New Wire Act Interpretation Biggest Hit likely on Out-of-State Payment Processing

• New interpretation of Wire Act now applies to all forms of online gambling not just sports betting

• Opinion is reversal for Justice Department opinion from 2011

• States that have legalized online gambling or plan to do so may think twice about sending payouts beyond their respective borders

• Legalized Web gambling businesses in the U.S. are yet to follow new guidelines

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A new interpretation of an old law has many in the online gambling sector more confused than ever. 

A legal opinion from the U.S. Department of Justice made public Monday January 14, 2019, but written some months earlier, applies a 1960's Wire Act law to all forms of Web gambling.  It was originally intended for sports betting and applied specifically to bet transmissions via land-line telephones across state lines. 

The opinion, which appears to have come just days before Jeff Sessions resigned as Attorney General, marks a reversal for the department, which under the Obama administration in 2011 said online gambling within states that does not involve sporting events would not violate the federal law.

The 2011 opinion opened the door for cash-strapped states and their lotteries to bring online gambling to their residents, as long as it did not involve interstate sports betting.

Nevada, New Jersey and Delaware legalized online gambling after that opinion was issued, and the three states have agreements allowing poker players to compete online across the states. Pennsylvania became the fourth state to legalize online casino gambling in 2017.

Over the past year, some of these states have begun to pool their poker players.  Under the new interpretation of the Wire Act, this could be viewed as unlawful.

The most immediate impact will likely be to payment processing transactions, particularly those across state lines.

This is especially problematic to those states that have either begun allowing sports betting or will do so in the near future.

That state list is greater than those currently offering online poker after the U.S. Supreme Court decision overturning decades of prohibition against the activity last May.  

New Jersey, Pennsylvania, Mississippi, Rhode Island, West Virginia, Delaware and New Mexico currently host sportsbooks in desigated locations within the state.  At least a half dozen other states plan to open sportsbooks in the next 6 to 12 months.

While none of these states permit online gambling for real money beyond their borders, most sports wagering companies do offer out-of-state payouts to non-residents who have won money while visiting their resepctive venues.  States like New Jersey, for example, see vast numbers of gamblers coming in to place bets at sportsbooks in the Meadowlands and Atlantic City from neighboring Pennsylvania and New York.  The vast majority of those wagering at West Virginia sportsbooks are traveling from Maryland, Pennsylvania, Virginia and Ohio.  The same is true for the Tunica, Mississippi sportsbooks where significant numbers of bettors come in from all over the Southeast, especially the Memphis, Tennessee area.

Large gambling operations like DraftKings and Caesars Entertainment depend on banking methods that could cross state lines.  This could result in non-residents being required to cash out winnings at designated locations.

Such a requirement would only serve to bolster up offshore companies that continue to thrive with online payouts available in just a matter of hours via Bitcoin.

So far, none of the US-based Web gambling companies have opted to follow the new guidelines.

- Aaron Goldstein, Gambling911.com