Online Gambling Before Black Friday

In the United States, gambling at licensed brick-and-mortar operations is legal under federal law. States have the right to either regulate gambling or to prohibit it. Online gambling, also known as iGambling and Internet gambling, has brought on a new set of regulations enforced by the U.S. government and in other countries where online gambling is prevalent.

The following set of articles describes the series of events leading up to Black Friday, in-depth details concerning Black Friday, and the aftermath and future of online Internet gambling.

The Free Trade and Processing Zone Act

Online Gambling and the Internets

Gambling and the Internets

With the advent of the Internet, advanced software specifically designed for online gambling, and the Free Trade and Processing Zone Act passed by the government of Antigua and Barbuda—the twin Caribbean island nation—online casinos were born. While the fundamentals of the Free Trade and Processing Zone Act were broad, the act provided a major benefit for gamblers interested in online gambling. It allowed online casinos to legally operate from jurisdiction of Antigua and Barbuda.

After the act was passed, many entrepreneurs scrambled to get their foot in the door to create online casinos. A number of online gambling software companies and online casinos were founded, and found quick success.

The Online Gambling Industry Takes Off Like Wildfire

Companies such as InterCasino and Cryptologic made rapid advancements in online gambling. Boss Media AB quickly followed suit and began operating their server from Antigua and Barbuda. The year 1996 can be marked as the time when such companies gained secure footing and took off running as a growing number of people gained access to online gambling. Other countries followed Antigua and Barbuda’s lead by passing laws that made legal online gambling possible in many areas of the world.

With an annual revenue of $835 million in 1998 and much of that revenue coming from U.S. citizens, traditional casino owners began to worry about their financial fate. Land-based casino owners began lobbying for stricter online gambling measures. In addition, the dramatic rise in online gambling revenue caused U.S. lawmakers to take a closer look at the industry.

The Unlawful Internet Gambling Enforcement Act

A combination of lobbying efforts along with problems already associated with online gambling, such as the concern over online money laundering, eventually brought about the passing of the Unlawful Internet Gambling Enforcement Act (UIGEA).

Both the Senate and House of Representatives passed the UIGEA bill, which was controversially attached to the Safe Ports Act, in September 2006. A large push for the bill came from lobbyists concerned about groups, specifically terrorist organizations, using online casinos to launder money. Once the bill was signed into law in October 2006, it became illegal for financial institutions to transfer funds to online casinos on behalf of their clients. With exceptions made for state lotteries, fantasy sports, and horseracing, the UIGEA closed access to U.S. players and legal online gambling. The consequence of the UIGEA for online gambling operations was that at least 2,300 Internet operations were either forced to close or to consolidate with other online gambling companies.

Opposition to the UIGEA

English: Official Congressional portrait of Co...

Millions of U.S. citizens and many U.S. politicians were in strong opposition to the Unlawful Internet Gambling Enforcement Act. For instance, U.S. Representative Barney Frank referred to the UIGEA as the “stupidest law ever passed.” Michael D. Schmitt was another strong opponent of the UIGEA and called the law unlawful. A few congressman and senators stated they were not allowed to view the gambling portion of the bill before making their vote and felt it highly controversial that the UIGEA was attached to the Safe Port Act, a non-controversial bill that was sure to pass.

Another common criticism of the act is that it forced more easily regulated online gambling operations out of the U.S. market, which would encourage smaller, unlawful companies to enter the market. Many believed that this would lead to an increase in underage gambling, money laundering, and other problems associated with illegal online gambling.

Online Gambling Operations Continued to Experience Success

Despite the online gambling bills passed by the U.S. government, the industry continued to generate considerable revenues and to grow over the years. However, as the industry made progress and created ever growing revenues, lobbying in the United States to slow down the industry or to put an end to it also gained strength.


The Federal Wire Act of 1961 and its Relation to Online Gambling

Seal of the United States Court of Appeals for...

Another law passed by the U.S. government that has controversially been used to support the limitation of online gambling in the states is the Federal Wire Act of 1961. The act begins with the following statement: “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.”

In 2002, the United States Court of Appeals for the Fifth Circuit ruled that the Federal Wire Act did not “in plain language” prohibit online gambling. However, the Department of Justice continues to use the Federal Wire Act by publicly stating that the act was designed to cover all forms of gambling including online casinos.

Other Events Preceding “Black Friday”

Despite the U.S. laws passed to limit online gambling, the industry continued to generate billions of dollars in the United States. At the same time, individuals on both sides of the fence continued to push their own agendas and, as a result, the controversy continues.

Additional events that have played a significant role in online gambling include the removal of online gambling advertisements by both Yahoo! And Google in 2004. Casino City, an online gambling company, sued the Department of Justice later that year stating that their business, including promotional advertisements for the company, was legal and that the business’s first amendment rights were being violated. The case was dismissed the following year.

After the UIGEA bill was passed into law, U.S. representatives such as Barney Frank (D-MA), Robert Wexler (D-FL), and Jim McDermott (D-WA) have worked to pass acts that would modify UIGEA law making online gambling in the United States legal under specific framework.

In 2009, the Department of Justice seized more than $34 million from online gambling players, which marked the first time that money was seized from players instead of the gambling companies themselves.

Many critics believe that these money seizures and restrictions on gambling companies are blocking considerable United States revenue opportunities. The Joint Committee on Taxation performed an analysis in 2009 showing that regulated Internet gambling would provide a safe way to generate more than $40 billion over a 10-year span of time.

In the meantime, online gambling continues to be a highly controversial subject with strong voices supporting the industry and many others strongly opposing it. The latest event that caused significant changes in online gambling in the U.S. and made waves in online gambling around the world has been called “Black Friday.”

Next, we will take a look at the events surrounding the United States v. Scheinberg case (Black Friday) and how it affected the indicted companies, players, and the United States economy.

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Posted by on Jan 11 2012. Filed under Poker Legal News. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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