By Martin Owens
Back on Safe Ground, In Spite of It All:
US Internet poker after the Indictments
"They turned our power down
And drove us underground
But we went right on with the show...
Billy Joel, "Miami 2017"
Philadelphia, PA (Sports Network) - So what actually happened here? The April indictments of Full Tilt, PokerStars and Absolute are being spoken of as the end of the world.: "Black Friday". Funny, I seem to recall the end of the world happening once already. It was in 2006, when the Unlawful Internet Gambling Enforcement Act ( UIGEA) passed unexpectedly. Then, the Conventional Wisdom pronounced that Internet gambling in America was dead. Instead, Full Tilt, Pokerstars and Absolute became the online poker giants, precisely because, unlike many others, they ignored the implied threat of the UIGEA. They didn't abandon the American market, as most other Internet poker sites did. Now, five years later when the DOJ indictment finally surfaces, the end of Internet poker is once again predicted. And once again, the facts don't bear that out.
The Thin Thread
This indictment is the strongest push against I-gaming in years, and the first major prosecution under the UIGEA itself ( rather than conspiracy to violate alone.) Many observers are surprised that it happened under the Obama presidency, but the suppression of this industry seems to be one more Bush-era policy that has lingered on.
The accusations can be divided into three parts. The most serious charges are financial- bank fraud- thirty years; money laundering- 20 years. Second, violation of the UIGEA's ban on use of American banking instruments for "unlawful Internet gambling", 5 years a shot, and finally, operating an illegal gambling business, also five years. Added in were the usual allegations of conspiracy to commit these things , each carrying the same penalty as the underlying offense. There are also the fines demanded by the DOJ, totaling just under three billion dollars.
A daunting combination at first glance, and of course the US attorneys in the Southern District of New York wouldn't have brought the action if they didn't think they had a strong chance of winning. All the same, there are questions about the soundness of the government's position. It just might turn out that this is not the case which slays the Internet gambling Dragon (as the anti-gambling activists would describe it), but rather opens Pandora's box on US gambling policy in general and the DOJ's policy in particular.
Why? First, because the case is predicated on a policy position which is not grounded in either statute or case law. It is this: that when Joe Gambler, located in State X, dials up Poker R' Us, a poker page on the Internet and bets money, that bet alone "creates a gambling presence" in State X, and gives it jurisdiction over Poker R' Us, such that the proprietors can be hauled into X and prosecuted for breaking its gambling laws. But most legal authority reads the other way. A gambling transaction is a contingent contract, and when it isn't specified where that contract takes place, it is presumed to occur at the location where the contract can be accomplished. Now for Internet gambling, that location is the location of the gambling company's server, for it is there, inside that machine, that the odds, price, and results are compared, the winner determined, and the orders to pay or collect generated. And of course such arguments are reinforced when dealing with an Internet gaming business that is formally licensed in the jurisdiction where that server is located.
US gambling laws do not specify this. In fact, only nine states mention the Internet in their gambling laws at all. There is one case from New York in 1999, People v World Interactive Gaming. The presiding judge opined that accessing Internet gambling sites from New York State created criminal jurisdiction over those sites. But this is not a binding opinion, because the question of jurisdiction had already been resolved on other grounds ( WIG already had bank accounts and offices in the state) . This is what lawyers call dictum: a comment, not a precedent. In 2006, a Federal appeals court in one of the US v Gotti string of cases, similarly quoted the WIG dictum with approval - but without any legal analysis to show why it should be so. Here, too, jurisdiction was not an issue: the Gotti gambling enterprise in question had been using couriers in New York City to collect and pay off bets, Internet or not, which once again established jurisdiction from the get-go.
In fact, most legal authority comes out against the WIG dictum. The presumption is that the laws of State X do not extend outside the borders of that state, and further that the laws of another jurisdiction, touching people, places, and things located therein, ought to be respected, and not overridden from outside. (Otherwise Utah, which bans all gaming, could conduct raids next door into Nevada!) If the gambling is not located in State X, the case becomes weak indeed. For criminal jurisdiction in particular, it would have to be shown that the defendants are committing substantial harm which reaches into state X. And since the odds are 24 to one that State X licenses and taxes its own gambling, that's not an argument that will pass the straight-face test.
What does that mean? The primary reference point of American gambling law is state gambling law. Federal anti-gambling laws depend on an underlying violation of state gambling laws to activate them, generally speaking. So if the actual gambling itself does not take place in the state, there is now a strong argument that state gambling law was not violated. Consequently, no violation of federal gambling law, either. Which means that the charges based on conduct of illegal gambling - illegal gambling business, UIGEA violations, and money laundering- would be in real danger of being voided.
The bank fraud charges seem to rest on deliberate mis-numbering of credit card transactions, so as to identify them as non-gambling in origin. Some commentators believe this charge would survive even the invalidation of the other counts; others ask if any fraud took place at all. Certainly none of the banks identified as handling these gambling accounts lost any money. Deceived they might have been; defrauded could be another question entirely. But the mere mis-numbering of credit card transactions, in furtherance of something that turns out not to have been criminal in the first place, would tend to make the whole thing seem like an administrative complaint rather than a substantial criminal offense.
And of course, if the conclusion is no jurisdiction by reason of legal location elsewhere, that will dispose of most of the conspiracy charges. It is clearly established that there is no such thing as a criminal conspiracy to commit an act which is not, in itself, a criminal offense. Take it all around, and it's suddenly apparent that most, if not all of the DOJ's case here is hanging from this one thin thread.
And other problems are arising for the government's case. What about jurisdiction over the Internet itself, and over the URL? Already, the DOJ has had to relent its "seizure" of Fulltilt.com, Pokerstars.com, and other sites. This is because those sites serviced customers outside the USA as well as inside. And while there might be some justification for American legal authorities to deny access to US citizens, it was clearly overreaching for them to deny access to players from everywhere else, too. Think about it: if it is established that the USA can shut down any site anywhere that doesn't comply with its gambling policies, what would keep China or Iran from shutting down US sites that opposed their policies? The principle is the same, and reciprocity is, after all, the cornerstone of international law.
The sheer size and complexity of the case may result in additional stumbling blocks. Many of the principal defendants were out of the country when the indictments were unsealed, and clearly, they're not coming back anytime soon. To bring the bigger fish into a US Federal court, extradition would be required. Uncle Sam would have to reach into places such as Israel, (success not guaranteed, but not impossible either). But other defendants are in places like Antigua. Some of us may remember the restriction- of- commerce complaint which Antigua filed before the World Trade Organization in 2004 regarding US I-gaming prohibitions. The Antiguans certainly do: American behavior toward that island nation was so high-handed that today they would not give Uncle Sam the time of day if they owned a watch factory, let alone cooperate with extraditions. It would seem that DOJ has no realistic option here but to come to some kind of settlement agreement.
But it is also well-nigh impossible. In this case, the DOJ is preferring charges that carry very heavy prison sentences, as well as astronomical fines. Unlike previous cases where a money settlement and a promise not to do it again were sufficient, any settlement agreement here
would have to include some jail time. Otherwise, DOJ loses face. But if the defendants agreed to that, they not only lose their money and their liberty, but their livelihood. Many of them are executives for gaming companies which are licensed in other nations. A guilty plea, even as part of a settlement, would effectively bar these individuals from the gambling industry for life. No licensing authority in the world will allow convicted felons to run a gambling business, period. So as far as the accused are concerned, it may be in their best interest to simply sit offshore and wait Uncle Sam out. Which would be equally embarrassing for DOJ. It may be a case of "too far to reach, but too high to climb down".
What will the long-term prospects of the indictment for the Internet gambling industry as a whole? Merely a bump in the road, really. However ferociously the DOJ may attempt to intimidate the Internet gambling industry, the effort to wipe it out is already a lost cause. Internet gambling started at zero in 1995, with a few BBS betting sites in a couple Caribbean nations. Today it is a $24 billion global industry, with more than 70 nations licensing or permitting it. Far from being wiped out offshore by US pressure, Internet gambling has come onshore in North America. Twenty-nine states now license Internet gambling services to help with their horse race betting. Five more are moving to expand sales of their respective state lotteries into online formats. In Canada, Internet gambling is practically a done deal nationwide. Quebec, British Columbia, and the Atlantic provinces are offering everything from online lotteries to fullbore Internet-based gambling, and the only question is how soon the other provinces will follow their lead.
And, of course, half a dozen US states are considering legalizing online gambling, principally Internet poker. Will the DOJ indictments stop the legalization efforts? More likely, they will convert only the converted: the indictments are another excuse to do nothing, if doing nothing was the goal anyway. But the UIGEA itself nailed open the door to state legalization of Internet gambling, on a state-by-state basis. And the pressure for legalization continues to build.
For the realization is growing that state and national authorities can fence themselves in for a time, but in the end they cannot keep the Internet out. Their failure to participate in the global I- gaming market will not prevent that market from existing. It's already here. In fact the big winners in this indictment dispute are the other offshore operators with nerve enough to take on the US market. Internet poker alone is worth $12 billion a year, and America is the single biggest market segment. If one business or format can't service the market, another will. In trying to suppress it, the government is, in effect, playing whack- a- mole. And the first rule-of-whack a mole is that there's always one more mole.
How long the states can be held off from the revenue opportunities of Internet gambling remains to be seen- at some point they will no longer be able to resist what is essentially found money, requiring no budget cuts and needing no new taxes. In the meantime, new operators and new financial conduits will be found, approved or not, and the game will not only go on but get bigger. It will expand into new technologies and formats, as is already occurring with social media based games such as Zynga poker and a flood of new "apps" for Androids and BlackBerries and IPods and iPhones and I don't know what next.
To sum up: the tide of Internet gambling has already come in. It merely remains to see who will swim with it, and who will sink trying to oppose it. A prosecution here or there, win or lose, won't change that in the end.
Mr. Owens is a California attorney specializing in the law of Internet and interactive gaming since 1998. Co-author of INTERNET GAMING LAW with Professor Nelson Rose,( Mary Ann Liebert Publishers , 2nd ed 2009) ; Associate Editor , Gaming Law Review & Economics; Contributing Editor, TSN. Com
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