Legal Issues
Legal Status of Internet Casinos and Online Gambling  in USA

There is disagreement between the U.S. Department of Justice and the U.S. courts over whether or not
Internet gambling is legal in the United States. At issue are two laws: the
U.S. Wire Act of 1961, which prohibited gambling over the “wires,” and the Professional and Amateur
Sports Protection Act of 1992 (PASPA), which banned sports wagering in all states except those with pre-
existing operations (Nevada, Oregon and Delaware).

The Justice Department in both the Clinton and Bush administrations has expressed the view that the U.S.
Wire Act of 1961 applies to all forms of Internet gambling, and therefore it is illegal under existing law.

However, the U.S. Court of Appeals for the Fifth Circuit interpreted the Wire Act differently. In Thompson v.
MasterCard International et al., the appeals court in 2002 affirmed a lower court ruling that under federal
statutes sports betting conducted over the Internet is illegal, but casino games are legal.

Separately, the Word Trade Organization (WTO) issued an interim ruling in 2004 that found the aggressive
efforts of the U.S. government to curb Internet gambling in violation of WTO commercial services accords.
The ruling, which gives the WTO the authority to impose trade sanctions against the United States, stems
from a complaint filed in 2003 by the Caribbean island nation of Antigua and Barbuda.
Federal Legislation

Because of disagreements over the legal interpretation of the Wire Act, Congress has taken steps to pass
legislation that would explicitly ban Internet gambling. These efforts have been unsuccessful largely
because of the potentially broad impact of a ban on a variety of interests, including Internet service
providers, state governments, and different segments of the gaming industry.

With an outright ban meeting significant resistance, lawmakers in 2001 began to take a different tack:
They introduced legislation that would ban the use of credit cards and other financial instruments for the
purpose of illegal Internet gambling.

Instead of attempting to ban Internet gambling, other members have introduced legislation that would
establish a study committee to explore the licensing, regulation and taxation of these sites.

While the U.S. Senate in 1998 passed a bill that included an amendment to ban Internet gambling, the U.
S. House of Representatives failed to approve a similar measure, so it died at the end of the 105th
Congress. In the 108th Congress, the House of Representatives passed a bill in 2003 to ban the use of
financial instruments for the purpose of Internet gambling, but a similar measure in the Senate has not
received final approval.

State Legislation

In 2001, Nevada — the first state to legalize casino gambling in 1931 — made another pioneering move in
gaming by passing legislation that allowed the Nevada Gaming Commission, working with the Nevada
Gaming Control Board, to adopt regulations governing the licensing and operation of interactive gaming in
the state. Before such regulations could be adopted, however, the law required Nevada regulators to
study Internet gambling systems and determine if the proper technology and security measures existed to
regulate it and prevent access by minors.

Even if regulators found that Internet gambling in Nevada could be adequately controlled, they also were
required by the state legislature to determine if interactive gaming could be operated in compliance with
federal law. In 2002, the U.S. Department of Justice advised Nevada of its view that federal law currently
prohibits gambling over the Internet, including casino-style gambling, halting the state’s efforts to legalize,
regulate and tax Internet gambling.

While Nevada took steps to legalize Internet gambling should the federal government ever legalize it,
other states took the opposite course. Today, Illinois, Louisiana, Michigan, Oregon and South Dakota all
have in place laws expressly banning Internet gambling within their borders. Additionally, attorneys
general in Minnesota, Missouri, New Jersey, New York and Wisconsin have indicated that they would deter
the practice by working to enforce existing law.

© 2003 American Gaming Association                                                                    x
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