Hearings: 'Net ban's flawed law

Apr 8, 2008 7:00 PM

Staff & Wire Reports | Representatives of the banking industry and federal regulators told the House Services Committee last week that the Unlawful Internet Gambling Enforcement Act is flawed legislation at best, and most likely unenforceable as intended.

Enacted 18 months ago, the UIGEA requires financial institutions to weed out and intercept illegal gambling bets placed by people in the United States. The Congressional committee was to hear testimony on the proposed rules that will be used to enforce the UIGEA.

Instead, it turned into a forum on how the UIGEA is so poorly written that it is unclear as to what constitutes "illegal" online gambling, and that it is "folly" to charge the banking industry with a task that federal law enforcement agencies can not do.

"There is no question that prosecuting unlawful Internet gambling poses numerous law-enforcement challenges," said Wayne Abernathy of the American Bankers Association, which represents 95 percent of the nation’s banks. "Unfortunately, the statute, as enacted, and the regulations proposed are both burdensome and unworkable and unlikely to result in stopping illegal Internet gambling."

According to a transcript of his testimony, Abernathy offered several major conclusions about enforcing the UIGEA:

• The Act requires financial institutions to enforce the law where federal agents could not.

• The Act requires Internet gambling businesses to identify themselves to financial institutions as gambling businesses, which is "not a realistic expectation."

• Because the law requires banking institutions to block illegal gambling transactions, the institutions would have to determine what those transactions were, which would not be a "reasonable undertaking."

• The cost to administer the law would be an "administrative burden" to banking institutions and could cause "an erosion in the performance of the payments system."

• Finally, requiring banks to assume a law enforcement role "in place of the government’s law enforcement agencies is not likely to be a successful public policy."

Even representatives of the U.S. Treasury Department and Federal Reserve System – agencies charged with creating the regulations that banks will have to follow – told legislators that it wasn’t reasonable to expect banks to enforce laws that were unclear at best.

"The most prominent concern is the lack of clarity of what forms of gambling are unlawful," said Louise Roseman, director of bank operations for the Federal Reserve System. "The payment system isn’t well-designed for this task, and that’s what we’re struggling with."

The Federal Reserve and Treasury Department are currently crafting rules to implement the UIGEA.

But, because the Act fails to define exactly what online gambling is illegal, the proposed rules do not, as well. That arbitrary task will be left to the banks, which, according to Abernathy, is not a reasonable undertaking.

The UIGEA was passed in October 2006 as Congress was breaking for its winter recess. The bill was attached to a port authority bill and it is believed many legislators approved it without even knowing what it said.

Roseman of the Federal Reserve said the UIGEA relies on current federal and state laws to define what constitutes online gambling, but those laws are often unclear and conflicting.