State law the determinant in deciding whether a financial transaction is 'illegal' or not, says judges panel.

The Interactive Media Entertainment & Gaming Association has lost it's New Jersey case against the Unlawful Internet Gambling Enforcement Act (see previous InfoPowa reports) in the 3rd U.S. Circuit Court of Appeals in Philadelphia following a ruling by a panel of three judges.

The appeal court upheld the UIGEA, rejecting a challenge from iMEGA that the federal prohibition was too imprecise in its definition of illegal gambling transaction and violated privacy rights. The ruling dashes hopes that a favourable outcome may have brought New Jersey a step closer to legalising online gambling at state level.

The 2006 federal law, which prohibits 'illegal' financial transactions with online gambling companies, was defended vigorously by the US Department of Justice last month (see previous reports). The law does not target the bet itself but criminalises bank or credit card transactions linked to the bet, reported Associated Press in analysing the finding.

In their decision, the judges clarified that the legality of Internet gambling transactions depends on state law where the bettor was located, and the laws where the betting operator was located. The court clarified that the UIGEA did not establish a blanket federal ban on Internet gambling.

"It bears repeating that the Act itself does not make any gambling activity illegal," wrote Judge Dolores Sloviter. "Whether the transaction...constitutes unlawful Internet gambling turns on how the law of the state from which the bettor initiates the bet would treat that bet, i.e. if it is illegal under that state's law, it constitutes 'unlawful Internet gambling' under the Act."

The court also rejected arguments that the law invades a gambler's right to privacy in the home.

iMEGA chairman Joe Brennan Jnr. said that the association was considering a further appeal, but saw some positives in the fact that most US states have not expressly outlawed online gambling.

He pointed out that whilst the federal US Justice Department has been insisting that there is a blanket ban on Internet gambling, the court's view was that the law of the state in which the bet is made is the determinant on whether the bet was illegal or not.

"If you go by that reasoning, if it's not illegal in that state, then it would not be a violation of federal law to process a transaction from a player there," he opined. "The court made it clear - gambling on the Internet is unlawful where state law says so. But there are only a half-dozen states which have laws against Internet gambling, leaving 44 states where it is potentially lawful. It's not perfect, but it's a good start."

By deferring to the law of individual states, the court followed tradition on gambling law in the United States, said Brennan. "States have always held the power to regulate gambling in this country, not the federal government," he said. "The court's ruling seems to say ‘back to the future' when it comes to regulating Internet gambling, so we will turn our attention to the states to make the case that this industry can be properly regulated and produce badly needed tax revenue."

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