The lame-duck US congress has finally decided, with only a few weeks left before some of them go home for good, it was time to implement the regulations for the Unlawful Internet Gambling Enforcement Act (UIGEA). The entire financial system in the US is in such disarray, it is hard to imagine anyone putting these regulations on the ‘front burner’. But, despite strong opposition from Democratic leaders and the banking industry, the Congress found the time to focus on getting these regulations through. Leaders like Rep. Spencer Bachus (R-AL) were able to make their voices heard in one final salvo against the Internet gambling industry.
The amazing thing is that through all of this nothing will really change. Right now payment processors for sportsbooks disguise who they are, what the ‘charge for’ and where the transactions take place. If they are doing it now, they will certainly continue to make an end-run on the identification systems currently in place. The legislation uses the term due diligence about 100 times (actually 92) in describing what banks and financial institutions should do to identify the illegal transactions. So, if the bank sends a letter to Wacky Wally’s Widget World asking about their company, Wally will simply say that he sells widgets from Costa Rica and away they will go. Due diligence done - payment goes through. If they ask 123Processing, “Are you moving money for Illegal gambling?” and 123 says “No”. Due diligence done - payment goes through.
There are various ways that money moves to and from offshore gaming houses. Everything from wire transfers to MoneyGram to credit cards is used to send and receive money. However, the regulations only cover the sending of the money for the purpose of illegal Internet gambling.
The oldest way to send money, Western Union and now MoneyGram, is getting a break. The provisions include “only those money transmitting businesses that engage in the transmission of funds and permit customers to initiate money transmission transactions remotely from a location other than a physical office of the money transmitting business.” So if you go to the WU office to send money, that is not covered as illegal. In the infinite wisdom of the US lawmakers the figure that this tried and true method “would not be attractive payment arrangements through which Internet businesses, including Internet gambling businesses, could obtain payments from the general public.’ One wonders if ANY of UIGEA proponents have ever spoken with an offshore bettor.
In addition, after doing their due diligence, it looks like the only people who can be prosecuted are the companies that have the offshore gambling businesses as clients. Not Bank of America or VISA, but 123Pharmacy.com or Wally’s Widgets. These companies are already buried quite deep underground and this legislation is suddenly not going to make them popup and yell, “We move money for Internet gambling!” Again, has anyone in the legislative branch of government ever gotten a payout or made a deposit? Have they ever seen what shows up on a statement from a credit card transaction?
One Thing Right
Ther is one section of the Act that regulators got right. It was suggested that there would be a list of processors that operate illegally under the new statue. ”The Agencies have concluded that such a list would not be effective or efficient.” One small correct piece of common sense applied here as it would be quite easy for banned processing companies to just open up under a new name as soon as they appeared on the list.
Nothing New
Essentially. except for new code numbers for credit card transactions to define legal gambling transaction, the regulations tell financial institutions to not spend any time looking at individual transactions. American banks are not required to ask their foreign respondent banks about their customers. Nor are the foreign banks expected to answer. International bank wires and ACH transactions will get no additional scrutiny. And thus, nothing has really changed
What is Unlawful Internet Gambling
After consulting with the Department of Justice and representatives from the offices of several State attorneys general regarding this issue, the Agencies have determined that a single, regulatory definition of "unlawful Internet gambling" would not be practical. The legislation relies on underlying Federal and State gambling law which of course varies from state to state. This imposes the burden of proof of legality of Internet gambling activities on the gambling business, rather than the designated payment systems and their participants. There are probably not a lot a gaming operators that are going to come forward on this one either.
Look out Bodog
There does appear to be a bit of a fly in the ointment for operators. And perhaps this is the only place where this law looks a little frightening to offshore operators. In conjunction with the US Department of Justice, “if government entities are aware of an unlawful Internet gambling website, the procedure provided by the Act for denying access to the website in its entirety could be used, rather than permitting access to the unlawful Internet gambling website to continue without interruption, while relying on the designated payment systems and their participants to block every transaction destined for the Internet gambling business operating the website.” This sounds like Big Brother could effectively block any gambling URL that takes bets!
Nut’in but More Politics
So, this is really a big todo about mainly . . . nothing. The banks really aren’t libel for processing transactions or een looking for them, defining Unlawful Internet Gambling is not practical and the UIGEA apparently only covers deposits. Huh?
This is simply an exercise in politics. Both sides debated these regulations and the Republicans finally saw a way to turn this legislative loser of a bill into a political victory. I seriously doubt that this would have all happened now, with all of the problems the US financial industry is facing, had it not been for the election of both a majority democratic Congress and President. Bachus was quoted as saying “No longer will the offshore gambling interests benefit from any turning any computer into a casino that is available every minute of the day”. The Republicans will now say that they now stopped Internet gambling.
The regulations themselves are 60 days away from becoming effective and compliance of financial intuitions is still over a year away. The final rule becomes effective January 19, 2009 – the day before Barack Obama is sworn in as the new US President. Though undoing any legislation is difficult, eleven months is certainly enough time for Democratic leaders to grab a bit more money from lobbyists and the banking industry before overturning the act that banned financial transactions for internet gambling, the one that Barney Frank has called the "stupidest ever passed". The general belief is that the new administration will overturn this before it becomes enforceable.
Then the Republicans will stand up and say say the Dems are permitting illegal Internet gambling, harming our children and creating gambling addicts.
After all, with a law that cannot work and will do little to curb current gambling online, the only victory in this piece of legislation can be a political one.
