Gambling Law Update – October 2002

Gambling Law Update

By: Lawrence G. Walters, Esq.


This is the first legal update from, relating to the legal issues concerning the online gaming industry. We hope that participants in this industry find the information contained in these Updates helpful, given the often confusing and contradictory legal climate in this arena. Since 1997, the author has been publishing a monthly legal update for the adult Internet industry. We are now proud to launch this first Online Gambling Law Update, as a service to the virtual gaming community. Gaming Resources seeking to republish this Update are encouraged to contact the author.

Leach Bill Fails to Pass in Senate

The “Leach Bill”-H.R. 556, which would have outlawed payments to Internet Casinos in hopes of choking offshore gambling sites who draw billions of dollars from U.S. based customers, has failed to pass in the Senate. Many in the industry feared that after the damning GAO report tying the online gambling industry to money laundering activities, this bill would be pushed through on a fast track. The Senate recessed on October 17, and will reconvene briefly in November, but presently, has no plans to consider this bill.1 Aside from an unforeseen move by Leach to attach the language of this bill to a larger piece of legislation, this is the last we are likely to see of HR 556 this year.

Citigroup Joins Fight Against Online Gambling

Citibank, the nation’s largest credit card issuer has agreed to block online gambling transactions with its credit cards. This is the latest move by a card issuer to jump on the anti-gambling band wagon following the progression over the years by Bank of America, Chase Manhattan, Direct Merchants Bank, Fleet, and MBNA to block such transactions. Citibank was commended by the Attorney General for its role in avoiding the harmful effects of gambling, and called on all payment systems and credit card issuers to follow the lead of these banks. The move by Citibank is greatly expected to significantly reduce the availability of Internet gambling to the average credit card consumer. In addition to imposing blocking mechanisms that will reject transactions coded as gambling, Citibank has agreed to pay $400,000 to groups that combat compulsive gambling and aid gamblers affected, and an additional $100,000 to the state of New York.2 Some industry insiders wondered privately if Citibank reacted out of fear of criminal prosecution for facilitating online gambling transactions.

Land Casinos Venture into Internet Gambling

Some of the largest names in the casino industry in the U.S. are taking a closer look at internet gambling. U.S. hotel and gaming giant MGM mirage tossed its hat into the Internet gambling ring this month with the launch of its online casino The company will run its site out of the Isle of Man, where it acquired its online gaming license last year. Its services however will not be open to U.S. based gamers. The company stated: “The site is open to all participants within jurisdictions where wagering for cash online is legal and regulated.”3 MGM is also seeking a Thai partner to set up casinos in the Southeast Asian nation, Prime Minister Thaksin Shinawatra’s office said in a statement. MGM’s interest may stem from a statement by the prime minister in August supporting a move to legalize casinos.4 The Prime minister believes that the casinos will help to boost the country’s deprived economy. The emergence of MGM into the internet gambling arena further indicates an unwillingness of U.S. casino companies to sit on the sidelines while and increasing number of people worldwide fuel the gaming industry’s billion dollar market.

Florida Officials Arrest Men for Internet Gambling Operations

Four men were arrested by Florida law enforcement officials outside Raymond James Stadium in Tampa, for allegedly violating Florida’s gambling laws. The men worked for a promotions company hired by, which accepted bets through a mobile home, parked outside the Stadium. David Carruthers, owner of, claimed that U.S. Free Speech principals allow him to promote his gambling business in this country. Law enforcement officials disagreed, noting that part of the betting transaction occurred within the State of Florida.  This case sets the stage for an important legal battle over the legality of online betting in the United States.5

Fighter’s Tattoo Prompts Suit

Boxer Ben Tackie, in a match against Kostya Tszyu in May, was allegedly seen wearing a temporary tattoo bearing the name and logo of – an internet casino and virtual sports book. The tattoo has prompted a suit by Mandalay Bay casino resort in Las Vegas against Henderson boxing promoter Millennium Events Inc., alleging it violated an agreement that forbids fighters from wearing temporary tattoos advertising virtual casinos or other entities. Millennium was accused of refusing to pay liquidated damages after the incident took place.6

Cohen to Begin Sentence

Jay Cohen, founder and former president of Antigua based World Sports Book Exchange, one of the largest offshore operations, reported this month to Nellis Federal Prison in North Las Vegas. He is to serve a 21 month sentence for illegal bookmaking. He was changed with violating the Wire Act by taking bets over the phone and Internet from American citizens.7 Mr. Cohen’s case has been closely-watched by the online gambling industry, as one of the first criminal cases brought against an Internet gaming operation. Despite speculation to the contrary, Cohen’s conviction did not prompt a landslide of criminal prosecutions against similar online gambling operators in the United States.

No more Bingo at Wal-Mart

For years, Wal-Mart has allowed weekly bingo games to be held at over 50 of its stores in the state of Pennsylvania. There was no admission fee, no charge to play, no betting occurred, and the prizes the winners received were commodity items such as toilet paper and paper towels.8 But that’s all about to change. Recently, that State’s House of Representatives decided Wal-Mart can no longer allow the free bingo games in its stores. The closure of the game resulted from the decision of the District Attorney that the bingo games violated the state’s small games of chance law, which only allows not-for-profit, state licensed organizations to run the games. An amendment was subsequently proposed containing a provision to allow Wal-Mart to restart the games. However, the Republican led state house decided it was gambling and refused to change the law, killing the proposal 106-92.

GAO Finds Internet Gambling Susceptible to Money Laundering

An interim report from the General Accounting Office said Internet gambling is susceptible to criminal activity, like money laundering. The reason – lack of state regulations. “Law enforcement officials believe Internet Gambling can be a significant vehicle for laundering criminal proceeds” according to the report released last month by the congressional watchdog agency. Many of the online sites that operate now are based overseas, such as sites based in the Caribbean, where offshore jurisdictions exercise little or no control over gambling site operators. The volume, speed and international reach of international transactions, along with the offshore locations of Internet gambling sites, make Internet gambling especially vulnerable to money laundering, according to law enforcement officials working with the GAO.9 One financial analyst said the GAO report should be seen as “a large caution sign” to those who would promote online gambling. The final version of the GAO report is due out in November.

Lottery Machines Planned for Michigan

Buying instant lottery tickets in Michigan will soon be no more difficult than purchasing candy or cigarettes from vending machines. The Michigan Lottery Commission will install instant lottery ticket vending machines at up to 500 locations across the state with prizes on the scratch off tickets varying from $1 to $1 million depending on the cost of the ticket. Anti-gambling forces are concerned with preventing children from illegally buying the tickets from these machines. Acting Lottery Commissioner Jim Kipp said that selling tickets to minors is a concern of the state as well. He stated that each vending machine will come equipped with a shut-off for the machines that can be activated by a clerk if a minor is seen attempting to buy tickets10. This is similar to the “off” button found on most computers. If it works for the State of Michigan, perhaps it will be considered a sufficient control to keep children away from Internet casinos.

Lawrence G. Walters, Esq., is a partner in the national law firm of Weston Garrou & DeWitt, with offices in Orlando, Los Angeles, and San Diego. Mr. Walters represents clients involved in all aspects of online gaming operations. Nothing in this article constitutes legal advice. Please contact your personal attorney with specific legal questions. Mr. Walters can be reached at, through his website:, or via AOL Screen Name: “Webattorney.”

1 Paul, Leach bill fails to pass in senate, (October 23, 2002)

2 Citigroup joins fight against online gambling, (September 24, 2002)

3 Richard Agnew, MGM launches online casino, (October 17, 2002)

4 Gambling expansion promoted worldwide, (October 22, 2002)

5 Linda, U.S. Detectives Arrest 4 on Gambling Charges, (October 21, 2002)

6 Fighter’s Tattoo Prompts Suit, (October 17, 2002)

7 Is Jay Cohen Fist Martyr of Online Gambling, (October 21, 2002)

8 No More Free Bingo Games at Wal-Mart, (October 9, 2002)

9 GAO Finds Internet gambling Susceptible to Mooney Laundering, (September 24, 2002)

10 Lottery Machines Planned for State, (October 23, 2002)