Injustice Delayed

by Michelle Minton on November 30, 2009 · 1 comment

in International, Nanny State, Odds & Ends

Tomorrow, December 1st marks the day when banks and other credit processing companies would have had to be in full compliance with Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA).  The Act, which was sneaked into the unrelated and must-pass Port Safety Act, passed in the late night hours just before congressional recess, would cause a variety of problems for the credit processing companies and has been vehemently opposed for over three years by a multitude of banks, players’ organizations, and regulators. Luckily, the Treasury Department and the Federal Reserve Board on November 25th with little more than a week to spare decided to delay the implementation of the law for a period of six months.

According to the Treasury statement issued on November 25th, “While the final regulation affords regulated entities maximum flexibility in establishing and implementing policies and procedures that are reasonably designed to prevent or prohibit unlawful Internet gambling transactions restricted by the Act, the Agencies acknowledge some of the challenges regulated entities are experiencing with the Act’s definition of “unlawful Internet gambling.”

Apart from the fact that any attempt to ban gambling online is a serious infringement on individual rights, Treasury recognizes that UIGEA is vague, will do little to stop Internet gambling, and will be financially burdensome at a time when credit processing companies are teetering on the edge of bankruptcy. Not to mention the cost to the US government. By the Treasury department’s own estimate the cost of simply gathering and processing the information required by UIGEA to be somewhere around $20 million.

Proponents of the right to gamble online have six months to come to an agreement about the best way to permanently overturn UIGEA. Currently, the most promising route seems to be Barney Frank’s two bills related to Internet gambling. HR 2266 the Reasonable Prudence in Regulation Act would stall implementation of UIGEA until December 1st, 2010. HR 2267 Internet Gambling Regulation, Consumer Protection, and Enforcement Act also introduced by Barney Frank in May 2009, would create a regulatory regime, giving the Secretary of the Treasury the authority to license online gambling activities and “establish and enforce standards of integrity and fairness.”  Additionally, in June 2009 Rep. Jim McDermott (D-Wash.) introduced HR 2268, the Internet Gambling Regulation and Tax Enforcement Act, as a companion bill to Barney’s gambling regulatory regime, which would amend the US tax code, allowing the government to extract taxes from gambling related activities.

Barney Frank’s proposals have picked up a lot of steam, but it is unlikely, considering that congress has bigger financial fish to fry, that any major new regulatory regime will be decided upon in the next half year. Additionally, there are big potential problems with the proposed legislation that such a “rush to regulate,” might gloss over, potentially creating bigger problems than the past ambiguity of Internet gambling’s legal status that has been the long-running state of the US’s oversight on online wagering. Some of the potential problems with the Frank proposals include:  1. States will have the option to opt-out of regulatory regime for online gaming, 2. Sports gambling would continue to be illegal, 3. Taxation from federal, and state authorities could be disproportionately high, 4. The regulations are viewed by international operators and international trade authorities as protectionist, and 5. The proposed regime is likely to be inefficient and overly burdensome.

Overturn UIGEA Permanently

Internet gambling in the United States is going to continue, with or without a regime, and regardless of any attempt to ban the activity. While the best way to regulate Internet gaming, if it should be regulated at all, will continue to hotly debated by members of congress, the first step should be to recognize that UIGEA is a bad law and simply a strain on financial institutions and it should be overturned permanently.

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