Recently Senators Jon Kyl (R-AZ) and Harry Reid (D-NV) wrote a letter to U.S. Attorney General Eric Holder chastising the government for allowing online gambling sites to operate unimpeded for so many years and demanding the federal government do something to stop intrastate gambling in its tracks. The letter caught many gambling proponents by surprise and left one wondering what Harry Reid was up to. That type of language from Kyl, who has been fighting online gambling for a dozen years, was not surprising but Harry Reid was one of the champions of gambling and for the longest time seemed to support any gambling expansion. Reid did indicate in the past that he wasn’t in favour of expanding online gambling but when the American Gaming Association and Caesars both made it clear they wanted a federal online gambling bill, Reid changed his tune. In fact Reid tried to push through legislation that would legalize online poker at the end of December in the lame duck session. So the question that has to be asked is what exactly are these 2 up to and how did they form such an unlikely coalition?
Perhaps some of that can be answered by a comment Kyl made on his website in April.
"Efforts to carve out an exception for games like poker, which many believe is a game of skill, may be considered later this year. Until I have the chance to review them, I cannot make a judgment about their merits; but I will consider them carefully as long as they leave in place the broader proscriptions against online betting."
The language of that paragraph while far from a resounding support of online gambling was still different from his previous comments which were essentially 'there’s no way in hell I’ll support online gambling in any form.'
The most likely reason for the coalition between the two is that they’ve found a common enemy that both loathe more than a federal poker bill; and that enemy is the states. When Kyl was fighting against online gambling all these years his biggest opponents were gambling websites and pro gambling proponents like Barney Frank. Kyl just assumed that the states were a non-issue because they were barred from offering the product under the wire act and other federal statutes. So whenever states suggested they were considering offering online gambling Kyl and others just pointed to the wire act, travel act and other statutes which no state was prepared to challenge in court.
But while Kyl has stated many times that he despises gambling he also realized that he couldn’t upset the Native casinos in the state of Arizona, who rely on the revenue from land based gambling. So Kyl was quite careful to separate land based gambling from internet betting in his communication. Similarly, Reid has local casino interests to protect and while he admitted he doesn’t like online gambling he also wanted to ensure that no legislation he passes would interfere with their opportunities to grow. Therefore, all correspondence from Kyl and Reid until 2006 focused strictly on the evils of online gambling.
Then in 2006 came the UIGEA. The law, which Kyl and other gambling opponents thought would spell the end of any internet gambling considerations in the U.S. instead worked against them. The UIGEA indeed made it illegal for banks and other processors to accept payments from offshore gambling establishments and thus effectively made it illegal for offshore companies to try and use U.S. based companies to process gambling transactions, but it also carved out an exemption for online gambling in the U.S. provided it was intrastate. There was really nothing in the other federal laws that prohibited intrastate wagering but the UIGEA specifically allowed for it. In 2006 no states except California had any interest in online poker, but with the downturn in the economy since 2006 and with so many states desperate for revenue, a large number have made moves to look into online poker and other forms of gambling to raise money, as is permitted under the UIGEA. To date New Jersey, California, Iowa, Florida and Nevada have attempted to pass bills to legalize intrastate online poker and apparently several other states are considering it as well.
Needless to say, this new interest by the states has put both Reid and Kyl in a precarious situation. If they do nothing then intrastate poker rooms and possibly online casinos would be popping up throughout the U.S. and under the commerce clause of the constitution if an activity is legal in 2 states then it is automatically legal between the states. Hence if California, Iowa New Jersey, Nevada and Florida all had intrastate poker then they would also be able to play with each other. This is exactly what Kyl and Reid fear. Reid clearly wants any expansion of gambling to involve Nevada based casinos and particularly Caesars which has been fighting to have a federal law that legalizes interstate gambling, and Kyl wants to make sure that if Arizona ever follows the lead of other states that it won’t impede the Native interests. Moreover, since Kyl is preparing to retire after this term he doesn’t want a failed legacy that sees online gambling popping up everywhere in the U.S. once he leaves office.
With that in mind, Kyl and Reid almost certainly decided to nip the issue in the bud by working together and offering up the possibility of a federal law that would legalize the activity but would put stringent conditions in place. They want to make sure that the gambling is conducted in a way that gives the feds a share of the revenue and they want to make sure online poker is being run by Caesars or other companies which receive the “federal seal of approval” and not the state run lotteries or worse yet companies like Party Poker or Betfair, which both California and New Jersey have been hinting at. Undoubtedly, Kyl realizes he can’t win this battle at this point and his best option is just to limit the damage.
As for Reid, he clearly realizes his future success as a senator wrests with his ability to provide the federal law that Caesars, the AGA and other Nevada companies have been pushing for. He likely realizes he won’t be able to accomplish this alone and needs the Republicans to come aboard and support his motion. And by getting Kyl’s blessing on the legislation it’s almost certain that even the harshest opponents of online gambling will give it a second look.
So here is the full text of the letter to Holder with the likely true meaning in italics.
As you know, several weeks ago, the U.S. Attorney for the Southern District of New York indicted various individuals associated with online poker sites for violations of various laws. Additional indictments were unveiled in Baltimore at the end of May.
These indictments came after many years in which the entities operated Internet poker websites to Americans in an open and notorious way with apparently no repercussions from law enforcement. Leading up to the indictments, this lack of activity by law enforcement led to a significant and growing perception that operating Internet poker and other Internet gambling did not violate US laws, or at least that the Department of Justice thought that the case was uncertain enough that it chose not to pursue enforcement actions. In turn, this perception allowed this activity to spread substantially, so that at least 1,700 foreign sites continue to offer Internet gambling to US players. We think it is important that the Department of Justice pursue aggressively and consistently those offering illegal Internet gambling in the United States.
True Meaning: Our campaign to convince Americans that betting online was against the law didn’t work. They realized that the laws only applied to those in the gambling business and continued to wager anyways. The UIGEA has been totally ineffective and Americans continue to successfully fund and withdraw from offshore websites. We thus had no option but to violate International agreements and take the domain names of Full Tilt, PokerStars, Cereus, Bookmaker and others to try and cut the websites off at their knees. We hope that you will spare no expense to continue to violate the WTO agreements and take the domain names of other sites before the move to a domain name outside of VeriSign’s jurisdiction.
In addition, we have two further concerns: the spread of efforts to legalize intra-state Internet gambling and the spread of efforts to offer such intra-state Internet gambling through state-sponsored lotteries.
We believe that the Department of Justice’s longstanding position has been that all forms of Internet gambling are illegal — including intra-state Internet gambling, because activity over the Internet inherently crosses state lines, implicating federal anti-gambling laws such as the Wire Act. Yet efforts are underway in about a dozen states to legalize some form of intra-state Internet gambling. In many cases, Internet gambling advocates in those states cite the silence of the Department of Justice in the face of these efforts as acquiescence. In fact, we have heard that at a major conference in May, several officials from various state lotteries boasted that they have obtained the Department of Justice’s effective consent by writing letters of their plans that stated that if no objection was received they would proceed with their Internet gambling plans — and no objection has been received despite many months or years.
True Meaning: The States are planning to use the rights legally afforded them under the UIGEA. This is unacceptable. We have to continue to bully the states and try to convince them of the nonsensical notion that intrastate wagering is interstate in nature if the wagering is done over the internet. We also must try and convince them that the wire act is applicable even though it clearly is irrelevant to intrastate gambling. It also seems that the DoJ under your administration isn’t falling in step with the DoJ under the former Bush regime and that many current DoJ staff are actually trying to uphold the law and work with the states to create a legalized intrastate poker regime rather than threatening the states at every chance and scaring them away from their plans.
This is troubling. We respectfully request that you reiterate the Department’s longstanding position that federal law prohibits gambling over the Internet, including intra-state gambling (e.g. lotteries). Conversely, if for some reason the Department is reconsidering its longstanding position, then we respectfully request that you consult with Congress before finalizing a new position that would open the floodgates to Internet gambling.
True meaning: This is troubling and must stop now. Your agents must toe the old party line at least until such time we can introduce legislation that stops the states from using companies like Betfair or Party Poker and instead use only companies that Congress approves of. If you don’t do so our intimidation methods will backfire.
Finally, we would like to work with you to strengthen the penalties for those who violate the law and to see what modifications would be helpful to the Department to enhance its ability to fight Internet gambling.
True meaning: If all else fails you’ll have to come up with some new ridiculous arguments and charges to arrest people who are operating legally. We’d be happy to help you drum up those charges.
Contact Hartley via email at Hartley[at]osga[dot]com.
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