New Online Gambling Bill

On Thursday, major news rippled across the internet gambling industry. House Financial Services Committee Chairman Barney Frank (D-MA) introduced HR 6870, the Payments System Protection Act. The bill ensures “that implementation of proposed regulations under subchapter IV of chapter 53 of title 31, United States Code, does not cause harm to the payments system, and for other purposes.” The new bill instructs the U.S. Treasury and Federal Reserve to work together with the Attorney General’s office to establish what is acceptable under the provisions of the Unlawful Internet Gambling Enforcement Act (UIGEA). The bill is expected to be marked up on Tuesday and is already on the schedule posted on the House Financial Services Committee website.

HR 6870 states, “The Secretary of the Treasury and Board of Governors of the Federal Reserve System may not propose, prescribe, or implement any regulation [of the UIGEA]… except to the extent as any such regulation pertains to wagering of the type that is prohibited under [the Wire Act] (relating to professional and amateur sports protection).” The UIGEA regulations that have been developed would immediately be suspended, except those related to online sports betting under the Wire Act of 1961.

The bill continues, stating that the Treasury and Federal Reserve “shall jointly develop and implement regulations (which the Secretary and the Board jointly determine to be appropriate), on the record after opportunity for an agency hearing involving an administrative law judge or similar official.” HR 6870 calls for a formal definition of “unlawful internet gambling” as well as a full economic impact study of the proposed regulations. It was proposed with just several weeks remaining in the 2008 Congressional session.

During a mark-up hearing of HR 5767 in the House Financial Services Committee in June, Congressman Peter King (R-NY) introduced an amendment that required the Treasury and Federal Reserve to work hand in hand with the U.S. Department of Justice to establish what is legal under the UIGEA. A vote was split 32-32, mainly along party lines, leading to the amendment’s defeat. That vote was followed up by an oral vote on HR 5767, without the amendment. The “Ayes” were outnumbered by the “Nays” and the bill was ultimately defeated. HR 5767 would have also suspended the regulations of the UIGEA.

Upon introduction, HR 6870 has one original co-sponsor, Congressman King. Frank has been adamant about passing legislation which absolves the financial services industry from becoming the de facto police of the internet gambling industry. At a hearing in April entitled “Proposed UIGEA Regulations: Burden without Benefit,” representatives from the Federal Reserve, U.S. Treasury, Wells Fargo, and the American Bankers Association stated that enforcing the UIGEA was all but impossible. No indication of which activities were permitted was given in the UIGEA’s text, forcing each financial institution either to examine each transaction scrupulously or forbid transactions that remotely look like internet gambling.