Federal and State Laws Governing Online Gambling

online gambling

Online gambling is a broad term used to describe betting and wagering on various events, games and prizes over the Internet. This includes sports betting, casinos and virtual poker. While most of these activities are legal in some countries, many others are illegal. In addition to the federal criminal statutes governing online gambling, state law is also involved.

The first internet gambling venue for the general public was the Liechtenstein International Lottery. This venue has been cited in several federal court cases, including United States v. Grey and the 10th Circuit case, United States v. O’Brien.

The Unlawful Internet Gambling Enforcement Act (UIGEA) prohibits the acceptance of financial instruments from illegal Internet bets. Additionally, the Federal Communications Commission (FCC) has jurisdiction over common carriers and may discontinue providing or leasing facilities for these activities. If the FCC chooses to do so, it could also impose a fine on a UIGEA violator.

Another issue involves the Due Process Clause. A number of attacks on the federal gambling laws have been made on this basis. However, these attacks have not been successful. Despite the tenet of the First Amendment that prohibits government from restricting the exercise of free speech, the Commerce Clause raises concerns about whether the Government can regulate activities that are performed in part overseas.

Section 1956 of the Internal Revenue Code, which is the subject of the CRS Report RS21984 (abridged version), creates a new offense – laundering. Laundering is defined in the statute as “the concealment, concealment of the ownership or possession of an object, or the use of an object, as a disguise to avoid the payment of taxes.” Several distinct crimes are created under this section, including launders with intent to promote illicit activity and those who engage in international laundering.

Sections 5362 (10) and 5362 (10)(A) of the Internal Revenue Code both define unlawful Internet gambling. These definitions include activities such as receiving bets and placing bets on the Internet, transmitting bets to another user or another location, and using a computer to place or receive bets. Further, the definitions include a requirement for appropriate data security standards.

Several states have argued that the Internet’s use to conduct gambling could violate their own laws. According to a Marquette Sports Law Journal article, these challenges have been met with little success. It is also possible that state officials worry that the Internet could be used to bring illegal gambling into their jurisdictions.

There have been several attempts to prosecute online gambling, primarily on the grounds that the Commerce Clause of the Constitution limits the government’s power to regulate activities. In fact, the Lopez Amendment, which has been cited in recent cases, has elements designed to weed out low level gambling cases. However, the commercial nature of the gambling business seems to satisfy the Commerce Clause.

Another argument that has been raised is the question of the authority of the FCC to regulate gambling. Nevertheless, the agency has a great deal of experience in the regulation of communications networks and common carriers.

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