VOLUME 08 ISSUE 10
USA
IMEGA challenge to US
unlawful e-gambling Act
A US court of appeals dismissed
chances of making internet
gambling lawful in the US by
upholding the constitutionality of the
Unlawful Internet Gambling
Enforcement Act (UIGEA) at the
beginning of September. Linda J.
Shorey, Dennis M.P. Ehling, Anthony
Holtzman and Ashley Camron, from
K&L Gates, examine the challenges
brought to the UIGEA by a US
gaming association and discuss the
outcome of the judgment on the US
online gambling industry.
The Interactive Media
Entertainment & Gaming
Association, Inc. (IMEGA)
describes itself as a non-profit
advocacy group that collects and
distributes information regarding
electronic and internet-based
gambling. IMEGA’s members
include internet gambling
operators who accept online
wagers from US-based persons.
IMEGA challenged the federal
Unlawful Internet Gambling
Enforcement Act of 2006 (UIGEA)
in the US District Court for New
Jersey (the District Court),
claiming that UIGEA violates the
US Constitution1. IMEGA lost in
the District Court. On appeal, the
US Court of Appeals for the Third
Circuit (the Court of Appeals)
found IMEGA’s arguments
unpersuasive and upheld the
District Court’s dismissal of the
case.
The UIGEA prohibits entities in
the business of betting or wagering
from knowingly accepting money
or a money substitute in
connection with another person’s
participation in ‘unlawful internet
gambling’. Under the UIGEA,
‘unlawful internet gambling’ is
defined as ‘to place, receive, or
otherwise knowingly transmit a bet
or wager by any means which
06
involves the use, at least in part, of
the internet, where such bet or
wager is unlawful under any
applicable federal or state law in
the State or Tribal lands in which
the bet or wager is initiated,
received, or otherwise made’.2
Thus, the UIGEA is not violated
unless a ‘predicate offense’ is
committed, such as a violation of a
state anti-gambling law or the
Federal Wire Act3.
IMEGA commenced its challenge
on 5 June 2007, when it filed a
complaint in the New Jersey
District Court. IMEGA asserted
that the UIGEA violates four
provisions of the US Constitution:
the First Amendment, because
the UIGEA interferes with its
members’ internet gamblingrelated speech and commercial
speech and is overly broad and
vague;
the Fourteenth Amendment,
because the UIGEA interferes with
the privacy right of US consumers
to avail themselves of its members’
internet gambling-related services;
Article I, Section 9, because the
UIGEA, to the extent it
criminalizes pre-UIGEA activities
of its members, is an ex post facto
law; and
the Tenth Amendment, because
the UIGEA grants the federal
government the states’ reserved
powers to regulate internet
gambling.
On 4 March 2008, the District
Court dismissed each of IMEGA’s
claims, concluding that it lacked
standing to assert some of them
and that all of them were without
merit. IMEGA appealed the
dismissal to the Court of Appeals.
On appeal, IMEGA focused on its
claims that the UIGEA is
unconstitutionally vague on its face
because the statutory definition of
‘unlawful internet gambling’ is not
‘ascertainable and workable’ - First
and Fourteenth Amendments and that the UIGEA infringes on
the right of individuals to engage
in gambling-related activity in the
privacy of their homes (Fourteenth
Amendment). Oral argument was
held on 7 July 2009. During the
argument, the judges on the Court
of Appeals’ Panel badgered
IMEGA’s counsel with questions
that seemed to express their
disbelief that the UIGEA’s
definition of ‘unlawful internet
gambling’ is too vague or that there
is a constitutional right to gamble
in the privacy of the home. On 1
September 2009, the Court of
Appeals issued a decision that
rejected both arguments.
First, the Court explained that
the definition of ‘unlawful internet
gambling’ - which makes a
violation of UIGEA contingent
upon the legality of online
wagering ‘at the location in which’
an online wager is received or
‘from which the individual initiates
the bet’ - is sufficiently precise to
‘clearly provide a person of
ordinary intelligence with adequate
notice of the conduct that [the
UIGEA] prohibits’4. Secondly, after
noting that, in the context of a
facial challenge, a statute is void for
vagueness only if it is
impermissibly vague in all of its
applications, the Court of Appeals
concluded that UIGEA passed the
test. It reasoned that ‘several states
prohibit all gambling activity...by
persons within the state and/or
specifically ban internet gambling’
and, therefore, a wagering
operator’s knowing acceptance of
an online wager placed or received
in one of those states is plainly
contrary to the statute5. Thirdly, the
Court of Appeals explained that
the UIGEA is not
unconstitutionally vague merely
because it can only be violated if a
predicate statute - federal or state is violated. The Court of Appeals
noted that ‘the fact that gambling
may be prohibited in some states
but permitted in others does not
world online gambling october 2009
USA
render [the UIGEA]
unconstitutionally vague’6. Fourth,
the Court said that the UIGEA is
not too vague even though it might
be ‘difficult to determine the
jurisdiction from which an
individual gambler initiates a bet
over the internet and,
consequently, whether the bet is
unlawful’, because determining the
relevant jurisdiction is a factual not legal - issue for the
prosecution7. Finally, the Court of
Appeals explained that the UIGEA
is not unconstitutionally vague
simply because a law that could
serve as a predicate for a UIGEA
violation might be vague8.
With respect to IMEGA’s privacy
argument, the Court of Appeals
first explained that it shared ‘the
District Court’s doubts regarding
[IMEGA’s] standing’ to assert the
argument9. The Court of Appeals
then concluded that, unlike the
consensual sexual conduct in the
home that was deemed a protected
privacy interest in the cases cited
by IMEGA, ‘[g]ambling, even in
the home, simply does not involve
any individual interests of the same
constitutional magnitude’10.
After the decision was issued,
IMEGA took the position that the
decision had a ‘silver lining’,
explaining that ‘[the Court of
Appeals ] made it clear - gambling
on the internet is unlawful where
state law says so. But there are only
a half-dozen states which have laws
against internet gambling, leaving
44 states where it is potentially
lawful. It’s not perfect, but it’s a
good start’.11 While the Court of
Appeals did specifically refer to
state law in rejecting IMEGA’s void
for vagueness argument, it stated
that, under UIGEA, ‘simply put, a
gambling business cannot
knowingly accept the enumerated
financial instruments in
connection with a bet that is illegal
under any federal or state law
applicable in the jurisdiction in
world online gambling october 2009
The reality is
that, even if
IMEGA’s
challenge
had been
successful, it
would have
done little to
change the
legal risk
faced by
internet
gambling
operators
under US
federal and
state criminal
law
which the bet is initiated or
received’12.
The reality is that, even if
IMEGA’s challenge had been
successful, it would have done little
to change the legal risk faced by
internet gambling operators under
US federal and state criminal law.
UIGEA is not implicated unless
there is a predicate offense - as the
Court of Appeals noted: ‘[the
UIGEA] does not itself outlaw any
gambling activity, but rather
incorporates other federal or state
laws related to gambling’13. Existing
anti-gambling laws already pose
significant risks for operators of
businesses that offer or assist in the
offering of opportunities to wager
or gamble using the internet.
The big problem that the UIGEA
creates for the internet gaming
industry relates to the regulations it
mandated, which delineate
‘designated payment systems’ that
are required to block ‘restricted
transactions,’ i.e. funds transfers
relating to the participation by USbased persons in ‘unlawful internet
gambling’. The regulations have
been promulgated and are codified
under both the Federal Reserve
System14 and the Department of
the Treasury15. They became
effective on 19 January 2009 and
must be complied with by 1
December 200916. The Court of
Appeals’ decision has dashed any
hopes that a court will hold the
UIGEA unconstitutional before the
compliance date arrives. Even if
IMEGA had been successful, the
decision would only have applied
to the jurisdictions within the
Court of Appeals’ scope, i.e.
Pennsylvania, New Jersey,
Delaware, and the US Virgin
Islands.
However, there is a chance that
the date to comply with the
regulations will be postponed,
which would create an opportunity
for the enactment of federal or
state legislation authorizing and
regulating various forms of
internet gaming. In May 2009,
Representative Barney Frank (DMA) introduced H.R. 2266 - the
Reasonable Prudence in Regulation
Act - that, if enacted, would delay
compliance until 1 December
2010. The Act, as of the writing of
this article, is awaiting action by
the House Financial Services
Committee (‘the Committee’),
chaired by Rep. Frank. In addition,
three groups - the Poker Players
Alliance, the National
Thoroughbred Racing Association,
and the American Greyhound
Track Owners Association - have
asked the regulators to postpone
compliance for a year. On 1
October 2009, Representative
Frank and 18 other members of
the Committee sent a letter to the
regulators supporting that request.
While the clock continues to tick
down, there is still reason to hope
that the compliance date will be
postponed.
Linda J. Shorey Partner
Dennis M.P. Ehling Partner
Anthony R. Holtzman Associate
Ashley J. Camron Associate
K&L Gates
linda.shorey@klgates.com
dennis.ehling@klgates.com
anthony.holtzman@klgates.com
ashley.camron@klgates.com
1. 31 U.S.C. §§5361-5367.
2. 31 U.S.C. §5362(10)(A).
3. 18 U.S.C. §1084(a).
4. Interactive Media Entm’t and Gaming
Ass’n, Inc. v. Attorney General, 2009 US
App. LEXIS 19591 at *7-8 (3d Cir. 2009).
5. Id. at *8.
6. Id. at *9.
7. Id. at *10.
8. Id. at *11-12.
9. Id. at *13.
10. Id. at *15.
11. www.imega.org/2009/09/02/uigeaupheld-by-us-3rd-circuit-but-statesdetermine-i-gaming-legal-status/.
12. Interactive Media Entm’t and Gaming
Ass’n, Inc., 2009 U.S. App. LEXIS
19591 at *12 (emphasis added).
13. Id. at *8.
14. (12 C.F.R. §§233.1-233.7).
15. (31 C.F.R. §§132.1-132.7).
16. See 73 Fed. Reg. 69,382, 69,382
(18 November 2008).
07
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