Every Wednesday and Saturday night at 10:59 p.m. five white balls are selected out of a drum containing 59 white balls, and one red ball is chosen out of a drum containing 35 red balls. The jackpot is won by matching all five white balls in any order and the red Powerball. Tickets cost $2.

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After rolling more than 16 consecutive times without a winner, the Powerball jackpot shot up to $587.5 million, the second-largest in U.S. history, and the largest for Powerball, before two winning tickets with the numbers 5, 16, 22, 23, 29 and a Powerball of 6 were announced by the Multi-State Lottery Association, which has run the Powerball game since 1992.

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Decades ago, gambling used to be illegal almost in every part of the continental US, except for Nevada and New Jersey. However, as time flew by, more and more states have made various types of gambling legal, ranging from Indian casinos, bingo and poker rooms, off-track horse race betting, and more. It’s also illegal for businesses to run gambling websites and to solicit online bets. Even companies handling transactions for cyberspace bettors can face federal charges. Our strategy for tackling illegal online gambling—as a key enforcement agency—is to start with the companies providing the services in the first place.

The first winning ticket belonged to the Hill family of Dearborn, Missouri. They have already appeared at a press conference where they were handed an oversized check made out for their share: $293,750,000 (before taxes). Although the chances of any single ticket’s winning the jackpot were 1 in 175 million (making it more likely that someone would die from a lightning strike or a bee sting than win), the Hills bought five tickets on the day of the Powerball drawing at the Trex Mart gas station in Dearborn, a town of 500 north of Kansas City. “Tickets sold at a rate of 130,000 a minute nationwide — about six times the volume from a week ago. That pushed the jackpot even higher,” said Chuck Strutt, executive director of the Multi-State Lottery Association.

The other winning ticket was sold at a 4 Sons Food Store in Fountain Hills, a suburb of Phoenix, Arizona. The winner has come forward, but as of this writing his name has not been released.

About the same time the Powerball frenzy was taking place, the peaceful and voluntary actions of Americans who prefer another gambling medium were ended — thanks to the hypocritical and oppressive actions of the U.S. government.

The U.S. Commodity Futures Trading Commission (CFTC) filed a civil complaint in federal district court in Washington, D.C., on November 26 seeking an injunction against Intrade, a prediction market for non-sports-related events. Intrade is an exchange market that allows its customers to make predications (by buying and selling shares) on the yes or no outcome of real-world events: candidate x to win an election, actor x to win an Academy Award, contestant x to win on American Idol.

According to a CFTC press release, the complaint charges Intrade “with offering commodity option contracts to U.S. customers for trading, as well as soliciting, accepting, and confirming the execution of orders from U.S. customers, all in violation of the CFTC’s ban on off-exchange options trading.”

Said David Meister, the Director of the CFTC’s Division of Enforcement,

It is against the law to solicit U.S. persons to buy and sell commodity options, even if they are called “prediction” contracts, unless they are listed for trading and traded on a CFTC-registered exchange or unless legally exempt. The requirement for on-exchange trading is important for a number of reasons, including that it enables the CFTC to police market activity and protect market integrity. Today’s action should make it clear that we will intervene in the “prediction” markets, wherever they may be based, when their U.S. activities violate the Commodity Exchange Act or the CFTC’s regulations.

In its continuing litigation the CFTC seeks civil monetary penalties, disgorgement of ill-gotten gains, and permanent injunctions against further violations of federal commodities law, as charged, among other relief.

This is the same government agency that earlier this year rejected an application by the North American Derivatives Exchange to operate a market for contracts relating to the U.S. elections. The commission argued that political event contracts constitute “gaming” that is “contrary to the public interest.”

Because of the CFTC complaint, Intrade issued this statement to its U.S. customers: “We are sorry to announce that due to legal and regulatory pressures, Intrade can no longer allow US residents to participate in our real-money prediction markets. Unfortunately this means that all US residents must begin the process of closing down their Intrade accounts.”

With lotteries in more than 40 states and the District of Columbia, one would think that customers of Intrade would have no trouble finding another gambling option. But aside from state lotteries, Americans’ gambling options are somewhat limited unless they live near, or are willing to travel to, Las Vegas, Atlantic City, or the Mississippi River. True, some states have casinos run by Indian tribes, some have horse or dog racing that one can wager on, and some have legalized slot machines or poker rooms in selected areas, but Nevada is the only state that has legalized casino-style gambling statewide.

All forms of gambling that have been legalized throughout the United States have one thing in common: they all exist only with government permission. It is the state governments that license and regulate casinos, pari-mutuel wagering, slot machines, and poker rooms. It is the state governments that maintain a monopoly on lotteries. In most areas of the country, private, unlicensed gambling is simply illegal.

For example, in my state of Florida: “Whoever plays or engages in any game at cards, keno, roulette, faro or other game of chance, at any place, by any device whatever, for money or other thing of value, shall be guilty of a misdemeanor of the second degree, punishable as provided in s. 775.082 or s. 775.083” [s. 849.08]. An exception is made for a penny-ante game of “poker, pinochle, bridge, rummy, canasta, hearts, dominoes, or mah-jongg in which the winnings of any player in a single round, hand, or game do not exceed $10 in value” [s. 849.085, 2, a].

And no one in Florida had better try to compete with the Florida Lottery, for it is unlawful in Florida to set up a lottery; dispose of property by a lottery; conduct any lottery drawing; assist in conducting a lottery; attempt to operate, conduct, or advertise a lottery; possess any lottery implement; sell or offer for sale any lottery ticket; possess any lottery ticket; assist in the sale of a lottery ticket; possess any lottery advertisement; or possess any “papers, records, instruments, or paraphernalia designed for use, either directly or indirectly, in, or in connection with, the violation of the laws of this state prohibiting lotteries” [s. 849.09, 1, a-k].

But why is that the case in Florida and elsewhere? Why are the peaceful, voluntary actions of consenting adults prohibited? Why is gambling illegal?

We are told by opponents of legalized gambling that gambling is psychologically addictive, that it leads to financial ruin, that it leads to compulsive gambling, that it harms families, that it leads to criminal activity to support one’s gambling habit, and that it increases crime in areas where gambling venues are located. Religious people add that gambling is immoral, that it is a vice, or that is it a sin. Even economists weigh in on the subject, telling us how great the odds are against winning the lottery and that gambling is a type of regressive tax that hurts low-income people. Every time someone wins a substantial lottery jackpot, there are news stories about how bad it is to win such a large sum of money.

Those things may all be true, but none of them can legitimately be said to be a reason for gambling to be illegal.

Forty-three states and the District of Columbia have state-run lotteries. Forty-seven states allow charitable gambling such as bingo. Thirty-nine states permit pari-mutuel wagering. Nineteen states have legalized commercial casinos. Thirty states have Indian casinos. Only the states of Hawaii and Utah forbid all forms of gambling.

If gambling should be proscribed by governments because it is harmful, ruinous, crime-fostering, or immoral, then governments — to be consistent — should outlaw all forms of gambling and certainly not be running lotteries. How can the 48 states that allow certain forms of gambling justify any of their laws that make other forms of gambling a criminal activity?

The real reasons so many forms of gambling are illegal in so many states are that governments are grossly hypocritical and arbitrary when it comes to their gambling laws and governments see themselves as nanny states with their citizens as children who need to be protected from vice and their own stupidity.

In a genuinely free society (as opposed to a relatively free one), people have the freedom to make any wager or bet any amount of money they choose on sporting events, horse races, casino gambling, pari-mutuel wagering, lotteries, prediction markets, private poker games, or any other gambling activity.

That does not mean that gambling is good or that it has no negative consequences. There is a distinction between favoring a thing and favoring the legalization of a thing. It is perfectly consistent for someone to disdain some or all forms of gambling and yet fully support the legalization of all gambling enterprises and activities. The issue is one of freedom, not preference.

It goes without saying that there should be no federal or state laws that relate to gambling in any way. Not because the gambling industry provides people with jobs or the states with revenue, but for the simple reason that there should be no federal or state laws prohibiting any voluntary activity between consenting adults.

Gaming and gambling in the United States have undergone a great boom in recent years. During the past decade, most states have expanded legalized gaming, including regulated casino-style games, sports betting, and lotteries. There has also been an explosion in opening Native American casinos, and the popularity of online gambling in the US has increased exponentially.

Decades ago, gambling used to be illegal almost in every part of the continental US, except for Nevada and New Jersey. However, as time flew by, more and more states have made various types of gambling legal, ranging from Indian casinos, bingo and poker rooms, off-track horse race betting, and more. While some states have approved certain types of gambling, other types have remained “illegal”, so to speak, like online gambling. Almost all states have laws that ban at least some form of gambling.

Understanding US gambling laws is not only important for those involved in the industry, but also for average gamblers who want to know whether he or she can start a fantasy football league, a home poker game, or an NCAA tournament betting pool at the workplace.

As of this writing, a lot of things have changed in the US gambling laws. What was once considered illegal on a federal level is now being made legal by the individual US States, provided that casino operators, and in some cases online gambling operators, apply for the necessary permits and licenses within the jurisdiction in which they wish to operate. If gambling was only allowed in Vegas and Atlantic City before, now states like Colorado, West Virginia, Indiana, Iowa, and Pennsylvania are also coming around, with more and more US states following suit.

Federal Gambling Laws

Below you’ll find links to various U.S. Federal Gambling Laws.

• Unlawful Internet Gambling Enforcement Act. This law applies to online gambling operators accepting financial instruments to fund accounts for players. including online casinos.
• Wire Act of 1961 (See also: Wire Act Violation: Internet v. Phone)

Additional Federal Statutes

Transportation of Gambling Devices Act of 1951.

In 1951, Congress enacted the Transportation of Gambling Devices Act. [236] The Act, more commonly known as the Johnson Act, [237] which has been amended several times during the intervening years, makes it unlawful to knowingly transport a gambling device to a state where such a device is prohibited by law. [238] The manufacturers and distributors of gaming devices for interstate commerce must register each year with the United States Department of Justice, and the devices must be appropriately marked for shipment. [239]

(a) The term “gambling device” means–

(1) any so-called “slot machine” or any other machine or mechanical device an essential part of which is a drum or reel with insignia thereon, and

(A) which when operated may deliver, as the result of the application of an element of chance, any money or property, or

(B) by the operation of which a person may become entitled to receive, as the result of the application of an element of chance, any money or property; or

(2) any other machine or mechanical device (including, but not limited to, roulette wheels and similar devices) designed and manufactured primarily for use in connection with gambling, and

(A) which when operated may deliver, as the result of the application of an element of chance, any money or property, or

(B) by the operation of which a person may become entitled to receive, as the result of the application of an element of chance, any money or property; or

(3) any subassembly or essential part intended to be used in connection with any such machine or mechanical device, but which is not attached to any such machine or mechanical device as a constituent part. [240]

The interstate shipment of hardware or software for use in connection with an Internet or Interactive gaming system may trigger the Johnson Act, as well as the Interstate Transportation of Wagering Paraphernalia Act discussed above. [241]

Bank Records and Foreign Transaction Act of 1970.

In 1970, Congress passed the Bank Records and Foreign Transaction Act, [242] which is better known as the Bank Secrecy Act (BSA). [243] The BSA required “financial institutions” to report all currency transactions greater than $10,000 in effort to fight money laundering. This obligation was first limited to just banks. In 1985, the United States Treasury Department extended the requirement to casinos through the adoption of regulations. [244] Nevada casinos enjoy an exemption from the CTR reporting requirements of the BSA. [245]

Internet or interactive casinos will certainly be subject to some form of currency reporting requirement whether it is the BSA or Nevada Gaming Commission Regulation 6A, or both.

Money Laundering Control Act of 1986.

In 1986, Congress enacted the Money Laundering Control Act, [246] codified at 18 U.S.C. §§ 1956, 1957. Section 1956 applies to the knowing and intentional laundering of monetary instruments. [247] Section 1957 pertains to monetary transactions involving property that is “derived from specified unlawful activity,” which includes “racketeering activity” under RICO. [248]

Electronic Communications Privacy Act of 1986.

In 1986, Congress enacted the Electronic Communications Privacy Act (ECPA), [249] codified at 18 U.S.C. § 2510 et seq. The legislation amended Title 18 of the United States Code to extend the prohibition against the unauthorized interception of communications from wire and oral communications to “electronic communications,” which are defined as:

“electronic communication” means any transfer of signs, signals, writing, images, sounds, data, or intelligence of any nature transmitted in whole or in part by a wire, radio, electromagnetic, photoelectronic or photooptical system that affects interstate or foreign commerce, but does not include–

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(A) any wire or oral communication;

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(B) any communication made through a tone only paging device;

(C) any communication from a tracking device (as defined in section 3117 of this title); or

(D) electronic funds transfer information stored by a financial institution in a communications system used for the electronic storage and transfer of funds. [250]

The term “intercept” means “the aural or other acquisition of the contents of any wire, electronic, or oral communication through the use of any electronic, mechanical, or other device.” [251]

ECPA provides exceptions for the law enforcement to intercept communications where either (1) law enforcement is a party to the communication, or (2) where one of the parties to the communication has given prior consent to such interception. [252] The Nevada Gaming Control Board and Nevada Gaming Commission could take advantage of this exemption and be excluded from the reach of ECPA either through the promulgation of a regulatory provision (i.e., that licensees will permit the Board and Commission to monitor all electronic communications with patrons) or by imposing conditions on the licenses o f operators of Interactive gaming.

References

Federal

• Code of Federal Regulations: Title 25, Chapter 3: National Indian Gaming Commission, Department of the Interior
• Proposed Internet Gambling Prohibition Act of 1997 (not passed)

Federal Judicial Decisions

• AT&T Corporation v. Coeur d’Alene Tribe, 295 F.3d 899 (9th Cir. 2002)

Other References

• Joel Michael Schwarz, The Internet Gambling Fallacy Craps Out, 14 Berkeley Tech. L.J. 1021 (1999).
• “14 Charged in Internet Betting” (Washington Post, March 5, 1998)
• General Accounting Office’s Overview of Internet Gambling Issues