#148 © Copyright 2008, all rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I Nelson Rose, www.GamblingAndTheLaw.com
“The problem with political jokes is they sometimes get elected.”
What do you do with a law that should never have been written?
By this time, most people who are interested in Internet gaming know the sordid history of the Unlawful Internet Gambling Enforcement Act: It was written by the failed politician Bill Frist (R.-TN.), who used his position as then Majority Leader of the U.S. Senate to ram it through, as part of his vain attempt to run for president. Frist didn’t care about Internet gaming, but he thought he could win points with Jim Leach (R.-IA), then a powerful member of the House of Representatives from Iowa, the state with the first presidential caucuses. Frist attached the UIGEA at the last minute to the SAFE Port Act. Even though there was no time to read the bill, it was approved nearly unanimously, since voting against it meant voting in favor of Islamist terrorists.
Ironically, Leach lost his seat in an upset election, and Frist not only did not become president, but could not even keep his party from losing control of the Senate.
President Bush signed the bill on October 13, 2006. So even though virtually no one really wanted it, the UIGEA is now the law.
But no one knows what to do with it.
The UIGEA scared every publicly traded Internet gambling company into dropping out of the U.S. market. Even privately owned web operators restructured, separating their operations, so American executives have nothing to do with the gaming side of the business.
But this was probably an over-reaction, because – despite reports in the press – the new law does not make Internet gambling illegal. The UIGEA does only two things: It creates a new crime, being a gambling business that accepts money for an unlawful gambling transactions, and it requires federal agencies to issues regulations requiring financial institutions to identify and block the transfers of funds for these illegal bets.
The new crime has proved to have no teeth. I am unaware of it ever having been used against an Internet gaming operation. When the federal Department of Justice decided to go after the founders of Neteller, for example, it did not charge them with violating the UIGEA. Perhaps this was because the founders’ active involvement with Neteller had ended before the UIGEA became law. Or perhaps the DOJ knew that it would be opening a can of worms if it had to prove this new crime had been committed.
The problem for the DOJ is that the UIGEA does nothing to clarify whether a particular online wager is illegal. “Unlawful” in the UIGEA is defined as violating some other federal or state law. So, if the gambling is already illegal, this new crime adds very little. If, on the other hand, the gambling was legal before the UIGEA was enacted, it is still legal.
The regulations have also so far been mere threats. The federal agencies – Treasury, the Federal Reserve Board, with input from the DOJ – did finally issue proposed regulations, ten months late. These were immediately subjected to a barrage of criticism. By the beginning of 2008, 217 written comments had been submitted, almost all of them negative.
The regulators admitted that it was beyond their capacity to determine whether any particular transaction was “unlawful gambling.” But the proposed regs require bank employees to do exactly that. This was naturally met with derision.
On April 2, 2008, Congressman Barney Frank (D.-MA) chaired a hearing of the House Financial Services Committee titled: “Proposed UIGEA Regulations: Burden Without Benefit?” Witness after witness joined Frank and his co-sponsor, Rep. Ron Paul (R.-TX), in blasting the proposed regs as unworkable. They proposed killing the proposed regs and requiring the federal regulators to devise a way of knowing whether a transaction was illegal gambling.
It looked like the Frank-Paul bill would pass, because it gained powerful allies: financial institutions. Banks were concerned that they might be fined if they transmitted funds that the government later decided they should have blocked. And banks called the proposed regs “an unfunded mandate,” meaning the federal government was requiring them to do something, which will cost billions of dollars, without being reimbursed.
In a strange twist, the Frank-Paul bill became a political football in this most political of years. Despite the fact that no one had even read the original UIGEA, the Republican leadership decided that stopping Internet gambling could be made into a motherhood and apple pie issue – just think of all those foreigners coming into Americans’ homes to exploit little children. Because the bill was a change in the law, it required a majority to go to the floor of the House. It therefore died on an exact tie, party-line vote, 32 to 32.
But advocates, like the Poker Players Alliance, did not give up. They continued to educate members of Congress about what the UIGEA and its proposed regs would do.
In a very sophisticated maneuver, the PPA got its members to flood representatives’ offices with angry phone calls and emails, convincing four of the Republicans to send a letter to the agencies. Having voted against the Frank-Paul bill, to stop the proposed regs and define “unlawful Internet gambling,” they now asked the agencies… to stop the proposed regs and define “unlawful Internet gambling.”
So, will the proposed regs become final? The bureaucrats in Treasury and the Fed. Reserve know how to count votes. The Agencies know that with a new President and Congress, the UIGEA itself could be undone, let alone its regulations.
The future depends on which party wins in November.
If the Republicans win, the regs will be written just about as is. The PPA couldn’t even get anti-Internet gambling language permanently removed from the party’s platform.
But if the Democrats win the White House, they will keep control of the House, so Frank will remain Chair of his Committee and will again try to kill the proposed regs. Harry Reid (D.-NV) will remain Majority Leader and push for what the Nevada casinos want: The UIGEA and its regs to be amended to allow licensed casinos to take bets online from any state that does not object.
© Copyright 2008. Professor I Nelson Rose is recognized as one of the world’s leading authorities on gambling law and is a consultant and expert witness for governments and industry. His latest books, Internet Gaming Law and Gaming Law: Cases and Materials, are available through his website, www.GamblingAndTheLaw.com.