An Introduction to The UIGEA.

Introduction to the UIGEA

In 2006, the Unlawful Internet Gambling Enforcement Act (UIGEA) was passed by US congress, and its impact was felt deeply and instantaneously. In fact, so scared were certain key figures in the online gambling community, that several ceased taking bets from American citizens immediately following the passing of the bill into law, and this is regardless of the fact they had not even read the Statute.

The following information will consider the impact and significance the UIGEA had on the gambling industry in general and begins with a consideration of the history of how the Act game about and the legal consequences it has for players and gambling operators.

 

UIGEA: A Brief History:

Almost since the inception of the internet American Congress had been trying to pass legislation against online gambling. However, all previous attempts to do so had failed, unforeseen hurdles and insurmountable obstacles seemed to pepper the path towards an all out online gambling ban.

Each year from 1998 saw any bills presented to congress met with various lobby groups who managed to hold-up the proceedings that would lead to an all out ban on online gambling- lobbyists came from various perspectives and all had a vested interest in the legal status of online gambling. Because of various lobbyists, the bill was always held-up to the point that Congress ran out of time prior to any Acts being passed.

However, in 2006, as the Republican government was trying to distance itself from various scandals stemming from connections with the lobbyist Jack Abramhoff, who was himself fighting against an online gambling ban, the republican party decided to create the American Values Agenda, and included within it was the necessity to prohibit online gambling.

The Representatives, Bob Goodlatte and Jim Leach both forwarded economic reasons for the legal implications of online gambling. For example, Goodlatte argued that the online gambling industry was responsible for taking billions of dollars out of the American markets, while Latte claimed that online gambling presented a greater chance for such crimes as fraud, money laundering and identity theft.

Opinion polls revealed that, contrary to the opinion of the Republican government, the vast majority of American citizens viewed online gambling as a matter of personal choice and many were vehemently opposed to a bill that they felt would infringe on their human rights. This meant that the Republicans began to panic in view of a move towards a majority Democratic government with both Houses going to Democrats in November 2006.

The Republicans slyly passed the UIGEA bill through as an add-on to their Homeland Security bill knowing the bill would pass smoothly because the American nation had become excessively paranoid about national security since the 2001 destruction of the World Trade Centre. The bill passed just before the shift in the Republican/Democrat power-ratio in Congress.

 

UIGEA, Its Journey Into Law:

Unfortunately, for American gamblers the political environment of 2006 was conducive to the passing of an anti-gambling bill. Because such individuals opposed the bill as Jack Abramhoff, whose reputation was notorious both Houses of Congress were keen to distance themselves from scandal, and the passing of the UIGEA was an excellent opportunity for them to do so. The was some good news though, the new gambling legislation was not as comprehensive as people had been expecting- but still sufficient enough to seriously damage the online gambling industry nonetheless.

In mid 2006, the House of Representatives introduced two new bills. One of them, the Leach Bill was designed to prohibit the transactions of certain electronic payments within the online gambling industry and even attempted to encourage foreign governments to help to ensure the Bill was upheld in their respective countries. At the same time, the Goodlatte Bill aimed to complement the Wire Act to include online casinos and poker rooms by redefining the specifics of the “business of betting and wagering” within the Act.

Because a great deal of controversy surrounded sections of the Goodlatte Bill, the house opted to compromise by merging each into a single Bill.

The Leach/Goodlatte Bill was passed in July 2006 which then went to the senate who considered the finer points of the Bill. As with the previous Bills regarding online gambling, Congress believed that the House would run out of time before they were able to pass it. However, the Bill was attached to the SAFE Port Act and was passed with only minutes to spare- sneaky politicians. Because the addition of the act was dubious as an expansion of the Wire Act, this part was removed, and due to the fact that it was attached to the Homeland Security Bill, which was effectively unstoppable, this meant that the online gambling legislation was unstoppable by default.

So, although the UIGEA was brought into law, once the Wire Act provisions were removed it meant there was little change with regards to the legality of online gambling than already existed under federal and state law. It did however contain ambiguous language, which then led to substantial confusion within the industry, with operators being unable to make neither head nor tail of where their businesses stood from a legal perspective.  

 

Analysis Of The UIGEA

Language

Ҥ5363 - Prohibition on Acceptance of Any Financial Instrument for Unlawful Internet Gambling

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 - [credit, EFTs, checks, drafts, or the proceeds of any other form of financial transaction as set forth in federal regulation].”

Before the UIGEA was passed people or entities (e.g. businesses) who helped or facilitated financial transactions from the online gambling industry could only be punished under charges known as ‘aiding and abetting’ (meaning that they were complicit in assisting an individual to commit a criminal offence) or alternatively, they could be charged with conspiracy (this means that they knowingly and voluntarily assisted an individual to commit a criminal offence).

Once the UIGEA passed into law, law enforcement officers were able to make use of more precise laws to charge offenders and no longer needed to resort to the distortion of ambiguous laws in order to punish people involved in online gambling transaction. The UIGEA effectively changed the law so that aiding and abetting charges no longer needed the offender to have knowledge of their actions, and conspiracy charges required no crime.

 

Bet or Wager

“The staking or risking by any person of something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon an agreement or understanding that the person or another person will receive something of value in the event of a certain outcome.”

Additionally, under this new definition a clause was added to incorporated lottery prizes that were awarded through a random process of chance:

“28 USC §3702 Scheme:  any instructions or information pertaining to the establishment or movement of funds by the bettor or customer in, to, or from, an account with the business of betting or wagering.”

At this point, the ambiguous nature of the original law comes back into focus, because the UIGEA included no new definition of wagering and betting, officers had to draw on the original Act as a guideline, and here is how it reads:

Ҥ532(2) Business of Betting or Wagering

The term "business of betting or wagering" does not include the activities of a financial transaction provider, or any interactive computer service or telecommunications service.”

Therefore, although the original Act is informative regarding what is NOT considered as the “business of betting or wagering”, it does not actually say what IS considered as a bet or wager. It is probable that this anomaly arose because a new definition was written, but it was placed within the extension of the Wire Act that was subsequently removed.

Therefore, no new definition was brought into law and the ambiguous nature of the original Act remained.

Because the only clear guidelines pertain to what is NOT the "business of betting or wagering is not" a great deal of uncertainty remains regarding what actually constitutes  a bet and to which areas of the online gambling industry are actually affected by the UIGEA. This is especially true to those companies to who the Act was meant to be aimed, the financial service providers.

Under the UIGEA...

“To establish that an individual or entity is in violation of the UIGEA, it must be proven that,

(1) A "person" was engaged in the business of betting or wagering;

(2) That person knowingly accepted a financial instrument or proceeds thereof; AND

(3) That instrument was accepted (by the person) in connection with the participation

of another person in "unlawful Internet gambling."”

So at the point at which an entity (either an individual, a group of people, or a company) which is involved in the "business of betting or wagering" (as defined above) consents to use finances that they are aware come from that business AND these finances come from another entity (either an individual, a group of people, or a company) who is engaged in unlawful Internet gambling, THEN a violation of the UIGEA has occurred.  

Clearly, the problem then arises of the definition of "unlawful Internet gambling", under the UIGEA this is defined as follows:

“Unlawful Internet Gambling

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 in the state or tribal lands in which the bet or wager is initiated, received, or otherwise made.”

Effectively, the UIGEA is therefore a more precisely focused statute than those that already existed in federal law and under particular jurisdictions.

 

State and Federal Laws Already in Existence:

Federal Law

The federal law that is responsible for the criminalisation of online gambling is the Wire Act (also known as the Wire Wager Act). The Wire Act however, was only applicable narrowly against sports betting businesses only.

Other laws, the Travel Act, the Wagering Paraphernalia Act, and the Organised Crime Control Act, have been used by state courts of laws as applying to online gambling; federal courts have only recognised the Wire Act as applicable.

Additionally, federal laws have only addressed sports betting, bolita, wagering pools and lottery games with regards to the criminality of online gambling.

 

State Laws

When evaluating the UIGEA in relation to state laws, a huge problem shows itself. There is not necessarily any uniformity across states with regards to online gambling legislation. In order to consider the UIGEA in relation to state law the task would be immense, as it would need to be evaluated in consideration of each of the 50 US states and their individual legislations on internet gambling. Moreover, any evaluation would need to keep up to date with changes in the laws, amendments, repeals...

Due to the fact that online gambling is not explicitly criminalised at a federal level this means that a narrow reading of the UIGEA can only be seen as applicable to state law.

Regardless of the above problems, there is another, insurmountable problem. When state laws attempt to regulate beyond the state parameters, e.g. nationally or internationally, the law may then become unconstitutional under the Commerce Clause of the United States Constitution.

Underpinning the Commerce Clause of the United States Constitution is the necessity of strict and consistent transactions between states. Most states have been affected by the clause, but it is likely to be expanded in order to take account of these problems.

If, in the mean time, a court finds that the state laws regarding internet gambling are unconstitutional, because the internet crosses national borders, the UIGEA would definitely only be applicable under federal law- but in this case online gambling is not explicitly illegal.

 

Website Blocking Provisions

In the United States, the Attorney General has almost limitless power to remove websites that it finds to be breaking the UIGEA legislation; these powers are granted to the Attorney General by the Internet Computer Services (ICS).

The ICS includes a clause allowing website operators to appear, in order to contest the removal of the website, however it makes no reference to where they may ‘appear’ and the Act makes no reference to any safeguards that website operators can draw upon. In other words, due process is not written into the law regarding the removal of internet sites that are believed to be in violation of the UIGEA.

Notice that the Attorney General only needs to believe that a website is violating the UIGEA it does not have to prove it.

Moreover, this is not the worst of it; the UIGEA affords the United States government to violate Freedom of Speech Rights through its power of censorship via a process that allows them to remove websites from the internet without having to prove the reason why. The government is able to direct the ICS to close a website and they do not even have to warn the website operator prior to the removal.

Clearly, the potential for the government to abuse their powers under the UIGEA is huge, and should strike fear in those free-loving Americans. They can close websites on a whim and have the legal backing to do so. Abuse of power is alive and kicking in the world’s most ‘forward’ thinking country.

 

The UIGEA and Foreign Jurisdictions

Because of the nature of the internet, it exists on a global level and does not come directly under the jurisdiction of the United States government only, and because the majority of online gambling operators get their licences from offshore sources (although they are not really offshore to themselves, this term just goes to show the governments arrogance), it will be hard for the US to enforce their UIGEA against international businesses, people or entities.

And, surprise, surprise, the UIGES refers to this ‘problem’ in its very own section:

 

Foreign Jurisdictions And Their Facilitation of Internet Gambling

Instead of the creation of new legislations, the section of the UIGEA devoted to foreign jurisdictions has attempted to place the problem of online gambling in pre-existing legislations relating to international crimes. These crimes cover many avenues, money laundering, fraud, corruption...

Under such laws, it is likely that foreign bodies will up-hold the laws only in the most extreme of cases. For the most part the UIGEA will largely be ignored.

 

Conclusion

Overall the UIGEA has failed in its task to ban internet gambling, its success however, lies in the impact it will have in future laws, designed as extensions to the original. Certain aspects have become simplified for the government as it wages its war against online gambling- for example, it can now easily discover and block those financial transactions that are affected by the UIGEA.

From the legal view, the UIGEA is largely insignificant. All it does is attempt to amalgamate gambling prohibitions into pre-existing criminal laws, and this could have been accomplished anyway through ambiguous readings of the laws that already existed.

The new material that the UIGEA introduced into law is somewhat unenforceable across state law, and ambiguously so in relation to federal law. Additionally, on a practical level it is too difficult to rollout completely and would probably end up losing more money than it aims to stem from the haemorrhage of the internet gambling industry to the American economy.

What the UIGEA does do however, is to increase the fear among online gambling operators as it increases their risk of criminalisation. This does mean that there is more space within the industry for small-scale businesses as the bigger ones move out of the way for fear of recriminations. The smaller operators have less to lose and more to gain.

 

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