No One Likes The Proposed UIGEA Regs

written by I. Nelson Rose

#142 © Copyright 2008, all rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I Nelson Rose,

In “The Wisdom of Crowds,” the author, James Surowiecki, shows that many times, in the words of the subtitle, “the Many Are Smarter Than the Few.” If we needed any more proof, we need only look at the comments submitted in response to the regulations proposed for the Unlawful Internet Gambling Enforcement Act (UIGEA).

The UIGEA was basically the work of one man, then-U.S. Senate Majority Leader Bill Frist (R.-TN). Thinking he was helping his planned (but then quickly abandoned) campaign for President, Frist rammed through the UIGEA by attaching it at the last minute to the SAFE Ports Act. Forget about hearings or written comments. Frist refused to let Democrats like Sen. Lautenberg of New Jersey even read the proposed law. If Lautenberg didn’t like it, he could vote in favor of Islamist terrorism. The result is a statute that looks like it was not even proofread.

Compare that with the 217 comments submitted by very smart and motivated men and women, some with massive staffs, representing every individual and business that would be affected by regulations proposed for implementing the UIGEA.

The UIGEA required the Treasury Department and the Federal Reserve Board to write these regulations, with input from the Department of Justice (DOJ). These Agencies were supposed to come up with rules requiring financial institutions to identify and block “unlawful Internet gambling transactions.” The proposed regs. took months longer than the UIGEA allowed, but the Agencies still could not come up with a workable way to accomplish this impossible task.

Commentators had a little over two months to send in their written responses. The result is a devastating indictment of the proposed regs. and of the UIGEA itself.

The Agencies said, when they issued these proposed rules, that they could not give any guidance for determining whether an online bet is illegal. They refused to issue a list of sites that banks should block, recognizing that even an operator who is in the business of illegal gambling will sometimes have transactions that are perfectly legal. They said that it would take a detailed examination of federal, state and even tribal laws to determine whether a particular transaction involved unlawful Internet gambling, which was beyond their capacity.

Many commentators pointed out the inherent contradiction in this position: If the federal government does not have the resources to determine whether a particular transaction should be identified and blocked, how are banks and credit card companies supposed to do that?

A great example is the UIGEA’s own exemption of fantasy sports. By definition, fantasy sports leagues are not gambling under this statute, if certain requirements are met. One is that a fantasy team cannot consist of 100% of the members of a real-world sports team.

When a bank wires money it doesn’t even know what businesses the parties are in. It certainly is not in a position to check every fantasy team against the roster of every real-world team.

The British Bankers’ Association pointed out that the technology does not exist to do what these Agencies want. And if it did, banks would be opening themselves to lawsuits for transactions that should not have been blocked.

Twenty years ago, Treasury declared casinos to be “financial institutions” under a different statute, the Bank Secrecy Act. Regulations promulgated under that misnamed Act require the filing of Cash Transaction Reports and Suspicious Transaction Reports. So far, the proposed regs. do not include casinos as financial institutions under the UIGEA. This is fortunate. As the American Bankers Association noted, unlike the Bank Secrecy Act, which only requires reporting of what might be illegal activity, the UIGEA requires financial institutions to actually determine guilt or innocence. Banks have to act as the police, prosecutors, judges and executing marshals.

Not the usual job of banks. As an understatement, or perhaps sarcasm, one commentator wrote, “We believe a professionally trained officer of an agency of the U.S. Government would be better able than an employee of a financial institution to determine if a business conducting a gambling-related function is an unlawful Internet gambling business.”

Comments from gaming companies noted that, since it is nearly impossible to know when a gambling transaction might be violating some obscure law, banks will simply block all gaming and wagering transactions, even ones that are perfectly legal and should be let through. Executives of horse and dog racing organizations, including Patty Jones of the Nevada Pari-Mutuel Association, pointed out that many remote pari-mutuel wagering transactions are expressly allowed under federal and state laws. Ernie Passailaigue, President of the North American Association of State and Provincial Lotteries, made the same point about state lotteries.

Skill game representatives asked the Agencies to establish a certification system. Harlan W. Goodson, former Director of California’s Division of Gambling Control, said that the regulations should at least clarify that the definition of “unlawful Internet gambling” does not include games of skill.

The Poker Players Alliance urged its members to write in. Some may have gotten a little over-zealous: A Poker Playing Citizen wrote the Agencies, “The Third Reich had nothing on you guys.”

But the PPA itself launched a creative attack. Since the DOJ thinks that all Internet gaming is illegal, then any commercial promotion of any Internet gaming also would violate federal law. This creates a chilling effect on commercial speech, in violation of the First Amendment.

Edward J. Leyden, President of the Interactive Media Gaming and Entertainment Association (iMEGA), said it would have the same effect on “innovation surrounding the internet.”

Visa U.S.A.’s lawyer noted that every bank would be required to do due diligence in setting up a merchant account, and there had to be procedures like the code number 7995 now given to all Internet gambling. But either one, due diligence or a new code number, would be enough if the merchant was honest. And neither one would work if an operator of illegal gambling lied. (I worked on a case where an illegal bookie told Visa he was selling books.)

The wisdom of crowds, or at least of high-priced lawyers working for large financial institutions, is finally shown by the commentators’ showing the unintended, and ridiculous, reach of the UIGEA and proposed regs. Not only would credit cards and wired funds be covered, but so would stored value cards and even gift cards.

I gave American Express gift cards to my niece and nephew over the holidays. Am I going to go to jail if they use them to play poker on the Internet?

© Copyright 2008. Professor I Nelson Rose is recognized as one of the world’s leading experts on gambling law. His latest books, Internet Gaming Law and Gaming Law: Cases and Materials, are available through his website,

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