[The following legislative and public policy advisory was prepared by U.S.-based law firm Alston & Bird, who, with UC Group and Baker Tilly, were instrumental in launching the Safe and Secure Internet Gambling Initiative in May. Please find the advisory, in its entirety, attached. -Ed.]
One year following the enactment of the Unlawful Internet Gambling Enforcement Act of 2006, the Federal Reserve Board and the Department of the Treasury have released a joint notice of a proposed regulation implementing the law banning the use of the U.S. payments system to process any illegal Internet gambling transaction.
The proposed regulation would require financial services companies subject to U.S. jurisdiction that participate in any of five types of payments--automated clearing house (ACH) activities, card payments, check collection, money transmission or wire transfers--to implement policies and procedures that are “reasonably designed” to prevent or prohibit the processing of prohibited Internet gambling transactions. The proposed regulation contains limited exemptions for situations where identification and blocking of Internet gambling payments may not be technologically feasible for some participants in the ACH system, check collection systems and wire transfers, based on their relationship to the flow of funds. Companies who implement the “reasonably designed” policies and procedures provided as examples in the proposed regulation would be deemed by federal regulators to be in compliance with the law.
The proposed regulation does not directly regulate institutions or transactions outside the United States. Accordingly, it is likely to encourage circumvention through the use of payments systems outside the United States in the many jurisdictions in which Internet gambling is lawful. These uses could include techniques to disguise restricted transactions or integrate them into lawful forms of funds, such as foreign bank accounts or stored value cards, prior to their repatriation to the United States.
The proposed regulation may also raise concerns about regulatory burden due to the impact of implementation costs on U.S.-based participants in the payments system that are not applicable to similarly situated foreign firms. Its coverage of all forms of cards, including debit cards, stored-value cards and pre-paid cards as well as credit cards without any exemption for gift cards is unprecedented in scope. Many companies involved with selling such products have had little or no prior direct regulation by the federal government. Moreover, the proposed regulation mandates ongoing monitoring by companies involved in card-related transactions and by money transmitters of the Web sites of their commercial users on a global basis. The proposed regulation would require such monitoring to detect unauthorized use of the relevant designated payments system and the unauthorized use of the relevant designated payments system trademarks.
Click here to view the advisory in its entirety.