Contrary to what some believe, the UIGEA does not make it illegal for players to make wagers or bets online. However, this applies to the financial or credit institutions that process monetary transactions for gambling purposes. “Bets” as defined on Section 5262 of this act constitutes:
The Act Became Effective on October 13, 2006
“Be careful what you wish for; you might get it.
Those people who have said that we should not ban Internet poker, we should tax it, have just had their wish come true, though not in a manner they sought. (I am one of those people.) The Unlawful Internet Gambling Enforcement Act of 2006 is going to create revenue from Internet poker for those states where it is legal to do so. The “collateral damage” is enormous. Every other Internet poker site is going to lose most or all of an important part of its customer base—the US player. We need to take a closer look at the bill that was passed and visualize what is going to happen as a result.
The law is going to put a big dent in poker for now, but it is far from the worst possible bill that could have been written. It does not make it illegal to play Internet poker, and it allows states to still have the freedom to set their own gambling laws within their own boundaries, as long as they do not allow anyone under 21 to play. If one were assigned the task of writing a bill to legalize Internet poker in the USA so the government could make money off it, the following content would be likely:
Eliminate or greatly reduce outside competition from other countries.
Do not link poker with the wire act.
Do not criminalize the bettor who uses either a legal or unlawful Internet playsite.
Do not handicap any state’s ability to offer Internet poker to players within its boundaries or players in another location where the Internet gambling is lawful.
Make sure the main objection to playing Internet poker of offering the game to underage players does not take place.
The above has all been done in this new bill, despite the fact, there were many other options in wording the bill to make Internet gambling unlawful. For the above reasons, I believe that any meaningful change to this legislation will not take place and that states will move to take advantage of this new potential revenue source. I will give you my further take on the situation, using a question and answer format.
No. The player is not directly affected, in the sense that gambling legislation pertaining to the poker player is left up to the state where he resides.
One cannot say how rigorously any anti-gambling bill is going to be enforced. However, even if it were enforced in a lax manner, the effect will be enormous, because financial institutions located in the US can hardly afford to be in non-compliance with the law.
If you are knowledgeable about such things, it is quite possible you will find a workaround. But it is also quite possible that most of your countrymen you want to gamble with will no longer be available as opponents.
One can never be sure which companies will be designated by our government as aiding illegal online gambling and thus be a violation of the law. However, the new law allows our government to identify such a company and declare a transaction with it to be illegal. The money transfer company you are using is likely to be identified in this manner.
The house passed it with a direct vote on the legislation in July 2006. The Senate passed the bill this fall because Senate Majority Leader Bill Frist of Tennessee was able to put the anti-gambling legislation inside the Port Safety Bill, which was not the kind of legislation any senator could afford to vote no on, especially with an election a month away. This also insured there would be very little discussion of the bill, as Congress was eager to go home and campaign.
True, but my opinion is this legislation is not going to be changed. There are several reasons for my saying this, but the main one is it is difficult for our country and states to make money from legalizing Internet poker unless the provider is geographically located within the territory where the users are located. This bill shuts out foreign competition, but it leaves the legality of Internet poker within the power of each individual state. The only requirements for a state is that it cannot allow players from anywhere out-of-state to play on its own legal Internet sites. Once the states see they are in a position to make money from Internet poker, because the competition has been extensively decimated, where will the political will be to undo the law?
True, for now. But I can see two states who have both legalized Internet poker asking the federal government to amend the law so they can offer a wider choice of games, and I think the government would oblige.
Yes; the bill specifically says this. The user and the company providing the gambling must be physically present within a state where the activity is legal, but the actual routing of the transmissions is immaterial. Here is the bill’s language:
“The intermediate routing of electronic data constituting or containing all or part of a bet or wager, or all or part of information assisting in the placing of bets or wagers, shall not determine the location or locations in which a bet or wager is transmitted, initiated, received, or otherwise made, or from or to which a bet or wager, or information assisting in the placing of bets or wagers, is transmitted.”
It is silly to have multiple poker-playing sites within a state, because the customer base is too small to support such a structure. So I think the state will make a deal to allow only one site, but license a number of marketing companies to recruit players and be “skins” off the site. I also think that many other card games besides poker where the players compete only against each other will be allowed. Card games like bridge and gin rummy are likely candidates.
First, there has to be a period of time where people get to see the effect of this legislation, so I do not expect a lot of movement before the end of 2007. Second, legislators do not like to tackle wedge issues like gambling in an election year, so 2008 is not so promising. So my prediction is that the first state will be collecting revenue from Internet poker in late 2009, several states by 2011, and 20 states by 2013. I also think that by this time the bill will be amended to allow states which have legal Internet poker within them to pool their resources, as is done in other state gambling revenue sources such as lotteries, and have some play such as big tournaments take place on a mega-site.
The Unlawful Internet Gambling Enforcement Act of 2006 (the “Act”) enacted into law at 10 a.m. ET on Friday October 13, 2006. The Act adds the following provisions to the money and finance provisions of Title 31 of the United States Code
SUBCHAPTER IV – PROHIBITION ON FUNDING OF UNLAWFUL INTERNET GAMBLING
5361. Congressional findings and purpose
5363. Prohibition on acceptance of any financial instrument for unlawful Internet gambling
5364. Policies and procedures to identify and prevent restricted transactions
5365. Civil remedies
5366. Criminal penalties
5367. Circumventions prohibited
Section 5363 bans and Section 5366 criminalizes the acceptance of funds from bettors by operators of most online gambling Websites. The operators affected are those who:
(1) being engaged in the business of betting or wagering
(2) knowingly accept
(3) proceeds from credit cards, electronic fund transfers and checks<
(4) in connection with with the participation of a bettor
(5) in unlawful Internet gambling, which is the sponsorship of online gambling that violates any other federal or state anti-gambling law..
The ban and criminal provisions become effective immediately on enactment.
Mere participation in online betting or wagering is not banned or criminalized by the Act.
Section 5364 requires financial institutions to adopt procedures and policies designed to block the flow of prohibited funding to the operators of the affected online gambling Websites. This provision does not become mandatorily effective until the federal regulators adopt implementing regulations. The Act allows the regulators 270 days (about July 2007) to write and adopt the regulations.
Section 5365 gives federal and state attorneys general the power to seek civil remedies to help enforce the other provisions of the Act. The remedies include ordering an Internet service provider to remove access to the Website of an operator who violates Section 5363 or other Websites that contain hyperlinks to such sites. Such remedies may only be sought as to Websites that are hosted by the particular Internet service provider.
Bets and Wagers
Section 5363 does not make it illegal for a mere player to make bets or wagers. Rather, the Act applies only to those involved in the business of betting or wagering. Section 5262 defines a bet :
Some commentators have argued that the operation of online poker Websites should be excluded from the reach of the new law because poker, being a skillful game, is not a game of chance. Under current state law, that argument does not hold water. Most U.S. jurisdictions apply the Dominant Factor test to determine if a contest is a game of skill or a game of chance. That test looks to which elements predominate (51%) in determining the outcome of the game. If the elements of chance predominate, then it is a game of chance, notwithstanding that skill elements are important, but not predominant. Furthermore, the outcome is to be determined by considering the nature of the game and the abilities of the average player coming to the game. See: Is Poker a Game of Skill? Online poker operators should consider the mathematical analysis of their vast databases of poker results to support attempts to overturn the case law that views the “luck of the draw” aspect of poker as resulting in its being a game of chance.
Excluded from the definition of “bet” are:
Unlawful Internet gambling is defined as:
The new law, therefore, only applies to online gambling operators who violate other existing state or federal anti-gambling laws. Some commentators on this aspect of the Act conclude that since there are only a handful of states that expressly ban Internet gambling, this law has not accomplished very much.
The better view is that all of the online gambling sportsbooks, casinos and cardrooms violate existing anti-gambling laws of every one of the fifty states. This is because:
Thus, this professional form of unlicensed gambling appears to be illegal whether or not the state has adopted a specific Internet anti-gambling law.
Accepting Funds for Betting Banned
Section 5363 contains the basic prohibition of the new law. It bans online gambling operators from accepting most forms of funds to be used by the players to gamble on their Websites. The ban applies to:
“(1) credit, or the proceeds of credit, extended to or on behalf of such other person (including credit extended through the use of a credit card);
“(2) an electronic fund transfer, or funds transmitted by or through a money transmitting business, or the proceeds of an electronic fund transfer or money transmitting service, from or on behalf of such other person;
“(3) any check, draft, or similar instrument which is drawn by or on behalf of such other person and is drawn on or payable at or through any financial institution; or
“(4) the proceeds of any other form of financial transaction, as the Secretary [of the Treasury] and the Board of Governors of the Federal Reserve System may jointly prescribe by regulation, which involves a financial institution as a payor or financial intermediary on be half of or for the benefit of such other person.”
Funds accepted under paragraphs (2), (3) and (4) must be paid by or drawn on a “financial institution.” That term is defined by reference to Section 1693a of the Electronic Fund Transfer Act, and “means a State or National bank, a State or Federal savings and loan association, a mutual savings bank, a State or Federal credit union, or any other person who, directly or indirectly, holds an account belonging to a consumer.” (Emphasis supplied.)
Some commentators have expressed the view that operators can avoid the application of the ban by accepting funds only through online financial intermediary e-wallets like NETeller and FirePay. The commentator’s reason that those intermediaries are located offshore, are not “financial institutions” and are not subject to direct regulation by the Federal Reserve Board (“Fed”) or other U.S. governmental agencies.
The commentators are wrong. Section 5362(4) defines “financial transaction provider” to include any “…international …payment network utilized to effect … electronic fund transfer[s]…”
If that were not enough to grant the Fed power to impose include NETeller, et al, in its regulations, the Act also grants regulatory and enforcement powers to the Fed and the Federal Trade Commission (“FTC”). The FTC’s enforcement authority specifically applies to financial transaction providers not otherwise subject to the jurisdiction of any Federal functional regulators. The Fed’s regulatory power also includes the authority to adopt policies and procedures designed to prevent the acceptance of financial transactions prohibited by Section 5363.
It is a legal maxim that a law cannot be circumvented by doing indirectly that which cannot be done directly. If it appears to the Fed or the FTC that these financial intermediaries serve primarily as conduits for transmitting funds to online gambling operators, then either one of them could adopt regulations or seek enforcement sanctions effectively banning U.S. financial institutions from dealing with those intermediaries except on stated conditions designed to prohibit the intermediary from retransmitting the funds to online gambling operators.
In its interim financial report for the six months ended June 30, 2006, NETeller admits that 85% of its business is from U.S. residents. The report also says: “The first half of 2006 represented another period of continued growth and progress in line with our ‘deepen and extend’ strategy despite regulatory developments affecting our main market, the online gaming industry.” On the basis of those facts, the Fed could well find that NETeller is primarily a conduit for the transmission of funds to online gambling operators.
Those who log onto NETeller for the first time starting October 10, 2006, are greeted with a message announcing a change in that e-wallet company’s customer terms and conditions. The following provision in paragraph 12.1(ii) is new (at least since March 31, 2005, which is the last time that NETeller permitted the Wayback Machine to record its old pages): “12.1 You are prohibited from engaging in any of the following: … (ii) using the NETELLER Service for any purpose contrary to laws, statutes or regulations applicable to you, including without limitation, those concerning money laundering, fraud, criminal activity, financial services or consumer protection …” Presumably, this new provision applies to both players and the operators of online gambling Websites, since both are customers of NETeller.
Neteller has announced: “The Company expects to have a clearer view of how financial services companies can comply and any possible resulting impact on its business as the regulations are drafted in the 270 days following the signing of the Act. In the meantime, the Company will continue to operate its business to minimize any potential adverse impact, maintaining existing customer and merchant support across all the markets it currently serves.
On October 19, 2006, NETeller issued a further press release conceding that it will comply with the Act. It said:
NETELLER, a company registered outside the US, will comply with the Act and its related regulations as if it were subject to the Act’s jurisdiction. This action is intended to ensure that the Company is able to continue to operate with the support of its principal commercial partners and to protect its shareholders, business partners, employees and reputation.
Various provisions of the Act, including the obligations of financial transaction providers such as NETELLER, remain unclear. This uncertainty should be largely resolved when the Secretary of the Treasury and the Board of Governors of the Federal Reserve System issue the regulations they are required to prescribe within 270 days.
On October 10, 2006, Fireone, the parent of the second leading e-wallet said: “The Company today announces that following the approval of the Act by the President of the United States, it will immediately cease to process settlement transactions originating from United States consumers that may be viewed as being related to online gambling. The Company expects the Act to be approved by the President of the United States in the immediate near term.”
Section 5364 mandates that the Federal Reserve Board and the Secretary of the Treasury issue “appropriate” regulations designed to identify and block the transfer of funds to the online gambling operators from U.S. financial institutions. The regulators are given nine months to put these regulations in place. Once the regulations are issued U.S. financial institutions will be required to comply with them.
The regulators are given the authority to “exempt certain transactions or designated systems from any requirement imposed … if …it is not reasonably practicable to identify and block, or otherwise prevent or prohibit the acceptance of such transactions.” Sec 5364(b)(3). This provision was beefed up in the final version of the legislation in consideration of the views expressed by the banking industry that it would be impracticable, if not impossible, to block certain transactions, such as paper checks. See, for example, the letter from the Independent Community Bankers Association before Note: Even though U.S. financial institutions may not become obligated to block paper checks or certain other financial instruments, the acceptance of those items by the online gambling operators is still prohibited and criminalized under Sections 5363 and 5366.
The regulators are also mandated to “ensure that transactions in connection with any activity excluded fro the definition of unlawful internet gambling … are not blocked… by the prescribed regulations. Section 5364(b)(4). In a summary of the new law the Independent Community Bankers Association states: “It will be difficult to craft and comply with this requirement. Procedures would have to discern the difference between legal and illegal forms of Internet gambling, which may depend on the exact location of the individual gambler. This goes well beyond what banks are required to do to root out terrorist financing and money laundering. However, financial institutions are shielded from liability for inadvertently blocking legal transactions.” (Emphasis supplied.)
Section 5366 imposes criminal penalties for accepting funds banned under Section 5363. The penalties include fines and jail time of up to 5 years. They also permit a court to enter permanent injunctions barring convicted violators from “making bets or wager or sending, receiving, or inviting information assisting in the placing of bet or wagers.”
The new law did not amend, update or otherwise change the Wire Wager Act. This has been seized on by some commentators to reach the conclusion that operating an online casino or cardroom has not been criminalized. That view is irrelevant and a non sequitur. The new law is specifically applicable to all operators of online sportsbooks, casinos, and cardrooms who accept bets and wagers in violation of any applicable state or federal anti-gambling law. It provides more severe criminal penalties than currently provided under the Wire Wager Act. Therefore, the new law is to be feared as much or more than the Wire Wager Act.
Financial institutions and money transmitting businesses, like Western Union, (“financial transaction providers”) are not subject to any liability if they rely on and comply with the regulations adopted by the federal regulators. Financial transaction providers are not liable to a customer for blocking a transaction in accordance with the regulations. Section 5364(d).
An Internet service provider (“ISP”) such as AOL, Comcast.net or Verizon.net, is subject to civil enforcement proceedings brought by a federal or state attorney general to force it to disable access to the online gambling Website or to other Websites that have a hypertext link to the online gambling Website. Section 5365(c). The ISP against whom the relief is to be sought must be the actual host of the offending Website. Since all of the current online gambling websites are hosted by ISPs outside the U.S., and thus beyond the jurisdiction of the U.S. courts, this provision is basically only applicable to affiliates of online gambling sites. It is very easy for such affiliates to transfer their Websites outside the U.S. to avoid being removed from the World Wide Web. Finally, no ISP is required to monitor its service or to affirmatively try to track down any activity by its customers that might be in violation of the Act.
The federal aider and abettor statute, 18 U.S.C. 2, provides:
“(a) Whoever commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal.
(b) Whoever willfully causes an act to be done which if directly performed by him or another would be an offense against the United States, is punishable as a principal.”
The criminal provision of Section 5366 creates a new “offense against the United States.” All those who aid or abet an online gambling website that is in violation of Section 5363, and thus of Section 5366, are punishable as if they were the online gambling Website. The same goes for those who are employees and officers. In appropriate cases this “punishable as a principal” law may also ensnare directors, major shareholders, advertising media, affiliates and those who are so-called consultants, team members or front men for the online gambling Websites.
A commentator for BettingMarket.com concluded:
“It is now widely believed that when the Unlawful Internet Gambling Enforcement Act of 2006 is signed into law, all but the most cavalier of online operators will stop accepting bets from US citizens.
“The notion that a number of the leading companies, may then decide to hang around in the US, exploiting opt out clauses in the Act, simply beggars belief.
“Until the climate changes, the best advice would be to give the US a wide bearth once and for all. To do otherwise would be to antagonise the US authorities, and to further increase the risk of arrest. And that is something that beleagured ordinary investors can live without.”
Jeff Simpson, the business editor of the Las Vegas Sun expressed this conclusion: [I]f the poker community keeps whistling past the graveyard, pretending that there’s nothing wrong with flouting the law in pursuit of easy money, even tougher crackdowns are ahead.
In a press release, PartyGaming, the parent of PartyPoker.com said:
“The Act is expected to be signed into law by President Bush within the next two weeks…. [I]t will immediately make unlawful the receipt by a gambling business of proceeds or monies in
connection with unlawful internet gambling. The Act does not clarify the definition of unlawful gambling.
However, as the first piece of Federal legislation dealing explicitly with internet gaming, it does make
clear that the US government intends to stop the flow of funds from Americans to online gaming
operators through criminal sanction. The Act also asserts that, under US law, a wager must be permitted
under the laws both of the customer’s place of residence and that of the operator.
“After taking extensive legal advice, the Board of PartyGaming Plc has concluded that the new legislation,
if signed into law, will make it practically impossible to provide US residents with access to its real money
poker and other real money gaming sites. As a result of this development, the Board of PartyGaming
has determined that if the President signs the Act into law, the Company will suspend all real money
gaming business with US residents, and such suspension will continue indefinitely, subject to clarification
of the interpretation and enforcement of US law and the impact on financial institutions of this and other
Echoing that conclusion, publicly-held 888.com, has announced that once the Act is signed into law it will no longer allow U.S. residents to play on its real money sites at Casino-on-Net and Pacific Poker. SportingBet has announced that its online poker room, Paradise Poker will stop taking U.S. bets on October 13.
Here is a statement made by Jeffrey Pollock, Harrah’s vice president of sports and entertainment marketing and its World Series of Poker Commissioner: “I honestly haven’t spent much time thinking about what the (poker) dot-coms do or don’t do because we’re not in business with them…. First of all, we do not accept money from any dot-com site. If an individual is registered by a third party, that third party signs an affidavit saying the funds did not come from illegal sources. So we are not in business with dot-com sites.” Surely that remark is breathtakingly disingenuous. Something approaching half of the $88,000,000 in entry fees Harrah’s took in for the championship event at the 2006 World Series of Poker came from the dot.com online poker cardrooms. The payments were thinly disguised as coming from advertising agencies for those dot.com sites or from the Trojan horse dot.net sites run by those online cardrooms. There can be no doubt that Harrah’s actually knew the true source of the funds that paid for those 4,400 or more entries. This is especially so in light of the fact that none of the dot.net sites have any way of making any money since they are all free play sites. Could anyone honestly think that the advertising agencies paid in money of their own?
The ludicrous nature of Commissioner Pollock’s PR-spin is demonstrated by the recent information Harrah’s has given to the online cardrooms that it will not be accepting third-party registrations for the 2007 World Series of Poker events. One observer expressed the view that the main event at next year’s World Series of Poker would draw fewer than 2,200 players, a drop in attendance of some 75%.
Additionally, one of the online cardrooms, FullTiltPoker.com, has announced: “Unfortunately due to the upcoming change in legislation Full Tilt Poker will no longer be able to satellite US residents into live tournaments in US. This policy will be effective immediately.”
A number of the online cardrooms, all of which are privately-held companies, have announced they intend to continue their real money U.S. facing online poker rooms. Included is the current second largest online cardroom, PokerStars.com, as well as UltimateBet.com, FullTiltPoker.com, DoylesRoom.com and AbsolutePoker.com, among others. PokerStars is sending e-mails to some of its players that state:
PokerStars has received extensive expert advice from within and outside the U.S. which concluded that these provisions do not alter the U.S. legal situation with respect to our offering of online poker games.
Furthermore it is important to emphasize that the Act does not in any way prohibit you from playing online poker.
Therefore, our business continues as before – open to players worldwide including the US. You may play on our site as you did prior to the Act.
PokerStars believes that poker is a game of skill enjoyed by millions of players and we remain committed to providing you a safe and fun environment in which to play. We value your loyalty to PokerStars, and look forward to continuing to serve you with the best online poker experience, as we have for the past five years, six billion hands, and 40 million tournaments.
Doyle Brunson sent a personal e-mail under his picture and over his signature to players at DoylesRoom.com saying:
We at Doyle’s Room have taken extensive legal advice and believe that it is far too early to fully understand the implications of this bill on our industry. Based on the legal advice we have received, the new bill does not make internet poker expressly illegal nor does it take aim at players who enjoy online poker. However, there are some U.S. States that have existing regulations in place that may prohibit online gaming, so we encourage all of our U.S. players to review the laws of the State in which they reside.
Until such time as the law becomes clearer, Doyle’s Room will operate as normal with our full exciting range of games and tournaments at all limits.
And finally, please rest assured your money is completely secure at Doyle’s Room. I personally guarantee it.
The fact that the new law does not expressly name poker as a prohibited online game should not be taken as providing comfort to the owners and sponsors of DoylesRoom.com. As pointed out previously in this article, the Act creates a new federal crime with a five-year felony penalty, which exceeds that mandated under the Wire Wager Act. Mr. Brunson is a U.S. citizen residing in Las Vegas, Nevada and is thus readily subject to indictment and arrest. Nevada is a state that has a specific law (NRS 463.750 License required for person to operate interactive gaming) making operating an Internet gambling site illegal. The new Act clearly applies to DoylesRoom.com, and thus to Mr. Brunson. Furthermore, while the absence of illegality by those playing online may be comforting to them, it should not provide any comfort to DoylesRoom.com or to Mr. Brunson.
PokerStars and some of its privately-held competitors maintain segregated account deposits with European banks in an attempt to protect players’ deposits. PokerStars uses the Royal Bank of Scotland. On October 12 reports surfaced that Barclays and Royal Bank of Scotland warned corporate customers not to accept US online gaming transactions. The report quoted an unnamed industry source as saying: “banks with US licenses did not want to be linked with any funds that could be considered illegal, and wanted to remain whiter than white so as not to breach any legislation, however unclear that legislation is.”
SEC. 801. SHORT TITLE. This title may be cited as the ”Unlawful Internet Gambling Enforcement Act of 2006”.
SEC. 802. PROHIBITION ON ACCEPTANCE OF ANY PAYMENT INSTRUMENT FOR UNLAWFUL INTERNET GAMBLING.
(a) IN GENERAL.—Chapter 53 of title 31, United States Code, is amended by adding at the end the following: ”SUBCHAPTER IV—PROHIBITION ON FUNDING OF UNLAWFUL INTERNET GAMBLING
”§ 5361. Congressional findings and purpose ”
(a) FINDINGS.—Congress finds the following: ”(1) Internet gambling is primarily funded through personal use of payment system instruments, credit cards, and wire transfers. ”(2) The National Gambling Impact Study Commission in 1999 recommended the passage of legislation to prohibit wire transfers to Internet gambling sites or the banks which represent such sites. ”(3) Internet gambling is a growing cause of debt collection problems for insured depository institutions and the consumer credit industry. ”(4) New mechanisms for enforcing gambling laws on the Internet are necessary because traditional law enforcement mechanisms are often inadequate for enforcing gambling prohibitions or regulations on the Internet, especially where such gambling crosses State or national borders.
”(b) RULE OF CONSTRUCTION.—No provision of this subchapter shall be construed as altering, limiting, or extending any Federal or State law or Tribal-State compact prohibiting, permitting, or regulating gambling within the United States.
”§ 5362. Definitions ”
In this subchapter:
”(1) BET OR WAGER.—The term ‘bet or wager’—
”(A) means 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;
”(B) includes the purchase of a chance or opportunity to win a lottery or other prize (which opportunity to win is predominantly subject to chance); ‘
‘(C) includes any scheme of a type described in section 3702 of title 28;
”(D) includes 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; and
”(E) does not include—
”(i) any activity governed by the securities laws (as that term is defined in section 3(a)(47) of the Securities Exchange Act of 1934 for the purchase or sale of securities (as that term is defined in section 3(a)(10) of that Act);
”(ii) any transaction conducted on or subject to the rules of a registered entity or exempt board of trade under the Commodity Exchange Act;
”(iii) any over-the-counter derivative instrument;
”(iv) any other transaction that— ”(I) is excluded or exempt from regulation under the Commodity Exchange Act; or ”(II) is exempt from State gaming or bucket shop laws under section 12(e) of the Commodity Exchange Act or section 28(a) of the Securities Exchange Act of 1934;
”(v) any contract of indemnity or guarantee;
”(vi) any contract for insurance; ‘
‘(vii) any deposit or other transaction with an insured depository institution; ‘
‘(viii) participation in any game or contest in which participants do not stake or risk anything of value other than—
”(I) personal efforts of the participants in playing the game or contest or obtaining access to the Internet; or ‘
‘(II) points or credits that the sponsor of the game or contest provides to participants free of charge and that can be used or redeemed only for participation in games or contests offered by the sponsor; or
”(ix) participation in any fantasy or simulation sports game or educational game or contest in which (if the game or contest involves a team or teams) no fantasy or simulation sports team is based on the current membership of an actual team that is a member of an amateur or professional sports organization (as those terms are defined in section 3701 of title 28) and that meets the following conditions:
”(I) All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants.
”(II) All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real world sporting or other events.
”(III) No winning outcome is based— ”(aa) on the score, point-spread, or any performance or performances of any single real-world team or any combination of such teams; or ”(bb) solely on any single performance of an individual athlete in any single real-world sporting or other event.
”(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.
”(3) DESIGNATED PAYMENT SYSTEM.—The term ‘designated payment system’ means any system utilized by a financial transaction provider that the Secretary and the Board of Governors of the Federal Reserve System, in consultation with the Attorney General, jointly determine, by regulation or order, could be utilized in connection with, or to facilitate, any restricted transaction.
”(4) FINANCIAL TRANSACTION PROVIDER.—The term ‘financial transaction provider’ means a creditor, credit card issuer, financial institution, operator of a terminal at which an electronic fund transfer may be initiated, money transmitting business, or international, national, regional, or local payment network utilized to effect a credit transaction, electronic fund transfer, stored value product transaction, or money transmitting service, or a participant in such network, or other participant in a designated payment system.
”(5) INTERNET.—The term ‘Internet’ means the international computer network of interoperable packet switched data networks.
”(6) INTERACTIVE COMPUTER SERVICE.—The term ‘interactive computer service’ has the meaning given the term in section 230(f) of the Communications Act of 1934 (47 U.S.C. 230(f)).
”(7) RESTRICTED TRANSACTION.—The term ‘restricted transaction’ means any transaction or transmittal involving any H. R. 4954—72 credit, funds, instrument, or proceeds described in any paragraph of section 5363 which the recipient is prohibited from accepting under section 5363.
”(8) SECRETARY.—The term ‘Secretary’ means the Secretary of the Treasury.
”(9) STATE.—The term ‘State’ means any State of the United States, the District of Columbia, or any commonwealth, territory, or other possession of the United States.
”(10) UNLAWFUL INTERNET GAMBLING.— ”(A) IN GENERAL.—The term ‘unlawful Internet gambling’ 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 in the State or Tribal lands in which the bet or wager is initiated, received, or otherwise made.
”(B) INTRASTATE TRANSACTIONS.—The term ‘unlawful Internet gambling’ does not include placing, receiving, or otherwise transmitting a bet or wager where—
”(i) the bet or wager is initiated and received or otherwise made exclusively within a single State;
”(ii) the bet or wager and the method by which the bet or wager is initiated and received or otherwise made is expressly authorized by and placed in accordance with the laws of such State, and the State law or regulations include— ”(I) age and location verification requirements reasonably designed to block access to minors and persons located out of such State; and ”(II) appropriate data security standards to prevent unauthorized access by any person whose age and current location has not been verified in accordance with such State’s law or regulations; and
”(iii) the bet or wager does not violate any provision of—
”(I) the Interstate Horseracing Act of 1978 (15 U.S.C. 3001 et seq.);
”(II) chapter 178 of title 28 (commonly known as the ‘Professional and Amateur Sports Protection Act’);
”(III) the Gambling Devices Transportation Act (15 U.S.C. 1171 et seq.); or
”(IV) the Indian Gaming Regulatory Act (25 U.S.C. 2701 et seq.).
”(C) INTRATRIBAL TRANSACTIONS.—The term ‘unlawful Internet gambling’ does not include placing, receiving, or otherwise transmitting a bet or wager where— ”(i) the bet or wager is initiated and received or otherwise made exclusively— ”(I) within the Indian lands of a single Indian tribe (as such terms are defined under the Indian Gaming Regulatory Act); or ”(II) between the Indian lands of 2 or more Indian tribes to the extent that intertribal gaming is authorized by the Indian Gaming Regulatory Act; ”(ii) the bet or wager and the method by which the bet or wager is initiated and received or otherwise made is expressly authorized by and complies with the requirements of— ”(I) the applicable tribal ordinance or resolution approved by the Chairman of the National Indian Gaming Commission; and ”(II) with respect to class III gaming, the applicable Tribal-State Compact; ”(iii) the applicable tribal ordinance or resolution or Tribal-State Compact includes— ”(I) age and location verification requirements reasonably designed to block access to minors and persons located out of the applicable Tribal lands; and ”(II) appropriate data security standards to prevent unauthorized access by any person whose age and current location has not been verified in accordance with the applicable tribal ordinance or resolution or Tribal-State Compact; and ”(iv) the bet or wager does not violate any provision of— ”(I) the Interstate Horseracing Act of 1978 (15 U.S.C. 3001 et seq.); ”(II) chapter 178 of title 28 (commonly known as the ‘Professional and Amateur Sports Protection Act’); ”(III) the Gambling Devices Transportation Act (15 U.S.C. 1171 et seq.); or ”(IV) the Indian Gaming Regulatory Act (25 U.S.C. 2701 et seq.).
”(D) INTERSTATE HORSERACING.— ”(i) IN GENERAL.—The term ‘unlawful Internet gambling’ shall not include any activity that is allowed under the Interstate Horseracing Act of 1978 (15 U.S.C. 3001 et seq.).
”(ii) RULE OF CONSTRUCTION REGARDING PREEMPTION.— Nothing in this subchapter may be construed to preempt any State law prohibiting gambling.
”(iii) SENSE OF CONGRESS.—It is the sense of Congress that this subchapter shall not change which activities related to horse racing may or may not be allowed under Federal law. This subparagraph is intended to address concerns that this subchapter could have the effect of changing the existing relationship between the Interstate Horseracing Act and other Federal statutes in effect on the date of the enactment of this subchapter. This subchapter is not intended to change that relationship. This subchapter is not intended to resolve any existing disagreements over how to interpret the relationship between the Interstate Horseracing Act and other Federal statutes.
”(E) INTERMEDIATE ROUTING.—The intermediate routing of electronic data shall not determine the location or locations in which a bet or wager is initiated, received, or otherwise made.
”(11) OTHER TERMS.—
”(A) CREDIT; CREDITOR; CREDIT CARD; AND CARD ISSUER.—The terms ‘credit’, ‘creditor’, ‘credit card’, and ‘card issuer’ have the meanings given the terms in section 103 of the Truth in Lending Act (15 U.S.C. 1602).
”(B) ELECTRONIC FUND TRANSFER.—The term ‘electronic fund transfer’— ”(i) has the meaning given the term in section 903 of the Electronic Fund Transfer Act (15 U.S.C. 1693a), except that the term includes transfers that would otherwise be excluded under section 903(6)(E) of that Act; and ”(ii) includes any fund transfer covered by Article 4A of the Uniform Commercial Code, as in effect in any State.
”(C) FINANCIAL INSTITUTION.—The term ‘financial institution’ has the meaning given the term in section 903 of the Electronic Fund Transfer Act, except that such term does not include a casino, sports book, or other business at or through which bets or wagers may be placed or received.
”(D) INSURED DEPOSITORY INSTITUTION.—The term ‘insured depository institution’— ”(i) has the meaning given the term in section 3(c) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)); and ”(ii) includes an insured credit union (as defined in section 101 of the Federal Credit Union Act).
”(E) MONEY TRANSMITTING BUSINESS AND MONEY TRANSMITTING SERVICE.—The terms ‘money transmitting business’ and ‘money transmitting service’ have the meanings given the terms in section 5330(d) (determined without regard to any regulations prescribed by the Secretary thereunder).
”§ 5363. 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— ”
(1) credit, or the proceeds of credit, extended to or on behalf of such other person (including credit extended through the use of a credit card);
”(2) an electronic fund transfer, or funds transmitted by or through a money transmitting business, or the proceeds of an electronic fund transfer or money transmitting service, from or on behalf of such other person;
”(3) any check, draft, or similar instrument which is drawn by or on behalf of such other person and is drawn on or payable at or through any financial institution; or
”(4) the proceeds of any other form of financial transaction, as the Secretary and the Board of Governors of the Federal Reserve System may jointly prescribe by regulation, which involves a financial institution as a payor or financial intermediary on behalf of or for the benefit of such other person.
”§ 5364. Policies and procedures to identify and prevent restricted transactions ”
(a) REGULATIONS.—Before the end of the 270-day period beginning on the date of the enactment of this subchapter, the Secretary and the Board of Governors of the Federal Reserve System, in consultation with the Attorney General, shall prescribe regulations (which the Secretary and the Board jointly determine to be appropriate) requiring each designated payment system, and all participants therein, to identify and block or otherwise prevent or prohibit restricted transactions through the establishment of policies and procedures reasonably designed to identify and block or otherwise prevent or prohibit the acceptance of restricted transactions in any of the following ways: ”(1) The establishment of policies and procedures that— ”(A) allow the payment system and any person involved in the payment system to identify restricted transactions by means of codes in authorization messages or by other means; and ”(B) block restricted transactions identified as a result of the policies and procedures developed pursuant to subparagraph (A). ”(2) The establishment of policies and procedures that prevent or prohibit the acceptance of the products or services of the payment system in connection with a restricted transaction.
”(b) REQUIREMENTS FOR POLICIES AND PROCEDURES.—In prescribing regulations under subsection (a), the Secretary and the Board of Governors of the Federal Reserve System shall— ”(1) identify types of policies and procedures, including nonexclusive examples, which would be deemed, as applicable, to be reasonably designed to identify and block or otherwise prevent or prohibit the acceptance of the products or services with respect to each type of restricted transaction; ”(2) to the extent practical, permit any participant in a payment system to choose among alternative means of identifying and blocking, or otherwise preventing or prohibiting the acceptance of the products or services of the payment system or participant in connection with, restricted transactions; ”(3) exempt certain restricted transactions or designated payment systems from any requirement imposed under such regulations, if the Secretary and the Board jointly find that it is not reasonably practical to identify and block, or otherwise prevent or prohibit the acceptance of, such transactions; and ”(4) ensure that transactions in connection with any activity excluded from the definition of unlawful internet gambling in subparagraph (B), (C), or (D)(i) of section 5362(10) are not blocked or otherwise prevented or prohibited by the prescribed regulations.
”(c) COMPLIANCE WITH PAYMENT SYSTEM POLICIES AND PROCEDURES.— A financial transaction provider shall be considered to be in compliance with the regulations prescribed under subsection (a) if— ”(1) such person relies on and complies with the policies and procedures of a designated payment system of which it is a member or participant to— ”(A) identify and block restricted transactions; or H. R. 4954—76 ”(B) otherwise prevent or prohibit the acceptance of the products or services of the payment system, member, or participant in connection with restricted transactions; and ”(2) such policies and procedures of the designated payment system comply with the requirements of regulations prescribed under subsection (a).
”(d) NO LIABILITY FOR BLOCKING OR REFUSING TO HONOR RESTRICTED TRANSACTIONS.—A person that identifies and blocks a transaction, prevents or prohibits the acceptance of its products or services in connection with a transaction, or otherwise refuses to honor a transaction— ”(1) that is a restricted transaction; ”(2) that such person reasonably believes to be a restricted transaction; or ”(3) as a designated payment system or a member of a designated payment system in reliance on the policies and procedures of the payment system, in an effort to comply with regulations prescribed under subsection (a), shall not be liable to any party for such action.
”(e) REGULATORY ENFORCEMENT.—The requirements under this section shall be enforced exclusively by— ”(1) the Federal functional regulators, with respect to the designated payment systems and financial transaction providers subject to the respective jurisdiction of such regulators under section 505(a) of the Gramm-Leach-Bliley Act and section 5g of the Commodities Exchange Act; and ”(2) the Federal Trade Commission, with respect to designated payment systems and financial transaction providers not otherwise subject to the jurisdiction of any Federal functional regulators (including the Commission) as described in paragraph (1).
”§ 5365. Civil remedies ”
(a) JURISDICTION.—In addition to any other remedy under current law, the district courts of the United States shall have original and exclusive jurisdiction to prevent and restrain restricted transactions by issuing appropriate orders in accordance with this section, regardless of whether a prosecution has been initiated under this subchapter.
”(b) PROCEEDINGS.— ”(1) INSTITUTION BY FEDERAL GOVERNMENT.— ”(A) IN GENERAL.—The United States, acting through the Attorney General, may institute proceedings under this section to prevent or restrain a restricted transaction. ”(B) RELIEF.—Upon application of the United States under this paragraph, the district court may enter a temporary restraining order, a preliminary injunction, or an injunction against any person to prevent or restrain a restricted transaction, in accordance with rule 65 of the Federal Rules of Civil Procedure.
”(2) INSTITUTION BY STATE ATTORNEY GENERAL.— ”(A) IN GENERAL.—The attorney general (or other appropriate State official) of a State in which a restricted transaction allegedly has been or will be initiated, received, or otherwise made may institute proceedings under this H. R. 4954—77 section to prevent or restrain the violation or threatened violation. ”(B) RELIEF.—Upon application of the attorney general (or other appropriate State official) of an affected State under this paragraph, the district court may enter a temporary restraining order, a preliminary injunction, or an injunction against any person to prevent or restrain a restricted transaction, in accordance with rule 65 of the Federal Rules of Civil Procedure.
”(3) INDIAN LANDS.— ”(A) IN GENERAL.—Notwithstanding paragraphs (1) and (2), for a restricted transaction that allegedly has been or will be initiated, received, or otherwise made on Indian lands (as that term is defined in section 4 of the Indian Gaming Regulatory Act)— ”(i) the United States shall have the enforcement authority provided under paragraph (1); and ”(ii) the enforcement authorities specified in an applicable Tribal-State Compact negotiated under section 11 of the Indian Gaming Regulatory Act (25 U.S.C. 2710) shall be carried out in accordance with that compact.
”(B) RULE OF CONSTRUCTION.—No provision of this section shall be construed as altering, superseding, or otherwise affecting the application of the Indian Gaming Regulatory Act.
”(c) LIMITATION RELATING TO INTERACTIVE COMPUTER SERVICES.— ”(1) IN GENERAL.—Relief granted under this section against an interactive computer service shall— ”(A) be limited to the removal of, or disabling of access to, an online site violating section 5363, or a hypertext link to an online site violating such section, that resides on a computer server that such service controls or operates, except that the limitation in this subparagraph shall not apply if the service is subject to liability under this section under section 5367; ”(B) be available only after notice to the interactive computer service and an opportunity for the service to appear are provided; ”(C) not impose any obligation on an interactive computer service to monitor its service or to affirmatively seek facts indicating activity violating this subchapter; ”(D) specify the interactive computer service to which it applies; and ”(E) specifically identify the location of the online site or hypertext link to be removed or access to which is to be disabled.
”(2) COORDINATION WITH OTHER LAW.—An interactive computer service that does not violate this subchapter shall not be liable under section 1084(d) of title 18, except that the limitation in this paragraph shall not apply if an interactive computer service has actual knowledge and control of bets and wagers and— ”(A) operates, manages, supervises, or directs an Internet website at which unlawful bets or wagers may be placed, received, or otherwise made or at which unlawful bets or wagers are offered to be placed, received, or otherwise made; or ”(B) owns or controls, or is owned or controlled by, any person who operates, manages, supervises, or directs an Internet website at which unlawful bets or wagers may be placed, received, or otherwise made, or at which unlawful bets or wagers are offered to be placed, received, or otherwise made.
”(d) LIMITATION ON INJUNCTIONS AGAINST REGULATED PERSONS.— Notwithstanding any other provision of this section, and subject to section 5367, no provision of this subchapter shall be construed as authorizing the Attorney General of the United States, or the attorney general (or other appropriate State official) of any State to institute proceedings to prevent or restrain a restricted transaction against any financial transaction provider, to the extent that the person is acting as a financial transaction provider.
”§ 5366. Criminal penalties ”
(a) IN GENERAL.—Any person who violates section 5363 shall be fined under title 18, imprisoned for not more than 5 years, or both.
”(b) PERMANENT INJUNCTION.—Upon conviction of a person under this section, the court may enter a permanent injunction enjoining such person from placing, receiving, or otherwise making bets or wagers or sending, receiving, or inviting information assisting in the placing of bets or wagers.
”§ 5367. Circumventions prohibited ”
Notwithstanding section 5362(2), a financial transaction provider, or any interactive computer service or telecommunications service, may be liable under this subchapter if such person has actual knowledge and control of bets and wagers, and— ”(1) operates, manages, supervises, or directs an Internet website at which unlawful bets or wagers may be placed, received, or otherwise made, or at which unlawful bets or wagers are offered to be placed, received, or otherwise made; or
”(2) owns or controls, or is owned or controlled by, any person who operates, manages, supervises, or directs an Internet website at which unlawful bets or wagers may be placed, received, or otherwise made, or at which unlawful bets or wagers are offered to be placed, received, or otherwise made.”.
(b) TECHNICAL AND CONFORMING AMENDMENT.—The table of sections for chapter 53 of title 31, United States Code, is amended by adding at the end the following: ”SUBCHAPTER IV—PROHIBITION ON FUNDING OF UNLAWFUL INTERNET GAMBLING ”5361. Congressional findings and purpose. ”5362. Definitions. ”5363. Prohibition on acceptance of any financial instrument for unlawful Internet gambling. ”5364. Policies and procedures to identify and prevent restricted transactions. ”5365. Civil remedies. ”5366. Criminal penalties. ”5367. Circumventions prohibited.”. H. R. 4954—79
SEC. 803. INTERNET GAMBLING IN OR THROUGH FOREIGN JURISDICTIONS.
(a) IN GENERAL.—In deliberations between the United States Government and any foreign country on money laundering, corruption, and crime issues, the United States Government should—
(1) encourage cooperation by foreign governments and relevant international fora in identifying whether Internet gambling operations are being used for money laundering, corruption, or other crimes;
(2) advance policies that promote the cooperation of foreign governments, through information sharing or other measures, in the enforcement of this Act; and
(3) encourage the Financial Action Task Force on Money Laundering, in its annual report on money laundering typologies, to study the extent to which Internet gambling operations are being used for money laundering purposes.
(b) REPORT REQUIRED.—The Secretary of the Treasury shall submit an annual report to the Congress on any deliberations between the United States and other countries on issues relating to Internet gambling.
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