Off Shore Gaming Association

In 2006 the United States Congress decided to make the U.S. Financial system the enforcement for Internet gambling with the passage of the Unlawful Internet Gambling Enforcement Act (UIGEA). But, the new law would not be put into effect until the rules that the banks would be forced to follow were finalized. They were finally supposed to be implemented by December of last year, but Rep. Barney Frank and the House Finance Committee were able to block the implementation, at least for another 6 months. Well, six months is up and June 1 is the new date for banks and payment processors to block all transactions associated with ‘illegal online gambling’.

One of the biggest sticking points for Frank and the banks was what constitutes a payment to an ‘illegal’ online gambling operator. After all, no one in this administration or any previous ones has been able to actually define what that ‘illegal online gambling’ is, and thus banks and payment processors really do not know which transactions to block. The fear amongst Frank and his legislative buddies was not only the cost to financial institutions (always a biggie when you have the ear of the banking lobbyists), but the fear that any suspected transactions, including legitimate ones, would be denied.

The OSGA has been getting swamped with inquiries as to what would happen come June 1. We have been telling players since the passage of the UIGEA, that the movement of money for the purposes of gambling online, except for U.S.-based horse racing sites and lotteries, is illegal because of the 2006 law. We also have spoken with online gaming companies worldwide who tell repetitive horror stories, usually involving getting money back to players in the States. In reality, the banks are already doing more due diligence on ‘suspected’ transactions. We have reported on many companies that process money back to U.S. players which have been shut down and had funds confiscated for several years. As it turns out, the effects of this law have already been felt, and it’s not yet June.

Last week we got a disturbing report that a player had his debit card shut down by his local bank. Apparently, he had made several deposits with an online gaming operation located off of U.S. soil. These transactions were identified as illegal and his debit card was shut down, I guess so that he could make no further deposits with it. This is quite alarming, as it was not the transactions that were blocked, it was the players debit card that was shut down. His account remained open, but his card was shut down.

This may be an example of the frustration that the banks are going to have with ambiguous rules and regulations. Unfortunately for everyone, the UIGEA makes financial institutions police, judge and executioner. They will simply block first and ask questions later. In New Hampshire and North Dakota, overblocking led to denial of legal online lottery purchases several years ago. The blocking of legitimate transaction is one of the biggest arguments against the ambiguous UIGEA. Yet, who can blame the banking system? They will be fined if they process money to/from an Internet gambling house, even if they just missed a check or debit.

It is important to keep in mind that the UIGEA was not written to go after any player sending money offshore or receiving payouts from gaming companies. Instead, it enforces steep penalties on financial institutions for allowing ‘illegal Internet gambling’ transactions to occur.

The same player continued to have bad luck at his bank. The same week as the debit card incident, he went to the bank to deposit a check he had received for a payout from the same book. The bank claimed that the check was bad, and was looking for additional information. Instead the customer checked with the book, found out that the check was indeed good and simply asked the bank to redeposit it. Of course, the check cleared. And of course . . . once it did . . . the player opened an account at another bank.

This player’s story and his particular bank may be an isolated incident, or this case may be the tip of the iceberg. No one can be 100% sure. But this one occurrence should show players at Internet sportsbooks, casinos and poker rooms, that these regulations are making a real impact, implemented or not. Though we believe that the online gaming companies that service U.S. players are always one step ahead of the long arm of U.S. law, you can never be too safe with your money. Players should take care with how they are sending and receiving money and now, more than ever, keep an eye on balances.

If you have had a problem with your bank and the UIGEA regulations, please add your comments below.

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On Wednesday the U.S. House Ways and Means Committee held a hearing on Senator Jim McDermott’s (D., Wash.), latest revision of an online gambling tax bill introduced in 2009, H.R.2268. For over a year this bill has sat around while Internet gambling grows and state and federal coffers dwindle. The hearing engaged much of the same rhetoric that we have heard since the passage of the UIGEA in 2006, but this discussion was more spirited than many Federal hearings, perhaps, because this one was focused on the money.

And Big Money is what was being discussed. How ‘bout $42 billion over ten years! That is the figure that was thrown out early by Rep. Barney Frank (D-MA), who had to leave almost immediately after his testimony to take care of slightly more important national issues, like legislation designed to boost bank lending to small businesses. 40-plus billion is a huge number and is predicated on McDermott’s complex tax scheme involving operators paying a 2 percent tax on customer deposits, a one-quarter percent tax on wagers and the tax generated from gamblers who would now pay on their winnings in the form of a 1099 at the end of the year from their favorite online casino.

A good deal time was spent exploring the deposit tax. Several senators could not fathom that there would be a tax when making a deposit. They likened this as to a tax when a consumer ‘walks into Sears to buy a refrigerator with $1000 in their pocket’ and is taxed, whether a purchase is made or not. This line of archaic thinking came from multiple sources at the hearing. Finally towards the end of the hearing McDermott brought some sense to the argument noting that gamblers are not the ‘type of people’ to leave their money in the account. “That money to be deposited will be gambled”, said McDermott.

Even though this was supposed to be a hearing on the tax bill, it quickly turned into the usual point-counterpoint on the rewards/evils of online gambling. Opinions were all over the place with some legislators hitting on points that seemed to have nothing to do with the taxation of Internet gambling. Job creation, problem gambling, and the who, what and when of regulation were discussed. Advocates made legitimate arguments while opponents brought up much of the tired commentary that led to the current prohibitions.

Once again Rep. Bob Goodlatte (R-VA), architect of the 2006 Unlawful Internet Gaming Enforcement Act (UIGEA), brought up the suicide of a constituent. Though these stories are sad, the constant reminder of them brings to mind Tipper Gore saying that heavy metal music and Ozzy Osbourne prompted kids to kill themselves and others in the 80s. Rep. Wally Herger (R-Calif.) wanted to know at the outset why there was “even a hearing being held” when 317 legislators voted for the UIGEA. He did not reveal that the UIGEA was attached in the 11th hour to a homeland security bill that was pretty much a slam-dunk for passage.

Clearly Herger is obviously an opponent, as is Goodlatte, who spent a good deal of time being grilled by regulation advocates including, Rep. Charles B. Rangel (D-NY) and Rep. Earl Blumenauer (D-OR). However, Goodlatte takes a unique approach when being questioned. When asked, he punts and allows State’s rights to play defense for him. The questioning of Goodlatte went something like this. Q: Bingo. Goodlatte: States rights. Q: Poker. G: State rights. I think if it were up to Bob Goodlatte, we would have no Federal Laws, the states should be able to regulate every aspect of life.

There are clearly lines being drawn between supporters of Internet gambling and those that think the current prohibition is the best way for the country to go. Rep. Blumenauer commented that after the UIGEA legislation “people are still playing” and Rep. Linda T. Sanchez (D-CA) said that we are doing nothing more than “taxing what is already going on offshore”. Rep. Shelley Berkely (D-NV) added in that she supports legislation and regulation, but cannot give the OK to this tax bill. I guess Las Vegas thinks they pay enough taxes already. There was talk of limiting funding to political campaigns via gambling proceeds and whether the IRS will need more people and what about the Tribal Nations and their gambling? Clearly this is going to take some time . . .

Here are a couple of my favorite quotes from the two and half hour hearing.

Danny Davis, (D-IL) (neutral): “I think freedom of choice is a real concept.”
Sanchez, (D-CA) (for): “Today we are talking about a revenue stream.”
Earl Pomeroy, (D-ND) (against): “We can’t gamble our way back to a balanced budget.”

These three quotes are a microcosm of the realization that Federal legislation for Internet gambling is still a long way away from any type of resolution. The two sides are so far apart they cannot even get together on the most important aspect of legalization and regulation, at least as far as the government is concerned – how to collect the money. As long as legislators like Bob Goodlatte keep bringing up letters from States Attorney Generals and the sports leagues and the FBI and is allowed to put them into the record (again and again) then the road is long and uphill for legalization in the U.S. In the meantime, U.S. gamblers keep playing, offshore companies continue to benefit and the American consumer is the one who loses.

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