Unlawful Internet Gambling Enforcement Act of 2006
|This article is outdated. (November 2013)|
|Other short titles||
|Long title||An Act to prevent the use of certain payment instruments, credit cards, and fund transfers for unlawful Internet gambling, and for other purposes.|
|Nicknames||Internet Gambling Prohibition and Enforcement Act|
|Enacted by||the 109th United States Congress|
|Effective||October 13, 2006|
|Statutes at Large||120 Stat. 1884 aka 120 Stat. 1952|
|Titles amended||31 U.S.C.: Money and Finance|
|U.S.C. sections created||31 U.S.C. ch. 53, subch. IV § 5361 et seq.|
The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) is United States legislation regulating online gambling. It was added as Title VIII to the SAFE Port Act (found at 31 U.S.C. §§ 5361–5367) which otherwise regulated port security. It "prohibits gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law." The act specifically excludes fantasy sports, that meet certain requirements, and legal intrastate and inter-tribal gaming. It does not expressly mention state lotteries; nor does it clarify whether inter-state wagering on horse racing is legal.
- 1 Background on online gambling
- 2 Legislative history
- 3 Act details
- 4 Criticisms
- 5 Responses from online gambling sites
- 6 WTO dispute
- 7 Challenge to UIGEA
- 8 Enforcement
- 9 See also
- 10 References
- 11 External links
Background on online gambling
The United States Court of Appeals for the Fifth Circuit ruled in November 2002 that the Federal Wire Act prohibits electronic transmission of information for sports betting across telecommunications lines but affirmed a lower court ruling that the Wire Act "'in plain language' does not prohibit Internet gambling on a game of chance." While some states have specific laws prohibiting online gambling, many do not. Additionally, in order for an online gaming company to start, a license from the state is required. The only state to ever issue a license was Nevada, in March 2013.
The Act was passed on the last day before Congress adjourned for the 2006 elections. According to Sen. Frank Lautenberg (D-N.J.), no one on the Senate-House Conference Committee had seen the final language of the bill before it was passed. The Economist has written that these provisions were "hastily tacked onto the end of unrelated legislation".
Though a bill with the gambling wording was previously debated and passed by the House of Representatives, the SAFE Port Act (H.R. 4954) as passed by the House on May 4 and the United States Senate on September 14, bore no traces of the Unlawful Internet Gambling and Enforcement Act that was included in the SAFE Port Act signed into law by George W. Bush on October 13, 2006. The UIGEA was added in Conference Report 109-711 (submitted at 9:29pm on September 29, 2006), which was passed by the House of Representatives by a vote of 409-2 and by the Senate by unanimous consent on September 30, 2006. Due to H.RES.1064, the reading of this conference report was waived.
Among the Congressional supporters of the Act were Rep. Jim Leach [R-IA], a former chairman of the House Banking Committee and Rep. Robert Goodlatte [R-VA], who co-authored H.R. 4411 (the Internet Gambling Prohibition and Enforcement Act). Bill Frist [R-TN], former majority leader of the Senate, and Jon Kyl [R-AZ] are both credited with expediting the UIGEA's passage through the Senate. Though the SAFE Port Act's provisions related to Internet gambling were drawn exclusively from H.R. 4411, significant portions were removed, including text relating to the Federal Wire Act.
UIGEA § 5364 required that regulations be issued by the Federal Reserve and the Department of the Treasury within 270 days of the passage of the Act. In October, 2007, these agencies issued a "Notice of Proposed Rulemaking", which effectively tabled draft UIGEA regulations for public comment. In response to the NPRM, four hundred and ten (410) responses were received from depository institutions, depository institution associations, public policy advocacy groups, consumers, “gambling-related” entities, payment system operators, federal agencies, and members of Congress.
The Bush administration had previously adopted the position that it would not finalize any rule subsequent to November 1, 2008. This last-minute rulemaking that binds the hands of an incoming administration is commonly termed the midnight drop.
The final regulations (termed the "Final Rule") were finalized and released November 12, 2008, and came into effect on January 19, 2009, the day before the Obama administration took office. Compliance was not required until December 1, 2009, in order to give the "non-exempt participants" an opportunity to implement the necessary safeguards and procedures.
According to the overview posted on the FDIC website, the act prohibits gambling businesses from "restricted transactions". Restricted transactions involve gambling businesses when they knowingly accept payments from another person in a bet or wager on the internet. It also requires that the Treasury and Federal Reserve Board with consultation of the Attorney General to promulgate regulations requiring certain participants in payment systems that could be used for unlawful Internet gambling to have policies and procedures reasonably designed to identify and block or otherwise prevent or prohibit the processing of restricted transactions. These regulations are independent of any other regulatory framework, such as the Bank Secrecy Act or consumer protection regulations.
Section 5361, Findings and Purpose
The Act begins with Congress’s findings and purpose. Findings include a recommendation from the National Gambling Impact Study Commission. One of the controversial findings asserted in the opening of the bill is the assertion that Internet gambling is a growing problem for banks and credit card companies. The opening section of the act also states that “new mechanisms for enforcing gambling laws on the Internet are necessary,” especially for cross-border betting. The Act contains a clause that ensures no change be made any other law or Indian compact. This clause makes known that the Act cannot be used as a defense to another crime, or to expand existing gambling.
Section 5362, Definitions
This section outlines definitions of gambling terms to be used throughout the act. The Act defines a bet or wager to include risking something of value on the outcome of a contest, sports event, "or a game subject to chance." The "game subject to chance" restriction is designed to include Internet poker in the act. 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. The Act expressly prohibits lotteries based on sports events. Some activities such as securities and commodities, including futures, that are traded on U.S. exchanges are, by statute, declared not to be gambling. "Designated payment system" covers any system used by anyone involved in money transfers, that the federal government determines could be used by illegal gambling. "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. "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. To force casinos to report large cash transactions, federal law was changed to define "financial institution" as including large gambling businesses. All other definitions are standard.
Section 5363, Money Transfers
This section covers money transfers. The bill states "[n]o 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 the restriction on transfers is limited to Internet gambling businesses, not mere players. It also would not cover payment processors or ISPs, even under a theory of aiding and abetting. The Act clearly does not make it a crime to knowingly transmit funds for illegal gambling. Neither the player nor the intermediary can be charged with this crime. The language of the Act even eliminates the possibility of charging financial institutions and computer hosts under a theory of aiding and abetting, since it explicitly states, in the definitions section, that being in the business of gambling does not include a "financial transaction provider," or an ISP.
Section 5364, Regulations
Under section 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. The regulations will require everyone connected with a "designated payment system" to i.d. and block all restricted transactions. 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.
Section 5365, Civil Suits
Since there is no way to regulate overseas payment processors, section 5365 of the Act allows the United States and state attorneys general to bring civil actions in federal court. The courts have the power to issue temporary restraining orders and 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. 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 a U.S. Attorney or a state attorney general, the ISP can be forced to appear at a hearing to be ordered to sever its links.
Other pertinent provisions
Criminal penalties under section 5366 include up to five years in prison, a fine, and being barred from involvement in gambling. Under section 5367, the Act 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.
Opponents of the UIGEA such as Michael D Schmitt has criticized the act and believes that it will not work comparing it to prohibition of alcohol. He also criticizes the government for "forcing" this controversial bill to be passed with the non-controversial attached SAFE Port Act. Some senators and congressmen have even stated that they were not even allowed to see the final version of the gambling portion before putting in their votes.
Gaming consultant Michael Shackleford has also been critical of the UIGEA stating that the act has "undoubtedly depressed play" but has failed in its primary objective as "there are ways of funding accounts without using US banks, and millions of players know that".
Many have argued that the act has failed to address the dangers of online gambling. They state that the act and the Department of Justice successfully forces easily regulated large publicly traded companies out the market and introduces small unscrupulous private companies into the market. Doing so could result in amplifying risks of consumer abuse, underage gambling, problem gambling and money laundering. Critics believe that regulation of online gambling is a better alternative.
Responses from online gambling sites
All online gambling sites listed on the London Stock Exchange or similar markets have stopped taking United States players due to the passage of the Act, while most non-public companies have announced an intention to continue taking US customers.
PartyGaming, which runs PartyPoker.com, had its publicly traded stock drop almost 60% in 24 hours as a result of the bill's passage. The company was moved from the FTSE 100 Index to the FTSE 250 Index on October 11, 2006.
According to a study published in May 2015, players from the USA are banned in more than 72% of the world's online casinos. Having considered multiple factors, such as ISP blocks of online casinos and restrictions for casino financial transactions, the report concluded that as of 2015, the USA is the worst country for online gambling of the 225 studied
Antigua and the United States have been involved in a long-running World Trade Organization dispute over U.S. restrictions on online gambling. The WTO ruled on January 25, 2007, that the U.S. is in violation of its treaty obligations by not granting full market access to online gambling companies based in the island nation. On March 30, 2007, the WTO confirmed the U.S. loss in the case.
On June 19, Antigua filed a claim for USD $3.4 billion in trade sanctions against the United States, along with a request for authorization to ignore U.S. patent and copyright laws. This claim was filed a day after similar demands for compensation were made by the European Union.
The United States settled the dispute by granting concessions in other sectors. The administration of President George W. Bush refused to disclose the details of those concessions, however. In April 2008 Congressmen Barney Frank and Ron Paul called for the agreements to be made public. They stated that the concessions "could cost the United States many billions of dollars in compensation" and that the administration's invocation of "national security" as a reason to block disclosure under the Freedom of Information Act (FOIA) was "a misuse of the FOIA process." When the administration continued to keep the information secret, Public Citizen brought suit on behalf of Ed Brayton, a journalist whose FOIA request had been denied.
Challenge to UIGEA
In May 2009, Congressman Barney Frank introduced a bill to overturn the gambling aspects of the Act, "The Internet Gambling Regulation, Consumer Protection, and Enforcement Act", which seeks to repeal the major online gaming obstacles of the UIGEA and go further in protecting Americans from fraud, while safeguarding against underage and problem gamblers.
Frank also introduced a bill to delay the implementations of the UIGEA for one year, until December 1, 2010. The bill was put into effect, however, the regulations were only extended until June 1, 2010.
In April 2011, the founders of PokerStars, Full Tilt Poker, and Absolute Poker, the three largest Internet poker companies that then accepted U.S. players, were among those indicted for charges that included violations of the UIGEA. According to the United States Attorney in New York, the companies allegedly tried to circumvent UIGEA rules with the help of others who acted as "payment processors" by helped disguise gambling revenue as payments for non-existent goods such as jewelry or golf balls.
- Baxter v. United States
- Commonwealth of Pennsylvania vs Walter Walkins
- Southern District of New York Action Against Online Poker Players
- Poker Players Alliance
- "Unlawful Internet Gambling Enforcement Act" (PDF). Examination Handbook Section 770. U.S. Treasury Department. Retrieved 2011-01-07.
- "No. 01-30389. - IN RE: MASTERCARD INTERNATIONAL INC. Internet Gambling Litigation. - US 5th Circuit" (PDF). Caselaw.lp.findlaw.com. 2002-11-20. Retrieved 2011-05-06.
- "First online casino to get a US gambling license turns out to be notorious UK spammer". theverge.com.
- Rose, I. Nelson (2006). "Viewpoint: The Unlawful Internet Gambling Enforcement Act of 2006 Analyzed". Gaming Law Review 10 (6): 537–541. doi:10.1089/glr.2006.10.537.
- "Library of Congress Congressional record for the SAFE Port Act". THOMAS. March 14, 2006. Retrieved 2011-04-16.
- Poker face off, The Economist, April 23, 2011, p. 68
- "Transcript of the April 5th hearing". Commdocs.house.gov. Retrieved 2011-05-06.
- "Transcript of July 11th floor speeches on H.R. 4411 - the Internet Gambling Prohibition and Enforcement Act". GovTrack.us (Civic Impulse, LLC). 2005-11-18. Retrieved 2011-05-06.
- "H.R. 4411 vote record". GovTrack.us (Civic Impulse, LLC). Retrieved 2011-05-06.
- "H.R. 4954 vote record". GovTrack.us (Civic Impulse, LLC). Retrieved 2011-05-06.
- "I. Nelson Rose: The Unlawful Internet Gambling Enforcement Act of 2006 Analyzed". Gamblingandthelaw.com. Retrieved 2011-05-06.
- "CRS Report for Congress" (PDF). 10-2-06. Retrieved 2011-05-06. Check date values in:
- Schmidt, Susan; Grimaldi, James V. (October 16, 2005). "How a Lobbyist Stacked the Deck". Washington Post. Retrieved 2011-05-06.
- [dead link]
- "[UIGEA] Treasury, Fed Issue Final Rule on Unlawful Internet Gambling". Scribd.com. 11/12/08. Retrieved 2011-05-06. Check date values in:
- "Unlawful Internet Gambling Enforcement Overview" (PDF). FDIC.
- Humphrey, Chuck. "Internet Gambling Funding Ban". gambling-law-us.com. Retrieved 2011-05-06.
- "17 Southern California Interdisciplinary Law Journal 2007-2008 Prohibition Reincarnated - The Uncertain Future of Online Gambling following the Unlawful Internet Gambling Enforcement Act of 2006 Symposium Issue: Association of American Law Schools Section on Law &(and) Humanities - Law & Order: SUV - Sexuality, Videos and You - Note". Heinonline.org. Retrieved 2011-05-06.
- ThePOGG (1 November 2012). ["http://thepogg.com/thepogg-interviews-michael-shackleford-the-wizard-of-odds/ "ThePOGG Interviews - Michael Shackleford - The Wizard of Odds"].[dead link]
- "The U.S. On Tilt: Why The Unlawful Internet Gambling Enforcement Act Is A Bad Bet". Law.duke.edu. Retrieved 2011-05-06.
- Players walk away as US law wipes out 90% of PartyGaming's poker revenue from The Guardian
- Fiona Walsh, business editor (2006-10-13). "The Guardian: Last chance saloon for online gaming firms". London: Business.guardian.co.uk. Retrieved 2011-05-06.
- Fiona Walsh (2006-10-09). "The Guardian: PartyGaming drops out of FTSE 100. Retrieved 9 October 2006". London: Business.guardian.co.uk. Retrieved 2011-05-06.
- "Online Gambling Access Around The World". KeyToCasino. Retrieved 11 May 2015.
- WTO rules against US in online gambling case
- "Reuters: WTO confirms U.S. loss in Internet gambling case". Uk.reuters.com. 2007-03-30. Retrieved 2011-05-06.
- "Antigua demands trade sanctions". BBC. 2007-06-20. Retrieved 2011-05-06.
- Polson, Sarah (April 2, 2008). "Congressmen request trade settlement details". PokerListings.com. Retrieved 2008-05-27.
- Polson, Sarah (May 21, 2008). "Group sues government for settlement info". PokerListings.com. Retrieved 2008-05-27.
- Murphy, Stephen A. (2009-09-17). "Frank's Bill to Regulate Online Poker Unlikely To Be Heard This Month". CardPlayer.com. Retrieved 2011-05-06.
- Murphy, Stephen A. (2009-05-06). "Barney Frank Introduces Two Poker-Related Bills". CardPlayer.com. Retrieved 2011-05-06.
- "Internet Poker Sites Seized For Fraud". InformationWeek. April 15, 2011. Retrieved 2011-04-16.
The 2006 Unlawful Internet Gambling Enforcement Act made it a crime for gambling businesses to knowingly accept most forms of payment for illegal Internet gambling. The defendants allegedly tried to circumvent these rules with the help of individual payment processors, also named as defendants, who helped disguise their player payments with phony merchants selling non-existent goods such as jewelry or golf balls.
- "Business Regulation and Consumer Protection: Interim Report on Internet Gambling" (PDF). U.S. GAO:Office of Public Affairs. U.S. Government Accountability Office. September 23, 2002. OCLC 51256381.
- "Internet Gambling: An Overview of the Issues" (PDF). U.S. GAO:Office of Public Affairs. U.S. Government Accountability Office. December 2, 2002. OCLC 51864576.
- Will ban end Internet gambling? Don't bet on it from MSNBC.com