Online gambling is a fast growing industry. Millions of people gamble every day on different platforms. But there are still a number of questions concerning its legality. The issue is rooted in both state and federal law.
Legality of online gambling varies from state to state, and it is unclear how the Federal Government should regulate the activity. There have been several cases and attacks on the government’s authority to regulate it, and there is also uncertainty over the constitutionality of the Commerce Clause. These challenges have been largely successful, but not always.
Illegal Internet gambling is not only illegal, it is punishable by federal criminal statutes. Section 5362 of the United States Code defines illegal Internet gambling as a transaction wherein the receiving, transmitting, or making of a bet is conducted in a jurisdiction where it is unlawful. This includes not only receiving and transmitting a bet, but it also includes age verification. Additionally, the law requires appropriate data security standards.
While there are several federal criminal statutes that apply to this activity, there are a number of state laws that also apply to it. In addition to these laws, the Travel Act, which prohibits illegal gambling on interstate commerce, applies to internet casinos. Similarly, the Wire Act, which prohibits gambling on sporting events, also applies to Internet casinos. Other laws include Racketeer Influenced and Corrupt Organizations (RICO) provisions that make it illegal for businesses to engage in gambling activities.
Gambling was originally banned in the U.S. in the late 1890s, but it was resuscitated in Nevada in 1931. Despite its popularity in the early decades, it is still considered a taboo. Its practice was further limited by the fact that land-based casinos require hundreds of employees and cost several hundred million dollars to build. Although the advent of the Internet created the possibility for more and more people to access the activity, the potential for abuse, particularly by children, is high.
Online casinos are web-based businesses that offer a variety of games. Most are operated by small, virtually unknown companies. Some are based in Antigua, which requires a 3% fee on gambling revenues. Others are located in Costa Rica, the British Isles, and the Commonwealth of Puerto Rico.
Several publicly traded internet gambling companies have stopped accepting American customers. Those that remain are subject to federal regulation. As a result, the government has threatened them with prosecution, and even unsealed an indictment against the “big three” online poker operators. Several other companies have been caught in recent months.
One of the biggest challenges to the law’s enforcement is the First Amendment’s free speech protection. In particular, the Commerce Clause and the Due Process Clause have been attacked. However, these arguments have faced little success, primarily because the commercial nature of the gambling business seems to satisfy the doubts.
For instance, in the case of Sporting News, the company agreed to pay a $4.2 million fine to settle the suit and launched a public service campaign. And in another case, Discovery Communications accepted ads for Tropical Paradise, a casino operation in Costa Rica, but was seized by U.S. marshals.