Outdated, Irrelevant and Still Problematic: DOJ’s New Outlook on the Wire Act of 1961

In January 2019, the Department of Justice issued a memorandum regarding the department’s new position on the meaning of the Wire Act. These new, apparently expanded, enforcement guidelines of an old, largely irrelevant federal law were viewed by many to have come out of left field.

At its core, the DOJ’s memorandum put into question several key enforcement aspects of the 1961 Wire Act’s applicability and interaction with other federal gambling statutes.

While some of those questions are starting to be resolved in courts across the country, the memorandum has created more uncertainties with states and operators invested in the recent gambling developments.

Keep Your Eye on the Ball

No matter how the Interstate Wire Act is interpreted, it is only one of many federal laws pertaining to gambling across the nation. PAPSA, for example, is another significant part of the federal legislative scheme around gambling.

The Supreme Court revisited PAPSA last year and deemed a part of it unconstitutional to spur the gambling renaissance our nation is currently undergoing. But both PAPSA and the Wire Act are simultaneously the law of the land, despites the latter’s age and the former’s key provision stricken down.

The Wire Act was passed roughly 30 years before PAPSA and was initially intended to target the use of wire communications to disrupt the mob’s gambling operations. A key characteristic of the Wire Act is its jurisdiction over interstate gambling. This has allowed for the expansion of intra-state gambling to occur without significant interference from the Wire Act.

UIGEA Concerns: Is Intra-State Gambling Even Possible?

Despite all of the new gambling regulations that are going into place on a state-by-state basis, almost all new gambling operations rely on interstate wire communications via internet routing.

There is no way the Wire Act authors could have had the internet in mind when they created the law, but nonetheless the law applies to such interstate wire communications. Several nefarious offshore betting operators found this out the hard way back in the 90s and 2000s when the Wire Act was applied as such.

One unresolved issue around the Wire Act is its applicability to intermediate transmissions of wagers and information through the internet. To avoid the Wire Act’s inter-state jurisdiction, states have taken to isolating their gambling operations to within their boundaries.

But these same operations, like everything else in modern life, rely heavily on the use of the internet. Based on the inevitabilities of internet infrastructure and routing, all internet use could be considered interstate activity.

In a Forbes article, Daniel Wallach recently described the problem of intermediate transmissions, or through internet routing, as adding an “unnecessary (and unintended) level of risk to companies operating legally even in those states that have authorized mobile sports betting.”

In the footnotes of the DOJ’s 2018 memo the issue is briefly addressed. A legal theory forwarded in other federal legislation, the UIGEA, could have dispensed of the intermediate transmission issue but was specifically rejected in the fine print of the DOJ memo. This issue will likely need to be litigated or addressed Congressionally.

Wire Act Applicability Beyond Sports Gambling

The most notable stance taken in the 2018 memo was that the Wire Act applies to forms of gambling other than sports wagering. Without getting into the statutory interpretation issues at hand, the DOJ’s new interpretation hinged on the placement of a comma.

With the expanded applicability of the Wire Act came an increasing list of those affected by it and those opposed to it. Interested parties from the DFS, poker, casino, and state lottery operations, who were previously thought to be excluded from the act’s purview, joined in opposition of the DOJ’s new interpretation.

The first victory for these now interested parties came by way of a United State District Court. In an action brought by the New Hampshire Lottery Commission (NHLC) challenging the Wire Act’s applicability to that state’s lottery, Federal Court Judge Paul Barbadoro ruled “that the Act is limited to sports gambling.”

While the decision is a decided victory for gambling operators all over the nation, many are questioning the durability of the decision. Even Judge Barbadoro admitted to likely not having the last word during a hearing before his decision, “No matter what decision I make, it will be appealed.”

Judge Barbadoro, who has personal experience drawing up laws and statutes in the Senate, has also referred to the Wire Act as, “a mess of a statute”. Which begs the question, why does the fate of so many newly-formed, state-sanctioned gambling operations teeter in the balance of an interpretation of a largely outdated, irrelevant, and ‘messy’ statute? A question probably best suited for the body of government responsible for the DOJ’s new enforcement groove: the Executive Branch.

FOIA Request Yet to be Fulfilled

The controversial nature of the DOJ’s memo has led many to ask what spurred on this action by the executive branch. Two months after the memo being released, New Jersey Attorney General Grewal filed a Freedom of Information Act (FOIA) request that sought “information relating to outside groups’ lobbying efforts urging the Department of Justice to reconsider this position.”

At the time the FOIA request was filed, the WSJ had just reported (paywall) a connection between Sheldon Adelson and the DOJ’s memo. The report described some of Adelson’s alleged lobbying efforts:

“In April 2017, one of the lobbyists sent a memo to top officials in the Justice Department, arguing that a 2011 opinion that benefited online gambling was wrong.”

With these matters at hand, AG Grewal’s FOIA requested communications between the DOJ and “any non-governmental actors or organizations, including but not limited to the Coalition to Stop Internet Gambling, Las Vegas Sands, the Lincoln Group, Sheldon Adelson, Blanche Lincoln, Charles Cooper, and Darryl Nirenberg” along with several Trump administration officials related to the DOJ’s Wire Act decision.

Standard operating procedure for the DOJ to process FOIA requests is usually within 20 days. Months have gone by since Grewal’s request and he has yet to receive a response. For this reason, Grewal announced in May that he had filed an action in the U.S. District Court in New Jersey. No judgments in this case have currently been handed down Be sure to keep track of our Legal Developments, as Grewal is dead-set on getting answers.

“It’s especially important that we figure out whether this federal crackdown is the result of a lobbying campaign by a single individual seeking to protect his personal business interests,” Said Grewal, likely referring to Adelson.

As the Republican Party’s largest donor in each of the last two election cycles, casino tycoon, and staunch opponent of online gambling, Sheldon Adelson sure would have the resources and motive to influence a new enforcement strategy by the DOJ.

Final Thoughts

State governments and private companies have invested significant time and resources into developing legal gaming markets. For the DOJ to pull a 180-degree about-face with regards to their enforcement of the Wire Act is counter-productive to those efforts

For now, enforcement of the new interpretation of the Wire Act has been frozen until June 14th, according to the 2019 DOJ memo itself and subsequent memos from outgoing Deputy U.S. Attorney General Rod Rosenstein.

With the DOJ’s restraints on enforcement coming to an end, how and against who the Wire Act will be enforced and what parties will challenge such enforcement is anybody’s guess.

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