Treasury department moving to implement UIGEA

Mt. Rushmore

A restraining order on the implementation of the Unlawful Internet Gambling Enforcement Agency may not come soon enough, as the Department of the Treasury and the Board of Governors of the Federal Reserve System have released a joint proposed ruling on implementing the new law.

The proposed rule would require U.S. financial firms that participate in designated payment systems to have policies and procedures that are reasonably designed to prevent payments being made to gambling businesses in connection with unlawful Internet gambling.

The UIGEA prohibits financial firms from making transactions with online gambling companies and also prohibits gambling businesses from accepting payments in connection with illegal online gambling.

This includes payments made through credit cards, electronic funds transfers and checks.

According to a press release from the Federal Reserve Board, the proposed rule will provide examples of the policies and procedures financial firms will have to put in place.

The treasury department and the board are required to jointly develop the proposed rule in consultation with the Department of Justice under the UIGEA.

In accordance with the requirements of the UIGEA, the proposed rules from the two agencies designated certain payment systems that could be used in connection with the unlawful Internet gambling transactions restricted by the UIGEA.

Participants in designated payment systems will need to establish policies and procedures to identify and block transactions in connection with online gambling. However, the ruling also exempts certain participants in designated payment systems from the requirements.

The proposed rule describes the types of policies and procedures that non-exempt participants in each type of designated payment system may adopt in order to comply with the UIGEA. This includes non-exclusive examples of policies and procedures which would be deemed to be reasonably designed to prevent or prohibit the restricted online gambling transactions.

The rules being proposed by the Board and the Treasury do not specify which gambling activities or transactions are legal or illegal. The way the UIGEA is set up, it defers to the underlying state and federal gambling laws with regard to what is legal.

Determinations under those laws may depend on the facts of specific activities or transactions such as the location of the parties involved.

It is this stipulation of the UIGEA that has led two state attorney generals to support the UIGEA rather than the new legislation proposed by Rep. Barney Frank that would legalize and regulate online gambling in the United States.

Attorney General Douglas Gansler of Maryland and Attorney General Bill McCollum of Florida wrote a joint letter to Frank and Ranking Member Spencer Bachus (R-Ala.) expressing their views on the UIGEA and Frank's Internet Gambling Regulation and Enforcement Act.

According to their letter, a federal license would supersede any state enforcement action. Therefore, part of the IGREA would grant an affirmative defense against prosecution or enforcement action under federal or state law to any person who possesses a valid license and complies with the requirements of the Act.

"This divestment of state gambling enforcement power is sweeping and unprecedented," the two men write.

However, the IGREA does allow for states to opt out of permitting online gambling. Gansler and Bachus argue that the opt-out isn't enough because it doesn't preserve the states' right to place conditions on certain types of gambling.

"[IGREA] effectively nationalizes America's gambling laws on the Internet, 'harmonizing' the law for the benefit of foreign gambling operations that were defying our laws for years, at least until UIGEA was enacted. We therefore oppose this proposal, and any other proposal that hinders the right of States to prohibit or regulate gambling by their residents," their letter states.

The IGREA has been gaining more support, though, as Representatives continue to sign on as co-sponsors to the bill. The UIGEA has also been facing problems as the Department of the Treasury and the Federal Reserve Board work to get the laws in place.

The Interactive Media Entertainment & Gaming Association filed a lawsuit against the law and is seeking a restraining order to prevent it from being implemented while the lawsuit works its way through the court system.

Now that the board and treasury have come up with the proposed rule, they have opened it up for comments until Dec. 12.

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