Gaming Law "In the News" ...

A Catania Consulting Group Client Newsletter March 19, 2008

Integrity, Leadership, Experience ...

Frank Catania, Esq. President, former Assistant Attorney General, Director NJ Division of Gaming Enforcement,   VP Compliance Players International.  frank@cataniaconsulting.com

Gary Ehrlich, Esq. VP, former Assistant Attorney General, Deputy Director NJ Division of Gaming Enforcement.  gary@cataniaconsulting.com

Keith Furlong, VP, former Public Information Officer & Legislative Liaison NJ Division of Gaming Enforcement. keith@cataniaconsulting.com

Joseph Kelly, Esq., Associate, Professor of Business Law, SUNY College Buffalo.  jkelly@cataniaconsulting.com

Introducing Gary Ehrlich, the Newest Member of Catania Consulting Group

Catania Consulting is proud to introduce the newest member of its professional team, Gary Ehrlich. Gary comes to Catania Consulting from the New Jersey Division of Gaming Enforcement, an internationally recognized gaming regulatory agency responsible for investigating and prosecuting all licensing, civil regulatory and criminal matters involving the New Jersey casino industry. He served as an Assistant Attorney General and Deputy Director where he either supervised or handled personally many significant casino licensing investigations, as well as important litigation and appeals in state and federal courts including the United States Supreme Court.

Mr. Ehrlich also has significant experience in Internet gambling issues, having served as one of the experts in New Jersey government and provided information to both the Executive and Legislative branches. He also served as Chair of the Internet Gambling Task Force, a working group consisting of representatives of States, the federal government and foreign jurisdictions, focusing on Internet gambling activity and public policy. He is a past member of the International Association of Gaming Regulators, and remains a member of the International Masters of Gaming Law.

Wall Street Journal Recognizes Merits of United States Legalization and Regulation of Online Gambling

For years, many people inside and outside the gaming industry have expressed the view that the United States prohibition on Internet gambling is not only ineffective, but wrong as a matter of policy. An April 10 op-ed piece in the European edition of the Wall Street Journal agrees with that view, perhaps for new reasons. According to the article, the European Union is looking into whether law enforcement authorities in the United States are discriminating against European online gambling firms by targeting their executives for arrest and prosecution, while allowing Internet betting on United States horse racing. This claim is similar to the one successfully advanced by Antigua in the WTO case (see “Intellectual Property” article below). As the editorial states: “By legalizing and regulating the [online gaming] business … Washington could more effectively battle such problems as underage gambling and addiction. It would also avoid unnecessary trade tiffs with its leading commercial partners. And it would exempt cyberspace from overaggressive regulators, in America or anywhere else.” The entire article may be found at http://online.wsj.com/article/SB120779121832703691.html

New Jersey Court Holds That Lifetime Self-Exclusion Can’t Be Undone

A New Jersey appellate court has held that casino regulators rightfully refused to reinstate S.D., an admitted problem gambler, who regretted his decision to place himself on the lifetime self-exclusion list after learning that the ban was being applied not only to New Jersey casinos but also to affiliated out-of-state casinos. New Jersey has two exclusion lists: one involuntary, created to keep organized crime figures, career criminals and other undesirables out of the casinos, and one voluntary, created to help admitted problem gamblers. The voluntary list offers three options: a one-year ban, a five-year ban and a lifetime ban.

The voluntary list is confidential, but casinos in New Jersey may share it with sister properties outside the state, which in turn may decide whether to also apply the ban. In 2004, S.D. elected the lifetime option, but less than a month later he asked to be taken off. He explained that his intent was only to keep himself out of New Jersey casinos because of their proximity to his home, and that he did not know the ban would apply to casinos outside the state.

His request was denied both by the Commission and by the state Attorney General’s Division of Gaming Enforcement, which argued that any potential out-of-state exclusion was a “collateral consequence” of application for a lifetime ban, and that if the ban were rescinded there would be a risk of undermining the intent of the program. The court agreed with this argument, also rejecting S.D.’s claim that the ban impinged on his right to enter a place of public accommodation, stating that “gambling is not a constitutionally protected activity.” Commission Chair Linda Kassekert said in reaction to the ruling: “Clearly, the value of the self-exclusion program would have been compromised if someone who signed up for a lifetime exclusion were able to remove himself just because no one told him other casinos would exclude him as well.” But S.D.’s lawyer said the ruling may undermine the program’s goals by discouraging others from signing up. Coincidentally, the S.D. case was briefed and argued for the Division of Gaming Enforcement by the newest member of Catania Consulting , Gary Ehrlich.

Criticism of Unlawful Internet Gambling Enforcement Act: Recent Hearing in Congress Looks at Online Gambling Ban

The Unlawful Internet Gambling Enforcement Act (UIGEA), the United States law banning payment transfers from banks and credit unions for “illegal” online gambling was criticized during a congressional hearing in early April. The hearing was likely sparked by Congressman Barney Frank’s (D-MA) interest in new legislation to license and tax online gaming.

The hearing before the House Subcommittee on Domestic and International Monetary Policy raised concerns with regard to the proposed UIGEA regulations, or some would say lack thereof. Subcommittee Chairman Luis Gutierrez (D-IL) strongly asserted that any additional regulations on United States financial institutions should focus on combating predatory lending practices rather than selective enforcement of online gambling activities. Representatives of the Federal Reserve and Treasury Department also addressed the difficulty in drafting regulations based on ambiguous legislation.

The ranking Republican member of the House Financial Services Committee, Spencer Bachus (R-AL), stood firmly behind UIGEA and the financial ban of online gaming companies. The hearing is available for viewing on the Poker Player’s Alliance website, www.pokerplayersalliance.org.

Bill Introduced in Congress To Prohibit the Issuance of Regulations under the Unlawful Internet Gambling Enforcement Act

On April 10, Representative Barney Frank (D-MA) introduced a bill, H.R. 5767, which would prohibit the Secretary of the Treasury and Board of Governors of the Federal Reserve system from “proposing, prescribing, or implementing any regulation” under the Unlawful Internet Gambling Enforcement Act (UIGEA). Draft UIGEA regulations had been published for comment, and a recent Congressional hearing (see “Criticism” article above) had revealed many difficulties with the regulations as proposed. Representative Frank is the sponsor of another pending bill, H.R. 2046, which would authorize the legalization and federal regulation of Internet gambling within the United States. H.R. 5767 has been referred to the House Committee on Financial Services.

Revenues at Atlantic City Casinos Continue To Decline: Time To Reconsider Online Gaming?

Figures released by the New Jersey Casino Control Commission show that revenues at Atlantic City casinos continue to decline (almost 10% in March, 6% for all of 2007). Whether the decline is due to competition from Pennsylvania slots, the partial smoking ban, the general business recession, or all of the above, the decline is real and shows no signs of reversal. In the past, legislation has been proposed that would authorize various forms of online gaming in New Jersey, usually on an intra-state basis so as not to run afoul of federal law, and generally with the participation of the Atlantic City casinos. In these difficult times, not only for the casino industry but for the overall state budget, perhaps the Governor and State Legislature should take another look at the possibility of allowing some form of tax-generating online gaming within New Jersey.

Poker Ruled “Game of Chance” in United Kingdom

For some time, many involved in gaming – particularly poker – have been making the argument that poker should be considered a game of skill rather than chance, which in certain circumstances would have a bearing on its legality. The skill argument received another blow recently when a court of appeals in England ruled that poker is a game predominantly determined by chance. The court rejected the appeal of the former chairman of a private poker club, who was convicted by a jury of violating the 1986 Gaming Act by running poker tournaments without a license.

Massachusetts Casino Bill Rejected

A bill proposed by Massachusetts Governor Deval Patrick which would have authorized resort-style casinos in Massachusetts was sent to a study committee by the Massachusetts Legislature. This action effectively means that the bill was defeated and cannot return for debate until next year at the earliest. Poker players are not mourning the demise of one small section of the bill, which would have made the placement of wagers with Internet gambling sites a felony punishable by two years imprisonment and/or a $25,000 fine.

Intellectual Property Becomes the Latest Weapon in Antigua’s WTO War with United States

The long-running dispute between the United States and Antigua over Internet gambling has taken yet another turn. In a case begun in 2003, the World Trade Organization (WTO) ruled that the United States had violated the terms of international trade agreements by preventing Antigua’s online gaming industry from accessing United States markets while at the same time allowing domestic Internet gambling on horse racing. With WTO sanction, Antigua is threatening to ignore intellectual property agreements with the United States if a settlement of the WTO action is not reached, possibly resulting in the wholesale copying of American movies, music and other goods and materials.

Alabama Attorney General Sues To Block Tribal Negotiations

The Attorney General of Alabama has filed a lawsuit seeking to bar the United States Department of the Interior (DOI) from forcing the state to negotiate a compact with an Indian tribe over expanded gambling. A 1996 Supreme Court ruling voided a provision of federal law that had authorized tribes to sue states that refused to negotiate with them. Since then, tribes have been relying on the DOI to act as a de facto arbitrator in disputes with states.

The precise authority of the DOI in state-tribal negotiations is unclear according to SUNY Buffalo law professor Joe Kelly, a well-known gaming expert and associate of Catania Consulting: “When IGRA [Indian Gaming Regulatory Act] was enacted, it was always assumed that the states would negotiate with tribes in good faith,” he explained. “Is the Secretary of the Interior some kind of tribal gaming czar now that tribes cannot directly sue the states? This is a grey area of law, in my opinion.”

Alabama officials claim the DOI lacks legal and constitutional authority to negotiate a compact with the tribe on the state’s behalf. This is an issue that may be of concern to other states as well.