Banks, Processors Struggle with Proposed Regs for Web Gambling

Nearly 18 months after President Bush signed into law the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), regulators are still struggling to come up with rules to guide financial institutions and payment processors in blocking payments to online gaming sites. And if comments from the financial industry are any indicator, there's still a lot of work ahead. In comments filed between October and December with the U.S. Department of the Treasury and the Federal Reserve Board on proposed regulations for implementing UIGEA, many financial-industry players say the law is unworkable. “We believe that UIGEA will in the end catch more banks in a compliance trap and do greater damage to the competitiveness of the American payments system, than it will stop gambling enterprises from profiting on illegal wagering,” say Nedda Feddis, ABA senior federal counsel, and Richard R. Riese, director of the ABA Center for Regulatory Compliance. The ABA says that the law puts an “exceptional burden” on banks, noting that the UIGEA admits that even traditional law-enforcement mechanisms often are inadequate for enforcing gambling prohibitions or regulations on the Internet, especially where such gambling crosses state or national borders. “In other words, in the view of the drafters of the legislation, all the sophistication of the FBI, Secret Service, and other police computerized detection systems and investigative expertise devoted to fighting terrorism and financial crime are inadequate to the task of apprehending the unlawful gambling business or confiscating its revenue. ABA believes that punting this obligation to the participants in the U.S. payment system is an unprecedented delegation of government responsibility with no prospect of practical success in exchange for all the burden it imposes,” the ABA says. The Consumer Financial Service Committee of the State Bar of California echoes the ABA's concerns: “It is curious, and quite telling that the private sector is expected to perform the Herculean task that government is admittedly not qualified to handle.” One common complaint cited is the vague definition of unlawful Internet gambling. In its comment, Citibank N.A. says there is no workable guideline as to when unlawful Internet gambling activities occur. The proposed regulations state that a transaction is considered “unlawful” if it is “unlawful under any applicable Federal or State lawin which the bet or wager is initiated, received or otherwise made.” Says Citibank: “We need bright-line rules that can be applied to assist us in determining what activities are considered lawful.” MasterCard Worldwide and PayPal Inc. also objected to the proposal's requirement that payment systems take appropriate remedial action against online gaming sites that use their brands to “promote” restricted transactions. “Even if it were possible to locate a party to hold accountable for a trademark violation, it can be extremely costly to attempt to litigate or take other remedial action against such a party,” MasterCard says. “Any suggestion that MasterCard is expected to investigate and prosecute all Internet casinos' unauthorized use of its marks could divert enforcement resources from more pressing and fruitful enforcement strategies.”