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Controversy Over Legality of Internet Gambling in the U.S.

Ellen Feig, Esq. - 8/9/2006

During the last few years, the online casino gambling business has grown enormously. Recent estimates show over 1,500 Internet gambling sites with an about 14.5 million regular users. With this boom mainstream American companies have taken notice and have become actively involved in software development for such sites. While it is clear that the act of gambling is illegal under most state law - exceptions include the obvious such as Nevada and areas under rule of Native American reservations - is Internet gambling illegal?

Current legal controversy over legality of Internet gambling focuses primarily on what is called the "Wire Act". Basically the Wire Act creates a federal felony if a person or company accepts wagers over any device which utilizes the telephone wires (like the internet). All online activity travels over some portion of our conventional phone lines - even wireless connections must use fixed wires. Thus the US Government argues that any US placed bet, even those that involve bets outside US territory, violate the Wire Act.

Most software companies or host companies involved with online gambling circumvent the Wire Act by creating offshore casinos and then providing the bandwidth. These companies argue that providing such services are not overt acts that prove conspiracy. However in July 2001, the Second Circuit Court of Appeals in New York in US v. Cohen found that the Wire Act applies to an offshore scenario as long as the site is marketed in anyway to potential users in the United States. Given the spider like arms of the World Wide Web, it is clearly impossible to exclude American residents from any internet based marketing program.

State governments have taken a pro active role in regulating Internet gambling activity and in fact Nevada, the first state to legalize Internet gambling, also became the first state to outlaw such activity. However a recent decision in the Eastern District of Louisiana has found that "Internet gambling on a game of chance is not prohibited conduct under the Wire Act". Does this mean that there is a change a coming? Probably not as Congress continues to fight such acts as "Unlawful Internet Gambling Funding Prohibition Act" of June 2003 which makes it illegal for banks to facilitate funding of online gambling sites. As of now, gambling online is a risky business in every way. Hold on to your money.