On Jan. 14, 2019, the United States Department of Justice (DOJ) released an Opinion (2019 Opinion) from its Office of Legal Counsel (OLC) reversing the DOJ OLC’s 2011 interpretation of the applicability of the Federal Wire Act1 (2011 Opinion). The 2011 Opinion concluded that interstate transmissions of wire communications that do not relate to a “sporting event or contest” fall outside the scope of the Federal Wire Act. The 2019 Opinion reverses the 2011 Opinion, declaring that the Federal Wire Act’s prohibitions are not uniformly limited to sports wagering, thereby disallowing all forms of online wagering (casinos, lotteries, poker, games, etc.) from facilitating interstate transactions via wire transfer. Both the 2011 Opinion and 2019 Opinion focus on the relevant portion of the Wire Act, 18 U.S.C. § 1084(a), which states:
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.
The 2019 Opinion states that all forms of online gambling, including sports wagering, are illegal across state lines.2 The OLC recognizes the controversial nature of the updated interpretation and acknowledges that multiple states relied on the 2011 Opinion, and subsequently launched intrastate online casino, poker, and lottery operations. To accommodate these previously legitimate operations, Deputy Attorney General Rod Rosenstein issued a memorandum dated Jan. 15, 2019, which delays the implementation of the 2019 Opinion for 90 days to allow businesses “time to bring their operations into compliance with federal law.” Although the DOJ has not indicated the extent and severity of its planned enforcement after the 90-day grace period, industry players need to build in requisite compliance infrastructure for sound risk management and to insulate themselves from future regulatory scrutiny and potential legal ramifications. The 2019 Opinion will create challenges for online casinos, poker sites, and state lotteries, as well as for payment processors and the financial institutions that support them.
The 2019 Opinion expands the scope of the Federal Wire Act beyond sports wagering and related interstate transactions, thus forcing all gaming organizations to reconsider the effectiveness of their compliance programs. Noncompliance with the Federal Wire Act constitutes a federal crime and is often prosecuted as a predicate offense to money laundering. Compliance professionals in the gaming industry need only look at previous examples of enforcement to appreciate the reputational, financial, and operational risks associated with a criminal investigation involving these charges. To guard against these risks and provide assurance to regulators, gaming organizations need to facilitate independent testing of their financial compliance program on a regular basis and implement process improvements where gaps are identified.
In response to the issuance of the recent DOJ Opinion, organizations will need to conduct a program review to determine their relevant exposure to changing statutory requirements. Organizations, specifically, should consider conducting gap analyses and risk assessments to determine whether their existing controls are adequate and whether new controls need to be implemented.
Additional Authors: Christine O'Sullivan and Daniel D'Agustino
1 Wire Act, 18 U.S.C. § 1084 (1961).
2 The Wire Act’s unclear interpretation stems from the phrase “on any sporting event or contest,” which follows the second prohibition in the first clause. The 2011 Opinion supports that the limitation “on any sporting event or contest” applied to all of Section 1084(a), not just the portion referring to the interstate transmission of “information assisting in the placing of bets or wagers.” The 2019 Opinion supersedes the 2011 Opinion and concludes that due to its placement within the subsection, the overall lack of punctuation and grammatical structure of the statute, Section 1084(a)’s use of “on any sporting event or contest” is unambiguous and applies to only the clause that immediately precedes it.