Newsweek - How Washington Opened the Floodgates to Online Poker, Dealing Parents a Bad Hand

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By Leah McGrath Goodman

In 2007, the head of the FBI's Cyber Crime Fraud unit, Leslie Bryant, issued a stern warning to Americans: "You can go to Vegas. You can go to Atlantic City. You can go to a racetrack. You can go to those places and gamble legally. But don't do it online. It's against the law."

Four years later, with much fanfare, the U.S. Department of Justice (DOJ) unsealed sweeping indictments against the online poker industry's Big Three--PokerStars, Full Tilt Poker and Absolute Poker. The companies, all located offshore, were hit with a raft of charges, including wire fraud, bank fraud, money laundering and operating in the U.S. in willful violation of the Unlawful Internet Gambling Enforcement Act (UIGEA).

A mere eight months later, on the Friday before Christmas Eve 2011, then-U.S. assistant attorney general Virginia Seitz quietly issued a 13-page legal opinion that changed everything. She reinterpreted the federal Wire Act of 1961, which, until that time, had been viewed by U.S. courts--and the DOJ's own Criminal Division--as prohibiting all forms of online gambling.

Seitz's opinion found that only wagers on a "sporting event or contest" were prohibited by the Wire Act ("wire" is interpreted as extending to the Internet). The effect was to lift a long-standing federal ban on non-sport betting on the Internet, such as poker and slots--some of the most popular and profitable games online--razing the foundation of the UIGEA, passed by Congress in 2006.

The opinion was issued in response to requests from the states of New York and Illinois to rule on whether proposed lotteries using the Internet to sell tickets would violate the Wire Act. But it ended up having much broader implications. The only federal restriction Seitz preserved was the ban against online betting on such events as horse racing or March Madness. Otherwise, she found the states were allowed to decide individually if they wanted to offer online gambling within their borders or team up with other states.

For Seitz, reversing 50 years of legal precedent came down to the placement of a comma. In the key passage of the Wire Act, the description of the ban on gambling over state or international lines applies to "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."

The first comma, for Seitz, was crucial. The question, she said, boiled down to whether "sporting event or contest" modified each instance of "bets or wagers" or only the instance it directly followed. She decided the former, writing, "We conclude that the [DOJ] Criminal Division's premise is incorrect and that the Wire Act prohibits only the transmission of communications related to bets or wagers on sporting events or contests."

She also noted that on the same day as the Wire Act was enacted in 1961, Congress passed a separate law regulating other forms of gambling, supporting the view that the Wire Act was aimed specifically at gambling on sports.

Punctuation aside, Seitz opened wide the door to online gambling--and in the process, critics say, may have opened a Pandora's box. Lawmakers and experts warn that online gambling is dangerously addictive for some, especially children raised in a culture of online gaming and smartphones.

Seitz, who came from the DOJ's Office of Legal Counsel (once characterized by Newsweek as "the most important government office you've never heard of," and the same office that wrote the legal justifications for drones and waterboarding), was appointed in June 2011 by President Barack Obama and previously worked at Chicago law firm Sidley Austin, where Obama and the first lady, Michelle Obama, met and worked until they married.

"That a single, relatively unknown person in an office at the Justice Department can just bring about such massive change to our economy in direct contradiction to what Congress sees as the governing law signals a gravitational shift in power that is very concerning," says Jonathan Turley, a professor of public interest law at George Washington University in Washington.

"The Office of Legal Counsel once held a unique and revered position within the DOJ and government as a whole," Turley continues. "It was viewed as the gold standard of legal analysis. This office was once tasked with the job of saying no to the president. Its job was to objectively interpret the intent of our laws passed by Congress. It had a tradition of independence and excellence, and that tradition was viewed as inviolate by past presidents. This was heavily damaged by the Bush administration, and this has only continued with Obama."

What has not changed about that tradition, says Turley, who voted for Obama, is that once the Office of Legal Counsel has spoken, its word is treated as sacrosanct by the other government agencies. (Reached by Newsweek, the DOJ, as well as the FBI, both confirmed that, as a result of Seitz's opinion, they have ceased cracking down on online gambling and will leave it up to the preferences of the states.)

"It's problematic that this office's opinions are treated as legally binding, as if they came down from Mount Olympus," Turley says. "Even in its heyday, it should never have been this way."

Seitz declined to comment on the reasons for her opinion or its impact.

So far in the U.S., the online gambling phenomenon is still new enough that only a handful of states have had a chance to approve it and roll it out. Nevada and Delaware--two states that have already teamed up over online gambling, sharing users and territory--and New Jersey have led the way, offering real-money gambling through websites and apps that can be downloaded straight to smartphones.

"This is just the beginning," predicts Jason Chaffetz, a Republican representative from Utah, the only state other than Hawaii that prohibits all forms of gambling, even the lottery. "I am afraid that if we don't move quickly and get some decent regulations in place, which we really don't have right now, it will be too late to stop it from reaching all the states."

Chaffetz is wary of claims that geolocational technology, which works better in cities than in rural areas and vast expanses of desert (due to their reliance on hot spots and cellular towers to triangulate players), can keep poker out of his state: "Many parents already can see how easy it is for a kid to get addicted to a video game that does not involve money. You put them on the Internet and they are gambling with money, now you have a real problem."

Chaffetz, a 47-year-old father of three (ages 21, 18 and 13), is one of the shrinking pool of politicians--Republican or Democratic--who do not rely on money from the gaming industry to fund his political activities. This past July, he wrote a letter (signed by 17 other representatives) to House Judiciary Committee Chairman Bob Goodlatte, a Virginia Republican, calling for hearings as soon as September on the nation's "policy on the expansion of gambling" to ensure it is "established through legislative process."

That terminology--"legislative process"--speaks to the consternation of a growing number of lawmakers who fear the Obama administration may have opened the floodgates to online gambling in the U.S. without ever intending it to be put to a congressional vote.

"The way this all unfolded and the parties involved, I think it raises a big question mark," Chaffetz tells Newsweek. "I'd like to know a lot more about what happened, which is why I asked for a hearing. We can't have an office in the bowels of the DOJ going against decades of legal precedent without Congress having any say."

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