People have been gambling in the America since before its independence from Britain, a country which itself has a long history of government sanctioned gambling. But, since it's arguable that a large number of the early settlers were Puritans, the fact that gambling remains an issue of some debate in the USA is hardly surprising. Nevertheless, if the traffic through the airports of Nevada is anything to go by, Americans seem to be by and large pro-gambling.
The USA is a democracy with a constitution that governs what kind of laws can and can't be made. As it currently stands, there is no Federal law that specifically outlaws any form of gambling.
However, the individual member states can make up their own legislation governing gambling, and for the most part, it is heavily regulated. Many states do allow some form of gambling, whether it happens to be a lottery, betting on horse races, or a specifically limited zone where one or two casinos are licensed to operate. Nevada remains the only American state that allows all forms of gambling anywhere within its boundaries.
These limitations have given rise to a culture of gambling tourism, with gambling fans having to travel to the centre of America to enjoy a couple of hands of poker or a few spins on the slots. But the rapid rise of the online gambling industry changed all of that. Why travel so far to stay in an expensive and ugly hotel when you could enjoy many of the same thrills in the privacy and relaxation of your own home? The barrier to entry was now only a computer and an Internet connection.
While American citizens may have been excited about the possibilities of online gambling, many other parties weren't. These ranged from government bodies who resented that their prohibition of gambling was being circumvented, to the land-based casinos who foresaw their profits taking a knock as people revelled in the luxury of not having to visit them. The idea that people introduced to gambling over the internet might one day want to take a trip to Vegas to play the real thing seemed to have been ignored in the rush to erect a protectionist fence.
Predictably, a movement began to gain momentum to ban online gambling. Congressman James Leach started introducing Bills for the prohibition of online gambling as early as 2001, and although his first attempts failed dismally, it was only a matter of time before one got through.
The UIGEA was signed into law by President Bush. It is a highly controversial piece of legislation, not least because it was slipped into a larger bill that governs port security, seemingly moments before it was passed.
The language of the Act is extremely vague, and fails to ever define what "unlawful Internet gambling” actually is. Instead it makes it illegal for banks to perform any transfers to or from infringing online gambling companies, thus leaving the onus on the banks to interpret what constitutes unlawful Internet gambling.
Nevertheless, the law has effectively neutered the American market, with a massive number of casinos no longer accepting American players. The law is naturally under heavy challenge, with multiple efforts under way to either have the Bill repealed or new Bills passed to work around it.
Yes and no. Due to the State-based regulations surrounding online gambling, it depends on which state a person lives in. As long as the state does not explicitly outlaw gambling then gambling online is not illegal, no matter how difficult the UIGEA may make it to transfer funds.
People residing in Indiana, Illinois, Louisiana, Michigan, Nevada, New Jersey, New York, Oregon, South Dakota, Washington, Wisconsin, and most recently Kentucky should be advised that online gambling is possibly considered illegal in those states.
One other interesting footnote is that the Internet Skill Game Licensing and Control Act was brought before Congress in October 2008. It seeks to clarify the definition of selected games (e.g. poker, mahjong) which are not purely luck-based as games of skill, thereby exempting them from current gambling legislation. If this Act is passed, playing skill-based games such as these online for money will be completely legal. It will also bring a degree of regulation and taxation to the industry, and requires exclusions for underage and addicted gamblers. It will be interesting to see where this legislation ends up.
The Washington-based Competitive Enterprise Institute has an excellent paper which summarises the legality of online gambling in the USA, titled "The Truth About online Gambling". We highly recommend that you have a read of this paper.