i-Gaming Workbook - Home - Nevada Attorneys

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i-Gaming
2011
A Workshop for
Nevada News
Media
Lionel Sawyer & Collins
Technology and
Internet Gaming Group:
Greg Gemignani,
Robert Faiss,
Richard H. Bryan,
Dan Reaser,
Ellen Whittemore,
Mark Clayton,
Matt Policastro &
Brin Gibson
Introduction
Nevada has a long history of leadership in gaming regulation. In 1931, Nevada
became the first state to legalize "wide open" gaming. In 1959, Nevada, under the
leadership of Governor Grant Sawyer, ushered in the era of a dedicated two-tier
regulatory structure for gaming that has since become the model on which many
other states and countries have modeled their gaming regulatory regimes. In 2001,
Nevada enacted the first interactive gaming regulatory laws in the country. The
term interactive gaming was chosen to expressly apply such laws to any form of
online gaming, regardless of the supporting network. In 2011, Nevada's interactive
gaming laws were refined and modernized.
Recent news stories from around the country have been chronicling the efforts of
various states to become the first state to regulate online gaming or online poker
within their state. Stories often highlight the race as competition between New
Jersey, California, Iowa and a few other states. However, Nevada has had laws on
the books for over a decade that provide a statutory framework for regulating
online gaming and online poker within the state. The race was over before anyone
knew there was a race. The fact that Nevada has not issued an intrastate interactive
gaming license is not a function of a lack of statutory authority so much as it is an
issue of market saturation and a lack of applicants.
This workshop is designed to provide the attendees with an overview of Nevada's
gaming regulatory system and how that system interacts with online gaming. By
gaining a better understanding of Nevada's regulatory framework and its
application to online gaming, we hope that Nevada news media will be at a distinct
advantage in reporting what may become a hot area of news in the near future.
Speaker Biographies
Greg Gemignani – Chairman, Technology and Internet Gaming
Practice Group. Prior to entering law school, Mr. Gemignani worked
for Electronic Data Systems from 1989 to 1996, primarily as a
computer systems engineer and computer systems architect. Mr.
Gemignani started his practice with Lionel Sawyer & Collins in 1999.
Because of his technical background, he soon became involved with
online gaming companies, online gaming equipment manufacturers and Nevada
licensees interested in exploring the provision of online gaming services. He has
worked with several gaming companies and equipment manufacturers regarding
online and interactive gaming issues and contract issues.
Mr. Gemignani been a frequent guest on BBC radio regarding online gaming issues
in the U.S. He is also currently an adjunct professor teaching the Introduction to
Gaming Law and U.S. Federal Gaming Law, American Indian and Federal Gaming
Law classes at the Boyd School of Law at UNLV. Additionally, he has been a frequent
presenter on online gaming and intellectual property topics at seminars and
continuing legal education conferences.
Bob Faiss - Chairman,Gaming and Regulatory Law Department. Mr.
Faiss has represented the gaming industry in the Nevada legislature
for more than 30 years. He was a lead attorney in the creation of
Nevada’s Interactive Gaming Act of 2001. A founding member of the
International Association of Gaming Advisors, the International
Masters of Gaming Law, he is listed in Best Lawyers in America,
Chambers USA and Mountain States Super Lawyers for Gaming Law.
He was named as the premier gaming attorney in the U.S. and one of the 100 Most
Influential Lawyers in America by the National Law Journal, and was selected by
Lawdragon as one of the “500 Leading Lawyers in America.” He has also been an
Adjunct Professor in gaming law and policy at Boyd School of Law, University of
Nevada, Las Vegas since 2001. He is also an instructor in Gaming Law for the
National Judicial College. His career is the subject of Gaming Regulation and Gaming
Law in Nevada, a book published in 2008 by the University of Nevada Oral History
Program.
BIO-i
Senator Richard H. Bryan - Lobbying and Head of the Government
Affairs Team. Former U.S. Senator Richard H. Bryan is a member of
the Firm's Executive Committee. His practice focuses on
government relations at the federal, state and local levels. His
experience includes involvement in almost every facet of gaming
regulation and the establishment and enforcement of gaming laws in
Nevada.
Senator Bryan is active community and business leader in Nevada. He serves on the
Board of Trustees of the Nevada Development Authority (NDA) and the Economic
Development Authority of Western Nevada (EDAWN). These two development
authorities thrive in our business-friendly state and encourage businesses to
relocate to Nevada. Senator Bryan is also on the Board of Trustees of the Las Vegas
Chamber of Commerce. He is Chairman of the Board for Preserve Nevada, a group
whose priority is to preserve historical buildings, places, and historical artifacts in
the state of Nevada.
A native Nevadan, Senator Bryan began his legal career in 1964 as a Deputy District
Attorney in Clark County (Las Vegas), Nevada. Two years later, he was named Clark
County's first Public Defender. In 1968, Senator Bryan was elected to the Nevada
State Assembly and re-elected in 1970. In 1972, he was elected to the State Senate
and re-elected in 1976. As a former prosecutor, he won his first statewide election
as Nevada's Attorney General where he played a major role in successfully
defending Nevada's gaming regulatory structure in the Federal Courts. In 1982, he
was elected to his first of two terms as Governor. Under his leadership as Nevada's
Governor, economic diversification and the attraction of new businesses to Nevada
became a priority. In 1988, he was elected to his first of two terms in the U.S. Senate.
He was the only Senate member to simultaneously serve on these U.S. Senate
Committees: Finance; Commerce, Science and Transportation; and Banks, Housing
and Urban Affairs.
Dan Reaser - Vice Chair of the Firm’s Gaming & Regulatory Law
Department. Mr. Reaser counsels and represents clients in a variety of
administrative law and regulatory matters before federal, state and
local agencies or public bodies and the courts judicially reviewing
governmental action. His practice concentrates on matters involving
gaming manufacturers, gaming applicants and licensees in Nevada
and on Native American lands, as well as financial services institutions. He is
recognized in Best Lawyers in America and Mountain States Super Lawyers for
Gaming Law, and in Chambers USA for Gaming and Licensing Law. He served as
legal counsel to the Nevada State Gaming Commission as Chief Deputy Attorney
General, Gaming Division.
BIO-ii
Ellen Whittemore - Ms. Whittemore practices principally in gaming
law and regulation. Prior to joining the Firm, she was the supervising
deputy attorney general for Nevada’s Gaming Division, and was also
general counsel for an online gaming company. She is the primary
author of Nevada Gaming Commission Regulations 6 (Accounting
Regulations), 14 (Manufacturers, Distributors, Gaming Devices, New
Games and Associated Equipment) and 26A (Off-Track Pari-Mutuel
Wagering). She is listed in Best Lawyers in America for Gaming Law and
Information Technology Law in Chambers USA for Gaming & Licensing Law; and in
Mountain States Super Lawyers for Gaming Law.
Mark Clayton - Mr. Clayton served as a member of the Nevada State
Gaming Control Board from 2006 through 2008. His practice
focuses on finance, public gaming companies, manufacturers and
distributors of gaming equipment, legislation and assistance to
clients and governments concerning gaming in other U.S.
jurisdictions and in foreign countries. He served as Chief of the
Nevada Gaming Control Board’s Corporate Securities Division, and
was corporate counsel for Showboat, Inc. the Aladdin Hotel &
Casino and Caesars Entertainment Inc. In 2009 Las Vegas Business Press named
him one of the "Top 10 Lawyers" in Southern Nevada and the region’s top attorney
in the area of Gaming Law and Nevada Business Press acknowledged Mark in the
“Top 100” attorneys in Nevada.
Matt Policastro, of the Firm’s Tax Practice Group. Mr. Policastro
practices primarily in U.S. tax law and policy. He was formerly part
of the Dispute Resolution Group at the Los Angeles subsidiary of a
global financial consulting and tax services entity, where his practice
focused on tax controversy work. He holds an LL.M. in Taxation
from the Georgetown University Law Center. He has been at the
forefront of handling many gaming tax issues and tax issues related
to new forms of gaming. He is a guest lecturer for gaming and federal tax issues at
the UNLV William S. Boyd School of Law.
BIO-iii
Table of Contents
What is Gambling? .................................................................................................................................. 1
i-Gaming Background ............................................................................................................................ 2
Federal Gaming Statutes ...................................................................................................................... 3
Federal Wire Act ................................................................................................................................. 3
The Prohibitions ............................................................................................................................ 3
The Exemptions ............................................................................................................................. 4
Court Interpretations................................................................................................................... 4
The Illegal Gambling Business Act............................................................................................... 5
The Unlawful Internet Gambling Enforcement Act .............................................................. 7
Federal Gaming Bills .............................................................................................................................. 7
H.R.1174 - Internet Gambling Regulation, Consumer Protection, and Enforcement
Act- ........................................................................................................................................................... 8
H.R.2366 - Internet Gambling Prohibition, Poker Consumer Protection, and
Strengthening UIGEA Act of 2011- .............................................................................................. 9
Federal Gaming Events ...................................................................................................................... 10
Poker Indictments .......................................................................................................................... 10
Reid/Kyl Letter ................................................................................................................................ 11
Nevada Statutes .................................................................................................................................... 12
A Little History ................................................................................................................................. 12
General Gaming Terms ................................................................................................................. 18
Qualifications for Licensing......................................................................................................... 19
TOC-i
The Character of the Applicant ............................................................................................. 19
Past Criminal Activities ............................................................................................................ 21
Financing ....................................................................................................................................... 22
Conduct During the Investigation ........................................................................................ 22
Business Competency of Applicant ..................................................................................... 23
The Licensing Process ................................................................................................................... 23
Nonrestricted Applications .................................................................................................... 24
Initial Documents ....................................................................................................................... 25
The Investigation ........................................................................................................................ 25
Investigative Team..................................................................................................................... 25
The Initial Interview ................................................................................................................. 26
The Investigation ........................................................................................................................ 26
Interim Interviews ..................................................................................................................... 30
Role Of Counsel During The Investigation ........................................................................ 30
The Closing Conference............................................................................................................ 31
The Summary ............................................................................................................................... 31
Rump Session ............................................................................................................................... 32
The Hearings And Decision ......................................................................................................... 32
The Board Hearing ..................................................................................................................... 33
Commission Hearing ................................................................................................................. 35
Judicial Review ............................................................................................................................ 37
Interactive Gaming Statutes ........................................................................................................ 37
Prospective Interactive Gaming Licenses ......................................................................... 38
A.B.258 (2011) ............................................................................................................................ 39
A.B. 258 Regulatory Changes ................................................................................................. 40
S.B.103 (2011) ............................................................................................................................. 41
S.B.218 (2011) ............................................................................................................................. 41
TOC-ii
CURRENT STATUS .......................................................................................................................... 42
Interactive Gaming Crimes .......................................................................................................... 42
Foreign Gaming Statutes .............................................................................................................. 43
Federal Taxation .................................................................................................................................. 45
Taxation of Wagering Transactions ......................................................................................... 45
Income Tax Consequences to Player .................................................................................. 45
Rules on Reporting Gambling Winnings ........................................................................... 46
Rules on Withholding of Gambling Winnings ................................................................. 47
Appendix A – Statutory Source Materials.................................................................................- 1 Federal Wire Act ............................................................................................................................- 1 -
18 U.S.C. §1084 Transmission of wagering information; penalties ......................- 1 -
Illegal Gambling Businesses Act ..............................................................................................- 1 18 U.S.C. §1955 Prohibition of illegal gambling businesses ....................................- 1 -
The Unlawful Internet Gambling Enforcement Act .........................................................- 3 31 U.S.C. §5361 Congressional findings and purpose ................................................- 3 31 U.S.C. § 5362 Definitions .................................................................................................- 3 31 U.S.C. §5363 Prohibition on acceptance of any financial instrument for
unlawful Internet gambling..................................................................................................- 8 31 U.S.C. §5364 Policies and procedures to identify and prevent restricted
transactions ................................................................................................................................- 8 31 U.S.C. §5365 Civil remedies ......................................................................................... - 10 31 U.S.C. §5366 Criminal penalties................................................................................. - 12 31 U.S.C. §5367 Circumventions prohibited ............................................................... - 12 -
Nevada Gaming Regulatory Statutes .................................................................................. - 12 Foreign Gaming ...................................................................................................................... - 14 Interactive Gaming................................................................................................................ - 17 -
Nevada Criminal Gaming Statutes ....................................................................................... - 22 NRS 465.091 “Medium of communication” defined. .............................................. - 22 TOC-iii
NRS 465.092 Accepting, receiving or allowing another to accept or receive
wager from person physically present in this state prohibited under certain
circumstances; penalty........................................................................................................ - 22 NRS 465.093 Placing, sending, transmitting or relaying wagers to another
person prohibited under certain circumstances; penalty. .................................... - 23 NRS 465.094 Limitation on applicability of NRS 465.092 and 465.093. ........ - 23 -
Appendix B – Indictments, Press Releases & Letters ........................................................ - 24 PokerStars, Full Tilt Poker & Absolute Poker Indictment .......................................... - 25 May 2011 - Indictment Press Release of 10 Sites .......................................................... - 77 July 14, 2011 - Reid/Kyl Letter ............................................................................................. - 82 2002 DOJ Letter Regarding Interactive Gaming............................................................. - 84 -
Appendix C – Court Opinion Source Materials .................................................................... - 86 U.S. v. Lombardo .................................................................................................................... - 86 -
In re Mastercard ................................................................................................................. - 108 U.S. v. Merrell ....................................................................................................................... - 115 U.S. v. Follin ........................................................................................................................... - 120 -
U.S. v. Heacock ..................................................................................................................... - 129 U.S. v. Mick............................................................................................................................. - 144 IMEGA vs. U.S. ...................................................................................................................... - 163 -
Appendix D – Bills & Proposed Regulations ...................................................................... - 170 -
H.R. 1174 Internet Gambling Regulation, Consumer Protection, and Enforcement
Act ................................................................................................................................................. - 170 SECTION 1. SHORT TITLE. .............................................................................................. - 170 SEC. 2. FEDERAL LICENSING REQUIREMENT FOR INTERNET GAMBLING
OPERATORS.......................................................................................................................... - 170 -
`SUBCHAPTER V--REGULATION OF LAWFUL INTERNET GAMBLING ......... - 170 `subchapter v--regulation of lawful internet gambling ....................................... - 195 SEC. 3. REPORT REQUIRED. ........................................................................................... - 195 SEC. 4. FEASIBILITY STUDY. .......................................................................................... - 196 TOC-iv
SEC. 5. EFFECTIVE DATE. ................................................................................................ - 196 -
H.R. 2366 Internet Gambling Prohibition, Poker Consumer Protection, and
Strengthening UIGEA Act of 2011..................................................................................... - 197 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. ............................................... - 197 TITLE I--PROHIBITION ON UNLICENSED INTERNET GAMBLING AND
INTERNET POKER CONSUMER PROTECTION ........................................................ - 197 TITLE II--STRENGTHENING OF UNLAWFUL INTERNET GAMBLING
ENFORCEMENT ACT OF 2006 ....................................................................................... - 198 SEC. 2. FINDINGS. ............................................................................................................... - 198 SEC. 101. DEFINITIONS. ................................................................................................... - 199 -
SEC. 102. PROHIBITION ON UNLICENSED INTERNET GAMBLING. ............... - 203 SEC. 103. DEPARTMENT OF COMMERCE QUALIFICATION AND OVERSIGHT OF
STATE AGENCIES. .............................................................................................................. - 203 SEC. 104. LICENSING BY QUALIFIED STATE AGENCIES. .................................... - 206 SEC. 105. ENFORCEMENT. .............................................................................................. - 218 -
SEC. 106. COMPULSIVE GAMING, RESPONSIBLE GAMING, AND SELFEXCLUSION PROGRAM REQUIREMENTS.................................................................. - 221 SEC. 107. PROHIBITIONS AND RESTRICTIONS. ..................................................... - 224 -
SEC. 108. SAFE HARBOR. ................................................................................................. - 225 SEC. 109. RELATION TO SUBCHAPTER IV OF CHAPTER 53 OF TITLE 31,
UNITED STATES CODE. .................................................................................................... - 225 SEC. 110. CHEATING AND OTHER FRAUD. .............................................................. - 225 -
SEC. 111. INAPPLICABILITY OF CERTAIN PROVISIONS TO INTERSTATE OFFTRACK WAGERS.................................................................................................................. - 227 SEC. 112. CONSTRUCTION AND RELATION TO OTHER LAW........................... - 227 SEC. 113. REGULATIONS. ................................................................................................ - 228 -
SEC. 114. ANNUAL REPORTS. ........................................................................................ - 228 SEC. 115. EFFECTIVE DATE............................................................................................ - 229 -
SEC. 201. FINANCIAL TRANSACTION PROVIDERS. .............................................. - 230 SEC. 202. LIST OF UNLICENSED INTERNET GAMBLING ENTERPRISES. ..... - 231 TOC-v
SEC. 203. REGULATIONS. ................................................................................................ - 234 -
SEC. 204. CONFORMING AMENDMENTS. ................................................................. - 235 -
AB258 (2011) ........................................................................................................................... - 236 -
Proposed Change to Regulation 3.100 ....................................................................... - 243 Proposed Change to Regulation 4.030 ....................................................................... - 246 Proposed New Regulation 5A ........................................................................................ - 248 Proposed Change to Regulation 8.130 ....................................................................... - 258 Proposed Change to Regulation 14 ............................................................................. - 261 -
SB218 (2011)............................................................................................................................ - 267 -
TOC-vi
What is Gambling?
Gambling is an activity that encompasses many forms. The table below is a quick
reference to several popular forms of gambling:
Type
Lotteries
Casino Games
Sports/Event Wagers
Pari-mutuel Wagering
Elements
Players pay or part with
something valuable to win
a prize where winning is
determined by a chance
event.
Players pay or part with
something valuable to win
a prize where winning is
determined by an event
where chance is at least as
influential as skill in
playing.
Bettors place wagers on
the outcome of an even
over which the bettor is
not a participant.
Bettors place wagers
against one another into a
pool from which winnings
are paid.
Examples
State lotteries and slot
machines.
Blackjack, bingo, and
video poker.
Sports book wagers.
Interstate horserace
wagering.
In addition to the types of events that qualify for gambling, as outlined above,
certain games have often been classified as gambling games when played for money.
For example, in Nevada, poker, bingo, blackjack and baccarat are all statutorily
identified as gambling games when played for money. 1
Also, even though many states recognize the categories of gambling in the table
above, the method of distinguishing chance from skill varies from state to state.
See NRS §463.0152 “Game” and “gambling game” defined. “Game” or “gambling game” means any
game played with cards, dice, equipment or any mechanical, electromechanical or electronic device
or machine for money, property, checks, credit or any representative of value, including, without
limiting the generality of the foregoing, faro, monte, roulette, keno, bingo, fan-tan, twenty-one,
blackjack, seven-and-a-half, big injun, klondike, craps, poker, chuck-a-luck, Chinese chuck-a-luck (dai
shu), wheel of fortune, chemin de fer, baccarat, pai gow, beat the banker, panguingui, slot machine,
any banking or percentage game or any other game or device approved by the Commission, but does
not include games played with cards in private homes or residences in which no person makes
money for operating the game, except as a player, or games operated by charitable or educational
organizations which are approved by the Board pursuant to the provisions of NRS 463.409.
1
1
Most states assess whether skill or chance is the dominant element in determining
the outcome, while other states identify a game of chance as one in which chance
plays any material role, even if skill is dominant in determining the outcome.
i-Gaming Background
Gambling through computer systems predates wide public access to the internet.
Prior to wide internet access, several bulletin board systems (“BBS”) ran gambling
games through limited computer networks. 2 The BBS allowed home computer
users with a telephone modem to dial into a BBS to play games including gambling
games. BBS systems had significant limitations. The BBS system often did not allow
for multiple users to access the BBS simultaneously, thus multiple dial-in sessions
by each player were required to complete a game. Additionally, dial-in access was
accomplished by telephone calls that were subject to long distance charges if the
player and BBS system were not contained within a local telephone dialing area.
Despite limited playability, limited access, telephone costs and technical knowledge
hurdles, i-gaming was born.
With the advent of broadband access to the internet, BBS systems lost popularity.
Broadband internet access eliminated many of the inherent problems in BBS system
by eliminating long distance phone charges, slow data speeds, and limited multiuser access. Since 1995, the online gaming market has grown to an estimated 22
billion dollar international industry. 3
One of the keys to the growth of online gaming has been the dramatic impact the
broadband internet has had on international communications. This has permitted
the economical offering of cross border international services. This creates inherent
tensions with laws and regulations because laws and regulations are bound by
geography, while geography is irrelevant to the technology of internet
communications.
See ISCA BBS Wikipedia Entry at http://en.wikipedia.org/wiki/ISCABBS. Discussion of a message
system in bulletin board systems of the 1980’s that evolved through online draw poker games.
3 European Commission – Directorate-General for Trade, “Report to Trade Barriers – Regulation
Committee - Examination Procedure Concerning Obstacle to Trade, Within the Meaning of Counsel
Regulation (EC) No 3286/94 Consisting of Measures Adopted by the United States of America
Affecting Trade in Remote Gambling Services”, issued June 10, 2009.
2
2
Federal Gaming Statutes
Gaming laws in the U.S. are generally the domain of states with the exception of
horseracing, sports betting and Indian gaming. Federal laws generally assist states
in enforcing their own laws when gambling activities involve interstate or foreign
commerce.
While many federal laws apply to i-gaming, the most direct laws that address key
elements of i-gaming are the Federal Wire Act, the Illegal Gambling Business Act,
and the Unlawful Internet Gambling Enforcement Act.
Federal Wire Act
The Federal Wire Act (18 USC 1084) is the most commonly cited statute in news
stories regarding i-gaming. The key text of the Federal Wire Act is set forth below:
18 USC 1084 – WIRE ACT
(a) 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.
(b) Nothing in this section shall be construed to prevent the transmission in interstate
or foreign commerce of information for use in news reporting of sporting events or
contests, or for the transmission of information assisting in the placing of bets or
wagers on a sporting event or contest from a State or foreign country where betting on
that sporting event or contest is legal into a State or foreign country in which such
betting is legal.
The Prohibitions
The Federal Wire Act contains three essential prohibitions for anyone in the
business of betting or wagering that is using a wire communications facility from
engaging in the following:
1. 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
2. the transmission of a wire communication which entitles the recipient to
receive money or credit as a result of bets or wagers, or
3. the transmission of information assisting in the placing of bets or wager
3
The Exemptions
There are two basic exemptions from the Federal Wire Act as follow:
1. for use in news reporting of sporting events or contests
2. the transmission of information assisting in the placing of bets or wagers on
a sporting event or contest from a State or foreign country where betting on
that sporting event or contest is legal into a State or foreign country in
which such betting is legal.
Court Interpretations
As with any statute, the text of the statute provides the legal framework and courts
flesh out the meanings.
Prohibition of the Transmission of Bets Limited to Sports Wagering - The In re
Mastercard Opinion
One of the most significant issues addressed by the courts was whether the
prohibition against the transmission of bets or wagers was limited to sports bets. In
this matter, bettors that lost money playing online casino games filed a RICO action
against MasterCard and other credit card processors. The basis for the RICO claim
was that the online casino sites were in the business of betting or wagering and that
they, along with the credit card companies, were profiting from the transmission of
bets or wagers in violation of the Federal Wire Act. In defense of this action,
MasterCard argued that the prohibition set forth in the Federal Wire Act only
applies to sports wagers as the plain language of the statute applied to “sporting
events or contests”. The plaintiffs argued that “sporting events” were separate from
“contests,” thus, all forms of wagering applied to the prohibition. The Federal
District Court in Louisiana agreed with MasterCard that the term “sporting”
modified both “events” and “contests” thus the complaint was defective since the
plaintiffs never alleged that money was lost on sports wagers. The Fifth Circuit
Court of Appeals affirmed the District Court’s interpretation of the Federal Wire Act.
Other Prohibitions Not Limited to Sports Wagering - U.S. vs. Lombardo 4
In the Lombardo matter, the defendant was charged with aiding and abetting online
poker and casino sites that the federal prosecutor claimed were operating in
violation of the Federal Wire Act, among other federal statutes. Lombardo argued
that the matter should be dismissed because the Federal Wire Act only applies to
sports wagering sites, as determined by the Fifth Circuit in the In re MasterCard
opinion, and Lombardo was not alleged to have provided financial services for any
online sports books. The Federal District Court recognized the holding in In re
MasterCard, but opined that the logic of In re MasterCard could only be applied to
the first prohibition in the Federal Wire Act, and to interpret the statute otherwise
would render the second prohibition on the transmission of information assisting in
the placement of a bet or wager meaningless.
4
See U.S. v. Lombardo, 639 F.Supp.2d 1271 (D. Utah 2007)
4
The Illegal Gambling Business Act
The Illegal Gambling Business Act (18 USC 1055) is a federal statute that clearly aids
states in enforcing their gambling prohibitions for activities that cross state lines.
The essence of the statute is that it makes it a federal crime to operate a gambling
business of any significant size that operates in violation of state law. The key
provisions of the statute are set forth as follows:
18 U.S.C § 1955.- Prohibition of illegal gambling businesses
(a) Whoever conducts, finances, manages, supervises, directs, or owns all or part of an
illegal gambling business shall be fined under this title or imprisoned not more than
five years, or both.
(b) As used in this section—
(1) “illegal gambling business” means a gambling business which—
(i) is a violation of the law of a State or political subdivision in which it is conducted;
(ii) involves five or more persons who conduct, finance, manage, supervise, direct, or
own all or part of such business; and
(iii) has been or remains in substantially continuous operation for a period in excess of
thirty days or has a gross revenue of $2,000 in any single day.
(2) “gambling” includes but is not limited to pool-selling, bookmaking, maintaining
slot machines, roulette wheels or dice tables, and conducting lotteries, policy, bolita or
numbers games, or selling chances therein.
(3) “State” means any State of the United States, the District of Columbia, the
Commonwealth of Puerto Rico, and any territory or possession of the United States.
(c) If five or more persons conduct, finance, manage, supervise, direct, or own all or
part of a gambling business and such business operates for two or more successive
days, then, for the purpose of obtaining warrants for arrests, interceptions, and other
searches and seizures, probable cause that the business receives gross revenue in
excess of $2,000 in any single day shall be deemed to have been established.
(d) Any property, including money, used in violation of the provisions of this section
may be seized and forfeited to the United States. All provisions of law relating to the
seizures, summary, and judicial forfeiture procedures, and condemnation of vessels,
vehicles, merchandise, and baggage for violation of the customs laws; the disposition
of such vessels, vehicles, merchandise, and baggage or the proceeds from such sale; the
remission or mitigation of such forfeitures; and the compromise of claims and the
award of compensation to informers in respect of such forfeitures shall apply to
seizures and forfeitures incurred or alleged to have been incurred under the provisions
of this section, insofar as applicable and not inconsistent with such provisions. Such
5
duties as are imposed upon the collector of customs or any other person in respect to
the seizure and forfeiture of vessels, vehicles, merchandise, and baggage under the
customs laws shall be performed with respect to seizures and forfeitures of property
used or intended for use in violation of this section by such officers, agents, or other
persons as may be designated for that purpose by the Attorney General.
The Prohibitions
The Illegal Gambling Business Act essentially prohibits anyone from conducting,
financing, managing, supervising, directing, or owning all or part of any business
that violates state gambling prohibitions, contains five or more people, and operates
for thirty or more consecutive days or has$ $2000 or more in revenue in any single
day.
The statute clearly defers to state law to determine if an activity is illegal gambling. 5
As with any statute, the text of the statute provides the legal framework and courts
flesh out the meanings.
Conducting an Illegal Gambling Business
The term conducts has been interpreted by the courts to include providing anything
that is necessary or helpful to the gambling business. In one court opinion, the court
stated that stacking chairs, brewing coffee, and keeping an illegal gambling house
clean were helpful to the gambling business and thus the janitor was conducting the
gambling business under the meaning of the statute. 6 Specifically, the Court opined
“By serving coffee, appellant helped the bettors to continue wagering without
interruption… By cleaning up and preparing the gambling area for future sessions,
appellant helped to provide an attractive place for bettors to congregate in order to
wager.” In another opinion, the court held that the statute was applicable to all
involved in the operations, except for mere bettors and that a patron that was a
bettor and not an employee, who also on occasion volunteered to cook steaks and
serve drinks, was not a mere bettor and was providing helpful services to the
gambling business, and thus was culpable under the statute. 7
Third Parties Service Providers as Conducting an Illegal Gambling Business
Courts have also addressed the issue of whether third party service providers are
conducting an illegal gambling business by providing services when the number of
core operators is less than five people. In one court opinion, active participants in a
bookmaking operation with four active participants appealed their prosecution
under the Illegal Gambling Business Act claiming that the operation only consisted
While state statutes are used to determine whether the activity is prohibited for a conviction under
the Illegal Gambling Business Act, specific and correct state statutes must be cited to support a
conviction. See where convictions of an information service providing access to off shore telephone
sports wagering were overturned because the underlying state statute was not violated, though the
court opined that other, non-charged, state gambling prohibition statutes may have been.
6 See U.S. v. Merrell, 701 F.2d 53 (6th Cir. 1988)
7 See U.S. v. Follin, 979 F.2d 369 (5th Cir. 1992)
5
6
of the four prosecuted parties. The court held that the operation had a subscription
to a line service provider in Nevada, that the line service was helpful to the business
and therefore the line service provider in Nevada was conducting the business and
the jurisdictional requirement of 5 persons conducting, financing, managing,
supervising, directing, or owning all or part of the business was met. 8 This view was
echoed in a subsequent court opinion that found a different line subscription service
to be the fifth party conducting the illegal gambling business. 9
The Unlawful Internet Gambling Enforcement Act
The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) was part of the
Security and Accountability For Every Port Act of 2006 (“SAFE Port Act”). The SAFE
Port Act was originally introduced without the UIGEA, but was added into the SAFE
Port Act just prior to passage. The SAFE Port Act was passed at the very end of the
fall legislative session of 2006 preceding the fall 2006 elections.
The UIGEA contains an interpretive section that states “No provision of this
subchapter shall be construed as altering, limiting, or extending any Federal or State
law or Tribal-State compact prohibiting, permitting, or regulating gambling within
the United States.” The intent of the statute was to cut off funding for illegal online
gambling transactions and not to reclassify whether certain activities were or were
not gambling.
The Prohibitions
The UIGEA has two primary operative sections. The first prohibits anyone from
accepting anything of value, including credit, to fund any unlawful internet gambling.
The second requires regulations to compel financial institutions to identify and
block transactions that are identified as funding unlawful internet gambling activity.
The UIGEA has withstood a constitutional challenge from the Interactive Media
Entertainment and Gaming Association. See Interactive Media Entertainment v. Att'y
General, 580 F.3d 113 (3rd Cir., 2009). In that opinion, the Third Circuit Court of
Appeals held, among other things, that the act was not unconstitutionally vague, the
act did not violate a gambler’s right to privacy and that the act was not a violation of
standing treaty obligations. See id. In rendering its opinion, the court noted that
the UIGEA does not itself outlaw any gambling activity, but that it merely
incorporates other Federal or State law related to gambling. See id at 116.
Federal Gaming Bills
As of August 2011, there are two primary bills that have been introduced in
Congress to address i-gaming regulation, the Internet Gambling Regulation,
8
9
See United States v. Heacock, 31 F.3d 249 (5th Cir. 1994)
See U.S. v. Mick, 263 F.3d 553 (6th Cir. 2001).
7
Consumer Protection, and Enforcement Act and the Internet Gambling Prohibition,
Poker Consumer Protection, and Strengthening UIGEA Act of 2011.
H.R.1174 - Internet Gambling Regulation, Consumer Protection, and
Enforcement Act-
The Internet Gambling Regulation, Consumer Protection, and Enforcement Act (the
“Campbell Bill”) was introduced in the current legislative session by Congressman
Campbell of California. It is essentially a revised and updated version of prior bills
introduced by Congressman Frank.
The Campbell Bill is a broad-based piece of legislation that seeks to regulate all
forms of interstate online gaming other than sports. The Campbell bill grants the
Secretary of the Treasury regulatory and enforcement jurisdiction over the “Internet
Gambling Licensing Program” established by this bill. The bill also identifies the
minimum general standards of suitability of licensing as well as characteristics of an
unsuitable applicant. Some of the criteria of the applicant for being statutorily
deemed unsuitable includes the following:
•
•
•
•
•
•
•
fails to provide any documentation or material required to determine
suitability
has supplied untrue or misleading material in the suitability investigation
has been convicted of an offense punishable by more than 1 year
is delinquent on any tax payment or interest owed to any state or the federal
government
has taken or facilitated online wagering activities involving players from the
U.S. after the enactment of the UIGEA
has received assistance from anyone that has taken or facilitated online
wagering activities involving players from the U.S. after the enactment of the
UIGEA
has purchased the entity or assets of someone that that has taken or
facilitated online wagering activities involving players from the U.S. after the
enactment of the UIGEA
The bill includes consumer protections and safegards to: (i) ensure the legal age of
any wagering individual as well as a permissible location for placing the wager; (ii)
combat fraud, money laundering, and terrorist finance; and (iii) combat compulsive
Internet gambling. The bill also directs the Secretary of the Treasury to: (i) compile
and make available to the public, on the Secretary's website, datasets on player
behavior without compromising the privacy of individual players; (ii) monitor,
evaluate, and measure compliance effectiveness of software and other mechanisms
used by licensees to prevent minors from Internet wagering and impose a fine for
ineffective protections; (iii) assess civil penalties on licensees or other persons for
willful violations of this Act; and (iv) place court-ordered child support delinquents
on the self-exclusion list (established by this Act) as long as they remain delinquent
in their support obligations.
8
The bill permits states and Indian tribes to opt-in or opt-out of the national online
gaming regulatory structure. The bill then prohibits anyone from accepting wagers
from a player in a state or tribal area that has opted out and also prohibits anyone
from operating an internet gambling site from such locations.
H.R.2366 - Internet Gambling Prohibition, Poker Consumer Protection, and
Strengthening UIGEA Act of 2011-
The Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening
UIGEA Act of 2011 (the “Barton Bill”) was introduced in the current legislative
session by Congressman Barton of Texas. It is essentially a revised and updated
version of bill drafts that were circulating in late 2010.
The Barton Bill only addresses the regulation of domestic online poker. The Barton
bill grants the Secretary of Commerce regulatory and enforcement jurisdiction over
the licensing and regulation of “Internet Poker Facilities.” Additionally, the bill
requires the Secretary of Commerce to establish an Office of Internet Poker
Oversight to act as a federal regulatory body.
Like the Campbell Bill, the Barton Bill identifies the minimum general standards of
suitability of licensing. The bill also identifies characteristics of an unsuitable
applicant as any applicant that:
•
•
•
•
•
fails to provide any documentation or material required to determine
suitability
has supplied untrue or misleading material in the suitability investigation
has been convicted of an offense punishable by more than 1 year
is delinquent on any tax payment or interest owed to any state or the federal
government
has not certified their submission to personal jurisdiction in the U.S.
In addition to licensing internet gaming facilities operators, the bill also requires a
finding of suitability for significant vendors. Significant vendors are defined as
anyone, in the provision of goods or services to a licensee, provides any of the
following:
•
•
•
manages, administers, or controls bets or wagers that are initiated, received,
or otherwise made within the United States;
manages, administers, or controls the games with which such bets or wagers
are associated;
develops, maintains, or operates the software or other system programs or
hardware on which the games or the bets or wagers are managed,
administered, or controlled;
9
•
•
•
provides the trademarks, trade names, service marks, or similar intellectual
property under which a licensee identifies its Internet poker facility to its
customers in the United States;
provides information on individuals in the United States that made bets or
wagers with an Internet gambling facility not licensed under this title via a
database or customer lists; or
provides any products, services, or assets to a licensee and is paid a
percentage of gaming revenue or Internet poker commission fees by the
licensee (not including fees to financial institutions and payment providers
for facilitating a deposit by a customer).
The suitability process is defined to essentially be the same as a licensing process
and is measured by the same suitability and unsuitability requirements as applies to
a licensee. In this measure, the bill closely tracks Nevada’s revised interactive
gaming statutes.
The bill permits states and Indian tribes to opt-in or opt-out of the national online
gaming regulatory structure. The bill then prohibits anyone from accepting wagers
from a player in a state or tribal area that has opted out and also prohibits anyone
from operating an internet gambling site from such locations.
The bill also permits the Secretary of Commerce to delegate the investigatory and
licensing recommendation tasks to “qualified state agencies.” The bill then permits
“qualified state agencies” and the Office of Internet Poker Oversight to enact
regulations, conduct investigations and grant licenses consistent with the statute
and federal regulations.
Federal Gaming Events
Poker Indictments
As has been widely reported, on April 15, 2011, PokerStars, Absolute Poker and
FullTilt Poker, along with financial transaction service providers were indicted for
conspiracy to violate UIGEA, violating UIGEA, operating an illegal gambling business,
bank fraud, wire fraud, and money laundering conspiracy.
The 51-page indictment alleges that the indicted parties engaged in illegal activities
related to offering online poker in violation of federal and state law, disguising
financial transactions related to online poker in violation of federal law, and
fraudulently processing online poker financial transactions in violation of federal
law. Among the activities cited are the use of fake online companies, such as a golf
equipment supply company and a green cleaning supply company, to mask
transactions that were actually poker account funding transactions. For example, a
player on one of these sites could fund their account using a credit card, but the
charge would be made by an apparent golf equipment vendor for golf clubs and not
a PokerStars transaction being used to fund an online poker account.
10
While the matter has yet to be tried, the impact on the online poker market in the
United States has been profound. PokerStars, FullTilt Poker and Absolute Poker
have ceased U.S. facing operations, with an exemption granted by the DOJ to enable
them to return player funds. Not since 2007, when most major poker site operators
ceased taking U.S. play, has the U.S. online poker market experienced such a vacuum
in service. In the wake PokerStars has apparently focused on European and Asian
markets. FullTilt has reportedly not paid out its U.S. players and it has since lost its
gaming license in Alderney, though hearings regarding its gaming license will
continue in mid-September. Absolute Poker has agreed to pay back its players,
though online reports are that players are not being paid back, or the payback
process has been slow.
In the wake of the April 15th indictments, the DOJ has also impounded domain name
registrations for the following sites:
•
•
•
•
•
•
•
•
•
•
Bookmaker.com
2Betsdi.com
Funtimebingo.com
Goldenarchcasino.com
Truepoker.com
Betmaker.com
Betgrandesports.com
Doylesroom.com
Betehorse.com
Beted.com
The charges levied in the May indictments were for violations of the illegal gambling
business act and money laundering violations.
Reid/Kyl Letter
On July 14th, 2011, Senators Harry Reid and Jon Kyl sent a letter to Attorney General
Eric Holder asking the United States Department of Justice ("DOJ") to reaffirm its
position that online gambling, whether interstate or intrastate, was prohibited by
current federal laws including the Federal Wire Act. The letter is squarely aimed at
recent efforts by state lotteries to sell intrastate online lottery products and states
that seek to regulate intrastate online poker.
In the past few years, states like Illinois and New York have begun offering online
intrastate lottery products. Each of these states, and a few others, have alerted the
DOJ prior to engaging in offering online products within their states. Essentially, the
letters to the DOJ ask the department to let the state lottery commissions know if
there are any objections to the planned offering of online products. To date, the
states have all indicated that the DOJ has not responded and that the DOJ has not
asked any of these state lotteries to cease offering online lottery products.
Many speculate that the Reid/Kyl letter is an effort to clear the deck in preparation
for regulating intrastate online poker. There is also speculation that future efforts to
11
regulate interstate online poker will also have expressed exemptions under the
Federal Wire Act for intrastate transactions, including, intrastate lottery
transactions. However, at this time, there is no bill that has been introduced to
regulate online poker that is supported by either Senator Reid or Senator Kyl.
Nevada Statutes
A Little History 10
In 1931 Governor Fred B. Balzar signed the law legalizing “wide open” gambling in
Nevada. Under the 1931 law, a person did not have to obtain a state license to
conduct gaming. Instead, the potential casino owner only had to obtain a local
license from the county sheriff and, where mandated by local ordinance, from any
incorporated city or county. License fees were $25 per month for each table game
and $10 per month for each slot machine. The fees were divided between the state
(25%), the county (25%), and the city or town (50%). In its original form, the 1931
Act did not regulate gaming. The only qualification for licensing was that an
applicant be an American citizen. Eight days after Governor Balzar signed the bill
into law, the Legislature rectified the oversight by granting local authorities the
power to regulate or prohibit gaming.
Air conditioning and the growing popularity of the automobile in the early 1940s
caused an explosive growth of Nevada’s gaming industry. The cool casino breezes
made the blast-furnace heat of a Southern Nevada summer tolerable. And, the
automobile transformed Las Vegas into a weekend playground for gamblers from
Southern California. Western Airlines began flights to Las Vegas, providing yet
another boost to the state’s tourist trade.
In 1945, lawmakers created a state casino license as a method of assessing and
collecting a tax on gaming revenues. The initial tax was calculated at 1% of gross
casino revenues (i.e., total cash won less cash paid out as losses) exceeding $3,000.
The tax generated about $100,000, an insignificant amount of the total state budget.
The Nevada Tax Commission became the regulatory authority for the gaming
industry.
The potentially lucrative industry caught the attention of legitimate developers and
less-than-legitimate organized crime figures. While Nevada’s fledgling gaming
industry began to grow, lawmakers in California were cracking down on the state’s
illegal casinos. Many California operators moved to Nevada, particularly Reno and
Lake Tahoe. With the new crop of gamers came allegations of cheating. Some failed
to obtain state licenses. In the fall of 1947, one of the new faces in Nevada, Harry
Sherwood, part-owner of the Tahoe Village Casino, was shot and killed in his casino.
10
Adapted from Nevada Gaming Law - 3rd Edition.
12
His partner, Louis Strauss, was arrested, but later cleared of all charges in
connection with the shooting.
Although 1945 amendments to state law created the requirement for a state gaming
license, the document was merely a vehicle to collect tax revenues and did not
bestow on the Tax Commission any regulatory authority. No explicit provisions in
state law allowed the Tax Commission to consider the character of an applicant in
rendering a decision on the issuance of a gaming license. In June 1947, Nevada
Attorney General Alan Bible issued an opinion that led to state involvement in the
regulation of casino gaming. In his opinion, Attorney General Bible stated that the
provisions of the law that permitted the Commission to pass regulations necessary
to administer the gaming laws permitted the Commission to adopt regulations
requiring “inquiry into the antecedents, habits, and character of applicants in order
to satisfy the Commission that they will not violate the gambling law ... prohibiting
thieving and cheating games ....” He told the Commission that if it “finds reasonable
ground to apprehend that the grant of a license would be against the public interest,
you would be within the powers delegated to you to refuse the license.”
The Commission exercised its new authority at its January 1948 meeting by denying
five license applications. Of course, at the same three-day hearing, it considered and
approved about a thousand other applications. The agency was woefully
understaffed. It had an inspector and one accountant to collect and enforce the
gaming tax.
In 1949, amendments to the Gaming Act allowed the Commission to require the
fingerprinting of casino employees. “A great many of the old crossroaders
(professional cheaters), who were still alive at that time were wanted by the police
in one place or another,” a casino operator said. “They did not want their
fingerprints taken, so the only thing for them to do was quit their jobs and leave the
state.”
In 1950, Senator Estes Kefauver of Tennessee, chaired a U.S. Senate Committee,
commonly known as the Kefauver Committee, to investigate organized crime’s
influence in America. Kefauver was an aspiring presidential candidate. The
Committee investigation propelled Kefauver into the national spotlight and, as a
result, he ran a close second to Adlai Stevenson in selection of the 1956 Democratic
presidential nominee and became his running mate.
The Kefauver Committee report was critical of the Nevada regulatory apparatus.
“The licensing system which is in effect in the state has not resulted in excluding the
undesirables from the state,” the Committee wrote, “but has merely served to give
their activities a seeming cloak of respectability.” The Committee concluded that
many casino owners were members of organized crime or “had histories of close
associations with underworld characters who operate those syndicates.”
Regardless of how Nevadans felt about Kefauver, the state’s regulatory system
needed improvement. Testifying before the Committee, both Nevada’s Lieutenant
13
Governor and its Tax Commissioner admitted that the state made little or no effort
before 1949 to screen gaming license applicants. “The State of Nevada should have a
more comprehensive control of gaming,” conceded Governor Charles Russell.
Nevada’s gaming industry was threatened. The message was to clean up the
industry, or the federal government would close it down. But, the state had a
powerful champion in U.S. Senator Pat McCarran of Nevada. McCarran was
Chairman of the Senate Judiciary Committee and a senior member of the
Appropriations Committee. The Washington Post noted in July 1952, “It sums up the
character of this Congress to state an unquestionable fact: that its most important
member is Patrick A. McCarran.”
In 1951, McCarran led the fight against a proposed federal law to assess a 10% tax
on the gross receipts of all gaming transactions. The tax would have forced the
closure of virtually every Nevada casino and sports book. Nevada’s economy would
have been devastated. “If ... the proposed tax is intended to suppress all gaming,
whether legal or illegal, throughout the United States, it goes far beyond the
recommendations of the Kefauver Committee,” McCarran said.
McCarran convinced Congress to pass a modified bill that exempted card games,
roulette, slot machines, and dice. It would be a bureaucratic nightmare for the
federal government to attempt to regulate the games for tax purposes, he said. The
compromise bill included racebooks, but exempted pari-mutuel wagering.
The modified tax crippled the state’s 25 racebooks. Twenty-one of them went out of
business, claiming the tax prevented them from making a profit. The Reno Evening
Gazette, a longtime opponent of legal gaming, said closure of the racebooks cost
Nevada $200,000 in tax revenues. The paper claimed the loss “fulfills the warning
made years ago that the state government was following a poor and risky policy,
and tying its welfare too close to the gambling industry.”
While McCarran staved off federal efforts to legislate gaming out of existence, the
state took on the task of ridding the industry of its undesirables. In 1955, the
Gaming Control Board was created as a full-time administrative agency. The Board
would serve as the investigative and enforcement arm of the Tax Commission.
“The purpose of this (two-tiered) system was that this Board would delve into all
applications, would report them to the Nevada State Tax Commission, which would
then have a final approval,” Governor Charles Russell said.
While the Gaming Control Act of 1949 gave the Tax Commission authority to
consider the suitability of applicants for gaming licenses, little was done. Before
1955, the Commission adopted just five pages of regulations. The system enacted in
1955 was much more comprehensive. It gave the Commission and the newly
created Gaming Control Board authority to investigate applicants’ business probity,
and their ability to finance projects and generate working capital. Despite the added
powers of the Tax Commission, gaming continued to experience problems and there
were multiple casino failures in 1956 and 1957.
14
The gaming industry remained in dire need of restructuring in 1958 when Grant
Sawyer, a young, progressive Democrat from Elko County, began his candidacy for
Governor. Few gave Sawyer a chance. He was regarded as an unknown from a cow
town. Undaunted, Sawyer ran a tireless campaign. He adopted the slogan: “Nevada is
not for sale.” His shocking victory was proof that the people of Nevada were ready
for change.
One of Sawyer’s first acts as Governor was to win legislative support of a bill taking
control of gaming from the Tax Commission and giving it to a new, independent
agency, the Nevada Gaming Commission (the "Commission"). The Commission was
composed of five members. The Governor appointed the members, but did not serve
on the Commission. Sawyer’s first appointments included two FBI agents and a
former U.S. Attorney.
Sawyer had a strong mandate for the new Commission. “Exhaustive investigations
(must) be made as to present licensees in order to be as certain as humanly possible
that criminal elements, mobs, or syndicates have neither interests nor control of
existing businesses,” he said.
While the Gaming Control Board continued to conduct investigations and administer
gaming regulations, it had more autonomy than it had under the Tax Commission.
Previously, the Board Chairman served as Secretary to the Commission. Under
Sawyer’s Bill, the Commission and Board were independent agencies. Sawyer
appointed a former assistant to FBI Director J. Edgar Hoover as the new Board
Chairman, and doubled the agency’s budget. His revisions launched the modern era
of gaming control in Nevada.
Some feared Sawyer’s crackdown came too late to save the industry. Magazine and
newspaper articles claimed mobsters were entrenched in Nevada casinos. Life
Magazine in 1960 reported that the mob was planning to get out of the narcotics
business and muscle in on Nevada gaming operations.
At the same time, Nevada’s casinos became increasingly important to its economy.
The gaming industry in 1959 generated 21.9% of the state’s taxes. It directly
employed thousands of Nevadans. Potential moves by the federal government
against the gaming industry posed a serious threat to Nevada’s future.
U.S. Attorney General Robert Kennedy was aware that millions of dollars were lent
to Nevada casinos by the Teamsters Pension Fund, headed by his longtime nemesis,
union boss Jimmy Hoffa. In May 1961, Kennedy asked the Nevada Attorney General
to deputize 50 federal agents, and raid a number of casinos. Sawyer believed the
raids would generate immense negative publicity that would be devastating to the
state’s economy. He flew to Washington, D.C, where he met with both Robert
Kennedy and his brother, President John F. Kennedy.
The raids never took place. Instead, a cooperative agreement was worked out to
allow federal agents to work with the Gaming Control Board to conduct
investigations of Nevada casinos. The FBI staff in Las Vegas was tripled. The U.S.
15
Internal Revenue Service was staffed with 40 experts to investigate alleged
skimming operations.
By the late 1960s, gaming taxes were the major source of funding the state budget.
Still, concern about the state’s dependence on the casinos and its ability to regulate
the gaming industry persisted. Most Nevada lawmakers were confident they could
do the job.
So, too, were members of the Commission on the Review of the National Policy
Toward Gambling. “Serious questions arise as to whether a state that relies so
heavily on a single industry for its revenue needs is truly capable of regulating that
industry properly,” the Commission concluded. “The Nevada control structures have
stood the tests of time and, often, bitter experience ....”
The gaming industry’s crucial role in Nevada’s economy presented a dilemma for
the state’s gaming regulators. No longer could the Gaming Control Board and
Commission decide licensing and disciplinary matters in a vacuum. They had to
strike a balance of regulatory and economic concerns in weighing the consequences
of their rulings.
Adoption of the Corporate Gaming Act grew out of this need to control and regulate
the industry, yet allow it to flourish. Public companies have a greater access to
sources of capital needed to expand existing casino properties and build new ones.
Making it easier for public companies to participate in the gaming industry greatly
accelerates growth.
State legislators wrestled with the possibility of licensing corporations from 1963 to
1967 without changing the law. Nevada’s Gaming Policy Committee launched a
study of the issue in 1967. A chief regulatory concern was whether the entry of
public companies would result in unbridled stock speculation in gaming properties.
There also was a fear that failure of speculative stock offerings in gaming ventures
would lead to federal intervention.
The state adopted a law allowing publicly-traded corporations to own casinos
without requiring their thousands of shareholders to undergo costly and timeconsuming licensing investigations. Passage of the Corporate Gaming Act of 1967
and a controversial 1969 Bill eventually prompted several large and respected
companies to begin buying and building hotel-casinos. Hilton, MGM, Holiday Inns,
Ramada, Hyatt, Del Webb, and others uddenly got into the gaming business.
Ownership of the casino resorts by Hughes and these other well-known companies
legitimized the industry.
Investments in casino properties soared after passage of the 1969 law. Nevada
quickly rose to prominence as a premier international gaming destination and taxes
related to gaming and tourism accounted for a substantial portion of the State’s
revenue. Through 1977, Nevada was the only jurisdiction in the U.S. with licensed
casino gaming. Nevada worked to protect its position as the only legal casino
jurisdiction in this country by refusing to allow any of its gaming licensees to be
16
involved in gaming elsewhere. This blanket prohibition was changed in 1977
because it was incompatible with the United States Constitution.
In 1977, passage of the foreign gaming statutes permitted Nevada licensees to
participate in gaming elsewhere, but only if the Commission found a comprehensive,
effective government regulatory system in the foreign jurisdiction. This required a
Gaming Control Board investigation and a formal judgment by the Commission that
those governments could be trusted to effectively control gaming. Commission
Chairman Paul Bible explained a major reason for the foreign gaming statutes
saying:
When the Legislature initially considered the foreign gaming statute, one of the
legislative concerns was that they were afraid of Nevada money being siphoned
out of this state and going into another jurisdiction and causing Nevada
operations not to be as healthy as they would be otherwise because money that
is necessary to refurbish and keep operations competitive would not stay in the
State of Nevada
In 1985, the Legislature relaxed the rigid control of the foreign gaming statutes by
authorizing the Commission in Senate Bill 231 to waive any provision of those
statutes.
In 1987, the Legislature recognized that Nevada standards cannot be imposed on a
foreign government, and as part of Assembly Bill 178 removed from the foreign
gaming approval process the necessity of finding a comprehensive, effective
regulatory system in the foreign jurisdiction.
Nevada gaming control no longer had legislative authority to pass judgment on how
another government regulates its own gaming industry or to impose our gaming
control standards on another jurisdiction.
In 1993, there was a monumental shift in the evolution. As a result of the passage of
Assembly Bill 470, the prior approval requirement in the foreign gaming statutes
was eliminated.
Instead, extensive reporting requirements were imposed, a revolving investigative
fund was required to allow the Control Board to monitor a licensee's foreign venue
at the licensee's expense, and most importantly, licensees were made subject to
disciplinary actions for violations of provisions of Nevada statutes.
By virtue of the 1993 Act, the limit of Commission authority over foreign gaming
was to receive reports and to punish violations by disciplinary action, all subject to
due process of law.
The 1993 law is the one that establishes the essential responsibilities and standards
with respect to foreign gaming. Those have never been changed or enlarged since
1993.
17
In 1997, in Assembly Bill 294, the foreign gaming statutes were amended into their
present form. The essential change was that the gaming control agencies were
granted authority to determine, either on their own initiative or pursuant to a
licensee application, if an activity or association in a foreign gaming jurisdiction
violated subsection (3) of NRS 463.720.
The authority established by the Legislature in 1993 and unchanged in 1997
encompasses only certain activities or associations that directly have a material
impact on Nevada. An association constitute a violation only if it"(a) poses an
unreasonable threat to the control of gaming in this state; (b) reflects or tends to
reflect discredit or disrepute upon this state or gaming in this state; or (c) is
contrary to the public policy of this state concerning gaming, "
The foreign gaming statues provided Nevada with a tool to protect the reputation of
the state and its licensees without trying to exercise extraterritorial jurisdiction
over gaming activities outside of the state. Gaming continued to flourish nationally
and internationally as Nevada based gaming companies often led the way in
expanding gaming in other states, countries and on American Indian lands.
In the late 1990s and early 2000s, it became apparent that gaming was poised for
growth in a new area, not in any particular geographic location but through
communications networks. In 2001, the Nevada legislature had the foresight to
recognize that gaming through networks was poised to be a significant force in the
gaming industry. Network based gaming was in its infancy and was not just being
offered on the internet, but in some counties it was being offered on private cell
phone networks, cable television networks, wired telephone networks and wireless
networks. In response, the Nevada legislature enacted statutes to permit regulatory
authorities to investigate and assess these new forms of wagering. Also, if the
activity could be conducted and regulated in a manner consistent with federal and
state law, the Commission had the statutory authority to promulgate regulations
and issue interactive gaming operator and manufacturer’s licenses. In 2011, these
statutes were modernized to permit regulators to license and find others suitable to
provide services to interactive licensees.
General Gaming Terms
Nevada statute have many defined terms that are as relevant to i-Gaming as they are
to land-based gaming.
Nevada defines gambling games by characteristics and by specific games. Pursuant
to Nevada statutes, a gambling game is “any game played with cards, dice, equipment
or any mechanical, electromechanical or electronic device or machine for money,
property, checks, credit or any representative of value, including, without limiting the
generality of the foregoing, faro, monte, roulette, keno, bingo, fan-tan, twenty-one,
blackjack, seven-and-a-half, big injun, klondike, craps, poker, chuck-a-luck, Chinese
chuck-a-luck (dai shu), wheel of fortune, chemin de fer, baccarat, pai gow, beat the
banker, panguingui, slot machine, any banking or percentage game or any other game
or device approved by the Commission…” NRS 463.0152 (emphasis added). While
18
many news stories and blogs have argued that poker is not a gambling game,
Nevada statues, and statutes in many other states, classify poker, when played for
money, as a gambling game by law.
Qualifications for Licensing
In 1953, the Nevada Legislature established standards for determining whether an
applicant was qualified to hold a gaming license. An applicant was unsuitable if he or
she was: (a) convicted of a felony, larceny, narcotics violation, or firearm violation
within the past five years; (b) under 21 years of age; or (c) an alien. These standards
proved unworkable. The standards for criminal activity prevented the gaming
authorities from assessing other facts. The prohibition against aliens was, at best,
protectionism and possibly unconstitutional. The age restriction did not provide for
unusual circumstances.
Today, the modern system for assessing the qualifications of applicants enables
gaming regulators to exercise discretion within guidelines established by law,
regulation and precedent. While serving the interest of the state, this system
sometimes creates problems for a potential applicant. Because the criteria are not
quantified, there is no definite method to assess whether a particular applicant is
“licensable.“ Before filing an application, the potential applicant and his attorney
should assess the applicant’s character and past before filing for licensure or
suitability.
Gaming authorities now follow licensing guidelines in each of several categories.
They examine the following:
•
•
•
•
•
•
•
character of the individual applicant;
financing of the proposed operation;
business competence of the proposed operators;
suitability of the location;
ownership of location;
multiple licensing criteria, if applicable; and
conduct during the investigative process.
An applicant for a state gaming license has the burden of proving his qualification to
receive a license. 11 Accordingly, the applicant must provide evidence to satisfy each
of the criteria. This section discusses these criteria.
The Character of the Applicant
In 1973, the Board issued a bulletin listing the criteria under which an applicant
might be found unsuitable. Those criteria, still applicable today, are:
•
•
•
11
conviction of a felony or misdemeanor involving violence, gambling, or moral
turpitude;
an unexplained pattern of arrests showing a lack of due regard for the law;
a failure to prove good character, honesty and integrity;
NGC Reg. 4.010, NGC Reg. 5.040.
19
•
•
•
•
•
association or membership in organized crime;
association with unsuitable persons;
prior unsuitable operation of a casino;
conduct constituting a threat to the public health, safety, morals, good order
and general welfare of the State of Nevada and the industry; or
conduct reflecting discredit upon the State of Nevada or the gaming industry.
A regulation adopted in October 1975, now codified in the statute, established
additional standards for business competency and source of funds. 12 The applicant
must have business competence and experience for the role or position for which
the applicant seeks a license.
The standard for source of funds requires that funding for the entire operation is
adequate for the nature of the proposed operation and is obtained from a suitable
source.
The applicant must satisfy the Commission that prior associations “do not pose a
threat to the public interest of this state or to the effective regulation and control of
gaming, or cause or enhance the danger of unsuitable, unfair or illegal practices....” 13
Commission Regulation 3. 090(1)(b) places the burden on the applicant to show his
associations “will not result in adverse publicity for the State of Nevada and its
gaming industry.”
Neither the Gaming Control Act nor the regulations defines “association.” One court
noted “the word ‘associate’ is not of uniform meaning but is, rather, vague in its
connotation.” 14 For example, do incidental contacts with known criminals constitute
association? What about involuntary contacts? What if the applicant had no
knowledge of the other person’s unsuitability? These questions often become
problematic issues for an applicant.
The Nevada courts have never directly defined the term “associate” as it applies to
unsuitable persons. Other courts, however, have defined associations to constitute
more than incidental contacts with unsuitable persons.
While interpreting a regulation prohibiting police officers from “associating” with
criminals, one court defined the term to mean more than “incidental contacts”
between police officers and known criminals. 15 The issue in another case was
whether a parolee violated his parole by “associating” with undesirable persons. 16
In interpreting the term the court defined “association” as more than incidental
contacts. The court interpreted “association” as to mean “to join often, in a close
relationship as a partner, fellow worker, colleague, friend, companion or ally.”
This concept of “association” is consistent with the Commission’s treatment of the
issue in recent licensing hearings. The Commission has consistently distinguished
NGC Reg. 3.090; Nev. Rev. Stat. § 463.170(3).
Nev. Rev. Stat. § 463.170(2)(b).
14 Weir v. United States (1937).
15 Sponick v. City of Detroit Police Dept. (1973).
16 State v. Morales (1983).
12
13
20
between “associations” and “acquaintances.” Only volitional relationships
predicated upon a united purpose or concerted action subject the applicant to
increased scrutiny.
The New Jersey Supreme Court has similarly held that unknowing associations are
not a permissible basis for a finding of unsuitability. 17 The court stated that after an
applicant is aware of the unsuitability of an association, the failure to dissociate is a
knowing association.
In the New Jersey case, the state’s Casino Control Commission found that the
founder of a casino company was unsuitable. Among the reasons was a recurring
and enduring relationship with an individual who allegedly had ties to organized
crime.
The applicant sought judicial review. In upholding the agency decision, the court
noted that it is “not critical of a proposition denouncing guilt adjudication
predicated solely on unknowing or otherwise innocent association and is sensitive
to the difficulties defending against such a premise.”
The concept of unsuitable “associations,” while difficult to define, is essential to the
maintenance of the integrity of the regulatory system. In that respect, the applicant
must be willing and able to defend every association he has had over his lifetime.
While he will not have to defend acquaintances, his defense of the relationship must
focus upon the following factors:
•
•
•
•
the nature and intensity of the relationship considering factors like:
o type of relationship, i.e., business or friendship;
o knowledge of the second person’s unsuitability;
o whether the relationship was voluntary;and
o frequency or involvement of the relationship;
the applicant’s attitude and actions after becoming aware of the concern by
gaming authorities with the relationship;
the influence or control over the applicant by the other persons; and
the nature of the concern about other persons and how that concern poses a
threat to the public interest.
Past Criminal Activities
No definitive tests are available to determine whether a person with a history or
criminal activities can receive a gaming license.
As stated previously, the Commission examines other factors in addition to past
criminal activities. As such, convicted criminals have received gaming licenses.
Likewise, gaming authorities have denied licenses to persons never convicted of a
crime but who failed to show that they have not been involved in criminal activities.
17
In Re Boardwalk Regency Casino License Application (1981).
21
Decisions show that the gaming authorities consider several facts in assessing
whether to deny an application based on prior criminal activities. These include:
•
•
•
•
•
•
the nature of the crime (criminal activities involving gaming crimes or moral
turpitude, such as thievery or embezzlement, are very significant);
mitigating or extenuating circumstances;
proximity in time of the criminal activity;
age at time of the criminal activity;
a pattern or high frequency of criminal activity; and
honesty and forthrightness of the applicant in disclosing the past criminal
activity to gaming investigators.
Financing
The Board scrutinizes the financing for any purchase or construction of a Nevada
casino. The Board and Commission assure that the source of funds is suitable and
that the proposed financial arrangements are adequate for the proposed operations.
The applicant must show there is adequate financing available to pay all current
obligations and that working capital is adequate to finance the opening. 18 In many
instances, the criteria for determining whether the financing is adequate are
subjective. The decision depends on several factors, including the size of the casino;
the nature of past operations; the condition of the facilities; and the amount of debt
service.
Conduct During the Investigation
Applicants must make full and true disclosure of all information requested by the
Board during the investigation. 19
The applicant’s conduct during the investigation may easily become an area of
concern to the Board for a variety of reasons. If the applicant attempts to hide or
mischaracterize a past transgression, the Board may question the applicant’s
current credibility. Making an untrue statement of a material fact in any application
or statement to the Board is alone grounds for denial. 20 If the applicant is not
cooperative, the Board may question whether such an attitude is indicative of the
applicant’s attitude toward the laws and regulations. If the applicant keeps
disorganized and incomplete financial and personal records, the Board may
question the applicant’s ability to account properly for taxes.
For these reasons, the applicant increases the probability of obtaining a license by
preparing in advance for the investigation and cooperating fully with the agents.
The applicant should organize in advance all records routinely reviewed by the
Board’s agents. 21 The applicant should implement a system to expedite the
production of documents requested by the agents. The applicant should be available
NGC Reg. 3.050.
Nev. Rev. Stat. § 463.339.
20 NGC Reg. 4.040(2).
21 A list of documents routinely requested is provided later in this chapter.
18
19
22
on short notice to answer questions. Failure to supply information requested within
five days after receipt of the request is grounds for delaying consideration of the
application. 22 Most importantly, the applicant should be candid and complete in
answering agents’ questions.
Business Competency of Applicant
Business competency of an applicant is a varying concept that depends on the type
of application, nature of the applicant’s involvement in operations, type of operation
and organization structure. Ed Olsen, a former chairman of the Board, developed a
method for assessing business competency, which is useful today.
“You had to take into consideration what type of an investment or enterprise the
guy was going into,” Olsen said. “If he was going into a little club, then you took a
look at his technical experience and knowledge. On the other hand, if you were
going into an investment in a corporation or big business, such as running a hotel,
then his particular knowledge of gambling is immaterial. But for the little guy that’s
going to open a table in Reno, he’s going to be hit by some of the most enterprising
and brilliant cheaters in the world ... So you had to take into consideration his ability
to protect himself as well as protect the state.”
The Licensing Process
Completing and filing an application is the first step toward obtaining a Nevada
gaming license. 23 Applications must be made on forms approved by the Board.
These forms elicit basic information about the applicant’s antecedents, habits,
character, criminal record, business activities, financial affairs and business
associates for the years preceding the date of filing of the application.
The required forms for a gaming license can be obtained from any office of the
Board or the Board website. The packet consists of the forms listed below.
The Application Form asks for the identity of the applicant and the type of license or
approval sought. If the applicant is a corporation or partnership, it must file a Form
2. An application for registration by a holding or intermediary company is made on
Form 3.
The Personal History Record elicits basic information about the personal history of
the applicant. On that form, the applicant is required to disclose his personal,
familial, educational, marital, civil litigation, criminal and residential information.
This form also requires employment history, licensing background and character
references.
A Release of All Claims form holds the State of Nevada and its gaming regulators free
from all lawsuits and other claims arising out of the application or the investigation
process.
22
23
NGC Reg. 4.040(1).
Nev. Rev. Stat. § 463.200.
23
Finally, the applicant is asked to sign an Applicant’s Request to Release Information
form. Any person to whom this form is given is requested to provide gaming
authorities with information, regardless of privilege.
The Personal Financial Questionnaire, asks for financial information about the
applicant. This information covers the amount and source of investment in the
gaming establishment, tax information, bankruptcy disclosures, salary information
and a statement of assets and liabilities.
The applicant also is required to provide an Affidavit of Full Disclosure. In the
affidavit, the applicant attests to be the sole owner of the interest for which he is
seeking a license. The applicant also attests that no undisclosed party has any
interest in any respect, including through such circumstances as anticipated future
transfers, finder’s fees, commissions or undisclosed financing.
Fingerprint Cards are necessary to verify the applicant’s identity and investigate any
criminal background.
Limited partnerships also must submit a “gaming purpose” statement, proposed as
an amendment to the Articles of Incorporation or Certificate of Limited Partnership,
to take effect after licensing. 24
To avoid any confusion or misunderstanding, the applicant should give particular
attention to completing the Personal History Record and Personal Financial
Questionnaire. 25 The Board and Commission are generally very unforgiving and
suspicious of applicants who make significant errors in their initial applications. Guy
T. Hillyer, a former member of the Board, pointed out to attorneys the importance of
precision and thoroughness in preparation of the application. “Assist your client in
the preparation of the application so as to completely disclose all relevant facts as
much as humanly possible. Do not allow your client to play cat-and-mouse with the
investigative agents.”
Nonrestricted Applications
Besides the application forms, an applicant for a non-restricted license must
prepare and submit the following additional documentation and information:
•
•
•
•
•
•
24
25
proposed Internal Control System;
First-Year Cash Flow Projections;
Statement of Pre-Opening Cash;
Pro-forma Balance Sheet;
proposed Surveillance System;
Minimum Bankroll; and
Nev. Rev. Stat. § 463.566.
Form 4 and Form 5.
24
•
if the applicant seeks to acquire an existing casino, a contract provision
“satisfactory to the Commission” providing for full payment of fees and taxes
that the present casino operator may owe. 26
An application is not “complete” until the applicant submits substantially all
required information. The Board will not assign an “incomplete” application for
investigation, nor will it consider it in the queue for aging purposes. 27
Initial Documents
The investigation of an applicant usually begins with the request for basic financial
documents. A well-advised applicant will have these documents compiled at the
time of filing the application. When the investigation begins, there will not be any
delay while the applicant scrambles to retrieve documents and, where necessary,
order duplicates from banks and other places.
The Investigation
Those who have never been the target of a government investigation—and even
those who have—are often surprised at the scope and depth of a Nevada gaming
license investigation. Robert D. Faiss, a former White House presidential assistant,
said the Nevada gaming license investigation is far more extensive and intrusive
than the highest U.S. security clearance investigation.
Applicants are asked to explain and sometimes justify personal behavior and
business transactions dating back several years. Some refer to the investigation as
the most trying experience of their lives. When they file an initial application, they
have only one assurance: if they have any transgressions in their pasts, Nevada’s
gaming agents will most likely dig them up.
Investigative Team
The head of the Investigations Division of the Board is the Chief of Investigations.
The Chief has the responsibility for assigning, overseeing and coordinating the
various investigative teams. Assisting the chief are two deputy chiefs, one each
located in Las Vegas and Carson City.
An investigative team can consist of as few as one agent or as many as a dozen. The
size of the team depends on the complexity of the investigation, time requirements
and other considerations. On major investigations, the team consists of a senior
agent, one or more financial agents and one or more background agents.
The highest-ranking member of the team usually is an experienced agent whom the
Board has promoted from the ranks. This person has direct responsibility for the
daily activities of the agents involved in the investigation. The ranking member
provides guidance to the agents in his charge and formulates the investigative
strategy.
26
27
Nev. Rev. Stat. § 463.386.
Nev. Rev. Stat. § 463.210(2).
25
Financial agents, who usually hold degrees in accounting, are responsible for
investigating the applicant’s current financial status, past financial activities, general
business probity and the financial status of the proposed gaming operation.
Background agents typically consist of retired or former law enforcement agents.
They are responsible for investigating the applicant’s background, general
reputation and personal and business associates.
The Initial Interview
The investigation begins with an initial interview of the applicant by the agents. This
is the first opportunity for the applicant to meet with the agents who will be
handling the investigation. It gives the agents an opportunity to explain procedures
and demystify the process. The agents review the initial application forms line by
line with the applicant to assure there are no unintentional omissions, mistakes or
typographical errors. The agents also will make their initial request for
documentation.
The Investigation
Background investigators have very broad powers. They can inspect premises. They
also can demand access to records for the purpose of inspection, audit, examination
and photocopying. 28 They may review civil lawsuits and criminal charges. No set
rules exist about how far back in the applicant’s past the investigators may search.
Although the focus may be on the last 10 years, if pertinent, they may review a
transgression that occurred 20 years ago.
The two primary purposes of fieldwork are to verify the information provided by
the applicant and to uncover information that the applicant may not have revealed.
Because of the nature of fieldwork, an applicant may not have much contact with the
background investigators. They are often working with other law enforcement
agencies, and conducting extensive interviews to learn the character of the applicant.
Their investigation goes beyond a mere check of the applicant’s police record. The
agents investigate the applicant’s business and personal associates and methods of
doing business. The agents review civil court records to determine the types and
nature of all civil litigation involving the applicant and to ensure that the applicant
has fully disclosed the litigation.
All investigations involve standard checks of court and agency files. Schools and
universities are contacted to verify education. Military information is verified with
the respective branch with attention on any disciplinary or other derogatory
information. Marital information is reviewed with attention to divorces. This is
important because divorces often are acrimonious and the files contain allegations
of wrongdoing. Moreover, former spouses and court documents often are sources of
information relevant to the investigation. For example, pleadings in a custody case
may attack the competency of the applicant based on illegal activities, such as drug
28
Nev. Rev. Stat. § 463.140, 463.1405, and NGC Reg. 4.010 et seq.
26
use. In a divorce, the pleadings may allege hidden assets, sources of income, or other
information inconsistent with the application or the applicant’s tax return, or which
are related to illegal activities
Background investigators also verify criminal information on the applicant. Most
important are the circumstances of all arrests or detentions and whether the
applicant revealed all of them. Many law enforcement agencies keep extensive
records. Investigators may discover that the applicant failed to reveal a criminal
record by checking court records. The major sources, however, are police records
and law enforcement information systems. These include local sheriffs, local police,
the Federal Bureau of Investigation, the Drug Enforcement Administration, customs
and immigration, organized crime task forces, other gaming regulatory agencies,
and liquor and other privileged license agencies. Other sources of law enforcement
information are computer data bases maintained by different law enforcement
agencies.
Among the types of law enforcement information available are arrest reports,
incident reports, field interrogation reports, and intelligence reports. Police records
often have information that was not presented to the court because the witness
could not be found or the police failed to follow constitutional guidelines in
obtaining it. Unlike criminal actions, license applications are not burdened by the
same rules about what can be considered. For example, the court cannot consider a
detailed sworn statement by a witness who is now unavailable to testify. A
regulatory agency may use such information when considering an applicant’s
request for a privileged gaming license.
Whether the prosecutor dropped the charges against the applicant, or even if the
applicant was acquitted, is not conclusive in a licensing investigation. Standards for
granting gaming licenses and standards for proving criminal guilt are different. The
same incident reviewed in the same light may be insufficient to justify a criminal
conviction, but may be sufficient to deny a gaming license. Criminal background
checks do not end with the applicant, but may extend to the applicant’s family,
friends, business partners and associates.
Records of civil court proceedings often provide information that proves relevant to
a background or financial investigation. These lawsuits may contain allegations of
unscrupulous business practices and the identity of persons who have had
unsatisfactory business experiences with the applicant. Evidence of disposition of
the civil cases is also important. Cases end for many reasons. Sometimes the person
seeking relief abandons the case. He may realize that he will lose, or that the other
person does not have the money to pay even if he wins. The case also may become
too expensive or time consuming. Other cases may settle. Terms of the settlement
may suggest the validity of the allegations. For example, if the person sued pays a
substantial portion of the amount requested, it may show that the allegations have
some merit.
27
Beyond the nature or omission of civil lawsuits, a review of litigation may reveal
that an applicant abuses the civil court system to gain economic advantages. The
existence of many lawsuits may show a pattern of using the judicial system to avoid
or compromise legitimate debts.
Besides criminal and civil court records, governments keep information on people,
much of which may be relevant to the person’s suitability as a gaming licensee. For
example, the consumer affairs division of a state government may have complaints
filed by customers of the applicant’s business that contain allegations of fraud, or
deceptive trade practices. Similarly, the equal opportunity employment offices may
have complaints alleging sexual or racial discrimination in the workplace.
Governments usually have a considerable amount of public information on
corporations and partnerships. Individual applicants for casino licenses often have
extensive business backgrounds. These may involve prior and contemporaneous
businesses. Reviewing corporate information from these businesses may reveal the
applicant’s associations. Often whether a person acted as an incorporator, director,
or officer is public information that can be found through government offices, such
as a corporate register or secretary of state. These searches may reveal corporations
not listed on an application.
Corporate books contain a wealth of information. Incorporation papers show the
date of incorporation, and number of authorized shares. Subsequent filings usually
show the list of initial officers and directors and any changes to them, along with
dates of each change. The corporate minutes contain information on significant
events, such as major acquisitions or loans, and the hiring or firing of key personnel.
Verification of employment history also is done for many reasons. It establishes the
person’s experience in a particular area. Verification also is a vehicle to explore the
applicant’s honesty. Here the investigators often go beyond the stated reasons for
changing employment and decide if other reasons exist. On paper, the stated reason
may be a reduction or change in staffing, when the employer fired the person
because of suspected theft. Employers who have reason to suspect that an employee
is stealing may not use that reason to fire the employee because they fear that they
may get sued for doing so. If another legitimate reason is available to fire the person,
they may seize the opportunity to use that excuse. An investigator may take
advantage of the applicant’s release of all liability to convince the employer to detail
the facts leading to the applicant’s firing or resignation.
The applicant is likely to have more frequent contact with the financial agents than
with the background agents, as the production of financial documentation plays a
major part in the investigation.
The financial agents use these documents for a variety of reasons. If the applicant
provides part or all of the financing for the gaming establishment, these records
determine the adequacy of the applicant’s resources and the suitability of his
sources. The records are beneficial to the agents since financial records often reveal
28
the identities of the applicant’s associates and his financial arrangements with those
persons. The agents also scrutinize sources of income and records of payments
through these documents.
The applicant must often identify the source of bank deposits or the nature of
payments reflected on cancelled checks. Some of the other tasks regularly
performed by financial agents during their investigation include:
•
•
•
•
tracing primary holdings to their original sources;
verifying personal income information to confirm that current holdings are
consistent with income disclosed to the tax authorities;
preparing a cash flow analysis; and
verifying the applicant’s net worth.
Similar to criminal and civil background, financial agents initially review 5 to 10
years of financial records. Although, the agents usually focus on the last 10 years, an
applicant has no assurances that the agents will not review a transgression that
occurred 20 years ago.
A source of funds analysis traces where the applicant receives income and the
source of funds from which assets are purchased. The regulatory goal is to assure
that the applicant is not a front for unsuitable individuals who are financing the
acquisition of a casino. It also provides insight into the applicant’s business and
associations.
Bank records are the most common vehicles for establishing source of funds,
provided all accounts are revealed. Bank statements are the beginning points
because they contain both deposits and withdrawals. Deposits often reveal sources
of income. All deposits are reviewed to learn if they are ordinary, such as biweekly
salary deposits, or extraordinary, such as the one-time sale of an automobile. Large
extraordinary deposits should be verified by reviewing source documents.
Particular attention should be made to large cash deposits. While good reasons may
exist for an applicant to deposit cash into an account, it is also the easiest method by
which criminal activity may be hidden because it has no trail. Whether an applicant
made an extraordinary deposit in cash can be determined by reviewing a teller’s
cash sheets.
Standard bank records that investigators may review include (1) signature cards
showing who is authorized to use the bank account, (2) monthly statements
showing all activity on the account, including deposits, withdrawals, and checks paid,
(3) canceled checks, and (4) deposit tickets showing a breakdown of checks, cash
deposited, and identification of the checks. The applicant may have other
documentation that will greatly help in the investigation, such as check registers,
copies of all checks deposited, and the canceled checks.
Many persons also use check record programs on their home computers, such as
Quicken, which can generate several reports. Computer programs also may generate
29
net worth reports that investigators may use to compare with the application. A
better source, however, is a review of a bank’s loan files. Most loans require the
applicant to make some level of disclosure of assets to qualify for the loan.
Bank accounts are the usual, but not exclusive, place into which funds can be
deposited. Other possible depositories include brokerage accounts and savings and
loans associations. An investigator should review all accounts before conducting a
cash-flow analysis or reconciling income to expenses.
A principal concern of many regulators is the protection of state tax revenues.
Applicants who intentionally fail to pay other taxes, such as federal income tax, may
be unqualified to hold a gaming license. A primary method of investigating whether
a person fully pays federal income tax is to compare cash flow with reported income.
This requires the investigator to identify all bank and other accounts that the
applicant has used for personal transactions during the relevant period. They can
derive this information from the application, tracing the flow of funds, credit checks,
review of correspondence, bank checks, and other methods. Once they identify all
accounts, the investigator will then total all deposits, and deduct transactions that
do not involve taxable income (e.g., sale of a car for less than the purchase price,
transfers between accounts, the principal amount on repayment of loans, etc.). If a
substantial difference remains, the investigator may confront the applicant for
explanation of the difference. Beyond this, tax returns provide information on
sources of income, verify businesses, and provide information on associations.
The agents have many ways of detecting a potential problem. Once any inkling exists,
the applicant must expect the problem to be a major focus of the investigation.
Licensed persons applying in a new capacity are usually “updated” by an
investigation that concentrates on the time period since they were last licensed or
found suitable.
Interim Interviews
The agents may request to interview the applicant during the investigation for a
variety of reasons. Most often, agents ask the applicant to explain or clarify a
business transaction. However, the agents may use the interim interview to confront
the applicant with information that the agents deem to be damaging or
incriminating. For this reason, the applicant should always prepare for an interim
interview and should be represented by counsel.
In special cases, the Board may conduct investigative hearings during the course of
an investigation. 29 At these hearings, the applicant may present evidence relevant to
an issue that arose during the course of the investigation.
Role Of Counsel During The Investigation
At the very least, the necessity of counsel is critical during the licensing process.
Legal counsel plays three important roles during the investigation. First, counsel
29
NGC Reg. 2.060
30
serves as the “point man” for coordinating the agents’ requests for documents or
information. Requests are usually made by letter to the applicant with copies to his
counsel, or by telephone call to counsel. The speed and accuracy of the assembly and
transmission of requested information has a direct impact upon the length and cost
of the investigation. By coordinating the production of documents and information,
counsel can review the materials for responsiveness, clarity, accuracy and
completeness. The applicant’s level of preparation and cooperation largely
determines the length of the investigation.
Counsel’s second role is that of an “observer.” If requests are made without notice to
the applicant’s counsel, the applicant should inform counsel of the request. By
analyzing the nature of the information requested and observing the direction of the
investigation, counsel can make educated guesses about the agents’ concerns or
areas of interest. With this knowledge, the applicant has the ability to dispel any
misconceptions and to prepare ahead of time any necessary rebuttal for the Board
and Commission hearings.
Counsel’s third role is that of a “presenter.” An applicant’s counsel, being familiar
with the Board and Commission hearings, will be presenting and introducing the
applicant in front of the Board and Commission. A detailed summary of the hearing
procedures is discussed later in the chapter.
The Closing Conference
Near the end of the investigation, the applicant is given a final interview or closing
conference. At this interview, the agents question the applicant about any
unresolved or unclear areas encountered during their investigation. By this time,
however, questions are usually minimal. Of greater importance to the applicant, the
closing conference is an opportunity for the agents to advise the applicant of their
“areas of concern.” These are areas that the agents will identify as relevant to the
applicant’s suitability in their summary to the Board.
The time period between the closing conference and the Board hearing is usually
the most hectic. After evaluating the areas of concern raised during the closing
conference, the applicant and his counsel must investigate and address each area of
concern. This process may include interviewing and preparing witnesses and
gathering documentation for introduction as exhibits. Also, the applicant and his
counsel should also anticipate any other issues that may be raised during the Board
hearing. Finally, the strategy for the Board hearing is developed and coordinated
with any other applicants and their witnesses.
The Summary
At the end of their investigation, the agents prepare a confidential written
investigative summary report for the Board. The summary is not available to the
applicant. It contains the results of the investigation and sets forth areas of concern.
The summary contains a synopsis of interviews, summaries of court and police
records and financial analyses. In longer and more involved investigations, a
summary can be 200 pages or more.
31
Rump Session
After the preparation of the summary report but before the Board hearing, Board
members will meet with the agents in a closed meeting to discuss the application.
This meeting, called a “rump” session, allows Board members to question the agents
on the contents of the summary. This session helps the Board focus on and define
the legitimate areas of concern. It also assures that the agents conducted an
adequate investigation. The Board also formulates questions to ask the applicant
and masters the information on the applicant and the application.
The Hearings And Decision
The Board will not act upon an application unless the Board Chairman determines
that the act or involvement sought by the applicant will occur within six months
after the Commission hearing on the application. 30 For example, the Board will not
hear an application to open a casino until at earliest six months before the opening
date.
There are three exceptions to these time classifications. First, applications for public
offering or private placements of securities are exempted. Second, the Commission
can waive the time restrictions by a vote made after application to and
recommendation from the Board. Third, the time classification does not apply to a
preliminary determination of a location’s suitability for the conduct of gaming.
Due to the nature of the application process, applicants often face a decision as to
whether to invest substantial funds in a casino project before licensing. While the
Commission will not predetermine an applicant’s suitability, it will, in extraordinary
circumstances, make preliminary determinations of a location’s suitability. 31 This is
done by applying on forms designated by the Board after obtaining the written
consent of the owner of the location. To obtain a predetermination, the application
must:
•
•
•
•
describe in detail the existing or proposed gaming operation;
explain the circumstances justifying preliminary determination;
contain a certificate that the applicant notified the local city or county that it
is seeking an application for preliminary suitability; and
include a filing fee of $500. The Board may require additional fees. 32
The Commission, upon the recommendation of the Board, makes a preliminary
determination of the suitability of the location. The decision is based only on facts
disclosed at the time and may be limited or conditioned. The approval expires after
12 months unless a complete application for licensing is submitted within that time
period. A preliminary determination cannot be sold or assigned. 33
NGC Reg. 4.080.
NGC Reg. 4.105.
32 Id.
33 Id.
30
31
32
The Board Hearing
The Board licensing hearing is on the Board’s monthly meeting agenda. The agenda
is divided into sections based upon the types of items. For example, hearings on
applications for restricted licenses start at a certain time, usually 9:00 a.m.
Individual agenda items are not heard at set times; rather the items are taken in
order according to item number. Although applicants are given a time to be present
for their hearing, they should be prepared to wait, sometimes for several hours, for
their hearing.
Once the agenda item is called, the applicant and legal counsel take their places at
the podium. All applicants must attend unless the Board Chairman has waived their
appearance. The Executive Secretary of the Board reads the agenda item as to who
or what is properly before the Board for determination.
Where possible, counsel should work with the agents before the submission of the
agenda item to assure its accuracy. An error in the agenda item may cause the Board
to delay the hearing until the next regularly scheduled meeting to allow for the
correction. This delay may be mandated by the Nevada Open Meeting Law, 34 which
prohibits the consideration of matters in a public meeting that are not accurately
described in the posted agenda.
Once the agenda item is read, counsel and the applicant identify themselves for the
record. Each applicant and witness may be then sworn. Ordinarily, the Board allows
the applicant to affirmatively prove his suitability. To this end, the applicant’s
counsel may proceed with an opening statement, call witnesses on behalf of the
applicant and submit briefs and exhibits. All briefs and exhibits should be submitted
to the Board at least three days before the hearing to give Board members an
opportunity to review them.
During the presentation, the applicant may affirmatively address areas of concern
raised by the agents. The applicant and his witnesses may also be subject to intense
examination by the Board members.
After the applicant presents his case, the Board has the prerogative to question the
applicant about any aspect of his personal or business life that impacts on his
suitability. Although Board members generally use the investigative summary as a
guide for their questioning, they are not constrained to the summary.
The procedure seems strange to a non-gaming attorney. Unlike the typical court
case, where the attorney contends with opposing counsel before a neutral judge or
jury, counsel in the Board hearing presents his case to the same agency serving as
both investigator and decision maker.
Gaming counsel’s job is difficult because the applicant cannot examine evidence
contained in the written summary prepared by the agents. The applicant is unable
to investigate or verify either the source or the accuracy of any information
34
Chapter 241 of Nev. Rev. Stat.
33
contained in the summary. Moreover, the case presented against the applicant need
not conform to any of the traditional rules of evidence. For example, unlike a typical
court case, weight can be given to hearsay (statements by persons who do not have
personal knowledge of the stated information but who learned of it from another
person).
The Nevada Supreme Court in 1988 affirmed that an applicant for a state gaming
license in Nevada does not have right of access to the Board’s confidential
investigative report before the hearing on its application. 35
Irving “Ash” Resnick was an employee of the Dunes Hotel & Casino in 1984 when
the Commission determined he must obtain a license because he exercised
significant control over that entity’s gaming operations. Before the hearings on his
application, Resnick petitioned the Commission for a copy of the Board’s
investigative report. The Commission issued an order denying the petition.
Resnick sought judicial review. He requested an order reversing the Commission’s
order and a declaratory judgment construing Nevada law 36 to allow pre-hearing
discovery of the Board’s investigative materials. The court granted neither request,
holding that it lacked jurisdiction to grant such relief.
The court held that Nevada law, 37 which permits the applicant to call, examine and
impeach witnesses, introduce exhibits, cross-examine opposing witnesses and offer
rebuttal evidence at his hearings, does not permit prehearing discovery of the
Board’s investigative report. The right to cross-examine witnesses, the court
reasoned, does not confer upon the applicant the right to materials that would help
him in cross-examination. Furthermore, the legislature has provided sufficient
procedural safeguards to protect the applicant’s rights and could have provided for
prehearing discovery of investigative materials if that was its intention.
By submitting to the Board’s procedures and rules, counsel for the applicant faces
an enormous task. Counsel must attempt to anticipate all matters that may be
contained in the investigative summary. So prepared, counsel must address, rebut,
or explain all areas of concern and, finally, meet the burden of proving suitability.
The applicant must be careful to be absolutely truthful in his answers and not shade
past events to put them in their most favorable light. This aspect is essential.
“The failure of an applicant to admit a past transgression during the investigation or
hearing does two things in my opinion,” said former Board Member Gerry
Cunningham. “First, it detracts from or even changes the issue from that which is
being discussed to, is the applicant a liar? Secondly, it causes a past issue to have
contemporary significance and thus lose any salvation or forgiveness that may be
inherent or deserving with the passage of time. In my opinion, the creation of the
Resnick v. Nevada Gaming Commission (1988).
Nev. Rev. Stat. § 463.313(1)(b).
37 Nev. Rev. Stat. § 463.313.
35
36
34
belief, perceived or otherwise, that an applicant is being untruthful is an almost
automatic denial.”
Once the Board determines that it has sufficient evidence to make a decision, it
generally permits the applicant to present any further evidence and a closing
statement either in person or through counsel.
Board members will then discuss in the open meeting the relative merits of the
applicant’s suitability. Board members are candid regarding their individual
thoughts about the applicant, the evidence and the witnesses. Some of their
statements often make newspaper headlines.
As noted, all matters discussed during the course of Board hearings are “absolutely
privileged” by law and, thus, do not impose liability for defamation or provide other
grounds for recovery in a civil action. 38
After the discussion, one of the Board members makes a motion. The most common
motions are to:
•
•
•
•
•
•
continue the matter;
refer the matter back to staff;
recommend denial of the application;
recommend approval of an unlimited and unconditional license;
recommend a license limited to a fixed duration, e.g., one year; or
recommend a license with conditions.
The Board then votes on the matter and sends its recommendation to the
Commission.
Commission Hearing
Although the Commission has the final authority to deny or approve a license, its
hearings are generally shorter in duration than the Board’s. Commission members
receive a full transcript of the Board’s hearings before their meeting. They need only
to ask about matters not covered in the agents’ summary or in the transcript.
The Commission hearing is similar to the Board hearing. The Chairman conducts the
Commission hearing. Items are heard as listed on the Commission’s agenda but may
be taken out of order at the chairman’s discretion. 39The Executive Secretary reads
into the record the title of the matter and the applicant and witnesses are identified
and sworn. As with the Board hearing, attendance by the applicant is mandatory at
the Commission meeting except those:
•
•
38
39
whose appearances the Chairman has waived;
having restricted applications and having received unanimous Board
approval; or
Nev. Rev. Stat. § 463.170(4).
NGC Reg. 2.030.
35
•
selling an interest in a licensed gaming establishment to another individual
licensed at the same establishment, provided both parties have complied
with all conditions recommended by the Board. 40
The applicant ordinarily is given the opportunity to prove his suitability. The
applicant may call witnesses and present documentary evidence. The Commission
will not generally consider documents unless the applicant files the original and
eight copies of the document with the Executive Secretary at least eight calendar
days before the hearing. 41 The failure to file documents timely may result in the
deferral of an application.
The Commission, of course, can ask questions or seek clarification of any point. The
Commission Chairman has the authority to rule on all procedural and evidentiary
matters that arise either in or between meetings. 42 The Chairman’s authority can be
temporarily abrogated by a simple majority of the Commission. 43 At least one
member of the Board will be present at the hearing to respond to questions from the
Commission.
The applicant may make a closing statement at the end of all discussion. Thereafter,
the Commission will close the public hearing. Commission members may then
discuss, in the open meeting, the merits of the applicant’s suitability or possible
conditions to the license.
After the discussion, one of the Commission members will make a motion. The most
common motions are:
•
•
•
•
•
to continue the matter;
to refer the matter back to the Board;
to deny the application;
to approve the application with or without conditions or for a limited or
unlimited duration; or
a combination of the foregoing. The Commission has the statutory authority
to deny an application on any ground it deems reasonable.
The Commission’s voting rules are different from those of the Board, where a simple
majority determines the action taken. If the Board has given a favorable
recommendation on an application or had a tie vote, a simple majority of votes by
the Commission will determine the action of the Commission. If the Board has
recommended denial of the application, the Commission must have a unanimous
vote to approve the application. 44
NGC Reg. 2.040.
NGC Reg. 2.030.
42 NGC Reg. 2.020.
43 Id.
44 Nev. Rev. Stat. § 463.220.
40
41
36
The Commission must take action on the application within 120 days after the
Board’s recommendation. 45 If it fails to do so, the application is deemed approved.
The Commission routinely requires applicants to waive the 120-day rule if a
continuance is necessary.
If it denies an application, the Commission must prepare and file a written decision
setting forth the reasons for its action. No written decision is necessary after
approval of an application.
Judicial Review
A denied applicant for a Nevada gaming license has no recourse against the
Commission to seek a reversal of the adverse decision. This is contrary to the
practice before most administrative bodies where the courts can review a decision
to determine whether the agency acted arbitrarily.
Interactive Gaming Statutes
In 2001, the online gaming industry was accelerating at a rapid pace. Projections at
the time estimated that the industry would be a four billion dollar a year industry by
2002 and would continue to grow into a twenty-four billion dollar a year industry
by 2010.
Nevada has historically been a leader in well-regulated gaming, and the prospect of
a large unregulated gaming market was a concern for the state. The concerns with
the new online market were the same concerns that Nevada had in implementing a
strong regulatory and enforcement regime to address land-based gaming.
In Nevada’s 71st legislative session, the Nevada legislature responded to this
challenge by passing amendments to Nevada's statutes to permit regulated and
licensed interactive gaming in Nevada. The measure was signed into law by
Governor Kenny Guinn on June 14th, 2001.
As part of the new statutes in 2001, the Commission was authorized to adopt
regulations governing the licensing and operation of interactive gaming, but not
until the Commission first determined that :
1.
2.
3.
Interactive gaming can be operated in compliance with all applicable laws.
Interactive gaming systems were secure, reliable and provided
reasonable assurances that players were from lawful jurisdictions and of
lawful age to play.
Such regulations are consistent with the public policy of the State and
foster the success of gaming.
Hearings were held in 2001 and 2002, and the Board and Commission investigated
interactive gaming technologies, other laws, and regulations from other
jurisdictions. These efforts came to an end when, after receiving a letter from the
United States DOJ, the Commission determined that interstate or foreign interactive
45
Nev. Rev. Stat. § 463.220.
37
gaming was unlikely be able to be conducted in compliance with all applicable laws
and, in particular, federal laws.
Prospective Interactive Gaming Licenses
Nevada’s Interactive Gaming Statutes (“IGS”) contemplated the issuance of licenses
to manufacturers and operators. Manufacturers of interactive gaming systems,
similar to manufacturers of gaming devices, are required to have a non-restricted
manufacturer’s and distributor’s license to produce and distribute interactive
gaming systems and software.
While the manufacturer’s license is fairly straight-forward and very similar to a
gaming device manufacturer’s license, the operator’s license requirements were
more detailed and complex. At the time, there was a significant concern about
making sure the new regulatory market would be of the highest integrity. To
address this, operators’ licenses would be limited to casino operators of sufficient
size, capital and incentive to make sure the industry was properly established.
These requirements are set forth in the table below:
Counties > 400,000 people Counties > 40,000 but less
than 400,000 people
• A resort hotel that
• Holds a nonrestricted
holds a nonrestricted
gaming license
gaming license
• Has more than 120
rooms available for
sleeping
accommodations
• Has at least bar with
permanent seating
capacity for 20 patrons
or more
• Has at least one 24-hour
restaurant that holds 60
or more patrons
• Has a gaming area of at
least 1,800 square feet
with at least 1,600 slot
machines and 40 table
games.
Other counties
• Holds a nonrestricted
gaming license that has
been active for at least 5
years
• Meets the definition of a
Group 1 licensee
pursuant to Commission
regulations 46
• Operates either more
than 50 rooms for
sleeping
accommodations or 50
gaming devices.
NGC Reg. 6.010 5 - (a) “Group I licensee” means either:
(1) A nonrestricted licensee having gross revenue of $5,639,000 or more for the 12 months ended
June 30th each year; or
(2) A nonrestricted licensee, whose operation consists primarily of a race book or sports pool or both,
that accepts $63,476,000 or more in wagers during the 12 months ended June 30th each year.
46
38
What the table above does not clearly illustrate is that in 2001 the only county with
a population in excess of 400,000 was Clark County. Additionally, a resort hotel in
Clark County is defined as one that has: (i) at least 300 rooms for sleeping
accommodations, (ii) at least one fixed bar, (ii) at least one service bar, (iii)
entertainment with either (x) a lounge with 25 seats and live entertainment for at
least 6 hours per day for at least 6 days per week or (y) a facility with at least 600
seats and has regular professional entertainment, (iv) a restaurant open 24 hours
per day, 7 days per week, (v) room service available to all rooms, and (vi)
recreational facilities that include tennis courts, a swimming pool, a golf course or a
fitness center in excess of 2,400 square feed. Additionally, for resort hotels licensed
after November 1, 1998, a resort hotel must have the following: (i) at least 20,000
square feet of casino area, (ii) at least 10,000 square feed of retail shopping under
one roof, and (iii) a minimum capital or debit investment of at least $50,000,000.00.
A.B.258 (2011)
In 2011, A.B.258, the “online pokerbill”, was introduced. It initially proposed
significant changes to the foundation of the licensing process. The most radical
change was to prohibit the Board from recommending denial or the Comission from
denying an applicant an interactive gaming license based on prior acceptance of
online wagers from U.S. players. This proposed change was a fundamental change
from the broad discretion that the Board and Commission have in the licensing
process. A.B.258, as originally introduced, also contained multiple other
controversial provisions regarding taxation, state to country agreements, and
recognition of foreign licenses. A.B.258, as introduced, met with resistance from the
Governor and from other gaming experts that questioned the fundamental changes
proposed by the bill. During the legislative session, A.B.258 was revised
significantly to make modest changes to Nevada’s Interactive Gaming statutes.
A.B.258 ultimately was significantly modified to make the following changes to the
original 2001 Interactive Gaming Act:
1. the statutory requirements placed on the commission prior to issuing
regulations or licenses were removed;
2. an additional requirement was placed on establishments applying for an
interactive gaming operator's license that requires the establishment to
have at least 5 years experience operating as a nonrestricted casino
licensee;
3. in the event federal law changes to permit interstate interactive gaming
(including poker), the Commission can issue licenses consistent with such
federal law; and,
4. the commission must adopt regulations governing the licensing and
operation of interactive gaming.
A.B.258, as amended, was passed by the legislature and enacted by the Governor as
part of the 2011 legislative session.
39
A.B. 258 Regulatory Changes
A.B. 258 requires the Commission to adopt and the Board to assist in creating
regulations governing the licensing and operation of internet gaming. On August 24,
2011, the Board published the initial draft regulations to begin the process of
satisfying the regulatory mandates of A.B. 258.
To address the regulatory mandates, the initial draft regulations include the
following modifications to existing regulations:
•
•
•
Regulation 3.100 is being modified to include employees of interactive
gaming licensees and service provider licensees to licensee reporting
requirements.
Regulation 4.040 is being modified to (a) include a manufacturer of
interactive gaming systems as part of a manufacturer’s license, and (b) add a
new class of license for “service providers.
Regulation 8.130 is being modified to add interactive gaming licensees and
service provider licensees to transaction reporting requirements.
In addition to the modifications of existing regulations, the draft includes a new
regulation 5A to regulate the operation of interactive gaming. Regulation 5A is
limited to regulating intrastate online poker and require licensing of operators
(casinos by statute) and all service providers performing activities on behalf of an
operator. The licensed operator is the primary party with responsibility for
conducting all licensed activities in compliance with the regulations and is the
primary party responsible for the payment of taxes. Other key elements of the draft
regulations include:
•
•
•
•
•
•
•
Applies only to the conduct of online poker pursuant to a license. 47
Permits licensed service providers to manage and control wagering activities,
hardware, software and game controls on behalf of a licensed operator. 48
Applies only to the conduct of intrastate activities until the commission
determines otherwise. 49
Does not permit service providers to operate without a licensed casino operator. 50
Requires employees of service providers who have operational or supervisory
control over any interactive gaming system to be registered and treated as gaming
employees. 51
Maintains current taxation levels, but provides for change in the event federal law
for interstate gaming changes and uses a different taxation model. 52
Sets forth standards for general compliance.
See Draft
See Draft
49 See Draft
50 See Draft
51 See Draft
52 See Draft
47
48
§5A.140(1)
§§5A1.020.4(a)-(c) & §5A.220
§5A.240
§5A.220
§5A.220(7)
§5A.170(1)
40
•
Ties existing regulations to interactive gaming activities.
S.B.103 (2011)
S.B.103 was introduced to modernize the interactive gaming statutes to permit the
licensing and approval of multiple licensees. When the Interactive Gaming Act was
passed in 2001, the landscape of interactive gaming consisted of two primary
parties, the site or game operator and the manufacturer of the gaming software. In
2001, most sites were hosted and operated by a single operator using a single
gaming software platform. Since 2001, information technology services and online
gaming services have evolved into areas of specialization. Currently, an interactive
site may have a front facing operator that hires an information technology systems
operator to handle the computers, a database service provider to handle the data, a
front facing trademark licensor, and software component providers for particular
games compatible with the overall gaming system. S.B.103 sought to ensure that
Nevada's interactive gaming licensees can use significant service providers, while
ensuring that significant service providers are properly vetted and licensed
consistent with Nevada's long standing regulatory system of oversight. Shortly after
the introduction of S.B.103, the gaming regulators sponsored S.B.218 to modernize
Nevada's general gaming statutes. Ultimately, the concepts and language of S.B.103
as introduced were incorporated into a revised S.B.218.
S.B.218 (2011)
S.B.218 was the an omnibus gaming bill sponsored by regulators to modernize
Nevada's gaming statutes and to address issues in which the regulators sought
statutory support for guidance. S.B.218, as introduced, addressed the issue of
gaming service providers, specifically host service providers, for providing
information technology hosting at remote locations for casino licensees. The
concept was consistent with the narrower focus of S.B.103. The concepts and
language of S.B.103 were incorporated into S.B.218 during the legislative process.
Specifically, S.B.218 was amended to include the addition of a new class of
interactive gaming licensee called an "interactive gaming service provider." An
interactive gaming service provider is anyone who acts on behalf of an interactive
gaming licensee in the following ways:
1. Manages, administers or controls wagers that are initiated, received or
made on an interactive gaming system;
2. Manages, administers or controls the games with which wagers that are
initiated, received or made on an interactive gaming system are
associated;
3. Maintains or operates the software or hardware of an interactive gaming
system;
41
4. Provides the trademarks, trade names, service marks or similar
intellectual property under which an establishment licensed to operate
interactive gaming identifies its interactive gaming system to patrons;
5. Provides information regarding persons to an establishment licensed to
operate interactive gaming via a database or customer list; or
6. Provides products, services, information or assets to an establishment
licensed to operate interactive gaming and receives therefor a percentage
of gaming revenue from the establishment’s interactive gaming system.
CURRENT STATUS
As previously mentioned, because the DOJ believed that offering interactive gaming
would violate federal law, the Commission never issued interactive gaming
regulations based on the 2001 interactive gaming act and has not issued any
interactive gaming licenses.
The changes to the interactive gaming statutes made by A.B.258 require the
Commission to adopt some form of regulations governing the licensing and
operation of interactive gaming. The Board issued initial draft regulations on
August 24, 2011.
While draft regulations may be adopted, there is some question regarding whether
any licenses may be granted prior to a change in position by the U.S. Department of
Justice. Recently, Senator Reid, Nevada's senior senator and the Senate Majority
Leader, along with Senator Kyl of Arizona, asked the DOJ to reaffirm its opinion that
all intrastate and interstate internet gaming is prohibited under current federal law.
Such an opinion from the DOJ, if issued, is likely to have an impact on whether
Nevada grants any interactive gaming licenses for intrastate activity.
Interactive Gaming Crimes
Nevada criminalizes both accepting wagers from Nevada residents without a
Nevada gaming license and placing wagers with anyone other than those with a
Nevada gaming license. The criminal statutes are set forth below:
NRS 465.092 Accepting, receiving or allowing another to accept or receive
wager from person physically present in this state prohibited under certain
circumstances; penalty.
1. Except as otherwise provided in NRS 465.094 53, a person, alone or with
others, shall not knowingly, within or outside of this state:
(a) Accept or receive, directly or indirectly, through any medium of
communication a wager from another person who is physically present within
this state; or
NRS 465.094 exempts Nevada licensed race and sports books, Nevada licensed interactive gaming,
Nevada licensed mobile gaming, and general Nevada gaming licensees from the prohibition.
53
42
(b) Allow a lessee, agent or employee to accept or receive, directly or
indirectly, through any medium of communication a wager from another
person who is physically present within this state.
2. If a person engages in conduct in violation of subsection 1 and the person
is outside of this state at the time of the offense:
(a) The offense shall be deemed to commence outside of this state;
(b) The offense shall be deemed to be consummated within this state; and
(c) The person may be prosecuted within this state pursuant to the
provisions of NRS 171.015.
NRS 465.093 Placing, sending, transmitting or relaying wagers to another
person prohibited under certain circumstances; penalty.
1. Except as otherwise provided in NRS 465.094, a person, alone or with
others, shall not knowingly:
(a) From within this state, place, send, transmit or relay through a medium
of communication a wager to another person or an establishment that is
located within or outside of this state; or
(b) From outside of this state, place, send, transmit or relay through a
medium of communication a wager to another person or an establishment that
is located within this state.
The laws prohibiting the conduct of online gambling absent a Nevada gaming license
date back to 1997, when these statutes were enacted. Despite being on the books
since 1997, the laws have gained little public recognition and news stories and
recent legislative hearing minutes routinely carry admissions from players in
Nevada that wager online with entities that lack a Nevada gaming license. 54
Foreign Gaming Statutes
In Nevada, gaming in any other state or country is deemed to be “foreign gaming”
and subject to Nevada’s laws and regulations regarding foreign gaming.
As mentioned above, prior to 1977, relying on the Commission regulation, Nevada
protected its position as the only casino jurisdiction in this country by refusing to
allow any of its gaming licensees to be involved in gaming elsewhere. This blanket
prohibition was changed in 1977 because it was incompatible with the United States
Constitution.
54 See e.g. S. Ass. Comm. Judiciary (March 24, 2011), page 35 “Fortunately, Poker Stars, which is the
only one I play on, is registered in the Isle of Man…” – Testimony of Vanessa Russo, a Las Vegas
resident and professional poker player explaining the advantages of playing online from home
(available online at
http://www.leg.state.nv.us/Session/76th2011/Minutes/Assembly/JUD/Final/534.pdf)
43
In 1977, passage of Assembly Bill 375 permitted Nevada licensees to participate in
gaming elsewhere, but only if the Commission found a comprehensive, effective
government regulatory system in the foreign jurisdiction. Now this meant actual,
on-site investigation of foreign governments by the Board and a formal judgment by
the Commission that those governments could be trusted to effectively control
gaming.
Shortly after enactment, New Jersey was the first foreign jurisdiction to be found
suitable by Nevada to license and regulate Nevada casino operators. In 1985,
Queensland – Australia became the first international jurisdiction to be found
suitable by Nevada to license and regulate Nevada casino operators. Before the
Queensland approval was granted, Commission Chairman Paul Bible explained a
major reason for the foreign gaming statutes saying:
When the Legislature initially considered the" foreign gaming statute", one of
the legislative concerns was that they were afraid of Nevada money being
siphoned out of this state and going into another jurisdiction and causing
Nevada operations not to be as healthy as they would be otherwise because
money that is necessary to refurbish and keep operations competitive would
not stay in the State of Nevada.
Nevada legislators and their counsel, of whom Dennis Neilander was one for a great
many admirable years, have always recognized that any such statutory scheme, if it
can at all satisfy constitutional standards, must find its justification in material
impact to this state.
In 1985, the Legislature relaxed the rigid control of the foreign gaming statutes by
authorizing the Commission in Senate Bill 231 to waive any provision of those
statutes.
In 1987, the Legislature recognized that Nevada standards cannot be imposed on a
foreign government, and as part of Assembly Bill 178 removed from the foreign
gaming approval process the necessity of finding a comprehensive, effective
regulatory system in the foreign jurisdiction.
Nevada gaming control no longer had legislative authority to pass judgment on how
another government regulates its own gaming industry or to impose our gaming
control standards on another jurisdiction.
In 1993, there was a monumental shift in the evolution. As a result of the passage of
Assembly Bill 470, the prior approval requirement in the foreign gaming statutes
was eliminated.
Instead, extensive reporting requirements were imposed, a revolving investigative
fund was required to allow the Control Board to monitor a licensee's foreign venue
at the licensee's expense, and most importantly, licensees were made subject to
disciplinary actions for violations of provisions that are now set forth in NRS
463.720 and which guide the scope of this proceeding.
44
By virtue of the 1993 act, the limit of Commission authority over foreign gaming was
to receive reports and to punish violations by disciplinary action, all subject to due
process of law.
The 1993 law is the one that establishes the essential responsibilities and standards
with respect to foreign gaming. They have never been changed or enlarged since
1993.
In 1997, in Assembly Bill 294, the foreign gaming statutes were amended into their
present form. The essential change was that the gaming control agencies were
granted authority to determine, either on their own initiative or pursuant to a
licensee application, if an activity or association in a foreign gaming jurisdiction
violated subsection (3) of NRS 463.720.
The authority established by the Legislature in 1993 and unchanged in 1997
encompasses only certain activities or associations that directly have a material
impact on Nevada. An association constitute a violation only if it, "(a), poses an
unreasonable threat to the control of gaming in this state; (b), reflects or tends to
reflect discredit or disrepute upon this state or gaming in this state; or (c), is
contrary to the public policy of this state concerning gaming."
Recently, 888 Holdings, PLC, was approved to provide services to Caesars
Entertainment Corp. for a foreign venture to offer online gaming between
jurisdictions in which online gaming is legal. The approval for a specific association
was often misunderstood as the grant of a license or an approval for licensing in
Nevada. The approval was based on was a limited to an investigation to determine
if the association "(a), poses an unreasonable threat to the control of gaming in this
state; (b), reflects or tends to reflect discredit or disrepute upon this state or gaming in
this state; or (c), is contrary to the public policy of this state concerning gaming.” This
limited inquiry was not an approval for 888 Holdings, PLC to provide services in
Nevada or to conduct gaming in Nevada.
Representatives of the Board have repeatedly stated that obtaining approval for an
association in foreign gaming is a much less rigorous standard to meet than the
standard for licensing in Nevada.
Federal Taxation
Taxation of Wagering Transactions
Income Tax Consequences to Player
Section 61 of the Internal Revenue Code states that gross income means all income
from whatever source derived. The Court in Glenshaw Glass v. Commissioner has
also held that income is realized when there an accession to wealth. Thus, income
from gambling, lotteries, sweepstakes winnings and card playing is included in
45
gross income. In addition, a taxpayer must include income from any illegal activities
into gross income in the same manner as income from other sources.
The amount to be reported as income from a winning wager is the full amount of
the winnings less the cost of placing the bet or the wager. In computing the amount
of income from winnings, the amount of losses are not netted against winnings.
Income derived from gambling or wagering transactions must be included in gross
income even if the taxpayer does not receive a W-2G. Gambling losses in a tax year
are deductible, but only to the extent of that year’s gain from wagering transactions.
Gambling losses are only deductible if the taxpayer itemizes his or her deductions.
Gambling losses cannot be used to offset any other income.
The excess of gambling losses over gambling income is not deductible even by a
person in the business of gambling. In addition, gambling losses cannot be carried
forward to subsequent tax years or carried back. The cost of placing a bet or wager
is not a deductible loss, but rather a tax-free return of capital.
Poker and “tournament poker” are wagering activities. The Tax Court rejected a
taxpayer’s contention that poker was a “sporting” tournament. In tournament
poker, each entrant receives chips to start and is out when his chips have all been
lost and cash prizes are awarded to a pre-determined number of finishers. The
court noted that the activity involves bets being placed on each hand with each
round of betting having consequences. The fact that the chips may not have
immediate and tangible monetary value does not change the nature of the activity.
The wagers are placed in the hopes of winning which is in essence a wagering
activity.
Rules on Reporting Gambling Winnings
Depending on the wager and amount won, gambling winnings may either be required to be
reported to the Internal Revenue Service (“IRS”) or, if the winnings are in excess of a certain
minimum, the house may be required to withhold a portion of the player’s gambling
winnings.
Generally, a payor must report gambling winnings, by issuing a W-2G, if the amount paid,
reduced by the wager, is (a) $600 or more and (b) at least 300 times the amount of the
wager. However, specific payor reporting requirements apply to winnings from bingo, keno,
poker tournaments and slot machines. Gambling winnings for these games must be
reported by the payor if:
•
•
•
The winnings (reduced by the wager) are $1,500 or more from a keno game,
The winnings (not reduced by the wager) are $1,200 or more from a bingo game or
slot machine, or
The winnings (reduced by the wager or buy-in) are more than $5,000 from a poker
tournament.
If gambling winnings must be reported, the payor must file a Form W-2G with the IRS and
provide a copy to the winner. These reporting requirements are not applicable to lotteries,
raffles, sweepstakes and wagering pools held by non-profit churches or civic organizations.
46
Rules on Withholding of Gambling Winnings
For keno, bingo and slot machines, payor withholding is not required unless “back-up”
withholding is applicable (see below).
For poker tournaments, a withholding requirement technically applies to winnings of more
than $5,000. Revenue Procedure 2007-57. However, the IRS has indicated that it does not
intend to enforce such withholding requirement so long as tournament winnings of more
than $5,000 are properly reported by the payor.
For other types of gaming, the payor is required to withhold 25% on winnings of more than
$5,000 from:
•
•
•
a wagering transaction in a parimutuel pool with respect to horse races, dog races,
or jai alai if the amount or proceeds is at least 300 times as large as the amount
wagered; IRC 3402(q)(3)(C)(ii);
a wager placed in a sweepstakes, a wagering pool or lottery (except certain lotteries
conducted by a State); IRC 3402(q)(3)(C)(i);
all other wagering transactions if the amount of the proceeds is at least 300 times as
large as the amount wagered. IRC 3402(q)(3)(A).
Withholding applies to the total amount of winnings. Any noncash payments received, such
as a car, must be taken into account at its fair market value for purposes of reporting and
withholding.
If a player is subject to backup withholding, the payor may be required to withhold 28% of
gambling winnings that are reportable but not otherwise subject to withholding (e.g. bingo,
keno, poker tournaments, and slots - - and other winnings below the regular $5,000
withholding threshold). A player is subject to backup withholding if the player refuses to
furnish a correct taxpayer identification number for reporting purposes.
Any noncash payments received, such as a car, must be taken into account at its fair market
value for purposes of reporting and withholding. If the fair market value exceeds $5,000,
after subtracting the amount of the wager, the winnings are subject to withholding at a rate
of 25%.
47
APPENDICES
Appendix A – Statutory Source Materials
Federal Wire Act
18 U.S.C. §1084 Transmission of wagering information; penalties
(a) 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.
(b) Nothing in this section shall be construed to prevent the transmission in interstate or
foreign commerce of information for use in news reporting of sporting events or contests,
or for the transmission of information assisting in the placing of bets or wagers on a
sporting event or contest from a State or foreign country where betting on that sporting
event or contest is legal into a State or foreign country in which such betting is legal.
(c) Nothing contained in this section shall create immunity from criminal prosecution under
any laws of any State.
(d) When any common carrier, subject to the jurisdiction of the Federal Communications
Commission, is notified in writing by a Federal, State, or local law enforcement agency,
acting within its jurisdiction, that any facility furnished by it is being used or will be used for
the purpose of transmitting or receiving gambling information in interstate or foreign
commerce in violation of Federal, State or local law, it shall discontinue or refuse, the
leasing, furnishing, or maintaining of such facility, after reasonable notice to the subscriber,
but no damages, penalty or forfeiture, civil or criminal, shall be found against any common
carrier for any act done in compliance with any notice received from a law enforcement
agency. Nothing in this section shall be deemed to prejudice the right of any person affected
thereby to secure an appropriate determination, as otherwise provided by law, in a Federal
court or in a State or local tribunal or agency, that such facility should not be discontinued
or removed, or should be restored.
(e) As used in this section, the term "State" means a State of the United States, the District of
Columbia, the Commonwealth of Puerto Rico, or a commonwealth, territory or possession
of the United States.
Illegal Gambling Businesses Act
18 U.S.C. §1955 Prohibition of illegal gambling businesses
(a) Whoever conducts, finances, manages, supervises, directs, or owns all or part of
an illegal gambling business shall be fined under this title or imprisoned not more
than five years, or both.
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(b) As used in this section (1) "illegal gambling business" means a gambling business which (i) is a violation of the law of a State or political subdivision in which it is conducted;
(ii) involves five or more persons who conduct, finance, manage, supervise, direct,
or own all or part of such business;
and (iii) has been or remains in substantially continuous operation for a period in
excess of thirty days or has a gross revenue of $2,000 in any single day.
(2) "gambling" includes but is not limited to pool-selling, bookmaking, maintaining
slot machines, roulette wheels or dice tables, and conducting lotteries, policy, bolita
or numbers games, or selling chances therein.
(3) "State" means any State of the United States, the District of Columbia, the
Commonwealth of Puerto Rico, and any territory or possession of the United States.
(c) If five or more persons conduct, finance, manage, supervise, direct, or own all or
part of a gambling business and such business operates for two or more successive
days, then, for the purpose of obtaining warrants for arrests, interceptions, and
other searches and seizures, probable cause that the business receives gross
revenue in excess of $2,000 in any single day shall be deemed to have been
established.
(d) Any property, including money, used in violation of the provisions of this section
may be seized and forfeited to the United States. All provisions of law relating to the
seizures, summary, and judicial forfeiture procedures, and condemnation of vessels,
vehicles, merchandise, and baggage for violation of the customs laws; the
disposition of such vessels, vehicles, merchandise, and baggage or the proceeds
from such sale; the remission or mitigation of such forfeitures; and the compromise
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of claims and the award of compensation to informers in respect of such forfeitures
shall apply to seizures and forfeitures incurred or alleged to have been incurred
under the provisions of this section, insofar as applicable and not inconsistent with
such provisions. Such duties as are imposed upon the collector of customs or any
other person in respect to the seizure and forfeiture of vessels, vehicles,
merchandise, and baggage under the customs laws shall be performed with respect
to seizures and forfeitures of property used or intended for use in violation of this
section by such officers, agents, or other persons as may be designated for that
purpose by the Attorney General.
(e) This section shall not apply to any bingo game, lottery, or similar game of chance
conducted by an organization exempt from tax under paragraph (3) of subsection
(c) of section 501 of the Internal Revenue Code of 1986, as amended, if no part of
the gross receipts derived from such activity inures to the benefits of any private
shareholder, member, or employee of such organization except as compensation for
actual expenses incurred by him in the conduct of such activity.
The Unlawful Internet Gambling Enforcement Act
31 U.S.C. §5361 Congressional findings and purpose
(a) Findings. - Congress finds the following:
(1) Internet gambling is primarily funded through personal use of payment system
instruments, credit cards, and wire transfers.
(2) The National Gambling Impact Study Commission in 1999 recommended the passage of
legislation to prohibit wire transfers to Internet gambling sites or the banks which
represent such sites.
(3) Internet gambling is a growing cause of debt collection problems for insured depository
institutions and the consumer credit industry.
(4) New mechanisms for enforcing gambling laws on the Internet are necessary because
traditional law enforcement mechanisms are often inadequate for enforcing gambling
prohibitions or regulations on the Internet, especially where such gambling crosses State or
national borders.
(b) Rule of Construction. - No provision of this subchapter shall be construed as altering,
limiting, or extending any Federal or State law or Tribal-State compact prohibiting,
permitting, or regulating gambling within the United States.
31 U.S.C. § 5362 Definitions
In this subchapter:
(1) Bet or wager. - The term "bet or wager" -
(A) means the staking or risking by any person of something of value upon the outcome of a
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contest of others, a sporting event, or a game subject to chance, upon an agreement or
understanding that the person or another person will receive something of value in the
event of a certain outcome;
(B) includes the purchase of a chance or opportunity to win a lottery or other prize (which
opportunity to win is predominantly subject to chance);
(C) includes any scheme of a type described in section 3702 of title 28;
(D) includes any instructions or information pertaining to the establishment or movement
of funds by the bettor or customer in, to, or from an account with the business of betting or
wagering; and (E) does not include (i) any activity governed by the securities laws (as that term is defined in section 3(a)(47)
of the Securities Exchange Act of 1934 (!1) for the purchase or sale of securities (as that
term is defined in section 3(a)(10) of that Act);
(ii) any transaction conducted on or subject to the rules of a registered entity or exempt
board of trade under the Commodity Exchange Act;
(iii) any over-the-counter derivative instrument;
(iv) any other transaction that -
(I) is excluded or exempt from regulation under the Commodity Exchange Act; or (II) is
exempt from State gaming or bucket shop laws under section 12(e) of the Commodity
Exchange Act or section 28(a) of the Securities Exchange Act of 1934;
(v) any contract of indemnity or guarantee;
(vi) any contract for insurance;
(vii) any deposit or other transaction with an insured depository institution;
(viii) participation in any game or contest in which participants do not stake or risk
anything of value other than -
(I) personal efforts of the participants in playing the game or contest or obtaining access to
the Internet; or (II) points or credits that the sponsor of the game or contest provides to
participants free of charge and that can be used or redeemed only for participation in games
or contests offered by the sponsor; or
(ix) participation in any fantasy or simulation sports game or educational game or contest
in which (if the game or contest involves a team or teams) no fantasy or simulation sports
team is based on the current membership of an actual team that is a member of an amateur
or professional sports organization (as those terms are defined in section 3701 of title 28)
and that meets the following conditions:
(I) All prizes and awards offered to winning participants are established and made known
to the participants in advance of the game or contest and their value is not determined by
-4-
the number of participants or the amount of any fees paid by those participants.
(II) All winning outcomes reflect the relative knowledge and skill of the participants and are
determined predominantly by accumulated statistical results of the performance of
individuals (athletes in the case of sports events) in multiple real-world sporting or other
events.
(III) No winning outcome is based -
(aa) on the score, point-spread, or any performance or performances of any single realworld team or any combination of such teams; or (bb) solely on any single performance of
an individual athlete in any single real-world sporting or other event.
(2) Business of betting or wagering. - The term "business of betting or wagering" does not
include the activities of a financial transaction provider, or any interactive computer service
or telecommunications service.
(3) Designated payment system. - The term "designated payment system" means any
system utilized by a financial transaction provider that the Secretary and the Board of
Governors of the Federal Reserve System, in consultation with the Attorney General, jointly
determine, by regulation or order, could be utilized in connection with, or to facilitate, any
restricted transaction.
(4) Financial transaction provider. - The term "financial transaction provider" means a
creditor, credit card issuer, financial institution, operator of a terminal at which an
electronic fund transfer may be initiated, money transmitting business, or international,
national, regional, or local payment network utilized to effect a credit transaction, electronic
fund transfer, stored value product transaction, or money transmitting service, or a
participant in such network, or other participant in a designated payment system.
(5) Internet. - The term "Internet" means the international computer network of
interoperable packet switched data networks.
(6) Interactive computer service. - The term "interactive computer service" has the meaning
given the term in section 230(f) of the Communications Act of 1934 (47 U.S.C. 230(f)).
(7) Restricted transaction. - The term "restricted transaction"
means any transaction or transmittal involving any credit, funds, instrument, or proceeds
described in any paragraph of section 5363 which the recipient is prohibited from accepting
under section 5363.
(8) Secretary. - The term "Secretary" means the Secretary of the Treasury.
(9) State. - The term "State" means any State of the United States, the District of Columbia,
or any commonwealth, territory, or other possession of the United States.
(10) Unlawful internet gambling. -
(A) In general. - The term "unlawful Internet gambling" means to place, receive, or
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otherwise knowingly transmit a bet or wager by any means which involves the use, at least
in part, of the Internet where such bet or wager is unlawful under any applicable Federal or
State law in the State or Tribal lands in which the bet or wager is initiated, received, or
otherwise made.
(B) Intrastate transactions. - The term "unlawful Internet gambling" does not include
placing, receiving, or otherwise transmitting a bet or wager where -
(i) the bet or wager is initiated and received or otherwise made exclusively within a single
State;
(ii) the bet or wager and the method by which the bet or wager is initiated and received or
otherwise made is expressly authorized by and placed in accordance with the laws of such
State, and the State law or regulations include -
(I) age and location verification requirements reasonably designed to block access to
minors and persons located out of such State; and (II) appropriate data security standards
to prevent unauthorized access by any person whose age and current location has not been
verified in accordance with such State's law or regulations; and
(iii) the bet or wager does not violate any provision of (I) the Interstate Horseracing Act of 1978 (15 U.S.C.
3001 et seq.);
(II) chapter 178 of title 28 (commonly known as the "Professional and Amateur Sports
Protection Act");
(III) the Gambling Devices Transportation Act (15 U.S.C.
1171 et seq.); or (IV) the Indian Gaming Regulatory Act (25 U.S.C. 2701 et seq.).
(C) Intratribal transactions. - The term "unlawful Internet gambling" does not include
placing, receiving, or otherwise transmitting a bet or wager where -
(i) the bet or wager is initiated and received or otherwise made exclusively -
(I) within the Indian lands of a single Indian tribe (as such terms are defined under the
Indian Gaming Regulatory Act); or (II) between the Indian lands of 2 or more Indian tribes
to the extent that intertribal gaming is authorized by the Indian Gaming Regulatory Act;
(ii) the bet or wager and the method by which the bet or wager is initiated and received or
otherwise made is expressly authorized by and complies with the requirements of -
(I) the applicable tribal ordinance or resolution approved by the Chairman of the National
Indian Gaming Commission; and (II) with respect to class III gaming, the applicable TribalState Compact;
(iii) the applicable tribal ordinance or resolution or Tribal-State Compact includes -
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(I) age and location verification requirements reasonably designed to block access to
minors and persons located out of the applicable Tribal lands; and (II) appropriate data
security standards to prevent unauthorized access by any person whose age and current
location has not been verified in accordance with the applicable tribal ordinance or
resolution or Tribal-State Compact; and
(iv) the bet or wager does not violate any provision of (I) the Interstate Horseracing Act of 1978 (15 U.S.C.
3001 et seq.);
(II) chapter 178 of title 28 (commonly known as the "Professional and Amateur Sports
Protection Act");
(III) the Gambling Devices Transportation Act (15 U.S.C.
1171 et seq.); or (IV) the Indian Gaming Regulatory Act (25 U.S.C. 2701 et seq.).
(D) Interstate horseracing. -
(i) In general. - The term "unlawful Internet gambling"
shall not include any activity that is allowed under the Interstate Horseracing Act of 1978
(15 U.S.C. 3001 et seq.).
(ii) Rule of construction regarding preemption. - Nothing in this subchapter may be
construed to preempt any State law prohibiting gambling.
(iii) Sense of congress. - It is the sense of Congress that this subchapter shall not change
which activities related to horse racing may or may not be allowed under Federal law.
This subparagraph is intended to address concerns that this subchapter could have the
effect of changing the existing relationship between the Interstate Horseracing Act and
other Federal statutes in effect on the date of the enactment of this subchapter. This
subchapter is not intended to change that relationship. This subchapter is not intended to
resolve any existing disagreements over how to interpret the relationship between the
Interstate Horseracing Act and other Federal statutes.
(E) Intermediate routing. - The intermediate routing of electronic data shall not determine
the location or locations in which a bet or wager is initiated, received, or otherwise made.
(11) Other terms. -
(A) Credit; creditor; credit card; and card issuer. - The terms "credit", "creditor", "credit
card", and "card issuer"
have the meanings given the terms in section 103 of the Truth in Lending Act (15 U.S.C.
1602).
-7-
(B) Electronic fund transfer. - The term "electronic fund transfer" -
(i) has the meaning given the term in section 903 of the Electronic Fund Transfer Act (15
U.S.C. 1693a), except that the term includes transfers that would otherwise be excluded
under section 903(6)(E) of that Act; and (ii) includes any fund transfer covered by Article
4A of the Uniform Commercial Code, as in effect in any State.
(C) Financial institution. - The term "financial institution"
has the meaning given the term in section 903 of the Electronic Fund Transfer Act, except
that such term does not include a casino, sports book, or other business at or through which
bets or wagers may be placed or received.
(D) Insured depository institution. - The term "insured depository institution" -
(i) has the meaning given the term in section 3(c) of the Federal Deposit Insurance Act (12
U.S.C. 1813(c)); and (ii) includes an insured credit union (as defined in section 101 of the
Federal Credit Union Act).
(E) Money transmitting business and money transmitting service. - The terms "money
transmitting business" and "money transmitting service" have the meanings given the
terms in section 5330(d) (determined without regard to any regulations prescribed by the
Secretary thereunder).
31 U.S.C. §5363 Prohibition on acceptance of any financial instrument for unlawful
Internet gambling
No person engaged in the business of betting or wagering may knowingly accept, in
connection with the participation of another person in unlawful Internet gambling (1) credit, or the proceeds of credit, extended to or on behalf of such other person
(including credit extended through the use of a credit card);
(2) an electronic fund transfer, or funds transmitted by or through a money transmitting
business, or the proceeds of an electronic fund transfer or money transmitting service, from
or on behalf of such other person;
(3) any check, draft, or similar instrument which is drawn by or on behalf of such other
person and is drawn on or payable at or through any financial institution; or (4) the
proceeds of any other form of financial transaction, as the Secretary and the Board of
Governors of the Federal Reserve System may jointly prescribe by regulation, which
involves a financial institution as a payor or financial intermediary on behalf of or for the
benefit of such other person.
31 U.S.C. §5364 Policies and procedures to identify and prevent restricted transactions
(a) Regulations. - Before the end of the 270-day period beginning on the date of the
enactment of this subchapter, the Secretary and the Board of Governors of the Federal
Reserve System, in consultation with the Attorney General, shall prescribe regulations
(which the Secretary and the Board jointly determine to be appropriate) requiring each
designated payment system, and all participants therein, to identify and block or otherwise
-8-
prevent or prohibit restricted transactions through the establishment of policies and
procedures reasonably designed to identify and block or otherwise prevent or prohibit the
acceptance of restricted transactions in any of the following ways:
(1) The establishment of policies and procedures that -
(A) allow the payment system and any person involved in the payment system to identify
restricted transactions by means of codes in authorization messages or by other means; and
(B) block restricted transactions identified as a result of the policies and procedures
developed pursuant to subparagraph (A).
(2) The establishment of policies and procedures that prevent or prohibit the acceptance of
the products or services of the payment system in connection with a restricted transaction.
(b) Requirements for Policies and Procedures. - In prescribing regulations under subsection
(a), the Secretary and the Board of Governors of the Federal Reserve System shall -
(1) identify types of policies and procedures, including nonexclusive examples, which would
be deemed, as applicable, to be reasonably designed to identify and block or otherwise
prevent or prohibit the acceptance of the products or services with respect to each type of
restricted transaction;
(2) to the extent practical, permit any participant in a payment system to choose among
alternative means of identifying and blocking, or otherwise preventing or prohibiting the
acceptance of the products or services of the payment system or participant in connection
with, restricted transactions;
(3) exempt certain restricted transactions or designated payment systems from any
requirement imposed under such regulations, if the Secretary and the Board jointly find
that it is not reasonably practical to identify and block, or otherwise prevent or prohibit the
acceptance of, such transactions; and (4) ensure that transactions in connection with any
activity excluded from the definition of unlawful internet gambling in subparagraph (B), (C),
or (D)(i) of section 5362(10) are not blocked or otherwise prevented or prohibited by the
prescribed regulations.
(c) Compliance With Payment System Policies and Procedures. - A
financial transaction provider shall be considered to be in compliance with the regulations
prescribed under subsection (a) if (1) such person relies on and complies with the policies and procedures of a designated
payment system of which it is a member or participant to -
(A) identify and block restricted transactions; or (B) otherwise prevent or prohibit the
acceptance of the products or services of the payment system, member, or participant in
connection with restricted transactions; and
(2) such policies and procedures of the designated payment system comply with the
requirements of regulations prescribed under subsection (a).
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(d) No Liability for Blocking or Refusing To Honor Restricted Transactions. - A person that
identifies and blocks a transaction, prevents or prohibits the acceptance of its products or
services in connection with a transaction, or otherwise refuses to honor a transaction -
(1) that is a restricted transaction;
(2) that such person reasonably believes to be a restricted transaction; or (3) as a
designated payment system or a member of a designated payment system in reliance on the
policies and procedures of the payment system, in an effort to comply with regulations
prescribed under subsection (a),
shall not be liable to any party for such action.
(e) Regulatory Enforcement. - The requirements under this section shall be enforced
exclusively by -
(1) the Federal functional regulators, with respect to the designated payment systems and
financial transaction providers subject to the respective jurisdiction of such regulators
under section 505(a) of the Gramm-Leach-Bliley Act and section 5g of the Commodities
Exchange Act; and (2) the Federal Trade Commission, with respect to designated payment
systems and financial transaction providers not otherwise subject to the jurisdiction of any
Federal functional regulators (including the Commission) as described in paragraph (1).
31 U.S.C. §5365 Civil remedies
(a) Jurisdiction. - In addition to any other remedy under current law, the district courts of
the United States shall have original and exclusive jurisdiction to prevent and restrain
restricted transactions by issuing appropriate orders in accordance with this section,
regardless of whether a prosecution has been initiated under this subchapter.
(b) Proceedings. -
(1) Institution by federal government. -
(A) In general. - The United States, acting through the Attorney General, may institute
proceedings under this section to prevent or restrain a restricted transaction.
(B) Relief. - Upon application of the United States under this paragraph, the district court
may enter a temporary restraining order, a preliminary injunction, or an injunction against
any person to prevent or restrain a restricted transaction, in accordance with rule 65 of the
Federal Rules of Civil Procedure.
(2) Institution by state attorney general. -
(A) In general. - The attorney general (or other appropriate State official) of a State in which
a restricted transaction allegedly has been or will be initiated, received, or otherwise made
may institute proceedings under this section to prevent or restrain the violation or
threatened violation.
- 10 -
(B) Relief. - Upon application of the attorney general (or other appropriate State official) of
an affected State under this paragraph, the district court may enter a temporary restraining
order, a preliminary injunction, or an injunction against any person to prevent or restrain a
restricted transaction, in accordance with rule 65 of the Federal Rules of Civil Procedure.
(3) Indian lands. -
(A) In general. - Notwithstanding paragraphs (1) and (2), for a restricted transaction that
allegedly has been or will be initiated, received, or otherwise made on Indian lands (as that
term is defined in section 4 of the Indian Gaming Regulatory Act) -
(i) the United States shall have the enforcement authority provided under paragraph (1);
and (ii) the enforcement authorities specified in an applicable Tribal-State Compact
negotiated under section 11 of the Indian Gaming Regulatory Act (25 U.S.C. 2710) shall be
carried out in accordance with that compact.
(B) Rule of construction. - No provision of this section shall be construed as altering,
superseding, or otherwise affecting the application of the Indian Gaming Regulatory Act.
(c) Limitation Relating to Interactive Computer Services. -
(1) In general. - Relief granted under this section against an interactive computer service
shall -
(A) be limited to the removal of, or disabling of access to, an online site violating section
5363, or a hypertext link to an online site violating such section, that resides on a computer
server that such service controls or operates, except that the limitation in this subparagraph
shall not apply if the service is subject to liability under this section under section 5367;
(B) be available only after notice to the interactive computer service and an opportunity for
the service to appear are provided;
(C) not impose any obligation on an interactive computer service to monitor its service or to
affirmatively seek facts indicating activity violating this subchapter;
(D) specify the interactive computer service to which it applies; and (E) specifically identify
the location of the online site or hypertext link to be removed or access to which is to be
disabled.
(2) Coordination with other law. - An interactive computer service that does not violate this
subchapter shall not be liable under section 1084(d) of title 18, except that the limitation in
this paragraph shall not apply if an interactive computer service has actual knowledge and
control of bets and wagers and -
(A) operates, manages, supervises, or directs an Internet website at which unlawful bets or
wagers may be placed, received, or otherwise made or at which unlawful bets or wagers are
offered to be placed, received, or otherwise made; or (B) owns or controls, or is owned or
controlled by, any person who operates, manages, supervises, or directs an Internet website
at which unlawful bets or wagers may be placed, received, or otherwise made, or at which
unlawful bets or wagers are offered to be placed, received, or otherwise made.
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(d) Limitation on Injunctions Against Regulated Persons. -
Notwithstanding any other provision of this section, and subject to section 5367, no
provision of this subchapter shall be construed as authorizing the Attorney General of the
United States, or the attorney general (or other appropriate State official) of any State to
institute proceedings to prevent or restrain a restricted transaction against any financial
transaction provider, to the extent that the person is acting as a financial transaction
provider.
31 U.S.C. §5366 Criminal penalties
(a) In General. - Any person who violates section 5363 shall be fined under title 18,
imprisoned for not more than 5 years, or both.
(b) Permanent Injunction. - Upon conviction of a person under this section, the court may
enter a permanent injunction enjoining such person from placing, receiving, or otherwise
making bets or wagers or sending, receiving, or inviting information assisting in the placing
of bets or wagers.
31 U.S.C. §5367 Circumventions prohibited
Notwithstanding section 5362(2), a financial transaction provider, or any interactive
computer service or telecommunications service, may be liable under this subchapter if
such person has actual knowledge and control of bets and wagers, and -
(1) operates, manages, supervises, or directs an Internet website at which unlawful bets or
wagers may be placed, received, or otherwise made, or at which unlawful bets or wagers
are offered to be placed, received, or otherwise made; or (2) owns or controls, or is owned
or controlled by, any person who operates, manages, supervises, or directs an Internet
website at which unlawful bets or wagers may be placed, received, or otherwise made, or at
which unlawful bets or wagers are offered to be placed, received, or otherwise made.
Nevada Gaming Regulatory Statutes
NRS 463.0152 “Game” and “gambling game” defined.
“Game” or “gambling game” means any game played with cards, dice, equipment or
any mechanical, electromechanical or electronic device or machine for money,
property, checks, credit or any representative of value, including, without limiting
the generality of the foregoing, faro, monte, roulette, keno, bingo, fan-tan, twentyone, blackjack, seven-and-a-half, big injun, klondike, craps, poker, chuck-a-luck,
Chinese chuck-a-luck (dai shu), wheel of fortune, chemin de fer, baccarat, pai gow,
beat the banker, panguingui, slot machine, any banking or percentage game or any
other game or device approved by the Commission, but does not include games
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played with cards in private homes or residences in which no person makes money
for operating the game, except as a player, or games operated by charitable or
educational organizations which are approved by the Board pursuant to the
provisions of NRS 463.409
NRS 463.016425 “Interactive gaming” defined.
1. “Interactive gaming” means the conduct of gambling games through the use of
communications technology that allows a person, utilizing money, checks, electronic
checks, electronic transfers of money, credit cards, debit cards or any other
instrumentality, to transmit to a computer information to assist in the placing of a
bet or wager and corresponding information related to the display of the game,
game outcomes or other similar information. The term does not include the
operation of a race book or sports pool that uses communications technology
approved by the Board pursuant to regulations adopted by the Commission to
accept wagers originating within this state for races, or sporting events or other
events.
2. As used in this section, “communications technology” means any method used
and the components employed by an establishment to facilitate the transmission of
information, including, without limitation, transmission and reception by systems
based on wire, cable, radio, microwave, light, optics or computer data networks,
including, without limitation, the Internet and intranets.
NRS 463.160 Licenses required; unlawful to permit certain gaming activities to be
conducted without license; exceptions.
1. Except as otherwise provided in subsection 4 and NRS 463.172, it is unlawful
for any person, either as owner, lessee or employee, whether for hire or not, either
solely or in conjunction with others:
(a) To deal, operate, carry on, conduct, maintain or expose for play in the State of
Nevada any gambling game, gaming device, inter-casino linked system, mobile
gaming system, slot machine, race book or sports pool;
(b) To provide or maintain any information service;
(c) To operate a gaming salon; or
(d) To receive, directly or indirectly, any compensation or reward or any
percentage or share of the money or property played, for keeping, running or
carrying on any gambling game, slot machine, gaming device, mobile gaming system,
race book or sports pool, without having first procured, and thereafter maintaining
in effect, all federal, state, county and municipal gaming licenses as required by
statute, regulation or ordinance or by the governing board of any unincorporated
town.
2. The licensure of an operator of an inter-casino linked system is not required if:
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(a) A gaming licensee is operating an inter-casino linked system on the premises
of an affiliated licensee; or
(b) An operator of a slot machine route is operating an inter-casino linked
system consisting of slot machines only.
3. Except as otherwise provided in subsection 4, it is unlawful for any person
knowingly to permit any gambling game, slot machine, gaming device, inter-casino
linked system, mobile gaming system, race book or sports pool to be conducted,
operated, dealt or carried on in any house or building or other premises owned by
the person, in whole or in part, by a person who is not licensed pursuant to this
chapter, or that person’s employee.
4. The Commission may, by regulation, authorize a person to own or lease
gaming devices for the limited purpose of display or use in the person’s private
residence without procuring a state gaming license.
5. As used in this section, “affiliated licensee” has the meaning ascribed to it in
NRS 463.430.
Foreign Gaming
NRS 463.680 Definitions.
For the purposes of NRS 463.680 to 463.720, inclusive:
1. “Foreign gaming” means the conduct of gaming outside this state.
2. “Licensee” means a person who:
(a) Is licensed or required to be licensed pursuant to NRS 463.160, 463.162,
463.167 or 463.650;
(b) Is or is required to be licensed, registered or found suitable pursuant to NRS
463.482 to 463.645, inclusive; or
(c) Directly or through one or more intermediaries controls, is controlled by or is
under common control with a person described in paragraph (a) or (b).
NRS 463.700 Application for approval; investigations; revolving fund for expenses of
investigation.
1. A licensee who proposes to participate in foreign gaming shall, no later than
30 days after the licensee executes a definitive agreement pertaining to the
proposed participation in foreign gaming or files an application for licensing or
related approval pertaining to the proposed participation, whichever is earlier,
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deposit with the Board and thereafter maintain a refundable revolving fund in the
amount of $10,000 to pay the expenses of investigation by the Board of the
licensee’s participation in foreign gaming. The Commission may in a particular case
increase or decrease the required amount of the revolving fund, but the Board or
Commission shall not require a licensee to establish more than one such revolving
fund. Upon the licensee’s termination of all proposed and actual participation in
foreign gaming, the Board shall refund the remaining balance in the licensee’s
revolving fund.
2. Before participating in foreign gaming, a licensee shall provide to the Board
such information pertaining to the licensee’s proposed participation as the Board
may request.
NRS 463.710 Documents, reports and other information required to be filed with
Board.
Unless otherwise ordered by the Board or Commission, a licensee who participates
in foreign gaming shall file with the Board:
1. As soon as participation in foreign gaming begins:
(a) All documents filed by the licensee or by an affiliate with the foreign
jurisdiction; and
(b) The systems of accounting and internal control utilized in the foreign gaming
operation and any amendments to the systems as soon as made.
2. Annual operational and regulatory reports describing compliance with
regulations, procedures for audit, and procedures for surveillance relating to the
foreign gaming operation.
3. Quarterly reports regarding any of the following information which is within
the knowledge of the licensee:
(a) Any changes in ownership or control of any interest in the foreign gaming
operation;
(b) Any changes in officers, directors or key employees of the foreign gaming
operation;
(c) All complaints, disputes, orders to show cause and disciplinary actions,
related to gaming, instituted or presided over by an entity of the United States, a
state or any other governmental jurisdiction concerning the foreign gaming
operation;
(d) Any arrest of an employee of the foreign gaming operation involving cheating
or theft, related to gaming, in the foreign jurisdiction; and
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(e) Any arrest or conviction of an officer, director, key employee or owner of
equity in the foreign gaming operation for an offense that would constitute a gross
misdemeanor or felony in this state.
4. Such other information as the Commission requires by regulation.
NRS 463.715 Finding of suitability of certain activities or associations of licensee.
1. If the Board determines that an actual or intended activity or association of a
licensee in a foreign gaming operation may be prohibited pursuant to subsection 3
of NRS 463.720, the Board may require the licensee to file an application for a
finding of suitability to be made by the Commission concerning the activity or
association. Except as otherwise provided in subsection 2, the licensee shall file the
application for a finding of suitability within 30 days after receiving the request
from the Board unless the Chair of the Board grants an extension of time.
2. In lieu of filing an application for a finding of suitability pursuant to subsection
1, a licensee may, within 30 days after receiving a request from the Board pursuant
to subsection 1, petition the Commission to review the request and determine
whether the licensee is required to file the application.
3. A licensee may, without a request from the Board, file an application for a
finding of suitability concerning the licensee’s actual or intended activity or
association in a foreign gaming operation.
4. If the Commission finds that:
(a) An intended activity or association of a licensee in a foreign gaming operation
is unsuitable pursuant to subsection 3 of NRS 463.720, the licensee shall not engage
in the activity or enter into the association.
(b) An activity or association of a licensee in a foreign gaming operation is
prohibited pursuant to subsection 3 of NRS 463.720, the licensee shall terminate the
activity or association within the time prescribed by the Commission.
5. An application for a finding of suitability filed pursuant to this section is
subject to the same procedures and standards as any other application for a finding
of suitability filed pursuant to this chapter.
NRS 463.720 Prohibited practices.
A licensee shall not, in a foreign gaming operation, knowingly:
1. Violate a foreign, federal, tribal, state, county, city or township law, regulation,
ordinance or rule, or any equivalent thereof, concerning the conduct of gaming;
2. Fail to conduct the operation in accordance with the standards of honesty and
integrity required for gaming in this state;
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3. Engage in an activity or enter into an association that is unsuitable for a
licensee because it:
(a) Poses an unreasonable threat to the control of gaming in this state;
(b) Reflects or tends to reflect discredit or disrepute upon this state or gaming in
this state; or
(c) Is contrary to the public policy of this state concerning gaming;
4. Engage in an activity or enter into an association that interferes with the
ability of this state to collect all license fees imposed by this chapter; or
5. Employ, contract with or associate with a person whom the Commission or a
court in this state has found guilty of cheating or to whom the Commission has
denied a gaming license, or finding of suitability, on the ground of unsuitability.
Interactive Gaming
NRS 463.750 License required for person to operate interactive gaming or to
manufacture interactive gaming systems; powers and duties of Commission;
regulations; conditions; limitations; penalty.
1. Except as otherwise provided in subsections 2 and 3, the Commission may,
with the advice and assistance of the Board, adopt regulations governing the
licensing and operation of interactive gaming.
2. The Commission may not adopt regulations governing the licensing and
operation of interactive gaming until the Commission first determines that:
(a) Interactive gaming can be operated in compliance with all applicable laws;
(b) Interactive gaming systems are secure and reliable, and provide reasonable
assurance that players will be of lawful age and communicating only from
jurisdictions where it is lawful to make such communications; and
(c) Such regulations are consistent with the public policy of the State to foster the
stability and success of gaming.
3. The regulations adopted by the Commission pursuant to this section must:
(a) Establish the investigation fees for:
(1) A license to operate interactive gaming;
(2) A license for a manufacturer of interactive gaming systems; and
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(3) A license for a manufacturer of equipment associated with interactive
gaming.
(b) Provide that:
(1) A person must hold a license for a manufacturer of interactive gaming
systems to supply or provide any interactive gaming system, including, without
limitation, any piece of proprietary software or hardware; and
(2) A person may be required by the Commission to hold a license for a
manufacturer of equipment associated with interactive gaming.
(c) Set forth standards for the suitability of a person to be licensed as a
manufacturer of interactive gaming systems or manufacturer of equipment
associated with interactive gaming that are as stringent as the standards for a
nonrestricted license.
(d) Provide that gross revenue received by an establishment from the operation
of interactive gaming is subject to the same license fee provisions of NRS 463.370 as
the games and gaming devices of the establishment.
(e) Set forth standards for the location and security of the computer system and
for approval of hardware and software used in connection with interactive gaming.
(f) Define “equipment associated with interactive gaming,” “interactive gaming
system,” “manufacturer of equipment associated with interactive gaming,”
“manufacturer of interactive gaming systems,” “operate interactive gaming” and
“proprietary hardware and software” as the terms are used in this chapter.
4. Except as otherwise provided in subsection 5, the Commission shall not
approve a license for an establishment to operate interactive gaming unless:
(a) In a county whose population is 400,000 or more, the establishment is a
resort hotel that holds a nonrestricted license to operate games and gaming devices.
(b) In a county whose population is more than 40,000 but less than 400,000, the
establishment is a resort hotel that holds a nonrestricted license to operate games
and gaming devices or the establishment:
(1) Holds a nonrestricted license for the operation of games and gaming
devices;
(2) Has more than 120 rooms available for sleeping accommodations in the
same county;
(3) Has at least one bar with permanent seating capacity for more than 30
patrons that serves alcoholic beverages sold by the drink for consumption on the
premises;
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(4) Has at least one restaurant with permanent seating capacity for more than
60 patrons that is open to the public 24 hours each day and 7 days each week; and
(5) Has a gaming area that is at least 18,000 square feet in area with at least
1,600 slot machines, 40 table games, and a sports book and race pool.
(c) In all other counties, the establishment is a resort hotel that holds a
nonrestricted license to operate games and gaming devices or the establishment:
(1) Has held a nonrestricted license for the operation of games and gaming
devices for at least 5 years before the date of its application for a license to operate
interactive gaming;
(2) Meets the definition of group 1 licensee as set forth in the regulations of
the Commission on the date of its application for a license to operate interactive
gaming; and
(3) Operates either:
(I) More than 50 rooms for sleeping accommodations in connection
therewith; or
(II) More than 50 gaming devices in connection therewith.
5. The Commission may:
(a) Issue a license to operate interactive gaming to an affiliate of an
establishment if:
(1) The establishment satisfies the applicable requirements set forth in
subsection 4; and
(2) The affiliate is located in the same county as the establishment; and
(b) Require an affiliate that receives a license pursuant to this subsection to
comply with any applicable provision of this chapter.
6. It is unlawful for any person, either as owner, lessee or employee, whether for
hire or not, either solely or in conjunction with others, to operate interactive
gaming:
(a) Until the Commission adopts regulations pursuant to this section; and
(b) Unless the person first procures, and thereafter maintains in effect, all
appropriate licenses as required by the regulations adopted by the Commission
pursuant to this section.
7. A person who violates subsection 6 is guilty of a category B felony and shall be
punished by imprisonment in the state prison for a minimum term of not less than 1
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year and a maximum term of not more than 10 years or by a fine of not more than
$50,000, or both.
NRS 463.755 Commission may require license for manufacturer and others selling,
transferring or offering equipment associated with interactive gaming.
1. Upon the recommendation of the Board, the Commission may require:
(a) A manufacturer of equipment associated with interactive gaming who sells,
transfers or offers equipment associated with interactive gaming for use or play in
this state to file an application for a license to be a manufacturer of equipment
associated with interactive gaming.
(b) A person who directly or indirectly is involved in the sale, transfer or offering
for use or play in this state of equipment associated with interactive gaming who is
not otherwise required to be licensed as a manufacturer or distributor pursuant to
this chapter to file an application for a license to be a manufacturer of equipment
2. If a person fails to submit an application for a license to be a manufacturer of
equipment associated with interactive gaming within 30 days after a demand by the
Commission pursuant to this section, the Commission may pursue any remedy or
combination of remedies provided in this chapter.
NRS 463.760 Initial license fee for manufacturers; renewal fee.
1. Before issuing a license for a manufacturer of interactive gaming systems or
manufacturer of equipment associated with interactive gaming, the Commission
shall charge and collect a license fee of:
(a) One hundred and twenty-five thousand dollars for a license for a
manufacturer of interactive gaming systems; or
(b) Fifty thousand dollars for a license for a manufacturer of equipment
2. Each license issued pursuant to this section must be issued for a 1-year period
that begins on the date the license is issued.
3. Before renewing a license issued pursuant to this section, but in no case later
than 1 year after the license was issued or previously renewed, the Commission
shall charge and collect a renewal fee for the renewal of the license for the
immediately following 1-year period. The renewal fee for a license for a
manufacturer of interactive gaming systems or manufacturer of equipment
associated with interactive gaming is $25,000.
NRS 463.765 Initial license fee to operate interactive gaming; renewal fee.
1. Before issuing an initial license for an establishment to operate interactive
gaming, the Commission shall charge and collect from the establishment a license
fee of $500,000.
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2. Each initial license for an establishment to operate interactive gaming must be
issued for a 2-year period beginning on January 1 of the first year and ending on
December 31 of the second year.
3. Notwithstanding the provisions of subsections 1 and 2 to the contrary, a
license for an establishment to operate interactive gaming may be issued after
January 1 of a calendar year for a period beginning on the date of issuance of the
license and ending on the second December 31 following the date of issuance of the
license. Before issuing an initial license pursuant to this subsection, the Commission
shall charge and collect from the establishment a license fee of $500,000 prorated
by 1/24 for each full month between January 1 of the calendar year and the date of
issuance of the license.
4. Before renewing a license issued pursuant to this section, but in no case later
than the second December 31 after the license was issued or previously renewed,
the Commission shall charge and collect a renewal fee of $250,000 for the renewal
of the license for the immediately following 1-year period.
NRS 463.770 Monthly license fee based on gross revenue from operating interactive
gaming; liability of manufacturer entitled to share revenue from interactive gaming
system.
1. All gross revenue from operating interactive gaming received by an
establishment licensed to operate interactive gaming, regardless of whether any
portion of the revenue is shared with another person, must be attributed to the
licensee and counted as part of the gross revenue of the licensee for the purpose of
computing the license fee required by NRS 463.370.
2. A manufacturer of interactive gaming systems who is authorized by an
agreement to receive a share of the revenue from an interactive gaming system from
an establishment licensed to operate interactive gaming is liable to the
establishment for a portion of the license fee paid pursuant to subsection 1. The
portion for which the manufacturer of interactive gaming systems is liable is 6.75
percent of the amount of revenue to which the manufacturer of interactive gaming
systems is entitled pursuant to the agreement.
3. For the purposes of subsection 2, the amount of revenue to which the
manufacturer of interactive gaming systems is entitled pursuant to an agreement to
share the revenue from an interactive gaming system:
(a) Includes all revenue of the manufacturer of interactive gaming systems that is
the manufacturer of interactive gaming systems’ share of the revenue from the
interactive gaming system pursuant to the agreement; and
(b) Does not include revenue that is the fixed purchase price for the sale of a
component of the interactive gaming system.
NRS 463.775 Exemptions from certain fees and taxes.
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The operation of interactive gaming is exempt from the fees and taxes imposed
pursuant to NRS 463.375, 463.380, 463.383 and 463.385.
NRS 463.780 Enforceability of interactive gaming debts.
A debt incurred by a patron for play at an interactive gaming system of an
establishment licensed to operate interactive gaming is valid and may be enforced
by legal process.
Nevada Criminal Gaming Statutes
TRANSACTION OF WAGERS THROUGH MEDIUMS OF COMMUNICATION
NRS 465.091 “Medium of communication” defined.
As used in NRS 465.091 to 465.094, inclusive, unless the context otherwise requires,
“medium of communication” includes, but is not limited to, mail, telephone,
television, telegraph, facsimile, cable, wire, the Internet or any other similar medium.
NRS 465.092 Accepting, receiving or allowing another to accept or receive wager from
person physically present in this state prohibited under certain circumstances; penalty.
1. Except as otherwise provided in NRS 465.094, a person, alone or with others,
shall not knowingly, within or outside of this state:
(a) Accept or receive, directly or indirectly, through any medium of
communication a wager from another person who is physically present within this
state; or
(b) Allow a lessee, agent or employee to accept or receive, directly or indirectly,
through any medium of communication a wager from another person who is
physically present within this state.
2. If a person engages in conduct in violation of subsection 1 and the person is
outside of this state at the time of the offense:
(a) The offense shall be deemed to commence outside of this state;
(b) The offense shall be deemed to be consummated within this state; and
(c) The person may be prosecuted within this state pursuant to the provisions of
NRS 171.015.
3. A person who violates the provisions of this section is guilty of a misdemeanor.
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NRS 465.093 Placing, sending, transmitting or relaying wagers to another person
prohibited under certain circumstances; penalty.
1. Except as otherwise provided in NRS 465.094, a person, alone or with others,
shall not knowingly:
(a) From within this state, place, send, transmit or relay through a medium of
communication a wager to another person or an establishment that is located
within or outside of this state; or
(b) From outside of this state, place, send, transmit or relay through a medium of
communication a wager to another person or an establishment that is located
within this state.
2. A person who violates the provisions of this section is guilty of a misdemeanor.
NRS 465.094 Limitation on applicability of NRS 465.092 and 465.093.
The provisions of NRS 465.092 and 465.093 do not apply to a wager placed by a
person for the person’s own benefit or, without compensation, for the benefit of
another that is accepted or received by, placed with, or sent, transmitted or relayed
to:
1. A race book or sports pool that is licensed pursuant to chapter 463 of NRS, if
the wager is accepted or received within this State and otherwise complies with all
other applicable laws and regulations concerning wagering;
2. A person who is licensed to engage in off-track pari-mutuel wagering pursuant
to chapter 464 of NRS, if the wager is accepted or received within this State and
otherwise complies with subsection 3 of NRS 464.020 and all other applicable laws
and regulations concerning wagering;
3. A person who is licensed to operate a mobile gaming system pursuant to
chapter 463 of NRS, if the wager is accepted or received within this State and
otherwise complies with all other applicable laws and regulations concerning
wagering; or
4. Any other person or establishment that is licensed to engage in wagering
pursuant to title 41 of NRS, if the wager is accepted or received within this State and
otherwise complies with all other applicable laws and regulations concerning
wagering.
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Appendix B – Indictments, Press Releases & Letters
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PokerStars, Full Tilt Poker & Absolute Poker Indictment
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May 2011 - Indictment Press Release of 10 Sites
FOR FURTHER INFORMATION CONTACT
AUSA VICKIE E. LEDUC or
MARCIA MURPHY at 410-209-4885
May 23, 2011
FOR IMMEDIATE RELEASE
http://www.usdoj.gov/usao/md
OPERATORS OF INTERNET GAMBLING SITES AND THEIR BUSINESSES
INDICTED FOR RUNNING AN ILLEGAL GAMBLING BUSINESS AND MONEY
LAUNDERING
Bank Accounts and Domain Names for Internet Gambling Sites
Seized
Baltimore Maryland - A federal grand jury has returned
indictments charging two gambling businesses and three
defendants with conducting an illegal gambling business and
money laundering. The two indictments were returned on
April 26, 2011 and unsealed today. As part of the
investigation, 11 bank accounts located in Charlotte, North
Carolina; Guam; Panama; Malta; Portugal; and the
Netherlands; and domain names associated with 10 internet
gambling sites were also seized today.
The following internet domain names were seized pursuant to
court order:
Bookmaker.com
2Betsdi.com
Funtimebingo.com
Goldenarchcasino.com
Truepoker.com
Betmaker.com
Betgrandesports.com
Doylesroom.com
Betehorse.com
Beted.com.
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Anyone who tries to access those web sites will be directed
instead to a banner that provides notice that the domain
name has been seized by order of the court. The banners are
expected to be posted later today.
ThrillX Systems, Ltd., d/b/a BetEd; Darren Wright; and
David Parchomchuk, both of British Columbia, Canada are
charged in one indictment. K23 Group Financial Services,
d/b/a BMX Entertainment; and Ann Marie Puig, age 35, of San
Jose, Costa Rica are charged in a second indictment.
The indictments and seizures were announced by United
States Attorney for the District of Maryland Rod J.
Rosenstein; Special Agent in Charge William Winter of U.S.
Immigration and Customs Enforcement, Homeland Security
Investigations; Special Agent in Charge Rebecca Sparkman of
the Internal Revenue Service - Criminal Investigation,
Washington, D.C. Field Office; Anne Arundel County Police
Chief James Teare, Sr.; and Colonel Terrence Sheridan,
Superintendent of the Maryland State Police.
“It is illegal for internet gambling enterprises to do
business in Maryland, regardless of where the website
operator is located,” said U.S. Attorney Rod J. Rosenstein.
“We cannot allow foreign website operators to flout the law
simply because their headquarters are based outside the
country.”
“These indictments are the direct result of impressive
undercover investigative work by our agents, along with the
close collaboration of our law enforcement partners here in
Maryland,” said William Winter, Special Agent in Charge of
ICE’s Homeland Security Investigations (HSI) in Baltimore.
“The proceeds from illegal Internet gambling are often used
to fuel organized crime and support criminal activity. ICE
HSI will work diligently to uncover illicit transactions
involving these types of financial crimes. Together, with
our law enforcement partners, we will disrupt and dismantle
organizations that commit these crimes, regardless of their
location, whether here in the United States or abroad."
“Internet gambling, along with other types of illegal ecommerce, is an area of great interest to IRS Criminal
Investigation,” said IRS Special Agent in Charge Rebecca A.
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Sparkman. “Laundering money from illegal activity such as
illegal internet gambling is a crime. Regardless of how the
money changes hands - via cash, check, wire transfers or
credit cards - and regardless of where the money is stored
- in a United States financial institution or an offshore
bank - we will trace the funds. IRS Criminal Investigation
will vigorously investigate and recommend prosecution
against the owners and operators of these illegal
enterprises to the fullest extent possible.”
According to the two count indictments and the affidavit
filed in support of the seizure warrants, ThrillX, a
registered company in British Columbia, Canada, with
offices in Vancouver, Canada and San Jose, Costa Rica, is a
software solutions provider producing online sports book
and casino software. BMX Entertainment, based in Limassol,
Cyprus, operates six websites that offer online sports
betting services.
The indictments allege that the defendants own and manage
illegal gambling businesses involving online sports
betting. The affidavit alleges that online gambling sites
are run by companies located outside of the U.S., while the
majority of customers are in the U.S. Internet gambling
operators rely upon the U.S. banking system, and more
specifically, money-processing business generally called
“payment processors,” to facilitate the movement of funds
to and from their customers, the gamblers. Typically, an
internet gambling operator directs the payment processor to
collect funds from individual gamblers which are used to
wager with the gambling organization. Those gambling
proceeds are transferred to an offshore foreign bank. The
internet gambling operator then sends a check or wire
transfer from an offshore bank to the payment processor,
directing the payment processor to distribute the money to
gamblers for their winnings.
The affidavit filed in support of the seizure warrants
alleges that Homeland Security Investigations in Baltimore,
Maryland opened an undercover payment processor business,
called Linwood Payment Solutions. Linwood allowed
undercover agents to gain person-to-person contact with top
managers of gambling organizations to discuss the Internet
gambling business, to negotiate contracts and terms of the
processing, and to handle the intricate movement and
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processing of collection and payment data from the gambling
organizations to the banks.
The affidavit alleges that on November 12, 2009, a
Maryland-based online gambler and cooperating informant
confirmed that he/she frequented gambling sites, opened
accounts and gambled in Maryland. The gambler agreed to set
up online gambling accounts and was provided $500 to place
bets on gambling websites. The gambler created an account
on a BetEd website and placed several bets. On March 30,
2010, BetEd used Linwood to wire transfer $100 in winnings
to the gambler’s bank account.
Linwood allegedly processed gambling transactions since
2009 for BetEd, K23 and other gambling organizations using
banks located in Guam and Charlotte, North Carolina.
According to the affidavit, between December 2009 and
January 2011, Linwood processed over 300,000 transactions
worth more than $33 million, including transactions for
individuals in Maryland. Between February 2010 and March
2011 alone, BetEd directed Linwood to wire transfer over
$2.5 million of collected gambling proceeds to bank
accounts in Panama; and between February 2011 and April
2011, K23 directed Linwood to wire transfer over $91,000 of
gambling proceeds to bank accounts in Portugal and Malta.
The indictments and affidavit seek the forfeiture of the
bank accounts used to process the gambling transactions, as
well as domain names of websites used by the defendants to
further the online gambling transactions.
The defendants face a maximum sentence of five years in
prison for operating an illegal gambling business and a
maximum of 20 years in prison for money laundering. No
court appearance has been scheduled.
An indictment is not a finding of guilt. An individual
charged by indictment is presumed innocent unless and until
proven guilty at some later criminal proceedings.
United States Attorney Rod J. Rosenstein praised the agents
from ICE-Homeland Security Investigations in Baltimore, Los
Angeles, New Orleans and Philadelphia; IRS-Criminal
Investigation; the Anne Arundel County Police Department;
and the Maryland State Police for their work in the
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investigation. Mr. Rosenstein thanked Assistant United
States Attorney Richard C. Kay, who is prosecuting the
case.
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July 14, 2011 - Reid/Kyl Letter
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2002 DOJ Letter Regarding Interactive Gaming
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Appendix C – Court Opinion Source Materials
U.S. v. Lombardo
639 F.Supp.2d 1271
UNITED STATES of America, Plaintiff,
v.
Baron LOMBARDO, et al., Defendants.
Case No. 2:07-CR-286 TS.
United States District Court, D. Utah, Central Division.
December 13, 2007.
Page 1272
COPYRIGHT MATERIAL OMITTED
Page 1273
COPYRIGHT MATERIAL OMITTED
Page 1274
D. Gilbert Athay, Loni F. Deland, Mark R. Gaylord, Ballard Spahr Andrews &
Ingersoll, G. Fred Metos, Jeremy M. Delicino, David V. Finlayson, Scott C. Williams, Scott
C Williams LLC, Vanessa M. Ramos, Utah Federal Defender Office, Salt Lake City, UT,
Christopher Mathews, Fred D. Gibson, III Lionel Sawyer & Collins, Las Vegas, NV,
Michael Pancer, San Diego, CA, for Defendants.
D. Loren Washburn, Richard W. Daynes, U.S. Attorney's Office, Salt Lake City, UT,
Marty Woelfle, U.S. Department of Justice, Washington, DC, for Plaintiff.
MEMORANDUM DECISION AND ORDER DENYING DEFENDANTS' MOTIONS TO
DISMISS
TED STEWART, District Judge.
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On May 9, 2007, a grand jury returned a thirty-four count Indictment charging
Defendants with conspiring in violation of the
Page 1275
Racketeer Influenced and Corrupt Organizations Act ("RICO"), committing bank fraud,
transmitting wagering information in violation of the Wire Act,1 and laundering
money. Currently before the Court are Defendants' motions to dismiss2 the Indictment,
each styled as follows: (1) Motion to Dismiss Wire Act Counts (Counts 16-19)3 (the
"Wire Act Motion"); (2) Motion to Dismiss Count One (RICO Conspiracy)4 (the "RICO
Motion"); and (3) Motion to Dismiss Based on Treaty Obligations and Domestic and
International Law (Counts 1, 16-19)5 (the "GATS Motion"). The Wire Act Motion and
the RICO Motion are challenges to the sufficiency of the allegations in the Indictment.
The GATS Motion asserts that the prosecution of Defendants in this case violates the
obligations of the United States under the General Agreement on Trade in Services
("GATS").
The Court heard oral argument regarding the matters on November 29, 2007.
Having taken the matters under advisement, the Court now denies each of the motions
to dismiss for the reasons set forth below.
I. THE INDICTMENT
As two of the motions to dismiss challenge the sufficiency of the Indictment, the
Court begins with a detailed summary of the conduct alleged therein: The charges in
the Indictment arise from an alleged criminal "Enterprise" created for the purpose of
providing transaction processing services to illegal gambling websites. The Enterprise
consisted of individual defendants Baron Lombardo, Richard Carson-Selman, Henry
Bankey, Tina Hill, Count Lombardo, Frank Lombardo, and Kimberlie Lombardo, as well
as entity defendants CurrenC Worldwide, LTD, Gateway Technologies, LLC, Hill
Financial Services, Inc., and BETUS. Through the various entities, the Enterprise
maintained a website called the "Gateway," which it used to facilitate payments made
by bettors to various gambling websites. When bettors wished to gamble at one of the
gambling websites serviced by the Enterprise, their payment information was
forwarded by the gambling site to the Gateway for processing.
When a bettor opted to pay using a Visa or MasterCard credit card, the Gateway
processed the bettor's credit card payment information by mis-classifying the charge
in order to hide its gambling nature, thus duping banks into disbursing funds. The
Enterprise paid money to at least one bank employee to ensure that mis-coded credit
card charges were processed and paid.
When a bettor selected the "Western Union" payment option, he or she was
instructed by the Enterprise to wire funds to a Western Union office in the Philippines
where an agent of the Enterprise collected and then deposited the funds into bank
accounts held by the Enterprise. The Enterprise then notified the referring website
that the money had been received and the bettor was allowed by the website to
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gamble.
Gambling website operators were provided with constant access to information
regarding the status of credit card payments and wire transfers via the Gateway.
Money was held by the Enterprise in foreign banks and was transferred to the United
States through payments to accounts,
Page 1276
entities, and individuals associated with the Enterprise. Some of the funds were also
reposed in various trusts created by the Enterprise. The Enterprise charged the
gambling website operators substantial per-transaction fees on all credit card
payments and wire transfers processed through the Gateway, thus enriching the
Enterprise.
Each of the Defendants played a role in the operations of the Enterprise. Baron
Lombardo, Henry Bankey, and Richard Carson-Selman created a company by the name
of CurrenC Worldwide, LTD, through which the Enterprise conducted much of the
payment processing. Baron Lombardo controlled the movement of gambling funds
through credit card transactions via Gateway Technologies, which operated and
maintained the Gateway website. Richard Carson-Selman was responsible for selling
the payment processing services to gambling websites. Tina Hill created Hill Financial
to provide the accounting services necessary to move and track the gambling funds.
Henry Bankey supervised the creation of this accounting system. Count Lombardo
managed and maintained the equipment on which the Gateway website was operated.
Kimberlie and Frank Lombardo managed the system through which the Western
Union wire transfers were processed.
The objects of the conspiracy were as follows: "to make money illegally by helping
Internet gambling [websites] conduct their illegal business"; "to transfer the proceeds
of its illegal operations into and out of the United States; to conceal its operations from
the legitimate credit card companies, banks and wire transfer services it used; to
conceal its operations from law enforcement agencies; and to evade the payment of
federal taxes due to the United States from the [c]onspirators, their employees and
agents."6
Count 1 of the Indictment also specifically alleges that "no later than 2000,"
Defendants knowingly and intentionally conspired to participate in and conduct the
affairs of the Enterprise, affecting interstate and foreign commerce, through a pattern
of racketeering activity consisting of violations of the following: Georgia Code Ann §
16-12-22, 28; 720 Ill. Comp. Stat. 5/28-1.1; Mo.Rev.Stat. § 572.030; 18 U.S.C. § 1084;
18 U.S.C. § 1344; and 18 U.S.C. § 1956. As part of the conspiracy, each of the
Defendants agreed to commit at least two acts of racketeering activity. The Indictment
also alleges multiple transmissions or money wires as overt acts.
The Indictment further charges Defendants with four counts of violating the Wire
Act (Counts 16-19) by using a wire communication facility "for the transmission in
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interstate or foreign commerce ... [of] information assisting in the placing of bets and
wagers on sporting events and contests, and a wire communication which entitled the
recipient to receive money and credit as a result of bets and wagers, and information
assisting in the placing of bets and wagers," as per the statutory language of 18 U.S.C. §
1084(a).7 The Indictment alleges that Defendants did these acts "in the course of
aiding and abetting individuals engaged in the business of betting and wagering."8
Paragraph 38 alleges four specific transmissions, each corresponding to a count in the
Indictment, including their respective dates of transmission and places of origin and
destination.
Although not relevant to the pending motions, the Indictment also sets forth
charges of bank fraud and money laundering.
Page 1277
II. SUFFICIENCY OF THE INDICTMENT
The Wire Act Motion and the RICO Motion challenge the sufficiency of the
allegations in the Indictment concerning the alleged violations of the Wire Act and the
alleged RICO conspiracy. Federal Rule of Criminal Procedure 7(c)(1) requires that the
Indictment "be a plain, concise, and definite written statement of the essential facts
constituting the offense charged." This standard "embodies" the Tenth Circuit test for
reviewing the sufficiency of an indictment:9 "An indictment is sufficient if it sets forth
the elements of the offense charged, puts the defendant on fair notice of the charges
against which he must defend, and enables the defendant to assert a double jeopardy
defense."10 The sufficiency test is based solely on the allegations contained in the
Indictment, each of which are assumed to be true.11 "An indictment need only meet
minimal constitutional standards, and [the court] determine[s] the sufficiency of an
indictment by practical rather than technical considerations."12
"An indictment that sets forth the words of the statute generally is sufficient so
long as the statute itself adequately states the elements of the offense."13 However,
"[w]here guilt depends so crucially upon ... a specific identification of fact ... an
indictment must do more than simply repeat the language of the criminal statute."14
Thus, the Supreme Court required an indictment for the offense of refusing to answer
"any question pertinent to the subject under inquiry" before a committee or
subcommittee of Congress to include a specific allegation regarding the subject under
inquiry.15 Yet, where the allegations set forth the statutory elements of an obscenity
charge, implicitly carrying with it a legal definition, specific factual averments were
unnecessary.16
A. The Wire Act Motion
In the Wire Act Motion, Defendants ask the Court to dismiss on sufficiency
grounds Counts 16-19 of the Indictment, which charge them with violating 18 U.S.C. §
1084(a). Section 1084(a) of the Wire Act punishes the transmission of certain wagers
and information related thereto as follows:
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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.17
Page 1278
Section 1084(b) makes two notable exceptions to this prohibition:
Nothing in this section shall be construed to prevent the transmission in interstate or
foreign commerce of information for use in news reporting of sporting events or
contests, or for the transmission of information assisting in the placing of bets or
wagers on a sporting event or contest from a State or foreign country where betting on
that sporting event or contest is legal into a State or foreign country in which such
betting is legal.18
In order to prove a § 1084(a) violation, the government must show that (1) "the
defendant regularly devoted time, attention and labor to betting or wagering for
profit," (2) "the defendant used a wire communication facility: (a) to place bets or
wagers on any sporting event or contest; or (b) to provide information to assist with
the placing of bets or wagers; or (c) to inform someone that he or she had won a bet or
wager and was entitled to payment or credit," and (3) "the transmission was made
from one state to another state or foreign country."19
Defendants challenge the sufficiency of the Wire Act allegations solely with respect
to the second element above, arguing as follows: (1) that § 1084 reaches wire
communications concerning betting or wagering on sporting events or contests only,
and not on other games of chance such as those employed by online casinos; (2) that
the language regarding the use of wire communications for "information assisting in
the placing of bets or wagers" prohibits only those communications that lead to the
placement of an actual bet or wager; and (3) that the language concerning
communications that "entitle[ ] the recipient to receive money or credit as a result of
bets or wagers" does not prohibit communications that merely discuss or request a
transfer of money or credit. From these contentions, Defendants argue that the
Indictment fails to allege a violation of the Wire Act because the government did not
set forth specific facts regarding bets or wagers actually placed on sporting events or
contests or a specific communication entitling a recipient to the payment of money or
credit from such bets or wagers.
Defendants also argue that the allegations in the Indictment are unconstitutionally
vague, failing to provide them with meaningful notice as to the charges against them in
violation of the Sixth Amendment. However, as the Tenth Circuit analysis regarding
the sufficiency of an indictment encompasses both the Rule 7(c)(1) test and the
constitutional requirements, the Court will analyze Defendants' constitutional
concerns within this framework, as outlined above.
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Sporting Events or Contests
First, Defendants assert that the Wire Act applies to wire communications related
to betting or wagering on sporting events or contests alone. The Wire Act was enacted
in 1961, long before the rise of the Internet as a potential marketplace for gambling.
Most prosecutions under § 1084(a) have involved the practice of bookmaking, or
taking bets on sporting events over the telephone. The advent of the Internet has
resulted in the availability of casino-like gambling online, squarely presenting the
question of whether § 1084(a) applies to wire communications related to this type of
gambling. Very few courts have directly considered this question.
Page 1279
Before engaging in analysis of this issue, the Court notes that even if § 1084(a)
does not reach bets or wagers unrelated to sports, Counts 16-19 would not need to be
dismissed in their entirety, but only insofar as the alleged wire communications relate
to non-sports betting or wagering.20 Paragraph 38 of the Indictment alleges that
Defendants
did knowingly use and cause the use of a wire communication facility, for the
transmission ... [of] information assisting in the placing of bets and wagers on sporting
events and contests, and a wire communication which entitled the recipient to receive
money and credit as a result of bets and wagers, and "information assisting in the
placing of bets and wagers."
Notably, the Indictment does not allege the transmission of actual bets or wagers
on sporting events or contests, but rather the transmission of "information assisting in
the placing of bets and wagers on sporting events and contests."
By tracking the language of the Statute and specifically including the term
"sporting events," the Indictment adequately alleges a violation of § 1084(a) based on
the transmission of communications related to bets or wagers on a sporting event or
contest. If the language of the statute is interpreted as applying to communications
related to bets or wagers on sporting events or contests alone, the inclusion in the
Indictment of the language of the statute would signal the same. Moreover, the
indictment specifically uses the "sporting event" language to allege this element of the
offense. The statutory language and the specific wire communications, including the
dates and points of origin and destination of their transmission, alleged in Paragraph
38 give Defendants adequate notice that they must defend a charge of violating the
Wire Act based solely on the specified transmissions. Likewise, these allegations
would clearly form the basis upon which Defendants could assert a double jeopardy
defense in a future prosecution based on the listed transmissions.
Thus, the Indictment sufficiently alleges a violation of the Wire Act stemming from
the transmission of wire communications related to sports betting. Nonetheless, the
Court deems it appropriate, both for purposes of the Wire Act Motion and in
anticipation of trial, to decide now whether § 1084(a) applies to wire communications
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related to non-sports bets or wagers.
The Fifth Circuit has determined that § 1084(a) only prohibits transmissions
related to bets or wagers on sporting events or contests.21 In the case of In re
MasterCard International Inc., Internet Gambling Litigation, the United States District
Court for the Eastern District of Louisiana considered a civil RICO claim against several
credit card companies and issuing banks, alleging, among other predicate acts, that the
credit card companies violated the Wire Act by allowing the use of credit cards to fund
gambling transactions at gambling websites.22 The plaintiffs had collectively lost
thousands of dollars by gambling at online gambling websites using their credit
cards.23 The court rejected the plaintiffs' assertion that the Wire Act "does not require
sporting events or contests to be the object of gambling" based on the court's "plain
reading of the statutory language," highlighting that both the rule in § 1084(a) and the
exceptions in
Page 1280
§ 1084(b) "expressly qualify the nature of the gambling activity as that related to a
`sporting event or contest.'"24 Several cases were cited by the court for the
proposition that "[a] reading of the caselaw leads to the same conclusion," which
opinions seem to assume that § 1084(a) applies only to sports betting, although they
did not specifically address whether it could be applied to communications related to
non-sports betting.25 The court also relied on then-pending legislation that would
have modified the Wire Act to reach forms of gambling unrelated to sports, finding
that the perceived need to amend the Wire Act's language to cover such gambling was
indicative of its absence in the statute's current form.26 Lastly, the court pointed to a
floor statement offered by the House Judiciary Committee Chairman regarding the
Wire Act: "this particular bill involves the transmission of wagers or bets and layoffs
on horse racing and other sporting events."27
A Fifth Circuit panel summarily affirmed the district court's analysis, stating only
that it "agree[d] with the district court's statutory interpretation, its reading of the
relevant case law, its summary of the relevant legislative history, and its
conclusion."28 Interestingly, the court noted that the civil plaintiffs in the MasterCard
case, who were essentially seeking to avoid their gambling debts, were not exactly
sympathetic and should not be allowed "to avoid meeting obligations they voluntarily
took on" as "they got exactly what they bargained for."29
At least one court has determined that § 1084(a) applies to wire communications
related to online gambling in the form of "virtual slots, blackjack, or roulette."30 In
New York v. World Interactive Gaming Corporation, the Attorney General of New York
sought, among other things, to enjoin an online casino based in Antigua from "running
any aspect of their Internet gambling business within the State of New York."31 The
action was brought pursuant to a New York law allowing "the Attorney General to
bring a special proceeding against a person or business committing repeated or
persistent fraudulent or illegal acts" under either New York or Federal law.32 The
Wire Act was among the federal laws of which the casino was accused of violating.
Without directly considering the "sporting event or contest" language of § 1084(a), the
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court held that "[b]y hosting this casino and exchanging betting information with the
user, an illegal communication in violation of the Wire Act ... has occurred."33 In so
doing the court pointed to legislative history found in the House Report concerning the
Wire Act which states:
The purpose of the bill is to assist various States and the District of Columbia in the
enforcement of their laws pertaining to gambling, bookmaking, and like
Page 1281
offenses and to aid in the suppression of organized gambling activities by prohibiting
the use of wire communication facilities which are or will be used for the transmission
of bets or wagers and gambling information in interstate and foreign commerce.34
Having carefully examined the language of the statute as well as the cases above,
the Court concludes that § 1084(a) is not confined entirely to wire communications
related to sports betting or wagering. The statute proscribes using a wire
communication facility (1) "for the transmission . . . of bets or wagers or information
assisting in the placing of bets or wagers on any sporting event or contest"; or (2) "for
the transmission of a wire communication which entitles the recipient to receive
money or credit as a result of bets or wagers"; or (3) "for information assisting in the
placing of bets or wagers." The phrase "sporting event or contest" modifies only the
first of these three uses of a wire communication facility. Giving effect to the
presumably intentional35 exclusion of the "sporting event or contest" qualifier from
the second and third prohibited uses indicates that at least part of § 1084(a) applies to
forms of gambling that are unrelated to sporting events.
This interpretation aligns with the Tenth Circuit's Criminal Pattern Jury
Instructions, which do not attach the "sporting event or contest" qualifier to either
providing information assisting in the placing of bets or wagers or informing someone
of his or her entitlement to money or credit resulting from bets or wagers. Moreover, §
1084(d) requires a common carrier, upon notice, to cease from operating any facility
that is or will be used "for the purpose of transmitting or receiving gambling
information," unqualified by any relation to a sporting event or contest. This largely
negates the fact that the exceptions in § 1084(b) refer to betting on sporting events or
contests alone.
Admittedly, the language of the statute limits the prohibition on the transmission
of actual bets or wagers to those on sporting events or contests. This could lead to the
conclusion, as it apparently did in the MasterCard case, that when the phrase "bets or
wagers" is used in the second and third prohibited uses, it is actually referring to the
"bets or wagers on any sporting event or contest" language found in the first
prohibited use. However, this conclusion would essentially require the Court to find
that the failure to include the phrase "sporting events or contests" in the second and
third prohibited uses was an inadvertent mistake of Congress.
The absence of the "sporting event or contest" qualifier in the second and third
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prohibitions is conspicuous, especially as the first prohibition, which includes the
qualifier, is directly before the second and third prohibitions in the statute. This is
particularly weighty in light of the legislative history of the Wire Act, which indicates
the intent of Congress to facilitate enforcement of state gambling laws related to
"gambling, bookmaking, and like offenses." Moreover, the exact phrase "information
assisting in the placing of bets or wagers" is used twice in § 1084(a)— first, as part of
the first prohibited use, and second, as the entirety of the third prohibited use. It is
simply unpalatable to the Court to attribute no meaning to Congress's use of the same
phrase in two different parts of the statute where the first use is modified by the
phrase "sporting event or contest" and the second use is
Page 1282
not. Accordingly, the Court concludes that the second and third prohibited uses of a
wire communication facility under § 1084(a) do not require that the bets or wagers to
which those uses relate be limited to bets or wagers placed on sporting events or
contests alone.
Defendants assert that the Wire Act is at least ambiguous as to whether it reaches
communications related to non-sports betting and that the rule of lenity requires a
court to "interpret [an ambiguous criminal statute] in favor of the defendant."36
However, the rule of lenity applies only where the statute includes "a grievous
ambiguity or uncertainty in [its] language and structure.'"37 As the Court finds that
the plain language of § 1084(a) concerning the second and third prohibited uses is
unambiguously broad enough to encompass use of a wire communications facility for
transmissions related to non-sports betting or wagering, the rule of lenity has no
application to its interpretation.
Information Assisting in the Placing of Bets or Wagers
Next Defendants claim that the phrase "information assisting in the placing of bets
or wagers" should be interpreted to encompass only communications that result in the
actual placement of a bet or wager, and that because the government has not alleged
any specific bets in Counts 16-19, the Court should dismiss them. In making this
assertion, Defendants rely entirely on the case of Truchinski v. United States from the
Eighth Circuit.38 In that case, the court found that a statement made by the defendant
over the telephone that "there wasn't much doing that day, only two games going that
day" was information assisting in the placing of bets or wagers when "[c]onsidering
the method of operation of those generally engaged in the taking of bets, the frequency
with which the [bettor] would place bets with the [defendant], plus the fact that the
bet was placed."39 Although the Truchinski case did look to the fact that a bet was
placed in determining whether the statement regarding the games on which to bet was
"information assisting in the placing of bets or wagers," the court did not affirmatively
hold that proof of an actual bet or wager arising from the information in the
communication is a necessary element of a § 1084(a) violation such that it must be
alleged in an indictment.
Although the statute seems to contemplate that the "information" assist in the
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placement of an actual bet or wager, none of the cases cited by the parties stands for
the proposition that the government must allege specific bets in the Indictment that
were assisted by information in the alleged wire communication. Rather, the language
of the statute set forth in the Indictment adequately alleges that the specific wire
communications listed in Counts 16-19— each of which includes its date, origin, and
destination—contained information "assisting in the placing of bets or wagers."
Whether the alleged transmissions actually contained information assisting in the
placing of a bet or wager is a question of fact to be made by the jury after receiving
proper instruction from the Court on the applicable law. Accordingly, the Court holds
that the Indictment need not allege a specific bet or wager the placement of which was
assisted by the information in the alleged wire communication.
Page 1283
Communications That Entitle the Recipient to Receive Money or Credit
Lastly, Defendants contend that the language in § 1084(a) prohibiting
transmissions of wire communications that "entitle[] the recipient to receive money or
credit as a result of bets or wagers" does not include communications merely
discussing or requesting a transfer of money or credit resulting from wagers.
Defendants also point out that this language is limited to communications that entitle
the recipient to money or credit. The government asserts that the statute clearly
includes communications that "entitle" the recipient to "credit" as well as money, and
should therefore reach promises to pay and not just entitlements comparable to
negotiated instruments.
Regardless of the reach of the word "entitles" as found in the statute, nothing in
the cases cited by the parties requires the government to allege a specific entitlement
resulting from a specific bet or wager. The allegation that one or more of the specific
wire communications listed in Paragraph 38 of the Indictment are "wire
communication[s] which entitled the recipient to receive money and credit as a result
of bets and wagers," which tracks the language of § 1084(a), sufficiently apprises
Defendants of this element of a Wire Act violation and that they will have to defend a
charge of violating the Wire Act arising therefrom. Any haggling over the proper
interpretation of "entitles" is appropriately decided upon the submission of proposed
jury instructions.
In sum, the Indictment properly sets forth the Wire Act elements challenged by
Defendants using the language of the statute and listing the specific wire
communications, including their respective dates, origins, and destinations. Certainly
the Indictment could have been more specific; however, it sufficiently notifies
Defendants that they are charged with a violation of § 1084(a) stemming from the
specific wire communications listed therein. This will also allow Defendants to assert a
double jeopardy defense in a future prosecution based on the listed communications.
Therefore, the Court will deny the Wire Act Motion.
B. The RICO Motion
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In the RICO motion, Defendants challenge the sufficiency of Count 1 of the
Indictment, which charges each of the Defendants with a violation of 18 U.S.C. §
1962(d), or RICO conspiracy. Section 1962(d) requires the government to prove "that
the defendant: (1) by knowing about and agreeing to facilitate the commission of two
or more acts (2) constituting a pattern (3) of racketeering activity (4) participates in
(5) an enterprise (6) the activities of which affect interstate or foreign commerce."40
Defendants challenge the sufficiency of the RICO conspiracy charge only with
respect to the "enterprise" and "pattern of racketeering activity" elements, claiming
that the Indictment fails to properly allege them. The government addresses the
merits of these claims in the alternative, but initially asserts that the RICO Motion is an
inappropriate challenge to the sufficiency of the government's evidence, rather than
the sufficiency of the Indictment. Although the level of detail with which Defendants
would require the government to set forth the allegations in the Indictment is
generally not required, the Court finds that the RICO Motion appropriately challenges
the sufficiency of the allegations in the Indictment. However, as set forth below, the
Court concludes that the Indictment is sufficient on its face and therefore will deny the
RICO Motion.
Page 1284
The "Enterprise" Element
In order to prove the existence of a RICO enterprise, the government must show:
(1) "the existence of an ongoing organization with a decision making framework or
mechanism for controlling the group," (2) that "the various associates function as a
continuing unit," and (3) that "the enterprise exists separate and apart from the
pattern of racketeering activity."41
The "ongoing organization" requirement is established by a showing that "some
sort of structure exists within the group for the making of decisions, whether it be
hierarchical or consensual."42 The government may prove a "continuing unit" with
evidence that each member of the enterprise "played a role in the [enterprise] that is
both consistent with [its] organizational structure and furthered [its] activities."43
The separate existence requirement arises from the language of the statute itself,
which requires that a RICO conspiracy violation be based on the existence of an
enterprise and its planned pattern of racketeering activity.44 To prove separate
existence, "it is not necessary to show that the enterprise has some function wholly
unrelated to the racketeering activity, but rather that it has an existence beyond that
which is necessary merely to commit each of the acts charged as predicate
racketeering offences."45 "The function of overseeing and coordinating the
commission of several different predicate offenses and other activities on an on-going
basis is adequate to satisfy the separate existence requirement."46
Defendants argue that Count 1 of the Indictment should be dismissed because the
government has not alleged specific facts outlining the structure and continuity of the
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Enterprise, and that the Enterprise, as alleged, has no existence separate from the
predicate racketeering activities. On the contrary, the government contends that the
structure and continuity of the Enterprise are not essential elements of a RICO
conspiracy claim and therefore need not be affirmatively alleged, and that the
Enterprise alleged in the Indictment has a separate existence from the predicate acts.
The Indictment in this case sufficiently alleges the first two elements of an
enterprise by referring to the term's definition in 18 U.S.C. § 1961(4) and further
explaining that the Enterprise "constituted an ongoing organization, whose members
functioned as a continuing unit, for the common purpose of achieving the objectives of
the enterprise."47 This language alone likely satisfies any need for the government to
allege the "ongoing organization" and "continuing unit" requirements of the
"enterprise" element.48 In this regard,
Page 1285
it appears that Defendants have substituted the requirements for proof at trial in place
of the minimal constitutional standards for sufficiency of the Indictment.
Nonetheless, the Indictment also carefully identifies each of the Defendants as
members of the Enterprise and alleges their individual roles therein as follows:49
Baron Lombardo controlled the movement of gambling funds through credit card
transactions via Gateway Technologies, which operated and maintained the Gateway
website; Richard Carson-Selman was responsible to sell the payment processing
services to the gambling websites; Tina Hill created and operated Hill Financial to
provide the accounting services necessary to move and track the gambling funds;
Henry Bankey supervised the creation of the accounting system; Count Lombardo
managed and maintained the equipment on which the Gateway site was operated; and
Kimberlie and Frank Lombardo managed the system through which the Western
Union money wires were processed.
The Indictment also alleges the objects of the conspiracy: "to make money illegally
by helping Internet gambling [websites] conduct their illegal business"; "to transfer
the proceeds of its illegal operations into and out of the United States; to conceal its
operations from the legitimate credit card companies, banks and wire transfer
services it used; to conceal its operations from law enforcement agencies; and to evade
the payment of federal taxes due to the United States from the [c]onspirators, their
employees and agents."50
Although a much closer question, the Indictment also sets forth enough facts that,
taken as true, would establish an enterprise separate from the alleged predicate acts.
As the "enterprise" element is crucial to the statutory concept of RICO, the separate
existence requirement merits some factual allegation beyond the mere tracking of the
words of the statute or caselaw. As set forth above, the Indictment has provided this
detail. In this case, Defendants organized multiple companies with significant
infrastructure, including a technology company capable of "operating and maintaining
a web site," as well as a functioning accounting firm.51 Additionally, the enterprise
held bank accounts both within and without the United States and established a
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number of trusts.52 This substantial infrastructure, although not unrelated to the
predicate offenses, existed apart from the actual commission of the predicate acts and
was capable of being put to alternative legal and illegal uses separate from the alleged
pattern of racketeering activity. For example, this infrastructure could have been used
to process payments for legitimate service operations or retail merchants, such as an
online bookstore. The enterprise presided daily over this infrastructure, using it to
facilitate the commission of the predicate acts on an on-going basis "[b]eginning no
later than sometime in 2000."53 Although this complex infrastructure was necessary
for the commission of the alleged racketeering acts, it existed and was capable of
functioning beyond the perpetration of the predicate acts.
The Pattern of Racketeering Activity Element
Defendants argue that the government has failed to sufficiently allege the
predicate acts that make up the "pattern of racketeering activity element" of a
Page 1286
RICO conspiracy. Specifically, Defendants point out that in Paragraph 24 of the
Indictment the government refers to the underlying predicate acts only by statutory
citation, which, according to defendants, "reache[s] new heights of vagueness."
A pattern of racketeering activity must consist of "at least two predicate acts . . .
committed within ten years of another" that "are (1) related and (2) that . . . amount to
or pose a threat of continued criminal activity."54 However, when the indictment
alleges a RICO conspiracy charge under § 1962(d), as opposed to a substantive RICO
charge under § 1962(c), it need not allege specific predicate acts committed by
Defendants.55 This is so because the essence of the punishable offense under §
1962(d) is the agreement and not the underlying racketeering activity.56 As stated by
the Seventh Circuit:
If the government were required to identify, in indictments charging violation only of
section 1962(d), specific predicate acts in which the defendant was involved, then a
1962(d) charge would have all of the elements necessary for a substantive RICO
charge. Section 1962(d) would thus become a nullity, as it would criminalize no
conduct not already covered by sections 1962(a) through (c). Such a result, quite
obviously, would violate the statutory scheme in which conspiracy to engage in the
conduct described in sections 1962(a) through (c) is itself a separate crime.57
Although the government must go beyond a generalized statement such as "the
defendant engaged in various acts of bribery," "an indictment need only charge— after
identifying a proper enterprise and the defendant's association with that enterprise—
that the defendant knowingly joined a conspiracy the objective of which was to
operate that enterprise through an identified pattern of racketeering activity."58
In this case, as Defendants are charged with only RICO conspiracy under § 1962(d)
and not a substantive violation of RICO, the Indictment need not allege the predicate
- 98 -
acts with the level of specificity as would be required in a separate substantive count
for such acts. Here the government carefully listed the statutes under which the
predicate acts are alleged. The government also descends to further detail in
Paragraphs 25 through 34, which directly follow the heading "Manner, Method, and
Means of the Racketeering Conspiracy." In this section, the government discusses in
detail the alleged "scheme" whereby the payment information of gamblers who
wished to pay for online gambling using credit cards was forwarded to the Gateway
where it was processed using incorrect classifications in order to disguise the
gambling nature of the credit card charges. The Indictment further discusses the
manner in which money wires to the Philippines were used to disguise gambling
payments. It also alleges use of a system of banks and trusts through which the money
was hidden and/or transferred to the gambling websites. The indictment clearly sets
forth sufficient detail to properly allege a pattern of racketeering acts.
Therefore, as the Court finds that the Indictment sufficiently alleges the elements
Page 1287
of a RICO conspiracy under § 1962(d) challenged by Defendants, it will deny the RICO
Motion.
III. THE GATS MOTION
In the GATS Motion, Defendants ask the Court to dismiss the Wire Act counts and
the RICO count, insofar as it is based on the Wire Act as a predicate act, arguing that
recent decisions of the dispute resolution arm of the World Trade Organization bar
prosecution of Defendants for facilitating online gambling protected under the General
Agreement on Trade in Services ("GATS").
As a member of the WTO, the United States has agreed to multiple treaties,
including GATS. Pursuant to GATS, the United States has made a series of
commitments to allow foreign providers of services access to certain domestic
markets. The United States has also agreed to the system of dispute resolution
outlined in an agreement called the Dispute Settlement Understanding, which provides
for the establishment of a panel to hear disputes and render reports, which are
reviewable on appeal by the WTO's Appellate Body. The decisions of the Appellate
Body become final unless the WTO Dispute Settlement Board reaches consensus
otherwise.
Congress formally approved GATS in the Uruguay Round Agreements Act
("URAA") in 1994.59 In the URAA, Congress addressed the "relationship of [the
Uruguay Round Agreements] to United States law" and directed that "[n]o provision of
any of the Uruguay Round Agreements, nor the application of any such provision to
any person or circumstance, that is inconsistent with any law of the United States shall
have effect."60 Additionally, the URAA makes clear that "[n]o person other than the
United States . . . shall have any cause of action or defense under any of the Uruguay
Round Agreements or by virtue of congressional approval of such an agreement."61
- 99 -
Congress statutorily adopted a Statement of Administrative Action in the URAA,
which is "an authoritative expression by the United States concerning the
interpretation and application of the Uruguay Round Agreements and [the URAA] in
any judicial proceeding in which a question arises concerning such interpretation or
application."62 The Statement clarifies a number of important issues regarding the
interplay between domestic law and GATS, as well as the effect of decisions issued by
WTO dispute resolution bodies.
A section of the Statement dealing with United States sovereignty states:
The WTO will have no power to change U.S. law. If there is a conflict between U.S. law
and any of the Uruguay Round agreements, section 102(a) of the implementing bill
makes clear that U.S. law will take precedence. . . . Moreover, as explained in greater
detail in this Statement in connection with the Dispute Settlement Understanding,
WTO dispute settlement panels will not have any power to change U.S. law or order
such a change. Only Congress and the Administration can decide whether to
implement a WTO panel recommendation and, if so, how to implement it.63
A section of the Statement dealing with dispute resolution under the WTO states:
It is important to note that the new WTO dispute settlement system does not give
panels any power to order the
Page 1288
United States or other countries to change their laws. If a panel finds that a country
has not lived up to its commitments, all a panel may do is recommend that the country
begin observing its obligations. It is then up to the disputing countries to decide how
they will settle their differences.64
....
Reports issued by panels or the Appellate Body under the [Dispute Settlement
Understanding] have no binding effect under the law of the United States and do not
represent an expression of U.S. foreign or trade policy. . . . If a report recommends that
the United States change a federal law to bring it into conformity with a Uruguay
Round agreement, it is for the Congress to decide whether any such change will be
made.65
In April of 2005, the Appellate Body of the WTO issued a decision regarding a
dispute between Antigua and the United States in which Antigua claimed that the
United States was in violation of its GATS commitments by making it unlawful for
foreign providers to supply gambling and betting services to consumers within the
United States.66 The Appellate Body upheld a panel decision finding that the United
States had committed to allow foreign suppliers to access the United States market for
gambling and betting services and that the Wire Act, and other federal laws regulating
online gambling, violates the commitments of the United States under GATS.67
- 100 -
In their GATS Motion, Defendants contend that by carrying on this prosecution,
the United States is in direct violation of its international obligations and that the Wire
Act charges should therefore be dismissed because (1) the Charming Betsy cannon of
construction and the principle of international comity dictate that the Court interpret
the Wire Act and the URAA so as to not violate these obligations; and (2) the WTO's
Appellate Body decision in the Antigua gambling case is self-executing and therefore
binding upon this Court.
A. The Charming Betsy Canon and International Comity
Arising from the statements of Chief Justice John Marshall in the case of Murray v.
Schooner Charming Betsy,68 the Charming Betsy cannon of construction has come to
stand for the proposition that "[w]here fairly possible, a United States statute is to be
construed so as not to conflict with international law or with an international
agreement of the United States."69 However,
the "Charming Betsy canon comes into play only where Congress's intent is
ambiguous." "If a statute makes plain Congress's intent . . . then Article III courts,
which can overrule Congressional enactments only when such enactments conflict
with the Constitution, must enforce the intent of Congress irrespective of whether the
statute conforms to customary international law."70
Likewise, the principle of international comity, when applied as a rule of statutory
Page 1289
construction, "has no application where Congress has indicated otherwise."71
Defendants assert that this Court "may and must," under the Charming Betsy
cannon and the principle of international comity, interpret the Wire Act to have
neither extraterritorial reach nor application to online gambling. They also contend
that the Charming Betsy cannon is an alternative ground to the Wire Act Motion's
contention that § 1084(a) should be interpreted to apply only to sports betting. Lastly,
Defendants argue that the URAA itself should be interpreted narrowly so as not to
conflict with the commitments of the United States under GATS.
The clear language of both the Wire Act and the URAA entirely preclude any
application of either the Charming Betsy cannon or the broader principle of
international comity in this case. As an initial matter, the Indictment does not seek to
apply the Wire Act to actions beyond the borders of the United States. Rather, the
alleged conduct of Defendants was carried out within the United States. Specifically,
each of the alleged wire communications either originated or terminated in the United
States. However, even if extraterritorial conduct was at issue, the plain language of the
Wire Act specifically contemplates such an application: "[w]hosoever . . . knowingly
uses a wire communication facility for the transmission in interstate or foreign
commerce of bets or wagers or information assisting in the placing or bets or wagers
on a sporting event or contest . . . shall be fined under this title or imprisoned. . . ."72
- 101 -
With regard to the Wire Act's application to online gambling, at least two courts
have already held that the Wire Act applies to this form of gambling.73 Moreover, the
Wire Act itself, although enacted long before the advent of the Internet, clearly
contemplates any form of electronic transmission via wire:
The term `wire communication facility' means any and all instrumentalities, personnel,
and services (among other things, the receipt, forwarding, or delivery of
communications) used or useful in the transmission of writing, signs, pictures, and
sounds of all kinds by aid of wire, cable, or other like connection between the points of
origin and reception of such transmission.74
Defendants' contention that the Charming Betsy cannon supports a narrow
reading of § 1084(a), which reading would apply the prohibition on wire
communications to only those communications related to sports betting, is misplaced.
Although the proffered interpretation would certainly help Defendants in this case, in
order to avoid a conflict with the obligations of the United States under GATS, as
interpreted in the Antigua case, the Wire Act could have no international application
with regard to any form of online gambling, including sports-related gambling.
Finally, concerning Defendants' proffered URAA interpretation, Congress explicitly
stated that "[n]o provision of any of the Uruguay Round Agreements, nor the
application of any such provision to any person or circumstance, that is inconsistent
with any law of the United States shall have effect."75 Furthermore, the
Page 1290
Statement indicates that this statutory statement "clarifies that no provision of a
Uruguay Round agreement will be given effect under domestic law if it is inconsistent
with federal law, including provisions of federal law enacted or amended by the
[URAA]."76 On its face, the URAA precludes precisely the argument raised by
Defendants.
B. The Appellate Body Decision
Defendants assert that the Appellate Body's Antigua decision is self-executing and
that they may therefore rely on it to seek the dismissal of the allegations in the
Indictment related to the Wire Act. However, "WTO decisions are `not binding on the
United States, much less this court.'"77 As indicated in the Statement of Administrative
Action:
Reports issued by panels or the Appellate Body under the DSU have no binding effect
under the law of the United States and do not represent an expression of U.S. foreign
or trade policy. They are no different in this respect than those issued by GATT panels
since 1947. If a report recommends that the United States change a federal law to
bring it into conformity with a Uruguay Round agreement, it is for the Congress to
decide whether any such change will be made.78
- 102 -
Additionally, the URAA expressly forecloses "any cause of action or defense under
any of the Uruguay Round Agreements" to persons other than the United States.79
Defendants have no standing to assert a defense based on the obligations of the United
States under GATS. A failure on the part of the United States to comply with a decision
of the Appellate Body may give rise to WTO sanctions against the United States under
GATS. However, whether to accept those sanctions, modify federal law, or renegotiate
its GATS commitments80 is a matter committed to the discretion of Congress. It is the
Court's role to apply federal law to the case at hand as found in the Wire Act. Any
provision of GATS to the contrary "shall have [no] effect."81 Therefore the Court will
deny the GATS Motion.
IV. CONCLUSION
For the reasons set forth above, it is hereby
ORDERED that Defendants' Motion to Dismiss Wire Act Counts (Counts 16-19)
[Docket No. 80] is DENIED. It is further
ORDERED that Defendants' Motion to Dismiss Count One (RICO Conspiracy)
[Docket No. 78] is DENIED. It is further
ORDERED that Defendants' Motion to Dismiss Based on Treaty Obligations and
Page 1291
Domestic and International Law (Counts 1, 16-19) [Docket No. 79] is DENIED.
--------------Notes:
1. 18 U.S.C. § 1084(a).
2. Defendant Carson-Selman filed the motions to dismiss, in which each of the six other
individual defendants have now joined.
3. Docket No. 80.
4. Docket No. 78.
5. Docket No. 79.
6. Indictment ¶ 4 (Docket No. 1).
7. Id. at ¶ 38.
- 103 -
8. Id.
9. United States v. Darrell, 828 F.2d 644, 647 (10th Cir. 1987).
10. United States v. Todd, 446 F.3d 1062, 1067 (10th Cir.2006) (quoting United States
v. Dashney, 117 F.3d 1197, 1205 (10th Cir. 1997)).
11. Id.
12. Dashney, 117 F.3d at 1205.
13. Darrell, 828 F.2d at 647 (citing Hamling v. United States, 418 U.S. 87, 117, 94 S.Ct.
2887, 41 L.Ed.2d 590 (1974)).
14. Hamling, 418 U.S. at 118, 94 S.Ct. 2887.
15. Russell v. United States, 369 U.S. 749, 754-55, 82 S.Ct. 1038, 8 L.Ed.2d 240 (1962).
16. Hamling, 418 U.S. at 117-19, 94 S.Ct. 2887.
17. 18 U.S.C. § 1084(a).
18. 18 U.S.C. § 1084(b).
19. Criminal Pattern Jury Instruction Committee of the United States Court of Appeals
for the Tenth Circuit, Criminal Pattern Jury Instructions 2.51 (2005).
20. See United States v. Miller, 471 U.S. 130, 136, 144, 105 S.Ct. 1811, 85 L.Ed.2d 99
(1985).
21. In re MasterCard Int'l Inc., Internet Gambling Litig., 132 F.Supp.2d 468, 480-81
(E.D.La.2001), aff'd, 313 F.3d 257 (5th Cir. 2002).
22. Id. at 473-75, 478.
23. Id. at 474-75.
24. Id. at 480.
25. See id. (citing United States v. Kaczowski, 114 F.Supp.2d 143, 153 (W.D.N.Y.2000);
United States v. Sellers, 483 F.2d 37, 45 (5th Cir. 1973), overruled on other grounds by
United States v. McKeever, 905 F.2d 829 (5th Cir. 1990); United States v. Marder, 474
F.2d 1192, 1194 (5th Cir. 1973)).
26. Id.
- 104 -
27. Id. at 480-81 (quoting 107 Cong. Rec. 16533 (Aug. 21, 1961)).
28. In re MasterCard Int'l Inc. Internet Gambling Litig., 313 F.3d 257, 262 (5th
Cir.2002).
29. Id. at 264.
30. N.Y. v. World Interactive Gaming Corp., 185 Misc.2d 852, 714 N.Y.S.2d 844, 848,
850-52 (N.Y.Sup.Ct.1999).
31. Id. at 847-48.
32. Id. at 848.
33. Id. at 852.
34. Id. at 851 (citing H.R.Rep. No. 967 (1961) as reprinted in 1961 U.S.C.C.A.N. 2631,
2631) (emphasis added).
35. See Hamdan v. Rumsfeld, 548 U.S. 557, 126 S.Ct. 2749, 2765-66, 165 L.Ed.2d 723
(2006).
36. United States v. Michel, 446 F.3d 1122, 1135 (10th Cir.2006).
37. Id. (quoting United States v. Onheiber, 173 F.3d 1254, 1256 (10th Cir.1999)).
38. 393 F.2d 627 (8th Cir. 1968).
39. Id. at 631.
40. United States v. Smith, 413 F.3d 1253, 1266 (10th Cir.2005).
41. Id. at 1266-67 (quoting United States v. Sanders, 928 F.2d 940, 943-44 (10th Cir.
1991)) (internal quotation marks omitted). In Smith, the Tenth Circuit adopted the
test found in the case of United States v. Riccobene, 709 F.2d 214 (3d Cir.1983),
abrogation on other grounds recognized by United States v. Vastola, 989 F.2d 1318,
1330 (3d Cir.1993).
42. Riccobene, 709 F.2d at 222.
43. Smith, 413 F.3d at 1267.
44. See United States v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 69 L.Ed.2d 246
(1981).
45. Smith, 413 F.3d at 1267 (quoting Riccobene, 709 F.2d at 223-24) (internal
- 105 -
quotation marks omitted).
46. Riccobene, 709 F.2d at 224.
47. Indictment ¶ 21 (Docket No. 1).
48. See United States v. Diaz, 2006 WL 1833193, at *3-4 (N.D.Cal. Jun. 30, 2006)
(unpublished order).
49. Indictment ¶¶ 5-11, 13-17, 21 (Docket No. 1).
50. Id. at ¶ 4.
51. Id. at ¶¶ 13-15.
52. Id. at ¶¶ 18-19.
53. Id. at ¶ 21.
54. Smith, 413 F.3d at 1269 (quoting H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S.
229, 239, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989)) (internal quotation marks omitted).
55. United States v. Glecier, 923 F.2d 496, 500-01 (7th Cir.1991); see also United States
v. Crockett, 979 F.2d 1204, 1209-10 (7th Cir. 1992).
56. Glecier, 923 F.2d at 501.
57. Id.
58. Id. at 500-01.
59. 19 U.S.C. § 3511(a), (d)(14).
60. 19 U.S.C. § 3512(a)(1).
61. 19 U.S.C. § 3512(c)(1)(A).
62. 19 U.S.C. § 3512(d).
63. The Uruguay Round Agreements Act: Statement of Administrative Action, H.R. No.
103-316 (1994), as reprinted in 1994 U.S.C.C.A.N. 4040, 4042 [hereinafter Statement].
64. Id. at 4300.
65. Id. at 4318.
- 106 -
66. Appellate Body Report, United States — Measures Affecting the Cross-Border
Supply of Gambling and Betting Services, ¶ 1 WT/DS285/R (April 7, 2005).
67. Id. at ¶¶ 5, 373.
68. 6 U.S. (2 Cranch) 64, 2 L.Ed. 208 (1804).
69. Restatement (Third) of Foreign Relations Law of the United States § 114 (1987).
70. Guaylupo-Moya v. Gonzales, 423 F.3d 121, 135-36 (2d Cir.2005) (quoting United
States v. Yousef, 327 F.3d 56, 93 (2d Cir.2003)) (citation omitted).
71. In re Maxwell Commc'n Corp., 93 F.3d 1036, 1047 (2d Cir.1996).
72. 18 U.S.C. § 1084(a).
73. See United States v. Cohen, 260 F.3d 68 (2d Cir.2001); United States v. Corrar, 2007
WL 196862 (N.D.Ga. Jan. 22, 2007).
74. 18 U.S.C. § 1081.
75. 19 U.S.C. § 3512(a)(1).
76. Statement, supra note 63, at 4050.
77. Corus Staal BV v. Dep't of Commerce, 395 F.3d 1343, 1348 (Fed.Cir.2005) (quoting
Timken Co. v. United States, 354 F.3d 1334, 1344 (Fed.Cir.2004)).
78. Statement, supra note 63, at 4318.
79. 19 U.S.C. § 3512(c)(1)(A).
80. The United States has apparently elected the last option: "In light of these
developments in the WTO dispute, the United States has decided to make use of the
established WTO procedures to correct its schedule in order to reflect the original U.S.
intent — that is, to exclude gambling from the scope of the U.S. commitments under
the GATS." Press Release, Office of United States Trade Representative, Statement of
Deputy United States Trade Representative John K. Veroneau Regarding U.S. Actions
under GATS Article XXI (May 5, 2007), available at http://www.ustr.
gov/Document_Library/Press_Releases/ Section_Index.html.
81. See 19 U.S.C. § 3512(a)(1).
---------------
- 107 -
In re Mastercard
313 F.3d 257
In Re: MASTERCARD INTERNATIONAL INC. Internet Gambling Litigation.
Larry Thompson, On behalf of himself and all others similarly situated, PlaintiffAppellant,
v.
MasterCard International Inc.; Fleet Bank, (Rhode Island) N A; and Fleet Credit Card
Services L P, Defendants-Appellees.
In Re: Visa International Association Internet Gambling Litigation.
Lawrence Bradley, On behalf of himself and all others similarly situated, PlaintiffAppellant,
v.
Visa International Service Association; Travelers Bank USA Corp., DefendantsAppellees.
No. 01-30389.
United States Court of Appeals, Fifth Circuit.
November 20, 2002.
Page 259
Michael J. Beck, Clerk, Multi Dist. Lit. Panel, Washington, DC, for MasterCard Intern.
Inc. and Visa Intern. Serv. Ass'n.
Barry Grant Reed, Zimmerman Reed, Minneapolis, MN, Stephen B. Murray, Murray
Law Firm, New Orleans, LA, James W. Johnson, Goodkind, Labaton, Rudoff & Sucharow,
New York City, W. Lewis Garrison, Jr. (argued), Honza J. Prchal, Garrison, Scott, Gamble
& Rosenthal, Birmingham, AL, M. Scott Barrett, Barrett & Associates, Chicago, IL,
William S. Weisberg, Weisberg & Miller, San Francisco, CA, for Plaintiffs-Appellants.
Jay N. Fastow (argued), Yoav M. Griver, Chad Chambers, Weil, Gotshal & Manges,
New York City, Anthony Joseph Rollo, Jr., McGlinchey Stafford, New Orleans, LA, Eileen
- 108 -
S. Simon, MasterCard Intern., Purchase, NY, for MasterCard Intern. Inc.
R. Patrick Vance, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, New
Orleans, LA, Martin C. Bryce, Jr. (argued). Alan S. Kaplinsky, Ballard, Spahr, Andrews &
Ingersoll, Philadelphia, PA, for Fleet Bank (RI), NA and Fleet Credit Card Services LP.
Daniel H. Bookin, Randall William Edwards, O'Melveny & Myers, San Francisco, CA,
Barry Weldon Ashe, Phillip A. Wittmann, Stone, Pigman, Walther, Wittmann &
Hutchinson, New Orleans, LA, for Visa Intern. Serv. Ass'n.
Christopher R. Lipsett, Wilmer, Cutler & Pickering, New York City, for Travelers
Bank USA Corp.
Appeal from the United States District Court for the Eastern District of Louisiana.
Before DeMOSS, STEWART and DENNIS, Circuit Judges.
DENNIS, Circuit Judge:
In this lawsuit, Larry Thompson and Lawrence Bradley ("Thompson," "Bradley,"
or collectively "Plaintiffs") attempt to use the Racketeer Influenced and Corrupt
Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968, to avoid debts they incurred when
they used their credit cards to purchase "chips" with which they gambled at on-line
casinos and to recover for injuries they allegedly sustained by reason of the RICO
violations of MasterCard International, Visa International, and banks that issue
MasterCard and Visa credit cards (collectively "Defendants").1 The district
Page 260
court granted the Defendants' motions to dismiss pursuant to Rule 12(b)(6) of the
Federal Rules of Civil Procedure. We AFFIRM.
Thompson and Bradley allege that the Defendants, along with unnamed Internet
casinos, created and operate a "worldwide gambling enterprise" that facilitates illegal
gambling on the Internet through the use of credit cards. Internet gambling works as
follows. A gambler directs his browser to a casino website. There he is informed that
he will receive a gambling "credit" for each dollar he deposits and is instructed to
enter his billing information. He can use a credit card to purchase the credits.2 His
credit card is subsequently charged for his purchase of the credits. Once he has
purchased the credits, he may place wagers. Losses are debited from, and winnings
credited to, his account. Any net winnings a gambler might accrue are not credited to
his card but are paid by alternate mechanisms, such as wire transfers.
Under this arrangement, Thompson and Bradley contend, "[t]he availability of credit
and the ability to gamble are inseparable."3 The credit card companies facilitate the
enterprise, they say, by authorizing the casinos to accept credit cards, by making credit
available to gamblers, by encouraging the use of that credit through the placement of
- 109 -
their logos on the websites, and by processing the "gambling debts" resulting from the
extension of credit. The banks that issued the gamblers' credit cards participate in the
enterprise, they say, by collecting those "gambling debts."
Thompson holds a MasterCard credit card issued by Fleet Bank (Rhode Island) NA. He
used his credit card to purchase $1510 in gambling credits at two Internet gambling
sites. Bradley holds a Visa credit card issued by Travelers Bank USA Corporation. He
used his credit card to purchase $16,445 in gambling credits at seven Internet
gambling sites. Thompson and Bradley each used his credits to place wagers.
Thompson lost everything, and his subsequent credit card billing statements reflected
purchases of $1510 at the casinos. Bradley's winning percentage was higher, but he
fared worse in the end. He states his monthly credit card billing statements included
$7048 in purchases at the casinos.
Thompson and Bradley filed class action complaints against the Defendants on behalf
of themselves and others similarly situated. They state that the Defendants
participated in and aided and abetted conduct that violated various federal and state
criminal laws applicable to Internet gambling. Through their association with the
Internet casinos, the Defendants allegedly "directed, guided, conducted, or
participated, directly or indirectly, in the conduct of an enterprise through a pattern of
racketeering and/or the unlawful collection of unlawful debt," in violation of 18 U.S.C.
§ 1962(c).4 They seek damages under
Page 261
RICO's civil remedies provision,5 claiming that they were injured by the Defendants'
RICO violations. They also seek declaratory judgment that their gambling debts are
unenforceable because they are illegal.
Upon motions by the Defendants, the district court dismissed the Plaintiffs'
complaints. In a thorough and careful opinion, the court determined that the Plaintiffs
not only could not satisfy the necessary prerequisites to a RICO claim but also could
not establish their standing to bring such a claim. The Plaintiffs now appeal.
II.
We review a district court's grant of a Rule 12(b)(6) motion de novo, applying the
same standard used below.6 "In so doing, we accept the facts alleged in the complaint
as true and construe the allegations in the light most favorable to the plaintiffs."7 But
"conclusory allegations or legal conclusions masquerading as factual conclusions will
not suffice to prevent a motion to dismiss."8
III.
All RICO violations under 18 U.S.C. § 1962 entail "(1) a person who engages in (2) a
pattern of racketeering activity, (3) connected to the acquisition, establishment,
conduct, or control of an enterprise."9 As to the second element, a RICO plaintiff may
- 110 -
show that the defendant engaged in the collection of unlawful debt as an alternative to
showing the defendant engaged in a pattern or racketeering activity.10 A RICO claim
alleging a violation of § 1962(c), as here, also requires that the defendant
"participate[d] in the operation or management of the enterprise itself."11 Of these
required elements, the district court concluded that Thompson and Bradley failed to
plead facts showing a pattern of racketeering activity or the collection of unlawful
debt; a RICO enterprise; or participation in the operation of management of the
enterprise. We agree that the Plaintiffs' allegations do not show a pattern of
racketeering activity or the collection of unlawful debt. Because this conclusion, alone,
is dispositive, we need not consider whether the Plaintiffs sufficiently alleged the other
elements.
"A pattern of racketeering activity requires two or more predicate acts and a
demonstration that the racketeering predicates are related and amount to or pose a
threat of continued criminal activity."12
Page 262
The predicate acts can be either state or federal crimes.13 Thompson and Bradley
allege both types of predicate acts.
On appeal, Thompson alleges that the Defendants' conduct violated a Kansas
statute that criminalizes five types of commercial gambling activity.14 Only two
sections of the statute — sections (c) and (e) — are even remotely relevant here.
Neither implicates the Defendants' conduct. Because the Defendants completed their
transaction with the Plaintiffs before any gambling occurred, that transaction cannot
have involved taking custody of something bet or collecting the proceeds of a gambling
device. Both of those activities, which constitute commercial gambling under Kansas
law, necessarily "can only take place after some form of gambling [has been]
completed."15 Accordingly, we find that Thompson fails to identify a RICO predicate act
under Kansas law.16
Bradley alleges on appeal that the Defendants' conduct violated a New Hampshire
gambling statute aimed at persons who operate or control places where gambling
occurs.17 Bradley did not, however, allege a violation of the statute in his complaint. In
any event, this statute is patently inapplicable to the Defendants under the facts
alleged. Indeed, Bradley makes no effort in his briefs to explain its applicability.
Accordingly, we find that Bradley, too, fails to identify a RICO predicate act under a
state criminal law.18
Thompson and Bradley both identify three substantive federal crimes as
predicates — violation of the Wire Act, mail fraud, and wire fraud.19 The district court
concluded that the Wire Act concerns gambling on sporting events or contests and that
the Plaintiffs had failed to allege that they had engaged in internet sports gambling.20
We agree with the district court's statutory interpretation, its reading of the relevant
case law, its summary of the relevant legislative history, and its conclusion. The
Plaintiffs may not rely on the
- 111 -
Page 263
Wire Act as a predicate offense here.21
The district court next articulated several reasons why the Plaintiffs may not rely
on federal mail or wire fraud as predicates.22 Of these reasons, two are particularly
compelling. First, Thompson and Bradley cannot show that the Defendants made a
false or fraudulent misrepresentation.23 Because the Wire Act does not prohibit nonsports internet gambling, any debts incurred in connection with such gambling are not
illegal. Hence, the Defendants could not have fraudulently represented the Plaintiffs'
related debt as legal because it was, in fact, legal. We agree that "the allegations that
the issuing banks represented the credit charges as legal debts is not a scheme to
defraud."24 Second, Thompson and Bradley fail to allege that they relied upon the
Defendants' representations in deciding to gamble.25 The district court correctly stated
that although reliance is not an element of statutory mail or wire fraud, we have
required its showing when mail or wire fraud is alleged as a RICO predicate.26
Accordingly, we conclude that Thompson and Bradley cannot rely on the federal mail
or wire fraud statutes to show RICO predicate acts.27
In the alternative, Thompson and Bradley allege that the Defendants engaged in
the collection of unlawful debt. Under § 1961, a RICO plaintiff may attempt to show
that the debt is unlawful because it was incurred or contracted in an illegal gambling
activity or in connection with the illegal business of gambling or because it is
unenforceable under usury laws or was incurred in connection with the business of
lending at usurious rates.28 Neither Thompson nor Bradley raises the specter of usury.
And, as we have already found, the Defendants' conduct did not involve any violation
of a state or federal gambling law. Thus, we agree with the district court's conclusion
that the Plaintiffs have not sufficiently alleged "the collection of unlawful debt."29
Page 264
Because Thompson and Bradley cannot prove a necessary element of a civil RICO
claim, namely that the Defendants engaged in a pattern of racketeering activity or the
collection of unlawful debt, we hold that dismissal is proper under Rule 12(b)(6).30
Finally, we reiterate the district court's statement that "RICO, no matter how
liberally construed, is not intended to provide a remedy to this class of plaintiff."31
Thompson and Bradley simply are not victims under the facts of these cases. Rather, as
the district court wrote, "they are independent actors who made a knowing and
voluntary choice to engage in a course of conduct."32 In engaging in this conduct, they
got exactly what they bargained for — gambling "chips" with which they could place
wagers. They cannot use RICO to avoid meeting obligations they voluntarily took on.
IV.
- 112 -
For the foregoing reasons, we AFFIRM the judgment of the district court.
---------------
Notes:
1. Thirty-three virtually identical cases were transferred to the Eastern District of Louisiana through
multidistrict litigation. Of these, the two on appeal were selected as test cases and consolidated for
pre-trial purposes. See In re MasterCard Int'l Inc., Internet Gambling Litigation and Visa Int'l Serv. Ass'n
Internet Gambling Litigation, 132 F.Supp.2d 468, 471 n. 1 (E.D.La.2001).
2. Gamblers can purchase the credits through online transactions or by authorizing a purchase via a
telephone call. Gamblers also can purchase the credits via personal check or money order using the
mails.
3. The Plaintiffs state that 95% of Internet gambling business involves the use of credit cards.
4. "It shall be unlawful for any person employed by or associated with any enterprise engaged in, or
the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or
indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or
collection of unlawful debt." 18 U.S.C. § 1962(c).
5. 18 U.S.C. § 1964.
6. Nolen v. Nucentrix Broadband Networks, Inc., 293 F.3d 926, 928 (5th Cir.2002); see also Rubinstein v.
Collins, 20 F.3d 160, 166 (5th Cir.1994) ("Such dismissals may be upheld only if it appears that no
relief could be granted under any set of facts that could be proven consistent with the allegations."
(internal quotation and citation omitted)).
7. Nolen, 293 F.3d at 928 (citing Rubinstein, 20 F.3d at 166).
8. Id. (citing Fernandez-Montes v. Allied Pilots Ass'n, 987 F.2d 278, 284 (5th Cir.1993)).
9. Crowe v. Henry, 43 F.3d 198, 204 (5th Cir.1995) (citing Delta Truck & Tractor, Inc. v. J.I. Case Co.,
855 F.2d 241, 242 (5th Cir.1988)).
10. 18 U.S.C. § 1962(a)-(c); see also Nolen, 293 F.3d at 928-29.
11. Reves v. Ernst & Young, 507 U.S. 170, 185, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993).
12. St. Paul Mercury Ins. Co. v. Williamson, 224 F.3d 425, 441 (5th Cir.2000) (citing Word of Faith
World Outreach Ctr. Church, Inc. v. Sawyer, 90 F.3d 118, 122 (5th Cir.1996)).
13. 18 U.S.C. § 1961(1).
14. Kan. Stat. Ann. § 21-4304. This statute, which states that commercial gambling is a "level 8,
nonperson felony," defines commercial gambling as: "(a) Operating or receiving all or part of the
earnings of a gambling place; (b) Receiving, recording, or forwarding bets or offers to bet or, with
intent to receive, record, or forward bets or offers to bet, possessing facilities to do so; (c) For gain,
becoming a custodian of anything of value bet or offered to be bet; (d) Conducting a lottery, or with
intent to conduct a lottery possessing facilities to do so; or (e) Setting up for use or collecting the
proceeds of any gambling device."
15. See In re MasterCard, 132 F.Supp.2d at 479.
16. Thompson has abandoned his reliance on three other violations of Kansas law he alleged below.
Violations of those statutes cannot serve as predicates because they identify only misdemeanor
offenses. See 18 U.S.C. § 1961(1)(A).
17. N.H.Rev.Stat. Ann. § 647:2(I-a)(b). This statute provides that "[a] person is guilty of a class B
felony if such person conducts, finances, manages, supervises, directs, or owns all or part of a
business and such person knowingly and unlawfully conducts, finances, manages, supervises, or
directs any gambling activity on the business premises...."
18. Bradley has abandoned his previous reliance on various New Hampshire civil statutes, each of
which was obviously inadequate to identify a predicate crime under 18 U.S.C. § 1961(1)(A).
- 113 -
19. 18 U.S.C. §§ 1084, 1341, 1343.
20. In re MasterCard, 132 F.Supp.2d at 480 ("[A] plain reading of the statutory language [of the Wire
Act] clearly requires that the object of the gambling be a sporting event or contest.").
21. Bradley criticizes the district court for ignoring his identification of an Internet site named
"Sportsbook" in his complaint. The name of the site is irrelevant, for Bradley nowhere alleges that he
gambled on sporting events or contests at that or any other site.
22. Id. at 481-83.
23. See In re Burzynski, 989 F.2d 733, 742 (5th Cir.1993) (stating that an element of a RICO mail fraud
claim is "a scheme to defraud by means of false or fraudulent representation").
24. In re MasterCard, 132 F.Supp.2d at 482.
25. Based in part on this same failure, the district court correctly determined that the Plaintiffs could
not establish standing to sue under 18 U.S.C. § 1964(c). See id. at 495-96 (explaining that standing
requires a showing of both factual and proximate causation).
26. Summit Props., Inc. v. Hoechst Celanese Corp., 214 F.3d 556, 562 (5th Cir.2000) (stating that the
element of reliance is required to recover damages in a RICO fraud claim); see also In re MasterCard,
132 F.Supp.2d at 482, 496 (explaining that the element of reliance is also key to the issue of standing).
27. Because we find neither the Wire Act nor the mail and wire fraud statutes may serve as
predicates here, we need not consider the other federal statutes identified by the Plaintiffs: § 1952
(Travel Act); § 1955 (illegal gambling businesses); and § 1957 (money laundering). As the district
court correctly explained, these sections may not serve as predicates here because the Defendants
did not violate any applicable federal or state law. See In re MasterCard, 132 F.Supp.2d at 482-83 & n.
6. The Plaintiffs' reliance on § 1960 fails because it is not an authorized RICO predicate under §
1961(1)(B).
28. 18 U.S.C. § 1961(6).
29. In re MasterCard, 132 F.Supp.2d at 483.
30. We need not analyze the validity or merit of Plaintiffs' claim based on aiding and abetting liability
because (assuming it is valid) it necessarily falls along with the underlying RICO claim. Likewise, we
need not consider the merits of the Defendants' motions to join the Internet casinos pursuant to Rule
19 of the Federal Rules of Civil Procedure. We agree with the district court that those motions are
moot.
31. Id. at 497.
32. Id.
- 114 -
U.S. v. Merrell
701 F.2d 53
UNITED STATES of America, Plaintiff-Appellee,
v.
Buster MERRELL, Defendant-Appellant.
No. 82-1182.
United States Court of Appeals,
Sixth Circuit.
Argued Jan. 18, 1983.
Decided March 4, 1983.
Paul Borman (argued), Miriam L. Siefer, Detroit, Mich., for defendant-appellant.
Leonard R. Gilman, U.S. Atty., Christopher A. Andreoff, Sp. Atty., Detroit Strike Force,
Michael Mueller (argued), Detroit, Mich., for plaintiff-appellee.
Page 54
Before, KENNEDY, CONTIE and WELLFORD, Circuit Judges.
- 115 -
CONTIE, Circuit Judge.
Buster Merrell appeals his conviction under 18 U.S.C. Sec. 1955 for conducting an
illegal gambling business. He was sentenced to two years probation. We affirm.
The facts are undisputed. Between May 11, 1979 and April 19, 1980, government
agents undertook surveillance of 19733 Omira, Detroit, Michigan. The authorities
suspected that illegal gambling was occurring on the premises. After photographing
and videotaping activity transpiring outside the address, the agents legally planted a
video camera and microphone within the house and tapped two telephones. The
videotape, which was the main prosecution evidence at trial, clearly indicated that an
illegal dice game was being operated every Monday and Friday night during the time
period in question.
On April 19, 1980, government agents raided the premises and arrested Merrell
and others. Thirteen persons were charged with violating both 18 U.S.C. Sec. 1955,
conducting an illegal gambling business, and 18 U.S.C. Sec. 371, conspiracy to commit
the underlying substantive offense. Trial of all defendants commenced on December
14, 1981. Three days into the proceedings, eight defendants pleaded guilty. They were
the lessor of the premises, the game operator, three dealers and three
watchmen/doormen. The remaining five, including Merrell, waived their right to a jury
trial.
The district court acquitted four of the defendants on both counts because they
were mere bettors whose actions were not proscribed by section 1955. Although
Merrell was acquitted of conspiracy, he was convicted of the substantive offense. The
district court found that appellant performed several jobs which aided the gambling
operation. For instance, Merrell regularly served coffee to bettors during gambling
sessions. Immediately after these sessions, he usually stacked tables and chairs, swept
the floors, cleaned ash trays and replaced the tables and chairs in preparation for
future sessions. The sole issue raised on appeal is whether section 1955 makes
criminal the waiters' and janitors' functions performed by the defendant. 1
The Supreme Court has stated that section 1955 "proscribes any degree of
participation in an illegal gambling business, except participation as a mere bettor."
Sanabria v. United States, 437 U.S. 54, 70 n. 26, 98 S.Ct. 2170, 2182, 57 L.Ed.2d 43
(1978). The courts of appeals have also recognized that only customers are outside the
- 116 -
purview of the statute. See, e.g., United States v. Leon, 534 F.2d 667, 676 (6th
Cir.1976); United States v. Reeder, 614 F.2d 1179, 1182 (8th Cir.1980). Section 1955
covers both "high level bosses and street level employees." 1970 U.S.Code Cong. &
Ad.News 4007, 4029. Thus, this circuit has held that runners, telephone clerks,
salesmen, dealers, doormen and watchmen "conduct" gambling businesses within the
meaning of the statute. Leon, supra at 676. Since performing janitorial and service
functions is not mere gambling, 2 the question is whether Merrell's actions constitute
"participation" in an illegal enterprise under the Sanabria test.
Merrell contends that his conduct does not amount to participation. He relies
primarily
Page 55
on United States v. Boss, 671 F.2d 396 (10th Cir.1982), in which the tenth circuit held
that waitresses whose sole function was to serve drinks both to dance hall patrons and
to gamblers in an adjacent room were not subject to prosecution under section 1955.
The Boss court reasoned that the statute only reached conduct strictly necessary to the
operation of a gambling business. To extend the statute further allegedly might
ensnare persons that Congress never intended. Since a gambling enterprise can
operate without waitresses serving drinks to bettors, the waitresses were not
conducting a gambling business within the meaning of the statute.
Merrell argues that under the Boss necessity test, runners, dealers, guards and the
like may be prosecuted because such persons either are integral to the efficient
operation of a gambling enterprise or provide security and protection. A gambling
business could not long operate without them. Conversely, such an enterprise could
easily function without the services of waiters or janitors. Merrell therefore asserts
that the conviction should be reversed.
The major flaw in appellant's argument is that the strict necessity test has only
been adopted by the Boss court. The prevailing rule is that one "conducts" a gambling
business if that person performs any act, duty or function which is necessary or helpful
in operating the enterprise. See United States v. Colacurcio, 659 F.2d 684, 688 (5th
Cir.1981); United States v. Tucker, 638 F.2d 1292, 1296 (5th Cir.), cert. denied, 454 U.S.
833, 102 S.Ct. 132, 70 L.Ed.2d 111 (1981); United States v. Greco, 619 F.2d 635, 638
(7th Cir.1980); United States v. Reeder, 614 F.2d 1179, 1182 n. 2 (8th Cir.1980);
United States v. Bennett, 563 F.2d 879, 882 n. 4 & 883 (8th Cir.1977). Merrell's actions
clearly aided the gambling operation involved here. By serving coffee, appellant helped
- 117 -
the bettors to continue wagering without interruption. See Tucker, supra at 1296;
Bennett, supra at 883. By cleaning up and preparing the gambling area for future
sessions, appellant helped to provide an attractive place for bettors to congregate in
order to wager. In light of the authorities from the fifth, seventh and eighth circuits, we
hold that persons who regularly aid gambling enterprises should be subject to
prosecution under section 1955 even though their conduct may not be strictly
necessary to the success of such businesses. 3 Since the Boss case ruled to the contrary,
we decline to follow it.
Upholding the district court's judgment will not result in future convictions of
persons that Congress never intended. The record clearly indicates that appellant
regularly and consistently performed his duties. That fact distinguishes this case from
the situation in which, for example, a mere bettor serves a drink or helps to clean up in
an isolated instance. Secondly, and unlike the situation in Boss, Merrell regularly
worked for an enterprise whose sole purpose was to promote illegal wagering.
Consequently, appellant cannot reasonably claim that he unknowingly or unwittingly
facilitated gambling.
Since appellant knowingly and regularly aided the gambling business in question,
the district court acted properly in convicting him. Accordingly, the judgment is
AFFIRMED.
--------------1 The record does not indicate whether Merrell was compensated for his services. The
point is insignificant because the government need not prove that appellant was paid
in order to obtain a conviction. United States v. Rowland, 592 F.2d 327 (6th Cir.1979).
2 The record reflects that in addition to his other activities, Merrell did gamble. The
Sanabria exception to criminal liability only applies, however, to those whose sole role
is that of bettor. Persons who wager and otherwise participate in the operation may be
prosecuted because the contrary result would encourage a subterfuge, i.e., all
participants could avoid liability by placing an occasional bet. See United States v.
Colacurcio, 659 F.2d 684, 688 (5th Cir.1981).
3 The fifth circuit stated in Tucker, supra that persons employed by gambling
enterprises on a continuous basis, and whose duties require them directly to serve
- 118 -
gamblers, are subject to prosecution under section 1955. Appellant's conduct fits that
description.
- 119 -
U.S. v. Follin
979 F.2d 369
v.
Karin D. FOLLIN, John H. Stewart, Broadus V. Stewart, Jr.,
Donald L. Mason, and Christopher H. Crawford,
Defendants-Appellants.
No. 91-1550.
Fifth Circuit.
Dec. 3, 1992.
Page 371
Sam Wilkins, Jackson, Miss., for Follin.
Rebecca B. Cowan, C.R. Montgomery, Montgomery, Smith-Vaniz & McGraw,
Jackson, Miss., for Stewart & Stewart, Jr.
Larry Yarbrough, Jackson, Miss. (Court-appointed), for Mason.
Walter E. Wood, Ridgeland, Miss. (Court-appointed), for Crawford.
Joe M. Hollomon, Asst. U.S. Atty., George Phillips, U.S. Atty., Jackson, Miss., for U.S.
Appeals from the United States District Court for the Southern District of
- 120 -
Mississippi.
Before HIGGINBOTHAM and DUHE, Circuit Judges, and HARMON, District Judge. *
HARMON, District Judge:
This is an appeal of convictions for operating an illegal gambling business and
conspiring to do so in violation of 18 U.S.C. §§ 1955 & 2, and 18 U.S.C. §§ 371 & 2. John
H. Stewart ("Stewart"), Broadus V. Stewart, Jr. ("Stewart Jr.,"), Donald L. Mason
("Mason"), and Karin D. Follin ("Follin") appeal their convictions, arguing insufficiency
of evidence, inadmissibility of evidence and failure to extend immunity to a defense
witness. Christopher H. Crawford appeals from both his conviction and his sentence.
We affirm the appellants' convictions and Crawford's sentence in all respects.
I.
A. The Jurisdictional Five
Between September 27, 1990, and November 7, 1990, a gambling investigation
was conducted by the FBI, the Mississippi Attorney General's Office and the Criminal
Investigation Bureau of the Mississippi Highway Patrol. Officers undertook
surveillance of an illegal gambling casino operating at Stewart Lodge in Canton,
Mississippi. In furtherance of the investigation, Officer Bullock visited the casino eight
times during that period. He observed four men, Stewart, Stewart Jr., Crawford, and
Mason, operating blackjack and craps tables. Also present at the Lodge was Follin.
A sixth person, later identified as Herbert McMullen, assisted with the craps table
and at times stood watch on October 24, 1990. Stewart Jr., who normally worked the
tables, was not present on that night. That night Bullock observed approximately
fifteen to eighteen thousand dollars change hands during the time he was in the illegal
casino.
Title 18 U.S.C. § 1955 requires proof that five or more persons were participating
in an illegal gambling operation and that either the business was in substantially
continuous operation for thirty days or more, or that the operation had gross revenues
of two thousand dollars or more in a single day. U.S. v. Aucoin, 964 F.2d 1492, 1499
(5th Cir.1992).
Stewart, Stewart Jr., Crawford, and Mason do not dispute their role in the
operation, but contest the application of the criminal gambling statute. They contend
that as the only operators of the casino the government cannot convict them under a
statute that requires an illegal gambling business to "involve five or more persons 1
who conduct, finance, manage, supervise, direct, or own all or part of such business."
18 U.S.C. § 1955(b)(1)(ii). They argue that Follin, the fifth defendant convicted with
them, was merely a bettor.
Page 372
- 121 -
Section 1955 "proscribes any degree of participation in an illegal gambling
business, except participation as a mere bettor." Sanabria v. United States, 437 U.S. 54,
70 n. 26, 98 S.Ct. 2170, 2182 n. 26, 57 L.Ed.2d 43 (1978) (emphasis supplied).
Section 1955's coverage is broad. All persons providing services that are
necessary or helpful to the gambling operation come within its scope. United States v.
Colacurio, 659 F.2d 684, 688 (5th Cir.1981), cert. denied, 455 U.S. 1002, 102 S.Ct. 1635,
71 L.Ed.2d 869 (1982); United States v. Tucker, 638 F.2d 1292, 1295 (5th Cir.1981),
cert. denied, 454 U.S. 833, 102 S.Ct. 132, 70 L.Ed.2d 111 (1981).... [A]ctivities
exceed[ing] those of "mere bettors" ... fall outside section 1955's "sanctuary of
bettordom." United States v. Box, 530 F.2d [1258], 1276 [ (5th Cir.1976) ].
United States v. Jones, 712 F.2d 115, 120-21 (5th Cir.1983). The design of "section
1955 is 'to bring within federal criminal legislation not all gambling, but only that
above a certain minimum level....' " U.S. v. Tucker, 638 F.2d at 1297 (citing United
States v. Bridges, 493 F.2d 918, 922 (5th Cir.1974)). Yet, the clear intent of Congress
was to include all those who "participate in the operation of a gambling business,
regardless [of] how minor their roles." Id. at 1296 (citing United States v. Joseph, 519
F.2d 1068, 1071 (5th Cir.1975), cert. denied, 424 U.S. 909, 96 S.Ct. 1103, 47 L.Ed.2d
312 (1976)). See also United States v. Rieger, 942 F.2d 230, 234 (3rd Cir.1991).
Unlike the other defendants Follin did not operate a gambling table, and she was
not a paid employee. 2 She was observed, however, serving drinks, cooking steaks,
wiping off kitchen counters, and examining the dice. On several occasions she wagered
bets. 3
Bullock's notes only mention that Follin examined the dice on one occasion. On the
stand Bullock tried to attribute another such episode to Follin, but, although he was
familiar with Follin, he called her in his notes an "unidentified white female."
Defendants contend that that incident cannot be attributed to Follin. At trial Bullock
also testified to other acts performed by Follin, which were not mentioned in his
investigative notes. Defendants hotly contested this testimony because Bullock's notes
are very detailed, and it would be uncharacteristic for the investigator to have omitted
such facts from them. 4
The appellants maintain that Follin's activities were no different from those of the
other bettors. All patrons, it is argued, would get each other drinks, cook steaks, and
examine the dice should they fall nearest that person; as a mere bettor Follin cannot
be used to trigger the jurisdictional requirements of the statute since she did not
conduct or direct the illegal gambling operation. The central issue involved in this
appeal is whether the jury could have found, under the facts presented, that Follin was
not a mere bettor, but in fact was helpful to gambling operations. The government's
response is that Folin, unlike other bettors, was present at the casino from its
inauguration until its operations were terminated. The Government further contends
that any individual, regardless of the standard practice in the game room at the time,
who consistently performs duties so as to facilitate the gambling operation is subject
to prosecution under § 1955.
- 122 -
Appellants' arguments to the contrary, it is clear that through her aggregate
conduct
Page 373
Follin was more than a "mere bettor" and subject to prosecution under federal
gambling statutes. Follin could be used to establish the jurisdictional five requirement.
Appellants rely on United States v. Merrell, 701 F.2d 53 (6th Cir.), cert. denied, 463
U.S. 1230, 103 S.Ct. 3558, 77 L.Ed.2d 1415 (1983), and United States v. Boss, 671 F.2d
396 (10th Cir.1982). 5 Their reliance on these cases is misplaced. The facts of this case
closely approximate those in Merrell. In the instant action the jury heard testimony
that Follin wagered bets, served drinks, cooked steaks for those in attendance, and
cleaned the kitchen on occasion. In Merrell, the defendant served coffee during
gambling operations, but also stacked tables, swept the floors, and cleaned ash trays.
701 F.2d at 54. The Sixth Circuit, relying on our seminal decision in United States v.
Tucker, found that when a defendant serves coffee, thereby enabling bettors to
continue wagering without interruption, the defendant's actions clearly aided the
gambling operation. United States v. Merrell, 701 F.2d at 55 (citing Tucker, 638 F.2d at
1296). The Merrell Court held that "persons who regularly aid gambling enterprises
should be subject to prosecution under section 1955 even though their conduct may
not strictly be necessary to the success of such businesses." United States v. Merrell,
701 F.2d at 55. The Sixth Circuit indicated that those who regularly and consistently
perform functions that aid illegal gambling can be distinguished from mere bettors
who serve drinks or clean up in isolated instances. Id. No bright line can be drawn as
to what is "necessary or helpful" in all instances; such a determination depends on the
facts in a given situation and the evidence presented to the jury. The evidence
supports the jury's determination that Follin's activities went beyond the realm of a
mere bettor. Looking at the testimony in a light most favorable to the verdict, there is
evidence that Follin engaged in activities that were helpful to the operation of the
casino. We have determined that the statute proscribes any degree of participation in a
gambling operation except participation as a mere bettor. United States v. Tucker, 638
F.2d 1292, 1295 (5th Cir.1981), cert. denied, 454 U.S. 833, 102 S.Ct. 132, 70 L.Ed.2d
111 (1981). Viewing the evidence in the light most favorable to the Government "a
reasonable trier of fact could find that the evidence establishes guilt beyond a
reasonable doubt." United States v. Bell, 678 F.2d 547, 549 (5th Cir.1982), aff'd, 462
U.S. 356, 103 S.Ct. 2398, 76 L.Ed.2d 638 (1983); United States v. Zapata-Alvarez, 911
F.2d 1025, 1026 (5th Cir.1990).
B. Immunity and McMullen's Photograph
In order to controvert testimony that McMullen was present on October 24, the
appellants produced Robert Tadlock who swore that McMullen was not present in
Canton on October 24, 1990, but at the time was enroute with him from Frisco City,
Alabama.
A photograph was taken of McMullen and tendered to the defense the morning of
trial. Crawford moved to exclude the photo from evidence because the government's
- 123 -
failure to notify him of the photograph's existence was unfairly prejudicial. The district
court, viewing the objection as technical, overruled the motion.
McMullen was initially listed as a witness for the prosecution. When the
government did not call him to testify, the defense sought to call him. McMullen then
invoked his Fifth Amendment rights and refused to testify. The appellants argue that
the district court should have extended immunity to McMullen and ordered him to
testify.
Stewart, Stewart Jr., Crawford, and Mason also seek a judgment of acquittal or a
new trial because the trial court refused to
Page 374
hold an evidentiary hearing on McMullen's invocation of his Fifth Amendment
privilege.
We need not discuss at length appellants' arguments relating to the admission of
the photograph and the district court's determination not to extend immunity to
McMullen since, using twenty-twenty hindsight, this portion of the case was not
ultimately essential to the jury's determination. This is so because the jury rendered a
verdict against each of the five appellants. Since each of the five appellants was
convicted of operating or conducting a gambling business the jurisdictional five
requirement was established; when the jury found Follin guilty of conducting a
gambling business, the government's need to establish a sixth § 1955 person
evaporated.
During the course of deliberations the jury delivered three notes to the Court. 6
The defense asserts that the very substance and nature of the notes tend to show that
the jury was struggling with their task. The jury then returned a guilty verdict against
all five defendants.
The jury's questions demonstrate that, while during their deliberation they
considered McMullen's application to the case, the jury was ultimately satisfied that
the requirements of the statute were met. They evidenced their satisfaction by
convicting all five defendants.
Nevertheless, the district court did not err. The question in this case is whether
the district court properly investigated the legitimacy and scope of the privilege as it
extended to McMullen, and then having sustained the privilege protection, did the
district court err in not granting McMullen immunity. The standard of review for the
invocation of a Fifth Amendment privilege is whether the trial court abused its
discretion. United States v. Metz, 608 F.2d 147, 156 (5th Cir.1979), cert. denied, 449
U.S. 821, 101 S.Ct. 80, 66 L.Ed.2d 24 (1980). In light of the fact that McMullen was
apprehensive at the prospect of being prosecuted the district court, having heard
testimony on the subject, did not err in allowing McMullen to invoke the privilege
inasmuch as "an accused's right to compulsory process must give way to the witness'
- 124 -
Fifth Amendment privilege not to give testimony that would tend to incriminate him."
United States v. Boyett, 923 F.2d 378, 379 (5th Cir.), cert. denied, --- U.S. ----, 112 S.Ct.
53, 116 L.Ed.2d 30 (1991) (citing United States v. Khan, 728 F.2d 676, 678 (5th
Cir.1984)).
District Courts have no inherent power to grant immunity. A district court may not
grant immunity simply because a witness has essential exculpatory evidence
unavailable from other sources. United States v. Thevis, 665 F.2d 616, 638-41 (5th
Cir.), cert. denied, 456 U.S. 1008, 102 S.Ct. 2300, 73 L.Ed.2d 1303 (1982). However,
judicially ordered immunity may be sanctioned to stem governmental abuse. See
United States v. Thevis, 665 F.2d at 640-41. Appellant argues that McMullen should
have been granted immunity because his refusal to testify was the result of
prosecutorial misconduct. Brief of Appellant Christopher Crawford at p. 25. The record
does not support the appellants' allegations. The trial court addressed counsel on this
very issue and defense counsel replied that he was not pressing forward with the
allegation. This claim does not warrant further discussion. The trial court did not err in
failing to extend immunity to McMullen.
Turning to the admissibility of the photograph Crawford argues that the district
court abused its discretion because it allowed the Government to introduce a
photograph of McMullen that was not presented to defense counsel until the morning
of the trial. He contends the photograph should be excluded as its receipt into evidence
Page 375
violated the discovery order and prejudiced his defense.
The standard of review on appeal for the admissibility of evidence is whether the
trial court abused its discretion. United States v. Westmoreland, 841 F.2d 572, 578
(5th Cir.), cert. denied, 488 U.S. 820, 109 S.Ct. 62, 102 L.Ed.2d 39 (1988); United States
v. Stephenson, 887 F.2d 57, 59 (5th Cir.1989), cert. denied, 493 U.S. 1086, 110 S.Ct.
1151, 107 L.Ed.2d 1054 (1990). Although the photograph was taken on the Saturday
prior to the Monday trial commencement, the developed photograph was not given to
the prosecutor until Monday morning. It was then immediately proffered to defense
counsel. The discovery order provided for continuing discovery of items which came
into the government's possession. The district court did not abuse its discretion by
permitting the Government to introduce the photograph of McMullen since the record
demonstrates that as soon as it came into the prosecutor's possession, the prosecutor
provided the photograph to the defense.
II.
Sentencing Guidelines
Crawford objects to his sentence arguing that he was entitled to receive a two
point offense level reduction as a minor participant and that two D.U.I. convictions
should not have been used to enhance his criminal history category.
- 125 -
Our review of a sentence under the guidelines is "confined to determining whether
a sentence was 'imposed in violation of the law' or 'as a result of an incorrect
application of the sentencing guidelines.' " United States v. Nevarez-Arreola, 885 F.2d
243, 245 (5th Cir.1989) (citing 18 U.S.C. § 3742(e)). We affirm applications of the
guidelines when they are based on factual findings that are not clearly erroneous. Id.
"A factual finding is not clearly erroneous as long as it is plausible in light of the record
as a whole." United States v. Sanders, 942 F.2d 894, 897 (5th Cir.1991).
United States v. Shipley, 963 F.2d 56, 58 (5th Cir.), cert. denied, --- U.S. ----, 113 S.Ct.
348, 121 L.Ed.2d 263 (1992).
1. Minor Participant
The court's finding that Crawford was not merely a minor participant was not
clearly erroneous. Trial testimony reflects that Crawford held various positions in the
enterprise. Crawford was present in the casino every night and took part in the
operation by working the craps table, dealing blackjack, and admitting bettors to the
casino. He is not entitled to a reduction. A defendant's participation is not minor unless
he is "substantially less culpable than the average participant." U.S.S.G. § 3B1.2,
Comment. (backg'd.). The record contains ample support for the court's finding that
Crawford was not a minor participant. We will not disturb that finding.
2. Criminal History Score
Crawford's second objection to the sentencing guidelines is that his two
uncounseled misdemeanor DUI convictions should not have been used to increase his
criminal history category. We have recognized that the sixth amendment guarantee of
counsel is one of the "fundamental principles of liberty and justice which lie at the
base of all our civil and political institutions." United States v. Eckford, 910 F.2d 216,
218 (5th Cir.1990), reh'g denied, 915 F.2d 695 (5th Cir.1990) (quoting Powell v.
Alabama, 287 U.S. 45, 67, 53 S.Ct. 55, 63, 77 L.Ed. 158 (1932)). The sixth amendment,
however, requires only that "no indigent criminal defendant be sentenced to a term of
imprisonment unless the Government has afforded him the right to assistance of
counsel." Id. at 218 (emphasis in original) (quoting Scott v. Illinois, 440 U.S. 367, 374,
99 S.Ct. 1158, 1162, 59 L.Ed.2d 383 (1979)). "Thus, conviction of an uncounseled
criminal defendant is constitutionally permissible, so long as the defendant is not
sentenced to a term of imprisonment." Id.
Crawford relies on the four concurring opinions in Baldasar v. Illinois, 446 U.S.
222, 100 S.Ct. 1585, 64 L.Ed.2d 169 (1980), for the proposition that a court cannot use
Page 376
an uncounseled misdemeanor conviction to enhance a punishment. Justice Blackmun's
independent concurrence noted that enhancement for an uncounseled misdemeanor
conviction is improper where the misdemeanor offense is punishable by a period of
more than six month's imprisonment. Id. at 230.
- 126 -
We have since determined that Baldasar is of little guidance given the
inconsistencies of the opinion and the slim majority. United States v. Eckford, 910 F.2d
at 219 (citing Schindler v. Clerk of Circuit Court, 715 F.2d 341, 345 (7th Cir.1983), cert.
denied, 465 U.S. 1068, 104 S.Ct. 1419, 79 L.Ed.2d 745 (1984)). In Wilson v. Estelle, 625
F.2d 1158 (5th Cir.1980), cert. denied, 451 U.S. 912, 101 S.Ct. 1985, 68 L.Ed.2d 302
(1981), we determined that a defendant's two prior uncounseled misdemeanor
convictions, for which he received no term of imprisonment, were valid for all
purposes. 7 Id. at 1159; United States v. Eckford, 910 F.2d at 220. Baldasar was
basically limited to the premise that "a prior uncounseled misdemeanor conviction
may not [be] used under an enhanced penalty statute to convert a subsequent
misdemeanor into a felony with a prison term." United States v. Eckford, 910 F.2d at
220 (quoting Wilson v. Estelle, 625 F.2d at 1159 n. 1). 8
In Eckford, two prior uncounseled misdemeanor convictions with maximum
penalties of not more than six month's imprisonment, but no actual incarceration,
were used to increase the defendant's maximum potential sentence by four months.
United States v. Eckford, 910 F.2d at 217. Crawford's case can only be distinguished
from Eckford in that Crawford's second misdemeanor DUI conviction carried a
maximum sentence of a year imprisonment. United States v. Eckford, 910 F.2d at 219 n.
8. Under Blackmun's concurrence in Baldasar, the trial court could not use the second
uncounseled conviction to increase the criminal history level. However, Crawford
received a two day suspended sentence for his second DUI conviction, and under the
sentencing guidelines a sentence of imprisonment does not include any portion of a
sentence that was suspended. U.S.S.G. § 4A1.2(b)(2).
III.
For the reasons discussed above, the judgment and sentence of the trial court is
AFFIRMED.
--------------* District Judge of the Southern District of Texas, sitting by designation.
1 The case law often refers to the "five or more person" standard as the "jurisdictional
five" requirement.
2 The government need not prove that Follin was compensated in order to obtain a
conviction for her role in the gambling activity. United States v. Merrell, 701 F.2d 53,
54 n. 1 (6th Cir.), cert. denied, 463 U.S. 1230, 103 S.Ct. 3558, 77 L.Ed.2d 1415 (1983)
(citing United States v. Rowland, 592 F.2d 327 (6th Cir.1979)).
3 Follin gambled with her own money on a few occasions, but the record reflects that
on most occasions she did not gamble. Follin neither received chips from the operators,
nor did she receive chips from other gamblers. However, she would roll the dice for
others and keep the proceeds if she won.
4 Their argument must fail since "[i]ssues of credibility, the weight of the evidence,
- 127 -
and conflicts in evidence are matters for the jury." United States v. Ortega-Chavez, 682
F.2d 1086, 1091 (5th Cir.1982) (citing United States v. Parr, 516 F.2d 458, 464 (5th
Cir.1975)).
5 United States v. Boss, has not been followed by those circuits using the necessary or
helpful test. See United States v. Hammond, 821 F.2d 473, 476 (8th Cir.) (individual
conducted illegal gambling business by supplying paper to bettors and allowing phone
to be used in gambling operation), cert. denied, 484 U.S. 986, 108 S.Ct. 502, 98 L.Ed.2d
501 (1987); see also United States v. Merrell, 701 F.2d at 55.
6 The first question read: "If we do find five persons guilty of the two charges but one
is not listed, does this mean that [we] find all of the five listed guilty?" The second jury
question read: "If we find one or more persons to be guilty on the evidence presented,
does it mean that any of the other persons are guilty by association?" The last question
read: "If we find the man in the picture is the fifth person but we can't ID?" The
appellants have no quarrel with the responses of the trial judge.
7 We note that an uncounseled conviction is not necessarily constitutionally invalid
since, for example, the defendant may have waived the right to counsel. Yet, if a
defendant shows that a conviction was previously ruled constitutionally invalid it may
not be counted in the criminal history score. U.S.S.G. § 4A1.2, comment (n. 6). We have
previously held that the application note 6 "allows a district court, in its discretion, to
inquire into the validity of prior convictions at sentencing hearings." United States v.
Canales, 960 F.2d 1311, 1315 (5th Cir.1992).
After reviewing the statements of the district court at the sentencing hearing, it is
obvious that the court did not allow the challenge. The court found Crawford's
argument, that his previous DUI convictions were constitutionally invalid, not well
taken. Since "a court is only required to exclude a prior conviction from the
computation of the criminal history category if the defendant shows it to 'have been
previously ruled constitutionally invalid," United States v. Canales, 960 F.2d at 1315
(emphasis in original), the district court did not err when it ruled, citing Eckford, that
the second DUI conviction could not be constitutionally invalid since there was no
imprisonment.
8 Calculating Crawford's criminal history by relying on a prior uncounseled misdemeanor is
permissible; it is an entirely different issue than the one raised in Baldasar. In the case at
hand, the court used an uncounseled DUI conviction to determine a criminal history
category for a crime that was a felony; it was not used to enhance a misdemeanor into a
felony. United States v. Castro-Vega, 945 F.2d 496, 500 (2nd Cir.1991), petition for cert. filed,
No. 91-6933 (January 8, 1992).
- 128 -
U.S. v. Heacock
31 F.3d 249
v.
Alvin Wayne HEACOCK, Jr., a/k/a "Johnny B. Williams",
Defendant-Appellant.
No. 93-7648.
Fifth Circuit.
Aug. 24, 1994.
Page 250
Larry O. Norris, Hattiesburg, MS, for appellant.
John R. Hailman, Asst. U.S. Atty., Oxford, MS, Richard Starrett, Asst. U.S. Atty.,
George Phillips, U.S. Atty., Jackson, MS, for appellee.
Appeal from the United States District Court for the Southern District of
Mississippi.
Before KING, JOLLY, and DAVIS, Circuit Judges.
Page 251
E. GRADY JOLLY, Circuit Judge:
Alvin Wayne Heacock, Jr. appeals his criminal convictions for various illegal
gambling related offenses. He argues eleven points of error, but most have little merit.
We therefore focus our attention on (A) Heacock's sufficiency of the evidence
challenge to his conviction under 18 U.S.C. Sec. 1955--operation of an illegal gambling
business--and (B) Heacock's legal challenge to his conviction under 18 U.S.C. Sec.
1952--interstate travel in aid of racketeering. We hold that the judgment of conviction
is error-free, and therefore affirm.
I
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Heacock was a bookie in Hattiesburg, Mississippi. Heacock controlled a fairly large
gambling operation, with several "associates" operating bookmaking offices for him in
several cities. Many of Heacock's gambling partners testified at trial concerning
Heacock's gambling business. The evidence showed how bets were made, what types
of bets were made, and how money was moved between cities. Further, there was
testimony to show that Heacock and his associates took deliberate steps to avoid the
paper trails of the gambling operations, that Heacock had a practice of "hiding" money-in the floor at one of his apartments and in alias-named safety deposit boxes--and,
finally, that Heacock's real profits differed significantly from his reported profits.
In addition to the testimony from Heacock's gambling comrades, the government
produced evidence from a police search of Heacock's residence that was conducted on
December 17, 1990. As a result of that search--and as the result of a 1985 raid on
Heacock--the government obtained a great deal of evidence that Heacock was
conducting illegal gambling. Part of the evidence included cassette recordings of illegal
bets being made. Further, the government introduced into evidence police
photographs of the scene at Heacock's residence. In any event, this generally
overwhelming evidence concerning Heacock's gambling operations, served as the
basis for Heacock's indictment in October of 1992 and his ultimate conviction.
II
Heacock was indicted in the Northern District of Mississippi in an 11-count
indictment charging: a scheme to conceal from the IRS in sixteen different ways the
nature and extent of his bookmaking operation between 1980 and 1992 in violation of
18 U.S.C. Sec. 1001 (Count 1); a conspiracy to impede the IRS from learning his sources
and amounts of gambling income and his cash transactions in violation of 18 U.S.C. Sec.
371 (Count 11); conducting an illegal gambling business with five or more persons
from October 2, 1987 to January 22, 1988, in violation of 18 U.S.C. Sec. 1955 (Count 2);
using the mail on four occasions to distribute gambling proceeds in violation of 18
U.S.C. Sec. 1952 (Counts 3-6); and, finally, laundering proceeds of State RICO violations
involving gambling in violation of 18 U.S.C. Sec. 1956 (Counts 7-10).
On Heacock's motion under Fed.R.Civ.P. 18, trial was moved from Oxford,
Mississippi to Hattiesburg, his city of residence, 250 miles away in the Southern
District of Mississippi. After trial--conducted from May 24 through June 2, 1993--the
jury convicted Heacock on all counts. On October 6, 1993, the district judge, after
finding Heacock had threatened the family of the detective investigating him, had
understated his income by over $600,000 and was still concealing substantial assets,
nevertheless departed downward substantially from the guidelines and sentenced
Heacock to serve 60 months concurrently on each count and to pay a $450,000 fine.
Heacock filed a timely notice of appeal.
III
A
- 130 -
On appeal, Heacock argues that there was insufficient evidence to support his
conviction under 18 U.S.C. Sec. 1955 for operating an illegal gambling business. In
reviewing challenges to sufficiency of the evidence, this court views the evidence in
the light most favorable to the jury verdict and affirms if a rational trier of fact could
have found that the government proved all essential
Page 252
elements of the crime beyond a reasonable doubt. United States v. Ruiz, 987 F.2d 243,
249 (5th Cir.), cert. denied, --- U.S. ----, 114 S.Ct. 163, 126 L.Ed.2d 123 (1993). All
credibility determinations and reasonable inferences are to be resolved in favor of the
jury's verdict. See id.
Section 1955 defines "illegal gambling business" as
a gambling business which--
(i) is a violation of the law of a State or political subdivision in which it is
conducted;
(ii) involves five or more persons who conduct, finance, manage, supervise, direct,
or own all or part of such business; and
(iii) has been or remains in substantially continuous operation for a period in
excess of thirty days or has a gross revenue of $2,000 in a single day.
18 U.S.C. Sec. 1955(b)(1) (emphasis added). Heacock argues that the government
failed to prove that five or more persons were involved in aiding the conduct of
Heacock's illegal gambling business between October 2, 1987 and January 22, 1988, as
charged in the indictment. We find, however, that the evidence sufficiently established
the "jurisdictional five."
To be counted as a part of the jurisdictional five, a person or entity must have
provided services "necessary or helpful" to the gambling operation. Participants have
included everything from layoff bettors 1 and line services 2 to waitresses who serve
drinks. Only regular bettors are excluded from the count. See United States v. Boyd,
566 F.2d 929, 934-35 (5th Cir.1978).
(1)
The record reveals that in addition to Heacock, at least four other persons were
involved in the operation of the illegal gambling business. The first was Dr. Jeffrey
Topping, who was a psychology professor at Mississippi State University in Starkville,
Mississippi, and who testified that from 1980 until gambling raids on his home in
March 1988, he operated a bookmaking office for Heacock in Starkville. Heacock
received his bets from "associates" like Topping--a service that no doubt was
necessary or helpful to Heacock's operation--and no one disputes that Topping was
- 131 -
involved during the count two period. Heacock and Topping make two of the
jurisdictional five.
(2)
Next, United Productions, a line service from Las Vegas can be counted as the third
member of the jurisdictional five. 3 According to testimony from bookmaking expert
Tommy Patterson, up-to-date professional line services are essential to a large
bookmaker like Heacock in operating a profitable gambling business. United
Productions was just such a service, providing "up to the second, up to the minute"
lines on current games to anyone who called them on their "900" number. An analysis
of Heacock's long-distance toll records reflected 64 separate calls from Heacock's
telephone numbers to United Production's "900" number line service during the count
two time period. United Productions was an essential part of Heacock's gambling
operations and is the third member of the jurisdictional five.
Page 253
(3)
The fourth member of the jurisdictional five is another line service from Las Vegas,
known as J & J Sports Services ("J & J"), owned by Christine Fenton. Fenton testified at
trial, and she exhibited a ready familiarity with Heacock and his business. She knew
Heacock as "Wayne--# 793," a long-time client, and her only client in Hattiesburg,
Mississippi. She produced business records showing Heacock's address in Hattiesburg,
and she testified that Heacock used her service in all seasons except summer baseball
season, which was consistent with the testimony of other witnesses who knew
Heacock's gambling practices.
Heacock challenges J & J as a member of the jurisdictional five, however, arguing
that there is no evidence to show that he used J & J's line service during the count two
time period, from October 1987 through January 1988. We find that the evidence is
sufficient to support the conclusion that J & J provided service to Heacock throughout
the relevant period. First, there was direct evidence from Fenton herself that Heacock
began using her service in September of 1986, "[t]o the best of [her] knowledge."
Fenton's testimony was supported by other evidence that showed that Heacock
used J & J both before and after the relevant time period, suggesting that it was far
more likely than not that J & J was also involved during the relevant period of time,
inasmuch as no reason was offered for the exclusion of such a gap in time. Fenton
testified that Heacock paid her three hundred dollars per month for use of her line
service (which was different from United Productions who charged its customers via a
"900" toll telephone number), and one of Heacock's former assistants recalled that
Heacock paid three hundred dollars per month for line updates during the time that
she worked for him, before the count two period. An actual three hundred dollar
money order from "Wayne--# 793" was produced as documentary evidence to show
that Heacock used J & J's service after the relevant time period.
- 132 -
Finally, there was testimony explaining that it would make sense for a bookmaker
to have more than one line at any given time period, for example, both J & J and United
Productions. In sum, there was both direct and circumstantial evidence to show that
Heacock used J & J Sports Services during the count two period. We find that evidence
sufficient to support the conclusion that J & J Sports Services was the fourth member of
the jurisdictional five. 4
(4)
The fifth member of the jurisdictional five can easily be found in reviewing the
testimony about a man named Benny Cook. Cook, without dispute, took telephone bets
using the name "Johnny" at the time of the 1990 search of Heacock's residence. Bookie
Mike Sheffield and bettor Russell Stogner testified that during the count two period a
man other than Heacock took telephone bets using the name "Johnny." Further,
Sheffield testified that the man called "Johnny Williams" was really Bennie Cook. It is
true that when Sheffield was asked how he knew that Johnny was Bennie, he
responded in a less than coherent fashion, 5 but the direct evidence is
Page 254
nonetheless sufficient to find that Bennie Cook took telephone bets for Heacock, using
the name Johnny Williams, during the count two period. 6
In sum, we find sufficient evidence to support the conclusion that Wayne Heacock,
Jeffrey Topping, United Productions, J & J Sports Services, and Benny Cook all
participated in Heacock's illegal gambling business by providing him with necessary or
helpful services during the period from October 2, 1987 through January 22, 1988, and
we therefore affirm Heacock's felony gambling conviction under 18 U.S.C. Sec. 1955.
B
The next issue presented is one of first impression in this circuit: Are intrastate
mailings sufficient to invoke federal jurisdiction under 18 U.S.C. Sec. 1952. This
question is one of law, which we will review de novo. In re Allison, 960 F.2d 481, 483
(5th Cir.1992).
Heacock was convicted on counts three, four, five, and six of the indictment for
using the mail in the aid of a racketeering enterprise. Specifically, Heacock was
charged with and convicted of
willfully caus[ing] the use of the United States mail, with intent to distribute the
proceeds of a business enterprise involving gambling, that is defendant, as apart of his
bookmaking operation, did direct Jeff Topping [his associate in Starkville, Mississippi]
to send ... gambling proceeds to a bookmaker in Natchez, MS.
Heacock argues that he cannot be convicted under 18 U.S.C. Sec. 1952, as a matter
of law, for any intrastate mailings.
- 133 -
The mailings in question occurred between October 1987 and January 1988. At
that time, section 1952 provided:
Whoever travels in interstate or foreign commerce or uses any facility in interstate or
foreign commerce, including the mail, with intent to-(1) distribute the proceeds of any unlawful activity; or
(2) commit any crime of violence to further any unlawful activity; or
(3) otherwise promote, manage, establish, carry on, or facilitate the promotion,
management, establishment, or carrying on, of any unlawful activity,
and thereafter performs or attempts to perform any of the acts specified in
subparagraphs (1), (2), and (3), shall be fined not more than $10,000 or imprisoned
for not more than five years, or both.
18 U.S.C. Sec. 1952(a) (emphasis added). 7
The Second and Sixth Circuits have addressed this statutory question and have
reached opposite conclusions. 8 The Sixth Circuit in Barry concluded that an intrastate
Page 255
mailing was not sufficient to invoke federal jurisdiction. Barry, 888 F.2d at 1095. The
Sixth Circuit found it significant that the statute made reference to facilities in
interstate commerce, as opposed to facilities of interstate commerce. The Sixth Circuit
concluded that the word "of" merely "identifies the facilities referred to," whereas, the
word "in" "require[s] a particular use of a facility." Id. The Sixth Circuit also found
support for its reading in the legislative history of the act.
The Second Circuit in Riccardelli, on the other hand, concluded that "Congress
intended any use of the United States mails to be sufficient to invoke federal
jurisdiction under the Travel Act." Riccardelli, 749 F.2d at 830. The Second Circuit
reasoned that a plain reading of the Act revealed that the mailing did not need to be
interstate: "The positioning of the phrase 'including the mail' in the statute singles out
the mail for special treatment and thus consistent with the historical understanding of
the United States mail, equates the use of the mail with the use of other facilities of
interstate and foreign commerce; it does not indicate that the mailing itself must be
interstate." Id. at 861. The Second Circuit, like the Sixth Circuit, found that the
legislative history of the statute supported its reading of the statute. Id. In sum, the
Second Circuit found the phrase "intrastate mails" to be an "oxymoronic
juxtaposition." Id. at 830.
We agree with the result reached by Second Circuit: Section 1952 criminalizes any
use of the United States mail with the intent to distribute the proceeds of an unlawful
activity. Section 1952 punishes "whoever ... uses any facility in interstate or foreign
- 134 -
commerce, including the mail." Our reading of this language leads us to conclude that
the use of "the mail" clearly embodies and includes the use of the United States Post
Office, which is a "facility in interstate commerce." In other words, whenever a person
uses the United States Post Office to deposit, to transport, and to deliver parcels,
money, or other material by means of the mail, that person clearly and unmistakably
has used a "facility in interstate commerce," irrespective of the intrastate destination
of the item mailed. Accordingly, we hold that any use of the United States mails in this
case is sufficient to invoke jurisdiction under 18 U.S.C. Sec. 1952, 9 notwithstanding
the intrastate destination of the mailings. 10
C
Finally, in addition to the more substantive complaints discussed above, Heacock
argues that the district court committed a gaggle of other errors. We have reviewed
each of Heacock's arguments and have concluded that the district court committed no
reversible error in the present case. Accordingly, we affirm the district court on all of
the following issues:
(1)
First, Heacock complains that the prosecutor told the jury in opening statement
that Heacock furnished drugs to his ex-girlfriend, Lisa Cunningham. 11 Heacock says
that this statement was totally false. Further, according to Heacock, the court's
curative action was ineffective and implied that Heacock was using drugs. The essence
of the government's opposition to this appeal is
Page 256
that, to begin with, there was no prosecutorial misconduct in making this true
statement, and that given the overwhelming nature of the evidence, an isolated
mention of drugs had no impact whatsoever on the outcome of the trial.
A motion for mistrial based on an alleged prejudicial comment by the prosecution,
is reviewed under the abuse of discretion standard. U.S. v. Bentley-Smith, 2 F.3d 1368,
1378 (5th Cir.1993). The test for assessing claims of prejudice from prosecutorial
conduct is (1) the degree of initial prejudice; (2) the effectiveness of corrective
measures; and (3) the strength of the government's other evidence. U.S. v. Georgalis,
631 F.2d 1199 (1980), and U.S. v. Semensohn, 421 F.2d 1206 (2d Cir.1970). In the light
of the government's overwhelming evidence of guilt, and in the light of the fact that the
jury heard only one sentence concerning drugs from the prosecutor, followed by a
very clear instruction that drugs were irrelevant to the case, it is clear to us that the
district court did not abuse its discretion by failing to award a mistrial in this instance,
even if we assume that the prosecutor's statement amounted to prosecutorial
misconduct.
(2)
- 135 -
Heacock's next complaint of prosecutorial misconduct involves a revolver. In the
1990 search, according to Heacock, the police removed a revolver from a lower desk
drawer, placed it into an upper desk drawer, and partially opened the drawer so that
they could make a photograph of the revolver. At trial, Heacock objected to Officer
Cox's testifying that there was a revolver in the desk drawer, and the court sustained
Heacock's objection. At that time, the prosecutor informed the court that photographs
of the revolver in the desk were included in a series of photographs of the 1990 search,
and asked, "Should we cut out the ones with the firearms in them?" The court
responded, "Yes."
The photographs were later introduced into evidence. Instead of removing all of
the pictures that included the revolver, however, the prosecutor "amended" one
picture by cutting the revolver out of the photograph. The photographs, including the
"amended" one, were immediately published to the jury. Heacock moved for a mistrial,
and, in response, the "amended" photograph was withdrawn from the exhibits.
Again, the test for assessing claims of prosecutorial misconduct require that we
determine whether the alleged misconduct was prejudicial in the light of the other
evidence from trial. We conclude that the introduction of one "amended" photograph,
which was later withdrawn from the exhibits, could not be prejudicial in this case with
such an overwhelming set of incriminating facts. There was no abuse of discretion
here.
(3)
Heacock next argues that all of the evidence introduced at the trial that was
obtained from the 1985 search of his residence should have been suppressed because
the indictment was brought more than five years after the evidence was obtained. See
18 U.S.C. Sec. 3282. 12 We have previously held, however, that section 3282 "is a
defense to prosecution, not a rule of evidence." United States v. Ashdown, 509 F.2d
793, 798 (5th Cir.1975). Furthermore, the statute of limitations does not begin to run
on a "scheme" crime (count one charged a scheme to conceal in violation of 18 U.S.C.
Sec. 1001), until each overt act constituting the scheme has occurred, because the case
cannot be brought and proved until that time. United States v. Girard, 744 F.2d 1170
(1984) (if any overt act that furthers the purpose of a conspiracy occurs within the
limitations period, including an act of concealment, then the indictment is timely).
In the present case, the prosecution coupled the 1985 evidence that Heacock was
involved in gambling with other proof to show that Heacock was concealing from the
IRS in sixteen different ways the nature and
Page 257
extent of his bookmaking operation between 1980 and 1992. Thus, in this case where
the evidence from before the limitations period bears on the existence of the scheme
to defraud, the evidence was properly admitted at trial. U.S. v. Ashdown, 509 F.2d at
797-98. 13
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(4)
Heacock next argues that his Fifth Amendment right against self-incrimination
was violated when his own tape recordings of betting activity and his federal tax
returns were introduced into evidence against him. He argues that the tape recordings
were daily records of his gambling activity, which the government required him to
keep, and that his tax returns were also documents that the government compelled
him to prepare and file.
It is well settled that in order to assert a Fifth Amendment claim of this nature,
Heacock would have been required to assert a privilege at the time he kept his records
and filed his return. U.S. v. Haydel, 649 F.2d 1152, 1159 n. 13 (5th Cir.1981). To put
Heacock's argument in its best light, however, we will construe this claim as an appeal
under 26 U.S.C. Sec. 4424, pursuant to which Congress granted taxpayers immunity
from prosecutorial use of such tax information, except "in connection with the ...
criminal enforcement of any tax imposed by ... title ." 26 U.S.C. Sec. 4424(c).
Nonetheless, Heacock's claim still falls short of requiring reversal of the district
court. First, as to the disputed tape recordings, Heacock stipulated that his recording
and maintaining of the tapes were not required by law. As such, there can be no Sec.
4424 violation. See U.S. v. Aucoin, 964 F.2d 1492, 1500 (5th Cir.1992). Accordingly, the
district court made no error in determining that these tape recordings of bets were not
kept for lawful purpose but for unlawful purpose of "settling up" with bettors.
Second, with respect to the introduction of Heacock's gambling tax returns (as
well as the tape recordings), 26 U.S.C. Sec. 4424 provides that required records can be
used "in connection with the ... criminal enforcement of any tax imposed by ... title ."
Count one of the instant indictment (which was a scheme to conceal from the IRS in
sixteen different ways the nature and extent of Heacock's bookmaking operation
between 1980 and 1992 in violation of 18 U.S.C. Sec. 1001) and count eleven of the
indictment (which was a conspiracy to impede the IRS from learning his sources and
amounts of gambling income and his cash transactions in violation of 18 U.S.C. Sec.
371) both constitute such a criminal enforcement of a tax. Accordingly, the judgment
of the district court is affirmed on this issue.
(5)
The next issue presented is whether the district court abused its discretion in
failing to apply the knock and announce rule to exclude evidence seized in the 1990
search of Heacock's residence. According to Heacock, in the 1990 search the police
knocked his door down even though the police admitted that they did not fear any
injury from Heacock and that they had no particular reason to believe that he
personally would destroy evidence. 14 It is further undisputed that the police officers
did not announce the purpose of their search prior to knocking the door
Page 258
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down. 15 Heacock argues, therefore, that the evidence obtained in the 1990 search
should have been suppressed because of the violation of the knock and announce rule.
There is no question but that 18 U.S.C. Sec. 3109 requires that the police knock and
give notice of authority and purpose before forcible entry to one's premises. 16 The
government, however, points out that the 1990 search of Heacock's gambling premises
was by state officers under a state warrant, and, argues that the search was not subject
to federal procedures merely because one federal agent was present. The government
further argues--and the district court concluded--that the state search was
constitutionally "reasonable" because the officers knocked and announced their
presence several times before forcible entry, which was accomplished to prevent
destruction of evidence.
In view of the fact that 18 U.S.C. Sec. 3109 has no application to a state search, the
question becomes whether the Fourth Amendment itself requires that police
announce their "purpose" before forcible entry. It is clear that the ultimate question
under the Constitution is simply whether the search is "reasonable." Given the fact that
the police clearly made their presence known before taking any forcible action, and
given the possibility that a longer wait might well have resulted in the destruction of
evidence, we cannot say that the district court abused its discretion in determining
that the search in this case was reasonable.
(6)
Heacock, in an argument that might be described as lacking legal reasoning,
contends that the evidence seized in the 1990 search should be suppressed because
the state had no ownership claim to the property. It seems that the seized evidence
was also the subject of a civil forfeiture proceeding in state court, and the state court
had ordered the civil forfeiture proceeding dismissed. Heacock argues, therefore, that
the police had no right to possess his personal property since no criminal charges
were pending, and had no right to copy any tapes or keep any other items in the face of
the court order dismissing the civil forfeiture proceeding. We reject this contention
because Heacock has presented absolutely no authority in his one-page argument on
this point. Consequently, this point has effectively been abandoned for the purposes of
this appeal. L & A Contracting v. Southern Concrete Services, 17 F.3d 106, 113 (5th
Cir.1994).
(7)
Finally, Heacock next argues that the government should have been estopped from
prosecuting him for money laundering under 18 U.S.C. Sec. 1956 because he had a tax
wagering stamp, filed his monthly 730 tax returns, and paid the government a two
percent excise tax. It is clear, however, that "the payment of any tax imposed [on
gamblers] with respect to any activity shall not exempt any person from any penalty
provided by a law of the United States or of any State for engaging in the same
activity." 26 U.S.C. Sec. 4422. Furthermore, 18 U.S.C. Sec. 1956 punishes those who
launder money derived from "unlawful activity." Given that Heacock's activities were
"unlawful" under state law, 17 and given that Heacock's estoppel
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Page 259
argument is absolutely rejected by the Internal Revenue Code, this argument is
meritless. 18
IV
We conclude that the judgment of conviction in this case contains no errors. The
evidence fully supports Heacock's conviction under 18 U.S.C. Sec. 1955 for operating
an illegal gambling business with five or more persons. Further, we hold that any use
of the United States mail is sufficient to invoke federal jurisdiction under 18 U.S.C. Sec.
1952, notwithstanding the intrastate destination of the mailings in this case. Finally,
we conclude that Heacock's several other points of error have no merit. Consequently,
we hold that the judgment of conviction is error-free, and therefore
AFFIRMED.
---------------
1 A bookie is not himself a bettor, but rather is a businessman who makes his profit
from collecting a percentage, usually 10%, from the losing bettors who bet through
him. This percentage collected by the bookmaker is called "juice." In order to keep
from risking his own money, a bookmaker must take bets from an equal number of
winning and losing bettors. That way, he will collect 110% of the amount he must pay
out. When a bookie has more bets on one side, and needs more on the other in order to
balance his books, the bookie will "layoff" bets to another bookie.
2 A bookmaker utilizes a "line" or point spread on each game for which he is taking
bets. As previously noted, the bookmaker must have exactly the same amount bet on
each side of the line so that he can collect his full percentage charge from each losing
bet placed with him. Further, it is important for bookmakers to have up-to-the-minute,
accurate lines so that bettors cannot play one bookmaker against another who may be
giving a different line.
3 "[T]he regular direct exchange of.... line information can connect otherwise
independent gambling operations." See United States v. Boyd, 566 F.2d at 935.
4 In further arguing that the evidence was insufficient to conclude that J & J provided
service to him during the count two period, Heacock points to the absence of any
relevant documentary proof. More specifically, Heacock points to the lack of phone
records showing calls to J & J. Because the other evidence sufficient in itself to support
the conclusion that J & J was involved in Heacock's gambling business throughout the
count two period, it is irrelevant that the government did not produce yet another
piece of documentary evidence. We note, however, that the government offered a
perfectly reasonable explanation for the lack of phone records: Unlike United
Productions, which charged callers via a "900" telephone number, J & J charged a
monthly flat rate. According to the government, customers of J & J then called an "800"
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number to reach the service, and "800" numbers do not appear on phone bills.
5 The following exchange took place on direct examination of Sheffield:
Q. Do you know who Johnny Williams is?
A. Yes.
Q. Who is it?
A. Bennie Cook.
Q. And how do you know that?
A. I don't--
Q. Did you ever meet him?
A. No. I talked to him over the phone. Then I finally met Bennie and Johnny, yeah. He
told me that was who had been answering the phone.
Q. Who told you that was who had been answering the phone?
A. I think Bennie did.
6 We could continue this count if needed: For example, Mike Sheffield, himself a
bookmaker, testified, unequivocally, that he placed layoff bets with Heacock during the
count two period.
Q. ... I'm going to ask you two questions: First of all, did you ever personally bet with
Wayne Heacock?
A. Yes.
Q. Did you ever lay off bets to balance out your bookie business with him?
A. At times.
Q. At times. Okay. Specifically, I want to ask you for the time period October 2nd, 1987,
through March of 1988 did you ever lay off bets with the defendant during that
period?
A. At different times, yes.
Q. At different times?
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A. Yes.
Q. But including that period of time?
A. Yes.
Q. And what would be the reason for you laying off with him?
A. If he had a better number on a game or if I was overloaded on a game, I would call
and place a bet through him.
Given that Sheffield testified that he regularly placed layoff bets with Heacock, and did
so during the count two period, Sheffield could be counted as the fifth participant in
Heacock's illegal gambling business.
7 Section 1952 was amended in 1990 by relocating the reference to the mail as
follows:
Whoever travels in interstate or foreign commerce or uses the mail or any facility in
interstate or foreign commerce with intent to....
8 See U.S. v. Barry, 888 F.2d 1092 (6th Cir.1989); U.S. v. Riccardelli, 794 F.2d 829 (2d
Cir.1986).
9 This holding is consistent with our opinion in United States v. Edelman, 873 F.2d 791
(5th Cir.1989). In Edelman, although we did not specifically address the issue that is
before us today, we assumed that the mailing in that case invoked federal jurisdiction,
without even discussing whether the mailing was "interstate" or "intrastate." See id. at
794-95.
10 Heacock also argues on this point that the evidence was insufficient to show that he
caused the mailings. It is clear from the record, however, that Heacock did instruct
Topping to send the particular checks. Thus, there is no lack of evidence to support the
finding that Heacock caused the exchanges. Further, Heacock argues that Topping
never testified that Heacock told him to mail the checks, only to send them. The
government must only show, however, that the mail was actually used--there is no
requirement that Heacock intended for the mail to be used or even that he knew the
mail was used. See Edelman, 873 F.2d at 795. It is clear from the record that the mail
was used in the present case, thus, there is sufficient evidence to uphold Heacock's
convictions under Sec. 1952.
11 His actual statement was that "[Heacock] introduced [Cunningham] to narcotics."
12 Section 3282 provides that
Except as otherwise expressly provided by law, no person shall be prosecuted, tried,
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or punished for any offense, not capital, unless the indictment is found or the
information is instituted within five years next after such offense shall have been
committed.
18 U.S.C. Sec. 3282.
13 Heacock admits that the evidence was properly admitted in count 11 of the
indictment, which was a conspiracy to impede the IRS from learning his sources and
amounts of gambling income and his cash transactions in violation of 18 U.S.C. Sec. 371.
He asserts, however, that the evidence from the 1985 search should have been
suppressed for the purposes of count 1 (which was a scheme to conceal from the IRS
in sixteen different ways the nature and extent of Heacock's bookmaking operation
between 1980 and 1992 in violation of 18 U.S.C. Sec. 1001), citing U.S. v. Smith, 740
F.2d 734 (9th Cir.1984), for the proposition that the five-year limitations period does
apply to Sec. 1001. That case is properly distinguished from the present case, however,
because it related to the false statements section of Sec. 1001, and the present case
relates to continuing schemes to defraud.
14 The prosecution did establish that the police knew Heacock was home, and that he
did not respond to their knock, and that in such circumstances evidence is often being
destroyed.
15 Detective Lt. Richard Cox testified about that search that he first knocked on the
door, yelled "police" loud enough for Heacock to hear, and when there was no
response after a reasonable wait, he had Officer Ladnier "hit" the door, but Ladnier
bounced off. Cox then pounded several times on the door, repeatedly yelling "police,
police, police," but still no one responded, so he had Ladnier, a large man, knock it
open.
16 Section 3109 provides:
The officer may break open any outer or inner door or window of a house, or any part
of a house, or anything therein, to execute a search warrant, if, after notice of his
authority and purpose, he is refused admittance or when necessary to liberate himself
or a person aiding him in the execution of the warrant.
18 U.S.C. Sec. 3109.
17 This activity was a felony under the Mississippi RICO statute. See, infra, part (8).
Heacock argues that his money laundering conviction should be overturned because
the Mississippi RICO statute, on which the money laundering conviction was based, is
unconstitutional. Heacock argues that the Mississippi RICO statute denies due process
because it elevates a series of two misdemeanor gambling offenses to a felony, and he
argues that punishment under the Mississippi RICO statute amounts to cruel and
unusual punishment, given that it involves unnecessary and wanton infliction of pain,
is grossly disproportionate to the severity of the crime, and is without penalogical
justification. This argument, supported by no authority, on its face is meritless if not
- 142 -
frivolous.
18 Although Heacock argued in his original brief that the district court violated the
rule against double jeopardy in this case, Heacock abandoned this claim in his reply
brief. He insists, instead, that he intended to pursue this claim as one of vindictive
prosecution. First of all, any issue raised for the first time in the reply brief is waived.
U.S. v. Miller, 952 F.2d 866, 874 (5th Cir.1992) Furthermore, there is no evidence to
support this claim of vindictive prosecution.
- 143 -
U.S. v. Mick
263 F.3d 553 (6th Cir. 2001)
United States of America, Plaintiff-Appellee,
v.
Robert Mick, Defendant-Appellant.
No. 99-4349
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
Argued: May 4, 2001
Decided and Filed: August 29, 2001
Appeal from the United States District Court for the Northern District of Ohio at Akron,
No. 99-00126, James S. Gwin, District Judge.
Page 554
[Copyrighted Material Omitted]
Page 555
Page 556
Page 557
Robert E. Bulford, ASSISTANT UNITED STATES ATTORNEY, Akron, Ohio, for Appellee.
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Paul F. Adamson, BURDON & MERLITTI, Akron, Ohio, for Appellant.
Before: SILER and GILMAN, Circuit Judges; DUGGAN, District Judge. *
OPINION
GILMAN, Circuit Judge.
Robert Mick was convicted on one count of conducting an illegal gambling
business, in violation of 18 U.S.C. § 1955, one count of using a facility of interstate
commerce for illegal purposes, in violation of 18 U.S.C. § 1952(a)(3), fifty-nine counts
of money laundering, in violation of 18 U.S.C. §1956(a)(1)(A)(i), and eleven counts of
knowingly engaging in monetary transactions using criminally derived property worth
more than $10,000, in violation of 18 U.S.C. § 1957. He was subsequently sentenced to
spend 57 months in prison, serve 36 months of supervised release, and pay $7,100 as a
special assessment. In this appeal of his conviction and sentence, Mick
Page 558
challenges the issuance of a search warrant covering his house and trailer, the
admission of evidence discovered as a result of the search, the admission of his tax
returns and gambling records at trial, the sufficiency of the evidence relating to the
illegal gambling business conviction, and several sentencing issues. For the reasons set
forth below, we AFFIRM Mick's conviction and sentence.
I. BACKGROUND
A. Factual background
Robert Mick is an admitted bookmaker who resided on Westwood Street in
Alliance, Ohio. According to the testimony of Mick's girlfriend, Harriet Brodzinski, Mick
had been a bookmaker since at least the time that they started dating in 1984.
Bookmaking in fact provided the sole source of their income since the late 1980s,
when Mick sold a bar that he had owned. Up until May of 1997, he ran his bookmaking
business out of a trailer located at 1505 East State Street in Alliance. The trailer had
several telephone lines, all of which were listed in Brodzinski's name. At least one of
these lines was used to support a facsimile machine. During the period between March
20, 1997 and May 18, 1997, the FBI, pursuant to a court order, ran a pen register on
each of these lines. Based on this surveillance, the register traced over 3,400 telephone
calls on the facsimile machine (98% were outgoing calls), 4,000 calls on one telephone
line, and over 2,400 calls on the third (90% of the telephone calls were incoming).
The two-month sampling of Mick's telephone activity in his trailer indicated that
he was sending out more than 50 transmissions on his fax machine each day, and
receiving over 100 daily telephone calls, most of which were of a short duration. In an
attempt to maximize the bettors who would utilize his bookmaking service, Mick had
Cheryl Stoiber, a friend from Louisville, Kentucky, who knew that Mick was a
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bookmaker, maintain an extra telephone line in her home. Mick placed a callforwarding service on this line, which allowed bettors from Louisville to make a local
telephone call that would be automatically patched through to his trailer in Alliance.
Stoiber received no compensation for allowing this line to remain in her house, but
Mick paid for the line by having Brodzinski periodically send her $200 checks, which
Stoiber would use to pay each telephone bill. When the money would run out, she
would call Mick, who would then send another check in the mail.
Brodzinski testified that she and Mick would answer the telephones each day and
write down bets that were being placed by various customers. Although Brodzinski
and Mick usually answered the telephone themselves, Mick's two sons, Robert and
Shawn, also took calls from bettors at various times. Each bet was eventually entered
into their computer, after which the handwritten records would be shredded. Bets
could be placed on any major sporting event, particularly football, baseball, and
basketball. There were two types of people who would call in bets: individual bettors
and bookmakers. Both would place bets for themselves, but the latter also placed what
are known as "layoff bets." A layoff bet is made when a bookmaker has received
various bets on a particular sporting event that cumulatively favors one of the
participants. The bookmaker would then call Mick and bet for the team that had less
bets placed by his clients, thus balancing out or "laying off" his risk.
At any given time, Mick had between 30 and 40 individual bettor clients and at
least 9 bookmaker clients. Brodzinski named approximately 9 customers who
regularly called in layoff bets, but it is unclear how she knew that they were actually
bookmakers.
Page 559
Although she stated that she knew a layoff bet was being placed because "usually it
was a bigger bet than a bettor would make," and because of the characteristic time of
the telephone call, she later admitted that, other than Mick's statements to her about
who was a bookmaker, she had seen no evidence indicating that they were
bookmakers laying off bets.
Based on the testimony of Brodzinski and several of the bookmakers, the
government painted a picture at trial of an intricate gambling business, of which Mick
and his trailer were at the epicenter. Mick paid $5,000 a year to receive a line service
from Don Best Sports, which provided up-to-the-minute information on odds,
statistics, game information, and other details of interest to those who bet on sporting
events. Indeed, with his line service and the multiple telephone calls from bettors and
bookmakers requesting line information and placing bets, the government established
that Mick was at the center of a "continuous stream of information."
Mick's gambling enterprise stretched into the community beyond his trailer and
telephone lines. During the football season, for example, Mick would prepare "parlay
slips" (weekly schedules of games and point spreads) and have them distributed to
interested customers of the M&M Sports Club in Sebring, Ohio, a bar owned by Donald
Campbell. Each customer would have to pay for the parlay slips, from which Campbell
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received a cut.
Another of Mick's friends, Vernon Thomas, was the owner of B.J.'s Car Wash in
Alliance. Thomas was one of Mick's regular bettors, and he placed his bets from BJ's on
a daily basis. He and a group of other bettors would often convene in the backroom of
the car wash to place bets with Mick, as well as receive line information from him. At
one point, Mick even gave Thomas a facsimile machine, which Thomas and his friends
used to place their bets.
In February of 1995, the Stark County Sheriff's Office and the Canton branch of the
state police began investigating reports that they had received regarding Mick's
gambling enterprise. For several years, the Canton Criminal Intelligence Unit, and
eventually the FBI, performed spot checks and surveillance of Mick's activities. Based
on the surveillance summaries for the days when Mick was being observed, his typical
pattern was to leave his home, go directly to his trailer, and then drive around Alliance
and Sebring visiting various locations, including the M&M Sports Club and BJ's Car
Wash. On at least two occasions, men were observed leaving M&M counting money at
the same time that Mick was inside. Officers also examined M&M's trash, where they
discovered parlay sheets and betting slips.
On May 27, 1997, Michael Mihok, a special agent with the FBI, prepared an
affidavit in support of a request for a warrant to search Mick's house, trailer, and
safety deposit box. The affidavit contained information provided by three confidential
informants. According to the affidavit, "Source 1" informed Mihok that Mick was
operating a gambling business out of his trailer, which included six bookmakers who
worked for Mick, as well as Mick's sons and girlfriend. Source 1 also told Mihok that
Mick was providing line information to other bookmakers and distributing parlay
sheets around the county. Finally, Source 1 said that Mick had a line service and a
computer on which Mick kept his records.
The second informant, "Source 2," also told Mihok that Mick was a bookmaker and
was delivering parlay sheets out of his trailer. Source 2, like Source 1, stated that Mick
had a line service in his trailer, which Mick used to provide information to
Page 560
"most of the bookmakers in Stark County." With respect to the reliability of these two
sources, Mihok's affidavit only said that they had both "proven to provide accurate
information in the past."
According to Mihok's affidavit, the third informant, Cooperating Witness 1 (CW 1),
had "direct knowledge" of Mick's bookmaking activity. Mihok's basis for claiming that
CW 1 was a reliable witness was that
CW 1 is not a member of the criminal element and has never been involved in any
criminal activity. CW 1 has not provided information to any law enforcement agency in
the past as CW 1 has had no involvement with law enforcement. CW 1 has had a steady
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job for over 11 years and is a model citizen. CW 1's only motive to provide this
investigation [sic] is to assist law enforcement in this investigation.
According to the affidavit, CW 1 was at BJ's Car Wash when a friend of his engaged
in betting with Thomas. Although CW 1 did not witness the actual transaction, his
friend filled him in on all of the details, including the statement that Thomas "was one
of Mick's bookmakers." CW1's friend further told him that Thomas had a wagering log,
that some of his bettors were police officers, and that the bookmaking enterprise was
run out of a trailer.
The affidavit also included information beyond that provided by these three
informants. A detailed description of the results from the pen register was provided.
The results of the surveillance were set forth, detailing Mick's travels between his
home, the trailer, the sports bar, and the car wash. According to the affidavit,
"[s]urveillances at [M&M] revealed Mick was meeting with approximately seven to ten
people [and] . . . was observed carrying items into the location and his associates were
observed coming out of this location, counting money in their hands." The affidavit
also described the examination of M&M's trash. Agent Mihok summarized Mick's visits
to BJ's Car Wash, his meetings with "known gamblers or bookmakers," and the
exchange of documents between Mick and his associates.
Finally, the affidavit contained Agent Mihok's knowledge about the common
practices of those who operate gambling businesses. According to Mihok's affidavit,
they typically maintain detailed ledgers and records, conceal large amounts of
currency in their residences or places of business and, finally, use computer hardware
and software to store the data that has been collected throughout their business
dealings.
Based on this fifteen-page affidavit, the magistrate judge issued a search warrant
for Mick's trailer, home, and safety deposit box. The search conducted pursuant to the
warrant yielded vast amounts of money and evidence. In Mick's home on Westwood
Avenue, the FBI discovered bank records, gambling records, and almost $550,000 in
cash. The search of the trailer yielded more gambling records, as well as computer
hardware, telephone equipment, and utility bills. In Mick's safety deposit box, the
officers found $127,000 in cash, four silver bars, a gold coin, and a special-print tendollar bill.
B. Procedural background
On April 21, 1999, Mick was charged in a 72-count indictment. One count alleged
the violation of 18 U.S.C. §1955, which prohibits a person from conducting an illegal
gambling business. Another count charged Mick with using a facility of interstate
commerce to further a criminal purpose, in violation of 18 U.S.C. § 1952(a)(3). The
remaining 70 counts charged Mick with money laundering, in violation of 18 U.S.C. §
1956(a)(1)(A)(i) (59 counts), and
Page 561
- 148 -
engaging in monetary transactions in criminally derived property worth more than
$10,000, in violation of 18 U.S.C. § 1957 (11 counts).
Mick filed a motion to suppress evidence on June 21, 1999, challenging the fruits
of the search detailed above and the introduction of his tax records and returns.
Following a suppression hearing, the district court declined to exclude the evidence
procured from the search. On the first day of trial, July 19, 1999, the court denied the
remainder of Mick's motion.
At trial, Mick admitted to being a bookmaker. His primary defense was a challenge
to the government's evidence on a key element of a § 1955 conviction - the
requirement that the gambling business "involve[] five or more persons who conduct,
finance, manage, supervise, direct, or own all or part of such business." 18 U.S.C. §
1955(b)(1)(ii).
The government's proof focused primarily on the testimony of Brodzinski,
Campbell, Stoiber, Thomas, and various other bookmakers, as well as voluminous
documentary evidence. After the government rested, Mick renewed his objections and
moved for acquittal, all of which were overruled or denied.
Mick called two witnesses in his defense. First, he presented James Ritchie, a tax
preparer and former IRS auditor who had been assisting Mick with his tax returns
since 1994. Ritchie testified that Mick had complied with the Internal Revenue Code's
requirement that an excise tax be paid on all wagers accepted. Second, Mick presented
a gambling expert, Michael Cohen, who said that it was impossible to discern from the
betting records whether a bet was from an individual bettor or a bookmaker.
On July 21, 1999, the jury returned a guilty verdict on all 72 counts. A presentence
investigation report was then prepared, to which Mick filed various objections. He was
sentenced on October 26, 1999 to spend 57 months in prison, serve 36 months on
supervised release, and pay $7,100 as a special assessment. Mick now appeals his
conviction and sentence. Specifically, he challenges the constitutionality of the search
warrant and claims that the district court erred when it denied his motion to suppress
the fruits of the searches in question. Mick also challenges the admission of certain
handwritten business records into evidence, the government's use of his tax returns to
impeach Ritchie, the sufficiency of the evidence to support the first count relating to an
illegal gambling business, and the district court's application of the United States
Sentencing Guidelines.
Although Mick does not specifically challenge the other 71 counts on which he was
convicted, he notes in his brief that they are all based on the underlying gambling
conviction. See 18 U.S.C. § 1952(a)(3) (prohibiting the use of interstate facilities to
further an illegal activity); 18 U.S.C. §1956(a)(1)(A)(i) (criminalizing the intentional
concealment of illegally obtained property); 18 U.S.C. § 1957 (criminalizing
transactions in criminally derived property worth more than $10,000). A reversal of
his § 1955 conviction, therefore, would require that all of the remaining convictions be
vacated as well.
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II. ANALYSIS
A. The district court did not err in denying Mick's motion to suppress evidence
that was discovered pursuant to the search of his house and trailer
Mick first challenges the district court's denial of his motion to suppress evidence
that was discovered during the search of his house and trailer. (He does not challenge
the search of his safety deposit box.) In his briefs to this court, Mick raises
Page 562
several issues with respect to Agent Mihok's affidavit that formed the basis of the
magistrate judge's issuance of a warrant. First, he claims that the affidavit "contained
material misrepresentations and deliberately misleading information." Second, he
argues that the affidavit did not provide the magistrate judge with any information
from which an assessment of the informants' knowledge or reliability could be made.
Finally, Mick challenges the magistrate judge's conclusion that there was sufficient
evidence in the affidavit to show probable cause.
1.Standard of review
When reviewing a motion to suppress evidence, we will reverse factual findings of
the district court only if they are clearly erroneous. Conclusions of law, however, are
reviewed de novo. See United States v. Leake, 998 F.2d 1359, 1362 (6th Cir. 1993).
2.The sufficiency of Agent Mihok's affidavit
A search warrant may be issued only "upon probable cause, supported by Oath or
affirmation." U.S. Const. Amend. IV. The neutral and detached magistrate charged with
determining whether probable cause exists must decide if "there was a fair
probability" that evidence or fruits of illegal activity are likely to be found at the place
to be searched. Illinois v. Gates, 462 U.S. 213, 246 (1983). When reviewing the decision
to issue a warrant, a court faced with a suppression motion owes "great deference" to
the issuing magistrate. See id. at 236, 103 S. Ct. 2317. Indeed, our review is not de
novo; rather, this court must uphold the issuance of a warrant so long as the
magistrate "had a substantial basis for . . . conclud[ing] that a search warrant would
uncover evidence of wrongdoing." Id. (internal citations and quotations omitted)
(ellipses and brackets in original).
The district court, in denying Mick's motion to suppress the evidence found in the
trailer, concluded that "the magistrate had much more than sufficient evidence to find
a fair probability that contraband would be present at that address." This conclusion
was based on the results of the pen register, the interactions between Mick and known
gamblers, and the observation of him spending time in places where officers had
discovered betting paraphernalia. The district court, noting that there was less
evidence to support a finding of probable cause that evidence or contraband would be
found at Mick's residence, still denied the motion to suppress evidence found at his
- 150 -
house based on Agent Mihok's statements in the affidavit regarding what gamblers
"usually" possess in their homes. In particular, the district court determined that
Mick's trailer was located in
a trailer park on a busy road, and . . . it would not be reasonable for a person
engaged in betting to leave large sums of cash or other betting materials at what
appears to be an unguarded trailer on a busy road with seemingly no one living at this
trailer.
Mick challenges the truthfulness of the affidavit supporting the warrant, detailing
five principal concerns in his brief. First, in paragraph four of the affidavit, Mihok
states that the surveillance between February of 1995 and November of 1996 showed
that "Mick would always leave his residence ... and go directly to his trailer." The
surveillance summary, however, shows that on only 3 out of the 22 times Mick was
observed in that year and a half did he go "directly" from his home to his trailer. When
questioned on the stand, Mihok did not deny that this observation had only occurred
three times.
Page 563
In his second challenge to the veracity of the affidavit, Mick points to a statement
made in paragraph five that, during this same period of police surveillance, Mick
would meet "associates of his gambling business" at the M&M Sports Club "at least two
to three times a week." The surveillance summary, however, places Mick at M&M's on
only four occasions, none of which occurred in the same week. When asked about this
inconsistency on the stand, Mihok seemed confused about the exact surveillance
period that the affidavit was referring to, because later observations of Mick placed
him at M&M with greater frequency. Paragraph five also states that Mick was "meeting
with approximately seven to ten people" when he would visit M&M. Nevertheless, the
identities of the people he was meeting were never provided in the affidavit. Again,
Mihok acknowledged that the affidavit failed to make such a disclosure.
Third, Mick challenges paragraph eight of the affidavit, which stated that between
October of 1996 and April of 1997, "[s]urveillances . . . have placed Bob Mick visiting
Vernon Thomas at B.J.'s Car Wash . . . Thomas is a known bookmaker." Mick challenges
this statement because, during the period of time referenced in the affidavit, he visited
the car wash only twice, and was never observed with Thomas. When asked about this
on the witness stand, Mihok replied that Thomas's car had been seen in the parking lot.
The fourth misstatement in the affidavit that Mick challenges is found in
paragraph nine, in which Mihok stated that "[s]urveillances conducted . . . over the
past six months have documented Bob Mick meeting with associates who are known
gamblers or bookmakers." Four names of known gamblers are then listed as having
met with Mick. Nevertheless, the surveillance records only show Mick meeting with
one of the individuals listed in paragraph nine. When asked about this on the stand,
Agent Mihok did not dispute that the other three individuals were never physically
observed with Mick.
- 151 -
Mick's final challenge is to paragraph sixteen of the affidavit, which states that the
observations between March 20 and May 18 of 1997, when the pen register was being
utilized, indicate that "Mick would arrive at the trailer each day between the hours of
9:30 a.m. and 11:00 a.m. and would depart the trailer between the hours of 6:00 p.m.
to 7:30 p.m." Nonetheless, when asked on the stand to "look at those three exhibits and
direct [the court] to any surveillance [during that period] that puts Bob Mick at the
trailer between 9:30 and 11:00 a.m. and between 6:00 and 7:00 p.m," Mihok
responded "[n]o sir, none of these do."
These various mistakes, according to Mick, render the affidavit constitutionally
infirm. Because of these "false and misleading" statements, he claims that the only
thing left in the affidavit that the magistrate judge could have relied upon were the pen
register results, which he argues are insufficient to support a finding of probable cause.
Mick correctly cites Franks v. Delaware, 438 U.S. 154 (1978), for the two-part test
that we must use in evaluating claims of misleading statements contained in an
affidavit. The test was summarized in United States v. Charles, 138 F.3d 257 (6th Cir.
1998), where this court said that
a court considering whether to suppress evidence based on an allegation that the
underlying affidavit contained false statements must apply a two-part test: (1)
whether the defendant has proven by a preponderance of the evidence that the
affidavit contains deliberately or recklessly false statements and (2) whether the
affidavit, without the false statements,
Page 564
provides the requisite probable cause to sustain the warrant.
Id. at 263. Mick's challenge fails on both prongs.
a.The affidavit's misstatements were not deliberate, reckless, or material to the
magistrate's probable cause determination
First, although the district court did not hold a Franks hearing to determine the
extent to which the alleged misstatements satisfy the two-part test, it did conclude
that "[t]he evidence before this court, even if construed in favor of the defendant,
cannot be understood to show that Agent Mihok gave either a knowingly false affidavit
or otherwise acted in bad faith." Mick has not produced any evidence to show that this
finding of fact was clearly erroneous. Furthermore, Mihok's testimony on the stand
indicates that, at worst, he was confused about the dates on which different things
were observed over the two years that Mick was under surveillance. This does not rise
to the level of deliberate or reckless misstatements as required by Franks.
b.The affidavit otherwise supported the magistrate's conclusion that probable
cause existed to search Mick's house and trailer
- 152 -
Second, the government has shown that "the affidavit, without the false
statements, provides the requisite probable cause to sustain the warrant." Charles,
138 F.2d at 262. It points out that the claimed misstatements do not undermine the
fact that Mick was observed at locations where known gamblers congregated and
where betting slips and parlay sheets were discovered. Whether these visits occurred
once a week, twice a week, or only four times during the surveillance period does not
alter the fact that these activities made it probable that Mick was engaged in some sort
of gambling enterprise. Similarly, the actual schedule of his mornings visits, including
whether he went directly to his trailer or to other parts of Alliance first, did not
undermine the veracity of the entire affidavit.
The remainder of Mick's challenge to the search warrant rests on whether there
was sufficient evidence to support the magistrate judge's finding that there was a fair
probability that gambling records and other proceeds of a gaming business would be
located in Mick's house and trailer. In particular, Mick questions the use of the three
confidential informants. He claims that without this evidence, there was insufficient
proof to establish probable cause.
The test that we apply to this claim of error is the "totality of the circumstances."
Gates, 462 U.S. at 230-31. Although we must avoid simply "rubber stamping" the
conclusions of the magistrate judge, we should equally avoid engaging in a
hypertechnical, line-by-line critique of an affidavit. See id. at 236, 103 S. Ct. 2317. We
should instead conduct a common sense review of the affidavit and ask if the issuing
magistrate, using a "practical" and "common-sense" analysis, correctly determined
under "all the circumstances set forth in the affidavit," that "there is a fair probability
that contraband or evidence of a crime will be found in a particular place." Id. at 238,
103 S. Ct. 2317.
In Gates, the Court addressed the constitutionality of a warrant that was based on
a tip in an anonymous handwritten letter, which described a rather intricate drugtrafficking scheme by the defendant. The Court concluded that this tip, standing alone,
would not have been sufficient to support a search warrant, because the letter
indicated "virtually nothing from which one might conclude that the author [was]
either honest or his information reliable." Gates, 462 U.S. at 227, 103 S. Ct. 2317.
Page 565
But the police, after receiving the letter, corroborated certain details, such as the fact
that the defendant flew from Chicago to Florida, and returned to Illinois in a car
shortly after his arrival in West Palm Beach. Because the police officers supplemented
their request for a warrant with an investigation that corroborated certain details of
the letter, the issuance of the warrant was sustained. Id. at 241-46, 103 S. Ct. 2317.
This court in United States v. Allen, 211 F.3d 970 (6th Cir. 2000) (en banc),
addressed a different question - the minimum amount of proof required to affirm the
issuance of a warrant based on the bare allegations of an informant without any
supporting corroboration. The affidavit in Allen stated that the informant had proven
to be reliable in the past, and that the informant had observed contraband in Allen's
- 153 -
apartment firsthand. Allen sustained the validity of the search warrant based on the
firsthand knowledge and past reliability of the informant, without any independent
corroboration by the police. Mick argues, however, that the reliability of the three
informants in the present case is less convincing than inAllen.
Although the affidavit states that both Source 1 and Source 2 have "been proven to
provide accurate information in the past," Mihok did not state whether the
information provided in the past also led to a successful prosecution. Furthermore,
Mick points out that nothing in the affidavit indicates whether or not they observed
Mick's gambling business firsthand. Mick also questions the reliance on CW 1 where
there was no proof of his reliability, and where Mihok did not even question CW 1's
eyewitness companion. Mihok's inclusion of information derived from the statements
of CW1, therefore, constitutes double hearsay.
Although an affiant's statements may come from the double hearsay of an
informant, see United States v. Jenkins, 525 F.2d 819, 823 (6th Cir. 1975), CW1's
reliability is bolstered in the affidavit only by the fact that he is allegedly a law-abiding
citizen. Cf. United States v. Martin, 920 F.2d 393, 398-99 (6th Cir. 1991) ("[I]t is often
people involved in criminal activities themselves that have the most knowledge about
other criminal activities."). To be sure then, as in Gates, had the affidavit relied solely
on these informants, there might not have been enough evidence to establish probable
cause.See Gates, 462 U.S. at 227.
Mihok, however, did not rely solely on the statements of the informants. The
requirements of the Fourth Amendment, which insist "upon substantial independent
police corroboration" when there are doubts about an informant's reliability, were not
lost on Agent Mihok. See Allen, 211 F.3d at 976. Indeed, with the help of the state
police in Canton, Mihok corroborated Source 2's information about Mick's
involvement in the distribution of parlay sheets by examining the trash at the M&M
Sports Club. Furthermore, the general theme in the observations of all three
informants was that Mick was well-connected and well-traveled in the gambling world
of Alliance, Ohio. This fact was corroborated by the police surveillance of Mick's
interactions with known gamblers and bookmakers, as well as his frequenting of
establishments where gambling was going on. Although Mick has placed the frequency
of these travels in question, he has not shown that he never visited these individuals
and establishments. Finally, the pen registers, which confirmed that Mick was
receiving a high volume of telephone calls in the trailer, and was transmitting a high
volume of information from the facsimile machine, provided even more evidence that
the locus of Mick's gambling enterprise was in his trailer. All of this data, in addition to
the observations of the
Page 566
informants, provided enough information to support the magistrate judge's conclusion
that there was a fair probability that evidence of an illegal gambling business would be
found in Mick's trailer.
Although the information proffered in the affidavit with respect to Mihok's request
- 154 -
for a warrant to search Mick's residence was weaker, it was still sufficient. Much of the
affidavit supporting this portion of the search warrant request relied on Mihok's
experience that those who operate gambling businesses store money and records in
their residence, even if their home is separate from their principal place of business.
Mihok stated that gamblers like Mick "often possess large sums of currency; and . . .
this currency is often hidden or concealed in hiding places at their residences or place
of business."
This court has held that an issuing judge or magistrate may give considerable
weight to the conclusion of experienced law enforcement officers regarding where
evidence of a crime is likely to be found and is entitled to draw reasonable inferences
about where evidence is likely to be kept, based on the nature of the evidence and the
type of offense.
United States v. Caicedo, 85 F.3d 1184, 1192 (6th Cir. 1996) (internal citations
omitted). Based on Mihok's experience and the exposed location of the often
unoccupied trailer, it was reasonable to conclude that Mick's residence would contain
gambling records and money. Mick has not provided sufficient evidence to overcome
the deference that we must give to the magistrate judge's determination. See Gates,
462 U.S. at 236. Accordingly, we conclude, under the totality of the circumstances, that
the warrant to search Mick's house and trailer was based on sufficient probable cause.
We therefore find no error in the district court's denial of Mick's motion to suppress.
B. The district court did not err in admitting Mick's customer balance sheets and
his handwritten records of wagers taken
Mick challenges the admission at trial of his balance sheets and records of
customer wagers. He claims that their admission violated 26 U.S.C. § 4424, as well as
his Fifth Amendment right to be free from self-incrimination. As a threshold matter,
both Mick and the government maintain that we review constitutional challenges to
evidentiary rulings de novo. This is incorrect. In Trepel v. Roadway Express, Inc., 194
F.3d 708, 716-17 (6th Cir. 1999), this court held that all evidentiary rulings are subject
to review for an abuse of discretion. This holding of Trepel was based on the Supreme
Court's ruling on this issue in General Electric Co. v. Joiner, 522 U.S. 136, 141 (1997)
(stating that "[a]ll evidentiary decisions are reviewed under an abuse-of-discretion
standard"). We therefore apply the abuse of discretion standard of review to this claim
of error.
The provisions of the Internal Revenue Code impose an excise tax on the net
proceeds of those engaged in a gambling enterprise. As part of this statutory scheme,
26 U.S.C. §4424(c) provides that,
[e]xcept in connection with the administration or civil or criminal enforcement of
any tax imposed by this title
(1)any stamp denoting payment of the special tax under this chapter,
(2)any original, copy, or abstract possessed by a taxpayer of any return, payment,
- 155 -
or registration made by such taxpayer pursuant to this chapter, and
(3)any information come at by [sic] the exploitation of any such document,
shall not be used against such taxpayer in any criminal proceeding.
Page 567
This statute was enacted to protect the Fifth Amendment rights of defendants who,
on the one hand, are compelled to pay taxes on the proceeds of their gambling
enterprise, but also remain potentially liable on state criminal charges for those same
gaming activities. See Grosso v. United States, 390 U.S. 62, 67 (1968) ("[P]etitioner's
submission of an excise tax payment, and his replies to the questions on the attendant
return, would directly and unavoidably have served to incriminate him").
Mick argues that the records of his customer balance sheets and wager records
constituted documents protected by §4424. When presented with this same argument,
the district court held that
these records, at least upon the representations made, were ones that were not
being kept for purposes of the tax returns, but instead were being kept for the
purposes of recording wagers as opposed to the overall tax issue. So I find that it's
outside the protection afforded by §4424.
Mick has provided no evidence indicating that this conclusion was incorrect, let
alone an abuse of discretion. He has not shown that these records were kept for tax
purposes. Rather, as the government points out in its brief, Brodzinski testified at trial
that these records were usually shredded soon after they were made. Accordingly, we
affirm the district court's decision to admit the balance sheets and wagering records.
C. The district court did not abuse its discretion when it allowed the use of Mick's
tax returns to impeach his tax accountant
Mick challenges, on the grounds of relevance and unfair prejudice, the use of his
personal income tax returns to impeach the testimony of James Ritchie, his tax
accountant. He claims that these tax returns had no bearing on the factual issues
before the jury, and that the jury may have been led to conclude that he filed false tax
returns, a consideration that he alleges unfairly prejudiced the jury against him. Mick
also makes a summary reference to a Fifth Amendment objection to this use of his tax
returns, but does not explain the basis for this claim of error. We therefore consider
this constitutional challenge waived. See Buziashvili v. Inman, 106 F.3d 709, 719 (6th
Cir. 1997) (considering an argument as waived that was listed as an issue but not
argued in the appellate briefs).
When Mick protested the government's use of the tax returns to impeach Ritchie,
the district court overruled his objection, stating:
- 156 -
It goes to the issue of specific intent [on the money laundering charges]. You
opened the door by saying he keeps all these records and accurately reports his
income. Having opened the door, if the government wants to show he doesn't
accurately keep the information and convey it on his tax returns, I think it's admissible.
Mick does not address this ruling, but simply argues that "[t]hese tax returns were
of no consequence to the determination of the pending charges." He has therefore
failed to carry his burden of showing that the district court abused its discretion on
this issue.
Furthermore, Mick has failed to show why this use of his tax returns was unfairly
prejudicial. See Robinson v. Runyon, 149 F.3d 507, 515 (6th Cir. 1998) ("Unfair
prejudice does not mean the damage to a defendant's case that results from the
legitimate probative force of the evidence; rather it refers to evidence which tends to
suggest a decision on an improper basis."). Accordingly, we affirm the district court's
decision allowing the use of Mick's tax returns to impeach Ritchie.
Page 568
D. Mick's enterprise satisfied the statutory definition of an "illegal gambling
business"
Mick next challenges the sufficiency of the evidence supporting the jury's
conclusion that his activities constituted an "illegal gambling business" pursuant to 18
U.S.C. § 1955. In our review of his claim, we must determine "whether, after viewing
the evidence in the light most favorable to the prosecution, any rational trier of fact
could have found the essential elements of the crime beyond a reasonable doubt."
Jackson v. Virginia, 443 U.S. 307, 319 (1979) (emphasis in original). We may not,
however, "weigh the evidence, consider the credibility of witnesses or substitute our
judgment for that of the jury." United States v. Hilliard, 11 F.3d 618, 620 (6th Cir.
1993).
An illegal gambling business is defined as an enterprise that
(i)is a violation of the law of a State or political subdivision in which it is
conducted;
(ii)involves five or more persons who conduct, finance, manage, supervise, direct,
or own all or part of such business; and
(iii)has been or remains in substantially continuous operation for a period in
excess of thirty days or has a gross revenue of $2,000 in any single day.
18 U.S.C. § 1955(b)(1). Mick conceded at trial that his bookmaking activities
violated Ohio law, and he does not dispute that his business fell within both prongs of
subsection (iii) above. Instead, Mick claims that there was insufficient proof to show,
beyond a reasonable doubt, that his business "involves five or more persons who
- 157 -
conduct, finance, manage, supervise, direct, or own all or part of such business."
Mick misstates this circuit's interpretation of the five-person jurisdictional
requirement. He cites United States v. Murray, 928 F.2d 1242 (1st Cir. 1991), for the
proposition that the government must prove that "at all times during some thirty day
period at least five persons were involved in conducting the gambling operation." Mick
fails to note, however, that our court has interpreted §1955(b)(1) differently. In 1974,
fifteen years before Murray, this court held that "[t]he statute, 18 U.S.C. §
1955(b)(1)(iii) clearly makes the thirty day requirement a part of the definition of
illegal gambling business and not a specific requirement as to the duration of
individual participation by persons involved in such business."United States v.
Mattucci, 502 F.2d 883, 889 (6th Cir. 1974) (emphasis added). The five-person
requirement can therefore be satisfied at any point during the thirty days, regardless
of the duration of a person's involvement in the business, so long as his or her
participation is either regularly helpful or "necessary to the operation of the gambling
enterprise." United States v. King, 834 F.2d 109, 113 (6th Cir. 1987).
In considering whether a person's involvement constitutes sufficient "conduct" to
be counted as one of the five people required to satisfy § 1955, this court has held that
"Congress intended the word conduct to refer to both high level bosses and street level
employees." Mattucci, 502 F.2d at 888 (counting the doorman in a gambling club as
one of the jurisdictional five) (internal quotation marks omitted). The Fifth Circuit has
even gone so far as counting a line service, similar to the one provided by Don Best
Sports, as one of the jurisdictional five. See United States v. Heacock, 31 F.3d 249, 252
(5th Cir. 1994). Most importantly, this court has held that layoff bettors may be
considered as part of the requisite five members, so long as their dealings with the
gambling business are "regular" and
Page 569
not just based on "one contact." See King, 834 F.2d at 113-14.
Based on this court's interpretation of the degree of "conduct" necessary to be
counted in the jurisdictional requirement of five participants, there is overwhelming
evidence to support the jury's conclusion that § 1955 was satisfied. Mick does not
dispute that he, Brodzinski, and at least one of his sons can be counted towards the
jurisdictional five. There was also abundant evidence supporting the jury's conclusion
that bookmakers such as Frank Birch, Richard Gothot, Andrew Schneider, and Eugene
Smith placed regular layoff bets with Mick. Furthermore, Mick's agreements with
Campbell (who distributed parlay sheets for Mick) and Stoiber (who allowed Mick to
utilize a telephone line out of her house) were sufficiently regular and helpful to his
gambling business to permit the jury to count them as well. Indeed, the summary
above is actually an incomplete listing of all the people who regularly aided Mick's
gambling enterprise. We therefore find no merit in Mick's challenge to the jury's
conclusion that his activities constituted an "illegal gambling business" pursuant to 18
U.S.C. § 1955.
E. The jury instructions correctly defined the elements of a § 1955 violation
- 158 -
Mick also challenges the district court's denial of his proposed jury instruction,
which in part would have informed the jury that because "there is no evidence that
Defendant Mick had knowledge that the bets he was receiving were 'layoff bets,'. . . you
are instructed that these witnesses cannot be counted among the five persons
necessary to constitute a federal gambling offense based solely on their testimony
regarding the placement of layoff bets." His proposed instruction also stated that
"since there is no evidence that Defendant, Robert Mick, exchanged line information
with any of the witnesses although he provided line service to some, you are
instructed that a person cannot be counted as one of the five persons necessary to
constitute a federal gambling offense solely on the basis of having subscribed to or
having received line information from" Mick.
Our standard of review in challenges to the district court's denial of a proposed
instruction is as follows:
We review jury instructions as a whole to determine whether they fairly and
adequately submitted the issues and applicable law to the jury. . . . A district court's
refusal to deliver a requested instruction is reversible only if that instruction is (1) a
correct statement of the law, (2) not substantially covered by the charge actually
delivered to the jury, and (3) concerns a point so important in the trial that the failure
to give it substantially impairs the defendant's defense.
United States v. Williams, 952 F.2d 1504, 1512 (6th Cir. 1991). Mick offers little
argument in support of this claim of error in his brief. Furthermore, the claim lacks
merit because the proposed instruction was an incorrect characterization of both the
facts and the law. To begin with, there was sufficient evidence to support the jury's
conclusion that Mick knew that some of his regular bettors were placing layoff bets.
For example, according to Brodzinski, Mick would inform her as to which of their
clients were bookmakers. The jury could infer from his knowledge of this information,
as well as his control and leadership over the entire enterprise, that he was aware that
some of the bets being placed by these bookmakers were layoff bets. Thus, the first
portion of these proposed instructions, which suggests that there was no evidence that
"Mick had
Page 570
knowledge that the bets he was receiving were 'layoff bets,'" was an incorrect
characterization of the facts, and therefore properly denied.
The second portion of the proposed instructions, declaring that a person cannot be
considered part of the jurisdictional five if all he was doing is receiving line
information, is incorrect on the law. This court has never made such a formalistic rule.
Rather, the correct rule, as discussed above, is that any participant in the enterprise
may be considered among the requisite five members, so long as his or her dealings
with the gambling business are "regular" and not just based on "one contact." See
United States v. King, 834 F.2d 109, 113-14 (6th Cir. 1987). Because the jury
instructions as given properly described the rule as laid out in King, the district court
did not err in prohibiting the consideration of those who regularly received line
- 159 -
information from Mick as being part of the jurisdictional five. We therefore affirm the
district court's rejection of Mick's proposed jury instruction.
F. The district court did not err in refusing to downwardly depart based on the
acceptance of responsibility
Mick next challenges the decision of the district court not to downwardly depart
from his offense level pursuant to §3E1.1 of the United States Sentencing Guidelines,
which permits a two-point reduction if "the defendant clearly demonstrates
acceptance of responsibility for his offense." In its decision not to downwardly depart
pursuant to § 3E1.1, the district court found that Mick "did not come forward
truthfully and admit the elements of the offense, and that more than a technical matter
was involved in the denial."
Although Mick admitted to gambling in violation of Ohio law, he persisted in
denying that he satisfied all of the elements of 18 U.S.C. § 1955, particularly the fiveperson jurisdictional requirement. Application Note 2 to § 3E1.1 provides in pertinent
part that
[t]his adjustment is not intended to apply to a defendant who puts the government
to its burden of proof at trial by denying the essential factual elements of guilt, is
convicted, and only then admits guilt and expresses remorse.
Because Mick put the government to its burden of proof in establishing the
elements of an "illegal gambling business," the district court correctly concluded that
Mick failed to "clearly demonstrate acceptance of responsibility for his offense."
Accordingly, we affirm the district court's decision not to downwardly depart.
G. The district court did not err when it enhanced Mick's offense level for playing a
major role in the money-laundering offenses
Section 3B1.1 of the Sentencing Guidelines permits an increase in the offense level
if "the defendant was an organizer, leader, manager, or supervisor in any criminal
activity." In United States v. Garcia, 19 F.3d 1123, 1125 (6th Cir. 1994), this court
detailed the considerations that a district court should take into account when
deciding whether to enhance a sentence pursuant to §3B1.1. These considerations
include the exercise of decision-making authority and the degree of control exercised
over others. See id. Mick challenges the application of this guideline to the moneylaundering convictions because "there is insufficient evidence to define any specific
role regarding the[] bank accounts or the deposits/withdrawals." He argues that "the
evidence at trial was unclear as to who wrote the checks and who mailed them."
The district court nevertheless found that
Page 571
there was more than abundant evidence that the nature of your participation was
- 160 -
as the leader and the organizer of this enterprise, that you exercised the decisionmaking authority over this, that you determined the distribution of the fruits of this
crime, that your level of participation in planning and organizing this offense was far
and away predominant over others, including Ms. Brodzinski, and that this was true
for both the money laundering going into bank accounts where the Court credits the
testimony that you directed how the checks and the monies were to be attributed, and
as to the distribution of that money, wherein the Court finds that you, again, exercised
control over that.
Because Mick has not produced any evidence to show that this finding of fact was
clearly erroneous, we have no basis to disturb the district court's enhancement. See
United States v. Jones, 159 F.3d 969, 980 (6th Cir. 1998) (applying a clearly erroneous
standard of review to factual findings of a district court employing the Sentencing
Guidelines). Accordingly, we affirm the district court's enhancement of Mick's offense
level pursuant to § 3B1.1.
H. The district court's failure to downward depart in determining Mick's sentence
is not reviewable on appeal
Mick's final claim on appeal is that the district court erred in not downwardly
departing from the range provided for in the Sentencing Guidelines. As the
government points out, however, this is not an appealable decision unless the district
court did not believe that it had the discretion to do so. See United States v. Prince, 214
F.3d 740, 766 (6th Cir. 2000). Thiscourt in Prince set forth our standard of review as
follows: We examine the sentencing hearing transcript to determine whether the
district court's refusal to depart downward was an exercise of discretion or a legal
determination that it lacked the authority to depart. . . . The district court judge has no
duty to state affirmatively that he knows he possesses the power to depart downward
but declines to do so.
Id. After reviewing the sentencing hearing transcript, we find no indication that
the district court believed itself to lack the discretion to depart downward. We are
therefore without jurisdiction to review this claim of error.
III. CONCLUSION
For all of the reasons set forth above, we AFFIRM Mick's conviction and sentence.
--------------Note:
*. The Honorable Patrick J. Duggan, United States District Judge for the Eastern District
of Michigan, sitting by designation.
---------------
- 161 -
- 162 -
IMEGA vs. U.S.
INTERACTIVE MEDIA ENTERTAINMENT AND GAMING ASSOCIATION INC, a not for profit
corporation of the State of New Jersey, Appellant
v.
ATTORNEY GENERAL OF the UNITED STATES; Federal Trade Commission; Federal Reserve
System.
No. 08-1981.
United States Court of Appeals, Third Circuit.
Argued July 7, 2009.
Filed: September 1, 2009.
Eric M. Bernstein (Argued) Eric M. Bernstein & Associates, Warren, NJ, Stephen
[580 F.3d 114]
A. Saltzburg (Argued) George Washington University, Washington, DC, for Appellant.
Nicholas J. Bagley (Argued) Jacqueline E. Coleman United States Department of Justice,
Washington, DC, for Appellee.
Before: SLOVITER, AMBRO, and JORDAN Circuit Judges.
OPINION OF THE COURT
SLOVITER, Circuit Judge.
Congress enacted the Unlawful Internet Gambling Enforcement Act of 2006, 31 U.S.C. §
5361 et seq. (the "Act"), because "traditional law enforcement mechanisms are often
inadequate for enforcing gambling prohibitions or regulations on the Internet, especially
where such gambling crosses State or national borders." 31 U.S.C. § 5361(a)(4). Congress
also found that "Internet gambling is primarily funded through personal use of payment
system instruments, credit cards, and wire transfers." 31 U.S.C. § 5361(a)(1).
Appellant Interactive Media Entertainment & Gaming Association, Inc. ("Interactive"), is
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a New Jersey not-for-profit corporation that collects and disseminates information related
to electronic and Internet-based gaming and whose members are businesses that provide
gaming services, including Internet gambling, to individuals located throughout the United
States and the world. It raises a number of facial constitutional challenges to the Act. The
District Court dismissed Interactive's claims, some on standing grounds and others on the
merits. It appeals.
I.
The Act provides that "[n]o person engaged in the business of betting or wagering1 may
knowingly accept, in the connection with the participation of another person in unlawful
Internet gambling," various forms of financial instruments (such as credit cards, electronic
fund transfers and checks). 31 U.S.C. § 5363. The Act defines "unlawful Internet gambling"
as "to place, receive, or otherwise knowingly transmit a bet or wager by any means which
involves the use, at least in part, of the Internet where such bet or wager is unlawful under
any applicable Federal or State law in the State or Tribal lands in which the bet or wager is
initiated, received, or otherwise made." 31 U.S.C. § 5362(10)(A).
Any person who violates § 5363 commits a crime punishable by fine and/or up to five
years imprisonment. 31 U.S.C. § 5366(a). Moreover, upon conviction of that criminal offense,
the defendant may be permanently enjoined from engaging in the making of bets or wagers.
31 U.S.C. § 5366(b). Finally, the Act also provides that federal and state authorities may
bring civil proceedings to enjoin any transaction prohibited under the Act, 31 U.S.C. § 5365,
and mandates that the Secretary of the Treasury and the Board of Governors of the Federal
Reserve System enact regulations requiring certain financial institutions "to identify and
block or otherwise prevent or prohibit" the transactions barred by § 5363. 31 U.S.C. §
5364(b)(1).2
Interactive filed a complaint alleging that the Act was facially unconstitutional
[580 F.3d 115]
and contrary to the United States' treaty obligations. It sought to enjoin the enforcement of
the Act as well as the promulgation of regulations thereunder. After Interactive moved for a
preliminary injunction, the District Court granted the Government's cross-motion to dismiss
the complaint.
Interactive claimed the Act violated the First Amendment and the Government argued
that Interactive lacked standing. The District Court rejected the Government's standing
defense but, when it reached the merits, it rejected Interactive's expressive association
claim because the Act "does not have any adverse impact, much less a significant one, on the
ability of the plaintiff and its members to express their views on Internet gambling." App. at
21. Indeed, the District Court noted that the conduct prohibited by the Act — the taking of
another's money in connection with illegal gambling — does not involve any
"communicative element" and "essentially facilitates another's criminal act." App. at 23.
Next, the District Court rejected Interactive's commercial speech claim because the Act
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"does not actually implicate First Amendment interests" given that the "acceptance of a
financial transfer is not speech," and even if it were, the Act only applies where the transfer
is related to illegal gambling. App. at 25.
The District Court also rejected Interactive's overbreadth and vagueness arguments. As
to the First Amendment overbreadth argument, the Court concluded that the Act "does not
implicate any form of protected expression, and thus there is no overbreadth problem." App.
at 26. As to the due process vagueness claim, the Court rejected that argument because the
Act's prohibitions "are not ìn terms so vague that persons of ordinary intelligence must
necessarily guess at its meaning and differ as to its application.'" App. at 26 (quoting Am.
Civil Liberties Union v. Ashcroft, 322 F.3d 240, 268 (3d Cir.2003)).
The District Court also rejected Interactive's claim that the Act violates the privacy
rights of individual gamblers betting online from their homes on the ground that Interactive
lacked standing to assert claims on behalf of such gamblers. In the alternative, it rejected
Interactive's privacy claim on the merits because the gamblers' conduct did not implicate
any substantive due process rights.
The District Court also rejected Interactive's claims that the Act violates the United
States' treaty obligations on standing grounds and, alternatively, on the merits. It rejected
Interactive's claim that the Act violates the ex post facto clause because the Act is purely
prospective. Finally, it rejected Interactive's Tenth Amendment claim because, as a private
party, it lacked standing to pursue it.3
II.
Interactive raises two primary arguments on appeal. First, it contends that the Act is
void for vagueness because the statutory phrase "unlawful Internet gambling" lacks an
"ascertainable and workable definition." Appellant's Br. at 25.4
[580 F.3d 116]
The Supreme Court has explained that a statute is unconstitutionally vague if it "fails to
provide a person of ordinary intelligence fair notice of what is prohibited, or is so
standardless that it authorizes or encourages seriously discriminatory enforcement." United
States v. Williams, ___ U.S. ___, 128 S.Ct. 1830, 1845, 170 L.Ed.2d 650 (2008). Where, as here,
a plaintiff raises a facial challenge to a statute on vagueness grounds, the plaintiff "must
demonstrate that the law is impermissibly vague in all of its applications." Village of
Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U.S. 489, 497, 102 S.Ct. 1186, 71
L.Ed.2d 362 (1982) (emphasis added).
We reject Interactive's vagueness claim. The Act prohibits a gambling business from
knowingly accepting certain financial instruments from an individual who places a bet over
the Internet if such gambling is illegal at the location in which the business is located or
from which the individual initiates the bet. 31 U.S.C. §§ 5362(10)(A), 5363. Thus, the Act
clearly provides a person of ordinary intelligence with adequate notice of the conduct that it
prohibits.
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Further, the Act cannot be deemed impermissibly vague in all its applications. For
example, several states prohibit all gambling activity (except non-commercial, social
gambling not at issue here) by persons within the state and/or specifically ban Internet
gambling. See, e.g., Haw. Rev.Stat. §§ 712-1220(4), 712-1223; Or. Rev.Stat. § 167.109. Thus,
if a person in Hawaii places a bet over the Internet, a gambling business that knowingly
accepts a financial instrument in connection with that bet would unambiguously be acting
in violation of the Act. Similarly, a gambling business located in Oregon would violate the
Act if it knowingly accepted a financial instrument in connection with Internet gambling
prohibited by that state's law.
It is true, as Interactive notes, that the Act does not itself outlaw any gambling activity,
but rather incorporates other Federal or State law related to gambling.5 See 31 U.S.C. §
5362(10). However, "a statute is not unconstitutionally vague merely because it
incorporates other provisions by reference; a reasonable person of ordinary intelligence
would consult the incorporated provisions." United States v. Iverson, 162 F.3d 1015, 1021
(9th Cir.1998). Similarly, the fact that gambling may be prohibited in some states but
permitted in others does not render the Act unconstitutionally vague. See United States v.
Tripp, 782 F.2d 38, 42 (6th Cir.1986) (noting that a federal criminal statute may
"incorporate[] state law for purposes of defining illegal conduct . . . even if the result is that
conduct that is lawful under the federal statute in one state is unlawful in another").
Interactive also contends that it will often be difficult to determine the jurisdiction from
which an individual gambler initiates a bet over the Internet, and consequently, whether the
bet is unlawful. However, "[w]hat renders a statute vague
[580 F.3d 117]
is not the possibility that it will sometimes be difficult to determine whether the
incriminating fact it establishes has been proved; but rather the indeterminacy of precisely
what that fact is."6 Williams, 128 S.Ct. at 1846; see also Trojan Techs., Inc. v. Pennsylvania,
916 F.2d 903, 915 (3d Cir.1990) ("Inability to satisfy a clear but demanding standard is
different from inability in the first instance to determine what the standard is.").
Interactive also raises a hypothetical in which a gambler in a state that prohibits all
gambling makes a bet over the Internet with a gambling business in a foreign jurisdiction
that permits such activity. According to Interactive, if the law of the foreign jurisdiction
provides that the bet is deemed to be placed and received in that jurisdiction, the Act
becomes unconstitutionally vague because it is impossible to know where the bet was
placed as a matter of law.
However, Interactive does not point to anything in the language of the Act to suggest
that Congress meant anything other than the physical location of a bettor or gambling
business in the definition of "unlawful Internet gambling." Further, to the extent that
Interactive's hypothetical raises a vagueness problem, it is not with the Act, but rather with
the underlying state law. It bears repeating that the Act itself does not make any gambling
activity illegal. Whether the transaction in Interactive's hypothetical constitutes unlawful
Internet gambling turns on how the law of the state from which the bettor initiates the bet
would treat that bet, i.e., if it is illegal under that state's law, it constitutes "unlawful Internet
gambling" under the Act.
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In sum, we must reject Interactive's facial challenge to the Act. Simply put, a gambling
business cannot knowingly accept the enumerated financial instruments in connection with
a bet that is illegal under any Federal or State law applicable in the jurisdiction in which the
bet is initiated or received. Thus, the Act "provide[s] a person of ordinary intelligence fair
notice of what is prohibited." Williams, 128 S.Ct. at 1845.
III.
Next, Interactive contends that the District Court erred in rejecting its claim that the Act
violated a constitutional right of individuals to engage in gambling-related activity in the
privacy of their homes. As noted above, the District Court held that Interactive lacked
standing to assert the rights of third-party gamblers, and alternatively, that the claim failed
on the merits.
"It is a well-established tenet of standing that a `litigant must assert his or her own legal
rights and interests, and cannot rest a claim to relief on the legal rights or interests of third
parties.'" Pennsylvania Psychiatric Soc'y v. Green Spring Health Servs., Inc., 280 F.3d 278,
288 (3d Cir. 2002) (quoting Powers v. Ohio, 499 U.S. 400, 410, 111 S.Ct. 1364, 113 L.Ed.2d
411 (1991)). However, this "prohibition is not
[580 F.3d 118]
invariable and our jurisprudence recognizes third-party standing under certain
circumstances." Id. Indeed, the third-party standing doctrine is not rooted in the
constitutional requirements for standing. Instead, "courts have imposed a set of prudential
limitations on the exercise of federal jurisdiction over third-party claims." Id. at 287 (citing
Bennett v. Spear, 520 U.S. 154, 162, 117 S.Ct. 1154, 137 L.Ed.2d 281 (1997)).
"To successfully assert third-party standing: (1) the plaintiff must suffer injury; (2) the
plaintiff and the third party must have a `close relationship'; and (3) the third party must
face some obstacles that prevent it from pursuing its own claims." Nasir v. Morgan, 350 F.3d
366, 376 (3d Cir.2003).7 The District Court concluded that Interactive could not satisfy
either the second or third prongs of this test. We share the District Court's doubts regarding
Interactive's standing to assert these claims, particularly because Interactive does not itself
have any relationship with individual gamblers, but rather seeks to assert third-party
standing based on its members' relationships with such gamblers. However, as noted above,
the limitations on third-party standing are prudential requirements developed by the courts,
not jurisdictional requirements imposed by Article III of the constitution. Accordingly, we
need not decide whether Interactive has standing because, even assuming that it does, we
agree with the District Court that Interactive's claim clearly fails on the merits.
In its effort to locate a constitutional privacy right to engage in Internet gambling from
one's home, Interactive looks primarily to Lawrence v. Texas, 539 U.S. 558, 123 S.Ct. 2472,
156 L.Ed.2d 508 (2003), and Reliable Consultants, Inc. v. Earle, 517 F.3d 738 (5th Cir.2008).
Interactive's reliance on those cases is misplaced.
Both Lawrence and Earle involved state laws that barred certain forms of sexual
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conduct between consenting adults in the privacy of the home. Lawrence, 539 U.S. at 567,
123 S.Ct. 2472; Earle, 517 F.3d at 744. As the Supreme Court explained in Lawrence, such
laws "touch[] upon the most private human conduct, sexual behavior, and in the most
private of places, the home." 539 U.S. at 567, 123 S.Ct. 2472. Gambling, even in the home,
simply does not involve any individual interests of the same constitutional magnitude.
Accordingly, such conduct is not protected by any right to privacy under the constitution.8
Cf. Am. Future Sys., Inc. v. Pennsylvania State Univ., 688 F.2d 907, 915-16 (3d Cir.1982)
("We are unwilling to extend the constitutional right of privacy to commercial transactions
completely unrelated to fundamental personal rights. . . .").
[580 F.3d 119]
IV.
For the above-stated reasons, we will affirm the judgment of the District Court.
--------------Notes:
1. The phrase "`business of betting or wagering' does not include the activities of a financial
transaction provider, or any interactive computer service or telecommunications service."
31 U.S.C. § 5362(2). Thus, the criminal prohibition contained in § 5363 of the Act applies
only to gambling-related businesses, not any financial intermediary or Internet-service
provider whose services are used in connection with an unlawful bet.
2. The Department of the Treasury and Board of Governors of the Federal Reserve have
jointly adopted a final rule to implement this statutory mandate. Prohibition on Funding of
Unlawful Internet Gambling, 73 Fed.Reg. 69382-01 (November 18, 2008). Those regulations
are not at issue here.
3. The District Court had jurisdiction pursuant to 28 U.S.C. § 1331. We have jurisdiction
under 28 U.S.C. § 1291. We review de novo a district court's grant of a motion to dismiss for
failure to state a claim. Sands v. McCormick, 502 F.3d 263, 267 (3d Cir.2007).
4. The government contends that Interactive waived its vagueness argument because it did
not raise the issue before the District Court. Although Interactive did not include a separate
count in its complaint raising its vagueness claim, its complaint did allege that the Act failed
to give adequate notice of the conduct criminalized — the gravamen of a vagueness
challenge. Moreover, the District Court deemed the issue to be before it and rejected
Interactive's claim on the merits. The issue is properly before us.
5. Relatedly, Interactive notes that some of its members operate gambling websites from
outside the United States and contends that the Act is ambiguous as to whether such
members could face criminal sanctions under the Act if they engaged in financial
transactions with a gambler who placed a bet from a state that prohibited such gambling.
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However, the Act unambiguously prohibits such transactions and we note that it "has long
been settled law that a country can regulate conduct occurring outside its territory which
causes harmful results within its territory." Laker Airways Ltd. v. Sabena, Belgian World
Airlines, 731 F.2d 909, 922 (D.C.Cir.1984).
6. Interactive also contends the Act's requirement that certain financial institutions create
procedures to block transactions prohibited by the Act encourages arbitrary and
discriminatory enforcement of the Act. However, these financial institutions are only
required to block transactions prohibited by § 5363, and as discussed above, we conclude
that § 5363 provides adequate notice so as to avoid any vagueness problem. Moreover, we
note that the duty of financial institutions to block or restrict transactions barred by the Act
is not materially different from similar duties imposed on financial institutions under other
federal law. See H.R.Rep. No. 109-412, pt. 1, at 11 (2006).
7. As the District Court correctly held, Interactive cannot assert standing for this claim
based on principles of associational standing because it does not allege that individual
gamblers, as opposed to gambling-related businesses, are among its members.
8. Before the District Court, Interactive primarily pursued a claim that the Act violated the
First Amendment. Although Interactive stated at oral argument that it had not abandoned
that claim, it only tangentially mentions this argument in its papers to this court. In any
event, the Act only criminalizes the knowing acceptance of certain financial instruments in
connection with unlawful gambling. Simply put, such conduct lacks any "communicative
element" sufficient to bring it within the ambit of the First Amendment. United States v.
O'Brien, 391 U.S. 367, 376, 88 S.Ct. 1673, 20 L.Ed.2d 672 (1968).
- 169 -
Appendix D – Bills & Proposed Regulations
H.R. 1174 Internet Gambling Regulation, Consumer Protection, and
Enforcement Act
112th CONGRESS
1st Session
H. R. 1174
To amend title 31, United States Code, to provide for the licensing of Internet gambling
activities by the Secretary of the Treasury, to provide for consumer protections on the
Internet, to enforce the tax code, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
March 17, 2011
Mr. CAMPBELL (for himself, Mr. FRANK of Massachusetts, Mr. KING of New York, and Mr.
PERLMUTTER) introduced the following bill; which was referred to the Committee on
Financial Services, and in addition to the Committees on the Judiciary and Energy and
Commerce, for a period to be subsequently determined by the Speaker, in each case for
consideration of such provisions as fall within the jurisdiction of the committee concerned
A BILL
To amend title 31, United States Code, to provide for the licensing of Internet gambling
activities by the Secretary of the Treasury, to provide for consumer protections on the
Internet, to enforce the tax code, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of
America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the Ìnternet Gambling Regulation, Consumer Protection,
and Enforcement Act'.
SEC. 2. FEDERAL LICENSING REQUIREMENT FOR INTERNET GAMBLING OPERATORS.
(a) In General- Chapter 53 of title 31, United States Code, is amended by adding at
the end the following new subchapter:
`SUBCHAPTER V--REGULATION OF LAWFUL INTERNET GAMBLING
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`Sec. 5381. Congressional findings
`The Congress finds the following:
`(1) Since the development of the Internet, millions of people have chosen to
gamble online, and today Internet gambling is offered by operators located
in many different countries under a variety of licensing and regulatory
regimes.
`(2) Despite the increasing use of the Internet for gambling by persons in the
United States, there is no Federal or State regulatory regime in place to
protect United States citizens who choose to engage in this interstate
activity, or to oversee operators to establish and enforce standards of
integrity and fairness.
`(3) In the United States, gambling activities, equipment, and operations
have been subject to various forms of Federal and State control, regulation,
and enforcement, with some form of gambling being permitted in nearly
every State and by many Indian tribes.
`(4) Internet gambling in the United States should be controlled by a strict
Federal, State, and tribal licensing and regulatory framework to protect
underage and otherwise vulnerable individuals, to ensure the games are fair,
to address the concerns of law enforcement, and to enforce any limitations
on the activity established by the States and Indian tribes.
`(5) An effective Federal, State, and tribal licensing system would ensure that
licenses are issued only to Internet gambling operators which meet strict
criteria to protect consumers, and which-`(A) are in good financial and legal standing, and of good character,
honesty, and integrity;
`(B) utilize appropriate technology to determine the age and location
of users;
`(C) adopt and implement systems to protect minors and problem
gamblers;
`(D) adopt and implement systems to enforce any applicable Federal,
State, and Indian tribe limitations on Internet gambling; and
`(E) have in place risk-based methods to identify and combat money
laundering and fraud relating to Internet gambling, and to protect
the privacy and security of users.
`(6) There is a need to extend the regulatory provisions of this Act to all
persons, locations, equipment, practices, and associations related to Internet
gambling, with each State and Indian tribe having the ability to limit Internet
gambling operators from offering Internet gambling to persons located
within its territory by opting out of the provisions of this Act.
`Sec. 5382. Definitions
`For purposes of this subchapter, the following definitions shall apply:
`(1) APPLICANT- The term àpplicant' means any person who has applied for
a license pursuant to this subchapter.
`(2) BET OR WAGER- The term `bet or wager' has the same meaning as in
section 5362(1).
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`(3) ENFORCEMENT AGENT- The term ènforcement agent' means any
individual authorized by the Secretary to enforce the provisions of this
subchapter and regulations prescribed under this subchapter.
`(4) INDIAN LANDS AND INDIAN TRIBE- The terms Ìndian lands' and
Ìndian tribe' have the same meanings as in section 4 of the Indian Gaming
Regulatory Act.
`(5) INTERNET- The term Ìnternet' has the same meaning as in section
5362(5).
`(6) LICENSEE- The term `licensee' means an entity authorized to operate an
Internet gambling facility in accordance with this subchapter.
`(7) OPERATE AN INTERNET GAMBLING FACILITY- The term òperate an
Internet gambling facility' or òperation of an Internet gambling facility'
means the direction, management, supervision, or control of an Internet site
through which bets or wagers are initiated, received, or otherwise made,
whether by telephone, Internet, satellite, or other wire or wireless
communication.
`(8) SECRETARY- The term `Secretary' means the Secretary of the Treasury,
or any person designated by the Secretary.
`(9) STATE- The term `State' means any State of the United States, the
District of Columbia, or any commonwealth, territory, or other possession of
the United States.
`(10) SPORTING EVENT- The term `sporting event' means any athletic
competition, whether professional, scholastic, or amateur.
`Sec. 5383. Establishment and administration of licensing program
`(a) Treasury Responsibilities- The Secretary shall have responsibility for the
following activities:
`(1) Exercising full regulatory jurisdiction over-`(A) the operation of Internet gambling facilities by licensees; and
`(B) the licensure and regulation of all applicants, except to the
extent that powers have been delegated to qualified State and tribal
regulatory bodies pursuant to this subchapter.
`(2) Prescribing such regulations as may be necessary to administer and
enforce the requirements of this subchapter.
`(3) Employing enforcement agents with sufficient training and experience
to administer the requirements of this subchapter and the regulations
prescribed under this subchapter.
`(4) Enforcing the requirements of this subchapter through all appropriate
means provided under this subchapter and other provisions of law.
`(b) Internet Gambling Licensing Program`(1) LICENSING REQUIRED FOR CERTAIN INTERNET GAMBLING- No person
may operate an Internet gambling facility that knowingly accepts bets or
wagers from persons located in the United States without a license issued by
the Secretary in accordance with this subchapter.
`(2) AUTHORITY UNDER VALID LICENSE- A licensee may accept bets or
wagers from persons located in the United States, subject to the limitations
set forth in this subchapter, so long as its license remains in good standing.
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`(c) Application for License`(1) IN GENERAL- Any person seeking authority to operate an Internet
gambling facility offering services to persons in the United States may apply
for a license issued by the Secretary.
`(2) INFORMATION REQUIRED- Any application for a license under this
subchapter shall contain such information as may be required by the
Secretary, including the following:
`(A) The criminal and credit history of the applicant, any senior
executive and director of the applicant, and any person deemed to be
in control of the applicant.
`(B) The financial statements of the applicant.
`(C) Documentation showing the corporate structure of the applicant
and all related businesses and affiliates.
`(D) Documentation containing detailed evidence of the applicant's
plan for complying with all applicable regulations should a license be
issued, with particular emphasis on the applicant's ability to-`(i) protect underage and problem gamblers;
`(ii) ensure games are being operated fairly; and
`(iii) comply with and address the concerns of law
enforcement.
`(E) Certification that the applicant agrees to submit to United States
jurisdiction and all applicable United States laws relating to
acceptance by the applicant of bets or wagers over the Internet from
persons located in the United States and all associated activities.
`(F) Certification that the applicant has established a corporate
entity or other separate business entity in the United States, a
majority of whose officers are United States persons and, if there is a
board of directors, that the board is majority-controlled by directors
who are United States persons.
`(d) Standards for License Issuance; Suitability Qualifications and Disqualification
Standards`(1) SUITABILITY FOR LICENSING STANDARDS`(A) IN GENERAL- No person shall be eligible to obtain a license
unless the Secretary or an appropriate State officer or agency has
determined, upon completion of a background check and
investigation, that the applicant, and any person deemed to be in
control of the applicant, is suitable for licensing.
`(B) ASSOCIATES OF APPLICANTS- If the applicant is a corporation,
partnership, or other business entity, a background check and
investigation shall occur with respect to the president or other chief
executive of the corporation, partnership, or other business entity
and other partners or senior executives and directors of the
corporation, partnership, or entity, as determined appropriate by the
Secretary or any appropriate State or tribal officer or agency.
`(C) BACKGROUND CHECK AND INVESTIGATION- The Secretary
shall establish standards and procedures for conducting background
checks and investigations for purposes of this subsection.
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`(2) SUITABILITY FOR LICENSING STANDARDS DESCRIBED- For purposes
of this subchapter, an applicant and any other person associated with the
applicant, as applicable, is suitable for licensing if the applicant
demonstrates to the Secretary or appropriate State or tribal officer or
agency by clear and convincing evidence that the applicant (or individual
associated with the applicant, as applicable)-`(A) is a person of good character, honesty, and integrity;
`(B) is a person whose prior activities, reputation, habits, and
associations do not-`(i) pose a threat to the public interest or to the effective
regulation and control of the licensed activities; or
`(ii) create or enhance the dangers of unsuitable, unfair, or
illegal practices, methods, and activities in the conduct of the
licensed activities or the carrying on of the business and
financial arrangements incidental to such activities;
`(C) is capable of and likely to conduct the activities for which the
applicant is licensed in accordance with the provisions of this
subchapter and any regulations prescribed under this subchapter;
`(D) has or guarantees acquisition of adequate business competence
and experience in the operation of Internet gambling facilities; and
`(E) has or will obtain sufficient financing for the nature of the
proposed operation and from a suitable source.
`(3) UNSUITABLE FOR LICENSING- An applicant or any other person may
not be determined to be suitable for licensing within the meaning of this
subchapter if the applicant or such person-`(A) has failed to provide information and documentation material to
a determination of suitability for licensing under paragraph (1);
`(B) has supplied information which is untrue or misleading as to a
material fact pertaining to any such determination;
`(C) has been convicted of an offense punishable by imprisonment of
more than 1 year;
`(D) is delinquent in filing any applicable Federal or State tax returns
or in the payment of any taxes, penalties, additions to tax, or interest
owed to a State or the United States;
`(E) has, on or after the date of the enactment of the Unlawful
Internet Gambling Enforcement Act of 2006-`(i) knowingly participated in, or should have known they
were participating in, any illegal Internet gambling activity,
including the taking of an illegal Internet wager, the payment
of winnings on an illegal Internet wager, the promotion
through advertising of any illegal Internet gambling Web site
or service, or the collection of any payments to an entity
operating an illegal Internet gambling Web site; or
`(ii) knowingly been owned, operated, managed, or employed
by, or should have known they were owned, operated,
managed, or employed by, any person who was knowingly
participating in, or should have known they were
participating in, any illegal Internet gambling activity,
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including the taking of an illegal Internet wager, the payment
of winnings on an illegal Internet wager, the promotion
through advertising of any illegal Internet gambling Web site
or service, or the collection of any payments to an entity
operating an illegal Internet gambling Web site;
`(F) has-`(i) received any assistance, financial or otherwise, from any
person who has, before the date of the enactment of the
Internet Gambling Regulation, Consumer Protection, and
Enforcement Act, knowingly accepted bets or wagers from a
person located in the United States in violation of Federal or
State law; or
`(ii) provided any assistance, financial or otherwise, to any
person who has, before the date of the enactment of the
Enforcement Act, knowingly accepted bets or wagers from a
person located in the United States in violation of Federal or
State law;
`(G) with respect to another entity that has accepted a bet or wager
from any individual in violation of United States law, has purchased
or otherwise obtained-`(i) such entity;
`(ii) a list of the customers of such entity; or
`(iii) any other part of the equipment or operations of such
entity;
`(H) is listed on a State gambling excluded persons list; or
`(I) fails to certify in writing, under penalty of perjury, that the
applicant or other such person, and all affiliated business entities
(including all entities under common control), has through its entire
history-`(i) not committed an intentional felony violation of Federal
or State gambling laws; and
`(ii) used diligence to prevent any United States person from
placing a bet on an Internet site in violation of Federal or
State gambling laws.
`(4) APPEAL OF DETERMINATION- With respect to any applicant or other
person that the Secretary determines is not suitable for licensing within the
meaning of this subchapter by reason of subparagraph (E) or (F) of
paragraph (3), and where the Secretary has not determined that such
applicant or person was acting in their capacity as a managerial employee of
an Internet gambling Web site, the Secretary shall establish an appeals
process by which such applicant or person may appeal the Secretary's
determination.
`(5) ONGOING REQUIREMENT- A licensee (and any other person who is
required to be determined to be suitable for licensing in connection with
such licensee) shall meet the standards necessary to be suitable for licensing
throughout the term of the license.
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`(6) PROTECTION OF THE PUBLIC TRUST- The Secretary may take such
action as is necessary to protect the public trust, including the
implementation of such safeguards as may be necessary to ensure the
operation of an Internet gambling facility licensed under this subchapter is
controlled only by persons who are suitable for licensing.
`(7) ENFORCEMENT ACTIONS`(A) DETERMINATION OF UNSUITABILITY FOR CONTINUED
LICENSURE- If the Secretary finds that an individual owner or holder
of a security of a licensee, or of a holding or intermediary company of
a licensee or any person with an economic interest in a licensee or a
director, partner, or officer of a licensee is not suitable for licensing,
the Secretary may determine that the licensee is not qualified to
continue as a licensee.
`(B) ACTION TO PROTECT THE PUBLIC INTEREST, INCLUDING
SUSPENSION- If the Secretary may determine that the licensee is not
qualified to continue as a licensee, the Secretary shall propose action
necessary to protect the public interest, including, if deemed
necessary, the suspension of the authority of the licensee to engage
in licensed activities.
`(C) IMPOSITION OF CONDITIONS INCLUDING REMOVAL OF
PARTIES- Notwithstanding a determination under subparagraph (A),
the Secretary may allow a licensee to continue engaging in licensed
activities by imposing conditions on the licensee under penalty of
revocation or suspension of the authority of the licensee to engage in
licensed activities, including-`(i) the identification of any person determined to be
unsuitable for licensing; and
`(ii) the establishment of appropriate safeguards to ensure
such person is excluded from any interest in the licensed
activities.
`(e) Assessments for Administrative Expenses`(1) USER FEES`(A) IN GENERAL- The cost of administering this subchapter with
respect to each licensee, including the cost of any review or
examination of a licensee to ensure compliance with the terms of the
license and this subchapter, shall be assessed by the Secretary
against the licensee institution by written notice in an amount
appropriate to meet the Secretary's expenses in carrying out such
administration, review, or examination.
`(B) DISPOSITION- Amounts assessed by the Secretary as user fees
under subparagraph (A) shall-`(i) be maintained by the Secretary solely for use in
accordance with clause (ii);
`(ii) be available to the Secretary to cover all expenses
incurred by the Secretary in carrying out this subchapter;
and
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`(iii) not be construed to be Government funds or
appropriated monies, or subject to apportionment for the
purposes of chapter 15 or any other authority.
`(C) HEARING- Any licensee against whom an assessment is assessed
under this paragraph shall be afforded an agency hearing if such
person submits a request for such hearing within 20 days after the
issuance of the notice of assessment.
`(D) COLLECTION`(i) REFERRAL- If any licensee fails to pay an assessment
under this paragraph after the assessment has become final,
the Secretary shall recover the amount assessed by action in
the appropriate United States district court.
`(ii) APPROPRIATENESS OF ASSESSMENT NOT
REVIEWABLE- In any civil action under clause (i), the
validity and appropriateness of the assessment shall not be
subject to review.
`(2) DIRECT AND EXCLUSIVE OBLIGATION OF LICENSEE- The user fee shall
be the direct and exclusive obligation of the licensee and may not be
deducted from amounts available as deposits to any person placing a bet.
`(f) Approval of License- The Secretary shall grant licenses under this subchapter if
the applicant meets the criteria set by the Secretary set forth in this subchapter and
in any regulations promulgated thereunder.
`(g) Safeguards Required of Licensee- No person may operate an Internet gambling
facility in accordance with this subchapter unless the person maintains or requires
mechanisms so that the following requirements, and the standards established
under section 5384, are met with respect to any Internet bet or wager:
`(1) LEGAL AGE- Appropriate safeguards to ensure that the individual
placing a bet or wager is of legal age as defined by the law of the State or
tribal area in which the individual is located at the time the bet or wager is
placed.
`(2) PERMISSIBLE LOCATION- Appropriate safeguards to ensure that the
individual placing a bet or wager is physically located in a jurisdiction that
permits Internet gambling at the time the bet or wager is placed.
`(3) COLLECTION OF CUSTOMER TAXES- Appropriate mechanisms to
ensure that all taxes relating to Internet gambling from persons engaged in
Internet gambling are collected at the time of any payment of any proceeds
of Internet gambling.
`(4) COLLECTION OF TAXES OF LICENSEE- Appropriate mechanisms to
ensure that all taxes relating to Internet gambling from any licensee are
collected and disbursed as required by law, and that adequate records to
enable later audit or verification are maintained.
`(5) SAFEGUARDS AGAINST FINANCIAL CRIME- Appropriate safeguards to
combat fraud, money laundering, and terrorist finance.
`(6) SAFEGUARDS AGAINST COMPULSIVE GAMBLING- Appropriate
safeguards to combat compulsive Internet gambling.
`(7) PRIVACY SAFEGUARDS- Appropriate safeguards to protect the privacy
and security of any person engaged in Internet gambling.
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`(8) PAYMENT OF ASSESSMENTS- Appropriate mechanisms to ensure that
any assessment under subsection (e) is paid to the Secretary.
`(9) OTHER REQUIREMENTS- Such other requirements as the Secretary may
establish by regulation or order.
`(h) Term and Renewal of License`(1) TERM- Any license issued under this section shall be issued for a 5-year
term beginning on the date of issuance.
`(2) RENEWAL- Licenses may be renewed in accordance with the
requirements prescribed by the Secretary pursuant to this subchapter.
`(i) Revocation of License`(1) IN GENERAL- Any license granted under this subchapter may be
revoked by the Secretary if-`(A) the licensee fails to comply with any provision of this
subchapter;
`(B) the licensee is determined to be unsuitable for licensing, within
the meaning of this subchapter; or
`(C) the licensee is determined to be targeting marketing or
advertising materials at individuals who are not of legal age to place
a bet or wager, as defined by the law of the State or tribal area in
which the individuals are located.
`(2) FINAL ACTION- Any revocation of a license under paragraph (1) shall be
treated as a final action by the Secretary.
`(j) Regulations- The regulations prescribed by the Secretary under this subchapter
shall include regulations to fully implement-`(1) safeguards required for licensees under subsection (g); and
`(2) the requirements for programs relating to the Problem Gambling,
Responsible Gambling, and Self-Exclusion Program under section 5384.
`(k) Administrative Provisions`(1) GENERAL POWERS OF SECRETARY`(A) IN GENERAL- The Secretary shall have the authority to engage
in the following:
`(i) Investigate the suitability of each licensee to ensure
compliance with this subchapter and regulations prescribed
under this subchapter.
`(ii) Require licensees to maintain appropriate procedures to
ensure compliance with this subchapter and regulations
prescribed under this subchapter.
`(iii) Require licensees to maintain substantial facilities
involved with the processing of bets or wagers from the
United States within the United States.
`(iv) Require that a majority of all of the employees of the
applicant or licensee, and of its affiliated business entities, be
residents or citizens of the United States. All entities under
common control shall be considered affiliated business
entities for the purposes of this subparagraph.
`(v) Require licensees to maintain in the United States all
facilities that are essential to the regulation of bets or wagers
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placed from the United States at a location that is accessible
to the appropriate regulatory personnel at all times.
`(vi) Examine any licensee and any books, papers, records, or
other data of licensees relevant to any recordkeeping or
reporting requirements imposed by the Secretary under this
subchapter.
`(vii) Require licensees to maintain all facilities within the
United States for processing of bets or wagers made or
placed from the United States.
`(viii) When determined by the Secretary to be necessary,
summon a licensee or an applicant for a license, an officer or
employee of a licensee or any such applicant (including a
former officer or employee), or any person having
possession, custody, or care of the reports and records
required by the Secretary under this subchapter, to appear
before the Secretary or a designee of the Secretary at a time
and place named in the summons and to produce such books,
papers, records, or other data, and to give testimony, under
oath, as may be relevant or material to any investigation in
connection with the enforcement of this subchapter or any
application for a license under this subchapter.
`(ix) Investigate any violation of this subchapter and any
regulation under this subchapter and any other violation of
law relating to the operation of an Internet gambling facility.
`(x) Conduct continuing reviews of applicants and licensees
and the operation of Internet gambling facilities by use of
technological means, onsite observation of facilities,
including servers, or other reasonable means to assure
compliance with this subchapter and any regulations
promulgated hereunder.
`(xi) Prohibit inappropriate advertising practices by
licensees, including unsolicited emails targeting members of
vulnerable populations, including problem gamblers and
minors, or Internet advertising linked to search terms
associated with children, problem gamblers, or other topics
deemed inappropriate.
`(B) EFFECT OF WTO RULING- Clauses (iii) and (iv) of subparagraph
(A) shall cease to have effect if a tribunal of the World Trade
Organization of final arbitration rules that the implementation of
such clauses would violate the trade commitments of the United
States under the World Trade Organization.
`(2) CONSULTATION WITH INDIAN TRIBES- In implementing this
subchapter, the Secretary shall conduct meaningful consultation with Indian
tribes regarding all aspects of this subchapter which affect Indian tribes,
both as potential licensing entities or operating entities.
`(3) ADMINISTRATIVE ASPECTS OF SUMMONS`(A) PRODUCTION AT DESIGNATED SITE- A summons issued
pursuant to this subsection may require that books, papers, records,
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or other data stored or maintained at any place be produced at any
business location of a licensee or applicant for a license or any
designated location in any State or in any territory or other place
subject to the jurisdiction of the United States not more than 500
miles distant from any place where the licensee or applicant for a
license operates or conducts business in the United States.
`(B) NO LIABILITY FOR EXPENSES- The United States shall not be
liable for any expense incurred in connection with the production of
books, papers, records, or other data under this subsection.
`(C) SERVICE OF SUMMONS- Service of a summons issued under this
subsection may be by registered mail or in such other manner
calculated to give actual notice as the Secretary may prescribe by
regulation.
`(4) CONTUMACY OR REFUSAL`(A) REFERRAL TO ATTORNEY GENERAL- In case of contumacy by a
person issued a summons under this subsection or a refusal by such
person to obey such summons or to allow the Secretary to conduct
an examination, the Secretary shall refer the matter to the Secretary
of the Treasury for referral to the Attorney General.
`(B) JURISDICTION OF COURT- The Attorney General may invoke the
aid of any court of the United States to compel compliance with the
summons within the jurisdiction of which-`(i) the investigation which gave rise to the summons or the
examination is being or has been carried on;
`(ii) the person summoned is an inhabitant; or
`(iii) the person summoned carries on business or may be
found.
`(C) COURT ORDER- The court may issue an order requiring the
person summoned to appear before the Secretary or a delegate of
the Secretary to produce books, papers, records, and other data, to
give testimony as may be necessary to explain how such material
was compiled and maintained, to allow the Secretary to examine the
business of a licensee, and to pay the costs of the proceeding.
`(D) FAILURE TO COMPLY WITH ORDER- Any failure to obey the
order of the court may be punished by the court as a contempt
thereof.
`(E) SERVICE OF PROCESS- All process in any case under this
subsection may be served in any judicial district in which such
person may be found.
`(5) COMPILATION OF DATASETS ON PLAYER BEHAVIOR`(A) IN GENERAL- The Secretary shall compile and make available to
the public, on the Web site of the Secretary, datasets on player
behavior.
`(B) REGULATIONS REQUIRING SUBMISSION OF INFORMATIONThe Secretary shall prescribe regulations to require licensees under
this subchapter to provide information on player behavior that the
Secretary determines is appropriate for the datasets under
subparagraph (A).
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`(C) INFORMATION REQUIRED TO BE INCLUDED- Datasets prepared
under this paragraph shall include information on any individual
player, if requested by the Secretary, including but not limited to
information concerning gambling frequency, gaming duration, the
amount wagered, the number of bets placed, and net losses,
provided that such request complies with the provisions of
subparagraph (D).
`(D) PROTECTION OF PRIVACY- All information provided pursuant
to this paragraph shall be aggregated and anonymized, and shall not
contain information that either alone or in combination with other
data elements would permit identification of any individual player.
`(l) Civil Money Penalties`(1) IN GENERAL- The Secretary may assess upon any licensee or other
person subject to the requirements of this subchapter for any willful
violation of this subchapter or any regulation prescribed or order issued
under this subchapter, a civil penalty of not more than the greater of-`(A) the amount (not to exceed $100,000) involved in the violation, if
any; or
`(B) $25,000.
`(2) ASSESSMENT`(A) WRITTEN NOTICE- Any penalty imposed under paragraph (1)
may be assessed and collected by the Secretary by written notice.
`(B) FINALITY OF ASSESSMENT- If, with respect to any assessment
under paragraph (1), a hearing is not requested pursuant to
subparagraph (E) within the period of time allowed under such
subparagraph, the assessment shall constitute a final and
unappealable order.
`(C) AUTHORITY TO MODIFY OR REMIT PENALTY- The Secretary
may compromise, modify, or remit any penalty which the Secretary
may assess or has already assessed under paragraph (1).
`(D) MITIGATING FACTORS- In determining the amount of any
penalty imposed under paragraph (1), the Secretary shall take into
account the appropriateness of the penalty with respect to-`(i) the size of the financial resources and the good faith of
the person against whom the penalty is assessed;
`(ii) the gravity of the violation;
`(iii) the history of previous violations; and
`(iv) such other matters as justice may require.
`(E) HEARING- The person against whom any penalty is assessed
under paragraph (1) shall be afforded an agency hearing if such
person submits a request for such hearing within 20 days after the
issuance of the notice of assessment.
`(F) COLLECTION`(i) REFERRAL- If any person fails to pay an assessment after
any penalty assessed under this paragraph has become final,
the Secretary shall recover the amount assessed by action in
the appropriate United States district court.
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`(ii) APPROPRIATENESS OF PENALTY NOT REVIEWABLE- In
any civil action under clause (i), the validity and
appropriateness of the penalty shall not be subject to review.
`(G) DISBURSEMENT- All penalties collected under authority of this
subsection shall be deposited into the Treasury.
`(3) CONDITION FOR LICENSURE- Payment by a licensee of any civil penalty
assessed under this subsection that has become final shall be a requirement
for the retention of its license.
`(m) Treatment of Records- In light of business competition, confidentiality, and
privacy concerns, the Secretary shall protect from disclosure information submitted
in support of a license application under this subchapter and information collected
in the course of regulating licensees to the full extent permitted by sections 552 and
552a of title 5.
`(n) Suitability for Licensing Requirements for Certain Service Providers`(1) IN GENERAL- Any person that knowingly-`(A) manages, administers, or controls bets or wagers that are
initiated, received, or otherwise made within the United States,
`(B) otherwise manages or administers the games with which such
bets or wagers are associated, or
`(C) develops, maintains or operates, or distributes or makes
available for downloading software, other system programs or
hardware that create, operate, or otherwise affect the outcome of a
game,
shall meet all of the suitability for licensing criteria established under this
section in the same manner and to the same extent as if that person were
itself a licensee.
`(2) SUITABILITY FOR LICENSING REQUIREMENTS FOR CERTAIN SERVICE
PROVIDERS- Any failure on the part of person described in any
subparagraph of paragraph (1) to remain suitable for licensing shall be
grounds for revocation of the authority of the licensee for whom such
service is provided to operate an Internet gambling facility, in the same
manner and in accordance with subsection (i).
`(o) Reliance on State and Tribal Regulatory Body Certifications of Suitability for
Applicants`(1) QUALIFICATION OF STATE AND TRIBAL REGULATORY BODIES`(A) APPLICATION FOR DETERMINATION- Any State or tribal
regulatory body with expertise in regulating gambling may-`(i) notify the Secretary of its willingness to review
prospective applicants to certify whether any such applicant
meets the qualifications established under this subchapter;
and
`(ii) provide the Secretary with such documentation as the
Secretary determines necessary for the Secretary to
determine whether such State or tribal regulatory body is
qualified to conduct such review and may be relied upon by
the Secretary to make any such certification.
`(B) DETERMINATION AND NOTICE- Within 60 days after receiving
any notice under subparagraph (A)(i), the Secretary shall--
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`(i) make the determination as to whether a State or tribal
regulatory body is qualified to conduct a review of
prospective applicants and may be relied upon to certify
whether any such applicant meets the qualifications
established under this subchapter; and
`(ii) notify the State or tribal regulatory body of such
determination.
`(2) ACTIONS BY QUALIFIED AUTHORITIES- During the period that any
determination of qualification under paragraph (1)(B) is in effect with
respect to any such State or tribal regulatory body, the State or tribal
regulatory body-`(A) may undertake reviews of any applicant to determine whether
the applicant or any person associated with the applicant meets the
criteria for suitability for licensing established under this
subchapter;
`(B) may impose on each such applicant an administrative fee or
assessment for conducting such review in an amount the regulatory
body determines to be necessary to meet its expenses in the conduct
of such review; and
`(C) shall process and assess each applicant fairly and equally based
on objective criteria, regardless of any prior licensing of an applicant
by the State or tribal regulatory body.
`(3) RELIANCE ON STATE OR TRIBAL CERTIFICATION- Any applicant may
provide a certification of suitability for licensing made by any State or tribal
regulatory body under paragraph (2), together with all documentation the
applicant has submitted to any such State or tribal regulatory body, to the
Secretary, and any such certification and documentation shall be relied on
by the Secretary as evidence that an applicant has met the suitability for
licensing requirements under this section.
`(4) AUTHORITY OF SECRETARY TO REVIEW- Notwithstanding any
certification of suitability for licensing made by any State or tribal regulatory
body, the Secretary retains the authority to review, withhold, or revoke any
license if the Secretary has reason to believe that any applicant or licensee
does not meet the suitability requirements for licensing established under
this section, or any other requirement of a licensee.
`(5) RELIANCE ON QUALIFIED REGULATORY BODY FOR OTHER PURPOSES,
INCLUDING EXAMINATION AND ENFORCEMENT- The Secretary shall rely
on any State and tribal regulatory body found qualified under this
subsection for such other regulatory and enforcement activities as the
Secretary finds to be useful and appropriate to carry out the purposes of this
subchapter, including authority under paragraph (6).
`(6) ADDITIONAL AUTHORITY OF QUALIFIED STATE OR TRIBAL
AUTHORITIES- The qualified state or tribal authorities may-`(A) examine licensees who are licensed under a State or tribal
program referred to in paragraph (1);
`(B) employ enforcement agents with sufficient training and
experience to administer the requirements of this subchapter; and
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`(C) enforce any requirement of this subchapter that is within the
jurisdiction of the qualified state or tribal authority through all
appropriate means provided under this subchapter and other
provisions of law.
`(7) REVOCATION OF QUALIFICATION- The Secretary may revoke, at any
time and for any reason, the qualification of any State or tribal regulatory
body to certify or to conduct any other regulatory or enforcement activity to
carry out the purposes of this subchapter.
`(p) Prevention of Minors From Placing Bets or Wagers- The Secretary shall-`(1) frequently monitor, evaluate, and measure compliance effectiveness of
each licensee's software, mechanisms, and other systems for preventing
minors from placing bets or wagers through the Internet site of the licensee;
and
`(2) impose a sanction of either a fine, a revocation of license, or both, on a
licensee whose minor protection software, mechanisms, and other systems
are found to be insufficiently effective.
`(q) Requirements With Respect to Child Support Delinquents`(1) IN GENERAL- When it is made known to the Secretary by a Federal or
State court or a competent State agency involved with the administration or
enforcement of a court-ordered child support payment that a particular
individual is delinquent with respect to court-ordered child support
payments, the Secretary shall include that individual on the list established
under section 5384(c)(1)(A).
`(2) REMOVAL FROM LIST- Individuals placed on the list pursuant to
paragraph (1) shall be removed from such list if the court or agency that
made such individual's delinquency known to the Secretary notifies the
Secretary that such individual is no longer delinquent.
`Sec. 5384. Problem Gambling, Responsible Gambling, Consumer Safeguards, and SelfExclusion Program
`(a) Regulations Required- The Secretary and any State or tribal regulatory body
that has been qualified under subsection 5383(o) shall prescribe regulations for the
development of a Problem Gambling, Responsible Gambling, Consumer Safeguards,
and Self-Exclusion Program on the basis of standards that each licensee shall
implement as a condition of licensure.
`(b) Minimum Requirements`(1) IN GENERAL- Any application for a license shall include a submission to
the Secretary or qualified State or tribal regulatory body setting forth a
comprehensive program that is intended-`(A) to verify the identity and age of each customer through the use
of commercially available data sources or any approved government
database that is available for access in real-time through an
automated process;
`(B) to ensure that no customers under the legal age 21 may initiate
or otherwise make any bets or wagers for real money;
`(C) to verify the State or tribal land in which the customer is located
at the time the customer attempts to initiate a bet or wager;
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`(D) to ensure that no customer who is located in a State or tribal
land that opts out pursuant to section 5387 can initiate or otherwise
make a bet or wager prohibited by such opt-out;
`(E) to ensure that responsible gambling materials including
materials on problem gambling, services and resources to address
problem gambling, descriptions of games offered by the licensee, and
when appropriate, odds of winning or payout rates of games, and
any other materials that the Secretary or qualified State or tribal
regulatory body may deem appropriate are made available to
customers;
`(F) to make available player-selectable responsible gambling
options that may include, as appropriate to specific gambling games,
a stake limit, loss limit, time-based loss limits, deposit limit, session
time limit, time-based exclusion from all gambling and other similar
options that the Secretary or qualified State or tribal regulatory body
may deem appropriate and require to be made available;
`(G) to require each customer, before making or placing any bet or
wager, to establish personal limits as a condition of play that apply
across all betting sites, which may be in hourly, daily, weekly or
monthly increments, at the discretion of the customer;
`(H) to protect the privacy and security of any customer in
connection with any lawful Internet gambling activity;
`(I) to protect against fraud and to provide for dispute resolution
relating to internet gambling activity through programs to insure the
integrity and fairness of the games; and
`(J) to protect against money laundering relating to Internet
gambling activities.
`(2) REQUIREMENTS FOR PROGRAMS ENSURING INTEGRITY AND
FAIRNESS- The programs referred to in paragraph (1)(I) to insure the
integrity and fairness of the games shall include requirements for-`(A) real-time, multiparty cryptographic protocols for random
number generation where one of the parties is the player;
`(B) secure audit trails;
`(C) detailed player betting logs that record and store each wager
placed by the player;
`(D) real time confirmation of high value bets or wagers, where
appropriate; or
`(E) equally effective options that the Secretary or qualified State or
tribal regulatory officer or agency may determine to be appropriate.
`(c) Periodic Review`(1) IN GENERAL- The Secretary shall, on a regular basis, review the
minimum requirements under this section and may, based on the best
available technology, update the standards that each licensee shall
implement as a condition of licensure.
`(2) CONSULTATION- In conducting the review required under paragraph
(1), the Secretary shall consult with-`(A) State and tribal gaming regulatory officials;
`(B) law enforcement officials;
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`(C) experts in underage and problem gaming;
`(D) experts on individual privacy;
`(E) consumers;
`(F) on-line retailers of other age restricted materials such as
tobacco and alcohol products;
`(G) licensees and other representatives of the gaming industry;
`(H) software developers with expertise in gaming, privacy, the
payments systems available, and other relevant areas; and
`(I) such other relevant individuals as the Secretary may determine
to be appropriate.
`(d) List of Persons Self-Excluded From Gambling Activities`(1) ESTABLISHMENT`(A) IN GENERAL- The Secretary shall provide by regulation for the
establishment of a list of persons self-excluded from gambling
activities at all licensee sites.
`(B) PLACEMENT REQUEST- Any person may request placement on
the list of self-excluded persons by-`(i) acknowledging in a manner to be established by the
Secretary that the person wishes to be denied gambling
privileges; and
`(ii) agreeing that, during any period of voluntary exclusion,
the person may not collect any winnings or recover any
losses resulting from any gambling activity at any licensee
sites.
`(2) PLACEMENT AND REMOVAL PROCEDURES- The regulations prescribed
by the Secretary under paragraph (1)(A) shall establish procedures for
placements on, and removals from, the list of self-excluded persons.
`(3) LIMITATION ON LIABILITY`(A) IN GENERAL- The United States, the Secretary, an enforcement
agent, or a licensee, or any employee or agent of the United States,
the Secretary, an enforcement agent, or a licensee, shall not be liable
to any self-excluded person or to any other party in any judicial or
administrative proceeding for any harm, monetary or otherwise,
which may arise as a result of-`(i) any failure to withhold gambling privileges from, or to
restore gambling privileges to, a self-excluded person; or
`(ii) otherwise permitting a self-excluded person to engage in
gambling activity while on the list of self-excluded persons.
`(B) RULE OF CONSTRUCTION- No provision of subparagraph (A)
shall be construed as preventing the Director from assessing any
regulatory sanction against a licensee for failing to comply with the
minimum standards prescribed pursuant to this subsection.
`(4) DISCLOSURE PROVISIONS`(A) IN GENERAL- Notwithstanding any other provision of Federal or
State law, the list of self-excluded persons shall not be open to public
inspection.
`(B) AFFILIATE DISCLOSURE- Any licensees may disclose the
identities of persons on the self-excluded list to any affiliated
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company or, where required to comply with this subsection, any
service provider, to the extent that the licensee ensures that any
affiliated company or service provider maintains such information
under confidentiality provisions comparable to those in this
subsection.
`(5) LIMITATION ON LIABILITY FOR DISCLOSURE- A licensee or an
employee, agent, or affiliate of a licensee shall not be liable to any selfexcluded person or to any other party in any judicial proceeding for any
harm, monetary or otherwise, which may arise as a result of disclosure or
publication in any manner.
`(e) Gambling by Prohibited Persons`(1) PROHIBITION BENEFITTING FROM PROHIBITED GAMBLING ACTIVITYA person who is prohibited from gambling with a licensee by law, or by
order of the Secretary or any court of competent jurisdiction, including any
person on the self-exclusion list as established in accordance with
subsection (d), shall not collect, in any manner or proceeding, any winnings
or recover any losses arising as a result of any prohibited gambling activity.
`(2) FORFEITURE- In addition to any other penalty provided by law, any
money or thing of value that has been obtained by, or is owed to, any
prohibited person by a licensee as a result of bets or wagers made by a
prohibited person shall be subject to forfeiture by order of the Secretary,
following notice to the prohibited person and opportunity to be heard.
`(3) DEPOSIT OF FORFEITED FUNDS- Any funds forfeited pursuant to this
subsection shall be deposited into the general fund of the Treasury.
`(4) PERSONS SELF-EXCLUDED- Licensees may not accept bets or wagers
from persons on the list established pursuant to subsection (d)(1)(A).
`(f) Problem or Compulsive Gamblers Not on the List of Self-Excluded Persons`(1) PUBLIC AWARENESS PROGRAM`(A) IN GENERAL- The Secretary and any State or tribal regulatory
body that has been qualified under subsection 5383(o) shall provide
by regulation for the establishment of a program to alert the public
to the existence, consequences, and availability of the self-exclusion
list, and shall prepare and promulgate written materials to be used
in such a program.
`(B) LICENSEE-PROVIDED PUBLICITY- Regulations prescribed under
subparagraph (A) may require a licensee to make available literature
or screen displays relating to the existence of the program.
`(2) RULE OF CONSTRUCTION- No provision of this subsection shall be
construed as creating a legal duty in the Secretary, a qualified State or tribal
regulatory body, a licensee, or any representative of a licensee to identify or
to exclude problem or compulsive gamblers not on the list of self-excluded
persons.
`(3) IMMUNITY- The United States, the Secretary, a qualified State or tribal
regulatory body, a licensee, and any employee or agent of a licensee, shall
not be liable to any person in any proceeding for losses or other damages of
any kind arising out of that person's gambling activities based on a claim
that the person was a compulsive, problem, or pathological gambler.
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`Sec. 5385. Financial transaction providers
`(a) In General- No financial transaction provider shall be held liable for engaging in
financial activities and transactions for or on behalf of a licensee or involving a
licensee, including payments processing activities, unless such provider has
knowledge that the specific financial activities or transactions are conducted in
violation of this subchapter and with applicable Federal and State laws.
`(b) Definitions- For purposes of this section, the following definitions shall apply:
`(1) FINANCIAL TRANSACTION PROVIDER- The term `financial transaction
provider' means a creditor, credit card issuer, financial institution, operator
of a terminal at which an electronic fund transfer may be initiated, money
transmitting business, or international, national, regional, or local payment
network utilized to effect a credit transaction, electronic fund transfer,
stored value product transaction, or money transmitting service, or a
participant in such network, or other participant in a payment system.
`(2) OTHER TERMS`(A) CREDIT, CREDITOR, CREDIT CARD, AND CARD ISSUER- The
terms `credit', `creditor', `credit card', and `card issuer' have the
meanings given the terms in section 103 of the Truth in Lending Act.
`(B) ELECTRONIC FUND TRANSFER- The term èlectronic fund
transfer'-`(i) has the meaning given the term in section 903 of the
Electronic Fund Transfer Act, except that the term includes
transfers that would otherwise be excluded under section
903(6)(E) of such Act; and
`(ii) includes any fund transfer covered by Article 4A of the
Uniform Commercial Code, as in effect in any State.
`(C) FINANCIAL INSTITUTION- The term `financial institution' has
the meaning given the term in section 903 of the Electronic Fund
Transfer Act, except that such term does not include a casino, sports
book, or other business at or through which bets or wagers may be
placed or received.
`(D) INSURED DEPOSITORY INSTITUTION- The term ìnsured
depository institution'-`(i) has the meaning given the term in section 3(c) of the
Federal Deposit Insurance Act; and
`(ii) includes an insured credit union (as defined in section
101 of the Federal Credit Union Act).
`(E) MONEY TRANSMITTING BUSINESS AND MONEY
TRANSMITTING SERVICE- The terms `money transmitting business'
and `money transmitting service' have the meanings given the terms
in section 5330(d) (determined without regard to any regulations
prescribed by the Secretary under such section).
`Sec. 5386. List of unlawful Internet gambling enterprises
`(a) Definitions- For purposes of this section, the following definitions shall apply:
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`(1) UNLAWFUL INTERNET GAMBLING ENTERPRISE- The term ùnlawful
Internet gambling enterprise' means any person who, more than 10 days
after the date of the enactment of this section-`(A) violates a provision of section 5363;
`(B) knowingly receives or transmits funds intended primarily for a
person described in subparagraph (A); or
`(C) knowingly assists in the conduct of a person described in
subparagraph (A) or (B).
`(2) DIRECTOR- The term `Director' means the Director of the Financial
Crimes Enforcement Network.
`(b) List of Unlawful Internet Gambling Enterprises`(1) IN GENERAL- Not later than 120 days after the date of the enactment of
this section, the Director shall submit to the Secretary a list of unlawful
Internet gambling enterprises and shall regularly update such list in
accordance with the procedures described in paragraph (3).
`(2) CONTENTS OF LIST- The list prepared under paragraph (1) shall
include the following information for each such unlawful Internet gambling
enterprise:
`(A) All known Internet Web site addresses of the enterprise.
`(B) The names of all known owners and operators of the enterprise.
`(C) To the extent known, information identifying the financial
agents and account numbers of the enterprise and the persons listed
under subparagraph (B).
`(3) DISTRIBUTION OF LIST BY SECRETARY- The Secretary shall make
available-`(A) a copy of the information provided under subparagraphs (A)
and (B) of paragraph (2) on the Internet Web site of the Secretary of
the Treasury;
`(B) to all persons who are required to comply with the regulations
prescribed under the authority provided in section 5364 a copy of all
the information provided under paragraph (1) in an electronic
format compatible with the Specially Designated Nationals list
maintained by the Office of Foreign Assets Control; and
`(C) any information required under this paragraph not later than 10
days after receiving any new or updated list from the Director.
`(4) PROCEDURES- The procedures described in this paragraph are the
following:
`(A) INVESTIGATION- The Director shall investigate entities that
appear to be unlawful Internet gambling enterprises. An initial
investigation shall be completed before the end of the 60-day period
beginning on the date of enactment of this section. After the initial
investigation, the Director shall regularly investigate entities that
appear to be unlawful Internet gambling enterprises. If the Director
discovers evidence sufficient to prove a prima facie case that any
person is an unlawful Internet gambling enterprise, the Director
shall provide the notice required under subparagraph (C).
`(B) REQUESTS- Any Federal, State, tribal, or local law enforcement
official, any affected sports organization, any person directly harmed
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by unlawful Internet gambling, any financial transaction provider,
and any interactive computer service (as such terms are defined in
section 5362) shall have the right, but not the obligation, to make a
written request to the Director for the addition of any person to the
list of unlawful Internet gambling enterprises. If the Director
determines that the evidence submitted is sufficient to prove a prima
facie case that such person is an unlawful Internet gambling
enterprise, the Director shall provide the notice required under
subparagraph (C) to each person identified as an alleged unlawful
Internet gambling enterprise. The Director also shall provide written
notice of its decision under this subparagraph, including a decision
not to add a person to the list required under paragraph (1), to the
requesting party no later than 30 days after the request is received.
`(C) NOTICE- Not fewer than 30 days before adding an unlawful
Internet gambling enterprise, or an owner or operator thereof, to the
list required under paragraph (1), the Director shall provide written
notice to such enterprise, owner, or operator. Any enterprise, owner,
or operator receiving such notice may contest the Director's
determination by written appeal to the Director not more than 30
days after receiving notice.
`(D) OPPORTUNITY FOR HEARING- If a person properly submits a
written appeal under subparagraph (C), the Director shall not
include such person in the list required under paragraph (1) unless
and until the Director provides such person with an opportunity for
a hearing not more than 30 days after receiving written notice of
appeal. Not more than 10 days after an opportunity for hearing is
afforded, whether or not the person requesting the hearing appears
at such hearing, the Director shall proceed to add such person to the
list of unlawful Internet gambling enterprises unless the Director
determines, based on a preponderance of the evidence, that such
person is not an unlawful Internet gambling enterprise.
`(E) INJUNCTIVE RELIEF- Any person that the Director determines
shall be included in the list required under paragraph (1) after such
person appears at a hearing described in subparagraph (D) and any
person included in such list who did not receive the notice required
under subparagraph (C), may petition for injunctive relief in the
United States District Court for the District of Columbia, which shall
have exclusive jurisdiction to hear challenges pursuant to this
section. The petitioner shall have the burden of establishing by a
preponderance of the evidence that such person is not an unlawful
Internet gambling enterprise. Only persons designated by the
Director for inclusion on the list of unlawful Internet gambling
enterprises, and other owners or operators of an enterprise to be so
listed, shall have standing to contest the Director's determination.
The court may enjoin the Director and the Secretary not to add or
remove the petitioner from the list of unlawful Internet gambling
enterprises, and no other judicial recourse shall be permitted.
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`(c) Effect of List- A financial transaction provider shall be deemed to have actual
knowledge that a person is an unlawful Internet gambling enterprise to the extent
that such person is identified on the list available to the public, or on a non-public
list made available to such financial transaction provider, by the Secretary as
described in subsection (b)(2), provided that the list shall not be deemed to be the
sole source of actual knowledge.
`Sec. 5387. Limitation of licenses in States and Indian lands
`(a) State Opt-Out Exercise`(1) LIMITATIONS IMPOSED BY STATES`(A) IN GENERAL- No licensee may engage, under any license issued
under this subchapter, in the operation of an Internet gambling
facility that knowingly accepts bets or wagers initiated by persons
who reside in any State which provides notice that it will limit such
bets or wagers, if the Governor or other chief executive officer of
such State informs the Director of such limitation, in a manner which
clearly identifies the nature and extent of such limitation, before the
end of the period beginning on the date of the enactment of the
Enforcement Act and ending on the date on which such State's
legislature has conducted one full general legislative session, where
such session began after the date of the enactment of such Act, or in
accordance with paragraph (2), until such time as any notice of any
amendment or repeal of such specific limitation becomes effective
under paragraph (2).
`(B) COORDINATION BETWEEN STATE AND TRIBAL OPT-OUT
EXERCISES- Any State limitation under subparagraph (A) shall not
apply to the acceptance by a licensee of bets or wagers from persons
located within the tribal lands of an Indian tribe that-`(i) has itself opted out pursuant to subsection (b) (in which
case the tribal opt-out exercise under such subsection shall
apply); or
`(ii) would be entitled pursuant to other applicable law to
permit such bets or wagers to be initiated and received
within its territory without use of the Internet.
`(C) COORDINATION WITH INDIAN GAMING REGULATORY ACT- No
decision by a State under this subsection shall be considered in
making any determination with regard to the ability of an Indian
tribe to offer any class of gambling activity pursuant to section 11 of
the Indian Gaming Regulatory Act.
`(D) TRIBAL STATUS OR CATEGORY NOT IMPACTED- Tribal
operations of Internet gambling facilities under this subchapter shall
not impact an Indian tribe's status or category or class under its
land-based activities.
`(E) NEW NEGOTIATIONS NOT REQUIRED- Operating under a
license issued pursuant to this subchapter shall not require, or
impose any requirement on, an Indian tribe to negotiate a new
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agreement, or renegotiate any existing agreement, limitation or
other provision of a tribal-State compact, agreement, or other
understanding with respect to gaming or revenue-sharing, with
regard to any Internet bet or wager occurring pursuant to a license
issued by the Secretary under this subchapter.
`(2) CHANGES TO STATE LIMITATIONS- The establishment, repeal, or
amendment by any State of any limitation referred to in paragraph (1) after
the end of the period referred to in paragraph (1) shall apply, for purposes
of this subchapter, beginning on the first January 1 that occurs after the end
of the 60-day period beginning on the later of-`(A) the date a notice of such establishment, repeal, or amendment is
provided by the Governor or other chief executive officer of such
State in writing to the Secretary; or
`(B) the effective date of such establishment, repeal, or amendment.
`(b) Indian Tribe Opt-Out Exercise`(1) LIMITATIONS IMPOSED BY INDIAN TRIBES- No Internet gambling
licensee knowingly may accept a bet or wager from a person located in the
tribal lands of any Indian tribe which limits such gambling activities or other
contests if the principal chief or other chief executive officer of such Indian
tribe informs the Secretary of such limitation, in a manner which clearly
identifies the nature and extent of such limitation, before the end of the 90day period beginning on the date of the enactment of the Internet Gambling
Regulation, Consumer Protection, and Enforcement Act, or in accordance
with paragraph (2), until such time as any notice of any amendment or
repeal of such specific limitation becomes effective under paragraph (2).
`(2) CHANGES TO INDIAN TRIBE LIMITATIONS- The establishment, repeal,
or amendment by any Indian tribe of any limitation referred to in paragraph
(1) after the end of the 90-day period beginning on the date of the
enactment of this subchapter shall apply, for purposes of this subchapter,
beginning on the first January 1 that occurs after the end of the 60-day
period beginning on the later of-`(A) the date a notice of such establishment, repeal, or amendment is
provided by the principal chief or other chief executive officer of
such Indian tribe in writing to the Secretary; or
`(B) the effective date of such establishment, repeal, or amendment.
`(c) Notification and Enforcement of State and Indian Tribe Limitations`(1) IN GENERAL- The Secretary shall notify all licensees and applicants of
all States and Indian tribes that have provided notice pursuant to paragraph
(1) or (2) of subsection (a) or (b), as the case may be, promptly upon receipt
of such notice and in no event fewer than 30 days before the effective date of
such notice.
`(2) COMPLIANCE- The Secretary shall take effective measures to ensure
that any licensee under this subchapter, as a condition of the license,
complies with any limitation or prohibition imposed by any State or Indian
tribe to which the licensee is subject under subsection (a) or (b), as the case
may be.
`(3) VIOLATIONS- It shall be a violation of this subchapter for any licensee
knowingly to accept bets or wagers initiated or otherwise made by persons
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located within any State or in the tribal lands of any Indian tribe for which a
notice is in effect under subsection (a) or (b), as the case may be.
`(4) STATE ATTORNEY GENERAL ENFORCEMENT- In any case in which the
attorney general of a State, or any State or local law enforcement agency
authorized by the State attorney general or by State statute to prosecute
violations of consumer protection law, has reason to believe that an interest
of the residents of that State has been or is threatened or adversely affected
by a violation by a licensee pursuant to paragraph (2), the State, or the State
or local law enforcement agency on behalf of the residents of the agency's
jurisdiction, may bring a civil action on behalf of the residents of that State
or jurisdiction in a district court of the United States located therein, to-`(A) enjoin that practice; or
`(B) enforce compliance with this subchapter.
`Sec. 5388. Sports betting prohibited on Internet
`No licensee under this subchapter shall accept Internet bets or wagers on sporting
events, with the exception of pari-mutuel racing as permitted by law.
`Sec. 5389. Prohibition on the use of credit cards for Internet gambling
`(a) In General- No licensee, no person operating on behalf of a licensee, and no
person accepting payment for or settlement of a bet or wager who intends to
transmit such payment to a person licensee, may accept a bet or wager or payment
for or settlement of a bet or wager that is transmitted or otherwise facilitated with a
credit card (as defined in section 5362(11)).
`(b) Exception`(1) CLARIFICATION OF SCOPE- For any person licensed to take bets or
wagers in accordance with the Interstate Horseracing Act of 1978, the
prohibition in subsection (a) shall only apply to those activities conducted
pursuant to a license under this subchapter.
`(2) INTRASTATE ACTIVITIES- For any person involved in legal, land-based
or State- or tribal-regulated intrastate gambling, the prohibition in
subsection (a) shall only apply to those activities conducted pursuant to a
license under this subchapter.
`Sec. 5390. State and tribal lotteries
`(a) In General- Notwithstanding any other provision of this subchapter, this
subchapter shall not apply to Internet gambling conducted by any State or tribal
lottery authority when conducted in accordance with subparagraph (B) or (C) of
section 5362(10), as clarified by section 5362(10)(E).
`(b) Rule of Construction- For purposes of the clarification made by subparagraph
(E) of section 5362(10) to the meaning and intent of subparagraphs (B) and (C) of
such section, Internet gambling described in subsection (a) is hereby expressly
permitted, and operators of any State or tribal lottery authority conducting Internet
gambling facilities operating in accordance with such subparagraph (B) or (C), as
clarified by such subparagraph (E), and vendors, suppliers and service providers to
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such State or tribal lottery authority, shall not be required to be licensed under this
subchapter.
`(c) Applicability of Other Provisions to Lottery Activity- To clarify existing law,
section 1084 of title 18 shall not apply to any of the following that occurs in
connection with any Internet gambling conducted by any State or tribal lottery
authority when conducted in accordance with subparagraph (B) or (C) of section
5362(10), as clarified by section 5362(10)(E):
`(1) Any Internet bet or wager, including any transmission thereof.
`(2) Any transmission of information assisting in the placing of bets or
wagers.
`(3) Any transmission entitling 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.
`(d) Authorization of Sponsor- No licensee may offer services relating to any lottery
sponsored by a State, tribal, or other governmental body without the authorization
of the official sponsor.
`Sec. 5391. Safe harbors
Ìt shall be a complete defense against any prosecution or enforcement action under
any Federal or State law against any person possessing a valid license under this
subchapter that the activity is authorized under and has been carried out lawfully
under the terms of this subchapter.
`Sec. 5392. Relation to section 1084 of title 18 and the Unlawful Internet Gambling
Enforcement Act
`Section 1084 of title 18 and subchapter IV of this chapter shall not apply to any
Internet bet or wager occurring pursuant to a license issued in accordance with this
subchapter.
`Sec. 5393. Cheating and other fraud
`(a) Electronic Cheating Devices Prohibited- No person initiating, receiving, or
otherwise making a bet or wager with a licensee, or sending, receiving, or inviting
information assisting with a bet or wager with a licensee, knowingly shall use, or
assist another in the use of, an electronic, electrical, or mechanical device which is
designed, constructed, or programmed specifically for use in obtaining an advantage
in any game authorized under this subchapter, where such advantage is prohibited
or otherwise violates the rules of play established by the licensee.
`(b) Additional Offense- No person initiating, receiving, or otherwise making a bet or
wager with a licensee, or sending, receiving, or inviting information assisting with a
bet or wager with a licensee, knowingly shall use or possess any cheating device
with intent to cheat or defraud any licensee or other persons placing bets or wagers
with such licensee.
`(c) Permanent Injunction- Upon conviction of a person for violation of this section,
the court may enter a permanent injunction enjoining such person from initiating,
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receiving, or otherwise making bets or wagers or sending, receiving, or inviting
information assisting in the placing of bets or wagers.
`(d) Criminal Penalty- Whoever violates subsection (a) or (b) of this section shall be
fined under title 18 or imprisoned for not more than 5 years, or both.'.
(b) Rules of Construction(1) TECHNICAL AND CONFORMING AMENDMENT- Section 310(b)(2) of title
31, United States Code is amended-(A) by redesignating subparagraph (J) as subparagraph (K); and
(B) by inserting after subparagraph (I) the following new
subparagraph:
`(J) Administer the requirements of subchapter V of chapter 53.'.
(c) Clerical Amendment- The table of sections for chapter 53 of title 31, United
States Code, is amended by adding at the end the following:
`subchapter v--regulation of lawful internet gambling
`5381. Congressional findings.
`5382. Definitions.
`5383. Establishment and administration of licensing program.
`5384. Problem Gambling, Responsible Gambling, Consumer Safeguards, and
Self-Exclusion Program.
`5385. Financial transaction providers.
`5386. List of unlawful Internet gambling enterprises.
`5387. Limitation of licenses in States and Indian lands.
`5388. Sports betting prohibited on Internet.
`5389. Prohibition on the use of credit cards for Internet gambling.
`5390. State and tribal lotteries.
`5391. Safe harbors.
`5392. Relation to section 1084 of title 18 and the Unlawful Internet
Gambling Enforcement Act.
`5393. Cheating and other fraud.'.
SEC. 3. REPORT REQUIRED.
(a) In General- Before the end of the 1-year period beginning on the effective date of
the regulations prescribed under section 5(a), and annually thereafter, the Secretary
shall submit a report to the Congress on the licensing and regulation of Internet
gambling operators.
(b) Information Required- Each report submitted under subsection (a) shall include
the following information:
(1) A comprehensive statement regarding the prohibitions notified by the
States and Indian tribes pursuant to section 5387 of title 31, United States
Code.
(2) Relevant statistical information on applicants and licenses.
(3) The amount of licensing and user fees collected during the period
covered by the report.
(4) Information on regulatory or enforcement actions undertaken during the
period.
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(5) Any other information that may be useful to the Congress in evaluating
the effectiveness of the Act in meeting its purpose, including the provision of
protections against underage gambling, compulsive gambling, money
laundering, and fraud, and in combating tax avoidance relating to Internet
gambling.
SEC. 4. FEASIBILITY STUDY.
The Secretary of the Treasury, in consultation with appropriate State or tribal
officers or agencies, shall conduct a feasibility study on safeguards to address
gambling while impaired through programs such as periodic notices, periodic
testing of individuals to establish cognitive competence, and any other similar
option that the Secretary or appropriate State or tribal officers or agencies may
determine to be appropriate.
SEC. 5. EFFECTIVE DATE.
(a) Regulations- The Secretary of the Treasury shall prescribe such regulations as
the Secretary may determine to be appropriate to implement subchapter V of
chapter 53 of title 31, United States Code (as added by section 2(a) of this Act) and
shall publish such regulations in final form in the Federal Register before the end of
the 180-day period beginning on the date of enactment of this Act.
(b) Scope of Application- The amendment made by section 2(a) shall apply after the
end of the 90-day period beginning on the date of the publication of the regulations
in final form in accordance with subsection (a).
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H.R. 2366 Internet Gambling Prohibition, Poker Consumer Protection, and
Strengthening UIGEA Act of 2011
112th CONGRESS
1st Session
H. R. 2366
To establish a program for State licensing of Internet poker, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
June 24, 2011
Mr. BARTON of Texas (for himself, Mr. CAMPBELL, Ms. BERKLEY, Mr. HONDA, Mr. COHEN,
Ms. LINDA T. SANCHEZ of California, Mr. PERLMUTTER, Mr. KING of New York, Mr.
CONYERS, Mr. FRANK of Massachusetts, Mr. PAUL, and Mr. GRIMM) introduced the
following bill; which was referred to the Committee on Energy and Commerce, and in
addition to the Committees on Financial Services and the Judiciary, for a period to be
subsequently determined by the Speaker, in each case for consideration of such provisions
as fall within the jurisdiction of the committee concerned
A BILL
To establish a program for State licensing of Internet poker, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of
America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title- This Act may be cited as the Ìnternet Gambling Prohibition, Poker
Consumer Protection, and Strengthening UIGEA Act of 2011'.
(b) Table of Contents- The table of contents for this Act is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Findings.
TITLE I--PROHIBITION ON UNLICENSED INTERNET GAMBLING AND INTERNET POKER
CONSUMER PROTECTION
Sec. 101. Definitions.
Sec. 102. Prohibition on unlicensed Internet gambling.
Sec. 103. Department of Commerce qualification and oversight of State
agencies.
Sec. 104. Licensing by qualified State agencies.
Sec. 105. Enforcement.
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Sec. 106. Compulsive gaming, responsible gaming, and self-exclusion
program requirements.
Sec. 107. Prohibitions and restrictions.
Sec. 108. Safe harbor.
Sec. 109. Relation to subchapter IV of chapter 53 of title 31, United States
Code.
Sec. 110. Cheating and other fraud.
Sec. 111. Inapplicability of certain provisions to interstate off-track wagers.
Sec. 112. Construction and relation to other law.
Sec. 113. Regulations.
Sec. 114. Annual reports.
Sec. 115. Effective date.
TITLE II--STRENGTHENING OF UNLAWFUL INTERNET GAMBLING ENFORCEMENT ACT
OF 2006
Sec. 201. Financial transaction providers.
Sec. 202. List of unlicensed Internet gambling enterprises.
Sec. 203. Regulations.
Sec. 204. Conforming amendments.
SEC. 2. FINDINGS.
Congress finds the following:
(1) Since the development of the Internet, online Web sites offering Internet
gambling have raised numerous policy, consumer protection, and
enforcement concerns for Federal and State governments as such Web sites
are run by operators located in many different countries and have sought to
attract customers from the United States.
(2) The Unlawful Internet Gambling Enforcement Act of 2006 (title VIII of
Public Law 109-347; 120 Stat. 1952) was intended to aid enforcement
efforts against unlawful Internet operators and to limit unlawful Internet
gaming involving United States persons. However, that Act has only been
partially successful in doing so.
(3) There is uncertainty about the laws of the United States governing
Internet gambling and Internet poker, though not about laws governing
Internet sports betting. The Department of Justice has maintained that a
broad range of activity is illegal, including activity that Congress intended to
legalize under the Interstate Horseracing Act of 1978. Certain court
decisions have used logic not consistent with aspects of the position of the
Department of Justice. Enforcement efforts would be aided by bringing
greater clarity to this area.
(4) Additional tools to assist law enforcement in the prevention of unlawful
Internet gaming activities would be important and beneficial. Maintenance
of a list of unlicensed Internet gambling enterprises and the owners,
operators, and key personnel of such enterprises (as well as entities and
related personnel found unsuitable) would aid those law enforcement
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efforts and would make the Unlawful Internet Gambling Enforcement Act
more effective.
(5) Poker is distinct from the class of games of chance traditionally defined
as gambling in that, players compete against each other, and not the person
or entity hosting the game (sometimes called `the house'), and that over any
significant interval, the outcome of a poker game is predominantly
determined by the skill of the participants.
(6) United States consumers would benefit from a program of Internet poker
regulation which recognizes the interstate nature of the Internet, but
nevertheless preserves the prerogatives of States. Such a system would
require strict licensing of Internet poker providers and would require
licensee operators to-(A) have effective means to prevent minors from playing poker online;
(B) identify and help treat problem gamblers; to ensure that games
are fair;
(C) allow players to self-exclude and limit losses; and
(D) prevent money laundering.
(7) Such a program would create a new industry within the United States
creating thousands of jobs and substantial tax revenue for Federal and State
governments.
TITLE I--PROHIBITION ON UNLICENSED INTERNET GAMBLING AND INTERNET POKER
CONSUMER PROTECTION
SEC. 101. DEFINITIONS.
As used in this title, the following definitions apply:
(1) APPLICANT- The term àpplicant' means any person who has applied for
a license pursuant to this title.
(2) BET OR WAGER(A) IN GENERAL- Except as provided in subparagraph (B), the term
`bet or wager' has the meaning given the term in section 5362 of title
31, United States Code.
(B) EXCEPTION- The term `bet or wager' does not include the
following:
(i) INTERSTATE HORSERACING- A bet or wager that is
permissible under the Interstate Horseracing Act of 1978 (15
U.S.C. 3001 et seq.).
(ii) CERTAIN INTRASTATE TRANSACTIONS- Placing,
receiving, or otherwise transmitting a bet or wager-(I) as described in subparagraph (B) of section
5362(10) of title 31, United States Code, and clarified
by subparagraph (E) of such section; and
(II) authorized under a license that was issued by a
regulatory body of a State or Indian tribe on or before
the date of the enactment of this Act.
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(iii) INTRASTATE LOTTERY TRANSACTIONS- A bet or wager
that is-(I) a chance or opportunity to win a lottery or other
prize (which opportunity to win is predominantly
subject to chance) authorized by a State or Indian
tribe; and
(II) a placing, receiving, or transmitting of a bet or
wager as described in such subparagraph (B) and
clarified by subparagraph (E) of such section
5362(10).
(iv) INTRATRIBAL TRANSACTIONS- Placing, receiving, or
otherwise transmitting a bet or wager as described in
subparagraph (C) of such section 5362(10), as clarified by
such subparagraph (E).
(3) CASINO GAMING(A) IN GENERAL- Except as provided in subparagraph (B), the term
`casino gaming' means the full range of casino gaming activity
licensed by regulatory bodies of States or Indian tribes that would be
qualified as class III gaming under section 4 of the Indian Gaming
Regulatory Act (25 U.S.C. 2703), if that Act were applicable to the
gaming.
(B) EXCEPTION- The term `casino gaming' does not include lotteries
of States or Indian tribes.
(4) CASINO GAMING FACILITIES- The term `casino gaming facility' means a
facility that provides casino gaming on a riverboat, at a race track, or in
another facility that hosts 500 or more gaming devices in 1 physical location
pursuant to a duly authorized license issued by a gaming regulatory
authority of a State or Indian tribe.
(5) GAMING DEVICE(A) IN GENERAL- Except as provided in subparagraph (B), the term
`gaming device' means any computer-based gambling machine,
including slot machines and video lottery terminals that have been
approved by a gaming regulatory authority of a State or Indian tribe.
(B) EXCEPTION- The term `gaming device' does not include
machines that process bets or wagers for pari-mutuel betting pools.
(6) INDIAN LANDS AND INDIAN TRIBE- The terms Ìndian lands' and Ìndian
tribe' have the meaning given the terms in section 4 of the Indian Gaming
Regulatory Act (25 U.S.C. 2703).
(7) INTERNET- The term Ìnternet' has the meaning given the term in
section 5362 of title 31, United States Code.
(8) INTERNET GAMBLING FACILITY- The term Ìnternet gambling facility'
means an Internet Web site, or similar communications facility in which
transmissions may cross State boundaries, through which a bet or wager is
initiated, received, or otherwise made, whether transmitted by telephone,
Internet, satellite, or other wire or wireless communication facility, service,
or medium.
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(9) INTERNET POKER- The term Ìnternet poker' means a poker game, hand,
tournament, or other contest of poker offered through the use of an Internet
poker facility.
(10) INTERNET POKER FACILITY- The term Ìnternet poker facility' means a
type of Internet gambling facility that provides bets or wagers only with
respect to a game, hand, tournament, or other contest of poker.
(11) LICENSEE- The term `licensee' means a person who operates an
Internet poker facility under a license issued by a qualified State agency
pursuant to this title.
(12) LIVE RACING- The term `live racing' means, with respect to a qualified
race track, the conduct of live thoroughbred horse races at such race track,
but does not include any races simulcasted from a separate race track.
(13) OPERATE AN INTERNET GAMBLING FACILITY- The term òperate an
Internet gambling facility' means to conduct, direct, manage, own, supervise,
or control an Internet gambling facility.
(14) OPERATE AN INTERNET POKER FACILITY- The term òperate an
Internet poker facility' means to conduct, direct, manage, own, supervise, or
control an Internet poker facility.
(15) POKER- The term `poker' means any of several card games in which
players compete against each other, and not the person or entity hosting the
game (sometimes called `the house'), and that over any significant interval,
the outcome of a poker game is predominantly determined by the skill of the
participants.
(16) QUALIFIED STATE AGENCY- The term `qualified State agency' means-(A) a State agency or regulatory body of an Indian tribe that has been
designated as a qualified body under paragraph (1) or (3) of section
105(a); or
(B) the Office of Internet Poker Oversight established under section
106(a) and designated under paragraph (2) of section 105(a).
(17) QUALIFIED CARD ROOM- The term `qualified card room' means a
facility that has been licensed by a State or Indian tribe to provide at least
250 tables in 1 physical facility for bets or wagers on poker.
(18) QUALIFIED MOBILE GAMING SYSTEM- The term `qualified mobile
gaming system' means a system for the conduct of casino gaming through
communications devices or gaming devices operated at a casino gaming
facility by the use of communication technology that allows a person to
transmit wirelessly information to a computer to assist in the placing of a
bet or wager and corresponding information related to the display of the
game, game outcomes, or other similar information and which is licensed for
operation at a casino gaming facility by a State or Indian tribe.
(19) QUALIFIED RACE TRACK- The term `qualified race track' means a race
track or other pari-mutuel wagering facility that-(A) has been licensed by a regulatory authority of a State or Indian
tribe to accept pari-mutuel wagers on horse races; and
(B) has-(i) at least 500 gaming devices at 1 physical location; or
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(ii) processed at least $200,000,000 or more in gross
wagering on horse racing during any 3 of the 5 years
preceding the date of the enactment of this Act.
(20) REMOTE GAMING EQUIPMENT(A) IN GENERAL- Except as provided in subparagraph (B), the term
`remote gaming equipment' means electronic or other equipment
principally used by or on behalf of an operator of an Internet poker
facility, including by any significant vendor to such operator, to-(i) register a person's participation in Internet poker and to
store information relating thereto;
(ii) present to persons who are participating or who may
participate in Internet poker the game that is to be played;
(iii) determine all or part of, or the effect of, a result relevant
to a game, hand, tournament, or other contest of Internet
poker and to store information relating thereto;
(iv) accept payment with respect to Internet poker from the
player; or
(v) authorize payment of any winnings in respect of Internet
poker.
(B) EXCEPTION- The term `remote gaming equipment' does not
include the following:
(i) Equipment used for business continuity, back-up, excess
capacity, or other secondary use.
(ii) A computer which is used by a person to participate in
Internet poker unless the computer is provided by or on
behalf of the person who is conducting or providing the
facilities for the game.
(iii) Equipment operated in the ordinary course of providing
banking, telecommunications, or payment processing
services.
(iv) Such other equipment that provides ancillary services as
the Secretary considers appropriate.
(21) SECRETARY- The term `Secretary' means the Secretary of Commerce.
(22) SIGNIFICANT VENDOR- The term `significant vendor' means a person
who-(A) on behalf of a licensee, knowingly manages, administers, or
controls bets or wagers that are initiated, received, or otherwise
made within the United States;
(B) on behalf of a licensee, knowingly manages, administers, or
controls the games with which such bets or wagers are associated;
(C) on behalf of a licensee, develops, maintains, or operates the
software or other system programs or hardware on which the games
or the bets or wagers are managed, administered, or controlled;
(D) provides the trademarks, trade names, service marks, or similar
intellectual property under which a licensee identifies its Internet
poker facility to its customers in the United States;
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(E) provides information on individuals in the United States that
made bets or wagers with an Internet gambling facility not licensed
under this title via a database or customer lists;
(F) provides any products, services, or assets to a licensee and is
paid a percentage of gaming revenue or Internet poker commission
fees by the licensee (not including fees to financial institutions and
payment providers for facilitating a deposit by a customer); or
(G) with respect to an applicant, proposes to provide any of the
activities, services, or items identified in subparagraphs (A) through
(E).
(23) SPORTING EVENT(A) IN GENERAL- Except as provided in subparagraph (B), the term
`sporting event' means any athletic competition, whether
professional, scholastic, or amateur or any performance of any
athlete in such competitions.
(B) EXCEPTION- The term `sporting event' does not include any
activity described in section 3704(a)(4) of title 28, United States
Code.
(24) STATE- The term `State' means each of the several States of the United
States, the District of Columbia, and any commonwealth, territory, or
possession of the United States.
SEC. 102. PROHIBITION ON UNLICENSED INTERNET GAMBLING.
(a) Prohibition(1) IN GENERAL- It shall be unlawful for a person to operate an Internet
gambling facility without a license in good standing issued to such person by
a qualified State or tribal agency under this title.
(2) EXCEPTION- Paragraph (1) shall not apply to the operation of an
Internet gambling facility by a person located outside the United States in
which bets or wagers are initiated, received, or otherwise made by
individuals located outside the United States.
(b) Criminal Penalties- Any person who violates this section shall be fined under
title 18, United States Code, imprisoned for not more than 5 years, or both.
SEC. 103. DEPARTMENT OF COMMERCE QUALIFICATION AND OVERSIGHT OF STATE
AGENCIES.
(a) Commerce Responsibilities and Powers- The Secretary shall have responsibility
and authority for the following activities:
(1) Reviewing and qualifying State agencies to issue licenses under this title.
(2) Exercising oversight over qualified State agencies to ensure that such
agencies-(A) comply with the requirements of this title; and
(B) carry out their regulatory and enforcement functions under this
title with appropriate diligence.
(3) Investigating and taking appropriate remedial action with respect to any
qualified State agency.
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(4) Prescribing such regulations as may be necessary to administer and
enforce the provisions of this title.
(b) Office of Internet Poker Oversight(1) ESTABLISHMENT- The Secretary shall establish an office in the
Department of Commerce, to be known as the Òffice of Internet Poker
Oversight' (in this subsection referred to as the òffice') to exercise the
functions of the Secretary set out in this title.
(2) DIRECTOR AND DELEGATION OF AUTHORITY- The Secretary shall
appoint a Director of the office from among individuals who have
demonstrated experience and expertise in regulating gaming activities and
may delegate to the Director any authority, duty, or responsibility conferred
upon the Secretary by this title.
(c) Designation of Qualified State Agencies(1) QUALIFICATION OF STATE AGENCIES- The Secretary shall qualify any
State agency that is designated to the Secretary by a State that wishes to
participate in the licensing program to carry out the licensing and other
functions under this title if the Secretary determines that such agency meets
the minimum standards for qualification prescribed under paragraph (2).
(2) MINIMUM STANDARDS FOR QUALIFIED STATE AGENCIES- The
Secretary shall prescribe minimum standards for qualifying a State agency
under this subsection, including minimum standards-(A) relating to the size and qualification of staff of the agency to
ensure a sufficient number of enforcement agents with experience in
gaming regulatory enforcement areas to discharge its intended
functions and that the applicant have the sophistication and
resources necessary to evaluate issues unique to the Internet
environment;
(B) relating to the length of time the applicant has regulated other
forms of gaming to ensure designations of only those applicants that
have a history of demonstrated regulatory enforcement and
oversight commensurate with the responsibilities imposed under
this title;
(C) for assessing the applicant's experience and willingness to work
with Federal authorities, including the Financial Crimes Enforcement
Network;
(D) prohibiting conflicts of interest to ensure that qualified State
agencies are not controlled, directly or indirectly, by persons that
have any significant ownership interest in entities regulated under
this title;
(E) for the capacity and experience of a qualified State agency in
conducting rigorous suitability reviews;
(F) for the enforcement and regulatory authorities provided to the
applicant under the law of the applicable State or Indian tribe,
including investigative authority, authority to impose requirements
on licensees, and authority to impose civil or other penalties; and
(G) the Secretary considers relevant to the ability of an agency to
serve as an effective qualified State agency.
(3) WITHDRAWAL OF QUALIFICATION-
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(A) IN GENERAL- Beginning on the date that is 1 year after the date
on which the Secretary prescribes final regulations under this title,
the Secretary may, after providing 60 days notice to a qualified State
agency, withdraw the qualification of such agency under this section
if the Secretary determines that the agency is not in compliance with
the minimum standards set established under paragraph (2) or
other requirements of this title.
(B) OPPORTUNITY TO COMPLY- The Secretary may provide a State
agency who receives notice under subparagraph (A) with an
opportunity to come into compliance for a period of not more than
180 days. The Secretary may extend such period by not more than
180 additional days if the State agency has made substantial
progress toward compliance as of the expiration of the first 180-day
period.
(C) EFFECT OF NOTICE- A State agency that receives notice under
subparagraph (A) may not issue any new licenses under this title
until the Secretary determines that the qualified State agency is in
compliance with the requirements of this title and regulations
prescribed thereunder.
(D) RIGHT TO APPEAL- A State agency that has had its qualification
withdrawn under this paragraph may appeal to the United States
District Court for the District of Columbia that such withdrawal was
an abuse of discretion.
(4) ACTION UPON WITHDRAWAL OF QUALIFICATION(A) IN GENERAL- Except as provided in subparagraph (B), not later
than 30 days after the date on which the Secretary withdraws the
qualification of a State agency under paragraph (3), each person with
a license issued by the State agency shall-(i)(I) cease offering, accepting, and providing services with
respect to bets or wagers from persons located in the United
States under such license; and
(II) return all customer deposits or place those sums the
return of which to United States customers is not feasible
due to change in customer address, bank details, or similar
difficulty, in escrow in an account with a financial institution
in the United States for safekeeping and orderly disposition
by the Secretary; or
(ii) apply for a new license from a different qualified State
agency.
(B) INTERIM OPERATION- If a person applies for a new license
under clause (ii) of subparagraph (A), the person may continue the
activities described in clause (i)(I) of such subparagraph until final
action is taken on the license application by the qualified State
agency.
(C) INTERIM REGULATORY OVERSIGHT- Until final action is taken
under subparagraph (B) with respect to a person, the Secretary shall
have enforcement and regulatory authority over the licensed
activities of such person.
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(d) Oversight of Qualified State Agencies- The Secretary may investigate and take
such action as the Secretary considers appropriate with respect to any qualified
State agency that appears, based upon the Secretary's own inquiry or based upon
credible information provided by other persons, including licensees or law
enforcement officials, to be deficient or substantially less rigorous than other
qualified State agencies in the discharge of its responsibilities under this title.
(e) Consultation With Indian Tribes- In implementing this title, the Secretary shall
conduct meaningful consultation with Indian tribes regarding all aspects of this title
which affect Indian tribes.
SEC. 104. LICENSING BY QUALIFIED STATE AGENCIES.
(a) Internet Poker Facility Licensing Program(1) AUTHORITY TO OPERATE INTERNET POKER FACILITY UNDER VALID
LICENSE- Notwithstanding any other provision of law and subject to the
provisions of this title, a licensee may accept a bet or wager with respect to
Internet poker from an individual located in the United States and may offer
related services so long as the license of the licensee issued under this title
remains in good standing.
(2) SIGNIFICANT VENDORS- If a person seeks a certificate of suitability from
a qualified State agency to provide services to a licensee or applicant as a
significant vendor with respect to an Internet poker facility, such person
shall not be required to obtain a license under this title to provide such
services with respect to that Internet poker facility.
(3) LIMITATIONS IMPOSED BY STATES AND INDIAN TRIBES(A) ACTION BY A STATE- No licensee may engage, under any license
issued under this title, in the operation of an Internet poker facility
that knowingly accepts bets or wagers initiated by persons who
reside in any State which provides notice that it will limit such bets
or wagers, if the Governor or other chief executive officer of such
State informs the Secretary of such limitation, in a manner which
clearly identifies the nature and extent of such limitation.
(B) CHANGES TO STATE LIMITATIONS- The establishment, repeal,
or amendment by a State of any limitation described in
subparagraph (A) shall apply, for purposes of this title, beginning on
the day that occurs after the end of the 60-day period beginning on
the later of-(i) the date a notice of such establishment, repeal, or
amendment is provided by the Governor or other chief
executive officer of such State in writing to the Secretary; or
(ii) the effective date of such establishment, repeal, or
amendment.
(C) APPLICATION OF STATE ACTION TO TRIBAL LANDS OF INDIAN
TRIBES- Any State limitation described in subparagraph (A) shall not
apply to the acceptance by a licensee of bets or wagers from persons
located within the tribal lands of an Indian tribe that--
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(i) has itself opted out pursuant to subsection (b) (in which
case the tribal opt-out exercise under such subsection shall
apply); or
(ii) would be entitled pursuant to other applicable law to
permit such bets or wagers to be initiated and received
within its territory without use of the Internet.
(D) ACTIONS BY AN INDIAN TRIBE- No Internet gambling licensee
knowingly may accept a bet or wager from a person located in the
tribal lands of any Indian tribe which limits such gambling activities
or other contests if the principal chief or other chief executive officer
of such Indian tribe informs the Secretary of such limitation, in a
manner which clearly identifies the nature and extent of such
limitation.
(E) CHANGES TO STATE LIMITATIONS- The establishment, repeal,
or amendment by any Indian tribe of any limitation referred to in
subparagraph (D) shall apply, for purposes of this title, beginning on
the day that occurs after the end of the 60-day period beginning on
the later of-(i) the date a notice of such establishment, repeal, or
amendment is provided by the principal chief or other chief
executive officer of such Indian tribe in writing to the
Secretary; or
(ii) the effective date of such establishment, repeal, or
amendment.
(F) NOTIFICATION AND ENFORCEMENT OF STATE AND TRIBE
LIMITATIONS(i) NOTIFICATION AND MEASURES TO ENSURE
COMPLIANCE- The Secretary shall notify all licensees and
applicants of all States and Indian tribes that have provided
notice pursuant to subparagraph (A)(ii) of (C)(ii), as the case
may be, promptly upon receipt of such notice and in no event
fewer than 30 days before the effective date of such notice.
The Secretary shall take effective measures to ensure that
any licensee under this subchapter, as a condition of the
license, complies with any limitation or prohibition imposed
by any State or Indian tribe to which the licensee is subject.
(ii) VIOLATIONS- A violation of subparagraph (A) of (C) shall
be a violation of this title enforceable under section 105.
(b) Application for License(1) APPLICATION- Except as provided in subparagraph (B), a person seeking
to operate an Internet poker facility under this title shall submit to the
qualified State agency of the State where servers for such Internet poker
facility are located an application for a license at such time, in such form, and
in such manner as the qualified State agency considers appropriate,
including at a minimum the following:
(A) Complete financial information about the applicant.
(B) Documentation showing the organization of the applicant and all
related businesses and affiliates.
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(C) The criminal and financial history of-(i) the applicant;
(ii) each of the senior executives and directors of the
applicant;
(iii) any other person who is in control of the applicant; and
(iv) such other persons as the qualified State agency
considers appropriate.
(D) Such other information as may be necessary for the suitability
analysis required under subsection (c).
(E) Disclosure of all other applications for licenses previously or
simultaneously submitted under this paragraph to other qualified
State agencies and whether those applications are pending, were
granted, or were denied.
(F) A detailed description of the applicant's plan for complying with
all applicable requirements and regulations prescribed pursuant to
this title.
(G) A certification by the applicant that the applicant agrees to be
subject to-(i) jurisdiction in United States Federal courts and in the
courts of the State or Indian tribe of the qualified State
agency to which the applicant has applied; and
(ii) all applicable provisions of United States law.
(2) NOTICE TO THE SECRETARY- Each qualified State agency shall report all
applicants for licensure and the dispositions of their applications to the
Secretary promptly upon disposition of each application or in such intervals
as the Secretary may prescribe. Such report shall include such information
or documentation as the Secretary may require.
(c) Standards for License Issuance; Suitability Qualifications and Disqualification
Standards(1) SUITABILITY FOR LICENSING- No applicant shall be eligible to obtain a
license under this title unless a qualified State agency, with whom the
applicant has filed an application for a license, has determined, upon
completion of a background check and investigation, that the applicant, any
person deemed to be in control of the applicant, all significant vendors of the
applicant, and any other person determined by the qualified State agency as
having significant influence on the applicant are suitable for licensing or for
receiving a certificate of suitability as applicable.
(2) INVESTIGATION(A) DETERMINATION OF SUITABILITY- Prior to issuing a license
under this section, a qualified State agency shall conduct the
investigation and analysis described in paragraph (1) to determine
whether the applicant or person-(i) is a person of good character, honesty, and integrity;
(ii) is a person whose prior activities, criminal record, if any,
reputation, habits, and associations do not-(I) pose a threat to the public interest or to the
effective regulation and control of Internet poker
facilities; or
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(II) create or enhance the dangers of unsuitable,
unfair, or illegal practices, methods, and activities in
the conduct of Internet poker facilities or the
carrying on of the business and financial
arrangements incidental to such facilities;
(iii) is capable of and likely to conduct the activities for which
the applicant is licensed or receives a certificate of suitability
in accordance with the provisions of this title, any
regulations prescribed under this title, and all other
applicable laws;
(iv) with respect to applicants, has or guarantees acquisition
of adequate business competence and experience in the
operation of casino gaming facilities, Internet poker facilities,
or Internet gambling facilities;
(v) with respect to applicants, has or will obtain sufficient
financing for the nature of the proposed operation and from
a suitable source; and
(vi) has disclosed to the qualified State agency all known
affiliations or relationships, whether direct or indirect.
(B) UNSUITABLE- An applicant or any other person may not be
determined to be suitable under this subsection if the applicant or
such person-(i) has failed to provide information and documentation
material to a determination of suitability for licensing under
paragraph (1);
(ii) has supplied information which is untrue or misleading
as to a material fact pertaining to any such determination;
(iii) has been convicted of an offense that is punishable by
imprisonment of more than 1 year;
(iv) is delinquent in the payment of any applicable Federal or
State tax, tax penalty, addition to tax, or interest owed to a
jurisdiction in which the applicant or person operates or
does business, unless such payment has been extended or is
the subject of a pending judicial or administrative dispute;
(v) has not certified in writing that the person submits to
personal jurisdiction in the United States; or
(vi) fails to comply with such other standard as the
applicable qualified State agency considers appropriate.
(C) CONSIDERATION OF PREVIOUS OPERATION OF INTERNET
GAMBLING FACILITY- In carrying out a suitability analysis of a
person under this subsection, a qualified State agency shall consider
whether such person operated an Internet gambling facility before
the date of the enactment of this Act and the scope of such person's
activities with respect to such operation.
(3) ONGOING REQUIREMENT- A licensee (and any other person who is
required to be determined to be suitable for licensing in connection with
such licensee) shall meet the standards necessary to be suitable for licensing
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or to receive a certificate of suitability, as the case may be, throughout the
term of the license.
(4) CERTIFICATE OF SUITABILITY FOR SIGNIFICANT VENDORS(A) IN GENERAL- If a qualifying body determines under paragraph
(1) that a significant vendor of an applicant is suitable under such
paragraph, the qualifying body shall issue a certificate to such
vendor that certifies the suitability of such vendor.
(B) REVOCATION OF CERTIFICATE- A qualified State agency that
issues a certificate to a significant vendor under subparagraph (A)
shall revoke the certificate if at any time the significant vendor no
longer meets the standards necessary for a determination of
suitability.
(D) CERTIFICATES ISSUED BY OTHER QUALIFIED STATE AGENCY- A
qualified State agency may, but need not, accept a certificate issued
to a significant vendor by another qualified State agency as evidence
of the suitability of the significant vendor.
(5) OTHER VENDORS(A) NOTICE- A licensee shall promptly notify the qualified State
agency that issued the license to the licensee of all persons that are
not significant vendors that-(i) direct, provide, or solicit customers to or for the licensee's
Internet poker facility, or materially assist in any of those
tasks, in return for a commission or other fee;
(ii) hold themselves out to the public as offering bets or
wagers on licensee's behalf;
(iii) offer bets or wagers under their own names or brands
but using and relying on licensee's Internet poker facilities;
(iv) license trademarks, trade names, service marks, or other
similar intellectual property to the licensee; or
(v) own a substantial interest in or control a person
described in clause (i), (ii), (iii), or (iv).
(B) SUITABILITY OF OTHER VENDORS AND PERSONS- A qualified
State agency that reviews an application of an applicant for a license
or issues a license to a licensee may, at the sole discretion of the
qualified State agency and on a case-by-case basis, require as a
condition of such license that a person meet suitability requirements
under paragraph (1) if the person-(i) is described in subparagraph (A) with respect to the
applicant or licensee;
(ii) provides services to an applicant or licensee and the
qualified State agency determines that with respect to such
services, there is a substantial risk of circumvention of the
suitability requirements applicable to significant vendors; or
(iii) is associated with the applicant or licensee or one of the
significant vendors of the applicant or licensee and the
qualified State agency determines such person may pose a
threat to the integrity of Internet poker facilities operated by
the applicant or licensee.
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(C) INFORMATION- A qualified State agency may require such
information from an applicant, licensee, significant vendor or other
person identified in this paragraph as the qualified State agency
considers necessary to carry out this paragraph.
(6) ENFORCEMENT ACTIONS(A) IN GENERAL- If the Secretary or the qualified State agency that
issued a license to a licensee finds that the licensee, or any other
person that is subject to a required determination of suitability in
connection with such licensee, fails to meet the suitability
requirements of this subsection at any time during the tenure of the
license, the Secretary or the qualified State agency may take action to
protect the public interest, including, if the Secretary or qualified
State agency considers necessary, the suspension or termination of
the license.
(B) IMPOSITION OF CONDITIONS INCLUDING REMOVAL OF
PARTIES- Notwithstanding a determination under subparagraph (A),
the Secretary or the qualified State agency that issued a license to a
licensee may allow the licensee to continue engaging in licensed
activities by imposing conditions on the person to which
subparagraph (A) is applicable under penalty of revocation or
suspension of a license or certificate of suitability, including-(i) the identification of any person determined to be
unsuitable; and
(ii) the establishment of appropriate safeguards to ensure
such person is excluded from any management or
involvement in operation of the licensed activities.
(7) ADMINISTRATIVE PROVISIONS(A) BACKGROUND CHECK AND INVESTIGATION- Each qualified
State agency shall establish standards and procedures for conducting
background checks and investigations for purposes of this
subsection.
(B) PRIVILEGE- Any written or oral statement made in the course of
an official proceeding of the Secretary or a qualified State agency, by
any member thereof, or any witness testifying under oath which is
relevant to the purpose of the proceeding and relates to the review
of an application for a license under this title, is privileged and shall
not give rise to liability for defamation or relief in any civil action.
(C) ADDITIONAL PRIVILEGE- Notwithstanding section 552 of title 5,
United States Code, or any other Federal, State, or tribal law to the
contrary, any communication or document of an applicant, licensee,
significant vendor, or affiliate thereof, which is made or transmitted
pursuant to this title to the Secretary or a qualified State agency or
any of their agents or employees, except information that is already
public, shall be privileged and shall not be disclosed by the Secretary
or the qualified State agency without the prior written consent of the
applicant, licensee, significant vendor, or affiliate thereof (as
applicable), or pursuant to a lawful court order, grand jury
subpoena, or similar procedure. To the extent practicable, the
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Secretary or qualified State agency shall provide timely notice of the
proceedings to the applicant, licensee, significant vendor, or affiliate
thereof (as applicable).
(D) PRESERVATION OF PRIVILEGE RECOGNIZED UNDER OTHER
PROVISIONS OF LAW- Any privilege recognized under any other
applicable provision of Federal, State, or tribal law, including
attorney-client, physician-patient, and accountant-client privileges,
shall not be waived or lost because a document or communication
otherwise protected by the privilege is disclosed to the Secretary or
a qualified State agency.
(E) CONFIDENTIALITY- Any communication or document, except
information that is already public, shall be treated as confidential
and may not be disclosed, in whole or part, by the Secretary or a
qualified State agency without a lawful court order or as otherwise
expressly required by law, if the communication or document is-(i) required by the Secretary or qualified State agency to be
disclosed by the applicant, licensee, or significant vendor,
including applications, financial or earnings information, and
criminal records, whether of the applicant or licensee or of
any affiliate, employee, officer, director or significant vendor
thereof, or of any other third party; or
(ii) prepared or obtained by an agent or employee of the
Secretary or qualified State agency that contains information
described in clause (i).
(d) Additional Requirements for a License- In order to obtain a license under this
section, an Internet poker facility shall demonstrate to the qualified State agency
that such facility maintains appropriate safeguards and mechanisms, in accordance
with standards established by the qualified State agency, including appropriate
safeguards and mechanism to-(1) ensure, to a reasonable degree of certainty, that the individual placing a
bet or wager is not less than 21 years of age;
(2) ensure, to a reasonable degree of certainty, that the individual placing a
bet or wager is physically located in a jurisdiction that has not prohibited
such bets or wagers at the time the bet or wager is placed;
(3) ensure, to a reasonable degree of certainty, that all taxes relating to
Internet poker from persons engaged in bets or wagers relating to such
Internet poker are collected or reported, as required by law, at the time of
any payment of proceeds of such bets or wagers;
(4) ensure that all taxes relating to the operation of an Internet poker facility
from any licensee are collected and disbursed as required by law and that
adequate records to enable later audit or verification are maintained;
(5) prevent, to a reasonable degree of certainty, fraud, money laundering,
and terrorist financing;
(6) ensure, to a reasonable degree of certainty, compliance with the
requirements of section 106;
(7) protect, to a reasonable degree of certainty, the privacy and online
security of any person engaged in bets or wagers with the licensee's Internet
poker facility;
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(8) ensure that any user fee required under subsection (e) is paid to the
qualified State agency;
(9) ensure, to a reasonable degree of certainty, that Internet poker games
are fair and honest, and to prevent, to a reasonable degree of certainty,
cheating, including collusion, and use of cheating devices, including use of
software programs (sometimes referred to as `bots') that make bets or
wagers according to algorithms; and
(10) such other mechanisms and safeguards as the qualified State agency
may establish.
(e) Fees for Administrative Expenses(1) USER FEES(A) IN GENERAL- The cost of administering this title with respect to
each applicant, licensee, and significant vendor, including the cost of
any review or examination of a licensee or its significant vendors to
ensure compliance with the terms of the license and this title, shall
be assessed by the qualified State agency receiving an application or
issuing a license against the applicant, licensee, or significant vendor,
as the case may be, by written notice in an amount that the qualified
State agency determines is necessary to-(i) meet the qualified State agency's expenses in carrying out
such administration, review, or examination; and
(ii) to cover the qualified State agency's share of the amount
determined by the Secretary under paragraph (3) to cover
the expenses incurred by the Secretary in carrying out the
provisions of this title.
(B) EXPENSES FOR REVIEW OR EXAMINATION- Expenses that are
attributable to review or examination of a particular applicant,
licensee, or significant vendor shall be assessed under subparagraph
(A) against that applicant, licensee, or significant vendor.
(C) EXPENSES FOR GENERAL ADMINISTRATION- Expenses for
general administration shall be assessed against all licensees equally.
(D) DISPOSITION OF USER FEES- Amounts assessed by a qualified
State agency as user fees under this paragraph shall-(i) be remitted to the Secretary, in the amount of that State's
share as determined under paragraph (3) for deposit in the
Treasury in accordance with subparagraph (B) of such
paragraph; and
(ii)(I) be available to the qualified State agency to cover
expenses incurred by the qualified State agency in carrying
out the provisions of this title; and
(II) not be construed to be Government funds or
appropriated monies, or subject to apportionment for the
purposes of any other provision of law.
(F) COLLECTION(i) REFERRAL- If a licensee or significant vendor fails to pay a
user fee to a qualified State agency under this paragraph
after the assessment of the fee has become final--
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(I) the qualified State agency may recover the amount
assessed by action in a court of the State or Indian
tribe of the qualified State agency or in the
appropriate United States district court, along with
any costs of collection and attorney fees; and
(II) such failure may be grounds for denial of an
application for a license under this title or revocation
of a license or certificate of suitability under this title.
(ii) ASSESSMENT REVIEWABLE- In any civil action under
clause (i), a court may review the validity and adjust the
amount of the user fees.
(G) USER FEES OF SIGNIFICANT VENDORS MAY BE PAID BY
APPLICANTS AND LICENSEES- A user fee assessed against a
significant vendor may be paid by an applicant or licensee on behalf
of the significant vendor.
(2) DIRECT AND EXCLUSIVE OBLIGATION OF LICENSEE- With respect to a
licensee, a user fee shall be the direct and exclusive obligation of the licensee
and may not be deducted from amounts available as deposits to any person
placing a bet or wager with the licensee.
(3) USER FEES ESTABLISHED BY SECRETARY(A) IN GENERAL- The Secretary shall determine the funding
requirements necessary to meet the Secretary's cost of
administering this title and notify each qualified State agency of its
proportional share to be collected by such agency under paragraph
(1)(A).
(B) DISPOSITION OF USER FEES- Amounts remitted to the Secretary
under paragraph (1)(D)(i) shall-(i) be deposited into a separate account in the Treasury to be
known as the Ìnternet Poker Oversight Fund'; and
(ii) be available to the Secretary in such amounts, subject to
appropriations, to cover expenses incurred by the Secretary
in carrying out the provisions of this title.
(f) Approval of License(1) IN GENERAL- A qualified State agency may issue licenses under this title
for the operation of an Internet poker facility to any applicant that-(A) owns or controls a company that operates a casino gaming
facility, qualified race track, or qualified card room and owned or
controlled such facility, race track, or card room on the date that is
10 days before the date of the enactment of this Act;
(B) for the duration of the 5-year period ending on the date on which
the applicant submits an application under subsection (b)(1), owned
or controlled a casino gaming facility, qualified race track, or
qualified card room;
(C) is owned or controlled by a person who-(i) owns or controls a company that operates a casino
gaming facility, qualified race track, or qualified card room
and owned or controlled such facility, race track, or card
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room on the date that is 10 days before the date of the
enactment of this Act; or
(ii) for the duration of the 5-year period ending on the date
on which the applicant submits an application under
subsection (b)(1), owned or controlled a casino gaming
facility, qualified race track, or qualified card room;
(D) for the duration of the 5-year period ending on the date on which
the applicant submits an application under subsection (b)(1), under
license issued by a State or Indian tribe manufactured and supplied
to casino gaming facilities with-(i) not fewer than 500 slot machines; or
(ii) qualified mobile gaming systems; and
(E) meets other criteria established by the Secretary or by the
qualified State agency under this title.
(3) EXPANSION OF LICENSEES ONLY IF NO RISK TO PUBLIC- Beginning on
the date that is 2 years after the date of first issuance specified in section
115(b), the Secretary may, by rule, authorize the issuance of licenses to
applicants other than those described in paragraph (2) if the Secretary
determines, after providing the public with notice and an opportunity to
comment, that such authorization will not significantly increase the risk that
the standards described in subsection (d) will not be satisfied by licensees.
(4) AUTHORITY OF SECRETARY TO REVOKE LICENSES- Notwithstanding
any certificate of suitability or license issued by a qualified State agency, the
Secretary may suspend or revoke such certificate or license if the Secretary
has reason to believe that the recipient does not meet the suitability
requirements established under subsection (c) or, as applicable, any other
requirement imposed on a licensee under this title. The Secretary may not
overturn a decision by a qualified State agency to deny or to terminate a
license or to deny or revoke a certificate of suitability.
(5) CONFLICTS BETWEEN QUALIFIED STATE AGENCIES- If a qualified State
agency denies a license, terminates a license, denies a certificate of
suitability, or revokes a certificate of suitability to a person and within 12
months of such denial, termination, or revocation another qualified State
agency grants such person a license or certificate of suitability, the Secretary
shall-(A) commence a review of such license or certificate of suitability;
and
(B) not later than 90 days after such commencement, determine
whether to act under paragraph (4).
(6) CONTROL DEFINED- In this subsection, the term `control' means, with
respect to a person, the possession, directly or indirectly, of the power to
direct or influence the direction of the management or policies of the person,
whether through the ownership of voting securities, through a management,
executive officer, or board position, by shareholders or similar agreement,
or otherwise.
(g) Location of Remote Gaming Equipment- A licensee shall maintain its remote
gaming equipment within the territory of the United States throughout the term of
its license. A qualified State agency may require applicants that seek a license from
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such qualified State agency to locate that equipment within the territory of the State
or Indian tribe of the qualified State agency if the qualified State agency determines
that such requirement will advance the regulatory interests of this title.
(h) License Is a Privilege Not a Right- A decision by a qualified State agency not to
grant a person a license or certificate of suitability, or to terminate a license, or
revoke a certificate of suitability, is not reviewable under Federal law or the law of
any jurisdiction other than the jurisdiction of the qualified State agency. The State or
Indian tribe of the jurisdiction of the qualified State agency may, but need not,
provide an opportunity to appeal.
(i) Term, Renewal, and Transfer of License(1) TERM- Any license issued under this title shall be issued for a 5-year
term beginning on the date of issuance. A license may be renewed in
accordance with requirements prescribed by the qualified State agency that
issued the license under this title.
(2) TRANSFER- A transfer of a license, change of control of a licensee, or
change in significant vendor shall require prior approval by the qualified
State agency that issued the license. The qualified State agency shall at a
minimum ensure the suitability requirements of subsection (c) continue to
be satisfied before approving any such transfer or change.
(j) Administrative Provisions(1) DETERMINATION OF INTERNET POKER(A) INITIAL DETERMINATION BY QUALIFIED STATE AGENCY- A
determination of whether a game, hand, tournament, or other
contest of a licensee is Internet poker shall be made in the first
instance by the qualified State agency that issued the license to such
licensee under this title.
(B) CHALLENGES(i) CHALLENGE MADE WITH SECRETARY- A licensee or
qualified State agency may file a challenge with the Secretary
regarding any determination of the State agency under
subparagraph (A) that a game, hand, tournament, or other
contest of another licensee is Internet poker.
(ii) DETERMINATION MADE BY SECRETARY WITHIN 30
DAYS- If a challenge is made under clause (i), the Secretary
shall make a determination of whether the game, hand,
tournament, or other contest is Internet poker not later than
30 days after the date on which the challenge is made.
(iii) OPERATION UNTIL DETERMINATION- A licensee that
offers a game, hand, tournament, or other contest that is
challenged under clause (i) may continue to offer such game,
hand, tournament, or other contest until the Secretary makes
a determination under clause (iii).
(C) APPEALS- Not later than 30 days after the date on which the
Secretary makes a determination under subparagraph (B)(iii), a
licensee or a qualified State agency may appeal such determination
to the United States District Court for the District of Columbia. Such
court shall set aside the Secretary's determination if the court
determines that the Secretary's determination was--
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(i) arbitrary, capricious, an abuse of discretion, or otherwise
not consistent with law; or
(ii) without observance of procedure required by law.
(2) CHALLENGES UNDER STATE LAW- Except as provided in paragraph (1)
and unless otherwise specifically provided in this title, actions taken by a
qualified State agency may be challenged by applicants and licensees only as
permitted under the law of the State or Indian tribe in which the qualified
State agency is located.
(3) SUMMONS(A) IN GENERAL- The Secretary may issue a summons with respect
to an applicant or licensee necessary to carry out the provisions of
this title.
(B) PRODUCTION AT DESIGNATED SITE- A summons issued by the
Secretary pursuant to this paragraph may require that books,
papers, records, or other data stored or maintained at any place be
produced at any-(i) business location of a licensee or applicant for a license;
(ii) designated location in the State or Indian lands of the
applicable qualified State agency; or
(iii) designated location in the District of Columbia.
(C) NO LIABILITY FOR EXPENSES- The Secretary shall not be liable
for any expense incurred in connection with the production of books,
papers, records, or other data under this paragraph.
(D) SERVICE OF SUMMONS- Service of a summons issued under this
subsection may be by registered mail or in such other manner
calculated to give actual notice as determined by the Secretary.
(E) AUTHORIZATION TO INVOKE AID OF COURTS- The Secretary
may invoke the aid of any court of the United States to compel
compliance with the summons within the jurisdiction of which-(i) the investigation which gave rise to the summons or the
examination is being or has been carried on;
(ii) the person summoned is an inhabitant; or
(iii) the person summoned carries on business or may be
found.
(F) POWER OF COURTS TO COMPEL APPEARANCE- The court may
issue an order requiring the person summoned to appear before the
Secretary-(i) to produce books, papers, records, and other data;
(ii) to give testimony as may be necessary to explain how
such material was compiled and maintained;
(iii) to allow the Secretary to examine the business of a
licensee; and
(iv) to pay the costs of the proceeding.
(G) CONTUMACY OR REFUSAL- Any failure to obey the order of the
court under this paragraph may be punished by the court as a
contempt thereof. All process in any case under this subsection may
be served in any judicial district in which such person may be found.
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SEC. 105. ENFORCEMENT.
(a) Disciplinary Action(1) IN GENERAL- A licensee may be subject to disciplinary action, including
suspension or revocation of its license, by a qualified State agency that
issued a license to the licensee or by the Secretary if the licensee fails to
comply with any provision of this title, any regulation prescribed
thereunder, or any other applicable provision of State or tribal law.
(2) INITIATING AGENCY- Only the Secretary or the qualified State agency
which granted the license may initiate disciplinary action under this title.
(3) SAVINGS PROVISION- Nothing in this subsection shall be construed to
prohibit a law enforcement authority or regulatory body that has authority
over a licensee or an affiliated person, independent from this title, from
taking action under the law of that law enforcement authority or regulatory
body.
(4) DISCIPLINARY PROCEDURES(A) IN GENERAL- A qualified State agency shall commence
disciplinary action under this subsection against a licensee upon
service of a formal written complaint upon the licensee, with a copy
forwarded to the Secretary, that sets forth the grounds for the
disciplinary action and the proposed penalty that is being sought,
which may include any or all of the imposition of a fine as provided
pursuant to subsection (m)(1) or limitation, condition, suspension or
revocation of the license.
(B) IN ACCORDANCE WITH LAW OF JURISDICTION OF QUALIFIED
STATE AGENCY- The disciplinary process shall proceed according to
the law of the jurisdiction of the applicable qualified State agency.
(5) FINALITY OF ACTION AND APPEALS(A) FINALITY- Any disciplinary action shall be treated as a final
action.
(B) ACTION BY QUALIFIED STATE AGENCIES- A licensee aggrieved
by disciplinary action by a qualified State agency may file an appeal
in the jurisdiction where the qualified State agency taking such
action is located only to the extent permitted by the law of such
jurisdiction.
(C) ACTION BY SECRETARY- A licensee aggrieved by disciplinary
action by the Secretary may file an appeal in the United States
District Court for the District of Columbia. Such court shall set aside
the action if it determines that the action was-(i) arbitrary, capricious, an abuse of discretion, or otherwise
not consistent with law; or
(ii) without observance of procedure required by law.
(6) PENDING APPEAL- During the period in which a suspension or
revocation of an existing license is being challenged through a pending
judicial proceeding, the court handling the challenge may allow the licensee
to continue offering bets and wagers in full compliance with the terms of its
existing license and any other conditions the court considers necessary, if
the court determines that--
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(A) the appellant has a reasonable likelihood of success on the
merits; and
(B) allowing the appellant to continue offering bets and wagers
while the appeal is pending will not threaten the public interest.
(7) RETURN OF CUSTOMER FUNDS- If a licensee's license is revoked and no
appeal pursuant to paragraph (5) is pending, the licensee shall-(A) return all customer funds in an orderly manner not later than 30
days after the date of the revocation of the license; or
(B) place in escrow those sums return of which to United States
customers is not feasible due to change in customer address, bank
details, or similar difficulty, in an account with a financial institution
in the United States for safekeeping and orderly disposition by the
Secretary.
(8) REFERRAL TO ATTORNEY GENERAL- If, in the course of carrying out the
provisions of this title, the Secretary or a qualified State agency finds a
substantial basis to believe that a person has violated section 103, the
Secretary or qualified State agency shall refer such matter to the Attorney
General.
(b) Civil Money Penalties(1) IN GENERAL(A) PENALTIES ASSESSED BY QUALIFIED STATE AGENCIES- A
qualified State agency may assess upon any licensee or other person
subject to the requirements of this title for each violation of this title
or any regulation prescribed or order issued under this title, a civil
penalty of not more than the greater of-(i) the amount involved in the violation, if any;
(ii) $250,000 for an individual and $750,000 for a
corporation; or
(iii) such other amount as provided under the applicable
State or tribal law of the qualified State agency.
(B) PENALTIES ASSESSED BY SECRETARY- The Secretary may
assess upon any licensee or other person subject to the
requirements of this title for each violation of this title or any
regulation prescribed or order issued under this title, a civil penalty
of not more than the greater of-(i) the amount involved in the violation, if any; or
(ii) $250,000 for an individual and $750,000 for a
corporation.
(C) NOT CUMULATIVE(i) IN GENERAL- The penalties authorized under
subparagraphs (A) and (B) shall not be cumulative and only
one such penalty may be assessed per violation.
(ii) CONSTRUCTION- Clause (i) shall not be construed to
limit the authority of a qualifying body or the Secretary, as
the case may be, to pursue a civil penalty for each violation of
a related series of violations.
(D) FAILURE TO OBTAIN A LICENSE- Notwithstanding any other
provision of law, the Secretary may assess upon a person that is
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required to obtain a license under this title, but fails to obtain a
license under this title, a civil penalty of not more than the greater
of-(i) the amount of bets or wagers taken by the person from
players in the United States during the period that a license
was needed but not held by the person; or
(ii) $1,000,000 per day that the person accepts bets or
wagers from players in the United States during the period
that a license was needed but not held by the person.
(E) CONSTRUCTION- Nothing in this paragraph shall be construed to
affect the ability of a law enforcement official to seek criminal
penalties against a person.
(2) ASSESSMENT(A) ENFORCEMENT BY QUALIFIED STATE AGENCIES- Qualified
State agencies and such other entities as are authorized by
applicable State law shall enforce the provisions of this title under
the law of the applicable State or Indian tribe, and penalties shall be
determined, reviewable, collectable, and disposed of as provided
under such law.
(B) ENFORCEMENT BY SECRETARY(i) WRITTEN NOTICE- Any penalty imposed under
paragraph (1)(B) shall be assessed and collected by the
Secretary by written notice.
(ii) FINALITY OF ASSESSMENT- If, with respect to any
assessment under paragraph (1)(B), a hearing is not
requested pursuant to clause (v) within the period of time
allowed under such clause, the assessment shall constitute a
final agency order.
(iii) AUTHORITY TO MODIFY OR REMIT PENALTY- The
Secretary may compromise, modify, or remit any penalty
which the Secretary may assess or has already assessed
under paragraph (1)(B).
(iv) MITIGATING FACTORS- In determining the amount of
any penalty imposed under paragraph (1)(B), the Secretary
shall take into account the appropriateness of the penalty
with respect to the following:
(I) The size of the financial resources and the good
faith of the person against whom the penalty is
assessed.
(II) The gravity of the violation.
(III) The history of previous violations.
(IV) Such other matters as justice may require.
(v) HEARING- The person against whom any penalty is
assessed under paragraph (1)(B) shall be afforded an agency
hearing if such person submits a request for such hearing not
later than 20 days after the date of the issuance of the notice
of assessment.
(vi) COLLECTION-
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(I) REFERRAL- If any person fails to pay an
assessment after any penalty assessed under this
subparagraph has become final, the Secretary shall
recover the amount assessed by action in the
appropriate United States district court.
(II) SCOPE OF REVIEW- In any civil action under
subclause (I), the validity and appropriateness of the
penalty shall be subject to review for abuse of agency
discretion.
(vii) DISBURSEMENT- All penalties collected under authority
of paragraph (1)(B) shall be deposited into the Treasury of
the United States.
(3) CONDITION FOR LICENSURE- Payment by a licensee of any civil penalty
assessed under this subsection that has become final shall be a requirement
for the retention of its license.
SEC. 106. COMPULSIVE GAMING, RESPONSIBLE GAMING, AND SELF-EXCLUSION
PROGRAM REQUIREMENTS.
(a) Regulations Required- Each qualified State agency shall, before issuing any
licenses under this title, establish requirements for the development of a
Compulsive Gaming, Responsible Gaming, and Self-Exclusion Program that each
licensee of that qualified State agency shall implement as a condition of licensure.
Such requirements shall also provide for the establishment of a program to alert the
public to the existence, consequences, and availability of the self-exclusion list
established under subsection (c).
(b) Minimum Requirements- At a minimum, each qualified State agency shall
require that licensees-(1) provide informational materials written in plain language about
responsible gaming, including information about the self-exclusion list
established under subsection (c) and how a player may request placement
on the list, each time a player signs in to make a bet or wager, which
materials shall be provided via a prominently displayed hyperlink or
comparable mechanism;
(2) provide informational materials about responsible gaming to any player
that requests such materials;
(3) make continuously available individualized responsible gaming options
that any customer may choose, including allowing customers to self-limit
their access to the issuance of credit, check cashing, or direct mail marketing
by the licensee, in each case as and to the extent that the qualified State
agency may consider appropriate;
(4) ensure to a reasonable degree of certainty that persons on the list of selfexcluded persons established pursuant to subsection (c) are prevented from
initiating any bets or wagers within the scope of this title; and
(5) ensure that the information required under this subsection is clearly and
prominently made available by the licensee in each language in which
services of the Internet poker facility of the licensee are offered.
(c) List of Persons Self-Excluded-
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(1) ESTABLISHMENT(A) LISTS MAINTAINED BY QUALIFIED STATE AGENCIES- Each
qualified State agency shall establish and maintain a list of persons
self-excluded from playing Internet poker through Internet poker
facilities licensed by the qualified State agency. Each week, each
qualified State agency shall submit to the Secretary a current copy of
the list.
(B) MASTER LIST MAINTAINED BY SECRETARY- The Secretary shall
establish and maintain a master list of all persons self-excluded from
playing Internet poker through Internet poker facilities licensed
under this title. Such list shall consist of all persons submitted under
subparagraph (A). The Secretary shall make the master list available
to all qualified State agencies and licensees.
(C) PLACEMENT REQUEST- Any person may request placement on
the list of self-excluded persons by-(i) acknowledging in a manner to be established by each
qualified State agency with respect to its licensees that the
person wishes to be denied gaming privileges within the
scope of this title; and
(ii) agreeing that, during any period of voluntary exclusion,
the person may not collect any winnings or recover any
losses resulting from any gaming activity at any Internet
gambling facility of a licensee.
(2) LIMITATION ON LIABILITY(A) IN GENERAL- Except as provided in subparagraph (B), the
United States, the Secretary, a qualified State agency, the State or
Indian tribe in which that qualified State agency is located, an
enforcement agent, licensee, or any employee or agent thereof, shall
not be liable to any self-excluded person or to any other party in any
judicial or administrative proceeding for any harm, monetary or
otherwise, which may arise as a result of-(i) any failure to withhold gaming privileges from, or to
restore gaming privileges to, a self-excluded person;
(ii) otherwise permitting a self-excluded person to engage in
gaming activity while on the list of self-excluded persons; or
(iii) disclosure of information about individuals placed on the
list of self-excluded persons.
(B) LICENSEES- A licensee or employee or agent thereof may be
liable to a self-excluded person in a judicial or administrative
proceeding for a harm described in subparagraph (A) to the extent
provided under the law of the State or Indian tribe of the qualified
State agency that issued the license.
(C) RULE OF CONSTRUCTION- Nothing in this paragraph shall be
construed to prevent the Secretary or a qualified State agency from
assessing a regulatory sanction against a licensee or person for
failing to comply with a provision of this section or a regulation
prescribed thereunder or for misuse of any list of self-excluded
persons for purposes not authorized under this section.
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(3) DISCLOSURE PROVISIONS(A) IN GENERAL- Notwithstanding any other provision of Federal,
State, or tribal law, the list of self-excluded persons shall not be open
to public inspection.
(B) AFFILIATE DISCLOSURE- If necessary to effectuate the selfexclusion purposes of this subsection, any licensee may disclose the
identities of persons on the self-excluded list to any significant
vendor, service provider, or affiliated company to the extent that the
significant vendor, service provider, or affiliated company maintains
such information under confidentiality provisions comparable to
those in this subsection.
(d) Gaming by Prohibited Persons(1) PROHIBITION ON BENEFITTING FROM PROHIBITED GAMING
ACTIVITY- A person who is prohibited from gaming with a licensee by law,
or by order of the Secretary, a qualified State agency, or any court of
competent jurisdiction, including any person on the self-exclusion list under
subsection (c), shall not collect, in any manner or proceeding, any winnings
or recover any losses arising as a result of any prohibited gaming activity.
(2) FORFEITURE- In addition to any other penalty provided by law, any
money or thing of value that has been obtained by, or is owed to, any
prohibited person by a licensee as a result of bets or wagers made by a
prohibited person after the applicable prohibition has become effective shall
be subject to forfeiture by order of the Secretary or a qualified State agency,
following notice to the prohibited person and opportunity to be heard.
(3) DEPOSIT OF FORFEITED FUNDS- Any funds forfeited pursuant to this
subsection shall be deposited into the Treasury of the United States, or, in
the case of a forfeiture to a qualified State agency, as provided by the
applicable State or tribal law.
(e) Requirements With Respect to Child Support Delinquents(1) IN GENERAL- When it is made known to the Secretary or a qualified
State agency by a Federal or State court or a competent State agency
involved with the administration or enforcement of a court-ordered child
support payment that a particular individual is delinquent with respect to
court-ordered child support payments, the Secretary shall include that
individual on the list established under subsection (c).
(2) REMOVAL FROM LIST- Individuals placed on the list pursuant to
paragraph (1) shall be removed from such list if the court or agency that
made such individual's delinquency known to the Secretary notifies the
Secretary that such individual is no longer delinquent.
(f) Administrative Provisions(1) RULE OF CONSTRUCTION- No provision of this section shall be
construed as creating a legal duty in the Secretary, a qualified State agency, a
licensee, or any employee or agent thereof to identify or to exclude
compulsive players not on the list of self-excluded persons.
(2) NO CAUSE OF ACTION- The Secretary, a qualified State agency, a
licensee, and any employee or agent thereof, shall not be liable to any person
in any proceeding for losses or other damages of any kind arising out of that
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person's gaming activities based on a claim that the person was a
compulsive, problem, or pathological player.
SEC. 107. PROHIBITIONS AND RESTRICTIONS.
(a) Prohibition on Bets or Wagers on Sporting Events and Games Other Than
Internet Poker(1) IN GENERAL- No provision of this title shall be construed to authorize
any licensee to accept a bet or wager on-(A) any game, event, or activity that is not Internet poker; or
(B) any sporting event in violation of any applicable provision of
Federal or State law.
(2) CONSTRUCTION- Nothing in this title shall be construed to repeal or to
amend any provision of Federal or State law prohibiting, restricting, or
otherwise addressing bets or wagers on sporting events, including
provisions of Federal and State law that permit participation in any fantasy
or simulation sports games.
(b) Prohibition on the Use of Credit Cards for Internet Gambling(1) IN GENERAL- No licensee, no person operating on behalf of a licensee,
and no person accepting payment for or settlement of a bet or wager who
intends to transmit such payment to a person licensee, may accept a bet or
wager or payment for or settlement of a bet or wager that is transmitted or
otherwise facilitated with a credit card (as defined in section 5362(11) of
title 31, United States Code).
(2) EXCEPTION(A) CLARIFICATION AND SCOPE- For any person licensed to take
bets or wagers in accordance with the Interstate Horseracing Act of
1978, the prohibition in paragraph (1) shall only apply to those
activities conducted pursuant to a license under this title.
(B) INTRASTATE ACTIVITIES- For any person involved in legal, landbased or State- or tribal-regulated intrastate gambling, the
prohibition in paragraph (1) shall only apply to those activities
conducted pursuant to a license under this title.
(c) Public Internet Poker Parlors Prohibited(1) IN GENERAL- It shall be considered a violation of this title to operate a
place of public accommodation, club (including a club or association limited
to dues-paying members or similar restricted groups), or similar
establishment in which computer terminals or similar access devices are
made available to be used principally for the purpose of accessing Internet
gambling facilities.
(2) CRIMINAL PENALTIES- Any person who violates subsection (a) shall be
fined under title 18, United States Code, imprisoned for not more than 5
years, or both.
(3) CONSTRUCTION- Nothing in this title shall be construed to authorize or
otherwise to permit the operation of places of public accommodation, clubs
(including clubs or associations limited to dues-paying members or similar
restricted groups) and similar establishments that permit access to Internet
gambling facilities.
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(4) RELATION TO STATE, LOCAL, AND TRIBAL LAW- Places of public
accommodation, clubs, or similar establishments described in subsection (c)
shall be subject to all otherwise applicable State, local, and tribal police,
criminal, zoning, and other regulatory powers which are not intended to be
limited in any way by this title.
SEC. 108. SAFE HARBOR.
It shall be an affirmative defense to any prosecution or enforcement action under
any provision of Federal, State, or tribal law that the activity forming the basis of
such prosecution or enforcement action is authorized under and has been carried
out lawfully in accordance with and under the terms of-(1) this title; or
(2) the Interstate Horseracing Act of 1978 (15 U.S.C. 3001 et seq.).
SEC. 109. RELATION TO SUBCHAPTER IV OF CHAPTER 53 OF TITLE 31, UNITED
STATES CODE.
Subchapter IV of chapter 53 of title 31, United States Code, shall not apply to any bet
or wager-(1) occurring pursuant to a license issued under this title, subject to section
109; or
(2) that is permissible under the Interstate Horseracing Act of 1978 (15
U.S.C. 3001 et seq.).
SEC. 110. CHEATING AND OTHER FRAUD.
(a) Cheating and Cheating Devices Prohibited(1) CHEATING PROHIBITED- No person initiating, receiving, or otherwise
making a bet or wager with a licensee, or sending, receiving, or inviting
information assisting with a bet or wager with a licensee shall knowingly
violate, attempt to violate, or assist another in violating the rules of play
established by the licensee for the purpose of obtaining prohibited or unfair
advantage in any game authorized under this title.
(2) CHEATING DEVICES- Except as provided in paragraph (3), no person
initiating, receiving, or otherwise making a bet or wager with a licensee, or
sending, receiving, or inviting information assisting with a bet or wager with
a licensee shall knowingly use, possess, or assist another in the use of, an
electronic, electrical, or mechanical device or software or other program or
tool which is designed, constructed, or programmed specifically for use in
obtaining an advantage in any game authorized under this title, where such
advantage is prohibited or otherwise violates the rules of play established
by the licensee.
(3) PERMISSIBLE USES- It shall not be a violation of this subsection for a
licensee, its agents, a qualified State agency, or its agent to use or posses a
device described in the preceding sentence if-(A) such use or possession is solely for purposes of testing an
Internet poker facility;
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(B) such device is not used in live play involving actual bets or
wagers; and
(C) such device is registered with the Secretary and the qualified
State agency that issued the applicable license.
(4) DISCLOSURE TO PUBLIC NOT REQUIRED- Notwithstanding any other
provision of law, a registration under paragraph (3)(C) is not required to be
made available to the public.
(b) Additional Offense(1) IN GENERAL- Except as provided in paragraph (3), no person initiating,
receiving, or otherwise making a bet or wager with a licensee, or sending,
receiving, or inviting information assisting with a bet or wager with a
licensee, shall knowingly use, possess, or assist another in the use of any
cheating device with intent to cheat or defraud any licensee or other persons
placing bets or wagers with such licensee.
(2) BOTS- A software program that makes bets or wagers according to an
algorithm shall constitute a type of cheating device under this subsection.
(3) PERMISSIBLE USES- It shall not be a violation of this subsection for a
licensee, its agents, a qualified State agency, or its agent to use or posses a
device described in paragraph (1) or (2) if-(A) such use or possession is solely for purposes of testing an
Internet poker facility;
(B) such device is not used in live play involving actual bets or
wagers; and
(C) such device is registered with the qualified State agency that
issued the applicable license.
(4) DISCLOSURE TO PUBLIC NOT REQUIRED- Notwithstanding any other
provision of law, a registration under paragraph (3)(C) is not required to be
made available to the public.
(c) Permanent Injunction- Upon conviction of a person for violation of this section,
the court may enter a permanent injunction enjoining such person from initiating,
receiving, or otherwise making bets or wagers or sending, receiving, or inviting
information assisting in the placing of bets or wagers.
(d) Criminal Penalty- Whoever violates subsection (a) or (b) shall be fined under
title 18, United States Code, or imprisoned for not more than 3 years, or both.
(e) Reports(1) RECOMMENDED MINIMUM STANDARDS- Not later than 180 days after
the date of the enactment of this Act, the Secretary shall submit to Congress
a report containing the recommendations of the Secretary on what
minimum standards qualifying bodies should adopt to carry out the
requirements of subsection (a).
(2) IDENTIFICATION OF THREATS TO OPERATION OF INTERNET POKER
FACILITIES- Not later than 1 year after the date that licenses are first issued
under section 118(a), the Director of the National Institute of Standards and
Technology shall submit to Congress a report that identifies threats to the
integrity of Internet poker facilities operated by licensees, including
identification of technologies that could be used to hack computer networks,
facilitate cheating, or otherwise place consumers at risk of fraud or
monetary loss.
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SEC. 111. INAPPLICABILITY OF CERTAIN PROVISIONS TO INTERSTATE OFF-TRACK
WAGERS.
The provisions of this title requiring a license and of subchapter IV of chapter 53 of
title 31, United States Code, restricting acceptance of bets or wagers made by
individuals located in the United States or requiring the blocking or other
prevention of restricted transactions shall not apply with respect to the placing,
transmitting, or receiving of interstate off-track wagers, as such term is defined in
section 3 of the Interstate Horseracing Act of 1978 (15 U.S.C. 3002), that are
permissible under such Act (15 U.S.C. 3001 et seq.), whether such off-track wager is
made by telephone, Internet, satellite, or other wire or wireless communication
facility, service, or medium.
SEC. 112. CONSTRUCTION AND RELATION TO OTHER LAW.
(a) No Impact on Existing Lawful Games(1) IN GENERAL- If bets or wagers on certain games of skill are not regarded
as gambling under all provisions of Federal, State, or tribal law in effect as of
the date of enactment of this Act-(A) nothing in this title shall be construed to require licensing under
this title with respect to such games; and
(B) fees paid to participate in such games shall not be regarded as
bets or wagers for purposes of this title.
(2) RELIANCE- Nothing in this title may be relied on as support for the
legality or permissibility of games described in paragraph (1) without
compliance with the licensing and other requirements of this title
(b) No Effect on Existing Law- Nothing in this section shall be construed to repeal, to
amend, or to affect the interpretation of any provision of Federal or State law that
was in effect before the date of the enactment of this Act that-(1) prohibits, restricts, or otherwise addresses bets or wagers; or
(2) prohibits fraud, unfair or deceptive acts or practices, or other criminal
activity.
(c) Preemption of State and Tribal Laws(1) IN GENERAL- Except as otherwise expressly provided in this title, the
provisions of this title shall supersede any provisions of the law of any State
or Indian tribe expressly relating to the permitting, prohibiting, licensing, or
regulating of Internet gambling facilities, including Internet poker facilities,
and the law of any State or Indian tribe expressly relating to the permitting,
prohibiting, licensing, or regulation of gambling, except to the extent such
State or tribal laws are not inconsistent with this title.
(2) LOTTERIES- No provision of this title shall be construed to have any
effect on the rights, privileges, or obligations of a State or tribal lottery as
may be provided under other applicable Federal, State, or tribal law.
(3) SAVINGS PROVISION- Nothing in this title may be construed to limit the
applicability or enforcement of any State or tribal consumer protection law
or preempt the applicability of State or tribal trespass, contract, or tort law.
(d) Relation to Gambling Devices Transportation Act- Equipment used by a licensee
or significant vendor in the furtherance of licensed activities pursuant to this title
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(but not to the extent it is used for other purposes) shall not be considered a
gambling device within the meaning of section 1 of the Act of January 2, 1951,
prohibiting the transportation of gambling devices in interstate and foreign
commerce (15 U.S.C. 1171).
(e) Scope of Wire Act- Section 1084 of title 18, United States Code, is amended by
adding at the end the following new subsection:
`(f) This section, subchapter IV of chapter 53 of title 31, and any other provision of
Federal law that establishes criminal penalties for any activity involved in placing,
receiving, or otherwise transmitting a bet or wager, information assisting in the
placing of bets or wagers, or a communication which entitles the recipient to receive
money or credit as a result of bets or wagers, shall not apply to any activity that is
permissible under the Interstate Horseracing Act of 1978 (15 U.S.C. 3001 et seq.) or
title I of the Internet Gambling Prohibition, Poker Consumer Protection, and
Strengthening UIGEA Act of 2011.'.
(f) No Impact on Indian Gaming Regulatory Act(1) IN GENERAL- No provision of this title or decision or action taken by an
Indian tribe or State pursuant to this title shall have any effect on nonInternet gaming activities within the scope of section of the Indian Gaming
Regulatory Act (25 U.S.C. 2710) or any successor provisions or on any
Tribal- State compacts or authorities pursuant thereto.
(2) TRIBAL STATUS OR CATEGORY NOT AFFECTED- Tribal operation of
Internet poker facilities under this title shall not be considered class II or
class III gaming under such section, and an Indian tribe's status, category, or
class under such section shall not impact its status or ability to offer bets or
wagers pursuant to this title.
(3) NEW NEGOTIATIONS NOT REQUIRED(A) INDIAN TRIBES- The fact that an Indian tribe is operating under
a license issued pursuant to this title or that a tribal regulatory body
is acting as a qualified body pursuant to this title shall not require an
Indian tribe to negotiate a new agreement, limitation, or other
provision of tribal-State compact, agreement, or other understanding
with respect to gaming or revenue-sharing, with regard to any bet or
wager occurring pursuant to a license issued under this title.
(B) STATES- The fact that a State has prohibited or limited Internet
bets or wagers under section 104(a)(3) or that a State regulatory
body is acting as a qualified body pursuant to this title shall not
require the State to negotiate a new agreement, limitation, or other
provision of tribal-State compact, agreement, or other understanding
with respect to gaming or revenue-sharing, with regard to any bet or
wager occurring pursuant to a license issued under this title.
SEC. 113. REGULATIONS.
Not later than 180 days after the date of the enactment of this Act, the Secretary
shall prescribe such regulations as the Secretary considers necessary and where
expressly required or authorized to carry out this title.
SEC. 114. ANNUAL REPORTS.
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(a) Licensing and Regulation of Internet Poker Facilities- Not later than 1 year after
the date that licenses first issue under this title and annually thereafter, the
Secretary shall transmit to Congress a report on the licensing and regulation of
Internet poker facilities under this title, including-(1) the amount of fees collected under section 104(e) and, in cooperation
with the Secretary of Treasury, an estimate of the amount of income tax
revenue that is attributable to the operation of Internet poker facilities
during the period covered by the report;
(2) a list of qualified State agencies, the number of licensees reviewed by the
qualified State agencies under this title, and the outcomes of such reviews;
(3) a description of the efforts the Secretary has undertaken to ensure that
qualified State agencies are properly issuing licenses and regulating
licensees under this title;
(4) a detailed description of each type of game offered by licensees and how
each type is consistent with the definition of poker under section 102; and
(5) any other information the Secretary determines may be useful to
Congress.
(c) Consumer Protection- Not later than 1 year after the date that licenses first issue
under this title and annually thereafter, the Secretary shall transmit to the
Committee on Energy and Commerce of the House of Representatives and the
Committee on Commerce, Science, and Transportation of the Senate a report on
commercial and regulatory practices carried out to protect consumers with respect
to Internet poker, including the practices carried out pursuant to the requirements
of section 106 and the regulations prescribed pursuant to such section. Such report
shall include-(1) a detailed description of the efforts of each qualified State agency to
protect consumers from unfair or deceptive acts or practices, including
deceptive advertising and marketing to minors;
(2) a description of the practices that the Secretary recommends qualified
State agency to adopt to protect consumers;
(3) such recommendations as the Secretary may have for legislative action
as the Secretary considers necessary to protect consumers with respect to
Internet poker; and
(4) such other information as the Secretary considers appropriate.
SEC. 115. EFFECTIVE DATE.
(a) In General- Except as otherwise provided in this title, the provisions of this title
shall take effect on the date that is 30 days after the date of the enactment of this
Act.
(b) Regulations Required Before Issuing Licenses- Notwithstanding any other
provision of this title, a qualified State agency may not issue a license under this title
before the later of-(1) the date on which the Secretary prescribes final regulations under
section 113;
(2) the date on which the Secretary of the Treasury prescribes final
regulations pursuant to subsections (a) and (d) of section 203; and
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(3) the date on which the Director of the Financial Crimes Enforcement
Network submits to the Secretary of the Treasury a list of unlicensed
Internet gambling enterprises pursuant to section 5369(a)(1)(B) of title 31,
United States Code, as added by section 202(a).
TITLE II--STRENGTHENING OF UNLAWFUL INTERNET GAMBLING ENFORCEMENT ACT
OF 2006
SEC. 201. FINANCIAL TRANSACTION PROVIDERS.
(a) In General- Subchapter IV of chapter 53 of title 31, United States Code, is
amended by adding at the end the following:
`Sec. 5368. Liability of financial transaction providers
`(a) Liability for Certain Financial Activities and Transactions- A financial
transaction provider shall not be held liable for engaging in a financial activity or
transaction, including a payments processing activity, in connection with a bet or
wager permitted by the Internet Gambling Prohibition, Poker Consumer Protection,
and Strengthening UIGEA Act of 2011 or the Interstate Horseracing Act of 1978 (15
U.S.C. 3001 et seq.) unless the financial transaction provider has actual knowledge
that the financial activity or transaction was conducted in violation of either such
Act or any other applicable provision of Federal or State law.
`(b) No Liability for Blocking or Refusing to Honor Certain Transactions`(1) IN GENERAL- A financial transaction provider that takes an action
described in paragraph (2) with respect to a transaction shall not be liable to
any party for that action if the financial transaction provider takes the action
because the originator of the transaction or a party to the transaction is-`(A) a person or entity that is included in the list of unlicensed
Internet gambling enterprises required by section 5369(a);
`(B) a person or entity that the financial transaction provider
reasonably believes is included in that list;
`(C) a person or entity that is included in a list of unlicensed Internet
gambling enterprises made available to the financial transaction
provider by the Secretary under section 5369(a)(3);
`(D) a person or entity that the financial transaction provider
reasonably believes is included in a list described in subparagraph
(C);
`(E) a person or entity that is demonstrated to be an unlicensed
Internet gambling enterprise based on information, other than a list
described in subparagraph (C), that is made available to the financial
transaction provider; or
`(F) a person or entity that the financial transaction provider
reasonably believes is demonstrated to be an unlicensed Internet
gambling enterprise based on information described in
subparagraph (E).
`(2) ACTIONS DESCRIBED- A financial transaction provider takes an action
described in this paragraph if the financial transaction provider--
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`(A) identifies and blocks a transaction;
`(B) prevents or prohibits the acceptance of its products or service in
connection with a transaction or otherwise refuses to honor a
transaction; or
`(C) closes an account or ends a financial relationship.'.
(b) Clerical Amendment- The table of sections for chapter 53 of title 31, United
States Code, is amended by adding at the end the following:
`5368. Liability of financial transaction providers.'.
(c) Technical Correction- Section 5362(11)(B)(i) of title 31, United States Code, is
amended by striking `section 903(6)(E)' and inserting `section 903(7)(E)'.
SEC. 202. LIST OF UNLICENSED INTERNET GAMBLING ENTERPRISES.
(a) In General- Subchapter IV of chapter 53 of title 31, United States Code, as
amended by section 201(a), is further amended by adding at the end the following:
`Sec. 5369. List of unlicensed Internet gambling enterprises
`(a) List of Unlicensed Internet Gambling Enterprises`(1) IN GENERAL- The Director shall-`(A) identify unlicensed Internet gambling enterprises in accordance
with the procedures described in subsection (b);
`(B) not later than 120 days after the date of the enactment of the
Internet Gambling Prohibition, Poker Consumer Protection, and
Strengthening UIGEA Act of 2011, submit to the Secretary a list of
unlicensed Internet gambling enterprises that includes the
information described in paragraph (2); and
`(C) not less frequently than every 60 days thereafter, submit to the
Secretary an updated list that reflects the results of subsequent
investigations carried out under this section.
`(2) INFORMATION REQUIRED- The information described in this paragraph
is, with respect to each unlicensed Internet gambling enterprise included on
the list required by paragraph (1), the following:
`(A) All known Internet Web site addresses of the enterprise.
`(B) The name of any person who controls, finances, manages,
supervises, directs, or owns all or part of the enterprise (as such
terms are used in section 1955 of title 18).
`(C) To the extent known, information identifying the financial
agents and account numbers of the enterprise and the persons
described in subparagraph (B).
`(3) DISTRIBUTION OF LIST- Not later than 10 days after receiving the list or
an updated version of the list required by paragraph (1) from the Director,
the Secretary shall-`(A) post the information provided under subparagraphs (A) and (B)
of paragraph (2) on the Internet Web site of the Department of the
Treasury; and
`(B) provide to each person that is required to comply with the
regulations prescribed pursuant to section 5364 a copy of the
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information included with the list required by paragraph (1) in an
electronic format compatible with the list of Specially Designated
Nationals and Blocked Persons maintained by the Office of Foreign
Assets Control.
`(b) Procedures for Identifying Unlicensed Internet Gambling Enterprises`(1) INVESTIGATIONS`(A) INITIAL INVESTIGATION- Not later than the date that is 60 days
after the date of the enactment of the Interne Gambling Prohibition,
Poker Consumer Protection, and Strengthening UIGEA Act of 2011,
the Director shall complete an initial investigation of entities that
appear to be unlicensed Internet gambling enterprises.
`(B) SUBSEQUENT INVESTIGATIONS- After completing the initial
investigation required by subparagraph (A), the Director shall
regularly investigate entities that appear to be unlicensed Internet
gambling enterprises.
`(2) REQUESTS`(A) IN GENERAL- Any Federal, State, tribal, or local law enforcement
official, any affected sports organization, any person directly harmed
by unlicensed Internet gaming, any financial transaction provider,
and any interactive computer service shall have the right, but not the
obligation, to make a written request to the Director for the addition
of any person to the list of unlicensed Internet gambling enterprises
required by subsection (a).
`(B) DETERMINATIONS; NOTICE TO PERSON THAT SUBMITTED A
REQUEST- Not later than 30 days after receiving a request under
subparagraph (A), the Director shall-`(i) determine if the request contains information sufficient
to constitute a prima facie case that an entity is an unlicensed
Internet gambling enterprise; and
`(ii) notify the person that submitted the request of the
determination of the Director.
`(3) NOTICE- Not later than 30 days before including a person in the list of
unlicensed Internet gambling enterprises required by subsection (a), the
Director shall provide written notice to the person of the determination of
the Director to include the person in the list.
`(4) OPPORTUNITY TO CONTEST`(A) IN GENERAL- A person that receives notice under paragraph (3)
that the Director has determined to include the person in the list of
unlicensed Internet gambling enterprises required by subsection (a)
may, not later than 30 days after receiving the notice, contest the
determination-`(i) by submitting a written appeal to the Director; and
`(ii) by agreeing in the written appeal to submit to the
jurisdiction of the United States.
`(B) EFFECT OF NOT CONTESTING- If a person described in
subparagraph (A) does not contest the determination of the Director
to include the person in the list of unlicensed Internet gambling
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enterprises required by subsection (a) in accordance with
subparagraph (A), the Director shall include the person in the list.
`(5) OPPORTUNITY FOR HEARING- The Director-`(A) may not include a person that submits a written appeal
pursuant to paragraph (4) in the list of unlicensed Internet gambling
enterprises required by subsection (a) until the Director provides
the person with an opportunity for a hearing; and
`(B) shall provide the person the opportunity for a hearing not later
than 30 days after receiving the written appeal from the person.
`(6) DETERMINATIONS AFTER HEARING- Not later than 10 days after the
date of a hearing provided for a person under paragraph (5) (without regard
to whether the person appears at the hearing), the Director shall-`(A) determine if the person should be included in the list of
unlicensed Internet gambling enterprises required by subsection (a);
and
`(B) if the Director determines that the person should be included in
the list, add the person to the list.
`(7) INJUNCTIVE RELIEF`(A) IN GENERAL- A person described in subparagraph (B) may
petition for injunctive relief in the United States District Court for the
District of Columbia, which shall have exclusive jurisdiction to hear
cases arising under this section.
`(B) PERSON DESCRIBED- A person described in this subparagraph
is a person that the Director determines to include in the list of
unlicensed Internet gambling enterprises required by subsection
(a)-`(i) after the person appears at a hearing described in
paragraph (5); or
`(ii) that did not receive the notice required by paragraph
(3).
`(C) BURDEN OF PROOF- The petitioner shall have the burden of
establishing that the person should not be included in the list of
unlicensed Internet gambling enterprises required by subsection (a).
`(D) STANDING- Only persons that the Director determines to
include in the list of unlicensed Internet gambling enterprises
required by subsection (a) and owners or operators of such
enterprises shall have standing to contest the determination of the
Director.
`(E) AVAILABLE RELIEF- The court may direct the Director and the
Secretary not to add, or to remove, the petitioner from the list of
unlicensed Internet gambling enterprises.
`(F) UNAVAILABILITY OF OTHER REMEDIES- There shall be no
judicial review of a determination under this section other than
pursuant to this paragraph.
`(c) Effect of List- A financial transaction provider shall be deemed to have actual
knowledge that a person or entity is an unlicensed Internet gambling enterprise if-`(1) the person or entity is included in the list of unlicensed Internet
gambling enterprises required by subsection (a); or
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`(2)(A) the person or entity is included in a list of unlicensed Internet
gambling enterprises made available to the financial transaction provider by
the Secretary under subsection (a)(3); and
`(B) information in addition to the list described in subparagraph (A) is
available to the financial transaction provider that demonstrates that the
person or entity is an unlicensed Internet gambling enterprise.
`(d) Definitions- In this section:
`(1) DIRECTOR- The term `Director' means the Director of the Financial
Crimes Enforcement Network appointed under section 310(b).
`(2) SPORTS ORGANIZATION- The term `sports organization' means an
amateur sports organization or a professional sports organization (as those
terms are defined in section 3701 of title 28).
`(3) UNLICENSED INTERNET GAMBLING ENTERPRISE- The term
ùnlicensed Internet gambling enterprise' means any person who, on or after
the date of the enactment of the Internet Gambling Prohibition, Poker
Consumer Protection, and Strengthening UIGEA Act of 2011-`(A) violates a provision of section 5363;
`(B) knowingly assists a person in conduct described in
subparagraph (A).'.
(b) Clerical Amendment- The table of sections at the beginning of such chapter 53,
as amended by section 201(b), is further amended by adding at the end the
following:
`5369. Unlicensed Internet gambling enterprises.'.
SEC. 203. REGULATIONS.
(a) Regulations- Not later than 180 days after the date of the enactment of this Act,
the Secretary of the Treasury shall-(1) prescribe regulations to carry out sections 5368 and 5369 of title 31,
United States Code, as added by sections 201(a) and 202(a), and publish
such regulations in final form in the Federal Register; and
(2) prescribe such regulations as the Secretary of the Treasury considers
necessary to ensure compliance with chapter 2 of title I of Public Law 91508 (12 U.S.C. 1951 et seq.) and subchapter II of chapter 53 of title 31,
United States Code (commonly known, collectively, as the `Bank Secrecy
Act'), by licensees, significant vendors to such licensees, and financial service
providers to such licensees (as such terms are defined in section 102).
(b) Exclusion of Board of Governors of the Federal Reserve System From
Requirement To Prescribe Regulations Concerning Prevention of Restricted
Transactions- Subsection (a) of section 5364 of title 31, United States Code, is
amended by striking `Before the end of the 270-day period beginning on the date of
the enactment of this subchapter, the Secretary and the Board of Governors of the
Federal Reserve System, in consultation with the Attorney General, shall prescribe
regulations (which the Secretary and the Board jointly determine to be
appropriate)' and inserting `The Secretary shall prescribe regulations'.
(c) Temporary Suspension of Certain Regulations(1) IN GENERAL- Subject to paragraph (2), during the period beginning on
the date of the enactment of this Act and ending on the date set forth in
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subsection (d), part 233 of title 12, Code of Federal Regulations, and part
132 of title 31, Code of Federal Regulations, shall have no force or effect to
the extent that those regulations require or impose any obligation that is
inconsistent with the provisions of title I.
(2) PREVIOUS VIOLATION- Paragraph (1) shall not apply with respect to any
violation of a regulation described in such paragraph that occurred before
the date of the enactment of this Act.
(d) Revision of Regulations- Not later than 180 days after the date of the enactment
of this Act, the Secretary of the Treasury shall revise part 233 of title 12, Code of
Federal Regulations, and part 132 of title 31, Code of Federal Regulations, to
conform with the provisions of title I.
(e) Annual Report- Not later than 1 year after the date on which the Secretary of the
Treasury prescribes regulations under this section, and annually thereafter, the
Secretary shall submit to Congress a report on the list required by section 5369(a)
of title 31, United States Code, as added by section 202(a), including the following:
(1) The size of the list.
(2) The number of persons and Web sites added to and removed from the
list.
(3) The number and description of challenges to inclusion on the list and a
description of how such challenges were resolved.
SEC. 204. CONFORMING AMENDMENTS.
(a) Duties and Powers of the Director of the Financial Crimes Enforcement NetworkSection 310(b)(2)(I) of title 31, United States Code, is amended by striking
`subchapter II' and inserting `subchapters II and IV'.
(b) Exclusion of Licensed Internet Poker Facility Operations From Definition of
Unlawful Internet Gambling Enterprise- Section 5362(10) of such title is amended-(1) in subparagraph (D), by striking clause (iii);
(2) by redesignating subparagraph (E) as subparagraph (F); and
(3) by inserting after subparagraph (D) the following:
`(E) LICENSED INTERNET POKER FACILITIES- The term ùnlawful
Internet gambling' does not include an activity carried out by an
Internet poker facility, as such term is defined in section 102 of the
Internet Gambling Prohibition, Poker Consumer Protection, and
Strengthening UIGEA Act of 2011, operated by a person under a
license provided under title I of such Act in accordance with the
provisions of such title.'.
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AB258 (2011)
Assembly Bill No. 258–Committee on Judiciary
CHAPTER..........
AN ACT relating to gaming; requiring the Nevada Gaming Commission to adopt
regulations relating to the licensing and operation of interactive gaming; providing a
penalty; and providing other matters properly relating thereto.
Legislative Counsel’s Digest:
Existing law authorizes certain gaming establishments to obtain a license to operate
interactive gaming. (NRS 463.750) This bill requires the Nevada Gaming Commission
to establish by regulation certain provisions authorizing the licensing and operation of
interactive gaming under certain circumstances. This bill further provides that a
license to operate interstate interactive gaming does not become effective until: (1)
the passage of federal legislation authorizing interactive gaming; or (2) the United
States Department of Justice notifies the Commission or the State Gaming Control
Board that interactive gaming is permissible under federal law.
EXPLANATION – Matter in bolded italics is new; matter between brackets [omitted
material] is material to be omitted.
THE PEOPLE OF THE STATE OF NEVADA, REPRESENTED IN SENATE
AND ASSEMBLY, DO ENACT AS FOLLOWS:
Section 1. Chapter 463 of NRS is hereby amended by adding thereto the provisions set
forth as sections 2 to 7, inclusive, of this act.
Sec. 2. The Legislature hereby finds and declares that:
1. The State of Nevada leads the nation in gaming regulation and enforcement, such that
the State of Nevada is uniquely positioned to develop an effective and comprehensive
regulatory structure related to interactive gaming.
2. A comprehensive regulatory structure, coupled with strict licensing standards, will
ensure the protection of consumers, prevent fraud, guard against underage and problem
gambling and aid in law enforcement efforts.
3. To provide for licensed and regulated interactive gaming and to prepare for possible
federal legislation, the State of Nevada must develop the necessary structure for
licensure, regulation and enforcement.
Secs. 3-10. (Deleted by amendment.)
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Sec. 10.5. NRS 463.016425 is hereby amended to read as follows:
463.016425 1. “Interactive gaming” means the conduct of gambling games through the
use of communications technology that allows a person, utilizing money, checks,
electronic checks, electronic transfers of money, credit cards, debit cards or any other
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instrumentality, to transmit to a computer information to assist in the placing of a bet
or wager and corresponding information related to the display of the game, game
outcomes or other similar information. The term [does] :
(a) Includes, without limitation, Internet poker.
(b) Does not include the operation of a race book or sports pool that uses
communications technology approved by the Board pursuant to regulations adopted
by the Commission to accept wagers originating within this state for races, or sporting
events or other events.
2. As used in this section, “communications technology” means any method used and
the components employed by an establishment to facilitate the transmission of
information, including, without limitation, transmission and reception by systems
based on wire, cable, radio, microwave, light, optics or computer data networks,
including, without limitation, the Internet and intranets.
Sec. 11. NRS 463.160 is hereby amended to read as follows:
463.160 1. Except as otherwise provided in subsection 4 and NRS 463.172, it is
unlawful for any person, either as owner, lessee or employee, whether for hire or not,
either solely or in conjunction with others:
Nevada any gambling game, gaming device, inter-casino linked system, mobile gaming
system, slot machine, race book or sports pool;
(b) To provide or maintain any information service; (c) To operate a gaming salon;
[or] (d) To receive, directly or indirectly, any compensation or
reward or any percentage or share of the money or property played, for keeping,
running or carrying on any gambling game, slot machine, gaming device, mobile
gaming system, race book or sports pool [,] ; or
(e) To operate, carry on, conduct, maintain or expose for play in or from the State of
Nevada any interactive gaming system, without having first procured, and thereafter
maintaining in effect, all federal, state, county and municipal gaming licenses as
required by statute, regulation or ordinance or by the governing board of any
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unincorporated town.
(a) A gaming licensee is operating an inter-casino linked system on the premises of an
affiliated licensee; or
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(b) An operator of a slot machine route is operating an inter- casino linked system
consisting of slot machines only.
operated, dealt or carried on in any house or building or other premises owned by the
person, in whole or in part, by a person who is not licensed pursuant to this chapter, or
that person’s employee.
4. The Commission may, by regulation, authorize a person to own or lease gaming
devices for the limited purpose of display or use in the person’s private residence
without procuring a state gaming license.
5. As used in this section, “affiliated licensee” has the meaning ascribed to it in NRS
463.430.
463.750 1. [Except as otherwise provided in subsections 2 and 3, the] The Commission
[may,] shall, with the advice and assistance of the Board, adopt regulations governing
the licensing and operation of interactive gaming.
2. [The Commission may not adopt regulations governing the licensing and operation
of interactive gaming until the Commission first determines that:
assurance that players will be of lawful age and communicating only from jurisdictions
where it is lawful to make such communications; and
3.] The regulations adopted by the Commission pursuant to this section must:
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(a) Establish the investigation fees for: (1) A license to operate interactive gaming; (2) A license for a manufacturer of interactive gaming
systems; and (3) A license for a manufacturer of equipment associated
with interactive gaming. (b) Provide that:
(1) A person must hold a license for a manufacturer of interactive gaming systems to
supply or provide any interactive gaming system, including, without limitation, any
piece of proprietary software or hardware; and
-4-
(2) A person may be required by the Commission to hold a license for a manufacturer
of equipment associated with interactive gaming.
(c) Set forth standards for the suitability of a person to be licensed as a manufacturer
of interactive gaming systems or manufacturer of equipment associated with
interactive gaming that are as stringent as the standards for a nonrestricted license.
(d) Provide that gross revenue received by an establishment from the operation of
interactive gaming is subject to the same license fee provisions of NRS 463.370 as the
games and gaming devices of the establishment [.] , unless federal law otherwise
provides for a similar fee or tax.
(e) Set forth standards for the location and security of the computer system and for
approval of hardware and software used in connection with interactive gaming.
(f) Define “equipment associated with interactive gaming,” “interactive gaming system,”
“manufacturer of equipment associated with interactive gaming,” “manufacturer of
interactive gaming systems,” “operate interactive gaming” and “proprietary hardware
and software” as the terms are used in this chapter.
[4.] (g) Provide that any license to operate interstate interactive gaming does not
become effective until:
(1) A federal law authorizing the specific type of interactive gaming for which the
license was granted is enacted; or
(2) The United States Department of Justice notifies the Board or Commission in
writing that it is permissible under federal law to operate the specific type of
interactive gaming for which the license was granted.
3. Except as otherwise provided in [subsection 5,] subsections 4 and 5, the
Commission shall not approve a license for an establishment to operate interactive
gaming unless:
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(a) In a county whose population is 400,000 or more, the establishment is a resort
hotel that holds a nonrestricted license to operate games and gaming devices.
establishment is a resort hotel that holds a nonrestricted license to operate games and
gaming devices or the establishment:
(1) Holds a nonrestricted license for the operation of games and gaming devices;
(2) Has more than 120 rooms available for sleeping accommodations in the same
county;
–5–
(3) Has at least one bar with permanent seating capacity for more than 30 patrons that
serves alcoholic beverages sold by the drink for consumption on the premises;
(4) Has at least one restaurant with permanent seating capacity for more than 60
patrons that is open to the public 24 hours each day and 7 days each week; and
(5) Has a gaming area that is at least 18,000 square feet in area with at least 1,600 slot
machines, 40 table games, and a sports book and race pool.
(c) In all other counties, the establishment is a resort hotel that holds a nonrestricted
license to operate games and gaming devices or the establishment:
(1) Has held a nonrestricted license for the operation of games and gaming devices for
at least 5 years before the date of its application for a license to operate interactive
gaming;
(2) Meets the definition of group 1 licensee as set forth in the regulations of the
Commission on the date of its application for a license to operate interactive gaming;
and
(3) Operates either: (I) More than 50 rooms for sleeping accommodations in
connection therewith; or (II) More than 50 gaming devices in connection
therewith. [5.] 4. The Commission may: (a) Issue a license to operate interactive
gaming to an affiliate of
an establishment if: (1) The establishment satisfies the applicable requirements
set forth in subsection [4; and] 3; (2) The affiliate is located in the same county as the
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establishment; and
(3) The establishment has held a nonrestricted license for at least 5 years before the
date on which the application is filed; and
(b) Require an affiliate that receives a license pursuant to this subsection to comply
with any applicable provision of this chapter.
[6.] 5. The Commission may issue a license to operate interactive gaming to an
applicant that meets any qualifications established by federal law regulating the
licensure of interactive gaming.
6. It is unlawful for any person, either as owner, lessee or employee, whether for hire
or not, either solely or in conjunction with others, to operate interactive gaming:
(a) Until the Commission adopts regulations pursuant to this section; and
–6–
(b) Unless the person first procures, and thereafter maintains in effect, all appropriate
licenses as required by the regulations adopted by the Commission pursuant to this
section.
$50,000, or both.
463.770 1. [All] Unless federal law otherwise provides for a similar fee or tax, all gross
revenue from operating interactive gaming received by an establishment licensed to
operate interactive gaming, regardless of whether any portion of the revenue is shared
with another person, must be attributed to the licensee and counted as part of the
gross revenue of the licensee for the purpose of computing the license fee required by
NRS 463.370.
2. A manufacturer of interactive gaming systems who is authorized by an agreement to
receive a share of the revenue from an interactive gaming system from an
establishment licensed to operate interactive gaming is liable to the establishment for
a portion of the license fee paid pursuant to subsection 1. The portion for which the
manufacturer of interactive gaming systems is liable is 6.75 percent of the amount of
revenue to which the manufacturer of interactive gaming systems is entitled pursuant
to the agreement.
3. For the purposes of subsection 2, the amount of revenue to which the manufacturer
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of interactive gaming systems is entitled pursuant to an agreement to share the
revenue from an interactive gaming system:
(a) Includes all revenue of the manufacturer of interactive gaming systems that is the
manufacturer of interactive gaming systems’ share of the revenue from the interactive
gaming system pursuant to the agreement; and
(b) Does not include revenue that is the fixed purchase price for the sale of a
component of the interactive gaming system.
Secs. 13 and 14. (Deleted by amendment.)
Sec. 14.5. The Nevada Gaming Commission shall, on or before January 31, 2012, adopt
regulations to carry out the amendatory provisions of this act.
Sec. 15. This act becomes effective upon passage and approval.
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Proposed Change to Regulation 3.100
REGULATION 3: LICENSING: QUALIFICATIONS PROPOSED AMENDMENTS TO
REGULATIONS 3.100
PURPOSE: To amend Regulation 3.100 to include provisions related to interactive
gaming and service providers; and to take such additional action as may be necessary
and proper to effectuate these stated purposes.
(Draft Date: August 1, 2011)
3.100 Employee report.
1. Definitions. As used in this section:
(a) “Compensation” means the value of all salaries, bonuses, and other taxable
benefits given to or earned by a person. The term does not include tip income.
(b) “Complimentary benefits” are those products, services, and entertainment
normally provided in exchange for consideration including, but not limited to,
transportation, hotel room nights, and shows given without consideration to a
casino customer. The term does not include food and beverage given to a casino
patron.
(c) “Qualifying employee” of a group I or group II nonrestricted licensee means any
person whose responsibility is to directly oversee the entirety of the following types
of departments or functions of the licensee’s operations:
(1) Accounting. (2) Bingo. (3) Cage and vault. (4) Contracts and agreements for entertainment or for the lease of space on
the premises of the licensed gaming establishment.
(5) Credit.
(6) Collections. (7) Entertainment operations. (8) Finance. (9) Food and beverage. (10) Gaming regulatory compliance.
(11) Hotel operations. (12) Human resources. (13) Internal audit. (14) Internal information technology
(15) Keno. (16) Marketing. (17) Pit operations. (18) Poker operations. (19) Sales. - 243 -
(20) Security. (21) Slot operations. (22) Surveillance.
(d) “Qualifying employee” of a manufacturer, distributor, slot route operator, intercasino linked system operator, mobile gaming system operator, operator of
interactive gaming, service provider, or pari-mutuel systems operator means any
person whose responsibility is to directly oversee the entirety of the following types
of departments or functions of the licensee’s operations:
(1) Accounting. (2) Distribution operations. (3) Finance. (4) Gaming regulatory compliance. (5) Gaming related network operations. (6) Human resources. (7) Interactive gaming. (8) Inter-casino linked system operations (9) Internal Audit. ( 10) Internal information technology. (11) Manufacture operations. (12) Marketing. (13) Mobile gaming system operations.
(14) Pari-mutuel systems operations.
(15) Sales. (16) Security. (17) Slot route operations. (18) Surveillance. (19) Technology and product development.
2. All nonrestricted licensees, including each manufacturer, distributor, service
provider, operator of a slot machine route, of a mobile gaming system, of interactive
gaming, or of an inter-casino linked system, and each pari-mutuel systems operator
shall submit an employee report to the board two times yearly within 30 days after
March 31st and within 30 days after September 30th. The report shall identify every
person who is, as of March 31st or September 30th, whichever is most recent, a
qualifying employee. The report shall also identify, as of March 31st or September
30th, whichever is most recent, the following persons who are not otherwise
qualifying employees:
(a) Any person who directly supervises a qualifying employee.
(b) Any person who entered into a contractual arrangement, which is reportable
pursuant to Regulation 8.130, on behalf of and binding upon the licensee.
(c) For a group I nonrestricted licensee: (1) Any person whose compensation exceeds $400,000, per annum, or the
five highest compensated persons, whichever method results in the greater
number of persons;
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(2) Any person who has the authority to determine who, for the licensee, is
authorized to grant credit, grant extensions of credit, or approve the writeoff or discount of credit instruments; and
authorized to grant complimentary benefits.
(d) For a group II nonrestricted licensee:
(1) Any person whose compensation exceeds $200,000, per annum, or the
five highest compensated persons, whichever method results in the greater
number of persons;
authorized to grant credit, grant extensions of credit, or approve the writeoff or discount of credit instruments; and
authorized to grant complimentary benefits.
(e) For licensees other than a group I or group II nonrestricted licensee:
person whose compensation exceeds $200,000, per annum, or the
(1) A ny
five highest compensated persons, whichever method results in the greater number of
persons;
(f) Any person or job position who, upon written notification by the board chairman
or his designee, is considered to be a reportable position or person for purposes of
this regulation. Subsequent to notification, the specific person or job position must
appear on all subsequent employee reports, unless notified otherwise by the board
chairman or his designee or terminated by the licensee.
3. The employee report shall include the person’s name, job position title, the last four
digits of the person’s social security number and a complete list of those categories
described herein which apply to each person.
4. The employee report shall be confidential and may not be disclosed except upon
order of the commission or pursuant to the terms of NRS 463.120.
5. A licensee holding multiple licenses may submit a single comprehensive employee
report on the condition that such employee report identifies and designates for which
license a person is included in the employee report.
6. Upon written request and good cause shown by a licensee, the board chairman or
his designee may waive one or more of the requirements of this section. If a waiver is
granted, the board chairman or his designee may impose alternative employee report
requirements.
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REGULATION 4: APPLICATIONS: PROCEDURE
PROPOSED AMENDMENTS TO REGULATIONS 4.030
PURPOSE: To amend Regulation 4.030 to provide that a manufacturer’s license includes a
manufacturer of interactive gaming systems; to provide for an operator of interactive gaming license;
to provide for a service provider license; and to take such additional action as may be necessary and
proper to effectuate these stated purposes
4.030 Classification of licenses, and other commission actions for which
applications must be made.
1. Gaming licenses.
(a) Restricted license. One which permits the operation of slot machines only in an establishment
wherein the operation of machines is incidental to the primary business of the licensee. Fifteen (15)
machines is the maximum number of machines which may be operated under this type of license.
Any restricted licensee at more than two locations may be required to apply for and obtain an
operator of a slot machine route license.
(b) Nonrestricted license. Any license other than a restricted license. The term includes:
(1) Operator of a mobile gaming system. A nonrestricted license which authorizes the holder
under any agreement whereby consideration is paid or payable for the right to place a mobile gaming
system, to engage in the business of placing and operating a mobile gaming system within the public
area of a licensed gaming establishment and who is authorized to share in the revenue from the
mobile gaming system without having been individually licensed to conduct gaming at the
establishment.
(2) Operator of a slot machine route license. A nonrestricted license which authorizes the holder
to place slot machines in a licensed location and share in the profits therefrom without being on the
license issued for the location. An operator’s license will normally be issued only to an applicant
already licensed at three locations or having firm commitments to place machines at three licensed
locations upon licensing.
(3) Operator of an inter-casino linked system license. A nonrestricted license which authorizes the
holder to place and operate an inter-casino linked system on the premises of two or more licensed
locations, and to share in the revenue therefrom, without being on the licenses issued for the
locations. Licensure is not required if a gaming licensee is operating an inter-casino linked system on
the premises of an affiliated licensee, or if an operator of a slot machine route is operating an intercasino linked system consisting of slot machines only.
2. Manufacturer’s license. One which authorizes the holder to manufacture, assemble or produce
any device, equipment, material or machines used in gambling, except pinball machines, in the State
of Nevada in accordance with Regulation 14. A manufacturer’s license includes a manufacturer
of interactive gaming systems license.
3. Distributor’s license. One which authorizes the holder to sell, distribute or market any gambling
device, machine or equipment in the State of Nevada in accordance with Regulation 14.
4. Disseminator’s license. One which authorizes the holder to furnish an operator of a race book,
sports pool or gambling game who is licensed in this state with information relating to horse racing
or other racing which is used to determine winners of or payoffs on wagers accepted by the operator.
The term does not include a person who provides a televised broadcast without charge to any person
who receives the broadcast.
5. Pari-mutuel systems operator’s license. One which authorized the holder to engage in the
providing of an off-track pari-mutuel system.
6. Operator of interactive gaming license. One which authorizes the holder to, from Nevada, engage
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in the business of operating interactive gaming.
7. Service provider license. One which authorizes the holder to act as a service provider and
includes an interactive gaming service provider license.
8. Registration. Commission action authorizes a corporation to be a holding company with
respect to a corporation which holds or applies for a state gaming license.
9. Findings of suitability. The Nevada Gaming Control Act and regulations thereunder require or
permit the commission to require that certain persons, directly or indirectly involved with licensees,
be found suitable to hold a gaming license so long as that involvement continues. A finding of
suitability relates only to the specified involvement for which it was made. If the nature of the
involvement changes from that for which the applicant is found suitable, he may be required to
submit himself to a determination by the commission of his suitability in the new capacity.
10. Approvals. The Nevada Gaming Control Act and the regulations thereunder do or may require
commission approval for certain acts of licensees or transactions directly or indirectly involving
licensees. Such approvals by themselves do not constitute the licensing or a finding of suitability of
any person involved, but the licensing or finding suitable of the persons involved may, unless
circumstances indicate otherwise, constitute approval by the commission of the transaction in
question.
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Proposed New Regulation 5A
NEW REGULATION 5A OPERATION OF INTERACTIVE GAMING
PROPOSED NEW REGULATIONS
PURPOSE: To adopt a comprehensive framework to regulate the operation of
interactive gaming in the State of Nevada to include: the scope of the regulations;
definitions; licensing and application requirements; license fees; investigative fees;
operation of only approved interactive gaming systems; required internal controls
that shall meet minimum standards; detection and prevention of criminal activities;
access to premises and production of records; revolving investigative fund;
requirements pertaining to house rules; registration of individuals to engage in
interactive gaming; requirements pertaining to interactive gaming accounts;
requirements pertaining to self-exclusion; prohibitions against certain types of
wagers; requirements pertaining to information that must be on an interactive
gaming website; requirements pertaining to filing suspicious wagering reports;
gross revenue computations for interactive gaming; resolution of disputes;
requirements pertaining to records; grounds for disciplinary action; powers
pertaining to the issuance of an interlocutory stop order; provisions pertaining to
interactive gaming service providers; provisions allowing for a waiver; scope and
effectiveness of an operator of interactive gaming license; and to take such
additional action as may be necessary and proper to effectuate these stated
purposes.
5A.010 Scope. Regulation 5A shall govern the operation of interactive gaming. The
provisions of the Gaming Control Act and all regulations promulgated thereunder shall still
otherwise apply when not in conflict with Regulation 5A.
5A.020 Definitions. As used in this regulation: 1. “Authorized player” means a person who has registered with the operator of interactive
gaming to engage in interactive gaming. 2. “Chairman” means the chairman of the state gaming control board or his designee. 3. “Interactive gaming account” means an electronic ledger operated and maintained by an
operator of interactive gaming wherein information relative to interactive gaming is
recorded on behalf of an authorized player including the following types of transactions:
(a) Deposits; (b) Withdrawals; (c) Amounts wagered; (d) Amounts paid on winnings; and (e) Adjustments to the account. 4. “Interactive gaming service provider” means a person who acts on behalf of
an operator of interactive gaming and: (a) Manages, administers or controls wagers that are initiated, received or made on
an interactive gaming system; (b) Manages, administers or controls the games with which wagers that are initiated,
received or made on an interactive gaming system are associated;
(c) Maintains or operates the software or hardware of an interactive gaming
system; (d) Provides the trademarks, trade names, service marks or similar intellectual
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property under which an operator of interactive gaming identifies its interactive
gaming system to patrons;
(e) Provides information regarding persons to an operator of interactive gaming via
a database or customer list; or
(f) Provides products, services, information or assets to an operator of interactive
gaming and receives therefor a percentage of gaming revenue from the
establishment’s interactive gaming system.
5. “Interactive gaming system” shall have the same meaning as provided in Regulation
14.010.
6. “Operate interactive gaming” means to engage in the business of operating interactive
gaming.
7. “Operator of interactive gaming” means a person who, from Nevada, engages in the
business of operating interactive gaming. An operator of interactive gaming who is granted
a license by the commission is a licensee.
8. “Poker” means the traditional game of poker, and any derivative of the game of poker as
approved by chairman and published on the board’s website, wherein two or more players
play against each other and wager on the value of their hands. For purposes of interactive
gaming, poker is not a banking game.
9. “Wagering communication” means the transmission of a wager between a point of origin
and a point of reception through communications technologies as defined by NRS
463.016425(2).
5A.030 License Required; Applications.
1. A person may act as an operator of interactive gaming only if that person holds a license
specifically permitting the person to act as an operator of interactive gaming.
2. Applications for an operator of interactive gaming license shall be made, processed, and
determined in the same manner as applications for nonrestricted gaming licenses, using
such forms as the chairman may require or approve.
5A.040 Initial and Renewal License Fees. Before the commission issues an initial license
or renews a license for an operator of interactive gaming the operator of interactive gaming
shall pay the license fees established pursuant to NRS 463.765.
5A.050 Investigative Fees. Applications for an operator of interactive gaming license shall
be subject to the application and investigative fees established pursuant to Regulation 4.070.
5A.060 Interactive Gaming Systems. An operator of interactive gaming shall not operate a
new interactive gaming system in this state unless the interactive gaming system has been
approved by the commission.
5A.070 Internal Controls for Operators of Interactive Gaming. Each operator of
interactive gaming shall establish, maintain, implement and comply with standards that the
chairman shall adopt and publish pursuant to the provisions of Regulation 6.090. Such
minimum standards shall include internal controls for:
1. As specified under Regulation 6.090(1), administrative, accounting and audit
procedures for the purpose of determining the licensee’s liability for taxes and fees
under the Gaming Control Act and for the purpose of exercising effective control
over the licensee’s internal affairs.
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2. Maintenance of all aspects of security of the interactive gaming system;
3. Registering authorized players to engage in interactive gaming;
4. Identification and verification of authorized players to prevent those who are
not authorized players from engaging in interactive gaming. The procedures and
controls must incorporate robust and redundant identification methods and
measures in order to manage and mitigate the risks of non face-to-face transactions
inherent in interactive gaming;
5. Protecting and ensuring confidentiality of authorized players’ interactive gaming
accounts;
6. Ensuring that interactive gaming is engaged in between human individuals only;
7. Testing the integrity of the interactive gaming system on an ongoing basis;
8. Promoting responsible interactive gaming and preventing individuals who have
self-excluded from engaging in interactive gaming. Such internal controls shall
include provisions for substantial compliance with Regulation 5.170; and
9. Protecting an authorized player’s personally identifiable information, including,
but not limited to:
(a) The designation of one senior company official who has primary
responsibility for the design, implementation and ongoing evaluation of such
procedures and controls;
(b) The procedures to be used to determine the nature and scope of all
personally identifiable information collected, the locations in which such
information is stored, and the devices or media on which such information
may be recorded for purposes of storage or transfer;
(c) The policies to be utilized to protect personally identifiable information
from unauthorized access by employees, business partners, and persons
unaffiliated with the company;
(d) Notification to authorized player of privacy policies;
(e) Procedures to be used in the event the operator of interactive gaming
determines that a breach of data security has occurred, including required
notification to the board’s enforcement division; and
(f) Provision for compliance with all local, state and federal laws concerning
privacy and security of personally identifiable information.
“Personally identifiable information” means any information about an
individual maintained by an operator of interactive gaming including (1) any
information that can be used to distinguish or trace an individual’s identity,
such as name, social security number, date and place of birth, mother’s
maiden name, or biometric records; and (2) any other information that is
linked or linkable to an individual, such as medical, educational, financial,
and employment information.
The chairman may, in his sole and absolute discretion, determine additional
areas that require internal controls having minimum standards.
5A.080. Detection and Prevention of Criminal Activities. Each operator of interactive
gaming shall implement procedures that are designed to detect and prevent transactions
that may be associated with money laundering, fraud and other criminal activities and to
ensure compliance with all federal laws related to money laundering.
5A.090 Access to Premises and Production of Records; Revolving Investigative Fund.
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1. Operators of interactive gaming holding a license issued by the commission are subject to
the provisions of NRS 463.140. It shall be an unsuitable method of operation for an operator
of interactive gaming holding a license issued by the commission to deny any board or
commission member or agent, upon proper and lawful demand, access to, inspection or
disclosure of any portion or aspect of their operations.
2. Upon being granted a license by the commission, operators of interactive gaming shall
deposit with the board and thereafter maintain a revolving fund in an amount of $20,000,
unless a lower amount is approved by the chairman, which shall be used to pay the
expenses of agents of the board and commission to investigate compliance with this
regulation.
5A.100 House Rules. Each operator of interactive gaming shall adopt, conspicuously
display, and adhere to written, comprehensive house rules governing wagering transactions
by and between authorized players. Such house rules shall include, but not be limited to,
specifying the following:
1. Clear and concise explanation of all fees;
3. The rules of play of a game;
4. Any monetary wagering limits; and
5. Any time limits pertaining to the play of a game.
Prior to adopting or amending such house rules, an operator of interactive gaming shall
submit such rules to the chairman for his approval.
5A.110 Registration of Authorized Player.
1. Before allowing or accepting any wagering communication from an individual to engage
in interactive gaming, an operator of interactive gaming must register the individual as an
authorized player and create an interactive gaming account for the individual.
2. An operator of interactive gaming may register an individual as an authorized player only
if the operator of interactive gaming establishes and verifies:
(a) The identity of the individual;
(b) That the individual is 21 years of age or older;
(c) The physical location where the individual resides; and
(d) That the individual is not on the list of excluded persons established
pursuant to NRS 463.151 and Regulation 28.
3. Before registering an individual as an authorized player, the operator of
interactive gaming must have the individual affirm the following:
(a) That the information provided to the operator of interactive gaming by the
individual to register is accurate;
(b) That the individual has been provided a copy of the house rules for
interactive gaming;
(c) That the individual has been informed and understands that, as an
authorized player, they are prohibited from allowing any other person access to or
use of their interactive gaming account;
(d) That the individual has been informed and understands that, as an authorized
player, they are prohibited from engaging in interactive gaming from a state or
foreign jurisdiction in which interactive gaming is illegal and that the operator of
interactive gaming is prohibited from allowing such interactive gaming;
(e) Consents to the monitoring and recording by the operator of interactive gaming
and the board of any wagering communications; and
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(f) Consents to the jurisdiction of the State of Nevada to resolve disputes arising out
of interactive gaming.
4. An individual may register as an authorized player remotely or in person.
5. Once an individual has registered as an authorized player and the operator of interactive
gaming has verified the accuracy of the information used to register the individual, an
operator of interactive gaming may establish an interactive gaming account for the
authorized player.
5A.120 Interactive Gaming Accounts.
1. An operator of interactive gaming shall record and maintain the following in relation to
an interactive gaming account:
(a) The date and time the interactive gaming account is opened or terminated;
(b) The date and time the interactive gaming account is logged in to or is logged out
of; and
(c) The physical location of the authorized player while logged in to the interactive
gaming account.
2. An operator of interactive gaming shall ensure that an individual registered as an
authorized player holds only one interactive gaming account with the operator of
interactive gaming.
3. An operator of interactive gaming shall not set up anonymous interactive gaming
accounts or accounts in fictitious names.
4. Funds may be deposited by an authorized player into an interactive gaming account
assigned to them as follows:
(a) Cash deposits made directly with the operator of interactive gaming;
(b) Personal checks, cashier’s checks, wire transfer and money order deposits made
directly or mailed to the operator of interactive gaming;
(c) Transfers from safekeeping or front money accounts otherwise held by the
licensed gaming establishment holding the operator of interactive gaming license.
(d) Debits from an authorized player’s debit card or credit card; or
(e) Any other means approved by the chairman.
5. Interactive gaming account credits may be made by the following means:
(a) Deposits; and
(b) Amounts won by an authorized player.
6. Interactive gaming account debits may be made by the following means:
(a) Amounts wagered by an authorized player;
(b) Purchases of interactive gaming related merchandise and services
requested by an authorized player; and
(c) Withdrawals.
7. An operator of interactive gaming shall comply with a request for a
withdrawal of funds by an authorized player from their interactive gaming account within a
reasonable amount of time.
8. An operator of interactive gaming shall not allow an authorized player to transfer funds
to any other authorized player.
9. Under no circumstances shall an operator of interactive gaming allow an authorized
player’s interactive gaming account to be overdrawn.
10. An operator of interactive gaming, including its affiliates and agents, shall not extend
credit to an authorized player.
11. The language of any agreement used as between an operator of interactive gaming and
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its authorized players pertaining to interactive gaming and authorized players’ access to
their interactive gaming account shall be submitted to the chairman for his review. The
operator of interactive gaming shall not allow or engage in any interactive gaming until any
such agreement is approved by the chairman.
12. An operator of interactive gaming shall hold funds of authorized players that are to be
used in connection with interactive gaming and that are in the possession of the operator of
interactive gaming separate from the operator of interactive gaming’s own property. All
funds received or held on behalf of an authorized player shall be deposited in one or more
identifiable bank accounts designated as a trust account maintained in the State of Nevada.
Trust account arrangements must be administratively approved by the chairman and the
chairman shall be notified when a trust account is closed. Complete records of such account
funds shall be kept by the operator of interactive gaming and shall be preserved for a period
of five years after termination of the authorized player’s account.
13. An operator of interactive gaming shall ensure that an authorized player has the ability,
through their interactive gaming account, to select responsible gambling options that
include a wager limit, loss limit, time-based loss limits, deposit limit, session time limit, and
time-based exclusion from gambling.
5A.130 Self-Exclusion
1. Operators of interactive gaming must have and put into effect policies and procedures for
self-exclusion and take all reasonable steps to refuse service or to otherwise prevent an
individual who has self-excluded from participating in interactive gaming. These policies
and procedures include without limitation the following:
(a) The maintenance of a register of those individuals who have self-excluded that includes
the name, address and account details of self-excluded individuals;
(b) The closing of the interactive gaming account held by the individual who has selfexcluded; and
(c) Employee training to ensure enforcement of these policies and procedures.
2. Operators of interactive gaming must take all reasonable steps to prevent any marketing
material from being sent to an individual who has self-excluded.
5A.140 Acceptance of Wagers. Operators of interactive gaming shall not accept or
facilitate a wager:
1. On any game other than the game of poker and its derivatives as approved by the
chairman.
2. On any game which the operator of interactive gaming knows or reasonably should know
is not between individuals.
3. On any game which the operator of interactive gaming knows or reasonably should know
is made by a person on the self-exclusion list.
4. From a person who the operator of interactive gaming knows or reasonably should know
is placing the wager in violation of state or federal law.
5A.150 Information Displayed on Website. Operators of interactive gaming must provide
for the prominent display of the following information on a page which, by virtue of the
construction of the website, authorized players must access before gambling:
1. The full name of the operator of interactive gaming and address from which it carries on
business;
2. A statement that the operator of interactive gaming is licensed and regulated by the
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commission;
3. The operator of interactive gaming’s license number;
4. A statement that persons under the age of 21 are not permitted to engage in interactive
gaming.
5. A statement that persons located in a jurisdiction where interactive gaming is not legal
are not permitted to engage in interactive gaming.
6. A link to information explaining how disputes are resolved;
7. A link to a problem gambling website that is designed to offer information pertaining to
responsible gaming;
8. A link to the state gaming control board’s website; and
9. A link to a website that allows for an authorized player to choose to be excluded from
engaging in interactive gaming;
5A.160 Suspicious Wagering Report.
1. As used in this section, “suspicious wager” means a wager which an operator of
interactive gaming licensee knows or in the judgment of it or its directors, officers,
employees and agents has reason to suspect is being attempted or was placed:
(a) In violation of or as part of a plan to violate or evade any federal, state or local
law or regulation;
(b) Has no business or apparent lawful purpose or is not the sort of wager which the
particular authorized player would normally be expected to place, and the licensee
knows of no reasonable explanation for the wager after examining the available
facts, including the background of the wager.
2. An operator of interactive gaming licensee shall file a report of any suspicious wager,
regardless of the amount, if the licensee believes it is relevant to the possible violation of
any law or regulation.
3. The report in subsection 2 shall be filed no later than 7 calendar days after the initial
detection by the licensee of facts that may constitute a basis for filing such a report. If no
suspect was identified on the date of the detection of the incident requiring the filing of the
report, a licensee may delay filing a report for an additional 7 calendar days to identify a
suspect. In no case shall reporting be delayed more than 14 calendar days after the date of
initial detection of a reportable transaction. In situations involving violations that require
immediate attention, the licensee shall immediately notify, by telephone, the board in
addition to timely filing a report.
4. An operator of interactive gaming licensee shall maintain a copy of any report filed and
the original or business record equivalent of any supporting documentation for a period of
five years from the date of filing the report. Supporting documentation shall be identified,
and maintained by the licensee as such, and shall be deemed to have been filed with the
report. A licensee shall make all supporting documentation available to the board and any
appropriate law enforcement agencies upon request.
5. An operator of interactive gaming licensee and its directors, officers, employees, or agents
who file a report pursuant to this regulation shall not notify any person involved in the
transaction that the transaction has been reported.
5A.170 Gross Revenue License Fees, Attribution, Liability and Computations for
Interactive Gaming.
1, Gross revenue received by an establishment from the operation of interactive gaming is
subject to the same license fee provisions of NRS 463.370 as the games and gaming devices
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of the establishment, unless federal law otherwise provides for a similar fee or tax.
2. For a nonrestricted licensee granted an operator of interactive gaming license pursuant
to the provisions of NRS 463.750(4), gross revenue received from the operation of
interactive gaming shall be attributed to the nonrestricted licensee and counted as part of
the gross revenue of the nonrestricted licensee for the purpose of computing the license fee.
3. For an affiliate of a nonrestriced licensee granted an operator of interactive gaming
license pursuant to the provisions of NRS 463.750(5), gross revenue received from the
operation of interactive gaming by the affiliate is subject to the same licensee fee provisions
of NRS 463.370 as the games and gaming devices of the affiliated nonrestricted licensee and
shall be attributed to the affiliated nonrestricted licensee and counted as part of the gross
revenue of the affiliated nonrestricted licensee for the purpose of computing the license fee,
unless federal law otherwise provides for a similar fee or tax. The operator of interactive
gaming, if receiving all or a share of the revenue from interactive gaming, is liable to the
affiliated nonrestricted licensee for the operator of interactive gaming’s proportionate
share of the license fees paid by the affiliated nonrestricted licensee pursuant to NRS
463.370.
4. For each game in which the operator of interactive gaming is not a party to the wager,
gross revenue equals all money received by the operator of interactive gaming as
compensation for conducting the game.
5. The nonrestricted licensee holding an operator of interactive gaming license or the
affiliated nonrestricted licensee holding an operator of interactive gaming license is
responsible for reporting all gross revenue derived through interactive gaming.
5A.180 Resolution of Disputes
1. In the event that an authorized player has a dispute with an operator of interactive
gaming regarding interactive gaming, the operator of interactive gaming may freeze the
disbursement of all disputed amounts until resolution of the dispute.
2. Operators of interactive gaming may establish procedures that allow for or require
informal arbitration to resolve disputes pertaining to interactive gaming that fall within the
provisions of NRS 463.362(1). Upon the completion of informal arbitration, where an
authorized player is not satisfied with the resolution of the dispute, the provisions of NRS
463.362 to 463.3668 shall apply.
3. Disputes arising between authorized players which are potentially resolved without
board involvement are ultimately the responsibility of the operator of interactive gaming.
5A.190 Records. In addition to any other record required to be maintained pursuant to this
regulation, each operator of interactive gaming shall maintain complete and accurate
records of all matters related to their interactive gaming activity, including without
limitation the following:
1. The identity of all current and prior authorized players;
2. All information used to register an authorized player;
3. A record of any changes made to an interactive gaming account;
4. A record and summary of all person-to-person contact, by telephone or
otherwise, with an authorized player;
5. All deposits and withdrawals to an interactive gaming account; and
6. A complete game history for every game played including the identification of
all authorized players who participate in a game, the date and time a game begins
and ends, the outcome of every game, the amounts wagered, and the amounts won
or lost by each authorized player.
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Operators of interactive gaming shall preserve the records required by this
regulation for at least 5 years after they are made.
5A.200 Grounds for Disciplinary Action.
1. Failure to comply with the provisions of this regulation shall be an unsuitable method of
operation and grounds for disciplinary action.
2. The commission may limit, condition, suspend, revoke or fine any license, registration,
finding of suitability or approval given or granted under this regulation on the same
grounds as it may take such action with respect to any other license, registration, finding of
suitability or approval.
5A.210 Power of Commission and Board.
1. The chairman shall have the power to issue an interlocutory stop order to an operator of
interactive gaming suspending the operation of its interactive gaming system for any cause
deemed reasonable by the chairman. The affected licensee may request that the order be
reviewed by the board and commission pursuant to Regulations 4.185 through 4.195,
inclusive.
2. An operator of interactive gaming that is the subject of an interlocutory stop order issued
by the chairman shall immediately cease the operation of its interactive gaming system until
the interlocutory stop order is lifted.
5A.220 Interactive Gaming Service Providers
1. An interactive gaming service provider that acts on behalf of an operator of interactive
gaming to perform the services of an interactive gaming service provider shall be subject to
the provisions of this regulation applicable to such services to the same extent as the
operator of interactive gaming. An operator of interactive gaming continues to have an
obligation to ensure, and remains responsible for compliance with this regulation
regardless of its use of an interactive gaming service provider.
2. A person may act as an interactive gaming service provider only if that person holds a
license specifically permitting the person to act as an interactive gaming service provider.
3. An operator of interactive gaming may only use the services of a service provider that is
licensed by the commission as an interactive gaming service provider.
4. Applications for an interactive gaming service provider license shall be made, processed,
and determined in the same manner as applications for nonrestricted gaming licenses,
using such forms as the chairman may require or approve.
5. License fees.
(a) Before the commission issues an initial license or renews a license for an
interactive gaming service provider, the interactive gaming service provider shall
pay a license fee of $1000.
(b) All interactive gaming service provider licenses shall be issued for the calendar
year beginning on January 1 and expiring on December 31. If the operation is
continuing, the fee prescribed by subsection (a) shall be due on or before December
31 of the ensuing calendar year. Regardless of the date of application or issuance of
the license, the fee charged and collected under this section is the full annual fee.
6. Applications for an interactive gaming service provider license shall be subject to the
application and investigative fees established pursuant to Regulation 4.070.
7. Any employee of an interactive gaming service provider whose duties include the
operational or supervisory control of the interactive gaming system or the games that are
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part of the interactive gaming system are subject to the provisions of NRS 463.335 and
463.337 and Regulations 5.100 through 5.109 to the same extent as gaming employees.
8. Interactive gaming service providers holding a license issued by the commission are
subject to the provisions of NRS 463.140. It shall be an unsuitable method of operation for
an interactive gaming service provider holding a license issued by the commission to deny
any board or commission member or agent, upon proper and lawful demand, access to,
inspection or disclosure of any portion or aspect of their operations.
9. An interactive gaming service provider shall be liable to the licensee on whose behalf the
services are provided for the interactive gaming service provider’s proportionate share of
the fees and taxes paid by the licensee.
5A.230 Waiver of Requirements of Regulation. Except as otherwise inconsistent with
federal or state law, the commission may waive one or more requirements of Regulation 5A
if it makes a written finding that such waiver is consistent with the state policy set forth in
NRS 463.0129.
5A.240 Scope and Effectiveness of Operator of Interactive Gaming License.
1. A license granted by the commission to be an operator of interactive gaming shall not
allow such licensee to offer interactive gaming from Nevada to individuals located in
jurisdictions outside the state of Nevada unless the commission determines:
(a) That a federal law authorizing the specific type of interactive gaming for which
the license was granted is enacted; or
(b) That the board or commission is notified by the United States Department of
Justice that it is permissible under federal law to operate the specific type of
interactive gaming for which the license was granted.
2. Upon the commission making a determination that 1(a) or (b) of this section has occurred,
an operator of interactive gaming licensee that intends to offer interactive gaming from
Nevada to individuals located in jurisdictions outside Nevada shall submit a request for
administrative approval to the chairman, on such forms as the chairman may require, to
begin such interstate interactive gaming. The chairman shall conduct a review of the
operator of interactive gaming’s operations to ensure that it is able to comply with these
regulations and all other applicable state and federal laws. The chairman may approve or
deny a request to begin interstate interactive gaming. The affected licensee may request
that a denial by the chairman to conduct interstate interactive gaming be reviewed by the
board and commission pursuant to Regulations 4.185 through 4.195, inclusive.
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REGULATION 8: TRANSFER OF OWNERSHIP; LOANS
PROPOSED AMENDMENTS TO REGULATIONS 8.130
PURPOSE: To amend Regulation 8.130 to include operators of interactive gaming and service
providers; and to take such additional action as may be necessary and proper to effectuate
these stated purposes
8.130 Transaction reports. As used in this section, “licensee” means any person to whom a
valid nonrestricted gaming license, including a license as an operator of a slot machine
route, mobile gaming system, or an inter-casino linked system, manufacturer’s, distributor’s,
or disseminator’s license, a license to engage in off-track pari-mutuel wagering, pari-mutuel
systems operator license, or a pari-mutuel wagering license, operator of interactive
gaming license, or a service provider license has been issued. The term does not
include a person licensed solely as a holder of a security or other ownership interest in, as
an officer, director or key employee of, or due to any other relationship with, a licensed
operation.
1. Any licensee that receives, accepts, or makes use of any cash, property, credit, guaranty,
benefit or any form of security loaned to, leased to, or provided for or on behalf of the
licensee or an officer, director, agent, employee or stockholder of the licensee, in a
transaction required to be reported under subsections 2 through 6, must report the
transaction to the board in the manner required by subsections 7 and 8 within 30 days after
the end of the calendar quarter in which the transaction is consummated. A transaction is
considered consummated the earlier of the contract date or the date the cash, property,
credit, guaranty, benefit or security is received.
2. Except as provided in subsections 3 and 5, each of the following transactions must be
reported to the board, if the dollar amount of the transaction or the fair market value of the
assets involved exceeds $300,000 or the average monthly payment exceeds $30,000:
(a) Leases, including leaseback transactions and capital leases.
(b) Deposits received by the licensee pursuant to an arrangement for use of space at
the licensee’s establishment.
(c) Installment purchase contracts.
(d) Property donated to the licensee.
3. Except as provided in subsection 5, each of the following transactions must
be reported to the board, if the dollar amount of the transaction exceeds $30,000:
(a) Loans, mortgages and trust deeds.
(b) Capital contributions and loans by a person who is a stockholder, partner or
proprietor of the licensee.
(c) Safekeeping deposits which:
(1) Are made by an individual beneficially owning, directly or indirectly, a
10 percent or greater interest in the licensee;rcent or greater interest in the
licensee;
(2) Are commingled with the licensee’s funds;
(3) Are left for more than 10 days; and
(4) At any time during that period, aggregate to an amount greater than 25
percent of cash in the cage.
(d) Lines of credit.
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(e) Accounts payable and accrued expenses due to unaffiliated persons where
the payment terms or actual length of payments exceed 12 months.
(f) Conversions of accounts payable, accrued expenses or other liabilities to
notes payable.
(g) Debts forgiven by a lender.
(h) Guaranties received by the licensee.
(i) Accruals of salary due to an individual directly or indirectly owning an
interest in the licensee where the accrual period exceeds 90 days.
4. Those transactions in subsections 2 and 3 which occur no more than 7 days apart from a
single source shall be considered a single transaction if they exceed
the dollar amounts specified in those subsections.
5. The following transactions need not be reported to the board regardless of
the dollar amount of the transaction, fair market value of the assets involved, or average
monthly payment:
(a) Draws against a previously reported extension of credit.
(b) Except for items specifically described in subsections 2 or 3, goods or services
which are exchanged for other goods or services of an affiliate of the licensee.
(c) Short-term cash loans which have a payback period of less than 7 days and are
provided to the licensee on a regularly recurring basis, provided the terms and
conditions of the arrangement have not changed, and provided the initial loan or
financing arrangement has been reported.
(d) Loans and other financing activities that were reviewed during an investigation
which resulted in board or commission action, provided the terms and conditions of
the arrangements have not changed.
(e) Financing of gaming devices or associated equipment installed and used during a
trial period authorized pursuant to Regulation 14.
(f) Funds received by the licensee in satisfaction of accounts or notes receivable.
(g) Purchases or leases of gaming devices and associated equipment where the
seller or lessor is a licensed manufacturer or distributor, and the financing is not
provided by a third party.
(h) Cash, property, credit, services, guaranty, benefit or any form of security loaned
to or provided for or on behalf of the licensee by a licensed affiliate, licensed
subsidiary or registered parent of the licensee. However, such financing from a
stockholder, partner, unlicensed affiliate or proprietor of the licensed operation
must be reported.
(i) Assessments for property taxes or other improvements by, or accruals for taxes
due to, a government entity.
(j) Payments of gaming winnings over time to patrons.
(k) Deposits or payments received by the licensee in conjunction with a convention
or similar event.
(l) Leases, including leaseback transactions and capital leases, where the lease term,
including any extensions or renewals, does not exceed 90 days.
(m) Financing activity that has been filed and administratively approved by the
chairman of the Gaming Control Board pursuant to Regulations 5.115, 6.125 or
22.040, or has been approved by the commission pursuant to Regulation 5.115.
6. All renewals, changes or modifications to the terms or conditions of transactions
previously reported under this section must be reported.
7. The report to the board required by this section must include the names and addresses of
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all parties to the transaction, the amount and source of the funds, property or credit
received or applied, the nature and amount of security provided by or on behalf of the
licensee, the purpose of the transaction, and any additional information the board may
require. For transactions reported pursuant to requirements of subsection 4, the report
must also identify the dates of each loan or contribution. The report must be made on a
form provided or approved by the board, accompanied by a fully executed copy of the
financing agreement, and signed by an owner or key employee (as defined by Regulation
3.110) under oath.
8. In the event a party to any transaction reportable pursuant to this regulation is a person
other than the reporting licensee or a financial institution or related subsidiary, or a
publicly traded company, the report must be accompanied by a supplemental filing which
must include that person’s federal tax identification number or social security number and
date of birth, banking references, and source of funds, and any additional information the
board may require.
9. If, after such investigation as the board deems appropriate, the commission finds that a
reported transaction is inimical to the public health, safety, morals, good order or general
welfare of the people of the State of Nevada, or would reflect, or tend to reflect, discredit
upon the State of Nevada or the gaming industry, it may order the transaction rescinded
within such time and upon such terms and conditions as it deems appropriate.
10. A bankruptcy filing by a licensee does not relieve that licensee of the reporting
requirements of this regulation.
11. The board chairman or his designee may waive one or more of the provisions of this
section or require a report of a transaction not otherwise addressed in this section or a
supplemental filing, upon a finding that the waiver, reporting requirement or supplemental
filing is consistent with the public policy of the State of Nevada as set forth in NRS
463.0129…
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Proposed Change to Regulation 14
REGULATION 14
MANUFACTURERS, DISTRIBUTORS, OPERATORS OF
INTER–CASINO LINKED SYSTEMS, GAMING
DEVICES, NEW GAMES, INTER–CASINO
LINKED SYSTEMS, ON-LINE SLOT METERING SYSTEMS, CASHLESS
WAGERING SYSTEMS AND ASSOCIATED
EQUIPMENT
PROPOSED AMENDMENTS TO REGULATIONS 14
PURPOSE: To amend Regulations 14.010, 14.020, and 14.040 and create a new
Regulation 14.024 and to include the following: to amend the definitions of “cashless
wagering system,” “chairman” and “manufacture;” to provide definitions for
“equipment associated with interactive gaming,” “interactive gaming system,”
“manufacturer of equipment associated with interactive gaming,” and “proprietary
hardware and software;” to provide that a manufacturer of equipment associated with
interactive gaming may be required to file an application for licensure; to require all
manufacturers of associated equipment to register with the board; to provide that
applications for a manufacturer or distributor license or for a finding of suitability to
be a manufacturer of equipment associated with interactive gaming shall be subject to
the application and investigative fees established pursuant to Regulation 4.070; to
amend the minimum standards for gaming devices to include that gaming devices
must display the rules of play, the amounts to be paid on winning wagers, rake-off
percentage or any fee charged to play a game, and monetary wagering limits for
games representative of live gambling games; and to take such additional action as
may be necessary and proper to effectuate these stated purposes.
Draft Date: August 1, 2011
14.010 Definitions. As used in this regulation, unless the context otherwise
requires:
1. "Assume Responsibility" means to acquire complete control over, or ownership of, a
gaming device, cashless wagering system, mobile gaming system or interactive gaming
system.
2. “Cashless wagering system” means the collective hardware, software, communications
technology, and other associated equipment used to facilitate wagering on any game or
gaming device including mobile gaming systems and interactive gaming systems with
other than chips, tokens or legal tender of the United States. The term does not include any
race and sports computerized bookmaking system that accepts pari-mutuel wagers, or any
other race and sports book systems that do not accept wagering instruments or process
electronic money transfers. This type of associated equipment is further defined in NRS
463.014. 3. “Chairman” means the chairman or other member of the state gaming control
board or his designee.
4. "Control Program" means any software, source language or executable code which affects
the result of a wager by determining win or loss. The term includes, but is not limited to,
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software, source language or executable code associated with the:
(a) Random number generation process;
(b) Mapping of random numbers to game elements displayed as part of game
outcome;
(c) Evaluation of the randomly selected game elements to determine win or loss;
(d) Payment of winning wagers;
(e) Game recall;
(f) Game accounting including the reporting of meter and log information to on-line
slot metering system;
(g) Monetary transactions conducted with associated equipment;
(h) Software verification and authentication functions which are specifically
designed and intended for use in a gaming device;
(i) Monitoring and generation of game tilts or error conditions; and
(j) Game operating systems which are specifically designed and intended for use in a
gaming device.
5. “Conversion” means a change in a gaming device from one pre-approved configuration to
another pre-approved configuration or from one approved mode of play to another
approved mode of play.
6. "Distribution" or "distribute" means:
(a) The sale, offering for sale, lease, offering for lease, licensing or other offer of any
gaming device, cashless wagering system, mobile gaming system or interactive
gaming system for use or play in Nevada; or
(b) The sale, offering for sale, lease, offering for lease or other offer of any gaming
device, cashless wagering system, mobile gaming system or interactive gaming
system from a location within Nevada.
7. “Distributor” means a person or entity that distributes any gaming device, cashless
wagering system, mobile gaming system or interactive gaming system.
8. “Distributor of associated equipment” is any person that sells, offers to sell, leases, offers
to lease, licenses, markets, offers, or otherwise offers associated equipment in Nevada for
use by licensees.
9. “Equipment associated with interactive gaming” means associated equipment as
defined within NRS 463.0136.
10. “Interactive gaming system” is a gaming device and means the collective
hardware, software, communications technology, proprietary hardware and software
used by an operator of interactive gaming to operate interactive gaming. The
components of an interactive gaming system must be located in the State of Nevada
except as otherwise permitted by the chairman or his designee.
11. “Game outcome” is the final result of the wager.
12. "Game variation" means a change or alteration in a game or gambling
game that affects the manner or mode of play of an approved game. This
includes, but is not limited to, the addition or removal of wagering opportunities or
a change in the theoretical hold percentage of the game. The term game or
gambling game is defined in NRS 463.0152.
13. "Independent contractor" means any person who:
(a) Is not an employee of a licensed manufacturer; and
(b) Pursuant to an agreement with a licensed manufacturer:
(1) Designs, develops, programs, produces or composes a control program on behalf
of the licensed manufacturer; or
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(2) Designs, develops, produces or composes software, source language or
executable code intended to be compiled into a control program by the licensed
manufacturer.
As used in this regulation “licensed manufacturer” includes any affiliate that is
owned or controlled by or under common control with the licensee.
14. “Inter-casino linked system” means an inter-casino linked system including the
collective hardware, software, communications technology and other associated equipment
used to link and monitor games or devices located at two or more licensed gaming
establishments. Systems that solely record a patron’s wagering activity among affiliated
properties are not inter-casino linked systems. This term is further defined in NRS
463.01643.
15. “Inter-casino linked system modification” means a change or alteration to an intercasino linked system made by an operator who has been previously approved by the
commission to operate that system. With regard to inter-casino linked systems that link
progressive payout schedules, the term includes, but is
not limited to:
(a) A change in a system name or theme; or
(b) A change in gaming device denomination.
16. "Manufacture" means:
(a) To manufacture, produce, program, design, control the design of, maintain a
copyright over or make modifications to a gaming device, cashless wagering system,
mobile gaming system or interactive gaming system, including
proprietary software or hardware;
(b) To direct, control or assume responsibility for the methods and processes used
to design, develop, program, assemble, produce, fabricate, compose and combine the
components and other tangible objects of any gaming device, cashless wagering
system, mobile gaming system or interactive gaming system, including
proprietary software or hardware; or
(c) To assemble, or control the assembly of, a gaming device, cashless
wagering system, mobile gaming system or interactive gaming system, including
proprietary software or hardware.
17. “Manufacturer” means a person who operates, carries on, conducts or
maintains any form of manufacture.
18. “Manufacturer of associated equipment” is any person that
manufactures, assembles, or produces any associated equipment, including
inter-casino linked systems, for use in Nevada by licensees.
19. “Manufacturer of Equipment Associated with Interactive Gaming” means any
person that manufactures, assembles, or produces any equipment associated
with interactive gaming.
20. “Mobile gaming system” or “system” means a system that allows for the conduct of
games through mobile communications devices operated solely within a public area of
the licensed gaming establishment by the use of communications technology that
allows a patron to bet or wager, and corresponding information related to the display
of the game, gaming outcomes or other similar information.
21. “Mobile gaming system modification” means any change or alteration to a mobile
gaming system made by a manufacturer from its approved configuration.
22. “Modification” means a change or alteration in a gaming device previously
approved by the commission for use or play in Nevada that affects the
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manner or mode of play of the device. The term includes a change to control or
graphics programs and, except as provided in paragraphs (d) and (e), in the
theoretical hold percentage. The term does not include:
(a) A conversion;
(b) Replacement of one component with another, pre-approved component;
(c) The rebuilding of a previously approved device with pre-approved components;
(d) A change in the theoretical hold percentage of a mechanical or electromechanical device, provided that the device as changed meets the standards of
Regulation 14.040(1); or
(e) A change in the theoretical hold percentage of an electronic device which is the
result of a top award jackpot or bonus jackpot payment which is paid directly by an
attendant and which is not accounted for by the device.
23. “On-line slot metering system” means the collective hardware, software and other
associated equipment used to monitor, accumulate, and record meter information
from gaming devices within a licensed establishment.
24. “Operator” means any person or entity holding a license to operate an inter-casino
linked system or mobile gaming system in Nevada, a person or entity holding a license
to operate a slot machine route that operates an inter-casino linked system for slot
machines only, or a person or entity holding a license to operate a nonrestricted
gaming operation that operates an inter-casino linked system of affiliates.
25. “Private residence” means a noncommercial structure used by a natural
person as a place of abode and which is not used for a commercial purpose.
26. “Proprietary hardware and software” means hardware or software
specifically designed for use in a gaming device including a mobile gaming
system and interactive gaming system.
27. “Randomness” is the observed unpredictability and absence of pattern in
a set of elements or events that have definite probabilities of occurrence.
28. "Registered independent contractor" means an independent contractor
who has registered with the board pursuant to Regulation 14.021.
29. “Theme” means a concept, subject matter and methodology of design.
14.020 License required; applications; registration of a manufacturer of associated
equipment.
1. A person may act as a manufacturer or distributor, or as an operator, only if that
person holds a license specifically permitting the person to act as a manufacturer or
distributor, or as an operator except as provided for in NRS 463.160(2).
2. Applications for manufacturer’s, distributor’s, or operator’s licenses shall be made,
processed, and determined in the same manner as applications for nonrestricted
gaming licenses, using such forms as the chairman may require or approve.
3. A manufacturer of equipment associated with interactive gaming for use or
play in Nevada may be required by the commission, upon recommendation of
the board, to file an application for licensure as a manufacturer of equipment
4. All manufacturers of associated equipment shall register with the board
using such forms as the chairman may require or approve.
14.025 Application and investigative fees. Applications for a manufacturer or
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distributor license or for a finding of suitability to be a manufacturer of equipment
associated with interactive gaming shall be subject to the application and
investigative fees established pursuant to Regulation 4.070.
***
14.040 Minimum standards for gaming devices. All gaming devices submitted for
approval:
1. Must theoretically pay out a mathematically demonstrable percentage of all amounts
wagered, which must not be less than 75 percent for each wager available for play on the
device.
(a) Gaming devices that may be affected by player skill must meet this standard
when using a method of play that will provide the greatest return to the player over
a period of continuous play.
(b) The chairman may waive the 75 percent standard if the manufacturer can
show to the chairman’s satisfaction that this requirement inhibits design of the
device or is inappropriate under the circumstances, the device theoretically pays out
at least 75 percent of all wagers made when all wagers are played equally, and the
device otherwise meets the standards of subsections 2 through 6. A waiver will be
effective when the manufacturer receives written notification from the chairman
that this standard will be waived pursuant to this paragraph. A waiver of this
standard pursuant to this paragraph is not an approval of the device.
2. Must use a random selection process to determine the game outcome of each play of a
game. The random selection process must meet 95 percent confidence limits using a
standard chi-squared test for goodness of fit.
(a) Each possible permutation or combination of game elements which produce
winning or losing game outcomes must be available for random selection at the
initiation of each play.
(b) For gaming devices that are representative of live gambling games, the
mathematical probability of a symbol or other element appearing in a game
outcome must be equal to the mathematical probability of that symbol or element
occurring in the live gambling game. For other gaming devices, the mathematical
probability of a symbol appearing in a position in any game outcome must be
constant.
(c) The selection process must not produce detectable patterns of game elements
or detectable dependency upon any previous game outcome, the amount wagered,
or upon the style or method of play.
3. Must display an accurate representation of the game outcome. After selection of the game
outcome, the gaming device must not make a variable secondary decision which affects the
result shown to the player.
4. Gaming devices connected to a common payoff schedule shall:
(a) All be of the same denomination and have equivalent odds of winning the
common payoff schedule/common award; or
(b) If of different denominations, equalize the expected value of winning the payoff
schedule/common award on the various denominations by setting the odds of
winning the payoff schedule in proportion to the amount wagered or by requiring
the same wager to win the payoff schedule/award regardless of the device’s
denomination. The method of equalizing the expected value of winning the payoff
schedule/award shall be conspicuously displayed on each device connected to the
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common payoff schedule/common award. For the purposes of this requirement,
equivalent is defined as within a 5% tolerance for expected value and no more than
a 1% tolerance on return to player or payback.
5. Must display:
(a) The rules of play and payoff schedule.;
(b) The amounts to be paid on winning wagers;
(c) Any rake-off percentage or any fee charged to play a game; and
(d) Any monetary wagering limits for games representative of live gambling
games.
6. Must not automatically alter pay tables or any function of the device based on internal
computation of the hold percentage.
7. Must meet the technical standards adopted pursuant to section 14.050. 8. Except for
devices granted a waiver pursuant to subsections 1(b), or 8, each gaming device exposed for
play in the State of Nevada by any gaming licensee, including an operator of a slot machine
route, must meet the standards and requirements set forth within subsection 1, as though
the gaming device had been submitted for approval subsequent to September 28, 1989.
9. The chairman of the board or his designee may waive the requirements of subsection 7
for a licensee exposing a gaming device to the public for play, if the licensee can
demonstrate to the chairman’s satisfaction that:
(a) After the waiver the aggregate theoretical payout for all amounts wagered on all
gaming devices exposed for play by the licensee at a single establishment meets the 75
percent standard of subsection 1, and
(b) The licensee is unable to bring the device into compliance with the requirements of
subsection 1, because of excessive cost or the unavailability of parts.
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SB218 (2011)
Senate Bill No. 218–Committee on Judiciary
AN ACT relating to gaming; authorizing the Nevada Gaming Commission to provide by
regulation for the operation of hosting centers and service providers; revising
provisions relating to the transfer of certain ownership interests in a gaming
operation; revising provisions relating to the licensing of persons who hold an
ownership interest in certain business entities which hold a gaming license;
authorizing the State Gaming Control Board to take certain actions regarding its
operations without the approval of the Commission; making various other changes
relating to the regulation of gaming; prohibiting certain actions relating to gaming;
providing a penalty; and providing other matters properly relating thereto.
Legislative Counsel’s Digest:
Under existing law, the Nevada Gaming Commission and the State Gaming Control
Board are required to administer state gaming licenses and manufacturers’, sellers’
and distributors’ licenses, and to perform various acts relating to the regulation and
control of gaming. (NRS 463.140) Section 2 of this bill authorizes the Commission to
provide by regulation for the operation and registration of hosting centers, which will
serve as centers for the operation of certain gaming systems. Section 3 of this bill
authorizes the Commission to provide by regulation for the licensing of service
providers, who will generally: (1) perform certain services on behalf of another
licensed person who conducts nonrestricted gaming operations or an establishment
licensed to operate interactive gaming; or (2) provide services or devices which
patrons of licensed establishments use to obtain cash or wagering instruments.
Existing law also provides that if the Commission approves the issuance of a license for
gaming operations at the same location, or locations if the license is for the operation
of a slot machine route, for the purposes of certain taxes or fees, the gaming license
shall be deemed transferred within 30 days following certain changes in the business
entity, and the previously licensed operation shall be deemed a continuing operation.
(NRS 463.386) Section 7 of this bill removes the requirement that certain changes in
the business entity must occur before the license may be deemed transferred, and
instead provides that if the Commission approves such an issuance of a license, the
Chair of the Board, in consultation with the Chair of the Commission, may
administratively determine that the gaming license is transferred and the newly
licensed operation is a continuing operation.
Additionally, existing law requires every limited partner of a limited partnership and
every member of a limited-liability company that holds a state gaming license to be
licensed individually. (NRS 463.569, 463.5735) Sections 8 and 9 of this bill revise this
requirement. Section 8 provides that: (1) only limited partners with more than a 5
percent ownership interest in a limited partnership must be licensed individually; and
(2) a limited partner generally must register with the Board if such a limited partner
holds a 5 percent or less ownership interest in a limited partnership and holds or
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applies for a state gaming license. Section 9 applies such requirements to members of
a limited-liability company.
–2–
Existing law further provides that it is unlawful for a person at a licensed gaming
establishment to use or possess with the intent to use a device to assist in projecting
the outcome of a game, keeping track of cards played, analyzing the probability of the
occurrence of an event relating to a game or analyzing the strategy for playing or
betting to be used in a game. (NRS 465.075) A person who performs or attempts to
perform any such actions is guilty of a category B felony. (NRS 465.088) Section 12 of
this bill describes in more detail the types of devices that are unlawful, and provides
that it is also unlawful to assist another person in using or possessing with the intent
to use any such device. Section 12 also specifies that the use of any such device is only
unlawful when such use provides an advantage to a person participating in or
operating a game.
Existing law also provides that it is unlawful for a person to perform certain actions
relating to gaming without having first procured, and thereafter maintaining, all
required gaming licenses. (NRS 463.160) A person who willfully violates, attempts to
violate, or conspires to violate such provisions of law is, with certain exceptions, guilty
of a category B felony. (NRS 463.360) Section 5.5 of this bill additionally provides that
it is unlawful for a person to operate as a cash access and wagering service provider
without having procured and maintained all required gaming licenses.
Finally, existing law authorizes the Commission to adopt regulations governing the
licensing and operation of interactive gaming and requires that any such regulations
include certain provisions. (NRS 463.750) Section 11.5 of this bill additionally
requires that any such regulations must: (1) establish the investigation fees for a
license for a service provider to perform certain actions on behalf of an establishment
licensed to operate interactive gaming; (2) provide that a person hold a license for a
service provider in order to perform such actions; (3) set forth standards for the
suitability of a person to be licensed as a service provider; and (4) set forth provisions
governing the licensing requirements for a service provider and certain fees that a
service provider may be required to pay.
Section 4 of this bill authorizes the Board to take certain actions without the approval
of the Commission with regard to: (1) certain operational activities and functions of
the Board; and (2) establishing a plan by regulation concerning certain personnel
provisions. Section 5 of this bill requires the Commission to post a notice on its
website regarding any meeting at which the adoption, amendment or repeal of a
regulation is considered, and section 6 of this bill removes the provision from existing
law which requires the Chair of the Board to present a claim to the State Board of
Examiners after an expenditure of money from the State Gaming Control Board
Revolving Account. Sections 10 and 11 of this bill revise provisions concerning
certain documents of a publicly traded corporation that holds a gaming license with
which the Commission must be provided a copy under existing law.
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Section 14 of this bill repeals provisions relating to the Account for Investigating Cash
Transactions of Gaming Licensees.
–3–
EXPLANATION – Matter in bolded italics is new; matter between brackets [omitted material] is material to be
omitted.
THE PEOPLE OF THE STATE OF NEVADA, REPRESENTED IN SENATE
AND ASSEMBLY, DO ENACT AS FOLLOWS:
Section 1. Chapter 463 of NRS is hereby amended by adding thereto the provisions set
forth as sections 1.5, 2 and 3 of this act.
Sec. 1.5. “Cash access and wagering instrument service provider” means a
provider of services or devices for use by patrons of licensed gaming
establishments to obtain cash or wagering instruments through a variety of
automated methods, including, without limitation:
Wagering instrument issuance and redemption kiosks; or
Money transfers through mobile or Internet services.
Sec. 2. 1. The Legislature finds that: (a) To protect and promote the health, safety,
morals, good
order and general welfare of the inhabitants of this State, and to carry out the
public policy declared in NRS 463.0129, it is necessary that the Board and
Commission be allowed to react to rapidly evolving technological advances while
maintaining strict regulation and control of gaming.
(b) Technological advances have evolved which allow certain parts of games,
gaming devices, cashless wagering systems and race book and sports pool
operations to be conducted at locations that are not on the premises of a licensed
gaming establishment.
2. Except as otherwise provided in subsection 3, the Commission may, with the
advice and assistance of the Board, provide by regulation for the operation and
registration of hosting centers and persons associated therewith. Such regulations
may include:
(a) Provisions relating to the operation and location of hosting centers, including,
without limitation, minimum internal and operational control standards
established by the Commission.
(b) Provisions relating to the registration of persons owning or operating a
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hosting center and any persons having a significant involvement with a hosting
center, as determined by the Commission.
(c) A provision that a person owning, operating or having a significant
involvement with a hosting center may be required by the Commission to be found
suitable to be associated with licensed gaming, including race book or sports pool
operations.
(d) Additional matters which the Commission deems necessary and appropriate to
carry out the provisions of this section and
–4–
which are consistent with the public policy of this State pursuant to NRS 463.0129.
3. The Commission may not adopt regulations pursuant to this section until the
Commission first determines that hosting centers are secure and reliable, do not
pose a threat to the integrity of gaming and are consistent with the public policy of
this State pursuant to NRS 463.0129.
4. Regulations adopted by the Commission pursuant to this section must:
(a) Define “hosting center.”
(b) Provide that the premises on which the hosting center is located is subject to
the power and authority of the Board and Commission pursuant to NRS 463.140,
as though the premises is where gaming is conducted and the hosting center is a
gaming licensee.
Sec. 3. 1. The Legislature finds that:
(a) Technological advances have evolved which allow licensed gaming
establishments to expose games, including, without limitation, system-based and
system-supported games, gaming devices, mobile gaming systems, interactive
gaming, cashless wagering systems or race books and sports pools, and to be
assisted by a service provider who provides important services to the public with
regard to the conduct and exposure of such games.
(b) To protect and promote the health, safety, morals, good order and general
welfare of the inhabitants of this State, and to carry out the public policy declared
in NRS 463.0129, it is necessary that the Board and Commission have the ability to
license service providers by maintaining strict regulation and control of the
operation of such service providers and all persons and locations associated
therewith.
2. Except as otherwise provided in subsection 3, the Commission may, with the
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advice and assistance of the Board, provide by regulation for the licensing and
operation of a service provider and all persons, locations and matters associated
therewith. Such regulations may include, without limitation:
(a) Provisions requiring the service provider to meet the qualifications for
licensing pursuant to NRS 463.170, in addition to any other qualifications
established by the Commission, and to be licensed regardless of whether the
service provider holds any other license.
(b) Criteria regarding the location from which the service provider conducts its
operations, including, without limitation,
–5–
minimum internal and operational control standards established by the
Commission.
(c) Provisions relating to the licensing of persons owning or operating a service
provider, and any persons having a significant involvement therewith, as
determined by the Commission.
(d) A provision that a person owning, operating or having significant involvement
with a service provider, as determined by the Commission, may be required by the
Commission to be found suitable to be associated with licensed gaming, including
race book or sports pool operations.
(e) Additional matters which the Commission deems necessary and appropriate to
carry out the provisions of this section and which are consistent with the public
policy of this State pursuant to NRS 463.0129, including that a service provider
must be liable to the licensee on whose behalf the services are provided for the
service provider’s proportionate share of the fees and taxes paid by the licensee.
3. The Commission may not adopt regulations pursuant to this section until the
Commission first determines that service providers are secure and reliable, do not
pose a threat to the integrity of gaming and are consistent with the public policy of
this State pursuant to NRS 463.0129.
4. Regulations adopted by the Commission pursuant to this section must provide
that the premises on which a service provider conducts its operations is subject to
the power and authority of the Board and Commission pursuant to NRS 463.140,
as though the premises is where gaming is conducted and the service provider is a
gaming licensee.
5. As used in this section:
(a) “Interactive gaming service provider” means a person who acts on behalf of an
establishment licensed to operate interactive gaming and:
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(1) Manages, administers or controls wagers that are initiated, received or made
on an interactive gaming system;
(2) Manages, administers or controls the games with which wagers that are
initiated, received or made on an interactive gaming system are associated;
(3) Maintains or operates the software or hardware of an interactive gaming
system;
(4) Provides the trademarks, trade names, service marks or similar intellectual
property under which an establishment licensed to operate interactive gaming
identifies its interactive gaming system to patrons;
–6–
(5)Provides information regarding persons to an establishment licensed to
operate interactive gaming via a database or customer list; or
(6) Provides products, services, information or assets to an establishment licensed
to operate interactive gaming and receives therefor a percentage of gaming
revenue from the establishment’s interactive gaming system.
(b) “Service provider” means a person who: (1) Acts on behalf of another licensed
person who conducts nonrestricted gaming operations, and who assists, manages,
administers or controls wagers or games, or maintains or operates the software
or hardware of games on behalf of such a licensed person, and is authorized to
share in the revenue from games without being licensed to conduct gaming at an
establishment;
(2) Is an interactive gaming service provider;
(3) Is a cash access and wagering instrument service provider; or
(4) Meets such other or additional criteria as the Commission may establish by
regulation.
463.013 As used in this chapter, unless the context otherwise requires, the words and
terms defined in NRS 463.0133 to 463.01967, inclusive, and section 1.5 of this act
have the meanings ascribed to them in those sections.
463.080 1. The Board [, with the approval of the Commission,] may:
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(a) Establish, and from time to time alter, such a plan of organization as it may deem
expedient.
(b) Acquire such furnishings, equipment, supplies, stationery, books, motor vehicles
and other things as it may deem necessary or desirable in carrying out its functions.
(c) Incur such other expenses, within the limit of money available to it, as it may deem
necessary.
2. Except as otherwise provided in this chapter, all costs of administration incurred by
the Board must be paid out on claims from the State General Fund in the same manner
as other claims against the State are paid.
3. The Board shall, within the limits of legislative appropriations or authorizations,
employ and fix the salaries of or contract for the services of such professional,
technical and operational personnel and consultants as the execution of its duties and
the operation of the Board and Commission may require.
–7–
4. The members of the Board and all the personnel of the Board, except clerical
employees and employees described in NRS 284.148, are exempt from the provisions
of chapter 284 of NRS. They are entitled to such leaves of absence as the Board
prescribes, but such leaves must not be of lesser duration than those provided for
other state employees pursuant to chapter 284 of NRS. Employees described in NRS
284.148 are subject to the limitations specified in that section.
5. Clerical employees of the Board are in the classified service but are exempt from the
provisions of chapter 284 of NRS for purposes of removal. They are entitled to receive
an annual salary which must be fixed in accordance with the pay plan adopted under
the provisions of that chapter.
6. The Board [and the Commission] shall [, by suitable regulations,] establish , and
modify as necessary, a comprehensive plan governing employment, job classifications
and performance standards, and retention or discharge of employees to assure that
termination or other adverse action is not taken against such employees except for
cause. The [regulations] plan must include provisions for hearings in personnel
matters and for review of adverse actions taken in those matters.
463.145 1. Except as otherwise provided in NRS 368A.140, the Commission shall,
pursuant to NRS 463.150, adopt, amend and repeal regulations in accordance with the
following procedures:
(a) At least 30 days before [the initial] a meeting of the Commission [and 20 days
before any subsequent meeting] at which the adoption, amendment or repeal of a
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regulation is considered, notice of the proposed action must be:
(1) [Published in such newspaper as the Commission prescribes;] Posted on the
Commission’s Internet website;
(2) Mailed to every person who has filed a request therefor with the Commission; and
(3) When the Commission deems advisable, mailed to any person whom the
Commission believes would be interested in the proposed action, and published in
such additional form and manner as the Commission prescribes.
(b) The notice of proposed adoption, amendment or repeal must include:
(1) A statement of the time, place and nature of the proceedings for adoption,
amendment or repeal;
(2) Reference to the authority under which the action is proposed; and
–8–
(3) Either the express terms or an informative summary of the proposed action.
(c) On the date and at the time and place designated in the notice, the Commission
shall afford any interested person or his or her authorized representative, or both, the
opportunity to present statements, arguments or contentions in writing, with or
without opportunity to present them orally. The Commission shall consider all
relevant matter presented to it before adopting, amending or repealing any regulation.
(d) Any interested person may file a petition with the Commission requesting the
adoption, amendment or repeal of a regulation. The petition must state, clearly and
concisely:
(1) The substance or nature of the regulation, amendment or repeal requested;
(2) The reasons for the request; and
(3) Reference to the authority of the Commission to take the action requested.
Upon receipt of the petition, the Commission shall within 45 days deny the request in
writing or schedule the matter for action pursuant to this subsection.
(e) In emergencies, the Commission may summarily adopt, amend or repeal any
regulation if at the same time it files a finding that such action is necessary for the
immediate preservation of the public peace, health, safety, morals, good order or
general welfare, together with a statement of the facts constituting the emergency.
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2. In any hearing held pursuant to this section, the Commission or its authorized
representative may administer oaths or affirmations, and may continue or postpone
the hearing from time to time and at such places as it prescribes.
3. The Commission may request the advice and assistance of the Board in carrying out
the provisions of this section.
463.160 1. Except as otherwise provided in subsection 4 and NRS 463.172, it is
unlawful for any person, either as owner, lessee or employee, whether for hire or not,
either solely or in conjunction with others:
Nevada any gambling game, gaming device, inter-casino linked system, mobile gaming
system, slot machine, race book or sports pool;
(b) To provide or maintain any information service; (c) To operate a gaming salon;
[or]
–9–
(d) To receive, directly or indirectly, any compensation or reward or any percentage
or share of the money or property played, for keeping, running or carrying on any
gambling game, slot machine, gaming device, mobile gaming system, race book or
sports pool [,] ; or
(e) To operate as a cash access and wagering instrument service provider, without having first procured, and thereafter maintaining in effect, all federal, state,
county and municipal gaming licenses as required by statute, regulation or ordinance
or by the governing board of any unincorporated town.
(a) A gaming licensee is operating an inter-casino linked system on the premises of an
affiliated licensee; or
(b) An operator of a slot machine route is operating an inter- casino linked system
consisting of slot machines only.
operated, dealt or carried on in any house or building or other premises owned by the
person, in whole or in part, by a person who is not licensed pursuant to this chapter, or
that person’s employee.
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4. The Commission may, by regulation, authorize a person to own or lease gaming
devices for the limited purpose of display or use in the person’s private residence
without procuring a state gaming license.
5. As used in this section, “affiliated licensee” has the meaning ascribed to it in NRS
463.430.
463.330 1. Costs of administration of this chapter incurred by the Commission and the
State Gaming Control Board must be paid from the State General Fund on claims
presented by the Commission and the Board, respectively, and approved and paid as
other claims against the State are paid. The Commission and the Board shall comply
with the provisions of the State Budget Act in order that legislative authorization for
budgeted expenditures may be provided.
2. In order to facilitate the confidential investigation of violations of this chapter and
the regulations adopted by the Commission pursuant to this chapter, there is hereby
created the State Gaming Control Board Revolving Account. Upon the written
– 10 –
request of the Chair of the Board, the State Controller shall draw a warrant in favor of
the Chair in the amount of $10,000, and upon presentation of the warrant to the State
Treasurer, the State Treasurer shall pay it. When the warrant is paid, the Chair shall
deposit the $10,000 in a bank or credit union of reputable standing which shall secure
the deposit with a depository bond satisfactory to the State Board of Examiners.
3. The Chair of the Board may use the Revolving Account to pay the reasonable
expenses of agents and employees of the Board engaged in confidential investigations
concerning the enforcement of this chapter, including the prepayment of expenses
where necessary, whether such expenses are incurred for investigation of known or
suspected violations. In allowing such expenses, the Chair is not limited or bound by
the provisions of NRS 281.160.
4. [After the expenditure of money from the Revolving Account, the Chair of the Board
shall present a claim to the State Board of Examiners for the amount of the
expenditure to be replaced in the Revolving Account. The claim must be allowed and
paid as are other claims against the State, but the claim must not detail the
investigation made as to the agent or employee making the investigation or the person
or persons investigated. If the State Board of Examiners is not satisfied with the claim,
the members thereof may orally examine the Chair concerning the claim.
5.] Expenditures from the Revolving Account may not exceed the amount authorized
by the Legislature in any fiscal year.
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463.386 1. If the Commission approves the issuance of a license for gaming operations
at the same location [,] that is currently licensed, or locations that are currently
licensed if the license is for the operation of a slot machine route, [within 30 days
following a change described in subsection 2,] the Chair of the Board, in consultation
with the Chair of the Commission, may administratively determine that, for the
purposes of NRS 463.370 and 463.373 to 463.3855, inclusive, the gaming license shall
be deemed transferred , [and] the previously licensed operation shall be deemed a
continuing operation [.] and credit must be granted for prepaid license fees, if the
Chair of the Board makes a written finding that such determination is consistent
with the public policy of this State pursuant to NRS 463.0129.
2. [Credit must be granted for prepaid license fees as described in subsection 1 if:
(a) The securities of a corporate gaming licensee are or become publicly held or
publicly traded and the gaming operations of that
– 11 –
corporation are transferred to a wholly owned subsidiary corporation;
(b) A corporate gaming licensee is merged with another corporation which is the
surviving entity and at least 80 percent of the surviving entity is owned by
shareholders of the former licensee;
(c) A corporate gaming licensee is dissolved, and the parent corporation of the
dissolved corporation or a subsidiary corporation of the parent corporation, at least
80 percent of which is owned by the parent corporation, becomes the gaming licensee;
(d) A corporate gaming licensee or a gaming licensee which is a partnership or limited
partnership is reorganized pursuant to a plan of reorganization approved by the
Commission, and a limited partnership or limited-liability company is the surviving
entity;
(e) The assets of a gaming licensee who is a sole proprietorship are transferred to:
(1) A corporation and at least 80 percent of the stock of the corporation is held by the
former sole proprietor; or
(2) A limited-liability company and at least 80 percent of the interests in the limitedliability company are held by the former sole proprietor;
(f) A corporate gaming licensee is dissolved and the assets of the gaming
establishment are transferred to:
(1) A sole proprietorship in which the sole proprietor owned at least 80 percent of the
stock of the former corporation; or
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(2) A limited-liability company in which at least 80 percent of the interests are owned
by a person who owned at least 80 percent of the stock of the former corporation;
(g) A licensed gaming partnership or limited partnership is dissolved and the assets of
the gaming establishment are transferred to a sole proprietorship in which the sole
proprietor owned at least 80 percent of the former partnership or limited partnership
interests;
(h) The assets of a gaming licensee who is a sole proprietorship are transferred to a
partnership or limited partnership in which at least 80 percent of the ownership of the
partnership or limited partnership interests are held by the former sole proprietor;
(i) A licensed gaming partnership, limited partnership or limited-liability company is
dissolved and the assets of the gaming establishment are transferred to a corporation,
at least 80 percent of the stock of which is held by persons who held interests in the
former partnership, limited partnership or limited-liability company;
(j) A licensed gaming partnership or limited partnership is dissolved or reorganized
and the assets of the gaming establishment are transferred to a partnership, limited
partnership or limited-
– 12 –
liability company, at least 80 percent of the ownership of which is held by the former
partnership interests; or
(k) A trustee, receiver, assignee for the benefit of a creditor or a fiduciary is approved
to continue the operation of a licensed establishment and the Commission deems the
operation to continue pursuant to the existing license of the establishment.
3.] The Chair of the Board may refer a request for administrative determination
pursuant to this section to the Board and the Commission for consideration, or
may deny the request for any reasonable cause. A denial may be submitted for
review by the Board and the Commission in the manner set forth by the
regulations adopted by the Commission which pertain to the review of
administrative approval decisions.
3. Except as otherwise provided in this section, no credit or refund of fees or taxes may
be made because a gaming establishment ceases operation.
4. The Commission may, with the advice and assistance of the Board, adopt
regulations consistent with the policy, objects and purposes of this chapter as it
may deem necessary to carry out the provisions of this section.
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463.569 1. Every general partner of, and every limited partner [of] with more than a
5 percent ownership interest in, a limited partnership which holds a state gaming
license must be licensed individually, according to the provisions of this chapter, and if,
in the judgment of the Commission, the public interest will be served by requiring any
other limited partners or any or all of the limited partnership’s lenders, holders of
evidence of indebtedness, underwriters, key executives, agents or employees to be
licensed, the limited partnership shall require those persons to apply for a license in
accordance with the laws and requirements in effect at the time the Commission
requires the licensing. Publicly traded corporations which are limited partners of
limited partnerships are not required to be licensed, but shall comply with NRS
463.635 to 463.645, inclusive. A person who is required to be licensed by this section
as a general or limited partner shall not receive that position until the person secures
the required approval of the Commission. A person who is required to be licensed
pursuant to a decision of the Commission shall apply for a license within 30 days after
the Commission requests the person to do so.
2. All limited partners holding a 5 percent or less ownership interest in a limited
partnership, other than a publicly traded limited partnership, which hold or apply
for a state gaming
– 13 –
license, must register in that capacity with the Board and submit to the Board’s
jurisdiction. Such registration must be made on forms prescribed by the Chair of
the Board. The Chair of the Board may require a registrant to apply for licensure
at any time in the Chair’s discretion. A person who is required to be registered by
this section shall apply for registration within 30 days after the person becomes a
limited partner holding a 5 percent or less ownership interest in a limited
partnership.
3. The Commission may, with the advice and assistance of the Board, adopt such
regulations as it deems necessary to carry out the provisions of subsection 2.
463.5735 1. Every member [,] and transferee of a member’s interest with more than
a 5 percent ownership interest in a limited- liability company, and every director and
manager of a limited- liability company which holds or applies for a state gaming
license , must be licensed individually [,] according to the provisions of this chapter.
2. All members holding a 5 percent or less ownership interest in a limited-liability
company, other than a publicly traded limited- liability company, which hold or
apply for a state gaming license, must register in that capacity with the Board and
submit to the Board’s jurisdiction. Such registration must be made on forms
prescribed by the Chair of the Board. The Chair of the Board may require a
registrant to apply for licensure at any time in the Chair’s discretion. A person who
is required to be registered by this section shall apply for registration within 30
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days after the person becomes a member holding a 5 percent or less ownership
interest in a limited-liability company.
3. If, in the judgment of the Commission, the public interest will be served by requiring
any members with a 5 percent or less ownership interest in a limited-liability
company, or any of the limited-liability company’s lenders, holders of evidence of
indebtedness, underwriters, key executives, agents or employees to be licensed:
(a) The limited-liability company shall require those persons to apply for a license in
accordance with the laws and requirements in effect at the time the Commission
requires the licensing; and
(b) Those persons shall apply for a license within 30 days after being requested to do
so by the Commission.
[3.] 4. A publicly traded corporation which is a member of a limited-liability company
is not required to be licensed, but shall comply with NRS 463.635 to 463.645, inclusive.
– 14 –
[4.] 5. No person may become a member or a transferee of a member’s interest in a
limited-liability company which holds a license until the person secures the required
approval of the Commission.
[5.] 6. A director or manager of a limited-liability company shall apply for a license
within 30 days after assuming office.
7. The Commission may, with the advice and assistance of the Board, adopt such
regulations as it deems necessary to carry out the provisions of subsection 2.
463.639 1. Except as otherwise provided in subsection 2, after a publicly traded
corporation has registered pursuant to this chapter, and while the publicly traded
corporation or any of its affiliated or intermediary companies holds a gaming license,
the publicly traded corporation shall:
(a) Report promptly to the Commission in writing any change in its officers, directors
or employees who are actively and directly engaged in the administration or
supervision of the gaming activities of the corporation or any of its affiliated or
intermediary companies.
(b) Each year furnish to the Commission a profit and loss statement and a balance
sheet of the publicly traded corporation as of the end of the year, and, upon request of
the Commission therefor, a copy of the publicly traded corporation’s federal income
tax return within 30 days after the return is filed with the Federal Government. All
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profit and loss statements and balance sheets must be submitted within 120 days after
the close of the fiscal year to which they relate, and may be those filed by the publicly
traded corporation with or furnished by it to the Securities and Exchange Commission.
(c) [Mail] Upon request of the Chair of the Board, mail to the Commission a copy of
any statement, or amendment thereto, received from a stockholder or group of
stockholders pursuant to section 13(d) of the Securities Exchange Act of 1934, as
amended, within 10 days after receiving the statement or amendment thereto, and
report promptly to the Commission in writing any changes in ownership of record of
its equity securities which indicate that any person has become the owner of record of
more than 10 percent of its outstanding equity securities of any class.
(d) Upon request of the [Commission,] Chair of the Board, furnish to [it] the
Commission a copy of any document filed by the publicly traded corporation with the
Securities and Exchange Commission or with any national or regional securities
exchange, including documents considered to be confidential in nature, or any
– 15 –
document furnished by it to any of its equity security holders of any class.
2. A publicly traded corporation which was created under the laws of a foreign country
shall, instead of complying with subsection 1:
(a) Each year furnish to the Commission a profit and loss statement and a balance
sheet of the publicly traded corporation as of the end of the year, and, upon request of
the Commission therefor, a copy of the publicly traded corporation’s federal income
tax return within 30 days after the return is filed with the Federal Government. All
profit and loss statements and balance sheets must be submitted within 120 days after
the close of the fiscal year to which they relate, and may be those filed by the publicly
traded corporation with or furnished by it to the foreign governmental agency that
regulates the sale of its securities.
(b) [Mail] Upon request of the Chair of the Board, mail to the Commission a copy of
any statement, or amendment thereto, received from a stockholder or group of
stockholders pursuant to law, within 10 days after receiving the statement or
amendment thereto, and report promptly to the Commission in writing any changes in
ownership of record of its equity securities which indicate that any person has become
the owner of record of more than 10 percent of its outstanding equity securities of any
class.
(c) Upon request of the [Commission,] Chair of the Board, furnish to [it] the
Commission a copy of any document filed by the publicly traded corporation with the
foreign governmental agency that regulates the sale of its securities or with any
national or regional securities exchange, including documents considered to be
confidential in nature, or any document furnished by it to any of its equity security
holders of any class.
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Sec. 11. NRS 463.643 is hereby amended to read as follows: 463.643 1. Each person
who acquires, directly or indirectly: (a) Beneficial ownership of any voting security; or
(b) Beneficial or record ownership of any nonvoting security,
in a publicly traded corporation which is registered with the Commission may be
required to be found suitable if the Commission has reason to believe that the person’s
acquisition of that ownership would otherwise be inconsistent with the declared
policy of this state.
2. Each person who acquires, directly or indirectly, beneficial or record ownership of
any debt security in a publicly traded corporation which is registered with the
Commission may be required to be found suitable if the Commission has reason to
– 16 –
believe that the person’s acquisition of the debt security would otherwise be
inconsistent with the declared policy of this state.
3. Each person who, individually or in association with others, acquires, directly or
indirectly, beneficial ownership of more than 5 percent of any class of voting securities
of a publicly traded corporation registered with the Nevada Gaming Commission, and
who is required to report, or voluntarily reports, the acquisition to the Securities and
Exchange Commission pursuant to section 13(d)(1), 13(g) or 16(a) of the Securities
Exchange Act of 1934, as amended, 15 U.S.C. §§ 78m(d)(1), 78m(g) and 78p(a),
respectively, shall , [file a copy of that report, and any amendments thereto, with the
Nevada Gaming Commission] within 10 days after filing [that] the report and any
amendment thereto with the Securities and Exchange Commission [.] , notify the
Nevada Gaming Commission in the manner prescribed by the Chair of the Board
that the report has been filed with the Securities and Exchange Commission.
4. Each person who, individually or in association with others, acquires, directly or
indirectly, the beneficial ownership of more than 10 percent of any class of voting
securities of a publicly traded corporation registered with the Commission, or who is
required to report, or voluntarily reports, such acquisition pursuant to section
13(d)(1), 13(g) or 16(a) of the Securities Exchange Act of 1934, as amended, 15 U.S.C.
§§ 78m(d)(1), 78m(g) and 78p(a), respectively, shall apply to the Commission for a
finding of suitability within 30 days after the Chair of the Board mails the written
notice.
5. A person who acquires, directly or indirectly: (a) Beneficial ownership of any voting
security; or (b) Beneficial or record ownership of any nonvoting security or
debt security, in a publicly traded corporation created under the laws of a foreign
country which is registered with the Commission shall file such reports and is subject
- 282 -
to such a finding of suitability as the Commission may prescribe.
6. Any person required by the Commission or by this section to be found suitable shall:
(a) Except as otherwise required in subsection 4, apply for a finding of suitability
within 30 days after the Commission requests that the person do so; and
(b) Together with the application, deposit with the Board a sum of money which, in the
opinion of the Board, will be adequate to pay the anticipated costs and charges
incurred in the investigation and processing of the application, and deposit such
additional sums as are required by the Board to pay final costs and charges.
– 17 –
7. Any person required by the Commission or this section to be found suitable who is
found unsuitable by the Commission shall not hold directly or indirectly the:
(a) Beneficial ownership of any voting security; or
(b) Beneficial or record ownership of any nonvoting security or debt security, of a
publicly traded corporation which is registered with the Commission beyond the time
prescribed by the Commission.
8. The violation of subsection 6 or 7 is a gross misdemeanor.
9. As used in this section, “debt security” means any instrument generally recognized
as a corporate security representing money owed and reflected as debt on the
financial statement of a publicly traded corporation, including, but not limited to,
bonds, notes and debentures.
463.750 1. Except as otherwise provided in subsections 2 and 3, the Commission may,
with the advice and assistance of the Board, adopt regulations governing the licensing
and operation of interactive gaming.
2. The Commission may not adopt regulations governing the licensing and operation of
interactive gaming until the Commission first determines that:
assurance that players will be of lawful age and communicating only from jurisdictions
where it is lawful to make such communications; and
- 283 -
3. The regulations adopted by the Commission pursuant to this section must:
(a) Establish the investigation fees for: (1) A license to operate interactive gaming; (2) A license for a manufacturer of interactive gaming
systems; [and] (3) A license for a manufacturer of equipment associated
with interactive gaming [.] ; and (4) A license for a service provider to perform the
actions
described in paragraph (a) of subsection 5 of section 3 of this act.
(b) Provide that: (1) A person must hold a license for a manufacturer of
interactive gaming systems to supply or provide any interactive
– 18 –
gaming system, including, without limitation, any piece of proprietary software or
hardware; [and]
(2) A person may be required by the Commission to hold a license for a manufacturer
of equipment associated with interactive gaming [.] ; and
(3) A person must hold a license for a service provider to perform the actions
described in paragraph (a) of subsection 5 of section 3 of this act.
(c) Set forth standards for the suitability of a person to be licensed as a manufacturer
of interactive gaming systems , [or] manufacturer of equipment associated with
interactive gaming or a service provider as described in paragraph (b) of
subsection 5 of section 3 of this act that are as stringent as the standards for a
nonrestricted license.
(d) Set forth provisions governing: (1) The initial fee for a license for a service
provider as
described in paragraph (b) of subsection 5 of section 3 of this act. (2) The fee for
the renewal of such a license for such a
service provider and any renewal requirements for such a license. (3) Any portion
of the license fee paid by a person licensed to operate interactive gaming,
pursuant to subsection 1 of NRS 463.770, for which a service provider may be
liable to the person
- 284 -
licensed to operate interactive gaming. (e) Provide that gross revenue received by
an establishment
from the operation of interactive gaming is subject to the same license fee provisions
of NRS 463.370 as the games and gaming devices of the establishment.
[(e)] (f) Set forth standards for the location and security of the computer system and
for approval of hardware and software used in connection with interactive gaming.
[(f)] (g) Define “equipment associated with interactive gaming,” “interactive gaming
system,” “manufacturer of equipment associated with interactive gaming,”
“manufacturer of interactive gaming systems,” “operate interactive gaming” and
“proprietary hardware and software” as the terms are used in this chapter.
4. Except as otherwise provided in subsection 5, the Commission shall not approve a
license for an establishment to operate interactive gaming unless:
(a) In a county whose population is 400,000 or more, the establishment is a resort
hotel that holds a nonrestricted license to operate games and gaming devices.
establishment is a resort hotel that holds a
– 19 –
nonrestricted license to operate games and gaming devices or the establishment:
(1) Holds a nonrestricted license for the operation of games and gaming devices;
(2) Has more than 120 rooms available for sleeping accommodations in the same
county;
(3) Has at least one bar with permanent seating capacity for more than 30 patrons that
serves alcoholic beverages sold by the drink for consumption on the premises;
(4) Has at least one restaurant with permanent seating capacity for more than 60
patrons that is open to the public 24 hours each day and 7 days each week; and
(5) Has a gaming area that is at least 18,000 square feet in area with at least 1,600 slot
machines, 40 table games, and a sports book and race pool.
(c) In all other counties, the establishment is a resort hotel that holds a nonrestricted
license to operate games and gaming devices or the establishment:
(1) Has held a nonrestricted license for the operation of games and gaming devices for
at least 5 years before the date of its application for a license to operate interactive
- 285 -
gaming;
(2) Meets the definition of group 1 licensee as set forth in the regulations of the
Commission on the date of its application for a license to operate interactive gaming;
and
(3) Operates either: (I) More than 50 rooms for sleeping accommodations in
connection therewith; or (II) More than 50 gaming devices in connection therewith. 5.
The Commission may: (a) Issue a license to operate interactive gaming to an affiliate
of an establishment if: (1) The establishment satisfies the applicable requirements set
forth in subsection 4; and (2) The affiliate is located in the same county as the
establishment; and (b) Require an affiliate that receives a license pursuant to this
subsection to comply with any applicable provision of this chapter. 6. It is unlawful for
any person, either as owner, lessee or employee, whether for hire or not, either solely
or in conjunction with others, to operate interactive gaming: (a) Until the Commission
adopts regulations pursuant to this section; and
– 20 –
(b) Unless the person first procures, and thereafter maintains in effect, all appropriate
licenses as required by the regulations adopted by the Commission pursuant to this
section.
$50,000, or both.
465.075 1. It is unlawful for any person [at a licensed gaming establishment] to use,
[or] possess with the intent to use [,] or assist another person in using or possessing
with the intent to use any computerized, electronic, electrical or mechanical device
[to assist:
1. In projecting] which is designed, constructed, altered or programmed to obtain
an advantage at playing any game in a licensed gaming establishment, including,
without limitation, a device that:
(a) Projects the outcome of the game; [2. In keeping] (b) Keeps track of [the] cards
played [; 3. In analyzing] or cards prepared for play; (c) Analyzes the probability of
the occurrence of an event
relating to [the] a game; or [4. In analyzing] (d) Analyzes the strategy for playing or
betting to be used in the
- 286 -
game, except as may be made available as part of an approved game or otherwise
permitted by the Commission.
2. As used in this section, “advantage” means a benefit obtained by one or more
participants in a game through information or knowledge that is not made
available as part of the game as approved by the Board or Commission.
Sec. 13. Sec. 14. Sec. 15.
- 287 -

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