The Fight Is On To Repeal UIGEA

Poker players and gambling execs are not the only ones unhappy with the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). At a Congressional hearing on April 2, representatives were heard from banks, private financial institutions and even the Department of Treasury; all attested to the difficult, if not impossible, task of developing the rules of enforcement for UIGEA.

The UIGEA banned credit card companies and banks from processing transactions involving unlawful Internet gambling proceeds. This law has sparked controversy from the day it was passed. Detractors cite the fact that the act was tacked onto a simple port security bill to slide it by the opponents of the bill and that it doesn't clearly define what is considered illegal gambling.

International disputes have arisen, as well. European gambling concerns complained that UIGEA violates international trade rules and specifically discriminates against European companies. The EU has launched an in-depth investigation into the allegations. The WTO ruled that the US has to pay fines amounting to $21 million dollars to the island nation of Antigua over UIGEA.

The hearing is being conducted by the House Financial Services Subcommittee on Domestic and International Monetary Policy, Trade and Technology presided over by Rep. Luis V. Gutierrez. Not a surprising development since the Financial Services Committee is led by Rep. Barney Frank, a staunch opponent of UIGEA. Frank has in the past referred to the law as a “bizarre piece of legislation” and has quipped about not being able to gamble online unless it's to bet on horses.

The main goals of the subcommittee seem to be to either overturn the law or change it to eliminate the current ambiguity inherent in the legislation. The law not only failed to give a definitive answer on what it considers unlawful Internet gambling, UIGEA also neglects to give the framework for enforcement of the law. UIGEA puts the burden of enforcing the law on the Federal Reserve, the Treasury Department and the Justice Department without clarifying how to distinguish which transactions would be covered.

UIGEA makes financial institutions responsible for detecting and blocking the illegal transactions. As Wayne Abernathy of the American Bankers Association said at the hearing, the law makes the institutions “the police, prosecutors and judges in place of real law enforcement officers”.

“The banking system is just not set up to sort out whether one payment is a legal payment and one payment is not,” said the director of congressional affairs for the Independent Community Bankers of America, Steve Verdier. The major concern for the bankers is the very real risk of stopping perfectly legitimate payments of customers.

Wells Fargo representative, Ted Kitada, voiced concerns about the possibility of error stating that his company handles some 30 million transactions daily. Since Internet gambling sites could disguise themselves easily, figuring out which transactions relate to gambling could prove close to impossible. As Louise Roseman from the Federal Reserve Bank testified, “Clarity on this point would permit [financial institutions] to design policies and procedures that they could be assured would meet the rule's requirements. Still others, including some gambling businesses and many consumers, asked the rule clarify that certain types of gambling, such as pari-mutuel betting or poker, are lawful.”

In the face of the considerable ambiguity and continuing debate over UIGEA, other types of solutions have been offered. Nevada's House members and the state's casino industry are advocating conducting a study of online gambling before deciding which course to take. Such odd bedfellows as the Poker Players' Alliance and the American Bankers Association have spent millions of dollars so far in lobbying for repealing the seemingly nonviable law.

Rep. Barney Franks has introduced two separate bills into Congress to address this issue. Last year at this time, he introduced a bill known as HR 2046 Internet Gambling Regulation and Enforcement Act which seeks to regulate, license and tax online gambling in the US. If passed, this bill would overturn UIGEA but it is slow to gain political support. HR 2046 has only gathered 48 co-sponsors at this point, possibly because no one knows how to effectively regulate Internet-based gambling.

This April, Frank and Rep. Ron Paul introduced another bill known as HR 5767. This new legislation attacks the UIGEA from a different angle as his earlier proposal by arguing against the enforceability of the act as it stands rather than the legitimacy of the law. Both Frank and Paul have long claimed that the UIGEA infringes upon the personal freedoms of Americans. As Rep. Paul has stated, “The ban on Internet gambling infringes upon two freedoms that are important to many Americans: the ability to do with their money as they see fit, and the freedom from government interference with the Internet.”

This latest proposed bill would stop the Federal Reserve Board of Governors and the Department of Treasury from “proposing, prescribing or implementing any regulation that requires the financial services industry to identify and block Internet gambling transactions”. If this bill is passed, it would effectively stop further implementation of UIGEA and give Frank time to gather support for his proposal of regulating instead of prohibiting Internet gambling.

A spokesman from the group Safe and Secure Internet Gambling Initiative was firmly behind the proposal, calling it “a bold move, but a necessary one, in light of the warnings from the Treasury and Federal Reserve that they did not know how to write regulations to solve the problems created by UIGEA. Further, witnesses representing a broad spectrum of the financial services community unanimously stated that the current ban on Internet gambling is dangerous to the payments system and ineffective in stopping people from using the Internet to play poker, make bets on horses or engage in other types of wagering.”

It remains to be seen which bill will end up being passed but in the meantime, the controversy surrounding the UIGEA continues to rage. Between the internal pressures of the country's own citizens and the external pressures of international groups such as the World Trade Organization, hopes are running high that the US will back off in its determination to deny access to Internet gambling.