Gambling and the Law:

[The Judge]

What the Proposed UIGEA Regs Mean for Players

By: Professor I Nelson Rose
September 11, 2008

Last October, Congress passed the unworkable Unlawful Internet Gambling Enforcement Act, which I call Prohibition 2.0. It required federal regulators to write regs requiring money transferors, including banks, credit card companies and e-wallets, to identify and block funds for illegal Internet gambling. Faced with an impossible task, the regulators punted: They issued proposed regulations that tell the banks, etc., "It's your problem. You shouldn't block legal online gambling transactions. But if you transfer funds for an illegal bet, you will be fined, or worse."

The immediate impact of these proposed regs for players is . . . nothing. Nothing has changed, and nothing will change, for many, many months.

The long-run impact is not as rosy. There will be plenty of ways to get around whatever procedures are eventually put into place to i.d. and block funds transfers for unlawful gambling. But all American financial institutions, and their large counterparts overseas, are not going to take chances: They will block all gambling transactions, even legal ones.

So, poker players will be forced to open foreign bank accounts, use foreign credit cards and e-wallets, or use slower and sometimes even less reliable means, such as snailmailing paper checks or using phone cards.

The Act had been rammed through Congress by the failed politician, then Senate Majority Leader Bill Frist (R.-TN). Frist attached it to the SAFE PORTS Act and told Democrats that if they didn't like it, they could vote against it, and be seen as being soft on Islamist terrorism.

Although Prohibition 2.0 scared the bejesus out of publicly traded poker companies, it actually does only two things: It creates one new crime, being a gambling business that accepts money for unlawful Internet gambling transactions, and requires new regulations for payment processors.

What it doesn't do is make it a crime to play poker on the Internet. It doesn't directly restrict players from sending or receiving money. It doesn't spell out what forms of gambling are "unlawful." Specifically, it does not do what the federal Department of Justice ("DOJ") wanted, which was to "clarify" that the Wire Act covers Internet casinos, lotteries and poker.

The new felony it creates is greatly limited. Only gambling businesses can be convicted, not players. Bizarrely, for a law designed to prevent money transfers, the financial institutions involved in those transfers, including e-wallets, are expressly defined as not being gambling businesses and so cannot be convicted of this new crime.

The proposed regs have finally been issued, four months late. The general public now has until December 12 to make comments. The agencies will then make changes in the proposed regs. The final versions will then be published, supposedly giving everyone six months to set up their procedures.

This is not going to happen.

The proposed regs put the burden entirely on the payment processors to come up with procedures for identifying and blocking restricted money transfers. But this can't be done in six months. In fact, it can't be done at all.

The problem is defining "unlawful Internet gambling." Take, for example, poker.

It is unclear whether online poker violates any federal law. Some states, like California, do have specific prohibitions on unlicensed commercial poker, but it is unclear whether these apply to foreign operators. And 157 years of bad cases and obscure statutes make it a crime to participate, as a player, in any poker game where the pot is raked more than four times. How many payment processors even know what it means to rake a pot four times?

The problem for players is there is no law forcing U.S. banks to transmit funds for legal gambling, while there will be penalties for transmitting funds for what turns out to be an unlawful bet.

© Copyright 2008. Professor I Nelson Rose is recognized as one of the world's leading authorities on gambling law, and is a consultant and expert witness for governments and industry. His latest books, INTERNET GAMING LAW and GAMING LAW: CASES AND MATERIALS, are available through his website, www.GAMBLINGANDTHELAW.com.