Internet Gaming Alert
August 2007
Authors:
Linda J. Shorey
+1.717.231.4510
linda.shorey@klgates.com
Fred D. Heather
+1.310.552.5015
fred.heather@klgates.com
Anthony R. Holtzman
+1.717.231.4570
anthony.holtzman@klgates.com
K&L Gates comprises approximately 1,400
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U.S. Criminal Jurisdiction and Foreign
Internet-Gaming Operations
Introduction
Internet gaming is big business. Every day, massive quantities of money change hands
as gaming aficionados around the world go online in pursuit of the thrill of the bet, the
challenge of competition and, perhaps, dreams of quick wealth. Internet-gaming entities
have realized enormous profits. However, as the events of the past year demonstrate, to the
extent that those entities accept wagers from U.S.-based bettors, they and those associated
with them face a notable obstacle. The U.S. Department of Justice (“DOJ”) takes the
position that all forms of wagers placed over the Internet from the U.S. are covered by the
federal Wire Act, 18 U.S.C. §1084, a criminal statute that prohibits anyone who is in the
business of betting or wagering from knowingly using a wire device to transmit bets or
wagers or related information in interstate or foreign commerce.
Many Internet-gaming entities are incorporated and licensed in countries where Internet
gaming is legal and are owned or operated by individuals who are not U.S. citizens. Some of
these Internet-gaming entities continue to target the lucrative U.S. market, notwithstanding
the DOJ’s position and its activities during the past year.
This article considers the circumstances under which U.S. federal courts might have
jurisdiction to entertain charges brought against foreign Internet-gaming entities and their
non-U.S. owners, operators, officers or directors. To hear claims asserted against any entity
or person, a U.S. federal court must have both subject matter and personal jurisdiction.
This article considers two jurisdictional questions: (1) would a federal court have subject
matter jurisdiction over a criminal action alleging a violation of the Wire Act by a foreign
Internet-gaming entity and its non-U.S. owners, officers, and directors, and (2) would it have
personal jurisdiction over the entity and its owners, officers, and directors?
Subject Matter Jurisdiction
Applicable principles and law
International law recognizes five traditional principles under which a court may assert
subject matter jurisdiction over a criminal action – territorial; nationality; universality;
passive personality; and protective. These principles were developed by Harvard University
researchers in 1935. Many U.S. federal courts, to some extent, have embraced them and
use them in determining whether they have subject matter jurisdiction over criminal actions
with international features. The law, however, is still developing in this area, particularly
with regard to cases in which the alleged criminal activity is legal in the jurisdiction where
the defendant resides. And U.S. federal courts do not always address jurisdiction in their
opinions, even when international features are present.
Under the territorial principle, a federal court has subject matter jurisdiction if the crime
was committed in the U.S. Under the nationality principle, a federal court has subject
matter jurisdiction if the person accused of committing the crime is a U.S. citizen. Under
An abbreviated version of this article appeared in the June 2007 issue of the World Online Gambling Law Report.
Internet Gaming Alert
the universality principle, a federal court has subject
matter jurisdiction if the U.S. has physical custody of
the person accused of committing the crime and the
crime is considered particularly heinous and harmful
to humanity. Under the passive personality principle, a
federal court has subject matter jurisdiction if the victim
of the crime is a U.S. citizen. Under the protective
principle, a federal court has subject matter jurisdiction
if the crime threatens the security of the U.S. as a
nation or the operation of its governmental functions,
and the conduct constituting the crime is generally
recognized as criminal under the law of countries that
have reasonably developed legal systems.
In addition to the above five principles, many U.S.
federal courts have adopted a sixth principle – the
objective territorial principle. Under this principle,
a federal court has subject matter jurisdiction over
a criminal action if the criminal conduct in question
occurred outside the U.S. but was intended to produce,
and did produce, “detrimental effects” within the
U.S.
The objective territorial, territorial, and nationality
principles are those that have most commonly been
used by U.S. federal courts as bases for asserting
subject matter jurisdiction.
Federal courts, in considering whether they have subject
matter jurisdiction, should first take into account the
U.S. Supreme Court’s decision in United States v.
Bowman, 260 U.S. 94 (1922). In Bowman, the Court
determined that although the U.S. Congress has power
to proscribe criminal conduct committed overseas, a
federal court should not conclude that Congress has
done so unless the statute that was allegedly violated
reflects an intent to do so: “If punishment…is to be
extended to include those [acts] committed outside
of the strict territorial jurisdiction, it is natural for
Congress to say so in the statute, and failure to do so
will negative the purpose of Congress in this regard.”
Id. at 98. In other words, if a U.S. crime is committed
outside the U.S., a federal court does not have subject
matter jurisdiction over any affiliated criminal action
unless the relevant criminal statute was intended by
Congress to reach activity that occurs outside the
U.S.
Application in connection with the Wire Act
A U.S. federal court might find that it has subject
matter jurisdiction over a criminal action brought by
the U.S. against an offshore Internet-gaming entity and
its non-U.S. owners, officers, and directors that alleges
a violation of the Wire Act as a result of the entity
having accepted bets from U.S.-based bettors.
The relevant provision of the Wire Act, 18 U.S.C.
§1084(a), provides:
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 Wire Act also contains a “safe harbor” provision,
18 U.S.C. §1084(b), which provides:
Nothing in this section shall be construed to
prevent the transmission in interstate or foreign
commerce of information for use in news
reporting of sporting events or contests, or for
the transmission of information assisting in the
placing of bets or wagers on a sporting event or
contest from a State or foreign country where
betting on that sporting event or contest is legal
into a State or foreign country in which such
betting is legal.
As the U.S. Court of Appeals for the Second Circuit
noted, the safe harbor provision “[b]y its plain terms…
requires that betting be ‘legal,’ i.e., permitted by law, in
both jurisdictions.” United States v. Cohen, 260 F.3d
68, 73 (2d Cir. 2001).
Reading subsection (a) in conjunction with subsection
(b) reveals that the Wire Act criminalizes the knowing
use of a wire communication facility to transmit bets
or wagers or betting-related information between a
foreign country and a U.S. state if Internet gaming is
illegal in one or both jurisdictions. Because Congress
included the term “foreign country” in the Wire Act and
made certain transmissions between foreign countries
and the several states unlawful, a federal court might
conclude that Congress intended for the Wire Act to
proscribe conduct committed outside the U.S. If the
court did so, it might then invoke an international law
August 2007 | Internet Gaming Alert
basis for asserting subject matter jurisdiction over a
criminal action alleging that the Wire Act was violated
as a result of conduct that occurred outside the U.S.
The objective territorial principle might serve as a
plausible basis if the criminal action alleged that a
foreign Internet-gaming entity and its foreign owners,
officers, and directors, operating from a foreign nation,
violated the Wire Act by using a wire communication
facility to transmit online-betting offers or information
assisting in the placement of online bets to the residents
of a state in which Internet wagering is illegal. The
court might arguably have jurisdiction for the reason
that, while the alleged criminal conduct (i.e. the sending
of online-betting offers or information assisting in the
placement of online bets) conceivably occurred outside
the U.S., it was arguably intended to produce, and did
produce, “detrimental effects” within the U.S. (i.e.,
the receipt of offers to place bets or the placement of
bets).
The territorial principle might also be used as a basis
for subject matter jurisdiction. In this regard, the court
might construe the “transmission” of the online bets
as having occurred inside the borders of the U.S. at
the moment the bets were placed on the website of the
foreign Internet-gaming entity. Such a construction
might support the conclusion that the crime was
committed (at least partially) in the U.S. and would
appear to be consistent with case law from several U.S.
federal Courts of Appeals providing that, for purposes
of the Wire Act, an individual transmits an online bet
if he sends or receives it.
In applying either principle, the court would need to take
into account the broad international law principle that
a court should not exercise subject matter jurisdiction
when doing so would be unreasonable. In this regard,
reasonableness is determined by weighing a nonexclusive list of factors, including the strength of the
link between the conduct in question and the country
under whose law the conduct is being prosecuted,
the foreseeable effects of the conduct in that country,
the character of the conduct, and the extent to which
criminalization of the conduct is consistent with the
patterns and practices of the international system. See
United States v. Davis, 767 F.2d 1025, 1037 n.22 (2d
Cir. 1985); Restatement (third) of Foreign Relations
Law of the United States §403(2). Given that many
countries, including the U.K., license and regulate
Internet wagering, this is an important concept.
A recent federal criminal indictment and activities
related to it demonstrate how the jurisdictional issues
can arise. The indictment was issued in June 2006
by the U.S. District Court for the Eastern District of
Missouri against BetonSports Plc (a publicly-traded
company on the London AIM with operations in Costa
Rica), its now-former CEO (a U.K. citizen), and its
former owner (a U.S. citizen residing outside the U.S.),
among others. The CEO was arrested in July 2006 as
he changed planes in Dallas en route to Costa Rica.
The former owner was arrested in March 2007 by
local officials in the Dominican Republic and turned
over to U.S. authorities in Puerto Rico. The indictment
alleges violations of a host of federal criminal statutes,
including the Wire Act. The individual defendants
pleaded not guilty and filed motions to dismiss. The
now-former CEO was released on $1 million bail
but confined to the jurisdiction of the court. Bail
was refused to the former owner, whom the court
considered to be a flight risk. While BetonSports
reportedly took the position that the court lacked
jurisdiction, BetonSports, in June 2007, entered into
a plea agreement with the U.S. Attorney’s Office for
Eastern Missouri, pursuant to which it pleaded guilty
to one count and agreed to cooperate in the USAO’s
prosecution of the other defendants. The USAO agreed
to recommend dismissal of another count and not to
charge BetonSports with any additional crimes related
to the activity detailed in the indictment. But the
USAO specifically pointed out that the agreement did
not extend to any other U.S. Attorney Offices. These
activities suggest that at least some federal courts
might be willing to assert subject matter jurisdiction
over criminal actions against foreign Internet-gaming
entities or their owners, officers, or directors, alleging
violations of the Wire Act.
Personal Jurisdiction
A U.S. federal court has personal jurisdiction over an
accused criminal who is a resident of a foreign nation
only if the accused is present in the court’s territorial
jurisdiction. If the accused is not present, the court
can seek to secure his presence by requesting formal
extradition pursuant to a treaty.
An extradition treaty is an instrument that facilitates
the surrender of accused criminals from one nation
I n United States v. Alvarez-Machain, the U.S. Supreme Court concluded that, under some
circumstances, a federal court has personal jurisdiction over a foreign criminal defendant
even if the defendant was forcibly abducted from the foreign nation where he resides and
brought within the territorial jurisdiction of the court. 504 U.S. 655 (1992).
August 2007 | Internet Gaming Alert
to another. Generally, a nation will only extradite an
accused criminal residing within its borders to another
nation if the other nation would likewise, under similar
circumstances, surrender an accused criminal to the
first. A U.S. federal court that requests extradition can
obtain personal jurisdiction over the accused criminal
only after he is arrested in the nation where he resides
and removed to the territorial jurisdiction of the court.
Traditionally, the signatory nations to an extradition
treaty are only required to surrender individuals who
are accused of committing the crimes enumerated in
the treaty. A federal statutory provision, 18 U.S.C.
§3184, sets forth the process that a court is to use
to effectuate the extradition of an accused foreign
criminal:
Whenever there is a treaty or convention for
extradition between the United States and any
foreign government…any justice or judge of the
United States, or any magistrate judge authorized
so to do by a court of the United States, or any
judge of a court of record of general jurisdiction
of any State, may, upon complaint made under
oath, charging any person found within his
jurisdiction, with having committed within the
jurisdiction of any such foreign government
any of the crimes provided for by such treaty
or convention…issue his warrant for the
apprehension of the person so charged, that he
may be brought before such justice, judge, or
magistrate judge, to the end that the evidence of
criminality may be heard and considered.
If the extradition process is implicated, the relevant
extradition treaty and laws of the jurisdiction from
which extradition is sought will be of great importance
and should be carefully reviewed.
All individuals arriving in the U.S. via airplane from
a foreign country must have a passport. The airlines
record those passport numbers. If a federal arrest warrant
has been issued for a non-U.S. citizen, an airport is a
likely place for the individual to be detained and then
arrested. In such a situation, personal jurisdiction might
be obtained as a result of the individual’s travel choice.
Conclusion
The DOJ’s interpretation of the Wire Act and the
arrests of foreign nationals at U.S. airports have not
discouraged all foreign Internet-gaming entities from
offering Internet wagering opportunities to individuals
located in the U.S. They are presumably motivated
by the money that U.S.-based bettors spend. Prior to
June 2006, many may never have thought that a U.S.
federal court could assert subject matter jurisdiction
over a criminal action against them, or be able to
obtain personal jurisdiction over them or their owners,
officers, or directors. That mode of thinking has been
modified with the indictment of BetonSports and its
now-former CEO. The DOJ has also demonstrated that
it is willing to arrest non-U.S. citizens who are owners,
officers, or directors of Internet-gaming entities if they
travel to or through the U.S. The law with respect to
jurisdiction in these situations is not settled, and there
are arguments that can be made in specific situations as
to why subject matter or personal jurisdiction does not
exist. But, at this time, the risk of arrest and detention
is real.
This article is for informational purposes only and does
not contain or convey legal advice. The information
herein should not be used or relied upon with regard
to any particular facts or circumstances without first
consulting a lawyer.
Of course, as the arrest of the CEO of BetonSports
shows, personal jurisdiction can be obtained over nonU.S. citizens who travel to or through the U.S. by
virtue of their voluntary physical presence in the U.S.
A
ccording to the U.S. Court of Appeals for the Eleventh Circuit, “when personal
jurisdiction over a criminal defendant is obtained through extradition proceedings,
the defendant may invoke the provisions of the relevant extradition treaty in order to
challenge the court’s exercise of personal jurisdiction.” United States v. Puentes, 50
F.3d 1567, 1573 (11th Cir. 1995). Some of the other eleven U.S. Courts of Appeals,
however, have concluded that only the country where the accused individual resides has
standing to challenge the court’s exercise of personal jurisdiction. See, e.g., Shapiro v.
Ferrandina, 478 F.2d 894 (2d Cir. 1973).
August 2007 | Internet Gaming Alert
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