The latest political issue for I-gaming in the United States is: Will the new Congress use the Congressional Review Act of 1996 to invalidate the new set of regulations for the Unlawful Internet Gambling Enforcement Act?
First question: Can it be done?
It may or may not be technically possible. To begin with, disapproving such a federal regulation requires a joint resolution of Congress. And while it is true that the Democrats do have majorities in both houses, there is no guarantee that enough Senators and Representatives can be persuaded to do something that might be interpreted as intervening on behalf of gambling interests. Next, under specific statutory exemption, the UIGEA regulations might be Congress-proof. The review act does not apply to “rules that concern monetary policy proposed or implemented by the Federal Reserve System.” And it just so happens that the Federal Reserve is one of the main authors of the UIGEA regs. Does forbidding United States financial instruments to be used in “unlawful Internet gambling” amount to a “rule concerning monetary policy?" It’s never come up before.
But the second and more important question is not whether Congress can do away with the UIGEA regs; rather, I ask: Why should they bother?
The main impact of the final UIGEA regulations has not been more danger for the industry. To the contrary, they marginalize the impact of the UIGEA, and seem almost tailored to render it unusable. The Internet gambling businesses are in no more danger from American law than they were before, and the American financial institutions have been protected from persecution. And this is about as much relief as the industry can hope to get. For reasons of sheer Congressional pride, the UIGEA will not be repealed, and it is required to have regulations. To cancel the current set would be to start again at square one, and thus to risk the emergence of something genuinely damaging.
We must remember that the UIGEA’s real intent was always cosmetic. It was designed to burnish Republican “moral” credentials by “protecting” America from Wicked Internet Gambling. The aim of the UIGEA regulations, on the other hand, seems to be protecting American financial firms from, well, the UIGEA itself. The Treasury Department and the Federal Reserve have set the tone of the regulatory package, and their avowed aim is to “ reduce the burden the Act and the rule impose on payment system participants....” And this is done in a number of ways.
Most important of all, however, is the definition of "unlawful Internet gambling" -- or lack thereof. The UIGEA forbids United States financial institutions to fund “unlawful Internet gambling." But once again -- in fact, once and for all, now -- there is no definition of what that is.
In the lengthy preamble that accompanied the regulations themselves, the regulators went out of their way to avoid making one, declaring only the regs were not to be read as conflicting with any applicable state, federal or tribal law. Consequently, the UIGEA relies on an underlying violation of state gambling law to trigger it. But state gambling laws vary enormously. Sixteen states and the District of Columbia have no coherent definition of what gambling is or is not. Only eight states mention the Internet in their gaming statutes, and the rest mostly assume it’s covered (they’re mostly wrong). As the regulators put it: “The underlying patchwork legal framework does not lend itself to a single 0regulatory definition.”
English translation: “This thing is as messed up as a soup sandwich, and we ain’t touching it.”
All by itself, this refusal to define renders UIGEA vulnerable to a court challenge. For the United States Constitution guarantees due process of law. This means, among other things, fair notice of what the law permits and what it forbids, particularly when, as here, there is a criminal penalty attached. Imagine you are a bank, an Automated Clearinghouse check-collection system, a card issuer, money-transmitting business or wire-transfer company. To be safe, you would have to figure the definition of “illegal Internet gambling” across 50 states -- most of which don’t define it at all. And do it all by yourself.
On the other hand, as a financial service provider, you would run hardly any risk of penalty. The regulators freely admit that “it is very difficult, if not impossible . . . to identify restricted transactions while they are being processed.”
So how can you tell?
Answer: You don’t have to!
These new regulations shift the burden of proving no “illegal Internet gambling” off the backs of the bankers and financiers to the Internet gambling business itself!
That’s right folks, all the United States finance house has to do is ask a prospective customer, politely, “you’re not doing wicked illegal Internet gambling, are you?” And if they answer, “Golly gosh, no!” then everything’s just fine. Because you see, according to the UIGEA itself, financial businesses and Internet service providers cannot be considered as gambling businesses short of actual direct involvement in gambling.
That means you, as a United States financial services provider, would have to be affirmatively, knowingly, in-it-up-to-your-elbows to get in trouble. Your legal obligations are satisfied by due diligence. If you check to see that a given gaming business is licensed in its home jurisdiction, if you consult a qualified professional for a formal legal opinion (ahem!) or get a reliable third-party certification that the people you’re doing business with employ reasonable prevention measures, you’ll be O.K..
You, the United States participant, are not required to do multilevel due diligence, either.
If, for instance, your United States bank does business with a qualified corresponding bank abroad, you, the United States bank, are not required to investigate the corresponding bank’s customers, merely to give reasonable notice that the United States bank cannot be asked to process “restricted” transactions.
And if you’re a small financial business -- say, a small bank that issues Visa cards -- your obligations for due diligence are discharged if you use the Visa due diligence procedures. In fact, if you are a United States financial services provider, there is no ban against sending money to individuals, only to companies that engage in unlawful Internet gambling. Provided you ever figure out what that is. Or spot anybody doing it.
But what happens if somebody slips through the net? You’ll be hauled off screaming in the middle of the night, and your relatives get Christmas cards from Guantanamo, right? Wrong. The regulators have decided that they will not even levy fines. To impose penalties in these circumstances would be “potentially confusing, given the different relationships between parties within each designated payment system.” And given the fact that nobody can actually define what it is you’re not supposed to be doing.
Finally, the regulators have had to acknowledge reality. It is no longer possible for one country to control the finances of Internet gaming worldwide. “[T]he Agencies note that most Internet gambling businesses that use card systems for funding do so through non-U.S. merchant acquirers that are not subject to the Act or the final rule . . . " It is the last absurdity: They must openly admit that in reference to Internet gambling, the United States government has no complaint against those it can reach, and no way to reach those of whom it complains.
Repealing UIGEA is not a realistic possibility. Now that the regulations have finally been published, we see that they are mainly designed to protect American financial institutions from being blamed for Internet gambling’s inevitable growth. The UIGEA in its final form is a beached whale; it is not only unintelligible -- thanks to its own regulations -- it is unusable. It cannot accomplish its supposed purpose of throttling I-gaming, and probably never could have. Meanwhile this law is being challenged in the courts as unconstitutional and void for vagueness.
What should Congress do? Why, let it rot, of course. Congress and the Department of Justice have much more important things to occupy their attention anyway. At the last Global Gaming Expo, I heard a prediction that UIGEA will never be used to prosecute anybody, and that in two years' time I-gaming will be back in business in the United States, stronger than ever. Any bets?