Content-Length: 161581 Content-Type: text/html; charset=UTF-8 Internet Gambling Report II ... Enforcement Responsibility and Issues in the United States

CHAPTER 10

ENFORCEMENT
RESPONSIBILITY AND ISSUES
IN THE UNITED STATES

Co-authored by Kevin D. Doty⁹⁷

ntil recently, the federal government in the United States had not attempted to become involved in establishing gambling policy, but deferred discretion in these matter to the state and local governments. Rather than preempting state laws, federal laws governing

gambling crimes were designed to aid the states in the enforcement of their gambling laws. As evidenced by the creation of the National Gambling Impact Study Commission, the federal government's role in regulating gambling appears to be changing.⁹⁸

Increased federal interest may not result in new regulations for traditional forms of gambling that are easily subject to the police power of the individual states. In the area of Internet gambling, however, the federal government may, by either interest or necessity, begin to play a very prominent role.

97 Kevin D. Doty is a member of the Gaming Law Group of the Nevada law firm of Lionel Sawyer & Collins.

98 The increased federal interest in regulating gambling in general may be a result of the ever-expanding role that legalized gaming plays in the national economy. For a detailed analysis of the economics and regulation of legal gaming, See Cabot, Casino Gaming: supra note 3.

Except sports wagering, federal law does not prohibit purely intrastate gambling over any type of communication medium. For example, a state could legalize an online lottery, race book or casino if it limits entry to only state residents. For many years, Nevada has allowed sports and horserace bettors to place telephone wagers with Nevada race and sportsbooks.⁹⁹

An exception in the federal law provides a window of opportunity for interstate wagering over the Internet.¹⁰⁰ The Federal Wire Act exempts the transmission of wagering information from a state or place where gambling on the event is legal to a state or place where gambling on that event is legal. Thus, if Internet gambling were legal in Nevada, a casino operator could legally transmit information to a player in Atlantic City, provided that the transaction is legal in New Jersey as well. This exception would also apply to transmissions between a foreign country and a state if gambling on that event were legal in both places.

This exemption, however, provides only limited utility for Internet gambling operators. The exception is limited to "information assisting in the placing of bets or wagers" and does not expressly include the transmission of "bets or wagers" or the "transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers."¹⁰¹Because the exception only covers the transmission of information as opposed to the transmission of wagers, an Internet gambling operator would be precluded from claiming protection for wagering activity under the statute. For example, if an Internet sportsbook accepted digital cash directly from a player to place a wager on a particular sporting event, the exemption would not appear to provide protection from prosecution.

Some off-track betting operators (OTBs) interpret "wagering information" broadly and have facilities where persons from outside their states can direct the placing of bets over the telephone. When the player calls from out-of-

99 Nevada is only one of three states that the Federal government allows to conduct some form of sports wagering. This was because sports wagering was legal in these states at the time the Professional and Amateur Sports Protection Act was adopted. 28 U.S.C. §3701, et seq.

100 18 U.S.C. §1084(b).

101 The House of Representatives Report provides: "Nothing in the exemption, however, will permit the transmission of bets and wagers . . . from or to any state whether betting is legal in that state or not." H.R. Rep. No. 967, 87th Cong., 1st Sess., reprinted in 1961 U.S. Code Cong. & Adm. News 2631. See also United States v. McDonough, 835 F.2d 1103, 1105 (5th Cir. 1988); See also Martin v. United States, 389 F.2d 895 (5th Cir. 1968), cert. denied 391 U.S. 919 88 S.Ct. 1808 (1968).

state, he informs the OTB facility to place a bet at the facility using funds available in his account. Because the facility must withdraw the funds and place the wager, these companies have concluded that the information provided by the telephone call is "wagering information" as opposed to the wager itself. The New York legislature apparently agrees with this interpretation. It authorized the New York Racing Association, its quasi-governmental company, to open telephone accounts for nonresidents. Moreover, OTB facilities in at least three other states are operating telephone accounts for out-of-state residents.

Federal Attitudes toward Internet Gambling

Recently, the federal government has taken steps to become involved in public policy decisions regarding gambling. The first step was the passage of the Professional and Amateur Sports Protection Act in 1992.¹⁰² This law prohibits a state from authorizing wagering on sporting events. A major step was indicated by Congress passing a law in 1996 at the request of then-Senator Paul Simon (D-Illinois) and Congressman Frank Wolf (R-Virginia) that created a federal commission to study the proliferation of gambling in the United States.¹⁰³ The commission will seek to lay a foundation in preparation for possible adoption of federal policy and regulation. A major issue on the commission’s agenda is Internet gambling.

This Commission is likely to include findings that will recommend federal regulation of Internet gambling. Internet gambling is more susceptible to federal regulation than traditional forms of gambling because of the nature of the Internet. As more people access the Internet, the quantity and quality of crimes that will take place there will increase and become more sophisticated. Those who commit computer crimes are evolving from thrill-seeking teenagers to criminals intent on making large profits.¹⁰⁴ Accordingly, since 1984, Congress has attempted to expand the federal criminal code to meet the computer crime explosion. Despite their efforts, however, federal computer crime laws have resulted in a paucity of convictions.¹⁰⁵

102 28 U.S.C. §3701, et seq.

103 Pub.L. 104-169, August 3, 1996, 110 Stat. 1482.

104 See William G. Flanagan & Brigid McMenamin, The Playground Bullies are Learning How to Type, Forbes, Dec. 21 1992, at 184.

105 See Michael W. Carroll & Robert Schrader, Computer-Related Crimes, 32 Am. Crim. L. Rev 183, 193 (1995).

Like the enforcement problems raised by Internet crimes, regulating Internet gambling presents technical and legal problems that state governments are ill-equipped to handle. For example, Florida's Attorney General recently conceded that "evolving technology appears to be outstripping the ability of government to regulate gambling activities on the Internet and of law enforcement to enforce such regulations. Thus, resolution of these matters must be addressed at the national, if not international level."¹⁰⁶

Local police are even less well equipped. Local police agencies, like Los Angeles Police Department’s Vice Division, do not have the expertise or equipment to investigate on-line gambling. The LAPD vice division has one computer with a slow modem and no computer technicians. In two years, they have made no arrests for crimes committed over the Internet.¹⁰⁷

In contrast, the Federal Bureau of Investigation has been working actively since 1992 to specifically address the problem of investigating computer crimes.¹⁰⁸ In that year, the FBI established the National Computer Crimes Squad that was staffed with specifically trained agents. It also created the Computer Analysis and Response Team, which is equipped to provide forensic examinations of computers, storage media, networks and other computer matters. These computer crime squads are located in New York, Washington and San Francisco. The FBI also is establishing computer crime investigation teams in each of its 56 field offices. This is in addition to efforts to protect the national information infrastructure from foreign and international threats.

Regardless of whether federal or state governments assume responsibility for regulating Internet gambling, both face difficult enforcement problems. Governments may target six major groups in their efforts to control or prohibit Internet gambling. These are: (1) the operators of the Internet gambling sites, (2) ISPs and OSPs, (3) index providers, (4) sites that accept gambling advertising, (5) financial transaction providers, and (6) the

106 Florida Attorneys General’s Office Formal Opinion. AGO 95-70 (Oct. 18, 1995).

107 P.J. Huffstutter, Online Casino Gamble on State, Federal Laws, Los Angeles Daily News, March 9, 1997.

108 Computer Crimes And Computer Related Or Facilitated Crimes, Statement of Charles L. Owens, Chief, Computer Crimes Section, Federal Bureau of Investigation, Subcommittee on Technology, Terrorism and Governmental Information, Committee on the Judiciary, United States Senate, March 19, 1997.

home users. This section discusses the practical problems in attempting to regulate each of these groups.

Policing Internet Gambling Operators

Criminal enforcement of gambling laws has historically focused on prosecuting the operator rather than the player. This stemmed from the belief that the player is the victim of the crime; or in the alternative, the player is less responsible for the societal harm that results from gambling.

Enforcing criminal gambling laws against Internet gambling operators, however, presents difficulties for both federal and state law enforcement officials. There are two major problems. The first, which is the antiquity of current federal laws, can be rectified. New laws can be drafted that address these inadequacies and omissions. The second, which is acquiring jurisdiction over the operators, may prove impossible. State governments face both problems and a third, i.e., whether the federal government has exclusive authority to enforce criminal laws against Internet gambling operators.

The Application of Current Federal Law

Most federal laws regulating gambling were developed in response to advances in communications. Prohibitions against use of the U.S. mails to conduct or advertise lotteries came shortly after the establishment of the federal postal system and its use by those promoting a national lottery. Likewise, prohibitions against advertising lotteries over the radio came shortly after the commercial availability of radios and their use by lottery operators. Its prohibitions were then extended to television shortly after its introduction.

Current federal gambling laws were not drafted to address communications over the Internet. Instead, law enforcement must attempt to apply laws designed to prohibit gambling over other communication mediums to the Internet.

The Federal Wire Act, codified as 18 U.S.C. §1084, is the federal law most applicable to Internet gambling. This statute generally prohibits the use of interstate telephone lines to conduct a betting or wagering business. In effect, this statute was designed to allow federal law enforcement officials to prosecute bookies that use telephones to accept wagers on sporting events and horseraces. Enacted in the early 1960s, Section 1084 provides in relevant part:

Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both.

Section 1084 mandates that the person be engaged "in the business of betting or wagering." Thus, courts require that a party be engaged in the "sale of a product or service for fee."¹⁰⁹ The courts also require that the party be engaged in a "continuing course of conduct."¹¹⁰ Consequently, where an interactive gambling operator charges the customers for its service, the continuing activities of the operators will likely constitute being "engaged in business of betting or wagering," thus leaving them open to liability under the statute.

Section 1084 Probably Does Not Apply To Internet Casinos, But Does Apply To Internet Bookies

Several deficiencies in Section 1084 may open a window of opportunity for Internet gambling operations. Foremost, the wording of Section 1084 permits a strong argument that it pertains only to sports-related gambling. The statute specifically applies to a "sporting event or contest." The word "sporting" appears to predicate both the word "event" and "contest."¹¹¹ Under this interpretation, the statute would be limited to the prohibition of sports-related "bets and wagers," such as baseball, football, basketball, dog racing and horseracing. If so, the statute would be inapplicable to Internet casinos and lotteries.

Legislative history and subsequent application of the statute supports this reading. First, legislative history reveals that Section 1084 was meant to apply only to sports-related betting. Attorney General Robert Kennedy, when

109 United States v. Barborian, 522 F. Supp. 324, 329 (D.R.I. 1981).

110 United States v. Scavo, 593 F.2d 837, 842 (8th Cir. 1979).

111 But see, Tex. Priv. Ltr. Rul. DM-344 (May 2, 1995) (Texas Attorney General Dan Morales explaining that §1084 applies to betting on card games on the Internet).

explaining the bill, explicitly referred only to sports betting.¹¹² One of the Bill's sponsors, claimed that the act "involves the transmission of wagers or bets and layoffs on horseracing and other sporting events."¹¹³

Second, Congress was aware of the other types of gambling that existed when it adopted the statute. This is evidenced in 18 U.S.C §1955 -which makes it a crime to conduct, finance, manage, supervise, direct, or own an illegal gambling business. In that statute, Congress defined gambling broadly to include "pool-selling, bookmaking, maintaining slot machines, roulette wheels or dice tables, and conducting lotteries, policy, bolita or numbers games, or selling chances therein."¹¹⁴Congress did not specifically address each of these in §1084. Therefore, Congress probably intended the phrase "sporting event or contest" to be interpreted narrowly, thus excluding non-sports related betting.

While several cases construing Section 1084 involved a prosecutor charging a defendant with a violation of the statute for non-sports related gambling, in each case these charges were dismissed on other grounds.¹¹⁵ In the cases where conviction occurred, sports’ betting was the only contested activity.¹¹⁶ Thus, no reported cases have applied Section 1084 to non-sports-related gambling.

Despite this, the Justice Department holds the position that gambling on the Internet is illegal under Section 1084,¹¹⁷ although it has conceded that enforcement of this statute against Internet operators is not a priority.¹¹⁸

112See Senate Report on S. 1656, July 24, 1961. Mr. Kennedy explains: "This bill carries an exception for legitimate news reporting of sporting events . . . Law enforcement is not interested in the casual dissemination of information with respect to football, baseball, and other sporting events between acquaintances." Id.

113 Congressman Cellar, House Debate on S. 1656, August 21, 1961.

114 18 U.S.C. §1955.

115 See e.g., United States v. Giovanelli, 747 F. Supp. 897 (S.D.N.Y. 1989); See also United States v. Chase, 372 F.2d 453, 461-62 (4th Cir. 1967); See also United States v. Manetti, 323 F. Supp. 683 (D. Del. 1971).

116See e.g., United States v. Segal, 867 F.2d 1173 (8th Cir. 1989) (betting related to football games); See also United States v. Campagnuolo, 556 F.2d 1209 (5th Cir. 1977) (betting related to various sports events); See also United States v. Stonehouse, 452 F.2d 455 (7th Cir. 1971) (betting related to sporting events); See also Telephone News Sys., Inc. v. Illinois Bell Tel. Co., 220 F. Supp 621 (N.D. Ill. 1963), aff'd 376 U.S. 782 U.S. 782 (1964) (betting related to horseracing).

117 Stephen Pizzo, Virtual Casino or Virtual Trouble, Web Review (Oct. 27, 1995).

118 Id.

Section 1084 Probably Applies to Offshore and Foreign Gambling Operations

A frequently debated issue is whether Section 1084 could be applied to an Internet casino operator that operates from a foreign jurisdiction. In an attempt to circumvent the prohibitions of Section 1084, some casino operators offer their services from a location outside of the United States. The issue then becomes whether Section 1084 applies to foreign operators that accept wagers from United States residents. The answer is that the law probably applies. Section 1084 prohibits the transmission of wagers by wire communications in foreign commerce.¹¹⁹ Thus, it appears to apply to Internet operators that supply Internet gambling to the United States from locations abroad. Nevertheless, the success that prosecutors would have against foreign Internet casino operators is uncertain for the reasons stated in the section on obtaining jurisdiction over foreign operators.

Section 1084 Applies To Internet Gambling Operators That Can Reasonably Foresee That Some Players Are Placing Bets From The United States

Most criminal violations require the criminal to have some state of mind, known as "scienter". Generally, this requires that the person, at least, have knowledge that he is committing an act. For example, if a person accidentally drops a knife while dining and the knife bounces and injures another person, it isn't a crime in most places. It would be a crime if the person intentionally throws the knife knowing that it might injure another person.

Internet gambling operators may attempt to negate the criminal intent requirement necessary for violating Section 1084. The statute requires that the transmitter "know" their services will be available to citizens of the United States.¹²⁰ Internet gambling operators may claim that they are not violating federal law because they have no way of knowing where the home users are located.¹²¹ However, this line of reasoning appears tenuous because anything offered on the Internet is available to virtually every country in the world, and a large part of Internet users are in the United States. Therefore,

119 18 U.S.C. § 1084.

120 See 18 U.S.C. § 1084(a).

121 An Internet operator may be able to garner certain information from the home user simply by the information given to be able to exchange data packets. In most cases, however, this information is insufficient to identify where the home user is located.

an Internet operator that does not take affirmative steps to prohibit persons from the United States from betting at its site probably meets the knowledge requirement of the statute.

On one hand, the statute is unambiguous that a party operating entirely outside the United States is not subject to liability. A gaming operator can avoid possible liability under Federal law by not accepting wagers from the United States. The operator can establish procedures and systems to avoid taking wagers from the United States. Suppose another operator wants to accept wagers from the United States but attempts to avoid liability by making it appear that he does not "knowingly" accept wagers from the United States.

The simple truth is that an operator will have extreme difficulty in preventing persons from any particular country from placing a wager at its Internet site. Peter Neuman, principal computer scientist at SRI International, a non-profit think tank in Menlo Park, California said: "The idea that you could block out just people from the United States is absurd." He stated that users could access a site through another computer outside the United States or use an anonymous server that would make it appear that the transmission is not coming from the United States.¹²²

Still an operator can take any series of steps to deter bets from a particular country. Some steps may include:

»A mere warning persons within the United States cannot bet on this site.

» Verification by the patron for example, "I verify that I do not reside in the United States and that I am not placing this bet from within the United States."

»Requiring proof of residence.

»Blocking access to certain address, such as an America Online User, or to persons whose return address otherwise indicates a presence within a certain country.

»Blocking access unless the patron shows a method of funds transfer that does not involve a particular country. For example, a site could refuse to credit or debit a person who lists an U.S. bank.

122 P.J. Huffstutter, Online Casinos Gamble on State, Federal Laws, Los Angeles Daily News, March 9, 1997.

The problem facing a prosecutor is that, without proof of the requisite level of scienter, he cannot prove the case against the Internet gambling operator. Unless the operator blatantly accepts wagers from the country, the prosecutor's job becomes more difficult. Usually, the prosecutor wants irrefutable proof of scienter. For example, in the Missouri case against an Internet operator, the proffered evidence was that two state law enforcement agents placed a wager after identifying the place were he was making the wager.₁₂₃

In practice, foreign Internet casino operators often place online warnings discouraging would-be customers in the U.S. from participating.¹²⁴ These warnings attempt to negate the operator’s culpability by instructing U.S. citizens not to gamble at its site. The "knowing" requirement under Section 1084, however, only "requires a showing that the defendant knew or could reasonably foresee that interstate or foreign communication would be used."¹²⁵ Thus, an online warning will probably be ineffective because it is unlikely that the warning will discourage U.S. players from participation. As such, the inclusion of a warning probably will not negate the “knowing” element since a casino operator could "reasonably foresee" that the service would be used illegally in the United States.¹²⁶ A warning may even strengthen the case against an operator that they knew their conduct was in violation of United States law.

A court may infer that an operator knowingly accepts wagers from the United States if the prosecution shows that wagers were placed from the United States, that the operator knows that most Internet users are U.S. Citizens that can access his site, that the operator took no precautions to prevent them from accessing the site and other factors suggest that these persons were U.S. Citizens, such as the location of their bank accounts. On the other hand, an operator that takes extraordinary precautions is unlikely to be convicted even if some knowledgeable Internet users figure out ways to avoid the site's precautions and place a wager. Where, in between these two points, the line changes from "knowingly" to “unknowingly" is yet to be determined.

123 Mike Brunner, Net Casino Firm Faces Criminal Charges, MSNBC.

124 See e.g., WagerNet’s warning at URL: www.vegas.com/WagerNet/.

125 United States v. Barone, 467 F.2d 247 (2nd Cir. 1972) (emphasis added).

126 Id.

Section 1084 Only Applies to “Wire Communication Facilities"

A possible exception to Section 1084 warrants mention. The language of the statute--"wire communications facility”--refers to the technology that existed in the time of enactment. A wire communication facility is a system that is used to transmit writings, pictures and sounds “by and of a wire, cable or other like connection between points of origin and reception of such transmission.”¹²⁷ As a result, the statute does not contemplate radio or satellite communications or other methods of transmission not involving a wire or cable. This raises the specter that a casino could supply satellite or radio gambling services without violating Section 1084. Showing that at least some part of the transmission occurs over a wire or cable may defeat this argument. The statute does not limit the definition of a wire or cable to a copper wire or cable. Therefore, a T1 or T3 line that are necessary for the ISP connection to the backbone and the operation of the Internet backbone may constitute a wire communication facility under the statute.¹²⁸

Proposed Amendments Would Eliminate Most Arguments That Internet Gambling Is Legal

The success of arguments that Section 1084 does not apply to Internet gambling may be short-lived if a Senate bill proposed by Senator Jon Kyl (R-Arizona) and others was to pass. The original Kyl Bill was based on recommendations from a working committee of the National Association of Attorney Generals (NAAG). The National Association of Attorneys General (NAAG) formed an Internet Working Group chaired by Skip Humphrey (Minnesota), James Doyle (Wisconsin) and Dan Lungren (California). This group decided on a strategy that has two major components: (1) amend the Federal Wire Act (§1084) to assure that Internet gambling, in any form, is illegal and that prosecutors can obtain jurisdiction over offenders; and (2) develop joint enforcement strategies with the Justice Department and the Federal Trade Commission "to stop the spread of illegal Internet gambling including developing offshore cooperation with appropriate law enforcement officials.”

127 18 U.S.C. §1081.

128 There is an argument, based on Congressional intent, that the current §1084 would prohibit such an enterprise. Courts have broadly defined "transmission" in other contexts. See e.g., United States v. Pessino, 535 F.2d 438, 484 (9th Cir. 1976); United States v. Tomeo, 459 F.2d 445 (10th Cir. 1971); Sagansky v. United States, 358 F.2d 195 (1st Cir. 1966).

While the early versions of the Kyl Bill reflected the work of the NAAG Committee, the early 1998 version contained one significant departure from the philosophy of the State Attorney Generals. The NAAG recommendations accepted the traditional relationship between federal and state laws regarding gambling, i.e. that federal law was to assist the states in the enforcement of state gambling laws. Therefore, like most federal gambling laws, NAAG suggested an exemption for communications between states where betting on a particular event was legal. For example, under the NAAG recommendation, a racetrack in one state could accept wagers over the Internet from bettors in another state where pari-mutuel racing was legal. This exemption, however, was stripped from the Kyl Bill. This change is further indication of at least a sentiment in Washington to the establishment of a federal regulation policy on gambling. The early 1998 version of the Kyl Bill modifies the Federal Wire Act in significant ways as shown by the following insert.¹²⁹

Support for the Kyl bill comes from an odd, but broad-based alliance. It includes some from the traditional casino industry, the National Association of Attorneys General, the Anti-Gambling Lobby, Gamblers Anonymous, consumer protection groups and certain amateur and professional sports organizations.

The reasons for this support is as varied as the groups involved. Frank Fahrenkopf, head of the American Gaming Association and the chief spokesperson for the traditional casino industry has stated: "We oppose Internet gambling now because the technology does not exist today that would regulate the industry--vetting the operators to be fit to run the business and allowing regulatory control and oversight by law enforcement. But in the long run, appropriate technology will be likely developed. Then the market place will take over."¹³⁰

129 S. 474, 105th Congress, !st Sess. (1997). The previous version of the Kyl bill is S. 1495, 104th Cong., 1st Sess. (1995).

130 Joan Connell, Nation of Gamblers Sets Its Sights Online,

MSNBC.

The Kyl Bill Summary (January 1998)

The Kyl Bill (version 1-98) would:

» Create a new Section (1085), that makes it unlawful for a person to place or receive a bet or wager through the Internet or any other interactive computer service.

» Define bet or wager using traditional definitions, (i.e. prize, consideration and chance). It does however, create confusion by listing some obvious exemptions, but not others. The exemptions listed include securities transactions, indemnity or guarantee contracts and life, health or accident insurance.

» exempt bets or wagers by persons physically present in a licensed public facility that offers a state lottery, race or other wagering activity.

»Define "Interactive Computer Service" to include an information system that uses a public communication infrastructure or operates in interstate or foreign commerce to provide or enable computer access by multiple users to a computer server.

» Provide penalties of up to $2,500 and six months in prison for casual bettors and up to $20,000 and four years in prison for operators.

» Allow the U.S. Attorney General or the Attorney General of any state to seek an injunction to prohibit a violation of the new Section 1085.

» Require the Secretary of State to commence negotiations with foreign countries to conclude international agreements to enable the United States to enforce new Section 1085.

The Anti-Gambling Lobby is less tolerant. Its chief spokesperson, Tom Grey has stated: "As a form of entertainment it's a disease to 5 percent of the population that will entertain themselves into bankruptcy, so obviously (with) entry into a home…the more available and accessible you make gambling, the more you compound the problem.” While this statement may suggest an amoral pluralist position, much of the support that this Lobby receives is from persons who base their opposition on religious or moral grounds.

The sports leagues are concerned about the impact of the proliferation of sports betting on the sport itself. For example, the NCAA supports an Internet gambling ban because "it threatens to undermine the integrity of sports contests while jeopardizing the welfare of the student-athlete and the intercollegiate athletic community."¹³¹ An NCAA survey shows 3.7% of college athletes admitted to betting on games in which they participated and 25% of all students said they bet on college sports.

Other Federal Laws May Prohibit Certain Forms of Internet Gambling

Besides the prohibitions presented by Section 1084, Internet gambling operators may be violating other federal laws. Internet operators that offer sports wagering or promote fantasy sports contests may violate the Professional and Amateur Sports Protection Act.¹³² This law prohibits states from legalizing schemes or contests where the winner is determined based on the outcome of any professional or amateur sporting event or the individual performance of any athlete in those events. This legislation exempts states, such as Nevada, with a history of legalized sports betting. Oddly, the plain language of this federal law prohibits only those contests that are legal under state law. A sports betting contest that is obviously illegal under state law is not prohibited by the Professional and Amateur Sports Protection Act.

Such an illegal sports betting scheme might, however, violate the federal antigambling statute, 18 U.S.C. §1955. That statute makes it a felony for five or more persons to manage, conduct, finance, supervise, direct or own all or part of a gambling business that remains in business for 30 or more days or has a gross revenue of $2,000 in any single day and that violates any state or local law. Under this statute, gambling includes pari-mutuel pools, bookmaking, slot machines, roulette, dice, lotteries or numbers, or selling chances therein. This statute could be applied to Internet gambling operators that violate state gambling laws by offering opportunities to wager to persons in states that have laws prohibiting Internet gambling.

The Travel Act, 18 U.S.C. §1952, prohibits the use of any facility in interstate or foreign commerce to promote, manage, further or carry on any gambling business involving gambling on which the federal excise tax has

131 Mary Deiber, NCAA Backs Internet Gambling Ban, Scripps Howard News Service, September 9, 1997.

132 28 U.S.C. § 3701, et seq.

not been paid. "Facility" is a broad term that includes any system, such as the mail or telephone, involving interstate or foreign commerce.

Section 1952's purpose is to assist in prosecuting illegal gambling operators who do not pay the federal excise tax. A federal tax of .25% applies to all state authorized wagers₁₃₃ with certain exemptions for pari-mutuels, slot machines and lotteries.¹³⁴ The tax increases to 2% for wagers that are not state authorized. Most criminal enterprises evade paying taxes on the profits from illegal businesses. This tax and §1952 give Federal prosecutors a means to charge illegal gambling operators with additional crimes.¹³⁵

The federal excise tax, however, only applies to wagers accepted in the United States, or placed by a person in the United States with a person who is a citizen or resident of the United States.¹³⁶ Therefore, the tax probably does not apply to foreign Internet operators even if they accept wagers from the United States. In this case, the place of acceptance of the wager is, logically, the place where the host computer is located. Because its reach extends to United States citizens, this excise tax statute and the corresponding racketeering statute may create issues for United States citizens that accept wagers in a foreign country from persons within the United States. It also applies to Internet gambling operators located in the United States that accept wagers from anywhere in the world.

The Wagering Paraphernalia Act, 18 U.S.C. §1953 prohibits a person from knowingly sending through interstate commerce any record used in bookmaking, pari-mutuel pools, lotteries or numbers. This statute is directed mainly at persons who send physical materials and supplies needed to conduct gambling over state lines. The United States Supreme Court, however, has upheld a conviction for sending an "acknowledgment of purchases" for a sweepstakes race, even though such acknowledgment was not needed to collect a prize, but was sent for psychological purposes only.

133 26 U.S.C. § 4401

134 26 U.S.C. § 4402

135 It has been suggested that the text of the Travel Act leaves open the possibility for the statute to be applied against individual bettors. Seth Gorman and Antony Loo, Blackjack or Bust: Can U.S. Law Stop Internet Gambling? 16 Loy. L.A. Ent. L.J. 667, 675 (1996). The case law applying the statute to non-Internet activity suggests that the actions of individual bettors are not covered by the statute. Rewis v. United States, 401 U.S. 808, 811, 91 S.Ct. 1056 (1971).

136 26 U.S.C. § 4404

Section 1953 does not define the word “send.” Therefore, whether it applies only to sending physical objects or can apply to electronic data is not addressed in the statute nor has any court decided this issue. Even if the statute does not apply to electronic data transmission, it may create issues for Internet casino operators that use the mail or other common courier for other reasons.

Lastly, recent amendments to the lottery ticket transportation statute¹³⁷ prohibit businesses where a company sells tickets or any interest in tickets for lotteries conducted in other states or countries. Under the statute, it is a crime to "knowingly transmit information in interstate or foreign commerce to be used for the purpose of procuring" an interest, ticket or chance in another state lottery. This statute could apply to Internet services that buy state lottery tickets for Internet customers and receive a commission.

Obtaining Jurisdiction Over the Internet Operators

Assuming that operating a gambling site on the Internet is illegal, governments must have a vehicle to enforce the law. For centuries, this was simple. The sheriff would simply locate the person within the kingdom, arrest him and bring him before the magistrate. The modern world is much different. Mobility allows the alleged perpetrator to be in another state or halfway around the world. In this world, jurisdictional battles often overshadow questions of guilt or innocence.

Jurisdiction refers to the legal power of a court to decide a matter and render a judgment against a person. In the context of Internet gambling, if a state or federal court has criminal jurisdiction over an Internet operator, it can decide whether the Internet operator violated any criminal laws and, if so, whether the appropriate penalties should include a fine, jail time, probation or other sentence.

In the United States, when a state attempts to assert jurisdiction over a nonresident, the due process clause of the Federal Constitution requires that the nonresident defendant have "minimum contacts" with the forum state such that he would reasonably anticipate being haled into court there.¹³⁸ Moreover, maintenance of the suit in the forum state cannot offend traditional notions of fair play and substantial justice.¹³⁹ Whether these standards are met through Internet communications is a question that is being increasingly addressed by the judiciary.

137 18 U.S.C. §1301

138 World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980).

139 International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).

A long held principle of criminal jurisdiction is that the person charged does not need to have ever been physically present in the forum state or country to be subject to its laws. In 1911, the United States Supreme Court held:

Acts done outside a jurisdiction, but intended to produce and producing detrimental effects within it, justify a state in punishing the cause of the harm as if he had been present at the effect, if the state should succeed in getting him within its power.¹⁴⁰

This long-held principle is again being tested as it applies to the Internet. This principle was extended to telephone communications in 1916. In that case, the United States Supreme Court held when a person uses a telephone to commit a crime, the offense takes effect in the place where the hearer, not the speaker, is located.¹⁴¹

State Civil Jurisdiction Over the Operator

The State of Minnesota has been aggressive in testing the boundaries of personal jurisdiction as applied to Internet gambling. Minnesota asserts that it has criminal jurisdiction over online gambling if it is offered to Minnesota residents.¹⁴² On July 18, 1995, Minnesota Attorney General Hubert Humphrey III filed a consumer protection suit against United States citizen Kerry Rogers and his company, Granite Gate Resorts, Inc., alleging that online advertising for Rogers' proposed, Belize-based "WagerNet" service is false and misleading.¹⁴³

The WagerNet service would match people who were wishing to bet on a similar sporting event for a charge of 2.5% of any bet. Because the service only matches casual bettors rather than actually engaging "in the business of betting or wagering," Rogers claims that its activities do not violate §1084.¹⁴⁴ Humphrey does not share Rogers' legal interpretation and has taken the position that telling potential WagerNet customers that the service is legal

140 Strassheim v. Milton Daily, 221 U.S. 280, 31 S. Ct. 558, (1911).

141 Lamar v. United States, 240 U.S. 60, 36 S. Ct. 255 (1916).

142 See Memorandum Setting Forth the Enforcement Position of the Minnesota Attorney General's Office With Respect to Certain Illegal Activities on the Internet, (“Minnesota memorandum”) reprinted in Appendix.

143 State of Minnesota v. Granite Gate Resorts, Inc. and Kerry Rogers, County of Ramsey, Second Judicial District, case #C6-95-7227, reprinted in Appendix.

144 Dan Goodin, Online wagering: Place your bet on the Internet, The L.V. Review-Journal, July 23, 1995

constitutes false and misleading advertising in violation of Minnesota's consumer protection laws.

In December 1996, a Minnesota court denied Rogers' motion to dismiss for lack of jurisdiction. The state district court applied a five-factor analysis to determine whether Rogers and his company had subjected themselves to personal jurisdiction in Minnesota.

In considering the first factor, the quantity of contacts with the forum state, the court analogized WagerNet's advertisements on the Internet to advertisements placed in nationally distributed magazines and newspapers. The court found no reason to treat the particular nuances of Internet advertising differently, stating: "The Defendants attempt to hide behind the Internet and claim that they mailed nothing to Minnesota, sent nothing to Minnesota, and never advertised in Minnesota. This argument is not sound in the age of cyberspace. Once the Defendants place an advertisement on the Internet, that advertisement is available 24 hours a day, seven days a week, 365 days a year to any Internet user until the Defendants take it off the Internet."

The court flatly rejected the argument that WagerNet has transmitted nothing into Minnesota by allowing Minnesota residents to access the Nevada-based Web site. The court stated: "If that argument is correct, then the Minnesota user would not be able to obtain anything from WagerNet. However, when the Minnesota user plugs in the URL address for Vegas.Com, if Vegas.Com did not send an electric transmission back to the computer user, the computer user would see nothing. He or she would see a blank screen. The way the pictures and words get to the Minnesota residents is by the server, Vegas.Com, automatically transmitting it back to the Minnesota resident."

The obvious implication of the court's approach is that an Internet-based gambling operation will have contacts with any jurisdiction from which a user accesses the service based upon the electric transmissions sent to the user. The number of contacts could be debated, but this issue did not trouble the Minnesota court. Since the advertisements were constantly available to Minnesota residents and the defendants knew that 1.5 million consumers viewed WagerNet's advertisements every month, the court decided that "logic dictates" that the quantity of contacts with Minnesota was substantial. Because Rogers had refused to turn over copies of WagerNet's mailing lists, the court established as a fact, for purposes of the motion to dismiss for lack

of jurisdiction, that the WagerNet mailing list contained Minnesota residents, among other U.S. residents.

The court found that the second factor, the nature and quality of the defendant’s contacts with Minnesota, weighed in favor of a finding of personal jurisdiction. The court found that by soliciting a state's residents, WagerNet purposely availed itself of the privilege of conducting business within the forum state. The court even suggested that the quality of contacts created by Internet solicitation is inherently greater than for other means of communication, stating:

Unlike when one puts solicitation in the mail, the Internet with its electronic mail operates tremendously more efficiently, it generates much more quickly and possesses a vast means of reaching a global audience.

In assessing the third factor, the connection of the cause of action with the contacts, the court also weighed in favor of a finding of personal jurisdiction. The court relied upon consumer protection cases, stating that "courts have routinely held that out-of-state defendants soliciting in-state residents have purposefully availed themselves of the privilege of conducting business within the state." The court likened WagerNet's online advertising to the advertisements mailed to Washington residents in State v. Reader's Digest Association, Inc.¹⁴⁵ The court added that the threshold for sufficient contacts is lower for a state acting in the consumer protection context than in the case of private litigants attempting to avail themselves of a forum reached by the Internet.

The court found that the fourth factor, the interest of the State of Minnesota in providing a forum, also weighed in favor of a finding of personal jurisdiction. The court stated: "Here the Defendants crossed the Minnesota borders through Internet advertisements and solicited business for their gambling venture. If our Attorney General cannot hail them into our Court, then the citizens of Minnesota will not have an adequate Consumer Protection remedy."

The fifth factor in the "minimum contacts" analysis, inconvenience in being forced to defend against an action, was an easy determination for the court since WagerNet's advertisement tells potential customers they can be sued in their home states. This same statement guaranteed that the Court would find that the defendants could "reasonably anticipate" being hailed into

145 501 P.2d 290 (Wash.1972).

court in Minnesota. The court stated: "The coup de grace here is when WagerNet tells its prospective customers WagerNet may sue them in the customer's home forum or Belize at WagerNet's option."

In September 1997, the Minnesota Court of Appeals rejected Rogers' appeal of the district court's decision.¹⁴⁶ The Court of Appeals expressed an understanding of the implications of any decision involving Internet jurisdiction:

We are mindful that the Internet is a communication medium that lacks historical parallel in the potential extent of its reach and that regulation across jurisdictions may implicate fundamental First Amendment concerns. It will undoubtedly take some time to determine the precise balance between the rights of those who use the Internet to disseminate information and the powers of the jurisdictions in which receiving computers are located to regulate for the general welfare. But our task here is limited to deciding the question of personal jurisdiction in the instant case, and on the facts before us, we are satisfied that established legal principles provide adequate guidance.

The Court of Appeals did not adopt the broad approach of the lower court regarding the "potential" for Internet-based activities to reach into Minnesota. The Court of Appeals also avoided relying upon the lower court's argument that jurisdiction is established because an inanimate server sends an electric transmission into Minnesota.

When examining the first factor of the five-part test, the quantity of contacts with Minnesota, the Court of Appeals focused on the specific evidence showing that at least 248 Minnesota computers had accessed the WagerNet site and that WagerNet, through phone calls and its mailing list, was aware of Minnesota residents accessing its site.

The specific proof of Minnesota contacts and the specific proof that WagerNet had knowledge that the contacts were with Minnesota residents satisfied the first element of the test to establish personal jurisdiction.

The Court of Appeals also deviated from the lower court's reasoning regarding the second factor, the quality of contacts with the forum state. The Court of Appeals did not adopt the district court's argument that Internet advertising is a greater quality of contact than other forms of advertising because it is available 24 hours a day. According to the Court of Appeals, all

146 State of Minnesota v. Granite Gate Resorts, Inc., Minnesota Court of Appeals, case # C6-97-89 reprinted in Appendix.

forms of advertising are quality contacts with a forum state because they indicate "...a defendant's intent to serve the market in that state."

The Court of Appeals cited Minnesota court decisions involving television advertising in support of the conclusion that defendants who know their message will be broadcast in Minnesota are subject to suit in Minnesota.¹⁴⁷ The Court of Appeals made the following analogy: "Internet advertisements are similar to broadcast and direct mail solicitation in that advertisers distribute messages to Internet users, and users must take affirmative action to receive the advertised product."

Analogizing to television cases may become a popular approach when deciding Internet jurisdiction cases. Just as an individual turns on a computer and choose and views a particular web site may be involuntarily exposed to Internet advertising, television advertising is accessed by an individual turning on a television and choosing a particular channel or program to view. It has been argued that Internet advertising is still more "dormant" than television advertising.¹⁴⁸ Advances in technology, however, are increasingly blurring the lines between the Internet and television.¹⁴⁹

Courts have relied upon the uniqueness of broadcast television to justify federal regulations that are not constitutionally permitted when applied to print media or Internet content. For instance, the federal government may regulate indecent material on television, but may not regulate the same material on the Internet.¹⁵⁰ However, this disparate treatment relies on the inherent scarcity of broadcast signals and the federal government's special role in allocating these signals. Logically, there may be little reason to treat

147 Tonka Corp. v. TMS Entertainment, Inc., 638 F.Supp. 386 (D.Minn. 1985); BLC Ins. Co. v. Westin, Inc., 359 N.W.2d 752 (Minn. App. 1985).

148 Dennis Hernandez and David May, Personal Jurisdiction and the Net: Does Your Web Site Subject You to the Laws of Every State in the Union?, Los Angeles Daily Journal, July 15, 1996.

149 WebTV allows a customer to access the Internet through a television. In the future, it may be commonplace for Internet access and television signals to enter the home through the same cables or same satellite dish and be utilized using one piece of equipment that functions as both a computer and a television.

150 Compare FCC v. Pacific Foundation, 438 U.S. 726, 98 S.Ct 3026 (1978), upholding the FCC's ability to impose sanctions on a radio station for broadcasting, during the afternoon when children may have been listening, a 12-minute George Carlin monologue describing the seven "filthy words" that you cannot say on the public airwaves, with Reno v. ACLU, 117 S.Ct. 2329 (1997), striking down as unconstitutional provisions of the Communications Decency Act that prohibited indecent content on the Internet that could be accessed by children.

Internet content differently than cable television content. This may become particularly obvious as the Internet's video and sound capabilities improve and the number of cable television channels increases by the hundreds.

When a company places an advertisement on a nationally distributed cable television program the advertisement may not be directed at any particular state or any particular viewer, but the advertiser clearly has knowledge that the advertisement may be viewed by anyone in the country who has chosen to access the program. The same may be said of advertising placed on an Internet site that is also nationally available. Internet operators planning on arguing that their web sites do not subject them to personal jurisdiction in numerous states must be prepared to address the television analogy that was utilized by the Court of Appeals in the WagerNet case.¹⁵¹

The defendant in the WagerNet case, however, did far more than merely make content available on a web site. For instance, by maintaining customer lists and failing to disclose them to the court, Rogers allowed the court to assume that some Minnesota residents were on those lists. Therefore, established that Rogers had knowledge that the site was being accessed in Minnesota. Secondly, Rogers had a telephone conversation with a consumer investigator for Minnesota Attorney General's office who had identified himself as a caller from Minnesota.¹⁵² Finally, the WagerNet statement that WagerNet customers can be sued in their home states established that WagerNet was willing to avail itself of the benefits of conducting business in Minnesota.

WagerNet and similar cases point out that deciding whether a state court has personal jurisdiction over an Internet operator will, inevitably, depend upon specific factual circumstances. As stated by one Court attempting to reconcile recent decisions regarding this issue:

151 The U.S. Supreme Court has provided some material that may be useful when attempting to make this argument. In Reno v. ACLU, the Court stated that the Internet is not as "invasive" as television or radio since Internet users "seldom encounter content by accident." The Justices are obviously more familiar with "channel surfing" than with "surfing the Net."

152 The telephone conversation alone may have been enough to confer personal jurisdiction. See, Brianhead v. Governors of the University of Alberta, 873 F.2d 1257 (9th Cir. 1989).

At one end of the spectrum are situations where a defendant clearly does business over the Internet. If the defendant enters into contracts with residents of a foreign jurisdiction that involves the knowing and repeated transmission of computer files over the Internet, personal jurisdiction is proper. E.g. Compuserve, Inc. v. Patterson, 89 F.3d 1257 (6th Cir.1996). At the opposite end are situations where a defendant has simply posted information on an Internet web site which is accessible to users in foreign jurisdictions. A passive Web site that does not little more than make information available to those who are interested in it is not grounds for the exercise of personal jurisdiction. E.g. Bensusan Restaurant Corp. v. King, 937 F. Supp. 295 (S.D.N.Y.1996). The middle ground is occupied by interactive Web sites where a user can exchange information with the host computer. In these cases, the exercise of jurisdiction is determined by examining the level of interactivity and commercial nature of the exchange of information that occurs on the Web site. E.g. Maritz, Inc. v. Cybergold, Inc., 947 F. Supp. 1328 (E.D.Mo.1996).¹⁵³

The Second Circuit Court of Appeals has affirmed the District Court's decision in Bensusan that a passive web site does not subject the web site's operator to personal jurisdiction in New York.¹⁵⁴ This decision, however, may be more a result of the narrow construction that New York courts have given to personal jurisdiction in tort cases than to any particular attribute of the Internet. A different result may be reached in a state, like Minnesota, that extends its personal jurisdiction to the limits allowed by constitutional due process.

The parameters of personal jurisdiction over Internet activity will continue to evolve as more courts address the issue in cases involving varying fact patterns.

Merely creating a web site that can be accessed may not be sufficient to establish personal jurisdiction absent a showing that the site operator either actively sought business from within the state or directed some other form of conduct at the state. However, it makes little economic sense to merely create a web site and avoid further contact or commercial interaction with customers. It may be very difficult to devise an Internet gambling operation

153 Zippo Manufacturing Company v. Zippo Dot Com, Inc., 952 F.Supp. 1119, 1124 (W.D.Pa.1997).

154 Bensusan Restaurant Corp. v. King., 126 F.3d 25 (2nd Cir. 1997). The Second Circuit noted that "...attempting to apply trademark law in the fast-developing world of the intemet is somewhat like trying to board a moving bus..."

that is commercially viable and yet still does not create the types of contacts necessary for a state to assert personal jurisdiction.¹⁵⁵

State Criminal Jurisdiction Over the Operator

Although the WagerNet suit is based on false advertising, Minnesota Attorney General Humphrey sent a message that he is willing to try to assert jurisdiction over online casinos outside of Minnesota. While obtaining civil jurisdiction will allow consumer protection laws to be applied to Internet gambling operations, the issue of attaining criminal jurisdiction so as to apply state antigambling laws is more complex.

Humphrey asserts that Minnesota's general criminal jurisdiction statute grants jurisdiction for his office to prosecute Internet gambling operators.¹⁵⁶Humphrey relies on a case where a person fired a rifle from an Indian Reservation across the boundary into Minnesota, in violation of a criminal statute.¹⁵⁷ The shooter claimed that the state courts had no jurisdiction because the act that constituted the crime (actus reus) did not take place in Minnesota. Applying the Minnesota criminal jurisdiction statute and common law, the court held that a Minnesota court could try the case because the shots took effect in Minnesota, therefore Minnesota was the situs of the crime.¹⁵⁸

Humphrey has analogized this case to Internet gambling, arguing that this reasoning would give Minnesota jurisdiction to prosecute casino operators that offer their services to Minnesota residents. There is some authority supporting Humphrey's view. As early as 1916, the United States Supreme Court held that when a person uses a telephone to commit a crime, the offense takes effect in the place where the hearer, not the

155 For example, in State v. Interactive Gaming Communications, No. CV97-7808 (Missouri Cir. Ct. May 23, 1997), the State of Missouri was able to obtain an injunction against an Internet gaming operator for violating the state's "Merchandising Practices Act." Missouri customers had filed out account applications and paid fees to enter online gambling tournaments. Using contract principles, the Missouri Attorney General successfully argued that this conduct constituted an "acceptance" in Missouri of the Internet operator's "offer." The injunction requires the operator to post a notice on its website stating that it is under court order not to accept applications from Missouri residents.

156 See Minnesota Memorandum, Reprinted in the appendix.

157 State v. Rossback 288 N.W.2d 714 (Minn. 1980).

158 Id. at 715-16.

speaker, is located.¹⁵⁹ The use of a telephone, however, may indicate a purposeful direction of conduct into a state, whereas making an Internet site available to whoever may access it may not constitute directing conduct towards any particular state.

Many states have not expanded their common law criminal jurisdiction through the enactment of statutes similar to Minnesota's. Therefore, these states may face common law limitations on territorial jurisdiction when attempting to assert criminal jurisdiction over Internet gambling.¹⁶⁰

Just as in the case of personal jurisdiction in civil suits, no established rule governs when a state can assert criminal jurisdiction over acts committed via the Internet. As conceded by the National Association of Attorneys General: "The question of state jurisdiction to prosecute solicitations on an Internet-connected computer located in a foreign state or country and available to state residents depends upon the specific facts surrounding their solicitation. There is no analogy to existing law, and, as yet, no court has accepted the challenge of drafting a bright line rule that can be made applicable in every context."¹⁶¹

Regardless of the exact parameters of a state's law, presumably some conduct must be directed at the forum state and produce an effect in that state before that state may impose its criminal jurisdiction. As stated by the United States Supreme Court, "Acts done outside a jurisdiction, but intended to produce and producing detrimental effects within it, justify a state in punishing the cause of the harm as if he had been present at the effect, if the state should succeed in getting him within its power."¹⁶²

The Supreme Court's reference to getting a defendant within a state's power raises another problem with criminal jurisdiction. Personal jurisdiction over an out-of-state criminal defendant requires obtaining the physical presence of the person. In many cases, this would probably have to be acquired through extradition from another state. If a state attempted to enforce its criminal laws against a defendant in another country, the extradition problems could become insurmountable.

159 Lamar v. United States, 240 U.S. 60, 60 L. Ed. 526, 36 S. Ct. 255 (1916).

160 See, gen., LaFave & Israel, Criminal Procedure § 16.2(c) (2d ed. 1984).

161 Gambling on the Internet: One Year Later, A Report to the Internet Working Group of the National Association of Attorneys General, June 18, 1997.

162 Strassheim v. Milton Daily, 221 U.S. 280, 31 S. Ct. 558, 560, 55 L. Ed. 735 (1911).

Jurisdiction questions, the time and effort required for extradition from a sister state, and the problems that a state may face when attempting to extradite a defendant from another nation all raise the question of whether federal law may be used to enforce the gambling laws of the various states.

Federal Criminal Jurisdiction

Personal Jurisdiction Based On Citizenship

Even without a finding of personal jurisdiction sufficient for a state to prosecute an Internet gambling operator, the federal government may assert extra-territorial jurisdiction in limited circumstances. Unlike territorial jurisdiction, where a country may both apply its laws to certain conduct and enforce those laws, extra-territorial jurisdiction means only that a country may apply its laws to conduct occurring outside of its territory. To enforce those laws, it must wait for the individual to return to its territory, or have him or her returned by another nation (i.e., through extradition).¹⁶³ Exercises of extra-territorial jurisdiction must be permissible under international law, and must be provided for under the law of the country asserting jurisdiction.¹⁶⁴ International law recognizes four bases for extra-territorial jurisdiction:

» National, where the nationality of the offender serves as the basis for jurisdiction

» Protective, where an injury to national interest serves as the basis for jurisdiction;

» Universal, where physical custody by any forum of the perpetrator of certain offenses considered particularly heinous and harmful to humanity serves as the basis for jurisdiction; and

» Passive Personal, where nationality of the victim serves as the basis for jurisdiction.

The second and third bases for extra-territorial jurisdiction, i.e., protective and universal, would not appear to apply to Internet gambling. Despite some negative commentaries on gambling, the potential injury caused by Internet gambling is unlikely to rise to the level of injuring the

163 See, Harvard Research in International Law, Jurisdiction with Respect to Crime, 29 Am. J. Int’l L. 435 (Supp. 1935). See also, Yunis, 681 F. Supp. at 899-900 (citing cases adopting Harvard Research designations).

164 See, e.g., United States v. Yunis, 681 F. Supp. 896, 899, 903 (D. D. C. 1988).

"national interest" or "considered particularly heinous and harmful to humanity."

The third basis, passive personal, also should not apply (if the games are not fraudulent) because the player voluntarily participates in the gambling transactions. Even if a home user is a "victim" of the gambling operator, "passive personal" is an unpopular basis for extra-territorial jurisdiction and applies only to "serious and universally condemned crimes."¹⁶⁵

The first basis, nationality, can apply to Internet gambling. The United States can exert jurisdiction over its citizens for conducting gambling anywhere in the world despite that the activity is legal in the place where it is being conducted. For example, under federal law, U.S. owned or operated aircraft cannot offer in-flight gambling even between two foreign cities.

In the United States, there is a presumption against the extension of extra-territorial jurisdiction. Therefore, if the federal government wants to extend extra-territorial jurisdiction to Internet gambling, it must do so by amending federal law to explicitly extend to operating an Internet site outside of the United States.

Nationality can also serve as the basis for federal law enforcement officials to prosecute individuals involved in the management, operation, and ownership of Internet gambling sites, including officers, directors, shareholders, and managers of the gambling business.

Applying federal laws to Internet gambling conducted by American citizens does not present a personal jurisdiction problem for the United States government. American citizens and American corporations are always subject to the personal jurisdiction of the United States.¹⁶⁶

Under these circumstances, the Internet may create a venue problem for the federal government due to a criminal defendant's Sixth Amendment rights.¹⁶⁷ Venue refers to the particular place where the defendant can be required to defend the action. For example, if a person commits wire fraud between Nevada and New Jersey, venue will decide if it is appropriate

165 Yunis, 681 F. Supp. at 902.

166 United States v. Juda, 46 F.3d 961, 967 (9th Cir. 1995).

167 Technically, the Sixth Amendment, which guarantees a criminal defendant the right to a trial "by an impartial jury of the State and district wherein the crime shall have been committed...,’ is not a venue requirement, but a vicinage requirement. A defendant is not guaranteed a trial in any particular district, but is guaranteed that the jury will be drawn from the district where the crime was committed.

whether he can stand trial in Nevada, New Jersey or in either place. Individual states, on the other hand, may face difficulties when attempting to assert criminal jurisdiction over defendants whose Internet gambling operations are based in other states.

If a state cannot assert personal jurisdiction over nonresident Internet gambling operations, federal laws could be used to apply state gambling laws and policies to nonresidents. Some existing federal laws, such as the federal antigambling statute, 18 U.S.C. §1955, already incorporate a violation of state law as a predicate for the federal offense.

Using federal law to enforce state and local policies is not a new concept. In the gambling context, it has been most visible in the area of FCC regulation of state lottery advertising. Pursuant to 18 U.S.C. §§1304, 1307, a television or radio station may not broadcast advertisements for state lotteries unless the station is licensed to a location in a state that conducts lotteries. The United States Supreme Court has held that this crude approach does not violate the First Amendment because it advances the antigambling policies of non-lottery states.¹⁶⁸

Federal Venue

One of the more prevalent uses of federal law to enforce state policy is found in the law of obscenity. Questions regarding venue and obscenity laws in cyberspace was addressed by the Sixth Circuit Court of Appeals in United States v. Robert Alan Thomas.¹⁶⁹

Thomas operated an amateur pornography bulletin board service (BBS) from his California home. A BBS is usually a stand-alone personal computer (server) with one or more modems. Persons may have their modem-equipped computer contact the server. The computers can then share information over the telephone lines. Home users could then download computer graphic files from the server to their home computers and view them. The home user could also order videotapes. Both the computer graphic files and the videotapes contained sexually explicit photographs.

A postal inspector in Tennessee downloaded several computer graphic files and ordered videotapes from Thomas. A Federal Grand Jury in Tennessee indicted Thomas on various obscenity charges. Thomas claimed that the Federal Court in Tennessee was not the proper court to hear the

168 United States v. Edge Broadcasting Co., U.S., 113 S.Ct. 2696 (1993).

169 United State of America v. Robert Alan Thomas 74 F. 3rd 701 (6th cir. 1996).

matter. He argued that the postal inspector, without his knowledge, accessed and downloaded the files in Tennessee.

The Sixth Circuit Court of Appeals disagreed. It held that the Government did not need to prove that Thomas had knowledge of the "destination of each transmission at the time it occurred."¹⁷⁰ Instead, relying upon the broad venue provisions of federal obscenity law that permit venue "in any district from, through, or into which" the material moves, the court held that venue was proper because the materials were distributed to a person known by Thomas to reside in the Western District of Tennessee.

Besides finding venue proper in Tennessee, the court held that it was proper to apply the "contemporary community standards" of western Tennessee in determining whether the material transmitted via the Internet was "obscene" under the Miller test.¹⁷¹ The court rejected the notion that computer technology requires a broader definition of "community standards." The court stated that since applications were submitted in order to obtain passwords to access the material, "Defendants had in place methods to limit user access in jurisdictions where the risk of a finding of obscenity was greater than that in California."¹⁷²

The Thomas case raises the specter that federal law could be used to impose varying state and local gambling laws to Internet gambling operations. It is likely that at some point in an online gambling transaction, perhaps when an account is created, the operator will have a means of determining the jurisdiction from which wagers will be placed.

Federal law may require that Internet gambling operators devise procedures to determine the origin of online wagers. In Sable Communications of Cal., Inc. v. FCC, the United States Supreme Court held that federal obscenity laws could be used to force "dial-a-porn" operators to tailor their messages to the different communities served by the operators.¹⁷³ The Court squarely placed the burden of developing a method for complying with the standards of different jurisdictions on the operators:

While Sable may be forced to incur some costs in developing and implementing a system for screening the locale of incoming calls, there is no constitutional impediment to enacting a law which may

170 74 F.3d at 709.

171 Miller v. California, 413 U.S. 15, 93 S.Ct. 2607 (1973).

172 74 F.3d at 711.

173 492 U.S. 115, 109 S.Ct. 2829 (1989).

impose such costs on a medium electing to provide these messages.... If Sable's audience is comprised of different communities with different local standards, Sable ultimately bears the burden of complying with the prohibition on obscene messages.¹⁷⁴

Under current law, it may serve an Internet gambling operator well to hide his head in the sand and avoid learning the origin of wagers placed through his service. Such an approach can make it difficult for state authorities to establish the minimum contacts necessary for asserting jurisdiction. However, the potential exists for federal laws to be revised to incorporate the various antigambling laws and policies of all fifty states. Given the current Congress's renewed interest in gambling and professed believe in states' rights, this type of approach to regulating Internet gambling is a legitimate possibility.

Additional Enforcement Issues

Identifying Internet Gaming Operators

Even with the advantage of having extra-territorial jurisdiction, the federal government will find it difficult to prosecute offshore Internet gambling operators. Most operators are likely to hide their involvement in the actual business by using a series of offshore corporations with “nominee” directors that obscure the actual ownership and operation. A company can incorporate in a Caribbean country for about US$3,000. Annual fees are about US$500. Moreover, no requirement exists to keep a base of operation within the incorporating offshore country. Nominee directors cost about US$250 per person. With the use of nominee directors, the actual directors do not have to be disclosed. This makes it difficult for anyone, including law enforcement, to determine the actual owners and operators of the corporation.

Internet operators can further complicate matters by use of surrogate servers. For instance, an Internet site can prevent others from tracking the origination point by using a surrogate server in another country.¹⁷⁵ By stripping off the server's header that indicates the origination point, the operator can make tracking the origin virtually impossible. Thus, the actual

174 492 U.S. at 125-126, 109 S.Ct. at 2836.

175 Comments of Ronald Abramson, Panel III: The Privacy Debate: To What Extent Should Traditionally Private Communications Remain Private On the Internet? 5 Fordham Intell. Prop. Media & Ent. L. J. 329 1365-5 (Spring 1995)

server could claim to be in a foreign country, but actually be located within the United States.

If the surrogate site operates outside the United States, authorities cannot use their subpoena authority to learn the location or identity of the actual server. Moreover, as the potential threat becomes apparent to the operator, the Internet operator can easily relocate to another more accommodating country without disturbing its Internet site.¹⁷⁶

Immunity from Service of Process.

A trend among some Internet gambling operators is to locate their server in a friendly Caribbean nation. This presents difficult problems for the federal government even if it amends federal laws to prohibit all forms of Internet gambling. Suppose federal law enforcement officials gather evidence of the gambling activity and obtain federal indictments against the Internet casino operator, what then? The casino operator could simply ignore service and be insulated from United States jurisdiction.

Despite that a foreign government may authorize a foreign-based Internet casino, American law enforcement agencies and its courts still may enforce their laws against them. The laws of foreign countries do not bind American jurisdictions.¹⁷⁷ The casino, however, would only be subject to the personal jurisdiction in the United States if it was incorporated in there or any of its owners or operators were U.S. citizens or if any of the owners or operators were physically present and arrested in the United States.¹⁷⁸

If those involved in the Internet casino remain outside the jurisdiction of the United States, law enforcement officials have few options. The federal government could demand that the country in which the Internet casino is based surrender those involved with the casino as fugitives from justice. The

176 Nicholas Robbins, Baby Needs A New Pair Of Cybershoes: The Legality Of Casino Gambling On The Internet, 2 B. U. J. Sci & Tech 7.

177 Hilton v. Guyot, 159 U.S. 113, 163, 16 S.Ct. 139, 143 ("No law has any effect, of its own force, beyond the limits of the sovereignty from which its authority is derived.") The "comity" doctrine is a means by which American courts can recognize the applicability of legislative, executive or judicial acts of another nation. However, comity is not mandatory and is not appropriate when recognition of a foreign law is in direct conflict with a law or policy of the United States. See Societe Nationale v. U.S. Dist. Court, S.D. Iowa, 482 U.S. 522, 543, 107 S.Ct. 2542, 2555 (1987). Thus, any firm operating in a country that has laws permitting Internet gambling cannot apply the doctrine of comity to their enterprise.

178 United States v. Juda, 46 F.3d 961, 967 (9th Cir. 1995).

right of the United States to request delivery of a fugitive or federal criminal defendant usually requires the existence of a treaty between the two nations.¹⁷⁹ The United States has extradition treaties with only a few countries.¹⁸⁰ Moreover, criminal suspects can only be extradited for committing crimes that are enumerated in the specific treaty.¹⁸¹ Therefore, two steps are required to have a casino owner or operator extradited from a foreign country. First, the foreign country would have to be obligated to do so by treaty. Second, the treaty would have to make gambling an extraditable offense.

The federal government also could attempt to obtain extradition of a foreign casino owner or operator through international comity. The doctrine of "comity is based on a reciprocal courtesy that one nation owes to another based on notions of justice and regard for what is due other states."¹⁸² With comity, the foreign country may voluntarily surrender a fugitive without regard to the existence or nonexistence of a treaty. The United States has sought extradition on the basis of comity on only a few occasions.¹⁸³ This is because the Federal law enforcement officials do not have authority to reciprocate in the effecting of an extradition based on comity.¹⁸⁴ An advantage of comity is that the foreign country has the power to surrender a fugitive accused of a crime not named in an extradition treaty.

The reality, however, is that without an extradition treaty, a foreign country would rarely be compelled by sense of loyalty or justice to surrender an Internet gambling operator. This would be particularly true with those countries that have invited Internet gambling operators to conduct business within their borders. Despite the realization that the U.S. federal government does not welcome their actions, these countries have encouraged Internet gambling operators. Moreover, those countries with which the United States maintains extradition treaties may be hesitant to go beyond those crimes enumerated in the treaty and extradite a person based on illegal gambling.

179 18 U.S.C. §3181; United States v. Schultz, 713 F.2d 105 (5th Cir. 1983); United States v. Rauscher, 119 U.S. 407 (1886); Factor v. Laubenheimer 290 U.S. 276 (1933).

180 See 18 U.S.C. §3181 for a complete list of countries with which the United States has an extradition treaty.

181 Re Metzger, 46 U.S. 176 (1847).

182 Beverly J. Westbrook, Extradition of Federal Criminal Defendants Based on Comity of Nations, 24 A.L.R. Fed. 409 (1983).

183 Id.

184 31A Am. Jur. 2d Extradition 21; Ex Parte Foss, 102 Cal 347, 36 P 669.

As an absolute last resort, the federal government could obtain custody over a foreign Internet casino operator by force--i.e., by kidnapping. While abduction of a foreign criminal suspect might seem abhorrent, it is an effective means of securing jurisdiction. Surprisingly, most courts dealing with this issue have held that a court's right to try a criminal defendant is not disturbed by the manner in which he was brought within a court's jurisdiction.¹⁸⁵ Following this precedent, most courts have held that due process rights are not affected by abduction from a foreign country. Thus, when the United States government abducted Manuel Noriega from Panama based on violations of RICO, the court held that due process is violated only when the defendant proves the forcible abduction was accompanied by "torture, brutality, and similar outrageous conduct.”¹⁸⁶

Even though the government could obtain jurisdiction over a foreign Internet casino operator by way of forceful abduction, it is doubtful that illegal gambling in itself could be so egregious as to warrant the exercise of government force. As such, without the assistance of an extradition treaty or comity of nations, Internet casino operators operating outside the United States may be free to continue doing so. Without the ability to extradite Internet gaming operators, the federal government’s best hope in deterring foreign Internet gambling operations is the use of diplomatic leverage.¹⁸⁷

State Enforcement and Commerce Clause Questions

Given the federal government’s difficulty in regulating Internet gambling operators, state governments’ efforts appear even more difficult. The federal government, at least, can use diplomatic relations to convince governments to either extradite Internet gambling operators or to close their operations. State governments can do neither.

Moreover, state governments must convince the courts that they have the right to extend state laws to Internet gambling sites operating outside their states. A major issue facing potential state law enforcement efforts over

185 Richard P. Shafer, Annotation, District Court Jurisdiction Over Criminal suspect Who was Abducted In Foreign Country and Returned to United States for Trial or Sentencing, 64 A.L.R. Fed. 292 (1983).

186 United States v. Noriega, 746 F. Supp 1506 (S.D. Fla. 1990).

187 No international agreements currently exist to regulate any facet of the Internet. Scott M Montpas, Gambling Online: For a Hundred Dollars, I Bet You Government Regulation Will Not Stop the Newest Form of Gambling, 22 U. Dayton L. Rev. 163, 182 (1996).

Internet gambling is whether only the federal laws that pertain to gambling would apply to Internet gambling, or whether both federal and state law would apply.

The Commerce Clause of the United States Constitution provides that:

The Congress shall have the Power...[t]o regulate Commerce with foreign nations, and among the several States....¹⁸⁸

Under the Commerce Clause, the Federal Government has the exclusive authority to regulate foreign commerce. The Supreme Court has emphasized: A[t]he principle of duality in our system of government does not touch the authority of Congress in the regulation of foreign commerce.¹⁸⁹ In Wardair Canada, Inc. v. Florida Dept. of Revenue,¹⁹⁰ the Supreme Court stated: A[i]n international relations and with respect to foreign intercourse and trade the people of the United States act through a single government with unified and adequate national power.¹⁹¹ For example, gambling devices on aircraft or cruise ships traveling in foreign commerce are within the sole province of the federal government to regulate.

Hostetter v. Idlewild Liquor Corp.,¹⁹² was an important case that applied this principle. In that case, Idlewild Liquor sold liquor to departing passengers at New York’s John F. Kennedy Airport. The company sold only to travelers whose tickets indicated their imminent departure for a foreign destination; the liquor would be transferred directly onto the traveler’s aircraft and not delivered to him or her until arrival at the foreign destination. The liquor was transported to the airport from out-of-state wholesalers, and all aspects of Idlewild's business were operated with the approval and supervision of U.S. Customs. A few weeks after the company began its business, the New York State Liquor Authority informed the company that it was violating New York State law governing the sale of liquor.

Before the United States Supreme Court, the company argued that New York’s actions violated the Commerce Clause. The State replied that its actions were permissible under the Twenty-First Amendment, which prohibits the transportation of intoxicating liquor into a state for delivery or

188 U.S. Const. Art. I, §8, cl. 3.

189 Board of Trustees of Univ. of Illinois v. United States 269 U.S. 45, 57 (1932).

190 477 U.S. 1 (1956),

191 Id. at 8.

192 377 U.S. 324 (1964),

use in violation of that state’s laws.¹⁹³ The Supreme Court held that New York could not regulate Idlewild's business:

Here, the ultimate delivery and use is not in New York, but in a foreign country. The State has not sought to regulate or control the passage of intoxicants through her territory in the interest of preventing their unlawful diversion into the internal commerce of the State… Rather, the State has sought totally to prevent transactions carried on under the aegis of a law passed by Congress in the exercise of its explicit power under the Constitution to regulate commerce with foreign nations. This New York cannot constitutionally do.¹⁹⁴

The Court came to this conclusion even though the Twenty-First Amendment grants the states particular power to regulate liquor. In contrast, the Constitution gives the states no special power over gambling, thus, any assertion of state jurisdiction over gambling would have to be based on a mere state statute. In Hostetter, the Court noted that it would hold the Commerce Clause supreme over any state regulatory statute: "it is not disputed that, if the commodity involved here were not liquor, but grain or lumber, the Commerce Clause would clearly deprive New York of any such power [to prohibit their passage through its territory]."¹⁹⁵

Whether the reasoning of the Hostetter case applies to whether a state can regulate or prohibit Internet gambling will be much debated. Clearly a state cannot constitutionally prohibit electronic transmissions to pass through its borders on a journey to a foreign destination. A law prohibiting Internet gaming operators from accepting wagers from a state’s citizens appears different. Here, the statute would regulate more than mere passage, but address the intended destination of the transmission into the state.

Policing Home Users

While Internet operators are likely to seek safe haven on Caribbean islands; its United States players would have no such luxury.¹⁹⁶ The casual gambler’s risk, however, does not come from current federal law and potential amendments to federal law. Section 1084, as currently written,

193 U.S. Const. Amdn. XXI, §2.

194 Hostatter, 377 U. S. at 333-36.

195 Id. at 329.

196 This assertion should be tagged with the following caveat: the recreational user will likely have to face state regulations prohibiting gambling in private residences. These are dealt with in the next section. See infra, ("State Law").

could not be used as a tool to prosecute "casual" gamblers who participate in games over the Internet. The legislative history indicates that the Act was not meant for mere social bettors, but aimed at "persons engaged in the business of betting or wagering."¹⁹⁷

Given the legislative history of Section 1084, and the economic and evidentiary burdens involved, it is unlikely that federal prosecutors could now successfully prosecute home users that gamble on the Internet. Under the Kyl Bill, however, the home user would lose the exemption. Anyone betting over the Internet would violate federal law.

Even if state or federal law applied to home users, law enforcement officials still would have enforcement problems. The most significant is obtaining proof of the crime. Illegal gambling historically has been a very difficult crime to police. Unlike most crimes, gambling rarely produces a victim. If the law prohibits a home user from gambling, a home user will rarely feel such remorse over his activity that he will confess his crime and surrender to police.

Attempting to gather evidence from third parties is difficult with traditional illegal gambling and even more difficult with Internet gambling. When police learn of a traditional illegal gambling operation, they can conduct covert surveillance of the operation and have operatives gamble there. When they have sufficient evidence, they can physically raid the location.

With Internet gambling, the operators are outside police jurisdiction and operate openly. Unlike traditional illegal casinos, Internet casinos exist in cyberspace. There are no buildings or equipment within the police department’s physical jurisdiction. Stakeouts are not possible. There is no way to raid their operations and seize records.

A home user gambles from within the sanctity of his home. While this sanctity is not impermeable, it has substantial constitutional protection, including freedom from unreasonable search and seizure. To gather proof of the home user’s crime, law enforcement must principally rely on one of three methods: (1) having a family member or other “insider” report the activity to police and provide proof; (2) setting up a sting operation with a “false” Internet gambling site; or (3) gathering evidence through surreptitious

197 United States v. Tomeo, 459 F.2d 445, 447 (10th Cir. 1972) (emphasis added); See also United States v. Barborian, 522 F. Supp. 324, 328 (D.R.I. 1981) (concluding that §1084's legislative intent was directed at "business of gambling" and not "mere betting"). A review of the House and Senate Reports and the floor debates, §1084 was intended to target professional gamblers and bookmakers, not the "casual" gambler.

surveillance by tapping the home user’s telephone. The first would be a rare occurrence and insufficient to effectively deter Internet gambling. The second might constitute entrapment and create a public opinion backlash.

Surreptitious surveillance through wiretapping also is not a feasible alternative. Wiretaps are authorized by federal law and by state law in 37 states. Law enforcement must follow the procedures set forth by federal law before intercepting a wire communication.¹⁹⁸ The wiretap act was amended in 1986 by the Electronics Communication Privacy Act to include interception of "electronic communications." This requires the government to follow the same procedures to tap electronic communications as a telephone conversation. Under federal mandate, state laws governing wiretaps must be at least as restrictive as the federal requirements, but can be more restrictive. Law enforcement can obtain wiretaps only for “serious” crimes such as murder, kidnapping, gambling, terrorism, bribery, trafficking in drugs or firearms, racketeering and organized crime.

Despite the inclusion of gambling as a “serious crime,” wiretaps are not an effective tool to police Internet gambling. In the United States, police cannot randomly access and review electronic transmissions. Therefore, to intercept the home user’s transmissions, the police must obtain a court order. Three major reasons inhibit the use of wiretaps to obtain proof of Internet gambling by home users. The first is that only courts may authorize wiretaps upon a showing of probable cause that a crime is being committed. Thus, before law enforcement can obtain a wiretap order, they must have some reliable evidence that the home user is engaging in illegal gambling. This type of evidence of illegal Internet gambling is difficult to obtain except by wiretap.

The second problem is that obtaining wiretap authorization and implementing a wiretap is expense. The average wiretap costs about $70,000. Law enforcement will find it difficult to justify using finite resources to obtain proof of gambling by an Internet player. Casual gambling simply is not a priority crime.

The third problem is that many gambling sites will begin using data encryption. If this occurs, a wiretap will be useless unless law enforcement has the key necessary to decrypt the communication. The federal government perceives both the change from analog to digital telephone systems and the use of encryption techniques as obstacles to its continued

198 Omnibus Crime Control and Safe Streets Act, 18 U.S.C. §§ 2510-2521.

use of wiretaps.¹⁹⁹ Whether the former, digital telephone systems, actually inhibits wiretapping capabilities is a matter of debate. None debate, however, that the use of data encryption, without the police having a key, will render wiretaps useless.

To counter these technologies, Congress has proposed two bills, one of which was passed and has become law. That law is known as the “Digital Telephony Bill.” It provides in relevant part that the telephone provider must be able to provide police with the “real time” interception of a wire transmission pursuant to a court ordered wiretap. This interception must be without detection and must allow the police to conduct the interception from their own monitoring facility. Moreover, when telephone companies switch from analog to digital technology, they must build into their system the ability to isolate and provide access to the transmission that is the subject of the court order.

The second is legislation proposed by the Clinton administration known as the “Clipper Chip.” If passed into law, it would establish a program whose objective is to require the use of cryptographic software or equipment that would incorporate a special back door or trap door mechanism that “will permit the federal government to decrypt communications without the knowledge or consent of the communicating parties when it considers this necessary for law enforcement or intelligence purposes.”²⁰⁰ Unless this bill becomes law, the little advantage gained through the availability of wiretaps to fight Internet gambling will be lost.

Policing Internet Service Providers

Unlike Internet gaming operators, Internet service providers are subject to federal regulation. Moreover, ISPs can cause gambling sites to be unavailable to home users, and in essence, create banned sites. Under this approach, regulating ISPs can result in the direct or indirect regulation of Internet gambling. This approach has great appeal to many governments that wish to control the content available to its citizens.

199 Brock N. Meeks, Wired (April 1994).

200 Dr. Whitfield Diffie, Distinguished Engineer, Sun Microsystems, testimony before the subcommittee on technology and the law, Senate Judiciary Committee.

Potential Approaches

This can be accomplished in different ways. One approach is not to limit content, but to limit access.²⁰¹ For example, India and Pakistan limit access to the Internet to universities. Here the home user has no access to Internet gambling.

A second approach is for government to be the sole ISP for its citizens. For example, Vietnam and Saudi Arabia have only a single government-controlled ISP. By being the ISP, the government can dictate not only what sites are available, but can also monitor the home user’s activity to assure that they are not indirectly accessing unauthorized sites.

A third approach is to require ISP subscribers to register with the government and the ISPs to keep extensive records on the Internet activity of the registered users. In this way, government can identify who is using the Internet and for what purposes. If the registered user is accessing prohibited materials, then the government may take appropriate action.

For many reasons, these approaches are unavailable to government in the United States either because of public opinion or prohibitions against prior restraint imposed by the First Amendment of the United States Constitution.

A fourth approach is to require private ISPs to be government-licensed and subject to government content restrictions. For example, Singapore regulates ISPs as if they were a broadcast medium.²⁰² These regulations include content restrictions on nudity, sexual content, gambling, and certain political speech.

The Federal Communication Commission ("FCC") has primary authority over wire communications.²⁰³ This would include the transmission of information such as words, pictures or sounds by “wire, cable or other like connection.” This authority could extend or be extended to the Internet. Clearly, the copper telephone wires that allow home users to connect to the Internet are “wire, cable or other like connection.” So it may be the T1 cables that most ISPs use to connect to the Internet or the T3 fiber optic cabling that forms the current foundation of the Internet backbone also would qualify. This may provide the FCC with authority to adopt rules to govern gambling,

201 Silencing the Net: The Threat To Freedom OF Expression Online, Human Rights Watch vol. 8, no. 2 (May 1996).

202 Id.

203 47 U.S.C. §151.

pornography and other content on the Internet. New federal laws or regulations could be enacted to require ISPs to deny home users access to these hosts or face criminal liability or lose their rights to provide Internet services.

A fifth approach is one suggested by an early version of Kyl Bill. This is to use the Internet Service Providers as a tool to cut communications between the Internet gambling operator and the home user. If passed, the Kyl Bill would allow any local, state or federal law enforcement agency to notify an ISP of an offending server and request the ISP to terminate service to that server. No penalty, however, would attach to the failure to terminate service after notice. Instead, the ISP would be protected from civil liability if it voluntarily terminates service. If the ISP refuses to terminate service, the law enforcement agency can then seek an injunction from the court requiring the ISP to terminate service to the offending server.

Obstacles To Policing Internet Service Providers

Regardless of which government agency attempts to police ISPs, it will face potentially insurmountable obstacles. A practical problem with assessing liability on ISPs or other third parties is proof that they had the requisite knowledge about the nature of the activity offered by each Internet site. According to the Morgan Stanley Internet Report (1996), as of mid-1995, the Internet offered over six million hosts, and was growing at an astonishing rate of about 93% per year. If that trend continued, that would mean about 5.5 million new hosts were added in 1997 alone. To expect each ISP to know the nature of content for all existing and new hosts is unrealistic and a viable defense to criminal prosecution.

An effective strategy may be to concentrate only on the major ISPs, OSPs and backbone providers. In this way, the government can effectively close substantial portions of the Internet to gambling site operators. At least one major ISP and backbone provider has indicated some willingness to keep gambling off the Internet. MCI, a major ISP and backbone provider, has already adopted a restrictive policy toward gambling. It reads in part:

MCI has decided not to provide web site hosting or Internet access services to entities engaged in Internet-based gambling or other wagering activities which are determined to be illegal. MCI and its employees are forbidden from aiding, advising, counseling, conspiring with, providing services to, or in any other way assisting an entity offering illegal gambling, gaming, or other wagering activities over the Internet.

Even with the cooperation of all the major ISPs, OSPs and backbone providers, the government would have to maintain a list of prohibited hosts. Two problems exist with this approach. Before a site could be placed on the “banned” list, the Due Process Clause of the United States Constitution require the government provide the host operator some form of notice and an opportunity to be heard. This alone would create a “lawyer’s full employment act” unparalleled in U.S. history.

Secondly, government would have to monitor the literally thousands of new hosts that arrive on the Internet each day and continue to monitor the content of the millions of existing hosts. This would be a monumental and difficult task.

Another problem is how the FCC could obtain evidence that an ISP or OSP has failed to deny access to prohibited sites. To do this, the government must track each ISP and obtain knowledge of which sites its customers can and do access. Government would have to be aware of and monitor all communications with the ISPs.

The most substantial impediment to assessing liability on ISPs or OSPs for site content is the First Amendment of the United States Constitution. This amendment prohibits the government from adopting any law that abridges freedom of speech. While the First Amendment does not protect all speech, it does provide protection from government intervention that “chills” freedom of speech. Broad attempts to regulate Internet content by regulating ISPs and OSPs may chill speech.

The issue may turn on whether the ISP or OSP is more like a television or radio station, or a bookseller or newspaper. The right of the federal government to control content over television and radio is well established. Neither the federal or state governments, however, can impose liability on a bookstore owner for the content of a book unless the government can show the bookstore owner was aware of the book’s contents.

The first test of these First Amendment principles to cyberspace involved an online service provider. In Cubby, Inc. v. CompuServe,²⁰⁴ a Federal Court held that CompuServe, which is an online serve provider, could not be held liable for defamatory statements posted by third parties on one of its bulletin boards. The Federal District Court for the Southern District of New York analogized CompuServe to a bookseller. The court relied on an

204 776 F. Supp. 135 (S.D.N.Y. 1991), which is reprinted in the Appendix.

earlier U.S. Supreme Court case,²⁰⁵ by analogizing the Internet to a bookstore. In the earlier case, the Supreme Court struck down an ordinance that imposed liability on a bookseller for having an obscene book for sale, regardless of whether the bookseller was aware of its contents. The court reasoned:

Every bookseller would be placed under an obligation to make himself aware of the contents of every book in his shop. It would be altogether unreasonable to demand so near an approach to omniscience. And the bookseller's burden would become the public's burden, for by restricting him the public's access to reading matter would be restricted. If the contents of bookshops and periodical stands were restricted to material of which their proprietors had made an inspection, they might be depleted indeed.

In Stratton Oakmont v. Prodigy,²⁰⁶ the court reached an opposite result. The Stratton Oakmont court found that since Prodigy exercised substantial editorial control over an online bulletin board, Prodigy was not like a bookstore but was instead like a newspaper. Therefore, Prodigy could be held liable for defamatory matter posted anonymously to the bulletin board in much the same way a newspaper can be held liable for printing defamatory matter in a letter to the editor. Ironically, since Prodigy had attempted to control content for its family-oriented subscribers, it was held to a higher standard than an ISP who makes no attempt to edit content.

In 1996, Congress, responded to widespread criticism of the Stratton Oakmont decision, acted to protect ISPs from liability for content supplied by others by enacting Section 509(c)(1) of the Communications Decency Act which provides:

Treatment of publishers or speaker. No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.²⁰⁷

Congress also adopted findings regarding the special role the Internet has come to play in American society.²⁰⁸ Congress even admitted: “The Internet and other interactive computer services have flourished, to the

205 Smith v. California, 361 U.S. 147, 80 S. Ct. 215, 205 (1959)

206 Media L.Rep. 1794, 1995 WL 323710 (N.Y. Sup.).

207 47 U.S.C. §230(c)(1).

208 See 47 U.S.C. §230(a) and (b).

benefit of all Americans, with a minimum of government regulation.”²⁰⁹ Of course, this did not prevent Congress from imposing restrictions on Internet content in the same act.

These restrictions in the Communications Decency Act, which prohibit the posting of indecent materials on the Internet, were soon struck down as unconstitutional.²¹⁰ In striking down the indecency provisions, the U.S. Supreme Court referred to the Internet in the following terms:

This dynamic, multifaceted category of communication includes not only traditional print and news services, but also audio, video, and still images, as well as interactive, real-time dialogue. Through the use of chat rooms, any person with a phone line can become a town crier with a voice that resonates farther than it could from any soapbox. Through the use of Web pages, mail exploders, and newsgroups, the same individual can become a pamphleteer. As the District Court found, "the content on the Internet is as diverse as human thought."²¹¹

In Reno v. ACLU, the United States Supreme Court explicitly rejected the idea that the Internet could constitutionally be subject to the same content-based restraints that have been upheld when applied to broadcast media. This decision indicates that the Internet may receive substantial constitutional protection against attempts at content-based regulation.

In sum, while foreign totalitarian governments might effectively control content through control of or regulation of ISPs or OSPs, this probably is not a satisfactory alternative in the United States.

Policing Index Providers and Advertisers

Attempting to navigate the Internet would be impossible without a guide to what sites are available and their URL addresses. While a home user may learn of a site and its URL address from many sources, among the most popular are Internet advertising and index providers. An index provider is a private concern that maintains a database of Internet sites. This database can be arranged in many ways. The most common are search engines.

A search engine is a program located on the host server that allows the home user to find Internet sites whose descriptions match a word or phrase in which the home user is interested. For example, entering the text “casino” might generate a hundred sites with hypertext links that deal with casinos.

209 U.S.C. §230(a)(4).

210 Reno v. American Civil Liberties Union, 117 S.Ct. 2329 (1997).

211 Id., 117 S.Ct. at 2344.

Only a few of these will be actual Internet casinos. Most of these “hits” will be casino home pages or information related to legal casino gambling. Others may be unrelated, such as an advertisement for the movie “Casino.” A more limited search such as “Internet casinos” will generate fewer hits, but is more likely to include a larger percentage of actual Internet casinos.

Because of the tremendous number of Internet sites, search engines are essential to the commercial viability of most sites. The only other practical method for home users to find an Internet site while online is through advertising on other sites with a hypertext link. Without either index providers or Internet advertising, site operators would have to resort to more expensive and less effective methods to inform home users of their sites and the products and services offered there.

Therefore, governments may attempt to deter Internet gambling indirectly by regulating companies that provide search engines or offer Internet advertising. Both have some historical basis. Under current federal law, the government can obtain an injunction against a telephone company to suspend service of an illegal gambling operator.

An attempt to regulate Internet advertising may extend from the current regulations that prohibit the broadcast of advertisements of lottery and casino information over television, radio and cable systems. The FCC currently reviews television and radio advertising and can fine or suspend the license of any station that broadcasts gambling advertisements.

FCC regulations on television, radio and cable systems, however, are effective only because the FCC has the ability to revoke broadcast licenses if a station or system fails to comply with FCC regulations. This results in an effective self-policing of the airwaves. In fact, most television and radio stations err on the side of caution, refusing to broadcast commercials that they believe the FCC might find objectionable.

Unlike radio, television and cable providers, Internet advertising exists on sites that are operated by private persons. Therefore, FCC sanctions are less effective. Moreover, some sites that carry advertising may operate out of foreign countries, and are outside the jurisdiction of the FCC or the federal government.

Yet, because most hosts are U.S. based, including most index providers [which make most of their money from advertising], laws or regulations against advertising may impact the success of Internet gambling sites.

Policing Financial Transaction Providers

Another way that U.S. regulators may reach Internet gaming sites is by prosecuting--or at least threatening to prosecute--credit card companies or other companies that provide means for funds transfer. For example, according to the Minnesota Attorney General, if Visa knowingly assisted in the transfer of funds between a Minnesota home users and an Internet gaming site, it would be guilty of aiding or conspiring with an overseas casino to commit a crime²¹² and be held liable for that unlawful activity.²¹³

This approach would indirectly punish offshore companies for offering Internet gaming site access to United States citizens by restricting the activities of the other companies that are instrumental to the gambling firm's success.

Of all the methods, this may have the most promise because the vast majority of financial transaction providers are United States companies. Unlike ISPs or Internet advertisers, the number of financial transaction providers is manageable. Moreover, laws regulating financial services are less likely to be successfully challenged on First Amendment grounds.

212 Minn. Stat. §609.05 (1994) (Subdivision 1).

213 See Minnesota Memorandum, reprinted in the apppendix.

TOP

HotelCasinoMedia Inc.

ENFORCEMENT RESPONSIBILITY AND ISSUES IN THE UNITED STATES