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Gambling Against Enforcement — Internet Sports Books and the Wire Wager Act
Joseph V. DeMarco
USA Bulletin
(March 2001)
Joseph V. DeMarco
Assistant United States Attorney
Southern District of New York
I. Introduction
Even as a certain "Madness" crowds network airwaves during the month of March, and as Americans gamble in various forms in ever-increasing numbers, gambling on sporting events is strictly regulated and, in most cases, prohibited outright under federal and state law. Notwithstanding these general prohibitions, however, the exponential growth in the use of the Internet by the mass public has been accompanied by a corresponding growth in the creation of Internet websites which offer Americans the ability to gamble on-line without the need for a neighborhood bookie. From on-line private lotteries, to on-line card games, "quiz shows," and traditional sports books, these websites offer privacy and anonymity to both the owners of the sites and their "clients" while, paradoxically, offering a perceived aura of legitimacy that derives from the fact that anyone can "sign on" to and use them as freely as any legitimate e-commerce site.
This article examines one form of gambling website — the Internet sports book — and the application of the Wire Wager Act, 18 U.S.C. §1084, to enforcement operations directed against the operators of those websites. It will demonstrate that, notwithstanding the novel form that they take, these web-based books are fundamentally no different than bookmaking operations run by traditional "pay phone" bookies, and that there is no reason why the Wire Wager Act should not apply to such high-tech Internet bookies. The article will also examine why recurring arguments that seek to preclude application of the Wire Wager Act to Internet bookmakers — many of which can be, and often are, made in defense to prosecution of crimes committed via the Internet under other federal statutes — are unpersuasive.
II. The Rise Of The Internet Sports book
In the last several years, dozens of Internet sports books have sprung into existence. Many are located offshore, in Central American countries or on Carribean island nations where their bookmaking activities are not illegal. Notably, however, these sports books are frequently run by Americans and direct their activities to bettors in America interested in gambling on American sporting events such as baseball, football, and basketball. Typically, the books accept bets only in U.S. currency, and further require that all wagering be done from pre-funded betting "accounts." Toward this end, their websites provide instructions to bettors on how to wire transfer money to the sports books. Many advertise in U.S. magazines especially devoted to sports fans, in college newspapers, or on websites devoted to gambling generally or sports betting in particular. Indeed, some sports books' advertisements have represented that their operations are legal, and have sought to reassure bettors that they can be trusted because they hold licenses from, and are regulated by, their host countries. While some sports books operate entirely through Internet transmissions, others publish toll-free telephone numbers on their websites or in advertisements so that bettors can, if they choose, call and place wagers with a live operator. Notably, although many Internet sportsbooks purport to accept wagers only from persons having the legal capacity to gamble, the fact that most permit betting to be done anonymously or through pseudonyms precludes meaningful control of gambling by minors, much less by persons who are intoxicated, or by persons with gambling addictions.
While precise data regarding the scale of illegal activities is obviously difficult to obtain, illegal Internet sports gambling by Americans was estimated by Sports Illustrated in 1998 to exceed $600 million, with a ten-fold increase predicted by 2001. Indeed, in a recent trial of a sports book operator brought in the Southern District of New York involving an Antigua-based Internet sports book, the evidence established that over the course of one fifteen month period (when the business was just getting off the ground), Americans wire-transferred in excess of $4.8 million to the sports book in order to wager, and that the sports book was already sizeable (and profitable) enough to accept a $10,000 wager on the outcome of a single football game. UnitedStates v. Jay Cohen, No. 98 Cr. 434 (S.D.N.Y. 1998)
III. The Statute
A. Section 1084(a)
Known colloquially as the "Wire Wager Act," Title 18, United States Code, Section 1084(a) provides that: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 placement 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.
The purpose of the statute is two-fold:
(1)to assist the various States and the District of Columbia in the enforcement of their laws pertaining to gambling, bookmaking, and like offenses and [(2)] to aid in the suppression of organized gambling activities by prohibiting the use of wire communication facilities which are or will be used for the transmission of bets or wagers and gambling information in interstate and foreign commerce.
United States v. McDonough, 835 F.2d 1103, 1105 n.7 (5th Cir. 1988) (quoting legislative history). Section 1084, which was enacted in 1961 as part of a series of anti-racketeering laws, compliments other federal anti-bookmaking statutes. See e.g., 18 U.S.C. § 1952 (interstate travel in aid of racketeering enterprises (including enterprises involving gambling)), 18 U.S.C. §1953 (interstate transportation of wagering paraphernalia), and 18 U.S.C. § 1955 (prohibiting operation of illegal gambling businesses).
In order to establish a violation of Section 1084(a), the government must prove four things:
First, that the defendant was engaged in the business of betting or wagering — in other words, that unlike a casual bettor, he or she derived all or much of his income from the business of gambling. Thus, the statute typically has been enforced against bookmakers and those that work for bookmakers in connection with taking bets or wagers on sporting events or contests.
Second, that the defendant transmitted, in interstate or foreign commerce, any one of the following types of material: (a) bets or wagers; (b) information assisting in the placement of bets or wagers; or (c) a communication that entitled the recipient to receive money or credit as a result of the bet or wager.
Third, that the defendant used a "wire communication facility" to transmit these materials. A "wire communication facility" is defined in Section 1081 as:any and all instrumentalities, personnel, services (among other things, the receipt, forwarding, or delivery of communications) used or useful in the transmission of writings, signs, pictures, and sounds of all kind by aid of wire, cable, or other like connection between the points of origin and reception of such transmission.
Fourth, that the defendant acted "knowingly." Under prevailing caselaw, the defendant need not be shown to have known that he or she was violating the law. All that must be shown is that he or she knowingly, and not by accident or mistake, used a wire communications facility to engage in any one of the three prohibited forms of transmissions described.
B. Section 1084(b)'s Safe Harbor
Subsection (b) of Section 1084 provides two narrow exceptions to the prohibition imposed by Section 1084(a) on the foreign or interstate transmission of material in furtherance of a sports betting business. Subsection (b) provides that:Nothing contained in this section shall be construed to prevent the transmission in interstate or foreign commerce of information [(1)] for use in news reporting of sporting events or contests, or [(2)] for the transmission of information assisting in the placing of bets and wagers on a sporting event or contest from a State or foreign country where betting on that sporting event or contest is legal into a State or foreign country in which such betting is legal.
The first exemption was designed to permit "bona fide news reporting of sporting events or contests." H.R. Rep. No. 967, 87th Cong., 1st. Sess. (1961), reprinted in 1961 U.S.C.C.A.N. 2631, 2632. The second exception — under which Internet sports book operators frequently seek protection — was created for the discrete purpose of permitting the transmission of information relating to betting on particular sports where such betting was legal in both the state from which the information was sent and the state in which it was received. See, e.g., Sterling Suffolk Racecourse Ltd. v. Burrillville Racing Ass'n, 989 F.2d 1266, 1272-73 (1st Cir. 1993) (noting that "[t]he legislative history of section 1084 shows beyond peradventure that Congress enacted section 1084(b) for the express purpose of allowing off-track betting in venues where states chose to legalize such activity"). To fall within this aspect of the safe harbor two things must be established: (1) that only "information" was transmitted, and (2) that it was "legal" under the laws of the relevant states to place a bet on that sporting event in the jurisdiction from which the information was sent as well as the jurisdiction in which the information was received.
As the House Report which accompanied the introduction of Section 1084 explained, the second exemption was intended to permit "the transmission of gambling information on a horserace from a State where betting on that horserace is legal to a State where betting on that same horserace is legal." H.R. Rep. No. 967, 87th Cong., 1st. Sess. (1961), reprinted in 1961 U.S.C.C.A.N. 2631, 2632. Thus, Congress did not want to criminalize the transmission of information relating to horse races in New York to bettors in Nevada. See id. at 2632-33. The information, however, could not legally flow the other way. Because it was illegal under New York law to place a bet in New York on a horse race held in Nevada, this form of transmission fell outside the exemption contained in Section 1084(b). See id. at 2632.
It is important to remember, however, that the exemption only applies to "information assisting in the placing of bets and wagers on a sporting event or contest," and not to the other two categories of material to which Section 1084(a) applies: the "bets or wagers" themselves, or "communications which entitle the recipients to receive money or credit as a result of bets or wagers." 18 U.S.C. § 1084. See McDonough, 835 F.2d at 1105 ("'[n]othing in the exemption . . . will permit the transmission of bets and wagers . . . from or to any State, whether betting is legal in that State or not.'") (quoting legislative history).
IV. Defenses Raised To Enforcement And Why They Fail
Against the backdrop of a clearly new technology — the Internet — and a law concededly passed at a time when the Internet did not exist, a number of offshore Internet sports book operators charged under Section 1084(a) have claimed that the statute does not criminalize their bookmaking activities. Challenging prosecutions that have been brought in several districts, they have asserted numerous defenses which, while having superficial appeal, ultimately fail to withstand scrutiny. These arguments include the following:A. Lack of Extraterritorial Jurisdiction
A number of sports book operators have argued that they are immune because their conduct occurs entirely offshore. Arguing that their offices and employees as well as the computer servers that host their websites and record the bets are all physically located in other countries, defendants have claimed that when Americans access their websites, they make a "virtual visit" to the foreign country. Since sports betting is legal there, the argument continues, the Internet sports book is no more illegal than a casino in Nevada which caters to traditional visitors. Indeed, the sports books have argued, their operations are not subject to the regulation of any state or nation because everything occurs in "cyberspace."
While many of these sports books websites are hosted from computers based offshore (although some only purport to be), the notion that a person "travels" to these foreign nations by communicating with computers there is as persuasive as the notion that a person who picks up a telephone and dials a friend in London should first put on a raincoat. Section 1084(a) by its terms regulates transmissions in "interstate and foreign commerce," evidencing Congress' desire that the statute apply to conduct which occurs outside the United States but causes effects within the United States. After soliciting bets from Americans and inviting Americans to send them money, the notion that everything has happened "in cyberspace" and not the United States is similarly inaccurate. Tellingly, the idea of "cyberspace" as a discrete physical place comes from a science fiction novel. See William Gibson, Neuromancer 51 (1985).
Indeed, as one court colorfully stated in rejecting arguments by a lottery operator in Mexico who solicited bets from Texans:If pistol or poison takes intended criminal effect from Mexico in the United States, the United States may punish it if it can catch the criminals. The effect in the United States of the act done in Mexico draws to it jurisdiction to punish those who are responsible for it. It may properly be alleged as done in the UnitedStates. These mailed lottery receipts and checks are like bullets that hit their mark. . . . Jurisdiction exists from the standpoint of international law.
Horowitz v. United States, 63 F.2d 706, 709 (5th Cir. 1933). Accordingly, the use of the Internet, even from offshore locations, should not defeat application of Section 1084.
B. Legal in Host Country
A number of defendants have also argued that their conduct is expressly lawful under the laws of their host countries. Indeed, several point out, they are required to be licenced by their host governments, and can obtain licences only after allegedly undergoing rigorous screening by regulators in their host countries. Under such circumstances, it is claimed, enforcement of Section 1084(a) is improper. This argument also misses the point, for whether particular conduct is violative of foreign law is not determinative of whether it is violative of United States law. The Supreme Court has noted that even conduct expressly encouraged by foreign governments may violate United States law. See Hartford Fire Ins. Co. v. California, 509 U.S. 764, 795 (1993) ("the fact that conduct is lawful in the state in which it took place will not, itself, bar application of the United States antitrust laws, even where the foreign state has a strong policy to permit or encourage such conduct"). Moreover, since ignorance of law is no defense to a Section 1084(a) prosecution, reliance on the legality of conduct under foreign law should be similarly irrelevant. In sum, issues of foreign law have no place in a Section 1084(a) case, and prosecutors bringing such cases would do well to submit an in limine motion precluding resort to such a defense at the earliest hint that it may be asserted.
C. No "Transmission"
A number of defendants have argued that because Section 1084(a)'s reference to precluded transmissions applies only to communications initiated by the sports book, Internet sports books do not engage in prohibited transmissions since they merely make their websites available for viewing by the bettors, who take a "snapshot" of what is on the computer server hosting the website. This argument is also invalid because it ignores the fundamental technology of how the Internet is used to access computer websites. Simply put, that access involves a continual stream of two-way data transfers between the computers which support the website and the computer used by the person viewing the site. See Minnesota v. Granite Gate Resorts, 1996 WL 767431, at *9 (D. Minn. Dec. 11, 1996) (noting that if Internet sports book "did not send an electronic transmission back to the [Minnesota] computer user, the computer user would see nothing. He or she would see a blank screen.")
Additionally, every circuit to have considered the issue, save one, has held that "transmission" as used in Section 1084(a) involves both the sending and the receipt of communications by the bettor. The one Circuit to hold otherwise, United States v. Stonehouse, 452 F.2d 455, 456 (7th Cir. 1971), involved a defendant's receipt of a western Union wire ticker — a form of communication intrinsically limited to one-way communications of data.D. No "Bets or Wagers" Transmitted
Another common argument raised by Internet sports book operators is that their system of wagering, which requires betting from pre-funded wagering accounts and not on credit, somehow distinguishes their operations from the operation of traditional bookies who operate on credit. According to this argument, instructions to wager a specific amount of money on the outcome of a specific game constitute merely "information assisting in the placement of bets," with the transmission of the bets themselves being done entirely in the foreign nation by employees of the bookmaker acting as "agents" for the bettor. Because it is not a crime under the laws of many States to place a sports bet with a bookie, this argument posits that both requirements of Section 1084(b)'s safe harbor are therefore met when a person in a state where betting is not a crime wagers money from a pre-funded account with a bookmaker in a foreign nation where betting is legal. Of course, some state statutes do permit off-track horse wagering, and authorize such wagering based on the distinction between wagering on credit and wagering from pre-funded accounts (so-called "account wagering"). The problem for sports book operators who make this argument, however, is that Section 1084 makes no such distinction. Rather, Section 1084(a) prohibits the transmission of bets and wagers regardless of how the bookie and bettor structure their financial relationship. See United States v. Ross, 1999 WL 782749 (S.D.N.Y. Sep. 16, 1999), at *7. It would be absurd to think that Congress meant to make an entire class of transaction otherwise criminalized by Section 1084(a) dependent upon whether a bookie operated on credit or required cash-up-front from the bettor. See id.
In sum, while the statute specifically does not define what constitutes a "bet" or "wager," that lack of definition only means that a court should use the common and ordinary meaning of the term. The only reported case to do so has, not surprisingly, held that a bet or wager is transmitted when a person picks up a telephone (or accesses a computer connected to the Internet) and stakes a specific sum of money on the outcome of a specific sporting event. See Ross, 1999 WL 782749, at *5-7.E. Betting is Legal in State in Question
Finally, seizing upon the fact that some states do not make it a crime for a bettor to place a sports bet, a number of sports book operators have attempted to satisfy this requirement of the Section 1084(b) safe harbor by arguing that the only betting that does not qualify for the safe harbor is betting that is made criminal under state law. This argument also should be unavailing, for while it is true that placing a bet (without more) may not be a crime under state law, many states still prohibit such betting. See, e.g., N.Y. Const. Art. I, § 9 (prohibiting all betting not specifically authorized by the legislature); N.Y. Gen. Oblig. Law § 5-401 (all betting not expressly authorized by the legislature made "unlawful"). Once again, common sense understanding of the terms used in the statute should apply, and betting does not become "legal" simply because it is not made criminal.
V. Conclusion
Many of the challenges to Section 1084(a) prosecutions will likely be, or at least should be, resolved prior to trial. Consideration beforehand of those issues that frequently arise as defenses to prosecutions of Internet sports books will equip a prosecutor to explain to a court and, ultimately, to a jury, why the novelty of the medium does not translate into lack of enforceability.
ABOUT THE AUTHOR
Joseph V. DeMarco has been an Assistant United States Attorney in the Southern District of New York since 1997, where he serves as Computer and Telecommunications Crimes Coordinator. Currently, he is on detail to the Department's Computer Crime and Intellectual Property Section (CCIPS).
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