California Tribe Launches Online Casino, Defying State and Federal Law

My first online gambling experience was with a football themed game of bingo. I can't remember the last time I played bingo—so I'm no expert—but I was tasked with testing out Desert Rose Bingo, a potentially illegal online gambling operation set up by an aboriginal tribe in California.

It's easy to play. Basically, I loaded $10 into my account, clicked through a few screens that determined the size of my bet and the theme of the game—examples include pirates and aliens—and waited until the coin started rolling in.

The actual (digital) bingo is automated, so it happens pretty fast. And about 30 minutes later, after I sunk about $7 into losing bets, BINGO: I'd won a whopping $6.66.

Playing games of illegal dime bingo may not seem like huge news, but it is, representing a defiant challenge from the Iipay Nation of Santa Ysabel to the US Government.

Iipay—the aboriginal nation in Southern California—is entering the massive legal gray area that is online gambling. The tribe's argument? The servers and all the technology required to make the bets is located on their land, and as a result governed under its laws derived from the legal concept of tribal sovereignty.

For years, online gambling has been illegal under federal law deriving from the Wire Act of 1961. The prohibition was solidified following a Fifth Circuit ruling in 2002, and further codified in the Unlawful Internet Gambling Enforcement Act in 2006. Since, the feds have successfully prosecuted several high profile gambling sites such as Bodog, Poker Stars, and Full Tilt Poker.

Despite the federal ban, more recent interpretations of the Wire Act suggest that it only targets cash moving across state lines. In other words, online gambling that goes on within a state's boundaries may be allowed. That loophole—which hasn't yet been tested in court—inspired Nevada, Delaware, and New Jersey to explicitly legalize some form of internet gambling.

The Iipay are among the first to actually push this legal theory to the limit, by offering online gambling without California state's express permission.

The Iipay insist that their online casino is legit. "It's legal, and compliant with IGRA [the federal Indian Gaming Regulatory Act]," David Chelette, president of Iipay's online gaming company PrivateTable.com, told me over the phone. "All the servers and gaming activity is on tribal land—all the infrastructure that enables this is located on tribal land, even though the players are all over the state."

Aside from the feds, it's also not clear whether or not California is okay with tribes operating online casinos.

Several bills aimed at regulating the online gambling industry have failed at the state level. And the state's Gambling Control Commission doesn't give out licenses for online casinos, according to spokeswoman Pamela Mares.

When I contacted a lawyer familiar with tribal gambling related laws in California, the best answer I could get was, "It's not legal. But it's not illegal either."

Heidi Staudenmaier, a Phoenix based partner at Snell & Willmer, explained that the tribe's new business has not been tested in courts.

"The question is whether or not California is going to try and take some kind of action," she said over the telephone. "The bottom line is that the tribe can continue to do this until someone—the state, feds, Justice Department, or maybe a combination—tries to shut them down."

California's Justice Department didn't return several phone calls.

Both Desert Rose Bingo, and a poker game that's supposed to launch in a couple weeks, will allow players located anywhere within California to make cash bets online, according to Chelette.

"Tribes have a long history of being involved in gaming, in terms of regulating it and running casinos," he told me. "It's taken a long time for all the pieces to fall into place, we've been working on getting it up and running for about three years. This is a good niche for us."

Whether or not the federal and state governments allow Iipay Nation to operate its online casino may have an enormous impact on the tribe's future. Deep in the red—to the tune of nearly $54 million—Iipay Nation owes money to San Diego County, the Yavapai Apache Nation of Arizona, and others.

The unpaid debt is a result of a brick and mortar casino project gone awry, eventually causing it to go belly-up earlier this year.

"[The digital casino is] not something that's right for every tribe out there, but for smaller tribes in rural areas where there aren't many job opportunities, it's a net benefit for the community," Chelette said. And if the Iipay Nation manages to overcome the legal obstacles, it may well pave the way for other cash-strapped tribes to start online casinos too.