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I am just starting to learn Texas holdem, and I've heard that online poker is not legal, and also that it is. Which is it?

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As of February 2012, there are a number of steps being taken toward making it firmly legal. Grinderschool did a 13-minute video last weekend that takes a look at the current progress toward legislation: youtube.com/watch?v=cVaZ6m8Nl5I –  Jeffrey Blake Feb 16 '12 at 3:23
    
I assume you ask this question with specific regard to the USA? If so, could you update the title. If your question is more general in geographic terms, could you please state that. Thanks. –  Toby Booth Apr 5 '12 at 17:52
    
Update: it turns out there are online poker rooms in the US that are free to enter but offer real prizes, so I assume (correctly I hope) that there is no legal issue with free games. –  jacknad Apr 5 '12 at 18:32
    
@jacknad, that distinction may not matter. As below, in most states playing poker is not illegal. In states like Washington (Seattle, not D.C.) where online poker is written into law as a felony, I would not make the assumption that "free" makes it ok. –  Jeffrey Blake Apr 5 '12 at 19:24
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4 Answers 4

up vote 11 down vote accepted

Please, before you continue reading and make any decisions based on what I'm about to tell you, you must understand two important things:

  1. I'm not a lawyer. I can't even say that I dabble in law. I'm not an expert on these matters, and many people who are expert disagree with one another. As simple as your question may seem, it is not easy to answer.

  2. Everything I'm about to say applies to the United States only.

I've heard that online poker is not legal, and also that it is. Which is it?

Unfortunately, it seems to be both in the United States.

Bottom line:

There is no Federal law that makes playing poker online illegal.

There is, however, a Federal law (UIGEA) that makes some financial transactions to and from an online poker site illegal -- this law applies to the site itself, not the players. If there are any laws against playing online poker (as is the case in some states) and you add money to an online poker site, or withdraw money from an online poker site and use a US bank to do it, the poker site has broken this federal law by facilitating this transaction.

Each state in the union has different laws regarding the legal status of gambling activities. So, even though it might not be against Federal law to play online poker, it might be illegal in a particular state. Do some research.

The Federal Wire Act of 1961 is often cited as a law that makes online poker illegal. However, this too applies to the sites and not the players. Moreover, the DoJ in 2011 released a formal legal opinion that the Wire Act applies only to sports betting. The US Circuit Court of Appeals issues a similar ruling.

EDIT:

I think still more needs to be said here.

Although there is no Federal law that says "playing poker on the Internet for real money is a Federal crime," the legal environment is still quite hostile.

The DoJ recently shut down 3 major online poker sites (PokerStars, FullTilt Poker & Cereus) and seized all the money held by the players there. After some time, one of those sites was able to resume operations in the rest of the world, but none of them have been able to resume operations in the USA, and they probably never will. The legal basis of this operation was the UIGEA which, as I've said, applies to the sites, not the players -- but the actions effected the players as well.

A few days ago, the Department of Homeland Security shut down another poker network (Everleaf Gaming).

Clearly, any American who chooses to play poker online for money is taking a risk with that money.

Some would say that you might conclude from this that the Federal government is of the opinion that playing online poker for real money is itself an illegal activity, and something that should be stopped. I would have to agree with this. Even though there is nothing black-and-white that says that actually playing is illegal, the Federal government certainly appears to be efforting to make it nigh impossible for Americans to play poker online for real money.

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A good resource for current proceedings regarding the state of US law regarding poker is The Poker Players Alliance or theppa.org. –  Toby Booth Feb 16 '12 at 2:30
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The UIGEA does not make financial transactions to online poker sites illegal. It makes financial transactions to "illegal online gambling" illegal for banks to process, and sets up heavy penalties for violations. Those penalties are enough that virtually no bank wants to risk entering into the grey area that is online poker. –  Jeffrey Blake Feb 16 '12 at 3:17
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Also...Stars, Tilt, and Cereus were involved in money laundering and fraud. They had shell companies to process payments and backroom deals with banks. Those are the charges that the DOJ has prosecuted them on, not the practice of hosting online poker. –  Jeffrey Blake Feb 16 '12 at 3:19
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John, is there anyway that you could edit to correct your paragraph about the UIGEA? The transaction is only illegal if some other law is broken (e.g. money laundering is involved or the gambling activity it is funding is in-and-of-itself illegal). –  Jeffrey Blake Apr 5 '12 at 19:27
    
OK, here's an interesting question: If that money was seized by the DoJ, where did all that money go ? Did DoJ just take it and used it to buy new cars ? Isn't that just a nice big fancy way of robberry / theft ? And we're talking of course about millions and millions of dollars. –  Radu Murzea Sep 21 '12 at 6:35
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I am not a lawyer. What follows is my understanding of the facts, having been involved in the online poker industry since 2004:

Summary: With the exception of a few states, no law is on the books to make online poker illegal. This means that it is legal in most areas of the United States.

In the United States, our legal system operates on the concept of citizens being free to do anything that is not prohibited by a law. To date, there has been no law which makes online poker illegal at the federal level. Thus it defaults to being legal.

For a time, some members of the government sought to interpret the 1961 Wire Tap Act (which has a clause that makes it a crime to place sports-betting wagers over state lines via interstate telephone line) as also outlawing any form of gambling over the internet. Courts have since found this interpretation to be inaccurate, and the US Department of Justice officially declared in late 2011 that they do not find online poker to violate this law.

In 2006, an often-misunderstood law was passed called the Unlawful Internet Gambling Enforcement Act (UIGEA). This law set in place many large penalties for facilitating financial transactions for "illegal online gambling" however the law fails to define what illegal online gambling consists of. That means that it falls to other laws to define what is or is not legal. And again, there are no federal laws that prohibit online poker play, so it defaults to legal. The authors of the UIGEA surely believed that they were including online poker in the scope, under the mistaken assumption that other laws made online poker a crime. It is likely that they thought the Wire Tap Act applied here. The one thing that this law did, however, was put banks on notice that if they processed a gambling transaction which was not legal, they could face serious penalties. Most chose to prohibit all online gambling transactions to avoid this risk entirely.

There are state laws that criminalize online poker. In the state of Washington, for instance, it is a felony to play online poker. Since there is no law at the federal level, the state law makes the ruling. By contrast, several states are at various states of progress to explicitly declare it to be legal to play online poker and to adopt a licensing plan in order to tax poker sites which operate in their borders. Nevada is at the lead of this, as they passed a law to this effect in December 2011. As of February 2012, a half dozen casinos already have applications in to the Nevada Gaming Commission to become licensed online poker rooms. Nevada citizens are expected to have fully legal and licensed intrastate online poker (as in only within Nevada, since Nevada can't pass laws that apply to other states) by the end of 2012.

Many think that the legal situation faced by Pokerstars, Full Tilt Poker, and Cereus is an indication of the game being considered illegal. This is not true. Each of these sites were involved in criminal practices of money laundering and/or fraud. They set up shell companies so that banks did not know they were authorizing transactions for online gambling (as the bank would see the transaction as, for instance, a jewelry purchase). Others set up backroom deals with banks to process payments for states like Washington and Utah, where laws were in place to prohibit online poker at the state level. Money laundering and fraud are criminal offenses, and the sites were prosecuted under these laws.

Some think that the fact that only US players on Pokerstars have received funds back from the money they had in their account is evidence that the US Government is holding the funds. This too is largely untrue. I do not know the full details of the Cereus network, as I did not have money there, and they have stayed out of the spotlight since Full Tilt made a great target for it. Full Tilt players have not received funds because Full Tilt violated terms of their license by combining business funds and player funds, and then using this combined pool of funds to pay bonuses to their executives and professional poker players. The players have not received funds because, quite simply, the site does not have the money.

In mid-February 2012, the Everleaf gaming network ceased operations in the US. This has been cited as further indication that the law is murky. It has not yet come to light what exactly is behind this change, but there are two things that have been made clear:

  1. Everleaf funds were properly segregated, so players will get their money back eventually.

  2. The process Everleaf followed for cashouts/withdrawals lead to major delays (multiple months) for many US players who sought to withdraw their funds even while the site was still fully operational in the US.

My guess is that there was something fishy going on here, but I do not yet have enough information to state that definitively. The article linked from John Dibb's answer mentions an undercover officer in Washington State, which indicates that Everleaf was offering play to states where it was illegal AND that they were violating the UIGEA by processing transactions from an area where play was illegal.

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Here is the question you should really ask yourself...

Is it really worth playing online poker now?

The problem with the questionable legality and the difficulty in setting up accounts and putting funds on accounts, is that your common average poker player isn't going to jump through those hoops.

Professionals and the better smarter players are going to though.

It is just not a great environment to try to play online. IF online poker does become completely legal, it might be a golden time as schools of fish flock to online poker to be fleeced.

But for now, I would avoid it.

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"Why is playing online poker now?" -- did you miss a word there? –  Chris Moore Mar 7 '12 at 7:43
    
Opps thanks, I see my error now –  John Sonmez Mar 7 '12 at 20:27
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Depends on specified country jurisdiction.

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