All Bets Are Off (Online Gambling 1 of 8)

As the new millennium began, gambling found a new safe haven online. Restricted by state laws in the physical world, corporations did not hesitate to find loopholes and make their gambling profits in the virtual world. By 2005, it was estimated that there were two thousand gambling websites bringing in revenue over 12 billion dollars. Domestically, the United States was no exception. By 2005, the U.S. saw 12 million people gamble online bringing in revenue exceeding six billion dollars. [FN 1] Despite its success, the government felt that online gambling was illegal.  Eight states had specifically outlawed online gambling and almost all the remaining states considered online gambling illegal due to the host gambling websites not having a gambling license in the specific state the player was playing in. [FN 2] With the widespread disregard to these laws and the fact that online gambling is typically intrastate commerce, the federal government began to take notice. Citing concerns for American youth, the addictive nature of gambling and declining revenue for legal, physical location, casino gambling, the federal government decided to take a stand against online gambling when it passed the Unlawful Internet Gambling Enforcement Act (UIGEA) in 2006. [FN 3] Since its passage, UIGEA has been somewhat successful in shutting Americans out of online gaming websites, but it also has been sharply criticized for the nature in which it was passed, its regulatory reach, and its numerous exceptions.

Former President George W. Bush signed the UIGEA into effect on October 13, 2006, after it passed by a vote of 421-2 in the United States House of Representatives and unanimously in the United States Senate.  [FN 4] However, numerous Congressman and Senators claimed they were not allowed to see the final version of the bill before they voted on it. [FN 5] This was because the act was attached to bill on the safety of U.S. ports (the Security and Accountability For Every Port Act, nicknamed SAFE) following the Dubai port scandal and a fear of numerous foreign countries gaining too much influence and power over U.S. ports. After being signed into law, there was a 270-day period for agencies to develop the regulations needed to implement the Act. President Bush then waited until late is in his term to enact the UIGEA on November 12, 2008. The UIGEA was not set to come into effect until January 19, 2009, the last day before the Bush administration turned the keys over to the Obama administration.  [FN 6]

Despite its title, the UIGEA does not define or discuss online gambling. Instead, it regulates how players transfer money to the online gambling websites. Specifically, “The Act 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 that is unlawful under any federal or state law.” [FN 7] In an effort to be as broad as possible the UIGEA contained a broad and vague definitions section. One definition that has been criticized is the phrase “bet or wager”. In the definition section of the Act, the legislature described this as referring to an outcome of a contest, sporting event, or any game of chance. [FN 8] Since many gamblers claim their particular game of choice relies on skill rather than luck, they argue the UIGEA does not apply to them. A court in California has already agreed with this argument in regards to poker. [FN 9] Other jurisdictions apply a “dominant factor” test to decide if a game is more luck or skill. If the court concludes the majority of the game (51%) is predicated on chance, then the game is considered to be luck based. [FN 10] People have used the same reasoning to legalize blackjack. This has created a “grey area” for the two games. However some things, like betting online on sporting events, were immediately seen as restricted. This emphasizes the biggest issue with the UIGEA. In order for the UIGEA to come into effect, there first must be agreement that an Internet gambling state or federal law has first been broken.

If a law has been broken, the UIGEA provides for both civil and criminal sanctions. Criminal sanctions include up to five years in prison, fines, and prohibiting a violator from ever making an online wager. The UIGEA also provides for civil sanctions to be filed against a financial institution in the business of betting and place temporary or permanent injunctions to stop transactions. Critics think this will be difficult to enforce against foreign companies though. [FN 11]

Another point of contention with the UIGEA is the nature of a violation being isolated to gambling businesses. More specifically, the issue lies with the one-sidedness of a violation. According to the UIGEA, the person making the bets is not in violation. Nor is the company who served as the money transferor unless their movement of funds is considered to be in the business of betting, like NETELLER. A gambler is also not in violation if they transfer money out of their online gambling account. The only violation occurs by the online gambling website. The language of the statute again was overly broad to make sure to include receiving money from any domestic or international financial institution.  [FN 12]

One last aspect that muddles the UIGEA water is the numerous exceptions for online gambling that the UIGEA allows. Online gambling allowed under the Act includes: fantasy sports, Native American Tribal gaming, interstate horse race betting, and online free gambling. Critics argue allowing these exceptions flies in the face of the policy argument of protecting American youth as well as the general public from the dangers and addictive nature of gambling. The government seems to be saying that only certain types of gambling are dangerous. These exceptions also serve to confuse law enforcement on whether an online illegal gambling act has taken place or not. [FN 13]

In the end, the UIGEA was a big strike against online gambling, but it was not the immediate death of it. The passage of the UIGEA did lead to stock drops of among corporations and several corporations amending their website rules to refuse to allow Americans to participate. Yet, the UIGEA did not lead to any immediate government action. It took some time to develop specific regulations to enforce the UIGEA. Moreover, actions by Congressman Barney Frank, as well as a delayed action in going after poker websites led to popularity in online gambling remaining until 2011. This, as well as past American regulations on electronic wire gambling and how the international scene has changed in response to the UIGEA are all topics going to be addressed in later blogs.

[FN 1] See Michael Schmitt, Prohibition Reincarnated? The Uncertain Future of online Gambling Following the Unlawful Internet Gambling Enforcement Act of 2006, 17 S. Cal Interdisc.. L.J. 381 (2007-2008).

[FN 2] See id at 388.

[FN 3] See id at 399.

[FN 4] See I. Nelson Rose, The Unlawful Internet Gambling Enforcement Act of 2006 Analyzed, Gamblingandthelaw.com.

[FN 5] See Schmitt at 381.

[FN 6] See [UIGEA] Treasury, Fed Issue Final Rule on Unlawful Internet Gambling, Scribd.com. 11/12/08

[FN 7] Unlawful Internet Gambling Enforcement Act, Examination Handbook Section 770. U.S. Treasury Department.

[FN 8] See http://www.gambling-law-us.com/Federal-Laws/internet-gambling-ban.htm.

[FN 9] See, e.g. Bell Gardens Bicycle Club v. Dept. of Justice, 36 Cal. App. 4TH 717, 744 (Ct. App. 1995).

[FN 10] See http://www.gambling-law-us.com/Federal-Laws/internet-gambling-ban.htm.

[FN 11] See id.

[FN 12] See Schmitt at 391-2.

[FN 13] See Schmitt at 390-1.

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~ by jramsey5213 on October 9, 2011.

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