Can a gambling casino, located in a state where the operation of such a casino is legal, maintain a site on the World Wide Web for the purpose of accepting wagers?1 Gambling is generally considered a matter of state concern and each state has regulated activities independently.2 However, when gambling activities cross state lines the federal government also has regulatory jurisdiction under the Commerce Clause of the U.S. Constitution.3 This article will deal with a hypothetical virtual casino (Casino) located in "Chance", a state within the United States, where gambling is legal under current law. First, the paper will explore the application of federal regulations, then the possible effects of conflicting laws in the state of "Taboo".

Keep in mind that within this analysis it is presumed that the site posted makes no statements as to what jurisdictions are sought to be solicited or of any jurisdictions which are to be excluded. The site anticipated is a generic, plain wrap, minimum requirements web page with no disclaimers, provisions or geographical hype. It is possible that on a case by case basis the courts may interpret the application of statutes with these disclaimers, provisions, or comments of solicitation in mind. Since the possibilities and variety of comments is extensive I will deal only with the vanilla flavored, common household variety. Place your bets!

Title 18 USCS §1084 covers the transmission of wagering information. Congress enacted this section as part of a series of legislation supporting a federal policy against organized racketeering.4 Other relevant statutes are 15 U.S.C. §1171 (prohibiting interstate transportation of gambling paraphernalia); 15 U.S.C. §§1173-1178 (requiring registration of gambling devices); 18 U.S.C. §§1081-1083 (prohibiting gambling on ships or airplanes owned by American citizens in areas of federal jurisdiction); 18 U.S.C. §§1301-1303 and 19 U.S.C. §1305 (prohibiting importing, transporting, or mailing lottery tickets and related matter); 18 U.S.C. §1304 (prohibiting broadcasting of lottery information); 18 U.S.C. §1592 (prohibiting interstate travel in aid of racketeering); and, 18 U.S.C. §1953 (prohibiting interstate transportation of wagering paraphernalia). While the legislative history and application of each of these statutes have relevance to the issue at hand, our primary concern is §1084. Subsection (a) of §1084 states that:

"(w)hoever 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 pacing 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 pacing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both."

The internet uses high speed wire communications technology to connect a network of computer systems. Clearly the use of a computer system to send and receive electronic communications over phone lines is use of a wire communication facility. Also, for the purpose of our hypothetical, we can acknowledge that Casino is engaged in the business of betting or wagering. The transmission of information over the internet potentially could be both interstate and foreign commerce. Further, it is the use of such interstate communications facilities which provides the basis of federal jurisdiction.5 The element of knowledge is most likely satisfied by Casino's purposefully placing the web site where it is capable of reaching any location in the world. In United States v. Barone, 467 F2d 247 (2d Cir. 1972) the court stated that §1084, "requires a showing that the defendant knew or could reasonably foresee that interstate communication would be used ...". Although actual knowledge that the transmission is interstate or foreign may not be ascertained until after the page has been "visited", that Casino intended to place the information where it was likely that this would occur is enough to establish knowledge under the statute.

If our analysis ended here it would seem obvious that Casino would be in violation of the statute. However, subsection (b) of §1084 provides:

"Nothing in this section shall be construed to prevent ... 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."

It is the nature of the internet that web sites are available for access in all states and foreign countries whether or not betting is legal. Therefore, we are dealing with a technology Congress did not consider when adopting the interstate gambling statutes.

The courts have long been discussing the impact of new technologies and the necessity that congress adopt legislation to keep pace with the new developments.6 While it may be tempting to argue that the new technology of the internet somehow creates an exception to the statute, it would be more accurate to say that the advances in technology create an ambiguity in the language of the statute. In United States v. Thomas, 74 F3d 701 (6th Cir. 1996) the defendants argued that 18 U.S.C. §1465, regulating the transportation of indecent or obscene materials, did not expressly prohibit intangible GIF images.7 In determining that the defendants violated the statute, the court looked to the intent of Congress. The court found that §1465 intended to prohibit the transportation of all pornography, whether the images were transmitted in tangible or intangible form was irrelevant. The exception in subsection (b) of §1084 is evidence that Congress did not intend to completely ban the transmission of bets or wagers in interstate commerce. In fact, in United States v. Edge Broadcasting Co., 509 US 418 (1993) the Court determined that the government has a substantial interest in supporting the policy of non-lottery States and in not interfering with the policy of States that permit lotteries. Therefore, an ambiguity exists in the statute when applied to the internet.8 Since transmission over the internet cannot be prohibited from entering non-gambling States without also preventing the legitimate transmission into States where such gambling is permitted, the dual policy is impossible to maintain.

There is a well-established rule of lenity that an ambiguous criminal statute is to be construed in favor of the accused.9 In construing an earlier version of the federal statute regulating gambling activities, the court in United States v. Whelpley, 125 F. 616 (WD Vir. 1903) considered whether the language "from one state to another" included the transportation of lottery tickets into the District of Columbia. In that instance, the court stated that any substantial doubt should be solved against the government. The court considered that, "Congress may readily prevent a repetition of the error by making clearer its meaning by an amendment." Id. at 617. Furthermore, the Pennsylvania Senators who introduced the Interstate Wagering Amendment stated that the Amendment was intended to close a "loophole" created in the Federal lottery law by the development of communications technology.10 Consistent with this policy, it is Congress and not the Judiciary who should decide the fate of wagering transmissions over the internet.

A further analysis shows that the legislative intent for the statutes at issue was to combat organized crime and racketeering.11 The primary targets of the act were operators of illegal establishments.12 When §1084 was applied to pari-mutual betting sanctioned by state law, the court found that the activity was not within the purview of the statute.13 Thus, it is likely that the courts would determine that the interstate gambling statutes are inapplicable to a web site placed by Casino on the internet.14

Our remaining issue is whether Taboo, our state with anti-gambling legislation, can assert jurisdiction over Casino for gambling activity on the internet. The initial inquiry is whether the federal government has established exclusive jurisdiction over the activity. After determining that there is not exclusive federal jurisdiction, we must determine whether the dormant Commerce Clause applies.15 Finally, should the state legislation pass the commerce clause analysis, the minimum contacts standard to establish personal jurisdiction must be met.16

18 USC §1804(c) provides that "(n)othing contained in this section shall create immunity from criminal prosecution under any laws of any State." It is clear from this and the case law discussed above that the Congress did not intend to assert exclusive jurisdiction over gambling activities. In determining whether the state regulation violates the dormant Commerce Clause the court must determine if the regulation pursues a legitimate state end; whether the regulation is rationally related towards achieving that end; and, provided the first two tests have been met, whether the state interest outweighs the burden on interstate commerce.17 It is generally accepted that there is a legitimate state interest in regulating gambling.18 For the purpose of this analysis we will assume that the state statute is constructed so as to be rationally related towards achieving the interest of the state in regulating gambling activities. The courts, however, view each statute independently. Thus, the threshold question is whether the state's interest in regulating gambling outweighs the burden on interstate commerce.

Traditionally, states have regulated gambling activities as a function of the state police power.19 The federal government has in turn regulated interstate gambling activities in part to assist those states in the enforcement of their gambling laws.20 Given this history and a presumption that the statute in question is constitutional, the balancing test would likely favor the state regulation. However, when we apply the internet aspect to the equation the result is more tenuous. The Supreme Court has often looked to whether the subject matter is local or national in scope.21 While gambling activities are usually of local concern, the internet is clearly national. The Honorable Steven A. Geller of the Florida Attorney General's Office declared that, "evolving technology appears to be far 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."22

Assuming that the court finds the statutes regulating gambling activities in Taboo are valid under the Commerce Clause analysis, it is then necessary to determine whether Taboo can assert personal jurisdiction over Casino, who other than the internet site, conducts no business outside of Chance and has no other contact with Taboo. Minnesota Attorney General Hubert H. Humphrey III certainly believes that jurisdiction exists. The Minnesota Attorney General not only has expressed that persons outside Minnesota who transmit information via the Internet are subject to jurisdiction in Minnesota courts for violations of state criminal and civil laws, but has brought a consumer protection lawsuit against Granite Gate Resorts, Inc. for a gambling related web site.23 The seminal case for personal jurisdiction is International Shoe Co. v. Washington, 326 US 310 (1945). International Shoe Co. establishes that the defendant who is not present within the territory of the forum must have certain minimum contacts with the forum such that maintaining a suit there does not offend traditional notions of fair play and substantial justice. Further, a state may not make a binding judgment in personam against a defendant with which the state has no contacts, ties, or relations.24 In the Attorney General's complaint Mr. Humphrey quotes the Supreme Court from Hanson v. Denckla, 357 US 235 (1958) defining minimum contacts as "some act by which the defendant purposefully avails himself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws."25 In Calder v. Jones, 465 US 788, 789 (1984) the Court in finding that the petitioners' actions were intentional and expressly aimed at California, stated that the mere fact that the petitioners could "foresee" that an article would be circulated and have an effect in California was not sufficient for an assertion of jurisdiction. Thus while Minnesota's Attorney General would create a presumption that the web site owner's use of the Internet and the foreseeability that thousands of residents in Minnesota will view that site establishes jurisdiction (perhaps rebuttable with a showing that the intent was specifically to exclude residents of Minnesota), the Supreme Court seems to lean towards a presumption that absent a showing of intent to direct the material into the distant state those contacts would not form a basis for jurisdiction.26

The manner in which this effects Casino is that should Minnesota Attorney General Humphrey prove correct in his contention, Casino should probably take at least minimal measures to demonstrate the intent to preclude residents of Taboo from access to the web site. Should the presumption favor Casino, the burden would be on Taboo to demonstrate that an intent to include the residents of Taboo did exist. In any evaluation, it would seem to be a pivotal consideration as to whether Casino intended to provide access to residents of Taboo or rather intended only to provide access to Chance and other states with favorable regulation.

As a policy consideration, some virtual casinos currently on the web have located in foreign countries to avoid the potential jurisdiction of state and federal regulations. These foreign sites continue to operate outside the reach of law enforcement. As a result the bettor within the United States who chooses to wager on-line will risk dealing with a gambling establishment not subject to the licensing requirements of legitimate gaming establishments within the United States. This causes an increase in potential fraud and misrepresentation. Furthermore, the concern expressed by some legislators that on-line gambling will reduce the revenues of legitimate interests (i.e., State lotteries) will be more significant given the money wagered is exported to a foreign interest. It would be desirable that Congress, under the constitutional authority of the commerce clause, establish a new amendment to the interstate wagering statutes. The legislature should design this amendment specifically to allow virtual casinos and similar gambling activities to exist on the internet, provided they conform to standards and licensing qualifications as set forth by the State or territory within which they are established.

Now if you've decided to set up your very own virtual casino web site, be aware that none of the statutes have been tested in regard to internet sites. As I stated in the opening of this paper, courts may decide the application of law on a case by case basis. This means that how a site is constructed; what measures are taken to screen out possible illegal transactions or notify residents of non-gambling states that they may be violating state or federal law; and, what additional notifications or disclaimers are provided on the web site might make the difference in the legality of the site. This author takes no responsibility for the actions of any individual or corporation, who may initiate or operate a web site for the purpose of accepting wagers or assisting in the placement of wagers based on the information provided herein.