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The Yanks and the Banks: The UIGEA and the Future of Online Poker in the U.S.

Bloggers RSS / Short-Stacked Shamus / 20 November 2009 / Leave a Comment

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Those of us who enjoy playing online poker in the United States have experienced a number of ups and downs following the passage of the Unlawful Internet Gambling Enforcement Act of 2006, also known as the UIGEA.

Yet another important date in the three-plus year long saga of the UIGEA is about to arrive for Americans -- December 1, 2009 -- when compliance with the law's finalized regulations becomes mandatory.

The UIGEA does not make playing online poker illegal, but it does attempt to prohibit banks from allowing customers to move money onto online gambling sites. While the law primarily affects American players, non-Americans should also be interested in the various legal machinations going on in the U.S. with regard to online poker, since we Yanks do fill a significant number of seats around the virtual tables on those sites that'll have us. As December 1 approaches, I thought it might be useful to talk a bit about how we got here as we try to anticipate what might come next.

Deals in the Dead of Night

The UIGEA resulted from a lengthy series of anti-online gambling bills that had been proposed and revisited by certain U.S. lawmakers over the course of several years. In the summer of 2006, the House of Representatives finally passed a bill called the Internet Gambling Prohibition and Enforcement Act. That bill, designed "to prevent the use of certain payment instruments" like credit cards or bank transfers to fund accounts on online gambling sites -- including those located outside the U.S. -- was debated by members of the House where it passed by a 317-93 margin. The bill was then sent along to the U.S. Senate for its consideration.

However, that bill never went any further. Instead, a new bill -- the UIGEA -- was drafted. This scaled-down version of the previous bill was appended to something called the Safe Port Act, an unrelated piece of legislation designed to bolster the security of U.S. ports. On the very last day Congress was in session before closing to prepare for the 2006 elections, the Safe Port Act, along with the UIGEA, was passed by both the House (421-2) and Senate (98-0). At the time, the Safe Port Act was considered must-pass legislation, thus explaining the overwhelming support. As it happened, the UIGEA portion of the bill was not debated in either the House or the Senate prior to its being passed. That the vote happened around midnight on a Friday added a distinctively furtive flavor to the proceedings.

Two weeks later, on October 13, 2006, then President George W. Bush signed the Safe Port Act into law, and the UIGEA era had begun. Americans saw the world of online poker rapidly split into two groups -- the sites we could still play on, and the ones we could not. Soon our favorite third-party vendors began pulling out of the United States market as well, adding to our anxiety over how we were going to continue to deposit and withdraw funds from those sites that were still "U.S.-facing."

UIGEA Regulations Finalized (Finally)

Once the dust settled, we found we were still able to find ways to move money back and forth to sites, although the ease with which we'd done so previously was no more. Meanwhile, Americans fretted about the future. The UIGEA contained a directive to the Federal Reserve System and the Attorney General to come up with regulations -- that is, instructions to the banks, credit card companies, and all other "designated payment systems" -- within 270 days of the bill having become law. We all eyed with concern that date somewhere in the middle of July 2007, an apparent doomsday (of sorts).

But that 270-day deadline came and went, and those of us not entirely up on the ways of federal legislation soon learned that's how things tended to go on Capitol Hill. While the feds continued to sort out those regulations, there were a few hearings in the House to discuss the issue of online gambling and the practicality of the UIGEA.

At one hearing in early April 2008, representatives of the Federal Reserve System and the U.S. banking system testified that trying to block transactions between U.S. citizens and online gambling sites would prove particularly burdensome. Said one witness, Wayne Abernathy, the Executive Vice President of the American Bankers Association, the UIGEA "makes financial institutions the police, prosecutors, and judges in place of real law enforcement officers" with regard to "unlawful internet gambling." In effect, Abernathy was saying there was no way the banks could handle the task, calling it "an unprecedented delegation of governmental responsibility, with no prospect of practical success."

Alas, these arguments failed to prevent the regulations from being proposed, then eventually "finalized" in November 2008. Then, on January 19, 2009, the very last full day of the Bush presidency, those finalized regulations officially went into effect, although those regulations stipulated that compliance with the law was not mandatory until December 1, 2009. In other words, banks and other "designated payment systems" could start blocking transactions if they wished, but since they faced no penalties for not complying, most did not. But the countdown was on.

Hoping for a Lucky River Card

This past spring, House Rep. Barney Frank, a high-ranking Democrat from Massachusetts, introduced a couple of bills designed to thwart the UIGEA. One is called the Internet Gambling Regulation, Consumer Protection, and Enforcement Act, a version of an earlier, failed bill Frank had proposed designed to regulate and tax online gambling. The other is something called the Reasonable Prudence in Regulation Act, a bill specifically asking for an additional one-year delay before banks would have to comply with the UIGEA. Yet another bill focused solely on "skill" games over on the has been introduced over on the Senate side by Sen. Robert Menendez, a Democrat from New Jersey, the Internet Poker and Games of Skill Regulation, Consumer Protection, and Enforcement Act of 2009

Each of these bills remains "in committee," making the likelihood of any of them suddenly rushing through the legislative process and having any effect on the December 1st deadline quite small. There does, however, remain one last possibility for a delay -- there's always another way it seems -- the Administrative Procedure Act which the Federal Reserve and Treasury Department can use to delay compliance with the UIGEA regulations if they so choose. Petitions have been sent to those entities to encourage that very course of action, but there has been no indication as yet that we'll be seeing a lucky river card as this hand nears completion.

The Home of the Brave

Over the last few weeks, some Americans have begun receiving letters from their banks informing them of their banks' intention to comply with the UIGEA and disallow transactions with prohibited sites. It should be noted that the finalized regulations specifically instruct banks to block customers from depositing onto online gambling sites, but not to prevent them from withdrawing. That's the sort of equation that suggests only the sharks will be sticking around, while the fishes may find it necessary to swim away.

The real concern is that banks, not having a simple way to determine what transactions are with "unlawful" online gambling sites and what are not, will resort to "overblocking" -- that is, blocking more transactions than are perhaps warranted by the UIGEA in order to avoid the penalties for failing to do so should the transaction indeed be one prohibited by the law. The finalized regulations also do not specifically force banks to start scrutinizing existing individual accounts, though they will have to screen new ones. That leads some to believe it will be business as usual for most of us. But really, it all depends on one's bank and how it plans to comply with the law.

Indeed, there's a lot that is unknown moving forward, and while some knowledgeable commentators have pointed out how the UIGEA's imprecise definitions of what exactly constitutes "unlawful internet gambling" mean the law would not stand up to any serious court challenge, that doesn't necessarily lessen the anxiety of those unwilling to pursue such an avenue.

So we wait. And many of us keep playing, in ever increasing numbers, bravely trying not to be too distracted by the irony of the situation -- namely, that at a time when poker's popularity in the United States has perhaps never been greater, the online version of our favorite game is perhaps about to face its greatest challenge.

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