I wanted to share the results of the research that I have done on the Unlawful Internet Enforcement Act of 2006 since its passage in the US Congress this past weekend. The key to this legislation which most people fail to grasp, is that nowhere in this bill are penalties defined for gamblers or bookmakers nor has internet gambling been made a crime by the Act.
To summarize what was passed, this bill is designed to prevent the use of payment instruments (credit cards, fund transfers, etc.) for certain forms of online gambling that are defined as ?unlawful Internet gambling.? The bill requires financial institutions to identify and block payments related to so-called unlawful Internet gambling transactions. If there is a violation, the government may file a lawsuit (known as an injunction) to prevent or restrain the violation but gamblers and bookmakers are not going to be arrested because the Act does not make it a crime to place or receive wagers.
The bill provides a special exemption for three types of Internet gambling: (1) horse racing under the Interstate Horseracing Act (IHA), so OTBs and account wagering systems can remain in business, (2) Indian gambling that takes place on a reservation or between two reservations; and (3) Internet gambling that occurs solely within a state?s own borders, referred to as Intra-state gambling.
The Act directs the Federal Reserve and the Department of the Treasury to "develop regulations that would direct financial institutions to identify and block certain types of financial transactions connected with unlawful Internet gambling." This is to be done within a period of 270 days (nine months) from the time the Act is signed into law and will only happen after serious discussions with the powerful banking sector has voiced strong opposition to provisions that require banks to block electronic funds transfers or e-check payments to online gambling sites. These provisions are essentially broad and unenforceable, the banks claim; moreover, even if it were possible to surmount technical obstacles, prospective gamblers could easily use alternative means to finance such transactions. The Federal Reserve has been given a very difficult task by Congress and one that they are not too thrilled about as their relationship with the banking industry is a very close one. The banks feel that the burden being placed on them is unfair and unenforceable.
How will banks possibly be able to monitor every account in the country to ensure that transfers are not being made to gambling sites? If you think this will be an easy task I suggest that you walk into your bank this afternoon and withdraw a substantial sum of money like say, $10,000.00. It will be nearly half an hour before the teller is able to check and double check your account, consults with a supervisor, check for pending transactions, get supervisor approval, go to the vault to get the cash and then finally count it out twice before counting it out again in front of you.
Now, tell me again how the banks are going to monitor every account in America? Even if they were somehow able to accomplish this, the offshore books are smart enough to adjust and have deposits sent to a bank account rather than to a site that is identified as a gambling portal.
Although we see that a few shortsighted offshore gaming sites are bailing out on their US customers, most of these are publicly traded companies and their board of directors has a duty to protect the stockholders investments. Shares of PartyGaming Plc, Sportingbet Plc and 888 Holdings Plc plummeted, wiping out $7 billion of market value, after this weekend?s developments. This is clearly an overreaction from investors based primarily on the public perception that this is the end of online gambling in America. That is simply not the reality of the situation, at least not in the near future. American gamblers will still find a way to pay their online bets. That's because despite the new law, the majority of the more than 2,000 offshore online gambling companies will continue to take bets from the United States. The smaller companies who are not publicly traded will continue to operate as they are outside of US Jurisdiction and have nothing to lose and a lot to gain if the larger, public companies refuse to do business with US residents.
There exists a strong possibility that some countries such as Gibraltar and Antigua may be considering legal action against the United States for the tremendously damaging effect that this Act will have on their economies. Major online payment processors such as NeTeller have already indicated that they plan on joining in on any pending litigation that might materialize as a result of this bill. A third party risk meeting is slated this coming Thursday in London.
On another note anyone who believes that this is in some way the beginning of legalized online gambling in America has been listening to a snake oil salesman and probably sampling their product as well. Strong support for the online gambling industry has come from a one-time foe, Las Vegas.The Vegas casino industry has developed a unique synergy with what was once considered their nemesis, thanks in part to the World Series of Poker. The WSOP attracts hundreds of thousands of people to Las Vegas during the months of July and August, fueled almost exclusively by internet poker rooms that sponsor the event.
Gambling on the Internet has become a $12 billion a year business and this new legislation lacks the teeth to even put a dent in that kind of revenue. NeTeller has already come out this morning with a statement addressing the situation:
"It is currently unclear how NETELLER, a European company, with no assets, presence or employees in the US, would be affected by this bill. Once the regulations have been written, NETELLER will have a clearer view of which companies are affected, how those companies will be expected to comply, and any possible resulting impact on NETELLER and its US facing business. NETELLER continues to operate its business as normal.?
What does that tell you?
LINK to Unlawful Internet Enforcement Act of 2006 (beginning on page 213)
To summarize what was passed, this bill is designed to prevent the use of payment instruments (credit cards, fund transfers, etc.) for certain forms of online gambling that are defined as ?unlawful Internet gambling.? The bill requires financial institutions to identify and block payments related to so-called unlawful Internet gambling transactions. If there is a violation, the government may file a lawsuit (known as an injunction) to prevent or restrain the violation but gamblers and bookmakers are not going to be arrested because the Act does not make it a crime to place or receive wagers.
The bill provides a special exemption for three types of Internet gambling: (1) horse racing under the Interstate Horseracing Act (IHA), so OTBs and account wagering systems can remain in business, (2) Indian gambling that takes place on a reservation or between two reservations; and (3) Internet gambling that occurs solely within a state?s own borders, referred to as Intra-state gambling.
The Act directs the Federal Reserve and the Department of the Treasury to "develop regulations that would direct financial institutions to identify and block certain types of financial transactions connected with unlawful Internet gambling." This is to be done within a period of 270 days (nine months) from the time the Act is signed into law and will only happen after serious discussions with the powerful banking sector has voiced strong opposition to provisions that require banks to block electronic funds transfers or e-check payments to online gambling sites. These provisions are essentially broad and unenforceable, the banks claim; moreover, even if it were possible to surmount technical obstacles, prospective gamblers could easily use alternative means to finance such transactions. The Federal Reserve has been given a very difficult task by Congress and one that they are not too thrilled about as their relationship with the banking industry is a very close one. The banks feel that the burden being placed on them is unfair and unenforceable.
How will banks possibly be able to monitor every account in the country to ensure that transfers are not being made to gambling sites? If you think this will be an easy task I suggest that you walk into your bank this afternoon and withdraw a substantial sum of money like say, $10,000.00. It will be nearly half an hour before the teller is able to check and double check your account, consults with a supervisor, check for pending transactions, get supervisor approval, go to the vault to get the cash and then finally count it out twice before counting it out again in front of you.
Now, tell me again how the banks are going to monitor every account in America? Even if they were somehow able to accomplish this, the offshore books are smart enough to adjust and have deposits sent to a bank account rather than to a site that is identified as a gambling portal.
Although we see that a few shortsighted offshore gaming sites are bailing out on their US customers, most of these are publicly traded companies and their board of directors has a duty to protect the stockholders investments. Shares of PartyGaming Plc, Sportingbet Plc and 888 Holdings Plc plummeted, wiping out $7 billion of market value, after this weekend?s developments. This is clearly an overreaction from investors based primarily on the public perception that this is the end of online gambling in America. That is simply not the reality of the situation, at least not in the near future. American gamblers will still find a way to pay their online bets. That's because despite the new law, the majority of the more than 2,000 offshore online gambling companies will continue to take bets from the United States. The smaller companies who are not publicly traded will continue to operate as they are outside of US Jurisdiction and have nothing to lose and a lot to gain if the larger, public companies refuse to do business with US residents.
There exists a strong possibility that some countries such as Gibraltar and Antigua may be considering legal action against the United States for the tremendously damaging effect that this Act will have on their economies. Major online payment processors such as NeTeller have already indicated that they plan on joining in on any pending litigation that might materialize as a result of this bill. A third party risk meeting is slated this coming Thursday in London.
On another note anyone who believes that this is in some way the beginning of legalized online gambling in America has been listening to a snake oil salesman and probably sampling their product as well. Strong support for the online gambling industry has come from a one-time foe, Las Vegas.The Vegas casino industry has developed a unique synergy with what was once considered their nemesis, thanks in part to the World Series of Poker. The WSOP attracts hundreds of thousands of people to Las Vegas during the months of July and August, fueled almost exclusively by internet poker rooms that sponsor the event.
Gambling on the Internet has become a $12 billion a year business and this new legislation lacks the teeth to even put a dent in that kind of revenue. NeTeller has already come out this morning with a statement addressing the situation:
"It is currently unclear how NETELLER, a European company, with no assets, presence or employees in the US, would be affected by this bill. Once the regulations have been written, NETELLER will have a clearer view of which companies are affected, how those companies will be expected to comply, and any possible resulting impact on NETELLER and its US facing business. NETELLER continues to operate its business as normal.?
What does that tell you?
LINK to Unlawful Internet Enforcement Act of 2006 (beginning on page 213)
