Red's Deal

Is Internet Poker Legal in the US? (Part 2 of 2)

Yesterday I left you with the federal government issuing a cease and desist order to online sports betting organizations telling them to no longer accept American bets. While everyone else either ignored the order or closed up shop, there was a sole fighter…

Jay Cohen, an American ex-patriot was running the World Sports Exchange (aka “WSEX”) in Antigua. He basically said, “You know what? I spent a lot of time, money and effort setting this site up and you’re not going to take it away from me. I’m coming back to the States to fight it. Oh, and I think your security lapel pins look goofy too.” It was a truly brazen move that I admire for its forthrightness, if nothing else. (I mean, come on, how easy is it to not come back to the country and stand trial.)

Mr. Cohen was summarily fast-tracked to trial, tried and convicted of violating the Wire Fraud Act. He was sentenced to 21 months in a federal penitentiary. It is important to note that to date he is the only person in US history to be convicted and sentenced for “Internet gambling fraud” (my term, not legalese).

In the sports book world not so many people were laughing any more. The event polarized the business segment with people either laying low or getting out all together.

This emboldened the FBI who began casting their net a bit wider. They started with sports books that didn’t have 800 numbers, then moved into threatening pure casino sites (craps, roulette, blackjack, etc.) and then turned their focus on poker.

From the legal standpoint of “here’s what’s going to happen to all you criminals now” two big things happened in the poker world in fairly quick succession:

One was the arrest and imprisonment of David Carruthers (CEO of BetonSports), snapped up as he was changing planes in Fort Worth, TX when flying from the UK to Costa Rica. He was jailed with much fanfare but eventually released with almost no notice. No matter, it was more than enough to send chills through the footed pajamas of every person even remotely associated with Internet gambling.

This act was quickly followed by the passing of one of the most misunderstood pieces of legislation in modern law, the Unlawful Internet Gaming Enforcement Act (UIGEA).

I have to back up a bit here. The UIGEA, a bill designed (amongst other things) to nip Internet gaming in the bud is a case of US law making at its finest. Versions of the UIGEA had been circulating in one incarnation or another through the House and the Senate for some time, but they’d never put enough firepower and substance to the bill to get footing. For months (bordering on years) different incarnations of the concept had withered and died in committee. But every session some version of the bill came closer to passing. In a last-minute ditch effort, the UIGEA was attached as a rider to the SAFE Port Act (aka “SAFE Harbor Act”). Even though the UIGEA had nothing to do with things such as shipping container security and requirements for maritime facilities, once it was a rider, it was a part of the bill (as an aside, this is how nearly all “pork” makes its way onto bills). Remembering that this is coming out of a congress supporting the “war on terror” (even though congress never declared war, and they’re the only political branch that can), what politician isn’t going to vote for a “more secure America?” The bill passed the House 409-2 and the Senate unanimously.

The SAFE Harbor Act was passed in the last half hour of congress in the 2006 session. The UIGEA provision was tacked on so late that the wording of that particular title is not included in the official record of the congressional day — it had been submitted after the deadline for publication. I’m only aware of four congressmen who were aware of the UIGEA rider on the SAFE Port Act — I’m certain the majority had no idea it was there.

Now what’s interesting is the UIGEA does not say that Internet poker is illegal. In fact, it doesn’t mention poker at all. Instead it focuses on banks and money transferring organizations (think PayPal-like companies -ala NeTeller- and you’re on the right track). The bill goes well beyond the thin line of insanity explicitly saying things like games of chance are illegal, but lotteries are not. It implies that betting on legalized horse racing is okay, but wagering on dog races is not.

Anti-Internet gambling types quickly grabbed the reins saying that the UIGEA passage definitively proved Internet wagering was illegal. And even though that’s not what the bill actually says, the timid, the meek, the illiterate and the ultra-cautious believed it. (When you hear someone say, “Isn’t Internet poker illegal?” it’s almost certain it’s because they remember this bill in their hazy memory.)

The majority of online gaming sites slammed their doors to Americans — Party Poker probably being the biggest of those. This, in turn, opened the door wide for Full Tilt and PokerStars. They were the biggest pair of online players in this arena and Party’s exit flushed their coffers with cash, almost overnight.

The passage of the UIGEA emboldened the states to pass laws against the absolute raw terror and moral corrosion of online gambling sites. Quickly several states stepped forward and passed laws that either implicitly or explicitly prohibit Internet gambling, partially because they understood that the responsibility lies at the state level and the UIGEA was not an Internet poker prohibition bill. In Illinois, Indiana, Louisiana, Montana, Nevada, Oregon, South Dakota, Washington and Wisconsin, if you play poker online, you’re breaking the law. The way the lock-down works varies from state-to-state (in Nevada, for example, you’re not allowed to place a bet with anyone that doesn’t have a license from the Nevada gaming commission — none of the online sites do).

The interesting wrinkle here is the states aren’t allowed to have direct dealings with other national governments. Don’t take my word for it, look at the Constitution:

No State shall, without the Consent of Congress, lay any duty of Tonnage, keep Troops, or Ships of War in time of Peace, enter into any Agreement or Compact with another State, or with a foreign Power, or engage in War, unless actually invaded, or in such imminent Danger as will not admit of delay.

Which means only the federal government can act as the enforcer and go-between with, say, Idaho and the Isle of Man. But the feds aren’t concerned with problems such as those, they are (justifiably) far more worried about little details like international terrorism, the drug trade and whether or not the dollar can stay afloat in the current market conditions. As you can see from what you’ve read here, the legal limbo gets very twisted pretty fast.

As an American kid you’re taught that things are either legal or illegal and the line between the two is fat and distinct. As you’ve read through this, I’m sure you can see it’s a little more complicated than that.

My guess is the legal situation will stay the way it is right now for quite awhile (maybe forever). The tack will be to have government officials (especially the enforcement agencies) froth at the mouth, making sure that they spread enough fear, uncertainty and doubt through the public at large. That’s enough to keep the average person saying, “Internet poker is illegal,” which is probably enough to make them happy.

If the federal government decided that Internet poker should legalized, it will be for exactly one reason only: taxes. It follows in classic American political style — lay down a heavy “sin tax” and have it join liquor and tobacco as a huge money producer. And it’s hard not to see how it might not be a good shot in the arm of the government…right now billions of dollars are being paid to foreign countries in the form of computer services and taxes. All those greenbacks could come right back to the US. More than that, though, the US government could (very legally) provide oversight, helping to ensure that the online games are somewhat fair and reasonable.

And let’s face it, that’s more assurance than we have right now.

Again, I’m not an attorney and nothing here should be taken as legal advice, but if someone asks “Hey, isn’t Internet poker illegal?” you’ll have a better idea of what the answer is than anyone else in earshot.