy signed the Wire Act into law alongside the Travel Act and the Wagering Paraphernalia Act.30 The following year, Congress renewed its investigation of organized crime and interstate sports gambling.31 The reporting subcommittee recommended amending the Wire Act to account for technological advancements in telecommunications.32 While the issue was never taken up, that the Wire Act was initially limited in scope indicates the narrow focus intended by its authors.33 This questions whether the Act can be used to police technologies not prevalent, or in the case of the internet, not even imagined, at the time of passing.34B. The Wire ActThe Wire Act's prohibition section reads: Whoever being engaged in the business of betting or wagering knowingly uses 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 bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both.35A crime under the Wire Act thus consists of three elements: (1) persons engaged in the business of betting or wagering; (2) use of a wire communication facility; and (3) the transmission of wagering on sporting events or horse racing.36To be considered a person “engaged in the business of betting or wagering,” courts generally require that a party be engaged in both the “sale of a product or service for a fee”37 and a “continuing course of conduct.”38 The Wire Act thus targets gambling operators who charge customers for services related to accepting or brokering wagers.39 While “bookies” were clearly covered, prosecutors tested the scope of the Wire Act immediately. In 1964, the government conducted a sting by which it caught 27 tipsters involved in the multi-million-dollar business of advising clients on which wagers to make.40 Because the touts used telephone lines to transmit their gambling information, federal prosecutors found them to be within the purview of the Act.41 In 1998, the Justice Department used the Wire Act to crack down on online betting sites based overseas.42 Of those charged, ten people pled guilty to conspiring to violate the Wire Act, while seven elected to remain abroad to avoid prosecution.43 As previously noted, the Act's language, however, was purposefully narrow to target professional bookmakers and their service providers while leaving the “casual” gambler free to participate in games (via telephone, or now, over the internet) without fear of prosecution.44The Wire Act's language regarding “wire communications [facilities]” refers to systems used to transmit writings, pictures, or sound “by and of a wire, cable or other like connection between points of origin and reception of such transmission.”45 At the time of the Act's enactment, this included telecommunications and ticker machines, which printed information on paper tape.46 Not contemplated at the time was the internet, which resulted in widespread personal computer and mobile phone use.47 Nevertheless, the Act applies to most online communications because most communications use cable at some point in the transmission, whether it be telephone or fiber cable.48At the time of its enactment, using a phone line for gambling activities other than wagering on sports was unrealistic and so the Act presumably prohibited only wagering on sporting events or contests.49 The legislative history and application of the statute in court broadly supports this conclusion.50 As discussed in the next section, the poor drafting of the Wire Act opened an opportunity to argue an expanded scope that the Wire Act applies to non-sports.The Wire Act's “knowingly” mens rea51 requirement does not require that a defendant know that he was violating the Act, only that he was aware of the underlying illegal conduct was occurring.52 In United States v. Cohen, the defendant was convicted under the Wire Act for operating a sports wagering website called the World Sports Exchange.53 On appeal, the Second Circuit affirmed the lower court's finding that Cohen need only know “that the deeds described in the statute as being prohibited were being done” to violate the Act.54 Neither misinterpretation nor ignorance of the law was a valid excuse for Cohen's conduct.55The Act contains two safe harbors: the first for the transmission of information for use in news reporting, and the second for the transmission of information assisting in the placing of bets or wagers from a jurisdiction where sports wagering is legal to another jurisdiction where sports wagering is legal.56 Of note, while the Act's safe harbor provision protects the transmission of sports wagering information between two jurisdictions which permit sports betting, it does not protect the transmission of actual bets or wagers.57 Penalties for violations of the Wire Act can include up to two years in federal prison and a fine.58II. RECENT WIRE ACT CONTROVERSIESOverstating to what extent the gaming industry has changed since the passage of the Wire Act is difficult. In 1961, Nevada was the only state with legal casino gambling, sports wagering, and off-track betting on horse racing.59 Tribal gaming was nonexistent, and New Hampshire would not became the first state to operate a lottery in the modern era for another three years.60 Today, commercial casinos (non-tribal) operate in 26 states.61 Forty-five states and the District of Columbia operate state lotteries, and tribal gaming exists in 29 states.62 In 2019, the gaming industry earned $43.6 billion in revenue.63Unsurprisingly, the telecommunications industry has experienced significant change over the past half-century. Through a combination of “clever marketing, mergers, and strategic deals with the government,” AT&T operated as a telecommunications monopoly from 1932 to 1982.64 In January 1982, after fighting an antitrust suit for six years, AT&T made a deal with the DOJ to break up its monopoly, creating a competitive telecommunications industry for the first time in 50 years.65 Inconceivable in 1961 was the advent of mobile phones and but, by 2018, 55 percent of American households had only wireless telephones.66 That number jumped to 75 percent for ages 25–34.67A. 2011 DOJ Wire Act opinionIn December 2009, officials from New York and Illinois wrote letters to the DOJ seeking an opinion on the states' plans to sell lottery tickets within their states via the internet using out-of-state transaction processors.68 New York was ready to implement a new computerized system by which virtual lottery tickets would be delivered to customers over the internet to computers or mobile phones.69 Transaction data would be routed from the customer's device in New York to the lottery's data centers in either New York or Texas moving through networks controlled in Maryland and Nevada.70 Illinois also planned to sell lottery tickets online with geofencing used to ensure that the buyer was physically present within the state.71 Illinois characterized its system as intra-state despite that some transaction data may be routed across state lines over the internet.72 Both states argued that their proposals did not implicate the Wire Act because neither plan involved the communication of information related to sports wagering across state lines.73Over a year and a half later, the DOJ had yet to respond to the two states' inquiries.74 In July 2011, concerned over recent indictments of online poker operators in New York and Baltimore, Senators Harry Reid and Jon Kyl sent a joint letter to Attorney General Eric Holder requesting that the DOJ state its opinion on the legality of internet gambling.75 The letter blamed a years-long lack of activity by law enforcement for the growing perception that either internet gambling was not against U.S. law or that the DOJ “thought that the case was uncertain enough that it chose not to pursue enforcement efforts.”76 It also referred to “several officials from various state lotteries” who were convinced that they had obtained the DOJ's “effective consent” to implement internet gambling because the DOJ had not objected to their proposals “despite many months or years.”77 Senators Reid and Kyl urged the DOJ to “pursue aggressively and consistently” those offering “illegal” internet gambling in the U.S.78Shortly after that, the DOJ did release a response to the states of New York and Illinois.79 It was neither the response which the Senators expected nor the one for which they likely hoped.80 Far from reaffirming its “longstanding”—per the Senators—position that all forms of internet gambling were illegal, the DOJ concluded that the Wire Act applied only to “sports-related gambling activities.”81 Noting that the text of the Act could “be read either way,” the DOJ reached its conclusion mainly by investigating the Act's legislative history.82Section 1084(a) contains two main clauses: (1) the prohibition on using a wire communications facility to “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;” and (2) the prohibition of wire communications “which entitle[] the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers.”83 The DOJ thus set out to determine whether the language “on any sporting event or contest” was meant to modify each instance of “bets or wagers” found in section 1084(a), or only the instance immediately preceding the language.84 The DOJ determined that it would be “the more logical result” if the “on any sporting event or contest” language was applied to each instance of “bets or wagers.”85 While straining logic, Congress could have prohibited all bets or wagers, but only information assisting in bets or wagers on sporting events. The DOJ found no discernable reason for Congress to do so.86The Wire Act's legislative history supports the DOJ's conclusion. The language originally proposed for section 1084(a) would impose criminal liability on anyone using a wire communications 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 … ”87 The commas around “or information assisting in the placing of bets or wagers”—which for some reason did not make it into the Act's final language—made it clear that “on any sporting event or contest” was meant to modify both phrases.88 Additionally, the DOJ found nothing in the congressional or Senate hearings before the passing of the Act that would suggest that its aim was anything other than sports wagering.89 Following the DOJ's 2011 interpretation of the Wire Act, many states began using out-of-state servers to back up data, and online gambling expanded across the nation.90B. 2018 DOJ Wire Act opinionIn November 2018, the DOJ reversed its interpretation of the Wire Act and concluded that “on any sporting event or contest” modified only the prohibition on transmitting “information assisting in the placing of bets or wagers” and none of section 1084(a)'s other clauses.91 The opinion found the plain language of section 1084 to be unambiguous, conveniently eliminating any need for the DOJ to “delve” into the congressional record of the act “even if so inclined.”92 The opinion arrives at its conclusion of unambiguity after a lengthy grammatical analysis comparing the “last-antecedent rule” with the “series-qualifier rule.”93 The ultimate conclusion was that “the linguistic maneuvers that are necessary to conclude that the sports-gambling modifier sweeps both backward and forward to reach all four of section 1084(a)'s prohibitions are too much for the statutory text to bear.”94Having concluded that the Wire Act implicated all forms of internet gambling and is not only limited to sports wagering, the opinion then turns to the interaction between the Wire Act and the Unlawful Internet Gambling Enforcement Act (UIGEA).95 The DOJ concluded that even though UIGEA's definition of “unlawful Internet gambling” excluded certain activities, it had no impact on other federal gambling statutes.96 Because the 1961 Wire Act has no definition of “unlawful Internet gambling” and because the UIGEA expressly does not “alter, limit, or extend” any other federal, state, or tribal law, the opinion concludes, the UIGEA “simply does not affect what activities are lawful under the Wire Act.”97 The new opinion caused general confusion throughout the gaming industry and quickly the subject of a federal court action in New Hampshire.98C. New Hampshire Lottery Commission v. BarrThe New Hampshire Lottery Commission (NHLC) and its iLottery vendor, NeoPollard Interactive (NeoPollard), sued the Department of Justice for declaratory relief,99 fearing that the 2018 DOJ opinion would criminalize lottery games upon which the state relies for revenue.100 NHLC was joined in amici by New Jersey, Pennsylvania, and the Michigan Bureau of State Lottery.101 Both parties moved for summary judgment.102 In granting summary judgment in favor of NHLC, the court analyzed both NHLC's standing to bring the suit and the Wire Act's applicability to gambling unrelated to sports.1031. StandingThe government alleged that the NHLC did not have standing to bring the action because there was no imminent threat of prosecution.104 The court rejected this argument finding that NHLC “easily satisfied” the imminence requirement.105 NHLC had “openly engaged for many years” in activities which the 2018 DOJ opinion would consider criminal under federal law.106 It further planned to continue the activities unless forced to stop for fear of prosecution.107 Additionally, the deputy attorney general had directed federal prosecutors to being enforcing the new opinion after a specified grace period, increasing NHLC's risk of prosecution.108The government argued that an insufficient risk of prosecution failed to justify standing because the 2018 opinion did not “explicitly conclude that state agencies, state employees, and state vendors” would be subject to prosecution under the Wire Act.109 The court noted, however, that the 2011 opinion was issued in response to states' proposals to operate online lotteries and that the opinion never implied that states would be exempt from prosecution if the Wire Act applied to all forms of online gambling.110 Additionally, the 2018 opinion expressly noted that some states began selling online lottery tickets after the 2011 opinion, but that such “reliance interests” were insufficient to justify continued adherence to the 2011 opinion.111 Ultimately, the “temporary moratorium” on enforcement of the 2018 opinion and the “speculation” that that stay might become permanent was not enough to convince the court that NHLC lacked standing and the court allowed the action to proceed.1122. The Wire ActIn analyzing whether the Wire Act applies to all forms of gambling and not just sports wagering, the court examined NHLC's proposed “series-qualifier rule” and the government's proposed “last-antecedent rule.”113 Finding neither to be fully convincing, the court agreed with the 2011 opinion that the Act “can be read either way.”114 The court thus found the plain language of the Act to be ambiguous and turned to the “significant contextual evidence that calls the [2018 opinion] into question.”115The court first examined the “context, structure, and coherence” of section 1084, guided by the rule that “[s]tatutes should be interpreted ‘as a symmetrical and coherent regulatory scheme.’”116 The court agreed with the 2011 opinion in finding no discernible reason why Congress would write the Act's first clause to prohibit the transmission of all bets or wagers but bar only information assisting in the placement of bets or wagers that concern sporting events.117 The court found an “even more serious coherence problem” with the Act's second clause.118 The second clause bars transmissions, which would enable payment for information that facilitates all types of gambling, where the first-class prohibits only the transmissions of sports-related information.119 Under the 2018 opinion, the first clause would permit the transmission of information that facilitates non-sports-related gambling while the second clause would criminalize transmissions that enable a person to receive payment for those same transmissions.120 The court found no reason for a “rational legislator” to draft a statute in such a way, concluding that it would be “bizarre to authorize an activity but prohibit getting paid for doing it.”121The court bolstered its contextual analysis by looking to the Paraphernalia Act, which Congress passed on the same day as the Wire Act.122 The Paraphernalia Act prohibits transporting paraphernalia in interstate commerce, which is used in gambling activities, including bookmaking, sports wagering, and lottery-style games.123 While the Paraphernalia Act lists lottery-style games such as “numbers, policy, [and] bolita,”124 the Wire Act contains no reference to such games. The court found this omission to be a “strong contextual signal concerning the Wire Act's scope.”125 In other words, if Congress wished the Wire Act to apply to non-sports-related gambling activities “it knew how to say so.”126The court next turned to the Wire Act's legislative history.127 While it is undisputed that the original draft of the bill was limited to sports gambling, the government pointed to an exchange between Senator Kefauver and then-Assistant Attorney General Herbert Miller to argue that the bill was amended to expand the scope to all forms of gambling.128 Senator Kefauver suggested three changes to the bill's draft including that the bill cover all forms of gambling.129 According to the government, the deletion of the commas surrounding the phrase “or information assisting in the placing of bets or wagers,”130 was “an efficient way” to expand the bill's scope.131 The court found this argument to be “too speculative to carry any weight.”132 To the contrary, the redlined version of the bill's draft mistakenly reported that the comma following the phrase was never a part of the bill, indicating that its removal was unintentional.133 Further, in reporting the amendment, the Senate Judiciary Committee never mentioned an intention to expand the scope of the Act beyond sports gambling.134 The court concluded that the Act's legislative history also supported the 2011 DOJ opinion as a the better reading of the Wire Act.135 The appealate court decision used similar logic in upholding the decision. It noted: The legislative history contains strong indications that Congress did indeed train its efforts solely on sports gambling. The statute as originally presented to Congress plainly aimed only at sports gambling. The language then contained only one clause, and it used commas to clearly indicate its focus on sports gambling.1363. RemedyThe court granted NHLC declaratory relief and set aside the 2018 opinion.137 The parties, however, disagreed over the scope that the relief should have.138 The court agreed with the government that the remedy should not be universal, but should be limited to the parties of the case.139 While declining to give the judgment the broader scope which NHLC sought, the court did note that the judgment would “clearly” bind parties beyond the geographic jurisdiction of the District of New Hampshire.140 NeoPollard's iLottery system was being used in both New Hampshire and Michigan.141 NHLC has servers located in Vermont and Ohio.142 New Hampshire sells multi-jurisdictional games as a member of a compact with Maine and Vermont, sells Powerball and Mega Millions as part of the Multi-State Lottery Association, and takes part in a consortium of 25 states and the District of Columbia that sells Lucky for Life.143 The court's judgment thus bound the government “vis-à-vis NeoPollard and the Lottery Commission everywhere the plaintiffs operate or would be otherwise subject to prosecution.”144The appealate court agreed with the district court and the Fifth Circuit in In Re MasterCard. It concluded: The government's reading of the statute, however, would most certainly create an odd and unharmonious piece of criminal legislation. Neither common sense nor the legislative history suggests that Congress likely intended such a result. Like the Fifth Circuit, and the district court in this case, we therefore hold that the prohibitions of section 1084(a) apply only to the interstate transmission of wire communications related to any “sporting event or contest.The government can seek a rehearing or appeal to the Supreme Court through a writ of certiorari. Still, with a change of administration, the government may abandon the case. The 2019 OLC opinion reversing the 2011 OLC opinion came under the Trump administration. Some saw the Trump administration's decision to reverse the 2011 OLC opinion adopted under President Obama as politically motivated as the change coincided with a vigorous campaign by a major campaign supporter who wanted to end internet gaming in the United States.145III. CHANGING STATE POLICIES TOWARD GAMBLING AND THE ROLE OF THE FEDERAL GOVERNMENTJohn F. Kennedy famously said, “[c]hange is the law of life. And those who look only to the past or present are certain to miss the future.”146 Sound public policy commands that Congress create new laws that take into consideration both contemporary mores and technology. That we must debate the legislative intent of the 1961 Wire Act to determine what is proper policy in the present is untenable. The internet has become the fabric of American life and commerce. Gambling policy and regulation have historically resided with policymakers at the sta
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