Letter states that national banks are not prohibited by 12 USC 25a from providing normal banking services to a private entity that manages a state lottery.

O

Comptroller of the Currency

Administrator of National Banks

Washington, DC 20219

Interpretive Letter #1085

March 8, 2007 August 2007

12 USC 25A

Subject:

Banking Services for State Lottery Manager

Dear [ ]:

This is in response to your letter requesting confirmation that it would be legally permissible for

a national bank to provide normal banking services to the private manager of a state lottery. As

explained in more detail below, we agree that such activities would be permissible for a national

bank and would not violate 12 U.S.C. § 25a.

Proposed Activities

You related in your letter that you represent a client that is acting as a special financial advisor to

a state government (“State”). For a number of years, the State has operated a statewide lottery

(“Lottery”). Pursuant to legislation now pending in the State legislature, the State is considering

entering into a management agreement with a private, non-governmental party (“Manager”) to

manage operation of the Lottery on the State’s behalf. The Manager would be subject to

extensive oversight and regulation by the State and the State would continue to receive revenues

from the Lottery, less a portion paid to the Manager as a fee. The pending legislation would not

permit the creation of private lotteries; the only change would be the introduction of the Manager

to oversee the operation of the State Lottery.

The ability to obtain banking services would be important to the Manager, and it is important for

the State to be able to assure prospective Managers that they will be able to obtain banking

services once they are managing the Lottery. You noted that it would be practically impossible

to manage the Lottery without access to ordinary banking services

ersee the operation of the State Lottery.

The ability to obtain banking services would be important to the Manager, and it is important for

the State to be able to assure prospective Managers that they will be able to obtain banking

services once they are managing the Lottery. You noted that it would be practically impossible

to manage the Lottery without access to ordinary banking services. Although there is no intent

to involve a bank in the actual operation of the Lottery (e.g., in the sale or redemption of tickets),

the Manager will have operating and other funds that it will need to deposit for safekeeping. The

Manager will also need a checking account in order to pay its bills and to make disbursements to

winners of the Lottery. It is possible that a Manager might seek other ordinary banking services

from a national bank as well, such as bank loans or letters of credit.

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Federal Statutes

In 1967, Congress amended the National Bank Act to generally prohibit national banks from

participating in lotteries.1 Under this legislation, codified as 12 U.S.C. § 25a, a national bank

may not “deal in lottery tickets,” “deal in bets used as a means or substitute for participation in a

lottery,” “announce, advertise, or publicize the existence of any lottery,” or “announce advertise,

or publicize the existence or identity of any participant or winner, as such, in a lottery.” In

addition, a national bank may not permit “the use of any part of any of its banking offices by any

persons for any purpose forbidden to the bank” under the statute, and may not permit “direct

access by the public from any of its banking offices to any premises used by any person for any

purpose forbidden to the bank” under the statute

y of any participant or winner, as such, in a lottery.” In

addition, a national bank may not permit “the use of any part of any of its banking offices by any

persons for any purpose forbidden to the bank” under the statute, and may not permit “direct

access by the public from any of its banking offices to any premises used by any person for any

purpose forbidden to the bank” under the statute. Criminal penalties are provided for any person

who knowingly violates section 25a.2

A “lottery” is defined as including:

any arrangement whereby three or more persons (the “participants”) advance

money or credit to another in exchange for the possibility or expectation that one

or more but not all of the participants (the “winners”) will receive by reason of

their advances more than the amounts they have advanced, the identity of the

winners being determined by any means which includes —

(A) a random selection;

(B) a game, race, or contest; or

(C) any record or tabulation of the result of one or more events in which

any participant has no interest except for its bearing upon the possibility that he

may become a winner.3

It is clear that state lotteries such as the Lottery fall within this definition. In light of

these provisions, the State would like to confirm, in advance of contracting with a

Manager, that the Manager will be able to obtain banking services from a national bank.

Legal Analysis

We agree that 12 U.S.C. § 25a does not prohibit a national bank from taking deposits from, and

providing ordinary banking services to, the Lottery or its private Manager. Section 25a was

enacted in direct response to the development of state lotteries and particularly the lottery

adopted by New York, which originally involved the sale of tickets directly by banks.4

1 Pub. L. No. 90-203, § 1, 81 Stat. 608 (1967). The legislation also contained identical prohibitions for other types

of insured depository institutions. See 12 U.S.C

ted in direct response to the development of state lotteries and particularly the lottery

adopted by New York, which originally involved the sale of tickets directly by banks.4

1 Pub. L. No. 90-203, § 1, 81 Stat. 608 (1967). The legislation also contained identical prohibitions for other types

of insured depository institutions. See 12 U.S.C. § 339 (state member banks); 12 U.S.C. § 1829a (state non-member

banks); 12 U.S.C. § 1463(e) (savings associations).

2 18 U.S.C. § 1306.

3 12 U.S.C. § 25a(c)(2).

4 S. Rep. No. 727, 90th Cong., 1st Sess. 1, 2 (1967), reprinted in 1967 U.S.C.C.A.N. 2228, 2228-29 (“Senate

Report”).

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The legislative history makes it clear that this was the focus of the legislation. According to the

Senate Report, “[t]he purpose of [the bill] is to prohibit federally insured banks and thrift

institutions from selling lottery tickets to the public. . . . The bill would prohibit such institutions

from advertising or publicizing lotteries or permitting its premises to be used for the sale or

promotion of lottery tickets.”5

However, Congress was careful to make it clear that national banks would not be forbidden to

offer ordinary banking services, such as taking deposits, offering a checking account, or cashing

checks, to any person involved in a lottery. Thus, the statute expressly authorizes national banks

to provide such services:

Nothing contained in this section prohibits a national bank from accepting

deposits or cashing or otherwise handling checks or other negotiable instruments,

or performing other lawful banking services for a State operating a lottery, or for

an officer or employee of that State who is charged with the administration of the

lottery.6

The Report of the House Committee on Banking and Currency makes it clear that this provision

was intended to exclude normal banking services from the prohibitions of the statute:

There is no int

tiable instruments,

or performing other lawful banking services for a State operating a lottery, or for

an officer or employee of that State who is charged with the administration of the

lottery.6

The Report of the House Committee on Banking and Currency makes it clear that this provision

was intended to exclude normal banking services from the prohibitions of the statute:

There is no interference whatever with customary banking services. Banks may

continue to accept deposits, perform checking account services, make loans, and

perform any other services which they are now authorized to perform, without

being obliged to inquire into the nature of the customer’s business any more than

under existing law. The bill merely provides that the covered institutions cannot

directly participate in the gambling activities specified in the bill, or permit these

specified activities to be carried out on the premises under their control.7

The Conference Committee reaffirmed that paragraph (d) was added “to make clear the intention

not to prohibit the acceptance of deposits and the performance of other lawful banking

services.”8

Accordingly, the OCC has affirmed that national banks may provide normal banking services for

state lotteries.9 The Department of Justice, which is responsible for enforcement of the criminal

penalties, has also recognized that the intent of 12 U.S.C. § 25a appears to be the prohibition of

5 Id. at 1, reprinted in 1967 U.S.C.C.A.N. 2228, 2228.

6 12 U.S.C. § 25a(d).

7 H.R. Rep. No. 382, 90th Cong., 1st Sess. 2 (1967).

8 H.R. Conf. Rep. No. 1018, 90th Cong., 1st Sess. 1 (1967), reprinted in 1967 U.S.C.C.A.N. 2228, 2242.

9 Interpretive Letter No. 752, September 26, 1996, reprinted in [1996-1997 Transfer Binder] Fed. Banking L. Rep.

(CCH) ¶ 81-117.

prohibition of

5 Id. at 1, reprinted in 1967 U.S.C.C.A.N. 2228, 2228.

6 12 U.S.C. § 25a(d).

7 H.R. Rep. No. 382, 90th Cong., 1st Sess. 2 (1967).

8 H.R. Conf. Rep. No. 1018, 90th Cong., 1st Sess. 1 (1967), reprinted in 1967 U.S.C.C.A.N. 2228, 2242.

9 Interpretive Letter No. 752, September 26, 1996, reprinted in [1996-1997 Transfer Binder] Fed. Banking L. Rep.

(CCH) ¶ 81-117.

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the sale and advertising of lottery tickets by banks and does not prevent banks from providing

recordkeeping and escrow services for state lotteries.10

Conclusion

For the reasons discussed above, I conclude that 12 U.S.C. § 25a does not prohibit national banks

from accepting deposits from, or providing other normal banking services to, the Lottery or a

private entity that becomes the Manager of the Lottery. Such services are expressly authorized

by 12 U.S.C. § 25a(d).

This opinion is based upon the factual representations contained in your letter. A material

change in the facts could lead to a different conclusion.

I trust that this has been responsive to your inquiry. If you have further concerns, please do not

hesitate to contact me at (202) 874-5300.

Sincerely,

signed

Christopher C. Manthey

Special Counsel

Bank Activities and Structure Division

10 Department of Justice press release dated September 6, 1974, quoted in Canal National Bank v. Mills, 405 F.

Supp. 249, 253 (D. Me. 1975).