A 2006 law charged financial institutions with blocking transactions related to “unlawful Internet gambling.” But the Unlawful Internet Gambling Enforcement Act did not define unlawful Internet gambling, and neither did the rules that federal regulators proposed to implement the law. In response to a flood of complaints from financial institutions, the Treasury Department and the Federal Reserve Board have revised the rules, acknowledging that what the law demands cannot be done.
The final regulations, issued in November, no longer insist that banks and other payment processors figure out the difference between legal and illegal online gambling, a distinction Congress deliberately left vague. The regulations require American credit card companies to invent new codes for certain transactions and instruct financial institutions to remind their clients that they should not be involved in illegal gambling. But according to an analysis by Whittier Law School professor Nelson Rose, a leading authority on gambling law, “everyone else can basically continue to do what they are now doing,” including American gamblers who use overseas intermediaries to place bets and collect their winnings.
Money sent to individual gamblers does not even qualify as a “restricted transaction,” Rose notes, and the regulations “now make it clear that payment processors should not waste their time checking on where money is sent by individuals.” The government concedes “there are no reasonably practical steps that a U.S. participant [financial institution] could take to prevent their consumer customers from sending restricted transactions crossborder,” where financial institutions are not bound by American regulations. Confronted by the impossibility of identifying and blocking online gambling transactions, Rose says, regulators “simply gave up.”