The legality under federal statutes of accepting bets/ wagers from or providing wagering / betting opportunities to US citizens in connection with gambling on the Internet is far from clear.

There are a number of federal statues that have potential application to online wagering Prominent ones are the Wire Act, the illegal Gambling Business Act, the Travel Act, and the Wagering Paraphernalia Act. Only the Wire Act defines illegal gambling. The others rely on there having been a violation of state gambling law. However, the text of the Wire Act is ambiguous as to whether it outlaws all forms of gambling or only applies to sporting events or contests. Whilst the US Department of Justice takes the position that it applies to all online gambling, the only federal appeals court (the Fifth Circuit court of Appeals) to address the issue of the reach of the Wire Act concluded that it was restricted to sports wagering.

      There is an exception to the Wire Act’s ban on online sports wagering. The Interstate Horse racing Act (“IHA”) provides an exception for wagering on horse races. The IHA delegates to each state the responsibility for determining whether or not off-track horse race wagering should be legal within state borders and ensures that the state will cooperate with each other “in the acceptance of legal interstate wagers. ” If online gambling is illegal within a state, it could not be legal under the IHA for an online operator to accept interstate off-track wagers from that state’s citizens. For example, currently it would likely be deemed illegal to accept bets from citizens of Utah or Hawaii because those states currently prohibit all forms of gambling. Also, it would also likely to be deemed illegal to accept wagers from citizens of states that do not allow wagering on horse races in-state or those that have taken action to prohibit citizens form placing interstate wagers. For example, Nevada law prohibits out-of-state entities from accepting wagers from Nevada residents.

      It is the IHA  that has caused the US its trouble with the World Trade Organization (“WTO”). Antigua and Barbuda   (“Antigua ”) filed a complaint with the WTO, claiming that certain US laws, including the Wire Act, effectively prohibited the cross-border supply of gambling and betting services to consumers in the US in contravention of GATS. The US asserted, among other things, that the prohibition of gambling and betting services was authorized by a general exception GATS allowing the adoption   of measures necessary to protect public morals or maintain public order, it also concluded that the US could not avail itself of that exception under which online wagering on horse racing could be done. The WTO gave the US until 6 April 2006 to come into compliance.

      As of the date of this article’s submission, the US Congress has not taken any legislative action that would bring the US into compliance. That does not, however, mean that there will not be legislation introduced that would bring the US into compliance. One Widely reported piece of proposed legislation – titled the “Internet Gambling Prohibition Act ”– would make all online gambling in the US illegal, in effect repealing the IHA. If enacted as introduced, this proposed legislation would bring the US into compliance with the WTO but out-of-step with the United Kingdom(UK) and other more liberal regimes.

European Approach

In a manner reminiscent of the US approach, there is currently no specific European wide regulation of gambling. However, there is European legislation adopt in a country of origin approach, which does, at first sight, allow online operators based in jurisdictions where their activities are legal to offer them in other European countries. For example, under the Freedom of Establishment (Article 43) and Freedom to Provide Services (Article 49) provisions of the € Treaty, and business in Europe is able to offer services and carry on economic activity in a stable and continuous way in one or more member States, so longs as they are established in at least one  of those countries.

      Fortunately or unfortunately, depending on the side of the fence you are on, certain countries have relied on exemptions in the € Treaty to enable a “country of destination ” approach to protect their own interests.
      In Schindler, Läärä and Zenatti the European Court of Justice (ECJ) held that national restrictions might be justified by the special nature and features of the services or by overriding public interest considerations. For example, in Zenatti, the ECJ decreed that it is permissible to restrict the provision of cross-border betting services on social policy grounds where that restriction is necessary to counter the services “harmful moreal and financial effects ”. The caveat being that the restriction must be proportional to the aim that is to be achieved and must not go beyond what is necessary to achieve that object.
      French law in this area has been developed around four old statutes, interpreted by the courts in a way to restrict overseas operators targeting the French public. For example the state monopoly. Pari Mutuel Urbain successfully won its case against a Maltese bookmaker. Zeturf, which was offering bets to French citizens on French horse racing.
      However, at a European level, there is jurisprudence seeking to enforce Articles 43 and 49 of the € Treaty in the context of online gaming. In the celebrated Gambelli case, the ECJ held that national legislation restricting the collection, taking and booking of bets on sporting events by overseas operators – in this case from the UK – could be an infringement of those Articles of the € treaty.

Ultimately, however, embracing the country of origin principle has been limited. In Gambelli, the ECJ recognized the principle of necessity and proportionality and referred the case back to the national courts in Italy. It stated that the national court was the competent authority to decide whether national legislation, seemingly in breach of the EC Treaty, could be justified and considered proportionate. The Italian Supreme Court has since ruled against the ECJ’s Gambelli decision in Bruno Corsi. Indeed, Italy has also recently passed the Italian Internet gambling Service Provider to allow a connection to an offshore gaming site.
      The trend to national, rather than European, control has been bolstered by the recent exclusion of gambling from the new European Services Directive, a directive proposed to eliminate the obstacles to freedom of establishment and movement for services and services providers.

      Notwithstanding this, future pan-European regulation is on the horizon with the Swiss Institute of Comparative Law’s current analysis of the various existing laws regulating gaming activities across the EU. The Institute was tasked to do this by the European Commission in February 2005. Ina presentation submitted at the lackpot Conference in Warsaw in November 2005, Josef Skala of the Institute  suggested that certain Member States may be disguising fiscal objectives in attempting to impose restrictions, and that national courts may be failing to make genuine assessments of proportionality. The Institute’s draft report is expected to be published very soon (mid-April 2006). Interestingly, this almost coincides with the WTO ruling compliance deadline.