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Draft UIGEA regulations under fire5 March 2008
The U.S. Treasury Department and Federal Reserve are still struggling to create and implement regulations to enforce the Unlawful Internet Gambling Enforcement Act more than 16 months after the law's adoption.
The UIGEA prohibits financial institutions from processing financial gambling to Internet gambling companies.
But the regulations proposed by the Treasury Department and Fed last October have generated so much public comment that no regulations have been implemented yet.
"This is an issue that there is so much interest in that we don't want to rush," Treasury Department spokeswoman Jennifer Zuccarelli told Bloomberg News regulatory columnist Cindy Skrzycki this week. "We are just trying to hear from everyone."
Much of the comment directed toward the Treasury department has been highly critical of the burden the proposed regulations placed on banks.
"The definition of what constitutes 'unlawful Internet gambling' is inadequate," the American Bankers Association (ABA) said in a comment letter. "It must be rectified."
The UIGEA defines unlawful Internet gambling as "to place, receive, or otherwise knowingly transmit a bet or wager by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State law in the State or Tribal lands in which the bet or wager is initiated, received, or otherwise made."
The law also explicitly states that horse betting, fantasy sports, intrastate wagering and intratribal wagering are exempt from the law.
According to the ABA, these definitions are not specific enough. And the draft regulations don't make the law more clear, but rather shift the burden of determining legality to the banks.
"The Prohibition does not specify which transactions qualify as 'unlawful Internet gambling,' the letter says." Instead, the Prohibition looks to "underlying substantive State and Federal gambling laws and not . . . a general regulatory definition" to determine the scope of what unlawful Internet gambling comprises.
"ABA believes that requiring banks to be arbiters of gambling laws for all states, as well as federal gambling laws, is infeasible and would place a crippling processing burden and unbounded litigation risk on the nation's payments system participants."
And the horse betting exception just adds to compliance problems, the ABA says.
"According to the Department of the Treasury ...it (UIGEA) in no way requires participants to prevent or prohibit transactions that are lawful under the Interstate Horseracing Act and all other applicable federal statutes.
"Since the Department of Justice has consistently taken the position that the interstate transmission of bets and wagers, including bets and wagers on horse races, violates Federal law, no clear authority exists as to which interpretation banks should follow when implementing the Prohibition.
"If the federal agencies themselves cannot agree on the law, what hope is there that banks can resolve these confounding legal issues?"
"Obviously, we're always willing to work with law enforcement," ABA spokesman Peter E. Garuccio said. "The thing that we guard against most is doing too much police work, which is not the natural purview of banks."
Congress has also taken note of the regulatory burdens that the UIGEA places on banks.
In a February letter to Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, Senators John Sununu (R-NH) and Pete Domenici (R-NM) pleaded with regulators to clarify what constituted an illegal transaction, and what didn't.
"The extensive public comments received on this issue highlight the likelihood that risk-averse financial institutions will simply choose to block every transaction that may be interpreted or could resemble gambling, whether legal or not," the senators wrote.
"Knowing that this is not your intention, we write to urge that any final rules contain a list of restricted transactions and instances that are covered by the law and the corresponding rules."
No public timetable for revising and implementing the UIGEA regulations has been set.
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