The Original Intent of the Wire Act and Its Implications for State-based Legalization of Internet Gambling (notes)

http://gaming.unlv.edu/papers/cgr_op29_minton.pdf
ABSTRACT: Recognizing the growing threat of organized crime, then U.S. Attorney General Robert F. Kenne dy sought to get the “bankrollers and kingpins” by introducing the Federal Wire Act in 1961, which sought to target the mob’s most profitable racket bookkeeping on horseracing and sports gambling by prohibiting such gambling on the nation’s communication system at the time (telephone and telegraph). More than 30 years later members of Congress sought to use the Wire Act to stop the rise of casino-style gambling on the Internet. However, the scope of the Wire Act has been disputed among lawmakers, courts, and federal agencies. In 2011 the Office of Legal Counsel in the Department of Justice announced its belief that the Act applied only to sports gambling, dispelling ambiguity and opening the door for states to legalize intrastate non-sport online gambling, such as lottery ticket sales and Internet poker. This paper examines the historical context in which Congress enacted the 1961 Wire Act and the interpretation of the Act over five decades and its implications for present-day regulatory proposals.

In 1961, then-Attorney General Robert F. Kennedy proposed a package of bills, including the 1961 Wire Act, in an attempt to get at the heart of mafia organizations: their money. Soon after its passage, the Wire Act was supersed ed by other more effective tools to target organized crime, such as the Racketeer Influenced and Corrupt Organizations Act (RICO) in 1970. It wasn’t until the late 1990s that the Wire Act sprang back into prominence as a tool to prosecute online gambling offenses.

The debate on these issues reached a high-point in 2011, when the Office of Legal Counsel in the Department of Justice announced its opinion that Wire Act does not, in fact, apply beyond sports betting.

Minton | The Original Intentions of the Wire Act and Its Implications to Internet gambling, and most importantly for this paper, whether or not its prohibitions extend beyond sports gambling. The debate on these issues reached a high-point in 2011, when the Office of Legal Counsel in the Department of Justice announced its opinion that Wire Act does not, in fact, apply beyond sports betting. Viewing this DOJ opinion as a “unilateral reinterpretation” of the Wire Act, some members of Congress have proposed legislation that would rewrite the 1961 Wire Act, editing the language of the law to turn it into a prohibition against all forms of online wagering, whether sports-related or not. However, the Wire Act was originally intended and long understood as a narrow and targeted weapon to assist the states in preventing organized crime from taking bets on sports—not as a broad federal prohibition that would prevent states from legalizing online gambling within their borders. Reinterpreting the Wire Act In 2009, New York’s lottery division and the Illinois governor’s office wrote to the Department of Justice Criminal Division seeking an opinion on the legality of online lottery sales. In particular, they wished to know if using out-of-state payment processors for such online purchases would violate the Wire Act. While the Criminal Division asserted that such intrastate online lotteries would run afoul of the Wire Act, they acknowledged that such an interpreta tion of the 1961 law created a conflict between it and
another federal gambling law: the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). While UIGEA prohibits payment processors from processing transactions related to unlawful Internet gambling, it specifically excludes intrastate online gambling from its proscriptions. Additionally, UIGEA does not consider the “intermediate routing” of electronic data, which might temporarily cross state lines, when determining the location of transactions or whetherthey are interstate or intrastate. For example, if an online purchase of a lottery ticket is initiated and finalized within a state where such gambling is legal, it is not in violation of UIGEA. Thus, to interpret the Wire Act as prohibiting all online gambling, even if the betting begins and ends in one state, puts the Act at odds with this exception in UIGEA. In light of this apparent conflict, the Criminal Division requested an opinion from a higher office within the DOJ, the Office of Legal Counsel (OLC)

After a thorough consideration, OLC issued a memo in 2011 declaring, that because the online lotteries proposed by Illinois and New York did not involve sports, they fell outside the scope of the Wire Act. The opinion was hailed as a “game changer,” be cause, while OLC only considered the lottery schemes of New York and Illinois, it dispelled any ambiguity about the Wire Act’s gambling prohibitions, clearing the way for other states to legalize and regulate other forms of non-sports intrastate gambling. In the wake of OLC’s 2011 memo, three states, New Jersey, Nevada, and Delaware, legalized and regulated online gambling in their borders and at least ten other states are considering doing the same. To stop the progression of legalized online gambling, Sen. Lindsey Graham (R-SC) and Rep. Jason Chaffetz (R-UT) introduced the Restoration of America’s Wire Act (RAWA, H.R. 4301) which would create a de facto federal prohibition on Internet gambling and thwart states’ attempts to legalize and regulate the activity. By amending the language of the Wire Act (deleting the Act’s references to “sports gambling” and inserting “Internet”) RAWA would create, for the first time, a federal prohibition on all forms of Internet gambling—even if the transactions occur entirely within a state that permits the activity. Supporters of RAWA argue that their goal is simply to stop President Obama’s DOJ from unilat erally reinterpreting laws and that they want only to “restore the Wire Act to its interpretation pre-December 23rd of 2011,” as Rep. Chaffetz said. And as Sen. Mike Lee (R-UT), a co-sponsor of the bill, contended, “[w]e’re not trying to make other alterations …  [t]he Wire Act itself does, in fact, prohibit the very things we’re prohibiting with this legislation and so what we’re doing literally is restoring the status quo.” Yet the DOJ’s 2011 opinion is closer to the original intent of the law and the interpretation that held until 2002.

For Robert Kennedy, the only way to tackle the Leviathan of the mafia was to cut off its profit stream. Kennedy believed that the most profitable activity for the mob was their gambling racket.

Just over two months after being sworn in as Attorney General, Kennedy announced a package of bills to fight organized crime. As The New York Times reported, the proposals targeted “the bankrollers and kingpins of the rackets,” who “live luxurious, apparently respectable, lives in one state but return periodically to another state to collect from the rackets they run by remote control.” Among the proposals were five measures put forward by the preceding Attorney General, William P. Rogers, including “revised versions of proposals by Mr. Rogers to ban use of interstate telephone or telegraph wires for betting”—what would ultimately become the Wire Act.

Wary of the pitfalls that derailed earlier versions of the Wire Act, Kennedy carefully drafted the bill to be limited. Because, as Kennedy stated, “[p]ress information is not vital to the gamblers, but it is important to the American public,”

his Wire Act contained an explicit exemption for “the legitimate news reporting of sporting events.” [Emphasis added]

It makes little sense to assume that Kennedy intended to prohibit all forms of gambling, but only write in an exemption for news reporting on sports.

This exception contained in subsection (b) of the law (section 1084) reads: Nothing in this section shall be construed to prevent the transmission in interstate or foreign commerce of information for use in news reporting of sporting events or contests, or for the transmission of information assisting in the placing of bets or wagers on a sporting event or contest from a State or foreign country where betting on that sporting event or contest is legal into a State or foreign country in which such betting is legal. This exemption bolsters the case for the narrow interpretation of the Wire Act.

As attorney Mark Hichar wrote in his 2009 analysis of federal online gambling legislation: [I]t strains credulity that the prohibitions in § 1084(a) would ban transmissions assisting in wa ering of any and all types, while § 1084(b) would exempt from those prohibitions wagering-related transmissions between two states where the underlying wagering is legal, only when the underlying wagering related to sporting events or contests.

Textual analysis is not the only evidence supporting a narrow reading of the Wire Act. Discussions between Robert F. Kennedy, his assistants, and members of Congress in committee hearings on the Wire Act make it clear that the proposal was understood from the beginning, by both those who wrote and those who enacted it, as a prohibition only on sports-gambling transmissions.
Congressional Understanding of the Wire Act In his statement before the subcommittee of the House Committee on the Judiciary on May 17, 1961, Kennedy described the purpose of the Wire Act (H.R. 7039) as to “to assist the various States in enforcement of their laws pertaining to gambling and bookmaking A reading of his testimony could lead one to conclude that the bill was indeed aimed at certain kinds of gambling and not forms of gambling.

…his testimony in support of the Wire Act focused explicitly and exclusively on wagering related to “horse racing” and “such amateur and professional sports events as baseball, basketball, football and boxing”—with no mention of other forms of betting.

Kennedy uses the word “gambling” unmodified by sports or sporting, suggesting that he used the phrases interchangeably, but always with the intent of applying the bill’s prohibition to sports gambling alone.

lawmakers and the Department of Justice both understood this version of the Wire Act to be similar to its predecessor from the 1950s, which addressed “two main activities— organized commercial gambling on horse racing and organized commercial gambling on other sporting events, such as baseball, basketball and football.”

Furthermore, as Kennedy was careful to point out, the Wire Act was not intended as a broad federal gambling prohibition—whether conducted by states or by individuals—but instead as a way to enforce existing state laws to target “organized crime in this country without invading the privacy of the home or outraging the sensibilities of our people in matters of personal inclinations and morals.”

Kennedy express ly noted that they were not “undertaking the almost impossible task of dealing with all the many forms of casual or social wagering which so often may be effected over communication facilities.”

the most convincing evidence that the Act was understood by Congress as narrow in its scope— and perhaps even inapplicable to Internet activities—

In March 1962, the Senate Permanent Subcommittee on Investigations for the Committee on
Government Operations, also known as the McClellan Committee, again held hearings on organized crime,

emerging technologies of the time, such as wide area telephone service (WATS), which “provides unlimited long distance telephone calls within certain areas at a fixed rate. But no records are made of the calls.” The Committee noted that the mob’s bookmaking activities could migrate to these new services and that the Wire Act (now Public Law 87-216) would not apply to these new technologies: The term “wire service” in its usual sense refers to legitimate agencies such as Associated Press and United Press International which gather news and disseminate it to daily newspapers and radio and television stations via teletype machines. In the context of the subcommittee’s investigation the term took on an entirely different meaning. To gamblers and bookmakers “wire service” means a horserace wire service and refers to a confederation of operators who supply and service the Nation’s bookmakers, usually on a telephonic network, with fast race results and other information on horseraces around the country as an accessory to bookmaking operations.

Thus, while the Wire Act prohibited those “engaged in the business of betting or wagering” from using wire communications, “[t]here is a distinct possibility that many of the wire services which were the subject of the subcommittee’s investigations do not fall within the provisions of this statute since they are not in fact ‘engaged in the business of betting or wagering.”

While the Committee recognized the narrow scope of the Wire Act and recommended broadening it to account for advances in technology, Congress declined to take up the issue. However, when the Act reemerged as a tool for prosecutors of online gambling offense, few questioned whether its scope included gambling on the very new technology of the Internet.

On the other hand, with the advent of Internet technology and online gambling, members of Congress did appear to recognize that the Wire Act could reach only online sports betting as many sought to amend the Act to broaden its scope to casino-style games

In 1995 Sen. Jon Kyl (R-Ariz.) introduced the Crime Prevention Act, which included an amendment to the Wire Act that would broaden both the activities and technologies covered by the law. It excised the phrase “on any sporting event or contest,” and added the phrase “wire or electronic communication” expanding the Act’s reach to the Internet.

In 1996 Rep. Tim Johnson (D-S.D.) attempt ed to amend the Wire Act with his Computer Gambling Prevention Act, which also struck the words “on any sporting event or contest” and added “electronic communication.”

In 1997 Sen. Kyl introduced the Internet Gambling Prohibition Act, which added a definition of “bets and wagers” that included contests, sports, and games of chance. He stated the bill was necessary because it “dispels any ambiguity by making it clear that all betting, including sports betting, is illegal. Currently, non-sports betting is interpreted as legal under the Wire Act.”
In 1999 Sen. Kyl reintroduced his Internet Gambling Prohibition Act.

And in 2002, Rep. Bob Goodlatte (R-Va.) intro duced the Combating Illegal Gambling Re form and Modernization Act, which, like Sen. Johnson’s bill, added a definition of “bets and wagers” to the Wire Act that broadened it to all forms of gambling activities, including games of chance.

Due to conflicting interests within the brick-and-mortar casino industry as well as vocal opposition from Internet service providers (on whom the burden of blocking online gambling would fall) these Wire Act amendments did not pass and the Wire Act remained unchanged.

Still, tellingly, no prominent opponents of these bills contended that their amendments were unnecessary because the Wire Act already prohibited all online gambling—further underscoring the notion that members of Congress interpreted the Act as narrow in scope. While RAWA supporters claim that Obama’s DOJ unilaterally reinterpreted the Wire Act, the actual reinterpretation was made by the Department of Justice during the Clinton and Bush administrations.

Beginning in the 1990s, some government at torneys began using the Wire Act to prosecute online gambling, including some that were not exclusively sports-related.

…in all cases resulting in a conviction, sports betting was the only contested activity.

Minton | The Original Intentions of the Wire Act and Its Implications The Clinton Administration took the position that the Wire Act prohibited certain gambling activities online. For example, in a statement of Administration Policy, the Clinton Administration noted that it opposed the Internet Gambling Prohibition Act of 2000 (H.R. 3125) because it was “designed to protect certain forms of Internet gambling that currently are illegal,” and in particular “pari-mutuel wagering on activities such as horse races, dog races, and jai alai.” Despite claims that the DOJ under Clinton took the position that all online gambling was prohibited, there is no evidence the administration considered the Wire Act applicable to non-sports gambling or that it considered intrastate online gambling illegal. It wasn’t until 2002, during the administration of George W. Bush, that DOJ officially took the position that the Wire Act was applicable to all online gambling—a position that was at odds with Congressional action as well as the understanding of other DOJ officials at the time.

As discussed, the Wire Act was understood from its enactment to be a narrowly focused law that prohibited only sports gambling via telephone and telegraph. As Internet gambling grew in popularity among Americans, members of Congress scrambled to pass legislation prohibiting or regulating the activity. During a 1998 hearing on Rep. Goodlatte’s Internet Gambling Prohibition Act,

Assistant Attorney General for the DOJ’s Criminal Division Kevin DiGregory testified that while existing federal legislation could be used to prohibit most forms of online gambling, it would require amendment to apply beyond sports betting:

The advent of Internet gambling may have diminished the overall effectiveness of the Wire Communications Act, in part, because that statute may relate only to sports betting and not to the type of real-time interactive gambling (e.g., poker) that the Internet now makes possible for the first time.

Yet two years later, the Department of Justice, during the George W. Bush administration, officially took the position that the Wire Act’s prohibitions extended beyond sports gambling. The decision came as the result of a request from the Nevada Gaming Control Board and Nevada Gaming Commission which asked the DOJ for its opinion on the applicability of the Wire Act to the state’s recently enacted law legalizing intrastate online gambling, because, “the Department of Justice under the Bush Admin istration has yet to announce its policy on Internet gaming.”

On August 23, 2002 Michael Chertoff, then-acting Assistant Attorney General in the DOJ’s Criminal Division, responded to Nevada Gaming Control Board Chairman Dennis K. Neilander, stating: “[T]he De partment of Justice believes that federal law prohibits gambling over the Internet, including casino-style gambling.”

However, Chertoff provided no rationale for this conclusion, other than citing the Wire Act itself. Chertoff ’s statement was in direct conflict with legal scholars, court rulings, and other DOJ staff who continued to question the Wire Act’s applicability to non-sports gambling. Prior to this declaration, the Department of Justice had only used the Wire Act to prosecute strictly sports-related online gambling, reflecting the judicial precedent at the time.

In a 2002 case, In re MasterCard Intern. Inc., the Fifth Circuit affirmed the Eastern District of Louisi ana’s holding that the Wire Act applied only to online wagers relating to sporting events or contests

The Fifth Circuit concluded that both the plain language and legislative history of the Wire Act made its application only to sports betting abundantly clear, agreeing with the lower court’s conclusion that “[e]ven a sum mary glance at the recent legislative history of Internet gambling legislation reinforces the Court’s determination that Internet gambling on a game of chance is not prohibited conduct under 18 U.S.C. § 1084.”

The District Court of Utah departed from the Fifth Circuit’s interpretation of the Wire Act, in U.S. v. Lombardo, concluding that two out of three of the Wire Act’s prohibitions apply to all gambling and not just sports betting.

Specifically, the Lombardo court concluded that while the Wire Act clearly prohibits wire communications related to the transmission of actual bets only for sporting events, because the word “sporting event” does not appear in the next two clauses, prohibiting wire communications related to receiving money or credit for bets and receiving information about bets, those two prohibitions in the Wire Act apply to all gambling and aren’t limited to sports betting.

The Lombardo court reasoned that reaching the Fifth Circuit’s conclusion would require them to assume Congress meant to include the “sporting” language in the two other parts of the Act but inadvertently forgot to do so.

To date, it is the only published opinion to explicitly assert that the Wire Act’s prohibitions extend beyond sports gambling.

Similarly, a Magistrate Judge for the Eastern District Court of Missouri, in U.S. v. Kaplan, came to the conclusion that the Wire Act was not limited to sports gambling when recommending that the charges against Gary Kaplan, the founder of BetonSports.com, not be dismissed.

Kaplan ultimately pled guilty to violating the Wire Act, but only the counts related to sports gambling conduct.

As Mark Hichar noted—and the OLC in its 2011 memo concurred—interpreting the Wire Act to apply to non-sports gambling creates a conflict between the Wire Act and the intrastate exception in the Unlawful Internet Gambling Enforcement Act of 2006
(UIGEA). This potential conflict prompted the New York State Division of the Lottery and the Governor of Illinois in 2009 to request the DOJ clarify its position on the Wire Act and its interplay with UIGEA.

UIGEA prohibits payment processors, such as credit card companies, from depositing funds related to “unlawful Internet gambling,” but it contains an exemption from the prohibition for intrastate transactions if certain conditions are met.

Additionally, the exception stipulates that the gambling activity must not violate certain other federal gambling laws However, the Wire Act interpretation backed by the Lombardo court and the DOJ circa 2002 would make illegal all of these intrastate gambling activities that the language of UIGEA suggests are lawful. This casts doubt on the Depart ment of Justice’s broad interpretation of the Wire Act beginning in 2002, a factor that helped convince the OLC to change its opinion on the law in 2011

DOJ’s 2011 Restoration of the Wire Act Despite claims that “a single person in the bowels of the Department of Justice” decided to unilaterally reinterpret the Wire Act in 2011, the 13-page memorandum from the Office of Legal Counsel (OLC) for the Department of Justice shows that a thorough consideration of legislative history and case law brought the Criminal Division to the conclusion that “interstate transmissions of wire communications that do not relate to a ‘sporting event or contest,’ 18 U.S.C. § 1084(a), fall outside of the reach of the Wire Act,” thus restoring the law its original understanding.

In addition to a discussion of the history and case law, the OLC addressed arguments that the language of the Wire Act precludes a narrow reading of its scope. For example, OLC considered: the possibility that, in the Wire Act’s reference to “any sporting event or contest,” 18 U.S.C. § 1084(a), the word “sporting” modifies only “event” and not “contest,” such that the provision would bar the wire transmission of “wagers on any sporting event or [any] contest.” This interpretation would give independent meaning to “event” and “contest,” but it would also create redundancy of its own. If Congress had intended to cover any contest, it is unclear why it would have needed to mention sporting events separately.

Additionally, OLC considered arguments that “sporting event and contest” applies only to the first proscription in the Act which it directly modifies. OLC believed the phrase “sporting event and contest” was not included after each proscription as a form of short-hand; an interpretation that is bolstered by the fact that the phrase “in interstate and foreign commerce” is similarly omitted from the subsequent proscriptions even though Congress presumably intended all the prohibitions in the Wire Act, including those in the second clause, to be limited to interstate or foreign (as opposed to intrastate) wire communications. As OLC put it: “[t]his omission suggests that Congress used shortened phrases in the second clause to refer back to terms spelled out more completely in the first clause.”

Also considered was the DOJ Criminal Division’s assessment, which was detailed in its July 12, 2010 memo asking OLC for clarification. According to the memo, the Criminal Division advised OLC that it “has uniformly taken the position that the Wire Act is not limited to sports wagering and can be applied to other forms of interstate gambling,” and that “the Department has consistently argued under the Wire Act that, even if the wire communication originates and terminates in the same state, the law’s interstate commerce requirement is nevertheless satisfied if the wire crossed state lines at any point in the process.” This interpretation, however, only dates back to 2002. Furthermore, the Criminal Division highlighted the fact that since 2002 it had doubts about this interpretation which appeared to conflict with UIGEA.

While the OLC’s decision specifically dealt with the question of whether intrastate online sales of lottery tickets would violate the Wire Act, its decision that the, “Wire Act does not reach interstate transmissions of wire communications that do not relate to a “sporting event or contest,” it effectively restored the original interpretation of the Act.

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