The Justice Department recently complicated the issue of whether a media company may advertise on-line or offshore gaming by sending several subpoenas to members of the Esquire magazine staff. It has been reported that the Internet gaming industry is one of the most profitable industries on the Web, which not only includes Internet gambling but also sports betting.

Specifically, according to the research firm of Christiansen Capital Advisors, for 2005, the revenue for approximately 2,000 gambling Web sites will reach $9.8 billion, with more than half of the revenue coming from U.S. gamblers.

Consequently, members of the gaming industry are often willing to pay premium rates to advertise in mainstream publications. And running advertisements for the industry is a risk that media companies are willing to take, believing the activity is protected by the First Amendment.

In its April issue, Esquire displayed ads for BoDog.com, an online poker Web site. The issue included an eight-page insert billed as the "Gentleman's Guide to Poker." The insert included BoDog tips for playing Texas Hold 'Em online, along with several references to the BoDog Poker URL and images from the site. Shortly after the magazine hit the newsstands, the Justice Department sent members of the Esquire staff subpoenas.

These subpoenas are the first reported legal action since the U.S. Attorneys office in Missouri initiated an investigation into the advertising practices of online gambling in 2003. This investigation resulted in hundreds of companies, including broadcasters, portal site owners and media outlets, receiving subpoenas. The subpoenas were designed primarily to obtain evidence relating to commercial and financial information about the advertisement of Internet casinos and sportsbooks. The full extent of the investigation has yet to be disclosed.

In the summer of 2003, the Justice Department also sent letters to U.S. media companies warning them they might be prosecuted for running ads by online casinos, because they would be "aiding and abetting" an illegal pursuit. As a result of these actions, a number of media companies ended their relationships with Internet gambling advertisers. But even a bigger blow to the online gambling industry came in 2004, when Yahoo and Google stopped accepting advertisements for online gambling web sites. In making their case against the advertisements, regulators and federal officials are relying on several statutes. Most important to their case is the 1961 Federal Wire Act, 18 U.S.C. 1084(b), which outlaws sports betting over state and international lines, making all Internet casinos illegal. But the applicability of the Wire Act to Internet-based gambling is questionable because of conflicting federal court decisions.

The Justice Department therefore has relied on the aiding and abetting statute. The pertinent part of this law, Title 18 U.S.C. 2, reading: a) whoever commits an offense against the United States or aids, abets, counsels, commands, induces, or procures its commission, is punishable as a principal.

Thus, the offense of aiding and abetting occurs when a defendant willfully associates himself with the criminal scheme and willfully participates in the scheme. The accused must have had general awareness that his role was part of overall illegal activity and must have knowingly and substantially assisted the principal in violating a law.

For the aiding and abetting theory to be successful, the court must first find that the principal is guilty of the underlying offense; i.e. a violation of the Wire Act. Put bluntly, if the Wire Act does not apply, the aiding and abetting charge fails. Furthermore, and perhaps more important, advertising alone has rarely been found to be enough to support a charge of criminal aiding and abetting.

Thus, there is a real question about whether the federal government will be able to prevail if a media company aggressively defends this action. Moreover, the United States recently lost an appeal to the World Trade Organization where it was held that U.S. prohibitions on Internet gambling are unfair trade practices and that the United States should open its borders to international casinos.

These issues are also being addressed at the state level. North Dakota, Illinois and Georgia have pending legislation attempting to legalize Internet gaming in one form or another. These states may be viewing this as a means for revenue, similar to the United Kingdom, which also legalized some forms of Internet gaming. This issue is evolving and the Arent Fox Advertising Group is closely monitoring developments.

For more information, contact:

Anthony Lupo
202.857.6353
lupo.anthony@arentfox.com

Sarah Bruno
202.775.5760
bruno.sarah@arentfox.com