UIGEA REGS ATTRACT MORE BANKING FLAK

21 December 2007

Now lobbyists warn US Treasury that regulations present major compliance problems


US Treasury drafters of the proposed regulations supporting the Unlawful Internet Gambling Enforcement Act faced further opposition this week as their work was criticised by banking lobbyists. The Financial Services Round Table, an expert body representing many top banks and financial services companies, warned that the regulations present major compliance obstacles unless the Bush administration clarifies its conflicting views on online betting.

The experts were responding to Treasury requests for opinions on its proposed and much delayed regulations, which are intended to give teeth to an unpopular law rammed through Congress late last year on the coat tails of an unrelated security law. The law's purpose is to disrupt financial transactions with online gambling companies in sectors not exempted by discriminatory and confusing American state and federal legislation.

Roundtablers said they were "very concerned" that adoption of the rules could impose "significant" and costly compliance burdens on banks, The Financial Times reported.

Once again, financial professionals expressed reservations about being tasked with an essentially policing responsibility. "The statute and the proposed rule expand the role of financial institutions to police laws that are more appropriate for law enforcement agencies," the Roundtable said in public filings to the Treasury and Federal Reserve.

The criticism raises new questions about whether regulators will be able to enforce a law that, in effect, requires banks and other institutions to know the purpose and legality of payments in an industry - online gambling - in which federal and state rules often conflict.

The proposed rules would require US financial companies with designated payments systems to have policies and procedures that are "reasonably designed" to prevent payments being made to illegal gambling businesses. According to the US Treasury, illegal gambling consists of any bet or wager involving the internet that is illegal in the state in which the bet is made.

At the centre of concerns raised by the Roundtable is the fact that it is far from clear whether banks would also have to block payments from US-based gambling sites, including websites that take bets on horses over the Internet.

The US Justice Department has long held the view that online interstate betting (within the US) on horses is illegal. However, the established horse-betting websites have never been prosecuted, and Internet operations are growing. The horse-betting industry maintains that state laws allowing wagers on horses trump federal laws. Legislators left the issue alone last year by including language in the anti-online gambling legislation that said it did not apply to wagers on horses, state lotteries and fantasy sports.

In comments about the proposed rules, Bank of America said the US should provide a list of specific entities with whom banks are forbidden to take payments in the absence of an "unambiguous" definition of what is legal.

"Without [a definition], financial institutions will be forced to block legitimate transactions in order to avoid the possibility of permitting an illegal transaction," it said. The government has thus far declined to do this.

Meanwhile, confusion is already apparent in exactly what the European Union, Canada and Japan deal with the United States in the World Trade Organisation compensation issue comprises.

Only days after announcements by the EU and the US Trade Representative, the latter accused media of "misrepresenting" the agreement.

A spokeswoman said the agreement, in which the US offered concessions on the postal, courier and a number of other sectors, would not involve "any change" in US law or practice and was simply intended to provide "greater legal certainty" to some sectors. The EU statement, on the other hand referred to "new concessions" (see previous InfoPowa reports.)

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