ITH Poker Forum

[SlfMade]

Please post analyses of the bill here, whether your own (only if you've read the bill please) or from elsewhere.

The bill is here, starting at page 213 of the document. A Word version of just the UIGEA is here.

[SlfMade]

I found the following on InfoPowa news, quoting a post on The RX, and it seems good:

1 - Neteller might go away. It will be their choice, but they may decide not to take American customers. They are not subject to this law as they are a foreign based banking operation – but they might abide by it.

2 - There is a 270 day period [during which the AG and the Federal Bank] to figure out how to enforce it. Right now there is no way because there is no coding of EFT’s. It is possible that they might not even find a way to do this or it might be too expensive.

3 - Nothing in this bill criminalizes your behavior as the bettor.

4 - Nothing in this bill criminalizes you if you are not a bookmaking operation and you send or receive payments.

5 - The responsibility is on US banking, payment processors, and epayment services to stop this.

6 - American hosts of illegal gambling websites will have to stop. I do not believe that ISP’s have anything to do with this and there will be no attempt to block XXXXXX from getting to your computer.

I'd add to #6 that it appears American hosts can be asked to remove links to gambling websites.

[SlfMade]

My own analysis:

Late Friday night Congress attached the Unlawful Internet Gambling Enforcement Act of 2006 to the port security bill. It passed, and will be signed into law. Its primary intent is to make it difficult to send money to online gambling sites. Regulations applying the law are to be promulgated within 270 days of signing.

The bill requires the creation of regulations preventing financial institutions from sending payments to sites engaged in illegal (see commentary below) online gambling. This is difficult to do since banks and other financial institutions don't generally know who they're sending money too. The only exception is credit card transactions, which are coded with business types.* US-based banks long ago stopped processing credit card payments to online gambling sites for fear of civil or legal liability. Knowledgeable online gamblers generally deposit to online gambling sites by making EFTs from their banks to Neteller, an online payment processer used as an intermediary. There is a provision in the bill allowing some transactions to go unregulated if it proves impractical to track them. I'm not sure which transactions will end up being regulated, but it would seem to be very difficult to track certain transactions, such as checks and echecks. Whether they'll be able to prevent EFT transfers to Neteller remains to be seen.

There's also a provision that will require US-based web servers to remove links to illegal online gambling sites when requested.

The law only applies to illegal online gambling. It doesn't change the legality of online gambling. Online gambling generally isn't illegal under federal law. The federal Wire Act of 1961 makes it illegal to take sports bets over the telephone, and has successfully been applied to online sportsbetting operations. The current administration has tried, unsuccessfully, to apply it to other types of gambling. A few states do explicitly make online gambling illegal (notably Washington state recently), and other states might argue that old statutes make online gambling illegal, but no one has ever been convicted of playing online poker in any state. Will the federal government try to apply this law to all gambling? I have no doubt they will. Will they succeed? Even if the courts don't go along with the feds' interpretation of the law, it seems likely it will have a strong effect on the financial services industry (comparable to what has already happened with credit card transactions).

The only new crime in the bill is for an online gambling business to receive money for illegal online gambling.

There will undoubtedly be a lot of litigation about this bill. Indeed, the US faced online gambling litigation even before this bill was passed: Antigua filed a complaint with the WTO that the US discriminates against overseas online gambling companies, a violation of the WTO treaty. The US does indeed allow domestic online gambling companies to operate in some areas (e.g. horseracing) while trying to prevent foreign companies from operating. This bill preserves the exemption for horseracing, and adds ones for fantasy sports and other areas.

Caveat: I'm not a lawyer, and even the lawyers who've read the bill are uncertain as to how it will play out just yet.

* Some online gambling sites facilitate transactions by miscoding them however.

[SlfMade]

The PPA's analysis is here.

[Millrat!]

Thanks for the info SLF has helped me understand some of this. Dan

[SlfMade]

An email from NROG:

FINANCIAL:
The UIGEA will require U.S Banks and credit card companies to monitor and block funding of your online gambling accounts. This will include payments by credit card, debit cards, ACH, physical checks, electronic checks, funds transfers or stored value cards. The Attorney General and Federal Reserve Board will have 270 days to clarify procedures and policies that must be enforced by these institutions however banks will be allowed to be "overly cautious" in blocking transactions that they may feel are questionable...even if they are not. As of this morning it is still unclear how a financial institution can block a transfer to an off-shore personal funding source (Neteller/Firepay), but you can be certain this will change the way you gamble online.

TECHNOLOGY:
The UIGEA will require Internet Service Providers (ISPs), remove or disable access to internet links and hyperlinks for gambling sites that reside on the ISPs servers. There is no monitoring system put in place by the government but the ISPs will be allowed to block any sites they feel are questionable without legal repercussion.

IMPORTANT NOTE: The UIGEA did not modify the 1961 Wire Act which would make the practice of gambling over the internet totally illegal. This is a battle that can still be won.

[SlfMade]

Nelson Rose is one of the most well known gaming lawyers. This is the best analysis I've read so far. His analysis follows.

I. NELSON ROSE
PROFESSOR OF LAW, WHITTIER LAW SCHOOL
HOME OFFICE: 17031 ENCINO HILLS DRIVE
ENCINO, CALIFORNIA 91436
(81 788-8509
FAX: (81 788-3104
WEB SITE: www.GAMBLINGANDTHELAW.com
EMAIL: rose@sprintmail.com

Gambling and the Law®:
The Unlawful Internet Gambling Enforcement Act of 2006 Analyzed

© Copyright 2006, all rights reserved worldwide. GAMBLING AND THE LAW® is a registered trademark of Professor I Nelson Rose, www.GAMBLINGANDTHELAW.com.

Note – This paper is copyrighted. You may quote it at length, republish it or distribute it for free only if you include this copyright and trademark information.

The Unlawful Internet Gambling Enforcement Act of 2006 was rammed through Congress by the Republican leadership in the final minutes before the election period recess. According to Sen. Frank R. Lautenberg (D- NJ), no one on the Senate-House Conference Committee had even seen the final language of the bill. The Act is title VIII of a completely unrelated bill, the Safe Port Act, HR 4954, dealing with port security. It can be found on pages 213 -244 of the Conference Report: http://www.saveonlinegaming.com/hr49543.pdf. It is based on the Leach and Goodlatte bills, HR 4411 and HR 4777, but there are some important differences.

The following is a detailed analysis of the Act. The section numbers that follow refer to new sections that have been added to title 31 of the U.S. Code:
§5361 The Act begins with Congress’s findings and purpose. These include a recommendation from the discredited National Gambling Impact Study Commission, whose chair was the right-wing, Republican incompetent, Kay Coles James. Findings include the doubtful assertion that Internet gambling is a growing problem for banks and credit card companies. It correctly states that “new mechanisms for enforcing gambling laws on the Internet are necessary,” especially cross-border betting.

The Act contains a standard clause that it does not change any other law or Indian compact. It repeats this many times, to make sure that no one can use the Act as a defense to another crime, or to expand existing gambling.

Most importantly, the Department of Justice is arguing before the World Trade Organization, in the dispute between the U.S. and Antigua, that all interstate gambling is illegal under the Wire Act. The DOJ insisted that any Internet prohibition passed by Congress not expressly authorize Internet betting on Horseracing. The DOJ believes this will allow it to continue to argue that the Interstate HorseRacing Act does not do exactly what it says it does, legalize interstate horseracing.
§5362 Definitions.

Bet or wager includes risking something of value on the outcome of a contest, sports event “or a game subject to chance.” The Act otherwise allows contestants to risk money on themselves. The “game subject to chance” restriction is designed to eliminate Internet poker.

The Act then confuses the issue of skill by stating that betting includes purchasing an “opportunity” to win a lottery, which must be predominantly subject to chance. Someone will figure out a way to create an opportunity to win, where the opportunity is subject to some chance. But the Act expressly prohibits lotteries based on sports events.

Betting includes instructions or information. This eliminates the argument overseas operators used that the money was already in a foreign country, so no bet took place in the U.S.

The Act exempts activities that we all know are gambling, but are, by statute, declared not to be gambling. These include securities and commodities, including futures, that are traded on U.S. exchanges. Boilerrooms and bucketshops, selling foreign securities are gambling. Insurance is not.

Free games are not gambling. But there is a special provision that allows sites to offer points or credits to players only if these are redeemable only for more games. Operators of free games, where players can win valuable prizes, will have to stop giving points for wins that can be redeemed for cash. Free bingo, on the other hand, can still give small cash prizes paid out of the advertising budget.

Fantasy leagues are legal, but subject to detailed restrictions. A fantasy team cannot be “based on the current membership of an actual team.” What they actually mean is a fantasy team cannot be composed merely of the players of a real team. There is no limit on the cost of entering, but prizes must be announced in advance, and not based on the fees paid by participants. Statistics must be derived from more than one play, more than one player, and more than one real-world event.

Being in the “business of betting or wagering” still does not include mere players. It also expressly does not include financial institutions involved in money transfers.

“Designated payment system” is a new term. It could have been labeled simply “target,” as in “you are the target of a criminal investigation.” It covers any system used by anyone involved in money transfers, that the federal government determines could be used by illegal gambling. The procedure will be that the Secretary of the Treasury, Board of Governors of the Federal Reserve System and Attorney General will meet and create regulations and orders targeting certain money transfer systems.

“Financial transaction provider” is a very broad definition covering everyone who participates in transferring money for illegal Internet gambling. This expressly includes an “operator of a terminal at which an electronic fund transfer may be initiated,” and international payment networks. This covers third party providers, like Neteller.

“Interactive computer service” includes Internet service providers.

“Restricted transaction” means any transmittal of money involved with unlawful Internet gambling.

“Unlawful Internet gambling” is defined as betting, receiving or transmitting a bet that is illegal under federal, state or tribal law. The Act says to ignore the intermediary computers and look to the place where the bet is made or received.

This does not completely solve the problem of Internet poker, or even Internet casinos. The Act does not expand the reach of the Wire Act, the main federal statute the DOJ uses against Internet gambling. Although the DOJ has taken the position that the Wire Act covers all forms of gambling, courts have ruled that it is limited to bets on sports events and races. State anti-gambling statutes have similar weaknesses, including the presumption that they do not apply if part of the activity takes place overseas. This new statute requires that the Internet gambling be “unlawful.” But it would often be difficult to find a federal, state or tribal law that clearly made a specific Internet bet illegal.

Nevada and other states are expressly permitted to authorize 100% intrastate gambling systems. Congress required that state law and regulations include blocking access to minors and persons outside the state.

Tribes were given the same rights, with the same restrictions. Two tribes can set up an Internet gaming system, if it is authorized by the Indian Gaming Regulatory Act. This means that tribes can operate bingo games linking bingo halls on reservations. They can also link progressive slot machines, if their tribal-state compacts allow. But they cannot operate Internet lotteries and other games open to the general public.

It is interesting that Congress decreed that states can decide for themselves if they want to have at-home betting on horseracing, but not on dogracing. Congress also decreed that tribes can operate games that link reservations, even across state lines, but not the states themselves: state lotteries are not exempt.

Congress had a little problem with the term “financial institution.” To force casinos to report large cash transaction, federal law was changed to define “financial institution” as including large gambling businesses. Congress had to undo that definition, so that in this Act casinos go back to being casinos.

The other definitions are standard or are described above.
§5363 “No person engaged in the business of betting or wagering may knowingly accept” any money transfers in any way from a person participating in unlawful Internet gambling. This includes credit cards, electronic fund transfers, and even paper checks. But it is limited to Internet gambling businesses, not mere players. It also would not cover payment processors, except under a theory of aiding and abetting.
§5364 Federal regulators have 270 days from the date this bill is signed into law to come up with regulations to identify and block money transactions to gambling sites. At this writing, President Bush had not yet signed this bill, but he will. So the regs will go into effect by the beginning of July 2007.

The regs will require everyone connected with a “designated payment system” to i.d. and block all restricted transactions. So all payment processors are suppose to have systems in place to prevent money from going to operators of illegal Internet gambling. The first step will undoubtedly be to take the credit card merchant code 7995 and expand it to all money transfers. Visa created the 7995 classification in 2001 to avoid having its credit cards used for online gambling. The federal government will order banks and all others involved with electronic money transfers to cease sending funds to any Internet operator who has a 7995 credit card merchant code. Any financial institution that follows the regs cannot be sued, even if it wrongfully blocks a legitimate transaction.

The Act allows the federal regulators to exempt transactions where it would be impractical to require identifying and blocking. This obviously applies to paper checks. Banks have no way now of reading who the payee is on paper checks and cannot be expected to go into that business. Banks tried to defeat this bill, not because they cared about patrons’ privacy, but because they knew that it would cost them billions of dollars to set up systems to read paper checks.

The great unknown is how far into the Internet commerce stream federal regulators are willing to go. The Act requires institutions like the Bank of America and Neteller to i.d. and block transactions to unlawful gambling sites, whatever they are. But, while the Bank of America will comply, Neteller might not, because it is not subject to U.S. regulations. Will federal regulators then prohibit U.S. banks from sending funds to Neteller? And would they then prohibit U.S. banks from sending funds to an overseas bank, which forwards the money to Neteller?

For financial institutions within the U.S, the Act provides that exclusive regulatory enforcement rests with their federal regulators, like the Federal Reserve Board. The Federal Trade Commission is supposed to enforce regulations on everyone else. It is extremely doubtful whether the F.T.C. will ever try to do anything about the Netellers of the world, who are beyond regular U.S. regulatory control.
§5365 Since there is no way to regulate overseas payment processors, the Act allows the U.S. and state attorneys general to bring civil actions in federal court. The courts have the power to issue temporary restraining orders, preliminary and permanent injunctions, to prevent restricted transactions. The only problem with this enormous power is that it is, again, practically useless against payment processors who are entirely overseas.

It is difficult to serve a company with the papers necessary to start a lawsuit, a summons and complaint or petition, if the company has no offices, or officers, in the U.S. Even if the papers for such a lawsuit can be served, there is normally no requirement that foreign countries enforce these types of orders. Other countries are particularly reluctant to enforce a T.R.O., which does not even require that the defendant be present. Preliminary injunctions are also often ignored, because they are issued without a full trial and can be modified at anytime by the trial judge. Neteller operates out of the Isle of Man. I do not know of any treaty or other law which would require the Isle of Man to enforce even a permanent injunction against one of its licensed operators.

The Act provides for limited civil remedies against “interactive computer services.” An Internet service provider can be ordered to remove sites and block hyperlinks to sites that are transmitting money to unlawful gambling sites. ISPs are under no obligation to monitor whether its patrons are sending funds to payment processors or even directly to gambling sites. But once it receives notice from an U.S. Attorney or state Attorney General, the ISP can be forced to appear at a hearing to be ordered to sever its links.

But the statute has an interesting requirement: The site must “reside on a computer server that such service controls or operates.” This would limit the reach of this statute to payment processors, affiliates and search engines that are housed on that particular ISP. The same problem of going after foreign operators and payment processors affects this section. Foreign ISPs are difficult to serve and not necessarily subject to federal court injunctions.

The greatest danger here would seem to be with affiliates. Any American operator can be easily grabbed. This includes sites that don’t directly take bets, but do refer visitors to gaming sites. If the affiliate is paid for those referrals by receiving a share of the money wagered or lost, it would not be difficult to charge the affiliate with violating this law, under the theory of aiding and abetting. Being a knowing accomplice and sharing in the proceeds of a crime make the aider and abettor guilty of the crime itself. The federal government could also charge the affiliate with conspiracy to violate this new Act.

The other danger lies with search engines. Although California-based Google does not take paid ads, punching in “sports bet” brings ups many links to real-money sites. This new Act expressly allows a federal court to order the removal of “a hypertext link to an online site” that is violating the prohibition on money transfers. But what prosecutor would want to be ridiculed internationally for trying to prevent Google from showing links?

The Act gives ISPs a little more security by declaring that they cannot be convicted of violating the Wire Act, unless, of course, the ISP is operating its own illegal gambling site.

This section of the Act ends with a limitation, that, frankly, makes no sense. It says that, after all the talk of getting court orders to prevent restricted transactions, “no provision of this subchapter shall be construed as authorizing” anyone “to institute proceedings to prevent or restrain a restricted transaction against any financial transaction provider, to the extent that the person is acting as a financial transaction provider.” This could be a typo, since the bill was rushed through without an opportunity to even be read. Or perhaps it means that banks can be ordered to not transfer money to gambling sites, but only if they know about it. It is indecipherable.
§5366 Criminal penalties: Up to five years in prison, and a fine. And barred from being involved in gambling.
§5367 The Act naturally makes ISPs and financial institutions liable if they actually operate illegal gambling sites themselves.

Lastly, the Act requests, but does not require, the executive branch to try and get other countries to help enforce this new law and “encourage cooperation by foreign governments” in identifying whether Internet gambling is being used for crime. The Secretary of the Treasury is told to issue a report to Congress each year “on any deliberations between the United States and other countries on issues relating to Internet gambling.” That report will go unread.

END
© Copyright 2006. Professor I Nelson Rose, Whittier Law School, Costa Mesa, CA is recognized as one of the world’s leading experts on gambling law. His latest books, GAMING LAW: CASES AND MATERIALS and INTERNET GAMING LAW, are available through his website, www.GamblingAndTheLaw.com.

I. NELSON ROSE

Professor I. Nelson Rose is recognized as one of the world's leading experts on gambling law. A tenured full Professor at Whittier Law School in Costa Mesa, California, Prof. Rose is also an internationally known scholar, author and public speaker.

Professor Rose is best known for his internationally syndicated column, "Gambling and the Law®" and his landmark 1986 book with the same name. The author of more than 1,000 published works, including GAMBLING AND THE LAW and BLACKJACK AND THE LAW. He wrote the chapter on Internet gambling for the first casebook on gaming law, GAMING LAW: CASES AND MATERIALS, and in 2005 co-authored INTERNET GAMING LAW (available at www.liebertpub.com/igl).

Harvard Law School educated, Prof. Rose is a consultant to governments and industry. He has testified as an expert witness in administrative, civil and criminal cases in the U.S., Australia and New Zealand, including the first NAFTA tribunal on gaming issues, and has acted as a consultant to major law firms, international corporations, racetracks, licensed casinos, players, Indian tribes, and local, state and national governments, including Arizona, California, Florida, Illinois, Michigan, New Jersey, Texas, the province of Ontario, and the federal governments of Canada, Mexico and the United States.

With the rising interest in gambling throughout the world, Prof. Rose has addressed such diverse groups as the National Conference of State Legislatures, Congress of State Lotteries of Europe and the National Academy of Sciences. He has taught classes on gaming law to the F.B.I., at the University of Ljubljana in Slovenia, Sun Yat-sen University in China and the Universidad de Cantabria in Spain, and as a Visiting Scholar for the University of Nevada-Reno's Institute for the Study of Gambling and Commercial Gaming. Prof. Rose has presented scholarly papers on gambling in Nevada, New Jersey, Puerto Rico, England, Australia, Antigua, Portugal, Italy, Argentina and the Czech Republic.

Linkto the article on his site.

[Dooper3]

In the past couple of days, I've been dong a bit of research and thinking. However limited my thinking may be on a subject upon which I am notoriously biased... I've been trying to come up with a solution, one way or the other. Not there yet.

Wouldn't any enforcement be subject to the claim of discriminatory enforcement? That is, enforcing restrictions against one sort of entity and not another? For example, every casino has many many ATM and credit card machines placed there for the precise purpose of getting money to gamble. The banks of origin of the various cards are often out-of-state, as are the folks using them. There seems to be little or no difference between getting money to use at a legal casino in, say, Nevada and getting money to use at a legal online gaming site based in, say, Antigua. There is still the interstate/iinternational access to money. Taking this argument to its logical extension, it would also be illegal to accept money for betting that has crossed interstate lines in any fashion. It starts getting absurd. If one further extends this rationale to lotteries, state paramutuel betting, etc., it becomes untenable.

The key seems to be to educate a majority of Congressmen and Senators. First of all, educate them to understand that poker is not a problem activity. It is entertainment, and, for some, a livelihood. It is no more subject to abuse (and is no doubt much less subject to abuse) than alcohol and smoking, and is far less damaging to health and welfare. Rather than an "immoral" enterprise, it can be entrepreneurial and invigorating. A game of skill, played against other players, not against house odds. A game one can study for and improve upon one's skills. They need to rethink the "immorality" issue. We cannot let them continue to go with the easy knee-jerk reaction that poker must be bad.

Then educate them about the revenues involved. In a country that has been adding to the national debt by leaps and bounds, online poker has the potential, if licensed, regulated and taxed, to be a terrific source of revenue. Perhaps it would be possible to simply permit already existing casinos and similar state-owned enterprises to link through to online sites, thus permitting their citizens to enjoy the great game of poker while, at the same time, substantially increasing monies coming into the state through licensing/taxing.

Finally educate them that regulation, not criminalization, is the key to avoiding money-laudering, fraud and preventing children from playing poker. Regulation and cooperation could help the police locate any terrorist and criminals who might be trying to launder money through such venues. Criminalization leads to subterfuge; regulation leads to openness.

The bill may be on its way to being signed into law. But laws can change. They can be revised, rewritten, rethought, overturned as knee-jerk reactions give way to a more considered approach.

[niin]

The Act otherwise allows contestants to risk money on themselves

Isn't poker me risking money on myself? I guess people don't see it that way.

[Georgeair]

Congress is patting itself on the back for passing the Port Security Act last Saturday. But the day before, a House-Senate conference committee stripped out a provision that would have barred serious felons from working in sensitive dock security jobs.

http://www.opinionjournal.com/diary/?id=110009027

[SlfMade]

Anthony Cabot, one of the country's top gaming lawyers, was interviewed by the Las Vegas Sun for this article about the bill. An excerpt:

But Cabot said the measure exempts state-licensed casinos, which could conduct online poker or casino-style wagering within their states once authorized to do so - and also could link up with other states or even foreign jurisdictions where such gambling isn't prohibited.

[SlfMade]

Allyn Jaffrey Shulman of CardPlayer has posted a very interesting analysis. A summary:

The bill doesn't change the legality of gambling. It just enforces current law. It "attempts to make it more difficult to get money into a site by forbidding US financial Institutions from funding the type of online gambling that the law has previously made illegal."

So what's already illegal? "In a nutshell, sports betting is made illegal by the 1961 Wire Act, but poker is not."

".... ultimately, the statute will only be deemed to affect the method by which online sites are funded."

She believes the US does not have jurisdiction over the offshore companies involved.

She'll be writing another article, so please post a link to it here if you see it first.

[SlfMade]

Chuck Humphrey, of gambling-law-us.com, posted an analysis. He's significantly more negative towards online gambling than Shulman.

[SlfMade]

PocketFives's Oct 5, 2006 podcast has an interview with Nelson Rose. His interview starts at about the 25-minute point. Rose is at least as good on the podcast as he is in print. One interesting point: he believes that EFT's will only prohibited to sites that are already coded by credit card companies as gambling sites.

The podcast also has 1) a layman's summary of the bill, 2) an interview with NROG Executive Director Brian Jakusik, and 3) an interview with PPA President Michael Bolcerek (I think he's unrealistically negative about the effect of the bill, but we'll see over time who's right).

[nsidestrate]

This is a great collection of pretty much every significant analysis of the bill I've seen. I'm going to make it a sticky post.