Treasury Department Finalizes UIGEA Regulations

Barney Frank
Rep. Barney Frank is among the voices crying foul in response to the latest UIGEA development.

The U.S. Department of the Treasury has finalized regulations to implement the Unlawful Internet Gambling Enforcement Act of 2006, according to a report on Dow Jones Newswires.

These regulations, sent to the Office of Management and Budget (OMB) on Oct. 20, would effectively ban online gambling in the U.S. by making it illegal for banks to process credit card transactions from most Internet gambling sites.

With the current administration on its way out, and with more pressing issues facing the government, why the sudden rush to push through these regulations?

It is called a midnight drop - when an outgoing administration finalizes controversial regulations just before the end of its term - and it is the Bush administration's last opportunity to affect the fate of Internet gambling.

John Pappas, executive director of the Poker Players Alliance (PPA), met last Friday with officials from the OMB, the agency charged with actually implementing the regulations, in a last-ditch effort to prevent them from being put on the books.

Pappas was quoted on as saying in the wake of the meeting, "There was a lot of head-nodding, but no reaction one way or another that they are or they are not going to get these rules out before the key date of Nov. 19."

Last-Minute UIGEA Conflict of Interest

The timing of the Treasury Department's action has been called into question by a number of Washington insiders. Democratic Congressman Steve Cohen (D-Tenn.) wrote in opposition to the last-minute regulations, ''I am surprised that your administration would seek to rush through a rule that would saddle an already ailing financial services sector with a burdensome rule in the current economic environment.''

Rep. Cohen has called on White House Counsel Fred Fielding to explain what role Deputy Director of Public Liaison William Wichterman may have played in the decision to push through the regulations before the end of the Bush administration. Rep. Cohen is in particular asking whether Wichterman disclosed "to you or your office his potential conflict of interest in this matter."

According to reports from news, Cohen wrote to Fielding that he had heard that Wichterman ''has been a source of considerable political pressure to speed this regulation through.''

In 2008, prior to joining the White House, Wichterman had earned over $200,000 as a lobbyist on behalf of the NFL and had lobbied on its behalf in favor of Internet gambling restrictions.  And, before he went to work as a registered lobbyist, Wichterman worked for Rep. Bill Frist - the architect of the plan to push the UIGEA by adding it to the Safe Port Act.

UIGEA Regulations will Hobble eCommerce

Dick Armey, in a guest article for CNET titled "The Midnight Regulation Rush Is On!" warns of U.S. Treasury officials "quietly pushing through new rules that potentially will have devastating consequences for privacy and e-commerce."

The former Republican congressman from Texas cautions against excessive regulatory interference into the Internet, saying it threatens to turn the Internet "into something akin to an electronic version of the Post Office rather than the engine of growth it has become."

He raises concerns that the UIGEA, with its "vague definitions and poorly defined goals force[s] banks and payment centers into a tight position," requiring them to take on investigative and law enforcement obligations far beyond their scope.

"This generates a great deal of confusion," Armey writes, "leaving consumers and Internet users facing the real prospect of perfectly legal activities being blocked simply due to uncertainty and caution on the part of banks and payment centers. For those processing these transactions, the ambiguity is compounded by compliance costs and the paperwork burden."

He further cautions against a domino effect if the government uses the regulations implementing the UIGEA to set a precedent for regulating and defining what types of transactions will be allowed over the Internet in the future.

"Once the federal government begins implementing guidelines for various types of online transactions, what is to prevent it from becoming more involved in every activity on the Internet?"

In our current economic condition, Armey encourages the Treasury Department to look at what a "powerful and valuable force in our economy" the Internet is, and to recognize that its growth is in large part due to the fact that it has been allowed to develop relatively free from governmental interference.

"Restrictive government mandates would only restrain such growth, not encourage it. Each new mandate also brings further government encroachment upon the rights and liberties guaranteed by the Constitution," he concludes. For this reason, he urges them "not to rush forward with sweeping government mandates that threaten the future."

Frank Speaks Out Against UIGEA

Today, Congressman Barney Frank (D-Mass.) joined the chorus of voices opposing this last-minute action by the Treasury Department. He wrote to Treasury Secretary Henry Paulson requesting he postpone issuing the regulations.

Said Frank, "I am deeply disappointed to hear that your agency is proceeding with what I consider to be unseemly haste in issuing regulations implementing the Unlawful Internet Gambling Enforcement Act. This midnight rulemaking will tie the hands of the new Administration, burden the financial services industry at a time of economic crisis, and contradict the stated intent of the Financial Services Committee."

He noted that he had introduced legislation - which was passed by the Financial Services Committee of the House - that would prohibit the implementation of the confusing and unworkable rules originally proposed by the Treasury Department and replace them with a formal rulemaking process that would define the term "unlawful internet gambling," something the proposed rules fail to do.

He then strongly urged the Treasury Secretary "to delay implementation of these major, and deeply flawed regulations to permit the incoming Administration the ability to review the consequences of such a significant policy decision, rather than unfairly being denied that opportunity."

The Treasury Department's first attempt to draft rules implementing the UIGEA was not a success. The draft rules, published in October 2007, failed to define what would be considered "unlawful internet gambling."

They also failed to define "illegal transaction," and there has been much confusion as to what types of online gambling would be rendered illegal. At the time, banks warned that they would probably opt to block all online gambling transactions rather than try to determine which ones are illegal. Even an official from the Federal Reserve opposed the draft regulations, saying they were likely to create considerable uncertainty.

The PPA fought against the draft regulations and is continuing its fight against the final "eleventh hour" regulations. "It's really remarkable that this administration would try to push this out given the burden it would place on financial institutions at this time of financial crisis," said Pappas.

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