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UIGEA: Where are the Regulations?...By Hartley Henderson

Upon passing the UIGEA, on October 13, 2006, the government required the Attorney General, in conjunction with the board of the Federal Reserve System, to come up with regulations on how it planned to implement the law. It is now three days after the deadline and there is no indication that any regulations were actually written. Calls to the U.S. Treasury department resulted in confusion about the question and a totally irrelevant comment that if the regulations were written they will be released soon. A call to the U.S. Department of Justice went unanswered, but they did send me a nice email indicating ways on how to find public information relating to the U.S. government, which I already knew how to do! Of course the queries were more a formality anyway, as this government seems to release information only when absolutely necessary and I really didn't expect an honest response. As well, calls to two lawyers and a U.S. congressman who would be fully in the know were returned with replies that they haven't heard a thing.

So I'll go out on a limb here and say that the regulations probably haven't been written, at least not in full. When this ridiculous law was passed in 2006, the government made it sound as if the act was going to save all Americans who gamble online or who have considered gambling online from addiction and financial ruin. So if that was indeed the case then the Attorney General's office should have been eager to set up the regulations as soon as possible and release them with fanfare. The truth, however, is that the deadline came and went and to quote T.S. Eliot, it went "not with a bang but a whimper." There has been little interest in it within congress, and aside from John Kyl and a couple of other senators there has been no urgent call for Alberto Gonzalez and the Federal Reserve to adopt any regulations. Congressmen like Barney Frank and Shelley Berkley have been spearheading movements to have the law repealed, but even their movement has gotten little interest in congress. So it's time for the White House to be honest. The area of online gambling is irrelevant to the vast majority of congress, and consequently the UIGEA is unimportant too. That is why the law could never pass in the usual method and had to be attached to a Safe Port bill, which by the way is also late in having regulations submitted for it. With the disastrous war continuing in Iraq, with news that Al Qaida and the Taliban are rebuilding and strengthening, with increasing health costs and safety concerns in schools and with the U.S. economy struggling, online gambling is clearly near the bottom of the list on issues that most in congress care about. This law was nothing more than a carrot for John Kyl, Jim Leach and Bob Goodlatte who have a personal vendetta against gambling, and was slipped into the Safe Port Act by Bill Frist as a favor for a few friends. It was not a law that many others in the U.S. government wanted, it was not a law that the banks wanted and it wasn't a law that the public wanted. And as evidenced by the fact that it is taking so long to draw up the regulations, it is clearly of little interest to the U.S. Treasury or the Attorney General's office either. The law was attached for no other reason than to appease a couple of radical anti gambling crusaders in hopes of returned favors from them in the future, and now others who could care less about it are forced to deal with adopting regulations for it.

But the question that has to be asked is, why doesn't the U.S. Attorney's office and Federal Reserve just throw some regulations together to make it appear that they are concerned about the law's future? The answer is almost certainly that this legislation was so poorly thought out that the regulations are far too difficult, if not impossible, to draft. The law requires banks and other financial services to bar any instrument that is used for the purpose of online gambling whether it be for deposits or withdrawals. In better words, the banks have to ensure that no credit card deposit, check, money order, ACH transfer or other financial instrument is used for the purpose of online gambling. That may not sound so difficult, but in today's global economy it is virtually impossible. Checks written by offshore companies are from perfectly legitimate financial institutions outside the U.S. that clear through U.S. banks. This is done everyday for all types of transactions, and gambling is likely a very small percentage of those transactions. There is nothing on the checks to indicate what the check is written for, meaning that if the banks blocked all checks from a certain overseas bank they could be blocking multitudes of non gambling transactions which serves nobody's purpose. As for credit cards, almost all online credit card transactions are handled by processors. The offshore gambling companies don't deal directly with any bank and that is the same way it is handled by most online companies. The processor acts as a middleman in a transaction, performing everything from foreign currency conversions to seeking approval and it is used by both online merchants and banks because it saves all parties hassles and time. Credit card processing is particularly helpful when it comes to foreign online purchases. Consequently, the banks don't want the processors to disappear, nor do the merchants. In fact several banks have indicated that if the U.S. wants to force them to somehow block all gambling transactions at all costs, it could mean abandoning those systems and trying to develop new identification techniques which may or may not be effective. That could cost the banks billions of dollars, not to mention that it puts them back 10 years. One has to wonder if John Kyl still lines up at the bank with a paper check rather than facing the "scary technology" involved with ATMs or ACH payroll systems.

More importantly, the Federal Reserve has to determine how they are going to encourage the banks to absorb the billions in costs to implement these regulations to the best of their ability. The banks didn't ask for the UIGEA, it was thrust upon them. Why in the world would private companies pay out billions for a poorly thought out government initiative that gets them nothing in return? The government today is still trying to encourage many companies to "go green" for the sake of the environment and are being met in many cases with anger by companies that feel it is not in their financial interests to comply. So if there is no benefit to the banks to actually abide by guidelines, they may look the other way despite any regulations put in place.

So here is likely what will happen within the next month or two. The Federal Reserve and Attorney General's office will adopt regulations that make it appear as if they are being very stringent in enforcing the UIGEA. The "regulations" likely have huge fines for American banks and financial companies that accept gambling transactions, but it will be stated in a way that makes it ineffective. Language will probably have phrases like massive fines for "knowingly processing online gambling transactions" and "aiding individuals to place bets online." Of course those things are illegal now under the UIGEA, but the regulations will affirm those rules which still are nearly impossible to enforce. The regulations will also likely force all financial institutions that deal with gambling to have the 7995 code on all transactions that is currently used with little success for credit cards. This will block some transactions, but will be of little use if the processor is in a foreign country and dealing with more than just gambling transactions. In the meantime, the U.S. will continue its attempt to arrest offshore operators that take bets from Americans, but those arrests can easily be avoided if the offshore operators realize it isn't safe to set foot near the U.S. or its territories. Further, the U.S. DOJ will continue to try and frighten Americans from gambling online by making it appear that what they are doing is illegal, although as we know it is not unlawful to place a bet online in the U.S. on the federal level, only to be in the business of accepting bets. Last, they will continue to point out to Americans that they could lose everything if caught.

As late as last month, Leslie Bryant of the FBI issued the following scare tactic to bettors:

"Think a little online gambling can't cost you? Don't bet on it. Even if you don't get caught gambling, you could well lose the money you have in an online gaming account if the company faces charges, since the U.S. government seizes assets in these cases whenever possible."

The bottom line is that the regulations have almost certainly not been written and likely never will be in any effective way that will give banks a way to block all gambling transactions. Next year there will be a new U.S. President, a new attorney general and a new vision for America. Hopefully, it will include some common sense with regards to online gambling.

Hartley Henderson

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