Banks in Holding Pattern While UIGEA Rules FesterNo Timeline as to When UIGEA Rules Will Be Finalized |
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It’s approaching two years since the Unlawful Internet Gambling Enforcement Act (UIGEA) was signed into law by President George Bush, and it’s still not clear how much the law will cost the banking industry, nor if it will do its intended job and end online wagering in the United States.
What is clear is that members of the banking industry hate it. They wish the lawmakers behind the UIGEA offered more clarity with a law that calls for the banking industry to monitor the millions and millions of online transactions that occur and stop the ones that allow citizens to take part in what the UIGEA defines as “unlawful Internet gambling.”
“There has always been considerable concern about any type of law that will place the financial system in a position of law enforcement, of having to police the payment system for certain illicit activities,” said Viveca Ware, director of payment and technology policy for the Independent Community Bankers of America (ICBA). “And, of course, the UIGEA is even more problematic, because it doesn’t define online gambling.”
There are also no specific federal laws on the books that absolutely define unlawful Internet gambling, either. The Treasury and the Federal Reserve, the two government offices that have been assigned the task of writing the rules the banks will have to follow to comply with the UIGEA, are having considerable trouble because of this.
The regulations are still being written. The first draft was presented to the public in December 2007, a Congressional hearing on them took place a few months later where the rules were debated and testimony was heard from members of the banking industry, and the Treasury and the Reserve are now revising the rules while taking all of the public comments submitted to them into consideration.
Not even members of the American Banking Association and the ICBA know when the final set of regulations will be released. It could happen next week or it could be months. The final draft was supposed to be completed by July 2007. The Treasury Department didn’t respond to an interview request.
According to both the ABA and the ICBA, nothing is being done within the banking industry to prepare for the day the UIGEA must be followed. Protocol cannot be organized without guidance from the federal government on how to comply, so the banking industry is in a holding pattern until the revision is complete.
What banks do know is that more employees will most likely have to be hired to help keep the banks in compliance, but it’s not known how many will need to be hired or how much it’s going to cost the industry. And when the industry incurs costs, those costs will eventually trickle down to customers.
The banking industry is getting a minor reprieve, as the Treasury and the Reserve are exempting checks and possibly ACH transactions (which are electronic check transactions done automatically). This bodes well for online poker players, as many U.S.-facing online sites already have ACH deposit options and pay their customers with checks.
This system is fully automated to perform millions of transactions daily, and Ware said, “It would just be impossible for banks to police those.”
ACH transactions might still have to be policed, though. The banking industry won’t know for sure until the final rules are submitted. If banks have to police ACHs, they have a monumental task. For example, in the first three months of 2008, almost 670 million ACH transaction were completed.
The banking industry’s opposition to the UIGEA has been repeatedly displayed at Congressional hearings about the Act, which took place after it was added to an act that increased security at the nation’s ports. Versions of the UIGEA have been seen since the late ’90s, but it took a last-minute back-door maneuver by several conservative members of Congress to get the UIGEA added to the Safe Port Act. Many legislators didn’t even know the UIGEA was part of the bill they voted on.
This means that UIGEA, which is considered by some members of the banking industry to be the most intrusive law ever passed, received little consideration from Congressional committees and its members.
Since 2006, legislation that would cancel the UIGEA has stalled, but there are several bills in committees that would try to protect the payment systems by defining exactly what constitutes illegal Internet gambling. Rep. Barney Frank is at the forefront of this movement, and his most recent proposal would basically limit the UIGEA’s power to stoping online sportsbooks only.
Senator Robert Menendez also has a payment protection bill, which defines poker as a game of skill and would exempt that game from the UIGEA.
What banks really need in order to be able to comply fully with the UIGEA when it comes time to do so is a list of companies that should not be allowed to do business with customers in America, said a representative of the ABA. But without the exact definition of unlawful Internet gambling, a decisive list cannot be made.
With billions of transactions to handle each day and a financial crisis that is looking more severe as the days go on, the banking industry has its hands full on more important matters. But the law is the law, and soon enough — whether it’s next week or next year — banks will have to follow the UIGEA to the letter, no matter how many of those “letters” are missing.
Will the UIGEA work even if some of the wrinkles are steamed away?
“It remains to be seen,” Ware said. “It remains to be seen.”
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