UIGEA and Congress

Where we are, what's next.

by Shari Geller

On October 13, 2006, President Bush signed into law the SAFE Port Act. Buried within this legislation dealing with port security issues was a section entitled the Unlawful Internet Gambling Enforcement Act (UIGEA). The UIGEA, which had literally been added at the eleventh hour, has been the source of a great deal of confusion and debate regarding its applicability to internet gambling. The UIGEA did not actually outlaw internet gambling. Rather, it prohibited the transfer of funds from United States financial institutions to internet gambling sites that were not defined in the Act as "legal' sites (i.e. sites devoted to fantasy sports, online lotteries, and horse/harness racing). The effect of this act has been to move most internet gambling sites off shore and to create confusion for financial institutions whose clients seek to use such sites.

The UIGEA - which itself was not a model of clarity - was supposed to be augmented within nine months of its enactment by regulations promulgated by the Department of Treasury and the head of the Federal Reserve System. In March, 2008, more than sixteen months after the UIGEA was passed, proposed regulations were finally published. Instead of clarifying the issues, however, the proposed regulations merely shifted the responsibility of interpreting and enforcing the UIGEA to the banks and financial institutions. The proposed regulations have been criticized by Senators John Sununu and Pete Dominici who noted in a joint letter that while the regulations provide "certain guidance for the regulated community," they leave "ambiguity as to what sort of transactions are to be blocked." In a similar vein, the American Banking Association objects to the lack of guidance in the proposed regulations, stating in a comment letter that "the definition of what constitutes 'unlawful internet gambling' is inadequate [and] must be rectified."

Shortly following the release of these proposed regulations, Rep. Barney Frank (D-MA), along with former presidential candidate, Rep. Ron Paul (R-Tex) introduced H.R. 5767, a bill seeking to prohibit the Treasury Department and the Federal Reserve from proposing, prescribing, or implementing any regulation to enforce the Unlawful Internet Gambling Enforcement Act. H.R. 5767 had the backing of the banking industry as well as those in favor of internet gambling, including the Poker Players Alliance (PPA). Unfortunately for those supporting the bill, however, it stalled in the Financial Services Committee on a 32-32 split vote. In a statement following the vote, PPA chairman, former Senator Alfonse D'Amato said, "The PPA is surprised that the Financial Services Committee today failed to clarify what constitutes 'unlawful Internet gambling' under the [UIGEA]."

Separate from the proposed regulations, a number of bills have been introduced in Congress since the passage of the UIGEA which attempt to deal with the issue of internet gambling. The most recent bill, H.R. 6663, was introduced by Rep. Peter Sessions (R-Tex) in July 2008. According to Sessions, his "Unlawful Internet Gambling Enforcement Clarification and Implementation Act," is intended to clarify the ambiguous language of the UIGEA by limiting its enforcement to sports betting activities. By focusing enforcement of the UIGEA on sports betting, which the draft of H.R. 6663 notes is already illegal in 49 of the 50 States, the implied intention of the bill seems to be to establish that no other form of internet gambling is in violation of federal law. While at first blush it would seem that the online poker community would embrace H.R. 6663, it has not received overwhelming support. The major concern raised by the PPA is that the bill wrongly assumes that the UIGEA already makes online poker illegal. As stated by PPA Chairman D'Amato: "While we agree with several findings in the bill that correctly identify the illegality of sports wagering, the PPA remains concerned with the implication H.R. 6663 asserts in that the [UIGEA] has made Internet poker an unlawful activity that needs special protection from prosecution."

By contrast, the PPA fully supports H.R. 2046, the first post-UIGEA bill seeking to address the issue of internet gambling. Introduced in April 2007 by Rep. Frank, the "Internet Gambling Regulation and Enforcement Act of 2007" seeks to establish federal licensing requirements for online gambling operators and provide a regulatory framework for such sites. If passed, H.R. 2046 would permit the licensing of internet gambling sites in the United States. According to Rep. Frank, the bill "would establish a federal regulatory and enforcement framework under which Internet gambling operators could obtain licenses authorizing them to accept bets and wagers from individuals in the U.S." To obtain such a license, the online gambling sites would be required to maintain effective player protections to ensure, among other things, that no underage players are permitted. H.R. 2046 moved through the House Financial Services Committee to the House Energy and Commerce Committee, and has now moved to the Subcommittee on Commerce, Trade and Consumer Protection. The bill currently has 48 co-sponsors.

Shortly after Rep. Frank's bill was introduced, Rep. Shelley Berkley (D-NV) introduced H.R. 2140, entitled the "Internet Gambling Study Act." This bill, which has 73 co-sponsors, provides for a one year study of internet gambling to be conducted by the National Research Council of the National Academy of Sciences. The specific areas for study include the existing legal framework that governs such activities, the effect of the UIGEA on internet gambling, and the feasibility of regulating the internet gambling industry in the United States. It does not require any action by Congress after the study has been completed. It moved out of the Subcommittee on Crime, Terrorism, and Homeland Security on July 28, 2008, and then was referred to the House Financial Services Committee, then onto the House Ways and Means Committee. The bill was before the House Judiciary Committee on July 30, 2008, but the committee was unable to discuss the bill at that time so it awaits the return of Congress in the fall.

Rep. James McDermott (D-WA) introduced H.R. 2607 on June 7, 2007, which was to be a companion bill to H.R. 2046, Rep. Frank's bill or any other similar bill which would specifically authorize internet gambling. McDermott's "Internet Gambling Regulation and Tax Enforcement Act of 2007," as it was titled, sought to amend the Internal Revenue Code to establish licensing requirements and fees for Internet gambling operators. The bill languished in committee and no action was taken on it during the 2007 congressional session.

Rep. McDermott introduced a new iteration of this bill in a second attempt at providing for the collection of tax revenues in the event internet gambling is expressly legalized in the U.S. Congress. This new bill, H.R. 5523, the "Internet Gambling Regulation and Tax Enforcement Act of 2008" (IGRTEA), also seeks to amend the Internal Revenue Code of 1986 to regulate and tax internet gambling. The IGRTEA is intended to amend the Internal Revenue Code to: (1) impose an internet gambling license fee on internet gambling operators; (2) require such operators to file informational returns identifying themselves and the individuals placing wagers with them; (3) require withholding of tax on annual Internet gambling winnings of more than $5,000; (4) impose a 30% tax on the Internet gambling winnings of nonresident aliens; and (5) impose an excise tax on wagers by any individual who places a wager with an unlicensed Internet gambling operator.

In another effort to see to it that a portion of the anticipated monies from licensed and regulated online gambling sites be earmarked for public programs, Rep. McDermott introduced H.R. 6501 on July 15, 2008. The "Investing in our Human Resources Act of 2008" (IHRA) seeks to amend the Social Security Act to establish a trust fund with proceeds from the taxing of internet gambling to provide opportunities to individuals who are, or were, in foster care and individuals in declining sectors of the economy. "We have an ideal opportunity to invest billions of dollars in American workers and our struggling economy without increasing the federal deficit," said Rep. McDermott. "IHRA would utilize a funding stream that would become available should Congress decide to legalize and regulate internet gambling, which would protect consumers and collect tax revenue that is currently offshore." The bill has two co-sponsors, Rep. John Larson (D-CT) and Rep. George Miller (D-CA) and remains in the House Ways and Means committee, along with McDermott's other bill, H.R.5523. H.R. 6501 is also before the House Labor and Education Committee.

Also pending in Congress is H.R. 2610, the "Skill Game Protection Act," introduced on June 7, 2007 by Rep. Robert Wexler (D-FL). The purpose of this bill is to exempt poker and other games of skill from all existing internet gambling laws, including the UIGEA and Wire Act. It defines "games of skill" as those where the action is player against player, not player against the house. It further amends federal law governing monetary transactions to instruct the Secretary of the Treasury to prescribe regulations regarding the operation of such games so that specified safeguards are implemented, including ensuring that the players are at least 18 years old and that they are located in a jurisdiction that does not ban the game they are playing. The bill was referred to the Subcommittee on Crime, Terrorism, and Homeland Security. It was then referred to the House Financial Services Committee (of which Rep. Frank is Chair) along with the Judiciary and Commerce Committees.

The PPA supports H.R. 2610, with Chairman D'Amato stating: "Congressman Wexler's bill is a positive development for the millions of American poker players who enjoy one of our nation's great pastimes. Poker and other games of skill have fallen victim to bad public policy. Wexler's plan will give skill games the rightful protection they deserve and it will require the proper safeguards to protect children and those prone to abuse." He added "Congressman Wexler's legislation is necessary to provide equitable treatment for true games of intellect and competitions among individuals. Americans have played poker responsibly throughout our history and the Wexler bill will ensure that the game is enjoyed for years to come."

So, for those keeping score, when Congress reconvenes in September, there will be six bills still pending before it dealing with various aspects of the internet gambling issue: H.R. 2046, to license and regulate internet gambling; HR 2140, the bill to study internet gambling; H.R. 2610, the bill to legalize games of skill on the internet; H.R. 5523, to regulate and tax internet gambling; H.R. 6501, to establish a trust fund with the proceeds from internet gambling, and H.R. 6663, to provide clarification of the UIGEA. If you want to have your voice heard on the issue of the future of internet gambling in the United States, contact your local representative in Congress or the PPA for more information.

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