An Analysis of the Unlawful Internet Gambling Enforcement Act of 2006

[Reel Deal]

An Analysis of the Unlawful Internet Gambling Enforcement Act of 2006

Introduction: For background purposes, I am a practicing attorney and an adjunct law professor. However, while I have years of experience reviewing and interpreting statutory law, it should be noted that this is not an exact science. People can (and do) interpret statutes in different ways and, consequently, people will react in different ways. So, while I may believe that this statute is not applicable and not enforceable against certain people and/or entities, those people or entitles may have the opposite reaction.

Summary of the Unlawful Internet Gambling Enforcement Act of 2006 (the “Act”): the following is my summary of the Act.

§5361. Congressional findings and purpose: this section gives a brief description of the findings of Congress (ie, that gambling is bad, but not all types) and that new mechanisms are needed to enforce gambling laws on the Internet.

§5362. Definitions: this section provides definitions for certain terms used throughout the statute (there are approximately 16 pages of definitions). There are some important definitions to point out.

First, the definition of “bet or wager” means the staking or risking of something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon the understanding that someone will receiving something of value in the event of a certain outcome. I’ve read a number of articles and posts on how poker could be exempt from this because it is not a game of chance but is rather a game of skill. Unfortunately, they did not write this definition to simply include “games of chance” rather they wrote it to include games “subject to chance.” I think we can all agree that a great deal of poker is subject to skill, however, there is an element of poker that is “subject to chance.” So, I don’t believe the skill vs. chance argument is going to be very helpful due to the way the definition was written.

The definition of being in the “business of betting or wagering” is not defined, however, financial institutions and ISPs are expressly excluded from the definition.

“Unlawful Internet gambling” is defined and means “to place, receive, or otherwise knowingly transmit a bet or wager by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State law…” So, this comes down to your state law, since there is case law that states that “the Federal act [is] not intended to be applicable to isolated acts of individuals not engaged in the business of wagering since its purpose is to curb the activities of the professional gamblers.” I checked Florida law and it is illegal here. However, it’s important to point out that the Unlawful Internet Gambling Enforcement Act of 2006 does not make it illegal for an individual citizen of the United States to place a bet or wager over the Internet.

The definition of “restricted transactions” is also important and means any transaction or transmittal involving any credit, funds, instruments or proceeds to a business involved in betting or wagering over the Internet.

§5363. Prohibition on acceptance of any financial instrument for unlawful Internet gambling: this is the meat of the statute and reads in pertinent part: No person engaged in the business of betting or wagering may knowingly accept, in connection with the participation of another person in unlawful Internet gambling – (1) credit or the proceeds of credit (ie, credit cards), (2) EFTs or similar means, (3) checks, drafts or similar instruments, or (4) the proceeds of any other form of financial transaction.

That’s it. That’s the meat of this statute. So, basically it makes it illegal for a business engaged in betting or wagering to accept funds from a person in the United States. Some important points… first, as I said above, the Act does not make it illegal for an individual citizen of the United States to place a bet or wager over the Internet. Of course, in most states this is already illegal, just not enforced. Second, any gaming company or poker site not residing in the United States is not subject to the provisions of this law as the U.S. Congress has no jurisdiction over entities in foreign lands.

§5364. Policies and procedures to identify and prevent restricted transactions: this section requires that the executive branch, before the end of the 270 period after enactment, promulgate regulations that will require financial institutions to block/prevent payments to any business engaged in betting or wagering over the Internet. So, basically, any financial institution based in the United States must put a policy in place that will prevent any customer from sending funds to any business engaged in betting or wagering over the Internet. As it currently stands, most U.S. financial institutions already prevent people from making a direct deposit to an Internet gambling site. This should not prevent someone from making a transfer of funds from their U.S. bank account to a service like Neteller simply because (1) Neteller is not engaged in the business of betting or wagering, and (2) Neteller is an off-shore entity and therefore the U.S. government has no means in which to force them to reveal where money is being deposited after it reaches a Neteller account.

§5365. Civil remedies: the important part of this section, in my opinion, is the part that allows a U.S. District Attorney (or a States’ Attorney) to file for injunctive relief against “any person to prevent or restrain a restricted transaction.” This is where, I think, the government might be able to go after someone involved in the affiliate program of an on-line poker site. An argument could be made that an affiliate is facilitating a restricted transaction and therefore the D.A. could file for injunctive relief because doing so would prevent and/or restrain a restricted transaction. Remember though, we’re talking about civil remedies and injunctive relief here, an affiliate cannot be jailed or fined under this section, they can just be prevented from remaining an affiliate. I think this would also apply to someone that endorses a real money poker site and possibly someone that provides links via a website to a real money poker site, although that’s a stretch.

This section also allows for injunctive relief against ISPs to force them to remove or disable access to an online site violating §5363, or a hypertext link to an online site violating such section, that resides on a computer server that such service controls or operates. So, for an injunction to block an ISP from allowing access to an online site that violates §5363 to be valid, the violating site (ie, a poker site) would have to reside on the server of the ISP. I highly doubt that PokerStars or UB or Bodog reside on Comcast, or Bell South or any other ISP’s server. Quite frankly, I’m shocked at how this section was written. Why include the requirement that the violating site reside on the server of the ISP? This is a head-scratcher for me.

Lastly, this section does not allow a D.A. or State’s Attorney to seek injunctive relief against a financial transaction provider.

§5366. Criminal penalties: anyone who violates §5363 (remember, that only means someone in the business of betting or wagering, not an individual player) shall be fined, imprisoned for not more than 5 years, or both.

§5367. Circumventions prohibited: this section basically holds that an ISP or financial institution that actually runs its own betting or wagering site will not be exempt from the Act even thought there are stated exemptions for those entities in the Act.

Sec. 803. Internet Gambling in or Through Foreign Jurisdictions: this section basically instructs the executive branch to try to encourage cooperation by foreign governments in identifying whether Internet gambling operations are being used for money laundering, corruption or other crimes and to have them share information that might help with the enforcement of this Act (of course, they aren’t required to do so).

So, that’s the Act in a nutshell. From my perspective the important points are as follows:

1. The Act does not make it illegal for an individual residing in the United States to place a bet or wager over the Internet;

2. Poker sites and entities like Neteller that are not based in the United States are not within the jurisdiction of the Act;

3. The Act does not appear to include a mechanism that would prevent EFTs from an entity like Neteller to/from a U.S. bank;

4. The Act does not appear to include a mechanism that would force an ISP to block its customers from accessing an on-line real money poker site, unless that site resided on the server of the ISP; and

5. Due to the language of §5365, I would be leery of being an affiliate or endorser of a real money poker site and I would also be leery of hosting a site that links to such sites. However, it is important to remember that an affiliate or endorser or someone that links to a poker site would only be subject to an injunction and not criminal penalties.

Like I said before, I honestly don’t think this should cause the end of real money on-line poker for U.S. players. However, a lot of what happens next is going to depend on the reaction of the various poker sites. Here’s hoping that they use reason and rational thought to guide their reactions.

DISCLAIMER: You should not construe the above as being legal advice and should not act in any way in reliance on the above. Always consult a lawyer before taking any action which you believe may violate the law.

[Talking Poker]

Excellent analysis. Thanks.

[Robbr25]

Thank you very much Reel Deal for the analysis.
There were a few points that you made that I had not considered ("read right") when I read the bill.

[Quint]

Wow! Thanks for that great, easy to understand analysis. I hope that it all shakes out as you interpret it. I guess we won't know until there are some test cases. Care to volunteer, TP?

[Kurn]

Say one State were to legalize internet gambling. Would that call into question the constitutionality of the Unlawful Internet Gambling Enforcement Act of 2006? Wouldn't that bring both the Interstate Commerce and Full Faith and Credit clauses into play?

[Quint]

[Reel Deal]

Kurn, I'm not sure I understand your question.

The Full Faith and Credit clause has to do with one state honoring a judicial decision of another state (ie, a party who loses a case in Florida generally may not relitigate the case in Georgia; the Georgia courts are bound by the Florida ruling). Not sure how that could bring up the constitutionality of this Act.

The Commerce Clause gives the federal government the right to preempt any state laws that regulate interstate commerce. Per this clause any matter relating to interstate commerce is in the exclusive domain of the federal government. Having said that, the clause does allow Congress to permit state regulations that would otherwise violate the Commerce Clause (e.g., allow them to come up with their own laws regulating on-line gambling). So, again, I'm not sure how this clause could be used as a means to declare the Act as being unconstitutional.

Perhaps you have some examples you're thinking of?

[Reel Deal]

I love this quote from the article:

"Frank Catania, former director of gaming enforcement in New Jersey and president of Catania Consulting Group, calls the law "a sham" that won't stop online betting in the U.S. "There are so many alternate means of payment that it is not going to stop what is happening here," says Catania. "We are going to be spending a lot of money for enforcement, and it is going to be worthless." Enforcing the act will cost about $2 million between 2007 and 2011, according to a May 26 Congressional Budget Office report."

Way to go Bill... all you're doing is costing us money for no good reason! Fucking idiot.

Edit: one other thing to point out here... if the Congressoinal Budget Office is only tagging $2M for enforcement over a 5 year period, that's peanuts and shows that they have no intention of seriously enforcing this Act.

[Kurn]

No. You answered the question. They don't apply.

[Reel Deal]

If I was going to go after this law from the perspective of it being unconstitutional, I would attack it for being too vague. You might also be able to attack it for procedural flaws.

[Kurn]

I don't think that works. The Constitution itself is vague in many points. But that's a different discussion.

[drewjax]

The more I read about this, the more I think this is true. IMO, they are truly just using this as a run around to eventually legalize/regulate/tax all of this. Idiots should just have some stones and do it now. They seem to do whatever the F they want anyway.

[Reel Deal]

Lots of statutes get struck down for vagueness and I think this one would be a good candidate, it is very poorly written.

[Penguinfan]

Wishful thinking. The far right Christain moral zealots kicked our ass on this one, plain and simple.

Chad Hill who works for Jim Dobson and Focus on The Family admits they have been trying for 7 years to get some form of legislation against internet gambling on the books and it's believed he had a hand in helping write the Kyle bill that got the ball rolling most recently.



"We've been pushing for seven years now," Hills said, "to get anything through Congress that would restrict or prohibit Internet gambling from reaching into living rooms and homes across the nation."

It was a vote heard 'round the world, he added.

"Internet gambling operations around the globe are stunned," Hills said. "Shareholders are pulling their money and online gambling stocks are plummeting all the way from Antigua to Costa Rica to the United Kingdom. Two of the UK's largest online-gambling entities are canceling all U.S. operations. For the time being, Internet gambling in the U.S. is dead."


While they have come up short of all he is implying, make no mistake about who the problem is. If you think Frist isn't playing to this crowd to secure votes in the 08 election you simply aren't paying attention.

[Kurn]

While I agree with you on Frist's (and Goodlatte's and Kyl's) motivation, that narrow view doesn't explain away the moderates and liberals who are on board with this. it certainly doesn't explain why 60% of House Democrats voted for it.

There's a lot of different forces at play here. The Christian Right is one, for sure, the Nanny-State Left is another, the "I'm struggling for re-election and this looks good" group is a 3rd, and those who see the dollar signs if they can somehow manipulate the process to bring this $12B industry onshore are a 4th

[Penguinfan]

Since this was attached to the Port Security bill anyone voting against it would have appeared soft on terrorism, not something you can afford a month before elections.

[Talking Poker]

He's talking about the House vote - not the Senate.

[Kurn]

I was unclear, sorry. My reference was to the Goodlatte Bill in the House (HR 4411), which was a standalone bill that passed on July 11, 2006.

It was, in fact, far more restrictive than the rider that was attached to the port bill and had absolutely zero to do with terrorism. democrats supported THAT bill 115-76.

[johnp158]

Not to mention the Senate bill passed by voice vote. So you can't really say who did or didn't support it.

[Penguinfan]

I really can't speak for that. Currently with Frist getting involved when he did I have no doubt of his intention.

My only guess about HR4411 is that they knew it would die on the Senate floor for what I think was the second year in a row.

The voice vote that passed this through the Senate was a joke.

[Kurn]

You're such an idealogue that you're in total denial that support of the ban is bipartisan (stronger on the GOP side, I don't deny that).

When the Senate Dems rehjected adding the rider to the military spending bill, the democratic leadership made a point of telling Frist that they thought the bill was a good idea and would support it in the future, but rejected adding the rider to that bill because it had nothing to do with military spending.

[Penguinfan]

If I knew what "Idealogue" meant I would probably be pissed about now.


You say they rejected adding the rider to the defense spending bill because it had nothing to do with that, but it couldn't possibly have much to do with port security either.

For the record, I'm not a Democrat, I'm a republican, or at least I was till the past four years. I don't doubt that there is support on the Dems side, I'm just saying that Frist saw an opportunity and took it while the far Right was looking for anyone they could find to champion this cause.

[Tony Cheval]

I'm really starting to suspect the real purpose of this is to scare the offshore companies away, so the big AMERICAN companies (you know, the ones paying off the Congresscritters), have a free shot once they can hammer out the details.

[drewjax]

Simply not paying attention huh. OK

I think my point was that is exactly what Frist is trying to do. He is out front as the champion of this cause, trying to get votes from the conservative (voting) majority. However, as has already been stated, if they plan on spending $2 mil. over 5 years to enforce this, they aren't going to enforce much. Then when he is president (in his mind), they come up with "This isnt working", and legalize/regulate/tax all of this.

Simple. Opinion.

[Penguinfan]

That honestly wasn't directed at you specifically, more to the masses, sorry if it came across that way.

I do think you are reaching with that thought process though, if Frist knows he needs those votes to get elected, he couldn't turn his back on them and expect to get re-elected four years later.