Useful legal analogy re Internet versus other "legal" gambling

[MiltonFriedman]

Hey iMEGA, here is a free bit of advice:

On Monday, a Federal court permanently enjoined a California law barring sale of violent video games to minors. Similar laws in 5 states have been struck down as unconstitutional, including Washington State I believe ... Why is this relevant ?

The California Court reasoned, in essence, that the there was no showing that the video game format was any more harmful in connection with violence than other formats for entertainment, such as movies or the Internet:

"[Judge] Whyte indicated that while the court was sympathetic to the state's agenda, the restriction cannot stand absent evidence that violent video games are "more harmful than violent television, moves, Internet sites or other speech-related exposures." California Gov. Arnold Schwarzenegger said Monday that his government will appeal the ruling.'

The analogy: That a State or the federal government allows gambling, remote or live in casinos could require an affirmative showing of harm unique to the Internet to support a ban on Internet gambling. Bluntly put, the Constitution protects speech, that the format is via the Internet does not automatically allow for Internet specific bans/regulation versus other forms of the same activity ... absent some pretty good support.

(This is the US Constitutional corollary to the WTO argument, the US gave up its right to discriminate against foreign service providers, then, by allowing US horseracing/lotterys to operate remotely, gave up its right specifically to discriminate against foreign gaming providers. Here, a State or the federal government cannot ban Internet speech while it allows the same speech to flourish in brick & mortar environs.

(I am not arguing that regulation or a ban is a per se Constitutional violation, just that there is no factual support to distinguish Internet gambling from lotteries, casinos, sports betting in person.)

iMEGA fails to make this argument to my knowledge, they really should.

[Grasshopp3r]

You should send it to them. Don't assume that they will make this argument.

[Legislurker]

What would it take for someone to file an affadavit or amicus brief, or something to attach to the iMega suit so that the judge hears eveyr good argument we have? We only have to win once. Im not sure the exact legal term of what we can attach to iMega's case, and I guess it would take someone in that Circuit.

[fnurt]

There was a prior court ruling that video games are "speech" protected by the First Amendment. You'd have to get creative to argue that online gambling is free speech, I think.

In addition, the Feds can claim that they need to restrict online gambling for anti-money laundering reasons, which gives them a stronger basis to pass that particular law.

[MiltonFriedman]

"You'd have to get creative to argue that online gambling is free speech, I think."

How creative, really ?

1. Video games is a business, the company puts out software that someone pays to play on.

2. The publisher/provider of the software seems to enjoy speech protection.

3. Online poker sites publish/provide software that someone pays to play on.

4. Is there a valid "content" ban against real money play on the software ?? Under this line of cases, apparently not, because the same activity is allowed offline,by the government in brick & mortar venues.

5. Money laundering needs some evidentiary basis to stand up to scrutiny, otherwise why ban the activity rather than tailor a remedy for that possible ill. Cf ACLU v. Gonzales,

[damaniac]

[ QUOTE ]
"You'd have to get creative to argue that online gambling is free speech, I think."

How creative, really ?

1. Video games is a business, the company puts out software that someone pays to play on.

2. The publisher/provider of the software seems to enjoy speech protection.

3. Online poker sites publish/provide software that someone pays to play on.

4. Is there a valid "content" ban against real money play on the software ?? Under this line of cases, apparently not, because the same activity is allowed offline,by the government in brick & mortar venues.

5. Money laundering needs some evidentiary basis to stand up to scrutiny, otherwise why ban the activity rather than tailor a remedy for that possible ill. Cf ACLU v. Gonzales,

[/ QUOTE ]

Sounds like there are a couple of ways you're trying to take this (neither of which will work).

One is the speech angle. Yeah, I get your argument; no court is going to find a ban on Internet gambling to be a ban on a form of speech as protected by the First Amendment. They're just not.

The other thing is an equal protection argument. Ie, that by banning internet gambling in some areas but not others, the government is discriminating against people who prefer to play on the banned games. This would be an equal protection claim, since you have one class of people (poker players, say) being treated from another (people who bet on horse races).

The problem is that this triggers rational basis scrutiny. The only things one needs to know about rational basis: 1) it needn't be rational and 2) it doesn't have to be the actual basis for the law. If the court can think of an argument that one could use that might make sense to someone somewhere, that's basically it.

I admire your efforts and your posts, but really, gambling isn't speech in the eyes of the courts, and it isn't going to be found to be.

[JPFisher55]

I have read the pleadings of the iMEGA. I am not sure that they directly make this argument. However, I think that they imply it because one of their arguments is that the UIGEA is not narrowly tailored to satisfy a legitimate government objective and thus is too broad. In other words, what is rational about the UIGEA?
Isn't that the same basis for the judge's ruling in the case that you describe, Milton?

[oldbookguy]

The problem is, there is no ban on playing poker, only for money.

Read the UIGEA closely, free play where tokens are awarded and only redeemable on the specific site are allowed.

There is no ban concerning Internet poker, only playing for real money as put forth by the DoJ and others.

obg


[ QUOTE ]
"You'd have to get creative to argue that online gambling is free speech, I think."

How creative, really ?

1. Video games is a business, the company puts out software that someone pays to play on.

2. The publisher/provider of the software seems to enjoy speech protection.

3. Online poker sites publish/provide software that someone pays to play on.

4. Is there a valid "content" ban against real money play on the software ?? Under this line of cases, apparently not, because the same activity is allowed offline,by the government in brick & mortar venues.

5. Money laundering needs some evidentiary basis to stand up to scrutiny, otherwise why ban the activity rather than tailor a remedy for that possible ill. Cf ACLU v. Gonzales,

[/ QUOTE ]

[fnurt]

[ QUOTE ]
"You'd have to get creative to argue that online gambling is free speech, I think."

How creative, really ?

1. Video games is a business, the company puts out software that someone pays to play on.

2. The publisher/provider of the software seems to enjoy speech protection.

3. Online poker sites publish/provide software that someone pays to play on.

4. Is there a valid "content" ban against real money play on the software ?? Under this line of cases, apparently not, because the same activity is allowed offline,by the government in brick & mortar venues.

5. Money laundering needs some evidentiary basis to stand up to scrutiny, otherwise why ban the activity rather than tailor a remedy for that possible ill. Cf ACLU v. Gonzales,

[/ QUOTE ]

The more I think about it, the more it would be very, very simple for the government to argue that online poker presents substantially greater dangers of money laundering than B&M poker.

[yahboohoo]

As others have pointed out, it has nothing to do with free speech and everything to do with money laundering.

I would agree with the government's current contention that online gambling makes laundering money easier than B&M gambling -- especially poker. I mean, come on, there's no better or faster way I know of to pay someone a big chunk of money than in a HUNL game. It only costs $3 per $10,000.

The problem with the government's argument is that it is circular:

1. Online gaming isn't regulated.
2. Because online gaming isn't monitored by the government, it is more likely to be used for money laundering (duh...).
3. Ergo, unregulated online gaming should be illegal.

It's a Catch 22. If online gaming was regulated (and taxed, of course, to pay for its regulation), then the government could insist on controls and measures to be implemented that fight money laundering and various other forms of financial fraud.

With the debt this country is racking up, it's no doubt Congress is looking at the financial boon that awaits a legalized online gaming industry in the United States. But they have to wrestle with phooey like "morality" first.

Why they think this is their responsibility, I have no idea...

Legalize. Regulate. Tax. Monitor. Control. Just leave the issues of "morality" and "cultural welfare" out of it.

[Legislurker]

the $3 price tag comes with the risk of fund seizure/locking.
there is a trail to follow. And in the money laundering world, HU NL game with a 25/down seat charge is something a poker room would spread for you where you throw cash at each other in unlimited amounts, then just stuff it in your pocket.

[DeliciousBass]

[ QUOTE ]
You'd have to get creative to argue that online gambling is free speech, I think.

[/ QUOTE ]

Someone correct me if I'm wrong (I'm sure there is a correction to soon follow) but aren't corporations allowed to donate money to political candidates because the courts ruled that it was an expression of 'free speech' and protected by the constitution?

I would imagine that you could make the argument that how you spend your money is also a protected expression of free speech.

[davmcg]

[ QUOTE ]
As others have pointed out, it has nothing to do with free speech and everything to do with money laundering.

I would agree with the government's current contention that online gambling makes laundering money easier than B&M gambling -- especially poker. I mean, come on, there's no better or faster way I know of to pay someone a big chunk of money than in a HUNL game. It only costs $3 per $10,000.

The problem with the government's argument is that it is circular:

1. Online gaming isn't regulated.
2. Because online gaming isn't monitored by the government, it is more likely to be used for money laundering (duh...).
3. Ergo, unregulated online gaming should be illegal.

It's a Catch 22. If online gaming was regulated (and taxed, of course, to pay for its regulation), then the government could insist on controls and measures to be implemented that fight money laundering and various other forms of financial fraud.

With the debt this country is racking up, it's no doubt Congress is looking at the financial boon that awaits a legalized online gaming industry in the United States. But they have to wrestle with phooey like "morality" first.

Why they think this is their responsibility, I have no idea...

Legalize. Regulate. Tax. Monitor. Control. Just leave the issues of "morality" and "cultural welfare" out of it.

[/ QUOTE ]

I really wish that you people would read a bit about money laundering before spouting off.

The traditional definition of money laundering is the three stage process of placement, layering and integration. I say traditional because legislative changes (not sure what exactly maybe Patriot Act) meant that any cash transaction in relation to a crime automatically could also be money laundering, even though there was no attempt to hide the origin of the cash.

Placement, getting cash into the financial system, is by far the most difficult stage of the process and as online casinos don't handle cash they can't be utilised for this purpose. Clearly B&M can and offer a facility to move the cash into the financial system by cheque or bank transfer.

OK there is some argument that online poker could be of some use in the layering (multiple transactions to obscure original source) and integration (transaction(s) that present funds as legally acquired), but virtually any commercial transaction can be used for these purposes, many with far less transparency than fully recorded hands of poker.

[MiltonFriedman]

That anyone would believe that the motivation and intent of the UIGEA wa to prevent moneylaundering OR that, as such, it is justified in curbing US players' rights is sad.

As pointed out:

1. As online casinos don't handle cash they can't be utilised for moneylaundering, period. Western Union, Moneygram, et al take cash and send it overseas all day long. The argument that 'online poker could be of some use in the layering (multiple transactions to obscure original source) and integration (transaction(s) that present funds as legally acquired)" applies with equal force to ANY online auction or sales site or money transfer service.
2. REQUIRING that US players use their domestic banking facilities to deposit/cashout, rather than PROHIBITING that activity, would actually do more to combat any perceived potential moneylaundering, as the US banking system has Know-Your-Customer rules in place.

Online poker service providers would jump at the second idea.

Milton

[MiltonFriedman]

The case line you cite, I think is Buckley v. Valeo (sp?)and discusses corprations' right to political free speech, it tossed out a ban on "soft money" in campaigns.

[oldbookguy]

Let me say, I am just an ordinary man who looks at things in an ordinary way, a simplistic view of things you might say.

In looking at issues I look to common sense and applied reasoning.

This issue to me is really no different that eBay and cap guns. For instance, I am in West Virginia and I wish to sell an old Wyatt Earp cap gun on eBay. Trouble is this toy is old and not like modern toy cap guns that have those orange removable plugs in the end. Well, California law says ALL toy guns must have this, no matter the age carrying the federal Law that all new toy guns must have these orange caps.

Now, since eBay is located in California, no matter where I am, California law must be followed since the transaction takes place on eBay’s server located in California even if my buyer is in West Virginia and pays me in cash, I must still follow California law, no toy vintage gun auctions without that orange cap.

Now, poker sites servers are located not in California or even in the United States, therefore I must follow the laws governing where the server is located. Simplistic, yes, correct, no, the government now says the transaction takes place where I am located, not the server location.

The latter argument was successfully argued in International Internet gaming cases in the past.

Now, the UIGEA, if looked at closely seems to contradict this. How? It states transactions MUST be made AND received in the same state, with the operative word being received. Now however, the UIGEA passed by congress is in a sense acknowledges transactions are to be considered to be completed where they are received (must be made and received in the same state), contradicting the earlier cases in that the DoJ argued the transaction was considered made where the transaction was placed with no concern of where it was received.

Simplistic, yes, correct though? Perhaps lawyers can complicate this simplistic view and find us an answer.

obg

[MiltonFriedman]

Damaniac,

I happen to believe that the iMEGA lawsuit has no chance of success for a variety of reasons, especially standing and ripeness. However, hypothetically, the "speech" angle is a pretty good one.

I am not angling for a decision that regulation would be a per se violation, only that a ban is a violation when other forms of the activity are allowed.

How is Internet gambling distinguishable from interactive video games ... the fact that people bet on it ? That makes betting the evil. However, people also can bet on skill games all day, online and nationally. Plus, 48 of 50 States allow in-person gambling.

The express concern about sports betting and online casinos under the UIGE Act was NOT betting, but the use of credit and the financial services where such activity was ALREADY illegal.

The video games caselaw arguably undercuts application of the UIGEA in the 48 States where betting itself is not banned.

(FWIW, expect the iMEGA to add the argument in a supplemental brief to the Court.)

[oldbookguy]

[ QUOTE ]
How is Internet gambling distinguishable from interactive video games ... the fact that people bet on it ? That makes betting the evil. However, people also can bet on skill games all day, online and nationally.

[/ QUOTE ]


Milton, I really think this is our best shot at limiting the regulations or even IMEGA being successful.

I have had a few e-mails back and forth with them early on and at first they were not interested in the 'SKILL' gaming angle though I was told down the road they may look at it and add it as an argument as well. I think it would only be helpful if they do.

obg

[JPFisher55]

[ QUOTE ]
Let me say, I am just an ordinary man who looks at things in an ordinary way, a simplistic view of things you might say.

In looking at issues I look to common sense and applied reasoning.

This issue to me is really no different that eBay and cap guns. For instance, I am in West Virginia and I wish to sell an old Wyatt Earp cap gun on eBay. Trouble is this toy is old and not like modern toy cap guns that have those orange removable plugs in the end. Well, California law says ALL toy guns must have this, no matter the age carrying the federal Law that all new toy guns must have these orange caps.

Now, since eBay is located in California, no matter where I am, California law must be followed since the transaction takes place on eBay’s server located in California even if my buyer is in West Virginia and pays me in cash, I must still follow California law, no toy vintage gun auctions without that orange cap.

Now, poker sites servers are located not in California or even in the United States, therefore I must follow the laws governing where the server is located. Simplistic, yes, correct, no, the government now says the transaction takes place where I am located, not the server location.

The latter argument was successfully argued in International Internet gaming cases in the past.

Now, the UIGEA, if looked at closely seems to contradict this. How? It states transactions MUST be made AND received in the same state, with the operative word being received. Now however, the UIGEA passed by congress is in a sense acknowledges transactions are to be considered to be completed where they are received (must be made and received in the same state), contradicting the earlier cases in that the DoJ argued the transaction was considered made where the transaction was placed with no concern of where it was received.

Simplistic, yes, correct though? Perhaps lawyers can complicate this simplistic view and find us an answer.

obg

[/ QUOTE ]

If you read the pleadings at www.freejaycohen.com (http://www.freejaycohen.com), you will find that Jay used this exact legal argument in his trial and appeal for violating the Wire Act. Both the trial court and the court of appeals ignored his argument bys stating that the rule that a bet originates, placed and received in the jurisdiction to which the money is transmitted only applies to tax and contract law; not criminal law.
It amazes me that the US judicial system comes up with such rulings when the politics demand it.

[oldbookguy]

[ QUOTE ]
If you read the pleadings at www.freejaycohen.com (http://www.freejaycohen.com), you will find that Jay used this exact legal argument in his trial and appeal for violating the Wire Act. Both the trial court and the court of appeals ignored his argument bys stating that the rule that a bet originates, placed and received in the jurisdiction to which the money is transmitted only applies to tax and contract law; not criminal law.
It amazes me that the US judicial system comes up with such rulings when the politics demand it.

[/ QUOTE ]

Yes, I have read those arguments and reasoning by the courts. Now, however, it looks like the UIGEA passed by congress is actually making a distintion with the made AND received rule, that there is a difference perhaps now where as before the prevailing thought was as argued in the WSEX case ruling.

Could a good lawyer could successfully argue this point making moot the earlier rulings based on other law?

As a note the eBay cap gun rules are more recent than the WSEX case with this rule of local law in California being the guiding laws that control the sales there being only about 2 years old.

obg

[erac22]

if the issue is money laundering, why not just stop all money transfers on sites? How could money be laundered if the only option was to send money from your bank account, to your online gamlbing account, then back to your bank account? The site I play on doesn't allow transfers, and I have no problem with this. It actually makes it more hacker proof and more secure. Surely this would solve the laundering problem, wouldn't it?

**I guess people could chip dump, but it seems that sites have software detection abilities to prevent this?

[yahboohoo]

[ QUOTE ]
I really wish that you people would read a bit about money laundering before spouting off.

The traditional definition of money laundering is the three stage process of placement, layering and integration. I say traditional because legislative changes (not sure what exactly maybe Patriot Act) meant that any cash transaction in relation to a crime automatically could also be money laundering, even though there was no attempt to hide the origin of the cash.

Placement, getting cash into the financial system, is by far the most difficult stage of the process and as online casinos don't handle cash they can't be utilised for this purpose. Clearly B&M can and offer a facility to move the cash into the financial system by cheque or bank transfer.

OK there is some argument that online poker could be of some use in the layering (multiple transactions to obscure original source) and integration (transaction(s) that present funds as legally acquired), but virtually any commercial transaction can be used for these purposes, many with far less transparency than fully recorded hands of poker.

[/ QUOTE ]
The fact is that NETeller and online gaming sites made it very easy for large sums of money to be transferred (once or many times) without the U.S. knowing about it. This could be (I repeat: COULD be) utilized by criminals, terrorists, or just average folks who want a "second economy" free of taxes. All these could be construed as attempts to "conceal the identity, source, and/or destination of money" -- or, in other words, money laundering.

When Uncle Sam sees large volumes of money going in one direction (online gaming) and can't figure out who is getting how much on the back end, it makes them very nervous.

[MiltonFriedman]

Look for iMEGA to add this week's video games analogy argument in a supplemental brief. I do not know if they plan to add a skill games example, which they should as this is a federal level case.

(However, I still feel iMEGA has fatal flaws in their positions and doubt these substantive arguments will be reached. They have never addressed the standing issues adequately and will not be able to show irreparable injury.)

[MiltonFriedman]

iMEGA email release today:

"Since the announcement of our date in court (Sept. 4th, in Trenton NJ), from a media standpoint, things seem very quiet for iMEGA. They are not, however, and I wanted to bring you up to speed on some of the inside work iMEGA has been engaged in.

Legal

-We've received no shortage of support (and advice) from interested parties in the legal community. While most of this is rhetorical (and, at times, editorial), we've consulted with a number of very good attorneys to help beef up the substance behind our challenge. Most of our consultation have been gratis, so we've been able to hold our legal bills more or less constant for the time being, while enjoying the benefit of some otherwise very expensive counsel.
...

-The defendants (US DoJ, the FTC and the Fed Reserve) have yet to respond to our brief. Only the Fed has publicly acknowledged being a defendant in our suit ...


-We're crafting a "leave-behind" document for visits with members on the Hill, in part to address the very-public letter-writing campaign this week by Focus on the Family, and their affiliated groups. These address their baseless statements and scare tactics (such as the "iGaming is a front for terrorism" saw). Given the expert testimony we have to back this up, it will be a very compelling counter to FotF's efforts.

...

But, let's be clear: everyone is waiting to see how things start to play out as of Sept. 4th. Other parties will sit on the fence until they are sure this is a worthy challenge, so it's up to our Legal Team to make that happen in court. They know this, and they are continuing to build the case, especially given recent decisions they feel strengthen and broaden their arguments versus UIGEA (example: US District Court Judge Whyte's overturning of the California Video Game law).

...

[Legislurker]

That email alone is more communication than we have had from the PPA in 18 months. I am willing to move them up from joke status to longshot status. I guess I can give them $100 or something.

[oldbookguy]

I still do not see a first Amendment case in the UIGEA, poker is not banned from being played, in-fact it states it may.

It is a commerce issue, it may not be played for real money, that is what it seeks to ban.

Since UIGEA states federal and state laws banning unlawful internet gambling and there is no federal law (see MC wire act case) it would have to ban poker Internationally relying on state laws.

So, the question, I believe, should be framed; Do states have the legal authority to regulate or ban International commerce?

If that argument can be won (NO), then even the few states that have laws against Internet Wagering will be restricted to banning that activity within their borders and since there are no Poker Sites with the borders of a state and no transaction will be received within that border.....

obg

[JPFisher55]

[ QUOTE ]

(However, I still feel iMEGA has fatal flaws in their positions and doubt these substantive arguments will be reached. They have never addressed the standing issues adequately and will not be able to show irreparable injury.)

[/ QUOTE ]

I agree about the standing issue and the irreparable harm. But I don't think that winning the TRO (or preliminary injunction) is that important to the iMEGA case. Actually, if regs are issued, then the iMEGA might gain standing.
I guess their legal stratedgy confuses me. Why not wait until the regs come out and then sue.

[MiltonFriedman]

I agree about a Commerce Clause argument, which is combined with a 1st Amendment argument in the ACLU v. Gonzales Child Porn Act permanent injuction cases. It never hurts to have a First Amendment argument to add to the Commerce Clause reasoning. Remember, a injunction involves an equitable judgement by the Court. It is much stonger to be able to say, I want to exercise my First Amendment rights (in commerce) than to say I want to sell yellow margarine in Wisconsin or ship goods via truck through Missouri.

Yes, the real argument is commerce clause based, and a "dormant" commerce clause at that, but adding free speech bolsters its equitable appeal.

[MiltonFriedman]

Ironically, I think they are going to lose, with or without more money. They need help, in the form of real plaintiffs with real injuries to real lawful activity, more than they need more money.

[oldbookguy]

Agreed, they need Internet Players themselves as part of the suit.

It would help the case of they were to begin signing up players and seek perhaps class action status?

obg

[MiltonFriedman]

No need for a class action, they seek only injunctive releief, not damages.

[JPFisher55]

But without any DOJ action against online poker players or regs does an online poker player, Doyle Brunson etc. or Party Poker have standing?

[MiltonFriedman]

Sure. Party does, about $7 billion worth of lost market value of injury. Party customers cannot play on Party, Party affilates lost income.

Even better, Doyle US based affiliates lost income and since have been screwed by FTP on their US players "transferred" over.

The key is that Online Poker is not banned, clearly, in certain States.

[Legislurker]

[ QUOTE ]
But without any DOJ action against online poker players or regs does an online poker player, Doyle Brunson etc. or Party Poker have standing?

[/ QUOTE ]

DOJ prosecution of the Neteller execs and the frozen money was and is harm. Epass is the alternative, and it charges higher fees. Use of capital was lost when the money was seized. What if a player lost his whole bankroll and had to resort to lesser income earning? Though perhaps Firepay may be a better source of injury as they left almost wholly over UIGEA, or that can be argued easier. Numerous injuries are there, and we could put a case together for each one in each distrcit.
Its just sad they can spend the $ on expensive lawyers instead of hiring 2-3 full time rabble rousers online to organize and focus us. A month, we could have 3-4 different lawsuits filed in every federal district. Im sure we could patch together a gratis or economy legal team to make sure the briefs arent laughed out of court. Even law students would work. Hell isn't Harvard Law School using online SNGs as collaborative teaching tools? This would be an awesome teaching project.

[JPFisher55]

Problem is that Party Poker, Firepay and other online gambling business' exodus from US market was self-inflicted and not necessarily required by UIGEA.
Neteller was a Wire Act case, althought iMEGA's original petition seeks to injoin enforcement of Wire Act against online gambling. However, that request is not in its TRO.
However, some online gambling firm or affiliated individual maybe could show some negative affect of UIGEA. Maybe fear of prosecution is enough or maybe some subpoena by DOJ can confirm standing on some party. I don't know. I guess we will have to wait.
I agree that it would be nice if the PPA and some of its directors or major members would make an effort in the iMEGA case or start their own case.

[MiltonFriedman]

"Problem is that Party Poker, Firepay and other online gambling business' exodus from US market was self-inflicted and not necessarily required by UIGEA."

How many of their players remained in the US, how many of their affiliates lost business because of their flight ?

Let's assume that Party left because it feared staying would violate the UIGEA, (they said as much). That means the Act caused an injury in fact to Party's players and business partners in the US, not to mention US investors.

That Party ran off and was not prosecuted is not too relevant, DOJ has threatened prosecution.

[JPFisher55]

So if the iMEGA has members so affected by the UIGEA, then it does have standing in its case? They should include individual members affected by fear of the UIGEA in their case as plaintiffs. Maybe they will do so if they encounter standing problems. Maybe their request for TRO/preliminary injunction is to test the waters on the standing issue.