NCLGS Panel: Coalition Of State Enforcement Would Help Shut Down Black, Gray Markets

Increasingly under pressure from online gambling platforms that are either illegal or operating in a regulatory gray space, states still have several avenues to protect their tax coffers and assure consumers’ protection, panelists at the National Council of Legislators from Gaming States (NCLGS) Winter Meeting in San Juan, Puerto Rico, said on Friday. 

Key among them: pressuring tech or payment vendors with enforcement for working with sweepstakes casinos domestically, and encouraging interstate and federal cooperation that reaches offshore websites.

An August study released by the American Gaming Association (AGA) asserted that unregulated iGaming companies reaped $18.6 billion in revenue last year, which represented a 38% increase since 2022.

What can states do to combat unlicensed casinos?

Jay Atkins, FanDuel’s director of government affairs, and a former first assistant attorney general of Missouri, said that modernizing state gambling laws is a necessary first step in all cases because many current laws “contemplated guys throwing dice in a back alley, where you could go and arrest somebody for running an illegal gambling game, collect your evidence, drag them in front of a local jury, and shut down the game.”

He continued, “The law has not caught up with the technology and the modus operandi of the modern illicit gaming facilities.”

Atkins advocated for attorneys general to more often use concurrent original jurisdiction, where two courts — such as state and federal — pursue the same case at the same time for greater impact.

Ohio First Assistant Attorney General Jonathan Blanton said there’s difficulty in curbing “what is essentially a conduct that seeks to circumvent the law out of existence.”

“Criminals don’t respect civil process,” he said. “It’s a piece of paper [reading], ‘Hey, stop breaking the law.’ Cool. They just pop up as a different entity.”

The fix, he said, is following the money. And grabbing it.

“Until we start rooting out the ways that they’re moving money, the way that they’re accessing our markets, we’re not getting to the whole root cause of the problem,” he said. “Now, as far as what regulators can do, proper regulation, geofencing, identity of principles and locations, making sure there’s an actual presence within the states that we have something to latch on to, because if the actor is located outside of our jurisdictional boundaries, there’s not a lot we can do.

“If they’re in the Philippines … great, here’s a letter from Ohio saying ‘knock it off.’ Cool. We don’t really get much out of that. So giving us the ability to snatch up the money, to close down the mechanisms of commerce, to shut down their access to the markets, and to lay hands on people would be very helpful.”

Arin Ray, the director of ZeroHash, said on a Thursday panel that his payment platform stops processing transactions to sweepstakes casinos from states make that make it illegal.

Fed up? Fed-up

Different states have differing levels of resources available for these types of cases. Extending beyond their state lines is rare. So former U.S. Attorney Greg Brower said legislators should attempt to utilize federal might whenever possible.

“When the federal Department of Justice is working the way it should be working, it can be a powerful ally in this effort, coordinating on a nationwide basis, enforcement activities,” he said. “And let’s face it, a lot of the activity we’re talking about is interstate, so there’s a jurisdictional hook for the FBI and for the feds.

“I think to the extent that legislators can encourage their state prosecutors, state AGs to work close with the feds, and to the extent the feds can be persuaded to focus on things like this as opposed to other things that maybe don’t deserve as much attention these days, we could all benefit.”

There’s even more need to seek federal intervention when the targeted gambling platform is foreign, he said. Several states were successful last year in coercing the Curacao-based Bovada to vacate, but prosecuting foreign operators is difficult.

“It’s even more difficult for states because states typically do not engage in that kind of offshore international prosecution effort,” he said. “So it can be very difficult. I think in cases like that, it’s really incumbent upon the states to try to convince the FBI that there’s a Wire Act violation, a federal law violation. But even then, a lot of U.S. attorneys are going to say, ‘You know you can’t arrest anybody. So what’s the point?’ Well, the Bovada example is an example of how something can be done. But yes, it, again, it’s challenging when it comes to offshore.”

A group of 50 state attorneys general in August implored the Department of Justice to take a broader role in shutting down offshore sites.

Wallach: AG opinions powerful in sweepstakes tussle

Gambling attorney Daniel Wallach advocated for greater use of what he called the “severely underutilized” power of legislators to call for attorney general opinions in opposition of sweepstakes casinos. While these opinions are not law, they carry great weight, and one issued by Louisiana AG Liz Murrill, he noted, was a powerful rebuke after Gov. Jeff Landry vetoed a sweeps ban in June, deeming it too broad.

“Within a matter of weeks, we went from a veto to a formal opinion letter from the AG’s office, and subsequent to that, every sweepstakes casino operator has left Louisiana,” Wallach said. “It takes many months to enact a legislative ban, but in a matter of weeks, you could drive the market out through an AG’s opinion letter and cease and desist letters.”

Wallach said that for domestic sites that operate outside licensure, like sweepstakes casinos, which label themselves as promotional free-to-play outlets, the licensed “supply chain” of vendors should be a target. This, he said, would include geolocation services, banks, and payment processors. Provisions holding these peripheral participants to account have been included in numerous state laws specifically targeting sweeps casinos’ “dual-currency” system, where players can accrue redeemable “sweeps” coins through promotions or game play.

“Every potential vendor is now subject to criminal prosecution in those states by virtue of their participation in illegal sweepstakes casino products,” Wallach said. “So the legislature can widen the scope of the prohibition to include these secondary actors, and the state regulatory bodies can start looking closely about the extent to which their licensees may be participating in these enterprises as vendors and suppliers.”