The Idea of the IGREA

Just listened to Barney Frank’s recent Hold ’em Radio interview, conducted May 9th. The Hold ’em Radio website is currently being renovated, I believe, so you can’t hunt around there for the interview at present. Meanwhile, I've posted it here if you’re interested. (The interview is about 20 minutes long.) I’ve listened to Frank speak several times regarding the UIGEA in the past, but this was the first interview I’d heard since he’d introduced the Internet Gambling Regulation and Enforcement Act (H.R. 2046) on the House floor at the end of April.

Have to say, Frank is a likable, smart guy. Good one to have on one’s side, I’d venture. Can think of at least three reasons why I much prefer hearing Rep. Frank discussing issues related to online poker than the Poker Players' Alliance chief lobbyist Alphonse D’Amato.

For one, Frank is always articulate and often succinct, thus making him an excellent communicator. You’re never wondering what exactly his “point” is, as is sometimes the case with D’Amato. Secondly, while D’Amato’s political influence is somewhat difficult to gauge at the moment -- it has been eight years, after all, since he was a senator -- Frank is not only a current member of Congress, but he’s also the chair of the House Financial Services Committee. (There are about 70 representatives on that committee, nearly one-sixth of the entire House.) That is to say, unlike D’Amato, who can only encourage others to act, Frank is someone who can actually do something. Like introduce new legislation, for example.

And thirdly, my personal impression is that Frank knows a hell of a lot more about his subject here than does D’Amato. Always a help when trying to convince others. I’ve yet to hear Frank mischaracterize the current situation with regards to online gambling, or even be less than realistic about the future possibility of doing anything about the UIGEA.

If you’re curious about what I mean, go listen to Frank’s interview. Meanwhile, I’m going to take the opportunity here to discuss the legislation he’s introduced -- the IGREA -- and to share my initial impressions of the bill. (Apologies in advance for the monstrous length of this here post, but I wanted to go ahead and publish all of these thoughts here in one shot.)

The Internet Gambling Regulation and Enforcement Act of 2007

Technically speaking, the bill doesn’t really “repeal” the Unlawful Internet Gambling Enforcement Act, although if it were passed it would render the UIGEA even more legally impotent than it already is. Frank’s bill is essentially a regulatory mechanism, allowing for individual businesses on a case-by-case basis to be licensed by the Director of the Financial Crimes Enforcement Network (working under the aegis of the Secretary of the Treasury) to operate an online gambling site. Anyone trying to operate a site without going through the process of getting licensed would thus still be subject to the penalties described in the UIGEA.

After outlining the need for and some of the purposes of the bill, the IGREA then describes this new licensing program and how it would work. Say you live in the U.S. and you want to start up your own online poker site. First you would apply to the Director of the Financial Crimes Enforcement Network who would then oversee an extensive background check and study of your fitness to operate such a site. Before obtaining the license, you’d have to prove you had safeguards in place to prevent minors from playing on your site. You’d have to demonstrate that you could keep out individuals who live in states that prohibit online gambling. Additionally, you’d have to show you had procedures in place to pay taxes on whatever revenue you earn (and to have your clients pay their taxes, too). You would also have to show you could prevent your site from being used for the purposes of fraud or money-laundering, that you could ensure the privacy and security of its clients, and that you were doing something to combat compulsive gambling.

Having satisfied all of those provisions (and a few more), you’d be granted a one-year license take your site online. By the way, you probably want to have some capital handy before you begin here, since you’re going to be responsible for paying for any expenses accrued during the evaluation process. There’s a “user fee” you’re going to have to pay up front, too.

Still here? Well, congratulations! You are a fully-licensed operator of an online gambling site! Remember, the Director can look at the books whenever he wants, so you need to keep your house in order or the license can be revoked at any time. Any “contumacy” (i.e., failure to obey the government’s authority) is gonna get you sent to the Attorney General’s office. So keep in line . . . or else!

The bill goes on to explain how banks, credit card companies, and the like can now do business with the licensed online gambling sites with no worries. That is to say, those “financial transaction providers” targeted by the UIGEA would be free to work with these new, licensed and regulated sites without fearing any of those penalties described by that law. The bill also importantly adds a couple of sections explaining how individual states and Indian reservations can individually “opt out” should they wish to prohibit online gambling within their jurisdictions.

There’s also a section specifically stating that “sporting leagues” can also “opt out” (so to speak) by refusing to allow online gambling sites to offer the chance to bet on their contests. On the surface, this section seems unnecessary given that the 1961 Wire Act has already been widely interpreted as prohibiting sports betting via the internet. I can see the benefit, however, of being more specific about online sports gambling here. If the IGREA were to pass, it would be much easier to crack down on such activity should the government wish to do so.

Near the end, there is a section explicitly stating how the IGREA has “no effect on other law” -- that is, it doesn’t repeal existing laws regarding gambling in the U.S., just clarifies and allows for the possibility of online gambling within these here carefully-monitored guidelines.

What Would Happen If the IGREA Became Law?

A huge “if,” by the way. Early in the interview, Frank mentions having some bipartisan support for the bill, particularly among certain members of the House Financial Services Committee. Later he admits “at this point, because there are a lot of prejudices against gambling, I don’t have the votes to pass it.” As the chair of the Financial Services Committee, Frank has the authority to push for a vote, though has already stated his intention not to do so unless he were confident the bill would pass.

My first impression, then, of the IGREA is that it probably will never pass out of the House, never mind be considered by the Senate (or ultimately signed by the President). So we’re on a bit of a quixotic journey here. Still, I understand Frank’s point that there are benefits to be had from having debates about online gambling even if the bill never becomes law.

Let’s pretend, though, that the IGREA has a chance. If somehow it did pass, I see at least three consequences worth our consideration.

REGULATION

Have been seeing a lot of fretting about long-delayed payouts and other customer service woes on the forums lately. Some sites are doing better than others, but generally speaking the online poker player has been jerked around a lot over the last year. I heard Paul Wasicka interviewed on Ante Up! a few weeks ago (episode 98) about his controversial “joint sessions” article in Bluff from a while back. I’ve written before about that issue, suggesting that while I didn’t necessarily like people playing joint sessions, I wasn’t sure it was correct to call the joint session “unethical.” As Wasicka argues,

There are risks . . . associated [with playing online] . . . . I accept the risk that there might be collusion at the table. There might be two friends sitting at the same table talking to each other and typing each other’s hands [via instant messages] at the table. I accept that risk, just because I know that there [are] people out there that . . . are very unethical and will do anything -- even trying to cheat -- to win . . . . It would be too naïve to think that there aren’t bots or there isn’t cheating going on. Of course there is. But you accept that risk as an online professional . . . and if you can still beat the game, [then] do it.

All of which makes sense, I think. Or is at least understandable. But then Wasicka goes on to say the online player faces the “same thing with Neteller.” Huh? “You know,” he explains, “if they shut down, that’s a risk you took to trust your money with them. It’s just a game of what you’re comfortable with and what you’re not comfortable with. You know? And I . . . think that if somebody is uncomfortable with all of those uncertainties, then they should [just] play live.”

Okay, so my opponent might be getting advice from his friend. Fine. And he’s using Poker Tracker and a half-dozen other programs that help him monitor what’s happening at the table. Again, no problem. And he might even be colluding with someone else at the table. Uh . . . I don’t like that, but I understand it can happen.

But why the hell should my choice of a third-party vendor also be part of the “game,” another risk among the many I must take in order to win? The fact that Wasicka thinks sites like Neteller or even the poker sites themselves are able at any moment to run away with your money indicates how a lot of online players have internalized the uncertainty and lack of fairness surrounding online gambling these days. The IGREA would certainly help change that situation for the better, if it were to pass.

TAXES

Since gambling is a “voluntary activity,” Frank thinks it is appropriate to tax it. Says Frank, “I think a small fee -- essentially let the government be the ‘house’ and get a small cut of the pot -- I think that could be very useful.” If the IGREA were to pass, we’d certainly see both the online sites and the players paying taxes on whatever profits they earn to a much greater degree than is currently the case.

Poker players would complain loudly about such a circumstance, but honestly they shouldn’t. Only those who do not presently pay taxes on their winnings would moan; those who do would in fact benefit, since they would be able to spread out their tax obligation over the course of the year, rather than having to pay out that lump sum every spring. Of course, if the percentage of taxation was more burdensome than it presently is -- not unlikely -- then there would be reason to grieve.

Sites also would face extra costs, including a heavier tax burden, should the IGREA pass. If the U.K. example is any indicator here, that would prove problematic for these U.S. sites. A similar bill to regulate online gambling was passed in Britain in April 2005, and when it was finally implemented earlier this year the Chancellor of the Exchequer Gordon Brown announced a hefty 15% “Remote Gambling Duty” would be taken from sites’ profits. That caused some outfits like SportingBet to relocate offshore, and likely has discouraged others from opening up shop in the U.K. Licensed online gambling sites in the U.S. should also anticipate extra taxes, assigned at the discretion of the Director of the Financial Crimes Enforcement Network. Not so hot for the players, either, as such taxes would necessarily translate into larger rakes, fewer bonuses, and other cuts into their potential profits.

STATE OPT-OUTS

A Democrat with Libertarian leanings, Frank is a proponent of states’ rights, and so has included in his bill instructions to governors to inform the Director if his or her state “prohibits such business within such State.” If so, licensed sites would not be allowed to permit any betting or wagering by individuals who reside in that state.

What would happen, then? Well, the state of Washington already has made it a felony to engage in most forms of online gambling. (Horse-wagering is a-okay.) So there it would be a relatively simple matter for the governor of Washington to inform the Director of her state’s prohibition. In my opinion, other states -- even those without clear-cut legislation regarding online gambling -- would probably follow a similar path. I may be wrong here, but the bill appears to say the governor or any “other chief executive officer” of a given state simply has to inform “the Director of such prohibition or limitation [within his or her state], in a manner which clearly identifies the nature and extent of such prohibition or limitation” within 90 days of the IGREA becoming law. In other words, it doesn’t appear to me that a congressional vote or any other measure would be required beforehand.

If the bill were to become law, then, I think we’d likely see a large number of states “opting out” immediately, with relatively few states actually allowing online gambling. Bob Ciaffone partly anticipated this version of the future in his article “What the New U.S. Gambling Bill Means for You,” written a week after the UIGEA was made law. In fact, he sees those states that choose to license online gambling taking over the business entirely. He sees each state only allowing a single “site” within its borders to operate legally, “but license a number of marketing companies to recruit players and be ‘skins’ off the site.” He also predicts that given the legislative process, such state-regulated online gambling couldn’t come to be until 2009 at the very earliest.

All of which is to say, for a variety of reasons, if the IGREA were to become law, an immediate effect would probably be a hell of drop in the number of Americans (legally) playing online poker -- a much greater drop, in fact, than we saw back in October when the UIGEA became law. Eventually, over the course of several years, those players might be permitted to find their way back online. But the game they’d play -- while perhaps safer and better-regulated -- would never be as lucrative as it is today. (Nor would the market likely be as competitive.)

* * * * *
Frank plans a hearing in June regarding the IGREA. There’s also another bill, authored by Rep. Shelley Berkeley (D-NV), proposing the National Academy of Sciences conduct a year-long study of online gambling. Depending on the findings, such a study would certainly have some influence over any vote on Frank’s legislation.

In the Hold ’em Radio interview, Frank strongly urged every listener to contact his or her representative and two senators to let them know Congress should not be interfering with his or her right to gamble online. “If enough people call their congressmen and tell them that,” says Frank, “I can get this thing passed.”

The more I think about this IGREA, though, the more it seems to me that it ultimately invites more governmental interference between myself and the online poker sites where I want to play. I do think the bill would make online poker safer and more reliable, but I fear it may actually make it easier for those who oppose online gambling to keep a lot of us from playing.

That being said, I do respect Frank and appreciate what he’s doing. I sense that despite statements to the contrary, Frank himself doesn’t necessarily believe his bill has much of a future. As he states in the interview, “even if we can’t get this one [the UIGEA] repealed, if enough people hear that people are unhappy they may be less eager to go and do the next interference [of civil liberties]. You know, I’d like to get this undone, but it’s often easier in politics and in a lot of other places to prevent the next bad thing from happening than to undo the previous one . . . . It is very reasonable to make it clear to them [i.e., those who backed the UIGEA] that when they do this kind of thing they pay a price. Obviously I don’t want to settle for that, I’d like to go further and get it repealed.”

Already covered how passing the IGREA won’t really “repeal” the UIGEA. But the idea that discussions of the IGREA might have some influence down the road makes sense. And I also believe debating Frank’s bill and the issues it raises may well lessen the UIGEA’s impact here in the near term, since such debates will necessarily highlight that law’s several shortcomings.

Not enough to topple the UIGEA gorilla, of course. Enough to put some heat on where it is vulnerable, though.