The Jon & Harry Show

by , Jul 18, 2011 | 12:25 pm

By letter to federal Attorney General Eric Holder dated July 14th of this year, US Senators Jon Kyl and Harry Reid have made known their views on Internet gaming. Or rather: they’ve let the AG know what they want the Department of Justice to do without exactly saying what their position is. (Thanks to Chris Krafcik for circulating the letter.)

This letter, from two senators coming from very different camps on the Internet gaming issue, is a very interesting document both for what it says and for what it doesn’t say.

What it says is that the Department of Justice has been lax in pursuing foreign private Internet gaming operators and that this has “led to a signficant and growing perception … that the Department of Justice thought that the case [against operating Internet poker and other Internet gambling websites] was uncertain enough that it chose not to pursue enforcement actions.” The senators state that it’s important for the DOJ to pursue “illegal Internet gambling” in the United States “aggressively and consistently.” Most notably in this paragraph, Senators Kyl and Reid assert that Internet poker websites have been offering online play to Americans for many years “with apparently no repercussions.”

I can’t know what the senators meant to convey by this language, but as drafted, some of these claims are puzzling. Yes, the DOJ has perhaps not been as consistent in its pursuit – or not – of various Internet gaming operators. This owes as much to the fragmented nature of law enforcement in the US as anything else. (The Attorney General could convene a unit or task force to pursue Internet gaming across the various federal districts, but this seems unlikely. I don’t think that’s what the senators are after here, anyway.) But: a lack of aggression? Apparently no repercussions? Setting aside all state actions against Internet gaming, federal prosecutors across the United States, and taken as a whole, have been pretty busy. They have hounded operators, and those working with them, that are taking what the DOJ perceives to be illegal bets and wagers. There are the current federal indictments in New York and Maryland. There have been previous indictments in New York, Utah, and Missouri. There have been forfeiture orders sought and granted in federal courts in New York, Washington, Maryland, Missouri, and California, to name a few. The DOJ has collectively taken highly aggressive steps to disrupt operators’ businesses in the United States, with huge repercussions for those operators (many of which have decided to leave the US), payment intermediaries (many of whom have been indicted and/or shut down), and players (who have huge difficulties getting their money, if they can get it at all). No-one can deny that federal law enforcement has had a huge impact on the US-facing industry since 2006. It seems strange to me to call this a lack of consequences or aggression when the opposite appears to be true.

The Kyl-Reid letter goes on to cite concerns that the senators have with “the spread of efforts to legalize intra-state Internet gambling and the spread of efforts to offer such intra-state gambling through state-sponsored lotteries.” They call the efforts by intra-state gambling advocates and boasts about the DOJ’s “effective consent” by unnamed officials from various state lotteries “troubling.” They finish by asking the Attorney General to work with them to strengthen penalties for those who break the law, to see what modifications would be helpful to the DOJ in its fight against Internet gambling, and to either: a) reiterate the DOJ’s longstanding position that federal law prohibits gambling over the Internet (including intra-state gambling); or, b) if the DOJ’s position has changed, to consult with Congress before finalizing such a new position.

The request to restate the DOJ’s position is an empty one. Cleary the DOJ’s position has not changed. The New York and Maryland indictments both rely on the Illegal Gambling Business Act and respective predicate state law violations. The indictments in Maryland don’t rely on UIGEA (the New York indictments do), but the affidavit in support of the seizure warrants in Maryland relies on both UIGEA and the Wire Act. Some believe that the New York indictments signal that the DOJ knows that the Wire Act doesn’t prohibit Internet poker or casino games from being offered. If true, that’s as far as the DOJ will go, i.e., they just won’t invoke it, without comment one way or the other. The DOJ has consistently taken the position that the Wire Act applies to all Internet gambling, irrespective of the In re Mastercard decision, and this letter won’t change that. This in spite of the fact that, as many have pointed out before, the UIGEA expressly allows intra-state gaming, a point that is unsurprisingly not addressed by the senators. (That carve-out likely only gets intra-state gaming out of the UIGEA, not the Wire Act, but the point should still be addressed.)

What do the senators not say in this letter? They don’t say that the DOJ’s position “that all forms of Internet gambling are illegal” is the law of the land or that they agree with it. They clearly state that it’s the DOJ’s view. They also say precisely nothing about efforts to regulate and tax poker at the federal level.

What is the upshot of this correspondence to the Attorney General? I think it’s this: the senators are letting the DOJ know that it is to continue with its current policy. Kyl and Reid don’t necessarily endorse that blanket view of the application of the Wire Act (for example), but it suits their purpose to endorse tough “enforcement” from the DOJ. So what is their purpose, then? I suspect it’s to remind the DOJ that the legislative branch is calling the shots on the development of Internet gaming policy and, further to that power, to warn the states away from adopting their own intra-state gaming programmes. Kyl and Reid may also be signalling that they will support an Internet poker bill in Congress, perhaps even this year. Reid and the AGA already appear to be on board with a poker-only bill, and Kyl seems to be lining up with them. I agree with Jon Ralston’s conclusion on this (here); I just disagree with him that Reid and Kyl want an explanation for the Maryland and Manhattan federal indictments. They want nothing of the kind. In fact, I think the senators would be fine with further indictments being pursued.

The timing of the enactment of such a bill, if it happens, is still highly uncertain. Some colleagues of mine in the US that I greatly respect seem to believe that it has a better-than-even chance of happening this year, which I initially found surprising, but they could be right. Any federal i-poker bill could use one of three vehicles currently before the House of Representatives – the Barton, McDermott, or Campbell bills – but it will likely look very different from any of those drafts by the time it passes. Reid and Kyl will be the ones co-ordinating and signing off on the drafting of such a measure, for as long as Kyl is around, at least.

If my read on this is right, it affirms that pronouncements by politicians in general – and by Harry Reid in particular – are rarely what they may at first seem.

One Comment to “The Jon & Harry Show”

  1. Dan Michalski

    my bet is they let the Barton bill do its thing so they (Reid + Kyl) have their own read on where the members stand. At that point the Senate co-opts the poker bill and tries to turn it into a full-on online casino gambling bill. he might even try to include Sports betting … but will save that to pull out if Kyl and friends (like the NFL) get too panty-wadded over it all. 

    sounds crazy, but i have been watching the Nevada regulators week-by-week change their rules so they can accommodate online betting. 

    online slots is what they really want most, imho.