What relevance does the Wire Act still have?
Regardless of the reach of the First Circuit’s decision, the Wire Act remains very much relevant to sports betting, as to which its applicability has never been in doubt. There have been many high-profile convictions and plea agreements involving the Wire Act since the US District Court’s 2019 decision. For example, in September 2020, 5Dimes agreed to forfeit more than $46.8 million in gambling proceeds as part of its settlement of a criminal investigation by federal authorities in Pennsylvania into 5Dimes’ sports betting operation in Costa Rica that allowed people in the US to place sports bets on its website. In September 2019, Raymond Duplantis was convicted of a Wire Act violation by a Texas federal court and in December 2020, sufficient evidence was found to exist for a jury to convict organized crime member Eugene Castelle of conspiracy to violate the Wire Act in connection with the operation of a large sports betting business. No doubt the Wire Act will continue to be used against unlicensed illegal sports betting businesses operating on an interstate basis. So it remains very relevant to sports betting, and continues to dictate many aspects of the design and operation of state-licensed online sports betting systems. Regarding online non-sports betting, however, the relevance of the Wire Act appears greatly diminished as a result of the First Circuit’s January 2021 decision, which is final and unappealable.
Along with the Illegal Gambling Business Act, the Travel Act, and the Unlawful Internet Gambling Enforcement Act, it helps support federal investigation and prosecution of illegal, unlicensed gambling operators, including offshore gambling rings.
Lynne Levin Kaufman:
In short, sports; the Wire Act still applies to sports betting. But instead of relevance we could ask, “What is the impact of the Wire Act with respect to legal sports wagering?” Because of the Wire Act, casinos, sport wagering operators and skins constantly have to prove that their proposed state-permitted sports wagering operations are not interstate and don’t violate the Wire Act. They must demonstrate that certain information being transmitted isn’t a wager, but information transmitted in assistance of a bet and thus legal under the Wire Act. They also have to show that certain information transmitted over state lines (information in connection with account creation, payment processing and geolocation) is not a bet or even information placed in assistance of a bet, and therefore transmission of that information doesn’t fall under the Wire Act.
Regulations promulgated under UIGEA require a reasoned legal opinion, which demonstrates that proposed sports wagering operations, even if legal in the applicable state, will not involve restricted transactions. This legal opinion is required by payment processors, banks, credit card companies and others. It must not only show legality under state law but also legality under Federal law. One such Federal law is the Wire Act. So the Wire Act still has unfortunate relevance and an impact on state legalized sports wagering.
What role has the pandemic played in forcing law makers to explore or consider difficult options to help stimulate the economy and state budgets?
The Covid-19 pandemic has demonstrated to state lotteries and also to state lawmakers that making their products available to consumers online can help mitigate losses due to stay-at-home restrictions resulting from national health emergencies. In Massachusetts, for example, where lottery products are not available online, weekly sales during the coronavirus peak were reported to be down 33% from the same week a year before. Massachusetts Treasurer Deborah Goldberg, who oversees the Lottery in Massachusetts, told lawmakers: “This pandemic has dramatically exposed the limitations and vulnerabilities of the lottery’s all-cash, in person business model.” Goldberg added that states with online lottery options instead saw a surge in demand. In short, the pandemic has demonstrated that when gaming products are available to consumers online, losses in state revenues due to consumers’ inability to access traditional paper-based products can be mitigated.
The global health situation helped expedite widespread shifts in consumer behavior preferences and technology adoption. If we do not provide consumers with safe, convenient and competitive options in areas like sport betting, igaming and digital payments, it only opens the door for unsafe illegal markets to fill the void. It’s far preferable that licensed operators have the regulatory framework to compete against the illegal market, with safe alternatives that offer revenue potential for state and tribal governments. Each state has been going through an exercise to determine the best way to bounce back from the pandemic specific to their particular situation and gaming has been included in those conversations.
Lynne Levin Kaufman:
The pandemic has certainly forced anti-gaming lawmakers to consider internet gaming and sports wagering. The revenue increases during the pandemic were startling, but more startling is the lack of a tremendous drop now. I recognize many lawmakers are reasonably concerned about problem gaming, as well as the availability of sports wagering and online gaming to minors. However, sports wagering and online gaming have been successful on a revenue basis, and in respect to regulatory compliance, particularly the ability to impose responsible gaming limits and other restrictions. The pandemic has also forced lawmakers to further explore cashless gaming options, which, again, I believe should not be a difficult option.
THE WIRE ACT: FAST FACTS
- The Interstate Anti-Crime Acts were signed by President John Kennedy on September 13, 1961
- After becoming US Attorney General, Robert Kennedy urged Congress to pass legislation, including Senate Bill 1656—The Wire Act, to make interstate gambling illegal. His goal was to help the DoJ stop organized crime from trafficking.
How is the application of the Wire Act justified?
On June 3, 2019, the US District Court for the District of New Hampshire held that section 1084(a) of the Wire Act applies only to sports betting. The Court granted declaratory relief applicable to the parties and also granted relief under the Administrative Procedure Act (APA). Referring to the Department of Justice’s 2018 opinion that the Wire Act applied to all forms of betting, the Court stated: “[The DoJ’s Office of Legal Counsel] has produced a capable, but mistaken, legal opinion that no additional process can cure.” Accordingly, the Court “set aside” the 2018 opinion, and by doing so made it void and of no effect. The DoJ appealed the District Court’s decision, and on January 20, 2021, the US Court of Appeals for the First Circuit affirmed, holding that “the Wire Act applies only to interstate wire communications related to sporting events or contests.” The Court of Appeals differed from the District Court only in its determination that declaratory relief was sufficient, and the Court of Appeals therefore vacated the District Court’s grant of relief under the APA. The DoJ had until June 21, 2021 to file a petition for writ of certiorari seeking review by the US Supreme Court. But the DoJ let that deadline pass without filing a writ or seeking an extension. So although the DoJ let stand the First Circuit’s decision, the DoJ’s 2018 opinion technically still represents their official position. By letter dated June 18, 2021, Attorneys General from 25 states and the District of Columbia wrote to Merrick Garland and Lisa Monaco, United States Attorney General and Deputy Attorney General, respectively, asking that the January 15, 2019 memorandum and the 2018 opinion be rescinded and that that the First Circuit’s interpretation of the Wire Act be endorsed. The letter noted that in July 2019, then candidate Joe Biden said, if elected, he'd "reverse the White House opinion [on the Wire Act] that was then reversed and overruled by the [district] court.” “The court is correct,” Biden stated,“[t]hat should be the prevailing position.”
For decades, states and tribal governments have upheld rigorous licensing and regulatory requirements, protecting game integrity and consumer safety while stimulating unquestioned technology advancement, tax revenue, and job growth. Today the world looks to states like Nevada as the gaming epicenter influencing every legal and regulated gaming jurisdiction in the world. We’ve made strong gains in gaming entertainment, technology, and research, while operating within one of the country’s most highly regulated sectors. The application of the Wire Act should absolutely include prosecution of unlicensed, illegal gambling. We would not like to see it applied toward reducing the competitiveness of legal regulated operators and suppliers that operate within state, tribal and federal regulatory mandates.
Lynne Levin Kaufman:
I know it has been often discussed, but I think it is important to mention the policy behind the Wire Act. As an American political science major, I recall being fascinated about Robert Kennedy’s crusade against organized crime, and his belief that the major source of income for organized crime was illegal bookmaking, especially sports wagering. When my career forced me to address Wire Act issues, I learned it was one of many bills Kennedy tried to pass to stop organized crime. While all of his proposed bills didn’t pass, the legislative history is clear. The Wire Act was enacted as a means to stop illegal gambling, with the hope that by shutting down illegal gambling, particularly sports wagering, organized crime would lose its tremendous revenue source and power. Whether you argue that it only was meant to apply to sports wagering or if it was meant to apply to other forms of gambling, it was meant to apply to all gambling not legalized by the state. So while I think even the 2011 DoJ opinion lost its way when applying the Wire Act to legalized state activities, I believe the Wire Act can still be useful in the continuing problem and fight against illegal gambling. Whether it is the Wire Act or another Federal law, we need as many tools as possible to fight illegal sports wagering sites, yet I think that a repeal would be a good idea.
The Wire Act has been contested and interpreted many times over the years. What makes the most recent opinion by the First Circuit pivotal?
The Supreme Court accepts approximately 100 to 150 of the more than 7,000 cases it is asked to review each year, or approximately 1.5 to 2%. Tony Cabot, Distinguished Fellow in Gaming Law at UNLV's William S. Boyd School of Law, stated before the deadline passed: “The Department of Justice has no motivation, either politically or on a policy basis, to continue to pursue this case.”
So while the First Circuit’s decision is not binding on courts outside the First Circuit, the Wire Act likely will have little further relevance to non-sports gambling, or betting not determined by the outcome of one or more sports events or the performance of an athlete in one or more sports events. The DoJ was a direct party in the First Circuit case, and thus it had an opportunity to thoroughly present its views, and several states and state lotteries participated as amici curiae (friends of the court). Thus, the First Circuit’s decision likely will have considerable weight on any other court deciding the same issue in a different case.
It affirms the 2011 opinion, and provides clarity to states, tribes, operators, suppliers and regulators that have worked to innovate the gaming sector with competitive gaming entertainment for today’s audiences. This clarity paves the way for different igaming, lottery and technology expansion opportunities without the threat of language from 60 years ago impeding the gaming industry’s overall progress.
Lynne Levin Kaufman:
A few factors. The subject is a state authorized lottery. Second, if the decision went the other way, the negative financial ramifications to states, which have heavily invested in infrastructures to support igaming and have also relied on the state tax revenue, would be tremendous. States are now relying on this decision to make decisions and investments, which also unofficially cements the precedent. Additionally, the strongest opponent to internet wagering, Sheldon Adelson, passed away and it doesn’t appear he has a successor in that battle. Finally, the decision coincides with a change in the DoJ and a new President, who as Vice President expressed opposition to application of the Wire Act to legal gambling.
THE WIRE ACT: FAST FACTS
- The Wire Act was issued as a part of series of antiracketeering laws. It complements other federal bookmaking statutes, like the Travel Act, the Interstate Transportation of Wagering Paraphernalia Act, and the Illegal Gambling Business Act.
- The Wire Act was intended to assist the states, territories and possessions of the US, as well as the District of Columbia, to enforce their respective laws on gambling and bookmaking and to suppress organized gambling activities.