Recalculating: Navigating the Threat of Intermediate Routing Prosecutions under the Wire Act

The sports-wagering landscape has evolved dramatically in the past 20 years. In 1992, Congress passed the Professional and Amateur Sports Protection Act (PASPA), 28 U.S.C. § 3702. The Act prohibited any state from authorizing any entity within its borders to sponsor, operate, or promote any scheme involving betting on competitive sporting events. Fifteen years later, the Supreme Court struck down PASPA as a violation of the Tenth Amendment’s anti-commandeering principle. Since PASPA was struck down, states have rapidly moved to legalize sports wagering within their borders. Before PASPA was struck down, only one state, Nevada, permitted full-scale sports wagering activities. In the three-and-a-half years since PASPA was struck down, as of January 2022, more than half of all U.S. states have passed legislation to authorize sports wagering.

Enter the Wire Act, the federal law banning interstate sports-wagering activities over “wires,” including wired Internet connections. This law remains the most significant looming impediment to this burgeoning industry, in part because its terms leave significant ambiguity regarding how it extends to communications over the Internet. The Wire Act, 18 U.S.C. § 1084(a), prohibits use of interstate communication technology in the U.S. to place bets on sporting events. Notably, this law was written three decades before the invention of the Internet, and the Supreme Court has never weighed in on whether or how this law applies to communications over the Internet. However, among the lower courts that have faced the issue, the Act has been held applicable to communications over the Internet.

So what exactly does the Wire Act prohibit? In one reading, the Wire Act prohibits wired Internet communications placing bets or wagers across state lines. Given that many states since 2018 have passed laws authorizing sports wagering within their borders over mobile devices, an important question for industry participants is whether the Wire Act prohibits communications that start and end in the same state, and only cross state lines temporarily along the way, known as intermediate routing. To date, this issue has not been addressed through binding regulation or case law.

In the mid-2000s, when anti-wagering sentiment was at its peak, regulators repeatedly took the position that the Wire Act’s prohibitions do extend to intermediate routings. More recently, in 2018, the U.S. Department of Justice’s Office of Legal Counsel (OLC) issued an opinion rejecting the notion that a 2006 federal wagering law’s exclusion of intermediate routings should inform how the Wire Act is interpreted. The unmistakable inference from this section of the 2018 OLC Opinion is a warning that DOJ prosecutors might interpret intermediate routings to fall within the reach of the Wire Act. While prosecutors have yet to bring a prosecution based on an Internet intermediate routing, the risk of prosecution arising from this sweeping interpretation chills innovation and deters risk-averse entities like large financial institutions from entering the industry. The legal question is thus an important one, and it is the subject of this article.

The question also matters because there is a non-trivial risk that Internet-based communications of licensed sports-wagering enterprises operating in a state where mobile sports wagering is allowed will be routed through other states. Further, if licensed sports-wagering operators cannot safely use the Internet to receive bets and issue payouts within a single state, they must take a number of complicated and expensive steps to reduce the risk of intermediate routing. Moreover, the continuing legal uncertainty deters risk-averse market participants such as large financial institutions from entering the industry. In light of the recent dramatic state trend toward legalization of sports betting and the attendant shift in moral and social acceptance of such conduct, there is a growing tension between state laws permitting sports wagering within their borders and the legal uncertainty emanating from the Wire Act. This question accordingly must be addressed and regulatory clarity provided to allow the sports-wagering industry to innovate and grow.

In our view, as explained below, a careful textual analysis of the Act provides a clear answer—the Wire Act can and should be read to exclude intermediate routings.

The Better Reading of the Wire Act Is that It Does Not Extend to Intermediate Routings

The Wire Act’s provisions do not directly address the issue of intermediate routings. There is also no case law to date addressing whether intermediate routing of Internet communications falls within the scope of the Wire Act. If this question were to make its way before courts or regulators, its resolution would likely turn first and foremost on consideration of the statutory text.

The better reading of the Act’s text is that its prohibitions do not extend to intermediate routings of bets or information assisting in the placing of bets, even if those intermediate routings travel through states prohibiting sports wagering.

Specifically, the first subpart of this Act prohibits wagering entities from “knowingly” using wires “for the transmission in interstate or foreign commerce” to transmit (1) “bets or wagers” and also (2) “information assisting in the placing of bets or wagers” on sporting events. The safe harbor, by its express terms, excludes intermediate routings falling within the second category. The question, however, remains whether intermediate routings of intrastate bets and wagers placed over the Internet should also be excluded from the scope of Section 1084(a).

To answer that question, one must assess the meaning of the phrase “knowingly uses a wire communication facility for transmission in interstate or foreign commerce,” which modifies the first clause. The question is whether this phrase includes Internet communications originating in and destined for the same state, but which are intermediately routed through other states.

The textual analysis ultimately turns on the significance of the Act’s inclusion of the words “knowingly” and “for.” The term “knowingly” imports a “knowing” mens rea requirement into the statute. The question remains whether that knowledge requirement only modifies “uses a wire communication facility for the transmission . . . of bets or wagers” or also modifies the requirement that the “transmission [be] in interstate or foreign commerce.” The text makes clear that the knowledge requirement modifies the interstate transmission element for two primary reasons.

First, the grammatical structure of the clause suggests that the term “knowingly” modifies every element of this clause. The first clause of Section 1084(a) provides: “[w]hoever being engaged in the business of betting or wagering knowingly [a] uses a wire communication facility [b] for the transmission in interstate or foreign commerce [c] of bets or wagers” is guilty of an offense. No one contests that the defendant must know that the wire communication is being used for the transmission of “bets or wagers,” which requires extending the term “knowingly” to the last element of the provision. There is no reason to think that Congress would have intended the term “knowingly” to modify the most immediate element (use of a wire) and the most remote element (to place a bet or wager) but not the intermediate element (for the transmission in interstate commerce). Such a construction would be arbitrary and should be rejected.

Second, this narrower reading is bolstered by Congress’s inclusion of the word “for” in the interstate transmission clause. As defined by the Merriam-Webster Dictionary, the word “for” is “a function word used to indicate purpose” or “to indicate an intended goal.” It is also “used as a function word to indicate the object or recipient of a perception, desire, or activity.” Thus, by including the word “for” to modify “transmission in interstate or foreign commerce,” the provision makes clear that only those transmissions intended to be transmitted in interstate or foreign commerce should fall within the scope of the prohibition. Thus, based on the inclusion of both “knowingly” and “for,” the text is clear that the knowledge requirement extends to the interstate transmission requirement. The analysis should end here.

However, even were it possible to read the text more broadly to include unintentional transmissions in interstate commerce, the rule of lenity would counsel against such a sweeping interpretation. To understand why, it is important to stress that the broader interpretation would sweep in intrastate betting communications routed over the Internet that originate and ultimately arrive in the same state—including within states which permit sports wagering over the Internet. Thus, the broader reading would necessarily convert that entirely lawful conduct into unintentionally unlawful conduct solely based on the inadvertent routing of a communication through a second state. Because sports betting is now legal in many states, the failure to extend the mens rea requirement to the interstate transmission clause would remove the mens rea requirement from the only remaining morally blameworthy aspect of the conduct. As such, it would convert this law into a strict liability crime.

However, strict liability crimes are generally disfavored unless the provision expressly states that it operates without a mens rea requirement. Indeed, the Supreme Court has repeatedly rejected the invitation to construe a statute as potentially imposing criminal sanctions on “a class of persons whose mental state . . . makes their actions entirely innocent.”The Court has emphasized that “‘[t]he contention that an injury can amount to a crime only when inflicted by intention is no provincial or transient notion. It is as universal and persistent in mature systems of law as belief in freedom of the human will and a consequent ability and duty of the normal individual to choose between good and evil.’” Accordingly, given that the Wire Act expressly includes a mens rea element, the rule of lenity would strongly counsel in favor of the narrower reading of this provision.

Conclusion

There remains immense untapped growth for the sports-wagering industry in America, but that potential is stifled by the significant legal uncertainty created by the Wire Act. Furthermore, OLC plays an important role in conveying which kinds of prosecutions are blessed (or not blessed) by DOJ. Thus, even though OLC’s opinions do not create binding law, they play a crucial role in providing legal clarity to the industry. Regulatory guidance is necessary to provide this much needed clarity to this nascent industry. Accordingly, DOJ’s OLC should reduce the persistent legal uncertainty surrounding the Wire Act by issuing a formal opinion holding that the Wire Act does not extend to intermediate routings. It looks like the ball is in your court, OLC.