Unlawful Internet Gambling Enforcement Act of 2006

The United States Court of Appeals for the Fifth Circuit ruled in November 2002[2] that the Federal Wire Act prohibits electronic transmission of information for sports betting across telecommunications lines but affirmed a lower court ruling that the Wire Act "in plain language does not prohibit Internet gambling on a game of chance". While some states have laws specifically prohibiting online gambling, many do not. Additionally, in order for an online gaming company to start, a license from a state is required. The only state to ever issue such a license is Nevada, in March 2013.[3]

The Act was passed on the last day before Congress adjourned for the 2006 elections. According to Sen. Frank Lautenberg (D-N.J.), no one on the Senate–House Conference Committee had seen the final language of the bill before it was passed.[4][5] The Economist has written that these provisions were "hastily tacked onto the end of unrelated legislation".[6]

Although a bill with the gambling wording was previously debated and passed by the House of Representatives,[7][8][9] the SAFE Port Act (H.R. 4954) as passed by the House on May 4 and the Senate on September 14,[10] bore no traces of the Unlawful Internet Gambling and Enforcement Act that was included in the SAFE Port Act signed into law by George W. Bush on October 13, 2006.[11] The UIGEA was added to the Conference Report 109-711 (submitted at 9:29pm on September 29, 2006), which was passed by the House of Representatives by a vote of 409–2 and by the Senate by unanimous consent on September 30, 2006.

Among the Congressional supporters of the Act were Rep. Jim Leach [R-IA], a former chairman of the House Banking Committee and Rep. Robert Goodlatte [R-VA], who co-authored H.R. 4411 (the Internet Gambling Prohibition and Enforcement Act). Bill Frist [R-TN], former majority leader of the Senate, and Jon Kyl [R-AZ] are both credited with expediting the UIGEA's passage through the Senate. Though the SAFE Port Act's provisions related to Internet gambling were drawn exclusively from H.R. 4411, significant portions were removed, including text relating to the Federal Wire Act.[12]

The Internet Gambling Prohibition Act, a prior version of the gambling part of the bill passed the House in 1999 but failed in the Senate in part due to the influence of lobbyist Jack Abramoff.[13]

UIGEA § 5364 required that regulations be issued by the Federal Reserve and the Department of the Treasury within 270 days of the passage of the Act. In October 2007, these agencies issued a "Notice of Proposed Rulemaking",[14] which effectively tabled draft UIGEA regulations for public comment. In response to the NPRM, 410 responses were received from depository institutions, depository institution associations, public policy advocacy groups, consumers, "gambling-related" entities, payment system operators, federal agencies, and members of Congress.

The Bush administration had previously adopted the position that it would not finalize any rule until after November 1, 2008. This last-minute rulemaking that binds the hands of an incoming administration is commonly termed the midnight drop.

The final regulations (termed the "Final Rule") were released November 12, 2008, and came into effect on January 19, 2009, the day before the Obama administration took office.[15] Compliance was not required until December 1, 2009, in order to give participants an opportunity to implement the necessary safeguards and procedures.

According to the overview posted on the FDIC website, the act prohibits gambling businesses from "restricted transactions". Restricted transactions involve gambling businesses when they knowingly accept payments from another person in a bet or wager over the Internet. It also requires that the Treasury and Federal Reserve Board with consultation from the Attorney General to promulgate regulations requiring certain participants in payment systems that could be used for unlawful Internet gambling to have policies and procedures reasonably designed to identify and block or otherwise prevent or prohibit the processing of restricted transactions. These regulations are independent of any other regulatory framework, such as the Bank Secrecy Act or consumer protection regulations.[16]

Opponents of the UIGEA have criticized the act and believe that it will not work, comparing it to the prohibition of alcohol.[18]

Gaming consultant Michael Shackleford has also been critical of the UIGEA stating that the act has "undoubtedly depressed play" but has failed in its primary objective as "there are ways of funding accounts without using US banks, and millions of players know that".[19]

Many have argued that the act has failed to address the dangers of online gambling. They state that the act and the Department of Justice successfully forces easily regulated large publicly traded companies out the market and introduces small unscrupulous private companies into the market. Doing so could result in amplifying risks of consumer abuse, underage gambling, problem gambling and money laundering. Critics believe that regulation of online gambling is a better alternative.[20]

All online gambling sites listed on the London Stock Exchange or similar markets have stopped taking United States players due to the passage of the Act, while most non-public companies have announced an intention to continue taking US customers.[21][22]

PartyGaming, which runs PartyPoker.com, had its publicly traded stock drop almost 60% in 24 hours as a result of the bill's passage. The company was moved from the FTSE 100 Index to the FTSE 250 Index on October 11, 2006.[23]

Antigua and the United States have been involved in a long-running World Trade Organization dispute over U.S. restrictions on online gambling. The WTO ruled on January 25, 2007, that the U.S. is in violation of its treaty obligations by not granting full market access to online gambling companies based in the island nation.[24] On March 30, 2007, the WTO confirmed the U.S. loss in the case.[25]

On June 19, Antigua filed a claim for US$3.4 billion in trade sanctions against the United States, along with a request for authorization to ignore U.S. patent and copyright laws. This claim was filed a day after similar demands for compensation were made by the European Union.[26]

The United States settled the dispute by granting concessions in other sectors. The administration of President George W. Bush refused to disclose the details of those concessions, however. In April 2008 Congressmen Barney Frank and Ron Paul called for the agreements to be made public. They stated that the concessions "could cost the United States many billions of dollars in compensation" and that the administration's invocation of "national security" as a reason to block disclosure under the Freedom of Information Act (FOIA) was "a misuse of the FOIA process."[27] When the administration continued to keep the information secret, Public Citizen brought suit on behalf of Ed Brayton, a journalist whose FOIA request had been denied.[28]

In May 2009, Congressman Barney Frank introduced a bill to overturn the gambling aspects of the Act, "The Internet Gambling Regulation, Consumer Protection, and Enforcement Act", which seeks to repeal the major online gaming obstacles of the UIGEA and go further in protecting Americans from fraud, while safeguarding against underage and problem gamblers.[29]

Frank also introduced a bill to delay the implementations of the UIGEA for one year, until December 1, 2010.[30] The bill was put into effect, however, the regulations were only extended until June 1, 2010.

In April 2011, the founders of PokerStars, Full Tilt Poker, and Absolute Poker, the three largest Internet poker companies that then accepted U.S. players, were among those indicted for charges that included violations of the UIGEA. According to the United States Attorney in New York, the companies allegedly tried to circumvent UIGEA rules with the help of others who acted as "payment processors" by helping disguise gambling revenue as payments for non-existent goods such as jewelry or golf balls.[31]

• Baxter v. United States
• Commonwealth of Pennsylvania vs Walter Walkins
• Southern District of New York Action Against Online Poker Players
• Poker Players Alliance

• "Business Regulation and Consumer Protection: Interim Report on Internet Gambling" (PDF). gao.gov. U.S. Government Accountability Office. September 23, 2002. OCLC 51256381.
• "Internet Gambling: An Overview of the Issues" (PDF). gao.gov. U.S. Government Accountability Office. December 2, 2002. OCLC 51864576.
• Will ban end Internet gambling? Don't bet on it from MSNBC.com