UIGEA regulations proposed

[jetset]

PROPOSED UIGEA REGULATIONS PUBLISHED

Just short of a year since it was signed into law, regulations are up for discussion


US government officials were given 270 days to produce regulations supporting the Unlawful Internet Gambling Enforcement Act when it was passed by Congress late last year. And after weeks of 'will he, won't he' speculation, President George Bush signed the unpopular legislation into law on October 13, starting a train of business events that cost international companies billions of dollars and created untold hardship for employees and investors.



The UIGEA, which seeks to ban financial transactions with online gambling companies, entered a new phase Monday as government tried to stave off determined legal attacks on the law by the Internet Media Entertainment & Gaming Association (iMEGA).



Way over their deadline (see previous InfoPowa reports) US Treasury and Justice officials finally got around to publishing the 52 pages of regulations that enforce the law....but only as a proposal on which comments are invited before December 12, so it would appear that practical implementation will not take place for some time yet.



Importantly, the rules govern only those that are participants in a designated payment system or are financial transaction providers. An end-user or customer is not defined as a participant and is therefore not covered by the proposed rules.



Certain restricted transactions will be exempt from regulation if the government determines that "it is not reasonably practical to identify and block, or otherwise prevent or prohibit the acceptance of such transactions." For instance the proposed rules exempt all participants in the ACH (automated clearing house), check collection systems, and wire transfer systems, except the beneficiary's bank, or the bank acting on direct behalf of an illegal gambling business.



There will be no master list of unlawful internet gaming businesses...at least not immediately. While government has stated some of the benefits to participants by creating such a list, there are problems of cost, accuracy issues and liabilities associated with its creation. The time to accurately research and interpret all of the state, federal, and tribal gaming laws was cited as a major impediment.



The proposed regulations appear to stop short of requiring U.S. banks to block cheques their customers make to online casinos, but require banks to halt debit and credit card payments. It also bars US bank customers such as online casinos from receiving Internet gambling proceeds.



The Treasury Department and the Federal Reserve require that bank policies and procedures that are "....reasonably designed to prevent payments being made to gambling businesses in connection with unlawful Internet gambling," lie at the heart of the enforcement.



The proposed rule seeks to implement the Unlawful Internet Gambling Enforcement Act, prohibiting payments made for 'illegal gambling' through U.S.-based financial institutions, including payments made via credit cards, electronic funds transfers and checks.



The proposal gives examples of the policies and procedures the financial institutions should put in place, However, it doesn't spell out what illegal gambling activities are, because the act relies on underlying federal and state laws to determine those issues.



For example, under the proposed rule, credit-card companies and money-transmitting businesses are expected to put procedures into place to monitor and analyse payment patterns of individuals to detect suspicious activity.



Initial reaction from banking industry officials seemed to be that regulators had addressed their biggest concern about the new law. The enforcement agencies concluded it was "not reasonably practical" for the banks to identify and block customers from sending cheques and making some other types of transfers.



"It looks like they took a very practical and pragmatic approach. They did not ask us to do the impossible," said Steve Kenneally, a spokesman for America's Community Bankers.



The proposed regulations were immediately criticised by one gambling industry group, the Poker Players Alliance.



"Deputizing private U.S. financial institutions to determine what are lawful and unlawful transactions will lead to the monitoring and blocking of the personal and lawful financial transactions of many of their customers who wish to play games of skill, like poker, on the Internet," the Alliance said.



"Poker players, the American banking community, and anyone who values Internet and personal freedoms should be troubled by this intrusive rule. Deputizing private U.S. financial institutions to determine what are lawful and unlawful transactions will lead to the monitoring and blocking of the personal and lawful financial transactions of many of their customers who wish to play games of skill, like poker, on the internet. This seems more like the actions of Iran than the USA. We are hopeful that sensibility will prevail before these rules are finalized," said PPA Chairman, former U.S. Senator Alfonse D'Amato.



"Congress should act immediately to pass legislation which will effectively regulate Internet poker and provide the proper safeguards to prevent minors from participating in Internet gaming, preserve states' rights and ensure privacy and security of online transactions," he added.



The president of iMEGA, Edward J. Leyden, commented on the proposed regulations, saying:



"In its ongoing lawsuit in the U.S. District Court for the District of New Jersey, iMEGA has pointed to the unconstitutional, chilling effect that the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006 has already imposed on all of our digital civil rights by stifling beneficial innovation of the Internet and impeding our otherwise content-neutral financial system.



"The proposed regulations jointly promulgated today by the Federal Reserve Board of Governors and the Department of the Treasury would, if anything, aggravate these already intolerable circumstances.



"The regulations which are proposed under UIGEA continue a trend to regulate our Internet freedoms by passing the responsibility to define legal and illegal purposes behind a web-based financial transaction on to neutral third parties who then become victims of the system. In this case the victims caught between the government’s criminal punishment and ill-defined regulations are the payment system providers – credit card companies, banks, third party payment clearing houses.



"The regulations, while they are supposed to provide for a system which identifies legal transactions between persons who are allowed to enjoy Interactive gaming, instead virtually condemn the system to complete elimination because of the payment system providers’ risk of criminal penalties and injunction against further financial transactions if they guess wrong. There are no standards in the proposed UIGEA regulations which allow companies or individuals to safely navigate the inconsistent laws or ever-changing web business environment.



"We believe that our government can--and must do better--if the Internet is be continue to be the engine for growth and prosperity for all of us. That being so, iMEGA is confident that the important and fundamental rights for which we are fighting in federal court in New Jersey will be vindicated."



Details of the proposal are at http://www.treas.gov/press/releases/...ofproposedrule .pdf

[Mousey]

Fixed the linky.

http://www.treas.gov/press/releases/...oposedrule.pdf

[NASHVEGAS]

As Mousey already requested, could the 2 threads be merged when possible(may have to wait til after Barcelona, I assume)

[lots0]

More Stories

http://news.yahoo.com/s/nm/20071001/...egulation_dc_2

http://news.yahoo.com/s/afp/20071001...e_071001164838

[EasyRhino]

I'm really glad it looks like they'll except ACH and checks. That would have been nearly unenforceable.

Looks like the full doc will make for good light reading.

[Mousey]

I'm really glad it looks like they'll except ACH and checks. That would have been nearly unenforceable.

Looks like the full doc will make for good light reading.

But... if the casino processors won't do ACH for fear of indictment, intimidation, etc. from the DoJ.... Actually, it's as if the UIGEA has already gone into effect, as processors have already bailed out. I don't see that this changes much (in the short term) except it makes sweet old Miss Mary at my bank, in effect, a cop.

[EasyRhino]

Okay, got through the proposed rules, it's interesting.

The biggest caveat, of course, if they neither the proposed regs, nor UIGEA, or any other law, truly explicitly what is a defined internet gambling transaction, and what is not. Anyway.

- Ewallet, credit/debit card networks, and money transfer businesses would be assumed to have perfect knowledge of each restricted transaction, and block them.
- Checks are generally exempt, exempt the bank receiving the deposit (has a relationship with the gambling business) is expected to prevent such checks from being presented.
- ACH is generally exempt, excempt the bank originating the ACH debit is also expected to prevent such transactions from being originated.
- Wires are generally exempt, exempt for the bank receiving the funds.

However, since virtually all net gambling is of an cross-border, the regs are proposed to apply to the first bank in the US food chain, the one that corresponds with the foreign bank or payment processor. This is where the regs still get pretty squishy. The suggested would be a contractual agreement with the foreign payment processor that they will not originate restricted transactions, thus "exporting" the restriction to the foreign institution. It becomes a know your customer's-customer's-customer situation.

Also, the regs bring up the idea of maintaining a federal blacklist, but they recommend against it.

[EasyRhino]

I did a little more thinking, and while I'm totally not a lawyer, for US banks or payment processors on the hook with UIGEA, it really does seem to be a case of "know your customer's customer". But it also provides a theoretical, but unlikely, way for a bank to go legit with payment processing in the US.

Let's look at it from the perspective of the US bank that's accepting transactions from the foreign correspondent bank or payment processor. They are going to need a contract from that bank saying that they will not be sending over any restricted gambling transactions.

Now, neither bank can be reasonably expected to determine which transactions are legal, and which are illegal. There's too much confusion over which types of betting are restricted, and it also depends on where the gambler is, and where the casino is.

So, the foreign correspondent bank is going to need a contract with their client, the casino, guaranteeing that the casino will not use them for any restricted transactions for US customers. This means that the casino has the onus of figuring out which bets are legal, and which are restricted. Which would be a huge pain for casino and their software provider.

However, if a casino went in, dropped sports betting from US customers, ensured that customers from restricted states were not allowed, then they'd have a reasonable guarantee of ensuring that they would not originate any restricted transactions, so they could guarantee their own bank, who could guarantee the US bank, who would then not have a problem handling the transactions.

But the additional problem is why would any US bank bother with this, when instead they could just refuse any gambling transactions and make their lives easier?

[lojo]

Even as its proposed, it seems to be a deal breaker, unless a bank chooses to do no US business in the long run. Very bad for everybody... this uigea has the potential to shape international banking protocal for generations, and if we follow the money, we find the motive.

Banks that conform to the imagined purpose of the law (enforce wire act '61) would still be vulnerable under some letter or dojfux intent of the 'law' and all it would take is a little pressure for them to buckle to whatever squiggly policy the actors in place wanted to enforce.
Bad Law, bad proposed policy.

Any transaction not 'condoned' by whatever (as yet created 'tsar') could create fear and discontent among all international banking partners of the US markets, and the dollar could go on a rollercoaster.

Follow the money... by the time we see the result of the uigea, we could be in for a very nasty surprise. There is something far more sinister than my or your bets at play here in my opinion.

[webber286]

Quite interesting on 2 fronts.

1) Checks are not included, so basically as long as you are comfortable transacting with a physical check, there are no problems.

2) There is no definition of "illegal online gambling". If an online casino is regulated in the EU, aren't they a legal entity? Sort of sounds that way when they mention needing to look into tribal regulations and such. Sounds to me like any online casino that is legally licensed in their country is engaging in "legal online gambling"

But, that's just my interpretation, if this gets further down the road, I would suspect that electronic transactions to any known online gambling company would just be outright banned by the banks. It's not like they can sort out who is legal and who isn't without a list. Of course this brings up the obvious question of...how do you even know the bank account that money is going to or from is part of a gambling operation?