Most that follow the gambling industry would probably be surprised to learn that mandatory adherence to UIGEA regulations still hasn't gone into effect. The bill was attached to the Safe Port Act and passed 3 years ago and the regulations for the law were written in 2008, but to date financial institutions haven't been forced to abide by the rules. That is set to change on December 1, 2009 when banks and other payment companies will be obliged to follow the regulations as set out by the Treasury under George W. Bush. The American Banking Association balked at the regulations, and most in the industry called the rules flawed because they force the financial institutions to devise methods to track "illegal transactions," despite the fact that the banks called this tracking virtually impossible. It also set no penalties, provided that financial institutions followed due diligence, which of course could mean doing very little.
Professor I. Nelson Rose stated the following in his analysis of the regulations:
"It took 66 pages of fine print. But in the end the federal regulators charged with making regulations to enforce the UIGEA simply gave up. They were supposed to make rules forcing financial institutions to identify and block money transfers for unlawful Internet gambling transactions. But they were defeated by the difficulty of defining what was unlawful and the impossibility of tracking individual transactions. So they told credit card companies to come up with some additional code numbers for gambling transactions and everyone else can basically continue to do what they are now doing - oh, and financial institutions have to send a notice to all their clients telling them not to be involved in illegal gambling."
A House subcommittee meeting was called in April 2008, where it was clearly demonstrated by the banks, Barney Frank and other dissenters that the regulations as written are virtually impossible to implement. And Spencer Bachus, the Chairman of the Committee at the time and one of the few members in full support of the UIGEA, looked like a deer caught in the headlights. The Republicans, without question, left the banks and the incoming government with a lemon. In 2009 two bills were introduced by Congressman Barney Frank to address the UIGEA, including HR2267, the "Internet Gambling Regulation, Consumer Protection and Enforcement Act" and HR2266, "The Reasonable Prudence in Regulation Act". The latter was submitted earlier this year to the Committee on Financial Services to put off the implementation of the rules by a year, to December 1, 2010, realizing that anti-UIGEA bills probably wouldn't be addressed prior to the December 1, 2009 deadline. The extra year would give the banks a reprieve and also give the House and Senate time to seriously peruse and debate bills aimed at overturning the UIGEA for something more feasible. HR2266 had limited support at first, but now the bill has over 50 co-sponsors, while HR2267 has over 60 co-sponsors.
Asked why the bills are starting to generate more support, a lobbyist for the gambling industry replied:
"The UIGEA is an ass. No one in government wants to burden the banking system, and many are looking for a graceful way out. By putting it off for a year, there is hope that Frank's, Wexler's or McDermott's bill will finally be given serious consideration and the banks won't have to deal with a mess they don't need."
Those words are proving even more proficient, given a press release that was just issued by Safe and Secure where they pointed out that a Joint Committee on Taxation projected that legalized internet gambling in the U.S. could generate $42 billion in new revenue.
The release stated the following:
"As Congress considers how to pay for health care reform and other critical programs, a Joint Committee on Taxation analysis released today by Rep. Jim McDermott (D-WA) found that regulating Internet gambling, as proposed in pending legislation introduced by Representatives Barney Frank (D-MA) and Jim McDermott (D-WA), would generate up to $42 billion over 10 years. The analysis is based on the provision of a federal license for operators that would allow them to offer online gambling throughout the United States, while maintaining existing federal prohibitions on any form of sports betting."
The release also noted that Americans wager $100 billion currently with no revenues being collected by the government.
It is also important to point out that the issue of the UIGEA and other bills is becoming quite political. In fact, Lawrence G. Walters, a gambling attorney, stated the following to me:
"I am aware of an attempt to delay implementation of all federal regulations from the Bush Administration that have not taken final effect, including those implementing the UIGEA. The UIGEA regulations are of particular concern, because they affect the faltering financial industry, which does not need further burden or expense right now."
Since the introduction of HR2266 there have been many developments in the area of gambling at the state level, which makes one believe that there are many political games being played to try and sway support one way or the other in Congress towards gambling by state representatives. Kentucky's plan to seize 141 domain names of internet gambling companies, which was first granted by a Kentucky court and later overturned by an appellate court, is in the forefront again, as Kentucky's governor believes the appellate courts decision was wrong; the state of Delaware introduced their sports lottery, which is proving to be a dud and certainly far less impactful than they had hoped for; the state of New Jersey is trying to offer sports betting and is working with iMEGA to have PASPA declared unconstitutional, thereby allowing them to offer sports betting, both at casinos and possibly online; and the state of California is working hard to introduce their online poker network. Other states are also looking at online gambling as a new and real revenue source.
Furthermore, there have been some arrests of payment processors by Federal investigators. In Maryland a payment processor (Electracash) had $800,000 confiscated, and the apparent owner was arrested for money laundering, although his lawyer claims he left Electracash in 2001. In August of this year Douglas Rennick, who owned companies that processed transactions for some leading poker sites, was charged with fraud and money laundering, and had $13 million seized for apparently lying to the banks about the true nature of his business. And earlier the payment processor for Bodog had money seized as well. Many in the industry believe this is just the work of overzealous district attorneys trying to make a name for themselves, although others suspect a different motive.
"Most Democrats in Congress don't believe the UIGEA is good legislation and want it overturned, but to do so they need some Republican support. Even those who don't like Barney Frank know he's in the right about this issue. These arrests are a way of showing those Republican Doubting Thomas's that the new Department of Justice can issue arrest [warrants] without the help of banks, and that illegal payment processing can still be spotted and stopped, and therefore delaying the UIGEA won't cause chaos," an industry insider stated to me.
There is no question the issue of online gambling is more controversial than ever. Most Republicans want the UIGEA enforced now, while many Democrats want this and all bills rammed through by George W. Bush prior to his departure reviewed in great detail before being fully implemented. And while the economy appears to be improving somewhat, the cost and time spent implementing this useless law is certainly not something the banking system needs at this point in time. There is one month until the mandatory adherence to the UIGEA goes into effect. MajorWager will keep an eye on the legislation and report any updates as soon as they occur.
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