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Breaking News: House Service Committee Shows the Folly of the UIGEA...By Hartley Henderson

The House services committee met this morning to discuss the UIGEA with a particular emphasis on whether the difficulties in enforcing it are worth the benefits that could be derived from it. The American Banking Association led the talks and made it quite clear that the law would create a great burden on the banking industry and would be a logistical nightmare. According to the ABA over 93 billion transactions are processed each year by banks and hundreds of millions of ACH transactions occur every day. Thus to essentially try and pick out the offshore gambling transactions would be like looking for a needle in a haystack. This is made all the more complicated by the fact that gambling companies use payment processors that disguise transactions, making it virtually impossible for banks to identify those transactions. The banks admitted that they could possibly track the transactions if the customers approached the banks and voluntarily told them which transactions were for online wagering, but they realized that if a customer is willing to bet online they are unlikely to relay this information to the bank, particularly if they want to keep gambling. The ABA added that banks must somehow differentiate legal gambling transactions from prohibited ones even though the regulations created by the Federal Reserve failed to identify those transactions for the banks. Consequently, the ABA concluded that the UIGEA as it is written now is unworkable and will only serve to put banks in a compliance trap. This is made all the worse because with the upheaval in the banking industry now, the last thing that should be on banks' agenda is this legislation.

Other members demonstrated the silliness of the law as well by showing how horse racing, lotteries and some other forms of gambling are legal, despite the fact that even the department of justice states that there is no difference from one form of gambling to another. In better words the sweetheart deal given to the horse racing industry only shows that the UIGEA was more political than it was substantive. Congressmen Barney Frank further showed the folly of the law, because in some districts of the U.S. certain forms of online gambling are legal, while in others they are illegal so the law isn't even uniform in the states, let alone the United States as a whole. So if someone lives in the 5th district they need to be treated differently than someone in the 4th district. In one promising admission for sports bettors, the committee agreed that it would be almost impossible to allow transactions for one form of gambling but stop it for others. If online gambling is permitted for poker, there is no possible way for banks to differentiate poker deposits from casino or sports betting deposits. Thus the only logical conclusion is that if the law is to be changed any new law must allow for all forms of gambling to be treated equally.

One clear conclusion that could be derived from the session is that the UIGEA isn't worth the paper it's written on. There was no forethought put into writing it and certainly there was no consideration of how it would impact banks, even though they bear the largest brunt of its passage. It seems Bill Frist was only too happy to hop on his horse, attach a very poorly thought out piece of legislation to a can't miss bill, and then hop back on his horse and ride out of politics leaving the current politicians to deal with the mess.

Russ Hawkins, CEO of stated the following after watching the hearing: "It was refreshing to see the house financial services subcommittee act in a fashion of practicality as opposed to giving in to the ridiculous agendas of the self-serving moral minority factions of the doomed Republican Party."

When the UIGEA was pushed through in October 2006, things looked quite gloomy for American online players. However, as the ramifications of the law are starting to emerge it is clear this law is doomed to fail. Today's subcommittee meeting is only the start to the eventual repeal of Bill Frist's inane bill.

Hartley Henderson

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