Thursday, December 19, 2002
Copyright © Las Vegas Review-Journal

Ruling muddles Internet gaming legality concerns

Decision may impact state's policy

WASHINGTON -- A federal appeals court decision last month contradicts the Justice Department's view that Internet gambling is illegal, a ruling that some believe could buttress Nevada's efforts to determine if online wagering can be effectively regulated.

On Nov. 20, the 5th U.S. Circuit Court of Appeals in New Orleans upheld a lower court ruling that a federal ban on gambling applies only to sports betting on the Internet, not casino-style wagering.

"Because the (1961 federal) Wire Act does not prohibit nonsports Internet gambling, any debts incurred in connection with such gambling are not illegal," U.S. Circuit Judge James Dennis wrote in a unanimous opinion backed by two other judges.

The opinion differs sharply from an Aug. 23 letter from Assistant U.S. Attorney General Michael Chertoff to Dennis Neilander, chairman of the Nevada Gaming Control Board.

"The Department of Justice believes that federal law prohibits gambling over the Internet, including casino-style gambling," Chertoff wrote.

Chertoff's letter responded to inquiries from Nevada officials, who have been authorized by the state Legislature to explore the possibility of allowing Internet gambling with regulatory controls.

Neilander downplayed the significance of the appeals court ruling, noting the court does not have jurisdiction over Nevada.

Meanwhile, Chertoff's letter already has influenced Nevada's actions on Internet gambling, Neilander said.

"We began focusing on interactive gaming within Nevada's borders only," Neilander said. "But the difficulty in using the Internet as a medium is that it travels to the path of least resistance and frequently bounces across state lines."

Dan Walsh, a Washington lobbyist for the Interactive Gaming Council which represents online wagering companies, said last month's court ruling trumps the Chertoff letter.

"This decision means the underpinning argument in Chertoff's letter to Nevada is incorrect," Walsh said. "The Justice Department's position that Internet gambling is illegal is weakened and increasingly untenable."

Walsh said the court opinion should encourage Nevada to proceed with efforts to regulate Internet gambling. But Walsh also said the court ruling could serve as an incentive for Congress to hasten efforts to ban Internet gambling.

In September, the House passed by voice vote a bill by Rep. Jim Leach, R-Iowa, that would prohibit the use of credit cards, wire transfers or any other bank instrument to pay for Internet gambling transactions. The bill died because the Senate failed to vote on it, but Leach plans to resurrect the legislation next year.

Bill Tate, Leach's chief of staff, said last month's ruling by the federal circuit court would not affect the legislation approved by the House.

"The bill does not address the legality or illegality of Internet gambling," Tate said. "It simply bans the use of credit cards and other financial instruments to pay for Internet gambling."

Sen. Harry Reid, D-Nev., a former chairman of the Nevada Gaming Commission, said last month's court decision would not change his opposition to Internet gambling.

"Internet gambling cannot be controlled and, therefore, it should be illegal," Reid said.

Sen. John Ensign, R-Nev., said through a spokeswoman that he needed more time to study the court decision before commenting on it.

Frank Fahrenkopf, president of the American Gaming Association, said he always believed Chertoff's letter was wrong. But Fahrenkopf said he would be surprised if the U.S. Supreme Court agrees to look at the matter.

"This opinion by the Fifth Circuit may give impetus to Congress to go forward more quickly to close any loopholes (in federal law that permit Internet gambling)," Fahrenkopf said.

Las Vegas lawyer Anthony Cabot, an Internet gambling expert, said he agrees that the court opinion contradicts Chertoff's letter.

But Cabot said the court's ruling does not open the door to Internet gambling in Nevada.

"There are other federal laws and laws in other states that must be considered before Internet gambling can be legalized and regulated in Nevada," Cabot said.