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Federal Poker Legislation

On September 30, 2006, the Unlawful Internet Gambling Enforcement Act (UIGEA) received a final vote of passage in the U.S. Senate and soon after was signed into law by President George W. Bush.  This was the culmination of over a decade of attempts, lead by Senator John Kyl [R-AZ], Senator Bill Frist [R-TN], Congressman Jim Leach [R-Iowa] and Congressman Robert Goodlatte [R-VA], backed by the Religious Right, to make Internet gambling, and Internet poker, unlawful under U.S. federal law.

This final version of the UIGEA had received a passing vote in the House of Representatives by a large majority, but was not expected to be brought for a vote in the Senate.  However, Frist, then-majority leader in the Senate, had aspirations to run for the presidency in 2008.  Leach promised to deliver the Iowa caucuses to Frist if he found a way to get the bill passed in the Senate.  Frist accomplished this by attaching it, without being brought before any committee for debate, to the must-pass SAFE Port Act, voted on a midnight on September 30, 2006, the last day of the Senate session before the November mid-term Congressional elections. This eventually backfired on Frist when, largely as a backlash by poker players at the voting polls, Leach, along with other right-leaning Republicans, failed to win re-election to his Congressional seat, thereby squashing Frist's chances at a presidential bid. 

Compliance with the UIGEA  
(see also The UIGEA FAQ)

The UIGEA makes it illegal for any person or enterprises in the business of Internet gambling to accept money transfers for the purpose of "unlawful Internet gambling".  Although the UIGEA and the related Treasury regulations do not actually make any Internet gambling illegal, they do give the U.S. Department of Justice additional tools to seize funds and indict companies related to Internet gambling and Internet poker.    

According to the published information about compliance with the UIGEA from the Amercian Banker's Association:

Recognizing that it would not be practical to require banks from blocking payments they could not identify as unlawful, the final rule focuses on preventing unlawful Internet gambling businesses from benefitting from the payment system by denying them the opportunity to open bank accounts from which to receive payments. This indirect approach of requiring additional screening of commercial customers posing a risk of acting as unlawful Internet gambling businesses from opening bank accounts meets the UIGEA’s requirements according to the regulation’s drafters. Financial institutions that have the direct customer relationship with commercial account holders bear the responsibility of introducing them into the payments systems.

With the exception of credit and debit card transactions, the final rule does not require policies and procedures specifically for blocking payment transactions. The final rule also mandates disclosures be made to commercial customers regarding the UIGEA’s restrictions.

It is also very important to understand what the final rule does not require. Banks are not required to monitor payments in or out of their bank to determine if they are financing lawful or unlawful Internet wagers. Banks are not required to re-investigate the business models of existing commercial customers to assess their likelihood of accepting online wagers. Banks are not required to have written policies and procedures to block ACH, check, or wire payments related to Internet gambling. Banks are not required to allow payments for “lawful” gambling transactions, but can block or “over block” all transactions related to gambling if they choose, without additional liability. 

Here is the essence of what banks are required to do to comply with the UIGEA:

* adopt a UIGEA compliance policy,
* develop a due diligence process at account opening to determine whether a commercial customer presents anything more than a minimal risk of engaging in Internet gambling,
* provide notice to existing commercial customers,
* obtain any necessary notice of compliance from a designated payment system (cards), and
* develop procedures (by payment system) for responding when your bank becomes aware of restricted transactions. 

According to the UIGEA regulations, transactions by check, ACH and bank wire, and especially any that are withdrawals from the poker sites to players, should be unaffected by the UIGEA.  Overall, the direct effect of the December 1st deadline should have minimal impact on players. The main difficulties will be for the sites to be able to maintain banking relationships with finanical institutions and the much greater risk for the sites of DOJ interference (seizures and indictments) with their operations. This will in time translate to more difficult transactions for the players. Also, the media coverage which will surround the implementation date and any subsequent DOJ actions will further squash the interest of casual players to open or maintain any online poker accounts. 

Licensing and Regulation

There are currently bills before the U.S. Congress to license, regulate and tax Internet gambling and Internet poker.  These are:

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H.R. 2267, The Internet Gambling Regulation, Consumer Protection and Enforcement Act (Barney Frank bill)

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H.R. 2268: Internet Gambling Regulation and Tax Enforcement Act of 2009 (McDermott bill)

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S.1597: Internet Poker and Game of Skill Regulation, Consumer Protection, and Enforcement Act of 2009 (Menendez bill)

For Internet poker, the best bill is the Menendez bill, and is discussed in some detail here.  This bill also contains the best general language for regulation of Internet gambling and is likely to be used as the model for any final bill that emerges from Congress.  The passage of federal licensing and regulation of Internet poker would make any licensed Internet poker site clearly legal in the U.S. and therefore not subject to the provisions of the UIGEA.

A History of Federal Gambling Legislation

1961: Wire Act – passed into law. From the act: "Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both." DoJ claims this act bans all interstate wagering via wire communication. U.S. Fifth Circuit Court of Appeals disagrees in 2001 [In re MasterCard Int'l, et al., 132 F. Supp. 2d 468, 472 (E.D. La. 2001)], limiting it to sports betting. DoJ does not accept the ruling.

1986: William E. Baxter Jr. v. United States. This was a federal tax case regarding the U.S. federal income tax treatment of the gambling income of a professional gambler. As a result of this case, gambling winnings in the United States can in certain cases be treated as earned income for federal income tax purposes. This means that in some cases expenses and losses can be deducted from gambling winnings in arriving at the net earnings from self-employment, and that winnings can be placed into retirement funds.

1995: S 1495 - failed (no vote, 2 cosponsors). Sen. Jon Kyl (R-AZ) sponsored the Crime Prevention Act of 1995. The bill included an amendment to the Wire Act to include non-sports betting.

1996: HR 497 - passed into law (143 cosponsors, passed House and Senate by voice votes). The National Gambling Impact Study Commission Act includes a the study of Internet gambling. James Dobson of Focus on the Family selected to serve on commission.

1997: S 972 – failed (no vote, 3 cosponsors). This bill sought to eliminate the federal tax deduction for gambling losses. [Not an online poker issue, but of interest]

1997: S 474 - passed Senate (13 cosponsors; Senate voted 90-10 to add to appropriations bill; no House vote). Another Jon Kyl bill to ban online gaming. Applies to games of chance and sports betting. Called for ISPs to block access to gaming sites. Includes a player penalty (fine and jail time).

1997: HR 2380 - failed (49 cosponsors). Rep. Goodlatte's (R-VA) first bill to ban online gaming. Includes predominance test. Called for ISPs to block access to gaming sites. Includes a player penalty (fine and jail time).

1998: H.AMDT.858 - failed (withdrawn, no cosponsors). This bill sought to amend an unrelated appropriations bill with an Internet gaming ban.

1998: HR 4427 - failed (3 cosponsors). This bill sought to ban Internet gaming. Includes predominance test. Called for ISPs to block access to gaming sites. No player penalty.

1998: HR 4350 - failed (5 cosponsors). This bill sought to ban Internet gaming. Applies to games of chance and sports betting. Called for ISPs to block access to gaming sites. Includes a player penalty (fine and jail time).

1999: S 692 - passed Senate (23 cosponsors; passed by unanimous consent; no House vote). Another Jon Kyl bill to ban online gaming. Applies to games of chance and sports betting. Called for ISPs to block access to gaming sites. No player penalty.

1999: HR 3125 - failed (34 cosponsors; full House vote: 245-159 for, short of 2/3 required under special rules). Another Goodlatte bill. Includes predominance test. Called for ISPs to block access to gaming sites. No player penalty.

2000: GOP Party Platform Anti-Online Gaming Plank. Anti-online gaming plank included in party platform: "We support legislation prohibiting gambling on the Internet."

2000: HR 5020 - failed (1 cosponsor). This bill sought to ban Internet gaming. Applies to "any contest or game based in whole or in part on chance, including a lottery." No player penalty.

2000: HR 4419 - failed (4 cosponsors). Rep. Jim Leach's (R-IA) first bill to ban online gaming. Sought to prohibit online gaming. Enforcement via blocking use of financial instruments for "unlawful Internet gaming." Includes predominance test. No player penalty.

2001: U.S. Fifth Circuit Court of Appeals [In re MasterCard Int'l, et al., 132 F. Supp. 2d 468, 472 (E.D. La. 2001)] rules that Wire Act is limited to sports betting. DoJ does not accept the ruling.

2001: U.S. Second Circuit Court of Appeals [United States v. Cohen] rules that the Wire Act includes Internet and other means of interstate communication. Jay Cohen continues to advocate for online rights here and across the Web.

2001: HR 2579 - combined with HR 556 (0 cosponsors). Sought to prohibit online gaming. Enforcement via blocking use of financial instruments for "unlawful Internet gambling." Includes predominance test. No player penalty.

2001: HR 556 - passed House (7 cosponsors; passed House via voice vote; no Senate vote). Another Leach bill to ban online gaming. Enforcement via blocking use of financial instruments for "unlawful Internet gambling." Includes predominance test. No player penalty.

2002: S 3006 - failed (0 cosponsors). This bill sought to ban Internet gaming. Applies to "any contest or game based in whole or in part on chance, including a lottery." No player penalty.

2002: HR 5760 - failed (0 cosponsors). This bill, sponsored by Rep. John Conyers (D-MI) sought to study Internet gaming.

2003: S 627 - failed (2 cosponsors). Another Kyl bill to ban online gaming. Enforcement via blocking use of financial instruments for "unlawful Internet gambling." Includes predominance test. No player penalty.

2003: HR 2143 - passed House (2 cosponsors; passed 319-104; no Senate vote). A Spencer Bachus (R-AL) bill to prohibit financial transaction on "unlawful Internet gambling." It did not contain its own prohibitions on gaming, instead relying on other federal and state laws. No predominance test. No player penalty. Very similar to UIGEA.

2003: HR 1223 - failed (3 cosponsors). Another John Conyers' (D-MI) bill to study Internet gaming.

2003: HR 21 - failed (35 cosponsors). A Leach bill to prohibit financial transaction on "unlawful Internet gambling." It did not contain its own prohibitions on gaming, instead relying on other federal and state laws. No predominance test. No player penalty. Very similar to UIGEA.

2004: GOP Party Platform Anti-Online Gaming Plank. Anti-online gaming plank included in party platform (p. 57): "We support legislation prohibiting gambling on the Internet."

2006: HR 4777 - failed (135 cosponsors). A Goodlatte bill to ban online gaming. Enforcement via blocking use of financial instruments for "unlawful Internet gambling." Includes predominance test. No player penalty.

2006: HR 4411 - passed into law (35 cosponsors; passed the House in freestanding form 317-93; passed the Senate 98-0 as part of the Safe Ports Act; the House passed the Safe Ports Act 421-2). This Leach bill prohibits financial transaction on "unlawful Internet gambling." It does not contain its own prohibitions on gaming, instead relying on other federal and state laws. No predominance test. No player penalty. Modified into UIGEA in Senate after passing House.

 2007: H.R.2046 Died in committee. Sponsor: Rep Frank, Barney [MA-4] (introduced 4/26/2007) Cosponsors (48) To provide for the licensing of Internet gambling facilities. Included a state opt out.

2007: H.R.2140 Died in committee. Sponsor: Rep Berkley, Shelley [NV-1] (introduced 5/3/2007) Cosponsors (73) To provide for a study by the National Academy of Sciences to identify the proper response of the United States to the growth of Internet gambling.

2007: H.R.2607 Died in committee. Sponsor: Rep McDermott, Jim [WA-7] (introduced 6/7/2007) Cosponsors (1) To tax Internet gambling sites under H.R. 2046 at the rate of 2% on deposits.

2007: H.R.2610 Died in committee. Sponsor: Rep Wexler, Robert [FL-19] (introduced 6/7/2007) Cosponsors (22) To amend United States Code such that "bets or wagers" does not include games of skill, including poker. Added regulations for games of skill, but no licensing.

2007: Neteller Seizure. The U.S. Attorney's Office seized funds of ewallet Neteller. The funds remained in legal limbo for several months before finally being returned to players.

2008: GOP Party Platform Anti-Online Gaming Plank. Many poker players submitted comments to the GOP Party Platform site asking for removal of the anti-online gaming plank that was in the 2000 & 2004 party platforms. The draft committee did not include this plank in the initial 2008 platform. The full committee later restored it: "Millions of Americans suffer from problem or pathological gambling that can destroy families. We support the law prohibiting gambling over the Internet."

2008: H.R.5523 Died in committee. Sponsor: Rep McDermott, Jim [WA-7] (introduced 3/4/2008) Cosponsors (None) To tax Internet gambling sites under H.R. 2046 at the rate of 2% on deposits. Imposed the excise tax on wagers on any individual who places a wager with an unlicensed Internet gambling operator.

2008: H.R.6870 Died. Sponsor: Rep Frank, Barney [MA-4] (introduced 9/11/2008) Cosponsors (1) to ensure that the UIGEA would not be implemented, except in regards to online sports betting, until the term "unlawful Internet gambling" was defined.

2008: S.3616 Died in committee. Sponsor: Sen Menendez, Robert [NJ] (introduced 9/26/2008) Cosponsors (None) to provide for the licensing of Internet skill game facilities. Included state opt outs.

2009: H.R.2266 Pending. Sponsor: Rep Frank, Barney [MA-4] (introduced 5/6/2009) Cosponsors (49) To delay for 1 year the date for compliance with the UIGEA.

2009: H.R.2267 Pending. Sponsor: Rep Frank, Barney [MA-4] (introduced 5/6/2009) Cosponsors (61) To provide for the licensing of Internet gambling activities. Includes a state opt out.

2009: H.R.2268 Pending. Sponsor: Rep McDermott, Jim [WA-7] (introduced 5/6/2009) Cosponsors (4) To tax Internet gambling sites under H.R. 2267 at the rate of 2% on deposits. Includes a player penalty (50% penalty on deposits at unlicensed sites).

2009: S.1597 Pending. Sponsor: Sen Menendez, Robert [NJ] (introduced 8/6/2009) Cosponsors (None) to provide for the licensing of Internet poker and other games that are predominantly of skill. Includes a 10% tax on deposits and a state opt-out. Includes a player penalty (50% penalty on deposits at unlicensed sites).

2009: SDNY Fund Seizure - Pending. U.S. Attorney for the Southern District of New York ordered five banks to freeze a total of $30 million in payments owed to poker players from companies that process payments. The PPA filed an amicus brief in the civil case. However, the civil case was dismissed and combined with the criminal case against Account Services owner Douglas Rennick.

2009: U.S. Third Circuit Court of Appeals [Interactive Media Entertainment and Gaming Assoc., Inc. vs Atty. Gen. of the United States; Federal Trade Commissions; Federal Reserve System] upholds UIGEA. iMEGA to appeal to Supreme Court.

Provisions in the U.S. Code related to gaming:

TITLE 15--COMMERCE AND TRADE, CHAPTER 24--TRANSPORTATION OF GAMBLING DEVICES

TITLE 18--CRIMES AND CRIMINAL PROCEDURE, PART I--CRIMES, CHAPTER 50--GAMBLING (The Wire Act)

TITLE 18--CRIMES AND CRIMINAL PROCEDURE, PART I--CRIMES, CHAPTER 53--INDIANS, Sec. 1166. Gambling in Indian country

TITLE 18--CRIMES AND CRIMINAL PROCEDURE, PART I--CRIMES, CHAPTER 95--RACKETEERING, Sec. 1955. Prohibition of illegal gambling businesses (IGBA)

TITLE 28--JUDICIARY AND JUDICIAL PROCEDURE, PART VI--PARTICULAR PROCEEDINGS, CHAPTER 178--PROFESSIONAL AND AMATEUR SPORTS PROTECTION (PASPA)

TITLE 31--MONEY AND FINANCE, SUBTITLE IV--MONEY, CHAPTER 53--MONETARY TRANSACTIONS, SUBCHAPTER IV--PROHIBITION ON FUNDING OF UNLAWFUL INTERNET GAMBLING (UIGEA)

TITLE 49--TRANSPORTATION, SUBTITLE VII--AVIATION PROGRAMS, PART A--AIR COMMERCE AND SAFETY, subpart ii--economic regulation, CHAPTER 413--FOREIGN AIR TRANSPORTATION, Sec. 41311. Gambling restrictions

 

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