DOJ Reverses Course: The Wire Act Applies to Non-Sports Gambling (Again)

HIGHLIGHTS:

• The U.S. Department of Justice's Office of Legal Counsel (OLC) has released an opinion concluding that the Wire Act, 18 U.S.C. §1084, restricts not just sports gambling but certain activities related to non-sports gambling as well.
• In concluding that the Wire Act extends to non-sports gambling, DOJ returned to its pre-2011 interpretation of the Wire Act, which had resulted in a considerable number of successful criminal prosecutions. That changed, however, when OLC issued a 2011 opinion concluding that the Wire Act applied only to sports gambling.
• Pursuant to OLC's most recent opinion, the moratorium on non-sports gambling prosecutions will be lifted, and individuals and entities involved in certain non-sports gambling activities – including lottery gambling and casino-style gambling – will be subject to criminal prosecution.

The U.S. Department of Justice's Office of Legal Counsel (OLC) on Jan. 14, 2019, publicly released an opinion¹ concluding that the Wire Act, 18 U.S.C. §1084, restricts not just sports gambling but certain activities related to non-sports gambling as well. In concluding that the Wire Act extends to non-sports gambling, DOJ returned to its pre-2011 interpretation of the Wire Act, which had resulted in a considerable number of successful criminal prosecutions. Indeed, between Fiscal Years 2005 and 2011, DOJ secured at least 17 Wire Act convictions involving non-sports gambling. That changed in 2011, however, when OLC issued an opinion² concluding that the Wire Act applied only to sports gambling, effectively instituting a moratorium on Wire Act prosecutions for non-sports gambling activities.

Pursuant to OLC's most recent opinion, the pre-2011 interpretation will be reinstated, the moratorium on non-sports gambling prosecutions will be lifted, and individuals and entities involved in certain non-sports gambling activities will be subject to criminal prosecution.

The Pre-2011 Policy Becomes the "New" Policy

Section 1084(a) of the Wire Act – the subject of the OLC opinion – provides as follows:

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.³

The confusion has centered around the question of whether the modifier "on any sporting event or contest" applies to each of the four prohibitions contained in Section 1084(a). From Sept. 20, 2011 to Jan. 13, 2019, OLC was of the opinion that it did and that the Wire Act prohibited wire communications related to gambling only on sporting events and contests. Now, as during the pre-2011 period, OLC is of the opinion that the modifier "on any sporting event or contest" applies to only one of the four prohibitions contained in Section 1084(a). Going forward, DOJ will enforce Section 1084(a) of the Wire Act – as it did in the pre-2011 era – under the presumption that Section 1084(a) creates the following four distinct offenses, each punishable by fine or imprisonment of up to two years:

1. the use of a wire communication facility for the interstate or foreign transmission of bets or wagers
2. the use of a wire communication facility for the interstate or foreign transmission of information assisting in the placing of bets or wagers on any sporting event or contest
3. the transmission of a wire communication that entitles the recipient to receive money or credit as a result of bets or wagers
4. the transmission of a wire communication that entitles the recipient to receive money or credit for information assisting in the placing of bets or wagers

Using Past Prosecutions as a Guide

To understand the types of conduct that could form the basis of criminal liability under DOJ's new policy, there is no better guide than DOJ's successful Wire Act prosecutions in the pre-2011 era. During that time period – a period when, like now, DOJ read the Wire Act as applicable to non-sports gambling – there were two types of non-sports gambling that frequently resulted in Wire Act convictions.

The first was lottery gambling. In United States v. Manetti, 323 F. Supp. 683 (D. Del. 1971), DOJ prosecuted a group of individuals under the Wire Act for operating "a business enterprise involving gambling in the form of numbers writing, otherwise known as lottery policy writing."⁴ Similarly, in United States v. Vinaithong, 1999 WL 561531 (10th Cir. April 9, 1999), DOJ successfully prosecuted a number of individuals under the Wire Act for their "involve[ment] in a gambling enterprise which ha[d] been referred to as a 'mirror lottery,' because the activity was structured as a copy of the Illinois state lottery."⁵ Individuals and entities involved in the business of lottery gambling should take notice of DOJ's new policy.

The second area of DOJ activity was casino-style gambling. In the pre-2011 era, several district courts upheld DOJ prosecutions involving casino-styling gambling activity. In United States v. Lombardo, 639 F. Supp. 2d 1271 (D. Utah. 2007), the district court rejected the defendants' argument that "§1084 reaches wire communications concerning betting or wagering on sporting events or contests only, and not on other games of chance such as those employed by online casinos,"⁶ and accordingly denied defendants' motion to dismiss the Wire Act counts of a federal indictment.⁷ Less than a year later, in United States v. Kaplan, No. 06-CR-337CEJ-2 (E.D. Mo. March 20, 2008), the district court again rejected the defendant's argument that "the Wire Act was enacted to target illegal sports betting, and that it does not apply to other types of gambling, such as casino-style gambling,"⁸ and thus denied defendant's motion to dismiss the Wire Act counts of the indictment. Individuals and entities involved in the business of casino-style gambling also should take notice of DOJ's new policy.

Conclusion

DOJ's pre-2011 focus on prosecuting those involved in lottery gambling and casino-style gambling – and the courts' willingness to uphold those prosecutions – is cause for concern for individuals and entities still involved in those businesses. Although DOJ will not apply Section 1084(a) to persons who engaged in conduct violating the Wire Act in reliance on OLC's 2011 opinion prior to Jan. 15, 2019, and for 90 days thereafter,⁹ DOJ will resume its enforcement of the Wire Act starting on April 16, 2019, for activity involving non-sports gambling.

If you have questions about DOJ's new policy, Holland & Knight's White Collar Defense and Investigations Team and its Public Policy & Regulation Group can provide additional information. These teams are comprised of professionals with extensive experience handling DOJ investigations and helping clients shape public policy.
  

Notes

¹ OLC Memorandum Opinion: Reconsidering Whether the Wire Act Applies to Non-Sports Gambling.

² OLC Memorandum Opinion: Whether Proposals by Illinois and New York to Use the Internet and Out-of-State Transaction Processors to Sell Lottery Tickets to In-State Adults Violate the Wire Act.

³ 18 U.S.C. 1084(a) (emphasis added).

⁴ Id. at 687 (emphasis added).

⁵ Id. at *1 (emphasis added).

⁶ Id. at 1278-81 (emphasis added).

⁷ Id. at 1290.

⁸ Id. at 3-7 (emphasis added).

⁹ DOJ Memorandum: Applicability of the Wire Act, 18 U.S.C. §1 84, to Non-Sports Gambling.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.