Death Knell or Glimmer of Hope: Care to Bet on Online Gambling?

Legal Bytes has previously reported to you concerning Title VIII of the Security and Accountability For Every Port Act of 2006 (or SAFE Port Act), which is the part of the SAFE Port Act endearingly known as UIGEA (the Unlawful Internet Gambling Enforcement Act of 2006). On Tuesday, the U.S. Court of Appeals for the Third Circuit rejected a claim by the Interactive Media Entertainment & Gaming Association that UIGEA is too vague or unconstitutional or infringes on the individual’s right to privacy. The unanimous ruling was issued amid a tug-of-war between the Justice Department that is anxious to crack down on the gambling industry, and the actions of Rep. Barney Frank (D-Mass.) and other members of Congress who are advocating legislation to legalize the gaming industry.

The decision to uphold UIGEA, which banned payment processing by U.S. financial institutions for online betting, might appear to be a blow to the gaming industry, but there is a potential ray of hope. On page 8 of the Court’s Opinion, the Third Circuit concluded UIGEA was not constitutionally vague, nor had the law made any gambling activity illegal. Rather, the vagueness problem cited by the Court arose from the underlying state law. To wit, the Court explicitly notes what many in the industry have known for a long time: “[T]he Act itself does not make any gambling activity illegal [under the UIGEA]. Whether the transaction in Interactive’s hypothetical constitutes unlawful Internet gambling turns on how the law of the state from which the bettor initiates the bet[.]”

One can thus read this decision as an opportunity for state gambling clarity. Currently, only six states in the United States have an outright prohibition against Internet gambling; the other 44 states (and U.S. territories) have an opportunity, if they wish to seize it, to legalize, authorize, license, regulate and potentially tax online gambling.

For the record, the Frank Internet gambling legislation that proposes to delay enforcement of UIGEA pending the enactment of a federal online gambling licensing and regulatory framework, has been pending in committee since May, and there are many pressing items on Congress’s plate. Thus, it is unlikely that Congress is poised for quick action on this legislation. That said, the court’s decision appears to leave the door to online gambling enabled by state legislation open. Stay tuned.

If you need to know more, contact Amy S. Mushahwar directly, or you can always contact me, or the Rimon attorney with whom you regularly work. We are happy to help.