Monday, July 09, 2007

270 Days Later: The UIGEA Today

270 Days Later:  The UIGEA TodayWell, they’ve topped 6,000 at the Main Event -- a total some are viewing as a triumph here in the “post-UIGEA world.” While the UIGEA certainly had its effect on this year’s turnout, other factors (such as the inordinate number of preliminary tourneys) also very likely influenced the final tally.

Of course, that phrase “post-UIGEA” is a bit ambiguous. The law was passed, but where the hell are we? Let us review.

What exactly was that UIGEA thing again?

On Friday, October 13, 2006, President Bush signed into law the Security and Accountability for Every Port Act of 2006 (H.R. 4954), a.k.a. the “Safe Port Act.” Title VIII of the Safe Port Act concerned the seemingly-unrelated issue of “Unlawful Internet Gambling Enforcement,” and subsequently became known as the Unlawful Internet Gambling Enforcement Act.

Title VIII or the UIGEA begins with a cursory reference to “Congressional findings” that online gambling “is a growing cause of debt collection problems” and therefore needs to be prohibited altogether (§5361). Then comes a section defining various terms that subsequently appear in Act, terms like “bet or wager,” “designated payment system,” “financial transaction provider,” “interactive computer service,” and the like (§5362).

After that comes the actual “prohibition on acceptance of any financial instrument for unlawful Internet gambling” (§5363). This is the section that specifically prohibits any institution from “knowingly accepting” online bets or wagers. Here is where banks, credit card companies, and other “financial transaction providers” are told they cannot allow Americans to do business with online gambling sites, including online poker sites.

Now this spring I have cashed out some (not all) of my funds from three different online poker sites (Bodog, Absolute, and PokerStars). In each case the site sent me a check which I then took to my bank and deposited, no worries. According to section 5363 of the UIGEA, my bank is not supposed to be honoring those checks. (There is a reason why they can, though -- see below.)

I haven’t deposited any funds in any online sites since last fall, though if I had wanted to I could have using a variety of means, e.g., via an ePassporte account (if I had one), by using a prepaid gift card, or by sending the site a check or money order via the mail. Again, each example technically violates the UIGEA’s stipulation against “financial transaction providers” facilitating the transfer of funds to a site that allows U.S. citizen to engage in “unlawful Internet gambling.”

There are various reasons why banks and credit card companies aren’t currently complying with the UIGEA. One is that logistically speaking, it is difficult for, say, my bank to know that the check I am cashing comes from an online gambling site. The checks are drawn on U.S. banks and are not easily identified with words like “poker” or “gambling” on them. Same goes for the credit card companies that are not concerning themselves at present with following where that prepaid gift card is being used.

Another reason why U.S. banks and credit card companies aren’t complying with the law is they haven’t been told by federal regulators how to comply.

The (So-Called) “270-Day Period”

The next section of the UIGEA (§5364) says that “Before the end of the 270-day period beginning on the date of the enactment of this subchapter” -- that is, October 13, 2006 -- “the Secretary of the Board of Governors of the Federal Reserve System, in consultation with the Attorney General, shall prescribe regulations . . . requiring each designated payment system, and all participants therein, to identify and block or otherwise prevent or prohibit restricted transactions through the establishment of policies and procedures reasonably designed to identify and block or otherwise prevent or prohibit the acceptance of restricted transactions.”

This was that part of the UIGEA that led a lot of folks to keep saying -- erroneously -- that the law didn’t “go into effect” until 270 days had passed. Wrong. The law went into effect on 10/13/06. However, those regulations have yet to be delivered to the banks and credit card companies. And if one reads further, one finds the banks and credit card companies will be considered to be in “compliance” with the law -- and thus not subject to the penalties outlined in the rest of Title VIII -- if they “comply with the requirements of regulations prescribed” by the Secretary of the Board of Governors of the Federal Reserve System in consultation with the Attorney General.

In other words, until my bank (for example) is told specifically how to block my transactions with Absolute, Bodog, or PokerStars, they really don’t have to.

So the feds are instructed by the UIGEA to forward those regulations to the banks and credit card companies “[b]efore the end of the 270-day period” that began on October 13, 2006. And that period ends . . . let’s see . . . TOMORROW. That’s right. July 10th will be the 270th day since Bush signed H.R. 4954 into law.

So what is likely to happen? Today? Tomorrow? This week?

Obstacles to UIGEA Enforcement

Nothing, probably. The fact is, laws are frequently passed containing this sort of time-bound directive to federal regulators, and rarely are those deadlines ever met. In fact, the first part of the Safe Port Act contains another directive -- this one to the Secretary of Homeland Security -- to develop a strategic plan within 270 days for securing the nation’s ports, then submit an initial report to the appropriate Congressional committees, including the Committee on Homeland Security, chaired by Rep. Bennie G. Thompson (D-MS). They’ve yet to receive that initial report from Chertoff. They’re also waiting for a number of other reports from Homeland Security, and Rep. Thompson ain’t too glad about it. (In fact, there was a story just today about how far behind the DHS is, not least because over 25% of the department’s positions -- including many high-level posts -- are currently vacant.)

Despite the “270-day period” stipulation, then, there is simply no way of determining when (or even if) Secretary of the Board of Governors of the Federal Reserve System will be passing along those regulations. Attorney General Alberto Gonzales -- who is supposed to be consulted regarding those regulations -- has only referred to the UIGEA one time during the last nine months, and that was after being bullied into discussing the subject by Sen. Jon Kyl (R-AZ) during his April testimony before Congress. (EDIT [added 7/10/07]: There was, in fact, at least one other instance of Gonzales very briefly referring publicly to the regulations -- again at Sen. Kyl’s instigation -- at a different hearing back in January.)

You’ll recall Gonzales was called to answer questions about the unexplained firing of eight U.S. attorneys back in December. Some members of Congress (from both parties) are currently seeking a vote of no-confidence in our Attorney General. Amid the turmoil, Sen. Kyl quizzed Gonzales about the status of the UIGEA regulations when given his turn to interrogate the Attorney General. Gonzales was mostly non-responsive -- indeed, most of Kyl’s “questioning” was simply a lengthy monologue about the ills of online gambling. Finally, Gonzales agreed that online gambling was a problem and said that he was doing everything he could to assist in the drafting of regulations.

Sen. Kyl, of course, was one of the original authors of legislation that eventually evolved into the UIGEA. Thus does Kyl have an interest in seeing implemented the law he fought for years to pass. But it is more likely than not that Kyl will have to remain patient. There are actually a couple of obstacles to be overcome before regulations will be handed down. (Three, actually, if you count “bureaucratic inertia,” a chronic condition for American government.)

One obstacle concerns the practical consquences of instructing banks and credit card companies to block its clients from performing certain types of transactions. Many have observed how difficult it will be to block all such transactions, particularly those made via paper checks. According to I. Nelson Rose, “Banks have no way now of reading who the payee is on paper checks,” and, in fact, “it would cost them billions of dollars to set up systems to read paper checks.” So while it is possible for the feds to block certain types of transactions (e.g., credit card), it is probably not feasible to expect banks to block every single transaction between their clients and online gambling sites located overseas.

The other obstacle is less tangible. How politically valuable is it -- and to whom -- to ensure these regulations are handed down? While a handful of politicians, like Sen. Kyl and a few others from whom we’ve heard over the last nine months, are interested in continuing to fight the cause against online gambling, many more are not. That is not to say there exists significant political pressure to undo the UIGEA at present (there isn’t). But aside from the odd, ill-informed Congressman -- say, Kyl, or Rep. Jim Bachus (R-AL) -- no one on Capitol Hill is all that anxious for the UIGEA to be enforced.

Obstacles to UIGEA Repeal (or Other Legislation)

By the same token, only a few members of Congress are actively engaged in pursuing other legislation designed either to limit the UIGEA’s reach or render it even more impotent than it already is. And none of these bills have gathered that much momentum either, frankly. (Pun intended.)

The Internet Gambling Regulation and Enforcement Act (H.R. 2046) introduced by Rep. Barney Frank (D-MA) back in April has been in a holding pattern of sorts since that hearing of the House Financial Services Committee back on June 8th. The hearing itself demonstrated how little either side appears to be communicating with the other on this issue. (For discussion of the IGREA, click here; for a summary of the June hearing, click here.) At the time of that hearing, the IGREA only had 19 co-sponsors. By mid-June it had 23. If Frank’s bill were somehow to gather steam and make it through the House, then the Senate, then be signed into law by the President, we would see the beginnings of a regulated environment for online gambling. But that would be years away.

In early May, Rep. Shelley Berkley (D-NV) introduced H.R. 2140, a bill designed to fund a year-long study of online gambling to be conducted by the National Research Council of the National Academy of Sciences. Then, in early June, Rep. Robert Wexler (D-FL) introduced another House bill (H.R. 2610) designed to exempt “skill games” like poker from the UIGEA. Then, just a few hours after Wexler introduced his bill, Rep. Jim McDermott (D-WA) introduced yet another bill, the Internet Gambling Regulation and Taxation Enforcement Act (H.R. 2607), which builds upon Frank’s bill by specificing a system of taxation, something the IGREA suggests but does not outline specifically.

Of all four bills, Berkley’s appears most likely to win the kind of support needed to become law. The fact that the UIGEA cites a 1999 study as an authority for those “Congressional findings” about online gambling proves that a more current study is surely needed. (The first online poker sites weren’t in operation until 1998.) Wexler’s bill got an immediate endorsement from the Poker Players Alliance, but doesn’t appear to have a great deal of backing on the Hill. And McDermott’s bill appears not to have attracted much buzz at all. Indeed, Berkley herself dismissed H.R. 2067 in her recent interview on the Pocket Fives podcast, calling it a “non-starter.”

Here we can cite both the arduous legislative process and, again, politics as obstacles for these representatives’ efforts to make their bills become laws. These gestures toward curbing the damaging influence of the UIGEA are all significant -- even worthwhile -- and as long as Congress continues to debate the issue of online gambling, questions about the current law will necessarily continue to be raised. Ultimately, however, in practical terms, we are a long, long way away from any sort of legislation that specifically alters the UIGEA in its present form.

A Trip for Biscuits

Near the end of Raymond Chandler’s story “Pearls Are a Nuisance,” the protagonist, Walter Gage, is given instructions for a meet-up (having to do with recovering the stolen pearl necklace referred to in the title). Gage is given precise instructions for the meeting -- to drive a certain way, to dim his lights, etc. “You got ten minutes to get there,” he is told. “You’re watched right this minute. You get there fast and you get there alone -- or you got a trip for biscuits.”

Meaning, as Norman Chad would say, squadoosh. In some ways the last 270 days have been one long “trip for biscuits” as far as the UIGEA is concerned. At least technically speaking. No one has been convicted of the law. Nor has there even been an attempt made to enforce it. There have been consequences for online poker players, of course, the greatest being the pull-out from the U.S. of numerous sites as well as many third party vendors like Neteller and Firepay. However, in terms of actual “enforcement” of what the law prohibits, we haven’t moved that far from where we were 270 days ago.

Such is the state of online poker “post-UIGEA.” The situation currently resembles a tournament that has reached heads-up, with those who want to stop Americans from playing online poker possessing a slight chip advantage over those who want to allow us to play. Occasionally one side will put in a small preflop raise, usually met with a fold from the other side of the table. The opponents of online poker have certainly chipped up a bit, but overall nothing much has happened. And it will probably be a while before anything does.

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5 Comments:

Blogger Yorkshire Pudding said...

As always a great post Shamus. I really don't see how they can ever stop people getting money onto and off of gambling sites. I mean at the end of the day people smuggle diamonds out of diamond mines so if people want to put their own cash online and gamble they will.

7/10/2007 4:22 AM  
Blogger Erwin Blonk said...

http://www.dutchboyd.com/blog/2006_10_01_dutchboyd_archive.html
"One thing that I thought was interesting was that one of Frist's campaign contributors was... wait for it... Harrahs."

That alone should have me boycott Harrah´s. I don´t have the money to directly buy into the WSOP Europe but if I try a satellite, wheter I win or not, the money will end up in the final tournament for seats in the event and ultimately with Harrah´s. So I´ll will not be playing satellites for the WSOP Europe despite previous plans. I will not fund anyone instrumental in promoting the UIGEA. Not that I think that my few bucks will make a dent but they won´t be getting it. Dammit, I was really looking forward to giving it a go, however slim my chances.

The hypocrisy when they stated they would not register anyone that had gotten a ticket online..... They said that they were forced to do so by law. Yes, well, you sponsored that law any way you could, just say you want to get rid of online gambling. Worse still, they knew very well that they´d still have people that won their seat online and they took their money anyway. Blocking competition, acting innocent as if they can´t help it and still taking their money.

7/10/2007 11:21 AM  
Blogger Aquaman said...

A great article on the gambling legal landscape and much better written than anything in cardplayer. Keep up the great work!

7/10/2007 4:05 PM  
Blogger Short-Stacked Shamus said...

Thx, guys. Yr right, Eblonk. Harrah's gave Frist nearly $20K in his last campaign, making them his 13th largest contributor -- http://www.opensecrets.org/politicians/contrib.asp?CID=N00003147&cycle=2000

7/11/2007 1:21 AM  
Blogger Erwin Blonk said...

Maybe I just might to get into a WSOP event with t-shirt saying ´I bought my ticket with money won online´ and/or ´Harrah´s, sponsor of the UIGEA´ with a tinyurl or shrinkster link to your link. Would they kick me out? ;)

7/11/2007 4:18 AM  

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