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Friday, April 20, 2012

Unlawful Internet Gambling Enforcement Act (UIGEA) and Its Implementing Regulations

Brian T. Yeh
Legislative Attorney

Charles Doyle
Senior Specialist in American Public Law

The Unlawful Internet Gambling Enforcement Act (UIGEA) seeks to cut off the flow of revenue to unlawful Internet gambling businesses. It outlaws receipt of checks, credit card charges, electronic funds transfers, and the like by such businesses. It also enlists the assistance of banks, credit card issuers and other payment system participants to help stem the flow of funds to unlawful Internet gambling businesses. To that end, it authorizes the Treasury Department and the Federal Reserve System (the Agencies), in consultation with the Justice Department, to promulgate implementing regulations. The Agencies adopted a final rule implementing the provisions of the UIGEA, 73 Federal Register 69382 (November 18, 2008); the rule was effective January 19, 2009, with a compliance date of June 1, 2010.

The final rule addresses the feasibility of identifying and interdicting the flow of illicit Internet gambling proceeds in five payment systems: card systems, money transmission systems, wire transfer systems, check collection systems, and the Automated Clearing House (ACH) system. It suggests that, except for financial institutions that deal directly with illegal Internet gambling operators, tracking the flow of revenue within the wire transfer, check collection, and ACH systems is not feasible at this point. It therefore exempts them from the regulations’ requirements. It charges those with whom illegal Internet gambling operators may deal directly within those three systems, and participants in the card and money transmission systems, to adopt policies and procedures to enable them to identify the nature of their customers’ business, to employ customer agreements barring tainted transactions, and to establish and maintain remedial steps to deal with tainted transactions when they are identified. The final rule provides non-exclusive examples of reasonably designed policies and procedures to prevent restricted transactions. The Agencies argued that flexible, risk-based due diligence procedures conducted by participants in the payment systems, in establishing and maintaining commercial customer relationships, is the most effective method to prevent or prohibit the restricted transactions.

Some Members of Congress have criticized the current Internet gambling restrictions for being, in their view, ineffective at stopping Internet gambling, an infringement on individual liberty, and a lost opportunity to collect tax revenue, among other things. The 112th Congress has held several hearings concerning Internet gambling and related issues, and several bills have been introduced that would allow for lawful, government-regulated Internet gambling activities. The legislation includes H.R. 1174 (Internet Gambling Regulation, Consumer Protection, and Enforcement Act), which would establish a licensing program administered by the U.S. Treasury Secretary under which Internet gambling companies may legitimately operate and accept bets or wagers from individuals located in the United States; H.R. 2230 (Internet Gambling Regulation and Tax Enforcement Act of 2011), which would establish a licensing fee regime within the Internal Revenue Code for Internet gambling operators; and H.R. 2366 (Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2011), which would create an office within the U.S. Department of Commerce responsible for overseeing qualified state agencies that issue licenses to persons seeking to operate an Internet poker facility.

Several state legislatures are also considering measures that would legalize, license, and tax Internet gambling within their borders, taking advantage of a UIGEA provision that exempts intrastate Internet gambling from its applicable scope. A recent change in the U.S. Department of Justice’s position regarding the federal Wire Act that now interprets that statute as prohibiting sports betting only (and not interstate transmission of other types of gambling) has also helped

Date of Report: April 10, 2012
Number of Pages: 19
Order Number: RS22749
Price: $29.95

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