Your project development team has come up with a plan to generate business in another state or country, but you are concerned that the proposed business might violate federal law related to the transmission of wagering information across state lines. The following summary addresses the primary elements of the Wire Act of 19611 to assist you in spotting issues related to the transmission of wagering information. The elements of the Travel Act2, the Interstate Transportation of Wagering Paraphernalia Act3, the Illegal Gambling Business Act4, the Illegal Gambling Business Act of 1970, the Professional and Amateur Sports Protection Act of 19925, the Lottery Laws of 19946, the Unlawful Internet Gambling Enforcement Act of 20067, the Racketeer Influenced and Corrupt Organizations Act of 19708, the Money Laundering Control Act of 19869, and the Illegal Money Transmitting Business Act of 199210 are also briefly summarized.
The Wire Act
The Wire Act provides:
“Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility11 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.12”
To demonstrate a violation of the Wire Act, the government must prove the following three elements:
1. The defendant [was engaged in the business of betting and wagering, and] regularly devoted time, attention and labor to betting or wagering for profit;
2. The defendant used a wire communication facility: (a) to place bets or wagers on any sporting event or contest; (b) to provide information to assist with the placing of bets or wagers; or (c) to inform someone that he or she had won a bet or wager and was entitled to payment of credit; and
3. The transmission was made from one state to another state or foreign country13.
Element #1: Engaged in the Business of Betting and Wagering
The Wire Act applies to persons or entities engaged in the business of betting or wagering14. During the congressional debate on the Wire Act in 1961, New York Congressman and Chairman of the House Judiciary Committee Emanuel Celler stated that the bill that became the Wire Act “only gets after the bookmaker, the gambler who makes it his business to take bets. It does not go after the casual gambler who bets $2 on a race.”15 Heeding this legislative intent, courts generally have required that individuals be involved directly in the betting process before they may be found to have contravened the Wire Act16. In 1972, the Tenth Circuit noted that the Wire Act was enacted to deal “with bookmakers—persons engaged in the business of betting or wagering17.” A violator of the Wire Act “must have engaged in a regular course of conduct or series of transactions involving time, attention and labor devoted to betting or wagering for profit, rather than casual, isolated or sporadic transactions.”18 Courts should “protect a defendant whose connection to the business of gambling is either attenuated or occasional.”19
One court held that the Wire Act did not apply to an individual who provided clients with predictions to the likely winners of given horse races and who placed calls in order to transmit advice and information that assisted in the placement of wagers20. Such a defendant was not in the business of betting and wagering, because the defendant was not making or accepting bets directly. Similarly, an individual who made a few bets did not violate the Wire Act because the individual was a casual bettor and not in the business of betting or wagering.21
Although two Eighth Circuit cases note that the Wire Act does not require a defendant to be exclusively engaged in the business of betting or wagering, an examination of the facts of the cases shows that the defendants were integrally involved in the betting process. In U.S. v. Scavo, a 1979 case, the Eighth Circuit noted that the Wire Act “is not limited to persons who are exclusively engaged in the business of betting or wagering … ”22 In the Scavo case, the defendant, being fully apprised of an illegal bookmaking operation, provided betting line information to a bookmaking business on a regular basis with the defendant receiving remuneration for the betting lines.23 In another case, the Eighth Circuit concluded that the defendant ran afoul of the Wire Act because “[t]here is no requirement that defendant be exclusively engaged in the business of betting or wagering” after noting that the defendant took many bets from different individuals and communicated with others in the bookmaking ring hundreds of times to receive current betting line information.24
The Wire Act’s proscription of interstate transmission of information assisting in the placing of bets or wagers “makes no distinction between those engaged in the business of gambling on their own behalf and those engaged in that business on behalf of others.”25 In the Scavo case, the Eighth Circuit explained the first element of the Wire Act—that a defendant must be engaged in the business of placing bets and wagers—as follows:
“The term ‘business’ is to be applied according to its usual and ordinary meaning. An individual engages in the business of betting or wagering if he regularly performs a function which is an integral part of such business. The individual need not be exclusively engaged in the business nor must he share in the profits or losses of the business. He may be an agent or employee for another person’s business, but the function he performs must provide a regular and essential contribution to that business. If an individual performs only an occasional or nonessential service or is a mere bettor or customer, he cannot properly be said to engage in the business. A business enterprise usually involves a continuing course of conduct by persons associated together for a common purpose.”26
Element #2: Information to Assist With the Placing of Bets or Wagers
The second element of a Wire Act violation requires that the defendant use a wire communication facility to transmit, in interstate or foreign commerce, bets or wagers, information assisting in the placement of bets or wagers or to inform someone that he or she has won a bet or wager and is entitled to payment or credit. As noted above, a wire communication facility is broadly defined in the Wire Act. In order to fit within the definition, an individual must use an instrumentality to transmit information by wire, cable or other like connection between a point of origin and a location where the transmission is received.27 Courts have extended the definition of a wire communications facility to include the Internet.28
In addition, if a defendant is accused of using a wire communication facility to transmit information assisting in the placement of bets or wagers, the bets or wagers must be “on any sporting event or contest.”29 Differing interpretations have arisen over the construction of the phrase “any sporting event or contest.” The Wire Act does not define the term “sporting event or contest.” Narrowly construed, “sporting” is an adjective intended to modify both “event” and “contest.” This interpretation is consistent with the legislative history of the Wire Act as involving “the transmission of wagers or bets and layoffs on horse racing and other sporting events.”30
Since the passage of the Wire Act, and more recently, since the explosion in popularity of online gaming, there have been a number of courts to consider whether the Wire Act is meant to prohibit the transmission of information assisting in the placement of sports wagers or all gambling bets. The two most recent and widely cited cases to set forth the arguments on both sides of this debate are In re: Master Card International Inc. and United States v. Lombardo.
In In re: Master Card International Inc., the Fifth Circuit Court of Appeals upheld a federal district court’s ruling that the Wire Act does not prohibit Internet casino gambling unrelated to sports betting.31 In rejecting alleged violations of the Wire Act as a predicate for a Racketeer Influence and Corrupt Organizations Act prosecution, the Fifth Circuit noted that the district court had “concluded that the Wire Act concerns gambling on sporting events or contests and the Plaintiffs had failed to allege that they had engaged in internet sports gambling. We agree with the district court’s statutory interpretation, its reading of the relevant case law, its summary of the relevant legislative history, and its conclusion. The Plaintiffs may not rely on the Wire Act as a predicate offense here.”32
However, in 2007, the District Court of Utah held in United States v. Lombardo that the Wire Act prohibits all games of chance, including casino-type gambling.33 The Lombardo court rejected the Fifth Circuit’s construction of the Wire Act, concluding that “the phrase ‘sporting event or contest’ modifies only the first of [the] three uses of a wire communication facility. Giving effect to the presumably intentional exclusion of the ‘sporting event or contest’ qualifier from the second and third prohibited uses indicates that at least part of [the Wire Act] applies to forms of gambling that are unrelated to sporting events.”34
Element #3: The Wagering Information is Transmitted from One State to another State or a Foreign Country
The transmission of information across state lines or between a state and a country outside of the United States is generally self-evident. There is little in the way of interpretive case law regarding the third element of 18 U.S.C. § 1084(a).
The Safe Harbor Provision of the Wire Act
The Safe Harbor provision of § 1084(b) reads:
“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.”(Emphasis added.)
The first part of the safe harbor provision related to information used in news reporting of sporting events or contests generally applies to companies in the business of reporting news. The second part of the safe harbor provision in Sec. 1084(b), which is italicized above, applies only to information, and does not apply to the other two acts prohibited in Sec. 1084(a)—the transmission of bets or wagers or the transmission of a wire communication which entitles the recipient to money or credit as a result of bets or wagers.35
The legislative history discussing the safe harbor provision of Sec. 1084(b) noted that “the transmission of gambling information on a horserace from a state where betting on that horserace is legal to a state where betting on the same horserace is legal is not within the prohibitions of this bill.”36 Despite the legislative history referring solely to horseracing, the clear language of the safe harbor provision in Sec. 1084(b) makes it applicable to any sporting event or contest. For the second part of the safe harbor provision in Sec. 1084(b) to apply, only information may be transmitted, and wagering on a sporting event, and the payment of a winning wager, must be legal under the laws of both the jurisdiction from where the information was transmitted and the jurisdiction where the information was received.
In discussing Sec. 1084(b), the Second Circuit stated that the subsection “provides a safe harbor for transmissions that occur under both of the following two conditions: (1) betting is legal in both the place of origin and the destination of the transmission; and (2) the transmission is limited to mere information that assists in the placing of bets, as opposed to including the bets themselves.”37 The Cohen case involved a defendant running an online sports wagering business in which a customer living in the United States was able to open an account by wiring money to the online business based in Antigua, with the customer then being able to communicate with the business via telephone or the Internet to place a bet.38 The defendant argued that the information transmitted between New York and Antigua contained only information that enabled the company to place bets from customer accounts located in Antigua.39 However, the court held that a customer saying or signaling for defendant to make a bet and defendant agreeing to the same was more than the transmission of “mere information,” and the safe harbor provision of Sec. 1084(b) did not apply.40
Most recently, the Eighth Circuit reached a similar conclusion.41 In the Bala case, the court stated that “[t]he prohibition in § 1084(a) encompasses bets and wagers as well as information assisting bets and wagers, whereas the exception in 1084(b) is limited to information assisting bets and wagers. Thus the plain language suggests that Congress intended to prohibit all interstate wagering by wire, whether or not legal in the States between which the bets are transmitted.”42 Additionally, a federal court in New York explained that a reasonable interpretation of Sec. 1084(b) is as follows:
“[T]hat Congress’ distinction between ‘bets’ under § 1084(a) and ‘information’ potentially exempt under § 1084(b) is the distinction between transmissions constituting an individual gambling transaction—those necessary to effect a particular ‘bet or wager’—and transmission of ‘information’ that merely ‘assists’ a potential bettor or bookmaker. Such ‘information’ would include knowledge that may influence whether, with whom, and on what terms to make a bet. Thus, transmissions reporting the results of sporting events, the odds placed on particular contests by odds-makers, or the identities of persons seeking to place bets would be examples of ‘information,’ similar to § 1084(b)’s other exemption for ‘information for use in news reporting of sporting events.’“43
The Travel Act
The Travel Act aims to prohibit interstate travel or use of interstate facilities in the furtherance of an unlawful business enterprise.44 For purposes of the statute, “unlawful activity” includes “any business enterprise involving gambling.”45 Penalties for violations of the Travel Act include fines and imprisonment for up to 20 years. A defendant need not actually commit a crime under state law for liability to attach under the Travel Act: “The federal crime is the use of the interstate facilities in furtherance of the unlawful activity, not the violation of state law.”46 The “use” also must be continuous and part of an ongoing business enterprise for gambling to constitute an unlawful activity under the Travel Act.47
The Wagering Paraphernalia Act
The Wagering Paraphernalia Act was enacted along with the Wire and Travel Acts to combat organized crime during the 1960s. The Wagering Paraphernalia Act complements these two statutes in that it criminalizes the intentional transportation of any device designed for use in bookmaking, sporting event pools, and “similar games.”48 The Wagering Paraphernalia Act fits into this tripartite statutory scheme by aiming to cut off gambling supplies used in interstate commerce.49 The Wagering Paraphernalia Act exempts “the transportation in foreign commerce to a destination in a foreign country of equipment, tickets or materials designed to be used within that foreign country in a lottery which is authorized by the laws of that foreign country.”50
The Illegal Gambling Act
The Illegal Gambling Business Act imposes liability on anyone who “conducts, finances, manages, supervises, directs, or owns all or part of an illegal gambling business.”51 In order to establish a case under the Illegal Gambling Act, the prosecution must establish that the gambling business (i) violates the law of the state in which it is conducted; (ii) involves five or more persons; and (iii) has been in continuous operation for a period in excess of 30 days or has a gross revenue of $2,000 in any one day.52 The Illegal Gambling Act also provides a non-exclusive list of activities included under the broad category of gambling: pool-selling, bookmaking, maintaining slot machines, roulette wheels or dice tables, and conducting lotteries, policy, bolita or numbers games, or selling chances.53
The Sports Protection Act
Congress passed the Sports Protection Act in 1992 to help strengthen the integrity of American sports.54 The statute outlaws both public and private sponsoring, operating, advertising, and promoting of any gaming activity based either directly or indirectly on the performance of athletes.55 The Sports Protection Act creates no criminal liability for statutory violations, but it does provide a civil remedy. The United States Attorney General and competitive, professional or amateur sports organizations may file an action in the United States District Court to enjoin alleged violations.56 While exceptions exist, they consist mostly of grandfather clauses, exempting previously authorized, government sponsored schemes and casino wagering.57
The 1994 Lottery Laws
The 1994 Lottery Laws prohibit the interstate sale of lottery tickets. Courts have developed a three-part test for determining whether a given activity is a “lottery.” First, the contestants must provide consideration for entry; second, there must be a prize; and third, the victor must win the prize by chance rather than on the basis of skill.58
Congress passed the UIGEA in 2006 to impose restrictions on electronic payments to online gambling sites.59 The law essentially bars anyone engaged in an unlawful gambling business from knowingly accepting electronic fund transfers in connection with that business.60 Financial institutions are similarly barred from facilitating such transactions, and the law requires them to enact measures to affirmatively deal with the issue.61 The UIGEA does not provide for private enforcement, but it does allow a court to issue an equitable order sua sponte, regardless of whether a prosecution has been initiated.62
The UIGEA contains certain exceptions. “Unlawful Internet gambling” is defined as using the Internet to place or receive a bet or wager where doing so would be unlawful in the applicable jurisdiction.63 “Bet or wager” is defined as not including “participation in any fantasy or simulation sports game,”64 so long as:
(a) No fantasy or simulation sports team is based on the current membership of an actual team that is a member of an amateur or professional sports organization;
(b) All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants;
(c) All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real-world sporting or other events; and
(d) No winning outcome is based on the score, point-spread, or any performance or performances of any single real-world team or any combination of such teams; or solely on any single performance of an individual athlete in any single real-world sporting or other event.65
RICO provides for both civil and criminal liability of anyone engaging in “prohibited acts.” Those acts are enumerated in the three sections of RICO.66 To establish a prima facie RICO claim, a prosecutor must prove (1) the conduct (2) of an enterprise (3) through a pattern of racketeering activity.67 The statute defines “racketeering activity” as, among other things, “an act which is indictable under certain provisions of Title 18, such as the Wire Act, the Travel Act, the Interstate Transportation of Wagering Paraphernalia Act, and the Illegal Gambling Business Act.”68 “Pattern” requires showing both a relationship between or among the predicate offenses and the threat of a continuing activity.69
Money Laundering Act
The Money Laundering Act seeks to prevent anyone from knowingly conducting financial transactions with money derived from an unlawful activity.70
The IMTB declares it a crime to conduct, control, manage, supervise, direct or own all or part of a business, knowing that the business is an illegal money transmitting business.71 The phrase “illegal money transmitting business” is defined in the statute to mean a money transmitting business, affecting interstate commerce and violating either state or federal law.72 “Money transmitting” is defined as including public transfers of funds “by any and all means.”73
1 As codified at 18 U.S.C. § 1084 (the “Wire Act”).
2 As codified at 18 U.S.C. § 1952 (the “Travel Act”).
3 As codified at 18 U.S.C. § 1953 (the “Wagering Paraphernalia Act”).
4 As codified at 18 U.S.C. § 1955 (the “Illegal Gambling Act”).
5 As codified at 28 U.S.C. § 3701 et al. (the “Sports Protection Act”).
6 As codified at 18 U.S.C § 1301 et al. (the “1994 Lottery Laws”).
7 As codified at 31 U.S.C. § 5361 et al. (the “UIGEA”).
8 As codified at 18 U.S.C. § 1960 et al. (“RICO”).
9 As codified at 18 U.S.C. §§ 1956, 1967 (the “Money Laundering Act”).
10 As codified at 18 U.S.C. § 1960 (the “IMTB”).
11 The term “wire communication facility” is defined as “any and all instrumentalities, personnel and services (among other things, the receipt, forwarding or delivery of communications) used or useful in the transmission of writings, signs, pictures and sounds of all kinds by aid of wire, cable or other like connections between the points of origin and reception of such transmission.” 18 U.S.C. § 1081.
12 18 U.S.C. § 1804(a).
13 U.S. v. Lombardo, 639 F. Supp. 2d 1271, 1278 (D. Utah 2007) (citing Criminal Pattern Jury Instruction Committee of the United States Court of Appeals for the Tenth Circuit, Criminal Pattern Jury Instructions, Sec. 2.51 (2005).
14 18 U.S.C. § 1804(a).
15 U.S. v. Baborian, 528 F. Supp. 324, 328 (D. R.I. 1981) (quoting 107 Cong. Rec. 16,534 (1961)).
16 See e.g. U.S. v. Tomeo, 459 F.2d 445 (10th Cir. 1972) and U.S. v. Corrar, 512 F. Supp. 2d 1280 (N.D. Ga. 2007).
17 Tomeo, 459 F.2d at 447.
18 Corrar, 512 F. Supp. 2d at 1287.
19 See id.
20 U.S. v. Alpirn, 307 F. Supp. 452, 454 (S.D.N.Y. 1969).
21 U.S. v. Anderson, 542 F.2d 428, 436 (7th Cir. 1976).
22 U.S. v. Scavo, 593 F.2d 837, 841 (8th Cir. 1979); see also U.S. v. Reeder, 614 F.2d 1179, 1185 (8th Cir. 1980).
23 Id. at 842.
24 U.S. v. Reeder, 614 F.2d 1179, 1185 (8th Cir. 1980) (quoting Truchinski v. U.S., 393 F.2d 627, 630 (8th Cir. 1968).
25 Cohen v. U.S., 378 F.2d 751, 758 (9th Cir. 1967).
26 Scavo, 593 F.2d at 842-43 (emphasis added).
27 See U.S.C. § 1081.
28 Lombardo, 639 F. Supp. 2d at 15 (citing U.S. v. Cohen, 260 F.3d 68 (2d Cir. 2001).
29 18 U.S.C. § 1084(a).
30 107 Cong. Rec. 16533 (August 21, 1964).
31 313 F.3d 257 (5th Cir. 2002).
32 Id. at 260.
33 639 F.Supp.2d 1271 (D.Utah 2007).
34 Id. at 1281.
35 U.S. v. Ross, 1999 WL 782749, *3 (S.D.N.Y. 1999); see also 28 U.S.C. § 1084(b).
36 H.R. Rep. No. 967, 87th Cong., 1st Sess. (1961), reprinted in 1961 U.S.C.C.A.N. 2631, 2632.
37 U.S. v. Cohen, 260 F.3d 68, 73 (2d Cir. 2001).
38 Id. at 70-71.
39 Id. at 74.
40 Id. at 75.
41 U.S. v. Bala, 489 F.3d 334 (8th Cir. 2007).
42 Id. at 342.
43 Ross, 1999 WL 782749 at *5.
44 18 U.S.C. § 1952(a)(1)—(3).
45 Id. § 1952(b).
46 U.S. v. Peskin, 527 F.2d 71, 79 (7th Cir. 1975).
47 U.S. v. Jones, 642 F.2d 909, 912 (5th Cir. 1981).
48 18 U.S.C. § 1953(a).
49 See Erlenbaugh v. U.S., 409 U.S. 239, 246 (1972).
50 18 U.S.C. § 1953(b).
51 18 U.S.C. § 1955(a).
52 Id. § 1955(b)(1)(i)—(iii).
53 Id. § 1955(b)(2).
54 See S. REP. NO. 102-248, at 4 (1991) (expressing concern over the public’s wariness of sporting leagues’ integrity).
55 18 U.S.C. § 3702.
56 Id. § 3703.
57 Id. § 3704.
58 See Brooklyn Daily Eagle v. Voorhies, 181 F. 579 (E.D.N.Y. 1910).
59 See 31 U.S.C. § 5361(a)(1) (West 2009).
60 Id. § 5363(1)—(4).
61 Id. § 5364.
62 Id. § 5365(a).
63 31 U.S.C. § 5362(10).
64 Id. at § 5362(1)(E)(ix).
66 18 U.S.C. § 1962.
67 Salinas v. U.S., 522 U.S. 52, 62 (1997) (referencing 18 U.S.C. § 1962(c)).
68 18 U.S.C. § 1961(1)(A).
69 H.J. Inc. v. Northwestern Bell Telephone, 492 U.S. 229 (1989).
70 18 U.S.C. § 1956.
71 18 U.S.C. § 1960(a).
72 Id. § 1960(b).
73 Id. § 1960(b)(2).