May 18th 2010
The Unlawful Internet Gambling Enforcement Act, called simply the UIGEA in gaming circles, was an amendment that was quietly passed into law as part of the SAFE Port Act, a bill related to national security, on October 13, 2006. It was done with much haste, steered through the Senate and attached to the principal piece of legislation just minutes before the Senate adjourned for the 2006 elections, and the final language was not even read by the people who voted on it.

The UIGEA aims to stop transactions that go from financial institutions to online slots casinos and other gaming-related sites and vice versa. Its intended effect is to cut off ways to fund online gaming activities, in effect blocking ways for US players to sign up. The bill affects banks, credit card companies, Western Union and other third-party entities where money transfers can be initiated.

The bill carves out exceptions for the lottery and horse racing (though not for other pari-mutuels), and there are allowances made for "fantasy sports" as well as free gambling-type games, with certain restrictions.

Shortly after the bill passed, many online gaming operators blocked their sites from business coming from US players. Companies who are traded on public exchanges overseas stopped dealing with American customers. The after-effects were certainly felt throughout the online casino business.

The law requires that banks come into compliance, with the purpose to identify gaming businesses by using a specific merchant code. Banks and others involved in money transfers are ordered not to transfer money to businesses with that merchant code. Without any danger of being sued for this, it is feared that they will do it much more than necessary.

Some logistical problems naturally arise out of this. Online gaming businesses could conceivably figure out a way to get a different merchant code, and evidence suggests that some already have. Also, banks don't necessarily like being in a position where have to devote manpower and financial resources to track down the recipients of paper checks.

The conundrum is that while the UIGEA has doubtless taken a toll on the online gaming industry, specifically as it concerns U.S. merchants, affiliates and customers playing casino games, there are certain ways an affected party could get around the law, and there is really no way this bill could possibly cover all of them. How far the United States government can actually go is a legitimate question, and if it can't cross jurisdictional lines, enforcement the UIGEA is difficult. You can hardly force a foreign government to cooperate if they don't have to or don't want to, and this is especially the case when they are realizing some kind of revenue from the activity. And online casino businesses operating outside the U.S. may be doing it legally in their own jurisdiction.

The bill not taking full effect as of yet, and some of the inherent problems are one reason for it. Ultimately it was to go into effect in December of 2009, but the industry got a temporary reprieve, due to the efforts of Rep. Barney Frank of Massachusetts, who has contested the bill and has crafted legislation that would establish regulatory guidelines for online casinos and poker rooms.

With the full provisions of the bill taking effect starting June 1, it's a tense time, so there will no doubt be much discussion about freedom, regulation and taxation. The story isn't completely told just yet.

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The Background of the American Gambling Law, UIGEA

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