Featured Expert Contributor, White Collar Crime & Corporate Compliance

Gregory A. Brower, a Shareholder with Brownstein Hyatt Farber Schreck, LLP in Las Vegas, NV and Washington, DC, with William E. Moschella, a Shareholder in the firm’s Washington, DC office.

On January 14, 2019, the Department of Justice quietly released a new Office of Legal Counsel (OLC) opinion that sent shockwaves through the internet gambling industry. The opinion purports to reverse OLC’s longstanding interpretation of the federal Wire Act, clarifying that the law applies to all forms of wagering activity that crosses state lines, not just sports betting. The Deputy Attorney General quickly followed up this surprising development with a memorandum directing federal prosecutors to refrain from applying this new interpretation in criminal or civil actions for a period of 90 days.

Congress enacted the Wire Act in 1961 as part of a package of bills aimed at combatting organized crime. These bills, which included, among others, the Wire Act, the Travel Act, and the Wagering Paraphernalia Act, sought to curtail organized crime by cutting off one of its primary sources of income—illegal gambling.  As enacted, 18 U.S.C. § 1084(a) states:

Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both.

For decades following its enactment, DOJ routinely used the Wire Act to prosecute individuals engaged in unlawful interstate gambling, including both sports wagering and non-sports wagering. Over time, as the internet evolved, and online gaming became popular, the prosecutions of this activity became more complicated. As a result, both the federal government and gaming operators turned to the judiciary for clarification. In 2002, the U.S. Court of Appeals for the Fifth Circuit provided some clarity with its decision in In re Mastercard International Inc., 331 F.3d 257 (5th Cir. 2002), which held that the Wire Act prohibited only interstate sports wagering. While not absolutely clarifying the issue, the Mastercard opinion was enough to cause an expansion of online gaming throughout the 2000s.

Then, in 2011, in response to inquiries from the state lotteries of Illinois and New York, OLC weighed in for the first time, opining that the Wire Act’s prohibitions were specifically limited to sports wagering. With this opinion in hand, state lotteries began offering online ticket sales and drawings. Moreover, also in reliance on the DOJ opinion, several states—including, Nevada, Delaware, New Jersey and, more recently, Pennsylvania—authorized, licensed and regulated internet gambling.

Fast forward to last month, when OLC surprised the industry by weighing in again with a new opinion that revisited and effectively reversed its 2011 opinion. The opinion declared that the “more correct” interpretation of the Wire Act’s plain language is that all but one of the law’s four prohibitions go beyond sports wagering and extend to all internet gambling, including online casino games, poker, and lotteries.  This new reading of the statute is a potential game-changer for a rapidly growing industry, which has been left scrambling to understand just what this means for their non-sports-betting online operations going forward.

Immediately following the publication of the new opinion, Deputy Attorney General Rod Rosenstein issued a memorandum instructing prosecutors to refrain from applying the new Wire Act interpretation in criminal and civil actions for a period of 90 days. Just how DOJ will enforce its new interpretation after April 15, 2019 remains unclear.

Since Rosenstein issued his memo, two lawsuits have been filed that challenge OLC’s interpretation. The New Hampshire Lottery Commission’s suit seeks a declaratory judgment that the Wire Act does not apply to state lottery operations. The second suit, filed by NeoPollard Interactive, the company which provides New Hampshire’s iLottery platform, seeks a declaration that the Wire Act prohibits only sports betting-related activities.

While an OLC opinion is, of course, not binding precedent and does not carry the force of law outside of the federal executive branch, gaming operators would be well advised to proceed with caution until DOJ clarifies exactly how it intends to apply OLC’s most recent interpretation of the law.