US Federal Online Gambling in 2011

There has been a lot of action in the field of online gambling legislation and the enforcement thereof in the United States in 2011. The swings in the hopes and expectations have been volatile and the year end is a good time to take stock of things.

The event with the greatest impact was Black Friday. On Friday April 14 the Department of Justice (DoJ) acted against three of the biggest online poker sites in the United States. These were Full Tilt Poker, PokerStars and Absolute Poker. The bank accounts and American domain names of these poker sites were seized making it impossible for American players to access them. The owners of these sites were charged with financial irregularities, mainly processing funds for online gambling by giving wrong declarations to banks so as to avoid detection under the UIGEA.

It was known since some time in 2010 that the authorities were keeping a tab on these online poker rooms and preparing a dossier on them, but yet the online poker fraternity was caught by surprise when this happened. As is usual in these circumstances, conspiracy theories began to do the rounds. The big land casino operators had begun to realize that they needed to go online in order to survive. However because of the massive brand equity of these three online poker rooms they would not get much of market share in a legalized online poker environment. Also it was claimed that those who were currently operating “illegally”, while the others followed the law and stayed away from online gambling, had no place in a legalized regime. However, this could have been achieved by simply refusing to license existing players and therefore the conspiracy theory did not get much support.

But the fact remains that even after Black Friday the big online and land based gambling operators began to execute strategies that indicated their belief that legalization of online gambling was around the corner. These strategies mainly revolved around acquisitions, mergers and partnerships made to strengthen brand equity and capabilities in a legalized and regulated online gambling regime. Though fresh attempts were made to bring in legislation allowing online gambling, they were not pursued with vigor.

Then another announcement was made by the DoJ, again on a Friday. But this one, issued on December 23, was seen in the nature of a Christmas present. The DoJ reinterpreted the Wire Act as applying only to sports betting and not to other forms of online gambling. Even though the Black Friday cases were not under the Wire Act several earlier high profile prosecutions had been made under the Wire Act. The DoJ also averred that individual states could take a call on the legalization of all forms of online gambling except sports betting. The DoJ statement was silent on the current legality of online gambling at the federal level.

The question is whether this announcement is a first step in the direction of a federal legal structure to regulate online gambling or is it an expression of the intent of the authorities that each state should have its own regulatory mechanism. Given the nature of Internet gambling both operators and players would prefer federal regulation where a player from New Jersey can wager at a site hosted in Nevada. But many states have also made significant progress in passing legislation on intrastate gambling and this statement from the DoJ will definitely give them a boost.

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