US Government finally releases UIGEA implementation proposal

The controversial UIGEA has become practicable at last, as the Federal Reserve System and the US Department of the Treasury jointly released a belated and much-expected proposal entitled “Prohibition on Funding of Unlawful Internet Gambling”.

If you do not wish to go through the whole 52-page document, don't worry - we have done the legwork for you. Here is a brief overview of the proposal:

- Section 1 covers legal requirements of “Authority, Purpose, and Incorporation by Reference.”

- Section 2 consists of 6 pages of definitions for terms such as “bet”, “Internet” and “restricted transaction.”

- Section 3 “designates five payment systems that could be used in connection with unlawful Internet gambling transactions”, namely: automated clearing house systems, card systems, check collection systems, money transmitting businesses and wire transfer systems.

- Section 4 exempts certain payment systems because of practical difficulties to enforce the rule. The exempt systems are automated clearing house systems, check collection systems and wire transfer systems.

- Sections 5 and 6 require the non-exempt payment systems “to establish reasonably designed policies and procedures to identify and block or otherwise prevent or prohibit unlawful Internet gambling transactions.”

- Section 6 also contains a ‘safe harbor’ provision, with non-exclusive examples of policies and procedures which would be acceptable.

It is very interesting to note that this proposal does not at any point specify which gambling activities are legal or illegal: “The Act does not comprehensively or clearly define which activities are lawful and which are unlawful, but rather relies on underlying substantive law.”

There is also a lengthy section debating the pros and cons of creating a list of “unlawful Internet gambling businesses,” which is left open for debate at the moment. Some of the aspects considered regarding the creation and maintenance of such a list include cost, accuracy, time consumption and comprehensiveness.

You may read the proposed rule here, and email your opinions to www.federalreserve.gov (make sure to include Docket Number R-1298.) Comments and suggestions are encouraged and welcome by December 12, 2007, and public comments may be viewed online on www.regulations.gov .

It is still too soon for the experts to comment, but the Poker Players Alliance has already released a preliminary statement, which emphatically states that “Deputizing private U.S. financial institutions to determine what are lawful and unlawful transactions will lead to the monitoring and blocking of the personal and lawful financial transactions of many of their customers who wish to play games of skill, like poker, on the internet. This seems more like the actions of Iran than the USA.” We expect a more detailed release in the next days.

We will be tracking the responses of all interested parties, including financial institutions and poker sympathizers, and will keep you abreast of developments up to the proposal’s deadline of December 12, 2007.