Justice Oliver, dissenting.

What the majority has done today is to create an unworkable solution.  The Federal Wire Statute, under which the defendant Jay Cohen was charged, was clearly not envisioned by the drafters to apply to the Internet.  How could it have been?  My analysis is strictly policy based because it is my belief that we are dealing with a different kind of beast that may very well upset some of the laws we have long thought were legal foundations of our society.

My analysis will first trace the history of gambling prohibitions and regulations in the United States and their degree of success.  Second, having established the history and its successes and failures, my analysis will overlay gambling’s history with the new Internet paradigm to show that the result proposed by the majority fashions an unworkable solution.  In the first part of my dissent, covering the history of gambling in the United States, I will not mention the Internet on purpose.  This is so the reader can gain an understanding of the full sense of history, while also thinking for themselves whether this is feasible in the new Internet’s borderless economy.
Fellow justices, please keep this biblical quote in mind while reading this dissent: “He who does not know history is condemned to repeat it!”

History of Gambling in the United States

Professor I. Nelson Rose examined the history of gambling in the United States and identified three distinct waves of gambling regulation.[1]  The first wave started in the 1600’s to mid 1800’s, the second wave started in the mid 1800’s to early 1900’s and the third wave, the current wave, started in the early 1930’s and still exists in the present day.[2]

These waves of regulation and societal views towards gambling have various cycles of ebb and flow.  Increased interest in gambling is usually followed by increased interest in regulation and/or prohibition.  Often, this leads to a decrease in gambling, but never a total end to gambling.  Then again, the cycle repeats itself.

Societal views towards gambling at its heightened popularity yielded some interesting results.  The English settlers thought gambling was a harmless diversion and popular accepted activity. (4)  During expansion of the west during the 1800’s it was said that as the people started to head west, so did the gambling. (10)  It was viewed that “gambling and the frontier lifestyle shared similar foundations—a sprit of adventure, opportunity, and risk taking”. (11)  When the stock market crash in 1929 it was soon thereafter believed that legalized gambling would stimulate the economy. (36)  In more recent times, during the 20th century, state-run lotteries have been established to prevent further tax increases. (49)

An analyst, after examining the history of gambling in the United States and society’s views toward it, came to two important conclusions: First, that “the United States has had a long history of allowing some forms of legal gambling and a degree of tolerance of illegal gambling.” (1)  Second, “societal tolerance and acceptance of legal gambling can change rapidly.  Scandals and political control by gaming interests have led to backlashes which result in regulation and/ or prohibition.”

I. Gambling will always be legal somewhere

Gambling will always be legal somewhere as shown by these four stories spread throughout our history.

Story One:  In  early colonial history, the English Crown permitted the use of lotteries to raise money for the Virginia Company of London, the financier of Jamestown Virginia. (A) Although the crown eventually banned the lotteries because they were accused of robbing England of money, this did not halt all 13 colonies from soon establishing lotteries of their own to raise revenue. (6)

 Story Two:  At the end of the first wave in the 1840’s most states put an end to state authorized lotteries. By 1860, only Delaware, Missouri, and Kentucky remained with legal state-authorized lotteries. (15)  These remaining legal lottery jurisdictions resulted in tickets being shipped around the country by mail or smugglers.(16)  Most of the states that ended gambling did not result in an end to all legal gambling because the prohibitions were selective in terms of gambling and location.[17]  The frontier areas such as California continued to gamble along with certain posh clubs where it was still legal in New York. (18)

 Story Three:  In the third wave (1930’s to present) there was a resurgence of legal gambling that coincided with a crackdown of illegal gambling in the East. (C) This crackdown forced much of organized crime to move to California and Nevada where the restrictions were not as strong or readily enforced.(39)

 Story Four:  States have also legalized gambling to their advantage.  In 1931, the Nevada Legislature legalized gambling in an attempt to build on tourism that was expected upon the completion of what is now the Hoover Dam. (40)  They were also motivated by concerns that the flourishing illegal gambling was corrupting law enforcement and that prohibition was impossible. (41))  Another state, New Jersey, followed suit in 1978 by legalizing gambling in Atlantic City.[52]  It was felt that legalization might revitalized the rundown resort and change it back into a tourist destination once again. (52)

II. Gambling backlashes result in prohibition and regulation

A. Prohibition

1.  Impractical and difficult to enforce (and gambling continues)

Outright prohibition is very difficult to enforce as illustrated in these three stories:

First, after the California gold rush in the 1860’s, states began to enact prohibitions against gambling.[25]  These statutes had very little effect because they only outlawed specific games.[25]  This made enforcement difficult, and led to unnamed variants of games being used.[25]  By 1860, all banking games (those where the player bets against the house) were banned.[d]  “The prohibition did not eliminate gambling but drove in underground.”[26]

 Second, by 1910, at the end of the second wave of gambling, nearly all forms of gambling were prohibited in the U.S. (33)  Again, the prohibition did not stop gambling, but led to many different types of illegal gambling houses, some of which paid protection money to law enforcement authorities. (34)

 Third, in 1964, during the third wave of gambling, there were no legal government-sponsored lotteries operating in the United States. (43)  These state prohibitions, however, did not stop the lotteries from being widely played, although illegal. (44) One of the most famous illegal games was the Irish sweepstakes in the 1930’s that raised money for hospitals in Ireland. (45)  “Although it was not legal to sell tickets in the U.S. or to ship them here, they were smuggled into the country. (46)  The other famous lottery, which was quite popular, was the illegal “numbers” game. (47)  One author claims the amount being wagered on numbers was $5 billion in 1960 and another estimate shows that the numbers game was grossing $20 million annually in Chicago alone during the early 1970’s. (48)

2. Discrimination in enforcement

The second wave of gambling, characterized by the Gold Rush and San Francisco becoming the mecca of gambling in the United States, turned abruptly when the Legislature banned most types of gambling.[22a]  This outright prohibition led to discrimination in enforcement and the stratifying of gaming activity.[20]  Gambling at the start of the period tended to be integrated with women, Blacks, and Chinese among their patrons.[21]  Only later did it become stratified when Chinese gaming houses catered only to Chinese.[27]  This stratification led to the enforcement of gaming laws becoming a method of discrimination--the prohibition laws were enforced more vigorously against the Chinese establishments than other establishments.[28]

B.  Regulation

The analyst’s second conclusion mentioned previously, that societal tolerance and acceptance of legal gambling can change rapidly, is illustrated by histories’ many scandals and political manipulations of gambling.  Increased regulation rather than an outright prohibition against gambling has created significant societal benefits, fairness and a reduction in crime.

1. Crime

During the first wave, when gambling was moving West, many professional gamblers preyed upon cash-laden travelers.[11a]  But by the 1830’s, these professional gamblers came under increased scrutiny and southern settlers turned against them.[12]  Vigilantism was just one method southerners used to push gamblers out of the South.[13]  Also, during the second wave, (mid 1800’s to early 1900’s) similar episodes of violence broke out—lynching.[23]  Increased regulation may have prevented these outcomes.
Organized Crime suffered a serious blow by increased regulation and a Senate inquiry in 1950.[42]  The mob, being heavy early investors in gaming, was forced to sell their holdings to corporations and individuals.[42]

2. Fairness

Scandals have plagued gambling’s history.  One such episode occurred in 1823 when Congress passed a private lottery for the beautification of Washington D.C..[8]  The lottery abruptly ended because the operators absconded with the proceeds.[8]  It was a commonly held belief that many lotteries were crooked and unfairly targeting the poor.[14a]

3. Benefits to Society

Playing the lottery had benefits to society in early colonial history.  All 13 original colonies established lotteries, usually more than one, to raise revenue.[6] “Playing the lottery became a civic responsibility” and many of this nation’s earliest universities were established by the proceeds.[7]  Harvard, Yale, Columbia, Dartmouth, Princeton, and William and Mary to name a few.[7a]  Much later in history, in 1964, New Hampshire recognized the benefits of gambling by establishing the first state-run lottery rather than raising taxes.[49]

History of Internet Gambling

The first virtual casino came online in 1995, with 18 different casino games, online access to the National Indian Lottery, and plans to launch an Internet sports book.[hv]  The government of Liechtenstein is currently operating an online international lottery in six different languages, including Chinese.[hvd2] Current figures by analysts calculate that of the $1 billion in revenues that Internet gambling generated in 1997, about $600 million came from the United States.[c2]  By 2001, it is estimated that online casinos will have worldwide revenues of some $7.9 billion, of which $3.5 billion will come from U.S. consumers.[c3]  Currently most gambling sites are offshore, in legal foreign jurisdiction, to evade U.S. prosecution.

I. Internet Gambling will always be legal somewhere

There will always be a jurisdiction that has legalized gambling.  Gambling’s history has shown various stages of increased and laxed enforcement, but always a legal jurisdiction that is swamped by players from prohibited a jurisdiction.  The new Internet paradigm is no exception.  Most Internet gambling currently operates offshore in countries that have legalized and licensed Internet gambling.  Australia, New Zealand, Antigua, Costa Rica, [c4] Belize and the Turks and Caicos Islands are just part of an ever expanding list.[hvd1]  Once enforcement is viewed as futile and gambling is recognized as a significant missed loss of revenue, the tide may change yet again and it will become legalized here.[c1]

II. Internet Gambling backlashes result in prohibition and regulation

“The authority of states to control gambling within their borders has been undermined”.[g1]  This has not, however, stopped Congress from trying to prevent Internet gambling.  Bills have been designed to provide states with the authority to enforce their own gambling laws by making it illegal either to receive or place bets or wagers on the Internet.[g2] If Congress takes this approach and succeeds in passing legislation that enables states to prohibit Internet gambling, it will be driven permanently offshore, and enforcement will ultimately fail.  A state by state approach to prohibition is clearly unworkable.  Furthermore, a United States federal prohibition is too.

A.  Prohibition

1. Impractical and difficult to enforce (gambling continues)

Tom Bell, Director of Telecommunication & Technology Studies at the Cata Institute, lists two key factors that he believes will frustrate attempts to prohibit Internet gambling:[c6]  First, “Internet technology renders prohibition futile.”[c7]  The Internet’s inherently open architecture already hobbles law enforcement officials, while relentless technological innovation ensures that they will only fall farther and farther behind.[c8]  Second, “the Internet offers an instant detour around merely domestic prohibitions.[c9]
 On the technology side, Mr. Bell gives a very accurate description that enforcement of a prohibition is akin to telling the U.S. Postal Service it must henceforth crack down on all letters conveying information used in illegal gambling.[c10]  Clearly, the U.S. Postal Service has its hands already full delivering the mail.[c10]

 Current technology is unable to assist in law enforcement. Suppose a state or country is able to gain jurisdiction over an Internet gambling business and seeks an injunction against the online company to stop its citizens from gaining access.  Can the company feasibly comply with the injunction?  (Whether it should comply with the injunction involves issues of soverntity, and will not be addressed.)
Currently in the United States, a company’s web page hosted in one State cannot discern into which state the information is being transmitted.[g11]  Clearly then, an outright prohibition leads to problems of enforcement when the web page cannot tell whether their information is reaching a jurisdiction where that information is legal or not.  This also creates problems in considering which countries laws should apply.

This problem is illustrated by a recent French court decision that forbid Yahoo from making Nazi auction items available to its citizens.[na1]  Were they able to comply? Do you think a United States citizen should be held accountable for publishing Nazi paraphernalia on a web site that may be accessible to German citizens?  The German government has expressly banned this kind of paraphernalia, while the United States government believes in the protection of free speech.

Applying this illustration to the gambling context has led many online bookmakers to happily take bets from U.S. customers because they know that the U.S. government can only go after U.S. companies.[finpost] Many of these companies operate under a British license in a jurisdiction where the law says the transaction takes place where the web servers are located and where the risk management takes place. [finpost]  In this particular example, it happens to be the Channel Islands.[finpost]  Is there a workable solution?
 In addressing the instant detour around domestic prohibitions, citizens are able to escape prosecution because of the difficulty identifying and tracking them down due to the Internet’s anonymous nature.  Also, privacy concerns will need to be addressed, but are not dealt with in this dissent.[g]  The Justice Department and even Jon Kyl, the Senator who introduced controversial gambling legislation, have recognized and admitted that: “we can’t do anything about it” and “this would be a very difficult kind of activity to regulate because we don’t have jurisdiction over the people abroad who are doing it.”[c12]

Principles of national sovereignty will prevent the U.S. from forcing other countries to enforce a ban on Internet gambling.[c13]  Also, the Sixth Amendment of the Constitution’s Bill of Rights will prohibit criminals from prosecution if they remain overseas while operating Internet gambling sites.[c13]  This leads to the inescapable conclusion, that law enforcement officials in the U.S. can neither arrest nor sentence anyone who offers Internet gambling services form a safe harbor abroad.[c14]  Jay Cohen was prosecuted in the United States, not because the government was able to capture or extradite him, but because he voluntarily came back from Antigua to turn himself in.

2. Discrimination in enforcement

Discrimination in enforcement is happening in two ways.  First, there is unequal enforcement in gaming laws. Second, the discrimination applies unevenly to only American citizens who operate a gambling business offshore.

Unequal enforcement in our gaming laws is occurring because no one in the world could have imagined the implications the Internet would bring.  We are grasping at a hodgepodge of different Federal statutes and are trying to make sense of a law (Federal Wire Act) that was never intended to apply to the Internet.

The federal wire act prohibits anyone “engaged in the business of betting or wagering” from using “a wire communication facility” to place “bets or wager on any sporting event or contest.”[g15] Thus, the wire act discriminates in enforcement against sports gambling sites and is not effective at stopping most forms of non-sport Internet gambling.[g17]  This conclusion is supported by the plain language of the statute, but also by the statute’s next section which excepts from prosecution the use of wire communication facility to transmit information “for use in news reporting of sporting events or contests."[g16]  Other federal statutes may be applied to enforce other non-sport Internet gambling, but until recently, no causes of action had been brought under these statutes.[g18]

The discriminations are also applied unevenly to only American citizens who operate a gambling business offshore. Being an American citizen is the only real basis for jurisdiction that would justify the United States exercising its jurisdiction over a Internet gambling business that is not physically located in the United States.[g19]  There are four generally recognized bases for the United States to obtain extraterritorial jurisdiction over defendants who have no physical presence within the country: [g20]

1. National jurisdiction exists when the offender is a citizen of the country which seeks jurisdiction.

2. “Passive personal jurisdiction” can exist if the effect of an activity which occurs outside of the country injures a person within the country.

3. “Protective jurisdiction can be exercised when a national interest has been injured.

4. “Universal jurisdiction exists when a perpetrator has been physically restrained and the illegal actions are considered “particularly heinous and harmful to humanity”. [g20]

A. Regulation

Some proponents of a prohibition on Internet gambling erroneous argue that if prohibition will not work, then neither will any scheme of regulation.[c31]  This argument fundamentally misunderstands a basic principle of governance, according to Mr. Bell, that states regulations can succeed even where prohibitions fails if they offer benefits that exceed burdens.[c32]  That is the precise reason why people do not illegally shoot craps in Las Vegas alleys.[c33]

What type of regulation provides the best solution?

Federal Solution: It is pretty much assumed that state solutions are not viable.  One Florida attorney general opined that “any effort to regulate use of the Internet is better suited to federal regulation than to patchwork attention by individual states,”, due to the wide-reaching nature of the Internet.[g34]  Still, because of continuing problems of jurisdiction, a federal solution may also end up being unworkable.

International Solution: The international community recognized the potential problems that Internet gambling may create by meeting at a symposium in December of 1997, not to discuss the prohibition of Internet gambling, but instead, how countries can work together to create a regulatory structure which solves the problems surrounding online gambling.[g35]  These international solutions may provide us with the best global solutions, but they may come at too high of a cost.

Self Regulation: Many online gambling sites are already engaged in self-regulation.[g36]  Some sites limit the amount you can wager per month, while others include help to cronic gamblers by providing a cyber link to Gambler’s Anonymous.[g37]  Also, industry regulation, such as the Interactive Gaming Council, provides its members with a ten-point code of conduct for members which establishes guidelines for Internet gambling.[g37]

Whatever type of regulation ultimately prevails, all regulations will increase the benefits and fairness to society along with decreasing its criminal element.

1. Crime

Antigua has done its part to prevent crime and unscrupulous operators from getting started by charging operators a fee up to $100,000 per year just to obtain an operating license.[g35]  This fee has actually increased the number of businesses wanting to set-up there, despite their very stringent regulations.[g36]  Antigua, at last count, has at least twenty-one online gambling sites.[g37]

2. Fairness

Like in the old days, people are suspicious of unscrupulous operators.  However, with the advent of the Internet the risk is partially mitigated by the ability to make a widespread disclosure about the scam, particularly through Usenet groups [g38] and the Internet. “Thus, a very good public watch group exists on the Internet because, if one person is duped by a gambling operator, word spreads quickly across the Internet about the scam.”[39]  Ebay currently has a very effective screening procedure that rates sellers of merchandise and alerts buyers to the level of risk of not receiving their goods.

3. Benefits to Society

Regulating Internet gambling would produce a net benefit to the United States in three ways.  First, it would provide for a more wholesome environment than real-world casinos.[c34]  Second, it would benefit consumers by increasing competition in gambling services. [35] Third, it would generate a huge, new cash cow, because of the United States Government’s reputation, and people knowing that their money is secure.

 The Internet gambling environment (home) would be an improvement over our existing gambling and casino options.  The visitor would no longer be in foreign surroundings where they constantly offer you drinks, to a surrounding and environment of the players choosing.  The biggest benefit, however, would be to remove the existing pressure there is to keep gambling in a casino.

Increased competition would benefit the consumer in the form of higher payouts, forcing all gaming companies to compete with each other.  Today, some of the current regulations have the effect of protecting certain gaming interests over the exclusion of others.  Indian casinos and Las Vegas would thus be forced to compete on a global scale.  Thus, benefiting consumers directly, plus keeping the revenue in the United States.

In conclusion, the majority has created an unworkable solution that will have to be undone in due course.  Have we not learned anything from history?  I am just glad it is not me who will have to respond to Jay Cohen, after serving prison time, when the waves of society’s views toward gambling change once again and legalized it.

I respectfully dissent.