The unlawful Internet Gambling Enforcement Act
When word started to spread that Congress had passed online gambling legislation as part of the Port Security Act, internet poker players reacted in a wide variety of ways, ranging from panic to indifference. Even among so-called “experts” in the online gaming field, measured, restrained analyses of the Act’s impact could be found alongside predictions that make Chicken Little look discreet. So is the golden age of poker over? Why such varied responses to the new law?
The reason for the lack of consistency in reactions is that we don’t yet know the whole story. In fact, the Act is merely the first chapter (or second or third, depending on how one looks at it) in the unfolding tale of legislating online poker in the US, and there are many volumes yet to come. The best we can do now is step back and take a snapshot of where we are at this moment, and focus on a few sections of the new law that are of most importance to online poker.
Unfortunately, using this approach means that as soon as the next chapter — no, the next paragraph – in this ongoing chronicle is written, some of these observations may become out of date. Nevertheless, I think it is useful and important to take stock of the effects of the Act, and what may face online poker in the days to come. So here is some of what we know and don’t know right now.
WHAT WE KNOW: In the US, participating in online sports betting, online lotteries/ raffles, and online casino games is illegal.
WHAT WE DON’T KNOW: Whether the US Department of Justice will continue to take the position that online poker is also illegal, and if it does, whether US Courts will agree.
This is a question that existed prior to the enactment of this new law. Part of the issue here hangs on whether poker is considered to be a game of chance. A number of US states have resolved this issue (or at least have some relevant law on the matter), but federal law is unclear. The Act certainly doesn’t help poker players in that it uses the phrase “a game subject to chance” in its definition of what constitutes a “bet or wager”; this liberal wording may give a confused court the language it needs to bring poker within the scope of this law, and it would be treated the same as blackjack or betting on football. On the other hand, existing US case law holds that online poker does not fall within the scope of the Wire Act, and this new legislation is intended only to give authorities broader enforcement tools and not to expand the definition of what types of gaming are illegal.
WHAT WE KNOW: It is illegal for a person to own or operate an internet website at which unlawful bets or wagers may be placed, or to accept any type of funds from or on behalf of another person (even through an intermediary), in connection with unlawful internet gambling.
WHAT WE DON’T KNOW: How strictly this provision will be enforced, and against whom.
If you operate (or help to operate) or make money from the operation of an online gambling site, you are violating the Act. If you are an “affiliate” of an online poker site, you have good reason to be concerned, because if poker is held to be within the scope of this new law, you are also violating the Act. Criminal convictions for violations of the Act carry penalties including fines and up to five years in jail. It would surprise me if the authorities used this new law to start going after USbased affiliates, but technically they could do so if they so choose.
WHAT WE KNOW: US banks must block transactions with internet gambling sites.
WHAT WE DON’T KNOW: Whether US banks will also start blocking transactions from intermediary sites such as Neteller.
In the short term, this may be the most critical issue as to whether US internet poker players can continue to play online. For now, this will depend on how cautious US banks elect to be. Neteller and other intermediary sites may be used for legitimate transactions that have nothing to do with online gambling. For this reason, it seems unlikely that US banks would completely reject all transfers to and from Neteller. On the other hand, the DOJ might take the position that US banks could/should, in the case of an inbound transfer, enquire as to the source of the funds, and reject transactions that originated with online gaming sites. If this becomes the standard practice in the US banking industry, the barriers to transferring funds to and from internet gambling sites would become so burdensome that they would effectively shut out most US players. Also, if a bank blocks a legitimate transaction, reasonably believing it should be restricted, the Act provides immunity for the bank; so essentially the player will have no legal recourse against it.
What Happens Next?
The Federal Reserve has 270 days from the date the Act becomes law to prescribe additional regulations that financial institutions must follow in order to prevent restricted transactions under the Act. Some of what we don’t know now, particularly with regard to the obligations of banks to block transactions with intermediaries, will be clearer upon the promulgation of those regulations. Assuming they don’t require banks to block intermediary transfers that originated with online gaming sites, the landscape of online poker shouldn’t need to change much.
Lobbying efforts will continue to work towards placing an exemption in the law for online poker. There appears to be some support in Congress for the notion that poker is a game of skill and therefore merits unique treatment under the law. Surveys have shown that most Americans favor legal, regulated access to online poker over an outright ban. Combine that with the negative view many opponents of the Act have regarding the manner in which the law was enacted (attaching it to the end of an unrelated bill at the end of a Congressional session), and I think it’s safe to say we have not seen the end of this issue on Capitol Hill.
