Paragraph (1) provides that a person is guilty of an offense if he "owns, controls, manages, supervises, directs, conducts, finances, or otherwise engages in a gambling business." The term "gambling business" is defined in subsection (b) as a "business involving gambling of any kind that, in fact: (A) has five or more persons engaged in the business; and (B) has been in substantially continuous operation for a period of thirty days or more, or has taken in $2,000 or more in any single day."

This provision is quite similar to that found in 18 U.S.C. 1955. The Committee intends that the previously cited current case law be followed as to what kinds of person associated with the gambling busi- · ness may be counted in determining whether the business consists of "five or more" individuals. The Committee also intends that the criminal conspiracy section (1002) be deemed applicable to this offense and endorses the reasoning of those cases which have interpreted 18 U.S.C. 1955 as not barring a prosecution both for conspiracy to violate that section and the substantive offense. For example, if two persons agreed to establish a business involving gambling and thereafter performed an overt act to effect the agreement, they would be guilty of conspiracy to violate this section.

The Committee eliminated the exception for gambling activities conducted on behalf of charitable organizations, presently contained in 18 U.S.C. 1955, since it believes there is no reason for the exception other than in places where such gambling is legal under local law.37

The Committee has substituted the phrase "takes in $2,000 or more" for the more ambiguous "has a gross revenue of $2,000" in 18 U.S.C. 1955 in order to lay to rest any contention that proof of $2,000 in profits, rather than gross receipts, is required.38

Paragraph (2) provides that a person is guilty of an offense if he receives lay-off wagers or otherwise provides reinsurance in relation to persons engaged in gambling.39

Lay-off wagers are a form of reinsurance in which a bet is placed by one gambler with another to safeguard himself from loss through compensatory arrangements.40 Although lay-off activities can be reached under paragraph (1), this offense is designed to apply to any lay-off man, regardless of proof as to the number of persons in his operation, the continuity of his enterprise, or the volume of business he does. This will obviate difficulties of proof with respect to lay-off men, virtually all of whom, as a practical matter, will be conducting large scale operations.

The term "gambling" is not defined. However, the Committee intends that it be broadly construed to include, inter alia, pool-selling, bookmaking, maintaining slot machines or roulette wheels, operating card, dice, bingo, keno, or similar games; and conducting lotteries, policy, bolita, numbers, or similar games or selling chances in such

games.

Paragraph (3) makes it an offense to carry or send "(A) a gambling device; (B) gambling information; or (C) gambling proceeds from within a state to any place outside the state."

37 See discussion of subsection (c) infra; see also Final Report, § 1831.

38 18 U.S.C. 1511, the companion provision to 18 U.S.C. 1955, has not been carried forward in this section. Its purview is deemed sufficiently covered by the general conspiracy and bribery provisions of the proposed Code.

The National Commission by contrast made the fact of receiving lay-off wagers or providing reinsurance a circumstance that increased the grading of the offense of engaging in an illegal gambling business. See Final Report. § 1831 (3) (c).

40 See R. King, Gambling and Organized Crime, p. 232 (1969).

41

The term "gambling device" is defined in subsection (b) to mean any device covered by 15 U.S.C. 1171 and not excluded by 15 U.S.C. 1178 (2) or (3); or any record, paraphernalia, ticket, certificate, bill, slip, token, writing, scratch sheet, or other means of carrying on bookmaking, wagering pools, bingo or keno games, lotteries, policy, bolita, numbers, or similar games, or any equipment for carrying on card or dice games other than cards or dice used in such games.

The term "gambling information" is defined in subsection (b) to mean "information consisting of, or assisting in, the placing of a bet or wager, or the purchase of a ticket in a lottery or similar game of chance." This is similar to the definition in 18 U.S.C. 1084, but expands and clarifies the term specifically to include lotteries.

This offense incorporates the proscriptions of 15 U.S.C. 1172, barring the interstate transportation of gambling devices; 18 U.S.C. 1084, prohibiting the interstate transportation of gambling information; 18 U.S.C. 1301 and 1302, restricting the importation, interstate transportation, or mailing of lottery tickets; 18 U.S.C. 1952, proscribing the interstate distribution of gambling proceeds; and 18 U.S.C. 1953, outlawing the interstate transportation of wagering paraphernalia. Paragraph (4) provides that a person is guilty of an offense if he otherwise establishes, promotes, manages, or carries on an enterprise involving gambling.

This broadest of the provisions in this section is substantially similar to the offense currently found in 18 U.S.C. 1952. The term "enterprise" is defined in section 111 to include any business undertaking by an "organization" or "group" (terms also defined in section 111). B. Culpability

The conduct in paragraph (1) is owning, controlling, managing, etc., a business. Since no culpability standard is specifically designated, the applicable state of mind that must be proved is at least "knowing," i.e., that the offender was aware that he was, e.g., engaging in a business.*2 The element that the business was a "gambling business" is an existing circumstance. As no culpability level is specifically prescribed, the applicable state of mind to be proved would normally be at least "reckless," that is, that the offender was aware of, but disregarded, the risk that the business was of the type presented. However, the term "gambling business" is defined in subsection (b) to mean a business involving gambling that, "in fact," (A) has five or more persons engaged in the business, and (B) has been in substantially continuous operation for thirty days or more, or has taken in $2,000 or more on any single day. By the operation of section 303 (d) (3), those elements of the definition that are preceded by the words "in fact," require no proof of any mental state. Thus, the offender must merely be shown to have been reckless as to the fact that the business involved "gambling." This is in accordance with current law since the courts under 18 U.S.C. 1955 have not required proof of scienter as to the size of a volume of business of the illegal activity.

41 The devices excluded are machines designed primarily for use at a racetrack in connection with parimutuel betting, machines not designed primarily for gambling and which when operated do not deliver, as a result of the application of an element of chance, any money or property or entitlement to the same (e.g., a pinball machine or coin-operated bowling alley), and certain devices designed and manufactured primarily for use at carnivals or county or State fairs.

42 See sections 303 (b) (1) and 302 (b) (1). 43 See sections 303 (b) (2) and 302 (c) (1).

The analysis of culpability in the remaining paragraphs is similar. Thus, in paragraph (2) the conduct is receiving lay-off wagers or otherwise providing reinsurance in relation to persons, and the applicable mental state is at least knowing. With respect to the fact that the persons were engaged in gambling, the applicable state of mind. that must be proved is, at a minimum, reckless.

In paragraph (3), the conduct is carrying or sending something, and the applicable mental state that must be shown is at least knowing. The element that the thing carried or sent was a gambling device, gambling information, or gambling proceeds is an existing circumstance as to which the state of mind that must be shown is reckless. The same holds true for the circumstances that the device, information, or proceeds be sent from within a State to a place outside the State.

In paragraph (4), the conduct is otherwise establishes, promotes, manages, etc., an enterprise. The applicable mental state is knowing. The fact that the enterprise involves gambling is an existing circumstance as to which the state of mind that must be proved is at least reckless.

4. Defenses

Subsection (c) sets forth a variety of defenses applicable to the offenses described in this section.

Paragraph (1) provides that it is a defense to a prosecution under subsections (a) (1), (a) (2), or (a) (4) that the kind of gambling, the gambling business or enterprise, the manner in which the business or enterprise was operated, and the defendant's participation therein, were legal in all States and localities in which it was carried on, including any such place from which a customer placed a wager with, or otherwise patronized, the gambling business or enterprise, and any such place in which the wager was received or to which it was transmitted.

Under current law, the fact that the gambling activity was not lawful in all States affected is an element of the offense. The Committee determined that the legality of the gambling activity should instead be made a matter of defense. First, the illegality of the gambling business or enterprise under State law will be clear in the overwhelming majority of cases. Hence, there is no point in making proof of illegality a requirement in all cases. Second, in those infrequent situations involving some novel form of gambling the status of which is unclear under State law, it is more equitable to require the defendant to produce some evidence of the legality of his conduct, bearing in mind that he has, at the very least, recklessly embarked on a continuous and large scale operation the legality of which is open to question. Upon the introduction of sufficient evidence to raise the issue, the prosecution will then bear the burden of proving beyond a reasonable doubt that the defense was not established.

The remaining defenses principally codify existing law. Thus, paragraph (2) provides several defenses to a prosecution under subsection (a) (3).

The first of these is that the gambling device was carried or sent. into or was en route to, "solely a state and locality in which the use of such a device was legal." This is similar to the defense in 15 U.S.C. 1172.

The second is that the defendant was a common or public contract carrier, or an employee thereof, and was carrying the gambling device in the usual course of his business. This is drawn from 18 U.S.C. 1953. The third defense is that the defendant was a player or bettor and the gambling device he was carrying or sending was solely a ticket or other embodiment of his claim. This is consistent with the practice under 18 U.S.C. 1301 and 1302, which has not been to punish the bettor or player himself for transporting his own ticket. The National Commission suggested a similar provision.**

The fourth defense is that the transmission of the gambling information was made solely in connection with news reporting. This carries forward the specific exemption in 18 U.S.C. 1084 and the case law exemption created to 18 U.S.C. 1304.

The fifth defense is that the transmission of the gambling information was solely from a State and locality in which such gambling was legal into a State and locality in which such gambling was legal. This is also derived from 18 U.S.C. 1084.45

The sixth defense is that the gambling proceeds were obtained as a result of the defendant's lawful participation in gambling which was legal in all States and localities in which it was carried on, including any State and locality from which the defendant placed a wager or otherwise participated in gambling activity, and any such place in which his wager was received or to which it was transmitted. This is currently the law under 18 U.S.C. 1952.

5. Establishing Probable Cause

Subsection (d) contains a provision virtually identical to that in 18 U.S.C. 1955. It provides that if five or more persons are engaged in a gambling business, and such business operates for two or more successive days, then, solely for the purpose of obtaining warrants for arrests, interceptions of communications, and other searches and seizures, probable cause that the business has taken in $2,000 or more in any single day "shall be deemed to be established." The corresponding provision in 18 U.S.C. 1955 has been upheld as constitutional on the ground that Congress could rationally conclude from statistics indicating revenues received by gambling businesses that a gambling operation having five or more participants and doing business for two successive days would reap at least $2,000 in a single day. Significantly, this presumption applies only with respect to the requirements of proof for warrants and does not apply at trial. Moreover, the words "shall be deemed to be established" (which appear also in 18 U.S.C. 1955) do not create an irrebuttable presumption, but only an inference to be drawn absent contrary indication.46

6. Jurisdiction

Subsection (f) provides that there is Federal jurisdiction over an offense under paragraphs (a) (1) or (a) (2) if it is committed within the general jurisdiction of the United States. The general jurisdiction is defined in section 202 to include all States, all places and

44 See Final Report, § 1832(d) and Comment, p. 263.

47

45 An issue has recently been raised whether State-conducted lotteries violate Federal law (i.e.. 18 U.S.C. 1301-1303). It should be noted that section 1841 avoids this result by consolidating Federal gambling statutes into a single provision, thus making the defense in 18 U.S.C. 1084 (b) generally available.

48 See United States v. Palmer, supra note 28: United States v. DiMario, supra note 4; United States v. Politi, 334 F. Supp. 1318, 1323 (S.D.N.Y. 1971).

47 The term "state" is defined in section 111.

Section 1842.

waters which are within the special maritime or territorial jurisdiction of the United States (defined in section 203), and the airspace overlying such States, places, and waters. In essence the general jurisdiction defines the full extent of United States jurisdiction except for extraterritorial jurisdiction. This broad scope of jurisdictionapplicable to the offenses of engaging in gambling business and providing reinsurance for gambling-is based upon existing law 48 and implements the congressional finding in section 801 of the Organized Crime Control Act of 1970 that large-scale gambling has an effect upon interstate commerce and the facilities thereof. Thus, this section reaches gambling ships, provided they fall within the definition of "gambling business" in paragraph (a) (1).

49

There is jurisdiction over an offense described in paragraphs (a) (3) or (a) (4) if movement of any person across a State or United States boundary occurs in the planning, promotion, management, execution, consummation, or concealment of the offense, or in the distribution of the proceeds of the offense. This is basically consistent with the jurisdictional purview of 18 U.S.C. 1952.

This subsection does not carry forward the prohibition on the sale of lottery tickets by Federally insured banks. Similarly, small scale gambling activities conducted wholly within Federal enclaves are not covered. However, such activities may be punished under section 1863 (Violating State or Local Law in an Enclave) if carried out in violation of the law of the State in which the enclave is situated. In such a case, although the Federal government has no direct interest in punishing the activity, it would do so because of the policy of not permitting enclaves to become havens for the violation of State. laws.

7. Grading

An offense under paragraphs (a) (1) or (a)(2) is graded as a Class D felony (up to seven years in prison). An offense under paragraphs (a)(3) or (a) (4) is graded as a Class E felony (up to three years in prison). These distinctions and grading levels generally accord with existing laws.

SECTION 1842. DISSEMINATING OBSCENE MATERIAL

1. In General

This section reflects the view that obscene material is potentially harmful under certain circumstances and that the Federal Government should continue to play a role in suppressing its distribution. However, as compared with current law, the Committee perceives the Federal interest in punishing the dissemination of obscene material as less urgent and pervasive. This results in part from the Supreme Court's recent agreement upon an obscenity test that includes, inter alia, an ability to determine the obscenity of materials on the basis of State or local community standards. This should enable States and localities more effectively to prosecute such cases, thereby diminishing the need for Federal involvement. The Committee is of the view that, as

48 See 18 U.S.C. 1955.

49 That finding has been uniformly sustained as resting on a rational foundation. See T'nited States v. Becker, supra note 27: United States v. Riehl, supra note 28; United States v. Hunter, supra note 4 ; United States v. Meese, supra note 24.