UIGEA Regulation Won't Work Says Abundant Feedback

The Washington Post yesterday published an insightful article covering responses the US government received on proposed regulations to enforce the Unlawful Internet Gambling Enforcement Act (UIGEA), passed October 2006 when stealthily tacked onto the sure-to-pass unrelated Port Security Bill, which makes it illegal for financial institutions to handle transactions between foreign online poker and online gambling firms and US residents (except for special carve-outs: betting on horses, lotteries, and Indian gaming).

The opening of the article, written by Cindy Skrzycki, a regulatory columnist for Bloomberg News, summarizes what Officials at the Treasury Department and the Federal Reserve found out after sifting through more than 200 comments from banks, gamblers, church groups and members of Congress, and bluntly states why UIGEA enforcement won't work:

"It's not easy making rules for a U.S. law intended to deter illegal Internet gambling by choking off the flow of funds to offshore sites. That's because no one seems to agree on what the law covers."

The article points out that UIGEA did not change or clarify any existing state or federal rules defining what is illegal, and instead puts the burden of doing so onto financial institutions, which they claim they are not equipped to do.

The legal issue is crucial because of conflicting court decisions, differing state laws and applications of older federal laws. Prosecutors and the horse-racing industry have disagreed since 1978 on whether it's legal to bet on horses across state lines.

"If the federal agencies themselves cannot agree on the law, what hope is there that banks can resolve these confounding legal issues?" the American Bankers Association said in commenting on a conflict between the Treasury and Justice departments on the legality of betting on horses.

The Washington trade group said the suggested rules are more likely to catch its members in a compliance trap than stop profits from illegal gambling from escaping offshore.

Banks and other financial institutions would have to make a reasonable effort to stop payments to Internet gambling sites through credit cards, checks or electronic funds transfer.

In a recent letter to the U.S. Treasury and the Federal Reserve System, Senators John Sununu and Pete Domenici said, "it [UIGEA regulations] leaves sufficient ambiguity as to what sort of transactions are to be blocked. In failing to provide more detail, the proposed rules would inordinately burden every bank, credit union, credit card company, money transmitting business and payment system in the country, leading to non-uniform compliance and confusion."

The senators noted that, "This issue is particularly important, as most federal and state gambling laws predate the Internet, and are less than specific as to their application to particular practices or circumstances."

Otherwise, they predicted: "Risk-averse financial institutions will simply choose to block every transaction" that could resemble gambling, "whether legal or not."

The final decision on the regulations will affect 23 million online gamblers, some 2,500 Internet sites and the growth of an industry with an estimated $15 billion in annual global revenue, according to the Post article.

Click here to read the original Washington Post article.

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