GPWA Times Magazine - Issue 4 - April 2008

GPWA TIMES | Draft UIGEA regulations under fire 52 NEWS ANALYSIS Draft UIGEA regulations under fire By Vin Narayanan The U.S. Treasury Department and Federal Reserve are still struggling to create and implement regulations to enforce the Unlawful Internet Gam- bling Enforcement Act (UIGEA) more than 16 months after the law’s adop- tion. The UIGEA prohibits financial institutions from processing financial gambling transactions from Internet gambling companies. But the regulations proposed by the Treasury Department and Fed in Oc- tober, have generated so much public comment that no regulations have been implemented yet. “This is an issue that there is so much interest in that we don’t want to rush,” Treasury Department spokes- woman Jennifer Zuccarelli told Bloomberg News. “We are just trying to hear from everyone.” Much of the comment directed toward the Treasury department has been highly critical of the burden the pro- posed regulations placed on banks. “The definition of what constitutes ‘unlawful Internet gambling’ is inad- equate,” the American Bankers As- sociation (ABA) said in a comment letter. “It must be rectified.” The UIGEA defines unlawful Internet gambling as “to place, receive, or oth- erwise knowingly transmit a bet or wager by any means which involves the use, at least in part, of the Inter- net where such bet or wager is unlaw- ful under any applicable Federal or State law in the State or Tribal lands in which the bet or wager is initiated, received, or otherwise made.” The law also explicitly states that horse betting, fantasy sports, intra- state wagering and intratribal wager- ing are exempt from the law. According to the ABA, these definitions are not specific enough. And the draft regu- lations don’t make the law more clear, but rather shift the burden of determining legality to the banks. “The Prohibition does not specify which transactions qualify as ‘unlawful Internet gambling,’” the letter says. Instead, the Prohibition looks to “underlying substantive State and Federal gambling laws and not . . . a general definition to deter- mine the scope of what unlawful In- ternet gambling comprises.” And the horse betting exception just adds to compliance problems, the ABA says. “According to the Department of the Treasury...it (UIGEA) in no way re- quires participants to prevent or pro- hibit transactions that are lawful un- der the Interstate Horseracing Act and all other applicable federal statutes. “Since the Department of Justice has consistently taken the position that the interstate transmission of bets and wagers, including bets and wagers on horse races, violates Federal law, no clear authority exists as to which interpretation banks should follow when implementing the Prohibition. “If the federal agencies themselves cannot agree on the law, what hope is there that banks can resolve these confounding legal issues?” “Obviously, we’re always willing to work with law enforcement,” ABA spokesman Peter E. Garuccio said. “The thing that we guard against most is doing too much police work.” In a February letter to Treasury Sec- retary Henry Paulson and Federal Re- serve Chairman Ben Bernanke, Sena- tors John Sununu (R-NH) and Pete Domenici (R-NM) pleaded with regu- lators to clarify what constituted an illegal transaction, and what didn’t. “The extensive public comments re- ceived on this issue highlight the likelihood that risk-averse financial institutions will simply choose to block every transaction that may be interpreted or could resemble gam- bling, whether legal or not,” the sen- ators wrote. “Knowing that this is not your inten- tion, we write to urge that any fi- nal rules contain a list of restricted transactions and instances that are covered by the law and the corre- sponding rules.” No public timetable for revising and implementing the UIGEA regulations has been set.