DOJ Opinion on Interstate Wire Act May Open Internet to Legalized Online Gaming

An interesting opinion letter issued by the United States Department of Justice's Office of Legal Counsel may pave the way for legalized online gaming in the United States. The letter concludes that the Interstate Wire Act (18 USC §1804) applies only to prohibit "the transmission of communications related to bets or wagers on sporting events or contests." While the opinion was written in the context of whether New York and Illinois could sell lottery tickets to their respective residents online, its conclusions would seem to encourage additional lawful use of the Internet for state-authorized online (non-sports book) gaming.

The Interstate Wire Act prohibits "being engaged in the business of betting or wagering knowingly us[ing] a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers." The DOJ has long held that the Interstate Wire Act broadly prohibited all forms of online gambling, including lottery transactions. Indeed, DOJ relied on the Interstate Wire Act to prosecute persons connected with the offshore poker website arrests.

Here, New York and Illinois wished to sell state-conducted lottery tickets online to its residence using out of state processors. By using out of state processors, the states would be engaged in interstate transmission of lottery transactions, conduct seemingly prohibited by DOJ's prior interpretations.

In examining the states' opinion requests, DOJ narrowly construed the Wire Act to conclude "that interstate transmission of wire communications that do not relate to a sporting event or contest fall outside the reach of the Wire Act. Because the proposed New York and Illinois lottery proposals do not involve wagering on sports events or contests, the Wire Act does not, in our view, prohibit them."

At a minimum, the opinion opens the door for state lotteries to use the Internet for non-sports/contests purposes, and permits vendors of the lotteries to provide processing and related services. Moreover, if DOJ's opinion that the Wire Act applies only to sports and contests is taken to its logical next step, state licensed in-state online gambling may not be far behind.

The opinion is not an immediate end of a ban on online gaming as some have postulated. Indeed, DOJ made clear that it was not interpreting the Unlawful Internet Gaming Enforcement Act which "prohibits gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law." In the letter, DOJ "express[ed] no view about the proper interpretation or scope of UIGEA" as it relates to the state lottery issues.

Take away: While the opinion letter is by no means the last word on the issue, it is an important first step for businesses that conduct or help facilitate lawful state authorized gambling. Such businesses may have an opportunity to conduct their businesses lawfully online in the near future.

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