worldonline
gamblinglawreport
FEATURED ARTICLE
10/06
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UNITED STATES
The Unlawful Internet Gambling
Enforcement Act 2006
The differing market reaction to the
passage of the Unlawful Internet
Gambling Enforcement Act
illustrated some confusion over
which online gambling activities in
which jurisdictions are covered, as
well as who is responsible for
policing that activity. Linda J.
Shorey, Sean P. Mahoney, Ashley J.
Camron and Anthony R. Holtzman,
of the Betting and Gaming Practice
Group at Kirkpatrick & Lockhart
Nicholson Graham LLP, examine
and explain the Act’s provisions.
Background
On October 13, 2006, the US
President signed into law the
“SAFE Port Act.” Appended to the
SAFE Port Act is the “Unlawful
Internet Gambling Enforcement
Act of 2006” (the “Act”). The Act is
a truncated version of the
Goodlatte-Leach Bill, passed by the
US House of Representatives in the
Summer of 2006. Unlike the
Goodlatte-Leach Bill, the Act does
not amend or clarify the scope of
the Wire Act, 18 U.S.C. §1084.
There are other, more subtle
differences, some of which are
mentioned below.
Overview of the act
The Act does three primary things.
First, it prohibits persons engaged
in the business of betting or
wagering from accepting certain
forms of payments received via US
payment systems and made in
connection with unlawful internet
gambling. Those convicted of
violating the Act are subject to
fines, imprisonment for five years
and being permanently enjoined
from involvement in activities
associated with betting and
wagering.
Second, it requires regulations to
be promulgated related to blocking
transactions - including credit
06
card, stored value and check
transactions - involving illegal
internet gambling businesses.
Third, it permits civil actions to
be brought in US federal District
Courts to enjoin activities
associated with unlawful internet
gambling, subject to restrictions.
The prohibition
The Act prohibits those ‘engaged in
the business of betting or
wagering’ from accepting money or
money substitutes ‘in connection
with the participation of another
person in unlawful Internet
gambling.’ In connection with the
prohibition, three definitions are
key - ‘business of betting or
wagering,’ ‘bet or wager,’ and
‘unlawful Internet gambling.’
Business of betting or wagering
The Act defines ‘Business of
Betting or Wagering’ in the
negative, stating only that it ‘does
not include the activities of a
financial transaction provider, or
any interactive computer service or
telecommunications service.’
Bet or wager
The Act defines ‘Bet or Wager’ as
‘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.’ This is one of
the more subtle changes from the
Goodlatte-Leach Bill.
Commentators speculate that the
deletion of the word
‘predominantly’ from between
‘game’ and ‘chance’ was for the
purpose of encompassing any
game with an element of chance,
including poker games.
Among those activities explicitly
included in the definition are ‘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.’ This language
was not in the Goodlatte-Leach
Bill. Commentators speculate that
this inclusion was to counter a
contention that after funds are
deposited with an offshore
gambling business, bets may be
made legally offshore.
Among the excluded activities are
certain financial transactions that
would otherwise, at least
technically, fall within the
definition of bet or wager, as is
participation in fantasy sports
games, if certain conditions are
met.
Unlawful internet gambling
The Act defines ‘unlawful internet
gambling’ as ‘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’ where made.
Thus, like other federal criminal
statutes, such as RICO, violation of
the Act depends on there being a
violation of a state gambling law or
another federal law.
The federal law most likely to
trigger the Act is the Wire Act.
More likely triggers, however, will
be violations of state gambling
laws.
There are three activities that
would likely fall within the
definition of unlawful internet
gambling but which are excepted
from the definition. The term ‘does
not include placing, receiving or
otherwise transmitting a bet or
wager where’;
● The activity takes place entirely
within a single state, so long as
such transactions are explicitly
authorized by state law and
provided that the state law includes
requirements relating to data
security and restricting access to
world online gambling october 2006
UNITED STATES
underage or out-of-state persons.
● The activity takes place entirely
on the land of a single Indian tribe
or between land of two or more
tribes, if such transactions are legal
under the laws of such tribes, are
authorized by the Indian Gaming
Regulatory Act, and the tribes have
in place ordinances or regulations
relating to data security and
restricting access by underage or
out-of-state persons.
● The activity is allowed under the
Interstate Horseracing Act of 1978
(‘IHA’).
It will be up to the states and the
federally recognized Indian tribes
with Indian lands to test these
exceptions. Nevada may be the
first, because it already has a statute
in place that permits the
promulgation of regulations in
connection with the licensure of
internet gambling sites, if no
federal law is violated.
The third exception, however,
does not clarify the disagreement
that exists concerning the IHA. In
fact, Congress made clear that it
did not intend to resolve the
disagreement. Congress included a
general statement that the Act ‘shall
not be construed as altering,
limiting, or extending any Federal
or State law’ and a subsection,
entitled ‘Sense of Congress,’ that
stresses that Congress does not
intend the Act to change ‘the
existing relationship between the
[IHA] and other Federal statutes.’
The US Department of Justice
takes the position that the IHA
does not create an exception to the
Wire Act and, accordingly,
interstate transmission of bets or
wagers on horse races via the
internet violates the Wire Act. The
horse racing industry and others
disagree.
The regulations
The Act does not prohibit activity
by financial institutions; rather it
requires the US Secretary of the
world online gambling october 2006
Like other
federal
criminal
statutes,
such as
RICO,
violation of
the Act
depends on
there being a
violation of a
state
gambling law
or another
federal law
Treasury and the Board of
Governors of the Federal Reserve
System to promulgate regulations
that will require action by financial
institutions. The regulators have
270 days from October 12, 2006 the effective date of the Act - to
promulgate regulations requiring
‘designated payment systems’ and
their participants to adopt policies
and procedures designed to block
‘restricted transactions’. The
regulations are also to prevent or
prohibit the acceptance of the
products or services of the
payment system in connection
with ‘restricted transactions’.
The regulators, in consultation
with the US Attorney General, are
given authority to determine what
payment systems should be
‘designated payment systems’
subject to compliance with the Act
and the regulations. This term
encompasses such systems as credit
card payment, wire transfer
systems, automated clearing houses
and internet payment systems.
‘Restricted transactions’ include
‘any transaction or transmittal
involving any credit, funds,
instrument, or proceeds described
in any paragraph of section 5363
which the recipient is prohibited
from accepting under section
5363.’ Section 5363 establishes the
prohibition discussed above.
Additional ‘restricted transactions,’
beyond those specified in section
5363, are to be identified by the
regulators, in consultation with the
Attorney General.
The regulations are to include
several examples of policies and
procedures designed to identify,
block and prevent or prohibit the
acceptance of the products or
services with respect to each type
of restricted transaction. Such
policies and procedures are to be
designed to ensure that legal
intrastate, intertribal and
horseracing transactions are not
blocked. In addition, the regulators
are given discretion to exempt
transactions from the regulations,
if they find it would not be
practical to identify and block, or
otherwise prevent or prohibit the
acceptance of certain transactions
listed as restricted transactions.
Participants in a designated
payment system are exempt from
liability for blocking;
● restricted transactions;
● transactions reasonably believed
to be restricted transactions; or
● transactions blocked in
accordance with the policies and
procedures of a designated
payment system.
Civil remedies
The US Attorney General and the
Attorneys General of the various
states are given authority under the
Act to seek civil injunctions in
federal district courts only (i.e.,
state courts have no authority to
issue injunctions under the Act) to
enjoin persons from engaging in
activity that violates the Act. But
this authority is limited with
respect to internet service
providers (‘ISPs’) and financial
institutions.
Summary
The Act represents an attempt by
the US Congress to thwart internet
gambling. Only time will tell
whether it will have an impact on
the popularity of internet
gambling in the US.
Linda J. Shorey Partner
Sean P. Mahoney Associate
Ashley J. Camron Associate
Anthony R. Holtzman Associate
Kirkpatrick & Lockhart Nicholson
Graham LLP
lshorey@klng.com
smahoney@klng.com
acamron@klng.com
aholtzman@klng.com
07
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