How The Wire Act’s First Gambling Conviction Led To An International Incident

1961 was a simpler time. President John F. Kennedy just wanted to clamp down on organized crime and cut off their sources of revenue. He signed the Wire Act into law, which prevented gambling information from crossing state or international lines. For a while, it worked just fine. But in 1996, one stubborn, pioneering businessman left his job to start a bookmaking company in Antigua. He was one of 21 people charged in an FBI crackdown on online gambling.

But not only was he the first person charged under the Wire Act. His case’s defense led to a standoff between the United States and Antigua that remains unresolved after almost two decades.

Jay Cohen’s Ill-Fated Enterprise

In 1996, Jay Cohen made a career change to take advantage of the internet boom. (Which would swell into the dot-com bubble.) He moved to Antigua to start his sportsbook company. He set odds in Antigua, where gambling was legal. Customers could wire money to their accounts in Antigua, then call their bets in. Cohen’s company would manage the accounts and wire winnings back to his customers.

Unfortunately, Cohen started his company less than a year before the FBI started cracking down on illegal internet gambling. They were well aware of the internet’s implications for illegal gambling. Online gambling was one of the easiest ways to try to circumvent the United States’ anti-gambling laws. However, there weren’t any legal tricks that would justify offering illegal gambling services to Americans. (Cohen would learn this the hard way in his court case and both his appeals.) If Americans could place bets that violated American law, it was a no-go.

Starting in October 1997, the FBI started opening accounts and placing bets with Cohen’s company. They arrested him in March 1998. Cohen faced eight charges that violated some or all of the Wire Act’s provisions. In layman’s terms, he was super guilty. His original case and none of his appeals were ruled in his favor. (To no one’s surprise, running an offshore gambling site did not meet any “safe harbor” provisions.) Creative legal defenses aside, Cohen became known as the first person charged under the Wire Act.

And when Cohen’s lawyer saw one letter his client received in prison, the complexities of the Wire Act revealed themselves.

How Antigua Got Roped Into Cohen’s Case

Of Cohen’s prison letters suggested getting Antigua to sue the United States. Getting individuals to sue countries is one thing. But getting one country to sue another is quite the feat. But the crazy prison letter made one good point, which NPR summarized succinctly. The letter argued:

  • The United States only allowed in-person casino gambling.
  • The only online gambling the United States allowed was online horse racing.
  • If the United States outlawed all long-distance gambling, then there would be no conflict with the United States’ World Trade Organization (WTO) policies.
  • By only outlawing one form of long-distance gambling, the United States was discriminating against foreign casinos.
  • Discriminating against foreign casinos favors American casinos, violating WTO law.
  • This violation gives Antigua grounds to sue the United States.

That chain of logic convinced Cohen’s lawyer that his client still had a robust defense. In 2003, Antigua filed with the WTO to sue the United States and push back against America’s online gambling ban.

Why Online Gambling Was Important To Antigua

Antigua wasn’t just an ideal plaintiff because it was where Cohen’s business was. Gambling was also a critical part of its economy. In 2001, online gambling was the second-largest source of employment, edged out only by the tourism industry. Since the United States didn’t allow gambling, it was hurting Antigua’s ability to conduct international trade with the United States. Ultimately, the WTO ruled in Antigua’s favor, ruling the United States’ gambling laws violated WTO law.

The United States appealed the ruling. Under WTO law, the United States was supposed to avoid favoring American online gambling companies. The WTO didn’t think the United States was meeting its obligation. (It also didn’t think the United States’ online gambling prohibitions met the “moral defense” Islamic theocracies used to restrict international trade in alcohol.) Antigua won again.

Instead of changing its laws, the United States appealed again and changed its online gambling commitments to its WTO agreements. The WTO ruled in Antigua’s favor again, this time deciding that the United States could pay Antigua $21 million to make up for the loss to Antigua’s economy.

The United States did not–and still has not–paid Antigua a single dollar. Instead, the United States ignored Antigua and the WTO’s rulings. The United States hasn’t changed its laws, it hasn’t paid Antigua, and the conflict is ongoing.

The Wire Act And International Law

JFK probably never imagined the Wire Act leading to a WTO dispute. (Largely because the WTO was founded in 1995.) But charging an American citizen for running an illegal overseas gambling operation leading to an international trade dispute certainly would’ve been surprising.

However, our increasingly interconnected world makes that outcome less surprising. One of the lessons from the Great Recession in 2008 was how much countries depend on one another’s economies. When the housing bubble burst in the United States, the impacts rippled across Europe. And when Greece went bankrupt in 2009, President Obama worked with the European Union to ensure Greece could pay its debts. Greece defaulting on its loans would’ve caused a ripple effect that would’ve shattered the United States’ economy all over again. Today, what happens in other countries can affect ours.

If a large economy like the United States can be affected by other countries’ financial health, imagine the impact on a small country like Antigua. The United States’ laws prevented Antigua’s second-largest industry from tapping into a massive online gambling market. Reuters reports that Antigua has lost an estimated $315 million from 2003 to 2018, roughly a quarter of one year’s GDP–and a negligible fraction of the United States’ GDP.

Jay Cohen probably couldn’t have imagined that his case would raise such profound questions about international law, either. He just wanted his eight criminal charges dropped. But as the United States begins legalizing sports betting, these same questions about which countries can participate in the United States’ online gambling market may return. And as Antigua watches foreign companies like William Hill create a presence in the American market, the small Caribbean nation will view the United States’ emerging online gambling industry as a slap in the face.

About the Author

Chris Gerlacher

Christopher is a sports betting enthusiast and online gaming expert from Colorado Springs.