New questions raised on Internet poker bill

WASHINGTON - A bill to legalize online poker that is being written in Congress and that Nevada senators are trying to pass by the end of the year could be challenged in court and found unconstitutional, according to a legal analysis by a former top government attorney.

The bill would set up a framework to license and regulate Internet poker companies, and to nourish a U.S.-based online poker industry. But former U.S. solicitor general Paul Clement said he found flaws in segments of the bill that seek to punish overseas providers that ran games in the United States and continued to take bets from U.S. players even after Congress enacted online restrictions in 2006.

The so-called "penalty box" provisions would prohibit those companies from applying for an online poker license for five years, and from selling their trademarks or software to others seeking a license.

Clement said the bill being formed by Sens. Harry Reid, D-Nev., and Jon Kyl, R-Ariz., "raises serious due process concerns."

He said it would deprive the providers of "significant property interest," and could be considered an unconstitutional "bill of attainder" because it effectively singles out a group for punishment without adequate protections for their rights.

Clement said he found similar flaws in an online poker bill that Reid and Kyl proposed late in 2010.

"In my view, the 2012 act suffers from the exact same problems as the 2010 act, and in some instances, the 2012 act's constitutional infirmities are even more pronounced," Clement said in a five-page memo sent to Kyl on Oct. 31.

Neither Kyl nor Reid commented Tuesday on the Clement analysis. Similarly, Sen. Dean Heller, R-Nev., who is involved in efforts to get the bill passed, was silent. In response to previous questions, a Reid spokeswoman has emphasized the bill is a draft version that was still being written.

Clement, who specializes in constitutional law, served as U.S. solicitor general from June 2005 until June 2008, representing the government in more than 60 cases argued before the Supreme Court.

Now in private practice, Clement analyzed the draft bill at the request of the Poker Players Alliance, which supports making it legal to play poker online but which also has called for changes in the Reid-Kyl draft. Among them: relaxed restrictions on overseas providers, and broadening the landscape so U.S. players can compete against counterparts from other countries.

The legal objection is one more potential obstacle facing proponents of the gaming bill as Congress nears the end of its 2011-12 session. While it would legalize online poker and benefit the state of Nevada and its casino companies that are at the front of the Internet poker line, it would clamp restrictions on most all other forms of Internet gaming.

Groups including the National Governors Association and the National Conference of State Legislatures have raised objections to the draft, seeing it as limiting states' opportunities to raise revenue from online lotteries and other forms of gambling.

Reid said last week he was still looking for an opportunity to move the legislation through the Senate.

"We don't have a path forward right now, but we're working" on it, he told a National Journal reporter.

The "penalty box" was aimed at companies like PokerStars, Full Tilt Poker and Absolute Poker, whose owners were arrested and had their sites shut down on April 15, 2011, what became known in the poker world as Black Friday. The executives and the companies were charged with money laundering and evading federal gaming restrictions.

Under an agreement reached with the Justice Department on Aug. 1, PokerStars agreed to pay $731 million to the government and to buy and operate Full Tilt, which had gone out of business. A portion of the settlement will be used to pay back U.S. players who are owed money by Full Tilt.

The deal allowed PokerStars to reopen for business in the United States if and when online poker becomes legal. In a separate agreement, Absolute Poker forfeited its assets to the government.

Anticipating legal challenges, the Reid-Kyl draft includes a boiler plate severability clause that says if any provision is declared unconstitutional, the remainder stays in effect.

The penalty box provisions enjoy support from the American Gaming Association, the government affairs arm of the U.S. commercial gaming industry whose president, Frank Fahrenkopf, said there was a reason for restrictions.

"A key strength of this draft legislation is its focus on eliminating illegal Internet gambling and penalizing those who violate U.S. law," Fahrenkopf said in a statement Tuesday. "The draft clarifies and restores federal laws, giving law enforcement communities the tools necessary to prosecute illegal online gambling operators and keep them out of the U.S. market once and for all."

Contact Stephens Washington Bureau Chief Steve Tetreault at stetreault@stephensmedia.com or 202-783-1760.