Republican Internet Gambling Ban Undermines States’ and Individual Rights

Despite rhetoric that we need to “restore” the Federal Wire Act in order to protect states’ rights, Republican lawmakers are pushing a bill that would do the exact opposite. The bills would rewrite a U.S. federal law instituted in 1961, creating a de facto ban on Internet gambling, prohibiting states from legalizing and regulating the activity—something three states have already done with others in the process. Not only does the proposal trample states’ rights, but it will fail to eliminate illegal online gambling and actually make consumers less safe while eliminating millions of dollars in tax revenue for states. Worst of all, it sets an unsettling precedent whereby federal lawmakers can reverse state law if they have a personal problem with the activity.

Today a coalition of free market groups, including CEI, expressed our opposition to such heavy-handed federal action. In the letter to the chairmen and ranking members of the House and Senate Judiciary Committees we declared our belief that an online gambling at the federal level would have unintended consequences that would be much worse than allowing states to choose if and how to legalize the activity. As we said in our letter:

The legislation is a broad overreach by the federal government over matters traditionally reserved for the states. H.R. 4301 will reverse current law in many states and drastically increase the federal government’s regulatory power. As we have seen in the past, a ban will not stop online gambling. Prohibiting states from legalizing and regulating the practice only ensures that it will be pushed back into the shadows where crime can flourish with little oversight. In this black market, where virtually all sites are operated from abroad, consumers have little to no protection from predatory behavior.

The bills, titled the Restoration of America’s Wire Act (S. 2159 and H.R. 4301) were introduced last month by Sen. Lindsey Graham (R-S.C.) and Rep. Jason Chaffetz (R-Utah), respectively. The bills would change the language of the Federal Wire Act, which in 1961 criminalized certain types of “wire” communications related to sports gambling. While Graham, Chaffetz, and others supporting the “restoration” bill claim that the original intent of the Wire Act was to ban all types of gambling, the U.S. Court of Appeals for the Fifth Circuit and the Department of Justice criminal division analyzed the letter of the law and came to the conclusion that insofar as it related to online communication it only prohibits gambling on sports.

When the DOJ released its opinion on the Wire Act in 2011, it opened the door for states to begin legalizing the activity within their borders. Republicans, like Lindsey Graham are trying to sell their bill as a defense against Obama’s DOJ eroding existing law—but what they are doing is re-writing a 50 year old law to suit their own purposes. As Reason’s Jacob Sullum noted, “If you pay close attention to a statute’s actual words, according to Graham, you are ignoring the law. Being true to the law evidently requires excising the inconvenient parts.”

Then there’s the states’ rights issue. Chaffetz and Graham are both Republicans and both outspoken supporters of the 10th Amendment. Chaffetz , who is a member of the 10th amendment task force, even stated during his 2010 election campaign that his top priority was “increasing freedom” and to “and promote economic freedom through less government regulation and intrusion into our lives”. And Graham seems to care about federalism, at least when it comes to the issues of marriage equality, common core, healthcare, and gun laws. Republican co-sponsors of the Wire Act Restoration bill are also supposedly believers in the 10th Amendment—like Sen. Mike Lee (R-Utah) who recently gave a speech at the Heritage Foundation in which he stressed the need for conservatives to rally behind the principle of federalism. Lee derided progressives who “insist on imposing their values on everyone,” and noted that the “usurpation of state authority is why our national politics is so dysfunctional and rancorous”

The imposition of values is something to worry about; if a small group of federal lawmakers can add language to a bill that was written before the Internet existed in order to ban an online activity that certain states have decided to legalize and regulate—what’s next? Will Chaffetz attempt to impose Utah’s alcohol regulations on the rest of the country? Or will Republicans like Texas Gov. Rick Perry (who has expressed support for the Internet gambling ban) change their mind about marijuana and request a federal ban on state legalization? What about other forms of Internet commerce?

Then there’s the issue of what a ban will actually do; one thing it won’t do is stop online gambling. Those supporting the ban cite a host of social ills the activity will bring down upon society; from minors gambling themselves into debt, laundering, and crimes like fraud, cheating, and money laundering. Yet, as I’ve argued in the past, those who fear such outcomes ought to be the loudest supporters of a legal and regulated online gambling market as opposed to an illegal black market. As the Fraternal Order of Police noted in a recent op-ed, bans only benefit criminals. As Chuck Canterbury, president of the FOP put it, “[n]ot only does the black market for Internet gaming include no consumer protections, it also operates entirely offshore with unlicensed operators, drastically increasing the threat of identity theft, fraud or other criminal acts.” And as we have seen in the past, the fact that online gambling hasn’t been legal in America hasn’t stopped Americans from gambling. In 2012—just after the DOJ shut down the three largest online poker companies, Americans spent $2.6 billion gambling online. When websites are regulated by American authorities, they have an incentive to obey our laws and offer remedy when consumers are victimized or they risk losing their license and access to our customers. It’s the unregulated sites that have nothing to lose.

Banning online gambling may win some Republican legislators points with certain donors, but in the long run it will do more harm than good to their credibility and more importantly to Americans’ freedom and safety.