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Emily D. Swoboda

UIGEA Rules Troublesome for Fed, Treasury

2 April 2008

Testimony from the Federal Reserve and Treasury suggests the Unlawful Internet Gambling Enforcement Act's ambiguous language and architecture, well-documented during the public comment period, are posing problems for rule writers trying to interpret and clarify the law's intended objective.

"I think it is very difficult without having more of a bright line about what is intended to be unlawful Internet gambling," said Louise Roseman, director of the Federal Reserve's bank operations division.

"The challenge we have is interpreting something, particularly federal laws, that Congress itself isn't sure what they mean," she added.

The House Subcommittee on International Monetary Policy, Trade and Technology today questioned representatives from the Fed and Treasury, which, jointly, wrote the rules on the proposed regulations.

Representative Barney Frank, D-Mass., who has sponsored a bill to regulate and license Internet gambling in the United States, challenged Roseman with questions of clarification.

"If I am a bank in a state where horse betting is banned, do I process a transaction for a bet on a horse, according to the regulations," Frank asked.

"Unfortunately, the proposed 'reg' was silent on that issue," Roseman said. "That's something we're going to have to look at."

Roseman also acknowledged gambling companies have ways of masking transactions, making it difficult, she said, to tell which transactions are related to Internet gambling and which aren't.

"So, the law doesn't have teeth to begin with," replied one of the members of the subcommittee.

Concerns over enforcement procedures were brought to the fore by the American Bankers Association (ABA), a Washington, D.C.-based group which lobbies on behalf of banks nationwide.

Wayne Abernathy, executive vice president, Financial Institutions Policy and Regulatory Affairs, ABA, told the subcommittee that under the Bank Secrecy Act, American banks already dedicate "enormous resources" in fulfilling their obligation to report criminal or otherwise suspicious activity.

"Under this legislation, we are required not only to identify what is illegal, but to impose a sentence," Abernathy said. "This goes beyond reporting. We think it's a step too far in devolving governmental responsibility.

"A bank is really in one position: Cut off all transactions that look like they may be heading toward an Internet gambling transaction or become far more intrusive in the questions we ask," he went on. "We would block a lot more legal transactions in the effort to avoid a penalty for failure to block the illegal ones."

Abernathy's remarks gained traction with the Poker Players Alliance (PPA), a Washington-based grassroots group lobbying on behalf of U.S. Internet poker players.

"Banks should not be deputized by the federal government to enforce unclear laws that prevent their customers from enjoying lawful Internet poker," said former Senator Alfonse D'Amato, chairman, PPA, in a prepared statement released after the hearing.

The only subcommittee member who spoke in support of the UIGEA was Representative Spencer Bachus, R-Ala. Bachus argued the UIGEA will mitigate "a scourge on our society," and said the law has helped curb the gambling prevalence rate across U.S. colleges and universities.

Meanwhile, Dan Walsh, director of governmental affairs at Washington-based lobbying firm Greenberg Traurig, said the UIGEA "looks like it is headed for regulatory limbo."

"The regulations are in trouble: I don't think there is any way they can finalize the proposed rules," he said. "[The UIGEA] would still be on the books, but its practical effect was to come from the regulations."

He added that the Bush administration may try to push the regulations through in the final weeks of its tenure.

After the hearing, however, Roseman said regulators hoped to issue a final rule before the end of 2008 but did not offer a more precise time frame.

UIGEA Rules Troublesome for Fed, Treasury is republished from
Emily D. Swoboda
Emily D. Swoboda