Online Gambling

As reported in yesterday’s The Wall Street Journal, the House Financial Services Committee voted 41-22 to approve legislation that would regulate many forms of online gambling, including poker and bingo, while specifically banning betting on major US sports leagues like the MLB, NFL, NBA, and others.

Other news articles point out that the legislation also would deny licenses to any online site that has allowed, or currently does allow, US players to gamble online. Looking ahead, this would appear to effect PokerStars, FullTilt, and other online poker rooms that have continued to serve US players despite the UIGEA of 2006.

Other key elements of the legislation include player loss limits, rigorous age verification systems and frequent testing thereof, and allowing states to opt out of this legislation and ban its citizens from online gambling.

And the legislation that was passed does not cover how the industry is to be taxed — that’s covered in a separate bill that hasn’t made it out of the House Ways and Means Committee.

It is unlikely that this legislation will be voted on before the current Congressional Session expires in September. The scheduling is simply too tight. If it is not voted on, the process will need to start again next session. Perhaps it will be attached to some other legislation, as was the UIGEA of 2006. Even so, if the legislation is approved, it still would need to be signed by Obama.

We are still years away from any comprehensive online gambling policy in the United States. Need proof? The UIGEA of 2006 took nearly 4 years before it actually went into effect this past June 1 — and there are still plenty of loopholes in that legislation that allow US players to fund and withdraw money from their online gambling accounts… or so I’ve heard.

Godfrey provides some staggering numbers regarding the billions of dollars that the United States is leaving on the table by not legalizing and regulating internet gambling. I mean really — haven’t we seen enough jobs lost in the past 5+ years across a wide range of industries to convince us that we need to find new industries in which compete and perhaps even dominate?

U.S. lawmakers — open your eyes.

This Barney Frank guy is serious…. I’ll give him that much. There can be no doubt that this guy is seriously against online gambling prohibitions. At every stage of the game, he’s in there trying to get hearings, trying to sway votes, writing letters, giving interviews.

A recent InformationWeek article reported that Frank wrote a letter to U.S. Treasury Secretary Henry Paulson, in response to the finalization of the UIGEA regulations.

“I am deeply disappointed to hear that your agency is proceeding with what I consider to be unseemly haste in issuing regulations implementing the Unlawful Internet Gambling Enforcement Act. This midnight rule-making will tie the hands of the new administration; burden the financial services industry at a time of economic crisis.”

In the final analysis, I do not think that sending the letter will do any good… it’ll be up to the Obama administration to take the necessary steps to curb or stop the regulations from being enforced.

Yesterday, the United States Treasury and the Federal Reserve Board jointly issued a press release announcing the finalization of UIGEA regulations. The press release includes a link to the actual regulations, a 60+ page document that contains various regulations with which banks have been given a year to comply.

I published my analysis of the UIGEA regulations when they were published in draft form about a year ago. In the coming days, I will be reading the finalized regulations and offering my analysis here.

One initial thought is that the 12 month window that banks have to comply with the regulations is ample time for the Democratic Congress and new Obama Administration to take action to completely repeal the entire UIGEA. More on that later….

The outgoing Bush administration is trying to pull a fast one in its last days in power. According to a 11 Nov 08 Dow Jones Newswire:

The Treasury Department has finalized regulations that would effectively ban online gambling in the U.S. and is trying to have them implemented in the waning days of the Bush administration.

The controversial rules would make it illegal for banks to process credit card transactions from most Internet gambling sites.

Their implementation has been opposed by groups advocating individuals’ right to gamble, the banking industry, Democratic lawmakers in Congress and even officials at the Federal Reserve.

The rules stem from a last-minute addition to a law passed in the final hours of the Republican controlled Congress in 2006. The provisions related to online gambling were included in an unrelated port security bill.

The wire goes on to say that it is “…standard practice for outgoing administrations to finalize controversial regulations before leaving office, a practice known as a midnight drop.”

Really? The global financial markets are in crisis and the U.S. government — our government — wants to add more work for our banks? I don’t think that this is where our priorities should be at the moment!

Have your voice heard by providing feedback to the Federal Reserve Board via their Contact Us page. Select the second radio button, select Consumer complaints from the drop down list, and enter your views in the text box. Here is a template that you can use to get you started.

I am writing to express my concerns regarding the Treasury Department’s finalization of regulations to enforce the Unlawful Internet Gambling Enforcement Act of 2006. I understand that the regulations were finalized and forwarded to the Office of Management and Budget on Oct. 21, 2008, and am opposed to their being put into practice.

There are two reasons why I am opposed to the implementation of these regulations:

1. The global financial markets are in turmoil. The world is looking to the United States banking system to provide the stability necessary to get financial markets back on track in as short a time as possible. If the proposed regulations were put into practice, this would result in lost time, energy, and effort on the part of our banks in dealing with compliance with the regulations. Our banks’ priorities need to be on staying solvent and providing leadership in this time of crisis!

2. The impact on the average American citizen has not been studied. If US banks were required to comply with these regulations, there is no telling what the impact on the bank’s customers may be. The issue needs to be studied, and that study must include thought-leadership from the banks themselves, and not lawmakers.

If you want to call them, please do!

• Consumer Complaints, 888-851-1920
• Public Affairs, 202-452-2955

On October 1, the United States Treasury Department and the Federal Reserve jointly published a draft of the guidelines to enforce the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006. Published late — they were due this summer — the 52-page document:

• proposes rules to implement the UIGEA
• designates and defines payment systems to be regulated
• requires participants in designated payment systems to establish policies and procedures reasonably designed to identify and block or otherwise prevent or prohibit transactions in connection with unlawful Internet gambling
• exempts certain participants in designated payment systems
• describes the types of policies and procedures that non-exempt participants in each type of designated payment system may adopt in order to comply with the Act
• includes examples of policies and procedures
• does not specify which gambling activities or transactions are legal or illegal, deferring instead to underlying State and Federal gambling laws

Comments are due by December 12, 2007, and can be submitted in writing or electronically. Once the rules are finalized, the draft calls for the rules to go into effect six months after that date (although this could change based on the commenters, like the banking industry).

I’ve read this draft, and wanted to share some thoughts.

• Individual gamblers are not targeted by the UIGEA. From page 7:

The proposed regulatory definition clarifies that an end-user customer of a financial transaction provider is not included in the definition of “participant”, unless the customer is also a financial transaction provider otherwise participating in the designated payment system on its own behalf.

• The draft makes it clear that it will be difficult to monitor certain popular payment systems. This suggest to me that payment via these methods — particularly via check, in my opinion — will rise in popularity once these rules go into effect. From page 13:

While other systems, such as the card systems, have developed merchant category and transaction codes that identify the business line of the payee (e.g., the gambling business) and how the transfer was initiated (such as via the internet), so that the systems are able to identify and block certain types of payments in real time, the ACH systems, check collection systems, and wire transfer systems do not use such codes.

• The draft suggests that some payment systems will, for the most part, be exempt from having to follow the rules. This is good news for US gamblers, and suggests to me that the UIGEA will only make it more difficult for US gamblers to gamble, but will fall well short of putting an end to all internet gambling by US citizens. From page 13-14:

As a result, the preliminary view of the Agencies is that it is not reasonably practical for the exempted participants in ACH systems, check collection systems, and wire transfer systems … to identify and block, or otherwise prevent or prohibit, restricted transactions under the Act.

• Something that is troubling to me is that if a person blocks payment for the reasons in the draft (see excerpt below), then that person is not liable for any adverse results that may occur to the person that had the transaction blocked. I can imagine a scenario where a person has a legitimate transaction blocked, and that person is subsequently charged non-payment / bounced checks fees. That person would have no grounds to collect these fees from the person that blocked the legitimate transaction! From page 18:

Section 5 also imports the Act’s liability provisions, which state that a person that identifies and blocks, prevents, prohibits, or otherwise fails to honor a transaction is not liable to any party for such action if (i) the transaction is a restricted transaction; (ii) such person reasonably believes the transaction to be a restricted transaction; or (iii) the person is a participant in a designated payment system and prevented the transaction in reliance on the policies and procedures of the designated payment system in an effort to comply with the regulation.

• Another thing that is interesting to me is the use of the term “reasonably designed” throughout the draft. This is just asking for these rules and regulations to wind up in court, because what is reasonable to one person may not be seen as reasonable to another person (or to the government). In my opinion, we’ll see a court challenge shortly after the rules go into effect that will further delay the complete implementation of the rules to enforce the UIGEA. It’ll be years before this is all sorted out.

The Federal Reserve Board has been named in an action to challenge implementation of the Unlawful Internet Gambling Enforcement Act of 2006. The action was filed by the Interactive Media Entertainment and Gaming Association, Inc. in June of 2007, and is tentatively scheduled to be heard in September.

While not much may come of the hearing — surely, the law will not overturned — at least we may get some clarification on the law and how it will be enforced.

Interesting… the The Interactive Media Entertainment & Gaming Association (iMEGA) is trying a different tactic to stop the enforcement of the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). They have filed a lawsuit saying that enforcement of the UIGEA would set a dangerous precedent because “sets a dangerous precedent for I-commerce by criminalizing the transmission of money if the end result is illegal in some unspecified place”.

Other grounds pointed out in the lawsuit is the recent rulings by the World Trade Organization against the United States regarding their stance toward online gambling.

On Thursday, April 26, Rep. Barney Frank introduced HR 2046, the Internet Gambling Regulation and Enforcement Act of 2007. HR 2046 will lift the prohibition on playing poker online.

Representative Frank is the Chairman of the important House Financial Services Committee. And he understands the injustice that we have suffered. When he introduced the bill, he told reporters that “The existing legislation is an inappropriate interference on the personal freedom of Americans and this interference should be undone”.

Voice your support using this quick and easy form to email your representative… it took me about 2 minutes to complete!

Then, stick it to the man and play online poker at any one of the many sites that continue to accept US players! [Note: After clicking the link, you'll get the most accurate list if you select your state using the control on the left center of the screen.]