Alerts

The House Always Wins: The DOJ Reverses Itself On The Wire Act

Alerts / January 24, 2019

On January 14, 2018, the U.S. Department of Justice expanded restrictions on online gambling, publicly releasing a November 2, 2018 opinion (the “Opinion”) from its Office of Legal Counsel. The opinion reversed DOJ’s previous guidance from 2011 that interpreted the prohibitions of the Wire Act, codified at 18 U.S.C. § 1084(a), as only applying to sports-related gambling. DOJ’s Opinion found that, contrary to its prior analysis, the language of the Wire Act was clear, such that all but one of its prohibitions extends beyond sports betting. More importantly, while businesses have a 90-day grace period to comply, the Opinion acknowledged that DOJ expects to actively enforce this new interpretation.

By way of background, the Wire Act became law in 1961 as a means to combat organized crime by prohibiting horse-racing and sports gambling over the country’s communication systems. Its application took on new importance decades later when it was used by DOJ to prosecute new online gambling offenses, garnering questions about the scope and intent of the law. While admitting the law is “not a model of artful drafting,” the Opinion goes into extensive detail and analysis of the language used in § 1084(a). Specifically, the Opinion finds that the phrase “on any sporting event or contest” applies to only one clause, for transmitting “information assisting in the placing of bets or wagers” on those events. According to DOJ, the remainder of § 1084(a) applies much more broadly, bringing ostensibly all online gaming under the auspices of the Wire Act. The significance of the decision for online gaming cannot be overstated. Even if a wager or bet is legal within the state where it is placed, the current nature of phone and internet routing makes it likely the information would nevertheless be transmitted across interstate lines, bringing it within the purview of the Wire Act.

On January 15, 2019, DOJ officially declared a 90-day grace period for all businesses to comply with the department’s new interpretation of the Wire Act. In a memorandum, Deputy Attorney General Rod Rosenstein explained that the “90-day window will give businesses that relied on the 2011 OLC opinion time to bring their operations into compliance with federal law.” However, Rosenstein warned that this 90-day grace period is not a safe harbor for violations. He further cautioned that he’d tasked DOJ Criminal Division’s Organized Crime and Gang Section with reviewing and approving “proposed Wire Act charges,” hinting at the enforcement regime to come.

The Opinion should be viewed against the backdrop of the Supreme Court’s May 2018 decision in Murphy v. NCAA. In Justice Alito’s landmark decision, the Supreme Court struck down the Professional and Amateur Sports Protection Act of 1992, paving the way for states outside Nevada to legalize sports betting. Delaware, New Jersey, Mississippi, West Virginia, Pennsylvania, and Rhode Island did just that, with other states poised to follow suit. With this recent sports-betting related activity comes an explosion of interest in online gaming — both sports related and non-sports related — and the federal government has taken note. With an ad hoc collection of state laws, the chances for corruption and inconsistent enforcement are rife, leading many to call for a uniform federal framework. Thus, on December 19, 2018, in a show of bipartisanship, Senators Orrin Hatch (R-UT) and Chuck Schumer (D-NY) introduced the Sports Wagering Market Integrity Act of 2018. Notably, the bill contains proposals to update the Wire Act to allow for certain interstate sports bets.

Insight into future enforcement only requires a brief look into the past. Despite the 2011 guidance, DOJ previously pursued actions against the non-sports online gambling community. On April 15, 2011, DOJ raided the three most popular poker sites on charges of fraud and money laundering, a day colloquially known as “Black Friday” within the poker community. The raid made the online poker industry all but obsolete in America. Of late, likely in part due to Murphy, online poker and other online gambling sites had started experiencing a resurgence. In May 2018, Nevada, Delaware, and New Jersey even formally launched a tri-state online poker compact, allowing residents of each state to play against each other. However, the Opinion may require another pivot for the industry to continue on an upswing.

The question now facing all involved in the online gaming market is how broadly DOJ will apply this new interpretation and what will be DOJ’s enforcement priorities. Considering that online gambling produces a significant revenue stream in a number of states, a legal battle is likely already brewing to push back on the limits of the Opinion. States that have legalized sports betting since Murphy have utilized a geographical gating technology to create intra-state sports betting, an innovation which may prove useful to shepherd other states into compliance with the Opinion. Nevertheless, the likelihood of pushback against the overhaul remains significant, and litigation is bound to ensue, shuffling the deck yet again. Until DOJ or the courts provide greater clarity, it is critical that companies consult with outside counsel in order to develop appropriate compliance programs within the 90-day grace period and to minimize future risk.

For more information and guidance on this topic, please contact George Stamboulidis, Jonathan New, Elizabeth McCurrach or another member of BakerHostetler’s White Collar, Investigations and Securities Enforcement and Litigation team.

Authorship Credit: George A. Stamboulidis, Jonathan B. New and Elizabeth G. McCurrach

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