ANTI-UIGEA REGULATIONS BILL DEFEATED (Update)

27 June 2008

A close-run vote, but emotional anti-gambling arguments and political divisions prevail


The defeat of Barney Frank's attempt to halt the implementation of the UIGEA regulations dominated Thursday's mainstream press headlines around the world. The House Financial Services Committee attempt to require federal regulators to write a uniform definition of which types of gambling should and should not be allowed on the Internet, ended in a tied vote and, consequently, defeat under committee rules.

Wednesday's delayed vote on HR5767, the Payments System Protection Act attacking the proposed regulations for the Unlawful Internet Gambling Enforcement Act, failed on a tied 32-32 vote before the Committee.

The bill would have prohibited the Treasury Department and the Federal Reserve from proposing and implementing much critcised regulations to enforce the Unlawful Internet Gambling Enforcement Act, and its defeat leaves the US banking industry still bereft of clear definitions as to what constitutes an illegal financial transaction for online gambling.

In the HR5767 mark-up session, the House committee adopted an amendment proposed by Rep. Peter King (R-NY) that would not only stop the implementation of any UIGEA regulations, but would also force the Treasury Department, the Justice Department and the Federal Reserve to specifically define 'unlawful Internet gambling.'

Representative King stressed that this "was a banking issue, not a gambling issue" and that the banking industry shouldn't be in the position of determining what is legal and illegal. "This is a banking amendment, not a gambling amendment," urged King. "I hope this will be considered in a non-partisan way...not whether you are opposed to gambling or not. Let's take our time and have regulations that mean something."

Regrettably, his distinction between ensuring clarity for a controversial law and arguing about the morality of gambling fell on deaf ears as far as most of the Republican members of the committee were concerned, and opposition centred mainly on anti-gambling assertions, some of questionable accuracy.

The King amendment was defeated by the full committee with a vote of 32 for and 32 against, and the original bill proposed by Rep. Barney Frank (D-Mass.) and Rep. Ron Paul (R-Tex.) was defeated in a voice vote.

The debate produced some interesting statements on both sides.

The chairman of the one million member strong Poker Players Alliance, former Senator Alfonse D'Amato expressed surprise that the session had not been able to reach any clarity on what constitutes "unlawful Internet gambling," a key definition if the banking industry was to efficiently carry the burden of enforcement for the UIGEA thrust upon it by Congress.

"The King Amendment would have required a separate formal rulemaking with an administrative law judge to determine the definition of unlawful Internet gambling," D'Amato explained. "The Federal Reserve, Department of Treasury and the banking industry have all testified before Congress that the lack of a definition of 'unlawful Internet gambling' makes it extremely difficult if not impossible to enforce this law and would result in a broader review and denial of financial transactions because they could possibly be deemed unlawful under UIGEA."

D'Amato said it was disappointing to realise that opponents of the bill had not truly understood its intent: "It was clear today that those who oppose this bill chose to focus on emotional and non-germane issues, such as the harmful impact of gambling on children, instead of on the merits of the bill itself," he said, commenting that as it presently stands the UIGEA is "a completely unworkable and unenforceable bill that would do little to address the main concerns of its sponsors – namely, protecting underage and compulsive gamblers as well as cracking down on money laundering."

“Unfortunately, debate over the morality of gambling trumped debate on the fact that UIGEA is completely ineffective and unenforceable,” D'Amato concluded.

Most vociferous in opposition was Republican Representative Spencer Bachus of Alabama, a longtime opponent of Internet gambling who characterised the pastime as "the fastest growing addiction, more so than drugs" and went on to explain that "problem gambling doubles within 10 miles of a gambling facility. The closer you get to a casino, the more problem gamblers you have. Well, the Internet puts the casino right in the home."

He also invoked the rather weary but catchy slogan: "You just click your mouse and you lose your house."

Bachus raised concerns over youth gamblers, saying: "The banks have decided that this is a financial burden. We have decided, on the other hand, that our children are worth protecting." He went on to make the questionable claim that one third of college students who gambled on the Internet ultimately tried to commit suicide.

"The financial institutions are in the position of being told not process bets, but it's not clear what is legal and what is illegal," said Rep. Barney Frank, D-Mass., the committee's chairman. He said financial institutions had been given "a job that is undoable."

Banks and other financial institutions have complained that they are being forced into a UIGEA law enforcement role with regulations that lack both precision and practicality.

"If there is ever a time not to burden the banks it is today," Frank asserted. "Why are we making the banks lives miserable? We are putting the banks at risk. Giving banks the job of carrying out an unclear mandate when the banks are at such heavy stress doesn't make sense."

Frank said that Congress is putting the U.S. financial services industry at risk by not clarifying the regulations to enforce UIGEA and defining unlawful Internet gambling activities. "Hijacking the financial payment system at a time when it is under major stress and giving them the job of carrying out an unclear mandate doesn't make sense," he opined.

The Committee chairman illustrated the lack of clarity by pointing out that U.S. horse racing was apparently exempted from anti-online gambling laws, but that government enforcement agencies couldn't seem to agree on the issue and the financial institutions therefore "cannot get formal guidelines on horse racing". He also questioned the equity of the anti-gambling law, indicating that Internet pornography laws do not hold the banks responsible for enforcement.

Jeffrey Sandman, a spokesman for the Secure Internet Gambling Initiative (SSIGI) which yesterday took Representative Bachus to task for statements it described and detailed as "misinformation," said that it was disappointing that Republican politicians would turn their backs on the credit unions and banks at a time when the Treasury Department and Federal Reserve admit the proposed rules to enforce UIGEA are unworkable.

He added: "Given the freedom of the Internet, it is foolhardy to impose the current regulations and force U.S. financial service companies to police for illegal activity. Rather than prohibit an activity millions of Americans enjoy to do in their homes, just as they can do in a casino, Congress should create a regulatory framework for Internet gambling as a way to protect consumers and collect billions in much-needed federal revenue that is currently lost in an underground, uncontrolled marketplace."

Representatives of the U.S. financial services industry, including the Chamber of Commerce, The Financial Services Roundtable, Credit Union National Association, and National Association of Federal Credit Unions, had all pledged their support for the Payments System Protection Act and King amendment in letters to Rep. Frank and members of the Committee on Financial Services.

"I wish to be clear that we do not support the notion that financial services companies should be 'deputised' to police gambling activity in any form or function," wrote Steve Barlett, president and CEO of the Financial Services Roundtable. "While we would support the passage of H.R. 5767 as introduced, I agree that the King Amendment makes essential improvements to a deeply flawed law and therefore support its inclusion."

The Americans for Tax Reform (ATF) and the Competitive Enterprise Institute (CEI) also opposed the implementation of the UIGEA in its submission to the Committee, saying that if the UIGEA was implemented as proposed in current regulations, it would have "a number of serious, negative consequences for the nation's economy."

Congressman Melvin Watt said that the King amendment at least gives regulators an opportunity to review the controversial regulations more closely. "We [Congress] kicked the ball over to the regulators. They don't know how to figure this out so they kicked it over to the banks. That is not responsible legislating on our part," he said.

Congressman Ron Paul, who co-sponsored HR5767 with Rep. Frank, said that he believed individuals have the right to spend their money the way they want. "If you can regulate the way people spend money on the Internet, you open up a whole new can of worms. Also there are special interests involved," he commented.

"The real issue is what the role of government should be. When it comes to economic and moral behavior, this becomes a problem. Why can't individuals make up their own minds? If it involves kids, the responsibility is with the parents. There are many more dangers out there than with gambling."

A spokesman for Congressman Frank, asked for comment by IGN after the late afternoon vote, said that traditional 'family-values' Republicans had defeated a common-sense measure that had nothing to do with the underlying issue of whether American adults should be allowed to freely gamble with their own money.

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