A flawed understanding of federalism

Quadjacks.com posted a summary of draft legislation by Senators Harry Reid (D-NV) and Jon Kyl (R-AZ), The Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2012. The National Journal speculates on current politics surrounding the proposal.

The proposal, among other things, would make online poker a federal crime–characterizing it as unlawful internet gambling activity–and extend the reach of federal asset forfeiture laws:

 ”any property involved in or traceable to a gambling transaction in violation of the new act (including winnings) is subject to forfeiture. That same provision also clarifies existing forfeiture laws by providing that all operator proceeds from such unlawful Internet gambling activity similarly are subject to forfeiture.” Agent Marco, Here is what Harry Reid and Jon Kyl have in mind for online poker in America, Quadjacks.com, 12 Sept. 2012.

The proposal would permit intrastate online poker but only where states opt into a federally designed infrastructure allowing intrastate online poker-explicitly making intrastate behavior unlawful in the absence of affirmative action by the state and only to the extent that it was in accord with the proposed federal regulatory scheme.

The Senators’ proposal responds to the Department of Justice’s Office of Legal Counsel opinion that effictively circumscribed the DOJ’s earlier position concerning the illegality of online poker wagering:

“We conclude that the Criminal Division’s premise is incorrect and that the Wire Act prohibits only the transmission of communications related to bets or wagers on sporting events or contests.” U.S. Department of Justice, Whether Proposals by Illinois and New York to Use the Internet and Out-of-state Transaction Processors to Sell Lottery Tickets to In-state Adults Violate the Wire Act, 20 Sept. 2011.

Despite the Office of Legal Counsel opinion, the Senate version seeks to block licensure of entities that offered or accepted internet gambling to U.S. residents after the Unlawful Internet Gambling Enforcement Act (UIGEA) was enacted via attachment (without meaningful discussion) to the Security and Accountability For Every Port Act of 2006:

In addition, licensing of persons (or use of their assets) that were involved in offering Internet gambling to United States residents after 2006 (following enactment of UIGEA) is prohibited for five years after enactment of the bill, subject to a rebuttable presumption that state or federal laws were violated by their post-UIGEA gambling activities in the United States. A person covered by this prohibition may seek relief from this sanction, but unless that person can establish to a court by a preponderance of the evidence that no state or federal laws were violated, the prohibition will stand. After the expiration of that five-year period, any such person can participate in licensed activities only jf they pass muster under the stringent suitability review that may be conducted only by the OOPO or by a benchmark qualified body.

Nevada, Delaware and Washington D.C. have already moved to make intrastate online poker legal.

Excerpted from the Quadjacks.com article:

The Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2012

1. The bill undoes the impact of the recent Justice Department Office of Legal Counsel (OLC) opinion that the Wire Act only covers sports betting and it further clarifies the prohibitions on Internet gambling in the Wire Act, the Illegal Gambling Business Act, and the Unlawful Internet Gambling Enforcement Act (UIGEA). In particular, the bill updates the 1961 Wire Act and the 1970 Illegal Gambling Business Act so that they clearly apply to modem technologies and to all forms of unlicensed Internet gambling. The bill also makes those two laws consistent with a modified UIGEA that is enhanced with stronger enforcement tools (described below).

2. Under the bill, all Internet gambling, whether interstate or intrastate, would be prohibited, except offtrack horse-race wagering under the Interstate Horseracing Act of 1978 and licensed poker. State and tribal lotteries could sell lottery tickets online but could not create online games that mimic a slot machine or other casino games. Offering unlicensed Internet gambling would constitute an express crime under the bill- subjecting the offender to up to 10 years’ imprisonment and accompanying fines – and under the Wire Act, the Illegal Gambling Business Act, and UIGEA.

3. The overall effect of the bill is to strengthen federal prohibitions on Internet gambling by expanding those prohibitions to include the vast majority of the expansive Internet gambling that the OLC legal opinion effectively permits and wholly intrastate “closed-loop” or other remote gambling. The bill also increases the capacity of law enforcement agencies to prevent illegal gambling activity.

Additional Law Enforcement Tools

4. The bill adds important tools to aid law enforcement in preventing illegal Internet gambling. Among these tools is a list of licensed online poker enterprises. Financial transactions providers may only process U.S. transactions for online poker enterprises that are on that list.

5. To deter U.S. players from patronizing illegal sites, the bill makes explicit that any property involved in or traceable to a gambling transaction in violation of the new act (including winnings) is subject to forfeiture. That same provision also clarifies existing forfeiture laws by providing that all operator proceeds from such unlawful Internet gambling activity similarly are subject to forfeiture.

6. The bill prohibits the establishment of Internet poker cafes or other locations created principally for the purpose of accessing Internet gambling, thereby ensuring that substantial gambling in public places remains confined to traditional, licensed facilities. Agent Marco, Here is what Harry Reid and Jon Kyl have in mind for online poker in America, Quadjacks.com, 12 Sept. 2012.