Bet Blockers

The government should not expect financial institutions to stop online gambling.


In 2006 Congress passed a law that instructed the Treasury Department and the Federal Reserve Board to write regulations aimed at preventing "unlawful Internet gambling." But Congress did not define "unlawful Internet gambling," and neither did the regulators.

Instead they issued rules requiring financial institutions to adopt "policies and procedures" that are "reasonably designed" to block transactions associated with unlawful Internet gambling, whatever that might be. Last week, acknowledging the difficulty of satisfying this demand, federal regulators announced that enforcement of the rules, scheduled to begin on December 1, will be delayed until June 1. The six-month extension gives Congress time to reconsider its foolish and futile attempt to stop Americans from betting in their pajamas.

The regulations, required by the Unlawful Internet Gambling Enforcement Act (UIGEA), include a telling explanation of why the government chose not to create a list of bet-taking businesses that financial institutions should avoid. Because the UIGEA "does not set out the precise activities that are covered," the regulators say, "creating such a list would require the Agencies to formally interpret" the relevant state and federal laws. Since those laws are often ambiguous, "interpretations by the Agencies in these areas may not be determinative in defining the Act's legal coverage and could set up conflicts or confusion with interpretations by the entities that actually enforce those laws."

In other words, figuring out which forms of online betting are illegal is so complex and uncertain a task that federal regulators did not even attempt it. Yet that is what they expect financial institutions to do.

The reach of federal gambling laws has long been a matter of debate. While the Justice Department claims the Wire Act of 1961 bans all online gambling, for instance, operators of poker and casino websites say it applies only to sports betting, a view endorsed by a federal appeals court. The Justice Department also maintains that online horse race betting is illegal, but the businesses that run sites like youbet.com disagree, and so do the states that license them. The UIGEA did nothing to resolve such disputes.

State gambling laws are likewise open to interpretation, especially when it comes to poker, a game of skill that, depending on whom you ask, may not even qualify as gambling. I. Nelson Rose, a Whittier Law School professor who is a leading authority on gambling law, notes that the UIGEA regulations allow a bank contemplating a relationship with an online gambling business to consider "a reasoned legal opinion that it does not engage in restricted transaction" as evidence of its licit status.

Since they could face penalties for helping a business later judged to be unlawful, American financial institutions have a strong incentive to eschew all Internet gambling, even when it's arguably legal. But there are plenty of ways to evade the UIGEA regulations, including paper checks, credit cards issued by foreign banks, and payments funneled through foreign intermediaries. Rose notes that regulators aren't even talking about preventing individuals from placing bets (which in most states is not illegal) or collecting their winnings.

This week Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, is holding a hearing on legislation that points the way out of this silly yet burdensome charade. He wants to legalize online gambling at the federal level and allow states to regulate it as they see fit. Frank says his opposition to gambling prohibition is inspired by a simple proposition: "If individuals like doing something and they harm no one, we will allow them to do it, even if other people disapprove of what they do."

Meanwhile, National Endowment for the Humanities Chairman Jim Leach, who was one of the UIGEA's main architects as a Republican congressman from Iowa, is embarking on a 50-state tour to promote greater "civility" in political debates. Too bad he was not polite enough to keep his nose out of the private spaces where millions of Americans choose to spend their money on games that offend him.

Jacob Sullum is a senior editor at Reason and a nationally syndicated columnist.

© Copyright 2009 by Creators Syndicate Inc.

NEXT: A Bunch of Chickens

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  1. If the legislature doesn't protect the public from enjoying their vices, who's going to do it? YOU?

  2. Got this little missive recently over a $200 incoming wire (MINE THAT BIRD, baby!):

    This email is to inform you that under US legislation, financial institutions are not permitted to process any transactions related to online gambling. A recent incoming wire into your account indicated you may be conducting these transactions. I must ask that if you are, you please discontinue all online gambling activity via your USAA accounts. As a financial institution, USAA is not permitted to process any debit transactions related to online gambling sites including those on your debit card or credit card, or via ACH payment. In addition USAA may not accept wires or any type of deposit from the online gambling sites or their processing agents. If you currently have any pending transactions, they will be processed. I just ask that you not initiate any new online gambling transactions. If the activity continues, your account may be reviewed for closure.

    If the activity has already ceased or if the transaction is not related to online gambling activity and you received this notification in error, please disregard the email.

    Please contact me if you have any questions in regards to this. My telephone numbers and email address are listed below. I am typically in the office Monday through Friday from 8:00am to 4:00pm ct.

    Thank you for your understanding and assistance in this matter,

    Erin Neal, CFE, CAMS
    Fraud & Anti-Money Laundering Investigator
    USAA Corporate Security
    o. (800) 531-2265 x36773
    f. (888) 666-9054

  3. "If individuals like doing something and they harm no one, we will allow them to do it, even if other people disapprove of what they do."

    Bullshit, it should read "If individuals like doing something and we can tax them for it, we'll let them do it.

    This is a revenue grab. Hope it becomes legal, but let's call a spade a spade.

  4. "we will allow them to do it"

    That says everything about the mindset of those in power.

  5. UIGEA, like all Federal gambling laws, depends on an underlying violation of state gambling laws to trigger it.

    And state gambling laws are a soup sandwich. Sixteen states and the District of Columbia don't even define what "gambling" is or is not. Only eight states mention the Internet at all in relation to gambling. In the meantime, 29 states use the Internet to help take horseracing bets, and five are offering state lottery tickets over the Web.

    The situation is so confusing that the Department of the Treasury regulators have flat out REFUSED to define just what constitutes "unlawful Internet gambling". This means UIGEA is an ongoing violation of due process- how can anyone obey the law when no one will tell them what constitutes a violation?

    The truly bizarre aspect of the whole thing is that even if UIGEA is not repealed, it won't matter. The statute is useless as a law enforcement tool, and it is no accident that no one has been prosecuted for it in three years.

    It did, however, confirm that the states have the individual right to authorize Internet gambling within their borders. Which they will probably do long before Washington sorts this mess out.

  6. Gambling, whether in casinos or online, should absolutely be legal. However, one area of regulation should not be dismissed: overall minimum payouts. Unlike other products or services, when one spends their money gambling they are not in turn receiving any tangible - just a chance to receive something tangible. With pretty much any other product or service you're guaranteed to get something for your money (whether it's what you expected or not is a different matter) and have legal recourse if you do not. Proving that you have been ripped off while gambling is fairly difficult. Minimum overall payouts (or something better if anyone has any ideas) are necessary to ensure that the consumer has confidence that they are actually purchasing a chance (however small) and not just throwing their money into a rigged system unwittingly.

    I bring this point up because it would seem difficult, if not completely impractical, to prove that online gambling sites were adhering to such regulations. Of course we shouldn't ban first and ask questions later - it's a problem that will have to be resolved and can only be resolved after the experience of such systems being in practice.

    Now I've never participated in online gambling before so I may be talking out of my ass. If anybody out there knows if such regulatory systems already exist (or how such systems may work) I would be interested in learning more.

  7. If they end up banning the current websites, new online casinos may rise, using untraceable electronic gold accounts and Russian hosting sites. So much the better, since it will spare them the burden of taxation.

  8. What this Online gambling is all about. Is this specifies for a certain area of through out the world. As soon as i am not sure that.. which country can take part in this bating.. giving comments on services and usability won't be worth enough.

  9. Online gambling is a nice game to play by sitting in home. But their are certain rules and regulation to play this game. which is most important for a carder. This knowledge should be shared before opt to gamble.

  10. My only point is that if you take the Bible straight, as I'm sure many of Reasons readers do, you will see a lot of the Old Testament stuff as absolutely insane. Even some cursory knowledge of Hebrew and doing some mathematics and logic will tell you that you really won't get the full deal by just doing regular skill english reading for those books. In other words, there's more to the books of the Bible than most will ever grasp. I'm not concerned that Mr. Crumb will go to hell or anything crazy like that! It's just that he, like many types of religionists, seems to take it literally, take it straight...the Bible's books were not written by straight laced divinity students in 3 piece suits who white wash religious beliefs as if God made them with clothes on...the Bible's books were written by people with very different mindsets.

  11. Well looks like we are finally here. With 3 gaming sites taken down yesterday in the US.

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