Implementing the UIGEA

It’s been nearly two years since the Unlawful Internet Gambling Enforcement Act snuck its way through Congress as a rider on a port security bill. The UIGEA criminalized not the gambling itself but the facilitation of financial transactions for the purpose of gambling online. In other words, you could play, but banks and other financial institutions were not supposed to help you put money online to play with.

The immediate consequences were disastrous: numerous poker sites, including industry giant Party Poker, stopped accepting American business and saw their stock prices plummet. Third party “e-wallets” also closed their doors to American customers, and in the case of Neteller huge sums of money were stuck in limbo for months. Games grew scarcer and tougher, though frankly not to the extent that I feared they would.

That was a dark time for internet poker, but not much has happened since. Federal agencies and US banks locked horns over who would bear the responsibility for identifying transactions intended for unlawful internet gaming. Though a shot over the bow that scared many major players out of the US market, the UIGEA has been without teeth or content since its passage. The games aren’t as good as they were in the “Golden Age” but plenty of us are still making plenty of money.

Yesterday, however, the Treasury Department finally announced its rules for implementing the UIGEA. Like the bill’s original passage, the rules come into being via a relatively underhanded political maneuver. They are among the many “midnight” regulations that the Bush administration will sneak under the wire before Obama takes office on January 20, 2009.

The new president will of course be free to reverse Bush’s last-ditch orders and regulations, and I certainly hope that Obama will do so in this case, but inertia is a powerful force in US politics. Bush has the tremendous advantage of no longer facing re-election and thus accountability for his actions and decisions. What really needs to happen is for some enterprising politician to discover how much money could be made in tough economic times by legalizing, regulating, and taxing internet gaming. Howard Lederer is optimistic about the prospects for this in an Obama administration, but I’m not holding my breath.

Still, I was glad to come across a very reassuring analysis from prominent gaming law scholar I. Nelson Rose, who concludes that

the federal regulators charged with making regulations to enforce the Unlawful Internet Gambling Enforcement Act (“UIGEA”) simply gave up. They were supposed to make rules forcing financial institutions to identify and block money transfers for unlawful Internet gambling transactions. But they were defeated by the difficulty of defining what was unlawful and the impossibility of tracking individual transactions. So they told credit card companies to come up with some additional code numbers for gambling transactions and everyone else can basically continue to do what they are now doing – oh, and financial institutions have to send a notice to all their clients telling them not to be involved in illegal gambling.

If he’s right, it sounds like this new pronouncement should have very little effect on the current state of internet poker. In any event, financial institutions will still have until December 2009 to put their procedures into place. So I will postpone panicking for a while at least.