The Law of Internet Gambling (Page 4)

28 October 1999
    C. Regulation and prohibition of gambling is based on the state's police power.

      1. There may be few published appellate decisions on the legality of Internet gambling. But, the question of a government's ability, under its police power, to control the transmission of gambling information and wagers was resolved years ago. See, e.g. People v. Milano, Cal.App.3d 153, 152 Cal.Rptr. 318 (1979) and the cases cited therein. "Not only does the Legislature have the power to completely prohibit wagering on horse races, but it may also limit such wagering to persons physically present within the enclosure," Advanced Delivery Service, Inc. v. Gates, 183 Cal.App.3d 967, 228 Cal.Rptr. 557 (1986).

      2. The law of nations holds that every state has the right, perhaps even the obligation, to protect the health, safety and welfare of its citizens.

        a. The police power is most commonly connected with governmental action taken in emergency situations, especially where public health is endangered, a s in an epidemic.

        b. But gambling, licensed or illegal, even legal lotteries, has always been held to fall within a state's police power.

      3. The police power has three interesting, and unusual, attributes:

        a. A state's power is virtually unlimited.

          (1) When a state is faced with a threat to the health, safety and welfare of its citizens, particularly in an emergency, the police power prevails, trumping constitutional and other legal rights. At its most extreme, government can even take life without due process safeguards -- the police do not conduct evidentiary hearings before shooting a madman firing a rifle.

          (2) Because gambling is treated as a police power issue, governments can act in ways that would be unthinkable in other commercial and social settings. "The police power of the State to suppress gambling is practically unrestrained," Mills v. Agnew, 286 F.Supp. 107 (Md.1968).

        b. A state's police power is often tied to morality, and gambling is a morally suspect industry.

          (1) Governments' response to the development of the Internet is typical o f strong moral views driving public policy. On July 1, 1997, President Clinton and Vice President Gore issued "A Framework For Global Electronic Commerce." The document is a model of viewing the Internet as a problem in communications law.

            (a) Under "Content" it reads, "The U.S. government supports the broadest possible free flow of information across international borders. This includes most informational material now accessible and transmitted through the Internet..."

            (b) The report endorses the view that parents and private industry, through ratings systems, filtering devices and other technology, can take care of potential problems, such as children's access to pornography.

          (2) But the first concrete Internet law supported by the Administration was a ban on Internet pornography. Free speech is all right in theory, but the urge to uphold society's moral norms is so great that the government's first response to the new technology was to assume the role of censor.

        c. A state's police power is a local issue. We are, after all, dealing with state police power. See, e.g., Winshare Club of Canada v. Dept. of Legal Affairs, 542 So.2d 974 (Fla. 1989) (upholding state's power to exclude foreign lottery tickets). Larger government organizations like federations almost never become involved, unless the threat to society is beyond the control of local government.

          (1) During the formative stages of modern governments the protection of citizens' health and safety was best left to authorities on the scene. Given the technology existing then, and perhaps even today, the major threats of fire and disease were not controllable from distant national capitols.

          (2) Morality also was and still is decided primarily at the local level. States tend to be small enough to appear homogeneous, or at least dominated by a single religion. In the American system states are encouraged to experiment. New Jersey's experiment with using large land-based casinos as a tool of urban redevelopment failed, but Iowa's refinement of the idea -- putting the casinos on river boats -- has been copied by half-a-dozen other states.

    D. Police power as a requisite of state government cuts two ways.

      1. It is well established under international law that a state's police power within its own borders is virtually absolute. And a state may exercise power over its owns citizens while they are abroad, so long as there is no interference with the foreign country's sovereignty.
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      2. But states, even in the same federation, are not allowed to interfere in the internal affairs of other states. Governments are not supposed to impose their morality on citizens of another government residing in their home states.

      3. The Schindler case, reaffirmed this police power for European states. Her Majesty's Customs and Excise v. Gerhart Schindler and Joerg Schindler, Reference for a Preliminary Ruling: High Court of Justice, Queen's Bench Division - United Kingdom, Court of Justice of the European Communities, Case C-275/92, Doc.Num. 692J0275, Reports of Cases 1994 I-1039 (Judgment Mar. 24, 1994).

        a. The Court of Justice of the European Communities had to decide whether the United Kingdom could keep out advertisements and tickets of legal German lotteries.

        b. The Court held that lotteries are "services" within the meaning of article 60 of the EEC Treaty. Article 59 prohibits a Member State from putting obstacles on cross-border services.

        c. But, in a remarkable declaration of a state's power to control all forms of gambling within its borders, the Court declared that "given the peculiar nature of lotteries," the U.K. could restrict or even prohibit lotteries from other EEC Member States, provided those restrictions were not discriminatory.

    E. Sovereignty.

      1. Is it truly legal in the foreign licensing jurisdiction?

        a. It is difficult to know if an Internet gambling operator, who claims to be licensed by a foreign government, is actually licensed. Operators have claimed to be licensed by the following governments: Antigua and Barbuda, Aruba (part of the Kingdom of the Netherlands), Belize, Cook Islands, Costa Rica, Curacao in the Netherland Antilles (part of the Kingdom o f the Netherlands), Dominica, Dominican Republic, England in the United Kingdom, Gibraltar (dependent territory of the United Kingdom), Grand Turk in the Turks and Caicos (dependent territory of the United Kingdom), Grenada, Monaco, New South Wales in Australia, Northern Territory in Australia, the Solomon Islands, St. Kitts and Nevis, St. Vincent and the Grenadines, Trinidad and Tobago, and Venezuela.

        b. If the operator is licensed, does the license allow accepting wagers over the Internet from Americans?

          (1) The head of the biggest illegal telephone sports betting ring in history, Ron "The Cigar" Sacco, was arrested by police of the Dominican Republic for violating local gambling laws, because the Dominican Republic only allowed local betting, and Sacco was taking phone bets from the United States.

          (2) Sacco was then deported to the U.S. as an undesirable alien.

        c. Does the governmental body that issued the licensed have the authority?

          (1) For example, do Gibraltar and the Turks and Caicos, both dependent territories of the United Kingdom, have the power to authorize gambling in contravention of laws of the U.K.?

          (2) The Canadian Pari-Mutuel Agency's Executive Director, Elizabeth Massey, ruled that she lacked jurisdiction to allow a track to take bets online, because it would violate Canada's federal Criminal Code. A federal court in Toronto upheld her decision to deny an amendment to the Ontario Jockey Club's wagering permit. Association of Racing Commissioners International, Inc., "Canadian Court Denies Internet Application," 64 Bulletin No.3 at p.1 (Feb. 24, 1998).

      2. Being legal in another jurisdiction is not necessarily protection.

        a. The federal government can exercise jurisdiction over foreign national acting legally in their own country, if the statute is sufficiently explicit, and the detrimental effects from defendant's activities are felt in this country.

        b. In United States v. Moncini, 882 F.2d 401 (9th Cir. 1989), defendant was convicted in the United States District Court for the Central District of California, of mailing child pornography from Italy, where such mailing was legal. Prosecutors argued two possible bases for jurisdiction over Moncini:

          (1) Jurisdiction is proper if part of the offense occurred within the United States. See Rocha v. United States, 288 F.2d 545, 547 (9th Cir.1961).

          (2) Jurisdiction is proper even if no part of the offense occurred in t he United States, if grounds for exercising extraterritorial jurisdiction are present. Id. at 548.

          (3) Here, the 9th Circuit held under the specific statutes involved, mailing of child pornography was a continuing offense, so that part of the offense was committed in the United States as the letters traveled through the mail and were delivered to their destination. The Court specifically rejected defendant's argument that the crime was complete at the time the letter was deposited in the mail in Italy.
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        c. Congress has power under the Commerce Clause and its police power to regulate or prohibit legal gambling that crosses state or national boundaries.

          (1) The United State Supreme Court upheld a conviction under the Wagering Paraphernalia Act for carrying legal New Hampshire Sweepstakes acknowledgments across the state line into New York. United States v. Fabrizio, 385 U.S. 263 (1966). The federal anti-lottery laws apply to legal as well as illegal lotteries.

          (2) In Martin v. United States, 389 F.2d 895 (5th 1968), convictions were upheld on a business that took bets in Texas, telephoned partners in Nevada, and placed the bets with licensed Las Vegas sports books. The federal law here was designed to help enforce anti-gambling policies of states.

      3. Internet gambling operated by a foreign government is, in theory if not practice, also subject to U.S. federal and state laws. Liechtenstein operates an Internet lottery that solicits American customers.

        a. Foreign governments are, in general, immune under the act of state doctrine. Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. ??1602-1611; Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398 (1964).

        b. Under established international law, states and countries do not execute the criminal laws of foreign countries. If a foreign law is violated, prosecution must occur in that foreign forum, not in the United States.

        c. But, "a foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case... in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States." 28 U.S.C. ??1605.

        d. "As to any claim for relief with respect to which a foreign state is not entitled to immunity under ?1605... the foreign state shall be liable in the same manner and to the same extent as a private individual under like circumstances; but a foreign state except for an agency or instrumentality thereof shall not be liable for punitive damages..."

        e. "As the legislative history of the FSIA reveals, contracts for the purchase or sale of goods or services are presumptively 'commercial activities,'" Rush-Presbyterian-St. Luke's Medical Center v. The Hellenic Republic, a Foreign Country, 877 F.2d 574 (7th Cir. 1989).

      4. But there have to be limits. Can the government of France arrest U.S. operators for using English?

    F. Treaties -- Mutual Legal Assistance Treaties ("MLATs").

      1. Comity, countries respecting the criminal law, in particular, of other countries, has been formalized in treaties.

      2. There are a number of MLATs requiring a country to exercise moderation and restraint before it attempts to unilaterally enforce its laws on foreign citizens in their home countries.

        a. Under the MLAT between the U.S. and the U.K., S. Treaty Doc. No. 104-2, 1994 WL 855115, the American government would be required to enter into consultations with the government of England before U.S. officials could subpoena the bank records of a U.K. Internet gambling operator.

        b. The MLAT calls for the offended government, in this case the U.S., to try civil means, non-criminal enforcement, before taking criminal-like action, such as seizing assets.

    G. Right to due process, be present at trial and confront witnesses.
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      1. Civil suits -- due process, 5th and 14th Amendments; problems of personal jurisdiction.

      2. Criminal cases.

        a. The law of nations holds that governments are almost never allowed to impose their criminal laws on foreign citizens in foreign States.

        b. Even U.S. citizens may be safe, if they refuse to come voluntarily to the U.S. for trial: The U.S. does not allow true trials in absentia.

          (1) Criminal defendants have the right to be present at trial.

            (a) Sixth Amendment constitutional right to confront witnesses.

            (b) Common law right to be present at trial, codified at F.R.Crim.P. 43.

            (c) However, right may be voluntarily waived, by actions of defendant. Diaz v. United States, 223 U.S. 442, 456-58 (1912); F.R.Crim.P. 43(b) (continued presence not required).

          (2) Extradition is difficult; extradition treaties may cover criminal fraud, but there are no extradition treaties for illegal gambling, especially if it is licensed by the treaty partner and "illegal" only in the view of the U.S.

          (3) Government sanctioned "kidnaping" is allowed only for heinous and major crimes. It takes an extraordinary situation for a country, like the United States, to invade another country -- say Panama -- to arrest a citizen of that country, Manuel Noriega, for violating American drug laws. United States v. Noriega, 746 F.Supp. 1506 (S.D. Fla. 1990) (seizure upheld).

Other Sources:

  • American Bar Association-Center for Continuing Legal Education, Gaming Enforcement II (1998).
  • Anthony Cabot, The Internet Gambling Report (1997) and Internet Gambling Report II (1998).
  • Harley J. Goldstein, On-line Gambling: Down to the Wire?, 8 Marq. Sports L.J. 1 (Fall 1997).
  • Seth Gorman and Antony Loo, Blackjack or Bust: Can U.S. Law Stop Internet Gambling?, 16 Loy.L.A.Ent.L.J. 667 (1996).
  • John Edmund Hogan, Comment: World Wide Wager: The Feasibility of Internet Gambling Regulation, 8 Seton Hall Const. L.J. 815 (Summer 1998).
  • Internet Gaming International - Newsletter (A Liebert Publication: w
  • Joseph Kelly, Internet Gaming: What are the odds for on-line betting sites and casinos reaching their full potential?, 148 New Law J. 455 (Mar 27, 1998).
  • Joseph Kelly, Internet Gaming Law, manuscript, to be published (Feb. 1999).
  • Claire Ann Koegler, Here Come the Cybercops 3: Betting on the Net, 22 Nova L.R. 545 (Winter, 1998).
  • Scott M. Montpas, Gambling On-line: For a Hundred Dollars, I Bet You Government Regulation Will Not Stop the Newest Form of Gambling, 22 U. Dayton L.R. 163 (Fall, 1996).
  • Nicholas Robbins, Baby Needs a New Pair of Cybershoes: The Legality of Casino Gambling on the Internet, 2 B.U.J.Sci.&Tech.L. 7 (April 8, 1996).
  • Symposium: "The Internet and the Sovereign State: The Role and Impact of Cyberspace on National and Global Governance," 5 Ind.J.Global Legal Stud. 415 (1998).
  • Mark G. Tratos, Gaming on the Internet, 3 Stan.J.L.Bus.&Fin. 101 (Winter, 1997).

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