This week, the United States Department of Justice, Office of Legal Counsel (the DOJ), published its long-awaited and updated guidance respecting the reach of the prohibitions of the Wire Act, 18 U.S.C. § 1084, via a Memorandum Opinion dated November 2, 2018.
The DOJ’s previous Memorandum Opinion on this subject matter adopted a narrower interpretation of the criminal statute in 2011, and the 2018 interpretation will likely trigger swift opposition, including litigation, from individual states and other participants in the industry. From multi-state agreements pooling liquidity to interstate eSports and fantasy offerings (and perhaps even traditional lottery products), the recent interpretation inevitably sets the stage for litigation in the face of a rapidly expanding i-gaming marketplace and challenges the rapid proliferation of such non-sport offerings in interstate commerce.
The central issue is whether the phrase “sporting event or contest” in Section 1084 qualifies all four of the Act’s prohibitions, as opposed to just one of the four prohibitions. The Wire Act contains two general clauses, with each clause prohibiting two different kinds of wire transmissions as follows:
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.
18 U.S.C. § 1084(a) (emphasis added). The Department’s thorough analysis concludes, in short, that the qualifier “sporting event or contest” can only be read to modify the phrase it follows, and cannot “sweep both backwards and forwards to reach all four of section 1084(a)’s prohibitions … .” Said another way, DOJ interprets the first clause to prohibit anyone in the business of betting or wagering from knowingly using a “wire communication facility” to either (1) transmit bets or wagers or (2) to assist in the placement of bets or wagers “on any sporting event or contest[.]” DOJ reads the second clause of Section 1084 to disallow any person from transmitting wire communications that allow a recipient to “receive money or credit” either (3) “as a result of bets or wagers” or (4) “for information assisting in the placing of bets or wagers.”
Point being, the DOJ’s 2011 opinion concluded the phrase “sporting event or contest” qualified (1) through (4) above; whereas, the DOJ’s 2018 opinion now concludes the phrase “sporting event or contest” only qualifies (2) above, with (1), (3), and (4) above not being limited nor qualified by said phrase. Noting it “does not lightly depart from [its] precedents,” the DOJ submits its analysis sounds largely in traditional notions of statutory construction, textual evidence in prior decisions, as well as prior prosecutorial policies and congressional intent.
The DOJ also opines that the Unlawful Internet Gambling Enforcement Act (UIGEA), enacted in 2006, does not conflict with or modify the scope of the Wire Act (noting that the definition of “unlawful Internet gambling” only applies to UIGEA, and “simply does not affect what activities are lawful under the Wire Act”).
This new guidance from the DOJ regarding the scope of Section 1084(a)’s prohibitions has the practical effect of putting the world on notice that the 2011 opinion can no longer be relied upon by any actors in the industry; indeed, the 2018 opinion specifically states, “we do not believe that such reliance interests are sufficient to justify adherence to the 2011 opinion.” Recognizing the Wire Act does not require a predicate violation of state law to trigger criminal liability, the DOJ is clearly signaling its intent to weaponize the Wire Act’s prohibitions against those Internet-based gaming offerings that are of an interstate nature, regardless if the content is sporting or non-sporting based.
Because Section 1084 is a criminal statute, corporate boards and officers and directors alike cannot rely upon the business judgment rule as a shield from the statutory prohibitions; consequently, any and all organizations conducting gaming activities in interstate commerce will be forced to audit their operational activities and take safeguards to prevent unlawful activities and ensure strict compliance. While the Department has advised it will provide a 90-day grace period before commencing any enforcement activities, we anticipate companies will spend a significant amount of time and resources in the coming days to audit their operations, revise internal controls and operating procedures, and prepare for a more strict interpretation of Section 1084’s prohibitions in the coming years.