Wednesday, November 12, 2008

Endgame: UIGEA Regs Finalized

UIGEA regulations finalizedWell, we’d heard the rumors a couple of weeks ago that the finalized regulations for the Unlawful Internet Gambling Enforcement Act of 2006 were on their way. Sounds like those rumors have come true. The feds have made their move. The UIGEA regs have been finalized, set to take effect on January 19th, the last full day of the Bush presidency.

How did this happen? Let’s look back just a bit.

April 2008: The Feds Say They Cannot Interpret the UIGEA

Louise RosemanBack in April 2008, there was a hearing before a House committee in which Louise Roseman of the Board of Governors of the Federal Reserve System (pictured) and Valerie Abend of the Department of Treasury -- both of whom were involved in the business of finalizing the UIGEA regs -- unequivocally testified that the law was so poorly constructed that they were finding it close to impossible to sort out how exactly they were going to articulate their directives to the banks, credit card companies, and other financial transaction providers.

Said Roseman at that hearing, “The challenge we have is interpreting something -- particularly [with regard to existing] federal laws [about gambling] -- that Congress itself isn’t sure what they mean . . . . That is something that we are really struggling with at the moment.”

In other words, the feds appeared perfectly baffled over the question of how to communicate to financial transaction providers what their obligations really were with regard to following the UIGEA as it was written. The major bone of contention, of course, concerned the UIGEA’s lack of clarity regarding what exactly “unlawful internet gambling” really was.

But there were other, practical concerns as well -- some voiced by representatives of the American banking system at that same hearing (and acknowledged by Roseman and Abend) -- that financial service providers simply weren’t equipped to monitor each and every transaction so as to forbid ones with unlawful gambling sites (however those were identified). Likely the banks would engage in “overblocking” whereby they’d stop all suspect-seeming transactions, a decision which would seem to open an entirely different can of worms with regard to the way it would infringe on a host of citizens’ rights.

May 2008: Thinking About the Bush Legacy

George W. Bush and Joshua BoltenThen in May, White House Chief of Staff Joshua B. Bolten (pictured here with Bush) sent out a memo that specifically addressed how the current administration planned to handle its last days in power. In that memo, Bolton advised all governmental agencies to “resist the historical tendency of administrations to increase regulatory activity in their final months.” He then set a deadline of June 1 for agencies to propose any new regulations, and a date of November 1 as the time beyond which no final regulations should be issued. (He does, however, say that exceptions would be made for “extraordinary circumstances.”)

This was just a recommendation, of course, and thus could very well be ignored by those entities (e.g., the Department of Treasury) who wanted to proceed with the finalization of any regulations (e.g., those associated with the UIGEA). In any case, Bolten goes on in the memo to highlight “the burden imposed by new regulations” and in a response the White House agreed that doing so was “simply good government.”

Sounds fairly altruistic, on the surface at least. However, there is something self-serving, too, about an administration “resisting” the urge to pass through a bunch of regs just before the clock strikes midnight on their rule. It has to do with firming up one’s legacy. And the salient fact that whenever regulations are finalized, in most cases those regulations do not take effect for 60 days. That means that a subsequent administration could come in and simply stop the process, if desired.

That’s precisely what happened in several cases with regulations finalized by the Clinton administration during its waning days. Bush stepped in and (as I’m reading in an International Herald Tribune article from June) “froze hundreds of pending regulations issued by the administration of Bill Clinton” shortly after taking office.

Bolten’s memo apparently created quite a stir on Capitol Hill when it came out in May, as many agencies hadn’t anticipated facing any particular rush here. Among those agencies were the Treasury department, who just a month before was saying they were nowhere near finalizing the UIGEA regs.

November 2008: “Midnight Rulemaking”

Midnight RulemakingWell, we’ve reached November. A new president, a new Secretary of the Treasury, and a whole new cabinet are on the way. And apparently now all of those problems cited back in the spring have magically evaporated. The UIGEA regulations were sent to the White House budget office in late October, and apparently that office reviewed those regulations last week. In other words, sometime between April and October the Treasury Dept. somehow figured out how to solve that knotty problem of “interpreting something . . . that Congress itself isn’t sure what they mean.”

Apparently a key player here in the sorting out was a Congressional staffer named William Wichterman, someone who worked a lot with our buddy the former Sen. Bill Frist when he led the Senate and oversaw the sneak affixing of the UIGEA onto that Safe Port Act back in Sept. 2006. Wichterman is also apparently a big lobbyist for the National Football League, another entity interested in seeing the UIGEA (which allows for gambling on fantasy football) to go into effect, having pushed their cause as recently as March of this year.

It’s all so sordid. And unfair. And immoral. I mean, really, poker is so, so much more wholesome than all of this legislative legerdemain, ain’t it?

Earlier in the week, Rep. Barney Frank (D-NH) penned a letter to Henry Paulson, the Secretary of the Treasury, pleading with him to stop the process of “midnight rulemaking” and “delay implementation of these major, and deeply flawed regulations to permit the incoming Administration the ability to review the consequences of such a significant policy decision, rather than unfairly being denied that opportunity.” Frank sent a copy of his letter (dated 11/10/08) to Ben Bernanke, Chairman of the Board of Governors of the Federal Reserve System as well.

But they didn’t listen.

We Americans have gotten to know both Paulson and Bernanke quite well over the last few months, as both have been in the headlines constantly with regard to the banking/credit/mortgage crises. Indeed, Paulson was on America’s front pages again just yesterday talking about a big change in the Treasury Dept. plans for allocating that $700 billion of taxpayers’ money (the so-called “federal bail-out”) in the adminstration’s effort to bolster the financial markets.

Can’t reasonably believe Paulson, Bernanke, or any of the feds seriously considered the implications of the little ol’ UIGEA, a law which besides giving us online poker players a bunch of headaches, will create significant hardship for the banking system they are currently trying so desperately to save.

November 2008-January 2009: Cashing Out?

Cashing OutSo the regs have been published in the Federal Register. On January 19, 2009 the UIGEA finally goes into effect. That’s right. The UIGEA -- signed into law over two years ago -- will finally start being enforced. No shinola.

We’re basically looking at a replay of the UIGEA getting passed into law in the waning hours of the 109th Congress back in late September 2006. You know, the ol’ legislative hit-and-run. Like trying to gather up all of the chips before leaving the table.

What’s gonna happen now that the regs have been finalized?

Well, first off, I imagine we’ll likely see a certain percentage of online poker players go ahead and pull their funds out of sites and stop playing between now and January 19th. Won’t happen here at first, but eventually there will be an exodus of sorts, I’m sure of it, as American players come to realize they might have trouble moving funds back and forth after 1/19/09.

It is also possible some sites stop accepting American customers, too, as a practical consideration -- why target customers who are likely to bring so many extra hassles to your ability to provide them adequate service? -- although I actually think most of those that currently take U.S. customers will probably continue to do so.

It sounds like withdrawing will not be a problem -- the new, finalized regulations are not specifically restricting that. But depositing will be, and thus the “online poker economy” -- like the economy as a whole -- will probably suffer here over the next few months.

2009 and Beyond: Reversing the Damage

Hope May Not Be Warranted At This PointIt still may well be possible for the Obama administration -- or, more precisely, the Democrat-controlled Congress -- to come in and per the Congressional Review Act of 1996 actually reverse any of these last-minute “midnight regulations” with a Congressional vote. That act suggests that any finalized regulations that happen during the last 60 days of a given Congress are in fact legally considered to have taken place on the 15th day of the next Congress. (For more on this possible course of action, read here.)

The finalization of the UIGEA regs will probably also light a fire under those interested in passing new legislation to regulate online gambling, such as the Internet Skill Game Licensing and Control Act of 2008 (S. 3616) introduced by Sen. Robert Menendez (D-NJ) in October.

Meanwhile, online poker players -- and the industry as a whole -- should anticipate more unpleasantness in the coming weeks and/or months. Plan accordingly.

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Blogger Champ said...

You are a fantastic reporter! Great write up. Albeit bad news...sigh.

Thanks for the service. Keep on, keeping us informed.


11/13/2008 11:43 AM  

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