Unlawful Internet Gambling Enforcement Act of 2006
Encyclopedia
The Unlawful Internet Gambling Enforcement Act of 2006 (or UIGEA) is United States legislation regulating online gambling
Online gambling
Online gambling, also known as Internet gambling and iGambling, is a general term for gambling using the Internet.-Online poker:Online poker tables commonly offer Texas hold 'em, Omaha, Seven-card stud, razz, HORSE and other game types in both tournament and ring game structures...

. It was added as Title VIII to the SAFE Port Act
SAFE Port Act
The Security and Accountability For Every Port Act of 2006 was an Act of Congress in the United States covering port security and to which an online gambling measure was added at the last moment...

 (found at ) which otherwise regulated port security
Port security
Port security refers to the defense, law and treaty enforcement, and counterterrorism activities that fall within the port and maritime domain...

. It "prohibits gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law." The act specifically excludes fantasy sport
Fantasy sport
A fantasy sport is a game where participants act as owners to build a team that competes against other fantasy owners based on the statistics generated by the real individual players or teams of a professional sport...

s, that meet certain requirements, and legal intra-state and inter-tribal gaming. It does not expressly mention state lotteries; nor does it clarify whether inter-state wagering on horse racing is legal.

Background on online gambling

Before the Unlawful Internet Gambling Enforcement Act, there was no clear answer on whether online gambling
Online gambling
Online gambling, also known as Internet gambling and iGambling, is a general term for gambling using the Internet.-Online poker:Online poker tables commonly offer Texas hold 'em, Omaha, Seven-card stud, razz, HORSE and other game types in both tournament and ring game structures...

 was legal. The United States Court of Appeals for the Fifth Circuit
United States Court of Appeals for the Fifth Circuit
The United States Court of Appeals for the Fifth Circuit is a federal court with appellate jurisdiction over the district courts in the following districts:* Eastern District of Louisiana* Middle District of Louisiana...

 rule in November 2002 that Federal Wire Act
Federal Wire Act
The Interstate Wire Act of 1961, often called the Federal Wire Act, is a United States federal law prohibiting the operation of certain types of betting businesses in the United States. It begins with the text:...

 prohibits electronic transmission of information for sports betting across telecommunications lines but affirmed a lower court ruling that the Wire Act "'in plain language' does not prohibit Internet gambling on a game of chance." While some states have specific laws prohibiting online gambling, many do not. Additionally, in order for an online gaming company to start, a license from the state is required. No states currently give out online gambling licenses.

Legislative history

The Act was passed on the last day before Congress adjourned for the 2006 elections
United States general elections, 2006
The 2006 United States midterm elections were held on Tuesday, November 7, 2006. All United States House of Representatives seats and one third of the United States Senate seats were contested in this election, as well as 36 state governorships, many state legislatures, four territorial...

. According to Sen. Frank Lautenberg
Frank Lautenberg
Frank Raleigh Lautenberg is the senior United States Senator from New Jersey and a member of the Democratic Party. Previously, he was the Chairman and Chief Executive Officer of Automatic Data Processing, Inc.-Early life, career, and family:...

 (D-N.J.), no one on the Senate-House Conference Committee had seen the final language of the bill before it was passed. The Economist
The Economist
The Economist is an English-language weekly news and international affairs publication owned by The Economist Newspaper Ltd. and edited in offices in the City of Westminster, London, England. Continuous publication began under founder James Wilson in September 1843...

 has written that these provisions were "hastily tacked onto the end of unrelated legislation".

Though a bill with the gambling wording was previously debated and passed by the House of Representatives
United States House of Representatives
The United States House of Representatives is one of the two Houses of the United States Congress, the bicameral legislature which also includes the Senate.The composition and powers of the House are established in Article One of the Constitution...

, the SAFE Port Act (H.R. 4954) as passed by the House on May 4 and the United States Senate
United States Senate
The United States Senate is the upper house of the bicameral legislature of the United States, and together with the United States House of Representatives comprises the United States Congress. The composition and powers of the Senate are established in Article One of the U.S. Constitution. Each...

 on September 14, bore no traces of the Unlawful Internet Gambling and Enforcement Act that was included in the SAFE Port Act signed into law by George W. Bush
George W. Bush
George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....

 on October 13, 2006. The UIGEA was added in Conference Report 109-711 (submitted at 9:29pm on September 29, 2006), which was passed by the House of Representatives by a vote of 409-2 and by the Senate by unanimous consent on September 30, 2006. Due to H.RES.1064, the reading of this conference report was waived.

Among the Congressional supporters of the Act were Jim Leach
Jim Leach
James Albert Smith "Jim" Leach is a former member of the U.S. House of Representatives from Iowa. In August 2009, he became Chairman of the National Endowment for the Humanities ....

, a former chairman of the House Banking Committee
United States House Committee on Financial Services
The United States House Committee on Financial Services is the committee of the United States House of Representatives that oversees the entire financial services industry, including the securities, insurance, banking, and housing industries...

 and Rep. Robert Goodlatte [R-VA], who co-authored H.R. 4411 (the Internet Gambling Prohibition and Enforcement Act). Bill Frist
Bill Frist
William Harrison "Bill" Frist, Sr. is an American physician, businessman, and politician. He began his career as an heir and major stockholder to the for-profit hospital chain of Hospital Corporation of America. Frist later served two terms as a Republican United States Senator representing...

, former majority leader of the Senate, and Jon Kyl
Jon Kyl
Jon Llewellyn Kyl is the junior U.S. Senator from Arizona and the Senate Minority Whip, the second-highest position in the Republican Senate leadership. In 2010 he was recognized by Time magazine as one of the 100 most influential people in the world for his persuasive role in the Senate.The son...

 are both credited with expediting the UIGEA's passage through the Senate. Though the SAFE Port Act's provisions related to Internet gambling were drawn exclusively from H.R. 4411, significant portions were removed, including text relating to the Federal Wire Act
Federal Wire Act
The Interstate Wire Act of 1961, often called the Federal Wire Act, is a United States federal law prohibiting the operation of certain types of betting businesses in the United States. It begins with the text:...

.

The Internet Gambling Prohibition Act
Internet Gambling Prohibition Act
The Internet Gambling Prohibition Act was a 1999 bill in the US Senate to ban Internet gambling. Passage of the bill was defeated, in large part, by the lobbying efforts of Jack Abramoff...

, a prior version of the gambling part of the bill passed the House in 1999 but failed in the Senate in part due to the influence of lobbyist Jack Abramoff
Jack Abramoff
Jack Abramoff is an American former lobbyist and businessman. Convicted in 2006 of mail fraud and conspiracy, he was at the heart of an extensive corruption investigation that led to the conviction of White House officials J. Steven Griles and David Safavian, U.S. Representative Bob Ney, and nine...

.

UIGEA § 5364 required that regulations be issued by the Federal Reserve and the Department of the Treasury within 270 days of the passage of the Act. In October, 2007, these agencies issued a "Notice of Proposed Rulemaking", which effectively tabled draft UIGEA regulations for public comment. In response to the NPRM, four hundred and ten (410) responses were received from depository institutions, depository institution associations, public policy advocacy groups, consumers, “gambling-related” entities, payment system operators, federal agencies, and members of Congress.

The Bush administration had previously adopted the position that it would not finalize any rule subsequent to November 1, 2008. This last-minute rulemaking that binds the hands of an incoming administration is commonly termed the midnight drop.

The final regulations (termed the "Final Rule") were finalized and released November 12, 2008, and came into effect on January 19, 2009, the day before the Obama administration took office. Compliance was not required until December 1, 2009 in order to give the "non-exempt participants" an opportunity to implement the necessary safeguards and procedures.

Act details

According to the overview posted on the FDIC website, the act prohibits gambling businesses from "restricted transactions". Restricted transactions involve gambling businesses when they knowingly accept payments from another person in a bet or wager on the internet. It also requires that the Treasury and Federal Reserve Board with consultation of the Attorney General
Attorney General
In most common law jurisdictions, the attorney general, or attorney-general, is the main legal advisor to the government, and in some jurisdictions he or she may also have executive responsibility for law enforcement or responsibility for public prosecutions.The term is used to refer to any person...

 to promulgate regulations requiring certain participants in payment systems that could be used for unlawful Internet gambling to have policies and procedures reasonably designed to identify and block or otherwise prevent or prohibit the processing of restricted transactions. These regulations are independent of any other regulatory framework, such as the Bank Secrecy Act
Bank Secrecy Act
The Bank Secrecy Act of 1970 requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering...

 or consumer protection regulations.

Section 5361, Findings and Purpose

The Act begins with Congress’s findings and purpose. Findings include a recommendation from the National Gambling Impact Study Commission
National Gambling Impact Study Commission Act
The National Gambling Impact Study Commission Act of 1996 is an Act of Congress that was signed into law by President of the United States Bill Clinton....

. One of the controversial findings asserted in the opening of the bill is the assertion that Internet gambling is a growing problem for banks and credit card companies.
The opening section of the act also states that that “new mechanisms for enforcing gambling laws on the Internet are necessary,” especially for cross-border betting. The Act contains a clause that ensures no change be made any other law or Indian compact
Tribal-state compacts
Tribal-State Compacts are declared necessary for any Class III gaming on reservations under the Indian Gaming Regulatory Act of 1988 . They were designed to allow tribal and state governments to come to a "business" agreement...

. This clause makes known that the Act cannot be used as a defense to another crime, or to expand existing gambling.

Section 5362, Definitions

This section outlines definitions of gambling terms to be used throughout the act. The Act defines a bet or wager to include risking something of value on the outcome of a contest, sports event, ?or a game subject to chance.? The ?game subject to chance? restriction is designed to include Internet poker in the act. The Act then confuses the issue of skill by stating that betting includes purchasing an ?opportunity? to win a lottery, which must be predominantly subject to chance. The Act expressly prohibits lotteries based on sports events. Some activities such as securities and commodities, including futures, that are traded on U.S. exchanges are, by statute, declared not to be gambling. ?Designated payment system? covers any system used by anyone involved in money transfers, that the federal government determines could be used by illegal gambling. ?Financial transaction provider? is a very broad definition covering everyone who participates in transferring money for illegal Internet gambling. This expressly includes an ?operator of a terminal at which an electronic fund transfer may be initiated? and international payment networks. ?Interactive computer service? includes Internet service providers. ?Restricted transaction? means any transmittal of money involved with unlawful Internet gambling. ?Unlawful Internet gambling? is defined as betting, receiving, or transmitting a bet that is illegal under federal, state, or tribal law. The Act says to ignore the intermediary computers and look to the place where the bet is made or received. To force casinos to report large cash transactions, federal law was changed to define ?financial institution? as including large gambling businesses. All other definitions are standard.

Section 5363, Money Transfers

This section covers money transfers. The bill states ?[n]o person engaged in the business of betting or wagering may knowingly accept? any money transfers in any way from a person participating in unlawful Internet gambling. This includes credit cards, electronic fund transfers, and even paper checks. But the restriction on transfers is limited to Internet gambling businesses, not mere players. It also would not cover payment processors or ISPs, even under a theory of aiding and abetting. The Act clearly does not make it a crime to knowingly transmit funds for illegal gambling. Neither the player nor the intermediary can be charged with this crime. The language of the Act even eliminates the possibility of charging financial institutions and computer hosts under a theory of aiding and abetting, since it explicitly states, in the definitions section, that being in the business of gambling does not include a ?financial transaction provider,? or an ISP.

Section 5364, Regulations

Under section 5364, Federal regulators have 270 days from the date this bill is signed into law to come up with regulations to identify and block money transactions to gambling sites. The regulations will require everyone connected with a ?designated payment system? to i.d. and block all restricted transactions. The Act allows the federal regulators to exempt transactions where it would be impractical to require identifying and blocking. This obviously applies to paper checks. Banks have no way now of reading who the payee is on paper checks and cannot be expected to go into that business.

Section 5365, Civil Suits

Since there is no way to regulate overseas payment processors, section 5365 of the Act allows the United States and state attorneys general to bring civil actions in federal court. The courts have the power to issue temporary restraining orders and preliminary and permanent injunctions to prevent restricted transactions. The only problem with this enormous power is that it is, again, practically useless against payment processors who are entirely overseas. The Act provides for limited civil remedies against ?interactive computer services.? An Internet service provider can be ordered to remove sites and block hyperlinks to sites that are transmitting money to unlawful gambling sites. ISPs are under no obligation to monitor whether its patrons are sending funds to payment processors or even directly to gambling sites. But once it receives notice from a U.S. Attorney or a state attorney general, the ISP can be forced to appear at a hearing to be ordered to sever its links.

Other pertinent provisions

Criminal penalties under section 5366 include up to five years in prison, a fine, and being barred from involvement in gambling. Under section 5367, the Act makes ISPs and financial institutions liable if they actually operate illegal gambling sites themselves. Lastly, the Act requests, but does not require, the executive branch to try and get other countries to help enforce this new law and ?encourage cooperation by foreign governments? in identifying whether Internet gambling is being used for crime.

Criticisms

Opponents of the UIGEA such as Michael D Schmitt has criticized the act and believes that it will not work comparing it to prohibition of alcohol. He also criticizes the government to basically "forcing" this controversial bill to be passed with the non-controversial attached SAFE Port Act
SAFE Port Act
The Security and Accountability For Every Port Act of 2006 was an Act of Congress in the United States covering port security and to which an online gambling measure was added at the last moment...

. Some senators and congressmen have even stated that they were not even allowed to see the final version of the gambling portion before putting in their votes.

Many have argued that the act has failed to address the dangers of online gambling. Online gamblers in the United States remain unaffected by this act and will continue to gamble online. They state that the act and the Department of Justice
United States Department of Justice
The United States Department of Justice , is the United States federal executive department responsible for the enforcement of the law and administration of justice, equivalent to the justice or interior ministries of other countries.The Department is led by the Attorney General, who is nominated...

 successfully forces easily regulated large publicly-traded companies out the market and introduces small unscrupulous private companies into the market. In doing so it could result in amplified the risks of consumer abuse, underage gambling, problem gambling and money laundering. Critics believe that regulation of online gambling is a better alternative.

Responses from online gambling sites

All online gambling sites listed on the London Stock Exchange
London Stock Exchange
The London Stock Exchange is a stock exchange located in the City of London within the United Kingdom. , the Exchange had a market capitalisation of US$3.7495 trillion, making it the fourth-largest stock exchange in the world by this measurement...

 or similar markets have stopped taking United States players due to the passage of the Act, while most non-public companies have announced an intention to continue taking US customers.

PartyGaming
PartyGaming
bwin.Party Digital Entertainment Plc is an online gambling company, formed by the March 2011 merger of PartyGaming plc and bwin. The world's largest publicly traded online gambling firm, it is best known for its online poker room PartyPoker.com and its sports betting brand Bwin. It is...

, which runs PartyPoker.com, had its publicly-traded stock drop almost 60% in 24 hours as a result of the bill's passage. The company was moved from the FTSE 100 Index
FTSE 100 Index
The FTSE 100 Index, also called FTSE 100, FTSE, or, informally, the footsie , is a share index of the 100 most highly capitalised UK companies listed on the London Stock Exchange....

 to the FTSE 250 Index
FTSE 250 Index
The FTSE 250 Index is a capitalisation-weighted index consisting of the 101st to the 350th largest companies on the London Stock Exchange. Promotions to and demotions from the index take place quarterly in March, June, September and December...

 on October 11, 2006.

WTO dispute

Antigua
Antigua
Antigua , also known as Waladli, is an island in the West Indies, in the Leeward Islands in the Caribbean region, the main island of the country of Antigua and Barbuda. Antigua means "ancient" in Spanish and was named by Christopher Columbus after an icon in Seville Cathedral, Santa Maria de la...

 and the United States have been involved in a long-running World Trade Organization
World Trade Organization
The World Trade Organization is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade , which commenced in 1948...

 dispute over U.S. restrictions on online gambling. The WTO ruled on January 25, 2007 that the U.S. is in violation of its treaty obligations by not granting full market access to online gambling companies based in the island nation. On March 30, 2007 the WTO confirmed the U.S. loss in the case.

On June 19, Antigua filed a claim for USD $3.4 billion in trade sanctions against the United States, along with a request for authorization to ignore U.S. patent and copyright laws. This claim was filed a day after similar demands for compensation were made by the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...

.

The United States settled the dispute by granting concessions in other sectors. The administration of President
President of the United States
The President of the United States of America is the head of state and head of government of the United States. The president leads the executive branch of the federal government and is the commander-in-chief of the United States Armed Forces....

 George W. Bush
George W. Bush
George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....

 refused to disclose the details of those concessions, however. In April 2008 Congressmen Barney Frank
Barney Frank
Barney Frank is the U.S. Representative for . A member of the Democratic Party, he is the former chairman of the House Financial Services Committee and is considered the most prominent gay politician in the United States.Born and raised in New Jersey, Frank graduated from Harvard College and...

 and Ron Paul
Ron Paul
Ronald Ernest "Ron" Paul is an American physician, author and United States Congressman who is seeking to be the Republican Party candidate in the 2012 presidential election. Paul represents Texas's 14th congressional district, which covers an area south and southwest of Houston that includes...

 called for the agreements to be made public. They stated that the concessions "could cost the United States many billions of dollars in compensation" and that the administration's invocation of "national security" as a reason to block disclosure under the Freedom of Information Act
Freedom of Information Act (United States)
The Freedom of Information Act is a federal freedom of information law that allows for the full or partial disclosure of previously unreleased information and documents controlled by the United States government. The Act defines agency records subject to disclosure, outlines mandatory disclosure...

 (FOIA) was "a misuse of the FOIA process." When the administration continued to keep the information secret, Public Citizen
Public Citizen
Public Citizen is a non-profit, consumer rights advocacy group based in Washington, D.C., United States, with a branch in Austin, Texas. Public Citizen was founded by Ralph Nader in 1971, headed for 26 years by Joan Claybrook, and is now headed by Robert Weissman.-Lobbying Efforts:Public Citizen...

 brought suit on behalf of Ed Brayton, a journalist whose FOIA request had been denied.

Challenge to UIGEA

In May 2009, Congressman Barney Frank
Barney Frank
Barney Frank is the U.S. Representative for . A member of the Democratic Party, he is the former chairman of the House Financial Services Committee and is considered the most prominent gay politician in the United States.Born and raised in New Jersey, Frank graduated from Harvard College and...

 introduced a bill to overturn the gambling aspects of the Act, "The Internet Gambling Regulation, Consumer Protection, and Enforcement Act
Internet Gambling Regulation, Consumer Protection, and Enforcement Act
The Internet Gambling Regulation, Consumer Protection, and Enforcement Act was a proposed 2009 bill in the United State House of Representatives that is intended "to provide for the licensing of Internet gambling activities by the Secretary of the Treasury, to provide for consumer protections on...

," which seeks to repeal the major online gaming obstacles of the UIGEA and go further in protecting Americans from fraud, while safeguarding against underage and problem gamblers.

Frank also introduced a bill to delay the implementations of the UIGEA for one year, until December 1, 2010. The bill was put into effect, however, the regulations were only extended until June 1, 2010.

Enforcement

In April 2011, the founders of PokerStars
PokerStars
PokerStars is the largest online poker cardroom in the world. PokerStars' satellite tournaments produced the 2003 World Series of Poker champion, Chris Moneymaker. 1983 champion Tom McEvoy, 2005 champion Joe Hachem, 2009 champion Joe Cada and 2010 champion Jonathan Duhamel and others also represent...

, Full Tilt Poker
Full Tilt Poker
Full Tilt Poker is an online poker card room that opened in June 2004 with the involvement of poker professionals Howard Lederer, Phil Ivey, Andy Bloch, Mike Matusow, Jennifer Harman and Chris Ferguson...

, and Absolute Poker, the three largest Internet poker companies that then accepted U.S. players, were among those indicted for in charges that including violations of the UIGEA. According to the United States Attorney in New York
New York City
New York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...

, the companies allegedly tried to circumvent UIGEA rules with the help of others who acted as "payment processors" by helped disguise gambling revenue
Money laundering
Money laundering is the process of disguising illegal sources of money so that it looks like it came from legal sources. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount...

 as payments for non-existent goods such as jewelry or golf balls.

See also

  • Baxter v. United States
    Baxter v. United States
    William E. Baxter Jr. v. United States was a federal tax refund case, decided in 1986, regarding the U.S. federal income tax treatment of the gambling income of a professional gambler. Because of this case, gambling winnings in the United States can in certain cases be treated as business income...

  • Commonwealth of Pennsylvania vs Walter Walkins
  • Southern District of New York Action Against Online Poker Players
    Southern District of New York Action Against Online Poker Players
    The Southern District of New York Action Against Online Poker Players was a legal action taken by the Department of Justice in an effort to crack down on online poker. The action occurred around June 8, 2009, when the government ordered four banks to freeze over 34 million dollars in payments...

  • Poker Players Alliance
    Poker Players Alliance
    The Poker Players Alliance is an American nonprofit Interest group formed "to speak with one voice to promote poker, and to protect the players' rights." The PPA formed to serve as an advocacy group to Washington to establish rights and protections for U.S. poker players. Within the first year of...


External links

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