[Reel Deal]

An Analysis of the Unlawful Internet Gambling Enforcement Act of 2006

Introduction: For background purposes, I am a practicing attorney and an adjunct law professor. However, while I have years of experience reviewing and interpreting statutory law, it should be noted that this is not an exact science. People can (and do) interpret statutes in different ways and, consequently, people will react in different ways. So, while I may believe that this statute is not applicable and not enforceable against certain people and/or entities, those people or entitles may have the opposite reaction.

Summary of the Unlawful Internet Gambling Enforcement Act of 2006 (the “Act”): the following is my summary of the Act.

§5361. Congressional findings and purpose: this section gives a brief description of the findings of Congress (ie, that gambling is bad, but not all types) and that new mechanisms are needed to enforce gambling laws on the Internet.

§5362. Definitions: this section provides definitions for certain terms used throughout the statute (there are approximately 16 pages of definitions). There are some important definitions to point out.

First, the definition of “bet or wager” means the staking or risking of something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance, upon the understanding that someone will receiving something of value in the event of a certain outcome. I’ve read a number of articles and posts on how poker could be exempt from this because it is not a game of chance but is rather a game of skill. Unfortunately, they did not write this definition to simply include “games of chance” rather they wrote it to include games “subject to chance.” I think we can all agree that a great deal of poker is subject to skill, however, there is an element of poker that is “subject to chance.” So, I don’t believe the skill vs. chance argument is going to be very helpful due to the way the definition was written.

The definition of being in the “business of betting or wagering” is not defined, however, financial institutions and ISPs are expressly excluded from the definition.

“Unlawful Internet gambling” is defined and 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…” So, this comes down to your state law, since there is case law that states that “the Federal act [is] not intended to be applicable to isolated acts of individuals not engaged in the business of wagering since its purpose is to curb the activities of the professional gamblers.” I checked Florida law and it is illegal here. However, it’s important to point out that the Unlawful Internet Gambling Enforcement Act of 2006 does not make it illegal for an individual citizen of the United States to place a bet or wager over the Internet.

The definition of “restricted transactions” is also important and means any transaction or transmittal involving any credit, funds, instruments or proceeds to a business involved in betting or wagering over the Internet.

§5363. Prohibition on acceptance of any financial instrument for unlawful Internet gambling: this is the meat of the statute and reads in pertinent part: 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 (ie, credit cards), (2) EFTs or similar means, (3) checks, drafts or similar instruments, or (4) the proceeds of any other form of financial transaction.

That’s it. That’s the meat of this statute. So, basically it makes it illegal for a business engaged in betting or wagering to accept funds from a person in the United States. Some important points… first, as I said above, the Act does not make it illegal for an individual citizen of the United States to place a bet or wager over the Internet. Of course, in most states this is already illegal, just not enforced. Second, any gaming company or poker site not residing in the United States is not subject to the provisions of this law as the U.S. Congress has no jurisdiction over entities in foreign lands.

§5364. Policies and procedures to identify and prevent restricted transactions: this section requires that the executive branch, before the end of the 270 period after enactment, promulgate regulations that will require financial institutions to block/prevent payments to any business engaged in betting or wagering over the Internet. So, basically, any financial institution based in the United States must put a policy in place that will prevent any customer from sending funds to any business engaged in betting or wagering over the Internet. As it currently stands, most U.S. financial institutions already prevent people from making a direct deposit to an Internet gambling site. This should not prevent someone from making a transfer of funds from their U.S. bank account to a service like Neteller simply because (1) Neteller is not engaged in the business of betting or wagering, and (2) Neteller is an off-shore entity and therefore the U.S. government has no means in which to force them to reveal where money is being deposited after it reaches a Neteller account.

§5365. Civil remedies: the important part of this section, in my opinion, is the part that allows a U.S. District Attorney (or a States’ Attorney) to file for injunctive relief against “any person to prevent or restrain a restricted transaction.” This is where, I think, the government might be able to go after someone involved in the affiliate program of an on-line poker site. An argument could be made that an affiliate is facilitating a restricted transaction and therefore the D.A. could file for injunctive relief because doing so would prevent and/or restrain a restricted transaction. Remember though, we’re talking about civil remedies and injunctive relief here, an affiliate cannot be jailed or fined under this section, they can just be prevented from remaining an affiliate. I think this would also apply to someone that endorses a real money poker site and possibly someone that provides links via a website to a real money poker site, although that’s a stretch.

This section also allows for injunctive relief against ISPs to force them to remove or disable access to an online site violating §5363, or a hypertext link to an online site violating such section, that resides on a computer server that such service controls or operates. So, for an injunction to block an ISP from allowing access to an online site that violates §5363 to be valid, the violating site (ie, a poker site) would have to reside on the server of the ISP. I highly doubt that PokerStars or UB or Bodog reside on Comcast, or Bell South or any other ISP’s server. Quite frankly, I’m shocked at how this section was written. Why include the requirement that the violating site reside on the server of the ISP? This is a head-scratcher for me.

Lastly, this section does not allow a D.A. or State’s Attorney to seek injunctive relief against a financial transaction provider.

§5366. Criminal penalties: anyone who violates §5363 (remember, that only means someone in the business of betting or wagering, not an individual player) shall be fined, imprisoned for not more than 5 years, or both.

§5367. Circumventions prohibited: this section basically holds that an ISP or financial institution that actually runs its own betting or wagering site will not be exempt from the Act even thought there are stated exemptions for those entities in the Act.

Sec. 803. Internet Gambling in or Through Foreign Jurisdictions: this section basically instructs the executive branch to try to encourage cooperation by foreign governments in identifying whether Internet gambling operations are being used for money laundering, corruption or other crimes and to have them share information that might help with the enforcement of this Act (of course, they aren’t required to do so).

So, that’s the Act in a nutshell. From my perspective the important points are as follows:

1. The Act does not make it illegal for an individual residing in the United States to place a bet or wager over the Internet;

2. Poker sites and entities like Neteller that are not based in the United States are not within the jurisdiction of the Act;

3. The Act does not appear to include a mechanism that would prevent EFTs from an entity like Neteller to/from a U.S. bank;

4. The Act does not appear to include a mechanism that would force an ISP to block its customers from accessing an on-line real money poker site, unless that site resided on the server of the ISP; and

5. Due to the language of §5365, I would be leery of being an affiliate or endorser of a real money poker site and I would also be leery of hosting a site that links to such sites. However, it is important to remember that an affiliate or endorser or someone that links to a poker site would only be subject to an injunction and not criminal penalties.

Like I said before, I honestly don’t think this should cause the end of real money on-line poker for U.S. players. However, a lot of what happens next is going to depend on the reaction of the various poker sites. Here’s hoping that they use reason and rational thought to guide their reactions.

DISCLAIMER: You should not construe the above as being legal advice and should not act in any way in reliance on the above. Always consult a lawyer before taking any action which you believe may violate the law.