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Congress Passes Unlawful Internet Gambling Enforcement Act of 2006

11 October 2006

On Sept. 29, the United States Congress passed the Unlawful Internet Gambling Enforcement Act of 2006 as part of an overall port security bill. Senate Majority Leader Bill Frist, R-Tenn., spearheaded the effort to gain passage of the measure before Congress recessed for the upcoming November elections. The Senator made the following statement after the passage of the Act:

"Congress has grappled with this issue for 10 years, and during that time we've watched this shadow industry explode. For me as majority leader, the bottom line is simple: Internet gambling is illegal. Although we can't monitor every online gambler or regulate offshore gambling, we can police the financial institutions that disregard our laws."

The new law is aimed at preventing Internet gambling by placing restrictions on the financial transactions that occur in connection with online wagering. The Act restricts electronic fund transfers and the use of credit cards in connection with such wagering. This means that players can no longer make wagers, or collect winnings using electronic fund transfers, credit or debit cards, or other online payment systems.

The Act requires the U.S. Treasury Department to issue regulations that would prohibit approving a transaction between a U.S.-based customer account and an Internet gambling merchant. Financial institutions would be required to follow those regulations, and would be subject to fines or penalties if they fail to comply.

The U.S. Justice Department has long taken the position that Internet gambling is illegal. The new law will add teeth to this position, and make it far more difficult for Internet gambling sites to obtain wagers from U.S. citizens.

One long time proponent of legislation prohibiting Internet gambling, Senator John Kyl of Arizona, celebrated the passage by making the following remarks:

"It's been over ten years in the making. The enforcement provisions in this bill will go a long way to stop these illegal online operations. This ban will help authorities enforce existing federal and state laws. Internet gambling's characteristics are unique, because: online players can gamble 24 hours a day from the comfort of their home; children may play without sufficient age verification; and betting with a credit card can undercut a player's perception of the value of cash, leading to possible addiction and, in turn, to bankruptcy, crime, and suicide."

Passage of the new law occurred despite calls for a comprehensive study of the issues involved. The American Gaming Association called upon Congress to permit such a study, so that a clear picture could be developed with regard to whether gambling over the Internet can be effectively regulated and controlled. With technology rapidly evolving, many of the problems perceived by Kyl in the quote above can be alleviated through proper regulation. In passing the legislation, Congress left open several intriguing exceptions, including one for "intrastate" wagering, which could be the next big frontier as cash strapped states look for new sources of revenue.

Clearly, there will be many companies that will be hurt by the passage of the new law. However, there also will be many winners. There are numerous companies that have taken a very cautious and legally respectful approach to the use of the Internet for gaming. These wise companies correctly guessed that the day would come when Congress would take action to clarify U.S. internet gambling laws. Now they are well positioned to reap the benefits and rewards that compliance can bring. They will be the leaders of the new frontiers of intrastate regulated wagering as this sector of the market emerges.

David Waddell
David Waddell is an attorney for Regulatory Management Counselors, P.C. (RMC), which assists businesses in navigating the legislative, regulatory and licensing systems governing Michigan’s commercial and tribal casino industries. He is the co-author of The State of Michigan Gaming Law Legal Resource Book and one of the founders of The Michigan Gaming Newsletter.

David Waddell Websites:

www.michigangaming.com
David Waddell
David Waddell is an attorney for Regulatory Management Counselors, P.C. (RMC), which assists businesses in navigating the legislative, regulatory and licensing systems governing Michigan’s commercial and tribal casino industries. He is the co-author of The State of Michigan Gaming Law Legal Resource Book and one of the founders of The Michigan Gaming Newsletter.

David Waddell Websites:

www.michigangaming.com