When Is Gambling a Federal Offense?
Not all gambling is illegal under federal law. There are casinos, slot machines, and horse races, all forms of gambling, that are carried out legally. In fact, in the United States gambling is a multi-million dollar industry. The presence of legal gambling across the country is only growing.
Yet, these legal forms of gambling and gaming are heavily regulated and licensed. Unintentionally (and purposefully), people break the regulations around gambling every day. Illegal forms of gambling, such as underground poker tournaments, unregistered websites, and bookies, are an industry all their own – and drawing the attention of federal law enforcement and prosecutors.
What Is Illegal Gambling?
Federal law closely regulates the businesses and operations allowed to accept bets and facilitate gaming. Illegal gambling businesses fall outside these regulations. According to federal law, an illegal gambling business is:
- Any gambling business that violates a state or federal law,
- Involves five of more people, in any capacity, whether taking bets, making bets, managing, or financing, and
- Has been in operation for over 30 consecutive days or had gross revenue of $2,000 or more in a single day.
The definition of illegal gambling is also in flux. A federal law that made it illegal to bet on the outcome of sporting events was struck down by the Supreme Court. Opening the door for new businesses and business models to enter the market of sports betting. State law will ultimately determine the parameters of sports betting in a specific location.
Gambling on the Internet
The federal laws in the United States (see below for specific statutes and federal acts) make all forms of online gambling illegal. Any business that operates through the Internet to take bets, run poker tournaments, or operate an online casino is at risk for federal prosecution.
Federal Laws on Illegal Gambling
The federal law on illegal gambling and gaming was passed in 1955, but the rise in online and sports gambling has implicated several other statutes of the U.S. Code and federal law. Illegal gambling could be prosecuted under several different criminal statutes, each with a different degree of punishment and potential outcome.
- Illegal Gambling Business Act of 1955 makes it a criminal offense to own, operate, supervise, finance, or manage an illegal gambling business anywhere in the United States.
- The Travel Act prohibits the use of interstate commerce to conduct an illegal gambling business under Section 1952 of the U.S. Code. Specifically, the use of the facilities of interstate commerce is an offense, meaning the use of transportation, shipping, and other means of moving goods and people across state lines.
- Section 1084 of the U.S. Code makes it a federal crime to use telephones, the Internet, fax, or other forms of wire transfer to conduct an illegal gambling business under the Wire Act.
- It is a federal crime to engage in laundering the proceeds and of an illegal gambling business under Section 1956 of the U.S. Code, which covers all forms of money laundering, not just gambling proceeds.
- The Racketeer Influenced and Corrupt Organizations (RICO) Act makes it a serious federal crime to conduct an illegal gambling business as part of a criminal enterprise or a pattern of illegal conduct. Given that owning, operating, and financing an illegal gambling business is a separate crime, this activity is often enough to bring RICO charges.
Federal Law Focused on Online Gambling
In particular, illegal online gambling has presented substantial problems for federal agencies and prosecutors. Individuals perpetrating online gambling are hard to track and difficult to find. Plus, it is prolific and hundreds of thousands of people participate in illegal online gambling each year. How and when to bring charges is a difficult decision.
To combat the challenges around online gambling Congress passed the Unlawful Internet Gambling Enforcement Act (UIGEA). Here’s what it regulates and criminalizes:
- No one involved, through ownership, financing, management, or operation of gaming, betting, or gambling business may
- Accept credit cards or process credit cards,
- Accept electronic transfers or funds through a transmitting business,
- Accept a check, draft or similar instrument for payment, or
- The proceeds of any of the above
- In connection with unlawful Internet gambling.
Detection and Investigation of Illegal Gambling
Federal agencies use a variety of tools and tactics for the detection and investigation of illegal gambling. In recent years, the majority of federal resources have focused specifically on online gambling and sports betting, in part because of the incredible growth and popularity these platforms enjoyed during the 2000s.
Today, many online gambling operations have moved their business overseas to avoid prosecution in the United States, and a number of federal resources are dedicated to preventing individuals from accessing these platforms from IP addresses and servers in the United States.
What Agencies Handle Detection and Investigation?
The authority to investigate illegally gambling, formally called investigative jurisdiction, is specifically given to the Federal Bureau of Investigations (FBI). The FBI is one agency within the Department of Justice (DOJ), the federal executive department that is responsible for the enforcement of the laws of the United States. Other agencies within the DOJ are the Office of the Inspector General, Federal Bureau of Prisons, and U.S. Marshalls. Some of these other agencies are also involved in the investigation and discovery of federal gambling crimes.
While there are many FBI agents tasked with the investigation of gambling and online gambling enterprises, the majority of illegally gambling is uncovered through the organized crime task forces of the FBI.
Why are organized crime professionals involved in the detection and investigation of gambling crimes?
The Racketeer Influenced and Corrupt Organizations statute or RICO covers enterprises involved in sports bribery, money laundering, and wire fraud, all illegal acts commonly involved or related to large-scale illegally gambling rings.
Other federal agencies will partners with the FBI to handle investigation into alleged or suspected federal gambling crimes, including:
- The U.S. Marshalls;
- Internal Revenue Services (IRS); and
- Department of Justice (DOJ).
The FBI also works with several other entities during the investigation of a gambling enterprise or illegal betting. While many of these investigative partnerships are with state and local law enforcement, the agency also works with private entities and corporations. A few years ago the the American Gaming Association worked with the FBI to publicize the federal government’s Internet Crime Complaint Center, the office where tips and information on illegal gambling activities can be reported.
What Tactics Are Used for Detection of Illegal Gambling?
A substantial number of online and illegal gambling activities are reported to the FBI by private citizens and other watchdog entities. The process begins when an individual completes an online complaint and submits it to the Internet Crime Complaint Center, otherwise called IC3.
The FBI analyzes each report submitted to the IC3 and determines if there is viable information of a crime under local, state, or federal law. Most information on illegal gambling submitted to the IC3 falls under state law. The majority of gambling laws and regulations are contained in state statutes, but when a complaint does contain information of interstate or international gambling, the FBI will follow up on the complaint.
Other gambling crimes, particularly online gambling and sports betting, is detected by auditing and regular investigation of websites and internet activity. Just as individuals wishing to place bets or wager on sporting events can find online gambling platforms, the FBI uses a variety of digital tools to do the same. By monitoring and collecting information on these websites and networks, the FBI and other tactical teams can build a federal gambling case against an individual or entity.
The more difficult aspect of the investigation into online gambling activity isn’t locating the platform used for illegal activity but finding the responsible party.
Charges and Trial for Federal Gambling Crimes
While detection and investigation of gambling crimes are primarily handled by the FBI, the prosecution of these alleged offenses is handled by a United States Attorney. The Offices of United States Attorneys is also part of the Department of Justice, but unlike the FBI and other agencies that are tasked with investigation, U.S. Attorneys specifically handle prosecution of federal criminal cases.
In any federal gambling case, a U.S. Attorney will act as the lead litigator and prosecutor on behalf of the government. In more minor cases, an Assistant U.S. Attorney can fill this role. Just as there are 93 federal districts in the United States, there are 93 U.S. Attorney Offices.
While a U.S. Attorney will represent the federal government in a federal gambling case, the defendant should be represented by a federal defense lawyer. Most federal criminal cases, particularly those involving substantial charges under the Ilegal Gambling Business Act or RICO, are handled by a private defense lawyer.
What Is Your Lawyer’s Role in a Federal Criminal Case?
The criminal procedure that occurs between the investigation and conviction of federal gambling crimes is lengthy and can last months. This makes your lawyer’s role in a federal criminal case crucial to your case.
During each step in the process your lawyer will handle communication with the court, negotiations with the U.S. Attorney Office and federal agencies, set your defense strategy, and represent you in any hearings or appearances, including:
- Initial appearance,
- Federal arraignment,
- Bail hearing,
- Pretrial hearings, and
- The trial.
Repercussions for Conviction for Gambling Crimes
There are professional, criminal, and personal repercussions for a gambling crimes conviction. However, the exact nature of criminal punishment or sentence for illegal gambling depends on the statutes used to prosecute the offense and degree of criminal activity. Each federal statute that is utilized by the DOJ to charge an individual or entity with gambling crimes carries a separate criminal punishment.
- The Illegal Gambling Business Act of 1955 can only be used to prosecute a gambling enterprise, consisting of five or more individuals, but if convicted each individual receives a separate sentence. The maximum criminal sentence is five years for each alleged illegal gambling business.
- The Travel Act can carry its own criminal punishment if illegal actions under the act are related or crucial to illegal gambling activities. While most activity under the Travel Act has a maximum prison sentence of not more than five years, if there are aggravating circumstances, the punishment is a maximum of 20 years. The specific aggravating circumstances under this Section 1952 of the U.S. Code are a crime of violence or any other unlawful activity, separate but related to, the interstate travel of proceeds from illegal activity.
- The Wire Act found at Section 1084 of the U.S. Code also carries its own criminal punishment. The maximum term of incarceration allowed under the Wire Act is two years in federal prison for each use of wire transfer to receive money or credit as a result of bets or wagers. The Wire Act also allows for the imposition of a criminal fine, whether separate or in conjunction with a term in a federal sentence.
- Under Section 1956 of the U.S. Code, the laundering of money or proceeds from an illegal gambling enterprise or online sports betting can result in a criminal punishment of 20 years in federal prison and/or $500,000 or twice the value of the property involved in the transaction.
- A conviction under RICO, whether in conjunction with separate charges for a gambling enterprise or as a separate gambling offense, the RICO conviction carries its own criminal punishment. The maximum punishment for a RICO conviction is 25 years in federal prison and a substantial criminal fine. The criminal fine under RICO can be either $250,000 or twice the amount of proceeds from the illegal enterprise, whichever is higher.
- Criminal charges under Unlawful Internet Gambling Enforcement Act can carry a sentence in federal prison up to five years and a limited or lifetime ban on participation in any legal gambling activity.
What Are Examples of Federal Gambling Charges?
Federal criminal charges for gambling became a major topic in the mid-2000s and early 2010s, as online gambling and sports betting drastically increased in popularity. Not only were there larger pools of capital and funds seized by the FBI but also debate over the illegality of online gambling. Many people believed the online games to be different from other illegal gambling organizations and further felt there should be room to legalize online games. The FBI and DOJ disagreed.
Poker, sports betting, and blackjack were played across the internet, and when the FBI did crack down on the various websites and hosts of these games, there were several high profile gambling cases in federal court. Of course, there are still significant criminal cases for offline gambling.
- The first federal conviction for online gambling was back in 2000. The defendant, Jay Cohen, was sentenced to 21 months in federal prison for his role as owner and operator of World Sports Exchange, a bookmaker that took online wagers and bets on a multitude of sports.
However, while this case directly addressed the issue of illegal gambling, the law used to prosecute Cohen was the federal Wager Wire Law. Rather than convict Cohen for a gambling crime, the government charged and convicted Cohen for the use of a wire or telephone communication to commit a crime. The reason Cohen wasn’t specifically charged for illegal online gambling? The Unlawful Internet Gambling Enforcement Act wasn’t passed until 2006.
- Three individuals and a Florida corporation were convicted of federal gambling crimes for running an international, online gambling enterprise. In a period of 10 years, the enterprise took more than $1 billion in illegal wagers through online platforms and websites. Most of the betting was conducted in the United States and derived from American residents, drawing the attention of federal agents.
The IRS, U.S. Marshalls, and FBI handled an investigation into the gambling enterprise and the case was eventually tried in Oklahoma by a lawyer form the Criminal Division’s Organized Crime and Gang Section and two Assistant U.S. Attorneys. Due to the scale and proliferation of the online activity, the defendants were also convicted of conspiracy to commit money laundering and federal racketeering charges.
- One of the biggest busts for the FBI and other federal agencies under the Unlawful Internet Gambling Enforcement Act happened in 2006. The defendant ran an online betting business that took over $3.3 billion in illegal sports wagers. In addition to charges under the federal gambling laws, the infamous defendant James Giordano was also indicted on a number of other enterprise and corruption charges.
What to Do if Accused of a Federal Gambling Crime?
A conviction for operation, financing, management, or ownership or an illegal gambling business is a serious crime in the United States. However, federal prosecutors will rarely build a case for federal gambling crimes overnight, which gives you an opportunity to build a defense.
- Cease any actions involving illegal gambling or actions that could be interpreted as illegal gambling.
- Once an investigation is started into your gambling business or betting, you want to cut off the paper trail and amount of evidence available to a federal agency – this means stopping actions that could be interpreted or investigated as illegal gambling.
- Learn the specific regulations that impact and control the boundary between legal and illegal gambling. Use these regulations to review your procedures and understand what actions could be criminal under federal law.
- Have a legal professional explain how the applicable federal laws apply to your business and ensure that a defense lawyer has experience with federal gambling laws and defense to federal gambling crimes.