Mises Wire

Will the Justice Department Crack Down (Again) on Gambling?

When Attorney General Robert Kennedy was defending his Wire Act before the Senate, he scarcely would have imagined that this bill which he sold as a federal supplement to the enforcement of state laws would be used half a century later to trample upon them, but rumors emanating from the Department of Justice suggest that is their intention. One of the first victories in Kennedy’s crusade against organized crime, the Wire Act was intended to damn up the river of money which was flowing into the mob’s hands from sports gambling by prohibiting the transfer of information which made the practice possible. The bill did precisely that task, and only that task, for decades.

In 2002, despite legal precedent, the Bush administration began to use the Wire Act as a bludgeon against all forms of online gambling, not simply those related to sports. These actions wrought uncertainty for state governments who would compel the DOJ to clarify their interpretation of the law in 2011. In a 13-page memo, they refuted the new expansive interpretation and restored the law’s original, narrower meaning. This decision again freed the states to make their own decisions about online gambling. Nevada, New Jersey, Pennsylvania, and Delaware ended their prohibitions against the online gambling industry in response.

However, rumors are circulating that the DOJ is considering reversing this federalist position. At the least, a reversal would create significant legal uncertainty. At worst, it is an ominous step toward a federal ban on online gambling. A return to the Bush administration’s misinterpretation of the Wire Act would be a legally untenable, unconstitutional assault on state sovereignty with damaging economic consequences.

Ironically, the DOJ has provided the most compelling textual justification for a narrow understanding of the Wire Act.

Through a convincing analysis of the circumstances surrounding the bill’s enactment, their 2011 memo concludes that “sporting games and events” modifies the “bets or wagers” of each clause and was omitted as a form of shorthand, similar to the federal and interstate language present in the first clause. In fact, if the Wire Act were meant to pertain to all forms of gambling, Congress would not have specified sporting events at all. This interpretation also gives the law consistency by having the entire subsection “serve the same end in the same scope.” Furthermore, the narrow interpretation reconciles the Wire Act with sections of the UIGEA which suggests other forms of online gambling are legal.

All federal laws must be in pursuance of the Constitution, but the 2002 interpretation is a blatant attack on the 10th Amendment. The federal government has only those powers which are expressly granted to it by the Constitution, with the states retaining all others. Any honest look through Article I, Section 8 will show that justification for a federal ban of online gambling is conspicuously absent. Since the General Welfare clause is not substantive, as Mike Maharrey explains, the only straw left for proponents of big government to grasp is the Commerce clause.

Yet the Commerce clause is also insufficient, as then-Congressman Mick Mulvaney explained in 2015. Before the Constitution, states had created significant trade barriers between each other which stifled economic growth, and this clause was intended to eliminate them by keeping commerce “regular.” Using the commerce clause to justify the precise anti-market policies which it was intended to vanquish would be a perverse Constitutional sin.

The Framers were wise to leave such power to the states, for few things are as economically malicious as a potential ban on an entire industry. The task of an entrepreneur is to satisfy consumers’ demands as efficiently as possible, improving the lives of themselves and their customers. Their job is made more strenuous by the fact that the risk of loss is always hanging overhead.

A reversal from the DOJ would only add to a gambling entrepreneur’s uncertainty by signaling a potential federal ban that would steal the fruits of their labor. This risk of government confiscation is named by economist Robert Higgs as “regime uncertainty.” Dr. Higgs’s exceptional research into regime uncertainty shows that it incentivizes risk averse entrepreneurs to preserve rather than invest their wealth. The results would be fewer jobs, millions in lost tax revenues as New Jersey, Delaware, and Nevada can attest, and a shrunken GDP. Indeed, legalization breathed new life into a dying Atlantic City. Furthermore, a ban on online gambling helps monopolize established casinos, which is undoubtedly the motive behind billionaire political donor Sheldon Adelson’s support for it.

Reverting to the Bush administration’s flawed understanding of the Wire Act would violate the states’ right to craft their own online gambling policy by tossing aside the essential protections of the 10th Amendment. As a consequence, entrepreneurs and their potential consumers, the American public, lose out, so that the established casinos can rig the game in their favor. The cards are in William Barr’s hands. One can only hope that the enlightened Mulvaney is whispering in his ear.

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