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Hearing discusses UIGEA problems

April 3, 2008

The House Subcommittee on Domestic and International Monetary Policy, Trade, and Technology held a hearing today to discuss the Unlawful Internet Gambling Enforcement Act.

Representatives from the Treasury Department and the Federal Reserve, which have been tasked to find a way to implement the UIGEA, were on hand to discuss where they were at in the process of formulating regulations and implementing the law.

There were also witnesses from a few major banking organization there to testify on behalf of the financial institutions, which will have the task of preventing illegal online gambling transactions and enforcing the new law when it is implemented.

It appears from today’s testimony that the UIGEA has a few challenges that will have to be overcome before it can be implemented. Both the agencies having to put the law in place and the financial institution representatives acknowledged the problems with the law that was handed down from Congress.

Defining ‘unlawful Internet gambling’

One of the first major issued discussed during the hearing was the fact that unlawful Internet gambling isn’t clearly defined in U.S. law, which makes it difficult to create a set of rules restricting money transfers from banks to illegal online gambling businesses.

Louise Roseman, Director, Division of Reserve Bank Operations and Payment Systems, Board of Governors of the Federal Reserve System, was the first to bring up the issue in her prepared testimony for the subcommittee.

“The Act does not spell out which gambling activities are lawful and which are unlawful, but rather relies on the underlying substantive Federal and State laws,” Roseman said.

“The Act does, however,exclude certain intrastate and intratribal wagers from the definition of ‘unlawful Internet gambling,’ and also excludes any activity that is allowed under the Interstate Horseracing Act of 1978.”

She points out that the activities that are permissible under the various Federal and State gambling laws aren’t well-settled and can be subject to varying interpretations.

“Congress recognized this fact when it included in the Act a ‘sense of Congress’ provision that states that the Interstate Horseracing Act exclusion ‘is not intended to resolve any existing disagreements over how to interpret the relationship between the Interstate Horseracing Act and other Federal statutes,” Roseman said.

Rep. Kenny Marchant (R-Texas) asked Roseman and Valerie Abend,Deputy Assistant Secretary for Critical Infrastructure Protection and Compliance Policy in the U.S. Department of the Treasury , how the financial institutions were supposed to be able to determine what was unlawful Internet gambling if the regulators are unable to do so.

“I expect they would take a conservative approach and assume that all Internet gambling is illegal,” Roseman responded.

One possible solution that has been posed by people that sent in comments on the proposed UIGEA regulations and brought up by Rep. Spencer Bachus (R-Ala.) is to set up a list of companies providing illegal online gambling services.

Roseman and Abend said the two agencies have had discussions about the pros and cons of setting up a list and it hasn’t been completely ruled out yet.

In this case, a list may not even be effective because it’s only certain transactions with these companies that would considered banned under the law. Roseman pointed out that these companies have legitimate non-gambling related business that they may do as well and there’s no way to determine what transactions going to and from the companies are legitimate business and what are online gambling transactions.

Bachus, who was a co-sponsor of the UIGEA, then asked if perhaps those companies who are doing illegal business in the United States shouldn’t have all their transactions banned.

Skill games

Hearing discusses UIGEA problems

Games of skill should be exempt according to Rep. Wexler.

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