PROTESTS MOUNT OVER UIGEA REGULATIONS (Update)

14 November 2008

House Financial Services Committee chairman asks federal officials to hold off on rushed regulations

 

The rush to implement supporting regulations for the Unlawful Internet Gambling Enforcement Act before the change in US administrations continues to make the mainstream and industry headlines, with the chairman of the House Financial Services Committee, Congressman Barney Frank, firing the latest salvo.

Last week the news emerged (see previous InfoPowa report) that federal drafters had quietely submitted the much-disputed regulations to the US government's Office of Management and Budget in the next step toward the full implementation of the two-year-old controversial Act. The move was widely interpreted as a "midnight drop" - political slang for an outgoing administration rushing through controversial laws before the next administration takes power.

If implemented, the regulations will halt financial transactions with online gambling companies, relying on the overburdened American financial services industry for the enforcement of a law that has been universally criticised for lacking both practicality and precision, and leaves the definition of what constitutes an "illegal gambling transaction" open to interpretation.

Congressman Franks has written to Treasury Secretary Henry Paulson requesting he postpone issuing the regulations.

"I am deeply disappointed to hear that your agency is proceeding with what I consider to be unseemly haste in issuing regulations implementing the Unlawful Internet Gambling Enforcement Act," Franks wrote this week. "This midnight rulemaking will tie the hands of the new Administration, burden the financial services industry at a time of economic crisis, and contradict the stated intent of the Financial Services Committee.

As chairman of the House Financial Services Committee, Frank noted that he had introduced legislation - which was passed by the committee - that would prohibit the implementation of the confusing and unworkable rules originally proposed by the Treasury Department and replace them with a formal rulemaking process.

The full content of Congressman Frank's letter is as follows:

"Dear Mr. Secretary:

I am deeply disappointed to hear that your agency is proceeding with what I consider to be unseemly haste in issuing regulations implementing the Unlawful Internet Gambling Enforcement Act. This midnight rulemaking will tie the hands of the new Administration, burden the financial services industry at a time of economic crisis, and contradict the stated intent of the Financial Services Committee

As you know, at our April hearing, the testimony of your representatives and the industry indicated that it would be particularly difficult to craft workable regulations to effectively enforce the statute without having a substantial adverse effect on the payments system. Subsequently, my colleagues and I introduced legislation (HR 5767, later HR 6870) that would prohibit the implementation of these flawed rules and replace them with a formal rulemaking process that would define the term “unlawful internet gambling,” something the proposed rules fail to do. HR 6870 was passed by the Financial Services Committee on September 16.
The proposed regulations, like the underlying UIGEA statute, fail to define the term “unlawful internet gambling,” leaving it to each financial institution to reconcile conflicting state and federal laws, court decisions and inconsistent Department of Justice interpretations when determining whether to process a transaction. Furthermore, some of the information needed to make this determination would likely be unavailable to banks because customers or financial institutions in foreign jurisdictions will likely be unwilling or unable to provide it.

I strongly urge you to delay implementation of these major, and deeply flawed regulations to permit the incoming Administration the ability to review the consequences of such a significant policy decision, rather than unfairly being denied that opportunity."

The executive director of the Poker Players Alliance, John Pappas, has also been quick to react to the "midnight drop," holding a meeting with Office of Management and Budget officials in a last-ditch effort to prevent the premature implementation of the regulations without further debate.

Pappas sounded a pessimistic note when he described the meeting to poker information publication CardPlayer.com: "There was a lot of head-nodding, but no reaction one way or another that they are or they are not going to get these rules out before the key date of November 19."

There are also alarming indications that "undue political pressure" may have been involved in rushing the regulations through, and that these may have involved a conflict of interest.

Democrat Congressman Steve Cohen from Tennesee has requested a White House investigation of the role played by Deputy Director of Public Liaison William Wichterman, who was in the recent past employed as a lobbyist for a major lobbying firm working for the National Football League - long a determined opponent of Internet gambling. It is claimed that he earned in excess of $200 000 lobbying in favour of anti-Internet gambling legislation. Prior to that, Wichterman worked for Senator Bill Frist, who pushed the UIGEA through Congress in questionable circumstances at the end of 2006.

Cohen wrote to White House Counsel Fred Fielding opposing the rushed nature of the regulations and expressing surprise that the Bush administration would "...seek to rush through a rule that would saddle an already ailing financial services sector with a burdensome role in the current economic environment.'' Cohen also asked Fielding directly whether Wichterman had declared his potential conflict of interest to the White House amid allegations that the former lobbyist had "....been a source of considerable political pressure to speed this regulation through.''

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