Lawyer: White House mum on ‘Net gaming

Kevin Ferguson

Monday, Oct. 1, 2001 | 9:39 a.m.

The federal government's stance on whether states can set their own rules on Internet gambling has gotten more murky since the change of administrations, said an Internet gambling lawyer.

"Under the Clinton administration, Internet gambling was illegal based on the (1961) Wire Act. But the Bush administration continues to say 'no comment' when we ask for its (Wire Act) interpretation," said Tony Cabot, a lawyer for Las Vegas firm Lionel Swayer & Collins.

Cabot said it's unclear why the Justice Department won't address the issue.

Interpreting the 40-year-old Wire Act has been tricky, leading to at least one ongoing East Coast court battle that may play a factor on whether Nevada casino operators can launch and operate cyber-casinos in the Silver State.

If not, more Las Vegas Strip operators may follow MGM MIRAGE's lead offshore to launch web casinos in foreign countries, jurisdictions that will reap the millions of dollars in tax revenue.

Sebastian Sinclair, an analyst for Christiansen Capital Advisors, estimates Internet gambling industry will generate $10.5 billion in 2005. Last year, the worldwide industry generated $2.2 billion, he estimates.

The Justice Department under the Clinton administration said the Wire Act outlawed Internet gambling by forbidding the practice of placing bets over phone wires.

That 1961 law was written by Attorney General Robert Kennedy aimed at criminalizing the mob's practice of taking sports wagers over the phone.

"The Wire Act clearly outlaws sports betting, but it doesn't address Internet casinos," Cabot said. Cyber-casinos are sites that offer games of chance, like blackjack, video poker and virtual slots.

In fact, the stalled Internet gambling bill Sen. Jon Kyl, R-Ariz., has been trying to pass since 1997 aims to close those loopholes.

But any action on that bill and most other Congressional bills have been suspended until at least next year because Congress is preoccupied with terrorist-related matters, said former U.S. Sen. Richard Bryan, D-Nev.

Since the Nevada passed a law in June empowering the state's gaming regulators to establish e-gaming regulations, the gaming officials have been preparing a case to present to the Justice Department.

Nevada Gaming Control Board member Scott Scherer said the board needs assurances that any regulations it passes don't clash with federal laws because it doesn't want federal charges brought against Nevada licensees for accepting cyber bets.

Very little legal precedent has been set on Internet casinos and the Wire Act. But Cabot points to one February court ruling in New Orleans where lawyers for Internet gamblers tried to sue credit card companies for "aiding and abetting" the practice of placing bets in Internet casinos.

Gamblers Larry Thompson and Lawrence Bradley accumulated credit card charges placing bets through Internet casinos, and were trying to avoid paying the bills by claiming those credit card charges are from an illegal activity.

Bradley's complaint said he wagered a total of $16,445 on seven different websites, and was billed $7,048 by Visa and Travelers Bank USA.

Thompson's complaint said he wagered a total of $1,520 and was charged $1,510 by MasterCard and Fleet Credit Card Services.

The federal court in the Eastern District of Louisiana dismissed the case because the Wire Act "in plain language" does not prohibit Internet gambling "on a game of chance."

Cabot said that court ruling didn't change the Justice Department's point-of-view that Internet casinos are not covered by the Wire Act.

The reason: the decision didn't come from a high enough court. But the New Orleans court ruling is being reviewed by the U.S. Court of Appeals for the 5th Circuit.

"If the court upholds the earlier ruling, it's unclear if the Justice Department will change it's view (on state's allowing Internet casinos)," Cabot said.

If it doesn't, Cabot said Nevada may have to seek an appeal from the 9th Circuit Court of Appeals, which encompasses Nevada, Cabot said.