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UIGEA unmasked

Bill would render prohibition moot

Two U.S. congressmen have introduced legislation that would ultimately render the Unlawful Internet Gambling Enforcement Act moot by prohibiting the Treasury and Federal Reserve from “proposing, prescribing or implementing” regulations under the UIGEA.

The bill, introduced by Reps. Barney Frank and Ron Paul, comes after hearings held in April that explored the burden the UIGEA is placing upon smaller banks and financial institutions. It is seen as a representation of the general consensus in Congress that the UIGEA is not sound legislation.

The hearings earlier this month focused on the overly vague and sometimes contradictory wording in the bill that made it almost impossible for banks to adhere to its restrictions.

It is expected that conservative groups and professional sports leagues will oppose the bill, but financial institutions and some interested members of Congress could counter that.

Nevada’s Rep. Shelley Berkley, who has introduced her own legislation calling for a one-year study of online gaming, supports the bill.

“I opposed this unfair law when it was passed, and I fully support Chairman Frank’s legislation to stop these burdensome regulations before they ever go into effect,” she said.

Frank has been an outspoken critic of the UIGEA since its passage, and introduced legislation in 2007 that would establish a system for regulating and taxing online gaming operations in the U.S. That bill, the Internet Gambling Regulation and Enforcement Act, currently has 48 co-sponsors, including Berkley.

Federal officials charged with enforcing the Unlawful Internet Gambling Enforcement Act said during the congressional hearings that the law is too vague to figure it out.

“I think it is very difficult without having more of a bright line about what is intended to be unlawful internet gambling,” said Louisa Roseman, head of the Federal Reserve’s bank operations division. “The challenge we have is interpreting something, particularly federal laws, that Congress itself isn’t sure what they mean.”

Roseman wants Congress to outline exactly which transactions need to be blocked and which ones are allowed.

“Clarity on this point would permit them to design policies and procedures that they could be assured would meet the rule’s requirements,” Roseman said. “Still others, including some gambling businesses and many consumers, asked that the rule clarify that certain types of gambling, such as parimutuel betting or poker, are lawful.”

When the ban was passed it charged financial institutions with blocking transactions between U.S. customers and illegal online operations. At the same time, it carved out an exemption for some online operations including wagering on horse racing and playing fantasy sports.

This has caused smaller banks to ask how they will enforce the law.

“It makes financial institutions the police, prosecutors and judges in place of real law enforcement officers,” said Wayne Abernathy of the American Bankers Association.

Supporters of the Paul and Frank bill include Rep. George Miller, chairman of the House Democratic Policy Committee and the House Education and Labor Committee, who signed on as a co-sponsor of the Internet Gambling Regulation and Enforcement Act.

“The endorsement of this key legislation by Congressman Miller, one of the most influential leaders on Capitol Hill, further demonstrates the growing support for regulated internet gambling,” said Jeffrey Sandman, spokesman for the Safe and Secure Internet Gambling Initiative. “We expect continuing momentum in Congress as more people realize that the current approach to prohibit internet gambling is a failure. Rather than leave consumers vulnerable in an underground, uncontrolled marketplace, regulation of internet gambling would protect consumers and generate billions in revenue.”

Republican senators Pete Dominici and John Sununu have also criticized the original legislation.

The senators said in a letter to Henry Paulson, U.S. Treasury Secretary, that the UIGEA is unfairly burdensome on banks which must determine the nature of all online transactions, and also determine the legality of various online gambling sites.

“In failing to provide more detail, the proposed rules would inordinately burden every bank, credit union, credit card company, money transmitting business and payment system in the country, leading to non-uniform compliance and confusion,” the letter stated. “This issue is particularly important, as most federal and state gambling laws predate the internet and are less than specific as to their application to particular practices or circumstances.”