Conflicting approaches to online gambling in the US

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

The conflicting signs about the future treatment of online gambling, and in particular online poker, in the US continue. While federal prosecutors have stepped up their efforts to target operators still offering gambling services to consumers in the US, there have been some moves by legislators to legalise it and regulate the market.

At the start of June 2009, the US attorney in the Southern District of New York (reportedly operating on behalf of the Department of Justice) seized a reported $34m in funds which the Poker Players Alliance, a US lobby group, stated belongs to 27,000 online poker players. These players are users of four offshore poker sites, including PokerStars and Full Tilt Poker, which continue to operate in the US despite the restrictive stance taken by the US authorities.

The funds were frozen when the US attorney ordered banks (including Wells Fargo, Union Bank, Citibank, Goldwater Bank and Alliance Bank of Arizona) to freeze monies in the accounts of Allied Systems Inc and Account Services Corp, both of whom are online payment processors used by gambling service providers. The payment processors have taken action to reverse the seizure amid reports that some users suffered problems with bounced cheques and current account liquidity. It has been reported that in a number of cases the affected operators responded by compensating their users and even gave them a bonus for any inconvenience and as an incentive not to close down their accounts.

The Poker Players Alliance claims that the seizures took place in accordance with provisions of the Unlawful Internet Gambling Enforcement Act 2006 (which prohibit banks and credit card companies from receiving money for online betting) which do not have to be introduced until 1 December 2009. In addition, the lobbying group argues that poker is a game of skill and therefore does not constitute gambling.

Meanwhile, on the legislative front, a bill introduced in May 2009 by Massachusetts Representative (and Chairman of the House Financial Services Committee) Barney Frank - The Internet Gambling Regulation, Consumer Protection and Enforcement Act - has reportedly reached 50 co-sponsors (click here to view). The bill, which has not yet been debated in Congress, would create a federal regulatory and enforcement framework under which operators could obtain online gambling licences which would permit them to accept bets from individuals in the US.

A further bill, which would allow the federal government to regulate online poker and other games of skill, was introduced on 6 August 2009 by New Jersey Senator Robert Menendez. Called the Internet Poker and Games of Skill Regulation, Protection and Enforcement Act, the act aims to raise tax revenue and combat fraud and money laundering. Regulation would be by the Department of Treasury, which would develop procedures to ensure that punters are physically located in a jurisdiction where online gambling is legal.