Unlawful Internet Gambling Enforcement Act of 2006 (wiki) (notes)

http://en.wikipedia.org/wiki/Unlawful_Internet_Gambling_Enforcement_Act_of_2006

The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) is United States legislation regulating online gambling. It was added as Title VIII to the SAFE Port Act (found at 31 U.S.C. §§ 53615367) which otherwise regulated port security. It “prohibits gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law.”[1] The act specifically excludes fantasy sports, that meet certain requirements, and legal intrastate and inter-tribal gaming. It does not expressly mention state lotteries; nor does it clarify whether inter-state wagering on horse racing is legal.

The United States Court of Appeals for the Fifth Circuit ruled in November 2002[2] that the Federal Wire Act prohibits electronic transmission of information for sports betting across telecommunications lines but affirmed a lower court ruling that the Wire Act “‘in plain language’ does not prohibit Internet gambling on a game of chance.” While some states have specific laws prohibiting online gambling, many do not. Additionally, in order for an online gaming company to start, a license from the state is required. The only state to ever issue a license was Nevada, in March 2013.[3]

The Act was passed on the last day before Congress adjourned for the 2006 elections. According to Sen. Frank Lautenberg (D-N.J.), no one on the Senate-House Conference Committee had seen the final language of the bill before it was passed.[4][5]

The Bush administration had previously adopted the position that it would not finalize any rule subsequent to November 1, 2008.[citation needed] This last-minute rulemaking that binds the hands of an incoming administration is commonly termed the midnight drop.

According to the overview posted on the FDIC website, the act prohibits gambling businesses from “restricted transactions”. Restricted transactions involve gambling businesses when they knowingly accept payments from another person in a bet or wager on the internet. It also requires that the Treasury and Federal Reserve Board with consultation of the Attorney General to promulgate regulations requiring certain participants in payment systems that could be used for unlawful Internet gambling to have policies and procedures reasonably designed to identify and block or otherwise prevent or prohibit the processing of restricted transactions. These regulations are independent of any other regulatory framework, such as the Bank Secrecy Act or consumer protection regulations.[16]

Section 5361, Findings and Purpose

The Act begins with Congress’s findings and purpose. Findings include a recommendation from the National Gambling Impact Study Commission. One of the controversial findings asserted in the opening of the bill is the assertion that Internet gambling is a growing problem for banks and credit card companies.[4] The opening section of the act also states that “new mechanisms for enforcing gambling laws on the Internet are necessary,” especially for cross-border betting. The Act contains a clause that ensures no change be made any other law or Indian compact.[16] This clause makes known that the Act cannot be used as a defense to another crime, or to expand existing gambling.

Section 5362, Definitions

This section outlines definitions of gambling terms to be used throughout the act. The Act defines a bet or wager to include risking something of value on the outcome of a contest, sports event, “or a game subject to chance.” The “game subject to chance” restriction is designed to include Internet poker in the act.[17] The Act then confuses the issue of skill by stating that betting includes purchasing an “opportunity” to win a lottery, which must be predominantly subject to chance. The Act expressly prohibits lotteries based on sports events. Some activities such as securities and commodities, including futures, that are traded on U.S. exchanges are, by statute, declared not to be gambling.[17] “Designated payment system” covers any system used by anyone involved in money transfers, that the federal government determines could be used by illegal gambling. “Financial transaction provider” is a very broad definition covering everyone who participates in transferring money for illegal Internet gambling. This expressly includes an “operator of a terminal at which an electronic fund transfer may be initiated” and international payment networks. “Interactive computer service” includes Internet service providers. “Restricted transaction” means any transmittal of money involved with unlawful Internet gambling. “Unlawful Internet gambling” is defined as betting, receiving, or transmitting a bet that is illegal under federal, state, or tribal law. The Act says to ignore the intermediary computers and look to the place where the bet is made or received.[17] To force casinos to report large cash transactions, federal law was changed to define “financial institution” as including large gambling businesses. All other definitions are standard.

Section 5363, Money Transfers

This section covers money transfers. The bill states “[n]o person engaged in the business of betting or wagering may knowingly accept” any money transfers in any way from a person participating in unlawful Internet gambling. This includes credit cards, electronic fund transfers, and even paper checks. But the restriction on transfers is limited to Internet gambling businesses, not mere players. It also would not cover payment processors or ISPs, even under a theory of aiding and abetting. The Act clearly does not make it a crime to knowingly transmit funds for illegal gambling. Neither the player nor the intermediary can be charged with this crime. The language of the Act even eliminates the possibility of charging financial institutions and computer hosts under a theory of aiding and abetting, since it explicitly states, in the definitions section, that being in the business of gambling does not include a “financial transaction provider,” or an ISP.[17]

Section 5364, Regulations

Under section 5364, Federal regulators have 270 days from the date this bill is signed into law to come up with regulations to identify and block money transactions to gambling sites. The regulations will require everyone connected with a “designated payment system” to i.d. and block all restricted transactions. The Act allows the federal regulators to exempt transactions where it would be impractical to require identifying and blocking. This obviously applies to paper checks. Banks have no way now of reading who the payee is on paper checks and cannot be expected to go into that business.[17]

Other pertinent provisions

Criminal penalties under section 5366 include up to five years in prison, a fine, and being barred from involvement in gambling. Under section 5367, the Act makes ISPs and financial institutions liable if they actually operate illegal gambling sites themselves. Lastly, the Act requests, but does not require, the executive branch to try and get other countries to help enforce this new law and “encourage cooperation by foreign governments” in identifying whether Internet gambling is being used for crime.

WTO dispute

Antigua and the United States have been involved in a long-running World Trade Organization dispute over U.S. restrictions on online gambling. The WTO ruled on January 25, 2007, that the U.S. is in violation of its treaty obligations by not granting full market access to online gambling companies based in the island nation.[24] On March 30, 2007, the WTO confirmed the U.S. loss in the case.[25]

On June 19, Antigua filed a claim for USD $3.4 billion in trade sanctions against the United States, along with a request for authorization to ignore U.S. patent and copyright laws. This claim was filed a day after similar demands for compensation were made by the European Union.[26]

The United States settled the dispute by granting concessions in other sectors. The administration of President George W. Bush refused to disclose the details of those concessions, however. In April 2008 Congressmen Barney Frank and Ron Paul called for the agreements to be made public. They stated that the concessions “could cost the United States many billions of dollars in compensation” and that the administration’s invocation of “national security” as a reason to block disclosure under the Freedom of Information Act (FOIA) was “a misuse of the FOIA process.”[27] When the administration continued to keep the information secret, Public Citizen brought suit on behalf of Ed Brayton, a journalist whose FOIA request had been denied.[28]

Challenge to UIGEA

In May 2009, Congressman Barney Frank introduced a bill to overturn the gambling aspects of the Act, “The Internet Gambling Regulation, Consumer Protection, and Enforcement Act“, which seeks to repeal the major online gaming obstacles of the UIGEA and go further in protecting Americans from fraud, while safeguarding against underage and problem gamblers.[29]

Frank also introduced a bill to delay the implementations of the UIGEA for one year, until December 1, 2010.[30] The bill was put into effect, however, the regulations were only extended until June 1, 2010.

Enforcement

In April 2011, the founders of PokerStars, Full Tilt Poker, and Absolute Poker, the three largest Internet poker companies that then accepted U.S. players, were among those indicted for in charges that including violations of the UIGEA. According to the United States Attorney in New York, the companies allegedly tried to circumvent UIGEA rules with the help of others who acted as “payment processors” by helped disguise gambling revenue as payments for non-existent goods such as jewelry or golf balls.[31]

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