What Is The Unlawful Internet Gambling Enforcement Act And What Is It’s Significance?
Tuesday, 18. May 2010

The Unlawful Internet Gambling Enforcement Act (UIGEA) was hustled through Congress in 2006 by leaders of the Republican block in the final moments before Congress recessed for elections. According to Senator Frank Lautenberg (D-NJ), there wasn’t a single member of the Senate-House Conference Committee that had even had the opportunity to see the final edition of the bill prior to its passing. The UIGEA is actually title VIII of the Safe Port Act, HR 4954. The Safe Port Act deals with port security and has absolutely no connection with online gambling whatsoever.

Following is an analysis of the UIGEA and the section numbers refer to additions to title 31 of the US Code:

Section 5361
The UIGEA opens with Congress’ findings regarding online gambling and the purpose of the Act. Included in the opening is a recommendation from the since discredited national Gambling Impact Study Commission which was chaired by the conservative Republican Kay Coles James. Amongst the findings was the dubious assertion that online gambling poses a problem for banking institutions and credit card companies. What it did state that is not questioned by either side of the online gambling issue was that there is a necessity to institute mechanisms for enforcing gambling laws as regards online gambling especially in the case of cross-border betting.

Repeated throughout the pages of the UIGEA is a standard clause that states that the UIGEA does not affect or override any other law or Indian compact. It is repeated a number of times to ensure that no one use the UIGEA as a defense to another crime or to expand any existing gambling legislation.

Section 5362 Definitions

This section opens with the definition of a wager or a bet to include the risk of something of value over the outcome of a contest, sporting event or any “game subject to chance.” A “game subject to chance” is an obvious reference to online poker. It is at this point that the UIGEA begins to get somewhat convoluted. The Act goes on to confuse the issue of skill in stating that betting includes the purchase of an “opportunity” to win a lottery that is subject predominately to chance. That having been said, one may find a way to create an opportunity or a strategy to win a lottery in which the opportunity is subject to some chance so, in a sense, there is enough strategy that can be employed in lottery strategy for it to be considered legal. At the same time, lotteries based on sporting events are expressly prohibited by the Act.

The definition of betting is also extended to include instruction or information which essentially eliminates the argument presented by many overseas online poker room operators that the money is already located in a foreign country so that no bet actually takes place in the US.

The UIGEA takes exception to a number of activities that many would consider gambling; however, according to law, are declared as otherwise. These activities include the purchase or sale of securities and commodities commonly traded in the various stock exchanges as well as foreign exchange.

Games in which there is no money involved are not considered gambling; however, there is a special provision that grants online sites to offer points or credits to players as a reward for winning only as long as the points or credits are redeemed only for more games. Online operators of free to enter games that offer prizes of value may no longer payout in points that can be exchanged for cash prizes. The exception to this is free bingo which may still pay out nominal cash prizes which must be paid out from their advertising budget.

Fantasy sports leagues are legal. They are; however, subject to restrictions. A fantasy team may not reflect the current roster of an actual team. That is to say that a fantasy team must be made up of players that are, in reality, members of different teams. The UIGEA puts no limit on the cost of entering a fantasy sports league; however, the prizes must be announced in advance of registration and cannot have any basis in the entry fees collected.

The term “designated payment system” covers any financial structure used by an individual in money transfers that the federal government believes could be utilized in the business of illegal gambling.

The term “interactive computer service” is meant to include Internet service providers.

The term “restricted transaction” is meant to include any transmission of money in connection with illicit online gambling.

The term “unlawful Internet gambling” is defined as the reception or transmission of a wager that is illegal as defined by state, federal or tribal law. The UIGEA is to consider where the illegal wager is made or received and to ignore any intermediary computers.

The UIGEA does not completely address the issue of online poker, or online casinos for that matter. It does not expand the influence of the Wire Act, the federal statute that the Department of Justice (DOJ) bases their argument against online gambling. While the DOJ has taken the stance that all online gambling comes under the umbrella of influence of the Wire Act, courts have in fact ruled that it’s influence is limited to cover only bets on sporting events and races. There are similar discrepancies in the various state statutes related to gambling including the fact they do not necessarily apply in the event that part of the activity in question occurred outside of the US.

Section 5363
Section 5363 states that no one involved in the business of betting may accept, knowingly, any cash transaction from any persons involved in illicit online gambling. The cash transactions include transfers from paper checks or any type of electronic transfer including credit cards and cash transfers. The section limits itself to include only the online gambling companies and not the players. Just as it does not include players, it does not include any payment processers. That having been said, it may in fact include payment processors under the theory of aiding and abetting.

Section 5364
Section 5364 states that federal regulators must create a system of regulations that identify and stop any financial transactions to online gambling sites within 270 days of the signing of the bill.

The said regulations are to require any body with a relationship with a “designated payment system” to identify and prevent any restricted transactions from taking place. The UIGEA permits the federal government to exempt any transactions from restrictions in the event that it is impractical to identify and block. This would apply to paper checks as banks have no system in place to identify and mark the payee and banks were very must against the passing of the UIGEA as it would cost billions of dollars in order to set up such a system.

Four years on, federal regulators have yet to present an organized system of regulations and not a whole lot has been done in the way of enforcement of the UIGEA. There have been a number of cases where transfers from online poker rooms to players have been stopped; however, the online poker rooms have always made good on money rightfully requested from their players. The federal government has yet to take any legal action against any U.S. or foreign bank, credit card or electronic money transfer company.

Section 5365
The truth of the matter is that there is absolutely no way to for federal regulators to enforce regulations on foreign payment processors. Section 5365 allows federal and state attorneys general to take civil action against foreign payment processers. Federal and state courts have the power to issue injunctions, both preliminary and permanent, and to issue temporary restraining orders in an effort to prevent any restricted transactions. This is all fine and good; however, it still leaves federal and state bodies impotent in the enforcement of any regulation against a payment processor whose entire business is located outside the borders and reach of the U.S. government.

The UIGEA also allows for a limited number of civil remedies against Internet service providers. It is possible that internet service providers could be forced to remove sites and block links to sites involved in the transmission of funds to illicit online gambling sites. While internet service providers are under absolutely no legal obligation to monitor their patrons, they are required to take action upon receiving notice of a particular site by a federal or state attorney general. Again, there is difficulty in enforcing any such action in the case of a foreign internet service provider.

Search engines also appear to be effected in a very limited sense by the UIGEA. In the example of Google, they do not take paid ads; however, links to illicit gambling sites can be found on their search engine. The UIGEA allows a court to order Google to remove a link to a site that is in violation of the prohibition of money transfers to illegal online gambling sites. This; however, has yet to occur.

Section 5365 ends with a statement that makes absolutely no sense:

“Notwithstanding any other provision of this section, and subject to section 5367, no provision of this subchapter shall be construed as authorizing the Attorney General of the United States, or the attorney general (or other appropriate State official) of any State to institute proceedings to prevent or restrain a restricted transaction against any financial transaction provider, to the extent that the person is acting as a financial transaction provider."

It would appear that the UIGEA was not only rushed through Congress at the last minute before Congress was recessed for elections but was rushed through the word processor as well. This segment of section 365 is undecipherable in its totality and there is no reason to even attempt to figure out what the author meant to say.

Section 5366
Section 5366 addresses the possible criminal penalties for persons in violation of the UIEGA; up to five years incarceration, a fine and barring from any involvement in gambling.

Section 5367 simply states the obvious, that any internet service provider or financial institution would be liable if they themselves operated an illegal gambling site.

The UIGEA finally closes with a request that the executive branch of the US government do it’s best to have other nations enforce the new law and join the US in examining the possibility that online gambling is being utilized as a tool by organized crime. The Secretary of the Treasury is required to update Congress annually as to the progress on any agreements or deliberations between the US government and foreign government related to the issue of online gambling.

Currently, there are over 2.5 million Americans making over $30 billion in bets annually online. Most credit card companies and financial institutions continue to maintain relationships with online poker rooms. In terms of the significance of the UIGEA, it would appear that as long as one is not running an online gambling site themselves, it just does not seem to be all that significant.

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