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UIGEA Mandatory Enforcement is Having Little Effect So Far...By Hartley Henderson

If anyone were to believe the media hype or rhetoric by the Republican anti-gambling crusaders like John Kyl or Robert Goodlatte, June 1st would have spelled the end to online gambling in the United States. On that day, banks and other financial institutions were required to adhere to the UIGEA rules that were written just prior to the departure of George W Bush.

As many may recall the rules didn't provide any real direction to the banks on how to enforce the gambling law and didn't give a definition of what constitutes illegal gambling but rather told the banks to determine for themselves what constitutes illegal gambling and to somehow block it. At the same time the banks were told that they had to ensure that no legal transactions were blocked. The American Banking Association argued at hearings relating to the law that the rules were too vague to implement and it unfairly burdened the banks with a task that was beyond their ability - i.e. identifying illegal transactions. Consequently, the Treasury delayed mandatory implementation of the law twice to allow Congress to come up with a law that may have more meaning and which the banks could enforce. Barney Frank introduced legislation to scrap the UIGEA in exchange for legalization of online gambling while others like Jim McDermott and Robert Wexler also proposed alternative laws that would provide needed tax revenue.

However, when the Treasury delayed mandatory implementation for another 6 months in December of 2009, John Kyl, the founder of 12 year online gambling crusade, tried to punish the Democrats by blocking important US Treasury nominees. According to Barney Frank, Treasury Secretary Tim Geithner promised not to delay mandatory implementation any longer if Kyl removed his objection. Kyl did lift his hold and on June 1st the law went into effect.

It is now 2 weeks after the mandatory enforcement of the UIGEA and by all accounts the deadline has had little or no effect. I spoke to 3 fellow gamblers who live in the United States and deposited funds in the last 2 weeks to find out if there was any difference or delays in their transactions. "Absolutely none," the first person replied. He stated that he used his credit card to deposit at his favorite sportsbook on June 5th just as he had on many occasions before and there was no hitch. A second gambler deposited at a poker site with their express payment system and it went through almost immediately. The third gambler stated that he tried to deposit at PokerStars by credit card and it was declined but he used another method and it went through without issue. In fact reading various accounts on internet forums it appears PokerStars is the only site that experienced any new issues with depositing by credit card since the mandatory enforcement. The reason for that is pretty clear. PokerStars has indicated that they will not try and hide their identity and lists their details on all transactions. The company identifies the payment processor's name on their website, states that all transactions will show as P Stars on the credit card statement and that it will be coded as 7995 which indicates online gambling. So in better words PokerStars has painted a big target on their backs with the banner 'online gambling site' which has easily allowed banks to identify the company when people make credit card deposits. Other gambling companies have not been so forthcoming and therefore have not had their transactions blocked.

So are the banks breaking the UIGEA rules by not blocking the other gambling transactions? Certainly not! The rules which John Kyl was so anxious to enforce only require the banks to perform due diligence to be in compliance with UIGEA regulations. By definition that means that banks are only held liable if they allow 'obvious' transactions to pass through. The PokerStars example above would be a breach of the rules if a bank allowed it to pass through but if a company used a payment processor or clearing house named, say, Sandy Beach Enterprises which doesn't code the transaction as 7995 on a credit card statement then the bank can not possibly know what the company does: Do they sell beach apparel? Do they make sun tan lotion? Are they a casino? If a bank decides to block that transaction and it turns out not to be a casino then the bank can be in more trouble than if they let it pass through. Of course the rules suggest the banks should consider calling the company to find out if it is in the gambling business if they aren?t certain what the company does but when millions of transactions pass through a bank each day the logistics of doing so is impossible. Moreover if the bank does call the company or the client who is receiving or sending the transfer and asks if they are involved in gambling and the answer is no then due diligence is served anyways. Martin Owens, an Internet Gambling Attorney highlighted the inanity of the law even more. "As long as a given bank or financial  institution promulgates and follows its required procedures under 31 USC  sec 5364 to keep  out  "restricted transactions", it cannot be prosecuted, nor any of its employees, for violating the UIGEA even if the restricted transaction goes through. Only if the bank or financial house actively and knowingly engages in the gambling business will it wind up in trouble with the Feds (sec 5367)."

Owens continued: "The only people who can violate the UIGEA are the Internet gambling businesses which accept US financial instruments to pay for 'unlawful Internet gambling' whatever the hell that is. It is the usual silly paradox: the law cannot reach those with whom it complains, and has no complaint against those it can reach."

Of course credit cards have become less used as a payment method by American citizens anyhow and most banks have been blocking credit card transactions which they could identify long before the UIGEA rules were ever finalized. But where there's a will there's a way and Americans still have many methods to deposit funds including money transfers; e-wallet options (excluding companies like NETeller, Moneybookers and similar which prohibit U.S. citizens); prepaid credit cards which have no name associated with them and are available at grocery stores, pharmacies etc.; prepaid debit cards and various other methods. Plus new methods are being devised every year. I discussed deposits with a few U.S. facing sportsbooks and it appears their clients are willing to use new methods to deposit their funds and the UIGEA has had little to no effect on account deposits. In fact one sportsbook owner stated that the number of deposits to their site has increased in the last 4 years since a lot of larger name sportsbooks such as Pinnacle pulled out. Withdrawals are a bit more cumbersome but clients always get their money and banks have no way of identifying the bank transfers or check payments as gambling related.

John Kyl along with Focus on the Family and other groups who have been at odds with the government for not enforcing the rules earlier may believe they have accomplished a major coup now that the regulations are mandatory but the truth is that what they have achieved is irrelevant because the law is unenforceable. In reality when the UIGEA was passed the industry changed forever because so many overseas companies were forced to pull out and companies like NETeller had to stop catering to the U.S. market. What is happening now, on the other hand, is just window dressing. To date no company has been charged under the UIGEA and lawsuits against gambling companies such as the one launched earlier this year by a Federal Grand Jury for money laundering against Full Tilt Poker, Howard Lederer and Chris Ferguson was for a different law. But almost every lawyer agrees that any suit which is launched against a poker site and tries to charge them with violating the UIGEA will be tossed because no court has ruled what constitutes illegal gambling under the UIGEA. According to an article written by Internet Gambling Attorney Martin Owens all laws demand due process which in turn means that defendants must be able to understand the law so they know whether they are operating illegally and the UIGEA doesn't identify what is illegal.

So the law, as it stands, is clearly an ass and Owens described it best in his article when he wrote the following:

"The real difficulty with the UIGEA is that it should never have been written in the first place. It is the Un-law : Unnecessary, unintelligible, unenforceable. It was meant to throttle unlicensed Internet gambling ("unlawful Internet gambling") in the USA by preventing the use of US financial instruments to pay for it. But to this day there is no definition of just what that "unlawful Internet gambling" is or is not. The first attempt at defining it, in at 31 U.S.C. 5362(10) (A) only serves to highlight the confusion; - to place, receive, or otherwise knowingly transmit a bet or wager by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State law in the State or Tribal lands in which the bet or wager is initiated, received, or otherwise made. There's clarity for you!

So like other US Federal gambling laws, it relies on an underlying violation of state (or Tribal, or Territorial) law to trigger it. But that's exactly where the weakness lies. Only eight of the Fifty States even mention the Internet in connection with gambling at all. To this day, sixteen states and the District of Columbia haven't even got a basic definition of what gambling is or isn't on their statute books in the first place. The rest assert that of their law covers Internet gambling. Except that nobody can convincingly explain why contacting an Internet gaming site offshore, from State X, somehow automatically places that business under State X's jurisdiction, (when a website that advocates armed jihad against America need fear no such operation of law)."

So is it any wonder that 2 weeks after mandatory enforcement of the law there has been no change in behavior or actions by the banks or gambling companies? The rules are now in effect but it doesn't change the fact that no one knows what the rules are and moreover have no real way of combing through the billions of transactions that happen each week to find which ones may be gambling related. I recall after graduating from University I took a job with a sole proprietor in an accounting firm. I took over as the assistant and had a file dumped in my lap on the first day of work. The file was started by my predecessor and I was told to finish the file. I had no idea what it was about and looking through it didn't help (after all it was my first job out of university). I asked the sole proprietor if he could give me some information and direction on the file and he said to just look it over and figure it out. I sat there and read notations that made no sense to me along with figures that were foreign. The more I read the less it helped. Three hours later the sole proprietor came in and yelled "you still haven't figured it out?" My response was "no I haven't and without some help and direction I still won't figure it out a year from now because I haven't a clue what I'm supposed to do."

I'm sure the exact same holds true for bank tellers and account managers who monitor incoming bank wires, checks and credit card transactions. Without some help from the Treasury in identifying what are illegal transactions Kyl et al can cry all they want but it won't change the fact that without some guidance, which the Treasury, Congress and others clearly can't provide, the banks can't possibly know what to block.

The Treasury likely had another reason for delaying enforcement of the law as well which involved changing attitudes by the states. In 2006 when the UIGEA passed as an attachment to the Safe Port Bill, the deficit wasn't too bad but now states are drowning in debt and many are looking to online gambling as a revenue source. It appears that California, New Jersey and other states are prepared to offer online gambling for which they believe is a state's right and the UIGEA provides an exemption to any state provided the gambling is legal in the state, is supervised and offers the product to only citizens of that state. The DOJ under the Bush administration tried to argue that all internet wagering is interstate by nature and hence violates the UIGEA but it is doubtful the current administration is prepared to fight that war and as long as the states approve the activity that will be good enough for the Democrats. Moreover, Obama and the current administration has much bigger fish to fry than internet gambling.

The UIGEA is now in mandatory enforcement but don't expect ramifications from it anytime soon.

Hartley Henderson

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