Despite the fact that gambling is legal in most states, many state officials are concerned that the Internet might provide an avenue to illegal gambling in their jurisdictions. While most states have enacted laws to prevent illegal gambling, federal law can also reinforce state law. For instance, the Gambling Devices Transportation Act also known as the Johnson Act prohibits transporting gambling devices across state lines. Similarly, the Wire Act prohibits illegal gambling on sporting events.
The Travel Act is a federal law that prohibits illegal gambling on interstate commerce, and the Illegal Gambling Business Act prohibits operating a gambling business within a state. These are not the only federal laws that have been challenged on the basis of their First Amendment merits. For instance, a lawsuit filed against PayPal for using its service to process an illegal Internet gambling transaction, raised the question of whether the company can be prosecuted for the crime. Similarly, a Costa Rican casino operation known as Tropical Paradise, which accepted ads from Discovery Communications, was also seized by U.S. marshals.
Other federal laws that may be relevant to the Internet gambling business are the Racketeer Influenced and Corrupt Organizations (RICO) Act, which prohibits illegal gambling business activities; the Gambling Devices Transportation Act, also known as the Johnson Act, which prohibits transporting gambling devices across state lines; and the UIGEA, which prohibits financial institutions from accepting financial instruments from illegal Internet bets. These laws are also in place to prevent illegal Internet gambling, but there are a lot of gray areas in between.
Probably the best known statute is the UIMF (Unlawful Internet Gambling Act), which is arguably the most significant statute. The most notable provisions of this act are the one-time fine and three-year jail term for operating an illegal Internet gambling business, and the ability to levy civil penalties of up to $250,000 for repeat offenses. The most egregious offenses include the use of credit cards for illegal Internet gambling, the transmission of gambling-related information over the Internet, and the provision of financial transaction services to illegal Internet bettors. In fact, a recent indictment against PayPal alleged that the company accepted payment for two illegal Internet gambling transactions, including the first.
While the best known statute may be a federal law, the most interesting part of the Internet gambling business is the interaction between state and federal law. While it may be impossible to establish a national gambling market in this day and age, many states have expressed concerns that the Internet could bring illegal gambling into their jurisdictions. In response, federal law has reinforced state laws. For instance, in the case of Tropical Paradise, the aforementioned citations are a direct result of Discovery Communications’ acceptance of ads from the Costa Rican casino operation. This is certainly a win for the state of California, but it also means that there may be a number of untapped opportunities for other states. And as more and more states consider enacting laws to regulate online gambling, it is inevitable that more and more states will adopt their own version of the UIMF.