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unlawful Internet gambling

Internet gaming: On September 1, 2009, the 3rd Circuit handed down an opinion rejecting several facial challenges to the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006 (31 U.S.C. § 5361). This decision was on a suit brought by the Interactive Media Entertainment and Gaming Association – iMEGA — a gaming industry advocacy group. Interactive Media Entertainment and Gaming Association, Inc. v. Attorney General, U.S.C.A., Third Circuit, Case No. 08-1981. The UIGEA does not directly outlaw internet gambling, but instead makes if unlawful financial institutions and other persons to knowingly financial instruments such as credit cards, ETFs and checks in connection with “unlawful Internet gambling” by a third party. The effect of the UIGEA has been to seriously dampen the involvement of U.S.-based financial institutions in Internet gaming. A major reason is that the statute defines “unlawful Internet gambling” to include placing, receiving or transmitting a bet or wager by means of the Internet “where such bet or wager is unlawful under applicable Federal or State law in the State or Tribal lands in which such bet or wager is initiated, received, or otherwise made.” This means that even if the gambling business operates in a location where Internet gambling is legal, it is prohibited from accepting common financial instruments from an Internet gambler if the gambler is located in a place where Internet gambling is illegal. The problem is that financial institutions often cannot determine the precise jurisdiction from which a gambler has placed a bet over the Internet. As a result, it cannot determine whether the bet is lawful. While Internet gambling, per se, has only been outlawed in a handful of states, the effect of the UIGEA has been to seriously dampen the involvement of U.S. financial institutions in Internet gambling. iMEGA filed the this suit in 2007 against the U.S. Attorney General, the FTC and the Federal Reserve in an attempt to block enforcement of the UIGEA. The District Court rejected iMEGA’s suit. On appeal to the 3rd Circuit, iMEGA raised two primary arguments: that the UIGEA on its face is void for vagueness and that it violates an individual’s right to privacy. A plaintiff raising a facial challenge to a statute faces a serious uphill battle, because he must prove that the law is impermissibly vague in all its applications. A statute is void for vagueness if it fails to provide “fair notice” of what is prohibited or if it permits seriously discriminatory enforcement. The 3rd Circuit held that iMEGA had failed to meet this tests because it believed that the conduct outlawed in the UIGEA was clear enough — it prohibits acceptance of financial instruments in connection with Internet gambling initiated at a place where such gambling is illegal. Because at least some States have clear laws outlawing Internet gambling, the UIGEA would clearly apply to Internet gambling initiated from those locations. Because the UIGEA could clearly be applied to gambling initiated from those locations, it is not void for vagueness. Interactive argued that the UIGEA was also impermissibly vague, because it is often difficult for a financial institution to determine the location form which a gambler has placed an Internet bet. The 3rd Circuit rejected this argument, noting that the mere fact that it may be difficult to prove an element of a law does not mean that the law itself is vague. iMEGA also argued that under the law of some foreign jurisdictions, a bet is deemed to have been placed in the location where it is received. As such, a financial institution processing payments relating to such a transaction would be unable to know where the bet was placed as a matter of law. The 3rd Circuit had little patience for this argument, stating that nothing in the language of the UIGEA “suggest[s] that Congress meant anything other that the physical location of a bettor or gambling business in the definition of “unlawful Internet gambling.”

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