Gambling on the internet has become an extremely popular pastime—even though it is illegal in many states.
Online sports betting, in particular, has increased on sites located in countries where gambling is legal—but is that also a violation of U.S. laws?
In an era when the internet is posing challenges across the entire legal landscape, the time is ripe for testing the validity of the various state gambling laws on their applicability to offshore internet gambling. Such tests would also place in the spotlight the activities of offshore gambling “bookies,” who give their customers the ability to place bets via the internet and collect payments or make payments to the bettors.
Some states have pursued criminal prosecutions against offshore bettors, but many of those prosecutions are based on laws that were enacted long before internet betting existed, in states such as New York. And even in those states where penal codes specifically reference internet betting, those statutes are vulnerable to constitutional argument regarding limiting the use of the web.
The statutes affect a sizeable number of Americans. In a New York Times article published on Dec. 5, columnist Adam Liptak writes, “Americans are estimated to annually place $150 billion in illegal wagers on sports”—an estimate that presumably includes betting activities both inside the U.S. and through offshore sites.
Addressing the legality of offshore gambling represents a challenge to authorities where it hits them hardest: their revenue streams.
Offshore gambling prosecution has become a source of income to state and federal governments. Based on their statutory ability to seize the proceeds of illegal activity, authorities have levied fines, and seized property and cash.
The two elements that trigger prosecution in many of the state gambling statutes are (1) bets must have been accepted by the defendant in the state; and/or (2) the bets must be made in the state.
The argument that a bet is not made in internet gambling until it is received at the offshore site needs to be decided by the various states.
Decisions upholding the theory that when the bet reaches and lands on the site in a foreign country, it is made there—and not in the state—would have far-reaching effects on gambling prosecutions. Such bets would not satisfy the argument that a bookie accepts and receives them.
Pursuant to Title 18 §981(a)(1)(c) of the U.S. penal code, which makes property forfeitable if derived as the proceeds of illegal activity, the government—by merely filing a complaint with the court—may get a warrant issued allowing the seizure of property.
Still, the law is underdeveloped, because plea deals are usually structured to maximize financial benefit for the prosecution and allow those arrested to avoid incarceration. Since gambling is prevalent throughout the U.S. in many legalized forms, and engaged in by a large portion of the population, prosecutors are not comfortable that juries will convict their fellow citizens for these crimes.
If the laws were contested, however, we would see fewer arrests and a stronger negotiating position for defendants against whom charges are brought.
The Federal Gambling Statute (Title 18 §1955) requires a finding of a violation of state gambling laws to bring charges against someone who was involved in such illegal activity. According to the statute, an illegal gambling business is defined as being “in violation of the law of a state or political subdivision….”
If there is no state law violation, then there is no federal prosecution.
In fact, efforts to contest the validity of state gambling laws are likely to result in a finding that many are inapplicable to offshore gambling. When those laws are invalidated, there can be no federal violation and no property seizures.
The laws of the 50 states concerning gambling are varied and contain significantly different provisions. Many like NY Penal Code §225.10, which defines promoting gambling in the first degree (the felony section), contain the material element that the defendant “receives or accepts … bets … .”
Typically, a defendant is charged with being a bookie because he/she is the person arranging for the bettor to have the ability to use the offshore website to place bets. The bookie also collects and distributes funds to the bettor based on wins or losses. Before internet gambling, the bookie would receive the bets from the bettor.
The law in New York was written to make such activity illegal and required that the defendant “receives or accepts … bets …
Similarly, in Alabama, bookmaking is described as “unlawfully accepting bets from members of the public as a business …” This echoes New York’s requirement that bets must be accepted to violate the law.
However, under Alaska’s penal code §11.66.200(a) “a person commits the crime of promoting gambling in the first degree if the person promotes or profits from the unlawful gambling enterprise.”
Here, there is no requirement of accepting bets to violate the statute. Additionally, Indiana’s penal code §35-45-5.3 declares that gambling is committed if one “… accepts or offers to accept, for profit money or property risked in gambling …”
The mere acceptance of money or property without the requirement of accepting bets violates the Alabama statute. With internet gambling, the defendant never receives nor accepts bets. The bets are sent by computer to a site in a country where gambling is legal and where the bets are received and accepted.
This material element of the New York statute is not violated by internet gambling.
This issue was never tested in New York, although hundreds of offshore gambling cases have been brought under this statute. In a September, 2017 case in the Supreme Court of Queens County (New York), I made a motion to dismiss an indictment under this theory.
While the Court denied the motion, the defendant was offered a far better plea resolution than the prosecution might have presented if there were no risk to the prosecutors of a reversal on appeal.
There are states whose gambling statutes make it illegal to use the internet to promote gambling. An example is the above-mentioned Indiana Statute, which states that a person commits professional unlawful gambling when he or she is “an operator who knowingly or intentionally uses the internet to engage in unlawful gambling in Indiana.”
This is a felony.
While most states have not reached this level of sophistication, the challenges passed by such laws differ from those discussed above. However, because of the various constitutional issues involved in criminalizing the use of the Internet, there are often safe havens that exist in the statute.
Indiana’s law states that “a prosecuting attorney may send written notice to an operator … The notice must (1) specify the illegal gambling activity; (2) state that the operator has not more than thirty (30) days…to remove the illegal gambling activity and…” if he does not do so he can be criminally prosecuted.
This section specifically refers to an operator who is defined as “a person who owns, maintains or operates an internet site that is used for interactive gambling.”
Thus, compliance with notice would seem to avoid criminal prosecution.
Again, since internet offshore gambling did not exist when many of these laws were written, they cannot be held to be applicable.
It’s time to litigate the underlying premises of the various state illegal gambling statutes, particularly those that require the acceptance of bets.
Jeffrey C. Hoffman is a white-collar defense and corporate investigation lawyer at Windels Marx Lane & Mittendorf, LLP, a full-service law firm headquartered in New York City. In his 40-plus years as a lawyer, he has tried more than 100 criminal jury trials and has represented clients in matters involving money laundering, criminal forfeiture of property and restitution. He can be reached at email@example.com. He welcomes readers’ comments.