Department of Justice Criticizes Kyl Bil

28 June 1999
The U.S. Department of Justice has been highly critical of Arizona Senator Jon Kyl's Internet Gambling Prohibition Act. Upon the bill's escape from the Judiciary Committee earlier this month, acting Assistant Attorney General Jon. P. Jennings outlined the department's concerns in a letter to Judiciary Committee Chairman Orrin G. Hatch.

Among these concerns are the bill's overall ambiguity, its policy regarding Internet service providers, its failure to establish a policy toward Indian gaming and its definition of gambling. He also criticizes the bill's many exemptions (pari-mutuel betting, fantasy sports, state lotteries, etc.) and he warns that the bill will create overlapping federal gambling laws.


Text of correspondence from the Department of Justice, Office of Legislative Affairs:

The Honorable Orrin G. Hatch
Chairman
Committee on the Judiciary
United States Senate
Washington, DC 20510

Dear Mr. Chairman:

Thank you for the opportunity to present the views of the Department of Justice on S.692, the "Interior Gambling Prohibition Act of 1999."

As you know, current law prohibits the use of the Internet to engage in gambling activities related to sports betting. Under 18 U.S.C. § 1084, it is illegal to use a wire communication facility to transmit in interstate or foreign commerce bets or wages, or information assisting in the placement of bets or wages, on any sporting event or contest.

The Internet is a "wire communication facility," as defined in 18 U.S.C. § 1081. Indeed, even in those instances where the Internet travels over non-traditional communication facilities (i.e. microwave or satellite), the "wire communication facility" definition generally applies, because it includes facilities other than wire and cable that can aid in the transmission of data between "the points of origin and reception of such transmission."

We do recognize, however, that the Internet has allowed for new types of electronic gambling, including interactive games such as poker and blackjack that may not clearly be included within the types of gambling made illegal by section 1084. As a result, we strongly support your efforts to amend federal gambling statutes to ensure that new types of gambling activities made possible by emerging technologies are prohibited.

That said we also believe that any legislation making gambling activities on the Internet illegal should have three important characteristics. First, the legislation should treat physical activity and cyberactivity in the same way. If an activity is prohibited in the physical world but not on the Internet, then the Internet becomes a safe haven for that criminal activity. On the other hand, it may be equally hard to explain why conduct that is not a federal crime in the physical world suddenly becomes subject to federal criminal sanction when committed in cyberspace. Second, legislation should be technology-neutral. Legislation tied to a particular technology may quickly become obsolete and require further amendment. Last, it is critical that the law recognize that the Internet is different from prior modes of communication in that it is a multi-faceted communications medium that allows for both point-to-point transmission between two parties (like the telephone) as well as the widespread discrimination of information to a vast audience (like a newspaper). As a result, any prohibitions that are designed to prohibit criminal activity on the Internet must be carefully drafted in ways that accomplish the legislation's objectives without stifling the growth of the Internet or chilling its use as a communication medium.

With these overarching principles in mind, the Department of Justice is troubled by the proposal in S. 692 to create a new section 1085 of title 18, United States Code, to address the legality of Internet gambling. If enacted, section 1085 would substantially overlap and be inconsistent with existing federal gambling laws. We recommend that Congress first consider amending existing gambling laws, rather than creating new laws that specifically govern the Internet. Indeed, the Department of Justice believes that an amendment to section 1084 would satisfy most, if not all, of the issues addressed in S. 692, as well as ensure that the same laws apply to gambling businesses, whether they operate over the Internet or the telephone.

An amendment to section 1084 should address the following:

(1) to clarify that section 1084 applies to all betting or wagering (not merely betting or wagering on sports events) and includes the transmitting and receiving of bets and wages over wireless communication facilities;

(2) to require interactive computer service providers to cooperate with law enforcement agencies in the same manner as is currently required of common carriers and to grant such providers the same shield from liability that is currently provided to common carriers; and

(3) to explain that section 1084 applies to those engaged in the business of betting or wagering who are located outside the territorial jurisdiction of the United States, when those individuals facilitate or aid in unlawful betting and wagering by transmitting or receiving a bet or a wage from an individual located within the United States.

The following summarizes our suggestion for amending section 1084, both to explicitly cover Internet gambling and to eliminate possible ambiguities that currently exist in the law.

Some concern has been expressed that section 1084 does not include certain communication facilities, such as microwave or satellite. While we believe that these types of facilities are included within the definition of "wire communication facility," we recommend that references to "wire communication facility" be replaced with "wire or wireless communication facility" to remove any doubt as to whether microwaves or satellite facilities are covered by this section. In addition, a definition of "wireless communication facility" that includes microwave and satellite services should be placed in section 1081.

Another ambiguity can be eliminated from section 1084 through the inclusion of the word "or receipt" after "transmission" in subsections (a) and (b). This change would confirm the interpretations of many courts that section 1084 applies to those individuals in the business of betting or wagering who "receive" bets or wages, or information assisting in the placing of bets or wages from others. See e.g., United States v. Pezzino, S35 F 2D 483. 484 (9th Cir.) (per curium), cert. denied, 429 U.S. 839 (1976) (finding that section 1084 forbids "the use of interstate facilities for sending receiving wagering information").

The addition of "receipt" to paragraphs 1084 (a) and (b) would make it illegal not only to transmit or receive bets or wagers, but to transmit or receive information assisting in the placing of bets or wagers. The Department of Justice believes that this inclusion is necessary to ensure that federal gambling laws are comprehensive. We realize, however, that certain clarifications are necessary to the information provisions in section 1084 to ensure that the statute is constitutional, as well as consistent with other laws. Foremost, we believe that a definition of "information assisting the placement of bets and wagers" must be added to the statute. The Department of Justice is not proposing a specific definition for "information assisting the placement of bets and wagers" at the time, however, as we believe it prudent to await the Supreme Court's decision, expected later this month, in Greater New Orleans Broadcasting Ass'n v. United States, No. 98-387, a case that will likely affect the legality of restrictions on "commercial speech," including gambling advertising.

In addition, we recommend that 1084(a), along with the exceptions in 1084(b), be expanded to include all forms of betting and wagering, not only betting and wagering on sports events. These changes would only affect those in the business of betting and wagering and would leave primary enforcement of gambling laws, including those that apply to bettors, and to the states.

Currently, paragraph 1084(a) includes gambling activities that involve interstate or foreign commerce. However, we believe that it is necessary to expand this coverage to include the transmission or receipt of bets or wagers to or from U.S. residents and businesses or individuals on the high seas or in other locations not covered by interstate or foreign commerce. We suggest revising paragraph 1084(a) to include knowingly facilitating the transmission or receipt to or from an individual or gambling business located in the United States of bets or wagers, or information assisting in the placing of bets and wagers: (1) in interstate or foreign commerce; (2) within the special maritime and territorial jurisdiction of the United States; (3) any place outside the jurisdiction of any nation; or (4) any other location, to the extent permitted by international law.

This amendment would make unlawful those actions taken outside the Unites States that knowingly aid or facilitate betting activities by persons who are within the Unites States. In order to be consistent with existing law, section 1084 should specify that conduct occurring in a foreign country would not be unlawful insofar as it is permitted under a treaty to which the United States is a party.

We would also encourage Congress to amend section 1084 to require interactive computer service providers to remove or disable access to materials residing on their online sites when notified in writing by a law enforcement agency of a violation of the federal gambling laws. These providers, like common carriers currently regulated by the section, would not be liable for the removal or disabling of materials if they do so in compliance with any notice received from a law enforcement agency. If an interactive computer service provider received a notice and was not the proper recipient of the notice, the provider should be required by the amended section 1084 to cooperate, as required by law, with law enforcement agencies to identify the person or persons who control the site. In addition, a definition of interactive computer service provider should be added to section 1081.

As we noted previously, the Department of Justice believes that amending section 1084 as proposed would address many of the perceived problems that led to the introduction of S. 692. At the same time, it would avoid creating overlapping federal gambling laws, which we believe will result if S. 692 is enacted. While it is difficult for the Department to accurately assess all of the potential legal problems with S. 692 given this underlying conflicting law issue, we nonetheless offer comments that identify some of our specific concerns. We stress, however, that even if all of these concerns were addressed, the Department of Justice still would have reservations regarding the creation of section 1085. If Congress, however, chooses to enact section 1085 to specifically regulate Internet gambling, we strongly urge that our suggested revisions to section 1084 be made simultaneously to ensure that the federal gambling statues are consistent and unambiguous.

The Department of Justice's first concern with S. 692 is its exemption of certain forms of gambling from the ban on Internet gambling. Specifically, the Department of Justice opposes the exemption for pari-mutuel wagering and fantasy sports leagues because there are no legitimate reasons why these gambling operations should be exempted from the ban while other forms of gambling are not. The Department of Justice is especially troubled by the broad exemptions given to pari-mutuel wagering, which essentially would make legal on the Internet types of pari-mutuel wagering that are not legal in the physical world. The Department of Justice notes that S. 692 may incorrectly imply that the Interstate Horse Racing Act of 1978, 15 U.S.C. § 3001 et seq., allows for the legal transmission and receipt interstate pari-mutuel bets or wagers. The Interstate Horse Racing Act does not allow for such gambling and if a pari-mutuel wagering business currently transmits or receives interstate bets or wagers (as opposed to intrastate bets or wagers on the outcome of a race occurring in another state), it is violating federal gambling laws.

The Department of Justice is also of the opinion that there should be no special exemption for bets and wagers on fantasy sports leagues and contests, as we can think of no reason why bets or wagers on fantasy sports leagues should be allowed on the Internet when bets or wagers on sporting events and games of chance are not. If activities related to fantasy sports leagues and contests fall within section 1085's definition of "bets and wagers," they should be prohibited on the Internet.

The Department of Justice's last comment relating to the exemption provisions of S. 692 is that the bill does not address the issue of Indian gaming. We are concerned that S. 692 would make illegal those gaming activities occurring entirely on Indian lands that are currently legal under the Indian Gaming Regulatory Act ("IGRA").

We have reviewed the definitions of terms in S. 692 and found that the bill contains definitions that are different than those found in existing gambling statutes, expend the legality of certain types of gambling, raise conditional concerns, or are circular or overly expansive. For example, the definition of "bets or wagers" would make the scope of section 1085 much broader than the scope of section 1084. Section 1084 currently only prohibits bets or wagers on sporting events or contests, and does not prohibit the various other forms of gambling (i.e., games of chance, contest of others) prohibited by proposed section 1085. In order for "bets or wagers" to have the same meaning in sections 1084 and 1085, a definition of "bets and wagers" should be placed in section 1081 and the references to sporting events or contests should be stricken from section 1084.

Another definition that conflicts with existing laws is "gambling business" found in subsection (a)(4). For purposes of proposed section 1085, a "gambling business" is one that "involves 1 or more persons who conduct, finance, manage, supervise, direct, or own all or part of such business, and… has been or remains in substantially continuous operation for a period in excess of 10 days or has a gross revenue of $2,000 or more from such business during any 24-hour period." While the Department of Justice has no objections to this definition, we believe that the same definition of gambling business should govern sections 1084 and 1085. For consistency's sake, we suggest that this definition of "gambling business" be placed in section 1081 so that it is applicable to both sections 1084 and 1085 and that references to "business of betting or wagering" in 1084 be replaced with "gambling business."

An example of a definition that is circular is "closed-loop subscriber based service," found in subsection (a)(2). The term is defined as "any information service or system that uses … a device or combinations of devices …expressly authorized and operated in accordance with the laws of a State, exclusively for placing, receiving, or otherwise making a bet or wager described in subsection (f)(1)(B)." Subsection (f)(1)(B), in turn, defines such bets or wagers as those occurring on a closed-loop subscriber-based service. Thus, a "closed-loop subscriber-based service" is defined, in part as a "closed-loop subscriber-based service."

Subsection (a)(5)(A) defines "information assisting in the placing of a bet or wager" generally to mean "information that is intended by the sender or recipient to be used by a person engaged in the business of betting or wagering to place, receive, or otherwise make a bet or wager." Subsection (b)(1)(B), in turn, prohibits persons engaged in a gambling business from using the Internet or any other interactive computer service to "send, receive, or invite information assisting in the placing of a bet or wager." As discussed above, the constitutionality of restrictions on commercial speech, including gambling advertising, might be affected by the Supreme Court in Greater New Orleans later this month. We recommend that Congress wait until the Court has issued its decision in Greater New Orleans before attempting to craft any new advertising restrictions relating to gambling. Moreover, section (a)(3)(B) would treat information relating to pari-mutuel wagering activities more favorably than information relating to other betting. We see no reason why pari-mutuel wagering should be given such a preference.

Subsection (b)(1)(A) would make it unlawful "for a person engaged in a gambling business to use the Internet or any other interactive computer service … to place, receive, or otherwise make a bet or wager." Subsection (a)(6), in turn, would define "interactive computer service" to mean:

Any information service, system, or access software provider that uses a public communication infrastructure or operates in interstate or foreign commerce to provide or enable access by multiple users to a computer server, including specifically a server or system that provides access to the Internet.

This definition would appear to encompass "any information service, system, or access software provider that uses a public communication infrastructure," even if it does not "operate in interstate or foreign commerce to provide or enable access by multiple users to a computer server." This definition could include two computers that are networked to a single server that is not linked to the Internet or otherwise used in interstate or foreign commerce. Consequently, the prohibitions in subsection (b)(1)(A), which reference the broad definition, might give rise to constitutional challenges that application of the prohibitions in certain cases exceeds Congress's power under the Commerce Clause. See generally, United States v. Lopez 514 U.S. 549(1995); see also United States v. Denalli 73 F, 3d 328, 330o31 (11th Cir.) (per curium) (use of personal home computer unconnected to interstate phone lines does not necessarily affect interstate commerce), modified, 90 F.3d 444 (11th Cir. 1996).

The risk of challenge, however, could readily be avoided by replacing the words "public communication infrastructure" with "channel or instrumentality of interstate or foreign commerce." The definition then should, for example, be satisfied by a showing that use of the interactive computer service in question entails use of telephone lines, which typically are instrumentalities of interstate commerce. See e.g. United States v. Clayton. 108 F.3d 1114, 1117 (9th Cir. 1997). In addition, we are concerned that the second part of the definition relating to those services that operate in interstate or foreign commerce is too limiting and will exclude those services that operate on the high seas or in other locations not covered by interstate or foreign commerce.

The definition of "private network" in subsection (a)(10) is too expansive. The definition includes a "communications channel or channels, including voice or computer data transmission facilities, that use either…private dedicated lines; or…the public communications infrastructure, if the infrastructure is secured by means of the appropriate private communications technology to prevent unauthorized access." This definition arguably would make all of a common carrier's system a private network since common carriers have in place mechanisms to prevent unauthorized access to their system. For example, a common carrier that uses safeguards to insure that a telephone customer's conversation is private and not readily accessible would be opening a private network under this definition.

The Department of Justice also has identified certain subscripts of the prohibitions section which raise several issues. For example, subsection (b)(1) should include an intent requirement if criminal penalties are to be imposed, a task which could be accomplished by placing "knowingly" after "person" and before "engaged." In addition S. 692 generally criminalizes both the sending and receiving bets by a person engaged in the gambling business, but the penalties section in subsection (b)(2)(a)(i) only provides for a fine of the greater of $20,000 or the "amount that such person received in bets or wagers. Under this section, a sender of bets or wagers could only be fined $20,000 while a receiver of bets or wagers potentially could pay a larger fine. Another potential problem is that subsection (b)(2)(B) states that an individual who engages in prohibited activities under the act shall be imprisoned "not more than 4 years," which is more than the two year penalty assessed for those who engage in prohibited gambling activities under section 1084. Also, subsection (b)(3) allows a court upon conviction of a person under 1085, to issue a permanent injunction enjoining that person from transmitting bets or wagers or information assisting in the placing of bets or wagers, and labels such an injunction "an additional penalty." Permanent injunctions generally are not punitive in nature and should not be labeled as penalties.

The Department of Justice has determined that several sections of S. 692 establish legal standards for law enforcement agencies that are inconsistent with existing legal standards. Specifically, we have identified problems with subsection (d)(4)(B), "Disclaimer of Obligations," subsection (d)(2)(A), "Notice to Interactive Computer Service Providers," and subsection (d)(3)(D), "Notice and Ex Parte Orders." Each of those subsections cite to "orders" or "subpoenas" that are required before federal or state law enforcement agencies may act. Unfortunately, these sections improperly imply that a court order is needed in situations where it is currently not, or state that a subpoena is sufficient when a court order is actually needed. We believe that to be consistent with existing law, "as required by a notice of an order of a court" in subsection (d)(4)(B) and "upon receipt of a subpoena" in subsection (d)(2)(A) should be replaced with "as required by law." In addition, the phrase "for orders ensuring the preservation of evidence or other orders having no material adverse effect on the operation of the communications network of the service providers" in subsection (d)(3)(D) should be stricken and replaced with "except as allowed by law."

Regarding the subsections related to civil and injunctive relief, we have five observations. First, S. 692 provides that federal district courts will have original, exclusive, and "continuing" jurisdiction over civil actions to enjoin violations of section 1085. Federal jurisdiction statutes do not actually specify that jurisdiction is "continuing" nor do they need it to do so. We worry that including such language here might lead to negative inferences regarding other jurisdictional statutes.

Second, the bill provides for temporary restraining orders to be issued after providing notice. Temporary restraining orders ordinarily are issues without notice. To be consistent with existing law, subsection (d)(3) should reference "preliminary injunctions" rather than "temporary restraining orders."

Third, subsection (d)(3)(B) establishes a "probable cause" standard for the issuance of an ex parte temporary restraining order. Probable cause is a criminal rather than civil standard of proof. As written, the bill could require a higher showing than a temporary restraining order usually requires. In addition, the bill could be read to permit the government to seek an ex parte temporary restraining order without the usual showings regarding imminent injury and infeasibility of notice. We are concerned that this deviation from the Federal Rules may raise constitutional concerns, at least in some applications. Also, the provision in subsection (o)(3)(B)(i) for an ex parte temporary restraining order that last 30 days is inconsistent with the current legal requirement that a temporary restraining order lasts for 10 days, with the possibility of one 10 day extension.

Fourth, subsection (d)(3)(A) permits suits against interactive computer service providers by "Federal or State law enforcement agencies" while subsections (e)(2)(A) and (e)(2)(B) provides for suits to enjoin violations of section 1085 by the United States or state Attorneys General. The Department believes that both sections should only allow the Untied States and/or Attorneys General to bring suit. This is particularly important in light of the Attorney General's pledged authority to conduct and supervise all litigation, criminal and civil, on behalf of the United States Government. See e.g. 38 U.S.C. §§ 516, 519.

Fifth, subsection (d)(4)(B)(ii) references a "notice or an order of a court under this paragraph," even though the paragraph contains no authorization for any notice or order. In addition, this section may unduly limit the ability of law enforcement agencies to gain access to materials.

The Department has one additional general concern with S. 692. Section 3, entitled "Report on Enforcement," requires the Attorney General to submit to Congress within three years of the date of enactment of the bill a report analyzing the problems associated with enforcing section 1085, recommendations for the best use of the Department of Justice's resources in enforcing this section, and estimates on the amount of activity and money being used to gamble on the Internet. We believe the requirements of this section are unnecessary, burdensome, and would require a diversion of the Department's resources.

Again, thank you for the opportunity to comment on this legislation. Please do not hesitate to call on us to answer ant question you may have regarding the suggestions discussed in this letter or if you would like the Department of Justice to provide any additional assistance. We look forward to discussing this matter with you further. The Office of Management and Budget has advised that there is no objection from the standpoint of the Administration's program to the presentation of this report.

Sincerely,

Jon. P. Jennings
Acting Assistant Attorney General

cc: The Honorable Patrick J. Leahy
Ranking Minority Member