The Unlawful Internet Gambling Enforcement Act Law of 2006

US Law IconThe UIGEA is a Federal law which, through its implication, changed the landscape of online gambling in the US and affected internet gambling around the world. The Act was the most publicly debated legislation at its time by players in the US and operators worldwide. The Unlawful Internet Gambling Enforcement Act was considered extremely controversial because anti-gambling lawmakers snuck in a bill intended to put an end to online gambling and let it ride on a completely unrelated must-pass bill, various newspapers easily criticized the US Federal Government for the way they passed this Act into law. It is important for players to understand how various countries regulate their gambling laws.

History of UIGEA

Understanding the creation of this Act and how it was allowed and passed will provide a better perspective on various other US gambling laws. The UIGEA originally began as the Internet Gambling Prohibition and Gambling Enforcement Act also known as HR 4411 and was introduced by Iowa Rep. Jim Leach on November 18th, 2005. HR 4411 would change several definitions stated by the Federal Wire Act of 1961 to further expand unlawful “communication facility” usage which in the 1960’s meant landline telephones and telegraphs to explicitly include mobile and wire networks, i.e. the internet.

HR 4411 would have also redefined a “bet” as any game subject to chance which would be inclusive of lotteries. Before its final go through the House of Representatives, Nevada Rep. Shelley Berkley attempted to amend HR 4411 to include games under skill exemptions as stated by state gambling laws under the bill’s definition of banned online games. However, her amendment failed. HR 411 passed the US House of Representatives on July 11th, 2006.

While HR 4411 passed the House, it stalled in the US Senate and was unable to gain back its momentum. It was at this time that Senate Majority leader Bill Frist began showing his support for the anti-gambling bill and helped it along by toning down the current bill, renaming it, and attaching it to no-fail legislation pending to be passed. Therefore, the Unlawful Internet Gambling Enforcement Act was crafted and attached under Title VII to a funding bill to counter terrorism called the Security and Accountability For Every Port Act of 2006, also known as the SAFE Port Act on May 4th. The SAFE Port Act passed Congress with a nearly unanimous vote on September 14th and was officially signed into law by President George W. Bush on October 13th.

What Is The Unlawful Internet Gambling Enforcement Act?

Its name has often led to misconceptions on whether online gambling is legal for US players. While its name caused deep damage to the industry, the bill had no teeth, to begin with as the UIGEA was simply a banking restriction and regulation law and nothing more. The UIGEA had built a myth around the ill reputation of online gambling as a strictly illegal platform for online users.

Since the mid-1990’s, various anti-gambling lawmakers in the Federal Government have tried to ban online gambling, yet their bills failed every time. However, the opportunity came when legislators began writing the SAFE Port Act intended to secure ports in the United States from terrorism. Anti-gambling legislators were hoping that by sneaking the UIGEA into the SAFE Port Act the law would permanently end online gambling.

TheUnlawful Internet Gambling Enforcement Act does not target player activity online but rather the law focuses on Internet gambling operators and payment service providers. The law’s language allowed for the placement of payment processing regulations to curb fraud, money-laundering, and other illegal financial crimes committed through unsanctioned online gambling activities. The law was written so that gambling businesses could not knowingly accept betting or wagering payments online through and to unlawful means and portals under federal or state gambling laws. This law was mainly used to prosecute online gambling payment processors as nowhere in the UIGEA did it state the prohibition of access to legal online gambling sites for US players.  In essence, the law provides regulatory oversight regarding how online gambling transactions can or cannot be processed.

What Exactly Does the UIGEA Regulate?

Tasked to jointly develop and prescribe regulations for payment systems in regard to identifying and blocking, or otherwise preventing the acceptance of payments in internet gambling transactions, the Treasury Department and Federal Reserve Board intended to maintain consumer protection during a period where internet laws were grey and unwritten. The UIGEA law was fueled by the controversial findings from the National Gambling Impact Study Commission whose findings asserted that online gambling was a growing problem for banks and credit card companies.

There are conflicting definitions and aspects of regulation concerning the UIGEA as several organizations disagree with exactly what authority the UIGEA has and can regulate as contended by the US Treasury Department, the Federal Trade Commission, and the American Bankers Association. The Treasury Department states that the Unlawful Internet Gambling Enforcement Act is a “law [which] prohibits gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the internet and is unlawful under any federal and state law”, which dictated regulations on how online gambling transactions could be processed.

The Federal Trade Commission classifies the Act as one which “prohibits any person engaged in the business of betting from knowingly accepting credit, electronic fund transfers, checks, and any other payment involving a financial institution to settle unlawful internet gambling debts”, which implies a different tone and a wider scale of unacceptable forms of online gambling payments toward settling unlawful online gambling debt.

The American Bankers Association defines the UIGEA’s regulations to include powers to “require strengthened screening process[es] during the time of account [creation or] opening to [in order to effectively] deny commercial entities [whom] may be acting as [an] internet casinos access to payment systems. [While] also requires policies and procedures to be implemented to prevent all debit and credit card payments to internet casinos. [the UIGEA] does not require that checks, ACH payments, or wire transfers related to internet gambling be monitored or blocked”, which is in contradiction to FTC’s definition of the UIGEA’s regulatory power.

Who Is Exempt from the UIGEA?

Several forms of gambling entertainment were exempt from the effects of the Act in which online payment processing for such forms was not affected. Of the forms of gambling entertainment not specifically addressed as restricted by the UIGEA, fantasy sports betting online was allowed to continue, as well as, legal intrastate and intertribal gambling, online state lotteries sales, and interstate betting on horse races. However, the law did state it could change any other laws – specifically tribal gaming laws.

International Cases Concerning the Unlawful Internet Gambling Enforcement Act

In January of 2007, the Unlawful Internet Gambling Enforcement Act came into question by the World Trade Organization. At the time, the United States and Antigua began a dispute over the legality of Antigua online gambling sites offering services to US players. The WTO stated that the United States’ enforcement of the UIGEA over Antiqua and any other country would be in violation of full market access treaty obligations. To this, the US lost their case against Antiqua on March 30th, 2007 which led to a number of countries filing suits for compensation. Antigua asked for compensation of over $3 billion and requested to ignore US copyright laws. The same request was made by the EU through the accusation of US protectionism. Claims were then settled through granting concessions which were kept secret for national security reasons.

The Effect of UIGEA Upon Passing

Some saw the UIGEA as a way to establish a framework for prosecuting unregulated online gambling sites through regulating online payments, however, this made the UIGEA synonymous with a symbol against online gambling for the longest time. Many online operators and their payment processors pulled themselves out of the US market upon word of this legislation becoming law and chose to no longer provide online gaming services to US players. Multiple publicly traded companies dropped US players as to not risk compliance issues and violations, and therefore, pass on those risks to stock investors.

Several gambling relevant software companies and online gambling sites such as Cryptologic, iPoker, Playtech, Ongame, Entraction, Boss Media, Party Poker, PKR, Lucky 31, Paradise Poker, Sport Bet, BetCris, the Greek, Pinnacle Sports, and 888 quickly pulled their US player offerings. The first states to feel the effect of the UIGEA were the US states of Illinois, Indiana, Louisiana, Michigan, Nevada, New Jersey, New York, Oregon, South Dakota, Washington, and Wisconsin. However, online gambling operators who continued to serve US players outside of these states experienced difficulties continuing to service them due to issues with payment processing.

Shortly after that, nearly all online gambling site operators exited from the US gaming market. Some saw this exit as an opportunity to run away with player deposits such as Jet Set Poker who permanently closed their website down at midnight on the eve of President Bush’s signing of the SAFE Port Act. Jet Set Poker gave players a 5-minute notice at 11:55 pm and did not pay out a dime to players. Although it was a minor poker site who usually dealt with free rollers and penny players, they managed to obtain massive deposits during peak hours for big games.

The US accounted for half of the world’s online poker traffic before the enactment of the UIGEA and upon its signing, multiple sites began denying US player access which significantly cut off traffic to player pools. US credit cards and banks began immediately rejecting all transactions in relation to online gambling which further hurt the US gaming industry. The selection and choices were therefore thinned for US players; however, the market has since stabilized due to online payment solutions and a healthy selection of legal offshore online casinos. The enactment of the Unlawful Internet Gambling Enforcement Act did allow for positive effects for online gambling such as creating safer gambling environments, flushing away seedy sites, and creating more reliable payment methods such as the use of reloadable gift cards, using western union, etc.

FAQ’s

Does The UIGEA Make Online Gambling Illegal In The US?

No, the UIGEA is strictly a banking regulation law for online gambling. The UIGEA does not illegalize online gambling, whether domestic or foreign, as the Act only effects how online gambling payments are processed by U.S. banks and financial institutions. Therefore, USA players may participate in online gambling hosted by a licensed offshore site.

Does The UIGEA Impact Legal Brick And Mortar Gambling?

No, the UIGEA was intended to disrupt online payment processes to online gambling sites. Nowhere in the UIGEA does the Act’s language affect brick and mortar gambling businesses. The only real impact the Unlawful Internet Gambling Enforcement Act had on brick and mortar casinos was perhaps due to various misconceptions caused by the name of the bill which in turn created an overall online gambling withdrawal from the US market which could have led more U.S. players to turn to brick and mortar gambling businesses as an alternative to online gambling.

Can US Gamblers Violate the UIGEA?

The answer is no. The UIGEA only targets online payment processors, U.S. banks, credit companies, and online gambling site operators. Nowhere in the UIGEA does it mention any penalties for U.S. gamblers.

Will I Get In Legal Trouble For Using My Credit Card To Gamble Online?

No, there is no law on the books which detail punishments for U.S. players who attempt to use credit cards to gamble. Oftentimes, the only negative impact from doing a thing is that the player’s bank may decline or block the transaction from going through. In which case, the bank may simply call the account holder to verify their identity in case of suspected fraud or suspicious activity. There are other online casino deposit methods we discuss that circumvent this lengthy and dysfunctional process.